<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
FORM 10-Q
---------
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
--------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
----------- ------------
Commission file number 0-14680
-------------------
GENZYME CORPORATION
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 06-1047163
- --------------------------------------------------------------------------------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Kendall Square, Cambridge, Massachusetts 02139
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 252-7500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
The number of shares outstanding of each of the issuer's classes of common stock
as of April 30, 1997:
Class Outstanding at April 30,1997:
----- -----------------------------
Genzyme General Common Stock,
$0.01 par value ("GGD Stock") 76,028,957
Genzyme Tissue Repair Common Stock,
$0.01 par value ("GTR Stock") 13,225,682
Total number of pages in document - 61
Exhibit index located on page - 31
-1-
<PAGE> 2
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 1997
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Report on Form 10-Q for Genzyme Corporation ("Genzyme" or the "Company")
contains forward-looking statements concerning, among other things, the
Company's expected future revenues, operations and expenditures, and the
clinical development, regulatory approval and market introduction of the
Company's products and services. These forward-looking statements represent
the expectations of Genzyme's management as of the filing date of this Form
10-Q. The Company's actual results could differ materially from those
anticipated by the forward looking statements due to a number of factors,
including (i) the Company's ability to successfully complete preclinical and
clinical development and obtain timely regulatory approval and patent and other
proprietary rights protection for its products and services, (ii) decisions, and
the timing of decisions, made by the U.S. Food and Drug Administration and other
agencies regarding the indications for which the Company's products may be
approved, (iii) the actual size and characteristics of markets to be addressed
by the Company's products and services, (iv) market acceptance of the Company's
products and services, (v) the Company's ability to obtain reimbursement for its
products from third-party payers, where appropriate, (vi) the accuracy of the
Company's information concerning the products and resources of competitors and
potential competitors, and (vii) the risks and uncertainties described under the
caption "Factors Affecting Future Operating Results" under Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations of the
Company's Annual Report on Form 10-K for the year ended December 31, 1996.
-2-
<PAGE> 3
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 1997
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
PAGE NO.
-------
ITEM 1. Financial Statements
GENZYME CORPORATION AND SUBSIDIARIES
Condensed Consolidated Statements of Operations for the
Three Months Ended March 31, 1997 and 1996........................ 4-5
Condensed Consolidated Balance Sheets as of March 31, 1997
and December 31, 1996............................................. 6
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996........................ 7-8
Notes to Unaudited Condensed Consolidated Financial Statements...... 9-10
GENZYME GENERAL
Condensed Combined Statements of Operations for the
Three Months Ended March 31, 1997 and 1996........................ 11-12
Condensed Combined Balance Sheets as of March 31, 1997
and December 31, 1996............................................. 13
Condensed Combined Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996........................ 14-15
Notes to Unaudited Condensed Combined Financial Statements.......... 16-18
GENZYME TISSUE REPAIR
Condensed Combined Statements of Operations for Three
Months Ended March 31, 1997 and 1996.............................. 19
Condensed Combined Balance Sheets as of March 31, 1997
and December 31, 1996............................................. 20
Condensed Combined Statements of Cash Flows for the Three
Months Ended March 31, 1997 and 1996.............................. 21
Notes to Unaudited Condensed Combined Financial Statements.......... 22
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations...................................... 23-28
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk...... 28
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities........................................... 29
ITEM 6. Exhibits and Reports on Form 8-K................................ 29
Signatures............................................................... 30
-3-
<PAGE> 4
PART I. FINANCIAL STATEMENTS
ITEM 1. Financial Statements
GENZYME CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
- ---------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Net product sales ................................. $128,156 $ 92,815
Net service sales ................................. 16,743 14,621
Revenues from research and development contracts .. 1,694 6,061
-------- --------
146,593 113,497
Operating costs and expenses:
Cost of products sold ............................. 46,512 33,324
Cost of services sold ............................. 12,172 10,653
Selling, general and administrative ............... 47,326 37,556
Amortization of intangibles ....................... 3,196 1,016
Research and development (including research
and development related to contracts) ........... 20,092 17,690
-------- --------
129,298 100,239
-------- --------
Operating income .................................... 17,295 13,258
Other income and (expenses):
Equity in net loss of unconsolidated subsidiaries (1,659) (937)
Investment income ................................. 2,504 4,492
Interest expense .................................. (2,658) (213)
-------- --------
(1,813) 3,342
-------- --------
Income before income taxes .......................... 15,482 16,600
Provision for income taxes .......................... (6,115) (6,308)
-------- --------
Net income .......................................... $ 9,367 $ 10,292
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
-4-
<PAGE> 5
GENZYME CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31
- ---------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
ATTRIBUTABLE TO GENZYME GENERAL STOCK:
Net income ......................................... $ 16,727 $15,537
Tax benefit allocated from Genzyme Tissue Repair.... 4,511 3,497
-------- -------
Net income attributable to Genzyme General Stock.... $ 21,238 $19,034
======== =======
Per common and common equivalent share:
Net income ........................................ $ 0.27 $ 0.27
======== =======
Average shares outstanding ........................ 78,237 71,382
======== =======
Per common share assuming full dilution:
Net income ........................................ $ 0.27 $ 0.26
======== =======
Average fully diluted shares outstanding .......... 78,238 74,192
======== =======
ATTRIBUTABLE TO GENZYME TISSUE REPAIR STOCK:
Net loss attributable to GTR Stock ................. $(11,871) $(8,742)
======== =======
Per common share:
Net loss .......................................... $ (0.90) $ (0.71)
======== =======
Average shares outstanding ........................ 13,178 12,246
======== =======
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
-5-
<PAGE> 6
GENZYME CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) MARCH 31, DECEMBER 31,
- -------------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ..................................... $ 107,810 $ 93,132
Short-term investments ........................................ 41,815 56,608
Accounts receivable, less allowance for doubtful accounts ..... 119,697 116,833
Inventories ................................................... 129,586 125,265
Prepaid expenses and other current assets ..................... 15,719 100,287
Deferred tax assets - current ................................. 17,493 17,493
---------- ----------
Total current assets ........................................ 432,120 509,618
Property, plant and equipment, net .............................. 387,573 393,839
Other Assets:
Long-term investments ......................................... 32,381 38,215
Intangibles, net of accumulated amortization .................. 247,412 247,745
Deferred tax assets - noncurrent .............................. 42,221 42,221
Other noncurrent assets ....................................... 41,366 38,870
---------- ----------
363,380 367,051
---------- ----------
$1,183,073 $1,270,508
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable .............................................. $ 17,953 $ 22,271
Accrued expenses .............................................. 65,295 70,124
Income taxes payable .......................................... 22,900 17,926
Deferred revenue .............................................. 2,565 2,693
Current portion of long-term debt and capital lease obligations 1,022 999
---------- ----------
Total current liabilities ................................... 109,735 114,013
Noncurrent Liabilities:
Long-term debt and capital lease obligations .................. 153,353 241,998
Other noncurrent liabilities .................................. 11,408 12,188
---------- ----------
164,761 254,186
Stockholders' Equity:
Genzyme General Stock, $.01 par value ......................... 758 755
Genzyme Tissue Repair Stock, $.01 par value ................... 132 132
Treasury Stock - at cost ...................................... (901) (890)
Additional paid-in capital - Genzyme General .................. 874,007 871,020
Additional paid-in capital - Genzyme Tissue Repair ............ 125,844 122,385
Accumulated deficit ........................................... (80,610) (89,975)
Foreign currency translation adjustments ...................... (9,615) (745)
Unrealized net losses on investments .......................... (1,038) (373)
---------- ----------
908,577 902,309
---------- ----------
$1,183,073 $1,270,508
=========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
-6-
<PAGE> 7
GENZYME CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
- -----------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................ $ 9,366 $10,292
Reconciliation of net income to net cash provided by operating
activities
Depreciation and amortization ........................................ 9,896 5,669
Non-cash compensation expense ........................................ 197 --
Accrued interest/amortization on bonds ............................... 651 (1,235)
Provision for bad debts .............................................. 1,410 2,887
Equity in net loss of unconsolidated subsidiaries .................... 2,241 937
Gain on investment in unconsolidated affiliate ....................... (582) --
Accretion of debt .................................................... 102 --
Other ................................................................ 286 (13)
Increase (decrease) in cash from working capital changes:
Accounts receivable ................................................ (6,912) (1,102)
Inventories ........................................................ (5,244) (6,814)
Prepaid expenses and other current assets .......................... (2,732) (631)
Accounts payable, accrued expenses and deferred revenue ............ (2,231) 944
-------- --------
Net cash provided by operating activities .......................... 6,448 10,934
INVESTING ACTIVITIES:
Purchases of investments ............................................. (25,425) (73,361)
Sales and maturities of investments .................................. 44,820 20,566
Acquisitions of property, plant and equipment ........................ (4,317) (20,470)
Sale of property, plant & equipment .................................. 202 --
Additional investment in unconsolidated affiliate .................... -- (339)
Investment in joint venture .......................................... (1,843) --
Loan to affiliate .................................................... -- (2,804)
Other noncurrent assets and other noncurrent liabilities ............. (2,802) (36)
-------- --------
Net cash provided (used) by financimg activity ..................... 10,635 (76,444)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock ............................... 91,942 15,508
Short-term borrowings under bank credit agreement .................... -- 8,000
Proceeds from issuance of debt ....................................... 13,000 --
Payments of long-term debt and capital lease obligations ............. (104,510) (253)
-------- --------
Net cash provided (used) by investing activities ................... 432 23,255
Effect of exchange rate changes on cash ................................. (2,837) 329
-------- --------
Increase (decrease) in cash and cash equivalents ........................ 14,678 (41,926)
Cash and cash equivalents, beginning of period .......................... 93,132 144,372
-------- --------
Cash and cash equivalents, end of period ................................ $107,810 $102,446
======== ========
Supplemental disclosures of cash flows:
Cash paid during the period for:
Interest ............................................................. $ 4,510 $ 603
Income taxes ......................................................... 454 345
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
consolidated financial statements.
-7-
<PAGE> 8
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These unaudited condensed consolidated financial statements should be
read in conjunction with the Annual Report on Form 10-K of Genzyme
Corporation ("Genzyme" or the "Company") for the fiscal year ended
December 31, 1996 and the financial statements and footnotes included
therein. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to the
Securities and Exchange Commission rules and regulations. Certain items
in the 1996 financial statements have been reclassified to conform with
the 1997 presentation.
The financial statements for the three months ended March 31, 1997 and
1996 are unaudited but include, in management's opinion, all adjustments
(consisting only of normally recurring accruals) necessary for a fair
presentation of the results for the periods presented.
2. ACCOUNTING POLICIES
The accounting policies underlying the quarterly financial statements
are those set forth in Note A of the financial statements included in
the Company's Annual Report on Form 10-K for the year ended December 31,
1996 (the "1996 10-K").
The Company has elected to delay the annual distribution of GTR
Designated Shares to holders of record of GGD Stock, as described in the
1996 10-K, until June 30, 1997.
3. INVENTORIES
(In thousands)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Raw materials................ $ 33,993 $ 30,379
Work-in process.............. 40,869 38,203
Finished products............ 54,724 56,683
-------- --------
$129,586 $125,265
======== ========
</TABLE>
4. PHARMAGENICS CREDIT FACILITY
As previously reported in the 1996 10-K, in January 1997, Genzyme signed
a definitive merger agreement providing for the merger of PharmaGenics,
Inc. ("PharmaGenics") with and into Genzyme in exchange for 4,000,000
shares of a new Genzyme security to be designated Genzyme Molecular
Oncology Common Stock. Under the terms of the merger agreement, Genzyme
has made a credit facility (the "Credit Facility") available to
PharmaGenics to fund PharmaGenics's documented operating costs. In
February, March and May 1997, PharmaGenics borrowed $1.0 million, $0.7
million and $0.8 million, respectively, under the Credit Facility having
provided Genzyme with a projected cash disbursements list of operating
costs for the months of February, March, April and May. As of March 31,
1997, Genzyme has recorded $1.7 million of these borrowings as an
increase to Other noncurrent assets and will record the remaining $0.8
million of borrowings in May 1997.
5. REVOLVING CREDIT FACILITY
Genzyme has a revolving credit facility (the "Revolving Credit Facility")
with a syndicate of commercial banks administered by Fleet National Bank
in the amount of $225.0 million. Amounts drawn under this facility may be
allocated to either Genzyme General or Genzyme Tissue Repair. In January
1997, Genzyme General repaid $100.0 million of its outstanding debt under
this credit facility and related accrued interest of $2.0 million. As of
March 31, 1997, the Company had $118.0 million of debt outstanding under
the Revolving Credit Facility, which had been allocated $100.0 million to
Genzyme General and $18.0 million to Genzyme Tissue Repair.
6. GENZYME TISSUE REPAIR PRIVATE PLACEMENT
On February 28, 1997, Genzyme Tissue Repair raised $13 million through
the private placement of a 5% convertible note (the "Note"), to an
affiliate of Credit Suisse First Boston due February 27, 2000. The Note
is convertible beginning May 29, 1997 into shares of GTR Stock and,
beginning August 1997, at a discount to the average of the closing bid
prices of the GTR Stock on the Nasdaq National Market for the 25 trading
days immediately preceding the conversion date (the "Average GTR Stock
Price"). The discount will start at 2% beginning six months from the
date the Note was issued and will increase to 11%, at various intervals,
at 15 months after the date of issue. Thereafter, the conversion price
will be the lesser of 89% of the Average GTR Stock Price preceding the
conversion date or the date 15 months after the date of issue. In the
first quarter of 1997, Genzyme Tissue Repair recorded $11.5 million of
proceeds attributed to the value of the debt and $1.5 million attributed
to the value of the conversion feature (recorded as an increase to
division equity). The $11.5 million will be accreted to the face value of
the debt by a charge to earnings available to common stockholders over
the initial 15 month conversion period.
-8-
<PAGE> 9
7. JOINT VENTURE WITH GENZYME DEVELOPMENT PARTNERS, L.P. ("GDP")
Genzyme consolidates 100% of the losses generated by the joint venture
(the "Joint Venture") with GDP to manufacture and market a line of
products based on hyaluronic acid ("HA") for use in limiting the
formation of post-operative adhesions (the "Sepra Products"). For the
quarter ended March 31, 1997, the Joint Venture incurred net losses of
approximately $0.7 million, due primarily to the costs associated with
the U.S. market introduction of the first Sepra Product, Seprafilm [TM].
-9-
<PAGE> 10
8. PROVISION FOR INCOME TAXES
The tax provision for the quarter ended March 31, 1997 varies from the
U.S. statutory tax rate because of the provision for state income taxes,
nondeductible intangible amortization, losses of unconsolidated
affiliates, benefits from operating loss carryforwards and nondeductible
charges in connection with tax-free acquisitions. The effective tax rate
was 39.5% for the three months ended March 31, 1997 as compared to 38%
for the corresponding period in 1996. The increase in the rate was due
to higher nondeductible intangible amortization and to lower benefits
from available operating loss carryforwards.
9. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, The Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share". SFAS No. 128 establishes a different method of computing net
income per share than is currently required under the provisions of the
Accounting Principles Board Opinion No. 15 ("APB 15"). Under SFAS No.
128, Genzyme will be required to present both basic net income per share
and diluted net income per share attributable to GGD Stock and GTR Stock
(the principal difference being that common stock equivalents would not
be considered in the computation of basic EPS). Basic net income (loss)
per share for Genzyme General for the quarter ended March 31, 1997 and
March 31, 1996 would have been $0.28 and $0.30 per share, respectively.
Basic loss per share data for Genzyme Tissue Repair for the quarter
ended March 31, 1997 and 1996 would have been $(0.90) and $(0.71),
respectively, the same as loss per share for each respective period
computed under the provisions of APB 15. The impact of SFAS No. 128 on
the calculation of diluted net income per share for these quarters is
not expected to be material. Genzyme plans to adopt SFAS No. 128 in its
fiscal quarter ending December 31, 1997 and at that time all historical
net income per share data presented will be restated to conform to the
provisions of SFAS No. 128.
10. SUBSEQUENT EVENTS
In April 1997, the Genzyme Board voted, subject to approval of the
stockholders, to adopt an amendment to the Company's 1990 Employee Stock
Purchase Plan (the "Purchase Plan") and an amendment to the Company's
1988 Director Stock Option Plan (the "Director Plan") which would
increase (i) the number of shares of GGD Stock available for purchase
under the Purchase Plan by 500,000 shares to 2,000,000 shares and (ii)
the number of shares of GGD Stock and GTR Stock available for issuance
under the Director Plan by 33,600 shares and 30,000 shares, respectively,
to 233,600 shares of GGD Stock and 100,000 shares of GTR Stock.
On May 5, 1997, the General and Plastic Surgery Devices Panel of the
U.S. Food and Drug Administration's (the "FDA") Medical Devices Advisory
Committee recommended that Genzyme General not be granted approval to
market Sepracoat[TM] coating solution for the reduction of adhesions in
abdominal and pelvic surgery. Sepracoat[TM] is a liquid formulation of
HA designed to reduce adhesion formation caused by indirect trauma,
such as incidental abrasions from tissue handling or tissue drying due
to exposure and is currently marketed in Europe by Genzyme. The panel
agreed that the product appears to be safe, but indicated that Genzyme
had not presented sufficient evidence of clinical effectiveness. The
panel's recommendation will be considered in the FDA's final review of
Genzyme's premarket approval application for Sepracoat [TM]. The
recommendation is not binding on the FDA, but the agency usually follows
the advice of its panels. The panel's recommendation does not affect
Seprafilm[TM], which received FDA approval in August 1996 and is
marketed globally. Genzyme is considering options for further clinical
studies of Sepracoat[TM], possibly in combination with Seprafilm[TM].
-10-
<PAGE> 11
GENZYME GENERAL
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
- ---------------------------------------------------------------------------------
1997 1996
---- ----
Revenues:
<S> <C> <C>
Net product sales................................ $128,156 $ 92,815
Net service sales................................. 14,756 12,907
Revenues from research and development contracts.. 1,694 6,061
-------- --------
144,606 111,783
Operating costs and expenses:
Cost of products sold............................. 46,512 33,324
Cost of services sold............................. 9,316 8,227
Selling, general and administrative............... 40,872 31,310
Amortization of intangibles....................... 3,196 1,016
Research and development (including research
and development related to contracts)............ 17,324 15,336
-------- --------
117,220 89,213
-------- --------
Operating income.................................... 27,386 22,570
Other income and (expenses):
Equity in net loss of unconsolidated subsidiaries (70) (937)
Investment income................................. 2,318 3,918
Interest expense.................................. (2,281) (209)
-------- --------
(33) 2,772
-------- --------
Income before income taxes.......................... 27,353 25,342
Provision for income taxes.......................... (10,626) (9,805)
-------- --------
Net income.......................................... 16,727 15,537
Tax benefit allocated from Genzyme Tissue Repair.... 4,511 3,497
-------- --------
Net income attributable to Genzyme General Stock.... $ 21,238 $ 19,034
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-11-
<PAGE> 12
GENZYME GENERAL
CONDENSED COMBINED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31,
- ------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Net income attributable to Genzyme General Stock .............. $21,238 $19,034
======= =======
Income per Genzyme General common and common equivalent share:
Net income .................................................. $ 0.27 $ 0.27
======= =======
Average shares outstanding .................................. 78,237 71,382
======= =======
Income per Genzyme General common share assuming full dilution:
Net income .................................................. $ 0.27 $ 0.26
======= =======
Average fully diluted shares outstanding .................... 78,238 74,192
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-12-
<PAGE> 13
GENZYME GENERAL
CONDENSED COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) MARCH 31, DECEMBER 31,
- --------------------------------------------------------------------------------------------
1997 1996
---- ----
ASSETS
Current Assets:
<S> <C> <C>
Cash and cash equivalents ..................................... $ 88,245 $ 77,220
Short-term investments ........................................ 41,815 56,290
Accounts receivable, less allowance for doubtful accounts ..... 118,061 115,156
Inventories ................................................... 127,803 123,442
Prepaid expenses and other current assets ..................... 15,490 99,953
Due from Genzyme Tissue Repair ................................ 1,492 1,604
Deferred tax assets - current ................................. 17,493 17,493
---------- ----------
Total current assets ........................................ 410,399 491,158
Property, plant and equipment, net .............................. 366,207 371,610
Other Assets:
Long-term investments ......................................... 32,381 38,215
Intangibles, net of accumulated amortization .................. 247,412 247,745
Deferred tax assets - noncurrent .............................. 42,221 42,221
Other noncurrent assets ....................................... 40,236 38,570
---------- ----------
362,250 366,751
---------- ----------
$1,138,856 $1,229,519
========== ==========
LIABILITIES AND DIVISION EQUITY
Current Liabilities:
Accounts payable .............................................. $ 16,687 $ 20,522
Accrued expenses .............................................. 62,257 67,645
Income taxes payable .......................................... 22,900 17,926
Deferred revenue .............................................. 2,565 2,693
Current portion of long-term debt and capital lease obligations 1,022 999
---------- ----------
Total current liabilities ................................... 105,431 109,785
Noncurrent Liabilities:
Long-term debt and capital lease obligations .................. 123,751 223,998
Other noncurrent liabilities .................................. 10,768 11,511
---------- ----------
134,519 235,509
Division equity ................................................. 898,906 884,225
---------- ----------
$1,138,856 $1,229,519
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-13-
<PAGE> 14
GENZYME GENERAL
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
- -----------------------------------------------------------------------------------------
1997 1996
---- ----
OPERATING ACTIVITIES:
<S> <C> <C>
Net income ..................................................... $ 16,727 $ 15,537
Reconciliation of net income to net cash provided by
operating activities:
Depreciation and amortization ................................. 9,324 5,645
Non-cash compensation expense ................................. 159 --
Accrued interest/amortization on bonds ........................ 651 (1,145)
Provision for bad debts ....................................... 1,368 2,501
Equity in net loss of unconsolidated subsidiaries.............. 652 937
Gain on investment in unconsolidated affiliate ................ (582) --
Other ......................................................... 286 (13)
Increase (decrease) in cash from working capital changes:
Accounts receivable ......................................... (6,913) (704)
Inventories ................................................. (5,284) (6,144)
Prepaid expenses and other current assets ................... (2,837) (382)
Accounts payable, accrued expenses and income taxes payable . 1,983 5,357
Due from Genzyme Tissue Repair .............................. 112 1,044
--------- ---------
Net cash provided by operating activities ................... 15,646 22,628
INVESTING ACTIVITIES:
Purchases of investments ....................................... (25,425) (70,354)
Sales and maturities of investments ............................ 44,502 17,556
Acquisition of property, plant and equipment ................... (4,184) (10,554)
Additional investment in unconsolidated affiliate .............. -- (339)
Loans to affiliate ............................................. -- (2,804)
Other noncurrent assets and other non current liabilities ...... (2,189) (322)
--------- ---------
Net cash provided (used) by investing activities ............ 12,704 (66,817)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock ......................... 91,824 14,659
Payments of debt and capital lease obligations ................. (104,510) (176)
Net cash allocated to Genzyme Tissue Repair .................... (1,802) --
--------- ---------
Net cash provided (used) by financing activities ............ (14,488) 14,483
Effect of exchange rate changes on cash .......................... (2,837) 329
--------- ---------
Increase (decrease) in cash and cash equivalents ................. 11,025 (29,377)
Cash and cash equivalents, beginning of period ................... 77,220 103,631
--------- ---------
Cash and cash equivalents, end of period ......................... $ 88,245 $ 74,254
========= =========
</TABLE>
-14-
<PAGE> 15
<TABLE>
<CAPTION>
Supplemental cash flow information:
<S> <C> <C>
Cash paid during the period for:
Interest......................................... $4,510 $599
Income taxes................................ 454 345
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-15-
<PAGE> 16
GENZYME GENERAL
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These unaudited, condensed, combined financial statements should be read in
conjunction with the 1996 10-K and the financial statements and footnotes
for Genzyme General included therein. Certain information and footnote
disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the Securities and Exchange Commission
rules and regulations. Certain items in the 1996 financial statements have
been reclassified to conform with the 1997 presentation.
The financial statements for the three months ended March 31, 1997 and 1996
are unaudited but include, in management's opinion, all adjustments
(consisting only of normally recurring accruals) necessary for a fair
presentation of the results for the periods presented.
2. ACCOUNTING POLICIES
The accounting policies underlying the quarterly financial statements are
those set forth in Note A of Genzyme General's financial statements
included in the 1996 10-K.
The Company has elected to delay the annual distribution of GTR Designated
Shares to holders of record of GGD Stock, as described in the 1996 10-K,
until June 30, 1997.
3. INVENTORIES
(In thousands)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Raw materials................ $ 33,808 $ 30,243
Work-in-process.............. 39,271 36,516
Finished products............ 54,724 56,683
-------- --------
$127,803 $123,442
======== ========
</TABLE>
4. PHARMAGENICS CREDIT FACILITY
As previously reported in the 1996 Genzyme 10-K, in January 1997, Genzyme
signed a definitive merger agreement providing for the merger of
PharmaGenics, Inc. ("PharmaGenics") with and into Genzyme in exchange for
4,000,000 shares of a new Genzyme security to be designated Genzyme
Molecular Oncology Common Stock. Under the terms of the merger agreement,
Genzyme had made a credit facility (the "Credit Facility") available to
PharmaGenics to fund PharmaGenics's documented operating costs. In
February, March and May 1997, PharmaGenics borrowed $1.0 million, $0.7
million and $0.8 million, respectively, under the Credit Facility having
provided Genzyme with a projected cash disbursements list of operating
costs for the months of February, March, April and May. As of March 31,
1997, Genzyme General has recorded $1.7 million of these borrowings as an
increase to Other noncurrent assets and will record the remaining $0.8
million of borrowings in May 1997.
5. REVOLVING CREDIT FACILITY
Genzyme's $225.0 million Revolving Credit Facility may be used by either
Genzyme General or Genzyme Tissue Repair. In January 1997, Genzyme General
repaid $100 million of its outstanding debt under the Revolving Credit
Facility and related accrued interest of $2.0 million. As of March 31,
1997, the Company had $118.0 million of debt outstanding under the
Revolving Facility, which had been allocated $100.0 million to Genzyme
General and $18.0 million to Genzyme Tissue Repair.
-16-
<PAGE> 17
6. SUBLEASE OF GENZYME TISSUE REPAIR BUILDING TO GENZYME GENERAL
-17-
<PAGE> 18
In January 1997, Genzyme Tissue Repair leased to Genzyme General certain
laboratory and office space in the building located at Genzyme Tissue
Repair's Framingham, Massachusetts facility for a 3-year term which
commenced January 1, 1997. Genzyme General is leasing approximately half of
the facility at a cost of $839,808 per year. Beginning on July 1, 1997,
Genzyme Tissue Repair has the option of requiring Genzyme General to
assume responsibility for an additional 20% of the facility at GTR's
cost of $424,056 per year.
7. JOINT VENTURE
Genzyme consolidates 100% of the losses generated by the Joint Venture
with GDP. For the quarter ended March 31, 1997, the Joint Venture
incurred net losses of approximately $0.7 million, due primarily to the
costs associated with the U.S. market introduction of Seprafilm[TM].
8. PROVISION FOR INCOME TAXES
The tax provision for the quarter ended March 31, 1997 varies from the
U.S. statutory tax rate because of the provision for state income taxes,
Genzyme General's share of losses of subsidiaries which generate no
current tax benefit, tax credits and taxes on foreign earnings. The
effective tax rate was 38.8% for the three months ended March 31, 1997, a
slight increase over the corresponding period in 1996. The allocated tax
benefit generated by GTR of $4.5 million and $3.5 million, respectively,
reduced Genzyme General's tax rate for the three months ended March 31,
1997 and 1996 to 22.4% and 24.9%, respectively.
9. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, The Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share".
SFAS No. 128 establishes a different method of computing net income per
share than is currently required under the provisions of the Accounting
Principles Board Opinion No. 15 ("APB 15"). Under SFAS No. 128, Genzyme
will be required to present both basic net income per share and diluted net
income per share attributable to GGD Stock and GTR Stock (the principal
difference being that Common Stock equivalents would not be considered in
computation of basic EPS). Basic net income (loss) per share for Genzyme
General for the quarter ended March 31, 1997 and March 31, 1996 would have
been $0.28 and $0.30 per share, respectively. The impact of SFAS No. 128 on
the calculation of diluted net income per share for these quarters is not
expected to be material. Genzyme plans to adopt SFAS No. 128 in its fiscal
quarter ending December 31, 1997 and at that time all historical net income
per share data presented will be restated to conform to the provisions of
SFAS No. 128.
10. SUBSEQUENT EVENTS
In April 1997, the Genzyme Board voted, subject to approval of the
stockholders, to adopt an amendment to the Company's 1990 Employee Stock
Purchase Plan and an amendment to the Director Plan which would increase
(i) the number of shares of GGD Stock, available for purchase under the
Purchase Plan by 500,000 shares to 2,000,000 shares and (ii) the number of
shares of GGD Stock and GTR Stock available for issuance under the
Director Plan by 33,600 shares and 30,000 shares, respectively, to
233,600 shares of GGD Stock and 100,000 shares of GTR Stock.
On May 5, 1997, the General and Plastic Surgery Devices Panel of the FDA's
Medical Devices Advisory Committee recommended that Genzyme not be granted
approval to market Sepracoat[TM] coating solution for the reduction of
adhesions in abdominal and pelvic surgery. Sepracoat[TM] is a liquid
formulation of HA designed to reduce adhesion formation caused by indirect
trauma, such as incidental abrasions from tissue handling or tissue drying
due to exposure and is currently marketed in Europe by Genzyme. The panel
agreed that the product appears to be safe but indicated that Genzyme had
not presented sufficient evidence of clinical effectiveness. The panel's
recommendation will be considered in the FDA's final review of Genzyme
General's premarket approval application for Sepracoat[TM]. The
recommednation is not binding on the FDA, but the agency usually follows
the advice of its panels. The panel's recommendation does not affect the
first Sepra Product, Seprafilm[TM], which received FDA approval in August
1996 and is marketed globally. Genzyme is considering options for further
clinical studies of Sepracoat[TM], possibly in combination with
Seprafilm[TM].
-18-
<PAGE> 19
GENZYME TISSUE REPAIR
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31,
- ------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
Revenues:
Net service sales ............................. $ 1,987 $ 1,714
Operating costs and expenses:
Cost of services sold ......................... 2,856 2,426
Selling, general and administrative ........... 6,454 6,246
Research and development ...................... 2,768 2,354
-------- --------
12,078 11,026
-------- --------
Operating loss .................................. (10,091) (9,312)
Other income and (expenses):
Equity in net loss of joint venture ........... (1,589) --
Investment income ............................. 186 574
Interest expense .............................. (377) (4)
-------- --------
(1,780) 570
-------- --------
Net loss ........................................ $(11,871) $ (8,742)
======== ========
Per Genzyme Tissue Repair Common share:
Net loss ...................................... $ (0.90) $ (0.71)
======== ========
Average shares outstanding .................... 13,178 12,246
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-19-
<PAGE> 20
GENZYME TISSUE REPAIR
CONDENSED COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) MARCH 31, DECEMBER 31,
- ---------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................... $19,565 $15,912
Short-term investments .................................. -- 318
Accounts receivable, less allowance for doubtful
accounts .............................................. 1,636 1,677
Inventories ............................................. 1,783 1,823
Prepaid expenses and other current assets ............... 229 334
------- -------
Total current assets ................................... 23,213 20,064
Property, plant and equipment, net ........................ 21,366 22,229
Other Assets:
Investment in joint venture ............................. 439 185
Other noncurrent assets ................................. 691 115
------- -------
1,130 300
------- -------
$45,709 $42,593
======= =======
LIABILITIES AND DIVISION EQUITY
Current Liabilities:
Accounts payable ........................................ $ 1,266 $ 1,749
Accrued expenses ........................................ 3,038 2,479
Payable to Genzyme General .............................. 1,492 1,604
------- -------
Total current liabilities .............................. 5,796 5,832
Noncurrent Liabilities:
Long-term debt .......................................... 29,602 18,000
Other noncurrent liabilities ............................ 640 677
------- -------
30,242 18,677
Division equity ........................................... 9,671 18,084
------- -------
$45,709 $42,593
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-20-
<PAGE> 21
GENZYME TISSUE REPAIR
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31,
- -----------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ........................................................... (11,872) $ (8,742)
Reconciliation of net loss to net cash used by operating activities:
Depreciation and amortization ..................................... 572 24
Non-cash compensation expense ..................................... 38 --
Accrued interest/amortization on bonds ............................ -- (90)
Provision for bad debts ........................................... 42 61
Equity in net loss of joint venture ............................... 1,589 --
Accretion of debt ................................................. 102 --
Increase (decrease) in cash from working capital:
Accounts receivable ............................................. (1) (73)
Inventories ..................................................... 42 (670)
Prepaid expenses and other current assets ....................... 105 (248)
Accounts payable, accrued expenses and other current
liabilities ................................................... 297 (982)
Payable to Genzyme General ...................................... (112) (1,044)
-------- --------
Net cash used by operating activities ........................... (9,198) (11,764)
INVESTING ACTIVITIES:
Purchases of investments ........................................... -- (3,006)
Sales and maturities of investments ................................ 318 3,010
Acquisition of property, plant and equipment ....................... (133) (9,916)
Sale of property, plant and equipment .............................. 202 --
Investment in joint venture ........................................ (1,843) --
Other noncurrent assets and noncurrent liabilities ................. (613) 278
-------- --------
Net cash used by investing activities ........................... (2,069) (9,634)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock ............................. 118 849
Proceeds from issuance of debt ..................................... 13,000 --
Short-term borrowings under bank credit agreement .................. -- 8,000
Net cash allocated from Genzyme General............................. 1,802 --
-------- --------
Net cash provided by financing activities ....................... 14,920 8,849
-------- --------
Increase (decrease) in cash and cash equivalents ..................... 3,653 (12,549)
Cash and cash equivalents, beginning of period ....................... 15,912 40,741
-------- --------
Cash and cash equivalents, end of period ............................. $ 19,565 $ 28,192
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited, condensed,
combined financial statements.
-21-
<PAGE> 22
GENZYME TISSUE REPAIR
NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These unaudited, condensed, combined financial statements should be read
in conjunction with the 1996 10-K and the financial statements and
footnotes for Genzyme Tissue Repair ("GTR") included therein. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the Securities and
Exchange Commission rules and regulations.
The financial statements for the three months ended March 31, 1997 and 1996
are unaudited but include, in management's opinion, all adjustments
(consisting only of normally recurring accruals) necessary for a fair
presentation of the results for the periods presented.
2. ACCOUNTING POLICIES
The accounting policies underlying the quarterly financial statements are
those set forth in Note A of GTR's financial statements included in the
1996 Genzyme 10-K.
The Company has elected to delay the distribution of GTR Designated Shares
to holders of record of GGD Stock, as described in the 1996 10-K, until
June 30, 1997.
3. INVENTORIES
(In thousands)
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
-------------- -----------------
<S> <C> <C>
Raw materials.................... $ 185 $ 136
Work-in-process.................. 1,598 1,687
------ ------
$1,783 $1,823
====== ======
</TABLE>
4. REVOLVING CREDIT FACILITY
Genzyme's $225.0 million Revolving Credit Facility may be used by either
Genzyme General or Genzyme Tissue Repair. As of March 31, 1997, the
Company had $118 million of debt outstanding under the Revolving Credit
Facility, which had been allocated $100.0 million to Genzyme General and
$18.0 million to Genzyme Tissue Repair.
5. GENZYME TISSUE REPAIR PRIVATE PLACEMENT
On February 28, 1997, Genzyme Tissue Repair raised $13 million through the
private placement of a 5% convertible note (the "Note"), to an affiliate of
Credit Suisse First Boston due February 27, 2000. The Note is convertible
beginning May 29, 1997 into shares of GTR Stock and beginning August 1997
at a discount to the average of the closing bid prices of the GTR Stock on
the Nasdaq National Market for the 25 trading days immediately preceding
the conversion date (the "Average GTR Stock Price"). The discount will
start at 2% beginning six months from the date the note was issued and will
increase to 11%, at various intervals, at 15 months after the date of
issue. Thereafter, the conversion price will be the lesser of 89% of the
Average GTR Stock Price preceding the conversion date or the date 15 months
after the date of issue. In the first quarter of 1997, GTR recorded $11.5
million of proceeds attributable to the value of the debt and $1.5 million
attributed to the value of the conversion feature (recorded as an increase
to division equity). The $11.5 million will be accreted to the face value
of the debt by a charge to earnings available to common stockholders over
the initial 15 month conversion period.
6. SUBLEASE OF GENZYME TISSUE REPAIR BUILDING TO GENZYME GENERAL
In January 1997, Genzyme Tissue Repair leased to Genzyme General certain
laboratory and office space in the building located at Genzyme Tissue
Repair's Framingham, Massachusetts facility for a 3-year term which
commenced January 1, 1997. Genzyme General is leasing approximately half of
the facility at a cost of $839,808 per year. Beginning on July 1, 1997,
Genzyme Tissue Repair has the option of requiring Genzyme General to assume
responsibility for an additional 20% of the facility at GTR's cost of
$424,056 per year.
7. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings
Per Share." SFAS No. 128 establishes a different method of computing net
income per share than is currently required under the provision of the
Accounting Principles Board Opinion No. 15 ("APB 15"). Under SFAS No. 128,
Genzyme will be required to present both basic net income (loss) per share
and diluted net income (loss) per share attributable to GCD Stock and GTR
Stock (the principal difference being that common stock equivalents would
not be considered in the computation of basic EPS). Basic loss per share
data for GTR Stock for the quarter ended March 31, 1997 and 1996 would
have been $(0.90) and $(0.71), respectively, the same as loss per share
for each respective period computed under the provisions of APB 15.
Genzyme plans to adopt SFAS No. 128 in its fiscal quarter ending December
31, 1997 and at that time all historical net income per share data
presented will be restated to conform to the provisions of SFAS No. 128
8. SUBSEQUENT EVENT
In April 1997, the Genzyme Board voted, subject to approval of the
stockholders, to adopt an amendment to the Director Plan which would
increase the number of shares of GGD Stock, and GTR Stock, available for
issuance under the Director Plan by 33,600 shares and 30,000 shares,
respectively, to 233,600 shares.
-22-
<PAGE> 23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997
The following discussion is a summary of the key factors management considers
necessary in reviewing the Company's results of operations, liquidity and
capital resources.
RESULTS OF OPERATIONS
GENZYME CORPORATION AND SUBSIDIARIES
Since the operating results of Genzyme and its subsidiaries reflect the combined
operations of Genzyme General Division ("Genzyme General") and Genzyme Tissue
Repair Division ("Genzyme Tissue Repair"), this discussion summarizes the key
factors management considers necessary in reviewing Genzyme's consolidated
results of operations. Detailed discussion and analysis of each Division's
results of operations are provided below under separate headings.
REVENUES. Total revenues for the three months ended March 31, 1997 were $146.6
million, an increase of 29% over the corresponding period in 1996. Product
revenues for the three months ended March 31, 1997 consist of product sales
by Genzyme General and increased 38% to $128.2 million from $92.8 million for
the corresponding period in 1996. The increase was due primarily to the
addition of sales through the acquisition of Deknatel Snowden Pencer, Inc.
("DSP"), which was acquired in July 1996, and to increased sales of Ceredase[R]
enzyme and Cerezyme[R] enzyme.
Service revenues consist of sales of genetic testing services by Genzyme
Genetics and sales of Genzyme Tissue Repair's CARTICEL[R] and Epicel [SM]
Services. Service revenues for the three months ended March 31, 1997 and 1996
were $16.7 million and $14.6 million, respectively, an increase of 15%. The
increase was due to higher unit volumes attributable to the acquisition of
Genetrix, Inc. ("Genetrix"), which was added to Genzyme Genetics's operations
from May 1996 forward, and to changes in service pricing and was offset by the
loss of revenues from Genzyme Genetics's identity testing services laboratory,
Genetic Design, Inc. ("GDI"), which was sold in November 1996.
Revenues from research and development contracts for the three months ended
March 31, 1997 were attributable entirely to Genzyme General and decreased 72%
to $1.7 million, as compared to $6.1 million, for the corresponding period in
1996. The decrease resulted primarily from the loss of revenue from Neozyme
II Corporation ("Neozyme II"), which was acquired by Genzyme in the fourth
quarter of 1996 and which provided $5.4 million for the first quarter of 1996.
MARGINS AND OPERATING EXPENSES. Gross margins increased to 60% from 59% for the
quarters ended March 31, 1997 and 1996, respectively. Product margins were
64% for the quarter ended March 31, 1997, level with the first quarter of 1996.
Service margins were 27% for the quarter ended March 31, 1997, level with the
first quarter of 1996.
Selling, general and administrative ("SG&A") expenses for the three months
ended March 31, 1997 were $47.3 million, an increase of 26% over the same
period in 1996. The increase resulted primarily from the acquisitions of
Genetrix and DSP and increased staffing in support of the growth in several
product lines, most notably in support of the North American introduction of
Seprafilm[TM] and increased surgeon training costs related to Carticel[R].
Research and development expenses for the three months ended March 31, 1997 were
$20.1 million, an increase of 14% over the same period in 1996 due to Genzyme
General's commitment to fund development costs of the antithrombin III ("AT
III") program being conducted by Genzyme Transgenics Corporation ("GTC").
OTHER INCOME AND EXPENSES. Other income and expenses decreased substantially
due to the combined effect of a 44% decrease in investment income to
$2.5 million and increases in interest expense and Genzyme's equity in the net
losses of GTC and Diacrin/Genzyme LLC. Interest expense for the quarter ended
March 31, 1997 was $2.7 million, as compared to $0.2 million for the same period
of 1996. The increase resulted from interest on funds borrowed in 1996 to
finance portions of the acquisitions of DSP and Neozyme II.
The tax provision for the quarter ended March 31, 1997 varies from the U.S.
statutory tax rate because of the provision for state income taxes,
nondeductible intangible amortization, losses of unconsolidated affiliates,
benefits from operating loss carryforwards and nondeductible charges in
connection with tax-free acquisitions. The effective tax rate was 39.5% for the
three months ended March 31, 1997 as compared to 38% for the corresponding
period in 1996. The increase in the rate was due to higher nondeductible
intangible amortization and to lower benefits from available operating loss
carryforwards.
-23-
<PAGE> 24
GENZYME GENERAL
REVENUES. Total revenues for the three months ended March 31, 1997 were $144.6
million, an increase of 29% over the corresponding period in 1996. Product and
service revenues were $142.9 million, an increase of 35% over the same period in
1996. Product revenues for the three months ending March 31, 1997 increased 38%
to $128.2 million from $92.8 million for the corresponding period in 1996, due
primarily to the addition of sales through the acquisition of DSP and to
increased sales of Ceredase[R] enzyme and Cerezyme[R] enzyme.
Sales of Specialty Therapeutics in the three months ended March 31, 1997
consisted entirely of sales of Ceredase[R] enzyme and Cerezyme[R] enzyme and
increased 30% due to increased shipments resulting from successful market
penetration efforts in Japan and continued growth in new patient accruals in
existing markets. Genzyme General's results of operations are highly dependent
on these products which, with combined sales for the three months ended March
31, 1997 and 1996 of $76.4 million and $58.8 million, respectively, represented
60% and 63%, respectively, of consolidated product sales.
Product sales for the Surgical Products business unit during the first three
months of 1997, were $26.9 million and consisted primarily of sales by DSP.
DSP's product sales for the first quarter of 1996, which are not included in the
results for Genzyme General, were $27.7 million.
Product sales during the first quarter of 1997 by the Diagnostic Products
business unit increased by 5% over the same period in 1996 as a result of
growth in most product lines, most notably sales of the Direct LDL[TM] test and
immunobiologicals. Total Pharmaceutical product sales declined 55% in the first
quarter of 1997 as compared to 1996 as a result of a significant decline in
sales of Melatonin, despite a 48% increase in sales of pharmaceutical grade HA
powder and other pharmaceutical products. Melatonin sales began to decline
materially in the second half of 1996 due to reduced market demand, and Genzyme
General does not expect that Melatonin sales will return to the levels
experienced during the first half of 1996.
Revenues for Genzyme Genetics increased 14% in the first quarter of 1997 as
compared to the first quarter of 1996. The increase was due to higher unit
volumes attributable to the acquisition of Genetrix and to changes in service
pricing and was offset by the loss of revenue from GDI, which was sold in
November 1996. GDI contributed $3.5 million in revenues in the first quarter of
1996. Genetrix service revenues for the first quarter of 1996, which are not
included in the results of Genzyme General, were $5.4 million.
-24-
<PAGE> 25
International sales for the three months ended March 31, 1997 declined to 33%
from 37% for the first quarter of 1996, as the addition of domestic sales by
DSP offset a 41% increase in the combined international sales of Ceredase[R]
and Cerezyme[R] enzymes.
Revenues from research and development contracts for the three months ended
March 31, 1997 were $1.7 million, as compared to $6.1 million for the
corresponding period in 1996, a decrease of 72%, due primarily to the absence of
revenue from Neozyme II, which was acquired by Genzyme in the fourth quarter of
1996 and which provided $5.4 million for the first quarter of 1996. Excluding
the effect of the acquisition of Neozyme II, research and development revenue
increased by 162% in the first quarter of 1997 as compared to the same period of
1996, due primarily to an increase in research and development efforts related
to the AT III program performed by Genzyme General on behalf of GTC.
MARGINS AND OPERATING EXPENSES. Gross margins were 61% for the quarter ended
March 31, 1997, level with the first quarter of 1996. Genzyme General provides
a broad range of health care products and services, resulting in a range of
gross margins depending on the particular market conditions of each product or
service. Product margins were 64% for the quarter ended March 31, 1997, level
with the first quarter of 1996. Service margins increased to 37% for the three
months ended March 31, 1997 from 36% for the corresponding period in 1996 due
to completion of the consolidation of Genzyme Genetics with Genetrix, the sale
of GDI, and the resulting elimination of redundant facilities and staffing.
Genzyme General expects service margins to continue to improve in 1997 due to
the continued realization of economies of scale from the consolidation of
testing laboratories.
SG&A expenses for the three months ended March 31, 1997 were $40.1 million, an
increase of 31% over the same period in 1996. The increase was due primarily to
the acquisition of Genetrix and DSP and increased staffing in support of the
growth in several product lines, most notably in support of the North American
introduction of Seprafilm[TM]. DSP added $7.4 million in SG&A expenses for the
first quarter of 1997. For the first quarter of 1996, DSP incurred SG&A expenses
of $8.7 million which are not included in the results of Genzyme General.
Charges for the amortization of intangibles increased to $3.2 million in the
first quarter of 1997, as compared to the same period of 1996 due to the
addition of acquired patents and tradenames and goodwill recorded as a result of
the acquisitions of Genetrix and DSP.
Research and development expenses for the three months ended March 31, 1997 were
$17.3 million, an increase of 13% over the same period in 1996 due to Genzyme
General's funding of the development costs of the AT III program being conducted
by GTC and increased spending on internal programs, most notably Thyrogen[R].
OTHER INCOME AND EXPENSES. Other income and expense decreased substantially due
to the combined effect of a decrease in investment income and an increase
in interest expense related to funds borrowed under the Company's revolving
credit facility. Investment income for the quarter ended March 31, 1997
decreased to $2.3 million from $3.9 million for the same period in 1996, due
primarily to lower average cash and investment balances. Interest expense for
the quarter ended March 31, 1997 was $2.3 million, as compared to $0.2 million,
for the same period of 1996. The increase resulted from interest on funds
borrowed in 1996 to finance portions of the acquisitions of DSP and Neozyme
II.
Genzyme General consolidates 100% of the losses generated by the Joint Venture
with GDP. For the quarter ended March 31, 1997, the Joint Venture incurred net
losses of approximately $0.7 million, due primarily to the costs associated with
the U.S. market introduction of Seprafilm[TM].
The tax provision for the quarter ended March 31, 1997 varies from the U.S.
statutory tax rate because of the provision for state income taxes, Genzyme
General's share of losses of subsidiaries which generate no current tax benefit,
tax credits and taxes on foreign earnings. The effective tax rate was 38.8% for
the three months ended March 31, 1997, a slight increase over the corresponding
period in 1996. The allocated tax benefit generated by GTR of $4.5 million and
$3.5 million, respectively, reduced Genzyme General's tax rate for the three
months ended March 31, 1997 and 1996 to 22.4% and 24.9%, respectively.
-25-
<PAGE> 26
GENZYME TISSUE REPAIR
REVENUES. Service revenues for the three months ended March 31, 1997 and 1996
were $2.0 million and $1.7 million, respectively, an increase of 16%. Sales of
the Carticel[R] Service were $1.1 million for the three months ended March 31,
1997 as compared to $0.5 million for the comparable period in 1996. The growth
in Carticel[R] sales is primarily attributable to a continued increase in the
number of surgeons trained in the procedure utilizing the Service. Sales of
Epicel[SM] Service declined 31% to $0.9 million in the three months ended March
31, 1997 from $1.2 million in the same period of 1996 due to a decrease in the
number of burn incidents requiring the service.
MARGINS AND OPERATING EXPENSES. Genzyme Tissue Repair's cost of services sold
exceeded revenue for the first quarter of 1997 and 1996, by 44% and 42%,
respectively, due to increased spending for the expansion of manufacturing
capacity.
SG&A expenses were $6.5 million for the three months ended March 31, 1997, an
increase of 5% over the same period in 1996. The increase resulted from
staffing and expenses to support revenue growth and increased surgeon training
costs related to the Carticel[R] Service.
Genzyme Tissue Repair incurs direct SG&A charges as well as an SG&A charge,
based on actual amounts incurred, from Genzyme General for SG&A work performed
by Genzyme General on behalf of Genzyme Tissue Repair. In the first quarter of
1997, $2.4 million of SG&A services were provided by Genzyme General as compared
to $3.6 million in the first quarter of 1996. The 33% reduction in SG&A services
provided by Genzyme General was offset by a 58% increase in direct SG&A expenses
incurred by GTR.
Research and development expenses were $2.8 million and $2.4 million for the
three months ended March 31, 1997 and 1996, respectively, an increase of 17%.
Increased spending associated with the TGF(beta)2 program was offset by a
decline in costs related to the Vianain[R] program. In the first quarter of
1997, $1.9 million of research and development services were provided to
Genzyme Tissue Repair by Genzyme General, compared to $1.7 million in the first
quarter of 1996.
OTHER INCOME AND EXPENSES
Investment income declined to $0.2 million in the first quarter of 1997 from
$0.6 million in the same period of 1996, due primarily to lower average cash
balances.
Interest expense for the first quarter of 1997 increased to $377,000 from
$4,000 in the first quarter of 1996, as a result of a 20% increase in
borrowings under the Company's revolving credit facility and the addition of
$11.5 million of debt from the private placement of GTR's 5% convertible notes
in February 1997 (see "Liquidity and Capital Resources").
In the first quarter of 1997, Genzyme Tissue Repair provided $1.8 million of
funding to, and realized a net loss of $1.6 million from, Diacrin/Genzyme LLC,
the joint venture established between Genzyme Tissue Repair and Diacrin, Inc.
to develop and commercialize products and processes using porcine fetal cells
for the treatment of Parkinson's disease and Huntington's disease in humans.
-26-
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
GENZYME CORPORATION AND SUBSIDIARIES
As of March 31, 1997, Genzyme had cash, cash equivalents and marketable
securities of $182.0 million, a decline of $5.9 million from December 31, 1996,
primarily due to payment of $104.5 million of debt and capital lease obligations
in the first quarter, of which $100.0 million represents a reduction in
Genzyme's outstanding debt under the Company's $225.0 million revolving credit
facility. At March 31, 1997, $118.0 million was outstanding under the revolving
credit facility, of which $100.0 million was allocated to Genzyme General and
$18.0 million was allocated to Genzyme Tissue Repair. Genzyme generated $6.4
million of cash from operations. Investing activities generated $10.6 million of
cash in the first quarter of 1997. Turnover of the investment portfolio provided
$19.4 million of cash, of which $4.3 million was used to finance manufacturing
capacity expansion, $1.8 million was allocated to Genzyme Tissue Repair to fund
its investment in Diacrin/Genzyme LLC, $1.7 million of funds were distributed to
PharmaGenics pursuant to the terms of a pre-acquisition credit facility provided
to PharmaGenics by Genzyme and $1.0 million was used to fund other noncurrent
assets. Proceeds from the exercise of stock options, warrants and stock issued
through the employee stock purchase plan were $91.9 million for the first
quarter of 1997 and included $87.0 million of cash related to certain warrants
exercised immediately prior to December 31, 1996 and classified as Other current
assets in Genzyme's balance sheet as of December 31, 1996.
As of March 31, 1997, Genzyme had accounts receivable of $119.7 million, net of
an allowance for doubtful accounts, an increase of $2.9 million from December
31, 1996 due to the growth in each of Genzyme's businesses. Genzyme had
inventories of $129.6 million, an increase of $4.3 million over December 31,
1996. The increase was due primarily to support of increased business
operations, most notably in the Specialty Therapeutics business unit
inventories as a result of increased production of Cerezyme[R] and in the
Surgical Products business unit in support of the introduction of Seprafilm[TM]
in the North American marketplace.
GENZYME GENERAL
As of March 31, 1997, Genzyme General had cash, cash equivalents and marketable
securities of $162.4 million, a decline of $9.3 million from December 31, 1996,
primarily due to payment of $104.5 million of debt and capital lease obligations
in the first quarter, of which $100.0 million represents a reduction in Genzyme
General's outstanding debt under the Company's revolving credit facility.
Genzyme General generated $15.6 million of cash from operations. Investing
activities generated $12.7 million of cash in the first quarter of 1997.
Turnover of the investment portfolio provided $19.1 million of cash, of which
$4.2 million was used to finance manufacturing capacity expansion and $1.7
million of funds were distributed to PharmaGenics pursuant to the terms of a
pre-acquisition credit facility provided to PharmaGenics by Genzyme and $0.5
million was used to fund other noncurrent assets. Proceeds from the exercise of
stock options, warrants and stock issued through the employee stock purchase
plan were $91.8 million for the first quarter of 1997 and included $87.0 million
of cash related to certain warrants exercised immediately prior to December 31,
1996 which were classified as Other current assets in Genzyme General's balance
sheet as of December 31, 1996. In the first quarter of 1997, $1.8 million of
Genzyme General's cash was allocated to Genzyme Tissue Repair to fund its
investment in Diacrin/Genzyme LLC.
As of March 31, 1997, Genzyme General had accounts receivable of $118.1
million, net of an allowance for doubtful accounts, and increase of $2.9
million from December 31, 1996 due to the growth in each of Genzyme General's
businesses. Genzyme General had inventories of $127.8 million, an increase of
$4.4 million over December 31, 1996. The increase was due primarily to support
of increased business operations, most notably in the Specialty Therapeutics
business unit inventories as a result of increased production of Cerezyme[R]
and in the Surgical Products business unit in support of the introduction of
Seprafilm[TM] in the North American marketplace.
Genzyme General expects that its available cash, investments and cash flow from
research contracts and product and service sales will be sufficient to finance
its planned operations and capital requirements for at least the foreseeable
future. Although Genzyme General currently has substantial cash resources, it
has committed to utilize a portion of its resources for certain purposes, such
as completing the market introduction of the Sepra Products in the United
States and Europe and making certain payments to third parties in connection
with strategic collaborations. Genzyme General's cash resources also will be
diminished upon repayment of amounts borrowed, plus accrued interest, under the
revolving facility and if its option to acquire the partnership interests in
GDP is exercised using cash to pay some or all the exercise price. In addition,
the liabilities or contingencies of Genzyme Tissue Repair affect Genzyme's
resources or financial condition and could affect the financial condition or
results of operations of Genzyme General. As a result, Genzyme may have to
obtain additional financing. There can be no assurance that such financing will
be available on terms reasonably acceptable to Genzyme.
-27-
<PAGE> 28
GENZYME TISSUE REPAIR
In the first quarter of 1997, Genzyme Tissue Repair used $9.2 million of cash
for operations. These expenditures were financed by the issuance of common stock
through exercises of stock options and warrants, through the issuance of the 5%
convertible note and the allocation of $1.8 million from Genzyme General as
funding for Genzyme Tissue Repair's investment in Diacrin/Gemzyme LLC. As of
March 31, 1997, $18 million of funds borrowed by Genzyme Tissue Repair in
December 1996 under the revolving credit facility remained outstanding. In
February 1997, Genzyme Tissue Repair raised $13 million through the private
placement of a 5% convertible note to an affiliate of Credit Suisse First Boston
due February 27, 2000. The note is convertible beginning May 29, 1997 into
shares of GTR stock, and beginning in August 1997, at a discount to the average
of the closing bid prices of the GTR Stock on the Nasdaq National Market for the
25 trading days immediately preceding the conversion date (the "Average GTR
Stock Price"). The discount will start at 2% beginning six months from the date
the note was issued and will increase to 11%, at various intervals, at 15 months
after the date of issue. Thereafter, the conversion price will be the lesser of
89% of the Average GTR Stock Price preceding the conversion date or the date 15
months after the date of issue. In the first quarter of 1997, Genzyme Tissue
Repair recorded $11.5 million of proceeds attributable to the value of the debt
and $1.5 million attributable to the value of the conversion feature (recorded
as an increase to division equity). The $11.5 million will be accreted to the
face value of the debt by a charge to earnings available to common stockholders
over the term of the initial 15 month conversion period.
Genzyme Tissue Repair does not expect its available cash and investments will be
sufficient to finance planned operations and capital requirements through the
end of 1997 and must raise significant additional capital in order to continue
operations at current levels. Genzyme Tissue Repair's plans to raise additional
capital include consideration of the sale of additional equity securities,
strategic alliances with third parties to fund further development and
marketing of the Carticel[R] Service and other business transactions that would
generate capital resources to assure continuation of Genzyme Tissue Repair's
operations and research programs. If these initiatives are not successful,
Genzyme Tissue Repair may be required to delay, scale back or eliminate certain
of its programs or to license third parties to commercialize technologies or
products that the division would otherwise undertake itself.
SUBSEQUENT EVENTS
In April 1997, the Genzyme Board voted, subject to approval of the stockholders,
to adopt an amendment to the Director Plan which would increase the number of
shares of GGD Stock and GTR Stock available for issuance under the Director Plan
by 33,600 shares and 30,000 shares, respectively, to 233,600 shares of GGD Stock
and 100,000 shares of GTR Stock.
On May 5, 1997, the General and Plastic Surgery Devices Panel of the FDA's
Medical Devices Advisory Committee recommended that Genzyme not be granted
approval to market Sepracoat[TM] coating solution for the reduction of
adhesions in abdominal and pelvic surgery. Sepracoat[TM] is a liquid
formulation of HA designed to reduce adhesion formation caused by indirect
trauma, such as incidental abrasions from tissue handling or tissue drying due
to exposure and is currently marketed in Europe by Genzyme. The panel agreed
that the product appears to be safe but indicated that Genzyme had not
presented sufficient evidence of clinical effectiveness. The panel's
recommendation will be considered in the FDA's final review of Genzyme's
premarket approval application for Sepracoat[TM]. The recommendation is not
binding on the FDA, but the agency usually follows the advice of its panels.
The panel's recommendation does not affect Seprafilm[TM], which received FDA
approval in August 1996 and is marketed globally. Genzyme is considering
options for further clinical studies of Sepracoat[TM], possibly in combination
with Seprafilm[TM].
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
-28-
<PAGE> 29
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 1997
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
On February 28, 1997, Genzyme Tissue Repair raised $13 million
through the private placement of a 5% convertible note (the "Note"), to
an affiliate of Credit Suisse First Boston due February 27, 2000.
Genzyme believes that the sale of the Note to a single purchaser
without general solicitation qualifies as a transaction by an issuer
not involving a public offering within the meaning of Section 4(2) of
the Securities Act of 1933. The Note is convertible beginning May 29,
1997 into shares of GTR stock and, beginning in August 1997, at a
discount to the average of the closing bid prices of the GTR Stock on
the Nasdaq National Market for the 25 trading days immediately
preceding the conversion date (the "Average GTR Stock Price"). The
discount will start at 2% beginning six months from the date of the
Note was issued and will increase to 11% at 15 months after the date of
issue. Thereafter, the conversion price will be the lesser of 89% of
the Average GTR Stock Price preceding the conversion date or the
date 15 months after the date of issue.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Restated Articles of Organization of Genzyme, as
amended. Filed herewith.
10.1 Amended and Restated Joint Venture Agreement between
Genzyme and GDP. Filed as Exhibit 10.1 to GDP's report
on Form 10-Q for the quarter ended March 31, 1997 (File
No. 0-18554) and incorporated herein by reference.
10.2 Tax Indemnification Agreement. Filed as Exhibit 10.2 to
GDP's report on Form 10-Q for the quarter ended March
31, 1997 (File No. 0-18554) and incorporated herein by
reference.
10.3 Marketing and Distribution Agreement. Filed as Exhibit
10.3 to GDP's report on Form 10-Q for the quarter ended
March 31, 1997 (File No. 0-18554) and incorporated
herein by reference.
11 Computation of weighted average shares used in computing
earnings per share amounts. Filed herewith
27 Financials Data Schedule for Genzyme Corporation (for
EDGAR filing purposes only). Filed herewith.
(b) Reports on Form 8-K
On February 4, 1997, the Company filed a current report on
form 8-K to provide certain pro forma financial information
as of September 30, 1996 for Genzyme and Genzyme General and
historical financial statements for Neozyme II.
-29-
<PAGE> 30
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 1997
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GENZYME CORPORATION
DATE: May 15, 1997 By: /s/ David J. McLachlan
----------------------------------
David J. McLachlan
Duly Authorized Officer and
Executive Vice President, Finance;
Chief Financial Officer
-30-
<PAGE> 31
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, MARCH 31, 1997
EXHIBIT INDEX
Exhibit
No. Description Page No.
- ------ ----------- -------
3.1 Restated Articles of Organization, as amended. Filed
herewith. 32
10.1 Amended and Restated Joint Venture Agreement between
Genzyme and GDP. Filed as Exhibit 10.1 to GDP's report
on Form 10-Q for the quarter ended March 31, 1997 and
incorporated herein by reference.
10.2 Tax Indemnification Agreement. Filed as Exhibit 10.2 to
GDP's report on Form 10-Q for the quarter ended March 31,
1997 and incorporated herein by reference.
10.3 Marketing and Distribution Agreement. Filed as Exhibit
10.3 to GDP's report on Form 10-Q for the quarter ended
March 31, 1997 and incorporated herein by reference.
11 Computation of weighted average shares used in computing
earnings per share amounts. Filed herewith 59
27 Financials Data Schedule for Genzyme Corporation (for
EDGAR filing purposes only). Filed herewith. 61
-31-
<PAGE> 1
EXHIBIT 3.1
<PAGE> 2
Federal Identification
Number: 06-1047163
----------
THE COMMONWEALTH OF MASSACHUSETTS
William Francis Galvin
Secretary of the Commonwealth
One Ashburton Place, Boston, Massachusetts 02108-1512
RESTATED ARTICLES OF ORGANIZATION
(GENERAL LAWS, CHAPTER 156B, SECTION 74)
We, Henri A. Termeer, *President and Peter Wirth, *Clerk of Genzyme Corporation
located at One Kendall Square, Cambridge, MA 02139 do hereby certify that the
following Restatement of the Articles of Organization was duly adopted at a
meeting held on June 6, 1996 by a vote of the directors
_____ shares of _________________ of _________ shares outstanding
_____ shares of _________________ of _________ shares outstanding, and
_____ shares of _________________ of _________ shares outstanding,
**being at least a majority of each type, class or series outstanding and
entitled to vote thereon:/**being at least two-thirds of each type, class or
series outstanding and entitled to vote thereon and of each type, class or
series of stock whose rights are adversely affected thereby:
ARTICLE I
The name of the corporation is:
GENZYME CORPORATION
ARTICLE II
The purpose of the corporation is to engage in the following business
activities:
TO DEVELOP, MANUFACTURE AND SELL HUMAN HEALTH CARE PRODUCTS AND TO ENGAGE
GENERALLY IN ANY BUSINESS THAT MAY LAWFULLY BE CARRIED ON BY A CORPORATION
FORMED UNDER CHAPTER 156B OF THE GENERAL LAWS OF MASSACHUSETTS.
*Delete the inapplicable words. **Delete the inapplicable clause.
1For amendments adopted pursuant to Chapter 156B, Section 70.
2For amendments adopted pursuant to Chapter 156B, Section 71.
<PAGE> 3
ARTICLE III
<TABLE>
State the total number of shares and par value, if any, of each class of stock
which the corporation is authorized to issue:
<CAPTION>
================================================================================
WITHOUT PAR VALUE WITH PAR VALUE
- --------------------------------------------------------------------------------
TYPE NUMBER OF TYPE NUMBER OF PAR VALUE
SHARES SHARES
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Common: Common: 240,000,000* $.01
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Preferred: Preferred: 10,000,000** $.01
- --------------------------------------------------------------------------------
================================================================================
<FN>
*of which 200,000,000 shares shall have been designated as General Division
Common Stock and 40,000,000 shares have been designated as Tissue Repair
Division Common Stock
**of which 1,000,000 shares have been designated as Series A Junior
Participating Preferred Stock and 400,000 shares have been designated as Series
B Junior Participating Preferred Stock.
</TABLE>
ARTICLE IV
If more than one class of stock is authorized, state a distinguishing
designation for each class. Prior to the issuance of any shares of a class, if
shares of another class are outstanding, the corporation must provide a
description of the preferences, voting powers, qualifications, and special or
relative rights or privileges of that class and of each other of which shares
are outstanding and of each series then established within any class.
SEE CONTINUATION PAGES
ARTICLE V
The restrictions, if any, imposed by the Articles of Organization upon the
transfer of shares of stock of any class are:
NONE
ARTICLE VI
**Other lawful provisions, if any, for the conduct and regulation of the
business and affairs of the corporation, for its voluntary dissolution, or for
limiting, defining, or regulating the powers of the corporation, or of its
directors or stockholders, or of any class of stockholders:
SEE CONTINUATION PAGES
**If there are no provisions state "None".
<PAGE> 4
NOTE: The preceding six (6) articles are considered to be permanent and may
ONLY be changed by filing appropriate Articles of Amendment.
ARTICLE VII
The effective dat of the Restated Articles of Organization of the corporation
shall be the date approved and filed by the Secretary of the Commonwealth. If a
LATER effective date is desired, specify such date which shall nor be more than
THIRTY DAYS after the date of filing.
ARTICLE VIII
THE INFORMATION CONTAINED IN ARTICLE VII IS NOT A PERMANENT PART OF THE ARTICLES
OF ORGANIZATION.
a. The street address (post office boxes are not acceptable) of the
principal office of the Corporation in MASSACHUSETTS is:
One Kendall Square, Cambridge, MA 02139
<TABLE>
b. The name, residential address and post office address of each director
and officer is as follows:
<CAPTION>
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS
<S> <C> <C>
President:
Henri A. Termeer 65-3 Commercial Wharf c/o Genzyme Corporation
Boston, MA 02110 One Kendall Square
Cambridge, MA 02139
Treasurer:
Evan M. Lebson 5 Arbetter Drive same as above
Framnigham, MA 01701
Clerk:
Peter Wirth 37 Hancock Street same as above
Boston, MA 02114
Directors:
Henri A. Termeer same as above same as above
Douglas A. Berthiaume 114 Cara Drive same as above
N. Andover, MA 01845
Robert J. Carpenter 9 Lowell Road same as above
Wellesley, MA 02181
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
Henry R. Lewis 35 Clover Street same as above
Belmont, MA 02178
Constantine Anagstopoulos 29 Portland Drive same as above
St. Louis, MO 63131
Henry E. Blair 2580 Main Street same as above
Barnstable, MA 02630
Charles L. Cooney 35 Chestnut Street same as above
Brookline, MA 02139
<FN>
c. The fiscal year (i.e. tax year) of the corporation shall end on the last
day of the month of: December
d. The name and business address of the resident agent, if any, of the
corporation is: NONE
** We further certify that the foregoing Restated Articles of Organization
affect no amendments to the Articles of Organization of the corporation as
heretofore amended, except amendments to the following article. Briefly describe
amendments below: NONE
</TABLE>
SIGNED UNDER THE PENALTIES OF PERJURY, this 25th day of July, 1996,
/s/ Henri A. Termeer President
--------------------------------
/s/ Peter Wirth Clerk
--------------------------------
<PAGE> 6
ARTICLE IV
DESCRIPTION OF CAPITAL STOCK
----------------------------
A. AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of capital stock which the
Corporation shall be authorized to issue is two hundred fifty million
(250,000,000) shares, consisting of two hundred million (200,000,000) shares of
General Division Common Stock, $.01 par value per share (the "General Stock"),
forty million (40,000,000) shares of Tissue Repair Division Common Stock, $.01
par value per share (the "TR Stock"), and ten million (10,000,000) shares of
Preferred Stock, $.01 par value per share (the "Preferred Stock").
On December 16, 1994, the effective date of the amendment to these
Articles that created the Tissue Repair Division Common Stock, and without any
further action on the part of the Corporation or its stockholders, each share of
the Corporation's Common Stock then issued and outstanding was redesignated as
one fully paid and nonassessable share of General Stock.
B. DESCRIPTION OF THE GENERAL STOCK AND THE TR STOCK
A description of the General Stock and the TR Stock and a statement of
their respective preferences, voting powers, qualifications and special or
relative rights or privileges is as follows:
1. DIVIDENDS AND DISTRIBUTIONS
Subject to the express terms of any outstanding series of Preferred
Stock, dividends may be declared and paid upon the General Stock or the TR Stock
upon the terms provided for below with respect to each such class, in such
amounts and at such times as the Board of Directors may determine.
A. DIVIDENDS ON GENERAL STOCK. Dividends on General Stock may
be declared and paid only out of the lesser of (a) funds of the Corporation
legally available therefor and (b) the Available General Dividend Amount.
B. DIVIDENDS ON TR STOCK. Dividends on TR Stock may be
declared and paid only out of the lesser of (a) funds of the Corporation legally
available therefor and (b) the Available Tissue Repair Dividend Amount.
<PAGE> 7
C. DISCRIMINATION BETWEEN CLASSES OF GENERAL STOCK. Subject to
the provisions of paragraphs IV.B.1.a. and IV.B.1.b., the Board of Directors
may, in its sole discretion, declare and pay dividends exclusively on either
class of common stock, or both, in equal or unequal amounts, notwithstanding the
amounts available for the payment of dividends on each class, the respective
voting and liquidation rights of each class, the amounts of prior dividends
declared on each class or any other factor.
2. EXCHANGE OF TR STOCK. Shares of TR Stock are subject to
exchange upon the terms and conditions set forth below:
A. OPTIONAL EXCHANGE OF TR STOCK. At any time after the later
of (i) December 31, 1995 and (ii) equity investments in TR Stock by investors
(other than purchasers of TR Stock pursuant to the Corporation's stock option,
stock purchase or other employee benefit plans), the proceeds of which are
allocated to the Tissue Repair Division, or the allocation of cash or cash
equivalents from the General Division to the Tissue Repair Division, or any
combination of such equity investments and allocations, aggregating not less
than ten million dollars ($10,000,000), the Board of Directors may declare that
each of the outstanding shares of TR Stock shall be exchanged, on an Exchange
Date set forth in a notice to holders of TR Stock pursuant to paragraph
IV.B.2.c.(1), for (a) a number of fully paid and nonassessable shares of General
Stock (calculated to the nearest five decimal places) equal to (1) 130% of the
Fair Market Value of one share of the TR Stock (the "Exchange Amount") as of the
date of the first public announcement by the Corporation (the "Announcement
Date") of such exchange divided by (2) the Fair Market Value of one share of
General Stock as of such Announcement Date or (b) cash equal to the Exchange
Amount, or (c) any combination of General Stock and cash equal to the Exchange
Amount as determined by the Board of Directors.
B. MANDATORY EXCHANGE OF TR STOCK. In the event of the
Disposition, in one transaction or a series of related transactions, by the
Corporation of all or substantially all of the properties and assets allocated
to the Tissue Repair Division (other than in connection with the Disposition by
the Corporation of all or substantially all of its properties and assets in one
transaction or a series of related transactions) to any person, entity or group
(other than (x) any entity in which the Corporation, directly or indirectly,
owns all of the equity interest or (y) any entity formed at the direction of the
Corporation in connection with obtaining financing for the programs or products
of the Tissue Repair Division under an arrangement which provides the
Corporation with an option to reacquire such properties and assets or retain or
obtain substantial manufacturing or marketing rights with respect to any
products developed by such entity, in each case for the benefit of the Tissue
Repair Division), the Corporation shall, on or prior to the first Business Day
after the 90th day following the consummation of such Disposition, exchange each
outstanding share of TR Stock for (a) a number of fully paid and nonassessable
shares of General Stock (calculated to the nearest five decimal places) equal to
(1) the Exchange Amount as of the Announcement Date of such Disposition divided
by (2) the Fair Market Value of one share of General Stock as of such
Announcement Date or (b) cash equal to the Exchange Amount, or (c) any
combination of General Stock and cash equal to the Exchange Amount as determined
by the Board of Directors. For purposes of this paragraph:
<PAGE> 8
(1) "substantially all of the properties and assets
allocated to the Tissue Repair Division" shall mean a portion of the properties
and assets allocated to the Tissue Repair Division (A) that represents at least
80% of the then-current fair value (as determined by the Board of Directors) of,
or (B) to which is attributable at least 80% of the aggregate revenues for the
immediately preceding twelve fiscal quarterly periods of the Corporation derived
from, the properties and assets allocated to the Tissue Repair Division; and
(2) in the case of a Disposition of properties and
assets in a series of related transactions, such Disposition shall not be deemed
to have been consummated until the consummation of the last of such
transactions.
C. GENERAL EXCHANGE PROVISIONS. In the event of any
exchange of TR Stock for shares of General Stock pursuant to paragraph IV.B.2.a.
or IV.B.2.b., the following provisions shall apply:
(1) The Corporation shall cause to be given to each
record holder of shares of the TR Stock a notice stating (a) that shares of
TR Stock shall be exchanged for shares of General Stock or for cash or a
combination thereof, (b) the date on which the exchange shall become effective
(the "Exchange Date"), (c) the number of shares of General Stock or cash or
combination thereof to be received by such holder with respect to each share of
the TR Stock held by such holder, including details as to the calculation
thereof and (d) the place or places where certificates for shares of TR Stock,
properly endorsed or assigned for transfer are to be surrendered for delivery of
certificates for shares of General Stock or cash or a combination thereof
(unless the Corporation shall waive such requirement). Such notice shall be sent
by first-class mail, postage prepaid, not less than 30 nor more than 60 days
prior to the Exchange Date to each holder of shares of TR Stock at such holder's
address as the same appears on the stock transfer books of the Corporation.
Neither the failure to mail such notice to any particular holder of shares TR
Stock nor any defect therein shall affect the sufficiency thereof with respect
to any other holder of shares of TR Stock.
(2) The Corporation shall not be required to issue or
deliver fractional shares of General Stock to any holder of shares of TR
Stock upon any such exchange. If more than one share of TR Stock shall be held
by the same holder of record, the Corporation shall aggregate the number of
shares of General Stock that shall be issuable to such holder upon any such
exchange. If the total number of shares of General Stock to be so issued to any
holder of record of shares of TR Stock includes a fraction, the Corporation
shall, if such fraction is not issued or delivered to such holder, either
arrange for the disposition of such fraction by or on behalf of such holder or
pay the fair value of such fraction, based upon the Fair Market Value of the
General Stock on the Exchange Date.
(3) No adjustments in respect of dividends shall be
made upon the exchange of any shares of TR Stock; provided, however, that
if the Exchange Date shall be subsequent to the record date for determining
holders of TR Stock entitled to the payment of a dividend or other distribution
thereon or with respect thereto, the holders of shares of TR
<PAGE> 9
Stock at the close of business on such record date shall be entitled to receive
the dividend or other distribution payable on or with respect to such shares on
the date set for payment of such dividend or other distribution, notwithstanding
the exchange of such shares.
(4) Before any holder of shares of TR Stock shall be
entitled to receive certificates representing shares of General Stock or
cash or a combination thereof to be received by such holder with respect to the
exchange of such shares of TR Stock, such holder shall surrender at such place
as the Corporation shall specify certificates for such shares of TR Stock,
properly endorsed or assigned for transfer (unless the Corporation shall waive
such requirement). The Corporation will as soon as practicable after such
surrender of certificates representing such shares of TR Stock deliver to the
person for whose account such shares of TR Stock were so surrendered, or to the
nominee or nominees of such person, certificates representing the number of
shares of General Stock or cash or a combination thereof to which such person
shall be entitled as aforesaid, together with any fractional share payment
contemplated by paragraph IV.B.2.c.(2).
(5) From and after the Exchange Date, all rights of
a holder of shares of TR Stock shall cease except for the right, upon
surrender of the certificates representing such shares of TR Stock, to receive
certificates representing shares of General Stock or cash or a combination
thereof, together with any fractional share payment contemplated by paragraph
IV.B.2.c.(2), and rights to dividends as provided in paragraph IV.B.2.c.(3). No
holder of a certificate that immediately prior to the Exchange Date represented
shares of TR Stock shall be entitled to receive any dividend or other
distribution with respect to the General Stock to be issued in exchange until
surrender of such holder's certificate for a certificate or certificates
representing shares of General Stock (unless the Corporation shall waive such
requirement). Upon such surrender, there shall be paid to the holder the amount
of any dividends or other distributions (without interest) which theretofore
became payable with respect to a record date after the Exchange Date, but that
were not paid by reason of the foregoing, with respect to the number of shares
of General Stock represented by the certificate or certificates issued upon such
surrender. From and after the Exchange Date, the Corporation shall, however, be
entitled to treat the certificates for TR Stock that have not yet been
surrendered for exchange as evidencing the ownership of the number of shares of
General Stock for which the shares of TR Stock represented by such certificates
shall have been exchanged, notwithstanding the failure to surrender such
certificates.
(6) The Corporation will pay any and all documentary,
stamp or similar issue or transfer taxes that may be payable in respect of the
issue or delivery of any shares of General Stock in exchange for shares of TR
Stock pursuant hereto. The Corporation shall not, however, be required to pay
any tax that may be payable in respect of any transfer involved in the issue and
delivery of any shares of General Stock issued in exchange in a name other than
that in which the shares of TR Stock so exchanged were registered and no such
issue or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of any such tax, or has established
to the satisfaction of the Corporation that such tax has been paid.
<PAGE> 10
(7) After the Exchange Date, any share of TR Stock
issued upon conversion or exercise of any Convertible Security shall,
immediately upon issuance pursuant to such conversion or exercise and without
any notice or any other action on the part of the Corporation or its Board of
Directors or the holder of such share of TR Stock, be exchanged for the number
of shares of General Stock or cash or combination thereof (together with any
payments in lieu of fractional shares or dividends, if any) that a holder of
such Convertible Security would have been entitled to receive pursuant to the
terms of such Convertible Security had such terms provided that the conversion
privilege in effect immediately prior to any exchange by the Corporation of any
shares of TR Stock for shares of any other capital stock of the Corporation
would be adjusted so that the holder of any such Convertible Security thereafter
surrendered for conversion would be entitled to receive the number of shares of
capital stock of the Corporation he or she would have owned immediately
following such action had such Convertible Security been converted immediately
prior to such exchange. The foregoing provisions shall not apply to the extent
that equivalent adjustments are otherwise made pursuant to the provisions of
such Convertible Security.
3. VOTING RIGHTS
A. GENERAL STOCK. The holders of General Stock, voting
together with the holders of TR Stock as a single class of stock, shall have the
exclusive right to vote for the election of directors and on all other matters
requiring action by the stockholders or submitted to the stockholders for
action, except as may be determined by the Board of Directors in establishing
any series of Preferred Stock or as may otherwise be required by law. Each share
of the General Stock shall entitle the holder thereof to one vote.
B. TR STOCK. The holders of TR Stock, voting together with the
holders of General Stock as a single class of stock, shall have the exclusive
right to vote for the election of directors and on all other matters requiring
action by the stockholders or submitted to the stockholders for action, except
as may be determined by the Board of Directors in establishing any series of
Preferred Stock or as may otherwise be required by law. Each share of TR Stock
shall entitle the holder thereof to .29 votes from the Effective Date through
December 31, 1996. On January 1, 1997 and on each January 1 every two years
thereafter, the number of votes to which the holder of each share of TR Stock
shall be entitled shall be adjusted and fixed for two-year periods to equal the
quotient (expressed as a decimal and rounded to the nearest two decimal places)
obtained by dividing (i) the Fair Market Value of one share of TR Stock by (ii)
Fair Market Value of one share of General Stock as of such date. If no shares of
General Stock are outstanding on such date, or if shares of TR Stock are
entitled to vote separately as a class, each share of TR Stock shall have one
vote.
C. VOTING OF CONTROLLED SHARES. Shares of any class of common
stock held by a corporation or other entity controlled by the Corporation (other
than an employee benefit plan) shall be voted on any proposal requiring a vote
of the holders of such class in the same proportion as votes are cast for or
against such proposal by all other holders of such class.
<PAGE> 11
D. SPECIAL VOTING RIGHTS. The Corporation shall not, without
approval by the holders of the affected class of common stock at a meeting
at which a quorum is present and the votes cast in favor of the proposal exceed
those cast against:
(1) allow any proceeds from the Disposition of the
properties or assets allocated to any Division represented by such class of
common stock to be used in the business of any other Division not represented by
such class of common stock without fair compensation being allocated to the
Division whose properties or assets are disposed of as determined by the Board
of Directors;
(2) allow any properties or assets allocated to any
Division represented by a class of common stock to be used in the business
of any other Division not represented by such class of common stock or for the
declaration or payment of any dividend or distribution on any such other class
of common stock without fair compensation being allocated to the Division to
which such properties or assets were allocated as determined by the Board of
Directors;
(3) issue, sell or otherwise distribute shares of
either class of common stock without allocating the proceeds or other
benefits of such issuance, sale or distribution to the Division represented by
such class of common stock; PROVIDED, HOWEVER, that the Corporation may without
such approval issue General Designated Shares and TR Designated Shares;
(4) change the rights or preferences of any class of
common stock so as to affect the class adversely; or
(5) effect any merger or business combination
involving the Corporation as a result of which (a) the holders of all
classes of common stock of the Corporation shall no longer own, directly or
indirectly, at least fifty percent (50%) of the voting power of the surviving
corporation and (b) the holders of all classes of common stock of the
Corporation do not receive the same form of consideration, distributed among
such holders in proportion to the Market Capitalization of each class of common
stock as of the date of the first public announcement of such merger or business
combination.
4. LIQUIDATION, DISSOLUTION OR WINDING UP
Upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the rights of the holders of General Stock and TR Stock
shall be as follows:
a. After the Corporation has satisfied or made provision for
its debts and obligations and for the payment to the holders of shares of any
class or series of capital stock having preferential rights to receive
distributions of the net assets of the Corporation (including any accumulated
and unpaid dividends), the holders of General Stock and TR Stock shall be
entitled to receive the net assets of the Corporation remaining for
distribution, on a per share basis in proportion to the respective liquidation
units per share of such class. Each share of General Stock shall have one
liquidation unit and each share of TR Stock
<PAGE> 12
shall, subject to paragraph b. below, have the number of liquidation units
equal to the number of votes to which one share of TR Stock is entitled on the
Effective Date.
b. For the purposes of paragraph IV.B.4.a., any merger or
business combination involving the Corporation or any sale of all or
substantially all of the assets of the Corporation shall not be treated as a
liquidation.
5. ADJUSTMENTS RELATIVE TO VOTING RIGHTS AND LIQUIDATION
If after the Effective Date, the Corporation shall in any manner
subdivide (by stock split, reclassification or otherwise) or combine (by reverse
stock split, reclassification or otherwise) the outstanding shares of General
Stock or TR Stock, or pay a dividend or make a distribution in shares of any
class of common stock to holders of such class, the per share voting rights and
the liquidation units of TR Stock shall be appropriately adjusted so as to avoid
dilution in the aggregate voting and liquidation rights of either class. The
issuance by the Corporation of shares of any class of common stock (whether by a
dividend or otherwise) to the holders of any other class of common stock shall
not require adjustment pursuant to this paragraph.
6. RANK
The General Stock and TR Stock shall rank junior with respect to the
payment of dividends and the distribution of assets to all series of the
Corporation's Preferred Stock that specifically provide that they shall rank
prior to the General Stock and TR Stock. Nothing herein shall preclude the Board
from creating any series of Preferred Stock ranking on a parity with or prior to
the General Stock and TR Stock as to the payment of dividends or the
distribution of assets.
7. FRACTIONAL SHARES
The General Stock and the TR Stock may be issued in fractions of a
share which shall entitle the holder, in proportion to such holder's fractional
shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of the
General Stock and the TR Stock, respectively.
8. DEFINITIONS
As used in these Articles of Organization, the following terms shall
have the following meanings (with terms defined in the singular having
comparable meaning when used in the plural and vice versa), unless another
definition is provided or the context otherwise requires:
a. "Available General Dividend Amount," on any date, shall
mean the greater of:
(a) the excess of
<PAGE> 13
(i) the greater of (x) the fair value on such date of
the net assets of the General Division and (y) an amount equal to
$335,378,000 (stockholders' equity allocated to the General Division at June 30,
1994), such dollar amount to be increased or decreased, as appropriate, to
reflect, after June 30, 1994, (A) the Earnings Attributable to the General
Division, (B) any dividends or other distributions (including by
reclassification or exchange) declared or paid with respect to, or repurchases
or issuances of, any shares of General Stock or any other class of capital stock
attributed to the General Division, but excluding dividends or other
distributions paid in shares of General Stock to the holders thereof or in
shares of any other class of capital stock attributed to the General Division to
the holders thereof, and (C) any other adjustments to the stockholders' equity
of the General Division made in accordance with generally accepted accounting
principles, over
(ii) the sum of (x) the aggregate par value of all
outstanding shares of General Stock and any other class of capital stock
attributed to the General Division and (y) unless these Articles of Organization
permit otherwise, the aggregate amount that would be needed to satisfy any
preferential rights to which holders of all outstanding Preferred Stock
attributed to the General Division are entitled upon dissolution of the
Corporation in excess of the aggregate par value of such Preferred Stock,
provided that such excess shall be reduced by any amount necessary to enable the
General Division to pay its debts as they become due, and
(b) the amount legally available for the payment of dividends
determined in accordance with Massachusetts law applied as if the General
Division were a separate corporation.
b. "Available Tissue Repair Dividend Amount," on any date,
shall mean the greater of:
(a) the excess of
(i) the greater of (x) the fair value on such date of
the net assets of the Tissue Repair Division and (y) an amount equal to
$28,712,000 (stockholders' equity allocated to the Tissue Repair Division at
June 30, 1994), such dollar amount to be increased or decreased, as appropriate,
to reflect, after June 30, 1994, (A) the Earnings Attributable to the Tissue
Repair Division, (B) any dividends or other distributions (including by
reclassification or exchange) declared or paid with respect to, or repurchases
or issuances of, any shares of TR Stock or any other class of capital stock
attributed to the Tissue Repair Division, but excluding dividends or other
distributions paid in shares of TR Stock to the holders thereof or in shares of
any other class of capital stock attributed to the Tissue Repair Division to the
holders thereof, and (C) any other adjustments to the stockholders' equity of
the Tissue Repair Division made in accordance with generally accepted accounting
principles, over
<PAGE> 14
(ii) the sum of (x) the aggregate par value of all
outstanding shares of TR Stock and any other class of capital stock
attributed to the Tissue Repair Division and (y) unless these Articles of
Organization permit otherwise, the aggregate amount that would be needed to
satisfy any preferential rights to which holders of all outstanding Preferred
Stock attributed to the Tissue Repair Division are entitled upon dissolution of
the Corporation in excess of the aggregate par value of such Preferred Stock,
provided that such excess shall be reduced by any amount necessary to enable the
Tissue Repair Division to pay its debts as they become due, and
(b) the amount legally available for the payment of dividends
determined in accordance with Massachusetts law applied as if the Tissue Repair
Division were a separate corporation.
c. "Business Day" shall mean each weekday other than any day
on which any relevant class of common stock is not traded on any national
securities exchange or the National Association of Securities Dealers Automated
Quotations National Market System or in the over-the-counter market.
d. "Convertible Securities" shall mean any securities
(including employee stock options) of the Corporation that are convertible
into or evidence the right to purchase any shares of any class of common stock.
e. "Disposition" shall mean the sale, transfer, assignment or
other disposition (whether by merger, consolidation, sale or contribution of
assets or stock or otherwise) of any properties or assets, other than by pledge,
hypothecation or grant of any security interest in such properties or assets.
f. "Earnings Attributable" to a particular Division for any
period, shall mean the net income or loss of such Division for such period (or
for the fiscal periods of the Corporation commencing prior to the Effective Date
and after June 30, 1994, pro forma net income or loss of such Division as if the
Effective Date were June 30, 1994) determined in accordance with generally
accepted accounting principles, with all income and expenses of the Corporation
being allocated between Divisions in a reasonable and consistent manner in
accordance with policies adopted by the Board of Directors; PROVIDED, HOWEVER,
that as of the end of any fiscal quarter of the Corporation, any projected
annual tax benefit attributable to any Division that cannot be utilized by such
Division to offset or reduce its allocated tax liability may be allocated to any
other Division without any compensating payment or allocation.
g. "Effective Date" shall mean the date on which this
Amendment to the Articles of Organization shall become effective.
h. "Exchange Date" shall mean the date, if any, fixed for the
exchange of shares of TR Stock, as set forth in a notice to holders of TR
Stock pursuant to paragraph IV.B.2.c.(1).
<PAGE> 15
i. "Fair Market Value" as to shares of any class of stock
shall as of any date mean the average of the daily closing prices for the 20
consecutive trading days commencing on the 30th trading day prior to such date.
The closing price for each day shall be (x) if the shares of such class of stock
are listed or admitted to trading on a national securities exchange, the closing
price on the New York Stock Exchange Composite Tape (or any successor composite
tape reporting transactions on national securities exchanges) or, if such
composite tape shall not be in use or shall not report transactions in such
shares, the last reported sales price regular way on the principal national
securities exchange on which such shares are listed or admitted to trading
(which shall be the national securities exchange on which the greatest number of
shares of such class of stock has been traded during such consecutive trading
days), or, if there is no such sale on any such day, the mean of the bid and
asked prices on such day, or (y) if such shares are not listed or admitted to
trading on any such exchange, the closing price, if reported, or, if the closing
price is not reported, the mean of the closing bid and asked prices as reported
by the National Association of Securities Dealers Automated Quotations National
Market System or a similar source selected from time to time by the Corporation
for the purpose. In the event such closing prices are unavailable, Fair Market
Value shall be determined by the Board of Directors.
j. "General Division" shall mean, at any time, the
Corporation's interest in (i) all of the businesses, products, development
programs or research projects in which the Corporation or any of its
subsidiaries (or any of their predecessors or successors) is or has been
engaged, directly or indirectly, other than those allocated to the Tissue Repair
Division; and (ii) all assets and liabilities of the Corporation to the extent
allocated to any such businesses, products, development programs or research
projects in accordance with generally accepted accounting principles
consistently applied for all of the Corporation's business units. From and after
the date on which all of the outstanding shares of TR Stock are exchanged for
shares of General Stock, cash or a combination thereof, all of the businesses,
products, development programs, research projects, assets and liabilities of the
Tissue Repair Division shall be included in the General Division. The General
Division shall be represented by the General Stock.
k. "General Designated Shares" as of any date shall mean a
number of shares of General Stock that shall initially be zero, which
number shall be subject to adjustment as provided in the next sentence. The
number of General Designated Shares shall from time to time be
(i) adjusted as appropriate to reflect subdivisions
(by stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the General Stock and dividends or distributions of shares of
General Stock to holders of General Stock and other reclassifications of General
Stock,
(ii) decreased by (A) the number of any shares of
General Stock issued by the Corporation, the proceeds of which are
allocated to the Tissue Repair Division, (B) the number of any shares of General
Stock issued upon the exercise or conversion of Convertible Securities
attributed to the Tissue Repair Division, (C) the number of any shares of
General Stock issued by the Corporation as a dividend or distribution or by
<PAGE> 16
reclassification, exchange or otherwise to holders of TR Stock, and (D) the
number equal to the fair value (as determined by the Board of Directors) of
assets or properties allocated to the General Division that are reallocated to
the Tissue Repair Division (other than reallocations that represent sales at
fair value between such Divisions) divided by the Fair Market Value of one share
of General Stock as of such date, and
(iii) increased by (A) the number of any outstanding
shares of General Stock repurchased by the Corporation, the consideration
for which was allocated to the Tissue Repair Division, and (B) the number equal
to the fair value (as determined by the Board of Directors) of assets or
properties allocated to the Tissue Repair Division that are reallocated to the
General Division (other than reallocations that represent sales at fair value
between such Divisions) divided by the Fair Market Value of one share of General
Stock as of the date of such reallocation;
PROVIDED that no adjustment shall be made pursuant to clause (ii)(D) if the
Board of Directors elects instead to make the adjustment set forth in clause
(iii)(B) or (C) of the definition of TR Designated Shares and PROVIDED, FURTHER
that the Corporation shall take no action which would have the effect of
reducing the General Designated Shares to a number which is less than zero.
Within 45 days after the end of each fiscal quarter of the Corporation, the
Corporation shall prepare and file a statement of such change with the transfer
agent for the General Stock and with the Clerk of the Corporation.
l. "Market Capitalization" of any class of common stock on any
date shall mean the product of (i) the Fair Market Value of one share of such
class of common stock on such date and (ii) the number of shares of such class
of common stock outstanding on such date.
m. "Tissue Repair Division" shall mean, at any time, the
Corporation's interest in (i) the following businesses, products, development
programs or research projects: (A) Vianain[Registered Trademark] for
debridement of necrotic or damaged tissue; (B) TGF-(beta)2 for all indications
licensed from Celtrix Pharmaceuticals, Inc. on the Effective Date; (C)
Epicel[Trademark] cultured epithelial cell autografts for tissue replacement or
repair, including but not limited to skin, ocular or oral tissue; (D)
Acticel[Trademark] cultured epithelial cell allografts for tissue replacement
or repair, including but not limited to skin, ocular or oral tissue; (E)
Chondrograft cultured chondrocyte auto- and allografts; (F) tissue-type
plasminogen activator ("tPA") for all tissue repair indications licensed by the
Corporation from Genentech, Inc. on the Effective Date; (G) the
leukocyte-derived growth factor ("LDGF") research program; (H) the dermal
replacement research program; (I) the cultured fibroblast dermal replacement
research program and (J) the research program on cultured keratinocyte or
fibroblast cell extracts or derivatives, each as being conducted by the
Corporation on the Effective Date; (ii) all assets and liabilities of the
Corporation to the extent allocated to any such businesses, products,
development programs or research projects in accordance with generally accepted
accounting principles consistently applied for all of the Corporation's
business units; and (iii) such businesses, products, development programs or
research projects developed in, or acquired by the Corporation for, the Tissue
Repair Division after the Effective Date, in each case as determined by the
Board of Directors; PROVIDED, HOWEVER, that, from and after any
<PAGE> 17
Disposition or transfer to the General Division of any business, product,
development program, research project, assets or properties, the Tissue Repair
Division shall no longer include the business, product, development program,
research project, assets or properties so disposed of or transferred. The Tissue
Repair Division shall be represented by the TR Stock.
n. "TR Designated Shares" as of any date shall mean a
number of shares of TR Stock that shall initially be 5,000,000, which
number shall be subject to adjustment as provided in the next sentence. The
number of TR Designated Shares shall from time to time be
(i) adjusted as appropriate to reflect subdivisions
(by stock split or otherwise) and combinations (by reverse stock split or
otherwise) of the TR Stock and dividends or distributions of shares of TR Stock
to holders of TR Stock and other reclassifications of TR Stock,
(ii) decreased by (A) the number of any shares of TR
Stock issued by the Corporation, the proceeds of which are allocated to the
General Division, (B) the number of any shares of TR Stock issued upon the
exercise or conversion of Convertible Securities attributed to the General
Division, and (C) the number of any shares of TR Stock issued by the Corporation
as a dividend or distribution or by reclassification, exchange or otherwise to
holders of General Stock, and
(iii) increased by (A) the number of any outstanding
shares of TR Stock repurchased by the Corporation, the consideration for
which was allocated to the General Division, (B) one for each $10.00 reallocated
from the General Division to the Tissue Repair Division from time to time in
satisfaction of the funding commitment or the purchase option of the General
Division set forth in sections 4.17 and 4.18 of the Agreement and Plan of
Reorganization among the Corporation, Phoenix Acquisition Corporation and
BioSurface Technology, Inc. dated as of July 25, 1994, up to a maximum
$30,000,000, and (C) the number equal to the fair value (as determined by the
Board of Directors) of assets or properties allocated to the General Division
that are reallocated to the Tissue Repair Division (other than reallocations
that represent sales at fair value between such Divisions or reallocations
described in the foregoing clause (B)) divided by the Fair Market Value of one
share of TR Stock as of the date of such reallocation;
PROVIDED, that the Corporation shall take no action which would have the effect
of reducing the TR Designated Shares to a number which is less than zero. Within
45 days after the end of each fiscal quarter of the Corporation, the Corporation
shall prepare and file a statement of such change with the transfer agent for
the TR Stock and with the Clerk of the Corporation.
9. DETERMINATIONS BY THE BOARD OF DIRECTORS
Any determinations with respect to any Division or the rights of
holders of any series of common stock made by the Board of Directors of the
Corporation in good faith pursuant
<PAGE> 18
to or in furtherance of any provision of this paragraph B. shall be final
and binding on all stockholders of the Corporation.
C. DESCRIPTION OF THE PREFERRED STOCK
1. UNDESIGNATED PREFERRED STOCK
Shares of Preferred Stock may be issued from time to time in one or
more series. The Board of Directors may determine, in whole or in part, the
preferences, voting powers, qualifications and special or relative rights or
privileges of any such series before the issuance of any shares of that series.
The Board of Directors shall determine the number of shares constituting each
series of Preferred Stock and each series shall have a distinguishing
designation.
2. SERIES A AND SERIES B JUNIOR PARTICIPATING PREFERRED STOCK
By vote adopted October 13, 1994 pursuant to paragraph IV(C)(1) of this
Corporation's Articles of Organization, the Board of Directors established two
series of Preferred Stock of the Corporation with the following designations,
powers, preferences and rights:
1. AUTHORIZED AMOUNTS AND DESIGNATIONS. One million shares of Preferred
Stock of the Corporation are designated as Series A Junior Participating
Preferred Stock (the "Series A Preferred Stock") and 400,000 shares of Preferred
Stock are designated as Series B Junior Participating Preferred Stock (the
"Series B Preferred Stock," and together with the Series A Preferred Stock, the
"Junior Preferred Stock"). To the extent legally permitted, such numbers of
shares may be increased or decreased by vote of the Board of Directors, provided
that no decrease shall reduce the number of shares of Junior Preferred Stock of
either series to a number less than the number of shares of such series then
outstanding plus the number of shares of such series reserved for issuance upon
the exercise of outstanding options, rights or warrants or upon the conversion
of any outstanding securities issued by the Corporation convertible into such
series of Junior Preferred Stock.
2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the prior and superior rights of the holders of any
shares of any series of Preferred Stock ranking prior and superior to the Junior
Preferred Stock with respect to dividends, the holders of shares of Junior
Preferred Stock, in preference to the holders of General Division Common Stock
(the "General Stock") and Tissue Repair Division Common Stock (the "TR Stock"
and together with the General Stock, the "Common Shares") of the Corporation,
and of any other junior stock, shall be entitled to receive, when, as and if
declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the first day of March, June,
September and December in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share
<PAGE> 19
or fraction of a share of Junior Preferred Stock, in an amount per share
(rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject
to the provision for adjustment hereinafter set forth, 100 times the aggregate
per share amount of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other distributions, other
than a dividend on Common Shares payable in Common Shares of the same class or a
subdivision of the outstanding Common Shares (by reclassification or otherwise),
declared on the General Stock in the case of the Series A Preferred Stock and on
the TR Stock in the case of the Series B Preferred Stock since the immediately
preceding Quarterly Dividend Payment Date or, with respect to the first
Quarterly Dividend Payment Date, since the first issuance of any share or
fraction of a share of Junior Preferred Stock. In the event the Corporation
shall at any time declare or pay any dividend on any class of Common Shares
payable in Common Shares of the same class, or effect a subdivision or
combination or consolidation of the outstanding Common Shares of any class (by
reclassification or otherwise than by payment of a dividend in the same class of
Common Shares) into a greater or lesser number of Common Shares of such class,
then in each such case the amount to which holders of shares of Junior Preferred
Stock were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction,
(i) the numerator of which is the number of shares of General Stock outstanding
immediately after such event and the denominator of which is the number of
shares of General Stock that were outstanding immediately prior to such event in
the case of the Series A Preferred Stock, and (ii) the numerator of which is the
number of shares of TR Stock outstanding immediately after such event and the
denominator of which is the number of shares of TR Stock that were outstanding
immediately prior to such event in the case of the Series B Preferred Stock.
(B) The Corporation shall declare a dividend or distribution on the
Junior Preferred Stock as provided in paragraph (A) of this Section 2
immediately after it declares a dividend or distribution on any class of Common
Shares (other than a dividend payable in Common Shares of such class), provided
that, in the event no dividend or distribution shall have been declared on the
General Stock or the TR Stock during the period between any Quarterly Dividend
Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend
of $1.00 per share on the Series A Preferred Stock or the Series B Stock, as the
case may be, shall nevertheless be payable on such subsequent Quarterly Dividend
Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Junior Preferred Stock entitled to receive a quarterly dividend and
before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Junior Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on
<PAGE> 20
such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Junior Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be not more than 60 days prior to the date fixed for the payment
thereof.
3. VOTING RIGHTS. The holders of shares of Junior Preferred Stock
shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series A Preferred Stock shall entitle the holder thereof to 100 votes
on all matters submitted to a vote of the stockholders of the Corporation and
each share of Series B Preferred Stock shall entitle the holder thereof to 100
times the number of votes to which the holder of each outstanding share of TR
Stock is then entitled on all such matters. In the event the Corporation shall
at any time declare or pay any dividend on any class of Common Shares payable in
Common Shares of such class, or effect a subdivision or combination or
consolidation of the outstanding Common Shares of any class (by reclassification
or otherwise than by payment of a dividend in Common Shares of such class) into
a greater or lesser number of Common Shares of such class, then in each such
case the number of votes per share to which holders of shares of Junior
Preferred Stock were entitled immediately prior to such event shall be adjusted
by multiplying such number by a fraction, (i) the numerator of which is the
number of shares of General Stock outstanding immediately after such event and
the denominator of which is the number of shares of General Stock that were
outstanding immediately prior to such event in the case of the Series A
Preferred Shares, and (ii) the numerator of which is the number of shares of TR
Stock outstanding immediately after such event and the denominator of which is
the number of shares of TR Stock that were outstanding immediately prior to such
event in the case of the Series B Preferred Stock.
(B) Except as otherwise provided herein, in the Articles of
Organization, in any other vote of the Board of Directors of the Corporation
creating a series of Preferred Stock, or by law, the holders of shares of Junior
Preferred Stock and the holders of Common Shares and any other capital stock of
the Corporation having general voting rights shall vote together as one class on
all matters submitted to a vote of stockholders of the Corporation.
(C) Except as set forth herein or as otherwise provided by law, holders
of Junior Preferred Stock shall have no voting rights.
4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Junior Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Junior Preferred Stock outstanding shall have been
paid in full, the Corporation shall not:
<PAGE> 21
(i) declare or pay dividends, or make any other distributions, on
any shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock, except
dividends paid ratably on the Junior Preferred Stock and all such parity stock
on which dividends are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Junior Preferred Stock, provided that the
Corporation may at any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution, liquidation or winding up)
to the Junior Preferred Stock; or
(iv) redeem, purchase or otherwise acquire for consideration any
shares of Junior Preferred Stock, or any shares of stock ranking on a parity
with the Junior Preferred Stock, except in accordance with a purchase offer made
in writing or by publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.
(B) The Corporation shall not permit any subsidiary of the Corporation
to purchase or otherwise acquire for consideration any shares of stock of the
Corporation unless the Corporation could, under paragraph (A) of this section 4
purchase or otherwise acquire such shares at such time and in such manner.
5. REACQUIRED SHARES. Any shares of Junior Preferred Stock purchased or
otherwise acquired by the Corporation in any manner whatsoever shall be retired
and cancelled promptly after the acquisition thereof. All such shares shall upon
their cancellation become authorized but unissued shares of Preferred Stock and
may be reissued as part of a new series of Preferred Stock, subject to the
conditions and restrictions on issuance set forth herein, in the Articles of
Organization, in any other vote of the Board of Directors of the Corporation
creating a series of Preferred Stock, or as otherwise required by law.
6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation,
dissolution or winding up of the Corporation, no distribution shall be made (1)
to the holders of shares of stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Junior Preferred Stock unless,
prior thereto, the holders of shares of Junior Preferred Stock shall have
received $100 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of shares of Junior Preferred Stock shall be entitled
to receive an aggregate amount per share, subject to the provision for
adjustment hereinafter set forth,
<PAGE> 22
equal to 100 times the aggregate amount to be distributed per share to holders
of shares of General Stock in the case of the Series A Preferred Stock and 100
times the aggregate amount to be distributed per share to the holders of shares
of TR Stock in the case of the Series B Preferred Stock, or (2) to the holders
of shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Junior Preferred Stock, except
distributions made ratably on the Junior Preferred Stock and all other such
parity stock in proportion to the total amounts to which the holders of all such
shares are entitled upon such liquidation, dissolution or winding up. In the
event the Corporation shall at any time declare or pay any dividend on any class
of Common Shares payable in Common Shares of such class, or effect a subdivision
or combination or consolidation of the outstanding Common Shares of any class
(by reclassification or otherwise than by payment of a dividend in Common Shares
of such class) into a greater or lesser number of Common Shares of such class,
then in each such case the aggregate amount to which holders of shares of Junior
Preferred Stock were entitled immediately prior to such event under the proviso
in clause (1) of the preceding sentence shall be adjusted by multiplying such
amount by a fraction, (i) the numerator of which is the number of shares of
General Stock outstanding immediately after such event and the denominator of
which is the number of shares of General Stock that were outstanding immediately
prior to such event in the case of the Series A Preferred Stock, and (ii) the
numerator of which is the number of shares of TR Stock outstanding immediately
after such event and the denominator of which is the number of shares of TR
Stock that were outstanding immediately prior to such event in the case of the
Series B Preferred Stock.
7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into
any consolidation, merger, combination or other transaction in which Common
Shares are exchanged for or changed into other stock or securities, cash and/or
any other property, then in any such case each share of Series A Preferred Stock
and Series B Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share (subject to the provision for adjustment
hereinafter set forth) equal to 100 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of General Stock and TR Stock,
respectively, is changed or exchanged. In the event the Corporation shall at any
time declare or pay any dividend on any class of Common Shares payable in Common
Shares of such class, or effect a subdivision or combination or consolidation of
the outstanding shares of any class of Common Shares (by reclassification or
otherwise than by payment of a dividend in shares of Common Shares of such
class) into a greater or lesser number of Common Shares of such class, then in
each such case the amount set forth in the preceding sentence with respect to
the exchange or change of shares of Junior Preferred Stock shall be adjusted by
multiplying such amount by a fraction, (i) the numerator of which is the number
of shares of General Stock outstanding immediately after such event and the
denominator of which is the number of shares of General Stock that were
outstanding immediately prior to such event in the case of the Series A
Preferred Stock, and (ii) the numerator of which is the number of shares of TR
Stock outstanding immediately after such event and the denominator of which is
the number of shares of TR Stock that were outstanding immediately prior to such
event in the case of the Series B Preferred Stock.
<PAGE> 23
8. REDEMPTION. The shares of Junior Preferred Stock shall not be
redeemable.
9. RANK. The Series A Preferred Stock and the Series B Preferred Stock
shall rank equally with respect to the payment of dividends and the distribution
of assets. The Junior Preferred Stock shall rank junior with respect to the
payment of dividends and the distribution of assets to all series of the
Corporation's Preferred Stock that specifically provide that they shall rank
prior to the Junior Preferred Stock. Nothing herein shall preclude the Board
from creating any series of Preferred Stock ranking on a parity with or prior to
the Junior Preferred Stock as to the payment of dividends or the distribution of
assets.
10. AMENDMENT. The Articles of Organization of the Corporation shall not be
amended in any manner which would materially alter or change the powers,
preferences or special rights of the Series A Preferred Stock or the Series B
Preferred Stock so as to affect them adversely without the affirmative vote of
the holders of at least two-thirds of the outstanding Series A Preferred Stock
or Series B Preferred Stock, respectively, voting together as a single series.
11. FRACTIONAL SHARES. The Junior Preferred Stock may be issued in fractions
of a share which shall entitle the holder, in proportion to such holder's
fractional shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of the
Junior Preferred Stock.
<PAGE> 24
ARTICLE VI
OTHER LAWFUL PROVISIONS
-----------------------
A. BOARD OF DIRECTORS
------------------
1. CLASSIFICATION. The directors shall be divided into three classes,
as nearly equal in number as the then total number of directors constituting the
entire Board permits, with the term of office of one class expiring each year.
The initial directors of all classes shall be elected by the incorporator and
shall serve until their respective successors shall be elected and shall
qualify. Thereafter, the directors of the first class shall be elected to hold
office for a term expiring at the first annual meeting of stockholders, the
directors of the second class shall be elected to hold office for a term
expiring at the second annual meeting of stockholders and the directors of the
third class shall be elected to hold office for a term expiring at the third
annual meeting of stockholders. At each annual meeting of stockholders,
successors to the class of directors whose term expires at that meeting shall be
elected for a term expiring at the third annual meeting following their election
and until their successors shall be elected and qualified, subject to prior
death, resignation, retirement or removal. If the number of directors is
changed, any increase or decrease shall be apportioned among the classes so as
to maintain the number of directors in each class as nearly equal as possible,
but in no event will a decrease in the number of directors shorten the term of
any incumbent director. Notwithstanding the foregoing, and except as otherwise
required by law, whenever the holders of any one or more series of Preferred
Stock shall have the right, voting separately as a class, to elect one or more
directors of the Corporation, the election, terms of office and other features
of such directorships shall be governed by the terms of the vote establishing
such series, and such directors so elected shall not be divided into classes
pursuant to this Article VI unless expressly provided by such terms.
2. VACANCIES. Except as otherwise determined by the Board of Directors
in establishing a series of Preferred Stock as to directors elected by holders
of such series, any vacancies in the Board of Directors, including a vacancy
resulting from the enlargement of the Board, may be filled by the directors then
in office, though less than a quorum. Each director so chosen to fill a vacancy
shall be elected to complete the term of office of the director who is being
succeeded. In the case of any election of a new director to fill a directorship
created by an enlargement of the Board, the Board shall in such election assign
the class of directors to which such additional director is being elected, and
each director so elected shall hold office for the same term as the other
members of the class to which the director is assigned.
3. REMOVAL. Except as otherwise determined by the Board of Directors in
establishing a series of Preferred Stock as to directors elected by holders of
such series, at any special meeting of the stockholders called at least in part
for the purpose, any director or directors may, by the affirmative vote of the
holders of at least a majority of the stock entitled to vote for the election of
directors, be removed from office for cause. The provisions of this subsection
shall be the exclusive method for the removal of directors.
<PAGE> 25
B. STOCKHOLDER VOTE REQUIRED FOR CERTAIN ACTIONS
---------------------------------------------
The Corporation, by vote of a majority of the stock outstanding and
entitled to vote thereon may (i) authorize any amendment to these Articles of
Organization, (ii) authorize the sale, lease or exchange of all or substantially
all of the Corporation's property and assets, including its goodwill and (iii)
approve a merger or consolidation of the Corporation with or into any other
corporation; so long as such amendment, sale, lease, exchange, merger or
consolidation shall have been approved by the Board of Directors.
C. ADDITIONAL PROVISIONS
---------------------
1. Meetings of the stockholders may be held anywhere within the United
State.
2. No contract or other transaction of this corporation with any other
person, corporation, association, or partnership shall be affected or
invalidated by the fact that (i) this corporation is a stockholder or partner in
such other corporation, association, or partnership, or (ii) any one or more of
the officers or directors of this corporation is an officer, director or partner
of such other corporation, association or partnership, or (iii) any officer or
director of this corporation, individually or jointly with others, is a party to
or is interested in such contract or transaction. Any director of this
corporation may be counted in determining the existence of a quorum at any
meeting of the board of directors for the purpose of authorizing or ratifying
any such contract or transaction, and may vote thereon, with like force and
effect as if he were not so interested or were not an officer, director, or
partner of such other corporation, association, or partnership.
3. The corporation may be a partner in any business enterprise which it
would have power to conduct itself.
4. The by-laws may provide that the directors may make, amend, or
repeal the by-laws in whole or in part, except with respect to any provision
thereof which by law, these Articles of Organization, or the by-laws requires
action by the stockholders.
5. A director shall not be liable to the corporation or its
stockholders for monetary damages for any breach of fiduciary duty as a
director, except to the extent that the elimination or limitation of liability
is not permitted under the Massachusetts Business Corporation Law as in effect
when such liability is determined. No amendment or repeal of this provision
shall deprive a director of the benefits hereof with respect to any act or
omission occurring prior to such amendment or repeal.
6. Except as otherwise required by law, any action required or
permitted to be taken by the stockholders of the Corporation must be taken at a
duly called annual or special meeting of such holders and may not be taken by
any consent in writing by such holders.
<PAGE> 26
THE COMMONWEALTH OF MASSACHUSETTS
OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE
MICHAEL JOSEPH CONNOLLY, SECRETARY
ONE ASHBURTON PLACE, BOSTON, MASS. 02108
FEDERAL IDENTIFICATION
NO. 06-1047163
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
General Laws, Chapter 156B, Section 26
------------------
We, Henri A. Termeer, President and Peter Wirth, Clerk of
Genzyme Corporation
located at One Kendall Square, Cambridge, MA 02139 do hereby certify that at a
meeting of the directors of the corporation held on January 30, 1997, the
following vote establishing and designating a series of a class of stock and
determining the relative rights and preferences thereof was duly adopted:
To approve, pursuant to paragraph IV(c)(1) of the Company's Articles of
Organization an increase in the number of shares of Preferred Stock of the
Company designated as Series A Junior Participating Preferred Stock in paragraph
IV(c)(2)1. of the Company's Articles of Organization from 1,000,000 shares to
2,000,000 shares and to authorize the appropriate officers of the Company to
execute and file an appropriate form reflecting such increase with the Secretary
of the Commonwealth of Massachusetts.
IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our
names this 14th day of February in the year of 1997.
/s/Henri A. Termeer , President
- --------------------------
Henri A. Termeer
/s/Peter Wirth , Clerk
- --------------------------
Peter Wirth
<PAGE> 27
THE COMMONWEALTH OF MASSACHUSETTS
CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING
A SERIES OF A CLASS OF STOCK
(General Laws, Chapter 156B, Section 26)
I hereby approve the within certificate and, the
filing fee in the amount of $100.00
having been paid, said certificate is hereby filed this
14th day of February, 1997.
MICHAEL JOSEPH CONNOLLY
Secretary of State
TO BE FILLED IN BY CORPORATION
Photocopy of Certificate to be sent
TO: Elizabeth A. Claffey
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Telephone: (617) 573-0517
<PAGE> 1
EXHIBIT 11
<PAGE> 2
GENZYME CORPORATION AND SUBSIDIARIES
EXHIBIT 11 - COMPUTATION OF WEIGHTED AVERAGE SHARES
USED IN COMPUTING INCOME PER SHARE AMOUNTS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------
MARCH 31, 1997 MARCH 31, 1996
-------------------- --------------------
COMMON COMMON
AND COMMON ASSUMING AND COMMON ASSUMING
EQUIVALENT FULL EQUIVALENT FULL
SHARES DILUTION SHARES DILUTION
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
GENZYME GENERAL STOCK:
Common stock outstanding, beginning of period ........... 75,537 75,537 62,372 62,372
Weighted average common stock issued during the period .. 111 111 1,662 1,662
Weighted average common stock assuming
exercise of options .................................. 2,578 2,577 4,238 4,243
Weighted average common stock assuming
exercise of warrants ................................. 11 11 3,109 3,237
Weighted average common stock assuming conversion of
6 3/4% Convertible Subordinated Notes ................ -- -- (A) 2,678
------ ------ ------ ------
Weighted average number of shares outstanding ........... 78,238 78,237 71,381 74,192
====== ====== ====== ======
GENZYME TISSUE REPAIR STOCK:
Common stock outstanding, beginning of period ........... 13,162 12,113
Weighted average common stock issued during the period .. 16 133
Weighted average common stock assuming
exercise of options .................................... (B) (B)
Weighted average common stock assuming
exercise of warrants ................................... (B) (B)
Weighted average common stock assuming conversion of
6 3/4% Convertible Subordinated Notes .................. -- (A)
------ ------
Weighted average number of shares outstanding ........... 13,178 12,246
====== ======
</TABLE>
(A) These securities are "other potentially dilutive" securities which effect
is included, to the extent such effect is dilutive, in the determination
of weighted average shares assuming full dilution.
(B) The effect of assumed conversion is antidilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR GENZYME CORPORATION FOR THE
THREE MONTHS ENDED MARCH 31, 1997 AND AS OF MARCH 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AS INCLUDED IN THE FORM
10-Q FOR GENZYME CORPORATION DATED MARCH 31, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 107,810
<SECURITIES> 74,196
<RECEIVABLES> 137,615
<ALLOWANCES> 17,918
<INVENTORY> 129,586
<CURRENT-ASSETS> 432,120
<PP&E> 394,735
<DEPRECIATION> 7,162
<TOTAL-ASSETS> 1,183,073
<CURRENT-LIABILITIES> 109,735
<BONDS> 0
0
0
<COMMON> 890
<OTHER-SE> 907,687
<TOTAL-LIABILITY-AND-EQUITY> 1,183,073
<SALES> 144,899
<TOTAL-REVENUES> 146,593
<CGS> 58,684
<TOTAL-COSTS> 69,614
<OTHER-EXPENSES> 1,813
<LOSS-PROVISION> 1,410
<INTEREST-EXPENSE> 2,658
<INCOME-PRETAX> 15,482
<INCOME-TAX> 6,115
<INCOME-CONTINUING> 9,367
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,367
<EPS-PRIMARY> 0.27<F1>
<EPS-DILUTED> 0.27
<FN>
<F1>Genzyme Corporation has two classes of common stock - Genzyme General Division
Common Stock ("GGD Stock") and Genzyme Tissue Repair Division Common Stock
("GTR Stock"). Earnings (loss) per share is reported separately for each class
of tracking stock. Consolidated EPS is not presented for Genzyme. For the 3
months ended March 31, 1997, Primary EPS for GGD Stock was $0.27 and fully
diluted EPS was $0.27. For GTR Stock, loss per share for the quarter was
$(0.90).
</FN>
</TABLE>
