<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 14, 1996.
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
GENZYME CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
MASSACHUSETTS 06-1047163
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
</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
CHAIRMAN, PRESIDENT AND CHIEF EXECUTIVE OFFICER
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 COPIES TO:
<TABLE>
<S> <C>
MAUREEN P. MANNING GEOFFREY E. LIEBMANN
PALMER & DODGE LLP CAHILL GORDON & REINDEL
ONE BEACON STREET 80 PINE STREET
BOSTON, MASSACHUSETTS 02108 NEW YORK, NEW YORK 10005
(617) 573-0100 (212) 701-3000
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
---------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM OFFERING MAXIMUM AGGREGATE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PRICE PER OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED(1) UNIT(2) PRICE(1)(2) REGISTRATION FEE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
% Convertible Subordinated Notes
Due 2001......................... $250,000,000 100% $250,000,000 $86,207
- ----------------------------------------------------------------------------------------------------------
General Division Common Stock.... (3) (3) (3) (3)
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes $25,000,000 principal amount of Notes which the Underwriter has the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee.
(3) An indeterminate number of shares of General Division Common Stock issuable
upon conversion of the Notes registered hereby are also being registered.
Pursuant to Rule 457(i), no additional filing fee is being paid.
---------------------
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
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE , 1996
$225,000,000
genzyme
% Convertible Subordinated Notes Due 2001
Interest is payable and Due , 2001
------------------
The Notes will be convertible at any time prior to maturity, unless previously
redeemed, into shares of Genzyme General Division Common Stock ("General
Division Stock") of Genzyme Corporation ("Genzyme" or the "Company")
at a conversion price of $ per share, subject to
adjustment in certain circumstances. The reported last sale
price of the General Division Stock on The Nasdaq Stock
Market's National Market on June , 1996 was $
per share.
The Notes will be redeemable at the option of the Company, in whole or in part,
on or after , 1999 at the redemption prices set forth herein, plus
accrued interest. If a Fundamental Change (as defined herein) occurs, each
holder of Notes will have the right, at the holder's option, to require the
Company to repurchase all or a portion of such holder's Notes at a price
equal to 100% of the principal amount thereof, plus accrued interest. The
Notes will be unsecured general obligations of the Company subordinated
to all existing and future Senior Indebtedness (as defined herein). In
addition, the Notes will be subordinated to third party indebtedness
of the Company's subsidiaries. As of March 31, 1996, as adjusted to
give effect to this offering and the anticipated use of the net
proceeds therefrom, the Company and its subsidiaries would have
had an aggregate of $34,648,000 of consolidated indebtedness and
other obligations effectively ranking senior to the Notes. See
"Description of Notes."
The General Division Stock is common stock of the Company and is intended to
reflect the value and track the performance of the Genzyme General Division
(the "General Division"). The General Division Stock is one of two classes of
the Company's common stock, the other being Genzyme Tissue Repair Division
Common Stock ("TR Stock"). The relative voting power of one share of
General Division Stock and one share of TR Stock will fluctuate based
upon the relative Fair Market Values (as defined herein) of one share of
General Division Stock and one share of TR Stock as set forth herein.
Dividends on the General Division Stock will be payable when, as and
if declared by the Board of Directors of the Company out of the
lesser of funds of the Company legally available therefor and
specified funds available to the General Division. Upon a
liquidation of Genzyme (other than in connection with a merger,
business combination or sale of substantially all assets),
holders of outstanding General Division Stock and TR Stock are
entitled to receive the assets, if any, remaining for
distribution to common stockholders on a per share basis in
proportion to the respective per share liquidation units of
such class (as described herein). See "Description of Genzyme
Capital Stock."
------------------
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH
AN INVESTMENT IN THE NOTES, SEE "RISK FACTORS" BEGINNING ON PAGE HEREIN.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR
HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR AD-
EQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public(1) Commissions Company(1)(2)
-------------- -------------- --------------
<S> <C> <C> <C>
Per Note........................................... % % %
Total(3)........................................... $ $ $
</TABLE>
(1) Plus accrued interest, if any, from , 1996.
(2) Before deduction of expenses payable by the Company estimated at $600,000.
(3) The Company has granted the Underwriter an option, exercisable for 30 days
from the date of this Prospectus, to purchase an additional $25,000,000
aggregate principal amount of the Notes to cover over-allotments of Notes.
If the option is exercised in full, the total Price to Public will be
$ , Underwriting Discounts and Commissions will be $ and
Proceeds to Company will be $ .
------------------
The Notes are offered by the Underwriter, when, as and if issued by the
Company, delivered to and accepted by the Underwriter and subject to its right
to reject orders in whole or in part. It is expected that delivery of the Notes,
in book-entry form, will be made through the facilities of The Depository Trust
Company ("DTC") on or about , 1996.
CS First Boston
The date of this Prospectus is , 1996.
<PAGE> 3
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OR THE
GENERAL DIVISION STOCK AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN
THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ STOCK MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. IN
CONNECTION WITH THIS OFFERING THE UNDERWRITER (AND SELLING GROUP MEMBERS) AND
THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN
THE GENERAL DIVISION STOCK ON THE NASDAQ STOCK MARKET -- NATIONAL MARKET IN
ACCORDANCE WITH RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. (SEE
"UNDERWRITING.")
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN
THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE NOTES OR THE GENERAL DIVISION STOCK PURSUANT TO
EXEMPTIONS FROM RULES 10B-6, 10B-7 AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT
OF 1934.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance with
the Exchange Act files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). The Company has filed a
registration statement on Form S-3 (the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with the Commission
with respect to the Notes offered hereby and the shares of General Division
Stock issuable upon conversion of the Notes. This Prospectus, which constitutes
part of the Registration Statement, does not contain all the information set
forth in the Registration Statement and reference is made to the Registration
Statement and the exhibits thereto for further information. Such reports, proxy
statements, Registration Statement and exhibits and other information omitted
from this Prospectus can be inspected and copied at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Room 1024,
Washington D.C. 20549 and at the Commission's Regional Offices located at Seven
World Trade Center, Suite 1300, New York, NY 10048 and 500 West Madison Street,
Suite 1400, Chicago, IL 60661-2511. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company hereby incorporates in this Prospectus by reference the
following documents heretofore filed with the Commission pursuant to the
Exchange Act (File No. 0-14680): (i) the Company's Annual Report on Form 10-K
for the year ended December 31, 1995, filed with the Commission on April 1,
1996; (ii) the Company's Current Report on Form 8-K dated February 22, 1996
filed with the Commission on February 23, 1996; (iii) the Company's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996 filed with the
Commission on May 15, 1996; (iv) the description of General Division Stock
contained in the Company's Registration Statement on Form 8-B filed with the
Commission on February 28, 1992, as amended by Form 8-B/A, filed with Commission
on March 31, 1995; and (v) the description of General Division Common Stock
Purchase Rights contained in the Company's Registration Statement on Form 8-A,
filed with the Commission on March 23, 1989, as amended by Form 8-A/A, filed
with the Commission on November 28, 1994.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
termination of the offering made hereby shall be deemed to be incorporated in
this Prospectus by reference and to be a part hereof from the respective dates
of the filing of such documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document which also is,
or is deemed to be, incorporated by reference herein, modifies or supersedes
such statement. Any statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute part of this Prospectus.
The Company hereby undertakes to provide without charge to each person to
whom a copy of this Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents referred to
above which have been or may be incorporated in this Prospectus by reference,
other than exhibits to such documents which are not specifically incorporated by
reference into such documents. Requests for such copies should be directed to
the executive offices of the Company, One Kendall Square, Cambridge,
Massachusetts 02139, Attention: Shareholder Services, telephone (617) 252-7526.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements appearing elsewhere in this Prospectus
and in the documents incorporated into this Prospectus by reference. Unless
otherwise indicated or the context otherwise requires, (i) information in this
Prospectus assumes that the Underwriter's over-allotment option will not be
exercised and (ii) all references herein to shares of General Division Stock and
TR Stock also include the associated Preferred Stock Purchase Rights represented
by the same certificates. See "Description of Genzyme Capital Stock." The Notes
offered hereby involve a high degree of risk. Investors should carefully
consider the information set forth under the heading "Risk Factors."
GENZYME CORPORATION
Genzyme is a diversified, integrated human health care company operating in
six major business areas. The Company's business activities in the areas of
therapeutics, surgical products, diagnostic services, diagnostic products and
pharmaceuticals are organized as the General Division. Genzyme's activities to
develop, produce and market technologically advanced products and services for
the treatment and prevention of serious tissue damage are conducted through the
Genzyme Tissue Repair Division ("GTR").
Genzyme currently has two classes of common stock outstanding, General
Division Stock and TR Stock, which are intended to reflect the value and track
the performance of the General Division and GTR, respectively. Holders of both
classes of common stock are stockholders of Genzyme, which owns all of the
assets and is responsible for all liabilities of the Company, including the
Notes.
Genzyme's principal executive offices are located at One Kendall Square,
Cambridge, Massachusetts 02139. Its telephone number is (617) 252-7500.
THE GENERAL DIVISION
The General Division's therapeutics business markets Ceredase(R) enzyme and
Cerezyme(TM) enzyme, products for the treatment of Gaucher disease. The General
Division's results of operations are highly dependent on sales of these products
which, for 1995, totaled $215 million. Other therapeutic products under
development include Thyrogen(R) hormone for use in the diagnosis and treatment
of thyroid cancer and products for the treatment of cystic fibrosis ("CF"). The
CF products are being developed on behalf of Neozyme II Corporation ("Neozyme
II"), a special purpose accelerated research corporation.
The General Division's surgical products business includes a line of
biomaterial products (which include Seprafilm(TM), Sepracoat(TM) and
Sepragel(TM)) based on hyaluronic acid ("HA") to limit the formation of
postoperative adhesions and to replace synovial fluid (collectively, the "HA
Products"). The HA Products are being developed on behalf of Genzyme Development
Partners, L.P. ("Genzyme Development Partners"), a research and development
limited partnership, and will be sold in the United States by a joint venture
between Genzyme and Genzyme Development Partners. In May 1996, Genzyme agreed to
acquire Deknatel Snowden Pencer, Inc. ("DSP"), a specialty surgical products
company with a 70-person sales force that will be utilized by Genzyme to market
Seprafilm(TM) and Sepracoat(TM), once these products are approved by the United
States Food and Drug Administration (the "FDA"). Genzyme believes that the
acquisition of DSP represents a significant opportunity for near term growth and
will provide it with a base for building a specialty surgical products business
that will enhance long term shareholder value. See "Recent Developments" below.
The General Division's diagnostic services business applies advanced
biotechnology to develop and provide high quality, sophisticated genetic
diagnostic services to physicians, hospitals, clinical laboratories, genetic
centers and managed care organizations throughout the United States and
internationally. The General Division also provides identity testing services to
state and local government agencies, attorneys and various courts in the United
States, as well as donor typing services to bone marrow registries.
The General Division's diagnostic products business is a supplier of
diagnostic components (enzymes, substrates, antibodies and antigens), bulk
reagents and devices (including the Company's Direct LDL(TM) test
3
<PAGE> 5
kit) to manufacturers of clinical diagnostic reagents and kits as well as
directly to clinical reference laboratories. The division also manufactures and
sells a broad line of antibody and antigen based ELISA test kits. In addition,
the division distributes a broad product line of research products to academic,
industrial and governmental laboratories for use in immunology and cell biology.
The General Division's pharmaceuticals business develops, manufactures and
sells a range of active drug substances, pharmaceutical intermediates, synthetic
phospholipids, peptides, biomolecules and chemicals to the pharmaceutical and
health care industries. In 1995, the General Division introduced MelaPure(TM)
brand melatonin, a dietary supplement.
RECENT DEVELOPMENTS
On May 24, 1996, Genzyme agreed to acquire DSP, a privately held specialty
surgical products company, for approximately $250 million in cash. DSP designs,
manufactures and markets cardiovascular devices, precision surgical instruments
and other specialty surgical products. Headquartered in Fall River,
Massachusetts, DSP had net sales of approximately $95 million in its fiscal year
ended September 30, 1995. Assuming receipt of necessary regulatory clearances,
the acquisition is expected to be completed by the end of June.
DSP employs a 70-person sales force, 52 of which are located in the United
States, that calls directly on surgeons and hospitals throughout the United
States and Europe. Genzyme plans to utilize DSP's United States sales force to
accelerate the market introduction of its Seprafilm(TM) and Sepracoat(TM)
products in the United States following FDA approval.
The General Division began marketing Seprafilm(TM) bioresorbable membrane
in the Netherlands in November 1995 and in the United Kingdom, France and
Germany in April 1996. In March 1996, an advisory panel to the FDA recommended
that approval be granted to market Seprafilm(TM) for use in reducing
postoperative adhesion formation at the locations in the body and in the
abdominal and gynecological surgeries studied in the Company's pivotal clinical
trials of the product. Genzyme is working with the FDA to develop appropriate
labeling for Seprafilm(TM) and expects to receive approval to market the product
in the near future. A Pre-Market Approval ("PMA") application was filed for
Sepracoat(TM) in January 1996 and has been accepted for expedited review by the
FDA.
On May 1, 1996, Genzyme acquired Genetrix, Inc., a privately held genetic
testing laboratory located in Phoenix, Arizona, in a tax-free exchange of
General Division Stock. Approximately 690,000 shares of General Division Stock
valued at approximately $36.5 million were issued. The excess of the purchase
price over the fair market value of the net assets acquired, approximately $35
million, was allocated to goodwill and will be amortized over 11 years.
On June 7, 1996, Genzyme announced a two-for-one stock split of the General
Division Stock payable July 25, 1996 to stockholders of record on July 11, 1996.
Consummation of the stock split is subject to stockholder approval of an
increase in the authorized number of shares of General Division Stock to 200
million at a special meeting to be held on July 24, 1996.
4
<PAGE> 6
THE OFFERING
Securities Offered......... $225,000,000 principal amount of % Convertible
Subordinated Notes due 2001 (the "Notes").
Principal and Interest
Payments................. Interest payable on and ,
commencing on , 1996. Although the
Notes are general obligations of the Company,
principal and interest will be paid from funds
allocated for financial statement presentation
purposes to the General Division.
Conversion Rights.......... Convertible at the option of the holder at any time
prior to maturity, unless previously redeemed, into
shares of General Division Stock at a conversion
price of $ per share, subject to
adjustment in certain circumstances.
Company's Redemption
Option..................... Redeemable for cash at the option of the Company,
in whole or in part, on or after , 1999
at the redemption prices set forth herein, plus
accrued interest.
Fundamental Change......... If a Fundamental Change (as defined herein) occurs,
each holder of Notes will have the right, at the
holder's option, to require the Company to
repurchase all or a portion of such holder's Notes,
at a purchase price equal to 100% of the principal
amount thereof, plus accrued interest.
Subordination.............. The Notes will be subordinated to all existing and
future Senior Indebtedness. The Notes will also be
subordinated to third party indebtedness of the
Company's subsidiaries. The Indenture (as defined
herein) does not restrict the incurrence of
indebtedness, including Senior Indebtedness (as
defined herein), by the Company or its
subsidiaries.
Use of Proceeds............ Net proceeds from the sale of the Notes will be
allocated in full to the General Division and used
to finance the acquisition of DSP, including the
repayment of $200 million of short-term
indebtedness that may be incurred to finance such
acquisition.
Nasdaq Symbol for General
Division Stock........... The General Division Stock is quoted on the Nasdaq
National Market under the symbol "GENZ".
5
<PAGE> 7
GENZYME CORPORATION AND SUBSIDIARIES
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of Operations Data(1):
Net revenues.................................. $121,916 $219,079 $270,371 $311,051 $383,783 $88,189 $113,497
Operating costs and expenses:
Cost of products and services sold and
selling, general, administrative, research
and development expenses.................... 112,483 176,110 220,345 260,953 329,094 75,450 99,168
Amortization expense.......................... 1,200 3,037 5,964 4,741 4,677 1,086 1,071
Other expenses(2)............................. -- 68,005 75,517 11,215 14,216 -- --
-------- -------- -------- -------- -------- ------- --------
113,683 247,152 301,826 276,909 347,987 76,536 100,239
-------- -------- -------- -------- -------- ------- --------
Operating income (loss)......................... 8,233 (28,073) (31,455) 34,142 35,796 11,653 13,258
Other income and (expenses):
Investment income............................. 12,371 21,981 12,209 9,101 8,814 1,765 4,492
Interest expense.............................. (2,088) (7,099) (2,500) (1,354) (1,109) (47) (213)
Other......................................... 6,427 1,678 9,192 (11,105) (202) (584) (937)
-------- -------- -------- -------- -------- ------- --------
16,710 16,560 18,901 (3,358) 7,503 1,134 3,342
-------- -------- -------- -------- -------- ------- --------
Income (loss) before income taxes and
extraordinary credit.......................... 24,943 (11,513) (12,554) 30,784 43,299 12,787 16,600
Benefit (Provision) for income taxes............ (12,484) (18,804) 6,459 (14,481) (21,649) (4,731) (6,308)
Income (loss) before extraordinary credit....... 12,459 (30,317) (6,095) 16,303 21,650 8,056 10,292
-------- -------- -------- -------- -------- ------- --------
Extraordinary credit resulting from utilization
of operating loss carryforwards............... 8,387 -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- --------
Net income (loss)............................... $ 20,846 $(30,317) $ (6,095) $ 16,303 $ 21,650 $ 8,056 $ 10,292
======== ======== ======== ======== ======== ======= ========
Common Share Data:
Attributable to General Division Stock:
Net income (loss)........................... $ 21,107 $(29,809) $ 18,020 $ 32,054 $ 43,680 $11,998 $ 19,034
======== ======== ======== ======== ======== ======= ========
Per common and common equivalent share:
Income (loss) before extraordinary
credit.................................. $ 0.54 $ (1.33) $ 0.69 $ 1.22 $ 1.45 $ 0.43 $ 0.53
Extraordinary credit...................... 0.36 -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- --------
Net income (loss)......................... $ 0.90 $ (1.33) $ 0.69 $ 1.22 $ 1.45 $ 0.43 $ 0.53
======== ======== ======== ======== ======== ======= ========
Average shares outstanding.................. 23,554 22,370 26,250 26,169 30,092 27,945 35,691
======== ======== ======== ======== ======== ======= ========
Attributable to TR Stock:
Net loss.................................... $ (261) $ (508) $(24,115) $(15,751) $(22,030) $(3,942) $ (8,742)
======== ======== ======== ======== ======== ======= ========
Per common share............................ $ (0.10) $ (0.17) $ (7.43) $ (4.40) $ (2.28) $ (0.45) $ (0.71)
======== ======== ======== ======== ======== ======= ========
Average shares outstanding.................. 2,739 3,019 3,245 3,578 9,659 8,751 12,246
======== ======== ======== ======== ======== ======= ========
Ratio of earnings to fixed charges,
consolidated(3)............................... 5.7x 0.0x (0.6)x 2.5x 3.7x 3.6x 5.3x
======== ======== ======== ======== ======== ======= ========
Ratio of EBITDA to interest costs,
consolidated(4)............................... 16.1x 0.9x 0.9x 4.8x 6.6x 6.7x 11.5x
======== ======== ======== ======== ======== ======= ========
EBITDA(4)....................................... $ 34,501 $ 6,632 $ 6,767 $ 50,364 $ 62,046 $18,304 $ 22,482
======== ======== ======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1996
---------
<S> <C>
Consolidated Balance Sheet Data:
Cash and investments(5)........................................................ $337,303
Working capital................................................................ 378,124
Total assets................................................................... 938,100
Long-term debt, capital lease obligations, excluding current portion,
and other noncurrent liabilities............................................. 33,070
Stockholders' equity(6)........................................................ 831,797
</TABLE>
- ---------------
(1) In October 1992, Genzyme acquired all the outstanding common shares of
Vivigen, Inc. ("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) Includes charges related to the purchase of in-process research and
development totaling $51.1 million, $49.0 million, $11.2 million and $14.2
million, respectively, for the years ended December 31, 1992, 1993, 1994 and
1995; 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 $16.9 million, for the year ended December 31,
1992.
(3) The ratio of earnings to fixed charges is calculated by dividing the sum of
(i) net income (loss) before income taxes and extraordinary credits and (ii)
fixed charges, by fixed charges. Fixed charges consist of interest (expensed
and capitalized), amortization of debt issuance costs and the estimated
interest portion of rent expense. Fixed charges exceeded earnings for the
years ended December 31, 1992 and 1993 by $12.4 million and $17.6 million,
respectively.
(4) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization and extraordinary items. Interest costs
include interest expensed and interest capitalized. EBITDA should not be
considered an alternative measure of the Company's net income, operating
performance, cash flow or liquidity. The ratio of EBITDA to interest costs
is included herein to provide additional information related to the
Company's ability to service debt.
(5) Cash and investments includes cash, cash equivalents, and short- and
long-term investments.
(6) In October 1991, the Company issued $100.0 million of 6 3/4% convertible
subordinated notes due October 2001 and received net proceeds of $97.3
million. The notes were converted into shares of General Division Stock in
March 1996.
6
<PAGE> 8
GENZYME CORPORATION AND SUBSIDIARIES
SUMMARY PRO FORMA CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
The pro forma statement of operations data and ratios has been prepared as
if the acquisition of Genetrix, Inc. (the "Genetrix Acquisition") for
approximately 690,000 shares of General Division Stock and the acquisition of
DSP (the "DSP Acquisition") financed with debt of $225 million occurred as of
January 1, 1995. The pro forma balance sheet data has been prepared as if the
Genetrix Acquisition and DSP Acquisition occurred on March 31, 1996. The pro
forma summary financial data do not purport to represent what the results of
operations or financial position of the Company would have been if such
transactions had occurred at the date indicated and do not purport to project
results of the Company for any future periods.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
Pro Forma Consolidated Statement of Operations Data:
Net revenues...................................................................................... $501,048 $146,619
Operating costs and expenses:
Cost of products and services sold and selling, general, administrative, research and
development expenses.......................................................................... 428,841 125,803
Amortization expense............................................................................ 13,104 3,177
Other expenses(1)............................................................................... 17,801 546
-------- --------
459,746 129,526
-------- --------
Operating income.................................................................................. 41,302 17,093
Other income and (expenses):
Investment income............................................................................... 8,839 4,492
Interest expense................................................................................ (21,746) (4,772)
Other........................................................................................... (1,556) (1,038)
-------- --------
(14,463) (1,318)
-------- --------
Income before income taxes........................................................................ 26,839 15,775
Provision for income taxes........................................................................ (18,516) (5,872)
-------- --------
Net income........................................................................................ $ 8,323 $ 9,903
======== ========
Attributable to General Division Stock:
Net income...................................................................................... $ 30,353 $ 15,148
======== ========
Per common and common equivalent share.......................................................... $ 0.99 $ 0.51
======== ========
Average shares outstanding...................................................................... 30,782 36,381
======== ========
Attributable to TR Stock:
Net loss........................................................................................ $(22,030) $ (8,742)
======== ========
Per common share................................................................................ $ (2.28) $ (0.71)
======== ========
Average shares outstanding...................................................................... 9,659 12,246
======== ========
Ratio of earnings to fixed charges(2), consolidated............................................... 1.6x 2.6x
======== ========
Ratio of EBITDA to interest costs(3), consolidated................................................ 2.8x 4.5x
======== ========
EBITDA(3)......................................................................................... 82,189 29,241
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1996
------------
<S> <C> <C>
Pro Forma Consolidated Balance Sheet Data:
Cash and investments(4)........................................................................ $ 309,451
Working capital................................................................................ 367,251
Total assets................................................................................... 1,221,098
Long-term debt, capital lease obligations excluding current portion,
and other recurrent liabilities.............................................................. 258,761
Stockholders' equity(5)........................................................................ 852,318
</TABLE>
- ---------------
(1) Includes charges related to the purchase of in-process research and
development of $14.2 million for the year ended December 31, 1995.
(2) The ratio of earnings to fixed charges is calculated by dividing the sum of
(i) net income (loss) before income taxes and extraordinary credits and (ii)
fixed charges, by fixed charges. Fixed charges consist of interest (expensed
and capitalized), amortization of debt issuance costs and the estimated
interest portion of rent expense.
(3) EBITDA represents earnings before interest expense, income taxes,
depreciation and amortization and extraordinary items. Interest costs
include interest expensed and interest capitalized. EBITDA should not be
considered an alternative measure of the Company's net income, operating
performance, cash flow or liquidity. The ratio of EBITDA to interest costs
is included herein to provide additional information related to the
Company's ability to service debt.
(4) Cash and investments includes cash, cash equivalents, and short- and
long-term investments.
(5) In October 1991, the Company issued $100.0 million of 6 3/4% convertible
subordinated notes due October 2001 and received net proceeds of $97.3
million. The notes were converted into shares of General Division Stock in
March 1996.
7
<PAGE> 9
GENZYME GENERAL DIVISION
SUMMARY HISTORICAL COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Combined Statement of Operations Data(1):
Net revenues............................... $119,624 $216,413 $265,687 $310,727 $378,563 $87,159 $111,783
Operating costs and expenses:
Cost of products and services sold and
selling, general, administrative,
research and development expenses...... 109,930 172,936 216,839 256,064 300,498 70,159 88,142
Amortization expense..................... 1,200 3,037 5,964 4,741 4,677 1,086 1,071
Other expenses(2)........................ -- 68,005 50,517 -- 14,216 -- --
-------- -------- -------- -------- -------- ------- --------
111,130 243,978 273,320 260,805 319,391 71,245 89,213
-------- -------- -------- -------- -------- ------- --------
Operating income (loss).................... 8,494 (27,565) (7,633) 49,922 59,172 15,914 22,570
Other income and (expenses):
Investment income........................ 12,371 21,981 12,209 9,072 7,428 1,446 3,918
Interest expense......................... (2,088) (7,099) (2,500) (1,354) (1,069) (47) (209)
Other.................................... 6,427 1,678 9,192 (11,105) (202) (584) (937)
-------- -------- -------- -------- -------- ------- --------
16,710 16,560 18,901 (3,387) 6,157 815 2,772
-------- -------- -------- -------- -------- ------- --------
Income (loss) before income taxes and
extraordinary credit..................... 25,204 (11,005) 11,268 46,535 65,329 16,729 25,342
Provision for income taxes................. (12,589) (19,007) (2,812) (16,341) (30,506) (6,358) (9,805)
-------- -------- -------- -------- -------- ------- --------
Income (loss) before extraordinary
credit................................... 12,615 (30,012) 8,456 30,194 34,823 10,371 15,537
Extraordinary credit resulting from
utilization of operating loss
carryforwards............................ 8,323 -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- --------
Net income (loss).......................... 20,938 (30,012) 8,456 30,194 34,823 10,371 15,537
Tax benefit allocated from GTR............. 169 203 9,564 1,860 8,857 1,627 3,497
-------- -------- -------- -------- -------- ------- --------
Net income (loss) attributable to
General Division Stock................... $ 21,107 $(29,809) $ 18,020 $ 32,054 $ 43,680 $11,998 $ 19,034
======== ======== ======== ======== ======== ======= ========
Per General Division common and common
equivalent share:
Income (loss) before extraordinary
credit................................. $ 0.54 $ (1.33) $ 0.69 $ 1.22 $ 1.45 $ 0.43 $ 0.53
Extraordinary credit..................... 0.36 -- -- -- -- -- --
-------- -------- -------- -------- -------- ------- --------
Net income (loss)........................ $ 0.90 $ (1.33) $ 0.69 $ 1.22 $ 1.45 $ 0.43 $ 0.53
======== ======== ======== ======== ======== ======= ========
Average shares outstanding............... 23,554 22,370 26,250 26,169 30,092 27,945 35,691
======== ======== ======== ======== ======== ======= ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1996
---------
<S> <C>
Combined Balance Sheet Data:
Cash and investments(3)................................................. $302,196
Working capital......................................................... 351,253
Total assets............................................................ 888,363
Long-term debt and capital lease obligations excluding current portion,
and other noncurrent liabilities...................................... 32,325
Division equity(4)...................................................... 793,766
</TABLE>
- ---------------
(1) In October 1992, Genzyme acquired all the outstanding common shares of
Vivigen, Inc. ("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) Includes charges related to the purchase of in-process research and
development totaling $51.1 million, $24.0 million and $14.2 million,
respectively, for the years ended December 31, 1992, 1993, and 1995;
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 $16.9 million, for the year ended December 31, 1992.
(3) Cash and investments includes cash, cash equivalents, and short- and
long-term investments.
(4) In October 1991, the Company issued $100.0 million of 6 3/4% convertible
subordinated notes due October 2001 and received net proceeds of $97.3
million. The notes were converted into shares of General Division Stock in
March 1996.
8
<PAGE> 10
GENZYME GENERAL DIVISION
SUMMARY PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The pro forma statement of operations data has been prepared as if the
Genetrix Acquisition for approximately 690,000 shares of General Division Stock
and the DSP Acquisition financed with debt of $225 million occurred as of
January 1, 1995. The pro forma balance sheet data has been prepared as if the
Genetrix Acquisition and DSP Acquisition occurred on March 31, 1996. The pro
forma summary financial data do not purport to represent what the results of
operations or financial position of the General Division would have been if such
transactions had occurred at the date indicated and do not purport to project
results of the General Division for any future periods.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
1995 1996
------------ ------------
<S> <C> <C>
Pro Forma Combined Statement of Operations Data:
Net revenues............................................................ $495,828 $144,905
Operating costs and expenses:
Cost of products and services sold and selling, general,
administrative,
research and development expenses................................... 400,245 114,777
Amortization expense.................................................. 13,104 3,177
Other expenses(1)..................................................... 17,801 546
-------- --------
431,150 118,500
-------- --------
Operating income........................................................ 64,678 26,405
Other income and (expenses):
Investment income..................................................... 7,453 3,918
Interest expense...................................................... (21,706) (4,768)
Other................................................................. (1,556) (1,038)
-------- --------
(15,809) (1,888)
-------- --------
Income before income taxes.............................................. 48,869 24,517
Provision for income taxes.............................................. (27,373) (9,369)
-------- --------
Net income.............................................................. 21,496 15,148
Tax benefit allocated from GTR.......................................... 8,857 3,497
-------- --------
Net income attributable to General Division Stock....................... $ 30,353 $ 18,645
======== ========
Per common and common equivalent share:
Net income............................................................ $ 0.99 $ 0.51
======== ========
Average shares outstanding............................................ 30,782 36,381
======== ========
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
1996
------------
<S> <C> <C>
Pro Forma Combined Balance Sheet Data:
Cash and investments(2).............................................. $ 274,344
Working capital...................................................... 340,380
Total assets......................................................... 1,171,361
Long-term debt, capital lease obligations excluding current portion,
and other noncurrent liabilities................................... 258,016
Division equity(3)................................................... 814,287
</TABLE>
- ---------------
(1) Includes charges related to the purchase of in-process research and
development $14.2 million for the year ended December 31, 1995.
(2) Cash and investments includes cash, cash equivalents, and short- and
long-term investments.
(3) In October 1991, the Company issued $100.0 million of 6 3/4% convertible
subordinated notes due October 2001 and received net proceeds of $97.3
million. The notes were converted into shares of General Division Stock in
March 1996.
9
<PAGE> 11
DSP
SUMMARY HISTORICAL FINANCIAL DATA
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED -------------------
SEPTEMBER 30, MARCH MARCH
-------------------- 26, 24,
1994 1995 1995 1996
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net sales........................................ $ 85,410 $95,259 $45,509 $49,696
Operating costs and expenses:
Cost of products sold and selling, general,
administrative, research and development
expenses...................................... 71,795 79,146 38,420 38,149
Amortization expense............................. 3,832 2,750 1,594 1,702
Other expenses................................... 1,483 3,585 504 1,300
------- ------- ------- -------
77,110 85,481 40,518 41,151
------- ------- ------- -------
Operating income................................... 8,300 9,778 4,991 8,545
Other income and (expenses):
Interest expense................................. (6,339) (6,937) (3,395) (2,905)
Other............................................ (1,510) (1,354) (683) 1,074
------- ------- ------- -------
(7,849) (8,291) (4,078) (1,831)
------- ------- ------- -------
Income before income taxes and extraordinary
loss............................................. 451 1,487 913 6,714
Provision for income taxes......................... (188) (172) (303) (1,447)
------- ------- ------- -------
Income before extraordinary loss................... 263 1,315 610 5,267
Extraordinary loss from debt refinancing........... (2,360) -- -- --
------- ------- ------- -------
Net income......................................... $ (2,097) $ 1,315 $ 610 $ 5,267
======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
MARCH
24,
1996
--------
<S> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents........................ $ 3,107
Working capital.................................. 12,528
Total assets..................................... 112,776
Long-term debt, capital lease obligations
excluding current portion, and other long-term
liabilities................................... 50,028
Stockholders' equity............................. 31,497
</TABLE>
10
<PAGE> 12
RISK FACTORS
Statements made in this Prospectus relating to a pending acquisition, plans
for sales and marketing, and the timing of regulatory approvals, or that
otherwise relate to future periods, are forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. Actual results could differ materially from those anticipated in the
forward-looking statements as a result of certain risks described below or
elsewhere in this Prospectus (including the Company's Annual Report on Form 10-K
for 1995 and other documents incorporated herein by reference). Such risks
should be considered carefully in evaluating an investment in the Notes.
RISKS RELATED TO GENERAL DIVISION
The Notes are convertible only into shares of General Division Stock.
Accordingly, the following risk factors relating to the General Division should
be considered carefully in contemplating an investment in the Notes.
Dependence on Ceredase(R) and Cerezyme(TM) Enzyme Sales; Limited Supply of
Raw Material. 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(TM) enzyme, a recombinant form of the
enzyme. During 1995, sales from these two products totaled approximately $215
million, or 71% of the General Division's product sales.
Genzyme produces Ceredase(R) enzyme from an extract of human placental
tissue supplied by a French company that is the only significant commercial
source of this material. During 1994, Genzyme experienced a major increase in
the cost of the raw material used to produce Ceredase(R) enzyme when its
supplier raised the cost to Genzyme by approximately $20 million per year. To
achieve a partial recovery of the cost increase, Genzyme, early in 1994,
increased the price of Ceredase(R) enzyme.
The supply of starting material available for the production of Ceredase(R)
enzyme effectively limits the amount of product that can be produced. During
1995, Genzyme and its supplier were successful in improving the yield of enzyme
obtained from the starting material thereby increasing the amount of product
which could be produced. Nonetheless, the current supply available is not
sufficient to produce enough Ceredase(R) enzyme to supply all present patients.
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. Genzyme received approval to market this product
in the U.S. and Israel in 1994. In 1995, Genzyme received approval in Sweden and
currently is working to expedite the foreign approvals needed to market
Cerezyme(R) enzyme elsewhere abroad. Manufacturing capacity 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 pending
receipt of regulatory approval to use Genzyme's large-scale mammalian cell
culture manufacturing plant in Boston, Massachusetts for production of
Cerezyme(R) enzyme.
The Ceredase(R) and Cerezyme(TM) products have each been given orphan drug
status by the FDA, which entitles Genzyme to market exclusivity for these
products until April 1998 and May 2001, respectively. Legislation has been
periodically introduced in recent years to amend the Orphan Drug Act to limit
market exclusivity in certain situations.
No Assurance of Commercial Success of the HA Products. The successful
commercialization of the HA Products in both the United States and Europe will
depend on many factors, including the breadth of labeling claims allowed by the
FDA, the response of surgeons to the data from clinical trials, the General
Division's ability to retain and deploy the DSP sales force to market the HA
Products, the General Division's ability to supply sufficient product to meet
market demand, and the number and relative efficacy of competitive products that
may subsequently enter the market. There can be no assurance that the General
Division will be successful in its efforts to develop and implement a
commercialization strategy for the HA Products.
11
<PAGE> 13
The HA Products will require FDA approval prior to marketing in the United
States. PMA applications have been submitted and are pending before the FDA for
Seprafilm(TM) and Sepracoat(TM). In March 1996, an advisory panel to the FDA
recommended that approval be granted to market Seprafilm(TM) for use in reducing
postoperative adhesion formation at the locations in the body and in the
abdominal and gynecological surgeries studied in the Company's pivotal clinical
trials of the product. Genzyme is working with the FDA to develop appropriate
labeling for Seprafilm(TM) and expects to receive approval to market the product
in the near future. There can be no assurance that the FDA will allow the
General Division's labeling claims and permit the marketing of Seprafilm(TM) for
a broad range of applications, if at all.
In addition, the successful commercialization of the HA Products will
require that surgeons become convinced of the efficacy of the products in
preventing the formation of postoperative adhesions and incorporate the products
as standard surgical practice in procedures where adhesions are a potential
postoperative complication. There can be no assurance that the HA Products will
be widely accepted by surgeons and used to the extent anticipated by the General
Division.
The General Division plans to utilize DSP's 52-person United States sales
force to market the HA Products. Loss of the services of a significant number of
DSP's sales personnel or unforeseen delays in training and deploying such sales
force to market the HA Products may have an adverse effect on the
commercialization of the HA Products. The General Division presently maintains a
30-person European sales force to market the HA Products. Loss of the services
of a significant number of the European sales personnel may have an adverse
effect on the commercialization of the HA Products in Europe.
The General Division has developed manufacturing facilities in the United
Kingdom for bulk production of HA powder, from which Seprafilm(TM) and
Sepracoat(TM) are produced. Seprafilm(TM) production facilities have been built
in Framingham, Massachusetts with a capacity sufficient for the market
introduction and initial commercialization of the product. The General Division
will need to expand its manufacturing capacity for Seprafilm(TM) in order to
meet any additional market demand over and above its present capacity, and
initial planning for that expansion is underway. Although the General Division
has successfully produced finished product in its existing manufacturing
facilities, the General Division has not operated these facilities at a capacity
anticipated to be required for commercial production of the HA Products. There
can be no assurance that the General Division will be successful in producing
material at such capacity that conforms to established product specifications
while maintaining production efficiency.
The HA Products will also face significant competition both from other
HA-based products and from non-HA-based products intended to reduce adhesions
resulting from surgical trauma.
Risks in Product Development. Product development involves a high degree
of risk, and returns to investors are dependent upon successful development of
Genzyme's products. There can be no assurance that development of any product
will be successfully completed or that FDA approval of any of Genzyme's products
under development will be obtained.
In addition, because of the length of time and expense associated with
bringing new products through development and regulatory approval to the
marketplace, Genzyme places considerable importance on obtaining patent and
trade secret protection for its significant technologies, products and
processes. There can be no assurance that any pending patent applications filed
by Genzyme will mature into issued patents. Furthermore, there can be no
assurance that Genzyme's existing or pending patent claims will offer protection
against competition, or will not be designed around or infringed upon by others.
Technology Transferred to Genzyme Development Partners and Neozyme
II. Genzyme organized two special purpose research and development entities,
Genzyme Development Partners and Neozyme II, to which it transferred technology
and commercial rights to certain products that Genzyme previously had under
development. Genzyme has options to purchase the limited partnership interests
in Genzyme Development Partners under certain circumstances and to acquire all
of the outstanding shares of the callable common stock of Neozyme II. Genzyme's
option to acquire the callable common stock of Neozyme II expires on December
31, 1996.
12
<PAGE> 14
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 $93
million in shares of General Division Stock. Such offer was made in lieu of
Genzyme's option to purchase the limited partnership interests of Genzyme
Development Partners. In May 1996, Genzyme announced the withdrawal of this
offer to purchase the assets of Genzyme Development Partners.
It is uncertain at this time whether Genzyme will exercise its option to
purchase the limited partnership interests in 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 General Division Stock, or both. Cash payments will diminish Genzyme's
capital resources. Payments in General Division Stock could result in dilution
to holders of General Division Stock and could negatively affect the market
price of such stock.
Risks Inherent in International Operations. Foreign operations of Genzyme
accounted for 41% of net product sales in 1995 as compared to 37% and 29% in
1994 and 1993, respectively. In addition, Genzyme has direct investments in 8
subsidiaries in foreign countries (primarily in Europe and Japan) and purchases
certain raw materials from a European supplier.
Financial results of Genzyme could be adversely or beneficially affected by
fluctuations in foreign exchange rates. Fluctuations in the value of foreign
currencies affect the dollar value of Genzyme's net investment in foreign
subsidiaries, with related effects included in a separate component of
stockholders' equity. Operating results of foreign subsidiaries are translated
into U.S. dollars at average monthly exchange rates. In addition, the U.S.
dollar value of transactions based in foreign currency (collections on foreign
sales or payments for foreign purchases) also fluctuates with exchange rates.
The largest foreign currency exposure results from activity in British pounds,
French francs, Swiss francs, Dutch guilders, German marks, Japanese yen and
Italian lire.
Genzyme's long-term operating strategies are formulated to minimize the
impact of foreign currency fluctuations on non-U.S. dollar denominated purchases
its sales. Genzyme manages its foreign exchange exposure primarily by entering
into forward contracts with banks to the extent that the timing of the currency
flows can reasonably be anticipated and by offsetting matching foreign currency
denominated assets with foreign currency denominated liabilities. Genzyme does
not hedge net foreign investments. Genzyme has no material unhedged monetary
assets, liabilities or commitments denominated in foreign currencies.
Third Party Reimbursement and Health Care Cost Containment Initiatives. A
majority of Genzyme's revenues are attributable directly or indirectly to
payments received from third party payors. Genzyme's revenues and profitability
may be affected by ongoing efforts of third party payors to contain such costs.
In addition, Congress has from time to time discussed the possible
implementation of broad based health care cost containment measures. While these
discussions have not led to the enactment of any specific health care cost
containment legislation, it is likely that health care measures will again be
proposed in the present or future Congressional sessions. The effects on Genzyme
of any such measures that are ultimately adopted cannot be measured at this
time.
Product Liability and Limitations of Insurance. Genzyme may be subject to
product liability claims in connection with the use or misuse of its products
during testing or after commercialization. While Genzyme has taken, and
continues to take, what it believes are appropriate precautions, there can be no
assurance that Genzyme will avoid significant liability exposure. Genzyme has
only limited amounts of product liability insurance and 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.
13
<PAGE> 15
RISKS RELATED TO THE NOTES
An investment in the Notes involves a high degree of risk. Accordingly, the
following risk factors should be considered carefully in contemplating such an
investment.
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 completing validation of the manufacturing facility in Boston,
Massachusetts, completing its commitment to develop manufacturing capacity
sufficient to meet the requirements for commercialization of the HA Products,
introducing the HA Products to the United States market and completing their
market introduction in Europe, completing the market introduction of the
CARTICEL(TM) Autologous Chondrocyte Service and developing, producing and
marketing other products through GTR, making certain payments to third parties
in connection with strategic collaborations and making the final payment for a
company acquired in 1994. 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. If available, Genzyme may elect to obtain such
financing in the form of Senior Indebtedness to which the Notes would be
subordinated in right of payment.
Absence of Public Market; Volatility of Prices. There is currently no
public market for the Notes. There can be no assurance that an active trading
market will develop for the Notes. There can be no assurance as to the liquidity
of investments in the Notes and the General Division Stock into which the Notes
are convertible, or as to the price holders may realize upon the sale of such
securities. These prices are determined in the marketplace and may be influenced
by many factors, including the depth and liquidity of the market for the Notes
and the General Division Stock, the market price of the General Division Stock,
interest rates, investor perception of the Company and general economic and
market conditions.
The market prices for securities of Genzyme 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 industry and market conditions in general may have a
significant impact on the market price of Genzyme's securities, including the
Notes and the General Division Stock.
Subordination. The Notes will be general, unsecured obligations of the
Company, subordinated in right of payment to all existing and future Senior
Indebtedness of the Company. Under the Indenture, generally, the Company will
not be permitted to pay the principal of, or premium, if any, or interest on or
repurchase, redeem or otherwise retire any Notes in the event of a default in
the payment of any principal of, premium, if any, or interest on any Senior
Indebtedness of the Company when it becomes due and payable, whether at maturity
or at a date fixed for prepayment or by acceleration or otherwise, unless and
until such payment default has been cured or waived, or in the event of certain
other defaults with respect to Senior Indebtedness which would entitle the
holder thereof to accelerate such Senior Indebtedness. In addition, the Notes
are effectively subordinated to all of the creditors of the Company's
subsidiaries, including trade creditors. As of March 31, 1996, as adjusted to
give effect to this offering and the anticipated use of the net proceeds
therefrom, the Company and its subsidiaries would have had an aggregate of
$34,648,000 of consolidated indebtedness and other obligations effectively
ranking senior to the Notes. The Indenture will not restrict the incurrence of
Senior Indebtedness or other indebtedness by the Company or any of its
subsidiaries. See "Description of Notes -- Subordination."
RISKS RELATED TO TWO CLASSES OF COMMON STOCK
Genzyme currently has two classes of common stock outstanding: General
Division Stock and TR Stock. The General Division Stock and the TR Stock are
intended to reflect the value and track the performance of the General Division
and GTR, respectively. The Notes are convertible only into shares of General
Division Stock. Accordingly, prospective purchasers of the Notes should
carefully consider the following factors in evaluating an investment in the
Notes.
14
<PAGE> 16
Stockholders of One Company; Financial Impacts on One Division Could Affect
the Other. Notwithstanding the allocation of the Company's assets and
liabilities between divisions for financial statement presentation purposes,
Genzyme continues to hold title to all of its assets and is responsible for all
of its liabilities. Holders of General Division Stock (including shares thereof
issued upon conversion of the Notes) and the TR Stock have no specific claim
against the assets attributed for financial statement presentation purposes to
the division whose performance is associated with the class of stock they hold.
Liabilities or contingencies of either division that affect Genzyme's resources
or financial condition could affect the financial condition or results of
operations of both divisions. Prospective purchasers of the Notes 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 General Division Stock and TR Stock have only the rights
of stockholders of Genzyme, and, except in limited circumstances, do not have
any rights specifically related to the General Division or GTR, respectively.
The existence of separate classes of common stock may give rise to
occasions when the interests of holders of General Division Stock and holders of
TR Stock may diverge or appear to diverge. Although Genzyme is aware of no
precedent concerning the manner in which Massachusetts law would be applied to
the duties of a board of directors in the context of two classes of common stock
with divergent interests, Genzyme believes that a Massachusetts court would hold
that a board of directors owes an equal duty to all stockholders regardless of
class and does not have separate or additional duties to any group of
stockholders. That duty is the fiduciary duty to act in good faith and in a
manner it reasonably believes to be in the best interests of the corporation.
Genzyme believes that, under Massachusetts law, a good faith determination by a
disinterested and adequately informed board of directors that an action is in
the best interests of the corporation should represent an appropriate defense to
any challenge by or on behalf of the holders of any class of stock that such
action could have a disparate effect on different classes of common stock.
Disproportionate ownership interests of members of the Board of Directors
of Genzyme (the "Board") in either class of common stock or disparities in the
value of such stock could create or appear to create potential conflicts of
interest when directors are faced with decisions that could have different
implications for each class of stock. Nevertheless, Genzyme believes that a
director would be able to discharge his or her fiduciary responsibilities even
if his or her interests in shares of such classes were disproportionate or had
disparate values. The Board may also from time to time establish one or more
committees to review matters presented to it that raise conflict issues, which
committee(s) would report to the full Board on such matters.
No Additional Separate Voting Rights. Holders of General Division Stock
and holders of TR Stock vote together as a single class on all matters as to
which common stockholders generally are entitled to vote. Except in certain
limited circumstances provided under Massachusetts law, in Genzyme's Articles of
Organization, and in the management and accounting policies adopted by the
Board, holders of each class of common stock have no rights to vote on matters
as a separate class. Accordingly, except in limited circumstances, holders of
shares of one class of common stock could not bring a proposal to a vote of the
holders of that class of common stock only, but would be required to bring any
proposal to a vote of both classes of common stock.
On all matters as to which common stockholders generally are entitled to
vote, each share of General Division Stock has one vote, and each share of TR
Stock will, through December 31, 1996, have .29 votes. On January 1, 1997 and on
January 1 every two years thereafter, the number of votes to which each share of
TR Stock is entitled will be adjusted to equal the ratio of the Fair Market
Value of one share of TR Stock to the Fair Market Value of one share of General
Division Stock as of such date. The term "Fair Market Value" is defined in
Genzyme's Articles of Organization and under the heading "Description of Genzyme
Capital Stock -- Exchange of TR Stock" herein.
Certain matters as to which the holders of common stock are entitled to
vote may involve a divergence or the appearance of a divergence in the interests
of holders of General Division Stock and holders of TR Stock. If, when a
stockholder vote is taken on any matter as to which a separate vote by either
class is not required and the holders of either class of common stock would have
more than the number of votes required to approve any such matter, the holders
of that class would control the outcome of the vote on such matter. As of
15
<PAGE> 17
May 31, 1996, holders of General Division Stock and holders of TR Stock had
approximately 90.4% and 9.6%, 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 General Division
Stock are likely to dominate and determine the outcome of such vote unless and
until the relative number of shares outstanding and/or the market value of
General Division Stock and TR Stock materially changes.
No Adjustment to Liquidating Distributions. In the event of a voluntary or
involuntary dissolution, liquidation or winding up of the affairs of Genzyme
(other than pursuant to a merger, business combination or sale of substantially
all assets), holders of outstanding shares of General Division Stock and TR
Stock would receive the assets, if any, remaining for distribution to common
stockholders on a per share basis in proportion to the respective per share
liquidation units of such class. Currently, each share of General Division Stock
has one liquidation unit and each share of TR Stock has .29 liquidation units.
Because the liquidation units will not be adjusted to reflect changes in the
relative market value or performance of the General Division and GTR, the per
share liquidating distribution to a holder of General Division Stock or TR Stock
is not likely to correspond to the value of the assets of the General Division
or GTR, respectively, at the time of a dissolution, liquidation or winding up of
Genzyme.
Management and Accounting Policies Subject to Change. The Board has
adopted certain management and accounting policies applicable to the preparation
of the financial statements of both divisions, the allocation of corporate
expenses, assets and liabilities and other accounting matters, the reallocation
of assets between divisions and other matters. These policies may, except as
stated therein, be modified or rescinded in the sole discretion of the Board
without the approval of Genzyme's stockholders, subject to the Board's fiduciary
duty to all holders of Genzyme's capital stock, although there is no present
intention to do so. The Board may also adopt additional policies depending upon
the circumstances. See "Management and Accounting Policies Governing the
Relationship of Genzyme Divisions."
Limited Trading History. As discussed above, the General Division Stock
and the TR Stock are intended to reflect the value and track the performance of
the General Division and GTR, respectively. Since the General Division Stock and
the TR Stock have only a limited trading history, there can be no assurance as
to the degree to which the market price of such classes of common stock will
reflect the value and track the performance of the General Division and GTR as
reflected in their respective financial statements. In addition, Genzyme cannot
predict the impact that certain terms of the securities, such as the ability of
Genzyme to exchange each share of TR Stock for cash and/or shares of General
Division Stock, will have on the market prices of each class of common stock.
16
<PAGE> 18
USE OF PROCEEDS
The net proceeds to the Company from the sale of the Notes offered hereby
are estimated to be $ ($ if the Underwriter's over-allotment
option is exercised in full) and will be allocated in full to the General
Division. The Company intends to utilize the net proceeds to finance the
acquisition of DSP, including the repayment of short-term indebtedness that may
be incurred to finance such acquisition. Such short-term indebtedness, if
incurred, will be in the principal amount of approximately $200 million, bearing
interest at a rate equal to LIBOR or the lender's cost of funds, plus 5/8% (if
paid within 90 days of the date incurred), and payable on or before September 1,
1997.
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1996 on an actual basis, on a pro forma basis to reflect the Genetrix
Acquisition and the DSP Acquisition and on a pro forma as adjusted basis to
reflect the issuance of the Notes and application of the net proceeds of the
offering.
<TABLE>
<CAPTION>
MARCH 31, 1996
---------------------------------------
PRO PRO FORMA
ACTUAL FORMA AS ADJUSTED
-------- ---------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
% Convertible Subordinated Notes Due 2001.......... $ -- $ -- $ 225,000
Long-term debt and notes payable(1)..................... 33,070 233,761 33,761
Stockholders' equity(2), (3)............................ 831,797 852,318 852,318
-------- -------- ----------
Total capitalization.......................... $864,867 $1,086,079 $ 1,111,079
======== ======== ==========
</TABLE>
- ---------------
(1) As adjusted to include pro forma adjustments for long-term debt of $413,000
to effect the Genetrix Acquisition and $278,000 to effect the DSP
Acquisition.
(2) Excludes 8,804,311 shares of General Division Stock reserved for issuance
upon exercise of outstanding options and warrants and 2,415,000 shares
reserved for issuance upon exercise of warrants that will become exercisable
if Genzyme fails to purchase the callable common stock of Neozyme II by
December 31, 1996.
(3) Includes pro forma adjustments to reflect the issuance of 689,995 shares of
General Division Stock to effect the Genetrix Acquisition and charges
related to the purchase of in-process research and development totaling $16
million expensed in connection with the DSP Acquisition.
18
<PAGE> 20
PRICE RANGE OF GENERAL DIVISION STOCK
AND DIVIDEND POLICY
The General Division Stock commenced trading on December 16, 1994 following
the redesignation of the then existing common stock of Genzyme ("Genzyme Common
Stock") and the creation of the TR Stock. The General Division Stock is traded
in the over-the-counter market and prices are quoted on the Nasdaq National
Market under the symbol GENZ. The following tables set forth, for the periods
indicated, the high and low sale prices for Genzyme Common Stock and General
Division Stock as reported by Nasdaq.
GENZYME COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1994:
First Quarter...................................................... 34 1/2 25 3/4
Second Quarter..................................................... 31 24
Third Quarter...................................................... 38 1/2 25 1/4
Fourth Quarter (through December 15, 1994)......................... 34 1/2 26 1/4
GENERAL DIVISION STOCK
1994:
Fourth Quarter (commencing December 16, 1994)...................... 31 3/4 26 3/4
1995:
First Quarter...................................................... 41 1/2 27 1/4
Second Quarter..................................................... 44 36
Third Quarter...................................................... 64 1/4 39 1/2
Fourth Quarter..................................................... 703/64 48
1996:
First Quarter...................................................... 77 51 1/4
Second Quarter (through June , 1996).............................
</TABLE>
On June , 1996, the closing sale price of General Division Stock as
reported by Nasdaq was $ per share. There were approximately 2,529
holders of record of General Division Stock as of June 1, 1996.
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.
On June 7, 1996, Genzyme announced a two-for-one stock split of the General
Division Stock payable July 25, 1996 to stockholders of record on July 11, 1996,
subject to stockholder approval of an increase in the authorized number of
shares of General Division Stock. See "Business -- Recent Developments." The
stock prices set forth above do not reflect the proposed stock split.
19
<PAGE> 21
DSP MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
(IN THOUSANDS)
The following table represents historical consolidated statement of
operations data for DSP and is presented for purposes of additional information.
This information should be read in conjunction with the DSP historical
consolidated financial statements and notes thereto in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED -------------------
SEPTEMBER 30, MARCH MARCH
------------------- 26, 24,
1994 1995 1995 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Consolidated Statement of Operations Data:
Net sales........................................... $85,410 $95,259 $45,509 $49,696
Cost of products sold............................... 43,873 48,191 23,362 23,663
------- ------- ------- -------
Gross margin........................................ 41,537 47,068 22,147 26,033
------- ------- ------- -------
Operating costs and expenses:
Selling, general, administrative, research and
development expenses........................... 27,922 30,955 15,058 14,486
Amortization expense.............................. 3,832 2,750 1,594 1,702
Severance and other charges....................... 1,483 3,585 504 1,300
------- ------- ------- -------
33,237 37,290 17,156 17,488
------- ------- ------- -------
Operating income.................................... $ 8,300 $ 9,778 $ 4,991 $ 8,545
======= ======= ======= =======
</TABLE>
RESULTS OF OPERATIONS
Six Months ended March 24, 1996 and March 26, 1995
Net sales grew by 9.2% from $45.5 million in 1995 to $49.7 million in 1996.
DSP's December 1995 acquisition of the Thora-Klex product line accounted for
approximately $2.9 million of the increase. DSP's United States suture business
which increased by approximately $0.9 million in 1996 over 1995 accounted for
the majority of the remaining growth.
The gross margin percentage increased from 48.7% in 1995 to 52.4% in 1996.
This increase resulted mainly from improvement in DSP's margin on its surgical
closure products. The 1995 closure of DSP's former manufacturing facility in
Germany and the consolidation of production into DSP's United States
manufacturing facilities accounted for the majority of this improvement.
Operating expenses increased by 1.9% to $17.5 million in 1996 from $17.2
million in 1995. This increase resulted primarily from the inclusion of higher
severance and other charges in 1996 than in 1995. The 1996 charges include
primarily $800,000 incurred in the completion of the consolidation of suture
manufacturing in the United States as a result of the 1995 plant closure in
Germany. Excluding the impact of the severance and other charges, operating
expenses as a percentage of sales decreased from 36.6% of sales in 1995 to 32.6%
of sales in 1996 as a result of cost containment programs.
Operating income increased in 1996 to $8.5 million from $5 million in 1995.
Operating income before severance and other charges increased from $5.5 million
in 1995 to $9.8 million in 1996.
Fiscal Years ended September 30, 1995 and September 30, 1994
Net sales increased revenues grew by 11.6% from $85.4 million in 1994 to
$95.3 million in 1995. DSP's April 1994 acquisition of Snowden Pencer, Inc.
accounted for the majority of this growth with post-acquisition instrument sales
in 1994 totaling $7.5 million as compared to full year 1995 sales of $17.5
million. DSP's cardiovascular fluid management sales grew by $1.1 million in
1995, with the majority of the growth achieved in Europe. The establishment of a
direct sales effort in France during 1995 accounted for the majority of this
20
<PAGE> 22
increase. Offsetting this growth was a $1.7 million decrease in surgical closure
sales, principally in DSP's domestic market.
The gross margin percentage increased from 48.6% in 1994 to 49.4% in 1995.
This increase resulted mainly from the larger percentage of DSP's surgical
instrument sales in 1995 than in 1994. DSP's manufacturing cost savings programs
contributed to the margin.
Operating expenses increased by 12.2% to $37.3 million in 1995 from $33.2
million in 1994. The full year effect of DSP's 1994 acquisition of
Snowden-Pencer, Inc. was the primary cause of this increase. Also contributing
to this increase is the inclusion of $3.6 million of severance and other charges
in 1995 as compared to $1.5 million in 1994. The 1995 charges included
approximately $1.7 million of severance costs and $0.9 million of travel and
other costs associated with the closure of DSP's former manufacturing facility
in Germany and $0.7 million of costs associated with the consolidation of DSP's
domestic sales and marketing efforts. Excluding the impact of severance and
other charges, operating expenses as a percentage of sales decreased from 37.2%
of sales in 1994 to 35.4% of sales in 1995 as a result of cost containment
programs and the impact of work force reductions in 1994 and 1995.
Operating income increased in 1995 to $9.8 million from $8.3 million in
1994. Operating income before severance and other charges increased from $9.8
million in 1994 to $13.4 million in 1995.
21
<PAGE> 23
BUSINESS
Genzyme is a diversified, integrated human health care company operating in
six major business areas. The Company's business activities in the areas of
therapeutics, surgical products, diagnostic services, diagnostic products and
pharmaceuticals are organized as 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 GTR.
The business of Genzyme is described in Genzyme's Annual Report on Form
10-K for the year ended December 31, 1995, which is incorporated herein by
reference. See "Incorporation of Certain Documents by Reference."
RECENT DEVELOPMENTS
On May 24, 1996, Genzyme agreed to acquire DSP, a privately held specialty
surgical products company, for approximately $250 million in cash. DSP designs,
manufactures and markets cardiovascular devices, precision surgical instruments
and specialty surgical products. Headquartered in Fall River, Massachusetts, DSP
had net sales of approximately $95 million in its fiscal year ended September
30, 1995. Assuming receipt of necessary regulatory clearances, the acquisition
is expected to be completed by the end of June. Genzyme believes that the
acquisition of DSP represents a significant opportunity for near term growth and
will provide it with a base for building a specialty surgical products business
that will enhance long term shareholder value.
DSP employs a 70-person sales force, 52 of which are located in the United
States, to market its products directly to cardiovascular, general and
gynecologic surgeons and hospital purchasing departments throughout the United
States and Europe. Genzyme plans to utilize DSP's United States sales force to
accelerate the market introduction of its Seprafilm(TM) and Sepracoat(TM)
products in the United States.
The General Division began marketing Seprafilm(TM) bioresorbable membrane
in the Netherlands in November 1995 and in the United Kingdom, France and
Germany in April 1996. In March 1996, an advisory panel to the FDA recommended
that approval be granted to market Seprafilm(TM) for use in reducing
postoperative adhesion formation at the locations in the body and in the
abdominal and gynecological surgeries studied in the Company's pivotal clinical
trials of the product. Genzyme is working with the FDA to develop appropriate
labeling for Seprafilm(TM) and expects to receive approval to market the product
in the near future. A PMA application was filed for Sepracoat(TM) in January
1996 and has been accepted for expedited review by the FDA.
BUSINESS OF DSP
Founded in 1868 and with a product portfolio that includes hundreds of
surgical products, DSP is an established brand name in the surgical specialty
market. DSP's products can be categorized into three principal product lines:
cardiovascular fluid management systems (chest drainage and autotransfusion
systems), surgical closure systems (sutures and needles) and surgical
instruments (cardiovascular punches and other cardiovascular, plastic surgical
and endoscopic instruments). Within each of its product lines, DSP competes
primarily on the basis of quality and innovation.
Cardiovascular Fluid Management Systems. This product line, which
accounted for approximately 44% of DSP's annual revenues for its 1995 fiscal
year, consists primarily of self-contained, disposable chest drainage devices
used to drain blood from the chest cavity following open heart surgery, other
surgical procedures and trauma. If the chest cavity is not properly drained, the
patient may suffer collapsed lungs, which often results in death. In 1967, DSP
introduced the first self-contained, disposable chest drainage unit,
Pleur-evac(R), and in December 1995, DSP acquired a line of dry
suction-controlled chest drainage and autotransfusion devices sold under the
Thora-Klex(R) brand name. DSP's autotransfusion devices allow the collection of
blood shed by the patient and its reinfusion postoperatively, thus eliminating
the risks associated with blood transfusions.
Surgical Closure Systems. Surgical sutures, which are sold in kits
consisting of suture/needle combinations, are DSP's oldest product line and
accounted for approximately 31% of DSP's fiscal 1995 revenues. The
22
<PAGE> 24
company developed Tevdek(R) surgical sutures in 1950, the first coated
Dacron-based suture, followed by Silky Polydek, a softer, easier to handle and
tie suture. DSP emphasizes high quality specialty sutures for cardiovascular and
plastic surgery, utilizing special materials, advanced metallurgy and packaging
innovations. Approximately 42% of DSP's United States sales are attributable to
high margin "specials" in which individual surgeons order nonstandard products
and customized suture/needle combinations for specific procedures.
Surgical Instruments. DSP's surgical instruments product line accounted
for approximately 25% of fiscal 1995 revenues. The company sells cardiovascular
punches, which are used during coronary artery bypass surgery to make cleanly
cut holes, and hand-held, reusable instruments such as needleholders, scissors,
forceps, graspers, dissectors and retractors. The company's instruments are used
in cardiovascular, plastic, endoscopic and general surgery. In April 1994, DSP
acquired Snowden-Pencer, Inc., a manufacturer of specialty surgical instruments
and accessories that was well known in the surgical community in part due to its
history of working directly with leading surgeons to design and develop new
surgical instruments. In addition to expanding DSP's product line with
technologically advanced products, the Snowden-Pencer, Inc. acquisition provided
DSP with a strong marketing focus. DSP's surgical instruments are sold directly
to the surgeon, the key decision maker on purchases of specialty instruments.
DSP manufactures its products at facilities located in Fall River,
Massachusetts, Tucker, Georgia and Coventry, Connecticut and has sales offices
in Germany and France. The company has approximately 585 employees.
GENETRIX ACQUISITION
On May 1, 1996, Genzyme acquired Genetrix, Inc., a privately held genetic
testing laboratory based in Phoenix, Arizona, in a tax-free exchange of General
Division Stock. Approximately 690,000 shares of General Division Stock, valued
at approximately $36.5 million, were issued. The acquisition will be accounted
for as a purchase. The excess of the purchase price over the fair market value
of the net assets acquired, approximately $35 million, was allocated to goodwill
and will be amortized over 11 years.
STOCK SPLIT
On June 7, 1996, Genzyme announced a two-for-one stock split of the General
Division Stock payable July 25, 1996 to stockholders of record on July 11, 1996.
Consummation of the stock split is subject to stockholder approval of an
increase in the authorized number of shares of General Division Stock to 200
million at a special meeting to be held on July 24, 1996.
23
<PAGE> 25
DESCRIPTION OF NOTES
The Notes will be issued under an Indenture to be dated as of ,
1996 (the "Indenture"), between the Company and State Street Bank and Trust
Company, as Trustee (the "Trustee"). The Indenture will be substantially in the
form filed as an exhibit to the Registration Statement of which this Prospectus
is a part. The statements under this caption relating to the Indenture and the
Notes are summaries and do not purport to be complete. Such summaries make use
of certain terms defined in the Indenture and are qualified in their entirety by
express reference to the Indenture. The terms of the Notes will also include
those made a part of the Indenture by reference to the Trust Indenture Act of
1939, as amended. For purposes of this section, the term "Company" means only
Genzyme Corporation and not its subsidiaries.
GENERAL
The Notes will be general unsecured obligations of the Company limited to
an aggregate principal amount of $225,000,000 ($250,000,000 if the Underwriter's
over-allotment option is exercised in full). The Notes will bear interest from
the closing date ( , 1996) at the rate set forth on the cover page of
this Prospectus, will mature on , 2001 (unless earlier redeemed at
the option of the Company, converted into General Division Stock at the option
of the holder or repurchased by the Company at the option of the holder upon a
Fundamental Change) and will be subordinated obligations of the Company.
Interest will be payable semiannually, on and ,
commencing , 1996, to the registered holders of record on the
preceding and , respectively. Although the Notes are
general obligations of the Company, principal and interest will be paid from
funds allocated for financial statement presentation purposes to the General
Division. Holders of the Notes will have no specific claim against the assets
attributable to the General Division.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof. As described below under
"-- Book-Entry, Delivery and Form," the Notes will be represented by one or more
global notes (the "Global Notes") registered in the name of or held by DTC or
its nominee. Payments of principal of and premium, if any, and interest on the
Global Notes will be made in immediately available funds to DTC or its nominee,
as the case may be, as the registered holder of such Global Notes. See
"-- Settlement and Payment."
The Indenture will not contain any restrictions on the payment of dividends
or the repurchase of securities of the Company or any financial covenants. The
Indenture will contain no covenants or other provisions to afford protection to
holders of Notes in the event of a highly leveraged transaction or a change in
control of the Company except to the extent described under "-- Repurchase at
Option of Holder Upon a Fundamental Change."
CONVERSION RIGHTS
The Notes will be convertible at their principal amount into General
Division Stock at any time prior to redemption, repurchase or maturity, in whole
or from time to time in part (in denominations of $1,000 and integral multiples
thereof), at the option of the holder thereof, initially at the conversion price
stated on the cover page of this Prospectus, subject to adjustment as described
below. The right to convert Notes which are called for redemption will terminate
at the close of business on the business day immediately preceding the
redemption date (unless, in any case, the Company defaults in payment of the
redemption price, in which case the conversion right will terminate on the date
such default is cured) and will be lost if not exercised prior to that time,
even if redemption occurs at a time when conversion of the Notes or portion
thereof is in the best interests of the holder.
The right of conversion attaching to any Note may be exercised (a) if such
Note is represented by a Global Note, by book-entry transfer to the conversion
agent (which will initially be the Trustee) through the facilities of DTC, or
(b) if definitive Notes have been issued, by delivery at the specified office of
a conversion agent, accompanied, in either case, by a duly signed and completed
notice of conversion. The conversion date shall be the date on which the Note
and the duly signed and completed notice of conversion shall have been so
delivered. A holder delivering a Note for conversion will not be required to pay
any taxes or duties payable in
24
<PAGE> 26
respect of the issue or delivery of General Division Stock upon conversion, but
will be required to pay any tax or duty which may be payable in respect of any
transfer involved in the issue or delivery of the General Division Stock in a
name other than the holder of the Note. Certificates representing shares of
General Division Stock will not be issued or delivered unless all taxes and
duties, if any, payable by the holder have been paid.
The conversion privilege and price will be subject to adjustment upon the
occurrence of certain events, including (i) the issuance of capital stock of the
Company as a dividend (or other distribution) on the General Division Stock,
(ii) the distribution to all holders of General Division Stock of rights or
warrants entitling them to subscribe for or purchase General Division Stock at
less than the current market price (as defined in the Indenture) on the record
date for such issuance, (iii) subdivisions, combinations and certain
reclassifications of General Division Stock, (iv) the distribution to all
holders of General Division Stock of cash, debt or other securities (other than
General Division Stock) or other assets (excluding dividends or distributions
for which an adjustment is required to be made under (ii) above or (v) below),
(v) a dividend or other distribution consisting exclusively of cash to all
holders of General Division Stock, excluding (A) cash dividends that do not
exceed the per share amount of the immediately preceding regular cash dividend
(as adjusted to reflect any of the events referred to in clauses (i) through
(vi) of this sentence) and (B) cash dividends if the annualized per share amount
thereof does not exceed 15% of the current market price of General Division
Stock as of the trading day immediately preceding the date of declaration of
such dividend; and (vi) payment to holders of General Division Stock in respect
of a tender or exchange offer (other than an odd-lot offer) by the Company or
any subsidiary of the Company for General Division Stock at a price in excess of
110% of the current market price of General Division Stock as of the trading day
next succeeding the last date tenders or exchanges may be made pursuant to such
tender or exchange offer.
No adjustment in the conversion price will be required unless such
adjustment would require a change of at least 1% in the conversion price then in
effect; provided that any adjustment that would otherwise be required to be made
shall be carried forward and taken into account in any subsequent adjustment. No
adjustment will be made with respect to clause (iv) above if, in lieu of such
adjustment, the holders of the Notes, upon conversion, will be entitled to
receive, in addition to the shares of General Division Stock into which such
Notes are convertible, the kind and amount of shares, evidences of indebtedness
or assets comprising the distribution that such holders would have received had
they converted their Notes immediately prior to the record date for determining
the stockholders entitled to receive such distribution. The Company from time to
time may voluntarily reduce the conversion price for a period of at least twenty
days. Fractional shares of General Division Stock will not be issued upon
conversion, but, in lieu thereof, the Company will pay a cash adjustment based
upon the market price of the General Division Stock. No payment or adjustment
will be made for interest accrued on a converted Note or for dividends or
distributions on any General Division Stock issued upon conversion of any Note.
Subject to the rights of holders of the Notes described below under
"-- Repurchase at Option of Holder Upon a Fundamental Change," if the Company
consolidates with or merges into or transfers or leases all or substantially all
of its assets to any person, or is a party to a merger that reclassifies or
changes its outstanding General Division Stock, the holder of each Note then
outstanding shall after such consolidation, merger, transfer or lease have the
right to convert such Note into the kind and amount of shares of stock, other
securities or property (which may include cash), that such holder would have
been entitled to receive upon such consolidation, merger, transfer or lease if
such holder had held the General Division Stock issuable upon the conversion of
such Note immediately prior to such consolidation, merger, transfer or lease
(assuming, in a case in which the Company's stockholders may exercise rights of
election, that a holder of Notes would not have exercised any rights of election
as to the stock, other securities or other property or assets receivable in
connection therewith and received per share the kind and amount received per
share by a plurality of non-electing shares).
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<PAGE> 27
REDEMPTION AT THE COMPANY'S OPTION
The Notes may not be redeemed prior to , 1999 and are
redeemable on such date and thereafter at the option of the Company, as a whole
or from time to time in part, at the following prices (expressed as percentages
of the principal amount) plus accrued interest to, but not including, the
redemption date, if redeemed during the twelve-month period beginning of the
years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
-------------------------------------------------------------------------- ----------
<S> <C>
1999...................................................................... %
2000 and thereafter....................................................... %
</TABLE>
Notice of redemption at the Company's option will be mailed at least 30
days, but not more than 60 days, before the redemption date to the registered
address of each holder of Notes to be redeemed. If fewer than all the Notes are
to be redeemed, selection of Notes for redemption will be made by the Trustee by
lot, or in its discretion, on a pro rata basis. If any Notes are to be redeemed
in part only, the notice of redemption relating to such Notes shall state the
portion of the principal amount (in integral multiples of $1,000) to be
redeemed. In that case, new Notes in principal amount equal to the unredeemed
portion thereof will be issued in the name of the holder thereof upon surrender
to the Trustee of the original Notes.
No sinking fund is provided for the Notes.
REPURCHASE AT OPTION OF HOLDER UPON A FUNDAMENTAL CHANGE
If a Fundamental Change occurs, each holder of Notes shall have the right,
at the holder's option, to require the Company to repurchase all of such
holder's Notes, or any portion thereof that is an integral multiple of $1,000,
on the date (the "Repurchase Date") selected by the Company that is not less
than ten nor more than 30 days after the Final Surrender Date (as defined
below), at a price equal to 100% of the principal amount of the Notes, plus
accrued interest to the Repurchase Date.
Within 30 days after the occurrence of a Fundamental Change, the Company is
obligated to mail to all holders of record of the Notes a notice (the "Company
Notice") describing, among other things, the occurrence of such Fundamental
Change and of the repurchase right arising as a result thereof. The Company must
deliver a copy of the Company Notice to the Trustee and cause a copy of such
notice to be published in a newspaper of general circulation in the Borough of
Manhattan, The City of New York. To exercise the repurchase right, a holder of
Notes must surrender, on or before the date which is, subject to any contrary
requirements of applicable law, 60 days after the date of mailing of the Company
Notice (the "Final Surrender Date"), irrevocable written notice to the Company
(or an agent designated by the Company for such purpose) and the Trustee of the
holder's exercise of such right together with the Notes (if such Note is
represented by a Global Note, by book-entry transfer to the conversion agent
through the facilities of DTC) with respect to which the right is being
exercised, duly endorsed for transfer to the Company, together with a written
notice of election. The submission of such notice together with such Notes
pursuant to the exercise of a repurchase right will be irrevocable on the part
of the holder (unless the Company fails to repurchase the Notes on the
repurchase date) and the right to convert the Notes will expire upon such
submission.
The term "Fundamental Change" shall mean any of the following:
(i) a "person" or "group" (within the meaning of Sections 13(d) and
14(d)(2) of the Exchange Act) becoming the "beneficial owner" (as defined
in Rule 13d-3 under the Exchange Act) of Voting Shares (as defined below)
of the Company entitled to exercise more than 50% of the total voting power
of all outstanding Voting Shares of the Company (including any Voting
Shares that are not then outstanding of which such person or group is
deemed the beneficial owner); or
(ii) a change in the Board of Directors of the Company in which the
individuals who constituted the Board of Directors of the Company at the
beginning of the two-year period immediately preceding such change
(together with any other director whose election by the Board of Directors
of the Company or whose nomination for election by the shareholders of the
Company was approved by a vote of at least two-thirds of the directors then
in office who either were directors at the beginning of such period or
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<PAGE> 28
whose election or nomination for election was previously so approved) cease
for any reason to constitute a majority of the directors then in office; or
(iii) any consolidation of the Company with, or merger of the Company
into, any other person, any merger of another person into the Company, or
any sale or transfer of all or substantially all of the assets of the
Company to another person (other than (a) a merger which does not result in
any reclassification, conversion, exchange or cancellation of outstanding
shares of General Division Stock, (b) a merger which is effected solely to
change the jurisdiction of incorporation of the Company or (c) any
consolidation with or merger of the Company into a wholly owned subsidiary
of the Company, or any sale or transfer by the Company of all or
substantially all of its assets to one or more of its wholly owned
subsidiaries, in any one transaction or a series of transactions, provided,
in any such case, that the resulting corporation or each such subsidiary
assumes or guarantees the Company's obligations under the Notes); provided,
however, that a Fundamental Change shall not occur with respect to any such
transaction if either (i) the last sale price of the General Division Stock
for any five trading days during the ten trading days immediately preceding
the public announcement by the Company of such transaction is at least
equal to 105% of the conversion price in effect on such trading day or (ii)
the consideration in such transaction to the holders of General Division
Stock consists of cash, securities that are, or immediately upon issuance
will be, listed on a national securities exchange or quoted on the Nasdaq
National Market, or a combination of cash and such securities, and the
aggregate fair market value of such consideration (which, in the case of
such securities, shall be equal to the average of the last sale prices of
such securities during the ten consecutive trading days commencing with the
sixth trading day following consummation of the transaction) is at least
105% of the conversion price in effect on the date immediately preceding
the closing date of such transaction.
"Voting Shares" is defined to mean all outstanding shares of any class or
classes (however designated) of capital stock entitled to vote generally in the
election of members of the Board of Directors and includes, without limitation,
the General Division Stock and the TR Stock.
The right to require the Company to repurchase the Notes as a result of the
occurrence of a Fundamental Change could create an event of default under
existing or future Senior Indebtedness of the Company, as a result of which any
repurchase could, absent a waiver, be blocked by the subordination provisions of
the Notes. See "Description of Notes -- Subordination." Failure by the Company
to repurchase the Notes when required will result in an Event of Default with
respect to the Notes whether or not such repurchase is permitted by the
subordination provisions.
The holders' repurchase right upon the occurrence of a Fundamental Change
could, in certain circumstances, make more difficult or discourage a potential
takeover of the Company and, thus, removal of incumbent management. The
Fundamental Change repurchase right, however, is not the result of management's
knowledge of any specific effort to accumulate shares of General Division Stock
or to obtain control of the Company by means of a merger, tender offer,
solicitation or otherwise. Instead, the Fundamental Change purchase feature is a
standard term contained in other similar debt offerings and the terms of such
feature have resulted from negotiations between the Company and the Underwriter.
The Indenture does not permit the Company's Board of Directors to waive the
Company's obligation to purchase Notes at the option of a holder in the event of
a Fundamental Change. The Company could, however, in the future, enter into
certain transactions, including highly leveraged recapitalizations, that would
not constitute a Fundamental Change and would, therefore, not provide the
holders with the protection of requiring the Company to repurchase the Notes.
Rule 13e-4 under the Exchange Act requires the dissemination of certain
information to security holders in the event of an issuer tender offer and may
apply in the event that the repurchase option becomes available to holders of
the Notes. The Company will comply with this rule to the extent applicable at
that time.
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<PAGE> 29
SUBORDINATION
The payment of the principal of, and premium, if any, and interest on, the
Notes will be subordinated in right of payment to the extent set forth in the
Indenture to the prior payment in full of amounts then due on all Senior
Indebtedness, as defined in the Indenture. In addition, the Notes are
effectively subordinated in right of payment to third party indebtedness of the
Company's subsidiaries. As of March 31, 1996, as adjusted to give effect to this
offering and the anticipated use of the net proceeds therefrom, the Company and
its subsidiaries would have had an aggregate of $34,648,000 of consolidated
indebtedness and other obligations effectively ranking senior to the Notes. Upon
the maturity of Senior Indebtedness, whether by acceleration or otherwise, or
any distribution of assets of the Company resulting from any liquidation,
dissolution, winding up, reorganization or any insolvency proceedings of the
Company, the holders of all Senior Indebtedness will first be entitled to
receive payment in full before the holders of the Notes will be entitled to
receive any payment of the principal of, or premium, if any, or interest on, the
Notes. During the continuance of any default with respect to Senior Indebtedness
entitling the holders thereof to accelerate the maturity thereof, or if any such
default would be caused by any payment upon or in respect of the Notes, no
payment may be made by the Company upon or in respect of the Notes. By reason of
such subordination, in the event of insolvency, holders of the Notes may recover
less, ratably, than other creditors of the Company.
"Senior Indebtedness" is defined to mean: (a) the principal of, interest on
and any other amounts owing with respect to (i) any indebtedness of the Company,
now or hereafter outstanding, in respect of borrowed money (other than the
Notes), (ii) any indebtedness of the Company, now or hereafter outstanding,
evidenced by a bond, note, debenture, capitalized lease, letter of credit or
other similar instrument, (iii) any other written obligation of the Company, now
or hereafter outstanding, to pay money issued or assumed as all or part of the
consideration for the acquisition of property, assets or securities and (iv) any
guaranty or endorsement (other than for collection or deposit in the ordinary
course of business) or discount with recourse of, or other agreement (contingent
or otherwise) to purchase, repurchase or otherwise acquire, to supply or advance
funds or to become liable with respect to (directly or indirectly), any
indebtedness or obligation of any person of the type referred to in the
preceding subclauses (i), (ii) and (iii) now or hereafter outstanding, and (b)
any refundings, renewals or extensions of any indebtedness or other obligation
described in clause (a); unless, in the case of any of the foregoing, the
instrument, lease or other document creating or evidencing the same expressly
provides that such indebtedness or obligation by its terms is not senior in
right of payment to the Notes. The Indenture does not contain any limitation or
restriction on the issuance of Senior Indebtedness or other indebtedness or
securities of the Company or its subsidiaries.
The Indenture permits the Trustee to become a creditor of the Company and
does not preclude the Trustee from enforcing its rights as a creditor, including
rights as a holder of Senior Indebtedness. See "Concerning the Trustee."
In the event that the Trustee or any holder of Notes receives any payment
or distribution of assets of the Company of any kind in contravention of any of
the terms of the Indenture, whether in cash, property or securities, including,
without limitation, by way of set-off or otherwise, in respect of the Notes
before all Senior Indebtedness is paid in full, then such payment or
distribution will be held by the recipient in trust for the benefit of holders
of Senior Indebtedness of the Company or their representative or representatives
to the extent necessary to make payment in full of all Senior Indebtedness of
the Company remaining unpaid, after giving effect to any concurrent payment or
distribution, or provision therefor, to or for the holders of Senior
Indebtedness of the Company.
Any right of the Company to receive assets of any of its subsidiaries upon
their liquidation or reorganization (and the consequent right of the holders of
the Notes to participate in these assets) will be effectively subordinated to
the claims of that subsidiary's creditors (including trade creditors), except to
the extent that the Company is itself recognized as a creditor of such
subsidiary, in which case the claims of the Company would still be subordinate
to any security interests in the assets of such subsidiary and any indebtedness
of such subsidiary senior to that held by the Company and would be subject to
judicial power to subordinate the Company's claim to those of other creditors of
such subsidiary in certain cases.
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<PAGE> 30
The Company will be obligated to pay reasonable compensation to the Trustee
and to indemnify the Trustee against any losses, liabilities or expenses
incurred by it in connection with its duties relating to the Notes. The
Trustee's claims for such payments will be senior to those of holders of the
Notes in respect of all funds collected or held by the Trustee.
EVENTS OF DEFAULT AND NOTICE THEREOF
The following are Events of Default: (a) a default in the payment of any
interest on the Notes continued for 30 days, (b) a default in the payment of
principal of or premium, if any, on the Notes or of the repurchase price in
respect of any Note when due, (c) a default in the performance of any other
covenant or agreement of the Company in the Indenture continued for 60 days
after written notice to the Company by the Trustee or the holders of at least
25% in principal amount of outstanding Notes, (d) failure by the Company to make
any payment when due, including any applicable grace period, in respect of
indebtedness for borrowed money of the Company, which payment is in an amount in
excess of $20 million, (e) default by the Company with respect to any
indebtedness for borrowed money of the Company, which default results in
acceleration of any such indebtedness which is in an amount in excess of $20
million, and (f) certain events of bankruptcy, insolvency or reorganization.
If an Event of Default shall occur and be continuing and if it is known to
the Trustee, the Trustee is required to mail to each holder of the Notes a
notice of the Event of Default within 90 days after such default occurs. Except
in the case of a default in payment of the principal of or premium, if any, or
interest on any Note, the Trustee may withhold the notice if and so long as the
Trustee in good faith determines that withholding the notice is in the interests
of the holders of the Notes.
If an Event of Default shall occur and be continuing, the Trustee or the
holders of not less than 25% in principal amount of outstanding Notes may
declare the principal of, and accrued interest on, all the Notes to be due and
payable immediately.
Holders of the Notes may not enforce the Indenture or Notes except as
provided in the Indenture. Subject to the provisions of the Indenture relating
to the duties of the Trustee in case an Event of Default shall occur and be
continuing, the Trustee will be under no obligation to exercise any of the
rights or powers under the Indenture at the request or direction of any holders
of the Notes, unless the holders shall have offered the Trustee indemnity
reasonably satisfactory to it. Subject to the indemnification provisions and
certain limitations contained in the Indenture, the holders of a majority in
principal amount of the Notes at the time outstanding will have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. Those holders may, in certain cases, waive any default except a default
in payment of principal of, or premium, if any, or interest on, the Notes or a
failure to comply with certain provisions of the Indenture relating to
conversion of the Notes.
The Company is required to furnish the Trustee annually with a certificate
as to the compliance with the conditions and covenants provided for in the
Indenture.
DISCHARGE
The Indenture provides that the Company may terminate its obligations under
the Indenture at any time by delivering all outstanding Notes to the Trustee for
cancellation. At any time within one year of the maturity of the Notes or the
redemption of all the Notes, the Company may terminate its substantive
obligations under the Indenture, other than its obligations to pay the principal
of, and interest on, the Notes at any time, by depositing with the Trustee,
money or U.S. Government obligations sufficient to pay all remaining
indebtedness on the Notes when due.
MERGER AND CONSOLIDATION
The Company may not consolidate or merge with or into, or sell, lease,
convey or otherwise dispose of all or substantially all of its assets to,
another corporation, person or entity unless (i) the Company is the
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<PAGE> 31
surviving person or the successor or transferee is a corporation organized under
the laws of the United States, any state thereof or the District of Columbia, or
a corporation or comparable legal entity organized under the laws of a foreign
jurisdiction and whose equity securities are listed on a national securities
exchange in the United States or authorized for quotation on the Nasdaq National
Market, (ii) the successor assumes all the obligations of the Company under the
Notes and the Indenture and (iii) after such transaction no Event of Default
exists.
MODIFICATION AND WAIVER
Subject to certain exceptions, supplements of and amendments to the
Indenture or the Notes may be made by the Company and the Trustee with the
consent of the holders of not less than a majority in aggregate principal amount
of the outstanding Notes and any existing default of compliance with any
provisions may be waived with the consent of the holders of a majority in
aggregate principal amount of the outstanding Notes. Without the consent of any
holders of the Notes, the Company and the Trustee may amend or supplement the
Indenture or the Notes to cure any ambiguity, defect or inconsistency, to
provide for uncertificated Notes in addition to or in place of certificated
Notes, to provide for the assumption of the Company's obligations to holders of
the Notes in case of a merger or acquisition otherwise in compliance with the
Indenture or to make any change that does not materially adversely affect the
rights of any holder of the Notes. Without the consent of the holder of each
Note affected thereby, an amendment, supplement or waiver may not (a) change the
stated maturity date of the principal of, or interest on, any Note, or adversely
affect the right to convert any Note, (b) reduce the principal or repurchase
price of, or interest or premium, if any, on, any Note, (c) change the currency
for payment of principal of, or interest on, any Note, (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Note, (e) modify the provisions of the Indenture with respect to the
subordination of the Notes in a manner adverse to the holders, (f) reduce the
above stated percentage of outstanding Notes necessary to amend or supplement
the Indenture or waive defaults or compliance or (g) modify (with certain
exceptions) any provisions of the Indenture relating to modification and
amendment of the Indenture or waiver of compliance with conditions and defaults
thereunder.
CONCERNING THE TRUSTEE
State Street Bank and Trust Company, the Trustee under the Indenture, has
been appointed by the Company as the initial paying agent, conversion agent and
registrar with regard to the Notes. The Company and its subsidiaries may
maintain deposit accounts and conduct other banking transactions with the
Trustee or its affiliates in the ordinary course of business, and the Trustee
and its affiliates may from time to time in the future provide the Company with
banking and financial services in the ordinary course of their business.
In case an Event of Default shall occur (and shall not be cured) and
holders of the Notes have notified the Trustee, the Trustee will be required to
exercise its powers with the degree of care and skill of a prudent person in the
conduct of such person's own affairs. Subject to such provisions, the Trustee is
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any of the holders of Notes, unless they shall have offered to
the Trustee security and indemnity satisfactory to it.
BOOK-ENTRY, DELIVERY AND FORM
Upon issuance, the Notes will be represented by a Global Note or Notes.
Each Global Note will be deposited with, or on behalf of, DTC and registered in
the name of a nominee of DTC. Except under the limited circumstances described
below, Global Notes will not be exchangeable for definitive certificated Notes.
Ownership of beneficial interests in a Global Note will be limited to
institutions that have accounts with DTC or its nominee ("participants") or
persons that may hold interests through participants. In addition, ownership of
beneficial interests by participants in such Global Note will be evidenced only
by, and the transfer of that ownership interest will be effected only through,
records maintained by DTC or its nominee for such Global Note. Ownership of
beneficial interests in such Global Note by persons that hold through
participants will be evidenced only by, and the transfer of that ownership
interest within such participant will
30
<PAGE> 32
be effected only through, records maintained by such participant. DTC has no
knowledge of the actual beneficial owners of the Notes. Beneficial owners will
not receive written confirmation from DTC of their purchase, but beneficial
owners are expected to receive written confirmations providing details of the
transaction, as well as periodic statements of their holdings, from the
participants through which the beneficial owners entered the transaction. The
laws of some jurisdictions require that certain purchasers of securities take
physical delivery of such securities in definitive form. Such laws may impair
the ability to transfer beneficial interests in such Global Note.
Payment of principal of and premium, if any, and interest on Notes
represented by a Global Note registered in the name of or held by DTC or its
nominee will be made to DTC or its nominee, as the case may be, as the
registered holder of the Global Note representing such Notes. The Company has
been advised by DTC that upon receipt of any payment of principal of or premium,
if any, or interest on a Global Note, DTC will immediately credit, on its
book-entry registration and transfer system, accounts of participants with
payments in amounts proportionate to their respective beneficial interests in
the principal amount of such Global Note as shown in the records of DTC.
Payments by participants to owners of beneficial interests in a Global Note held
through such participants will be governed by standing instructions and
customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in "street name," and will be the sole
responsibility of such participants, subject to any statutory or regulatory
requirements as may be in effect from time to time.
None of the Company, the Trustee or any other agent of the Company or the
Trustee will have any responsibility or liability for any aspect of the records
of DTC, any nominee or any participant relating to, or payments made on account
of, beneficial interests in a Global Note or for maintaining, supervising or
reviewing any of the records of DTC, any nominee or any participant relating to
such beneficial interests.
A Global Note is exchangeable for definitive Notes registered in the name
of, and a transfer of a Global Note may be registered to, any person other than
DTC or its nominee, only if:
(a) DTC notifies the Company that it is unwilling or unable to
continue as depository for such Global Note or if at any time DTC ceases to
be a clearing agency registered under the Exchange Act; or
(b) the Company in its sole discretion determines that such Global
Note shall be exchangeable for definitive Notes in registered form.
Any Global Note that is exchangeable pursuant to the preceding sentence
will be exchangeable in whole for definitive Notes in registered form, of like
tenor and of an equal aggregate principal amount as the Global Note, in
denominations of $1,000 and integral multiples thereof. Such definitive Notes
will be registered in the name or names of such persons as DTC shall instruct
the Trustee. The principal, premium, if any, and interest with respect to
definitive Notes will be payable, the transfer of the definitive Notes will be
registrable, the definitive Notes will be exchangeable, and the definitive Notes
may be presented for conversion, at the office or agency of the Company
maintained for such purposes, which shall initially be the Corporate Trust
Office of the Trustee located in the Borough of Manhattan, The City of New York.
In addition, payment of interest on definitive Notes may, at the option of the
Company, be made by check mailed to the address of the person entitled thereto
as it appears in the Note register. Interest payable to any holder of such Notes
having an aggregate principal amount in excess of $5,000,000 shall, at the
election of such holder in writing to the Trustee at least 10 days prior to the
date of payment, be paid by wire transfer in immediately available funds.
The Company will not be required (i) to issue, register the transfer of or
exchange any Note during a period beginning at the opening of business 15 days
before the date of the mailing of a notice of redemption and ending at the close
of business on the date of such mailing, or (ii) to register the transfer of or
exchange any Note selected for redemption in whole or in part, except the
unredeemed portion of Notes being redeemed in part.
Except as provided above, owners of beneficial interests in a Global Note
will not be entitled to receive physical delivery of Notes in definitive form
and will not be considered the holders thereof for any purpose under the
Indenture, and no Global Note shall be exchangeable except for another Global
Note of like denomination and tenor to be registered in the name of DTC or its
nominee. Accordingly, each person owning
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<PAGE> 33
a beneficial interest in such Global Note must rely on the procedures of DTC
and, if such person is not a participant, on the procedures of the participant
through which such person owns its interest, to exercise any rights of a holder
under the Global Note.
The Company understands that, under existing industry practices, in the
event that the Company requests any action of holders, or an owner of a
beneficial interest in such Global Note desires to give or take any action that
a holder is entitled to give or take under the Notes, DTC would authorize the
participants holding the relevant beneficial interests to give or take such
action, and such participants would authorize beneficial owners owning through
such participants to give or take such action or would otherwise act upon the
instructions of beneficial owners owning through them.
DTC has advised the Company that DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code and a "clearing agency" registered under the Exchange Act. DTC
was created to hold securities of its participants and to facilitate the
clearance and settlement of securities transactions among its participants in
such securities through electronic book-entry changes in accounts of the
participants, thereby eliminating the need for physical movement of securities
certificates. DTC's participants include securities brokers and dealers, banks,
trust companies, clearing corporations and certain other organizations. DTC is
owned by a number of its participants and by the New York Stock Exchange, the
American Stock Exchange, Inc. and the National Association of Securities
Dealers, Inc. Access to DTC's book-entry system is also available to others,
such as banks, brokers, dealers and trust companies that clear through or
maintain a custodial relationship with a participant, either directly or
indirectly. The rules applicable to DTC and its participants are on file with
the Commission.
SETTLEMENT AND PAYMENT
Settlement for the Notes will be made in immediately available funds on the
closing date ( , 1996). So long as the Notes are represented by a
Global Note or Notes, all payments of principal, premium, if any, and interest
will be made by the Company in immediately available funds.
GOVERNING LAW
The Indenture and Notes will be governed by and construed in accordance
with the laws of the State of New York, without giving effect to such State's
conflicts of law principles.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a general discussion of certain United States federal
income tax considerations relevant to holders of the Notes. This discussion is
based on the Internal Revenue Code of 1986, as amended (the "Code"), Treasury
Regulations thereunder, Internal Revenue Service ("IRS") rulings and judicial
decisions now in effect, all of which are subject to change (possibly with
retroactive effect) or to different interpretations. This discussion does not
purport to deal with all aspects of federal income taxation that may be relevant
to a particular investor's decision to purchase the Notes, and it is not
intended to be wholly applicable to all categories of investors, some of which
(such as dealers in securities, banks, insurance companies, tax-exempt
organizations and non-United States persons) may be subject to special rules. In
addition, this discussion is limited to persons that purchase the Notes pursuant
to this Prospectus and hold the Notes as "capital assets" within the meaning of
Section 1221 of the Code.
PROSPECTIVE PURCHASERS OF THE NOTES ARE ADVISED TO CONSULT THEIR OWN TAX
ADVISORS REGARDING THE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE
PURCHASE, OWNERSHIP AND DISPOSITION OF THE NOTES AND THE GENERAL DIVISION STOCK.
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<PAGE> 34
CONVERSION OF NOTES INTO GENERAL DIVISION STOCK
In general, no gain or loss will be recognized for income tax purposes on a
conversion of the Notes into shares of General Division Stock. However, cash
paid in lieu of a fractional share of General Division Stock will result in
taxable gain (or loss), which will be capital gain (or loss) to the extent that
the amount of such cash exceeds (or is exceeded by) the portion of the adjusted
basis of the Note allocable to such fractional share. The adjusted basis of
shares of General Division Stock received on conversion will equal the adjusted
basis of the Note converted, reduced by the portion of adjusted basis allocated
to any fractional share of General Division Stock exchanged for cash. The
holding period of an investor in the General Division Stock received on
conversion will include the period during which the converted Note was held.
The conversion price of the Notes is subject to adjustment under certain
circumstances. See "Description of Notes -- Conversion Rights." Section 305 of
the Code and the Treasury Regulations issued thereunder may treat the holders of
the Notes as having received a constructive distribution, resulting in ordinary
income to the extent of the Company's current earnings and profits, if and to
the extent that certain adjustments in the conversion price that may occur in
limited circumstances (particularly an adjustment to reflect a taxable dividend
to holders of General Division Stock) increase the proportionate interest of a
holder of Notes in the fully diluted General Division Stock, whether or not such
holder ever exercises its conversion privilege. Moreover, if there is not a full
adjustment to the conversion price of the Notes to reflect a stock dividend or
other event increasing the proportionate interest of the holders of outstanding
General Division Stock in the assets or earnings and profits of the Company,
then such increase in the proportionate interest of the holders of the General
Division Stock generally will be treated as a distribution to such holders,
taxable as ordinary income to the extent of the Company's earnings and profits.
The Company believes that the General Division Stock should be treated as
common stock of the Company. Holders should be aware, however, that there are no
federal income tax regulations, court decisions or published IRS rulings bearing
directly on the characterization of the General Division Stock. In addition, the
IRS announced in 1987 that it was studying the federal income tax consequences
of stock that has certain voting and liquidation rights in an issuing
corporation, but whose dividend rights are determined by reference to the
earnings and profits of a segregated portion of the issuing corporation's
assets, and would not issue any advance rulings regarding such stock. During
1995, the IRS withdrew such stock from its list of matters under consideration
and reiterated that is would not issue advance rulings regarding such stock. It
is possible that the IRS might take the position that the General Division Stock
represents property other than stock of the Company, with the result that (i) a
portion of the purchase price of the Notes could be allocated to the conversion
right, potentially resulting in the Notes being issued with original issue
discount, and (ii) the conversion of Notes into shares of General Division Stock
would be a taxable transaction.
MARKET DISCOUNT
Under the market discount rules, if a holder purchases a Note at market
discount (i.e., at a price below its stated redemption price at maturity) in
excess of a statutorily-defined de minimis amount and thereafter recognizes gain
upon a disposition or retirement of the Note, then the lesser of the gain
recognized or the portion of the market discount that accrued on a ratable basis
(or, if elected, on a constant interest rate basis) generally will be treated as
ordinary income at the time of the disposition. Any accrued market discount not
previously taken into income prior to a conversion of a Note, however, should
(under Treasury Regulations not yet issued) carry over to the General Division
Stock received on conversion and be treated as ordinary income upon a subsequent
disposition of such General Division Stock to the extent of any gain recognized
on such disposition. In addition, absent an election to include market discount
in income as it accrues, a holder of a market discount debt instrument may be
required to defer a portion of any interest expense that otherwise may be
deductible on any indebtedness incurred or maintained to purchase or carry such
debt instrument until the holder disposes of the debt instrument in a taxable
transaction.
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SALE, EXCHANGE OR RETIREMENT OF NOTES
Each holder of Notes generally will recognize gain or loss upon the sale,
exchange, redemption, repurchase, retirement or other disposition of the Notes
(not including a conversion of the Notes into General Division Stock) measured
by the difference (if any) between (i) the amount of cash and the fair market
value of any property received (except to the extent that such cash or other
property is attributable to the payment of accrued interest not previously
included in income, which amount will be taxable as ordinary income) and (ii)
the holder's adjusted tax basis in those Notes (including any market discount
previously included in income by the holder). Each holder of General Division
Stock into which the Notes are converted, in general, will recognize gain or
loss upon the sale, exchange or other disposition of the General Division Stock
measured under rules similar to those described in the preceding sentence for
the Notes. Any such gain or loss recognized on the sale, exchange, repurchase,
retirement or other disposition of a Note or share of General Division Stock
should be capital gain or loss (except as discussed under "-- Market Discount"
above), and would be long-term capital gain or loss if the Note or the General
Division Stock had been held for more than one year at the time of the sale or
exchange. An investor's initial basis in a Note will be the cash price paid
therefor.
BACKUP WITHHOLDING
A holder of Notes or General Division Stock may be subject to backup
withholding at a rate of 31% with respect to certain reportable payments,
including interest payments, dividend payments and, under certain circumstances,
principal payments on the Notes. These backup withholding rules apply if the
holder, among other things, (i) fails to furnish a social security number or
other taxpayer identification number ("TIN") certified under penalties of
perjury within a reasonable time after the request therefor, (ii) furnishes an
incorrect TIN, (iii) fails to report properly interest or dividends or (iv)
under certain circumstances, fails to provide a certified statement, signed
under penalties of perjury, that the TIN furnished is the correct number and
that such holder is not subject to backup withholding. A holder who does not
provide the Company with its correct TIN also may be subject to penalties
imposed by the IRS. Any amount withheld from a payment to a holder under the
backup withholding rules is creditable against the holder's federal income tax
liability, provided the required information is furnished to the IRS. Backup
withholding will not apply, however, with respect to payments made to certain
holders, including corporations, tax-exempt organizations and certain foreign
persons, provided their exemption from backup withholding is properly
established.
The Company will report to the holders of Notes and General Division Stock
and to the IRS the amount of any reportable payments for each calendar year and
the amount of tax withheld, if any, with respect to such payments.
DESCRIPTION OF GENZYME CAPITAL STOCK
The following descriptions are qualified in their entirety by reference to
the Articles of Organization of Genzyme Corporation.
GENERAL
Genzyme is authorized to issue 150 million shares of capital stock,
consisting of 100 million shares of General Division Stock, 40 million shares of
TR Stock and 10 million shares of Preferred Stock. On July 24, 1996 a special
meeting of Genzyme's stockholders will be held for the purpose of voting on an
amendment to Genzyme's Articles of Organization that would increase the number
of shares of General Division Stock Genzyme is authorized to issue to 200
million. See "Business -- Recent Developments." Each class of common stock has
the voting powers, qualifications and rights described below.
DIVIDENDS
Genzyme's Articles of Organization provide that dividends on the General
Division Stock may be declared and paid only out of the lesser of (a) funds of
Genzyme legally available therefor and (b) the
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Available General Dividend Amount, as defined below, and that dividends on the
TR Stock may be paid out of the lesser of (a) funds of Genzyme legally available
therefor and (b) the Available Tissue Repair Dividend Amount, as defined below.
Under the Massachusetts Business Corporations Law (the "MBCL"), the payment of
dividends is permitted if the corporation is not insolvent, the dividend payment
does not render the corporation insolvent, and the dividend payment does not
violate the corporation's Articles of Organization. Subject to such limitations,
the Board may, in its sole discretion, declare and pay dividends exclusively on
either class of common stock, or both, in equal or unequal amounts,
notwithstanding the amounts available for the payment of dividends on each
class, the respective voting and liquidation rights of each class, the amounts
of prior dividends declared on each class or any other factor. Genzyme has never
paid a cash dividend on any class of its capital stock and currently intends to
retain all earnings for use in its business.
As stated above, in addition to the statutory limitations under the MBCL,
dividends on the General Division Stock and TR Stock would be limited to an
amount not in excess of the Available General Dividend Amount or the Available
Tissue Repair Dividend Amount, respectively. The "available dividend amount" for
each of the General Division Stock and the TR Stock is defined to mean generally
the greater of (A) the excess of (1) the greater of (a) the fair value of the
net assets allocated to the division represented by such class of common stock
and (b) an amount equal to stockholders' equity allocated to such division as of
June 30, 1994, increased or decreased, as appropriate, to reflect, after June
30, 1994, (i) the net income or loss of such division, (ii) any dividends or
other distributions (including by reclassification or exchange) declared or paid
with respect to, or repurchases or issuances of, any shares of capital stock
attributed to such division, but excluding dividends or other distributions paid
in shares of capital stock attributed to such division to the holders thereof,
and (iii) any other adjustments to the stockholders' equity of such division
made in accordance with generally accepted accounting principles, over (2) the
aggregate par value of all outstanding shares of capital stock attributed to
such division or (B) the amount legally available for the payment of dividends
determined in accordance with the MBCL applied as if such division were a
separate corporation.
EXCHANGE OF TR STOCK
Genzyme's Articles of Organization do not provide for either mandatory or
optional exchange or redemption of the General Division Stock, but do provide
that TR Stock may be exchanged for any combination of cash and/or General
Division Stock upon the terms described below. Genzyme cannot predict the impact
of its ability to effect such exchanges on the market prices of the General
Division Stock and TR Stock.
Optional Exchange. At any time after the later of (A) December 31, 1995 or
(B) the date on which equity investments in TR Stock by third-party investors or
the allocation of cash or cash equivalents from the General Division to GTR, or
any combination of such equity investments and allocations, equals an aggregate
of at least $10 million, the Board may determine to exchange all outstanding
shares of TR Stock for any combination of cash and/or General Division Stock
having a Fair Market Value equal to 130% of the Fair Market Value of TR Stock as
determined by the trading prices during a specified period prior to the first
public announcement by Genzyme of such exchange. Equity investments in TR Stock
have exceeded $10 million, and, as a result, the Board could elect to make such
an exchange at any time.
The foregoing provision allows Genzyme the flexibility to redeem all
outstanding shares of TR Stock and leave outstanding one class of common stock
that would represent the residual equity interest in all of Genzyme's
businesses. Subject to the limitations described above, the optional exchange
could be exercised at any future time if the Board determined that, under the
facts and circumstances then existing, an equity structure consisting of two
classes of common stock was no longer in the best interests of all of Genzyme's
stockholders (including holders of General Division Stock and holders of TR
Stock).
Mandatory Exchange. In the event of the Disposition, in one transaction or
a series of related transactions, by Genzyme of all or substantially all of the
properties and assets allocated to GTR (other than in connection with the
Disposition by Genzyme of all or substantially all of its properties and assets
in one transaction or a series of related transactions) to any person, entity or
group (other than (A) any entity in which Genzyme, directly or indirectly, owns
all of the equity interest or (B) certain entities formed in
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connection with obtaining financing for the programs or products of GTR),
Genzyme is required, on or prior to the first business day following the 90th
day following the consummation of such Disposition, to exchange each outstanding
share of TR Stock for any combination of cash and/or General Division Stock
having a Fair Market Value equal to 130% of the Fair Market Value of TR Stock as
determined by the trading prices during a specified period prior to the first
public announcement by Genzyme of such disposition. Consequently, holders of TR
Stock may receive a greater or lesser premium for their shares than any premium
paid by a third-party buyer of the assets of GTR. In addition, any such exchange
for shares of General Division Stock could be made at a time that is
disadvantageous to the holders of either General Division Stock or the holders
of TR Stock.
Certain Other Exchange Terms. "Fair Market Value" as of any date means the
average of the daily closing prices as reported by the Nasdaq National Market
(or the appropriate exchange on which such shares are then traded) for the 20
consecutive days commencing on the 30th trading day prior to such date. In the
event such closing prices are unavailable, Fair Market Value will be determined
by the Board. Genzyme's Articles of Organization contain the definitions of
"Disposition" and "Substantially all of the properties and assets of GTR," as
well as certain provisions with regard to required notices of exchanges of TR
Stock, treatment of fractional shares, rights to dividends, surrender and
exchange of stock certificates, payment of issue and transfer taxes and the
treatment of Convertible Securities.
VOTING RIGHTS
Genzyme's Articles of Organization provide that holders of shares of
General Division Stock and TR Stock vote together as a single class on all
matters as to which common stockholders generally are entitled to vote. On all
such matters, each share of General Division Stock has one vote, and through
December 31, 1996 each share of TR Stock has .29 votes. As of May 31, 1996,
holders of outstanding General Division Stock and TR Stock had approximately
90.4% and 9.6%, 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 TR Stock is entitled would be adjusted to equal the ratio of
the Fair Market Value of one share of TR Stock to the Fair Market Value of one
share of General Division Stock as of such date. The voting rights of TR Stock
will also be appropriately adjusted so as to avoid dilution in the aggregate
voting rights of either class in the event the outstanding shares of either
class are subdivided (by stock split, reclassification or otherwise) or combined
(by reverse stock split, reclassification or otherwise), or in the event of the
issuance of shares of either class as a dividend or a distribution to holders of
shares of that class. If shares of only one class of common stock are
outstanding, or if shares of any class of common stock are entitled to vote
separately as a class, each share of that class would have one vote.
The relative voting rights of General Division Stock and TR Stock are
adjusted from time to time as described above so that a holder's voting rights
may more closely reflect the market value of such holder's equity investment in
Genzyme. Adjustments in the relative voting rights of General Division Stock and
TR Stock may influence an investor interested in acquiring and maintaining a
fixed percentage of Genzyme's voting power to acquire such percentage of both
classes of common stock, and will limit the ability of investors in one class to
acquire for the same consideration relatively greater or lesser voting power per
share than investors in the other class. To the extent the relative market
values of General Division Stock and TR Stock change prior to the first
scheduled adjustment or in between any scheduled adjustments, however, an
investor in one class of common stock may acquire relatively more or less voting
power for the same consideration when compared with investors in the other class
of common stock.
In addition to matters on which the holders of the General Division Stock
and the TR Stock vote together as a single class of stock, Genzyme's Articles of
Organization require the approval by the holders of the affected class of common
stock at a meeting at which a quorum is present and the votes cast in favor of
the proposal exceed those cast against to:
(1) allow any proceeds from the disposition of the properties or
assets allocated to either division to be used in the business of the other
division without fair compensation;
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(2) allow any properties or assets allocated to either division to be
used in the business of the other division or for the declaration or
payment of any dividend or distribution on any class of common stock not
attributed to such division without fair compensation;
(3) issue shares of either class of common stock without allocating
the proceeds of such issuance to the division represented by such class of
common stock (provided, however, that Genzyme may without such approval
issue General Designated Shares and TR Designated Shares, as each such term
is defined below under the heading "TR Designated Shares and General
Designated Shares");
(4) change the rights or preferences of any class of common stock so
as to affect the class adversely; or
(5) effect any merger or business combination involving Genzyme as a
result of which (a) the holders of all classes of common stock of Genzyme
shall no longer own, directly or indirectly, at least fifty percent (50%)
of the voting power of the surviving corporation and (b) the holders of all
classes of common stock of Genzyme do not receive the same form of
consideration, distributed among such holders in proportion to the market
capitalization of each class of common stock as of the date of the first
public announcement of such merger or business combination.
In addition to the voting rights provided in Genzyme's Articles of
Organization, the approval of the holders of a majority of the outstanding
shares of each class of common stock, voting separately as a class, is required
under the current MBCL to approve any amendment to the Articles of Organization
that would alter or change the powers, preferences or special rights of the
shares of such class so as to affect them adversely. The MBCL does not currently
provide for any other separate voting rights for a class of common stock.
Consequently, because most matters brought to a stockholder vote will only
require the approval of a majority of all of Genzyme's outstanding capital stock
entitled to vote on such matters (including both classes of common stock) voting
together as a single class and because the holders of General Division Stock
currently have more than the number of votes required to approve any such
matter, such holders would be in a position to control the outcome of the vote
on such a matter. See "Risk Factors -- Risks Related to Two Classes of Common
Stock -- No Additional Separate Voting Rights."
LIQUIDATION RIGHTS
Genzyme's Articles of Organization provide that holders of outstanding
shares of General Division Stock and TR Stock will receive the assets, if any,
remaining for distribution to common stockholders on a per share basis in
proportion to the respective per share liquidation units of each class and such
holders will have no direct claim against any particular assets of Genzyme or
any of its subsidiaries. Each share of General Division Stock will have one
liquidation unit and each share of TR Stock will have .29 liquidation units
(equal to the number of votes to which each share of TR Stock was entitled on
December 16, 1994). The liquidation units of TR Stock will be appropriately
adjusted so as to avoid dilution in the aggregate liquidation rights of either
class in the event the outstanding shares of either class are subdivided (by
stock split, reclassification or otherwise) or combined (by reverse stock split,
reclassification or otherwise), or in the event of the issuance of shares of
either class as a dividend or a distribution to holders of shares of that class,
but will not otherwise be adjusted.
A merger or business combination involving Genzyme or a sale of all or
substantially all of the assets of Genzyme will not be treated as a liquidation.
However, Genzyme may not, without approval by the holders of the affected class
of Common Stock at a meeting at which a quorum is present and the votes cast in
favor of the action exceed those cast against, effect any merger or business
combination involving Genzyme as a result of which (a) the holders of all
classes of common stock of Genzyme shall no longer own, directly or indirectly,
at least fifty percent of the voting power of the surviving corporation, and (b)
the holders of all classes of common stock of Genzyme do not receive the same
form of consideration, distributed among such holders in proportion to the
market capitalization of each class of common stock as of the date of the first
public announcement of such merger or business combination.
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TR DESIGNATED SHARES AND GENERAL DESIGNATED SHARES
Prior to the formation of GTR in December 1994, the Board determined that
the initial pro forma equity interest in GTR would be represented by 10 million
shares of TR Stock. This number of shares of TR Stock was established based on
the desired initial trading range of TR Stock, prevailing market conditions,
financial and operating information of GTR and the price-earnings ratios, market
prices of securities and certain financial and operating information of
companies engaged in activities similar to those of GTR. 5 million shares of TR
Stock, representing 50% of the initial pro forma equity interest in GTR, were
issued in connection with Genzyme's acquisition of BioSurface Technology, Inc.
("BioSurface") to holders of BioSurface Common Stock. The other 50% of the
initial pro forma equity interest in GTR was represented by 5 million "TR
Designated Shares." TR Designated Shares are authorized shares of TR Stock which
are not issued and outstanding, but which the Board may from time to time issue,
sell or otherwise distribute without allocating the proceeds or other benefits
of such issuance, sale or distribution to GTR. Genzyme issued approximately 3.3
million of such TR Designated Shares as a stock dividend to holders of General
Division Stock of record on December 16, 1994, the date of the acquisition of
BioSurface. The remaining initial TR Designated Shares were reserved for
issuance upon the exercise of General Division stock options and warrants and
the conversion of convertible notes outstanding on December 16, 1994. As of June
1, 1996, there were 1,971,122 TR Designated Shares, 1,002,782 of which were
reserved for issuance upon the exercise or conversion of outstanding stock
options, warrants and notes that are exercisable or convertible into General
Division Stock. The shares of TR Stock that are issuable with respect to the TR
Designated Shares are not outstanding shares of TR Stock, are not eligible to
receive dividends, and cannot be voted by Genzyme.
The number of TR Designated Shares is subject to adjustment. The number
will be (A) adjusted as appropriate to reflect subdivisions (by stock split or
otherwise) and combinations (by reverse stock split or otherwise) of TR Stock
and dividends or distributions of shares of TR Stock to holders of TR Stock and
other reclassifications of TR Stock, (B) decreased by (1) the number of shares
of TR Stock issued by Genzyme, the proceeds of which are allocated to the
General Division, (2) the number of shares of TR Stock issued upon the exercise
or conversion of options, warrants and other securities attributed to the
General Division, and (3) the number of any shares of TR Stock issued by Genzyme
as a dividend or distribution or by reclassification, exchange or otherwise to
holders of General Division Stock (including the 3.3 million shares of TR Stock
distributed to holders of General Division Stock in December 1994 as described
above), and (C) increased by (1) the number of any outstanding shares of TR
Stock repurchased by Genzyme, the consideration for which was allocated to the
General Division, (2) one for each $10.00 reallocated from the General Division
to GTR from time to time upon an exercise by the General Division of its option
to allocate to GTR up to $30 million in exchange for TR Designated Shares (of
which $10 million was allocated by the General Division to GTR on June 14, 1996,
resulting in the creation of an additional 1 million TR Designated Shares), and
(3) the number equal to the fair value (as determined by the Board) of assets or
properties allocated to the General Division that are reallocated to GTR (other
than reallocations that represent sales at fair value between such divisions or
reallocations described in the foregoing clause (C)(2)) divided by the Fair
Market Value of one share of TR Stock as of the date of the reallocation;
Genzyme is prohibited by the Articles of Organization from taking any action
which would have the effect of reducing the number of TR Designated Shares to a
number which is less than zero.
Genzyme's Articles of Organization also contain provisions for "General
Designated Shares," which are authorized shares of General Division Stock that
Genzyme may issue without allocating any consideration to the General Division.
Currently, there are no General Designated Shares. However, General Designated
Shares may be created if, for example, the Board determines that programs or
other assets reallocated from GTR to the General Division will be accounted for
as an increase in General Designated Shares rather than as a transfer of cash or
other assets of the General Division having a fair value equal to GTR assets
reallocated. Notwithstanding the foregoing, by agreement with BioSurface,
Genzyme adopted a policy that no Key TR Program (as defined in "Management and
Accounting Policies Covering the Relationship of Genzyme
Divisions -- Inter-Division Asset Transfers") may be transferred out of GTR
without a class vote of the holders of TR Stock except in certain limited
circumstances, and no reallocation of other programs or assets of GTR may be
accounted for as an increase in General Designated Shares without a class vote
of the holders of
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TR Stock. Genzyme has also agreed that this policy will not be changed without a
class vote of the holders of TR Stock. Consequently, any decision by the Board
to account for a reallocation of any programs or assets of GTR as an increase in
General Designated Shares would require a class vote of the holders of TR Stock.
The number of General Designated Shares will be subject to adjustment in a
manner substantially similar to adjustments to the number of TR Designated
Shares.
Whenever additional shares of any class of common stock are issued and sold
by Genzyme, Genzyme will identify (i) the number of such shares issued and sold
for the account of the division to which they relate, the proceeds of which will
be allocated to and reflected in the financial statements of such division and
(ii) the number of such shares issued and sold from the TR Designated Shares or
the General Designated Shares, which shall reduce the number of TR Designated
Shares or General Designated Shares, as the case may be, and the proceeds of
which may be used for any proper corporate purpose. In the event Genzyme
repurchases outstanding shares of any class of common stock, it will identify
the number of shares that are repurchased for consideration that was allocated
to the General Division and the number of shares that are repurchased for
consideration that was allocated to GTR and the number of TR Designated Shares
or General Designated Shares may increase accordingly.
"ANTI-TAKEOVER" PROVISIONS
Contractual Measures. The Articles of Organization and By-Laws of Genzyme
contain provisions that could discourage potential takeover attempts and prevent
stockholders from changing the Genzyme's management, including authorization of
the Board to issue shares of preferred stock in series, enlarge the size of the
Board and fill any vacancies on the Board, and restrictions on the ability of
stockholders to call a special meeting of stockholders, bring business before an
annual meeting and nominate candidates for election as directors. Genzyme also
has agreements with certain officers containing change of control provisions.
In addition, Genzyme has a stockholder rights plan. Under this plan, each
outstanding share of General Division Stock and TR Stock also represents a right
that, under certain circumstances, may trade separately from the General
Division Stock and TR Stock, respectively. The rights, which are not currently
exercisable, under certain circumstances will permit their holders (other than
an acquiror) to purchase at a favorable price large amounts of General Division
Stock, TR Stock or securities of a successor to Genzyme with the result that an
acquiror's interest in Genzyme would be substantially diluted. The description
and terms of the rights are set forth in an Amended and Restated Rights
Agreement between Genzyme and American Stock Transfer and Trust Company as
Rights Agent.
Business Combination Statute. Massachusetts' "Business Combination"
statute provides that, if a person acquires 5% or more of the stock of a
Massachusetts corporation without the approval of its board of directors (an
"interested stockholder"), he may not engage in certain transactions with the
corporation for a period of three years. There are certain exceptions to this
prohibition; for example, if the board of directors approves the acquisition of
stock or the transaction prior to the time that the person became an interested
stockholder, or if the interested stockholder acquires 90% of the voting stock
of the corporation (excluding voting stock owned by directors who are also
officers and certain employee stock plans) in one transaction, or if the
transaction is approved by the board of directors and by the affirmative vote of
two-thirds of the outstanding voting stock which is not owned by the interested
stockholder, the prohibition does not apply.
Genzyme is subject to the Massachusetts Business Combination statute unless
it elects not to be governed by the statute in its Articles of Organization or
By-laws. Genzyme has not made such election and does not currently intend to
make such an election.
Control Share Acquisition Statute. The Massachusetts Control Share
Acquisition statute provides that a person (hereinafter, the "acquiror") who
makes a bona fide offer to acquire, or acquires, shares of stock of a
corporation that when combined with shares already owned, would increase the
acquiror's ownership to at least 20%, 33 1/3%, or a majority of the voting stock
of the corporation, must obtain the approval of a majority in interest of the
shares held by all stockholders, excluding shares held by the acquiror and the
officers and inside
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directors of the corporation, in order to vote the shares acquired. The statute
does not require the acquiror to consummate the purchase before the stockholder
vote is taken.
The Control Share Acquisition statute permits a Massachusetts corporation
to elect not to be governed by these provisions by including such an election in
its articles of organization or by-laws. The Genzyme By-Laws contain a provision
pursuant to which Genzyme elected not to be governed by the Massachusetts
Control Share Acquisition statute. However, if at a future date the Board
determines that it is in the best interests of Genzyme and its stockholders that
Genzyme be governed by the statute, Genzyme's By-Laws may be amended to permit
it to be governed by such statute. Any such amendment, however, would apply only
to acquisitions crossing the thresholds which occur after the effective date of
such amendment.
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MANAGEMENT AND ACCOUNTING POLICIES GOVERNING
THE RELATIONSHIP OF GENZYME DIVISIONS
Genzyme has adopted the following policies to govern the management of GTR
and its relationship to the General Division. Except as otherwise stated below,
the policies may be modified or rescinded in the sole discretion of the Board
without approval of Genzyme stockholders, subject only to the Board's fiduciary
duty to Genzyme's stockholders. The Board may also adopt additional policies
depending upon the circumstances. Any determination of the Board to modify or
rescind such policies, or to adopt additional policies, including any such
decision that would have disparate impacts upon holders of the two classes of
common stock, would be governed by the principles of Massachusetts law discussed
under "Risk Factors -- Risks Related to Two Classes of Common Stock -- No Rights
or Additional Duties with Respect to the Divisions; Potential Conflicts." In
addition, generally accepted accounting principles require that any change in
policy be preferable (in accordance with such principles) to the previous
policy.
Purpose of GTR. The purpose of GTR is to create a business with a
comprehensive approach to the field of tissue repair by developing and
commercializing a portfolio of novel products for the treatment and prevention
of serious tissue injury (excluding products developed on behalf of Genzyme
Development Partners). In addition to the programs initially assigned to GTR, it
is expected that the GTR portfolio will expand through the addition of
complementary products and programs developed either internally or externally to
the division, including acquiring or in-licensing from outside of Genzyme. Other
than the method of financing, GTR is operated and managed similarly to other
Genzyme divisions.
Revenue Allocation. Revenues from the sale of a division's products are
credited to that division. The cost of research done by one division for the
benefit of another division is charged to the division for which the work is
done in the manner described in the following paragraph. The division performing
the research does not recognize revenue as a result of such research.
Expense Allocation. All direct expenses are charged to the division for
the benefit of which they are incurred. Corporate and general and administrative
expenses and other shared services or other indirect costs are allocated to each
division in a reasonable and consistent manner based on utilization by the
division of the services to which such costs relate. To the extent borrowings
are deemed to occur between divisions, inter-division accounts will be
established with interest imputed at the rate then available to Genzyme for
short-term borrowings.
Tax Allocations. Income taxes are allocated to each division based upon
the financial statement income, taxable income, credits and other amounts
properly allocable to such division under generally accepted accounting
principles as if each division were a separate taxpayer; provided, however, that
as of the end of any fiscal quarter of Genzyme, any projected tax benefit
attributable to any division that cannot be utilized by such division to offset
or reduce its current or deferred income tax expense may be allocated to any
other division without any compensating payment or allocation.
Acquisitions of Programs, Products or Assets. Upon the acquisition by
Genzyme from a third party of any additional programs, products or assets
(whether by acquisition of assets or stock, merger, consolidation or otherwise),
the aggregate cost of the acquisition and the programs, products or assets
acquired will be allocated among the divisions to which such programs, products
or assets are assigned. Such assignment and allocation will be made by the Board
taking into account such matters as the Board and its financial advisors, if
any, deem relevant. Any such determination by the Board will be final and
binding on all holders of all classes of common stock.
Disposition of Programs, Products or Assets. Upon any sale, transfer,
assignment or other disposition by Genzyme of any product, program or asset not
consisting of all or substantially all of the assets of a division, all proceeds
from such disposition will be allocated to the division to which the program,
product or asset had been allocated, and such proceeds will be used for the
benefit of such division. If a program, product or asset is allocated to more
than one division, the proceeds of the disposition will be allocated among such
divisions based on their respective interests in such program, product or asset.
Such allocation will be made by the
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Board taking into account such matters as the Board and its financial advisors,
if any, deem relevant. Any such determination by the Board will be final and
binding on all holders of all classes of common stock.
Inter-Division Asset Transfers. The Board may at any time and from time to
time reallocate any program, product or other asset from one division to any
other division. All such reallocations will be done at fair market value,
determined by the Board, taking into account, in the case of a program under
development, the commercial potential of such program, the phase of clinical
development of such program, the expenses associated with realizing any income
from such program, the likelihood and timing of any such realization and other
matters that the Board and its financial advisors deem relevant. The
consideration for such reallocation may be paid by one division to another in
cash or, in lieu of cash or other consideration, the Board may elect to account
for a reallocation of assets from GTR to the General Division as an increase in
the number of General Designated Shares and a reallocation of assets from the
General Division to GTR as either an increase in the number of TR Designated
Shares or a reduction in the General Designated Shares, if any, except that a
reallocation of assets from GTR to the General Division may not be accounted for
as an increase in General Designated Shares without a class vote of the holders
of the TR Stock.
Notwithstanding the foregoing, no Key TR Program, as defined below, may be
transferred out of GTR without a class vote of the holders of the TR Stock
unless the Board determines that such Key TR Program has application outside of
the field of tissue repair (in which case it may be transferred out only for the
non-tissue repair applications). A "Key TR Program" is any of the following: (i)
Vianain(R) Debriding Product for debridement of necrotic or damaged tissue; (ii)
TGF-SS(2) for all indications licensed from Celtrix Pharmaceuticals, Inc. as of
December 16, 1994; (iii) EpicelSM cultured epithelial cell autografts for tissue
replacement or repair; (iv) ActicelSM cultured epithelial cell allografts for
tissue replacement or repair; (v) CARTICELSM Autologous Chondrocyte Service; and
(vi) any additional tissue repair program or product being developed from time
to time in GTR which (a) constituted 20% or more of the research and development
budget of GTR in any of three most recently completed fiscal years or (b) has
had a cumulative investment of $8 million or more in research and development
expenses by GTR.
The foregoing policies regarding transfers of assets between divisions may
not be changed by the Board without a class vote of the holders of the TR Stock.
Access to Technology and Know-How. GTR and the General Division each have
free access to all technology and know-how of Genzyme that may be useful in such
division's business, subject to any obligations or limitations applicable to
Genzyme.
Disposition of TR Designated Shares. The TR Designated Shares may be (i)
issued upon the exercise of outstanding stock options and warrants and the
conversion of outstanding convertible notes allocated to the General Division,
(ii) subject to the restrictions set forth in the following paragraph, sold for
any valid business purpose, or (iii) distributed as a dividend to the holders of
shares of General Division Stock, all as determined from time to time by the
Board in its sole discretion. Genzyme distributed approximately 3.3 million of
the initial 5.0 million TR Designated Shares as a stock dividend to holders of
Genzyme Common Stock of record on December 16, 1994, and reserved the remaining
initial TR Designated Shares for issuance upon the exercise or conversion of
stock options, warrants and convertible notes outstanding as of December 15,
1994. To the extent that any such remaining initial TR Designated Shares are not
used for such purposes, the Board may issue them for any other valid business
purposes without crediting any proceeds to GTR.
Issuance of Additional Shares of any Class of General Division Stock. If
additional shares of any class of common stock are issued and sold by Genzyme,
Genzyme will identify (i) the number of such shares issued and sold for the
account of the division to which they relate, the proceeds of which will be
allocated to and reflected in the financial statements of such division and (ii)
the number of such shares issued and sold that will reduce the number of
Designated Shares from such division and the proceeds of which may be used for
any valid business purpose. Notwithstanding the foregoing, Genzyme will not sell
any shares of TR Stock without allocating the proceeds to GTR (except upon
exercise or conversion of options, warrants or convertible notes outstanding as
of December 16, 1994) unless (i) the Board determines that GTR has cash
sufficient to fund its operations for at least the next 12 months or (ii) shares
of TR Stock concurrently being
42
<PAGE> 44
sold for the account of GTR will produce proceeds sufficient to fund GTR's cash
needs for the next 12 months.
Reservation of Shares of TR Stock. Genzyme has reserved approximately 3.3
million shares of TR Stock for issuance to Genzyme employees pursuant to grants
made after December 15, 1994 under one or more employee incentive plans.
Open Market Purchases of Shares of any Class. Genzyme may make open market
purchases of any class of its common stock in accordance with applicable
securities law requirements; provided, however, that such purchases of TR Stock
may not be made if as an immediate result thereof the number of TR Designated
Shares would represent more than 60% of the number of TR Designated Shares plus
the number of outstanding shares of TR Stock. Such restriction is intended to
prevent Genzyme from using open market purchases to effect a redemption of the
TR Stock without paying the 30% premium required for a complete redemption of TR
Stock under the terms of Genzyme's Articles of Organization. In addition, within
90 days of any open market purchase of any class of common stock, Genzyme may
not exchange shares of such class for cash or shares of any other class of
common stock.
Class Voting. In addition to any shareholder approval required by
Massachusetts law, whenever the approval of the holders of a class of common
stock is required to take any action pursuant to these policies or Genzyme's
Articles of Organization, such requirement will be satisfied if a meeting of the
holders of such class is held at which a quorum is present and the votes cast in
favor of the proposed action exceed the votes cast against.
Non-Compete. Genzyme will not develop products outside of GTR that compete
or would compete in the market with products being developed or sold by GTR.
Interdivisional Loan Policy. Loans may be made from time to time between
divisions in the nature of interim financing for significant capital projects
pending completion and closing of the associated permanent financing. Any such
loan will mature within 18 months and interest will be paid monthly in arrears
at the best borrowing rate available to Genzyme for a loan of like type and
duration. Amounts borrowed in excess of $1 million require approval of the
Board.
UNDERWRITING
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated , 1996 (the "Underwriting Agreement"), CS First
Boston Corporation, (the "Underwriter") has agreed to purchase all of the Notes
from the Company.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to certain conditions precedent and that the Underwriter will be
obligated to purchase all the Notes (other than those covered by the
over-allotment option described below) if any are purchased.
The Company has granted to the Underwriter an option, expiring at the close
of business on the 30th day after the date of this Prospectus, to purchase up to
an additional $25 million aggregate principal amount of Notes at the initial
public offering price less the underwriting discounts and commissions, all as
set forth on the cover page of this Prospectus. Such option may be exercised
only to cover over-allotments in the sale of the Notes.
The Company has been advised by the Underwriter that it proposes to offer
the Notes to the public initially at the public offering price set forth on the
cover page of this Prospectus and to certain dealers at such price less a
concession of % of the principal amount per Note, and the Underwriter and
such dealers may allow a discount of % of such principal amount per Note on
sales to certain other dealers. After the initial public offering, the public
offering price and concession and discount to dealers may be changed by the
Underwriter.
The Notes are a new issue of securities with no established trading market.
The Company has been advised by the Underwriter that it plans to make a market
in the Notes as permitted by applicable laws and
43
<PAGE> 45
regulations. However, the Underwriter is not obligated to do so and may
discontinue any market trading at any time without notice. No assurance can be
given therefore as to the liquidity of the trading markets for the Notes.
In connection with this offering, the Underwriter and selling group members
(if any) and their respective affiliates may engage in passive market making
transactions in the General Division Stock on The Nasdaq Stock Market in
accordance with Rule 10b-6A under the Exchange Act during a period before
commencement of offers or sales of the Notes offered hereby. The passive market
making transactions must comply with the applicable volume and price limits and
be identified as such.
The Company has agreed that it will not offer, sell, contract to sell,
announce its intention to sell, pledge or otherwise dispose, directly or
indirectly, or file with the Commission a registration statement under the
Securities Act relating to, any shares of its General Division Stock, or
securities convertible into or exchangeable or exercisable for any shares of
General Division Stock, other than pursuant to employee benefit plans or the
stock split described in "Business -- Recent Developments" or upon the exercise
of outstanding warrants or conversion of the Notes, without the prior written
consent of the Underwriter for a period of 90 days after the date of this
Prospectus.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the Underwriter may be required to make in respect thereof.
The Underwriter has provided financial advisory and investment banking
services to Genzyme and may continue to do so in the future.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Notes in Canada is being made only on a private
placement basis exempt from the requirement that the Company prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of Notes are effected. Accordingly, any resale of the Notes in Canada
must be made in accordance with applicable securities laws which will vary
depending on the relevant jurisdiction, and which may require resales to be made
in accordance with available statutory exemptions or pursuant to a discretionary
exemption granted by the applicable Canadian securities regulatory authority.
Purchasers are advised to seek legal advice prior to any resale of the Notes.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Notes in Canada who receives a purchase confirmation will
be deemed to represent to the Company and the dealer from whom such purchase
confirmation is received that (i) such purchaser is entitled under applicable
provincial securities laws to purchase such Notes without the benefit of a
prospectus qualified under such securities laws, (ii) where required by law,
that such purchaser is purchasing as principal and not as agent, and (iii) such
purchaser has reviewed the text above under "Resale Restrictions".
RIGHTS OF ACTION AND ENFORCEMENT
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission or rights of action under
the civil liability provisions of the U.S. federal securities laws.
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Ontario purchasers to effect service of process within Canada upon the
issuer or such persons. All or a substantial portion of the assets of the issuer
and such persons
44
<PAGE> 46
may be located outside of Canada and as a result, it may not be possible to
satisfy a judgment against the issuer or such persons in Canada or to enforce a
judgment obtained in Canadian courts against such issuer or persons outside of
Canada.
NOTICE OF BRITISH COLUMBIA RESIDENTS
A purchaser of Notes to whom the Securities Act (British Columbia) applies
is advised that such purchaser is required to file with the British Columbia
Securities Commission a report within ten days of the sale of any Notes acquired
by such purchaser pursuant to this offering. Such report must be in the form
attached to British Columbia Securities Commission Blanket Order BOR #95/17, a
copy of which may be obtained from the Company. Only one such report must be
filed in respect of Notes acquired on the same date and under the same
prospectus exemption.
LEGAL OPINIONS
The validity of the Notes offered hereby will be passed upon for the
Company by Palmer & Dodge LLP, Boston, Massachusetts, counsel for the Company.
Peter Wirth, a partner in Palmer & Dodge LLP, is a Senior Vice President, and
the General Counsel and Clerk of the Company. As of June 1, 1996, Mr. Wirth
beneficially owned 5,860 and 3,520 shares of General Division Stock and TR
Stock, respectively, including shares subject to options exercisable within 60
days. Certain legal matters will be passed upon for the Company by Mark A.
Hofer, Senior Vice President and Chief Patent Counsel of the Company. As of June
1, 1996, Mr. Hofer beneficially owned 76,731 and 23,181 shares of General
Division Stock and TR Stock, respectively, including shares subject to options
exercisable within 60 days. Certain legal matters will be passed upon for the
Underwriter by Cahill Gordon & Reindel (a partnership including a professional
corporation), New York, New York.
EXPERTS
The consolidated financial statements and financial statement schedule of
Genzyme Corporation, the combined financial statements and financial statement
schedule of the General Division and the combined financial statements and
financial statement schedule of GTR included in Genzyme's Annual Report on Form
10-K for the year ended December 31, 1995, that have been incorporated by
reference into this Prospectus, have been incorporated herein in reliance on the
reports of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing.
The DSP financial statements included in this Prospectus and elsewhere in
the Registration Statement have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
45
<PAGE> 47
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
------------
<S> <C>
PRO FORMA FINANCIAL STATEMENTS:
GENZYME CORPORATION:
Pro Forma Consolidated Balance Sheets as of March 31, 1996..................... F-3
Pro Forma Consolidated Statements of Operations for the Three Months Ended
March 31, 1996............................................................... F-4
Pro Forma Consolidated Statements of Operations for the Year Ended
December 31, 1995............................................................ F-5
GENZYME GENERAL DIVISION:
Pro Forma Combined Balance Sheets as of March 31, 1996......................... F-6
Pro Forma Combined Statements of Operations for the Three Months Ended March
31, 1996..................................................................... F-7
Pro Forma Combined Statements of Operations for the Year Ended
December 31, 1995............................................................ F-8
Notes to Unaudited Pro Forma Financial Statements.............................. F-9
DSP CONSOLIDATED FINANCIAL STATEMENTS:
Report of Independent Public Accountants....................................... F-13
Consolidated Balance Sheets as of September 30, 1994 and 1995 and March 24,
1996 (unaudited)............................................................. F-14
Consolidated Statements of Operations for the Years Ended September 30, 1994
and 1995 and for the Six Months Ended March 26, 1995 and March 24, 1996
(unaudited).................................................................. F-15
Consolidated Statements of Stockholders' Investment for the Years Ended
September 30, 1994 and 1995 and for the Six Months Ended March 24, 1996
(unaudited).................................................................. F-16
Consolidated Statements of Cash Flows for the Years Ended September 30, 1994
and 1995 and for the Six Months Ended March 26, 1995 and March 24, 1996
(unaudited).................................................................. F-17
Notes to Consolidated Financial Statements..................................... F-18
</TABLE>
F-1
<PAGE> 48
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
INTRODUCTION:
The unaudited pro forma financial statements and the related notes are
presented to give effect to the acquisition of Genetrix, Inc. (the "Genetrix
Acquisition") and the acquisition of Deknatel Snowden Pencer, Inc. (the "DSP
Acquisition"). Pro forma statements of operations have been presented for both
Genzyme and the General Division assuming that both acquisitions occurred as of
January 1, 1995, using the purchase accounting method. Pro forma balance sheets
have been presented for both Genzyme and the General Division assuming that both
acquisitions occurred as of March 31, 1996. To distinguish the effect of each
transaction, a subtotal column has been included on each financial statement to
give effect to the Genetrix Acquisition, after certain pro forma adjustments,
before consideration of the DSP Acquisition and any related pro forma
adjustments. The notes to the unaudited pro forma financial statements are
defined as related either to the Genetrix Acquisition or the DSP Acquisition.
Year end for Genzyme and Genetrix is December 31, while year-end for DSP
prior to acquisition by Genzyme was September 30. The pro forma financial
statements for the year ended December 31, 1995, herein, are based on the
historical income statements of Genzyme and Genetrix for the year ended December
31, 1995 and the historical income statement for DSP for the year ended
September 30, 1995. Revenues and operating costs and expenses for DSP for the
three months ended December 31, 1995 were $22,001,000 and $18,260,000,
respectively.
F-2
<PAGE> 49
GENZYME CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996
<TABLE>
<CAPTION>
PRO
FORMA PRO
HISTORICAL HISTORICAL PRO FOOT GENZYME PRO FOOT FORMA
GENZYME GENETRIX, FORMA NOTE CORP. AND HISTORICAL FORMA NOTE GENZYME
CORP. INC. ADJS. REF. GENETRIX DSP ADJS. REF. CORP.
---------- ---------- -------- ----- ---------- ---------- --------- ----- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents........ $102,446 $ 416 $ -- $102,862 $ 3,107 $ (50,750) (F) $ --
19,375 (F) 74,594
Short-term
investments........ 182,228 -- -- 182,228 -- -- 182,228
Accounts receivable,
less allowance for
doubtful
accounts........... 86,599 4,526 -- 91,125 16,962 (500) (F) 107,587
Inventories.......... 59,289 284 (60) (B) 59,513 21,940 6,060 (F) 87,513
Prepaid expenses and
other current
assets............. 13,066 1,351 -- 14,417 477 -- 14,894
Deferred tax
assets -- current... 7,729 -- 2,725 (B) 10,454 -- -- 10,454
-------- ------- -------- -------- --------- ----------
Total current
assets..... 451,357 6,577 2,665 460,599 42,486 (25,815) 477,270
Property, plant and
equipment, net..... 345,164 3,581 -- 348,745 17,953 -- 366,698
Other Assets:
Long-term
investments........ 52,629 -- -- 52,629 -- -- 52,629
Notes
receivable-related
party.............. 2,651 -- -- 2,651 -- -- 2,651
Intangibles, net of
accumulated
amortization....... 28,708 2,462 32,575 (B) 63,745 51,563 153,229 (F) 268,537
Deferred tax
assets -- noncurrent... 23,645 -- -- 23,645 (740) (10,161) (F) 12,744
Other noncurrent
assets............. 33,946 224 -- 31,170 774 5,625 (F) 40,569
-------- ------- -------- -------- --------- ----------
Total other assets... 141,579 2,686 32,575 176,840 51,597 148,693 377,130
-------- ------- -------- -------- --------- ----------
Total
assets..... $938,100 $ 12,844 $ 35,240 $986,184 $112,036 $ 122,878 $1,221,098
======== ======= ======== ======== ========= ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable..... $ 12,969 $ 2,011 $ -- $ 14,980 $ 3,987 $ -- $ 18,967
Accrued expenses..... 40,578 1,595 7,150 (B) 49,323 17,978 3,500 (F) 70,801
Income taxes
payable............ 7,080 -- -- 7,080 -- -- 7,080
Deferred revenue..... 2,244 -- -- 2,244 -- -- 2,244
Short-term
borrowings......... 8,000 8,000 8,000
Current portion of
long-term debt and
capital lease
obligations........ 2,362 2,346 (1,952) (C) 2,756 8,546 (8,375) (D) 2,927
-------- ------- -------- -------- --------- ----------
Total current
liabilities... 73,233 5,952 5,198 84,383 30,511 (4,875) 110,019
Noncurrent
liabilities:
Long-term debt and
capital lease
obligations........ 24,286 232 -- 24,518 50,028 (49,750) (D)
200,000 (F)
225,000 (F)
(200,000) (F) 249,796
Other noncurrent
liabilities........ 8,784 181 -- 8,965 -- -- 8,965
-------- ------- -------- -------- --------- ----------
33,070 413 -- 33,483 -- 175,250 258,761
Stockholders' Equity:
General Division
Stock, $.01 par
value.............. 336 -- 7 (B) 343 -- -- 343
TR Stock, $.01 par
value.............. 126 -- -- 126 -- -- 126
Treasury Stock, at
cost............... (882) (60) 60 (A) (882) -- -- (882)
Genetrix, Inc.
convertible
preferred stock.... -- 5 (5) (A) 0 -- -- 0
Genetrix, Inc. common
stock.............. -- 13 (13) (A) 0 -- -- 0
DSP, Inc. common
stock.............. -- -- -- -- 4 (4) (E) 0
Additional paid-in
capital............ 841,204 24,433 (17,954) (A)
30,035 (B)
877,718 46,497 (46,497) (E) 877,718
Accumulated
deficit............ (6,866) (17,912) 17,912 (A) (6,866) (15,004) 15,004 (E)
(16,000) (F) (22,866)
Other equity
adjustments........ (2,121) -- -- (2,121) -- -- (2,121)
-------- ------- -------- -------- --------- ----------
Total
stockholders'
equity..... 831,797 6,479 30,042 868,318 31,497 (47,497) 852,318
-------- ------- -------- -------- --------- ----------
Total liabilities and
stockholders'
equity............. $938,100 $ 12,844 $ 35,240 $986,184 $112,036 $ 122,878 $1,221,098
======== ======= ======== ======== ========= ==========
</TABLE>
See notes to unaudited pro forma financial statements.
F-3
<PAGE> 50
GENZYME CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME PRO
HISTORICAL HISTORICAL PRO FOOT CORP. PRO FOOT FORMA
GENZYME GENETRIX, FORMA NOTE AND HISTORICAL FORM NOTE GENZYME
CORP. INC. ADJS. REF. GENETRIX DSP ADJS. REF. CORP.
---------- ---------- ------- ----- -------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.......................... $113,497 $5,427 $ -- $118,924 $ 27,695 $ -- $146,619
Operating costs and expenses:
Cost of products and services sold
and selling, general,
administrative, research and
development expenses.............. 99,168 5,595 (25) (H) 104,738 21,428 (363) (K) 125,803
Amortization expense................ 1,071 -- 543 (G) 1,614 917 646 (J) 3,177
Other expenses...................... -- -- -- -- 546 -- 546
---------- ---------- ------- -------- ---------- -------- --------
Total operating expenses.............. 100,239 5,595 518 106,352 22,891 283 129,526
---------- ---------- ------- -------- ---------- -------- --------
Operating income...................... 13,258 (168) (518) 12,572 4,804 (283) 17,093
Other income and (expenses):
Investment income................... 4,492 -- -- 4,492 -- -- 4,492
Interest expense.................... (213) (89) 53 (C) (249) (1,457) (3,072) (L) (4,772 )
Other............................... (937) -- -- (937) (101) -- (1,038 )
---------- ---------- ------- -------- ---------- -------- --------
3,342 (89) 53 3,306 (1,552) (3,072) (1,318 )
---------- ---------- ------- -------- ---------- -------- --------
Income before income taxes............ 16,600 (257) (465) 15,878 3,252 (3,355) 15,775
Provision for income taxes............ (6,308) -- 70 (I) (6,238) (646) 1,012 (M) (5,872 )
---------- ---------- ------- -------- ---------- -------- --------
Net income............................ $ 10,292 $ (257) $ (395) $ 9,640 $ 2,606 $ (2,343) $ 9,903
========= ========= ======= ======== ========= ======== ========
Attributable to the General Division:
Net income.......................... $ 15,537 $ 14,885 $15,148
Tax benefit allocated from Tissue
Repair Division................. 3,497 3,497 3,497
---------- -------- --------
Net income attributable to General
Division Stock...................... $ 19,034 $ 18,382 $18,645
========= ======== ========
Income (loss) per General Division
common and common equivalent
share............................... $ 0.53 $(0.05) $ 0.51 $ 0.51
========= ========= ======== ========
Historical weighted average shares
outstanding......................... 35,691 5,251 (5,251) 35,691 35,691
Shares issued for Genetrix
Acquisition......................... -- -- 690 690 690
---------- ---------- ------- -------- --------
Pro forma weighted average shares
outstanding......................... 35,691 5,251 (4,561) 36,381 36,381
========= ========= ======= ======== ========
Income per General Division common and
common equivalent share assuming
full dilution....................... $ 0.51 $ 0.49 $ 0.49
========= ======== ========
Historical fully diluted weighted
average shares outstanding.......... 37,096 37,096 37,096
Shares issued for Genetrix
Acquisition......................... -- 690 690 690
---------- ------- -------- --------
Pro forma fully diluted weighted
average shares outstanding.......... 37,096 690 37,786 37,786
========= ======= ======== ========
Attributable to the Tissue Repair
Division:
Net loss............................ $ (8,742) $ (8,742) $(8,742 )
Tax benefit allocated to the General
Division.......................... -- -- --
---------- -------- --------
Net income (loss) attributable to TR
Stock............................... $ (8,742) $ (8,742) $(8,742 )
========= ======== ========
Loss per Tissue Repair Division common
share............................... $ (0.71) $ (0.71) $ (0.71 )
========= ======== ========
Historical weighted average shares
outstanding......................... 12,246 12,246 12,246
========= ======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-4
<PAGE> 51
GENZYME CORPORATION AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME PRO
HISTORICAL HISTORICAL PRO FOOT CORP. PRO FOOT FORMA
GENZYME GENETRIX, FORMA NOTE AND HISTORICAL FORMA NOTE GENZYME
CORP. INC. ADJS. REF. GENETRIX DSP ADJS. REF. CORP.
---------- ---------- ------- ----- -------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.................... $383,783 $ 22,006 $ -- $405,789 $ 95,259 $ -- $501,048
Operating costs and expenses:
Cost of products and services
sold and selling, general,
administrative, research and
development expenses........ 329,094 22,151 (100) (H) 351,145 79,146 (1,450) (K) 428,841
Amortization expense.......... 4,677 -- 2,172 (G) 6,849 2,750 3,505 (J) 13,104
Other expenses................ 14,216 -- -- 14,216 3,585 -- (F) 33,801
-------- ------- ------- -------- ------- -------- --------
Total operating expenses........ 347,987 22,151 2,072 372,210 85,481 2,055 459,746
-------- ------- ------- -------- ------- -------- --------
Operating income................ 35,796 (145) (2,072) 33,579 9,778 (2,055) 41,302
Other income and (expenses):
Investment income............. 8,814 25 -- 8,839 -- -- 8,839
Interest expense.............. (1,109) (260) 178 (C) (1,191) (6,937) (13,618) (L) (21,746 )
Other......................... (202) -- -- (202) (1,354) -- (1,556 )
-------- ------- ------- -------- ------- -------- --------
7,507 (235) 178 7,446 (8,291) (13,618) (14,463 )
-------- ------- ------- -------- ------- -------- --------
Income before income taxes...... 43,299 (380) (1,894) 41,025 1,487 (15,673) 26,839
Provision for income taxes...... (21,649) -- 40 (I) (21,609) (172) 3,265 (M) (18,516 )
-------- ------- ------- -------- ------- -------- --------
Net income...................... $ 21,250 $ (380) $(1,854) $ 19,416 $ 1,315 $(12,408) $ 8,323
======== ======= ======= ======== ======= ======== ========
Applicable to the General
Division:
Net income.................... $ 34,823 $ 32,589 $21,496
Tax benefit allocated from
Tissue Repair Division.... 8,857 8,857 8,857
-------- -------- --------
Net income attributable to
General Division Stock........ $ 43,680 $ 41,446 $30,353
======== ======== ========
Income (loss) per General
Division common and common
equivalent share.............. $ 1.45 $ (0.07) $ 1.35 $ 0.99
======== ======= ======== ========
Historical weighted average
shares outstanding............ 30,092 5,247 (5,247) 30,092 30,092
Shares issued for Genetrix
Acquisition................... -- -- 690 690 690
-------- ------- ------- --------
Pro forma weighted average
shares outstanding............ 30,092 5,247 (4,557) 30,782 30,782
======== ======= ======= ========
Income per General Division
common and common equivalent
share assuming full
dilution...................... $ 1.31 $ 1.22 $ 0.89
======== ======== ========
Historical fully diluted
weighted average shares
outstanding................... 33,311 33,311 33,311
Shares issued for Genetrix
Acquisition................... -- 690 690 690
-------- ------- -------- --------
Pro forma fully diluted weighted
average shares outstanding.... 33,311 690 34,001 34,001
======== ======= ======== ========
Applicable to the Tissue Repair
Division:
Net loss...................... $(22,030) $(22,030) $(22,030)
Tax benefit allocated to the
General Division............ -- -- --
-------- -------- --------
Net income (loss) attributable
to TR Stock................... $(22,030) $(22,030) $(22,030)
======== ======== ========
Loss per Tissue Repair Division
common share.................. $ (2.28) $ (2.28) $ (2.28 )
======== ======== ========
Historical weighted average
shares outstanding............ 9,659 9,659 9,659
======== ======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-5
<PAGE> 52
GENZYME GENERAL DIVISION AND SUBSIDIARIES
PRO FORMA COMBINED BALANCE SHEETS
MARCH 31, 1996
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME PRO
HISTORICAL GENERAL FORMA
GENZYME HISTORICAL PRO FOOT DIVISION PRO FOOT GENZYME
GENERAL GENETRIX, FORMA NOTE AND HISTORICAL FORMA NOTE GENERAL
DIVISION INC. ADJS. REF. GENETRIX DSP ADJS. REF. DIVISION
---------- ---------- -------- ----- -------- ---------- --------- ---- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.... $ 74,254 $ 416 $ -- $ 74,670 $ 3,107 $ (50,750) (S) $
19,375 (S) 46,402
Short-term investments....... 175,313 -- -- 175,313 -- -- 175,313
Accounts receivable, less
allowance for doubtful
accounts................... 84,749 4,526 -- 89,275 16,962 (500) (S) 105,737
Inventories.................. 57,858 284 (60) (O) 58,062 21,940 6,060 (S) 86,022
Prepaid expenses and other
current assets............. 12,631 1,351 -- 13,982 477 -- 14,459
Due from Tissue Repair
Division................... 991 -- -- 991 -- -- 991
Deferred tax
assets -- current.......... 7,729 -- 2,725 (O) 10,454 -- -- 10,454
-------- -------- ------- -------- -------- -------- ----------
Total current
assets.............. 413,525 6,577 -- 422,767 42,486 (25,815) 439,438
Property, plant & equipment,
net.......................... 333,310 3,581 -- 336,891 17,953 -- 354,844
Other Assets:
Long-term investments........ 52,629 -- -- 52,629 -- -- 52,629
Notes receivable-related
party...................... 2,651 -- -- 2,651 -- -- 2,651
Intangibles, net of
accumulated amortization... 28,708 2,462 32,575 (O) 63,745 51,563 153,229 (S) 268,537
Deferred tax
assets -- noncurrent....... 23,645 -- -- 23,645 (740) (10,161) (S) 12,744
Other noncurrent assets...... 33,895 224 32,925 774 5,625 (S) 39,324
-------- -------- ------- -------- -------- -------- ----------
Total other assets.... 141,528 2,686 32,575 176,789 51,597 148,693 377,079
-------- -------- ------- -------- -------- -------- ----------
Total assets.......... $888,363 $ 12,844 $ 35,240 $936,447 $112,036 $ 122,878 $1,171,361
======== ======== ======= ======== ======== ======== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable............. 11,600 2,011 -- 13,611 3,987 -- 17,598
Accrued expenses............. 39,077 1,595 7,150 (O) 47,822 17,978 3,500 (S) 69,300
Income taxes payable......... 7,080 -- -- 7,080 -- -- 7,080
Deferred revenue............. 2,244 -- -- 2,244 -- -- 2,244
Current portion of long-term
debt and capital lease
obligations................ 2,271 2,346 (1,952) (P) 2,665 8,546 (8,375) (Q) 2,836
-------- -------- ------- -------- -------- -------- ----------
Total current
liabilities......... 62,272 5,952 5,198 73,422 30,511 (4,875) 99,058
Noncurrent Liabilities:
Long-term debt and capital
lease obligations.......... 24,286 232 -- 24,518 50,028 (49,750) (Q)
200,000 (S)
225,000 (S)
(200,000) (S) 249,796
Other noncurrent liabilities... 8,039 181 -- 8,220 -- -- 8,220
-------- -------- ------- -------- -------- -------- ----------
32,325 413 -- 32,738 -- 175,250 258,016
Division Equity:
Division equity.............. 793,766 -- 7 (O)
30,035 (O)
6,479 (O) 830,287 (16,000) (S) 814,287
Genetrix, Inc. treasury
stock, at cost............. -- (60) 60 (N) 0 -- -- 0
Genetrix, Inc. convertible
preferred stock............ -- 5 (5) (N) 0 -- -- 0
Genetrix, Inc. common
stock...................... -- 13 (13) (N) 0 -- -- 0
DSP, Inc. common stock....... -- -- -- -- 4 (4) (R)
Additional paid-in capital... -- 24,433 (17,954) (N)
(6,479) (O) 0 46,497 (46,497) (R)
Accumulated deficit.......... (17,912) 17,912 (N) 0 (15,004) 15,004 (R) 0
-------- -------- ------- -------- -------- -------- ----------
Total division
equity.............. 793,766 6,479 30,042 830,287 31,497 (47,497) 814,287
-------- -------- ------- -------- -------- -------- ----------
Total liabilities and division
equity....................... $888,363 $ 12,844 $ 34,240 $936,447 $112,036 $ 122,878 $1,171,361
======== ======== ======= ======== ======== ======== ==========
</TABLE>
See notes to unaudited pro forma financial statements.
F-6
<PAGE> 53
GENZYME GENERAL DIVISION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PRO
FORMA
GENZYME PRO
HISTORICAL GENERAL FORMA
GENZYME HISTORICAL PRO FOOT DIVISION PRO FOOT GENZYME
GENERAL GENETRIX, FORMA NOTE AND HISTORICAL FORMA NOTE GENERAL
DIVISION INC. ADJS. REF. GENETRIX DSP ADJS. REF. DIVISION
---------- ---------- ------- ----- -------- ---------- -------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.................... $111,783 $5,427 $ -- $117,210 $ 27,695 $ -- $144,905
Operating costs and expenses:
Cost of products and services
sold and selling, general,
administrative, research and
development expenses........ 88,142 5,595 (25) (U ) 93,712 21,428 (363) (X ) 114,777
Amortization expense.......... 1,071 -- 543 (T ) 1,614 917 (646) (W ) 3,177
Other expenses................ -- -- -- -- 546 546
------- ------ ------- -------- ------- -------- --------
Total operating expenses........ 89,213 5,595 518 95,326 22,891 283 118,500
------- ------ ------- -------- ------- -------- --------
Operating income................ 22,570 (168) (518) 21,884 4,804 (283) 26,405
Other income and (expenses):
Investment income............. 3,918 -- -- 3,918 -- -- 3,918
Interest expense.............. (209) (89) 53 (P ) (245) (1,451) (3,072) (Y ) (4,768)
Other......................... (937) -- -- (937) (101) -- (1,038)
------- ------ ------- -------- ------- -------- --------
2,772 (89) 53 2,736 (1,552) (3,072) (1,888)
------- ------ ------- -------- ------- -------- --------
Income before income taxes...... 25,342 (257) (465) 24,620 3,252 (3,355) 24,517
Provision for income taxes...... (9,805) -- 70 (V ) (9,735) (646) (1,012) (Z ) (9,369)
------- ------ ------- -------- ------- -------- --------
Net income (loss)............... 15,537 $ (257) $ (395) $ 14,885 $ 2,606 $ (2,343) 15,148
====== ======= ======= ========
Tax benefit allocated from
Tissue Repair Division........ 3,497 3,497 3,497
------- -------- --------
Net income attributable to
General Division Stock........ $ 19,034 $ 18,382 $ 18,645
======= ======== ========
Income (loss) per General
Division common and common
equivalent share.............. $ 0.53 $(0.05) $ 0.51 $ 0.51
======= ====== ======== ========
Historical weighted average
shares outstanding............ 35,691 5,251 (5,251) 35,691 35,691
Shares issued for Genetrix
Acquisition................... -- -- 690 690 690
------- ------ ------- -------- --------
Pro forma weighted average
shares outstanding............ 35,691 5,251 (4,561) 36,381 36,381
======= ====== ======= ======== ========
Income per General Division
common and common equivalent
share assuming full
dilution...................... $ 0.51 $ 0.49 $ 0.49
======= ======== ========
Historical fully diluted
weighted average shares
outstanding................... 37,096 37,096 37,096
Shares issued for Genetrix
Acquisition................... -- 690 690 690
Pro forma fully diluted weighted
average shares outstanding.... 37,096 690 37,786 37,786
======= ======= ======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-7
<PAGE> 54
GENZYME GENERAL DIVISION AND SUBSIDIARIES
PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO
FORMA PRO
GENZYME FORMA
HISTORICAL GENERAL GENZYME
GENZYME HISTORICAL PRO FOOT DIVISION PRO FOOT GENERAL
GENERAL GENETRIX, FORMA NOTE AND HISTORICAL FORMA NOTE REF.
DIVISION INC. ADJS. REF. GENETRIX DSP ADJS. REF. DIVISION
---------- ---------- ------- ---- -------- ---------- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net revenues.............. $378,563 $ 22,006 $ -- $400,569 $ 95,259 $ -- $495,828
Operating costs and
expenses:
Cost of products and
services sold and
selling, general,
administrative,
research and
development
expenses.............. 300,498 22,151 (100) (U) 322,549 79,146 (1,450) (W) 400,245
Amortization expense.... 4,677 -- 2,172 (W) 6,849 2,750 3,318 (X) 13,104
Other expenses.......... 14,216 -- -- 14,216 3,585 3,505 17,801
-------- ------- ------- -------- ------- -------- --------
Total operating
expenses................ 319,391 22,151 2,072 343,614 85,481 2,055 431,150
-------- ------- ------- -------- ------- -------- --------
Operating income.......... 59,172 (145) (2,072) 56,955 9,778 (2,055) 64,678
Other income and
(expenses):
Investment income....... 7,428 25 -- 7,453 -- -- 7,453
Interest expense........ (1,069) (260) 178 (P) (1,151) (6,937) (13,618) (Y) (21,706)
Other................... (202) -- -- (202) (1,354) -- (1,354)
-------- ------- ------- -------- ------- -------- --------
6,157 (235) 178 6,100 (8,291) (13,618) (15,809)
-------- ------- ------- -------- ------- -------- --------
Income before income
taxes................... 65,329 (380) (1,894) 63,055 1,487 (15,673) 48,869
Provision for income
taxes................... (30,506) -- 40 (V) (30,466) (172) 3,265 (Z) (27,373)
-------- ------- ------- -------- ------- -------- --------
Net income................ 34,823 $ (380) $(1,854) 32,589 $ 1,315 $(12,408) 21,496
======= ======= ======= ========
Tax benefit allocated from
Tissue Repair
Division................ 8,857 8,857 8,857
-------- -------- --------
Net income attributable to
General Division
Stock................... $ 43,680 $ 41,446 $ 30,353
======== ======== ========
Income (loss) per General
Division common and
common equivalent
share................... $ 1.45 $ (0.07) $ 1.35 $ 0.99
======== ======= ======== ========
Historical weighted
average shares
outstanding............. 30,092 5,247 (5,247) 30,092 30,092
Shares issued for Genetrix
Acquisition............. -- -- 690 690 690
-------- ------- ------- --------
Pro forma weighted average
shares outstanding...... 30,092 5,247 (4,557) 30,782 30,782
======== ======= ======= ======== ========
Income per General
Division common and
common equivalent share
assuming
full dilution........... $ 1.31 $ 1.22 $ 0.89
======== ======== ========
Historical fully diluted
weighted average shares
outstanding............. 33,311 33,311 33,311
Shares issued for Genetrix
Acquisition............. -- 690 690 690
Pro forma fully diluted
weighted average shares
outstanding............. 33,311 690 34,001 34,001
======== ======= ======== ========
</TABLE>
See notes to unaudited pro forma financial statements.
F-8
<PAGE> 55
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
1. ACCOUNTING POLICIES AND PROCEDURES:
The accounting policies and procedures for Genzyme, Genetrix and DSP are in
conformity in all material respects. The pro forma financial statements include
both Genzyme, the registrant and issuer of the convertible debentures, and the
General Division, the stock of which is being used to effect the Genetrix
Acquisition.
2. GENZYME CORPORATION'S ACQUISITION OF GENETRIX, INC.:
On April 30, 1996, the Company acquired Genetrix Inc., a privately held
genetic testing laboratory based in Phoenix, Arizona, in a tax-free exchange of
General Division Stock. In the aggregate, approximately 690,000 shares of
Genzyme General Division Common Stock ("Genzyme General Division Stock"), valued
at approximately $36.5 million, were issued 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 acquisition will be accounted for as a purchase. The excess of the
purchase price over the fair market value of the net assets acquired,
approximately $35 million will be allocated to Goodwill to be amortized over 15
years.
For the purposes of the unaudited pro forma condensed financial statements,
the Closing Price of Genzyme General Division Stock has been calculated,
pursuant to the terms of the Merger Agreement using the actual closing date of
April 30, 1996, to be $52.93 per share, resulting in approximately 690,000 of
Genzyme General Division shares to be exchanged.
The pro forma exchange of shares is calculated as follows:
<TABLE>
<S> <C>
Shares Exchanged:
Purchase Price.......................................................... $38,500,000
Purchase Price Adjustments.............................................. (1,978,556)
-----------
36,521,444
Market value of Genzyme General Division Stock.......................... $ 52.93
-----------
Shares issued........................................................... 689,995
Shares allocated in satisfaction of Merger Preference................... (427,526)
Shares allocable to escrow.............................................. (1,464)
-----------
Shares to be allocated to Genetrix Common Shareholders.................. 261,005(A)
Total Genetrix Common Shares Outstanding (including participation of
Preferred Series A, B, E, and F)...................................... 11,609,894(B)
Conversion factor....................................................... .0225(A)/(B)
</TABLE>
Amounts at the effective time of the acquisition may differ from the
information presented in the pro forma financial statements based on subsequent
changes in 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 DEKNATEL SNOWDEN
PENCER, INC.:
On May 28, 1996, Genzyme announced that it signed a definitive agreement to
acquire the common stock of Deknatel Snowden Pencer, Inc., a privately held
surgical products company, for approximately $250 million in cash. The pro forma
balance sheets and income statements are presented assuming that this
transaction occurred as of March 31, 1996 and January 1, 1995, respectively,
using the purchase accounting method. Genzyme intends to finance the purchase
through the issuance of $200 million bridge notes and cash of $50.8 million. The
bridge notes are assumed to be refinanced in thirty days with net proceeds of
the $225 million convertible subordinated debentures described in this
Prospectus.
F-9
<PAGE> 56
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
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 any other related items which
may impact the amounts reflected herein.
4. PRO FORMA ADJUSTMENTS RELATED TO THE GENETRIX ACQUISITION AND THE DEKNATEL
ACQUISITION:
These adjustments reflect the retirement of all Genetrix Common and
Preferred Stock, the retirement of all DSP Common Stock and the issuance of
Genzyme General Division Common Stock in the amounts described in Note 2. The
Genzyme General Division Common Stock which will be issued upon conversion of
the convertible debentures described in Note 3 have been determined to have an
antidilutive effect on the General Division's primary and fully diluted earnings
per share.
I. Pro Forma Adjustments to Genzyme Corporation's Consolidated Balance
Sheets:
Related to the Genetrix Acquisition:
A. Eliminate Genetrix Treasury Stock of $60,000, Genetrix Preferred
Stock of $5,000, Genetrix Common Stock of $13,000 and the
Accumulated Deficit of Genetrix of $17.9 million.
B. Issuance of 689,995 Genzyme General Division Stock in aquisition
of Genetrix -- an increase to General Division Stock of $7,000 and
APIC of $30 million ($36.5 million less the net assets of Genetrix
at the balance sheet date, $6.5 million). The allocation of excess
purchase price to Goodwill of $35 million includes reduction of
inventory value by $60,000 and accrual for acquisition costs and
restructuring reserves of $7.2 million and excludes an acquired
Deferred Tax Asset of $2.7 million.
C. Adjust for repayment of credit line and resulting reduction of
interest expense.
Related to the Deknatel Acquisition:
D. Eliminate DSP's Current and Long-term Debt which will not be
assumed by Genzyme, $8.4 million and $49.8 million, respectively.
E. Eliminate DSP's Common Stock of $4,000, Additional Paid-In Capital
of $46.5 million and Accumulated Deficit of $15.0 million.
F. Record the acquisition of the net assets of DSP for $250 million
paid for by $50 million in cash and financed by the issuance of
$200 million in notes payable. The notes were refinanced 30 days
later by $225 million in convertible debentures reduced by $5.6
million of issuance costs with net cash proceeds to the Company of
$19.4 million. The purchase price has been allocated based on the
estimated fair value of the assets acquired and liabilities
assumed. The actual fair value and allocation of purchase price
will be determined at the consummation of the acquisition and may
vary from the values presented herein. This allocation results in
an increase of $6.1 million over the historical cost of inventory
acquired and the recording intangible assets related to trademarks
and tradenames of $56 million and patents of $17 million, which
will be amortized over 40 and 11 years, respectively. The excess
purchase price over the estimated fair value of assets acquired is
allocated $131.8 million to Goodwill to be amortized over 40
years. Property, Plant and Equipment consisting of Buildings and
Machinery will be depreciated over 25 and 5 years, respectively.
In-process research and development expenses acquired of $16
million were expensed in connection with the Acquisition.
Additionally, $3.5 million of costs were accrued related to tax
liabilities, restructuring and deal costs and $10.2 million of
deferred tax liabilities were recorded.
F-10
<PAGE> 57
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
II. Pro Forma Adjustments to Genzyme Corporation' Consolidated Statements of
Operations:
Related to the Genetrix Acquisition:
G. Record amortization expense, based on $35.0 million of Goodwill
over 15 years, or $543,000 for the three months ended March 31,
1996 and $2.2 million for the year ended December 31, 1995.
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 $25,000 three months
ended March 31, 1996 and $100,000 for the year ended December 31,
1995.
I. Record income tax (provision) benefit.
Related to the DSP Acquisition:
J. Record amortization expense based on $56 million of trademarks,
over 40 years, $17 million of patents, over 11 years and $131.8
million of Goodwill over 40 years, a net adjustment of $646,000
to historical amortization expense for the three months ended
March 31, 1996 and $3.5 million for the year ended December 31,
1995.
K. Eliminate certain administrative costs (i.e. senior management
salaries and related expenses and professional fees) of DSP which
would not be incurred on a combined basis -- a Reduction for
Common Costs of $363,000 three months ended March 31, 1996 and
$1.5 million for the year ended December 31, 1995.
L. Reverse interest of DSP long-term debt not assumed and to record
interest expense related to a 1-month bridge loan in the amount of
$200 million at 5.2% per annum and the $225 million convertible
debentures at 9% per annum and the amortization of deferred debt
financing costs related to the Notes of $5.6 million over the
5-year term of the debentures. For the three months ended March
31, 1996, interest expense related to these two instruments is
$4.5 million and for the year ended December 31, 1995, $20.6
million.
M. Record income tax (provision) benefit.
III. PRO FORMA ADJUSTMENTS TO GENZYME GENERAL DIVISION'S COMBINED BALANCE
SHEETS:
Related to the Genetrix Acquisition:
N. Eliminate Genetrix Treasury Stock of $60,000, Genetrix Preferred
Stock of $5,000, Genetrix Common Stock of $13,000 and the
Accumulated Deficit of Genetrix of $17.9 million.
O. Issuance of 689,995 Genzyme General Division Stock in acquisition
of Genetrix -- an increase to General Division Stock of $7,000 and
APIC of $30 million ($36.5 million less the net assets of Genetrix
at the balance sheet date, $6.5 million. The allocation of excess
purchase price to Goodwill of $35.0 million includes adjustments
and restructuring charges of $7.2 million and excludes an acquired
Deferred Tax Asset of $2.7 million.
P. Adjust for repayment of credit line and interest.
Related to the DSP Acquisition:
Q. Eliminate DSP's Current and Long-term Debt which will not be
assumed by Genzyme, $8.4 million and $49.8 million, respectively.
R. Eliminate DSP's Common Stock of $4,000, Additional Paid-In Capital
of $46.5 million and Accumulated Deficit of $15.0 million.
F-11
<PAGE> 58
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)
S. Record the acquisition of the net assets of DSP for $250 million
paid for by $50 million in cash and financed by the issuance of
$200 million in notes payable. These notes were refinanced 30 days
later by $225 million in convertible debentures reduced by $5.6
million of issuance costs with net cash proceeds to the Company of
$19.4 million. The purchase price will be allocated based on the
fair value of the assets acquired and liabilities assumed. This
allocation results in an increase of $6.1 million over the
historical cost of inventory acquired and the recording intangible
assets related to trademarks and tradenames of $56 million and
patents of $17 million, which will be amortized over 40 and 11
years, respectively. The excess purchase price over the fair value
of assets acquired is allocated $131.8 million to Goodwill to be
amortized over 40 years. Property, Plant and Equipment, consisting
of Buildings and Machinery, will be depreciated over 25 and 5
years, respectively. Approximately $16 million has been allocated
to in-process research and development which has been charged to
accumulated deficit for purposes of pro forma balance sheet
presentation only. Additionally, $3.5 million of costs were
accrued related to tax liabilities, restructuring and deal costs
and $10.2 million of deferred tax liabilities were recorded.
IV. PRO FORMA ADJUSTMENTS TO GENZYME GENERAL DIVISION'S STATEMENTS OF
OPERATIONS:
Related to the Genetrix Acquisition:
T. Record amortization expense, based on $35.0 million of Goodwill
over 15 years, of $543,000 for the three months ended March 31,
1996 and $2.2 million for the year ended December 31, 1995.
U. 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 $25,000 three months
ended March 31, 1996 and $100,000 for the year ended December 31,
1995.
V. Record income tax (provision) benefit.
Related to the DSP Acquisition:
W. Record amortization expense based on $56 million of trademarks,
over 40 years, $17 million of patents, over 11 years and $131.8
million of Goodwill over 40 years, a net adjustment of $646,000 to
historical amortization expense for the three months ended March
31, 1996 and $3.5 million for the year ended December 31, 1995.
X. Eliminate certain administrative costs (i.e. senior management
salaries and related expenses and professional fees) of DSP which
would not be incurred on a combined basis -- a Reduction for
Common Costs of $363,000 three months ended March 31, 1996 and
$1.5 million for the year ended December 31, 1995.
Y. Reverse interest of DSP long-term debt not assumed and record
interest expense related to a 1-month bridge loan in the amount of
$200 million at 5.2% per annum and the $225 million convertible
debentures at 9% per annum and the amortization of deferred debt
financing costs related to the Notes of $5.6 million over the
5-year term of the debentures. For the three months ended March
31, 1996, interest expense related to these two instruments and is
$4.5 million and for the year ended December 31, 1995, $20.6
million.
Z. Record income tax (provision) benefit.
F-12
<PAGE> 59
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Deknatel Snowden Pencer, Inc.:
We have audited the accompanying consolidated balance sheets of Deknatel
Snowden Pencer, Inc. (a Delaware corporation) and subsidiaries as of September
30, 1994 and 1995, and the related consolidated statements of operations,
stockholders' investment and cash flows for the years then ended. These
consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and the supplementary consolidating information 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Deknatel
Snowden Pencer, Inc. and Subsidiaries as of September 30, 1994 and 1995, and the
results of their operations and their cash flows for the years then ended, in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
November 21, 1995 (except with respect
to the matter discussed in Note 11, as to
which the date is May 24, 1996)
F-13
<PAGE> 60
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
--------------------- MARCH 24,
1994 1995 1996
-------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents.......................................... $ 1,414 $ 6,288 $ 3,107
Accounts receivable, less allowance of $2,312 and $3,016 at
September 30, 1994 and 1995, respectively, and $3,034 at March
24, 1996........................................................ 16,187 14,640 16,962
Inventories........................................................ 22,781 18,627 21,940
Prepaid expenses................................................... 1,137 367 477
Prepaid tax assets................................................. 612 913 553
-------- -------- --------
Total current assets....................................... 42,131 40,835 43,039
-------- -------- --------
Property, plant and equipment:
Land............................................................... 670 673 641
Buildings and improvements......................................... 9,059 9,233 7,809
Machinery and equipment............................................ 14,421 17,699 18,153
Construction-in-process............................................ 149 271 208
-------- -------- --------
24,299 27,876 26,811
Less -- Accumulated depreciation and amortization.................... 5,495 9,581 8,858
-------- -------- --------
Net property, plant and equipment.......................... 18,804 18,295 17,953
-------- -------- --------
Investment in Joint Venture.......................................... 100 240 221
-------- -------- --------
Intangible Assets, Net............................................... 49,413 46,456 51,563
-------- -------- --------
$110,448 $105,826 $ 112,776
======== ======== ========
LIABILITIES AND STOCKHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Short-term loans................................................... $ 4,500 $ 161 $ 171
Current portion of long-term debt.................................. 4,750 6,750 8,375
Accounts payable................................................... 1,979 2,083 3,987
Accrued liabilities................................................ 16,262 18,860 16,271
Accrued income taxes............................................... 254 509 1,707
-------- -------- --------
Total current liabilities.................................. 27,745 28,363 30,511
-------- -------- --------
Long-term debt, less current portion................................. 58,500 51,750 49,750
-------- -------- --------
Other long-term liabilities.......................................... 358 367 278
-------- -------- --------
Deferred income taxes................................................ 685 748 740
-------- -------- --------
Commitments and contingencies (Note 4)
Stockholders' investment:
Class A common stock, $.01 par value --
Authorized -- 600,000 shares
Issued and outstanding -- 449,602 shares and 449,329 shares at
September 30, 1994 and 1995, respectively, and 449,105 at March 24,
1996............................................................... 4 4 4
Class B common stock, $.01 par value --
Authorized -- 60,000 shares
Issued and outstanding -- No shares at September 30, 1994 or 1995,
and 16,176 at March 24, 1996....................................... -- -- --
Additional paid-in capital......................................... 44,956 44,928 46,351
Accumulated deficit................................................ (21,586) (20,271) (14,713)
Cumulative translation adjustment.................................. (214) (63) (145)
-------- -------- --------
Total stockholders' investment 23,160 24,598 31,497
-------- -------- --------
$110,448 $105,826 $ 112,776
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-14
<PAGE> 61
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, -------------------------
------------------- MARCH 26, MARCH 24,
1994 1995 1995 1996
------- ------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Net sales........................................ $85,410 $95,259 $45,509 $49,696
Cost of products sold............................ 43,873 48,191 23,362 23,663
------- ------- ------- -------
Gross profit........................... 41,537 47,068 22,147 26,033
------- ------- ------- -------
Operating costs and expenses:
Selling and marketing.......................... 16,318 17,247 8,624 8,401
Distribution................................... 2,702 2,940 1,427 1,623
Research and development....................... 2,839 1,971 947 1,079
General and administrative..................... 6,063 8,797 4,060 3,383
Amortization of intangibles.................... 3,832 2,750 1,594 1,702
Severance and other charges.................... 1,483 3,585 504 1,300
------- ------- ------- -------
33,237 37,290 17,156 17,488
------- ------- ------- -------
Operating income....................... 8,300 9,778 4,991 8,545
------- ------- ------- -------
Other income (expense):
Interest expense............................... (6,339) (6,937) (3,395) (2,905)
Cash discounts and other expenses.............. (1,704) (1,634) (787) (726)
Other income................................... 194 280 104 1,800
------- ------- ------- -------
(7,849) (8,291) (4,078) (1,831)
------- ------- ------- -------
Income before provision for income
taxes and extraordinary loss......... 451 1,487 913 6,714
Provision for income taxes....................... 188 172 303 1,447
------- ------- ------- -------
Income before extraordinary loss....... 263 1,315 610 5,267
Extraordinary loss from debt refinancing......... (2,360) -- -- --
------- ------- ------- -------
Net income (loss)...................... $(2,097) $ 1,315 $ 610 $ 5,267
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-15
<PAGE> 62
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON STOCK COMMON STOCK
----------------------- ----------------------- ADDITIONAL CUMULATIVE
NUMBER $.01 NUMBER $.01 PAID-IN TRANSLATION
OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL ADJUSTMENT
--------- --------- --------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, September 30, 1993........... 401,901 $ 4 -- $-- 40,145 $(292)
Common stock issued in connection
with Snowden-Pencer Inc.
acquisition...................... 55,000 -- -- -- 5,500 --
Common stock repurchased, net of
collections of subscriptions
receivable....................... (7,299) -- -- -- (689) --
Foreign currency translation
adjustment....................... -- -- -- -- -- 78
Net loss............................ -- -- -- -- -- --
--
------- ------ --- ------- -----
Balance, September 30, 1994........... 449,602 4 -- -- 44,956 (214)
Common stock repurchased, net of
collections of subscriptions
receivable....................... (273) -- -- -- (28) --
Foreign currency translation
adjustment....................... -- -- -- -- -- 151
Net income.......................... -- -- -- -- -- --
--
------- ------ --- ------- -----
Balance, September 30, 1995........... 449,329 4 -- -- 44,928 (63)
Common stock repurchased............ (224) -- -- -- (22) --
Sale of common stock................ -- -- 16,176 -- 1,445 --
Gain on intercompany debt repayment,
net of tax....................... -- -- -- -- -- --
Foreign currency translation
adjustment....................... -- -- -- -- -- (82)
Net income.......................... -- -- -- -- -- --
--
------- ------ --- ------- -----
Balance, March 24, 1996 (unaudited)... 449,105 $ 4 16,176 $-- $ 46,351 $(145)
======= == ====== === ======= =====
<CAPTION>
TOTAL
ACCUMULATED STOCKHOLDERS'
DEFICIT INVESTMENT
----------- -------------
<S> <C<C> <C>
Balance, September 30, 1993........... $ (19,489) $20,368
Common stock issued in connection
with Snowden-Pencer Inc.
acquisition...................... -- 5,500
Common stock repurchased, net of
collections of subscriptions
receivable....................... -- (689)
Foreign currency translation
adjustment....................... --
Net loss............................ (2,097) (2,097)
-------- -------
Balance, September 30, 1994........... (21,586) 23,160
Common stock repurchased, net of
collections of subscriptions
receivable....................... -- (28)
Foreign currency translation
adjustment....................... -- 151
Net income.......................... 1,315 1,315
-------- -------
Balance, September 30, 1995........... (20,271) 24,598
Common stock repurchased............ -- (22)
Sale of common stock................ -- 1,445
Gain on intercompany debt repayment,
net of tax....................... 291 291
Foreign currency translation
adjustment....................... -- (82)
Net income.......................... 5,267 5,267
-------- -------
Balance, March 24, 1996 (unaudited)... $ (14,713) $31,497
======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-16
<PAGE> 63
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, -----------------------
-------------------- MARCH 26, MARCH 24,
1994 1995 1995 1996
-------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................................. $ (2,097) $ 1,315 $ 610 $ 5,267
Adjustments to reconcile net income (loss) to net cash provided by
operating activities --
Extraordinary loss on debt refinancing........................... 2,360 -- -- --
Depreciation..................................................... 2,389 2,789 1,378 1,537
Amortization..................................................... 4,350 3,179 1,594 1,702
Gain on sale of fixed assets..................................... -- -- -- (1,656)
Other noncash expenses........................................... 400 1,145 200 219
Change in deferred income taxes.................................. (134) (238) (40) (8)
Other, net....................................................... 38 43 (303) 291
Changes in certain assets and liabilities --
Decrease (increase) in accounts receivable..................... 55 1,547 203 (2,322)
Decrease (increase) in inventories............................. (2,262) 2,817 1,214 (1,618)
Decrease in prepaid expenses................................... 74 770 759 250
Increase (decrease) in accounts payable........................ (66) 104 508 1,904
Increase (decrease) in accrued liabilities..................... 238 2,853 1,775 (1,391)
-------- ------- ------- -------
Net cash provided by operating activities................... 5,345 16,324 7,898 4,175
-------- ------- ------- -------
Cash flows from investing activities:
Construction and capital expenditures.............................. (1,318) (1,883) (555) (709)
Acquisitions, net of cash acquired................................. (16,804) -- -- (9,474)
Investment in joint venture........................................ (100) (250) (213) --
Proceeds from sale of fixed assets................................. -- -- -- 1,940
-------- ------- ------- -------
Net cash used for investing activities...................... (18,222) (2,133) (768) (8,243)
-------- ------- ------- -------
Cash flows from financing activities:
Borrowings under term loan......................................... 55,000 -- -- --
Borrowings under revolving line of credit.......................... 6,327 -- -- 4,000
Repayments of revolving line of credit............................. (1,927) (4,400) (3,900) (3,000)
Principal payments of term loan.................................... (47,015) (4,750) (1,000) (1,375)
Repurchase of stock................................................ (689) (28) -- (22)
Fees paid in connection with refinancing........................... (2,439) -- -- --
Purchase of interest rate cap...................................... -- (235) -- --
Sale of common stock............................................... -- -- -- 1,445
Other, net......................................................... 33 70 (40) (79)
-------- ------- ------- -------
Net cash (used for) provided by financing activities........ 9,290 (9,343) (4,940) 969
-------- ------- ------- -------
Effect of exchange rate changes on cash.............................. 78 26 161 (82)
-------- ------- ------- -------
Increase (decrease) in cash and cash equivalents..................... (3,509) 4,874 2,351 (3,181)
Cash and cash equivalents, beginning of year......................... 4,923 1,414 1,414 6,288
-------- ------- ------- -------
Cash and cash equivalents, end of year............................... $ 1,414 $ 6,288 $ 3,765 $ 3,107
======== ======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for --
Interest......................................................... $ 5,038 $ 6,461 $ 3,017 $ 3,084
======== ======= ======= =======
Income taxes..................................................... $ 213 $ 206 $ 15 $ 397
======== ======= ======= =======
</TABLE>
Supplemental disclosure of noncash activity:
In connection with the acquisition of Snowden-Pencer, Inc. in April 1994,
the Company issued 55,000 shares of common stock valued at $5,500,000.
The accompanying notes are an integral part of these consolidated financial
statements.
F-17
<PAGE> 64
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ORGANIZATION AND ACQUISITION
Deknatel Snowden Pencer, Inc. and Subsidiaries (the Company) designs,
manufactures and markets chest drainage devices, vascular punches, specialty
needles and sutures, and precision surgical instruments used in cardiovascular,
endoscopic, plastic and general surgical procedures.
On April 20, 1994, the Company was formed and made a tax-free exchange of
all of the outstanding common stock of Deknatel Holdings Corporation for the
Company's common stock. In accordance with Accounting Interpretation No. 39 of
Accounting Principles Board Opinion No. 16, Business Combinations, the
accompanying consolidated financial statements are presented in a manner similar
to that in pooling-of-interest accounting, with all assets and liabilities
accounted for at historical cost for all periods presented.
On April 20, 1994, the Company acquired 100% of the common stock of
Snowden-Pencer Inc., a manufacturer of surgical instruments, for $11,822,000 of
cash (net of cash acquired), $4,982,000 of assumed liabilities repaid at closing
and 55,000 shares of common stock (valued at $5,500,000).
On November 19, 1991, the Company acquired, from Pfizer Hospital Products
Group, Inc. (HPG), certain assets and assumed certain liabilities of HPG's
Deknatel division and acquired all of the outstanding common stock of Deknatel
Medizinische Produkte GmbH (Deknatel GmbH). Total consideration paid (net of
cash acquired) by the Company was $96,507,000.
For financial reporting purposes, these acquisitions have been accounted
for using the purchase method of accounting, and their results of operations
have been included in the accompanying consolidated financial statements from
each acquired entity's respective date of acquisition. For each acquisition, the
purchase price was allocated to assets acquired and liabilities assumed based on
their estimated fair market values existing at the date of acquisition. The
excess of the purchase price over the estimated fair market value of net assets
acquired is reflected in the accompanying consolidated balance sheets as
goodwill and is included in intangible assets.
For income tax reporting purposes, the acquisitions of Deknatel GmbH and
Snowden-Pencer Inc. were treated as acquisitions of stock. As a result, the tax
basis of the related assets and liabilities carries over from amounts previously
reported for income tax purposes.
Based on unaudited data, the following table presents selected financial
information for fiscal year 1994 for the Company and Snowden-Pencer Inc. on a
pro forma basis, assuming that the companies had been combined since the
beginning of fiscal 1994 (in thousands):
<TABLE>
<S> <C>
Net sales........................................................ $93,360
Income before other income (expense)............................. 13,230
Income before extraordinary item................................. 579
</TABLE>
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
the Company and its subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
(b) Inventories
Inventories consist of materials, labor and overhead and are valued at the
lower of cost (first-in, first-out) or market, excluding those of the Company's
Snowden-Pencer Inc. subsidiary, which are stated at the lower of cost (last-in,
first-out) or market. As of September 30, 1995, approximately $6,672,000 of
total inventories were valued on the last-in, first-out method. Under the
first-in, first-out method, such inventories would have been $1,773,000 lower at
September 30, 1995 (in thousands).
F-18
<PAGE> 65
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Raw materials............................................ $ 6,809 $ 5,648
Work-in-process.......................................... 1,959 1,592
Finished goods........................................... 14,013 11,387
------- -------
$22,781 $18,627
======= =======
</TABLE>
(c) Property, Plant and Equipment
Property, plant and equipment are stated at cost. The Company provides for
depreciation on property and equipment on a straight-line basis over their
estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................... 25 - 40 years
Machinery and equipment....................................... 5 - 12 years
</TABLE>
Leasehold improvements are amortized on a straight-line basis over the
shorter of the estimated useful life of the assets or the remaining lease term.
(d) Intangible Assets
Included in intangible assets at September 30, 1994 and 1995 are the
following (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Customer sales contracts................................. $ 6,100 $ 6,100
Patents.................................................. 15,833 15,833
Noncompete agreements.................................... 18,000 18,000
Trade names.............................................. 700 705
Deferred financing costs................................. 2,439 2,674
Goodwill................................................. 31,907 31,937
------- -------
Gross intangibles........................................ 74,979 75,249
Less -- amortization..................................... 25,566 28,793
------- -------
Net intangibles.......................................... $49,413 $46,456
======= =======
</TABLE>
Customer sales contracts, patents, noncompete agreements and trade names
are being amortized on a straight-line basis over their estimated useful lives.
These lives are summarized as follows:
<TABLE>
<S> <C>
Customer sales contracts....................................... 2 years
Patents........................................................ 3-16 years
Noncompete agreements.......................................... 2-10 years
Trade names.................................................... 40 years
</TABLE>
Deferred financing costs represent costs associated with the Company's
long-term debt and interest rate protection agreements (see Note 3), which are
being amortized over the lives of the respective debt agreements. During 1994
and 1995, amortization of deferred financing costs was $518,000 and $429,000,
respectively, and has been included in interest expense in the accompanying
consolidated statements of operations.
Goodwill represents the excess of the purchase price over the fair market
value of identified net assets acquired related to the business acquisitions
more fully described in Note 1. Goodwill is amortized on a straight-line basis
over a 40-year period.
F-19
<PAGE> 66
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(e) Accrued Liabilities
Included in accrued liabilities at September 30, 1994 and 1995 are the
following (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Accrued compensation and benefits........................ $ 3,389 $ 5,402
Accrued employee benefit costs........................... 4,442 4,036
Accrued customer rebates................................. 4,069 4,591
Other.................................................... 4,362 4,831
------- -------
$16,262 $18,860
======= =======
</TABLE>
(f) Income Taxes
The Company records income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under SFAS No.
109, deferred income taxes are recognized based on the expected future tax
consequences of differences between the financial statement basis and the tax
basis of assets and liabilities, calculated using enacted tax rates in effect
for the year in which the differences are expected to be reflected in the tax
return.
(g) Foreign Currency Translation
All assets and liabilities of the Company's foreign subsidiaries are
translated at exchange rates at the balance sheet date, and revenues and
expenses are translated at average exchange rates for the period in accordance
with SFAS No. 52, Foreign Currency Translation. Resulting translation
adjustments are reflected as a separate component of stockholders' investment
titled cumulative translation adjustment. Exchange gains and losses on foreign
currency transactions consummated during the year are included in the
accompanying consolidated statements of operations and are immaterial.
(h) Cash Equivalents
Cash and cash equivalents include marketable securities with an original
maturity date of three months or less.
(i) Unaudited Interim Financial Statements
In the opinion of the Company's management, the March 26, 1995 and March
24, 1996 unaudited interim financial statements include all adjustments of a
normal recurring nature necessary for a fair presentation of results for this
interim period. The results of operations for the six months ended March 26,
1995 and March 24, 1996 are not necessarily indicative of the results to be
expected for the full year or for any future period.
(3) LONG-TERM DEBT
On April 20, 1994, in part to facilitate the acquisition of Snowden-Pencer
Inc. (see Note 1), the Company refinanced its then-outstanding term loan. At the
date of refinancing, approximately $2,360,000 of unamortized deferred financing
costs related to the original term loan was expensed and is reflected in the
accompanying consolidated statements of operations as an extraordinary loss.
Costs incurred in securing the new term loans of $2,439,000 have been
capitalized and included in intangible assets (see Note 2) and are being
amortized over the term of the loans.
F-20
<PAGE> 67
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LONG-TERM DEBT (CONTINUED)
Long-term debt as of September 30, 1994 and 1995 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Term loan A, interest at LIBOR plus 3% (8.43% and 9.31% at
September 30, 1994 and 1995, respectively, subject to
adjustment for interest rate cap), payable in installments
through 1999................................................... $28,000 $23,250
Term loan B, interest at LIBOR plus 3.5% (8.93% and 9.81% at
September 30, 1994 and 1995, respectively, subject to
adjustment for interest rate cap), payable in installments
through 2001................................................... 25,000 25,000
12% Note due to Pfizer Hospital Products Group, Inc., interest at
12%, payable in installments in 1999 through 2001, interest
payable semiannually........................................... 10,250 10,250
------- -------
63,250 58,500
Less -- Current portion.......................................... 4,750 6,750
------- -------
Long-term portion........................................... $58,500 $51,750
======= =======
</TABLE>
(a) Term Loans A and B
Minimum annual principal installments due under the term loans are
summarized as follows (in thousands):
<TABLE>
<S> <C>
1996............................................................. $ 6,750
1997............................................................. 8,500
1998............................................................. 9,500
1999............................................................. 9,625
2000............................................................. 9,250
Thereafter....................................................... 4,625
----
$48,250
====
</TABLE>
In addition to the minimum installments shown above, the loan agreement
requires additional principal repayments to be made within 105 days after each
fiscal year-end equal to 75% of each year's adjusted excess cash flow (as
defined in the loan agreement). As of September 30, 1995, no additional
principal repayments will be required in 1996. Further accelerations of
principal repayments are required in the event of a sale of equity of the
Company or the incurrence of indebtedness. In any event, all remaining
outstanding amounts due under the term loan are payable in full in November
2001.
On January 23, 1995, the Company purchased an interest rate cap covering a
notional amount of $30,000,000 for the period from January 27, 1995 to April 20,
1997. Under the terms of the cap, the Company's maximum interest rate expense
for the covered notional principal is 8%, unless LIBOR, at any measurement date,
exceeds 9%. If LIBOR, at any measurement date, exceeds 9%, then the maximum
interest rate is capped at 9%. Through September 30, 1995, the interest rate on
the term loan was less than the interest rate cap. The cost of the cap,
$235,000, is included in intangible assets and is being amortized over the
period covered by the cap.
Substantially all of the Company's assets have been pledged in support of
the term loan and revolving line of credit (see Note 3(c)).
F-21
<PAGE> 68
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) LONG-TERM DEBT (CONTINUED)
(b) 12% Note Due to Pfizer Hospital Products Group, Inc.
Minimum annual principal repayments due under the 12% note due to HPG (12%
note) are summarized as follows (in thousands):
<TABLE>
<S> <C>
1999.............................................................. $3,416
2000.............................................................. 3,417
2001.............................................................. 3,417
</TABLE>
In addition, mandatory principal prepayments are required (1) in the event
of a significant sale of equity of the Company (other than stock options) and
(2) in an amount equal to 50% of excess cash flow (as defined) after the
satisfaction of all obligations for repayments under the term loans.
(c) Revolving Line of Credit
The Company has available up to $20 million under a secured revolving line
of credit that expires in April 1999. Available borrowings under the revolving
line of credit are limited to the Company's borrowing base, which is calculated
as the sum of 80% of eligible domestic receivables plus 50% of eligible domestic
inventory. As of September 30, 1995, the Company's borrowing base was
approximately $9.7 million. Borrowings under the revolving line of credit bear
interest at a rate of LIBOR plus 3%, and a fee of 1/2% of the unused portion of
the line is charged on an annual basis. At September 30, 1994 and 1995,
$4,400,000 and $0 were outstanding under this agreement, respectively.
(d) Letter-of-credit Facility
Included in the revolving line-of-credit facility, the Company has
available a letter-of-credit facility under which irrevocable standby letters of
credit may be issued for up to $2.5 million in aggregate. No letters of credit
were issued as of September 30, 1995. The letter of credit facility provides for
a commitment fee equal to 2.25% to 2.5% of the letter of credit amount upon
issuance of such commitments.
The term loan, 12% note and revolving line-of-credit agreements contain
certain covenants that, among other things, restrict dividends or stock
repurchases, limit capital expenditures and annual operating lease payments, and
set minimum fixed charges, interest coverage and leverage ratios, and minimum
consolidated adjusted-net-worth requirements. The agreements also limit the
Company's ability to issue capital stock and set maximum inventory and accounts
receivable levels.
(4) COMMITMENTS AND CONTINGENCIES
Future minimum rental commitments under third-party operating leases (see
Note 8 for discussion of related party commitments) that have initial or
noncancelable lease terms in excess of one year are as follows (in thousands):
<TABLE>
<S> <C>
1996................................................................ $ 656
1997................................................................ 424
1998................................................................ 44
1999................................................................ 32
2000................................................................ 16
------
$1,172
======
</TABLE>
The Company has a commitment to invest up to $600,000 in a 50%-owned joint
venture. As of September 30, 1995, the Company had advanced $350,000 of such
committed funds.
F-22
<PAGE> 69
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is contingently liable with respect to certain lawsuits and
other matters that arise in the ordinary course of business. In the opinion of
management, resolution of these contingencies will not have a material effect on
the consolidated financial statements of the Company.
During 1995, the Company entered into foreign exchange forward contracts
totaling $6 million and maturing on a monthly basis throughout fiscal 1996.
These forward contracts require the purchase of German deuche marks at rates
ranging from 1.4296 deuche marks per U.S. dollar to 1.4084 deuche marks per U.S.
dollar. The forward contracts are intended to hedge anticipated intercompany
inventory transfers and debt payments, and are marked to market, which could
result in a foreign currency gain or loss based on future fluctuations in
exchange rates. No gain or loss was reflected in the 1995 financial statements,
as year-end exchange rates approximated contract rates.
(5) INCOME TAXES
The components of the income before provision for income taxes and
extraordinary loss for 1994 and 1995 are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
---- ------
<S> <C> <C>
Domestic.................................................... $137 $1,881
Foreign..................................................... 314 (394)
---- ------
$451 $1,487
==== ======
</TABLE>
The provision for income taxes for 1994 and 1995 consists of the following
(in thousands):
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Current --
Federal................................................... $ -- $ 115
Foreign................................................... 200 102
State..................................................... 92 192
---- ----
292 409
---- ----
Deferred --
Federal................................................... -- --
Foreign................................................... (114) (258)
State..................................................... 10 21
---- ----
(104) (237)
---- ----
Provision for income taxes........................... $ 188 $ 172
==== ====
</TABLE>
F-23
<PAGE> 70
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amounts calculated by
applying the statutory federal income tax rate of 34% to income before provision
for income taxes and extraordinary loss due to the following (in thousands):
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Income tax provision at statutory federal income tax
rates..................................................... $ 153 $ 506
Effect of lower foreign tax rates........................... (21) (22)
State income taxes, net of federal benefit.................. 102 141
Nondeductible goodwill amortization......................... 52 127
Change in U.S. valuation allowance.......................... 221 (283)
Other....................................................... (319) (297)
---- ----
Provision for income taxes............................. $ 188 $ 172
==== ====
</TABLE>
At September 30, 1995, subject to Internal Revenue Service review, the
Company has U.S. net operating loss carryforwards (NOLs) available of
approximately $8,000,000 for tax purposes which expire if unutilized beginning
in fiscal 2007. The NOLs are available to offset future U.S. taxable income, but
their use could be limited if a change in control of the Company occurred.
Prepaid income taxes and deferred income taxes at September 30, 1994 and
1995 consist of the following (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Prepaid income taxes --
Intangible asset amortization.......................... $ 5,670 $ 5,071
Accrued expenses....................................... 1,458 1,509
Inventory basis differences............................ 132 606
Other.................................................. 153 214
NOLs................................................... 2,537 2,711
------- -------
9,950 10,111
Valuation allowance.................................... (7,910) (7,627)
------- -------
Total deferred tax assets...................... $ 2,040 $ 2,484
======= =======
Deferred income taxes --
Depreciation........................................... $ 2,028 $ 2,312
Other.................................................. 85 7
------- -------
Total deferred tax liabilities................. $ 2,113 $ 2,319
======= =======
</TABLE>
The Company has recorded a valuation allowance against its otherwise
recognizable net deferred tax asset due to the uncertainty of realizing the
future benefit of the deferred tax assets.
(6) EMPLOYEE BENEFIT PLANS
(a) Pension Plans
The Company has a defined benefit pension plan, which covers substantially
all U.S. employees of the Company, excluding those employed by the Company's
Snowden-Pencer Inc. subsidiary. Plan assets consist primarily of U.S. government
and corporate securities.
F-24
<PAGE> 71
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) EMPLOYEE BENEFIT PLANS (CONTINUED)
The funded status of the pension plan at September 30, 1994 and 1995 was as
follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation --
Vested................................................. $ 3,016 $ 4,257
Nonvested.............................................. 649 650
------- -------
Total.......................................... $ 3,665 $ 4,907
======= =======
Projected benefit obligation............................. $ 4,420 $ 5,567
Plan assets at market value.............................. 2,765 3,672
------- -------
Funded status -- plan assets less than projected benefit
obligation............................................. (1,655) (1,895)
Unrecognized prior service costs......................... (20) (19)
Unrecognized net loss from past experience different from
that assumed and changes in actuarial assumptions...... 526 664
------- -------
Accrued pension cost........................... $(1,149) $(1,250)
======= =======
</TABLE>
Assumptions used in the computation for 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Weighted average discount rate................................. 8.5 % 7.5 %
Expected long-term rate of return on assets.................... 9.0 9.0
Rate of increase in future compensation levels................. 4.0 3.5
</TABLE>
Benefits under the pension plan are generally based on years of service and
the employees' career earnings. Employees become fully vested after five years.
A summary of the components of net periodic pension cost for 1994 and 1995
is as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
----- -----
<S> <C> <C>
Service cost................................................ $ 516 $ 417
Interest cost............................................... 334 341
Actual return on plan assets................................ 488 (533)
Net amortization and deferral............................... (741) 273
----- -----
Net periodic pension cost......................... $ 597 $ 498
===== =====
</TABLE>
F-25
<PAGE> 72
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) EMPLOYEE BENEFIT PLANS (CONTINUED)
The Company's German subsidiary also has a defined benefit pension plan for
its employees. The funded status at September 30, 1994 and 1995 is as follows
(in thousands):
<TABLE>
<CAPTION>
1994 1995
------- -------
<S> <C> <C>
Actuarial present value of accumulated benefit
obligation --
Vested................................................. $ 1,332 $ 1,470
Nonvested.............................................. 358 238
------- -------
Total.......................................... $ 1,690 $ 1,708
======= =======
Projected benefit obligation............................. 2,234 2,379
Plan assets at market value.............................. $ -- $ --
------- -------
Funded status -- plan assets less than projected benefit
obligation............................................. (2,234) (2,379)
Unrecognized net loss.................................... 498 72
------- -------
Accrued pension cost........................... $(1,736) $(2,307)
======= =======
</TABLE>
Assumptions used in the computation for 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
--- ---
<S> <C> <C>
Weighted average discount rate............................... 6.0% 6.5%
Expected long-term rate of return on assets.................. N/A N/A
Rate of increase in future compensation levels............... 3.5% 3.0%
</TABLE>
A summary of the components of net periodic pension cost for 1994 and 1995
are as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
---- ----
<S> <C> <C>
Service cost.................................................. $233 $203
Interest cost................................................. 134 154
Net amortization and deferral................................. 26 4
---- ----
Net periodic pension cost........................... $393 $361
==== ====
</TABLE>
(b) Savings and Investment and Profit Sharing Plans
The Company has a savings and investment plan for all U.S. employees.
Employee contributions to the savings plan can be made both on a pretax (salary
deferral) and after-tax basis. The Company may make a matching contribution in
an amount equal to 100% of the first 2% of employee salary deferral
contributions and 50% of the next 4% of employee salary deferral contributions
(subject to certain limitations, as defined in the plan). The Company matched
pretax salary deferrals totaling $461,000 and $543,000 in fiscal 1994 and 1995,
respectively.
Employees of Snowden-Pencer Inc. also participate in a noncontributory
profit sharing plan. The plan provides for discretionary contributions to be
determined annually. In fiscal 1995, the expense related to the plan included in
the accompanying 1995 consolidated statement of operations was $78,000.
F-26
<PAGE> 73
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) STOCKHOLDERS' AGREEMENTS AND CONVERTIBLE SECURITIES
(a) Stockholders' Agreement
Stockholders of the Company entered into an agreement that, among other
provisions, allows the Company and/or certain stockholders of the Company the
right of first refusal to purchase shares in the event that outstanding stock is
offered for sale by any stockholder. Additionally, in the event that the Company
proposes to issue any additional shares (other than in satisfaction of stock
option obligations), stockholders have the right of first refusal to purchase a
portion of such stock sufficient to maintain their percentage interest in
outstanding common stock immediately prior to such issuance.
During 1995, the Company amended its Stockholders' Agreement to allow for
the issuance of Class B common stock. Class B common stockholders are eligible
to receive dividends at a rate of 70% of those paid to Class A shareholders and,
in the event of a liquidation, will participate in the distribution of assets at
a rate equal to 70% of distributions received by Class A stockholders. Class B
stock will convert to Class A common stock upon (1) the completion of an initial
public offering of stock by the Company, (2) a change in control of the
ownership of the Company or (3) a resolution of the Board of Directors
authorizing such a conversion.
(b) Employee Stock Options
In November 1991, the Company granted to certain members of management
options to purchase common stock at $100 per share. The options are exercisable
at the rate of 20% each year from the date of grant. A summary of the option
activity is as follows:
<TABLE>
<CAPTION>
EXERCISABLE NONEXERCISABLE TOTAL
----------- -------------- ------
<S> <C> <C> <C>
October 1, 1993........................... 9,093 15,684 24,777
Terminated.............................. 7,910 13,909 21,819
------ ------- -------
September 30, 1994........................ 1,183 1,775 2,958
Terminated.............................. 828 1,775 2,603
------ ------- -------
September 31, 1995........................ 355 -- 355
====== ======= =======
</TABLE>
During 1995, the Company granted to certain members of management, options
to purchase 40,293 shares of Class B common stock at $70 per share. Options
granted become exercisable ratably over a five-year period. As of September 30,
1995, 10,627 options were exercisable.
The Company has the right to repurchase, at fair market value, as
determined by the Board of Directors, any stock issued under the stock option
plan. The options expire at the earlier of 10 years from grant date or the
termination of the executive's employment. No options were exercised in fiscal
1994 and 1995. The option price for all options approximated fair market value
at grant date as determined by the Board of Directors.
(c) Royalty Capital Partners' Stock Options
As partial compensation for services in connection with the acquisition of
certain assets and liabilities from HPG (see Note 1), the Company granted to
Royalty Capital Partners (RCP) options to purchase 1,172 shares of common stock
at the price of $100 per share. The options vest and become exercisable upon the
achievement of both earnings and working capital as a percentage of sales
targets, as defined, on a cumulative basis for the five years ending December
31, 1996. All unvested RCP options expire after December 31, 1996, and to the
extent not exercised, all RCP options expire as of November 20, 2001.
(8) RELATED PARTY TRANSACTIONS
Fees of $256,000 and $170,000 were paid during 1994 to affiliates of two of
the principal stockholders of the Company for services rendered in connection
with the acquisition of Snowden-Pencer (described in
F-27
<PAGE> 74
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) RELATED PARTY TRANSACTIONS (CONTINUED)
Note 1) and with the arrangement of the long-term debt used to finance the
acquisition (see Note 3). Such fees have been allocated between deferred
financing costs and goodwill and have been included in the purchase price on the
accompanying consolidated balance sheets, as appropriate.
The Company leases one of its facilities from one of its stockholders under
a 20-year operating lease. During 1994 and 1995, the Company expensed
approximately $91,000 and $207,000, respectively, related to this facility
lease. Future minimum rental commitments under the remainder of the lease are as
follows (in thousands):
<TABLE>
<S> <C>
1996................................................................ $ 213
1997................................................................ 220
1998................................................................ 226
1999................................................................ 233
2000................................................................ 240
Thereafter.......................................................... 4,066
------
$5,198
======
</TABLE>
The Company is also required to pay quarterly management fees to one of its
principal stockholders. During fiscal 1994 and 1995, $146,000 was expensed and
paid in each year.
(9) SEVERANCE AND OTHER CHARGES
During 1994 and 1995, the Company expensed the following amounts in
connection with work force reductions, a plant closure, consolidation of the
sales force and the defense of rights under certain intangible assets (in
thousands):
<TABLE>
<CAPTION>
1994 1995
------ ------
<S> <C> <C>
Severance and social benefits.............................. $ 983 $1,651
Plant closure costs........................................ -- 888
Sales and marketing relocation and severance............... -- 653
Patent defense............................................. 500 393
------ ------
$1,483 $3,585
====== ======
</TABLE>
The majority of the above amounts were paid in the year expensed; amounts
accrued at each of the year-ends were not material.
F-28
<PAGE> 75
DEKNATEL SNOWDEN PENCER, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(10) GEOGRAPHIC AND CUSTOMER INFORMATION
The Company's operations by geographic area for the years ended September
30, 1994 and 1995 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1994 1995
-------- --------
<S> <C> <C>
Net sales --
United States........................................ $ 60,105 $ 66,404
Europe............................................... 20,459 22,439
Other................................................ 4,846 6,416
-------- --------
$ 85,410 $ 95,259
======== ========
Income (loss) before provision for income taxes and
extraordinary loss --
United States........................................ $ 137 $ 1,881
Europe............................................... 314 (394)
-------- --------
$ 451 $ 1,487
======== ========
Total assets --
United States........................................ $ 96,388 $ 92,703
Europe............................................... 14,060 13,123
-------- --------
$110,448 $105,826
======== ========
</TABLE>
Two distributors accounted for 21% and 17% of net sales in 1994 and 17% and
16% of net sales in 1995. United States sales include export sales of $2,932,000
in 1994 and $3,623,000 in 1995.
(11) SUBSEQUENT EVENTS
On December 5, 1995, the Company purchased certain assets and assumed
certain liabilities relating to a product line of chest drainage and
cardiovascular autotransfusion products from Davol, Inc., a subsidiary of C.R.
Bard, Inc. for $9.5 million in cash. This acquisition was accounted for using
the purchase method. Pro forma results of the acquisition are not presented
because they would not be materially different from the Company's historical
financial statements.
In January 1996, the Company sold 16,176 shares of Class B common stock, at
a price of $90 per share, to certain officers of the Company. The $90 per share
represented estimated fair market value per share as determined by the Board of
Directors of the Company.
In December 1995, the Company's German subsidiary sold its primary building
for approximately $1,900,000 in cash. The Company recorded a gain on the sale of
$1,656,000 which is included in other income for the six months ended March 24,
1996.
In May 1996, the Company agreed to be purchased by Genzyme Corporation for
$250 million in cash.
F-29
<PAGE> 76
- ------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE SUCH DATE.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................
Incorporation of Certain Documents by
Reference...........................
Prospectus Summary....................
Risk Factors..........................
Use of Proceeds.......................
Capitalization........................
Price Range of General Division Stock
and Dividend Policy.................
DSP Management's Discussion and
Analysis of Financial Condition and
Results of Operations...............
Business..............................
Description of Notes..................
Certain Federal Income Tax
Consequences........................
Description of Genzyme Capital
Stock...............................
Management and Accounting Policies
Governing the Relationship of
Genzyme Divisions...................
Underwriting..........................
Notice to Canadian Residents..........
Legal Opinions........................
Experts...............................
Index to Financial Statements.........
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
genzyme
$225,000,000
% Convertible
Subordinated Notes Due 2001
PROSPECTUS
MN
()
- ------------------------------------------------------
<PAGE> 77
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses to be borne by the Company in connection with this offering
are as follows:
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 86,207
NASD filing fee........................................................... $ 25,500
Blue Sky fees and expenses................................................ $ 25,000
Printing expenses......................................................... $ 75,000
Accounting fees and expenses.............................................. $200,000
Legal fees and expenses................................................... $125,000
Trustee fees.............................................................. $ 20,000
Miscellaneous expenses.................................................... $ 43,293
--------
Total........................................................... $600,000
========
</TABLE>
All of the above figures, except the SEC registration fee and NASD filing
fee, are estimates.
ITEM 15. 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.
II-1
<PAGE> 78
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 Genzyme'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 a director's 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.
ITEM 16. EXHIBITS
<TABLE>
<C> <C> <S>
1.1 -- Underwriting Agreement dated as of , 1996 between Genzyme and CS First
Boston Corporation. To be filed by amendment.
2.1 -- Merger Agreement among Genzyme, DSP Acquisition Corporation and DSP, Inc. dated as of
May 24, 1996. Filed herewith. Pursuant to Item 601 (b)(2) of Regulation S-K, the
schedules referred to in the Agreement are omitted. The Registrant hereby undertakes
to furnish supplementally a copy of any omitted schedule to the Commission upon
request.
4.1 -- Indenture dated as of , 1996 between Genzyme and State Street Bank and
Trust Company. To be filed by amendment.
4.2 -- 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 and incorporated herein by reference.
4.3 -- By-laws of Genzyme. Filed as Exhibit 3.2 to Genzyme's Form 8-K dated December 31,
1991, and incorporated herein by reference.
5.1 -- Opinion of Palmer & Dodge LLP. Filed herewith.
12.1 -- Computation of Ratio of Earnings to Fixed Charges. Filed herewith.
23.1 -- Consent of Coopers & Lybrand L.L.P., independent accountants to Genzyme. Filed
herewith.
23.2 -- Consent of Arthur Andersen LLP, independent accountants to DSP. Filed herewith.
23.3 -- Consent of Palmer & Dodge LLP (contained in Opinion of Palmer & Dodge LLP, filed as
Exhibit 5.1).
25.1 -- Statement of Eligibility and Qualification of the Trustee on Form T-1 of State Street
Bank and Trust Company. Filed herewith.
</TABLE>
ITEM 17. UNDERTAKINGS
(a) The undersigned hereby undertakes that, for purposes of determining any
liability under the Securities Act, 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.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the 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
II-2
<PAGE> 79
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.
(c) (1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be a part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-3
<PAGE> 80
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cambridge, Commonwealth of Massachusetts, on June 13,
1996.
GENZYME CORPORATION
By: /s/ HENRI A. TERMEER
------------------------------------
Henri A. Termeer
President
POWER OF ATTORNEY
We, the undersigned officers and directors of Genzyme Corporation, hereby
severally constitute and appoint Henri A. Termeer, David J. McLachlan, Evan M.
Lebson and Peter Wirth, and each of them singly, our true and lawful attorneys,
with full power to them in any and all capacitates, to sign any amendments to
this Registration Statement on Form S-3 (including Pre-and Post-Effective
Amendments), and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and confirming all that each of said attorneys-in-fact may do or cause
to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------------------- ------------------------------ --------------
<C> <S> <C>
/s/ HENRI A. TERMEER Director and Principal June 13, 1996
- ----------------------------------------------- Executive Officer
Henri A. Termeer
/s/ DAVID J. MCLACHLAN Principal Financial and June 13, 1996
- ----------------------------------------------- Accounting Officer
David J. McLachlan
/s/ CONSTANTINE E. ANAGNOSTOPOULOS Director June 13, 1996
- -----------------------------------------------
Constantine E. Anagnostopoulos
/s/ DOUGLAS A. BERTHIAUME Director June 13, 1996
- -----------------------------------------------
Douglas A. Berthiaume
/s/ HENRY E. BLAIR Director June 13, 1996
- -----------------------------------------------
Henry E. Blair
/s/ ROBERT J. CARPENTER Director June 13, 1996
- -----------------------------------------------
Robert J. Carpenter
/s/ CHARLES L. COONEY Director June 13, 1996
- -----------------------------------------------
Charles L. Cooney
/s/ HENRY R. LEWIS Director June 13, 1996
- -----------------------------------------------
Henry R. Lewis
</TABLE>
II-4
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTION PAGE NO.
- ------- -------------------------------------------------------------------------- ----------
<C> <S> <C> <C>
1.1 -- Underwriting Agreement dated as of , 1996 between Genzyme and
CS First Boston Corporation. To be filed by amendment.
2.1 -- Merger Agreement among Genzyme, DSP Acquisition Corporation and DSP, Inc.
dated as of May 24, 1996. Filed herewith. Pursuant to Item 601(b)(2) of
Regulation S-K, the schedules referred to in the Agreement are omitted.
The Registrant hereby undertakes to furnish supplementally a copy of any
omitted schedule to the Commission upon request.
4.1 -- Indenture dated as of , 1996 between Genzyme and State Street
Bank and Trust Company. To be filed by amendment.
4.2 -- 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 and incorporated
herein by reference.
4.3 -- By-laws of Genzyme. Filed as Exhibit 3.2 to Genzyme's Form 8-K dated *
December 31, 1991, and incorporated herein by reference.
5.1 -- Opinion of Palmer & Dodge LLP. Filed herewith.
12.1 -- Computation of Ratio of Earnings to Fixed Charges. Filed herewith.
23.1 -- Consent of Coopers & Lybrand LLP, independent accountants to Genzyme.
Filed herewith.
23.2 -- Consent of Arthur Andersen LLP, independent accountants to DSP. Filed
herewith.
23.3 -- Consent of Palmer & Dodge LLP (contained in Opinion of Palmer & Dodge LLP,
filed as Exhibit 5.1).
25.1 -- Statement of Eligibility and Qualification of the Trustee on Form T-1 of
State Street Bank and Trust Company. Filed herewith.
</TABLE>
- ---------------
* Incorporated herein by reference.
<PAGE> 1
EXECUTION COPY
MERGER AGREEMENT
AMONG
GENZYME CORPORATION,
DSP ACQUISITION CORP.
AND
DEKNATEL SNOWDEN PENCER, INC.
DATED AS OF MAY 24, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article 1 - The Merger................................................................................. 1
Section 1.1 General.......................................................................... 1
Section 1.2 Filing........................................................................... 1
Section 1.3 Effectiveness of the Merger...................................................... 1
Section 1.4 Certificate of Incorporation and Bylaws.......................................... 1
Section 1.5 Directors and Officers........................................................... 2
Section 1.6 Conversion....................................................................... 2
Section 1.7 Dissenting Shares................................................................ 3
Section 1.8 Exchange of Shares............................................................... 3
Section 1.9 Effects of Merger................................................................ 4
Section 1.10 Closing......................................................................... 4
Article 2 - Representations and Warranties of the Company.............................................. 4
Section 2.1 Organization and Qualification................................................... 4
Section 2.2 Corporate Authorization.......................................................... 5
Section 2.3 Financial Data................................................................... 5
Section 2.4 Ownership of Stock............................................................... 6
Section 2.5 Consents and Approvals........................................................... 6
Section 2.6 Litigation....................................................................... 6
Section 2.7 Compliance with Law.............................................................. 6
Section 2.8 Tax Matters...................................................................... 7
Section 2.9 Employee Benefit Plans........................................................... 7
Section 2.10 Intellectual Property........................................................... 8
Section 2.11 Real Property................................................................... 9
Section 2.12 Material Contracts.............................................................. 11
Section 2.13 Environmental and Safety Matters................................................ 12
Section 2.14 FDA Matters..................................................................... 13
Section 2.15 Employee Relations.............................................................. 13
Section 2.16 Brokers......................................................................... 14
Section 2.17 Absence of Undisclosed Liabilities.............................................. 14
Section 2.18 Material Adverse Change......................................................... 14
Section 2.19 Accounts Receivable............................................................. 14
Section 2.20 Inventory....................................................................... 14
Section 2.21 Disclaimer...................................................................... 14
Article 3 - Representations and Warranties of the Parent and the Purchaser............................. 15
Section 3.1 Organization and Qualification................................................... 15
Section 3.2 Corporate Authorization.......................................................... 15
Section 3.3 Consents and Approvals........................................................... 15
Section 3.4 Financing........................................................................ 15
Section 3.5 Litigation....................................................................... 15
Section 3.6 Brokers.......................................................................... 16
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
Article 4 - Covenants.................................................................................. 16
Section 4.1 Conduct of Business of the Company and the Subdiairies........................... 16
Section 4.2 Filings.......................................................................... 17
Section 4.3 Confidentiality; Access to Information........................................... 17
Section 4.4 Public Announcements............................................................. 17
Section 4.5 Exclusivity...................................................................... 18
Section 4.6 Insurance........................................................................ 18
Article 5 - Conditions to Closing...................................................................... 18
Section 5.1 Conditions to Each Party's Obligation............................................ 18
Section 5.2 Conditions to Obligation of the Parent and the Purchaser......................... 19
Section 5.3 Conditions to Obligation of the Company.......................................... 20
Article 6 - Termination................................................................................ 21
Section 6.1 Termination...................................................................... 21
Section 6.2 Effect of Termination............................................................ 21
Article 7 - General Provisions......................................................................... 22
Section 7.1 Rules of Construction............................................................ 22
Section 7.2 Non-Survival..................................................................... 22
Section 7.3 Notices.......................................................................... 22
Section 7.4 Governing Law.................................................................... 24
Section 7.5 Entire Agreement................................................................. 24
Section 7.6 Amendment; Waiver................................................................ 24
Section 7.7 Binding Effect................................................................... 24
Section 7.8 Counterparts..................................................................... 24
Section 7.9 Expenses......................................................................... 24
</TABLE>
SCHEDULES
Schedule 2.1 Subsidiaries
Schedule 2.4 Capitalization
Schedule 2.5 Company Consents and Approvals
Schedule 2.6 Litigation
Schedule 2.7 Compliance with Laws
Schedule 2.8 Tax Matters
Schedule 2.9 Employee Benefit Plans
Schedule 2.10 Intellectual Property
Schedule 2.11 Real Property
Schedule 2.12 Material Contracts
Schedule 2.13 Environmental Matters
Schedule 2.14 FDA Matters
Schedule 2.15 Severance Arrangements
Schedule 2.16 Transaction Fees
Schedule 3.3 Parent Consents and Approvals
(ii)
<PAGE> 4
MERGER AGREEMENT
MERGER AGREEMENT dated as of May 24, 1996, among Genzyme Corporation, a
Massachusetts corporation (the "Parent"), DSP ACQUISITION CORP., a Delaware
corporation and a wholly-owned subsidiary of Parent (the "Purchaser"), and
DEKNATEL SNOWDEN PENCER, INC., a Delaware corporation (the "Company").
The Company and the Parent have approved the acquisition of the Company
by the Parent pursuant to a merger of the Purchaser with and into the Company
with the Company surviving such merger, subject to the terms and conditions
contained herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties and covenants contained herein, the parties agree as
follows:
ARTICLE 1
THE MERGER
Section 1.1 General. Upon the terms and conditions contained herein and
in accordance with the General Corporation Law of the State of Delaware (the
"DGCL"), at the Effective Time (as defined in Section 1.3), the Purchaser shall
be merged with and into the Company (the "Merger") and thereupon the separate
corporate existence of the Purchaser shall cease, and the Company, as the
surviving corporation (the "Surviving Corporation"), shall continue to exist
under and be governed by the DGCL.
Section 1.2 Filing. On the Closing Date (as defined in Section 1.10) or
as soon as practicable thereafter, the Company and the Purchaser will cause a
certificate of merger (the "Merger Certificate") to be filed with the Secretary
of State of the State of Delaware pursuant to applicable provisions of the DGCL
and shall take all such further actions as may be required by law to make the
Merger effective.
Section 1.3 Effectiveness of the Merger. The Merger shall become
effective (the "Effective Time") at such time as the Merger Certificate is filed
with the Secretary of State of Delaware in accordance with the DGCL or at such
later time (but in no event later than one business day thereafter) as is
specified in the Merger Certificate.
Section 1.4 Certificate of Incorporation and Bylaws. Upon the Effective
Time, the certificate of incorporation and bylaws of Purchaser, in each case as
in effect immediately prior to the Effective Time, shall become the certificate
of incorporation and bylaws of the Surviving Corporation (but subject, in the
case of the certificate of incorporation, to such amendments as the Parent shall
require to be set forth in the Merger Certificate).
1
<PAGE> 5
Section 1.5 Directors and Officers. The persons who are directors and
officers of the Purchaser immediately prior to the Effective Time shall, as of
the Effective Time, constitute the directors and officers of the Surviving
Corporation, in each case to hold office in accordance with the certificate of
incorporation and bylaws of the Surviving Corporation. The Surviving Corporation
may designate such other officers as it determines.
Section 1.6 Conversion. At the Effective Time, by virtue of the Merger
and without any action on the part of the holders thereof in the case of
subsections (a), (c) and (d) below, and by virtue of valid and binding
contractual obligations enforceable against the parties thereto in the case of
subsection (b):
(a) Each outstanding share of the Company's Class A and Class B
Common Stock, $.01 par value per share (collectively, the "Common
Stock"), other than Dissenting Shares as defined in Section 1.7,
shall be converted into and shall thereafter represent only the
right to receive, upon surrender in accordance with Section 1.8,
an amount in cash (the "Merger Consideration"), without interest,
determined in accordance with the following formula: (x) two
hundred forty-five million dollars ($245,000,000) minus the
Company's total indebtedness for borrowed money as of the Closing
Date (including principal, interest and fees, if any, and
including all such indebtedness outstanding under the Banque
Paribas and the Pfizer Hospital Products Group instruments listed
on Schedule 2.12 as Contracts Related to the Borrowing of Money,
but excluding amounts guaranteed to Fleet Bank under the guaranty
agreement listed on Schedule 2.12, provided that arrangements
satisfactory to the Parent are in place on the Closing Date to
terminate such guaranty in exchange for Parent's payment to Fleet
of the amounts guaranteed out of the portion of the Merger
Consideration payable to the stockholders of the Company who are
the primary obligors of such indebtedness) minus all fees and
expenses in excess of $3,500,000 associated with the sale of the
Company which remain unpaid as of the Closing Date, including
fees and expenses of attorneys and investment bankers, plus the
Company's cash and cash-equivalents as of the Closing Date
(without giving effect to the payment of up to $3,500,000 in
transaction expenses of the Company on the Closing Date), plus
the aggregate exercise price of all outstanding options as of the
Closing Date, other than the options granted by the stock option
agreement dated November 20, 1991 with Royalty Capital Partners
(the "RCP Option"),divided by (y) the total number of shares of
Common Stock outstanding as of the Closing Date plus the total
number of shares issuable upon the exercise of all options
outstanding as of the Closing Date, other than the RCP Option;
(b) All outstanding options to purchase Common Stock (the "Stock
Options"), other than the RCP Option, shall be converted into the
right to receive the Merger Consideration multiplied by the
number of shares for which such Stock Option is exercisable, less
the exercise price therefor;
2
<PAGE> 6
(c) All shares of capital stock which are held by the Company as
treasury shares shall be cancelled and retired and cease to
exist, without any conversion thereof; and
(d) Each share of the outstanding common stock, $.01 par value, of
the Purchaser shall be converted into one share of common stock,
$.01 par value, of the Surviving Corporation.
Section 1.7 Dissenting Shares. Notwithstanding anything in this
Agreement to the contrary, shares of Common Stock that are issued and
outstanding immediately prior to the Effective Time and that are held by
stockholders who have not voted such shares in favor of the Merger or consented
thereto in writing and who have delivered a written demand for payment for such
shares in the manner provided in Section 262 of the DGCL (the "Dissenting
Shares") shall not be converted into or represent a right to receive the Merger
Consideration pursuant to Section 1.6 hereof, but the holder thereof shall be
entitled only to such rights as are granted by Section 262 of the DGCL. Each
holder of Dissenting Shares shall receive payment therefor from the Surviving
Corporation in accordance with the DGCL; provided, however, (a) if any such
holder of Dissenting Shares shall have failed to establish his entitlement to
receive payment for such shares as provided in Section 262 of the DGCL, or (b)
if any such holder of Dissenting Shares shall have effectively withdrawn his
demand for payment for such shares of Common Stock or lost his right to receive
payment for his shares of Common Stock under Section 262 of the DGCL, or (c) if
neither any holder of Dissenting Shares nor the Surviving Corporation shall have
filed a petition demanding a determination of the value of all Dissenting Shares
within the time provided in Section 262 of the DGCL, such holder or holders (as
the case may be) shall forfeit the right to receive payment for such shares of
Common Stock pursuant to Section 262 of the DGCL and each such share of Common
Stock shall thereupon be deemed to have been converted, as of the Effective
Time, into the right to receive the Merger Consideration pursuant to Section 1.6
hereof.
Section 1.8 Exchange of Shares. Parent shall authorize one or more
persons to act as Exchange Agent hereunder (the "Exchange Agent"). As soon as
practicable after the Effective Time, Parent shall cause the Exchange Agent to
mail (i) to all former holders of record of Common Stock instructions for
surrendering their certificates representing Common Stock in exchange for the
Merger Consideration. Upon surrender of Common Stock certificate for
cancellation to the Exchange Agent or to such other agent or agents as may be
appointed by Parent, the holder of such certificate shall be entitled to receive
in exchange therefor the Merger Consideration multiplied by the number of shares
represented by such certificate, and the certificate so surrendered shall
forthwith be canceled. Until surrendered in accordance with the provisions of
this Section, each Common Stock certificate (other than for Dissenting Shares,
if any) shall represent for all purposes only the right to receive the Merger
Consideration multiplied by the number of shares represented by such
certificate. If delivery of the Merger Consideration is to be made to any person
other than the person in whose name the Certificate surrendered is registered,
it shall be a condition of such delivery that the Certificate so surrendered
shall be properly endorsed or otherwise in proper form for transfer and that the
person requesting such delivery shall pay any transfer or other taxes required
by reason of such
3
<PAGE> 7
delivery or establish to the satisfaction of the Surviving Corporation that such
tax has been paid or is not applicable. Until surrendered in accordance with the
provisions of this Section 1.8, each Common Stock certificate (other than
certificates representing Dissenting Shares) shall represent for all purposes
only the right to receive the Merger Consideration multiplied by the number of
shares represented by such certificate, but shall have no other rights.
Notwithstanding the foregoing, neither the Parent nor the Surviving Corporation
shall be liable to a holder of shares of Common Stock for any Merger
Consideration delivered to a public official pursuant to applicable abandoned
property, escheat and similar laws. After the Effective Time, there shall be no
transfers on the stock transfer books of the Surviving Corporation of the shares
of Common Stock that were outstanding immediately prior to the Effective Time.
Section 1.9 Effects of Merger. The Merger shall have the effects set
forth in the DGCL. Without limiting the foregoing, on and after the Effective
Time, the Surviving Corporation shall possess all the assets and interests of
every description, wherever located, and all rights, privileges, immunities,
powers, franchises and authority, of a public as well as of a private nature, of
each of the Company and the Purchaser, all of which shall be vested in the
Surviving Corporation without further act or deed. The Surviving Corporation
shall be liable for all the obligations of the Company and the Purchaser, and
any claims existing, or action or proceeding pending, by or against the Company
or the Purchaser may be prosecuted to judgment, with right of appeal, as if the
Merger had not taken place, or the Surviving Corporation may be substituted in
its place, and all the rights of creditors of each of the Company and the
Purchaser shall be preserved unimpaired.
Section 1.10 Closing. The closing of the Merger (the "Closing") shall
be held at the offices of Palmer & Dodge LLP, counsel to the Purchaser, at 10:00
a.m. (local time) on the third business day after the satisfaction or waiver of
the conditions set forth in Article (the "Closing Date"), or at such other place
and time as the Purchaser and the Company may mutually agree.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Parent and the Purchaser as
follows:
Section 2.1 Organization and Qualification.
(a) The Company (i) is a corporation validly existing and in good
standing under the laws of the State of Delaware, (ii) has the requisite
corporate power to carry on its business as now being conducted, and (iii) is
duly qualified as a foreign corporation in good standing in Massachusetts,
Georgia, Connecticut and each other jurisdiction where the conduct of its
business makes such qualification necessary, except where the failure to be so
qualified or in good standing would not, individually or in the aggregate, have
a Material Adverse Effect (as
4
<PAGE> 8
defined in Section 7.1.1). Except as set forth on Schedule 2.1, the Company
owns, directly or indirectly, 100% of the outstanding capital stock of each of
the subsidiaries listed on Schedule 2.1 (the "Subsidiaries"), which constitute
the only subsidiaries of the Company. Each Subsidiary is a corporation validly
existing and in good standing under the laws of its jurisdiction of organization
and is duly qualified as a foreign corporation in good standing in each
jurisdiction where the conduct of its business makes such qualification
necessary, except for failures to be so qualified or in good standing which
would not, individually or in the aggregate, have a Material Adverse Effect.
(b) The Company has previously made available to the Parent true and
complete copies of the charter and bylaws or other governing instruments of the
Company and each Subsidiary as presently in effect, and neither the Company nor
any Subsidiary is in default in the performance, observation or fulfillment of
its charter or bylaws or other governing instruments. The minute books of the
Company 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 shareholders 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 books of the Company and each of the Subsidiaries are true and complete.
Section 2.2 Corporate Authorization. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated hereby are within the Company's corporate powers and
have been duly authorized by all necessary corporate action on the part of the
Company, including approval by the holders of not less than 90% of the Company's
outstanding Common Stock acting by written consent pursuant to Section 228 of
the DGCL. This Agreement constitutes a valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, subject to
bankruptcy, insolvency, reorganization, fraudulent conveyance and transfer, and
moratorium or other similar laws of general application affecting the
enforcement of creditors' rights generally.
Section 2.3 Financial Data. The Company has previously furnished to the
Parent copies of the Company's (i) audited consolidated balance sheets and
related statements of income and cash flows as of and for the fiscal years ended
September 30, 1995 and 1994 (the "Audited Financial Statements") and (ii)
unaudited consolidated balance sheets as at December 24, 1995 and March 24,
1996, (the March 24, 1996 balance sheet being referred to herein as the "Interim
Balance Sheet") 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 "Financial Statements." The Financial Statements have been prepared from,
and are in accordance with, the books and records of the Company and present
fairly in all material respects the financial position and the results of
operations of the Company 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
5
<PAGE> 9
the Interim Financial Statements, to normal year end audit adjustments, which in
the aggregate are not material, and to the absence of footnote disclosures.
Section 2.4 Ownership of Stock. The Company's outstanding capital stock
consists of 449,105 shares of Class A Common Stock and 16,176 shares of Class B
Common Stock. The outstanding Common Stock is duly authorized and validly
issued, is fully paid and non-assessable, and as of the date hereof is owned of
record as set forth on Schedule 2.4. Except as set forth on Schedule 2.4, the
Company has no outstanding capital stock and there are no outstanding options,
warrants or similar rights to acquire, or any securities convertible into or
exchangeable for, any capital stock of the Company. True and complete copies of
all instruments (or the forms of such instruments) referred to in this Section
2.4 have been previously furnished to the Buyer. Except for the Amended and
Restated Stockholders Agreement referenced on Schedule 2.12, there are no
shareholder agreements, voting trusts, proxies or other agreements, instruments
or understandings with respect to the outstanding shares of capital stock of the
Company to which the Company is a party.
Section 2.5 Consents and Approvals. Except as set forth on Schedule
2.5, the execution, delivery and performance by the Company of this Agreement
and the consummation by the Company of the transactions contemplated hereby
require no action by or in respect of, or filing with or notice to, any
governmental or regulatory body, agency or official which, if not obtained or
made, would have a Material Adverse Effect. Except as set forth on Schedule 2.5,
neither the execution, delivery and performance by the Company of this
Agreement, nor the consummation by the Company of the transactions contemplated
hereby, will (a) violate, conflict with, or result in a breach of, any provision
of the charter or bylaws of the Company or any Subsidiary or of any applicable
law , or (b) result in a default (or give rise to any right of termination,
cancellation or acceleration) under, any Material Contract (as defined in
Section 2.12) to which the Company or any Subsidiary is a party, or by which the
Company or any Subsidiary may be bound, except in the case of clause (b) for
such violations, breaches or defaults which would not, individually or in the
aggregate, have a Material Adverse Effect.
Section 2.6 Litigation. Except as set forth on Schedule 2.6, there are
no claims, actions, suits, complaints or proceedings pending, or to the
Company's knowledge, threatened against the Company or any Subsidiary before any
court, arbitrator or administrative, governmental or regulatory authority or
body, nor is the Company or any Subsidiary subject to any order, judgment, writ,
injunction or decree, except in either case for matters which would not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
Section 2.7 Compliance with Law. Except as set forth on Schedule 2.7
and except with respect to FDA matters (which are covered in Section 2.14),
neither the Company nor any Subsidiary nor any Plan (as defined in Section 2.9)
is in violation of any statute, law, ordinance, regulation, rule or order of any
federal, state or local governmental authority or any judgment, decree or order
of any court, except where any such violation would not, individually or in the
aggregate, have a Material Adverse Effect. Except as set forth on Schedule 2.7,
the Company and each Subsidiary has all permits, approvals, licenses and
franchises from governmental
6
<PAGE> 10
authorities required to conduct its business as now being conducted, except for
such permits, approvals, licenses and franchises the absence of which would not,
individually or in the aggregate, have a Material Adverse Effect.
Section 2.8 Tax Matters.
(a) The Company 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 the Company
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 Interim Balance
Sheet is adequate for payment of any and all tax liabilities for periods ending
on or before March 24, 1996 and there are no tax liens on any assets of the
Company or its Subsidiaries except liens for current taxes not yet due.
(b) Except as set forth on Schedule 2.8, there has not been any audit
of any tax return filed by the Company or any of its Subsidiaries and no audit
of any such tax return is in progress and neither the Company nor any Subsidiary
has been notified by any tax authority that any such audit is contemplated or
pending. The Company knows of no tax deficiency or claim for additional taxes
asserted or threatened to be asserted against the Company or any of its
Subsidiaries by any taxing authority and the Company 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 the Company or any of its Subsidiaries is in
force, and no waiver or agreement by the Company 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 the Company 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.
Section 2.9 Employee Benefit Plans.
(a) The Company has made available to the Parent true and complete
copies of each pension, profit-sharing, deferred compensation, incentive
compensation, severance pay, retirement, welfare benefit or other plan or
arrangement providing benefits to employees or retirees, including both those
that do and do not constitute employee benefit plans within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), currently maintained or contributed to by the Company or any
Subsidiary for the benefit of its employees or retirees, but excluding informal
practices that may be discontinued without liability to the Company (each, a
"Plan"), each of which Plans is listed on Schedule 2.9 attached hereto.
7
<PAGE> 11
(b) Except as set forth on Schedule 2.9, (i) each such Plan that is
an "employee pension benefit plan" within the meaning of Section 3(2) of ERISA
is being operated and administered in compliance with Section 401(a) of the
Internal Revenue Code of 1986, as amended (the "Code"), except where any such
failure to comply would not have a Material Adverse Effect, and a favorable
determination letter has been obtained from-the Internal Revenue Service (the
"IRS") for such Plan; (ii) except where such events would not, individually or
in the aggregate, have a Material Adverse Effect, there has been no non-exempt
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code involving the assets of any Plan nor any "reportable event"
within the meaning of Section 4043 of ERISA with respect to any Plan; (iii) all
required employer contributions to such Plan have been made (or, in the case of
contributions not yet due, have been accrued on the Company's financial
statements and records); (iv) the Company has made available to the Parent as to
each such Plan a true and correct copy of (w) the annual report (Form 5500)
filed with the IRS for each of the three most recent plan years, (x) each plan,
trust agreement, group annuity contract and insurance contract, if any, relating
to such Plan, (y) each actuarial report prepared for each of the last three
years for each Plan and (z) each summary plan description distributed to
participants in each Plan and each summary of material modifications to each
Plan (as defined in ERISA); and (v) each such Plan is in compliance with ERISA,
the Code and the terms of such Plan, except where any such failure to comply
would not have a Material Adverse Effect. Neither the Company nor its
Subsidiaries has ever participated in a "multiemployer pension plan" as defined
in Section 3(37) of ERISA.
(c) Except as set forth on Schedule 2.9, neither the Company nor any
Subsidiary has any obligation to provide any welfare benefits to retired or
former employees other than continuation of welfare benefits as required by
applicable law.
(d) Neither the Company nor any Subsidiary has any liability under or
with respect to any employee benefit plans or arrangements that they no longer
maintain or in which they no longer participate, except where such liability
would not have a Material Adverse Effect.
Section 2.10 Intellectual Property.
(a) Schedule 2.10 sets forth a complete list of all patents,
trademarks, service marks, trade names, logos and copyrights and all
applications to register any of the foregoing (collectively, "Proprietary
Rights") used in and material to the business of the Company and its
Subsidiaries as presently conducted or proposed to be conducted. The Proprietary
Rights are sufficient to carry on the business of the Company and its
Subsidiaries as presently conducted. The Company and its Subsidiaries have
exclusive ownership of all Proprietary Rights identified in Schedule 2.10 or
have obtained any licenses, releases or assignments to use all such Proprietary
Rights (all such licensed third-party rights are separately described in
Schedule 2.10). Except as set forth on Schedule 2.12, neither the Company nor
its Subsidiaries has granted any rights in or licenses to their respective
Proprietary Rights to any third party and the Company or its Subsidiaries has
the right to use such Proprietary Rights free and clear of claims or rights of
others. Except as set forth on Schedule 2.12, no officer, employee, consultant,
8
<PAGE> 12
subcontractor or other party, other than the Company or its Subsidiaries, has
any rights in or licenses to the Proprietary Rights of the Company and its
Subsidiaries.
(b) Neither the Company nor its Subsidiaries has received any notices
of infringement by the Company of any Proprietary Rights of others, nor has the
Company or any of its Subsidiaries received any notices from others regarding an
alleged violation of their intellectual property rights which references any
aspect of the Company's or its Subsidiaries activities or products, and, to the
best knowledge of the Company, none of the present or contemplated activities of
the Company 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. The Company is not
aware of any infringement or violation by others of the Proprietary Rights of
the Company or its Subsidiaries.
(c) All patents, trademarks, service marks and copyrights listed on
Schedule 2.10 ("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 Schedule 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 the Company and its Subsidiaries has required all
employees engaged in research and development activities to execute agreements
under which such employees are required to convey to the Company or its
Subsidiaries ownership of all Proprietary Rights conceived or created by them in
the course of their employment or relationship with the Company or its
Subsidiaries.
(e) To the best knowledge of the Company, none of the activities of
the employees of the Company on behalf of the Company violates any agreements or
arrangements which any such employees have with former employers.
Section 2.11 Real Property.
(a) Schedule 2.11 sets forth a complete list of all real property
owned by the Company or any Subsidiary (individually, an "Owned Property" and
collectively, the "Owned Properties"). The Company or the Subsidiaries have good
and clear record and marketable fee title to the Owned Properties, free and
clear of all mortgages, liens, security interests, easements, restrictive
covenants, rights-of-way and other encumbrances ("Encumbrances") other than (i)
liens that are disclosed on Schedule 2.11; (ii) liens for taxes, fees, levies,
duties or other governmental charges of any kind which are not yet delinquent;
(iii) (A) platting, subdivision, zoning, building and other similar legal
requirements, (B) easements, restrictive covenants, rights-of-way, encroachments
and other similar encumbrances, whether or not of record, (C) reservations of
coal, oil, gas, minerals and mineral interests, whether or not of record, and
other Encumbrances as of the date hereof which do not, individually or in the
aggregate, materially detract from the value of the real property subject
thereto or impair in any material respect the
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operation of the Company's business (the Encumbrances described in clauses (i)
through (iii) above are hereinafter referred to collectively as "Permitted
Liens"). Without limiting the generality of the foregoing, as evidenced by the
owner's title insurance policies identified in Schedule 2.11, the Company or a
Subsidiary holds fee simple title to each Owned Property subject only to the
matters set forth in such title policies, which matters are set forth on
Schedule 2.11. The Company shall, at its expense, cause title to the Owned
Properties to be updated from the effective dates of such title insurance
policies to the Closing Date showing that there have been no new matters of
record.
(b) Schedule 2.11 attached hereto sets forth a complete list of all
real property leased by the Company or any Subsidiary (individually, a "Leased
Property" and, collectively, the "Leased Properties"). The Company or a
Subsidiary has a valid, good and marketable leasehold interest in the Leased
Properties, in each case free and clear of all mortgages, liens, security
interests, easements, restrictive covenants, rights-of-way and other
encumbrances, except for Permitted Liens, and encumbrances on the fee interest
of the Leased Properties which do not constitute indebtedness of the Company or
its Subsidiaries. To the best of the Company's knowledge, none of the easements,
restrictions or other matters of record to which such Leased Property is subject
prevent or unreasonably or materially interfere with the use of such Leased
Property for the conduct of the business thereon as heretofore conducted by the
Company or its Subsidiaries. Schedule 2.11 hereto identifies the parties to and
dates of the lease for each material Leased Property and all addenda, amendments
and attachments thereto (each, a "Real Property Lease"); except as set forth in
Schedule 2.11, such Real Property Lease has not been otherwise amended, modified
or supplemented by any written or oral agreement or understanding. Except as set
forth on Schedule 2.11, the Merger as contemplated by this Agreement is either
permitted as of right under each Real Property Lease or otherwise does not
require the consent of the landlord under such Real Property Lease; with respect
to each material Real Property Lease for which the landlord's consent is
required, the Company shall obtain such consent prior to the Closing. The
Company or a Subsidiary has accepted possession of each Leased Property and
occupies such leased premises in connection with the conduct of the business.
Each Real Property Lease affords the Company or a Subsidiary peaceful and
undisturbed possession of the leased premises thereunder. The landlord under
each Real Property Lease has performed, to the satisfaction of the Company or a
Subsidiary all of the landlord's obligations under such Real Property Lease, and
all fixtures, equipment, improvements and other components of the leased
premises are in good working order and condition so as to be adequate for the
conduct of the Company's business. The Company shall cause the landlord for each
material Leased Property to deliver to Parent as of the Closing Date an estoppel
certificate that confirms the accuracy of the foregoing representations.
(c) To the Company's knowledge, there are no eminent domain
proceedings pending or threatened against any Owned Property or Leased Property
(the Owned Properties and the Leased Properties are herein referred to
collectively as the "Real Property").
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Section 2.12 Material Contracts. Except as listed or described on
Schedule 2.11 and Schedule 2.12, as of the date hereof, neither the Company nor
any Subsidiary is a party to or bound by any written or oral leases, agreements
or other contracts or legally binding contractual commitments ("Contracts") that
are of a type described below or otherwise material to the conduct of the
Company's business as currently conducted or proposed to be conducted
(collectively, the "Material Contracts"):
(i) any collective bargaining arrangement with any labor
union or any employment contract;
(ii) any Contract or series of Contracts with the same
party for capital expenditures or the acquisition or construction of
fixed assets in excess of $100,000;
(iii) any Contract or series of Contracts with the same
party requiring aggregate future payments by or to the Company or any
Subsidiary in excess of $100,000;
(iv) any Contract relating to the borrowing of money, or the
guaranty of another person's borrowing of money;
(v) any Contract granting any person a lien on all or any
part of its assets;
(vi) any Contract granting to any person a first refusal,
first offer or similar preferential right to purchase or acquire any of
its assets;
(vii) any Contract under which the Company or any Subsidiary
is (A) a lessee; or sublessee of any machinery, equipment, vehicle
(including fleet equipment) or other; tangible personal property, or
(B) a lessor of any property, in either case requiring annual payments
in excess of $100,000;
(viii) any Contract limiting, restricting or prohibiting it
from conducting business anywhere in the United States or elsewhere in
the world;
(ix) any joint venture or partnership Contract;
(x) any agreement with or for the benefit of any current or
former officer, director, stockholder, employee or consultant of the
Company or any Subsidiary, other than severance agreements with former
employees in accordance with the Company's severance policy referenced
on Schedule 2.9;
(xi) any license or other agreement pursuant to which the
Company or any Subsidiary grants or is granted the right to use any
Proprietary Right listed on Schedule 2.10);
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(xii) any agreement with customers or suppliers for the
sharing of fees, the rebating of charges or other similar arrangements
(other than rebates to distributors in accordance with industry
practices and cash discounts to customers in accordance with the
Company's credit policies and industry practices);
(xiii) any agreement with any holder of securities of the
Company or any Subsidiary as such;
(xiv) any agreement obligating the Company or any Subsidiary
to deliver services under a "most favored nation" pricing clause; and
(xv) except as set forth on Schedule 2.16, 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).
The Company has made available to the Parent true and complete copies
of each written Material Contract and each Real Property Lease, including all
amendments or other modifications thereto. Except as set forth on Schedule 2.12,
to the Company's knowledge, each Material Contract and each Real Property Lease
is a valid and binding obligation of the parties thereto enforceable in
accordance with its terms, subject only to bankruptcy, insolvency,
reorganization, receivership and other laws affecting creditors' rights
generally. Except as set forth on Schedule 2.12, the Company or the
Subsidiaries, as the case may be, have performed all obligations required to be
performed by them under the Material Contracts and each Real Property Lease and
the Company or the Subsidiaries, as the case may be, are not in breach or
default thereunder, except for breaches or defaults which will not, individually
or in the aggregate, have a Material Adverse Effect.
Section 2.13 Environmental and Safety Matters. Except as set forth on
Schedule 2.13 hereto and except for such of the following as, individually or in
the aggregate, would not reasonably be expected to have a Material Adverse
Effect: (i) the Company and each Subsidiary is in compliance with all applicable
Environmental Laws; (ii) neither the Company nor any Subsidiary has received
notice of any liabilities (whether accrued, absolute, contingent, unliquidated
or otherwise), or any corrective, investigatory or remedial obligations, arising
under applicable Environmental Laws with respect to the Owned Properties or the
Leased Properties or the conduct of its business; (iii) the Company and each
Subsidiary has obtained, and is and has been in compliance with all terms and
conditions of, all permits, licenses and other authorizations required pursuant
to Environmental Laws for the occupation of the Owned Properties and the Leased
Properties and the conduct of its business; and (iv) the transactions
contemplated by this Agreement do not impose any obligations under Environmental
Laws for site investigation or cleanup or notification to or consent of any
government agencies or third parties. The Company has made available to the
Parent true, complete and correct copies of all environmental reports, analyses,
tests or monitoring in the possession of the Company pertaining to any Owned or
Leased Property. As used in this Agreement, "Environmental Laws" shall
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mean all material federal, state or local statutes, laws, codes, rules,
regulations, ordinances, orders, standards, permits, licenses or requirements
(including consent decrees, judicial decisions and administrative orders),
presently in force, as amended or reauthorized, pertaining to the protection,
preservation, conservation or regulation of the environment, or imposing
requirements relating to public or employee health and safety, including without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Section 9601 et seq., the Resource Conservation and Recovery Act
of 1976, 42 U.S.C. Section 6901 et seq., the Emergency Planning and Community
Right to Know Act, 42 U.S.C. Section 11001 et seq., the Clean Air Act, 42 U.S.C.
Section 7401 et seq., the Federal Water Pollution Control Act, 33 U.S.C. Section
1251 et seq., the Toxic Substances Control Act, 15 U.S.C. Section 2601 et seq.,
the Safe Drinking Water Act, 42 U.S.C. Section 300F et seq., and the
Occupational Safety and Health Act, 29 U.S.C. Section 651 et seq.
Section 2.14 FDA Matters. Except as set forth on Schedule 2.14 and
except for such exceptions to the following as, individually or in the
aggregate, would not have a Material Adverse Effect, the Company's operations
are being conducted in compliance with all applicable requirements of the United
States Food and Drug Administration ("FDA") and comparable foreign regulatory
authorities in the countries in which the Company's products are sold, and the
Company or the Subsidiaries have received all required product authorizations
from the FDA and such comparable foreign regulatory authorities, including all
FDA 510(k) Pre-Market Notifications, Pre-Market Approval Applications and
Investigational Device Exemptions. There are no product recalls by the FDA or
any comparable foreign regulatory authority pending or, to the Company's
knowledge, threatened with respect to the Company's products.
Section 2.15 Employee Relations.
(a) Neither the Company nor any Subsidiary has experienced any
strike, picketing, boycott, work stoppage, slowdown or other labor dispute, and
neither the Company nor any Subsidiary is subject to any pending charge or
complaint of unfair labor practice or employment discrimination nor, to the
Company's knowledge, is any such event currently threatened against the Company
or any Subsidiary which, individually or in the aggregate, could have a Material
Adverse Effect.
(b) The Company 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.
Except as set forth on Schedule 2.15, upon termination of the employment of any
employees, neither the Company, its Subsidiaries nor the Parent or the Surviving
Corporation 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 the
Company's normal policies). True and complete information as to all current
directors, officers, employees or consultants of the Company and its
Subsidiaries, including, in each case, name, current job title, base salary,
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bonus potential, commissions and termination obligations has been previously
furnished to the Parent.
Section 2.16 Brokers. Except for fees payable to Goldman, Sachs & Co.
and Kohlberg & Co., which fees are set forth on Schedule 2.16 hereto, no broker,
finder or investment banker is entitled to any brokerage, finder's or other fee
or commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
Section 2.17 Absence of Undisclosed Liabilities. As at September 30,
1995, the Company and its Subsidiaries had no material 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 September 30, 1995, balance sheet included
in the Audited Financial Statements that were not adequately reflected or
reserved against on such balance sheet. The Company and its Subsidiaries have no
such liabilities, other than liabilities (i) adequately reflected or reserved
against on the September 30, 1995, balance sheet, (ii) reflected on the Interim
Balance Sheet, (iii) incurred since March 24, 1996 in the ordinary course of
business, (iv) disclosed in this Agreement, or (v) that would not, in the
aggregate, have a Material Adverse Effect.
Section 2.18 Material Adverse Change. Since September 30, 1995, except
as described in the Interim Financial Statements, (i) there has not been any
change in the business of the Company that would have a Material Adverse Effect
and (ii) the Company has taken no action that if taken after the date of this
Agreement would constitute a breach of any covenant set forth in Section 4.1.
Section 2.19 Accounts Receivable. Subject to the allowances with
respect to accounts receivable set forth on the Interim Balance Sheet, all
accounts receivable reflected on the Interim Balance Sheet and all accounts
receivable arising subsequent thereto, have arisen in the ordinary course of
business of the Company or the Subsidiaries, represent valid and enforceable
obligations due to the Company or the Subsidiaries and have been and are subject
to no set-off, counterclaim or future performance obligation on the part of the
Company or a Subsidiary in excess of the amount of such allowances.
Section 2.20 Inventory. Subject to the reserves set forth on the
Interim Balance Sheet, the inventory of the Company and its Subsidiaries is and
at the Effective Time will be in good and merchantable condition and saleable or
usable in the manufacture of saleable finished goods in the ordinary course of
business.
Section 2.21 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS ARTICLE
2, THE COMPANY MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, WITH
RESPECT TO THE TRANSACTIONS CONTEMPLATED HEREBY.
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ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE PARENT AND THE PURCHASER
The Parent and the Purchaser represent and warrant to the Company as
follows:
Section 3.1 Organization and Qualification. Each of the Parent and the
Purchaser (i) is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization; and (ii) has the
requisite corporate power to carry out the transactions contemplated hereby.
Section 3.2 Corporate Authorization. The execution, delivery and
performance by each of the Parent and the Purchaser of this Agreement and the
transactions contemplated hereby are within the corporate powers of each of the
Parent and the Purchaser and have been duly authorized by all necessary
corporate action on the part of each of the Parent and the Purchaser. This
Agreement constitutes a valid and binding obligation of each of the Parent and
the Purchaser, enforceable against each of the Parent and the Purchaser in
accordance with its terms, subject to bankruptcy, insolvency, reorganization,
fraudulent conveyance and transfers, and moratorium or other similar laws of
general application affecting the enforcement of creditors' rights generally.
Section 3.3 Consents and Approvals. Except as set forth on Schedule
3.3, the execution, delivery and performance by each of the Parent and the
Purchaser of this Agreement and the consummation of the transactions
contemplated hereby require no action by or in respect of, filing with, or
notice to any governmental or regulatory body, agency or official. Neither the
execution, delivery and performance by the Parent and the Purchaser of this
Agreement, nor the consummation by the Parent and the Purchaser of the
transactions contemplated hereby, will (a) violate, conflict with, or result in
a breach of, any provision of the charter or bylaws of the Parent or the
Purchaser or (b) result in a default (or give rise to any right of termination,
cancellation or acceleration) under, any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, license, franchise, permit, lease,
agreement or other instrument or obligation to which the Parent or the Purchaser
is a party, or by which its properties or assets may be bound, except for such
violations, breaches or defaults which would not prevent or delay consummation
of the transactions contemplated hereby.
Section 3.4 Financing. The Parent currently has sufficient funds on
hand, or has sufficient borrowing capacity available from responsible financial
institutions, to enable the Purchaser to finance the consummation of the
transactions contemplated hereby and to pay related fees and expenses.
Section 3.5 Litigation. There are no claims, actions, suits, approvals,
investigations, informal objections, complaints or proceedings pending against
the Parent or the Purchaser before any court, arbitrator, or administrative,
governmental or regulatory authority or body,
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nor is the Parent or the Purchaser subject to any order, judgment, writ,
injunction or decree, which in either case could prevent, delay or materially
burden the transactions contemplated hereby.
Section 3.6 Brokers. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
the Parent or the Purchaser.
ARTICLE 4
COVENANTS
Section 4.1 Conduct of Business of the Company and the Subsidiaries.
Except as contemplated by this Agreement or otherwise consented to in writing by
the Parent, during the period from the date of this Agreement to the Closing
Date: (a) the Company shall conduct, and shall cause each of the Subsidiaries to
conduct, its business solely in the ordinary course; and (b) the Company will
not, and will not permit either of the Subsidiaries to, intentionally take any
actions that could reasonably be expected to have a Material Adverse Effect.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement, prior to the Closing Date, the Company
will not, and will not permit either of the Subsidiaries to, without the prior
written consent of the Parent: (i) declare or pay any dividend or other
distribution upon, or repurchase or otherwise reacquire for value, any capital
stock of the Company (other than repurchases of Common Stock from employees of
the Company in connection with termination of employment); (ii) issue any
capital stock of the Company or any securities convertible into or exchangeable
for capital stock of the Company, other than issuance of Common Stock upon the
exercise of outstanding options; (iii) incur any indebtedness for borrowed money
other than borrowings for working capital purposes in the ordinary course of
business, (iv) acquire any substantial assets other than in connection with
planned capital expenditures approved by the Company's board of directors prior
to the date hereof; (v) sell, pledge, dispose of or encumber its assets, except
for sales of inventory and sales of obsolete assets and assets concurrently
replaced with similar assets, in each case in the ordinary course of its
business; (vi) except as otherwise required by law or by any existing plan,
arrangement or agreement, enter into, adopt or amend in any material respect,
any Plan for the benefit of its employees or any employment, severance or other
agreement with any officer, director, employee or consultant of the Company or
any Subsidiary, (vii) change the compensation or fringe benefits of 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 (viii) take any other intentional action that would cause the
Company's representations and warranties to be untrue in any material respect.
In addition, the Company and/or its Subsidiaries shall maintain in full force
and effect the existing insurance policies relating to the Real Property in
accordance with Section 6.1 attached hereto. Without limiting the foregoing, the
Company and/or its Subsidiaries shall maintain in full force and effect (I) "all
risk" casualty insurance coverage on the Real Property, which in no event shall
be less than
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100% of the full insurable value of the Real Property; (II) commercial general
public liability insurance (broad form) insuring against any and all liability
or claims of liability arising out of, occasioned by, or resulting from any
accident or other cause in or about the Real Property, in an amount not less
than $10,000,000.
Section 4.2 Filings. Each of the Company, the Parent and the Purchaser
shall exercise commercially reasonable efforts to take or cause to be taken all
actions, and to do or cause to be done all things necessary, proper or advisable
under applicable laws to consummate and make effective, as soon as reasonably
practicable, the transactions contemplated hereby. Without limiting the
generality of the foregoing, each of the Company, the Parent and the Purchaser
(a) shall make all required filings under the Hart-Scott-Rodino Antitrust
Improvements Act of 1974, as amended, no later than five business days after the
execution of this Agreement, (b) shall exercise commercially reasonable efforts
to obtain all necessary waivers, consents and approvals from other governmental
authorities and parties to Material Contracts and to oppose, lift or rescind any
injunction or restraining order or other order adversely affecting the ability
of the parties to consummate the transactions contemplated hereby, and (c) shall
otherwise fulfill all conditions to this Agreement within its reasonable
control.
Section 4.3 Confidentiality; Access to Information. That certain letter
agreement dated March 20, 1996 between the Parent and Goldman, Sachs & Co. on
behalf of the Company (the "Confidentiality Agreement") with respect to, among
other things, confidential treatment of information provided by the Company and
its representatives to the Purchaser and its representatives shall remain in
full force and effect and shall survive the execution and delivery of this
Agreement and the termination of this Agreement for any reason whatsoever.
Subject to the terms of the Confidentiality Agreement, from the date hereof to
the Closing Date, the Company shall, and shall cause its officers, directors,
employees and agents to, afford the directors, officers, employees, agents,
representatives and advisors of the Parent complete access at all reasonable
times to its officers, employees, agents, properties, books, records and
contracts, and shall furnish the Parent all financial, operating and other data
and information relating to the Company and the Subsidiaries as the Parent may
reasonably request. Parent, at its expense, may take measurements, show the Real
Property to contractors, architects, insurers, banks and other lenders or
investors, and prospective tenants, and conduct surveys, site analysis,
structural tests, and such other tests, inspections or investigations with
respect to the Real Property as Parent may desire. The Company and its
Subsidiaries agree to cooperate with and assist Parent, provided that all
inspections shall be conducted during normal business hours (or such other time
as is reasonably necessary to conduct such inspections or tests) and shall not
unreasonably interfere with the conduct of the normal business thereon of the
Company or its Subsidiaries. The Company and its Subsidiaries agree that Parent
may discuss the Real Property with and make inquiries of any state or local
officials or authorities regarding the status of such variances, permits,
certificates, consents and approvals as Parent deems appropriate. Parent agrees
to repair any damage to the Real Property resulting from such inspections.
Section 4.4 Public Announcements. The Company and the Parent shall
consult with each other before issuing any press release or otherwise making any
public statements with
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respect to this Agreement or the transactions contemplated hereby and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law.
Section 4.5 Exclusivity. Unless and until this Agreement shall have
been terminated pursuant to Article , the Company shall not, directly or
indirectly through any officer, director, employee, agent, affiliate or
otherwise, (i) enter into any agreement, agreement in principle or other
commitment (whether or not legally binding) relating to any acquisition,
business combination or recapitalization transaction involving the Company or a
substantial portion of its assets or capital stock (a "Competing Transaction"),
(ii) solicit, initiate or encourage the submission of any proposal or offer from
any person or entity (including any of its officers, directors, employees and
agents) relating to any Competing Transaction, or (iii) participate in any
discussions or negotiations regarding, furnish to any other person or entity any
information with respect to, or otherwise assist, facilitate or cooperate in any
way with any effort or attempt by any other person or entity to effect a
Competing Transaction. The Company shall immediately cease any and all contacts,
discussions and negotiations with third parties regarding any Competing
Transaction. The Company shall request the return of any confidential
information about the Company that was previously furnished to any other party
in connection with the Company's solicitation of bids to purchase the Company.
Section 4.6 Insurance. The Parent agrees that the rights to
indemnification provided to the directors and officers of the Company and its
Subsidiaries by such entities' charter or bylaws as in effect on the date of
this Agreement and by applicable law shall survive the Closing Date. The Parent
shall use its best efforts to obtain and maintain for a period of one year after
the Closing Date an endorsement extending the period in which claims may be made
under the Company's directors' and officers' liability insurance policy in
effect on the date of this Agreement, or a policy of such other responsible
carrier as the Parent may elect, with respect to causes of action that arise out
of acts or omissions occurring on or before the Closing Date, provided, however,
that in no event shall the Parent be required to expend pursuant to this section
more than an amount per year equal to 125% of current annual premiums paid by
the Company for such insurance.
ARTICLE 5
CONDITIONS TO CLOSING
Section 5.1 Conditions to Each Party's Obligation. The respective
obligations of each party to effect the transactions contemplated hereby are
subject to the satisfaction or waiver prior to the Closing Date of the following
conditions:
5.1.1 No Legal Prohibition. No statute, rule, regulation or order
shall be enacted, promulgated, entered or enforced by any court or governmental
authority which would prohibit consummation by such party of the transactions
contemplated hereby.
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5.1.2 No Injunction. Such party shall not be prohibited by any
order, ruling, consent, decree, judgment or injunction of a court or regulatory
agency of competent jurisdiction from consummating the transactions contemplated
hereby.
5.1.3 Hart-Scott-Rodino. The applicable waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, shall have
expired or been terminated without any condition or requirement which, in the
reasonable opinion of Parent, makes consummation of the transaction inadvisable.
Section 5.2 Conditions to Obligation of the Parent and the Purchaser.
The obligation of the Parent and the Purchaser to effect the transactions
contemplated hereby shall be subject to the fulfillment and satisfaction, prior
to or at the Closing, of the following additional conditions:
5.2.1 Representations and Covenants. Except as expressly
contemplated by this Agreement, the representations and warranties of the
Company contained in this Agreement shall be true and correct without regard to
materiality or Material Adverse Effect on and as of the Closing Date with the
same force and effect as though made on and as of the Closing Date except that
any representation or warranty (except Section 2.1(a)(i) and (ii), the second
sentence of Section 2.1(a), Sections 2.2 and 2.3 and the first three sentences
of Section 2.4) that is not true and correct shall be deemed true and correct
unless individually or in the aggregate it could have a Material Adverse Effect.
The Company 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 Closing Date. The Company shall have delivered to
the Parent a certificate, dated the Closing Date, as to the matters set forth in
this section.
5.2.2 Approvals. All governmental and third party approvals,
consents, permits or waivers which, if not obtained, would have a Material
Adverse Effect shall have been obtained in form and substance reasonably
satisfactory to the Parent.
5.2.3 Title to Owned Properties. The Company shall have caused
title to the Owned Properties to be updated to the Closing Date, showing no
material exceptions other than those permitted under this Agreement, as
evidenced by so-called date down endorsements to the owner's title insurance
policy for each of the Owned Properties, which endorsement shall also contain a
so-called "non-imputation" endorsement satisfactory to Parent. In addition, the
Company shall have caused the existing survey of each Owned Property to be
updated by a surveyor's report so as to cause the standard survey exception to
be deleted from such policies.
5.2.4 Possession of Real Property. Except as set forth on Schedule
2.11, at the time of the Closing, all Real Property shall be occupied solely by
the Company or its Subsidiaries and no other tenant or occupants, and such Real
Property shall then (i) be in the same condition as they are now, reasonable use
and wear thereof excepted, and (ii) not in violation of applicable building,
zoning, environmental, landmark, historic preservation,
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wetlands, and other laws, codes, ordinances, by-laws, rules, regulations, and
orders of governmental authorities, which violation would have a Material
Adverse Effect.
5.2.5 Stock Options. All actions necessary to terminate all
outstanding Stock Options, other than the RCP Option, shall have been taken.
5.2.6 Certificates. At least two business days prior to the
Closing Date, the Company shall have delivered to the Purchaser a draft
certificate as to the following matters:
(a) The Company's total indebtedness for borrowed money as of the
Closing Date, together with an itemization of the amount payable (including
accrued interest and fees, if any) on the Closing Date to each obligee of such
indebtedness and payment information sufficient to enable the Purchaser to
discharge such indebtedness on the Closing Date;
(b) The Company's fees and expenses associated with sale of the
Company, including fees and expenses of attorneys and investment bankers;
(c) The Company's cash and cash equivalents as of the Closing
Date (without giving effect to the payment of up to $3,500,000 in transaction
expenses of the Company on the Closing Date);
(d) The aggregate exercise price of all outstanding options of
the Company as of the Closing Date; and
(e) The total number of shares of Common Stock outstanding as of
the Closing Date and the total number of shares issuable upon the exercise of
all options outstanding as of the Closing Date.
Such draft certificate shall be updated as necessary and executed and delivered
to the Purchaser on the Closing Date.
Section 5.3 Conditions to Obligation of the Company. The
obligation of the Company to effect the transactions contemplated hereby shall
be subject to the fulfillment and satisfaction, prior to or at the Closing, of
the following additional conditions:
5.3.1 Representations and Covenants. Except as expressly
contemplated by this Agreement, the representations and warranties of the Parent
and the Purchaser contained in this Agreement shall be true and correct in all
material respects on and as of the Closing Date with the same force and effect
as though made on and as of the Closing Date. The Parent and the Purchaser 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 the
Parent and the Purchaser on or prior to the Closing Date.
20
<PAGE> 24
5.3.2 Approvals. All governmental and third party approvals,
consents, permits or waivers which, if not obtained, would have a Material
Adverse Effect shall have been obtained in form and substance reasonably
satisfactory to the Company; provided, however, that if the Parent waives the
obtaining of any third party approval or consent, such consent shall not be a
condition to the Company's obligation to consummate the Merger.
ARTICLE 6
TERMINATION
Section 6.1 Termination. This Agreement may be terminated at any time
prior to the Closing:
6.1.1 By mutual written consent of the Parent and the Company.
6.1.2 By the Company:
(i) if the Closing Date shall not have occurred on or before
August 31, 1996, other than as a result of a breach by the Company of
its representations, warranties or other obligations hereunder; or
(ii) if, prior to the Closing Date, the Parent or the Purchaser
fails to perform in any material respect any of its obligations under
this Agreement and such failure has not been cured within 15 days after
receipt of written notice from the Company.
6.1.3 By the Parent:
(i) if the Closing Date shall not have occurred on or before
August 31, 1996, other than as a result of a breach by the Parent or
the Purchaser of their representations, warranties or other obligations
hereunder; or
(ii) if, prior to the Closing Date, the Company fails to perform
in any material respect any of its obligations under this Agreement and
such failure has not been cured within 15 days after written receipt of
notice from the Parent.
Section 6.2 Effect of Termination. In the event of termination of this
Agreement by the Parent or the Company as provided in Section 6.1 hereof, all
obligations of the parties under this Agreement shall terminate without
liability of any party to any other party, except (i) that the obligations set
forth in Section 7.9 of this Agreement and in the Confidentiality Agreement
shall survive any such termination and (ii) for liability for any breach of this
Agreement.
21
<PAGE> 25
ARTICLE 7
GENERAL PROVISIONS
Section 7.1 Rules of Construction.
7.1.1 Material Adverse Effect. For purposes of this Agreement, a
"Material Adverse Effect" shall mean a material adverse effect on the
operations, financial condition, properties, business or prospects (in the case
of prospects, not taking into account general economic and securities market
conditions or general industry developments) of the Company and the
Subsidiaries, taken as a whole, or on the Company's ability to consummate the
transactions contemplated by this Agreement.
7.1.2 Knowledge. Where a representation or warranty is stated to
be based on knowledge, such phrase shall refer to the actual knowledge of the
applicable person or persons.
7.1.3 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
7.1.4 Severability. If any provision of-this Agreement, or the
application thereof to any person, place or circumstance, shall be held by a
court of competent jurisdiction to be illegal, invalid, unenforceable or void,
then such provision shall be enforced to the extent that it is not illegal,
invalid, unenforceable or void, and the remainder of this Agreement, as well as
such provision as applied to other persons, places or circumstances, shall
remain in full force and effect.
Section 7.2 Non-Survival. In the absence of fraud, the representations
and the warranties of the parties hereto shall not survive the Closing.
Section 7.3 Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and shall be deemed to have duly given or delivered (i) when
delivered personally, (ii) sent by telephone facsimile transmission or (iii)
sent via a nationally recognized overnight courier to the recipient for next
business day delivery. Such notices, demands and other communications will be
sent to the address indicated below:
(i) If to the Company:
600 Airport Road
Fall River, MA 02720
Attention: William C. Dow
Fax: (508) 677-6699
22
<PAGE> 26
with copies to:
Kohlberg & Company
2400 Sand Hill Road, Suite 100
Menlo Park, CA 94025
Attention: W. Dexter Paine III
Fax: (415) 854-5415
Brownstein Hyatt Farber & Strickland, P.C.
410 Seventeenth Street, 22nd Floor
Denver, CO 80202-4437
Attention: John R. Garrett
Fax: (303) 623-1956
(ii) if to the Purchaser:
Genzyme Corporation
One Kendall Square
Cambridge, MA 02139
Attention: David McLachlan
Fax: 617-252-7844
with copies to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Attention: Maureen P. Manning
Fax: 617-227-4420
Genzyme Corporation
One Kendall Square
Cambridge, MA 02139
Attention: Peter Wirth, Esq.
Fax: 617-252-7553
or to such other address as any party may specify by notice given to the other
party in accordance with this Section. The date of giving any such notice shall
be (i) the date of hand delivery, (ii) the date sent by telephone facsimile if a
business day or the first business day thereafter or (iii) the business day
after delivery to the overnight courier service.
23
<PAGE> 27
Section 7.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the Commonwealth of
Massachusetts without giving effect to any choice or conflict of law provision
or rule (whether of the Commonwealth of Massachusetts or any other jurisdiction)
that would cause the application of the laws of any jurisdiction other than the
Commonwealth of Massachusetts. Notwithstanding the foregoing, the DGCL shall
govern with respect to the Merger.
Section 7.5 Entire Agreement. This Agreement (including attached
exhibits and schedules) and the Confidentiality Agreement constitute the entire
agreement among the parties with respect to the subject matter of this Agreement
and supersede any prior agreement or understanding, whether written and oral,
among the parties or between any of them with respect to the subject matter of
this Agreement. There are no representations, warranties, covenants, promises or
undertakings, other than those expressly set forth or referred to herein.
Section 7.6 Amendment; Waiver. This Agreement may be amended, modified
or waived only by a written agreement signed by the Parent and the Company. With
regard to any power, remedy or right provided in this Agreement or otherwise
available to any party, (i) no waiver or extension of time shall be effective
unless expressly contained in a writing signed by the waiving party, (ii) no
alteration, modification or impairment shall be implied by reason of any
previous waiver, extension of time, delay or omission in exercise or other
indulgence, and (iii) waiver by any party of the time for performance of any act
or condition hereunder does not constitute a waiver of the act or condition
itself.
Section 7.7 Binding Effect. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective successors.
Neither the rights nor the obligations of any party to this Agreement may be
transferred or assigned. Any purported assignment of this Agreement or any of
the rights and obligations hereunder shall be null, void and of no effect.
Section 7.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original but when taken together
shall constitute one instrument.
Section 7.9 Expenses. Each party to this Agreement shall bear all of
its own expenses in connection with the execution, delivery and performance of
this Agreement and the transactions contemplated hereby, including without
limitation all fees and expenses of its agents, representatives, counsel and
accountants. Notwithstanding the foregoing, Parent shall pay or provide the
Company with sufficient funds to enable the Company to pay transaction expenses
on the Closing Date in an amount not to exceed $3.5 million in the aggregate.
24
<PAGE> 28
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the date first written above.
DEKNATEL SNOWDEN PENCER, INC.
By:/s/ William C. Dow
--------------------------------------
William C. Dow
President & CEO
GENZYME CORPORATION
By:/s/ David J. McLachlan
--------------------------------------
David J. McLachlan
Senior Vice President, Finance
DSP ACQUISITION CORP.
By:/s/ David J. McLachlan
--------------------------------------
David J. McLachlan
Treasurer
25
<PAGE> 1
EXHIBIT 5.1
PALMER & DODGE LLP
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
Telephone: (617) 573-0100 Facsimile: (617) 227-4420
June 13, 1996
Genzyme Corporation
One Kendall Square
Cambridge, Massachusetts 02139
We are rendering this opinion in connection with the Registration
Statement on Form S-3 (the "Registration Statement") filed by Genzyme
Corporation (the "Company") with the Securities and Exchange Commission under
the Securities Act of 1933, as amended, on or about the date hereof. The
Registration Statement relates to the offer and sale of an aggregate principal
amount of up to $250,000,000 of the Company's Convertible Subordinated Notes due
2001 (the "Notes").
We have acted as your counsel in connection with the preparation of the
Registration Statement and are familiar with the proceedings taken by the
Company in connection with the authorization and issuance of the Notes. We have
examined such documents as we consider necessary to render this opinion.
Based upon the foregoing, it is our opinion that the Notes have been
duly authorized, and upon issuance and delivery against payment therefor, will
be valid and binding obligations of the Company enforceable in accordance with
their terms, subject to applicable bankruptcy laws, and other similar laws
affecting creditors rights generally and to general principles of equity.
We hereby consent to the use of our name under the caption "Legal
Opinions" in the Registration Statement and the filing of this opinion as
Exhibit 5.1 to the Registration Statement.
Very truly yours,
/s/ Palmer & Dodge LLP
-----------------------------
Palmer & Dodge LLP
<PAGE> 1
EXHIBIT 12.1
GENZYME CORPORATION AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
-------------------------
FOR THE
THREE MONTHS ENDED FOR THE THREE
YEAR MONTHS
YEAR ENDED DECEMBER 31, MARCH 31, ENDED ENDED
----------------------------------------------------- ------------------ DECEMBER 31, MARCH 31,
1991 1992 1993 1994 1995 1995 1996 1995 1996
------- -------- -------- ------- ------- ------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Income (loss) before
income taxes and
extraordinary
credit.............. $24,943 $(11,513) $(12,554) $30,784 $43,299 $12,787 $16,600 $ 26,839 $15,775
Add:
Portion of rents
representative of
the interest
factor.............. 3,161 3,944 3,803 3,627 4,186 1,046 1,462 4,186 1,462
Interest on
indebtedness........ 2,088 7,099 2,500 1,354 1,109 47 213 21,746 4,772
------- -------- -------- ------- ------- ------- ------- ------- -------
Income as adjusted...... $30,192 $ (470) $ (6,251) $35,765 $48,594 $13,880 $18,275 $ 52,771 $22,009
======= ======== ======== ======= ======= ======= ======= ======= =======
Fixed charges:
Portion of rents
representative of
the interest
factor.............. 3,161 3,944 3,803 3,627 4,186 1,046 1,462 4,186 1,462
Interest on
indebtedness........ 2,088 7,099 2,500 1,354 1,109 47 213 21,746 4,772
Amortization of debt
expense and
premium............. -- -- -- -- -- -- -- 1,125 281
Capitalized
interest............ 27 623 4,723 8,816 7,468 2,678 1,738 7,463 1,738
Capitalized
amortization of debt
expense and
premium............. 69 275 275 275 275 69 69 69 69
------- -------- -------- ------- ------- ------- ------- ------- -------
Fixed charges........... $ 5,345 $ 11,941 $ 11,301 $14,072 $13,038 $ 3,840 $ 3,482 $ 33,464 $ 8,322
======= ======== ======== ======= ======= ======= ======= ======= =======
Ratio of earnings to
fixed charges......... 5.7x 0.0x (0.6)x 2.5x 3.7x 3.6x 5.3x 1.6x 2.6x
======= ======== ======== ======= ======= ======= ======= ======= =======
</TABLE>
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement on
Form S-3 of Genzyme Corporation of our reports dated March 1, 1996 except as to
Note Q which is March 26, 1996 on our audits of the consolidated financial
statements and financial statement schedule of Genzyme Corporation, dated March
1, 1996 except as to Note R which is March 26, 1996 on our audits of the
combined financial statements and financial statement schedule of Genzyme
General Division and dated March 1, 1996 except as to Note O which is March 26,
1996 on our audits of the combined financial statements and financial statement
schedule of Genzyme Tissue Repair Division as of December 31, 1994 and 1995 and
for each of the three years in the period ended December 31, 1995, which reports
are included in Genzyme Corporation's 1995 Annual Report on Form 10-K.
In addition, we consent to the reference to our firm under the caption
"EXPERTS".
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
Boston, Massachusetts
June 13, 1996
<PAGE> 1
EXHIBIT 23.2
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
and to all references to our firm included in or made a part of this
Registration Statement.
/s/ Arthur Andersen LLP
-----------------------------------
ARTHUR ANDERSEN LLP
Boston, Massachusetts
June 13, 1996
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
John R. Towers, Esq. Senior Vice President and Corporate Secretary
225 Franklin Street, Boston, Massachusetts 02110
(617)654-3253
(Name, address and telephone number of agent for service)
---------------------
GENZYME Corporation
(Exact name of obligor as specified in its charter)
Massachusetts 06-1047163
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
ONE KENDALL SQUARE, CAMBRIDE, MA 02139
(Address of principal executive offices) (Zip Code)
--------------------
CONVERTIBLE SUBORDINATED NOTES
(Title of indenture securities)
<PAGE> 2
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington,
D.C., Federal Deposit Insurance Corporation, Washington, D.C.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its
parent, State Street Boston Corporation.
(See note on page 6.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now
in effect, is on file with the Securities and Exchange
Commission as Exhibit 1 to Amendment No. 1 to the Statement of
Eligibility and Qualification of Trustee (Form T-1) filed with
the Registration Statement of Morse Shoe, Inc. (File No.
22-17940) and is incorporated herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the documents
specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form
T-1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE> 3
5. A copy of each indenture referred to in Item 4. if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility and
Qualification which relates to matters peculiarly within the knowledge of the
obligor or any underwriter for the obligor, the trustee has relied upon
information furnished to it by the obligor and the underwriters, and the trustee
disclaims responsibility for the accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Boston
and The Commonwealth of Massachusetts, on the 6 th day of June , 1996.
STATE STREET BANK AND TRUST COMPANY
By:/s/ Gerald R. Wheeler
--------------------------------------
Gerald R. Wheeler
Vice President
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by Genzyme
Corporation. of its Convertible Subordinated Notes, we hereby consent that
reports of examination by Federal, State, Territorial or District authorities
may be furnished by such authorities to the Securities and Exchange Commission
upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By:/s/ Gerald R. Wheeler
--------------------------------------
Gerald R. Wheeler
Vice President
Dated: June 6, 1996
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company of
Boston, Massachusetts and foreign and domestic subsidiaries, a state banking
institution organized and operating under the banking laws of this commonwealth
and a member of the Federal Reserve System, at the close of business December
31, 1995, published in accordance with a call made by the Federal Reserve Bank
of this District pursuant to the provisions of the Federal Reserve Act and in
accordance with a call made by the Commissioner of Banks under General Laws,
Chapter 172, Section 22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin .................... 1,331,827
Interest-bearing balances.............................................. 5,971,326
Securities...................................................................... 6,325,054
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary ................................... 5,436,994
Loans and lease financing receivables:
Loans and leases, net of unearned income ......... 4,308,339
Allowance for loan and lease losses .............. 63,491
Loans and leases, net of unearned income and allowances ............... 4,244,848
Assets held in trading accounts................................................. 1,042,846
Premises and fixed assets....................................................... 374,362
Other real estate owned......................................................... 3,223
Investments in unconsolidated subsidiaries...................................... 31,624
Customers' liability to this bank on acceptances outstanding ................... 57,472
Intangible assets............................................................... 68,384
Other assets.................................................................... 670,058
----------
Total assets.................................................................... 25,558,018
==========
LIABILITIES
Deposits:
In domestic offices.................................................... 6,880,231
Noninterest-bearing ..................... 4,728,115
Interest-bearing ........................ 2,152,116
In foreign offices and Edge subsidiary ................................ 9,607,427
Noninterest-bearing ..................... 28,265
Interest-bearing ........................ 9,579,162
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary ................................... 5,913,969
Demand notes issued to the U.S. Treasury and Trading Liabilities ............... 530,406
Other borrowed money............................................................ 493,191
Bank's liability on acceptances executed and outstanding ....................... 57,387
Other liabilities.............................................................. 620,287
----------
Total liabilities............................................................... 24,102,898
----------
EQUITY CAPITAL
Common stock.................................................................... 29,176
Surplus......................................................................... 228,448
Undivided profits............................................................... 1,197,496
----------
Total equity capital............................................................ 1,455,120
----------
Total liabilities and equity capital............................................ 25,558,018
==========
</TABLE>
4
<PAGE> 6
I, Rex S. Schuette, Senior Vice President and Comptroller of the above named
bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Charles F. Kaye
5
<PAGE> 7
5. A copy of each indenture referred to in Item 4. if the obligor is
in default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority is annexed hereto as
Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility and
Qualification which relates to matters peculiarly within the knowledge of the
obligor or any underwriter of the obligor, the trustee has relied upon the
information furnished to it by the obligor and the underwriters, and the trustee
disclaims responsibility for the accuracy or completeness of such information.
The answer to Item 2. of this statement will be amended, if necessary,
to reflect any facts which differ from those stated and which would have been
required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation duly
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility and qualification to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Boston
and The Commonwealth of Massachusetts, on the 6 th day of June, 1996.
STATE STREET BANK AND TRUST COMPANY
By:/s/ Gerald R. Wheeler
--------------------------------------
Gerald R. Wheeler
Vice President
2
