<PAGE> 1
Rule 424(b)(3) Prospectus
File No. 33-42325
GENZYME CORPORATION
3,844,198 SHARES GENERAL DIVISION COMMON STOCK
AND
259,483 SHARES OF TISSUE REPAIR DIVISION COMMON STOCK
Genzyme Corporation ("Genzyme" or the "Company"), a Massachusetts
corporation, intends to issue from time to time up to 3,844,198 shares of its
General Division common stock, $0.01 par value ("General Division Stock"), and
259,483 shares of its Tissue Repair Division common stock, $0.01 par value ("TR
Stock"), to holders of warrants (the "Warrants"). The Warrants were originally
issued in November 1989 to purchasers of units (the "Units"), each consisting of
one Class A Limited Partnership Interest in Genzyme Development Partners, L.P.
and a warrant to purchase 2,600 shares of Genzyme common stock. The Warrants are
exercisable at various prices and expire on October 31, 1996. See "PLAN OF
DISTRIBUTION."
The exercise price and the number and kind of shares issuable upon
exercise of each Warrant have been adjusted to give effect to two events
affecting Genzyme's capital stock. The first was the redesignation of Genzyme's
common stock as General Division Stock on December 16, 1994 and the payment of a
stock dividend of .135 shares of TR Stock to General Division stockholders of
record on December 16, 1994. The second was a two-for-one stock split of the
General Division Stock payable in the form of a stock dividend to stockholders
of record on July 11, 1996. As a result of these events, each Warrant is now
exercisable for shares of General Division Stock equal to two times the original
number of shares of common stock, and at one-half of the original exercise
price. In addition, the holder of each Warrant will receive upon exercise .0675
shares of TR Stock for each share of General Division Stock and cash for any
fractional share of TR Stock at the rate of $5.0625 per share.
All exercise prices and share numbers set forth in this Prospectus reflect
these adjustments. For example, a warrant for 2,600 shares issued at the Initial
Closing is now exercisable for 5,200 shares of General Division Stock, 3,468
shares at $8.005 per share and 1,732 shares at $11.455 per share, and 351 shares
of TR Stock.
INVESTMENT IN THE GENERAL DIVISION STOCK AND THE TR STOCK OF GENZYME IS
SPECULATIVE AND INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS" ON PAGE 3
HEREOF.
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 ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
Underwriting
Price to Discounts and Total Proceeds to
Public Commissions (2) Genzyme (3)(4)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........ $ (1) $0 $ (1)
Total............ $35,191,764 $0 $35,191,764
===============================================================================
<FN>
(1) The Warrants are exercisable at various per share prices. See "PLAN OF
DISTRIBUTION."
(2) No underwriting discounts or commission will be paid. The shares will be
offered directly by Genzyme.
(3) Before deducting expenses, estimated at $32,000, which are payable by
Genzyme.
(4) Assumes that all of the Warrants are exercised.
</TABLE>
---------------------------
THE DATE OF THIS PROSPECTUS IS AUGUST 30, 1996.
<PAGE> 2
AVAILABLE INFORMATION
Genzyme is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports and other information with the Securities and Exchange
Commission (the "Commission"). Reports and other information filed by Genzyme
with the Commission pursuant to the informational requirements of the Exchange
Act may be inspected and copied at the public reference facilities maintained by
the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
at the following Regional Offices of the Commission: Seven World Trade Center,
Suite 1300, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies of such material also can be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such reports and other information
can also be reviewed through the Commission's Electronic Data Gathering Analysis
and Retrieval System which is publicly available through the Commission's Web
site (http:www.sec.gov).
DOCUMENTS INCORPORATED BY REFERENCE
The following documents previously filed by Genzyme with the Commission
(File No. 0-14680, except as otherwise indicated) are hereby incorporated by
reference, except as superseded or modified herein: (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 reports on Form 8-K
dated February 22, 1996 and July 1, 1996, filed with the Commission on February
23, 1996 and July 16, 1996, respectively; (iii) the Company's Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996, filed with
the Commission on May 15, 1996 and August 14, 1996, respectively; (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; (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; (vi)
the description of TR Stock contained in the Company's Registration Statement on
Form 8-A, filed with the Commission on September 9, 1994, as amended by Form
8-A/A, filed with the Commission on December 14, 1994 and (vii) the description
of TR Stock Purchase Rights contained in the Company's Registration Statement on
Form 8-A, filed with the Commission on November 28, 1994.
Each document filed subsequent to the date of this Prospectus pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the termination
of the offering shall be deemed to be incorporated by reference in this
Prospectus and shall be a part hereof from the date of filing of such document.
Genzyme will provide without charge to each person to whom this Prospectus
is delivered, upon the written or oral request of any such person, a copy of any
document described above (other than exhibits). Requests for such copies should
be directed to Genzyme Corporation, One Kendall Square, Cambridge, Massachusetts
02139, attention: Shareholder Services, telephone (617) 252-7526.
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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.
Genzyme's principal executive offices are located at One Kendall Square,
Cambridge, Massachusetts 02139. Its telephone number is (617) 252-7500.
RISK FACTORS
Statements made in this Prospectus relating to 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 Company's common stock.
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. Holders of the Warrants should carefully consider the
following factors in evaluating an exercise of the Warrants.
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 the assets and is responsible for all of the
liabilities allocated to each of the divisions. Holders of General Division
Stock and the TR Stock have no specific claim against the assets attributed for
financial statement presentation purposes to the division whose performance is
associated with the class of stock they hold. Liabilities or contingencies of
either division that affect Genzyme's resources or financial condition could
affect the financial condition or results of operations of both divisions.
Prospective purchasers of either class of common stock should, therefore, read
Genzyme's consolidated financial statements in conjunction with the financial
statements of the General Division and GTR.
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
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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 Restated 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 .58 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. 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 traded) for the 20
consecutive trading days commencing on the 30th trading day prior to such date.
In the event such closing prices are unavailable, Fair Market Value will be
determined by the Board.
Certain matters as to which the holders of common stock are entitled to
vote may involve a divergence or the appearance of a divergence in the interests
of holders of General Division Stock and holders of TR Stock. If, when a
stockholder vote is taken on any matter as to which a separate vote by either
class is not required and the holders of either class of common stock would have
more than the number of votes required to approve any such matter, the holders
of that class would control the outcome of the vote on such matter. Holders of
General Division Stock and holders of TR Stock, as of July 31, 1996, have
approximately 90.5% and 9.5%, 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.
EXCHANGE OF TR STOCK. The Board can, in its sole discretion, determine to
exchange shares of TR Stock for cash or shares of General Division Stock (or any
combination thereof) at a 30% premium over Fair Market Value of the TR Stock at
any time. In addition, following a disposition of all or substantially all of
the assets of GTR, the shares of TR Stock are subject to mandatory exchange by
Genzyme for cash and/or shares of General
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<PAGE> 5
Division Stock at a 30% premium over Fair Market Value of the TR Stock as
determined by the trading prices during a specified period prior to public
announcement of the disposition. Consequently, holders of TR Stock may receive a
greater or lesser premium for their shares than any premium paid by a third
party buyer of all or substantially all of the assets of GTR. In addition, any
such exchange of shares for General Division Stock could be made at a time when
the General Division Stock may be considered to be undervalued and therefore,
the interests of the holders of General Division Stock would be diluted. See
"Management and Accounting Policies Governing the Relationship of Genzyme
Divisions - Open Market Purchases of Shares of any Class."
NO ADJUSTMENT TO LIQUIDATING DISTRIBUTIONS. In the event of a voluntary or
involuntary dissolution, liquidation or winding up of the affairs of Genzyme
(other than pursuant to a merger, business combination or sale of substantially
all assets), holders of outstanding shares of General Division Stock and TR
Stock would receive the assets, if any, remaining for distribution to common
stockholders on a per share basis in proportion to the respective per share
liquidation units of such class. Currently, each share of General Division Stock
has one liquidation unit and each share of TR Stock has .58 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.
RISKS RELATED TO THE GENERAL DIVISION
An investment in General Division Stock involves a high degree of risk.
Prospective investors should carefully consider the following factors in
evaluating such an investment.
DEPENDENCE ON CEREDASE[Registered Trademark] AND CEREZYME[Trademark] ENZYME
SALES; LIMITED SUPPLY OF RAW MATERIAL. Genzyme's results of operations and cash
flows are highly dependent upon sales of its Ceredase[Registered Trademark]
enzyme, a biotherapeutic product for the treatment of Gaucher disease, and
Cerezyme[Trademark] 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[Registered Trademark] 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[Registered
Trademark] enzyme when its supplier raised the
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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[Registered Trademark] enzyme.
The supply of starting material available for the production of
Ceredase[Registered Trademark] 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[Registered
Trademark] enzyme to supply all present patients. Any disruption in the supply
or manufacturing process of Ceredase[Registered Trademark] enzyme may have a
material adverse effect on revenue in any period.
To address supply constraints, Genzyme has developed Cerezyme[Registered
Trademark] enzyme, a recombinant form of the enzyme. Genzyme received approval
to market this product in the U.S. in 1994. Cerezyme[Registered Trademark] has
also received marketing approval in Israel and Sweden and is available on a
named-patient basis in Canada, Germany and Brazil. Manufacturing capacity
constraints on Cerezyme[Registered Trademark] 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[Registered Trademark] enzyme.
The Ceredase[Registered Trademark] and Cerezyme[Trademark] products have
each been given orphan drug status by the U.S. Food and Drug Administration (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. Genzyme is developing and
commercializing a line of biomaterial products based on hyaluronic acid ("HA")
to limit the formation of postoperative adhesions and to replace synovial fluid
(the "HA Products"). In August 1996, the FDA granted approval to market the
first HA Product, Seprafilm[Trademark], for use in any open abdominal or pelvic
surgery. The successful commercialization of Seprafilm[Trademark] in both the
United States and Europe will depend on many factors, including (i) the
response of surgeons to the data from clinical trials, (ii) the General
Division's ability to retain and deploy the sales force of Deknatel Snowden
Pencer, Inc. ("DSP"), a company acquired by Genzyme in July 1996, to market the
HA Products, (iii) the General Division's ability to supply sufficient product
to meet market demand and (iv) 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 implement a
commercialization strategy for Seprafilm[Trademark].
The remaining HA Products, Sepracoat[Trademark], Sepragel[Trademark] and
HAL-S[Trademark], are at various stages of development. A Pre-Market Approval
application has been filed and is pending before the FDA for
Sepracoat[Trademark]. There can be no assurance that the FDA will approve this
application and permit the marketing of Sepracoat[Trademark] for a broad range
of applications, if at all. The Company began clinical safety studies for
Sepragel[Trademark] in August 1996. There can be no assurance that the
development of this product will be successfully completed. Genzyme completed a
pivotal clinical trial evaluating HAL-S[Trademark] for synovial fluid
replacement at the end of 1995. Although the data from the trial showed some
improvement in the rehabilitation rate of patients, Genzyme is currently
re-evaluating this program in view of this limited efficacy data and the small
potential market for HAL-S[Trademark] and there can be no assurance that the
Company will continue the development of HAL-S[Trademark].
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.
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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[Trademark] and
Sepracoat[Trademark] are produced. Seprafilm[Trademark] 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[Trademark]
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.
TECHNOLOGY TRANSFERRED TO GENZYME DEVELOPMENT PARTNERS AND NEOZYME II. Genzyme
organized two special purpose research and development entities, Genzyme
Development Partners, L.P. ("Genzyme Development Partners") and Neozyme II
Corporation ("Neozyme II"), to which it transferred technology and commercial
rights to certain products that Genzyme previously had under development.
Genzyme has options to purchase the limited partnership interests in Genzyme
Development Partners under certain circumstances and to acquire all of the
outstanding shares of the callable common stock of Neozyme II. Genzyme's option
to acquire the callable common stock of Neozyme II expires on December 31, 1996.
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 Genzyme 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 RELATED TO GTR
An investment in TR Stock involves a high degree of risk. Prospective
investors should carefully consider the following factors in evaluating such an
investment.
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<PAGE> 8
EARLY STAGE OF COMMERCIALIZATION OF THE CARTICEL[Service Mark] SERVICE. GTR's
future success depends in large part on the successful commercialization of its
CARTICEL[Service Mark] Autologous Chondrocyte Service (the "CARTICEL[Service
Mark] Service"), which provides orthopedic surgeons with the cell culturing
services and other support necessary to utilize a patient's own articular
cartilage cells to repair articular cartilage defects in that patient's knee. In
May 1996, the FDA published a guidance document that would bring products and
services such as the CARTICEL Service[Service Mark] under regulation by the end
of 1997. Companies such as GTR already marketing products and services subject
to the guidance were allowed an 18-month transition period in which to file and
obtain approval of a Biologics License Application (a "BLA"), while continuing
to market their products and services. GTR submitted a BLA for the CARTICEL
Service[Service Mark] in March 1996 in anticipation of the guidance document.
There can be no assurance that the FDA will complete its review of the BLA in
timely fashion or that the FDA will not require additional data concerning the
safety and efficacy of the CARTICEL Service[Service Mark]. A delay in the
approval of the BLA for the CARTICEL Service[Trademark] beyond the transition
period could materially and adversely affect the commercialization of the
CARTICEL Service[Service Mark].
The commercialization of the CARTICEL[Service Mark] Service by GTR is in
its early stages, and GTR has not yet grown cartilage cell cultures in the
quantities that will be necessary to meet the demands of the market that GTR
expects will develop for the CARTICEL[Service Mark] Service. In order to produce
such quantities of cartilage cells, GTR will need to continue to make
substantial expenditures for production facilities and will need to hire and
train additional production and support staff. Any significant delays
encountered in these activities may delay the commercialization of the
CARTICEL[Service Mark] Service and have a material adverse effect on GTR's
results of operations.
GTR is marketing the CARTICEL[Service Mark] Service to orthopedic surgeons.
In order to commercialize the CARTICEL[Service Mark] Service successfully, GTR
will need to continue to hire and train additional sales personnel which will
market the CARTICEL[Service Mark] Service to surgeons and hospitals directly.
The success of the CARTICEL[Service Mark] Service depends on the success of such
sales force in creating demand for the CARTICEL[Service Mark] Service and the
extent to which sufficient numbers of the orthopedic surgeons who are trained by
GTR incorporate the CARTICEL[Service Mark] Service into their existing
practices. There can be no assurance that GTR will be successful in marketing
the CARTICEL[Service Mark] Service to surgeons or that such surgeons will use
the CARTICEL[Service Mark] Service to the extent anticipated by GTR.
FLUCTUATION IN GTR'S QUARTERLY RESULTS. Revenues generated from the
CARTICEL[Service Mark] Service are expected to fluctuate as GTR's sales force
enrolls orthopedic surgeons for training, such surgeons are trained by GTR, and
the CARTICEL[Service Mark] Service gains market acceptance. GTR's management is
unable to predict the timing or magnitude of such fluctuations. Sales of the
Epicel[Service Mark] Service for the treatment of severe burns also comprise a
material percentage of GTR's revenues. Revenues realized from the Epicel[Service
Mark] Service fluctuate from quarter to quarter due to the dependency of such
revenues on many unpredictable factors, including the number and survival rate
of patients for which the Epicel[Service Mark] Service is the indicated
treatment. Since production of the Epicel[Service Mark] Service requires GTR to
maintain extensive tissue culture facilities and a staff of trained personnel, a
significant portion of GTR's costs are fixed and, therefore, fluctuations in
demand can have a material adverse effect on GTR's results of operations.
RELIANCE ON AGREEMENTS WITH KEY COLLABORATORS. GTR's CARTICEL[Service Mark]
Service has been developed based on the work of a group of Swedish physicians,
the two leaders of which are exclusively involved with GTR in the
commercialization and further development of the CARTICEL[Service Mark] Service.
These two physicians are parties to research and development consulting
agreements with GTR (the "Consulting Agreements") which prohibit them from
performing consulting services for others related to cartilage and bone repair
without GTR's consent. In addition, pursuant to the Consulting Agreements, each
physician (i) is prohibited from engaging in any business activity that is in
competition with the products or services being developed, manufactured or sold
by GTR during the term of Consulting Agreements (currently through 1998) and for
a period of one year after termination thereof, (ii) is subject to
non-disclosure obligations and (iii) has assigned to GTR all rights to
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inventions resulting from work performed by each physician as a consultant to
GTR, subject to royalties payable to the inventing physician. There can be no
assurance that the two physicians will honor their obligations under the
Consulting Agreements. In addition, there can be no assurance that individuals
who are familiar with the know-how underlying GTR's CARTICEL[Service Mark]
Service through their association with these physicians will not disclose such
information to GTR's competitors. The occurrence of either of these events could
have a material adverse effect of GTR's results of operations.
GTR is conducting additional research in connection with its
CARTICEL[Service Mark] Service pursuant to a sponsored research agreement with
the University of Gotenburg in Sweden and certain physicians, including the two
referred to above. The sponsored research agreement requires that all members of
the investigative team maintain the confidentiality of all information
pertaining to GTR and its business that may become known to them in connection
with their work under the agreement. The agreement also states that all
inventions conceived or reduced to practice during the course of the research
program will be the property of GTR, subject to royalties payable to the
inventing physician. There can be no assurance that the sponsored research
agreement will be honored by the individuals performing services thereunder.
GTR OPERATING LOSSES. GTR is expected to experience significant operating losses
at least through the first half of 1997 as the market introduction of its
CARTICEL[Service Mark] Service continues and its research and development and
clinical trial programs progress. There can be no assurance that GTR will ever
achieve a profitable level of operations or that profitability, if achieved, can
be sustained on an ongoing basis. In addition, the management and accounting
policies adopted by the Board provide that to the extent GTR is unable to
utilize its operating losses to reduce its allocated current or deferred income
tax expense, such losses will be reallocated to the General Division on a
quarterly basis. Accordingly, although the actual payment of taxes is a
corporate liability of Genzyme as a whole, separate financial statements are
prepared for each division and any losses on GTR's financial statements that
cannot be utilized currently by GTR will not be carried forward to reduce the
taxes allocable to GTR's earnings in the future. This will result in GTR
recognizing a larger tax expense and reporting lower earnings after taxes in the
future than would have been the case if GTR had retained its losses in the form
of a net operating loss carryforward.
POTENTIAL DILUTION FROM PURCHASE OPTION. Pursuant to an agreement entered into
when GTR was created, Genzyme has the option (the "Purchase Option") to allocate
to GTR up to $30 million from the General Division in exchange for an increase
in the number of shares of TR Stock that Genzyme is permitted to issue without
allocating any consideration to GTR ("TR Designated Shares"). Consequently, a
maximum of 3,000,000 shares of TR Stock may be issued in connection with the
exercise of the Purchase Option. The Purchase Option is exercisable in three
installments of $10 million each, with the last installment expiring in June
1998. On June 14, 1996, Genzyme exercised the first installment of the Purchase
Option and allocated $10 million to GTR, resulting in the creation of 1,000,000
TR Designated Shares. Although these shares have not yet been issued, Genzyme
may issue these and any additional TR Designated Shares as a stock dividend to
the holders of General Division Stock or in a public or private sale without any
allocation of proceeds to GTR.
RISKS RELATED TO GENZYME
Upon exercise of any Warrant, the holder thereof will become a stockholder
of Genzyme and will receive shares of General Division Stock and TR Stock. Such
an investment involves a high degree of risk. Accordingly, Warrantholders should
carefully consider the following factors in evaluating the businesses of
Genzyme, the General Division and GTR and whether to exercise any Warrant.
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.
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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.
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[Service Mark] Service
and developing, producing and marketing other products through GTR and making
certain payments to third parties in connection with strategic collaborations.
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.
UNCERTAINTY REGARDING PATENTS AND PROTECTION OF PROPRIETARY TECHNOLOGY.
Genzyme's success depends, to a large extent, on its ability to maintain a
competitive technological position in its product areas. Proprietary rights
relating to Genzyme's products are protected from unauthorized use by third
parties only to the extent that they are covered by patents or are maintained in
confidence as trade secrets. Genzyme has filed for patents and has rights to
numerous patents and patent applications worldwide. While certain of Genzyme's
patents have been allowed or issued, there can be no assurance that any
additional patents will be allowed or will issue or that, to the extent issued,
such patents will effectively protect the proprietary technology of Genzyme. In
addition, GTR does not yet have significant patent protection covering the
methodologies used on providing the CARTICEL[Service Mark] Service.
Consequently, GTR is unable to prevent a competitor from developing the ability
to grow cartilage cell cultures and from offering a service that is similar or
superior to the CARTICEL[Service Mark] Service. GTR's results of operations
could be materially and adversely affected if a competitor were to develop such
know-how.
Genzyme has also relied upon trade secrets, proprietary know-how and
continuing technological innovation to develop and maintain its competitive
position. There can be no assurance that others will not independently develop
such know-how or otherwise obtain access to Genzyme's technology. While
Genzyme's employees, consultants and corporate partners with access to
proprietary information are generally required to enter into confidentiality
agreements, there can be no assurance that these agreements will be honored.
Certain of Genzyme's consultants have developed portions of Genzyme's
proprietary technology at their respective universities or in governmental
laboratories. There can be no assurance that such universities or governmental
authorities will not assert rights to intellectual property arising out of
university or government based research conducted by such consultants. In
addition, patent litigation is widespread in the biotechnology industry and it
is not possible to predict how any such litigation will affect Genzyme.
Parties not affiliated with Genzyme may hold pending or issued patents
relating to technology utilized by Genzyme in its products presently available
or under development. Genzyme may, depending on the final formulation of such
products, need to acquire licenses to, or contest the validity of, such patents
or any other similar patents that may be issued. The extent to which Genzyme may
need to license such rights or contest the validity of such patents depends on
the scope and validity of such patents and ultimately on the final design or
formulation of its products under development. The cost and ability to license
any such rights and the likelihood of successfully contesting the validity of
such patents are uncertain.
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INTENSE COMPETITION. Genzyme is engaged in a segment of the human health care
products industry that is extremely competitive. Competitors in the United
States and elsewhere are numerous and include major pharmaceutical, chemical and
biotechnology companies, many of which have substantially greater capital
resources, marketing experience, research and development staffs and facilities
than Genzyme. These companies may succeed in developing products that are more
effective than any that have been or may be developed by Genzyme and may also be
more successful than Genzyme in producing and marketing these products.
RAPID TECHNOLOGICAL CHANGE. The field of biotechnology is expected to continue
to undergo significant and rapid technological change. Although Genzyme will
seek to expand its technological capabilities in order to remain competitive,
there can be no assurance that research and discoveries by others will not
render Genzyme's products or processes obsolete.
UNCERTAINTY REGARDING SUCCESS OF CLINICAL TRIALS. Several of Genzyme's products
are currently in clinical trials to test safety and efficacy in humans for
various conditions. There can be no assurance that Genzyme will not encounter
problems in clinical trials that will cause it to delay or suspend clinical
trials. In addition, there can be no assurance that such clinical testing, if
completed, will ultimately show these products to be safe and efficacious.
REGULATION BY GOVERNMENT AGENCIES. Most of the products Genzyme plans to
manufacture and sell will require approval by governmental agencies in the
United States and elsewhere. In particular, human therapeutic and diagnostic
products are subject to pre-marketing approval by the FDA and comparable
agencies in foreign countries. The process of obtaining these approvals varies
according to the nature and use of the product and can involve lengthy and
detailed laboratory and clinical testing, sampling activities and other costly
and time-consuming procedures. There can be no assurance that any of the
required approvals will be granted on a timely basis, if at all.
Certain of Genzyme's products, including its Ceredase[Registered Trademark]
and Cerezyme[Registered Trademark] enzymes, have been designated as orphan drugs
under the Orphan Drug Act, which provides incentives to manufacturers to develop
and market drugs for rare diseases. The Orphan Drug Act generally entitles the
first developer to receive FDA marketing approval for an orphan drug to a
seven-year exclusive marketing period in the United States for that product.
However, legislation has been periodically introduced in recent years to amend
the Orphan Drug Act. Such legislation has generally been directed to shortening
the period of automatic market exclusivity and granting certain marketing rights
to simultaneous developers of a drug. The effect on Genzyme of any amendments
ultimately adopted cannot be assessed at this time.
Although Genzyme has filed for or received orphan drug designation for
various other products, Genzyme believes that the commercial success of these
products will depend more significantly on the associated safety and efficacy
profile and on the price and other characteristics of each product relative to
competitive or alternative treatments than on any exclusivity afforded by the
Orphan Drug Act. Additionally, these products may be protected by patents and
other means. Nonetheless, it is not possible to predict precisely what effect a
lessening of the market exclusivity protection afforded by the Orphan Drug Act
would have on Genzyme's results of operations.
A federal criminal statute prohibits the transfer of any human organ for
valuable consideration for use in human transplantation but permits recovery of
reasonable costs associated with such activities. This statute has not been
applied to the CARTICEL[Service Mark] or Epicel[Service Mark] Services to date.
In addition, certain states have laws requiring the licensure of tissue and
organ banks and laws governing the sale of human organs and the safety and
efficacy of drugs, devices and biologics, including skin, all of which could be
interpreted to apply to GTR's production and distribution of cultured tissue
products. Provisions in certain states' statutes prohibit the receipt of
valuable consideration in connection with the sale of human tissue by a tissue
bank but permit licensed tissue
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<PAGE> 12
banks, including companies, to recover their reasonable costs associated with
such sales. One state's Department of Health has notified GTR that it believes
GTR must obtain a license under that state's tissue bank licensure statute with
respect to distribution of the Epicel[Service Mark] Service. The Company has
applied for such a license.
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
and 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 payers. Genzyme's revenues and profitability
may be affected by ongoing efforts of third party payers 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.
POSSIBLE VOLATILITY OF SHARE PRICE AND ABSENCE OF DIVIDENDS. The market prices
for securities of biotechnology companies have been volatile. Factors such as
announcements of technological innovations or new commercial products by Genzyme
or its competitors, governmental regulation, patent or proprietary rights
developments, public concern as to the safety or other implications of
biotechnology products and market conditions in general may have a significant
impact on the market price of the General Division Stock and the TR Stock. No
cash dividends have been paid to date on the General Division Stock or the TR
Stock, nor does Genzyme anticipate paying cash dividends on such stock in the
foreseeable future.
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<PAGE> 13
CHANGE IN CONTROL. Certain provisions of Genzyme's charter and by-laws and the
terms of Genzyme's stockholder rights plan may have the effect of delaying,
deferring or preventing a change in control of Genzyme, thereby possibly having
the effect of depriving stockholders of the opportunity to receive a premium for
their shares. Certain provisions of Massachusetts law may have a similar effect.
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
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<PAGE> 14
relevant. Any such determination by the Board will be final and binding on all
holders of all classes of common stock.
DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS. Upon any sale, transfer, assignment
or other disposition by Genzyme of any product, program or asset not consisting
of all or substantially all of the assets of a division, all proceeds from such
disposition will be allocated to the division to which the program, product or
asset had been allocated, and such proceeds will be used for the benefit of such
division. If a program, product or asset is allocated to more than one division,
the proceeds of the disposition will be allocated among such divisions based on
their respective interests in such program, product or asset. Such allocation
will be made by the Board taking into account such matters as the Board and its
financial advisors, if any, deem relevant. Any such determination by the Board
will be final and binding on all holders of all classes of common stock.
INTER-DIVISION ASSET TRANSFERS. The Board may at any time and from time to time
reallocate any program, product or other asset from one division to any other
division. All such reallocations will be done at fair market value, determined
by the Board, taking into account, in the case of a program under development,
the commercial potential of such program, the phase of clinical development of
such program, the expenses associated with realizing any income from such
program, the likelihood and timing of any such realization and other matters
that the Board and its financial advisors deem relevant. The consideration for
such reallocation may be paid by one division to another in cash or, in lieu of
cash or other consideration, the Board may elect to account for a reallocation
of assets from GTR to the General Division as an increase in the number of
General Designated Shares and a reallocation of assets from the General Division
to GTR as either an increase in the number of TR Designated Shares or a
reduction in the General Designated Shares, if any, except that a reallocation
of assets from GTR to the General Division may not be accounted for as an
increase in General Designated Shares without a class vote of the holders of the
TR Stock.
Notwithstanding the foregoing, no Key TR Program, as defined below, may be
transferred out of GTR without a class vote of the holders of the TR Stock
unless the Board determines that such Key TR Program has application outside of
the field of tissue repair (in which case it may be transferred out only for the
non-tissue repair applications). A "Key TR Program" is any of the following: (i)
Vianain[Registered Trademark] Debriding Product for debridement of necrotic or
damaged tissue; (ii) TGF-(beta)2 for all indications licensed from Celtrix
Pharmaceuticals, Inc. as of December 16, 1994; (iii) Epicel[Service Mark]
cultured epithelial cell autografts for tissue replacement or repair; (iv)
Acticel[Service Mark] cultured epithelial cell allografts for tissue replacement
or repair; (v) CARTICEL[Service Mark] Autologous Chondrocyte Service; and (vi)
any additional tissue repair program or product being developed from time to
time in GTR which (a) constituted 20% or more of the research and development
budget of GTR in any of three most recently completed fiscal years or (b) has
had a cumulative investment of $8 million or more in research and development
expenses by GTR.
The foregoing policies regarding transfers of assets between divisions may
not be changed by the Board without a class vote of the holders of the TR Stock.
ACCESS TO TECHNOLOGY AND KNOW-HOW. GTR and the General Division each have free
access to all technology and know-how of Genzyme that may be useful in such
division's business, subject to any obligations or limitations applicable to
Genzyme.
DISPOSITION OF TR DESIGNATED SHARES. The TR Designated Shares may be (i) issued
upon the exercise of outstanding stock options and warrants and the conversion
of outstanding convertible notes allocated to the General Division, (ii) subject
to the restrictions set forth in the following paragraph, sold for any valid
business purpose, or (iii) distributed as a dividend to the holders of shares of
General Division Stock, all as determined from time to time by the Board in its
sole discretion. Genzyme distributed approximately 3.4 million of the initial
5.0 million TR Designated Shares as a stock dividend to holders of Genzyme
common stock of record on December 16, 1994, and reserved the remaining initial
TR Designated Shares for issuance upon the exercise or conversion of stock
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<PAGE> 15
options, warrants and convertible notes outstanding as of December 15, 1994. To
the extent that any such remaining initial TR Designated Shares are not used for
such purposes, the Board may issue them for any other valid business purposes
without crediting any proceeds to GTR.
ISSUANCE OF ADDITIONAL SHARES OF ANY CLASS OF GENERAL DIVISION STOCK. If
additional shares of any class of common stock are issued and sold by Genzyme,
Genzyme will identify (i) the number of such shares issued and sold for the
account of the division to which they relate, the proceeds of which will be
allocated to and reflected in the financial statements of such division and (ii)
the number of such shares issued and sold that will reduce the number of
Designated Shares from such division and the proceeds of which may be used for
any valid business purpose. Notwithstanding the foregoing, Genzyme will not sell
any shares of TR Stock without allocating the proceeds to GTR (except upon
exercise or conversion of options, warrants or convertible notes outstanding as
of December 16, 1994) unless (i) the Board determines that GTR has cash
sufficient to fund its operations for at least the next 12 months or (ii) shares
of TR Stock concurrently being sold for the account of GTR will produce proceeds
sufficient to fund GTR's cash needs for the next 12 months.
RESERVATION OF SHARES OF TR STOCK. Genzyme has reserved 3,900,000 shares of TR
Stock for issuance to Genzyme employees pursuant to grants made after December
15, 1994 under one or more employee incentive plans.
OPEN MARKET PURCHASES OF SHARES OF ANY CLASS. Genzyme may make open market
purchases of any class of its common stock in accordance with applicable
securities law requirements; provided, however, that such purchases of TR Stock
may not be made if as an immediate result thereof the number of TR Designated
Shares would represent more than 60% of the number of TR Designated Shares plus
the number of outstanding shares of TR Stock. Such restriction is intended to
prevent Genzyme from using open market purchases to effect a redemption of the
TR Stock without paying the 30% premium required for a complete redemption of TR
Stock under the terms of Genzyme's Articles of Organization. In addition, within
90 days of any open market purchase of any class of common stock, Genzyme may
not exchange shares of such class for cash or shares of any other class of
common stock.
CLASS VOTING. In addition to any shareholder approval required by Massachusetts
law, whenever the approval of the holders of a class of common stock is required
to take any action pursuant to these policies or Genzyme's Articles of
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.
USE OF PROCEEDS
If all of the Warrants are exercised, the net proceeds to be received by
Genzyme are estimated to be approximately $35,159,764. Genzyme currently has no
specific plans for use of the net proceeds received upon exercise of the
Warrants and anticipates that any proceeds received will be used to fund working
capital needs or for general corporate purposes. Until applied to any of the
foregoing uses, the net proceeds of this offering, if any, will be invested in
high-quality, interest-bearing securities or deposit accounts.
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<PAGE> 16
PLAN OF DISTRIBUTION
INITIAL CLOSING
Warrants in connection with 706 of the 735 Units sold were issued at the
initial closing on November 3, 1989 (the "Initial Closing"). PaineWebber R&D
Partners II, L.P. purchased 111 of the Units sold at the initial closing and was
issued a single Warrant (the "PaineWebber Fund Warrant") for 599,400 shares,
representing 5,200 shares for each of the 111 Units it purchased, plus an
additional 22,200 shares. The Warrants issued at the Initial Closing are
collectively referred to as the "Initial Closing Warrants." The Initial Closing
Warrants are exercisable for an aggregate of 3,693,400 shares.
FINAL CLOSING
Warrants in connection with the remaining 29 of the 735 Units sold were
issued at the final closing on November 10, 1989 (the "Final Closing"). The
Warrants issued at the Final Closing are collectively referred to as the "Final
Closing Warrants." The Final Closing Warrants are exercisable for an aggregate
of 150,800 shares.
EXERCISE PERIODS
The Warrants are exercisable until 5:00 p.m., Boston time, on October 31,
1996, after which time, they will terminate.
EXERCISE PRICES
The Warrants are exercisable in two tranches (Tranche 1 and Tranche 2) at
two different exercise prices (each, an "Exercise Price"). Two-thirds of each
5,200 shares (3,468 shares) are exercisable at the Tranche 1 Exercise Price and
one-third of each 5,200 shares (1,732 shares) are exercisable at the Tranche 2
Exercise Price. For the Initial Closing Warrants, the Tranche 1 Exercise Price
is $8.005 per share and the Tranche 2 Exercise Price is $11.455 per share. For
the Final Closing Warrants, the Tranche 1 Exercise Price is $8.015 per share and
the Tranche 2 Exercise Price is $11.455 per share.
EXERCISE PROCEDURE
The Warrants may be exercised in whole or in part, at any time or from
time to time, during the Exercise Period by presentation and surrender thereof
to the offices of Genzyme Corporation at the address specified below with the
Purchase Form at the end of the Warrant fully executed and accompanied by cash
or a certified or official bank check drawn to the order of "Genzyme
Corporation" in the amount of the applicable Exercise Price multiplied by the
number of shares specified in such form. Genzyme's address for exercise of the
Warrants is:
Genzyme Corporation
One Kendall Square
Cambridge, Massachusetts 02139
Attention: Shareholder Services
If a Warrant should be exercised in part only, then Genzyme shall, upon
surrender of such Warrant, execute and deliver a new Warrant evidencing the
rights of the Holder to purchase the balance of the Warrant shares purchasable
thereunder.
Upon receipt by Genzyme during the Exercise Period of a Warrant and such
Purchase Form, in proper form for exercise, together with proper payment of the
applicable Exercise Price, at such office, the Holder shall be deemed to be the
holder of record of the number of shares specified in such form, provided,
however, that if
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<PAGE> 17
the date of such receipt is a date on which the stock transfer books of Genzyme
are closed, such person shall be deemed to have become the record holder of such
shares the next succeeding business day on which the stock transfer books of
Genzyme are open. Genzyme shall pay any and all documentary, stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of such
Warrant shares. Any new or substitute Warrant issued under the terms of the
Warrants shall be dated the date of the original Warrants.
TRANSFERABILITY
The shares of General Division Stock and TR Stock issuable upon exercise
of the Warrants will be freely transferable in the hands of persons other than
affiliates of Genzyme. The General Division Stock and the TR Stock are quoted on
the Nasdaq National Market under the symbols "GENZ" and "GENZL", respectively.
LEGAL MATTERS
The validity of the Genzyme common stock to be issued upon exercise of the
Warrants will be passed upon for Genzyme by Palmer & Dodge LLP. Peter Wirth, a
partner in Palmer & Dodge LLP, is a Senior Vice President, the General Counsel
and Clerk of the Company. As of August 1, 1996, Mr. Wirth beneficially owned
11,720 and 3,520 shares of General Division Stock and TR Stock, respectively,
including shares subject to options exercisable within 60 days.
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