<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 September 30, 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 October 31, 1997:
Series Outstanding at October 31, 1997:
------ --------------------------------
Genzyme General Division Common Stock
("GGD Stock") 77,549,484
Genzyme Tissue Repair Division Common Stock
("GTR Stock") 15,862,045
Genzyme Molecular Oncology Division Common Stock
("GMO Stock") 3,929,000
<PAGE> 2
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 1997
NOTE REGARDING FORWARD-LOOKING STATEMENTS:
This Quarterly Report on Form 10-Q for Genzyme Corporation ("Genzyme" or the
"Company") contains forward-looking statements concerning the Company's future
revenues, operations and expenditures. These 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 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) the content and timing of decisions made by the
U.S. Food and Drug Administration (the "FDA") regarding the indications for
which the Company's products may be approved, (iii) the actual size 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
competition 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/A for the fiscal year ended December 31,
1996 (the "1996 Genzyme 10K/A").
2
<PAGE> 3
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 1997
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
PAGE NO.
ITEM 1. Financial Statements -------
<S> <C>
GENZYME GENERAL
Combined Balance Sheets as of September 30, 1997 and December 31, 1996......................................... 4
Combined Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996.............. 5
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996........................ 6
Notes to Unaudited Combined Financial Statements............................................................... 7
GENZYME TISSUE REPAIR
Combined Balance Sheets as of September 30, 1997 and December 31, 1996......................................... 9
Combined Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996.............. 10
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996........................ 11
Notes to Unaudited Combined Financial Statements............................................................... 12
GENZYME MOLECULAR ONCOLOGY
Combined Balance Sheets as of September 30, 1997 and December 31, 1996......................................... 13
Combined Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996.............. 14
Combined Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996........................ 15
Notes to Unaudited Combined Financial Statements............................................................... 16
GENZYME CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996..................................... 20
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1997 and 1996......... 21
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1997 and 1996.................... 23
Notes to Unaudited Consolidated Financial Statements........................................................... 24
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................. 26
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk............................................ 35
PART II. OTHER INFORMATION
ITEM 2. Changes in Securities and Use of Proceeds ............................................................ 35
ITEM 6. Exhibits and Reports on Form 8-K ..................................................................... 35
Signatures........................................................................................................... 36
</TABLE>
3
<PAGE> 4
GENZYME GENERAL
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30, DECEMBER 31,
- ------------------------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ........................................... $ 108,587 $ 77,220
Short-term investments .............................................. 33,494 56,290
Accounts receivable, less allowance for doubtful accounts ........... 117,062 115,156
Inventories ......................................................... 145,557 123,442
Prepaid expenses and other .......................................... 16,557 99,953
Due from Genzyme Tissue Repair ...................................... 1,275 1,604
Due from Genzyme Molecular Oncology ................................. 3,735 --
Deferred tax assets - current ....................................... 17,493 17,493
---------- ----------
Total current assets .............................................. 443,760 491,158
Property, plant and equipment, net ..................................... 368,801 371,610
Other assets:
Long-term investments ............................................... 26,505 38,215
Note receivable from Genzyme Molecular Oncology ..................... 2,524 --
Intangibles, net .................................................... 247,253 247,745
Deferred tax assets - noncurrent .................................... 45,224 42,221
Other ............................................................... 62,835 38,570
---------- ----------
Total other assets ................................................. 384,341 366,751
---------- ----------
Total assets ........................................................... $1,196,902 $1,229,519
========== ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable .................................................... $ 16,104 $ 20,522
Accrued expenses .................................................... 60,014 67,645
Income taxes payable ................................................ 26,107 17,926
Deferred revenue .................................................... 2,518 2,693
Current portion of long-term debt and capital lease obligations ..... 683 999
---------- ----------
Total current liabilities ......................................... 105,426 109,785
Long-term debt and capital lease obligations ........................... 118,183 223,998
Other noncurrent liabilities ........................................... 6,610 11,511
---------- ----------
Total liabilities .................................................. 230,219 345,294
Division equity ........................................................ 966,683 884,225
---------- ----------
Total liabilities and division equity .................................. $1,196,902 $1,229,519
========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
4
<PAGE> 5
GENZYME GENERAL
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net product sales .............................................. $ 132,098 $ 117,673 $ 391,890 $ 301,575
Net service sales .............................................. 13,534 16,649 42,585 46,317
Revenues from research and development contracts ............... 3,209 6,700 6,586 18,901
--------- --------- --------- ---------
Total revenues ................................................ 148,841 141,022 441,061 366,793
Operating costs and expenses:
Cost of products sold .......................................... 42,516 47,911 134,526 110,399
Cost of services sold .......................................... 8,729 12,544 27,024 32,195
Selling, general and administrative ............................ 43,717 35,904 125,390 98,961
Research and development ....................................... 18,484 18,303 54,784 49,854
Amortization of intangibles .................................... 3,127 3,121 9,487 5,657
Purchase of in-process research and development ................ -- 24,170 -- 24,170
Restructuring charges .......................................... -- -- -- 1,465
--------- --------- --------- ---------
Total operating costs and expenses ............................ 116,573 141,953 351,211 322,701
--------- --------- --------- ---------
Operating income (loss) ............................................ 32,268 (931) 89,850 44,092
Other income (expenses):
Equity in net loss of unconsolidated affiliates ................ (1,744) 470 (2,597) (1,588)
Gain on investments ............................................ -- -- -- 1,711
Investment income .............................................. 2,401 3,341 7,313 11,485
Interest expense ............................................... (2,006) (3,187) (6,006) (3,582)
--------- --------- --------- ---------
Total other income (expenses) ................................. (1,349) 624 (1,290) 8,026
--------- --------- --------- ---------
Income (loss) before income taxes .................................. 30,919 (307) 88,560 52,118
Provision for income taxes ......................................... (11,922) (9,574) (34,081) (30,483)
--------- --------- --------- ---------
Net income (loss) .................................................. 18,997 (9,881) 54,479 21,635
Allocated tax benefit generated by Genzyme Tissue Repair ........... 4,240 3,973 13,078 11,775
Allocated tax benefit generated by Genzyme Molecular Oncology ...... 1,120 -- 1,321 --
--------- --------- --------- ---------
Net income (loss) attributable to Genzyme General Stock ............ $ 24,357 $ (5,908) $ 68,878 $ 33,410
========= ========= ========= =========
Income per Genzyme General common and common equivalent share:
Net income (loss) .............................................. $ 0.31 $ (0.09) $ 0.88 $ 0.46
========= ========= ========= =========
Average shares outstanding ..................................... 79,446 69,440 78,604 73,024
========= ========= ========= =========
Income per Genzyme General common share assuming full dilution:
Net income (loss) .............................................. $ 0.30 $ (0.09) $ 0.87 $ 0.45
========= ========= ========= =========
Average fully diluted shares outstanding ....................... 79,865 69,440 78,964 74,146
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
5
<PAGE> 6
GENZYME GENERAL
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30,
- -----------------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ............................................................ $ 54,479 $ 21,635
Reconciliation of net income to net cash from operating activities:
Depreciation and amortization ....................................... 27,113 20,262
Provision for bad debts ............................................. 5,052 5,752
(Gain) loss on sale of investment ................................... 2 (973)
Accrued interest/amortization on bonds .............................. 889 259
Equity in net loss of unconsolidated affiliates ..................... 2,597 1,588
Other ............................................................... 451 (16)
Non-cash charge for in-process technology ........................... -- 24,170
Increase (decrease) in cash from changes in working capital:
Accounts receivable ............................................... (10,843) (14,944)
Inventories ....................................................... (22,242) (29,715)
Prepaid expenses and other ........................................ (2,585) (3,050)
Accounts payable, accrued expenses, income taxes payable and
deferred revenue ................................................ 6,502 37,015
Due from Genzyme Tissue Repair .................................... 329 (1,535)
Due from Genzyme Molecular Oncology ............................... (311) --
--------- ---------
Net cash provided by operating activities ....................... 61,433 60,448
INVESTING ACTIVITIES:
Investment in unconsolidated affiliate ................................ (3,044) (3,600)
Loans to affiliate .................................................... -- (1,676)
Acquisition of DSP, net of acquired cash .............................. -- (194,497)
Purchases of investments .............................................. (25,424) (74,453)
Sales and maturities of investments ................................... 59,245 122,923
Purchases of property, plant and equipment ............................ (24,961) (27,931)
Other assets and other liabilities .................................... (30,313) (16,469)
--------- ---------
Net cash used by investing activities ........................... (24,497) (195,703)
FINANCING ACTIVITIES:
Cash allocated to Genzyme Tissue Repair ............................... (14,899) (10,000)
Cash allocated to Genzyme Molecular Oncology .......................... (5,000) --
Proceeds from issuance of Genzyme General Stock ....................... 117,604 21,816
Proceeds from issuance of debt ........................................ -- 200,000
Payments of debt and capital lease obligations ........................ (100,881) (64,523)
--------- ---------
Net cash used by provided by financing activities ............... (3,176) 147,293
--------- ---------
Effect of exchange rate changes on cash .................................. (2,393) 1,212
--------- ---------
Increase in cash and cash equivalents .................................... 31,367 13,250
Cash and cash equivalents, beginning of period ........................... 77,220 103,631
--------- ---------
Cash and cash equivalents, end of period ................................. $ 108,587 $ 116,881
========= =========
</TABLE>
The accompanying notes are an integral part of these
unaudited, combined financial statements.
6
<PAGE> 7
GENZYME GENERAL
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These unaudited, combined financial statements should be read in
conjunction with the 1996 Genzyme 10-K/A and the financial statements
and footnotes for Genzyme and Genzyme General Division ("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.
The financial statements for the three and nine months ended September
30, 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. INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Raw materials ...................... $ 40,429 $ 30,243
Work-in-process .................... 35,422 36,516
Finished products .................. 69,706 56,683
-------- --------
$145,557 $123,442
======== ========
</TABLE>
3. ALLOCATIONS BY GENZYME GENERAL TO GENZYME TISSUE REPAIR DIVISION
("GENZYME TISSUE REPAIR" or "GTR") In the nine months ended September 30,
1997, Genzyme General allocated $5.1 million to GTR to fund GTR's
investment in Diacrin/Genzyme LLC, a joint venture with Diacrin, Inc.
("Diacrin"), in exchange for 489,810 shares of GTR stock which have been
reserved for issuance at the Genzyme Board of Directors' (the "Genzyme
Board") discretion for the benefit of Genzyme General or its stockholders
("GTR Designated Shares").
4. PROVISION FOR INCOME TAXES
The tax provisions for the three and nine months ended September 30,
1997 vary from the U.S. statutory tax rate because of the provision for
state income taxes, nondeductible amortization of intangibles, Genzyme
General's share of losses of unconsolidated affiliates and taxes on
foreign earnings. The effective tax rate was 38.6% and 38.5% for the
three and nine months ended September 30, 1997, respectively, a slight
decrease over the corresponding periods in 1996. The allocated tax
benefits generated by GTR and Genzyme Molecular Oncology Division
("Genzyme Molecular Oncology" or "GMO") combined for the three and nine
months ended September 30, 1997 of $5.4 million and $14.4 million,
respectively, reduced Genzyme General's tax rate to 21.2% and 22.2%,
respectively.
5. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, The Financial Accounting Standards Board ("FASB")
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 ("EPS") than is currently required under
the provisions of Accounting Principles Board Opinion No. 15 ("APB 15").
Under SFAS No. 128, Genzyme will be required to present both basic EPS
and diluted EPS attributable to GGD Stock (the principal difference being
that common stock equivalents would not be considered in the computation
of basic EPS). Basic EPS for Genzyme General for the quarter ended
September 30, 1997 and September 30, 1996, would have been $0.32 and
$(0.09), respectively, and $0.90 and $0.49 for the nine months ended
September 30, 1997 and 1996, respectively. The impact of SFAS No. 128 on
the calculation of diluted EPS for these quarters is not expected to be
materially different than fully diluted EPS. Genzyme will adopt SFAS
No. 128 in its fiscal quarter ending December 31, 1997 and at that time
all historical EPS data presented will be restated to conform to the
provisions of SFAS No. 128.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Nos. 130 and 131, "Reporting
Comprehensive Income" ("SFAS 130") and "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), respectively
(collectively, the "Statements"). The Statements are effective for fiscal
years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting of comprehensive income and its components in annual
financial statements. SFAS 131 establishes standards for reporting
financial and descriptive information about an enterprise's operating
segments in its annual financial statements and selected segment
information in interim financial reports. Reclassification or restatement
of comparative financial statements or financial information for earlier
periods is required upon adoption of SFAS 130 and SFAS 131, respectively.
Application of the Statement's disclosure requirements will have no
impact on Genzyme General's combined financial position, results of
operations or earnings per share data as currently reported.
7
<PAGE> 8
6. DISTRIBUTION OF GTR DESIGNATED SHARES
As of June 30, 1997, 3,160,939 GTR Designated shares had been reserved
for issuance by the Genzyme Board on behalf of Genzyme General or its
stockholders as a result of cash and other assets allocated from Genzyme
General to GTR since GTR's inception, of which 466,501 shares represent
the remaining shares reserved for issuance upon the exercise of Genzyme
General options and warrants outstanding at December 14, 1994, ("GTR
Date of Inception"). On June 30, 1997, the Genzyme Board declared a
dividend of 2,685,941 GTR Designated Stares which were distributed on
July 22, 1997 to Genzyme General stockholders of record as of July
11, 1997, in a tax-free distribution of approximately .03 share of GTR
Stock for each share of GGD Stock owned. In total, 2,294,613 shares of
GTR Stock were issued to Genzyme General Stockholders in the
distribution and 391,328 shares of GTR Stock have been reserved for
issuance upon the exercise of GGD Stock options and warrants outstanding
on the record date. As of September 30, 1997, 911,821 GTR Designated
Shares remain reserved for issuance by the Genzyme Board on behalf of
Genzyme General or its stockholders, of which 812,130 shares represent
the shares reserved for issuance upon the exercise of certain GGD stock
option and warrants.
7. INVESTMENT IN ABIOMED, INC.
In July 1997, Genzyme General purchased 1,153,846 shares of ABIOMED, Inc.
common stock for $13.00 per share for an aggregate investment of
$14,999,998. As a result of the investment, Genzyme owns approximately
14% of ABIOMED, Inc.
8. JOINT VENTURE WITH GENZYME TRANSGENICS CORPORATION ("GTC")
Pursuant to the Convertible Debt and Development Funding Agreement
between Genzyme and GTC, as described in the 1996 Genzyme 10-K/A, Genzyme
General has been funding GTC's development of transgenic antithrombin III
("ATIII"), a plasma protein that helps regulate blood clotting, since
April 1, 1996. In June 1997, Genzyme and GTC announced that an agreement
in principle had been reached on the key terms of a joint venture for
further development, marketing and distribution of transgenic ATIII
worldwide, excluding Asia. Genzyme General will provide 70% of the
development costs up to a maximum of $33.0 million. GTC will fund the
remaining 30% of the development costs. Both companies will fund equally
any costs in excess of that level, and profits will be split equally.
9. GMO PRIVATE PLACEMENT
In August 1997, GMO completed a private placement of $20.0 million
convertible debentures (the "GMO Debentures"). The GMO Debentures bear
interest at 6% per annum and are convertible into shares of GMO Stock
beginning no earlier than the 91st day after the completion of an initial
public offering of shares of GMO Stock (the "GMO IPO"). Beginning on
February 26, 1998, the GMO Debentures will be convertible at a discount
to the average of the closing bid prices of GMO Stock as reported by the
Nasdaq National Market for the 20 trading days immediately preceding the
applicable conversion date (the "Market Price"), which discount begins at
7% and will increase by an additional one percent every 30 days
thereafter until October 24, 1998. Beginning November 23, 1998, the
conversion price will be the lower of (i) 85% of the Market Price
calculated as of the actual conversion date and (ii) 85% of the Market
Price calculated as of November 22, 1998. In no event, however, will the
conversion price be less than $7.70 per share (subject to adjustment in
the event of any stock split, stock dividend, reclassification,
combination or similar event). In the third quarter of 1997, GMO recorded
$16,5 million of proceeds attributed to the value of the debt and $3.5
million attributed to the value of the conversion feature (recorded as an
increase to division equity). The $16.5 million will be accreted to the
face value by a charge to interest expense over the term of the initial
15 month conversion period.
EXCHANGE OPTION.
If GMO has not completed the GMO IPO by August 29, 1998, at the holder's
option, the GMO Debentures may be exchanged for a 5% convertible
debenture issued by Genzyme General (the "GGD Debentures") due August 29,
2003. If the GMO IPO is completed before August 29, 1998 but the
aggregate proceeds from the offering are less than $15.0 million or GMO's
market capitalization is below $90.0 million, at the holder's option, 50%
of the GMO Debentures can be exchanged for GGD Debentures. The exchange
option must be exercised within 30 business days after August 29, 1998
or the date on which the GMO IPO is consummated. The GGD Debentures, if
issued, will be convertible at the option of the holder at any time
prior to maturity into shares of GGD Stock at a 13% premium to the
average closing bid price of GGD Stock or reported by the Nasdaq
National Market for the five trading days immediately preceding the
issue date.
8
<PAGE> 9
GENZYME TISSUE REPAIR
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30, DECEMBER 31,
- -----------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ........................................ $13,925 $16,230
Accounts receivable, less allowance for doubtful accounts ........ 2,266 1,677
Inventories ...................................................... 1,375 1,823
Prepaid expenses and other ....................................... 218 334
------- -------
Total current assets ............................................. 17,784 20,064
Property, plant and equipment, net ............................... 20,016 22,229
Other ............................................................ 929 300
------- -------
Total assets ..................................................... $38,729 $42,593
======= =======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable .............................................. $ 1,289 $ 1,749
Accrued expenses .............................................. 2,829 2,479
Payable to Genzyme General .................................... 1,275 1,604
------- -------
Total current liabilities ................................... 5,393 5,832
Long-term debt ................................................... 30,566 18,000
Other noncurrent liabilities ..................................... 565 677
------- -------
Total liabilities ............................................ 36,524 24,509
Division equity .................................................. 2,205 18,084
------- -------
Total liabilities and division equity ............................ $38,729 $42,593
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
9
<PAGE> 10
GENZYME TISSUE REPAIR
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net service sales .......................... $ 3,077 $ 1,861 $ 7,718 $ 5,222
Operating costs and expenses:
Cost of services sold ...................... 2,975 2,516 8,966 8,398
Selling, general and administrative ........ 6,390 6,638 19,048 19,614
Research and development ................... 2,664 2,935 7,660 7,639
-------- -------- -------- --------
Total operating costs and expenses ........ 12,029 12,089 35,674 35,651
-------- -------- -------- --------
Operating loss ................................. (8,952) (10,228) (27,956) (30,429)
Other income (expenses):
Interest income ............................ 251 297 649 1,261
Interest expense ........................... (801) (1) (2,039) (6)
Equity in loss of joint venture ............ (1,529) -- (4,945) --
-------- -------- -------- --------
Total other income (expenses) ............. (2,079) 296 (6,335) 1,255
-------- -------- -------- --------
Net loss ....................................... $(11,031) $ (9,932) $(34,291) $(29,174)
======== ======== ======== ========
Per Genzyme Tissue Repair common share:
Net loss ................................... $ (0.72) $ (0.78) $ (2.47) $ (2.33)
======== ======== ======== ========
Average shares outstanding ................. 15,220 12,711 13,879 12,511
======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
10
<PAGE> 11
]
GENZYME TISSUE REPAIR
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30,
- -------------------------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ................................................................... $(34,291) $(29,174)
Reconciliation of net loss to net cash used by operating activities:
Depreciation and amortization ............................................ 1,739 521
Provision for bad debts .................................................. 330 173
Accretion of debt discount ............................................... 711 --
Equity in net loss of joint venture ...................................... 4,945 --
Other .................................................................... 207 25
Increase (decrease) in cash from working capital:
Accounts receivable .................................................... (919) (143)
Inventories ............................................................ 449 (928)
Prepaid expenses and other ............................................. 116 (159)
Accounts payable, accrued expenses and deferred revenue ................ 110 (132)
Due to Genzyme General ................................................. (329) 1,535
-------- --------
Net cash used by operating activities ................................ (26,932) (28,282)
INVESTING ACTIVITIES:
Purchases of investments ................................................... -- (5,004)
Sales and maturities of investments ........................................ -- 9,762
Investment in unconsolidated affiliate ..................................... (5,066) --
Purchases of property, plant and equipment ................................. (120) (25,070)
Sale of property, plant and equipment ...................................... 349 5,214
Other assets and other liabilities ......................................... (264) 205
-------- --------
Net cash used by investing activities ............................... (5,101) (14,893)
FINANCING ACTIVITIES:
Proceeds from issuance of GTR Stock ........................................ 1,829 2,268
Proceeds from issuance of debt ............................................. 13,000 38,000
Payments of debt and capital lease obligations ............................. -- (23,169)
Cash allocated from Genzyme General ........................................ 14,899 10,000
Other ...................................................................... -- (24)
-------- --------
Net cash provided by financing activities ............................ 29,728 27,075
-------- --------
Decrease in cash and cash equivalents ......................................... (2,305) (16,100)
Cash and cash equivalents, beginning of period ................................ 16,230 40,741
-------- --------
Cash and cash equivalents, end of period ...................................... $ 13,925 $ 24,641
======== ========
</TABLE>
The accompanying notes are an integral part of these
unaudited, combined financial statements.
11
<PAGE> 12
GENZYME TISSUE REPAIR
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These unaudited, combined financial statements should be read in
conjunction with the 1996 Genzyme 10-K/A and the financial statements
and footnotes for Genzyme and GTR included therein. Certain information
and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission rules and regulations.
The financial statements for the three and nine months ended September
30, 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. INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997 DECEMBER 31, 1996
------------------ -----------------
<S> <C> <C>
Raw materials...................... $ 224 $ 136
Work-in-process.................... 1,151 1,687
------- -------
$ 1,375 $ 1,823
======= =======
</TABLE>
3. ALLOCATION BY GENZYME GENERAL TO GTR
In the nine months ended September 30, 1997, Genzyme General allocated a
total of $5.1 million to GTR to fund GTR's participation in
Diacrin/Genzyme LLC, a joint venture with Diacrin, in exchange for
489,810 GTR Designated Shares. See Note 5, Distribution of GTR Designated
Shares.
4. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share".
SFAS No. 128 establishes a different method of computing EPS than is
currently required under the provisions of APB 15. Under SFAS No. 128,
Genzyme will be required to present both basic EPS and diluted EPS
attributable to GTR Stock (the principal difference being that common
stock equivalents would not be considered in the computation of basic
EPS). Basic EPS data for GTR for the three and nine months ended
September 30, 1997 and September 30, 1996 would have been the same as
EPS for each respective period computed under the provisions of APB 15.
The impact of SFAS No. 128 on the calculation of diluted EPS for the
periods presented 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 EPS data presented will be restated to conform to
the provisions of SFAS No. 128.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Nos. 130 and 131, "Reporting
Comprehensive Income" ("SFAS 130"), and "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), respectively
(collectively, the "Statements"). The Statements are effective for fiscal
years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting of comprehensive income and its components in annual
financial statements. SFAS 131 establishes standards for reporting
financial and descriptive information about an enterprise's operating
segments in its annual financial statements and selected segment
information in interim financial reports. Reclassification or restatement
of comparative financial statements or financial information for earlier
periods is required upon adoption of SFAS 130 and SFAS 131, respectively.
Application of the Statement's disclosure requirements will have no
impact on Genzyme Tissue Repair's combined financial position, results of
operations or earnings per share data as currently reported.
5. DISTRIBUTION OF GTR DESIGNATED SHARES
As of June 30, 1997, 3,160,939 GTR Designated Shares had been reserved
for issuance by the Genzyme Board on behalf of Genzyme General or its
stockholders as a result of cash and other assets allocated from Genzyme
General to GTR since GTR's inception, of which 466,501 shares represent
the remaining shares reserved for issuance upon the exercise of Genzyme
General options and warrants outstanding at the GTR Date of Inception.
On June 30, 1997, the Genzyme Board declared a dividend of 2,685,941 GTR
Designated Shares which were distributed on July 22, 1997 to Genzyme
General stockholders of record as of July 11, 1997, in a tax-free
distribution of approximately .03 share of GTR Stock for each share of
GGD Stock owned. In total, 2,294,613 shares of GTR Stock were issued to
Genzyme General Stockholders in the distribution and 391,328 shares of
GTR Stock have been reserved for issuance upon the exercise of GGD Stock
options and warrants outstanding on the record date. As of September 30,
1997, 911,821 GTR Designated Shares remain reserved for issuance by the
Genzyme Board or its stockholders, of which 812,130 shares represent the
remaining shares reserved for issuance upon the exercise of certain GGD
Stock options and warrants.
6. SUBSEQUENT EVENT
GENZYME TISSUE REPAIR FOLLOW-ON COMMON STOCK OFFERING
In November 1997, GTR sold 4,000,000 shares of GTR Stock to the public
for $7.75 per share. Net proceeds from the offering after underwriting
discounts and commissions were $29.2 million.
12
<PAGE> 13
GENZYME MOLECULAR ONCOLOGY
COMBINED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30, DECEMBER 31,
- ------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ................................... $21,431 $ --
Other ....................................................... 308 --
------- -------
Total current assets ...................................... 21,739 --
Property, plant and equipment, net ............................. 182 --
Intangibles, net ............................................... 33,863 --
Other .......................................................... 700 --
------- -------
Total assets ................................................... $56,484 $ --
======= =======
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable ............................................ $ 26 $ --
Accrued expenses ............................................ 1,448 --
Payable to Genzyme General .................................. 3,735 --
------- -------
Total current liabilities ................................... 5,209 --
Long-term debt ................................................. 20,887 --
Deferred tax liability ......................................... 7,170
Note payable to Genzyme General ................................ 2,524
Other noncurrent liabilities ................................... 480 --
------- -------
Total liabilities .......................................... 36,270 --
Division equity ................................................ 20,214 --
Parent company investment - Genzyme General .................... -- 1,504
Accumulated deficit ............................................ -- (1,504)
------- -------
Total division equity ...................................... 20,214 --
------- -------
Total liabilities and division equity .......................... $56,484 $ --
======= =======
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
13
<PAGE> 14
GENZYME MOLECULAR ONCOLOGY
COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
- ------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net service sales .................................. $ 83 $ -- $ 83 $ --
Revenue from research and development contracts .... 93 -- 93 --
-------- -------- -------- --------
Total revenues: .................................. 176 -- 176 --
Operating costs and expenses:
Cost of revenue .................................... 106 -- 106 --
Selling, general and administrative ................ 537 51 812 129
Research and development ........................... 1,622 189 3,171 559
Amortization of intangibles ........................ 1,768 -- 1,996 --
Charge for in-process technology ................... -- -- 7,000 --
-------- -------- -------- --------
Total operating costs and expenses ................ 4,033 240 13,085 688
-------- -------- -------- --------
Operating loss ......................................... (3,857) (240) (12,909) (688)
Other income (expenses):
Equity in net loss of joint venture .................... (128) -- (128) --
Interest income ........................................ 172 -- 172 --
Interest expense ....................................... (481) -- (498) --
-------- -------- -------- --------
Total other income (expenses) ..................... (437) -- (454) --
-------- -------- -------- --------
Loss before income taxes ............................... (4,294) (240) (13,363) (688)
Deferred tax benefit ................................... 380 -- 430 --
-------- -------- -------- --------
Net loss ............................................... $ (3,914) $ (240) $(12,933) $ (688)
======== ======== ======== ========
Per Genzyme Molecular
Oncology common share:
Net loss ........................................... $ (1.00)
========
Average shares outstanding ......................... 3,929
========
Pro Forma per Genzyme Molecular Oncology
common share:
Pro forma net loss ................................. $ (3.29)
========
Pro forma shares outstanding ....................... 3,929
========
</TABLE>
The accompanying notes are an integral part of these unaudited,
combined financial statements.
14
<PAGE> 15
GENZYME MOLECULAR ONCOLOGY
COMBINED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30,
- --------------------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net loss ........................................................... $(12,933) $(1,504)
Reconciliation of net loss to net cash used by operating activities:
Depreciation and amortization .................................... 2,022 --
Amortization of deferred taxes ................................... (430) --
Accretion of debt discount ....................................... 251 --
Charge for in-process technology ................................. 7,000 --
Equity in net loss of joint venture .............................. 128 --
Increase (decrease) in cash from working capital changes:
Other current assets ........................................... (298) --
Accounts payable and accrued expenses .......................... (214) --
Due to Genzyme General ......................................... 311 --
-------- -------
Net cash used by operating activities ....................... (4,163) (1,504)
INVESTING ACTIVITIES:
Investment in unconsolidated affiliate ............................. (724) --
Other assets and liabilities ....................................... 41 --
Acquisition of PharmaGenics, Inc. net of acquired cash ............. 9 --
-------- -------
Net cash (used by) investing activities ..................... (674) --
FINANCING ACTIVITIES:
Proceeds from issuance of warrants ................................. 724 --
Allocation of debt from Genzyme General ............................ 5,000 --
Proceeds from issuance of convertible debenture, net ............... 19,150 --
Parent company investment - Genzyme General ........................ 1,394 1,504
-------- -------
Net cash provided by financing activities ................... 26,268 1,504
-------- -------
Increase in cash and cash equivalents ................................. 21,431 0
Cash and cash equivalents, beginning of period ........................ -- --
-------- -------
Cash and cash equivalents, end of period .............................. $ 21,431 $ 0
======== =======
</TABLE>
Supplemental disclosure of noncash transaction:
Acquisition of PharmaGenis, Inc. -- See Note 2
The accompanying notes are an integral part of these unaudited,
combined financial statements.
15
<PAGE> 16
GENZYME MOLECULAR ONCOLOGY
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These unaudited combined financial statements should be read in
conjunction with the Company's Registration Statement on Form S-4
(Registration No. 333-26351) and the financial statements and footnotes
of GMO included therein. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to the Securities and Exchange Commission rules and regulations.
The financial statements for the three and nine months ended September
30, 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. PHARMAGENICS MERGER
The merger of PharmaGenics, Inc. ("PharmaGenics"), with and into Genzyme
(the "Merger") was consummated on June 18, 1997. In connection with the
Merger, Genzyme established GMO, a new division of Genzyme, which
consists of all of PharmaGenics's business, several programs previously
allocated to Genzyme General in the area of molecular oncology and
Genzyme's rights under agreements with third parties relating to gene
therapies for the treatment of cancer. As compensation to Genzyme General
for its contribution to GMO, 6,000,000 shares of GMO Stock have been
reserved for issuance at the discretion of the Genzyme Board for the
benefit of Genzyme General or its stockholders ("GMO Designated Shares").
The Genzyme Board may issue the GMO Designated Shares as a stock dividend
to the holders of GGD Stock or it may sell such shares in a public or
private sale and allocate all of the proceeds to Genzyme General.
Genzyme's management and accounting policies require Genzyme to
distribute GMO Designated Shares to holders of GGD Stock on the later of
November 30, 1998 or 360 days following completion of an initial public
offering of shares of GMO Stock, although the Genzyme Board may elect to
distribute these shares at any time.
The aggregate purchase price of $27.5 million (net of $0.5 million which
represents the fees payable by PharmaGenics in connection with the
Merger), plus acquisition costs of $2.6 million and assumed liabilities
of $5.4 million has been allocated to the acquired tangible and
intangible assets based on their respective fair values (amounts in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Property, plant & equipment .................................$ 208
Other assets ................................................ 50
Completed technology rights (to be amortized over 5 years)... 20,000
Goodwill (to be amortized over 5 years)...................... 15,859
Deferred tax liability (to be amortized over 5 years)........ (7,600)
In-process technology........................................ 7,000
-------
$35,517
=======
</TABLE>
The $7.0 million allocated to in-process technology represents the value
assigned to PharmaGenics's programs which are still in the development
stage and for which there is no alternative use. The value assigned to
these programs (both complete and in-process) has been determined by
selecting the maximum anticipated value of these programs, as provided by
an independent valuation of the PharmaGenics business, based on
comparable technologies. The amount allocated to in-process technology
was charged to operations in June 1997, the period in which the Merger
was consummated.
The deferred tax liability of $7.6 million results from the temporary
difference between the book and tax basis of the completed technology
computed at a 38.0% incremental tax rate.
As of the date of the Merger, PharmaGenics had borrowed $2.5 million from
Genzyme under a credit facility (the "PharmaGenics Note") which Genzyme
had made available to PharmaGenics to fund PharmaGenics's documented
operating costs. Upon consummation of the Merger, the PharmaGenics Note
became a liability allocated to GMO and the $2.5 million of outstanding
principal is considered an intracompany loan by Genzyme General to GMO
due on February 10, 2002 and convertible at any time prior thereto, at
the Genzyme Board's option, into GMO Designated Shares. The number of GMO
Designated Shares resulting from any conversion of the PharmaGenics Note
will be determined by dividing the principal and interest being converted
by the conversion price (the "GMO Conversion Price") in effect on the
date of conversion. The initial GMO Conversion Price will be determined
upon the closing of the first public offering of GMO securities in which
the aggregate gross proceeds to GMO equal or exceed $10.0 million (an
"Offering"), and will be equal to (i) the per share price of the GMO
Stock sold in the Offering or, if GMO Stock is not sold in the Offering,
(ii) the initial conversion price of the security convertible into GMO
Stock that is sold in the Offering, provided that if
16
<PAGE> 17
any portion of the PharmaGenics Note is converted prior to any Offering,
the initial GMO Conversion Price is $7.00. The GMO Conversion Price is
subject to adjustment upon declaration of any stock dividend or on
completion of any subdivision or combination of the GMO Stock.
If the Merger had taken place on January 1, 1996, after giving effect to
adjustments for increased amortization, increased interest expense, the
tax benefit from the amortization of the deferred tax liability and the
one time charge for in-process technology, the pro forma revenues, net
loss and net loss per share for GMO would have been the following
(amounts in thousands, except per share amounts):
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1997 1996
---- ----
<S> <C> <C>
Pro forma revenues .......................... $ 251 $(1,005)
======= =======
Pro forma net loss .......................... (22,013) (8,232)
======= =======
Pro forma net loss per share ................ (5.60) (2.10)
======= =======
Pro forma weighted average shares outstanding 3,929 3,929
======= =======
</TABLE>
3. NET LOSS PER SHARE
Historical loss per share information is presented for the three months
ended September 30, 1997 but is omitted for the nine months ended
September 30, 1997 as there were no shares of GMO Stock outstanding
prior to June 18, 1997. Pro forma net loss per share is disclosed for
the nine months ended September 30, 1997. The pro forma shares
outstanding represent the shares of Stock issued to effect the Merger.
4. 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 Genzyme General, GTR or GMO. As of September 30, 1997, GMO
had $5.0 million of debt outstanding under the Revolving Credit Facility
5. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, The FASB issued SFAS No. 128, "Earnings Per Share".
SFAS No. 128 establishes a different method of computing EPS than is
currently required under the provisions of APB 15. Under SFAS No. 128,
Genzyme will be required to present both basic EPS and diluted EPS
attributable to GMO Stock (the principal difference being that common
stock equivalents would not be considered in the computation of basic
EPS). Pro forma basic EPS data for GMO for the three and nine months
ended September 30, 1997 and 1996 would have been the same as pro
forma EPS for each respective period computed under the provisions of APB
15. The impact of SFAS No. 128 on the calculation of diluted EPS for the
periods presented is not expected to be material. Genzyme will adopt SFAS
No. 128 in its fiscal quarter ending December 31, 1997 and at that time
all historical EPS data presented will be restated to conform to the
provisions of SFAS No. 128.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Nos. 130 and 131. "Reporting
Comprehensive Income" ("SFAS 130") and "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), respectively
(collectively, the "Statements"). The Statements are effective for fiscal
years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting of comprehensive income and its components in annual
financial statements. SFAS 131 establishes standards for reporting
financial and descriptive information about an enterprise's operating
segments in its annual financial statements and selected segment
information in interim financial reports. Reclassification or restatement
of comparative financial statements or financial information for earlier
periods is required upon adoption of SFAS 130 and SFAS 131, respectively.
Application of the Statements' disclosure requirements will have no
impact on Genzyme Molecular Oncology's combined financial position,
results of operations or earnings per share data as currently reported.
6. STRESSGEN/GENZYME LLC
In July 1997, StressGen/Genzyme LLC was established as a joint venture
among Genzyme, StressGen Biotechnologies Corp. ("StressGen") and the
Canadian Medical Discoveries Fund Inc. ("CMDF") to develop stress gene
therapies for the treatment of cancer. CMDF provided $10.0 million
(Canadian) in funding in connection with the joint venture through the
combination of a capital contribution to StressGen/Genzyme LLC in the
amount of $1.0 million (Canadian), the purchase of warrants from Genzyme
in the amount of $1.0 million (Canadian), the purchase of warrants and
preferred stock from StressGen in the amount of $1.4 million (Canadian)
and a limited recourse loan bearing interest at 0.125% per annum to
StressGen in the amount of $6.6 million (Canadian). Each of Genzyme and
StressGen (through a U.S. subsidiary) also made a capital contribution to
StressGen/Genzyme LLC in the amount of $1.0 million (Canadian) and a
limited recourse loan was made by the U.S. subsidiary of StressGen to
StressGen/Genzyme LLC in the amount of $7.0 million (Canadian). In
addition, Genzyme and StressGen have agreed to provide in equal shares
any additional capital required by the joint venture in excess of the
initial $10.0 million (Canadian) funding.
17
<PAGE> 18
GENZYME MOLECULAR ONCOLOGY
NOTES TO UNAUDITED COMBINED FINANCIAL STATEMENTS
Genzyme and StressGen have an option (the "Purchase Option"), payable in equal
shares, to purchase CMDF's membership interest in StressGen/Genzyme LLC at any
time during the three-year period beginning July 31, 1999 and ending July 31,
2002. The exercise price of the Purchase Option initially will be $15.6 million
(Canadian) in July 1999 and will increase monthly thereafter to a final
exercise price of $30.5 million (Canadian) in July 2002. The limited recourse
loan made by CMDF will be retired in connection with the exercise of the
Purchase Option. If the Purchase Option is not exercised on or before July 31,
2002, CMDF may require Genzyme and StressGen to effectively repay $2.0 million
(Canadian) each of the limited recourse loan. In addition, at any time during
the 30-day period commencing on the date when not less than 75% of the initial
funding provided by CMDF has been spent by the joint venture, but in no event
later than July 31, 1999, CMDF shall have the right (the "Mandatory Purchase
Right") to require Genzyme and StressGen to purchase its membership interest at
an aggregate purchase price of $10.0 million (Canadian) plus interest thereon
at a rate per annum equal to the Canadian prime rate plus 1%. The Mandatory
Purchase Right will terminate if not exercised by CMDF during such 30-day
period. Genzyme's share of any amounts payable to CMDF upon exercise of the
Purchase Option, the Mandatory Purchase Right or repayment of the limited
recourse loan may be paid in cash, Genzyme common stock or any combination
thereof at the discretion of Genzyme.
Prior to the repurchase of CMDF's membership interest in StressGen/Genzyme LLC,
profits from the joint venture will be shared in proportion to the capital
contributions of the three parties. Following the repurchase of CMDF's
membership interest, profits will be shared equally by StressGen and Genzyme.
However, GMO records 50% of the net operating losses of the joint venture due
to the Mandatory Purchase Right. Accordingly, for the nine months ended
September 30, 1997, GMO recorded $128,000 of equity in loss of the joint
venture.
GMO recorded $93,000 of revenue related to research and development services
billed to StressGen/Genzyme LLC.
Genzyme sold three warrants (the "Front-End Warrant", the "NDA Warrant", and
the "Callable Warrant", collectively, the "Warrants") to purchase Genzyme
common stock to CMDF for an aggregate purchase price of $1.0 million
(Canadian). Each warrant is initially exercisable for up to 40,000 shares of
GGD Stock and will be converted automatically upon the closing date of the GMO
IPO into warrants to purchase shares of GMO Stock as follows:
The Front-End Warrant is exercisable immediately and will terminate upon the
earlier of the exercise of the Mandatory Purchase Right by CMDF or July 31,
2002. The exercise price of the Front-End Warrant is $30.18 per share of GGD
Stock and, upon conversion following the GMO IPO, will be equal to 120% of a
defined conversion price.
The NDA Warrant will be exercisable during the one-year period following the
filing of the first new drug application with the FDA for a product developed
through the collaboration and will terminate upon the earliest of the exercise
of the Mandatory Purchase Right by CMDF, the expiration of the Purchase Option
or July 31, 2007. The exercise price of the NDA Warrants is $30.18 per share of
GGD Stock and, upon conversion following the GMO IPO, will be equal to 120% of
a defined conversion price.
The Callable Warrant will be exercisable during the three-year period following
the expiration of the Purchase Option and will terminate upon the earliest of
the exercise of the Mandatory Purchase Right by CMDF, the exercise of the
Purchase Option or July 31, 2005. The exercise price of the Callable Warrant
per share of GGD Stock will be equal to the average of the closing sale prices
of the GGD Stock on the Nasdaq National Market for the 20 trading days ending
on the expiration date of the Purchase Option, and upon conversion following
the GMO IPO, will be equal to the average of closing sale prices of the GMO
Stock on the Nasdaq National Market for the 20 trading days ending on the
expiration date of the Purchase Option.
18
<PAGE> 19
7. GMO PRIVATE PLACEMENT
In August 1997, GMO completed a private placement of the GMO Debentures.
The GMO Debentures bear interest at 6% per annum and are convertible into
shares of GMO Stock beginning no earlier than the 91st day after the
completion of the GMO IPO. Beginning on February 26, 1998, the GMO
Debentures will be convertible at a discount to the average of the
closing bid prices of GMO Stock as reported by the Nasdaq National Market
for the 20 trading days immediately preceding the applicable conversion
date (the "Market Price"), which discount begins at 7% and will increase
by an additional one percent every 30 days thereafter until October 24,
1998. Beginning November 23, 1998, the conversion price will be the lower
of (i) 85% of the Market Price calculated as of the actual conversion
date and (ii) 85% of the Market Price calculated as of November 22, 1998
(the "Fixed Conversion Price"). In no event, however, will the conversion
price be less than %7.70 per share (subject to adjustment in the event of
any stock split, stock dividend, reclassification, combination or similar
event). In the third quarter of 1997, GMO recorded $16.5 million of
proceeds attributed to the value of the debt and $3.5 million attributed
to the value of the conversion feature (recorded as an increase to
division equity). The $16.5 million will be accreted to the face value of
the debt by a charge to interest expense over the term of the initial 15
month conversion period.
EXCHANGE OPTION
IF GMO has not completed the GMO IPO by August 29, 1998, at the holder's
option, the GMO Debentures may be exchanged for GGD Debentures due August
29, 2003. If the GMO IPO is completed before August 29, 1998 but the
aggregate proceeds from the offering are less than $15.0 million or GMO's
market capitalization is below $90.0 million, at the holder's option, 50%
of the GMO Debentures can be exchanged for GGD Debentures. The exchange
option must be exercised within 30 business days after the earlier of
August 29, 1998 or the date on which the GMO IPO is consummated. The GGD
Debentures, if issued, will be convertible at the option of the holder at
any time prior to maturity into shares of GGD Stock at a 13% premium to
the average closing bid price of GGD Stock or reported by the Nasdaq
National Market for the five trading days immediately preceding the issue
date.
PUT OPTION
If at any time after the 180 day period after completion of the GMO
IPO, the conversion price is less than the floor conversion price of
$7.70 for every trading day during the Put Review Period, the holder
will have the option over the Put Exercise Period to put the GMO
Debentures back to GMO for cash compensation. The holder has three
options to exercise the put. The first Put Review Period may not
commence until 180 days after completion of the GMO IPO. The Put Review
Period for the second and third options (assuming the first has
occurred) may only commence 90 days after the previous Put Exercise
Period has expired.
CALL OPTION
The GMO Debentures are callable with cash or stock beginning 18 months
after the GMO IPO if the stock has closed at 150% of the Fixed Conversion
Price for 20 consecutive trading days.
19
<PAGE> 20
GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) SEPTEMBER 30, DECEMBER 31,
- -------------------------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents ............................................. $ 143,943 $ 93,450
Short-term investments ................................................ 33,494 56,290
Accounts receivable, less allowance for doubtful accounts ............. 119,328 116,833
Inventories ........................................................... 146,932 125,265
Prepaid expenses and other current assets ............................. 17,083 100,287
Deferred tax assets - current ......................................... 17,493 17,493
----------- -----------
Total current assets ................................................ 478,273 509,618
Property, plant and equipment, net ....................................... 388,999 393,839
Long-term investments .................................................... 26,505 38,215
Intangibles, net of accumulated amortization ............................. 278,361 247,745
Deferred tax assets - noncurrent ......................................... 38,054 42,221
Other .................................................................... 64,464 38,870
----------- -----------
Total assets ............................................................. $ 1,274,656 $ 1,270,508
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable ...................................................... $ 17,419 $ 22,271
Accrued expenses ...................................................... 64,291 70,124
Income taxes payable .................................................. 26,107 17,926
Deferred revenue ...................................................... 2,518 2,693
Current portion of long-term debt and capital lease obligations ....... 683 999
----------- -----------
Total current liabilities ........................................... 111,018 114,013
Long-term debt and capital lease obligations .......................... 169,636 241,998
Other liabilities ..................................................... 7,655 12,188
----------- -----------
Total liabilities .................................................... 288,309 368,199
Stockholders' Equity:
Genzyme General Stock, $.01 par value ................................. 775 755
Genzyme Tissue Repair Stock, $.01 par value ........................... 159 132
Genzyme Molecular Oncology Stock $.01 par value ....................... 39 --
Additional paid-in capital - Genzyme General .......................... 883,922 871,020
Additional paid-in capital - Genzyme Tissue Repair .................... 140,770 122,385
Additional paid-in capital - Genzyme Molecular Oncology ............... 34,589 --
Treasury Stock - at cost .............................................. (901) (890)
Accumulated deficit ................................................... (66,813) (89,975)
Foreign currency translation adjustments .............................. (11,919) (745)
Unrealized net gains (losses) on investments .......................... 5,726 (373)
----------- -----------
986,347 902,309
----------- -----------
$ 1,274,656 $ 1,270,508
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited,
consolidated financial statements.
20
<PAGE> 21
GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS) SEPTEMBER 30, SEPTEMBER 30,
- ---------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Net product sales .................................... $ 132,098 $ 117,673 $ 391,890 $ 301,575
Net service sales .................................... 16,694 18,510 50,386 51,539
Revenues from research and development contracts ..... 3,302 6,700 6,679 18,901
--------- --------- --------- ---------
Total revenues ...................................... 152,094 142,883 448,955 372,015
Operating costs and expenses:
Cost of products sold ................................ 42,516 47,911 134,526 110,399
Cost of services sold ................................ 11,810 15,060 36,096 40,593
Selling, general and administrative .................. 50,644 42,542 145,017 118,575
Amortization of intangibles .......................... 4,750 3,121 11,338 5,657
Research and development (including research
and development related to contracts) ............... 22,770 21,238 64,454 57,493
Charge for in-process technology ..................... -- 24,170 7,000 24,170
Restructuring charges ................................ -- -- -- 1,465
--------- --------- --------- ---------
Total operating costs and expenses .................. 132,490 154,042 398,431 358,352
--------- --------- --------- ---------
Operating income (loss) .................................. 19,604 (11,159) 50,524 13,663
Other income (expenses):
Equity in net loss of unconsolidated affiliates ...... (3,401) 470 (7,670) (1,588)
Gain on investment ................................... -- -- -- 1,711
Investment income .................................... 2,824 3,637 8,134 12,740
Interest expense ..................................... (3,288) (3,187) (8,543) (3,582)
--------- --------- --------- ---------
Total other income (expenses) ....................... (3,865) 920 (8,079) 9,281
--------- --------- --------- ---------
Income (loss) before income taxes ........................ 15,739 (10,239) 42,445 22,944
Provision for income taxes ............................... (6,182) (5,601) (19,252) (18,708)
--------- --------- --------- ---------
Net income (loss) ........................................ $ 9,557 $ (15,840) $ 23,193 $ 4,236
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these unaudited,
consolidated financial statements.
21
<PAGE> 22
GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) SEPTEMBER 30, SEPTEMBER 30,
- -----------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
ATTRIBUTABLE TO GENZYME GENERAL:
Net income (loss) attributable to Genzyme General Stock.......... $ 18,997 $(9,881) $ 54,479 $ 21,635
Allocated tax benefit generated by Genzyme Tissue Repair ........ 4,240 3,973 13,078 11,775
Allocated tax benefit generated by Genzyme Molecular Oncology ... 1,120 -- 1,321 --
-------- ------- -------- --------
Net income (loss) attributable to Genzyme General ............. $ 24,357 $(5,908) $ 68,878 $ 33,410
======== ======= ======== ========
Income (loss) per Genzyme General common and common
equivalent share:
Net income (loss) .............................................. $ 0.31 $ (0.09) $ 0.88 $ 0.46
======== ======= ======== ========
Average shares outstanding ..................................... 79,446 69,440 78,604 73,024
======== ======= ======== ========
Income (loss) per Genzyme General common share
assuming full dilution:
Net income (loss) .............................................. $ 0.30 $ (0.09) $ 0.87 $ 0.45
======== ======= ======== ========
Average fully diluted shares outstanding ....................... 79,865 69,440 78,964 74,146
======== ======= ======== ========
ATTRIBUTABLE TO GENZYME TISSUE REPAIR:
Net loss attributable to Genzyme Tissue Repair Stock ............ $(11,031) $(9,932) $(34,291) $(29,174)
======== ======= ======== ========
Loss per Genzyme Tissue Repair common share:
Net loss ...................................................... $ (0.72) $ (0.78) $ (2.47) $ (2.33)
======== ======= ======== ========
Average shares outstanding .................................... 15,220 12,711 13,879 12,511
======== ======= ======== ========
ATTRIBUTABLE TO GENZYME MOLECULAR ONCOLOGY:
Net loss attributable to Genzyme Molecular Oncology ............. $ (3,914) $(12,933)
======== ========
Loss per Genzyme Molecular Oncology common share:
Net loss ...................................................... $ (1.00)
========
Average shares outstanding .................................... 3,929
========
Per pro forma common share:
Pro forma net loss ............................................ $ (3.29)
========
Pro forma shares outstanding .................................. 3,929
========
</TABLE>
The accompanying notes are an integral part of these unaudited,
consolidated financial statements.
22
<PAGE> 23
GENZYME CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
(IN THOUSANDS) NINE MONTHS ENDED SEPTEMBER 30,
- ----------------------------------------------------------------------------------------------------------------
1997 1996
---- ----
<S> <C> <C>
OPERATING ACTIVITIES:
Net income ..................................................................... $ 23,193 $ 4,236
Reconciliation of net income to net cash provided by operating activities:
Depreciation and amortization ............................................... 30,299 20,783
Provision for bad debts ..................................................... 5,382 5,925
(Gain) loss on sale of investment ........................................... 2 (973)
Accrued interest/amortization on bonds ...................................... 889 310
Accretion of debt discount .................................................. 962 --
Charge for incomplete technology ............................................ 7,000 24,170
Equity in net loss of unconsolidated affiliates ............................. 7,670 1,588
Other ....................................................................... 658 (42)
Increase (decrease) in cash from working capital:
Accounts receivable ...................................................... (11,762) (15,087)
Inventories .............................................................. (21,793) (30,643)
Prepaid expenses and other current assets ................................ (2,767) (3,209)
Accounts payable, accrued expenses and deferred revenue .................. (8,001) 25,108
--------- ---------
Net cash provided by operating activities ............................... 31,732 32,166
INVESTING ACTIVITIES:
Purchases of investments ....................................................... (25,424) (79,457)
Sales and maturities of investments ............................................ 59,245 132,685
Investment in unconsolidated affiliate ......................................... (8,834) (3,600)
Loans to affiliate ............................................................. -- (1,676)
Acquisition of PharmaGenics, net of acquired cash .............................. 9 --
Acquisition of DSP, net of acquired cash ....................................... -- (194,497)
Purchases of property, plant and equipment ..................................... (25,081) (47,787)
Sale of property, plant and equipment .......................................... 349 --
Other noncurrent assets and other noncurrent liabilities ....................... (30,536) (16,288)
--------- ---------
Net cash used by investing activities ................................... (30,272) (210,620)
FINANCING ACTIVITIES:
Proceeds from issuance of common stock ......................................... 120,157 24,084
Proceeds from issuance of debt ................................................. 32,150 238,000
Payments of long-term debt and capital lease obligations ....................... (100,881) (87,692)
--------- ---------
Net cash provided by financing activities ............................... 51,426 174,392
--------- ---------
Effect of exchange rate changes on cash ............................................ (2,393) 1,212
--------- ---------
Increase (decrease) in cash and cash equivalents ................................... 50,493 (2,850)
Cash and cash equivalents at beginning of period ................................... 93,450 144,372
--------- ---------
Cash and cash equivalents at end of period ......................................... $ 143,943 $ 141,522
========= =========
</TABLE>
The accompanying notes are an integral part of these
unaudited, consolidated financial statements.
23
<PAGE> 24
GENZYME CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
These unaudited, consolidated financial statements should be read in
conjunction with the 1996 Genzyme 10-K/A 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 and nine months ended September
30, 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. INVENTORIES (IN THOUSANDS)
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
------------------ -----------------
<S> <C> <C>
Raw materials................................... $ 40,653 $ 30,379
Work-in-process................................. 36,572 38,203
Finished products............................... 69,707 56,683
-------- --------
$146,932 $125,265
======== ========
</TABLE>
3. REVOLVING CREDIT FACILITY
Genzyme has a 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 Genzyme
General, GTR or GMO. As of September 30, 1997, the company had $118.0
million of debt outstanding under the Revolving Credit Facility, which
had been allocated $95.0 million to Genzyme General, $18.0 million to GTR
and $5.0 million to GMO.
4. PROVISION FOR INCOME TAXES
The tax provisions for the three and nine months ended September 30, 1997
vary from the U.S. statutory tax rate because of the provision for state
income taxes, nondeductible intangible amortization, losses of
unconsolidated affiliates, tax credits and taxes on foreign earnings. The
effective tax rate was 39.3% and 38.9%, respectively, for the three and
nine months ended September 30, 1997 as compared to 43.4% and 40.6%,
respectively, for the corresponding periods in 1996.
5. NEW ACCOUNTING PRONOUNCEMENT
In February 1997, The FASB issued SFAS No. 128, "Earnings Per Share".
SFAS No. 128 establishes a different method of computing EPS than is
currently required under the provisions of APB 15. Under SFAS No. 128,
Genzyme will be required to present both basic EPS and diluted EPS
attributable to GGD Stock, GTR Stock and GMO Stock (the principal
difference being that common stock equivalents would not be considered in
the computation of basic EPS). Basic EPS for Genzyme General for the
quarter ended September 30, 1997 and September 30, 1996, would have been
$0.32 and $(0.09), respectively, and $0.90 and $0.49 for the nine months
ended September 30, 1997 and 1996, respectively. Basic EPS for GTR and
GMO for the three and nine months ended September 30, 1997 and September
30, 1996 would have been the same as EPS for each division for each
respective period computed under the provisions of APB 15. The impact of
SFAS No. 128 on the calculation of diluted EPS for these quarters is not
expected to be materially different than fully diluted EPS. Genzyme will
adopt SFAS No. 128 in its fiscal quarter ending December 31, 1997 and at
that time all historical EPS data presented will be restated to conform
to the provisions of SFAS No. 128.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards Nos. 130 and 131, "Reporting
Comprehensive Income" ("SFAS 130"), and "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), respectively
(collectively, the "Statements"). The Statements are effective for fiscal
years beginning after December 15, 1997. SFAS 130 establishes standards
for reporting of comprehensive income and its components in annual
financial statements. SFAS 131 establishes standards for reporting
financial and descriptive information about an enterprise's operating
segments in its annual financial statements and selected segment
information in interim financial reports. Reclassification or restatement
of comparative financial statements or financial information for earlier
periods is required upon adoption of SFAS 130 and SFAS 131, respectively.
Application of the Statements' disclosure requirements will have no
impact on the Genzyme's consolidated financial position, results of
operations or earnings per share data as currently reported.
24
<PAGE> 25
6. INVESTMENT IN ABIOMED, INC.
In July 1997, Genzyme General purchased 1,153,846 shares of ABIOMED, Inc.
common stock for $13.00 per share for an aggregate investment of
$14,999,998. As a result of the investment, Genzyme owns approximately
14% of ABIOMED, Inc.
7. JOINT VENTURE WITH GENZYME TRANSGENICS CORPORATION
Pursuant to the Convertible Debt and Development Funding Agreement
between Genzyme and GTC, as described in the 1996 Genzyme 10-K/A, Genzyme
General has been funding GTC's development of transgenic ATIII, a plasma
protein that helps regulate blood clotting, since April 1, 1996. In July
1997, Genzyme and GTC announced that an agreement in principle had been
reached on the key terms of a joint venture for further development,
marketing and distribution of transgenic ATIII worldwide, excluding Asia.
Genzyme General will provide 70% of the development costs up to a maximum
of $33.0 million. GTC will fund the remaining 30% of the development
costs. Both companies will fund equally any costs in excess of that
level, and profits will be split equally.
8. GMO PRIVATE PLACEMENT
In August 1997, GMO completed a private placement of the GMO Debentures.
The GMO Debentures bear interest at 6% per annum and are convertible into
shares of GMO Stock beginning no earlier than the 91st day after the
completion of the GMO IPO. Beginning on February 26, 1998, the GMO
Debentures will be convertible at a discount to the average of the
closing bid prices of GMO Stock as reported by the Nasdaq National Market
for the 20 trading days immediately preceding the applicable conversion
date (the "Market Price"), which discount begins at 7% and will increase
by an additional one percent every 30 days thereafter until October 24,
1998. Beginning November 23, 1998, the conversion price will be the lower
of (i) 85% of the Market Price calculated as of the actual conversion
date and (ii) 85% of the Market Price calculated as of November 22, 1998.
In no event, however, will the conversion price be less than $7.70 per
share (subject to adjustment in the event of any stock split, stock
dividend, reclassification, combination or similar event). In the third
quarter of 1997, GMO recorded $16.5 million of proceeds attributed to the
value of the debt and $3.5 million attributed to the value of the
conversion feature (recorded as an increase to division equity). The
$16.5 million will be accreted to the face value of the debt by a charge
to interest expense over the term of the initial 15 month conversion
period.
EXCHANGE OPTION
If GMO has not completed the GMO IPO by August 29, 1998, at the holder's
option, the GMO Debentures may be exchanged for GGD Debentures due August
29, 2003. If the GMO IPO is completed before August 29, 1998 but the
aggregate proceeds from the offering are less than $15.0 million or GMO's
market capitalization is below $90.0 million, at the holder's option, 50%
of the GMO Debentures can be exchanged for GGD Debentures. The exchange
option must be exercised within 30 business days after August 29, 1998 or
the date on which the GMO IPO is consummated. The GGD Debentures, if
issued, will be convertible, at the option of the holder, at any time
prior to maturity into shares of GGD Stock at a 13% premium to the
average closing bid price of GGD Stock or reported by the Nasdaq National
Market for the five trading days immediately preceding the issue date.
PUT OPTION
If at any time after the 180 day period after completion of the GMO IPO,
the conversion price is less than the floor conversion price of $7.70 for
every trading day during the Put Review Period, the holder will have the
option over the Put Exercise Period to put the GMO Debentures back to GMO
for cash compensation. The holder has three options to exercise the put.
The first Put Review Period may not commence until 180 days after
completion of the GMO IPO. The Put Review Period for the second and third
options (assuming the first has occurred) may only commence 90 days after
the previous Put Exercise Period has expired.
CALL OPTION
The GMO Debentures are callable with cash or stock beginning 18 months
after the GMO IPO if the stock has closed at 150% of the Fixed Conversion
Price for 20 consecutive trading days.
9. SUBSEQUENT EVENT
In November 1997, GTR sold 4,000,000 shares of GTR Stock to the public
for $7.75 per share. Net proceeds from the offering after underwriting
discounts and commissions were $29.2 million.
25
<PAGE> 26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 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.
GENZYME CORPORATION AND SUBSIDIARIES
Since the operating results of Genzyme and its subsidiaries reflect the combined
operations of Genzyme General, GTR and GMO, 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 and nine months ended September 30, 1997 were
$152.1 million and $449.0 million, respectively, increases of 6% and 21% over
each of the corresponding periods in 1996.
Product revenues consist solely of product sales by Genzyme General and for the
three months ended September 30, 1997 increased 12% to $132.1 million from
$117.7 million for the corresponding period in 1996. The increase was primarily
due to the increased sales of Cerezyme[R] enzyme and Ceredase[R] enzyme, offset
in part by a decrease in sales of surgical products. This decrease was primarily
due to the loss of market share caused by price competition in the fluid
management business. Product revenues increased 30% to $391.9 million for the
nine months ended September 30, 1997 from $301.6 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 the Genzyme
Genetics business unit, sales of Genzyme Tissue Repair's CARTICEL(R) and
Epicel[SM] Services, and sales of Genzyme Molecular Oncology's SAGE[TM] Service.
Service revenues for the three months ended September 30, 1997 decreased 10% to
$16.7 million from $18.5 million for the corresponding period in 1996 due
primarily to the loss of revenues from Genzyme Genetics's identity testing
laboratory, Genetic Design, Inc. ("GDI"), which was sold in November 1996,
offset in part by 135% and 21% increases in sales of GTR's Carticel[R] Service
and Epicel[SM] Service, respectively, and the addition of the initial sales of
GMO's SAGE[TM] Service. Service revenues for the nine months ended September 30,
1997 declined 2% to $50.4 million from $51.5 million in the corresponding period
of 1996. The decrease in revenue for the nine months ended September 30, 1997
from the corresponding period in 1996 was due primarily to the loss of revenues
from GDI, offset in part by higher unit volumes attributable to the acquisition
of Genetrix, Inc. ("Genetrix") which was added to Genzyme Genetics's revenues
from May 1996, 113% and 5% increases in sales of GTR's Carticel[R] Service and
Epicel[SM] Service, respectively, and the addition of the initial sales of GMO's
SAGE[TM] Service.
Revenues from research and development contracts for the three and nine months
ended September 30, 1997 were primarily attributable to Genzyme General and
decreased 51% and 65%, respectively, to $3.3 million and $6.7 million,
respectively, as compared to $6.7 million and $18.9 million for the
corresponding periods in 1996. The decrease resulted primarily from the loss of
revenues from Neozyme II Corporation ("Neozyme II"), which was acquired by
Genzyme in the fourth quarter of 1996, offset in part by an increase in revenues
from research and development efforts performed by Genzyme General on behalf of
GTC. Neozyme II provided $5.9 million and $16.5 million of revenue for the three
and nine months ended September 30, 1996, respectively.
MARGINS AND OPERATING EXPENSES
Gross margins for the quarters ended September 30, 1997 and 1996 were 63% and
54%, respectively, and 61% and 57% for the nine months ended September 30, 1997
and 1996, respectively. Product margins for the three and nine months ended
September 30, 1997 were 68% and 66%, respectively, and for the corresponding
periods in 1996 were 59% and 63%, respectively. The increase in both periods
primarily relates to increased sales volume of Cerezyme[R] enzyme and
Ceredase[R] enzyme, offset by decreased sales volume of Melatonin and the
addition of lower margin sales of DSP. Service margins were 30% and 19% for the
three months ended September 30, 1997 and 1996, respectively, and 29% and 21%
for the nine months ended September 30, 1997 and 1996, respectively. The
increase in service margins for both periods primarily relates to efficiencies
gained through the acquisition of Genetrix. Genzyme provides a broad range of
health care products and services, resulting in a broad range of gross margins
depending on the particular market conditions of each product or service.
Selling, general and administrative ("SG&A") expenses and amortization of
intangibles for the three months ended September 30, 1997 increased 21% to $55.4
million from $45.7 million in the same period last year. SG&A and amortization
of intangibles for the nine months ended September 30, 1997 increased 26% to
$156.4 million from $124.2 million in the same period last year. The increases
for both periods resulted primarily from the acquisitions of Genetrix and DSP,
increased staffing in support of the growth in several product lines, most
notably in support of the North American introduction of Seprafilm(TM),
increased surgeon training costs related to the CARTICEL[R] Service and
increased amortization of intangibles related to amortization of Completed
Technology and Goodwill which resulted from the acquisition of PharmaGenics in
June 1997.
26
<PAGE> 27
Research and development expenses for the three and nine months ended September
30, 1997 were $22.8 million and $71.5 million, respectively, compared to $45.4
million and $81.7 million in the corresponding periods of 1996, a decrease of
50% and 13%, respectively. The decline in research and development expenses is
primarily due to a decline in charges for in-process technology which were zero
and $7.0 million in the three and nine months ended September 30, 1997 as
compared to $24.2 million in each of the corresponding periods of 1996. The
charge for in-process technology of $7.0 million in the nine months ended
September 30, 1997 resulted from the acquisition of PharmaGenics in June 1997
and the $24.2 million charge in the three and nine months ended September 30,
1996 resulted from the acquisition of DSP in July 1996. Excluding the effect of
the charges for in-process technology, research and development expenses
increased 7% and 12% to $22.8 million and $64.5 million, respectively, in the
three and nine months ended September 30, 1997 from $21.2 million and $57.5
million, respectively, in the corresponding periods in 1996 due primarily to
increases in Genzyme General's commitment to fund development costs of the ATIII
program being conducted by GTC, increased spending associated with the Biologics
License Application for the CARTICEL[R] Service and to the one time write-off of
$7.0 million for in-process technology related to the acquisition of
PharmaGenics by GMO in June 1997.
OTHER EXPENSES
Net other expenses were $3.9 million and $8.1 million for the three and nine
month periods ended September 30, 1997 compared to net other income of $0.9
million and $9.3 million for the same periods in 1996. The change was primarily
the result of an increase in interest expense. The increase in interest expense
is due primarily to borrowings under the Revolving Credit Facility, additional
interest expense incurred by GTR and GMO related to a $13 million convertible
note (the "GTR Note") and the GMO Debentures issued in February 1997 and August
1997, respectively, and the respective charges to interest expense for the
accretion of each such debt instrument to face value, and a reduction of
capitalized interest due to the completion of Genzyme's Allston Landing
manufacturing facility in June 1996.
Interest expense for the three and nine months ended September 30, 1997 was $3.3
million and $8.5 million, respectively, net of zero and $0.4 million of
capitalized interest on construction in progress in each period, as compared to
interest expense of $3.2 million and $3.6 million for the three and nine months
ended September 30, 1996, respectively, net of capitalized interest of zero
million and $2.2 million, respectively. The increase resulted from interest on
funds borrowed in 1996 to finance portions of the acquisitions of DSP and
Neozyme II and a reduction of capitalized interest on construction in-progress
due to completion of Genzyme's Allston Landing manufacturing facility in June
1996. Investment income and gain on investments for the three and nine months
ended September 30, 1997 decreased 22% and 44%, respectively, compared to the
same periods in 1996 due primarily to lower average cash balances and a $1.7
million gain on the sale of the Company's investment in North American
Biologicals, Inc. ("NABI") recorded in June 1996.
The tax provisions for the three and nine months ended September 30, 1997 vary
from the U.S. statutory tax rate due to the provision for state income taxes,
nondeductible intangible amortization, losses of unconsolidated affiliates, tax
credits and taxes on foreign earnings. The effective tax rate was 39.3% and
38.9% for the three and nine months ended September 30, 1997, respectively, as
compared to 43.4% and 40.6% for the corresponding periods in 1996.
GENZYME GENERAL
REVENUES
Total revenues for the three and nine months ended September 30, 1997 increased
6% and 20%, respectively, to $148.8 million and $441.1 million in comparison to
$141.0 million and $366.8 million, respectively, in the corresponding periods in
1996. Product and service revenues for the three and nine months ended September
30, 1997 were $145.6 million and $434.5 million, respectively, representing an
increase of 8% and 25% in comparison to the same periods in 1996. Product
revenues for the three and nine months ending September 30, 1997 increased 12%
and 30%, respectively, over the same periods in 1996. The increase for the
quarter ended September 30, 1997 was primarily due to increased sales of
Cerezyme[R] enzyme and Ceredase[R] enzyme, offset in part by a decrease in sales
of surgical products. This decrease was primarily due to the loss of market
share caused by price competition in the fluid management business. The increase
for the nine months ended September 30, 1997 was due to the addition of sales
through the acquisition of DSP and to increased sales of Ceredase(R) enzyme and
Cerezyme(R) enzyme.
Product sales for the Specialty Therapeutics business unit for the three and
nine months ended September 30, 1997 consisted entirely of sales of Ceredase(R)
enzyme and Cerezyme(R) enzyme and increased 23% and 26%, respectively, over the
corresponding periods in 1996 due to 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 as they
represented 65% and 62% of product sales for the three and nine months ended
September 30, 1997, respectively.
27
<PAGE> 28
Product sales for the surgical products business unit for the three months ended
September 30, 1997 consisted primarily of sales of DSP products and declined 8%
to $23.2 million from $25.2 million in the corresponding period of 1996 due
primarily to a loss of volume and severe price competition in the fluid
management business. Surgical product sales increased 204% to $76.8 million in
the nine months ended September 30, 1997 from $25.3 million in the corresponding
period of 1996 due primarily to the acquisition of DSP which provided $50.0
million of revenue in the first six months of 1997 for which comparable amounts
are not reflected in the nine months ended September 30, 1996. Excluding the
effect of the additional revenue from DSP, surgical products revenue increased
6% in the nine months ended September 30, 1997 as compared to the corresponding
period in 1996 due primarily to an additional $2.0 million of revenue from a
distribution agreement executed in 1997 and increased sales of Sepra Products,
offset in part by a loss of volume and severe price competition in the fluid
management business.
Product sales for the three and nine months ended September 30, 1997 by the
Diagnostic Products business unit were level over the same period as 1996. Total
product sales by the Pharmaceutical business unit declined 6% and 36% in the
three and nine months ended September 30, 1997 as compared to 1996 as a result
of a significant decline in sales of Melatonin. This was offset partially by a
3% and 25% increase for the same periods in sales of pharmaceutical grade
hyaluronic acid ("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 nine months of 1996.
Revenues for Genzyme Genetics decreased 19% and 8% for the three and nine months
ended September 30, 1997, respectively, as compared to the corresponding periods
of 1996. The decrease for the three and nine months ended September 30, 1997 was
primarily from the loss of revenue from GDI, which was sold in November 1996,
but was offset by higher unit volumes attributable to the acquisition of
Genetrix which revenues were added to Genzyme Genetics's revenues from May 1996.
GDI contributed $3.3 million and $10.4 million, respectively, in revenues for
the three and nine months ended September 30, 1996.
International sales for the three and nine months ended September 30, 1997 and
1996 represented 38% of total product sales for both periods of 1997 and 36% and
38%, respectively, for the corresponding periods in 1996 as the addition of
domestic sales by DSP offset an increase in the combined international sales of
Ceredase(R) and Cerezyme(R) enzymes of 31% and 32% for the three and nine months
ended September 30, 1997, respectively.
Revenues from research and development contracts for the three and nine months
ended September 30, 1997 were $3.2 million and $6.6 million, respectively, and
declined 52% and 65%, respectively, in comparison to $6.7 million and $18.9
million, respectively, for the corresponding periods in 1996. The decrease for
both periods is due primarily to the absence of revenue from Neozyme II, which
was acquired by Genzyme in the fourth quarter of 1996 and which provided $5.9
million and $16.5 million of revenue for the three and nine month periods ended
September 30, 1996, respectively, offset in part by an increase in research and
development efforts performed by Genzyme General on behalf of GTC.
MARGINS AND OPERATING EXPENSES
Gross margins were 65% and 63% for the three and nine month periods ended
September 30, 1997, respectively, compared to 54% and 55% for the same periods
ended September 30, 1996. Genzyme General provides a broad range of health care
products and services, resulting in a broad range of gross margins depending on
the particular market conditions of each product or service. Product margins
were 68% and 66%, respectively, for the three and nine month periods ended
September 30, 1997 compared to 59% and 63% for the three and nine month periods
ended September 30, 1996, respectively. The increase in both periods primarily
relates to increased sales volume of Cerezyme(R) enzyme and Ceredase(R) enzyme
offset by decreased sales volume of Melatonin and the addition of lower margin
sales of DSP.
Service margins increased to 36% and 37% for the three and nine months ended
September 30, 1997, respectively, from 25% and 30% for the corresponding periods
in 1996 due to the completion of the consolidation of Genzyme Genetics with
Genetrix, the sale of GDI, and the resulting elimination of redundant
facilities and staffing.
SG&A expenses and amortization of intangibles for the three and nine months
ended September 30, 1997 were $46.8 million and $134.9 million, respectively, an
increase of 20% and 29% over the same periods in 1996. The increase was due
primarily to the acquisition of 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 $21.2 million in SG&A expenses and
amortization of intangibles in the first six months of 1997 for which comparable
amounts were not included in the results of Genzyme General for the same period
in 1996. Charges for the amortization of intangibles for the three and nine
month periods ended September 30, 1997 were $3.1 million and $9.5 million,
respectively, as compared to $3.1 million and $5.7 million in the same periods
of 1996 due to the addition of acquired patents and trade names and goodwill
recorded as a result of the acquisitions of Genetrix and DSP.
Research and development expenses for the three and nine months ended September
30, 1997 were $18.5 million and $54.8 million, respectively, as compared to
$18.3 million and $49.9 million in the same periods in 1996. The increase was
due to Genzyme General's funding of the development costs to the ATIII program
being conducted by GTC and increased spending on internal program, most notably
Thyrogen(R).
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OTHER INCOME AND EXPENSES
Other income and expenses 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 Revolving Credit Facility. Investment income and gain
on investment for the three and nine months ended September 30, 1997 decreased
to $2.4 million and $7.3 million, respectively, from $3.3 million and $13.2
million for the same periods in 1996 due primarily to lower average cash
balances and a $1.7 million gain on the sale of Genzyme General's investment in
NABI which was recorded in the second quarter of 1996. Interest expense for the
three and nine months ended September 30, 1997 was $2.0 million and $6.0
million, respectively, compared to $3.2 million and $3.6 million for the same
periods in 1996. The increase resulted from interest on funds borrowed in 1996
to finance portions of the acquisitions of DSP and Neozyme II and a reduction of
capitalized interest on construction in progress due to the completion of
Genzyme's Allston Landing manufacturing facility in June 1996.
The tax provisions for the three and nine months ended September 30, 1997 vary
from the U.S. statutory tax rate because of the provision for state income
taxes, nondeductible amortization of intangibles, Genzyme General's share of
losses of unconsolidated affiliates and taxes on foreign earnings. The effective
tax rate was 38.6% and 38.5%, respectively, for the three and nine months ended
September 30, 1997 a slight decrease from 41.9% and 40.5%, respectively, in the
corresponding periods in 1996. The allocated tax benefit generated by Genzyme
Tissue Repair and GMO for the three and nine months ended September 30, 1997 of
$5.4 million and $14.4 million, respectively, reduced Genzyme General's tax rate
to 21.2% and 22.2%, respectively, for such periods.
GENZYME TISSUE REPAIR
REVENUES
Service revenues for the three and nine months ended September 30, 1997 were
$3.1 million and $7.7 million, respectively, an increase of 65% and 48% over the
same periods in 1996. Sales of the CARTICEL(R) Service were $1.7 million and
$4.4 million, respectively, for the three and nine months ended September 30,
1997 as compared to $0.7 million and $2.1 million, respectively, for the
comparable periods in 1996. The growth in sales of the CARTICEL(R) Service most
notably following issuance by the FDA of a biologics license to GTR in August
1997 for the CARTICEL(R) Service, is primarily attributable to increased
acceptance of the service by surgeons and insurance companies and a continued
increase in the number of surgeons trained in the procedure utilizing the
service. Sales of the Epicel[SM] Service were $1.4 million and $3.3 million,
respectively, in the three and nine months ended September 30, 1997 compared to
$1.1 million and $3.2 million for the same periods in 1996 due to a slight
increase in the number of burn incidents requiring the service.
MARGINS AND OPERATING EXPENSES
Service margins were 3% of service revenues for the three months ended September
30, 1997. GTR's cost of services sold exceeded revenue for the nine months ended
September 30, 1997 and for the three and nine months ended September 30, 1996 by
$1.2 million, $0.7 million and $3.2 million, respectively. The improvement in
service margins in the three and nine months ended September 30, 1997 is
primarily attributable to the higher sales volume and efficiencies gained in the
manufacturing process.
SG&A expenses were $6.4 million and $19.0 million for the three and nine months
ended September 30, 1997, respectively, a decrease of 4% and 3% over the same
periods in 1996 due primarily to a reduction in staffing levels. Genzyme Tissue
Repair incurs direct SG&A charges as well as an SG&A charge from Genzyme General
for SG&A work provided by Genzyme General on behalf of Genzyme Tissue Repair.
For the three and nine months ended September 30, 1997, $0.3 million and $2.1
million, respectively, of SG&A services were provided by Genzyme General as
compared to $0.5 million and $3.2 million for the same periods in 1996.
Research and development expenses were $2.7 million and $7.7 million for the
three and nine months ended September 30, 1997, respectively, as compared to
$2.9 million and $7.6 million for the same periods in 1996. The decrease in the
three months ended September 30, 1997 is primarily attributable to a reduction
in costs associated with the Vianain and TGF-Beta programs, offset in part by
increased spending associated with the Biologics License Application for the
Carticel [R] Service. The increase for the nine months ended September 30, 1997,
is due primarily to increased spending associated with the Biologics License
Application for the CARTICEL(R) Service which exceeded a decline in costs
related to the Vianain(R) and TGF-Beta programs. For the three and nine months
ended September 30, 1997, $2.3 million and $7.6 million, respectively, of
research and development services were provided by Genzyme General on behalf of
Genzyme Tissue Repair, compared to $1.8 million and $6.9 million in the
corresponding periods in 1996.
OTHER INCOME AND EXPENSES
Investment income was $0.3 million for both the three months ended September 30,
1997 and 1996 and declined to $0.6 million in the nine months ended September
30, 1997 from $1.3 million in the same period in 1996, due primarily to lower
average cash balances.
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Interest expense for the three and nine months ended September 30, 1997
increased to $0.8 million and $2.0 million, respectively, as a result of the
interest related to the addition of $11.5 million of debt from the private
placement of the GTR Note in February 1997 (see "Liquidity and Capital
Resources"), the interest charges to accrete this debt to its face value of
$13.0 million and a 20% increase in borrowing under a revolving credit facility
in June 1996.
In the three and nine months ended September 30, 1997, Genzyme Tissue Repair
provided $1.0 million and $5.1 million, respectively, of funding to, and
realized a net loss of $1.5 million and $4.9 million, respectively, from
Diacrin/Genzyme LLC, the joint venture established between Genzyme Tissue Repair
and Diacrin to develop and commercialize products and processes using porcine
fetal cells for the treatment of Parkinson's disease and Huntington's disease in
humans. There was no corresponding amount in the same period of 1996.
GENZYME MOLECULAR ONCOLOGY
RESULTS OF OPERATIONS
In the three and nine months ended September 30, 1997, GMO recorded service
revenue of $0.1 million and research and development revenue of $0.1 million as
compared to no revenues in the corresponding periods of 1996. Service revenues
consist of the sale of SAGE services a high-speed, differential gene
identification technology which was acquired upon consummation of the Merger.
Research and development revenue consists of work performed for the joint
venture with StressGen/Genzyme LLC. In each of the three and nine months ended
September 30, 1997, GMO incurred $0.1 million in cost of revenue. There was no
similar amount in the corresponding periods of 1996. The cost of revenue
primarily consists of work performed on behalf of the StressGen/Genzyme LLC.
In the three and nine months ended September 30, 1997, GMO incurred $1.6 million
and $3.2 million, respectively, of research and development costs as compared to
$0.2 million and $0.6 million for the corresponding periods in 1996. The
increase in research and development costs relates to increases in research
personnel and related expenses pertaining to GMO's SAGE and gene therapy
programs.
For the nine months ended September 30, 1997, GMO recorded a $7.0 million charge
for the purchase of in-process technology which has no alternative future use,
as part of the acquisition of PharmaGenics.
GMO incurred $0.5 million and $0.8 million of SG&A expenses in the three and
nine months ended September 30, 1997, respectively, as compared to $0.1 million
for each of the corresponding periods in 1996. The primary reason for the
increase was more administrative support corresponding to the growth of GMO's
programs and the acquisition of PharmaGenics.
GMO incurred $1.8 million and $2.0 million of amortization of intangibles in the
three and nine months ended September 30, 1997, respectively. There were no
similar amounts in the corresponding periods of last year. The increase is due
to amortization of intangibles from the Pharmagenics acquisition.
GMO recorded $0.1 million, $0.2 million and $0.5 million of equity in net loss
of joint venture, interest income and interest expense, respectively, for the
nine months ended September 30, 1997. There were no similar amounts in the
corresponding periods of 1996. The equity in net loss of joint venture is GMO's
portion of the net loss of the StressGen/Genzyme LLC. The interest income
results from higher average cash balances due to the issuance of the GMO
Debentures in August 1997. The interest expense is primarily due to interest and
related amortization of discount on the GMO Debentures.
GMO recorded $0.4 million of deferred tax benefit in each of the three and nine
months ended September 30, 1997. There was no similar amount in the
corresponding period of 1996. The deferred tax benefit results from amortization
of the deferred tax liability established upon the acquisition of PharmaGenics.
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LIQUIDITY AND CAPITAL RESOURCES
GENZYME CORPORATION AND SUBSIDIARIES
As of September 30, 1997, Genzyme had cash and cash equivalents of $143.9
million, an increase of $50.5 million from December 31, 1996. Operating and
financing activities provided $31.7 million and $51.4 million of cash,
respectively, investing activities used $30.3 million and fluctuations in
exchange rates caused a reduction in cash of $2.4 million. In the nine months
ended September 30, 1997, financing activities provided $33.2 million of cash
proceeds from the exercise of stock options and warrants and the issuance of
stock under the employee stock purchase plan, $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 and
$32.2 million from the issuance of debt, and used $100.1 million for the
re-payment of debt and capital lease obligations, of which $100.0 million
represents a reduction in Genzyme's outstanding debt under the Revolving Credit
Facility. At September 30, 1997, $118.0 million was outstanding under the
Revolving Credit Facility, of which $95.0 million was allocated to Genzyme
General, $18.0 million was allocated to GTR and $5.0 million was allocated to
GMO. In the nine months ended September 30, 1997, investing activities provided
$33.8 million of cash from the turnover of the investment portfolio and used
$64.1 million of cash, of which $25.1 million was used to finance capital
expenditures, $5.1 million was used to fund GTR's investment in Diacrin/Genzyme
LLC, $3.0 million was used to fund Genzyme General's investment in RenaGel LLC,
$0.7 million was used to finance GMO's investment in StressGen/Genzyme LLC,
$15.0 million was used to make an equity investment in ABIOMED, Inc., $2.5
million was used to make an equity investment in GelTex, $6.5 million was used
to fund a non-compete agreement, $2.5 million was loaned to PharmaGenics
pursuant to the terms of a pre-acquisition credit facility provided to
PharmaGenics by Genzyme, and $3.7 million was used to fund acquisition costs and
other non current assets.
As of September 30, 1997, Genzyme had accounts receivable of $119.3 million, net
of an allowance for doubtful accounts, an increase of $2.7 million from December
31, 1996 due to the growth in each of Genzyme's businesses. Genzyme had
inventories of $146.9 million, an increase of $21.7 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) enzyme and in the Surgical
Products business unit in support of the introduction of Seprafilm(TM) in the
North American marketplace.
As of June 30, 1997, 2,694,438 GTR Designated Shares had been reserved for
issuance at the discretion of the Genzyme Board for the benefit of Genzyme
General or its stockholders and 466,501 Designated Shares had been reserved for
issuance upon the exercise of Genzyme General stock options and warrants. On
June 30, 1997, the Genzyme Board declared a dividend of 2,685,941 GTR Designated
Shares which were distributed on July 22, 1997 to Genzyme General stockholders
of record as of July 11, 1997, in a tax-free distribution of approximately .03
share of GTR Stock for each share of GGD Stock owned. A total of 2,294,613
shares of GTR Stock were issued to Genzyme General stockholders in the
distribution and 391,328 shares of GTR Stock have been reserved for issuance
upon the exercise of Genzyme General stock options and warrants outstanding on
the record date.
GENZYME GENERAL
As of September 30, 1997, Genzyme had cash and cash equivalents of $108.6
million, an increase of $31.4 million from December 31, 1996. Operating
activities provided $61.4 million of cash, respectively, investing and
activities used $24.5 million and $3.2 million, respectively, of cash
fluctuations in exchange rates caused a reduction in cash of $2.4 million. In
the nine months ended September 30, 1997, financing activities provided $30.6
million of cash proceeds from the exercise of stock options and warrants and the
issuance of stock under the employee stock purchase plan and $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 and used $100.1 million for the re-payment of debt and capital
lease obligations, of which $100.0 million represents a reduction in Genzyme's
outstanding debt under the Revolving Credit Facility $15.1 million was allocated
to Genzyme Tissue Repair. Of the $15.1 million allocated to GTR, $5.1 million
was allocated in exchange for 489,810 GTR Designated Shares, which have been
reserved for issuance at the Genzyme Board's discretion for the benefit of
Genzyme General or its stockholders, to fund GTR's investment in Diacrin/Genzyme
LLC, a joint venture with Diacrin, and $10.0 million was allocated pursuant to
Genzyme General's remaining option to allocate up to $20.0 million in cash to
GTR in exchange for GTR Designated Shares at $10 per GTR Designated Share. In
addition, Genzyme General allocated $5.0 million of debt to GMO to fund
operations. In the nine months ended September 30, 1997, investing activities
provided $33.8 million of cash from the turnover of the investment portfolio. In
the nine months ended September 30, 1997, investing activities used $58.3
million of cash, of which $25.0 million was used to finance capital
expenditures, $3.0 million to fund Genzyme General's investment in RenaGel LLC,
$15.0 million to make an equity investment in ABIOMED, Inc., $2.5 million to
make an equity investment in GelTex, $6.5 million to fund a non-compete
agreement, $2.5 million to fund a loan to PharmaGenics pursuant to the terms of
a pre-acquisition credit facility provided to PharmaGenics by Genzyme, and $3.8
million to fund acquisition costs and other non current assets.
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As of September 30, 1997, Genzyme General had accounts receivable of $117.1
million, net of an allowance for doubtful accounts, an increase of $1.9 million
from December 31, 1996, due to the growth in each of Genzyme General's
businesses. Genzyme General had inventories of $145.6 million, an increase of
$22.2 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)
enzyme and in the Surgical Products business unit in support of the introduction
of Seprafilm(TM) in the North American market place.
In June 1997, Genzyme General formed a joint venture with GelTex for the final
development and commercialization of RenaGel(R) non-absorbed phosphate binder, a
novel approach to control the elevated serum phosphorus levels that cause
serious complications in chronic kidney failure patients. Funding for the joint
venture will be provided equally by Genzyme and GelTex. The agreement calls for
Genzyme General to pay GelTex $27.5 million, consisting of a $2.5 million equity
investment paid in June 1997, a $15.0 million payment on receipt of FDA
marketing approval for RenaGel(R) and a $10.0 million payment one year following
FDA marketing approval for RenaGel(R).
Pursuant to the Convertible Debt and Development Funding Agreement between
Genzyme and GTC, as described in the 1996 Genzyme 10-K/A, Genzyme General has
been funding GTC's development of transgenic ATIII, a plasma protein that helps
regulate blood clotting, since April 1, 1996. In July 1997, Genzyme and GTC
announced an agreement in principle had been reached on the key terms of a joint
venture for further development, marketing and distribution of transgenic ATIII
worldwide, excluding Asia. Pursuant to the terms of the joint venture agreement,
Genzyme General will provide 70% of the development costs up to a maximum of
$33.0 million. GTC will fund the remaining 30% of the development costs. Both
companies will fund equally any costs in excess of that level, and profits will
be split equally.
Genzyme General believes 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 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 will also be
diminished upon repayment of amounts borrowed, plus accrued interest, under the
Revolving Credit Facility and if its option to acquire the partnership interests
in Genzyme Development Partners, L.P. ("GDP") is exercised using cash to pay
some or all of the exercise price. In addition, the liabilities or contingencies
of GTR and GMO 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.
GENZYME TISSUE REPAIR
As of September 30, 1997, Genzyme Tissue Repair had cash and cash equivalents of
$13.9 million, a decline of $2.3 million from December 31, 1996. GTR used $26.9
million of cash for operations and $5.1 million for investing activities. In the
nine months ended September 30, 1997, investing activities provided $0.4 million
from the sale of equipment and used $5.1 million of cash to fund GTR's
investment in Diacrin/Genzyme LLC, $0.1 million to purchase equipment and $0.3
million for investments in other noncurrent assets. Financing activities
provided $29.7 million of cash, of which $15.0 million was allocated to GTR from
Genzyme General, $13.0 million consisted of proceeds from the issuance of debt
and $1.8 million consisted of proceeds from the exercise of stock options and
warrants and stock issued under the employee stock purchase plan. Of the $13.0
million in proceeds from the GTR Note, GTR 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
interest expense over the term of the initial 15 month conversion period. As of
September 30, 1997, $18.0 million of funds allocated to GTR in December 1996
under the Revolving Credit Facility remained outstanding.
In November 1997, GTR sold 4,000,000 shares of GTR Stock to the public for $7.75
per share. Net proceeds from the offering after underwriting discounts and
commissions were $29.2 million.
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Genzyme Tissue Repair believes its available cash and investments, including the
proceeds from the November 1997 Stock Offering, will be sufficient to finance
planned operations and capital requirements through the end of 1998 and must
raise significant additional capital in order to continue operations at current
levels beyond 1998. 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 developments 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.
GENZYME MOLECULAR ONCOLOGY
As of September 30, 1997, GMO had cash and cash equivalents of $21.4 million.
GMO used $4.1 million of cash for operations in the nine months ended September
30, 1997.
In July 1997, StressGen/Genzyme LLC was established as a joint venture among
Genzyme, StressGen Biotechnologies Corp. ("StressGen") and the Canadian Medical
Discoveries Fund Inc. ("CMDF") to develop stress gene therapies for the
treatment of cancer. CMDF provided $10.0 million (Canadian) in funding in
connection with the joint venture through the combination of a capital
contribution to StressGen/Genzyme LLC in the amount of $1.0 million (Canadian),
the purchase of warrants from Genzyme in the amount of $1.0 million (Canadian),
the purchase of warrants and preferred stock from StressGen in the amount of
$1.4 million (Canadian) and a limited recourse loan bearing interest at 0.125%
per annum to StressGen in the amount of $6.6 million (Canadian). Each of Genzyme
and StressGen (through a U.S. subsidiary) also made a capital contribution to
StressGen/Genzyme LLC in the amount of $1.0 million (Canadian) and a limited
recourse loan was made by the U.S. subsidiary of StressGen to StressGen/Genzyme
LLC in the amount of $7.0 million (Canadian). In addition, Genzyme and StressGen
have agreed to provide in equal shares any additional capital required by the
joint venture in excess of the initial $10.0 million (Canadian) funding.
Genzyme and StressGen have an option (the "Purchase Option"), payable in equal
shares, to purchase CMDF's membership interest in StressGen/Genzyme LLC at any
time during the three-year period beginning July 31, 1999 and ending July 31,
2002. The exercise price of the Purchase Option initially will be $15.6 million
(Canadian) in July 1999 and will increase monthly thereafter to a final exercise
price of $30.5 million (Canadian) in July 2002. The limited recourse loan made
by CMDF will be retired in connection with the exercise of the Purchase Option.
If the Purchase Option is not exercised on or before July 31, 2002, CMDF may
require Genzyme and StressGen to effectively repay $2.0 million (Canadian) each
of the limited recourse loan. In addition, at any time during the 30-day period
commencing on the date when not less than 75% of the initial funding provided by
CMDF has been spent by the joint venture, but in no event later that July 31,
1999, CMDF shall have the right (the "Mandatory Purchase Right") to require
Genzyme and StressGen to purchase its membership interest at an aggregate
purchase price of $10.0 million (Canadian) plus interest thereon at a rate per
annum equal to the Canadian prime rate plus 1%. The Mandatory Purchase Right
will terminate if not exercised by CMDF during such 30-day period. Genzyme's
share of any amounts payable to CMDF upon exercise of the Purchase Option, the
Mandatory Purchase Right or repayment of the limited recourse loan may be paid
in cash, Genzyme common stock or any combination thereof at the discretion of
Genzyme.
Genzyme sold three warrants (the "Front-End Warrant", the "NDA Warrant", and the
"Callable Warrant", collectively, the "Warrants") to purchase Genzyme common
stock to CMDF for an aggregate purchase price of $1.0 million (Canadian). Each
warrant is initially exercisable for up to 40,000 shares of GGD Stock and will
be converted automatically upon the closing date of the GMO IPO into warrants to
purchase GMO Stock as following.
The Front-End Warrant is exercisable immediately and will terminate upon the
earlier of the exercise of the Mandatory Purchase Right by CMDF or July 31,
2002. The exercise price of the Front-End Warrant is $30.18 per share of GGD
Stock and, upon conversion following the GMO IPO, will be equal to 120% of a
defined conversion price.
The NDA Warrant will be exercisable during the one-year period following the
filing of the first new drug application with the FDA for a product developed
through the collaboration and will terminate upon the earliest of the exercise
of the Mandatory Purchase Right by CMDF, the expiration of the Purchase Option
or July 31, 2007. The exercise price of the NDA Warrants is $30.18 per share of
GGD Stock and, upon conversion following the GMO IPO, will be equal to 120% of
a defined conversion price.
The Callable Warrant will be exercisable during the three-year period following
the expiration of the Purchase Option and will terminate upon the earliest of
the exercise of the Mandatory Purchase Right by CMDF, the exercise of the
Purchase Option or July 31, 2005. The exercise price of the Callable Warrant per
share of GGD Stock will be equal to the average of the closing sale prices of
the GGD Stock on the Nasdaq National Market for the 20 trading days ending on
the expiration date of the Purchase Option, and upon conversion following the
GMO IPO, will be equal to the average of closing sale prices of the GMO Stock on
the Nasdaq National Market for the 20 trading days ending on the expiration date
of the Purchase Option.
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In August 1997, GMO completed a private placement of the GMO Debentures. The GMO
Debentures bear interest at 6% per annum and are convertible into shares of GMO
Stock beginning no earlier than the 91st day after the completion of the GMO
IPO. Beginning on February 26, 1998, the GMO Debentures will be convertible at a
discount to the average of the closing bid prices of GMO Stock as reported by
the Nasdaq National Market for the 20 trading days immediately preceding the
applicable conversion date (the "Market Price"), which discount begins at 7% and
will increase by an additional one percent every 30 days thereafter until
October 24, 1998. Beginning November 23, 1998, the conversion price will be the
lower of (i) 85% of the Market Price calculated as of the actual conversion
date and (ii) 85% of the Market Price calculated as of November 22, 1998. In no
event, however, will the conversion price be less than $7.70 per share (subject
to adjustment in the event of any stock split, stock dividend, reclassification,
combination or similar event). In the third quarter of 1997, GMO recorded $16.5
million of proceeds attributed to the value of the debt and $3.5 million
attributed to the value of the conversion feature (recorded as an increase to
division equity). The $16.5 million will be accreted to the face value of the
debt by a charge to interest expense over the term of the initial 15 month
conversion period.
EXCHANGE OPTION
If GMO has not completed the GMO IPO by August 29, 1998, at the holder's option,
the GMO Debentures may be exchanged for GGD Debentures due August 29, 2003. If
the GMO IPO is completed before August 29, 1998 but the aggregate proceeds from
the offering are less than $15.0 million or GMO's market capitalization is below
$90.0 million, at the holder's option, 50% of the GMO Debentures can be
exchanged for GGD Debentures. The exchange option must be exercised within 30
business days after August 29, 1998 or the date on which the GMO IPO is
consummated. The GGD Debentures, if issued, will be convertible at the option of
the holder at any time prior to maturity into shares of GGD Stock at a 13%
premium to the average closing bid price of GGD Stock or reported by the Nasdaq
National Market for the five trading days immediately preceding the issue date.
PUT OPTION
If at any time after the 180 day period after completion of the GMO IPO, the
conversion price is less than the floor conversion price of $7.70 for every
trading day during the Put Review Period, the holder will have the option over
the Put Exercise Period to put the GMO Debentures back to GMO for cash
compensation. The holder has three options to exercise the put. The first Put
Review Period may not commence until 180 days after completion of the GMO IPO.
The Put Review Period for the second and third options (assuming the first has
occurred) may only commence 90 days after the previous Put Exercise Period has
expired.
CALL OPTION
The GMO Debentures are callable with cash or stock beginning 18 months after
the GMO IPO if the stock has closed at 150% of the Fixed Conversion Price for 20
consecutive trading days.
The Genzyme Board approved the allocation of up to $25 million in cash from
Genzyme General to GMO (the "Equity Line"), subject to a dollar-for-dollar
reduction by the proceeds of outside financing received by GMO. As a result of
the issuance of the GMO debentures in August 1997, the amount available under
the Equity Line was reduced to $5 million. No draws have been made under the
Equity Line to date. Upon successful completion of an initial public offering,
the Equity Line will terminate.
Management of GMO anticipates that existing revenues generated from the sale of
SAGE services, SAGE license fees, cash available for allocation to GMO from
Genzyme General pursuant to the Equity Line and existing cash balances will be
sufficient to fund GMO's operations through 1998. Significant additional funds
will be required to complete the clinical testing and commercialization of GMO's
products and services. There can be no assurance that such additional funds will
be available on favorable terms to GMO or to the existing holders of GMO stock,
if at all.
In addition, GMO's cash requirements may vary materially from those now planned
as a result of factors including progress of GMO's research and development
programs, the ability of GMO to establish and maintain additional strategic
alliances and licensing arrangements, the progress of GMO's development
programs, competing technological and marketing developments, the cost involved
in enforcing patent claims and other intellectual property rights and the cost
and timing of regulatory approvals. Insufficient funds may require GMO to delay,
scale back or eliminate certain of its programs or to license to third parties
to commercialize technologies or products that GMO would otherwise undertake
itself. Such actions may adversely affect the value of the GMO Stock.
34
<PAGE> 35
ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
The information concerning the Warrants and the GMO Debentures
set forth in Part 1, Item 2, "Management's Discussion and
Analysis of Financial Condition and Results of Operations for
the Three and Nine Months Ended September 30, 1997" in the
fourth through eleventh paragraphs under "Liquidity and
Capital Resources -- Genzyme Molecular Oncology" on pages 33 -
34 of this Report is incorporated herein by reference.
Genzyme believes the sale of the GMO Debentures qualifies as a
transaction by an issuer not involving a public offering
within the meaning of Section 4(2) of the Securities Act (the
"Act") based on the manner of offering (a negotiated sale to a
limited number of "qualified institutional buyers" (as defined
in Rule 501 of the Act) and one "accredited investor" (as
defined in Rule 501 of Regulation D under the Act) without
general solicitation) and the purchasers' financial status,
investment experience and investment intent, as represented to
Genzyme.
Genzyme believes the sale of the Warrants qualifies as a
transaction by an issuer not involving a public offering
within the meaning of Section 4(2) of the Securities Act (the
"Act") based on the manner of offering (a negotiated sale to a
single purchases without general solicitation) and the
purchaser's financial status, investment experience and
investment intent, as represented to Genzyme. Genzyme further
believes the offer and sale of the Warrants also qualifies for
the safe harbor for offers and sales outside the United States
provided under Rule 903 of Regulation S under the Act since
(i) the offer and sale were made in an offshore transaction,
(ii) no directed selling efforts were engaged in by Genzyme,
(iii) offering restrictions were implemented and (iv) CMDF is
not a U.S. person.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
See Exhibit Index following the signature page to this
Form 10-Q.
(b) Reports on Form 8-K
None.
35
<PAGE> 36
GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 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: November 14, 1997 By: /s/ David J. McLachlan
-----------------------------------
David J. McLachlan
Duly Authorized Officer and
Executive Vice President, Finance;
Chief Financial Officer
36
<PAGE> 37
GENZYME CORPORATION AND SUBSIDIARIES
Form 10-Q, September 30, 1997
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
10.1 Registration Rights Agreement dated as of July 31, 1997 by and
between Genzyme and Canadian Medical Discoveries Fund, Inc. Filed
herewith.
10.2 Genzyme Common Stock Purchase Warrant No. A-1 dated July 31, 1997
issued to Canadian Medical Discoveries Fund, Inc. Filed herewith.
10.3 Genzyme Common Stock Purchase Warrant No. A-2 dated July 31, 1997
issued to Canadian Medical Discoveries Fund, Inc. Filed herewith.
10.4 Genzyme Common Stock Purchase Warrant No. A-3 dated July 31, 1997
issued to Canadian Medical Discoveries Fund, Inc. Filed herewith.
10.5 Purchase Agreement dated as of August 29, 1997 by and among Genzyme
Corporation and the entities listed on the signature pages thereto.
Filed herewith. Pursuant to Item 601(b)(2) of Regulation S-K, the
disclosure schedules referred to in the Purchase Agreement are
omitted. Genzyme hereby undertakes to furnish supplementally a copy
of any omitted schedule to the Commission upon request.
10.6 Genzyme Molecular Oncology Division Convertible Debenture dated
August 29, 1997, including a schedule with respect thereto filed
pursuant to Instruction 2 to Item 601 of Regulation S-K.
Filed herewith.
10.7 Form of Genzyme General Division Convertible Debenture.
Filed herewith.
10.8 Registration Rights Agreement dated as of August 29, 1997 by and
among Genzyme and the entities listed on the signature pages
thereto. Filed herewith.
10.9 Amended and Restated Convertible Debt Agreement dated as of
September 4, 1997 by and between Genzyme and Genzyme Transgenics
Corporation. Filed as Exhibit 10.4 to the Genzyme Transgenics
Corporation Quarterly Report on Form 10-Q for the fiscal quarter
ended September 30, 1997 (Commission File No. 0-21794) and
incorporated herein by reference.
11 Computation of weighted average shares used in computing
earnings per share amounts. Filed herewith.
27 Financial Data Schedules for Genzyme General and Genzyme
Tissue Repair (for EDGAR filing purposes only). Filed
herewith.
</TABLE>
37
<PAGE> 1
EXHIBIT 10.1
REGISTRATION RIGHTS AGREEMENT
This Agreement dated as of July 31, 1997 is entered into by and
between Genzyme Corporation, a Massachusetts corporation (the "Company"), and
Canadian Medical Discoveries Fund Inc. (the "Purchaser").
WHEREAS, the Company and the Purchaser have entered into a series of
three warrant agreements of even date herewith (collectively, the "Warrants")
pursuant to which the Purchaser has the right, subject to the respective terms
and conditions of the Warrants, to acquire shares of the Company's Common Stock
(as defined below); and
WHEREAS, the Company and the Purchaser desire to provide for certain
arrangements with respect to the registration of resales of shares of the
Company's Common Stock issued upon exercise of the Warrants under the Securities
Act of 1933, as amended.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
"COMMISSION" means the Securities and Exchange Commission, or any
other Federal agency at the time administering the Securities Act.
"COMMON STOCK" means the series of common stock of the Company
issuable upon exercise of the Warrants, together with any other equity
securities that may be issued by the Company in connection therewith or in
substitution therefor.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"GMO IPO" means the first underwritten public offering for the
account of the Company of shares of Genzyme Molecular Oncology Division Common
Stock, $.01 par value per share (the "GMO Stock"), on a firm commitment basis
pursuant to a Registration Statement (as defined below) filed with the
Commission covering such offering.
"REGISTRABLE SHARES" means (i) the shares of Common Stock issued
upon exercise of the Warrants, (ii) any other shares of Common Stock issued in
respect of such shares (because of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER,
that shares of Common Stock which are Registrable Shares shall cease to be
Registrable Shares (i) upon any sale
<PAGE> 2
pursuant to a Registration Statement, Section 4(1) of the Securities Act or
Rule 144 under the Securities Act or (ii) upon any sale in any manner to a
person or entity which, by virtue of Section 11 of this Agreement, is not
entitled to the rights provided by this Agreement. Wherever reference is made in
this Agreement to a request or consent of holders of a certain percentage of
Registrable Shares, the determination of such percentage shall include shares of
Common Stock issuable upon exercise of the Warrants even if such exercise has
not yet been effected.
"REGISTRATION EXPENSES" means the expenses described in Section 4.
"REGISTRATION STATEMENT" means a registration statement filed by
the Company with the Commission for a public offering and sale of Common Stock
(other than a registration statement on Form S-8 or Form S-4, or their
successors, or any other form for a similar limited purpose, or any registration
statement covering only securities proposed to be issued in exchange for
securities or assets of another corporation).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"STOCKHOLDERS" means the Purchaser and any persons or entities to
whom the rights granted under this Agreement are transferred by the Purchaser,
their successors or assigns pursuant to Section 11 hereof.
2. REQUIRED REGISTRATIONS.
a. At any time after the issuance of Registrable Shares, a
Stockholder or Stockholders may request, in writing, that the Company effect the
registration on Form S-3 (or any successor form) of Registrable Shares owned by
such Stockholder or Stockholders having an aggregate offering price, net of
underwriting discounts and commissions, of at least $500,000 (based on the then
current market price or fair value). If the holders initiating the registration
intend to distribute the Registrable Shares by means of an underwriting, they
shall so advise the Company in their request. In the event such registration is
underwritten, the right of other Stockholders to participate shall be
conditioned on such Stockholders' participation in such underwriting and the
inclusion of such Stockholders' Registrable Shares in the underwriting to the
extent provided in this Section 2. The Company and all Stockholders proposing to
distribute their Registrable Shares through such underwriting shall enter into
an underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Upon receipt of any such request,
the Company shall promptly give written notice of such proposed registration to
all Stockholders. Such Stockholders shall have the right, by giving written
notice to the Company within 30 days after the Company provides its
-2-
<PAGE> 3
notice, to elect to have included in such registration such of their Registrable
Shares as such Stockholders may request in such notice of election; provided
that if the underwriter (if any) managing the offering determines that, because
of marketing factors, all of the Registrable Shares requested to be registered
by all Stockholders may not be included in the offering, then all Stockholders
who have requested registration shall participate in the registration pro rata
based upon the number of Registrable Shares which they have requested to be so
registered. Thereupon, the Company shall, as expeditiously as possible, use its
best efforts to effect the registration on Form S-3 (or any successor form) of
all Registrable Shares which the Company has been requested to so register.
b. The Company shall not be required to effect more than one
registration pursuant to paragraph (a) above during any twelve-month period and
no more than three such registrations in the aggregate. In addition, the Company
shall not be required to cause or permit any Registration Statement to become
effective pursuant to this Section 2 during the 180-day period after the closing
date of the GMO IPO.
c. If at the time of any request to register Registrable Shares
pursuant to this Section 2, the Company is engaged or has fixed plans to engage
within 30 days of the time of the request in a registered public offering or is
engaged in any other activity which, in the good faith determination of the
Company's Board of Directors, would be adversely affected by the requested
registration to the material detriment of the Company, then the Company may at
its option direct that such request be delayed for a period not in excess of
three months from the effective date of such offering or the date of
commencement of such other material activity, as the case may be, such right to
delay a request to be exercised by the Company not more than once in any
twelve-month period.
3. REGISTRATION PROCEDURES. If and whenever the Company is required
by the provisions of this Agreement to use its best efforts to effect the
registration of any of the Registrable Shares under the Securities Act, the
Company shall:
a. file with the Commission a Registration Statement with
respect to such Registrable Shares and use its best efforts to cause that
Registration Statement to become and remain effective;
b. as expeditiously as possible prepare and file with the
Commission any amendments and supplements to the Registration Statement and the
prospectus included in the Registration Statement as may be necessary to keep
the Registration Statement effective, in the case of a firm commitment
underwritten public offering, until each underwriter has completed the
distribution of all securities purchased by it and, in the case of any other
offering, until the earlier of the sale of all Registrable Shares covered
thereby or 120 days after the effective date thereof;
-3-
<PAGE> 4
c. as expeditiously as possible furnish to each selling
Stockholder such reasonable numbers of copies of the prospectus, including a
preliminary prospectus, in conformity with the requirements of the Securities
Act, and such other documents as the selling Stockholder may reasonably request
in order to facilitate the public sale or other disposition of the Registrable
Shares owned by the selling Stockholder; and
d. as expeditiously as possible use its best efforts to register
or qualify the Registrable Shares covered by the Registration Statement under
the securities or Blue Sky laws of such states as the selling Stockholders shall
reasonably request, and do any and all other acts and things that may be
necessary or desirable to enable the selling Stockholders to consummate the
public sale or other disposition in such states of the Registrable Shares owned
by the selling Stockholder; PROVIDED, HOWEVER, that the Company shall not be
required in connection with this paragraph (d) to qualify as a foreign
corporation or execute a general consent to service of process in any
jurisdiction.
If the Company has delivered preliminary or final prospectuses to the
selling Stockholders and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Stockholders and, if requested, the selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
prospectuses to the Company. The Company shall promptly provide the selling
Stockholders with revised prospectuses and, following receipt of the revised
prospectuses, the selling Stockholders shall be free to resume making offers of
the Registrable Shares.
4. ALLOCATION OF EXPENSES. The Company will pay all Registration
Expenses of all registrations under this Agreement; PROVIDED, HOWEVER, that if a
registration under Section 2 is withdrawn at the request of the Stockholders
requesting such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was requested) and if the
requesting Stockholders elect not to have such registration counted as a
registration requested under Section 2, the requesting Stockholders shall pay
the Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. For purposes
of this Section 4, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Agreement, including, without
limitation, all registration and filing fees, exchange listing fees, printing
expenses, fees and expenses of counsel for the Company and the fees and expenses
of one counsel to represent the selling Stockholders (which counsel shall also
be counsel to the Company unless counsel to the Company has a conflict of
interest with respect to the representation of any selling Stockholder or the
underwriter managing the offering objects to the representation of the selling
Stockholders by Company counsel, in which case the
-4-
<PAGE> 5
Company shall pay the fees and expenses of one separate counsel selected by the
selling Stockholders), state Blue Sky fees and expenses, and the expense of any
special audits incident to or required by any such registration, but excluding
underwriting discounts, selling commissions and the fees and expenses of selling
Stockholders' own counsel (other than the counsel representing all selling
Stockholders).
5. INDEMNIFICATION AND CONTRIBUTION.
a. In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, the Company will
indemnify and hold harmless, to the full extent permitted by law, the seller of
such Registrable Shares, each underwriter of such Registrable Shares, and each
other person, if any, who controls such seller or underwriter within the meaning
of the Securities Act or the Exchange Act against any losses, claims, damages or
liabilities, joint or several, to which such seller, underwriter or controlling
person may become subject under the Securities Act, the Exchange Act, state
securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to such Registration Statement, or arise out of or are based upon the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading; and the
Company will reimburse such seller, underwriter and each such controlling person
for any legal or any other expenses reasonably incurred by such seller,
underwriter or controlling person in connection with investigating or defending
any such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the
Company will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any untrue statement
or omission (i) made in such Registration Statement, preliminary prospectus or
final prospectus, or any such amendment or supplement, in reliance upon and in
conformity with information furnished to the Company, in writing, by or on
behalf of such seller, underwriter or controlling person specifically for use in
the preparation thereof; or (ii) contained in a preliminary prospectus and
corrected in a final or amended prospectus if such seller, underwriter or
controlling person received notice of such final or amended prospectus prior to
the effective date of the Registration Statement but failed to deliver a copy of
the final or amended prospectus at or prior to the confirmation of the sale of
the Registrable Shares to the person asserting such loss, claim, damage or
liability, in any case where such delivery is required by the Securities Act.
b. In the event of any registration of any of the Registrable
Shares under the Securities Act pursuant to this Agreement, each seller of
Registrable Shares,
-5-
<PAGE> 6
severally and not jointly, will indemnify and hold harmless, to the full extent
permitted by law, the Company, each of its directors and officers, each
underwriter (if any) and each person, if any, who controls the Company or any
such underwriter within the meaning of the Securities Act or the Exchange Act
and each other seller of Registrable Shares, against any losses, claims, damages
or liabilities, joint or several, to which the Company, such directors and
officers, underwriter, controlling person or seller may become subject under the
Securities Act, Exchange Act, state securities or Blue Sky laws or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement under which
such Registrable Shares were registered under the Securities Act, any
preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to the Registration Statement, or
arise out of or are based upon any omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, if the statement or omission was made in reliance upon
and in conformity with information relating to such seller furnished in writing
to the Company by or on behalf of such seller specifically for use in connection
with the preparation of such Registration Statement, prospectus, amendment or
supplement; and will reimburse the Company, each of its directors and officers,
each such underwriter and controlling person and each other such seller of
Registrable Shares for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; PROVIDED, HOWEVER, that the obligations of such
Stockholders hereunder shall be limited to an amount equal to the proceeds to
each Stockholder of Registrable Shares sold in connection with such
registration.
c. Each party entitled to indemnification under this Section 5
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; PROVIDED, that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld); and, PROVIDED, FURTHER, that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Indemnifying Party of its
obligations under this Section 5 unless and to the extent that such failure
results in the forfeiture of substantive rights or defenses by the Indemnifying
Party. The Indemnified Party may participate in such defense at such party's
expense; PROVIDED, HOWEVER, that the Indemnifying Party shall pay such expense
if representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding. No Indemnifying Party, in the defense of any such
claim or litigation shall, except with the consent of each Indemnified Party,
consent to
-6-
<PAGE> 7
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation, and no Indemnified Party shall consent to entry of any judgment or
settle such claim or litigation without the prior written consent of the
Indemnifying Party and the Indemnifying Party shall not be required to indemnify
any Indemnified Party for any amount paid or payable by such Indemnified Party
in settlement of any claim or litigation without such consent.
6. INDEMNIFICATION WITH RESPECT TO UNDERWRITTEN OFFERING. In the
event that Registrable Shares are sold pursuant to a Registration Statement in
an underwritten offering pursuant to Section 2, the Company agrees to enter into
an underwriting agreement containing customary representations and warranties
with respect to the business and operations of an issuer of the securities being
registered and customary covenants and agreements to be performed by such
issuer, including without limitation customary provisions with respect to
indemnification by the Company of the underwriters of such offering.
7. INFORMATION BY HOLDER. Each Stockholder including Registrable
Shares in any registration shall furnish to the Company such information
regarding such Stockholder and the distribution proposed by such Stockholder as
the Company may reasonably request in writing and as shall be required in
connection with any registration, qualification or compliance referred to in
this Agreement.
8. RULE 144 REQUIREMENTS. The Company agrees to:
a. comply with the requirements of Rule 144(c) under the
Securities Act with respect to current public information about the Company;
b. file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act, and
c. furnish to any holder of Registrable Shares upon request (i)
a written statement by the Company as to its compliance with the requirements of
said Rule 144(c), and the reporting requirements of the Securities Act and the
Exchange Act, (ii) a copy of the most recent annual or quarterly report of the
Company, and (iii) such other reports and documents of the Company as such
holder may reasonably request to avail itself of any similar rule or regulation
of the Commission allowing it to sell any such securities without registration.
9. MERGERS, ETC. The Company shall not, directly or indirectly, enter
into any merger, consolidation or reorganization in which the Company shall not
be the
-7-
<PAGE> 8
surviving corporation unless the proposed surviving corporation shall, prior to
such merger, consolidation or reorganization, agree in writing to assume the
obligations of the Company under this Agreement, and for that purpose references
hereunder to "Registrable Shares" shall be deemed to be references to the
securities which the Stockholders would be entitled to receive in exchange for
Registrable Shares under any such merger, consolidation or reorganization;
PROVIDED, HOWEVER, that the provisions of this Section 9 shall not apply in the
event of any merger, consolidation or reorganization in which the Company is not
the surviving corporation if all Stockholders are entitled to receive in
exchange for their Registrable Shares consideration consisting solely of (i)
cash, (ii) securities of the acquiring corporation which may be immediately sold
to the public without registration under the Securities Act, or (iii) securities
of the acquiring corporation which the acquiring corporation has agreed to
register within 90 days of completion of the transaction for resale to the
public pursuant to the Securities Act.
10. TERMINATION. All of the Company's obligations to register
Registrable Shares of a Stockholder under this Agreement shall terminate on the
earlier of (i) the tenth anniversary of this Agreement or (ii) such time as such
Stockholder can sell all of the Registrable Shares which such Holder then holds
at one time pursuant to Rule 144 under the Securities Act without regard to or
in violation of the volume limitations imposed by Rule 144.
11. TRANSFERS OF RIGHTS. This Agreement, and the rights and
obligations of each Purchaser hereunder, may be assigned by such Purchaser to
any person or entity that acquires or that would own after such transfer at
least ten percent (10%) of the total number of Registrable Shares, and such
transferee shall be deemed a "Purchaser" for purposes of this Agreement;
provided that the transferee provides written notice of such assignment to the
Company and agrees in writing to be bound by all of the provisions of this
Agreement.
12. "MARKET STAND-OFF" AGREEMENT. Upon receipt of a written request by
the Company and its underwriter, the Stockholders shall not sell, sell short,
grant an option to buy, or otherwise dispose of shares of the Company's Common
Stock or other securities of the Company for a period of one hundred and eighty
(180) days following the closing date of the GMO IPO; PROVIDED, HOWEVER, that
the agreement described in this Section 12 shall not apply unless all executive
officers and directors of the Company enter into similar agreements. Such
agreement shall be in writing and in form satisfactory to the Company and such
underwriter. The Company may impose stop-transfer instructions with respect to
the shares (or securities) subject to the foregoing restriction until the end of
the 180-day period.
13. GENERAL.
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<PAGE> 9
a. NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand or mailed by first class certified or registered mail, return receipt
requested, postage prepaid:
If to the Company, at Genzyme Corporation, Attention: General Counsel,
or at such other address or addresses as may have been furnished in writing by
the Company to the Purchaser; or
If to a Stockholder, at the address set forth on EXHIBIT A, or at such
other address or addresses as may have been furnished to the Company in writing
by the Purchaser, with a copy to Hale and Dorr LLP, 60 State Street, Boston, MA
02109 Attention: Steven D. Singer, Esq.
Notices provided in accordance with this Section 13(a) shall be deemed
delivered upon personal delivery or two business days after deposit in the mail.
b. ENTIRE AGREEMENT. This Agreement embodies the entire
agreement and understanding between the parties hereto with respect to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
c. AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least [66%] of the Registrable Shares then outstanding; PROVIDED, that this
Agreement may be amended with the consent of the holders of less than all
Registrable Shares only in a manner which affects all Registrable Shares in the
same fashion. No waivers of or exceptions to any term, condition or provision of
this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
d. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
shall be one and the same document.
e. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
f. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Massachusetts.
-9-
<PAGE> 10
Executed as of the date first written above.
GENZYME CORPORATION
By: /s/ David J. McLachlan
----------------------------------
Title: Executive Vice President
------------------------------
CANADIAN MEDICAL DISCOVERIES FUND INC.
By: /s/ E. Rygiel
----------------------------------
Title: Director
-------------------------------
By: /s/ R. Lockie
----------------------------------
Title: Chief Financial Officer
-------------------------------
-10-
<PAGE> 1
EXHIBIT 10.2
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. A-1 Number of Shares: 40,000
(subject to adjustment)
Date of Issuance: July 31, 1997
GENZYME CORPORATION
COMMON STOCK PURCHASE WARRANT
(Void after July 31, 2002)
Genzyme Corporation, a Massachusetts corporation (the "Company"), for
value received, hereby certifies that Canadian Medical Discoveries Fund Inc., or
its registered assigns (the "Registered Holder"), is entitled, subject to the
terms set forth below and provided this Warrant has not terminated as provided
in Section 7 hereof, to purchase from the Company, at any time or from time to
time on or after the date of issuance and on or before July 31, 2002, at not
later than 5:00 p.m. (Boston, Massachusetts time) (the "Exercise Period"), Forty
Thousand (40,000) shares (the "Original Share Number") of Genzyme General
Division Common Stock, $.01 par value per share, of the Company ("GGD Stock"),
at a purchase price per share of GGD Stock equal to $30.18 (as adjusted from
time to time pursuant to the provisions of this Warrant, the "Purchase Price").
Notwithstanding any provision hereof to the contrary, upon the closing
date of the first underwritten public offering by the Company of shares of
Genzyme Molecular Oncology Division Common Stock, $.01 par value per share (the
"GMO Stock"), on a firm commitment basis pursuant to a registration statement
filed with the U.S. Securities and Exchange Commission covering such offering
(the "GMO IPO") and provided that the GMO Stock is then listed and approved for
trading on the Nasdaq National Market (or another national exchange) (such date
being hereinafter referred to as the "Listing Date"), this Warrant, with no
further action required on the part of any party, shall represent solely the
right to purchase that number of shares of GMO Stock equal to the Original Share
Number multiplied by the Conversion Ratio. The "Conversion Ratio" is the amount
obtained by the following formula:
(a) $25.15;
<PAGE> 2
divided by
(b) the lower of
(i) $7.00 plus the product of
(1) (A) the offering price to the public of the GMO Stock
in the GMO IPO (the "IPO Price"); minus
(B) $7.00;
multiplied by
(2) (A) the total number of calendar days elapsed between
March 4, 1997 and the date of issuance; divided by
(B) the total number of calendar days elapsed between
March 4, 1997 and the Listing Date; or
(ii) the IPO Price (the lower of the amounts determined
under clauses (i) and (ii) is herein referred to as
the "GMO Conversion Price").
The term "Common Stock" shall mean the class of common stock of the
Company purchasable upon exercise of this Warrant, together with any other
equity securities that may be issued by the Company in connection therewith or
in substitution therefor. The shares of capital stock purchasable upon exercise
of this Warrant, including shares of GGD Stock or GMO Stock, as the case may be,
together with any other equity securities that may be issued by the Company in
connection therewith or in substitution therefor, as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the
"Warrant Shares."
Effective upon the Listing Date, the Purchase Price shall be adjusted
to an amount equal to (a) the GMO Conversion Price multiplied by (b) 120%.
1. EXERCISE.
(a) This Warrant may be exercised during the Exercise Period by
the Registered Holder, in whole or in part, by surrendering this Warrant, with
the purchase form appended hereto as EXHIBIT I duly executed by such Registered
Holder or by such Registered Holder's duly authorized attorney, at the principal
office of the
-2-
<PAGE> 3
Company, or at such other office or agency as the Company may designate,
accompanied by payment in full, in lawful money of the United States, of the
Purchase Price payable in respect of the number of Warrant Shares purchased upon
such exercise.
(b) The Registered Holder may, at its option, elect to pay some
or all of the Purchase Price payable upon an exercise of this Warrant by
canceling that number of Warrant Shares subject to this Warrant equal to the
quotient determined by dividing (i) the total Purchase Price payable in respect
of the number of Warrant Shares being purchased upon such exercise by (ii) the
Fair Market Value per share of Common Stock as of the effective date of
exercise, as determined pursuant to subsection 1(c) below (the "Exercise Date").
If the Registered Holder wishes to exercise this Warrant pursuant to this method
of payment with respect to the maximum number of Warrant Shares purchasable
pursuant to this method, then the number of Warrant Shares so purchasable shall
be equal to the total number of Warrant Shares, minus the product obtained by
multiplying (x) the total number of Warrant Shares by (y) a fraction, the
numerator of which shall be the Purchase Price per share and the denominator of
which shall be the Fair Market Value per share of Common Stock as of the
Exercise Date. The Fair Market Value per share of Common Stock shall be
determined as follows:
(i) If the Common Stock is listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system, or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the last reported sale
price per share of Common Stock thereon on the Exercise Date; or, if no such
price is reported on such date, such price on the next preceding business day
(provided that if no such price is reported on the next preceding business day,
the Fair Market Value per share of Common Stock shall be determined pursuant to
clause (ii)).
(ii) If the Common Stock is not listed on a national
securities exchange, the Nasdaq National Market, the Nasdaq system or another
nationally recognized exchange or trading system as of the Exercise Date, the
Fair Market Value per share of Common Stock shall be deemed to be the amount
most recently determined by the Board of Directors to represent the fair market
value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing Common
Stock under an employee benefit plan of the Company); and, upon request of the
Registered Holder, the Board of Directors (or a representative thereof) shall
promptly notify the Registered Holder of the Fair Market Value per share of
Common Stock. Notwithstanding the foregoing, if the Board of Directors has not
made such a determination within the three-month period prior to the Exercise
Date, then (A) the Fair Market Value per share of Common Stock shall be the
amount next determined by the Board of Directors to represent the fair market
value per share of the Common Stock
-3-
<PAGE> 4
(including without limitation a determination for purposes of granting Common
Stock options or issuing Common Stock under an employee benefit plan of the
Company), (B) the Board of Directors shall make such a determination within 15
days of a request by the Registered Holder that it do so, and (C) the exercise
of this Warrant pursuant to this subsection 1(b) shall be delayed until such
determination is made.
(c) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in subsection 1(d) below shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates.
(d) As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the sum of (a) the number of such shares purchased by
the Registered Holder upon such exercise plus (b) the number of Warrant Shares
(if any) covered by the portion of this Warrant cancelled in payment of the
Purchase Price payable upon such exercise pursuant to subsection 1(b) above.
2. ADJUSTMENTS.
(a) GENERAL. The Purchase Price shall be subject to adjustment
from time to time pursuant to the terms of this Section 2.
(b) RECAPITALIZATIONS. If during the Exercise Period the
outstanding shares of the Company's Common Stock shall be subdivided into a
greater number of shares or a dividend in Common Stock shall be paid in respect
of Common Stock, the Purchase Price in effect immediately prior to such
subdivision or at the record date of such dividend shall simultaneously with the
effectiveness of such subdivision or
-4-
<PAGE> 5
immediately after the record date of such dividend be proportionately reduced.
If outstanding shares of Common Stock shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall, simultaneously with the effectiveness of such combination, be
proportionately increased.
(c) MERGERS, ETC. If during the Exercise Period there shall occur
any capital reorganization or reclassification of the Company's Common Stock
(other than a change in par value or a subdivision or combination as provided
for in subsection 2(b) above), or any consolidation or merger of the Company
with or into another corporation, or a transfer of all or substantially all of
the assets of the Company, then, as part of any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, lawful
provision shall be made so that the Registered Holder of this Warrant shall have
the right thereafter to receive upon the exercise hereof the kind and amount of
shares of stock or other securities or property which such Registered Holder
would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, such Registered Holder had held the number of shares of Common Stock which
were then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined in good faith by the Board of
Directors of the Company) shall be made in the application of the provisions set
forth herein with respect to the rights and interests thereafter of the
Registered Holder of this Warrant, such that the provisions set forth in this
Section 2 (including provisions with respect to adjustment of the Purchase
Price) shall thereafter be applicable, as nearly as is reasonably practicable,
in relation to any shares of stock or other securities or property thereafter
deliverable upon the exercise of this Warrant.
(d) ADJUSTMENT IN NUMBER OF WARRANT SHARES. When any adjustment
is required to be made in the Purchase Price, the number of Warrant Shares
purchasable upon the exercise of this Warrant shall be changed to the number
determined by dividing (i) an amount equal to the number of shares issuable upon
the exercise of this Warrant immediately prior to such adjustment, multiplied by
the Purchase Price in effect immediately prior to such adjustment, by (ii) the
Purchase Price in effect immediately after such adjustment.
(e) CERTIFICATE OF ADJUSTMENT. When any adjustment is required to
be made pursuant to this Section 2, the Company shall promptly mail to the
Registered Holder a certificate setting forth the Purchase Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which this Warrant shall be exercisable
following such adjustment.
3. FRACTIONAL SHARES. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor
-5-
<PAGE> 6
in cash on the basis of the Fair Market Value per share of Common Stock, as
determined pursuant to subsection 1(b) above.
4. REQUIREMENTS FOR TRANSFER.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144
under the Act.
(c) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such securities are registered
under such Act or an opinion of counsel satisfactory to the
Company is obtained to the effect that such registration is
not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. NO IMPAIRMENT. The Company will not, by amendment of its charter
or through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the holder of
this Warrant against impairment.
-6-
<PAGE> 7
6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. TERMINATION. In the event that the Canadian Medical Discoveries
Fund Inc. ("CMDF") exercises its rights as set forth in Section 8.6 of the
Operating Agreement of even date herewith between CMDF, the Company and
StressGen Gene Therapies Inc., this Warrant shall terminate upon the Closing
Date (as therein defined) of the exercise of such rights and, upon such
termination, the Registered Holder shall have no further rights hereunder.
8. NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant)
-7-
<PAGE> 8
shall be entitled to exchange their shares of Common Stock (or such other stock
or securities) for securities or other property deliverable upon such
reorganization, reclassification, consolidation, merger, transfer, dissolution,
liquidation or winding-up. Such notice shall be mailed at least ten (10) days
prior to the record date or effective date for the event specified in such
notice.
9. RESERVATION OF STOCK. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such number of Warrant Shares and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
10. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder
of any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
11. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
12. TRANSFERS, ETC.
(a) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change its or his address as shown on the warrant register by written notice to
the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, upon surrender
of this Warrant with a properly executed assignment (in the form of EXHIBIT II
hereto) at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; PROVIDED, HOWEVER, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer
-8-
<PAGE> 9
hereof as the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary.
13. MAILING OF NOTICES, ETC. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be mailed by
first-class certified or registered mail, postage prepaid, to the address
furnished to the Company in writing by the last Registered Holder of this
Warrant who shall have furnished an address to the Company in writing. All
notices and other communications from the Registered Holder of this Warrant or
in connection herewith to the Company shall be mailed by first-class certified
or registered mail, postage prepaid, to the Company at its principal office set
forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall give prompt
written notice to the Registered Holder of this Warrant and thereafter all
references in this Warrant to the location of its principal office at the
particular time shall be as so specified in such notice.
14. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant,
the Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
15. CHANGE OR WAIVER. Any term of this Warrant may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of the change or waiver is sought.
16. HEADINGS. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
17. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
GENZYME CORPORATION
By: /s/ David J. McLachlan
-------------------------------
[Corporate Seal] Title: Executive Vice President
----------------------------
ATTEST:
/s/ Peter Wirth
- ---------------------------
-9-
<PAGE> 10
EXHIBIT I
PURCHASE FORM
To:_________________ Dated:____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. A-1), hereby irrevocably elects to purchase _____ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________, representing the full purchase price for such shares at the price
per share provided for in such Warrant. Such payment takes the form of (check
applicable box or boxes):
[ ] $______ in lawful money of the United States; and/or
[ ] The cancellation of such portion of the attached Warrant as is
exercisable for a total of _____ Warrant Shares (using a Fair Market
Value of $_____ per share for purposes of this calculation).
CANADIAN MEDICAL DISCOVERIES FUND, INC.
By:____________________________________
Address:_______________________________
_______________________________________
<PAGE> 11
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, Canadian Medical Discoveries Fund, Inc. hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (No. A-1) with respect to the number of shares of Common Stock
covered thereby set forth below, unto:
<TABLE>
<CAPTION>
Name Of Assignee Address No. Of Shares
- ---------------- ------- -------------
<S> <C> <C>
Dated:_____________________ Signature:___________________________________
Dated:_____________________ Witness:_____________________________________
</TABLE>
<PAGE> 1
EXHIBIT 10.3
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. A-2 Number of Shares: 40,000
(subject to adjustment)
Date of Issuance: July 31, 1997
GENZYME CORPORATION
COMMON STOCK PURCHASE WARRANT
(Void after July 31, 2007)
Genzyme Corporation, a Massachusetts corporation (the "Company"), for
value received, hereby certifies that Canadian Medical Discoveries Fund Inc., or
its registered assigns (the "Registered Holder"), is entitled, subject to the
terms set forth below and provided this Warrant has not terminated as provided
in Section 7 hereof, to purchase from the Company, at any time or from time to
time on or after the Effective Date (as defined below) and on or before the
earlier of (i) the date one (1) year after the Effective Date, at not later than
5:00 p.m. (Boston, Massachusetts time) or (ii) July 31, 2007, at not later than
5:00 p.m. (Boston, Massachusetts time) (the "Exercise Period"), Forty Thousand
(40,000) shares of Genzyme General Division Common Stock, $.01 par value per
share, of the Company ("GGD Stock"), at a purchase price per share of GGD Stock
equal to $30.18 (as the same may be adjusted from time to time pursuant to the
provisions of this Warrant, the "Purchase Price"). The "Effective Date" shall
mean the date that a new drug application is filed with the U.S. Food and Drug
Administration after completion of human clinical trials to obtain marketing
approval for a Collaboration Product (as defined in the Collaboration Agreement
dated as of July , 1997 among the Company, Canadian Medical Discoveries Fund
Inc. ("CMDF"), StressGen Biotechnologies Corp., StressGen Gene Therapies Inc.
and StressGen/Genzyme LLC).
Notwithstanding any provision hereof to the contrary, upon the closing
date of the first underwritten public offering by the Company of shares of
Genzyme Molecular Oncology Division Common stock, $.01 par value per share (the
"GMO Stock"), on a firm commitment basis pursuant to a registration statement
filed with the U.S. Securities and Exchange Commission covering such offering
(the "GMO IPO") and provided that the GMO Stock is then listed and approved for
trading on the Nasdaq National Market (or another national exchange) (such date
being hereinafter referred to as the "Listing Date"), this Warrant, with no
further action
<PAGE> 2
required on the part of any party, shall represent solely the right to purchase
that number of shares of GMO Stock equal to the Original Share Number multiplied
by the Conversion Ratio. The "Conversion Ratio" is the amount obtained by the
following formula:
(a) $25.15;
divided by
(b) the lower of
(i) $7.00 plus the product of
(1) (A) the offering price to the public of the GMO
Stock in the GMO IPO (the "IPO Price"); minus
(B) $7.00;
multiplied by
(2) (A) the total number of calendar days elapsed
between March 4, 1997 and the date of
issuance; divided by
(B) the total number of calendar days elapsed
between March 4, 1997 and the Listing Date;
or
(ii) the IPO Price (the lower of the amounts determined
under clauses (i) and (ii) is herein referred to as
the "GMO Conversion Price").
The term "Common Stock" shall mean the class of common stock of the
Company purchasable upon exercise of this Warrant, together with any other
equity securities that may be issued by the Company in connection therewith or
in substitution therefor. The shares of capital stock purchasable upon exercise
of this Warrant, including shares of GGD Stock or GMO Stock, as the case may be,
together with any other equity securities that may be issued by the Company in
connection therewith or in substitution therefor, as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the
"Warrant Shares."
Effective upon the Listing Date, the Purchase Price shall be adjusted
to an amount equal to (a) the GMO Conversion Price multiplied by (b) 120%.
1. EXERCISE.
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<PAGE> 3
(a) This Warrant may be exercised during the Exercise Period by
the Registered Holder, in whole or in part, by surrendering this Warrant, with
the purchase form appended hereto as EXHIBIT I duly executed by such Registered
Holder or by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company may
designate, accompanied by payment in full, in lawful money of the United States,
of the Purchase Price payable in respect of the number of Warrant Shares
purchased upon such exercise.
(b) The Registered Holder may, at its option, elect to pay some
or all of the Purchase Price payable upon an exercise of this Warrant by
canceling that number of Warrant Shares subject to this Warrant equal to the
quotient determined by dividing (i) the total Purchase Price payable in respect
of the number of Warrant Shares being purchased upon such exercise by (ii) the
Fair Market Value per share of Common Stock as of the effective date of
exercise, as determined pursuant to subsection 1(c) below (the "Exercise Date").
If the Registered Holder wishes to exercise this Warrant pursuant to this method
of payment with respect to the maximum number of Warrant Shares purchasable
pursuant to this method, then the number of Warrant Shares so purchasable shall
be equal to the total number of Warrant Shares, minus the product obtained by
multiplying (x) the total number of Warrant Shares by (y) a fraction, the
numerator of which shall be the Purchase Price per share and the denominator of
which shall be the Fair Market Value per share of Common Stock as of the
Exercise Date. The Fair Market Value per share of Common Stock shall be
determined as follows:
(i) If the Common Stock is listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system, or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the last reported sale
price per share of Common Stock thereon on the Exercise Date; or, if no such
price is reported on such date, such price on the next preceding business day
(provided that if no such price is reported on the next preceding business day,
the Fair Market Value per share of Common Stock shall be determined pursuant to
clause (ii)).
(ii) If the Common Stock is not listed on a national
securities exchange, the Nasdaq National Market, the Nasdaq system or another
nationally recognized exchange or trading system as of the Exercise Date, the
Fair Market Value per share of Common Stock shall be deemed to be the amount
most recently determined by the Board of Directors to represent the fair market
value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing Common
Stock under an employee benefit plan of the Company); and, upon request of the
Registered Holder, the Board of Directors (or a representative thereof) shall
promptly notify the Registered Holder of the Fair Market Value per share of
Common Stock. Notwithstanding the
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<PAGE> 4
foregoing, if the Board of Directors has not made such a determination within
the three-month period prior to the Exercise Date, then (A) the Fair Market
Value per share of Common Stock shall be the amount next determined by the Board
of Directors to represent the fair market value per share of the Common Stock
(including without limitation a determination for purposes of granting Common
Stock options or issuing Common Stock under an employee benefit plan of the
Company), (B) the Board of Directors shall make such a determination within 15
days of a request by the Registered Holder that it do so, and (C) the exercise
of this Warrant pursuant to this subsection 1(b) shall be delayed until such
determination is made.
(c) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in subsection 1(d) below shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates.
(d) As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant or
warrants (dated the date hereof) of like tenor, calling in the aggregate on the
face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the sum of (a) the number of such shares purchased by
the Registered Holder upon such exercise plus (b) the number of Warrant Shares
(if any) covered by the portion of this Warrant cancelled in payment of the
Purchase Price payable upon such exercise pursuant to subsection 1(b) above.
2. ADJUSTMENTS.
(a) GENERAL. The Purchase Price shall be subject to adjustment
from time to time pursuant to the terms of this Section 2.
(b) RECAPITALIZATIONS. If during the Exercise Period the
outstanding
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<PAGE> 5
shares of the Company's Common Stock shall be subdivided into a greater number
of shares or a dividend in Common Stock shall be paid in respect of Common
Stock, the Purchase Price in effect immediately prior to such subdivision or at
the record date of such dividend shall simultaneously with the effectiveness of
such subdivision or immediately after the record date of such dividend be
proportionately reduced. If outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Purchase Price in effect immediately prior
to such combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased.
(c) MERGERS, ETC. If during the Exercise Period there shall occur
any capital reorganization or reclassification of the Company's Common Stock
(other than a change in par value or a subdivision or combination as provided
for in subsection 2(b) above), or any consolidation or merger of the Company
with or into another corporation, or a transfer of all or substantially all of
the assets of the Company, then, as part of any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, lawful
provision shall be made so that the Registered Holder of this Warrant shall have
the right thereafter to receive upon the exercise hereof the kind and amount of
shares of stock or other securities or property which such Registered Holder
would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, such Registered Holder had held the number of shares of Common Stock which
were then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined in good faith by the Board of
Directors of the Company) shall be made in the application of the provisions set
forth herein with respect to the rights and interests thereafter of the
Registered Holder of this Warrant, such that the provisions set forth in this
Section 2 (including provisions with respect to adjustment of the Purchase
Price) shall thereafter be applicable, as nearly as is reasonably practicable,
in relation to any shares of stock or other securities or property thereafter
deliverable upon the exercise of this Warrant.
(d) ADJUSTMENT IN NUMBER OF WARRANT SHARES. When any adjustment
is required to be made in the Purchase Price, the number of Warrant Shares
purchasable upon the exercise of this Warrant shall be changed to the number
determined by dividing (i) an amount equal to the number of shares issuable upon
the exercise of this Warrant immediately prior to such adjustment, multiplied by
the Purchase Price in effect immediately prior to such adjustment, by (ii) the
Purchase Price in effect immediately after such adjustment.
(e) CERTIFICATE OF ADJUSTMENT. When any adjustment is required to
be made pursuant to this Section 2, the Company shall promptly mail to the
Registered Holder a certificate setting forth the Purchase Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which
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<PAGE> 6
this Warrant shall be exercisable following such adjustment.
3. FRACTIONAL SHARES. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the Fair Market Value per share of
Common Stock, as determined pursuant to subsection 1(b) above.
4. REQUIREMENTS FOR TRANSFER.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144
under the Act.
(c) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such securities are registered
under such Act or an opinion of counsel satisfactory to the
Company is obtained to the effect that such registration is
not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. NO IMPAIRMENT. The Company will not, by amendment of its charter
or through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of
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<PAGE> 7
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment.
6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. TERMINATION. In the event that the CMDF exercises its rights (i)
as set forth in Section 8.6 of the Operating Agreement of even date herewith
between CMDF, the Company and StressGen Gene Therapies Inc. (the "Operating
Agreement"), or (ii) as set forth in Section 10.4 of the Operating Agreement,
this Warrant shall terminate upon (1) in case of the preceding clause (i), the
Closing Date (as defined in the Operating Agreement) of the exercise of such
rights, or (2) in case of the preceding clause (ii), the effective date of the
notice provided by CMDF in accordance with the first sentence of said Section
10.4 and, upon any such termination, the Registered Holder shall have no further
rights hereunder.
8. NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date
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<PAGE> 8
on which a record is to be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such dividend, distribution or
right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice.
9. RESERVATION OF STOCK. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such number of Warrant Shares and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
10. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder
of any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
11. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
12. TRANSFERS, ETC.
(a) The Company will maintain a register containing the names and
addresses of the Registered Holders of this Warrant. Any Registered Holder may
change its or his address as shown on the warrant register by written notice to
the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, upon surrender
of this Warrant with a properly executed assignment (in the form of EXHIBIT II
hereto) at the principal
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<PAGE> 9
office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; PROVIDED, HOWEVER, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
13. MAILING OF NOTICES, ETC. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be mailed by
first-class certified or registered mail, postage prepaid, to the address
furnished to the Company in writing by the last Registered Holder of this
Warrant who shall have furnished an address to the Company in writing. All
notices and other communications from the Registered Holder of this Warrant or
in connection herewith to the Company shall be mailed by first-class certified
or registered mail, postage prepaid, to the Company at its principal office set
forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall give prompt
written notice to the Registered Holder of this Warrant and thereafter all
references in this Warrant to the location of its principal office at the
particular time shall be as so specified in such notice.
14. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
15. CHANGE OR WAIVER. Any term of this Warrant may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of the change or waiver is sought.
16. HEADINGS. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
17. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
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<PAGE> 10
GENZYME CORPORATION
By: /s/ David J. McLachlan
-------------------------------
[Corporate Seal] Title: Executive Vice President
----------------------------
ATTEST:
/s/ Peter Wirth
- ---------------------------
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<PAGE> 11
EXHIBIT I
PURCHASE FORM
To:_________________ Dated:____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. A-1), hereby irrevocably elects to purchase _____ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________, representing the full purchase price for such shares at the price
per share provided for in such Warrant. Such payment takes the form of (check
applicable box or boxes):
[ ] $______ in lawful money of the United States; and/or
[ ] The cancellation of such portion of the attached Warrant as is
exercisable for a total of _____ Warrant Shares (using a Fair Market
Value of $_____ per share for purposes of this calculation).
CANADIAN MEDICAL DISCOVERIES FUND, INC.
By:____________________________________
Address:_______________________________
_______________________________________
<PAGE> 12
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, Canadian Medical Discoveries Fund, Inc. hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (No. A-1) with respect to the number of shares of Common Stock
covered thereby set forth below, unto:
<TABLE>
<CAPTION>
Name Of Assignee Address No. Of Shares
- ---------------- ------- -------------
<S> <C> <C>
Dated:_____________________ Signature:____________________________________
Dated:_____________________ Witness:______________________________________
</TABLE>
<PAGE> 1
EXHIBIT 10.4
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS
EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON
TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT
Warrant No. A-3 Number of Shares: 40,000
(subject to adjustment)
Date of Issuance: July 31, 1997
GENZYME CORPORATION
COMMON STOCK PURCHASE WARRANT
(Void July 31, 2005)
Genzyme Corporation, a Massachusetts corporation (the "Company"), for
value received, hereby certifies that Canadian Medical Discoveries Fund Inc., or
its registered assigns (the "Registered Holder"), is entitled, subject to the
terms set forth below and provided this Warrant has not terminated as provided
in Section 7 hereof, to purchase from the Company, at any time, or from time to
time, on or after July 31, 2005 (the "Effective Date") and on or before the date
three years after the Effective Date, at not later than 5:00 p.m. (Boston,
Massachusetts time) (the "Exercise Period"), Forty Thousand (40,000) shares of
Genzyme General Division Common Stock, $.01 par value per share, of the Company
("GGD Stock"), at a purchase price per share of GGD Stock equal to the Purchase
Price. The "Purchase Price" shall equal the average of the last reported sale
price of the GGD Stock on the Nasdaq National Market (or any other national
exchange upon which the Company's Common Stock may then be listed) for each of
the twenty (20) trading days preceding the Effective Date.
Notwithstanding any provision hereof to the contrary, upon the closing
date of the first underwritten public offering by the Company of shares of
Genzyme Molecular Oncology Division Common Stock, $.01 par value per share (the
"GMO Stock"), on a firm commitment basis pursuant to a registration statement
filed with the U.S. Securities and Exchange Commission covering such offering
(the "GMO IPO") and provided that the GMO Stock is then listed and approved for
trading on the Nasdaq National Market (or another national exchange) (such date
being hereinafter referred to as the "Listing Date"), this Warrant, with no
further action required on the part of any party, shall represent solely the
right to purchase that number of shares of GMO Stock equal to the Original Share
Number multiplied by the Conversion Ratio. The "Conversion Ratio" is the amount
obtained by the following formula:
<PAGE> 2
(a) $25.15;
divided by
(b) the lower of
(i) $7.00 plus the product of
(1) (A) the offering price to the public of the GMO
Stock in the GMO IPO (the "IPO Price"); minus
(B) $7.00;
multiplied by
(2) (A) the total number of calendar days elapsed
between March 4, 1997 and the date of
issuance; divided by
(B) the total number of calendar days elapsed
between March 4, 1997 and the Listing Date; or
(ii) the IPO Price (the lower of the amounts determined
under clauses (i) and (ii) is herein referred to as
the "GMO Conversion Price").
The term "Common Stock" shall mean the class of common stock of the
Company purchasable upon exercise of this Warrant, together with any other
equity securities that may be issued by the Company in connection therewith or
in substitution therefor. The shares of capital stock purchasable upon exercise
of this Warrant, including shares of GGD Stock or GMO Stock, as the case may be,
together with any other equity securities that may be issued by the Company in
connection therewith or in substitution therefor, as adjusted from time to time
pursuant to the provisions of this Warrant, are hereinafter referred to as the
"Warrant Shares."
Effective upon the Listing Date, the Purchase Price shall be adjusted
to an amount equal to the average of the last reported sale price of the GMO
Stock on the Nasdaq National Market (or any other national exchange upon which
the Tracking Stock may then be listed) for each of the twenty (20) trading days
preceding the Effective Date.
1. EXERCISE.
(a) This Warrant may be exercised during the Exercise Period by
the
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<PAGE> 3
Registered Holder, in whole or in part, by surrendering this Warrant, with the
purchase form appended hereto as EXHIBIT I duly executed by such Registered
Holder or by such Registered Holder's duly authorized attorney, at the principal
office of the Company, or at such other office or agency as the Company may
designate, accompanied by payment in full, in lawful money of the United States,
of the Purchase Price payable in respect of the number of Warrant Shares
purchased upon such exercise.
(b) The Registered Holder may, at its option, elect to pay some
or all of the Purchase Price payable upon an exercise of this Warrant by
canceling that number of Warrant Shares subject to this Warrant equal to the
quotient determined by dividing (i) the total Purchase Price payable in respect
of the number of Warrant Shares being purchased upon such exercise by (ii) the
Fair Market Value per share of Common Stock as of the effective date of
exercise, as determined pursuant to subsection 1(c) below (the "Exercise Date").
If the Registered Holder wishes to exercise this Warrant pursuant to this method
of payment with respect to the maximum number of Warrant Shares purchasable
pursuant to this method, then the number of Warrant Shares so purchasable shall
be equal to the total number of Warrant Shares, minus the product obtained by
multiplying (x) the total number of Warrant Shares by (y) a fraction, the
numerator of which shall be the Purchase Price per share and the denominator of
which shall be the Fair Market Value per share of Common Stock as of the
Exercise Date. The Fair Market Value per share of Common Stock shall be
determined as follows:
(i) If the Common Stock is listed on a national securities
exchange, the Nasdaq National Market, the Nasdaq system, or another nationally
recognized exchange or trading system as of the Exercise Date, the Fair Market
Value per share of Common Stock shall be deemed to be the last reported sale
price per share of Common Stock thereon on the Exercise Date; or, if no such
price is reported on such date, such price on the next preceding business day
(provided that if no such price is reported on the next preceding business day,
the Fair Market Value per share of Common Stock shall be determined pursuant to
clause (ii)).
(ii) If the Common Stock is not listed on a national
securities exchange, the Nasdaq National Market, the Nasdaq system or another
nationally recognized exchange or trading system as of the Exercise Date, the
Fair Market Value per share of Common Stock shall be deemed to be the amount
most recently determined by the Board of Directors to represent the fair market
value per share of the Common Stock (including without limitation a
determination for purposes of granting Common Stock options or issuing Common
Stock under an employee benefit plan of the Company); and, upon request of the
Registered Holder, the Board of Directors (or a representative thereof) shall
promptly notify the Registered Holder of the Fair Market Value per share of
Common Stock. Notwithstanding the foregoing, if the Board of Directors has not
made such a determination within the
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<PAGE> 4
three-month period prior to the Exercise Date, then (A) the Fair Market Value
per share of Common Stock shall be the amount next determined by the Board of
Directors to represent the fair market value per share of the Common Stock
(including without limitation a determination for purposes of granting Common
Stock options or issuing Common Stock under an employee benefit plan of the
Company), (B) the Board of Directors shall make such a determination within 15
days of a request by the Registered Holder that it do so, and (C) the exercise
of this Warrant pursuant to this subsection 1(b) shall be delayed until such
determination is made.
(c) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day on which this
Warrant shall have been surrendered to the Company as provided in subsection
1(a) above. At such time, the person or persons in whose name or names any
certificates for Warrant Shares shall be issuable upon such exercise as provided
in subsection 1(d) below shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates.
(d) As soon as practicable after the exercise of this Warrant in
full or in part, and in any event within 10 days thereafter, the Company, at its
expense, will cause to be issued in the name of, and delivered to, the
Registered Holder, or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which such Registered Holder shall be entitled upon such
exercise plus, in lieu of any fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount determined pursuant to Section 3
hereof; and
(ii) in case such exercise is in part only, a new warrant
or warrants (dated the date hereof) of like tenor, calling in the aggregate on
the face or faces thereof for the number of Warrant Shares equal (without giving
effect to any adjustment therein) to the number of such shares called for on the
face of this Warrant minus the sum of (a) the number of such shares purchased by
the Registered Holder upon such exercise plus (b) the number of Warrant Shares
(if any) covered by the portion of this Warrant cancelled in payment of the
Purchase Price payable upon such exercise pursuant to subsection 1(b) above.
2. ADJUSTMENTS.
(a) GENERAL. The Purchase Price shall be subject to adjustment
from time to time pursuant to the terms of this Section 2.
(b) RECAPITALIZATIONS. If during the Exercise Period outstanding
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<PAGE> 5
shares of the Company's Common Stock shall be subdivided into a greater number
of shares or a dividend in Common Stock shall be paid in respect of Common
Stock, the Purchase Price in effect immediately prior to such subdivision or at
the record date of such dividend shall simultaneously with the effectiveness of
such subdivision or immediately after the record date of such dividend be
proportionately reduced. If outstanding shares of Common Stock shall be combined
into a smaller number of shares, the Purchase Price in effect immediately prior
to such combination shall, simultaneously with the effectiveness of such
combination, be proportionately increased.
(c) MERGERS, ETC. If during the Exercise Period there shall occur
any capital reorganization or reclassification of the Company's Common Stock
(other than a change in par value or a subdivision or combination as provided
for in subsection 2(b) above), or any consolidation or merger of the Company
with or into another corporation, or a transfer of all or substantially all of
the assets of the Company, then, as part of any such reorganization,
reclassification, consolidation, merger or sale, as the case may be, lawful
provision shall be made so that the Registered Holder of this Warrant shall have
the right thereafter to receive upon the exercise hereof the kind and amount of
shares of stock or other securities or property which such Registered Holder
would have been entitled to receive if, immediately prior to any such
reorganization, reclassification, consolidation, merger or sale, as the case may
be, such Registered Holder had held the number of shares of Common Stock which
were then purchasable upon the exercise of this Warrant. In any such case,
appropriate adjustment (as reasonably determined in good faith by the Board of
Directors of the Company) shall be made in the application of the provisions set
forth herein with respect to the rights and interests thereafter of the
Registered Holder of this Warrant, such that the provisions set forth in this
Section 2 (including provisions with respect to adjustment of the Purchase
Price) shall thereafter be applicable, as nearly as is reasonably practicable,
in relation to any shares of stock or other securities or property thereafter
deliverable upon the exercise of this Warrant.
(d) ADJUSTMENT IN NUMBER OF WARRANT SHARES. When any adjustment
is required to be made in the Purchase Price, the number of Warrant Shares
purchasable upon the exercise of this Warrant shall be changed to the number
determined by dividing (i) an amount equal to the number of shares issuable upon
the exercise of this Warrant immediately prior to such adjustment, multiplied by
the Purchase Price in effect immediately prior to such adjustment, by (ii) the
Purchase Price in effect immediately after such adjustment.
(e) CERTIFICATE OF ADJUSTMENT. When any adjustment is required to
be made pursuant to this Section 2, the Company shall promptly mail to the
Registered Holder a certificate setting forth the Purchase Price after such
adjustment and setting forth a brief statement of the facts requiring such
adjustment. Such certificate shall also set forth the kind and amount of stock
or other securities or property into which
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<PAGE> 6
this Warrant shall be exercisable following such adjustment.
3. FRACTIONAL SHARES. The Company shall not be required upon the
exercise of this Warrant to issue any fractional shares, but shall make an
adjustment therefor in cash on the basis of the Fair Market Value per share of
Common Stock, as determined pursuant to subsection 1(b) above.
4. REQUIREMENTS FOR TRANSFER.
(a) This Warrant and the Warrant Shares shall not be sold or
transferred unless either (i) they first shall have been registered under the
Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall
have been furnished with an opinion of legal counsel, reasonably satisfactory to
the Company, to the effect that such sale or transfer is exempt from the
registration requirements of the Act.
(b) Notwithstanding the foregoing, no registration or opinion of
counsel shall be required for (i) a transfer by a Registered Holder which is a
partnership to a partner of such partnership or a retired partner of such
partnership who retires after the date hereof, or to the estate of any such
partner or retired partner, if the transferee agrees in writing to be subject to
the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144
under the Act.
(c) Each certificate representing Warrant Shares shall bear a
legend substantially in the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
may not be offered, sold or otherwise transferred, pledged or
hypothecated unless and until such securities are registered
under such Act or an opinion of counsel satisfactory to the
Company is obtained to the effect that such registration is
not required."
The foregoing legend shall be removed from the certificates representing any
Warrant Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Act.
5. NO IMPAIRMENT. The Company will not, by amendment of its charter
or through reorganization, consolidation, merger, dissolution, sale of assets or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of
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<PAGE> 7
all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holder of this Warrant against
impairment.
6. LIQUIDATING DIVIDENDS. If the Company pays a dividend or makes a
distribution on the Common Stock payable otherwise than in cash out of earnings
or earned surplus (determined in accordance with generally accepted accounting
principles) except for a stock dividend payable in shares of Common Stock (a
"Liquidating Dividend"), then the Company will pay or distribute to the
Registered Holder of this Warrant, upon the exercise hereof, in addition to the
Warrant Shares purchased upon such exercise, the Liquidating Dividend which
would have been paid to such Registered Holder if he had been the owner of
record of such Warrant Shares immediately prior to the date on which a record is
taken for such Liquidating Dividend or, if no record is taken, the date as of
which the record holders of Common Stock entitled to such dividends or
distribution are to be determined.
7. TERMINATION. In the event that (i) the option to purchase the
membership interest of Canadian Medical Discoveries Fund Inc. ("CMDF") in
StressGen/Genzyme LLC is exercised in accordance with Section 8.5 of the
Operating Agreement of even date herewith between CMDF, the Company and
StressGen Gene Therapies Inc. (the "Operating Agreement"), or (ii) in the event
that CMDF exercises its rights as set forth in Section 8.6 of the Operating
Agreement, this warrant shall terminate upon (1) in the case of the preceding
clause (i), the Closing Date (as defined in the Operating Agreement) of the
option exercise, or (2) in case of the preceding clause (ii), the Closing Date
(as defined in the Operating Agreement) of the exercise of such rights and, upon
any such termination, the Registered Holder shall have no further rights
hereunder.
8. NOTICES OF RECORD DATE, ETC. In case:
(a) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time deliverable upon the exercise of
this Warrant) for the purpose of entitling or enabling them to receive any
dividend or other distribution, or to receive any right to subscribe for or
purchase any shares of stock of any class or any other securities, or to receive
any other right; or
(b) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the surviving entity), or any
transfer of all or substantially all of the assets of the Company; or
(c) of the voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
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<PAGE> 8
then, and in each such case, the Company will mail or cause to be mailed to the
Registered Holder of this Warrant a notice specifying, as the case may be, (i)
the date on which a record is to be taken for the purpose of such dividend,
distribution or right, and stating the amount and character of such dividend,
distribution or right, or (ii) the effective date on which such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up is to take place, and the time, if any is to be fixed, as of which
the holders of record of Common Stock (or such other stock or securities at the
time deliverable upon the exercise of this Warrant) shall be entitled to
exchange their shares of Common Stock (or such other stock or securities) for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least ten (10) days prior to the
record date or effective date for the event specified in such notice.
9. RESERVATION OF STOCK. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the exercise of this
Warrant, such number of Warrant Shares and other stock, securities and property,
as from time to time shall be issuable upon the exercise of this Warrant.
10. EXCHANGE OF WARRANTS. Upon the surrender by the Registered Holder
of any Warrant or Warrants, properly endorsed, to the Company at the principal
office of the Company, the Company will, subject to the provisions of Section 4
hereof, issue and deliver to or upon the order of such Holder, at the Company's
expense, a new Warrant or Warrants of like tenor, in the name of such Registered
Holder or as such Registered Holder (upon payment by such Registered Holder of
any applicable transfer taxes) may direct, calling in the aggregate on the face
or faces thereof for the number of shares of Common Stock called for on the face
or faces of the Warrant or Warrants so surrendered.
11. REPLACEMENT OF WARRANTS. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement (with surety if reasonably required) in an amount reasonably
satisfactory to the Company, or (in the case of mutilation) upon surrender and
cancellation of this Warrant, the Company will issue, in lieu thereof, a new
Warrant of like tenor.
12. TRANSFERS, ETC.
(a) The Company will maintain a register containing the names
and addresses of the Registered Holders of this Warrant. Any Registered Holder
may change its or his address as shown on the warrant register by written notice
to the Company requesting such change.
(b) Subject to the provisions of Section 4 hereof, this Warrant
and all
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<PAGE> 9
rights hereunder are transferable, in whole or in part, upon surrender of this
Warrant with a properly executed assignment (in the form of EXHIBIT II hereto)
at the principal office of the Company.
(c) Until any transfer of this Warrant is made in the warrant
register, the Company may treat the Registered Holder of this Warrant as the
absolute owner hereof for all purposes; PROVIDED, HOWEVER, that if and when this
Warrant is properly assigned in blank, the Company may (but shall not be
obligated to) treat the bearer hereof as the absolute owner hereof for all
purposes, notwithstanding any notice to the contrary.
13. MAILING OF NOTICES, ETC. All notices and other communications from
the Company to the Registered Holder of this Warrant shall be mailed by
first-class certified or registered mail, postage prepaid, to the address
furnished to the Company in writing by the last Registered Holder of this
Warrant who shall have furnished an address to the Company in writing. All
notices and other communications from the Registered Holder of this Warrant or
in connection herewith to the Company shall be mailed by first-class certified
or registered mail, postage prepaid, to the Company at its principal office set
forth below. If the Company should at any time change the location of its
principal office to a place other than as set forth below, it shall give prompt
written notice to the Registered Holder of this Warrant and thereafter all
references in this Warrant to the location of its principal office at the
particular time shall be as so specified in such notice.
14. NO RIGHTS AS STOCKHOLDER. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights by
virtue hereof as a stockholder of the Company.
15. CHANGE OR WAIVER. Any term of this Warrant may be changed or
waived only by an instrument in writing signed by the party against which
enforcement of the change or waiver is sought.
16. HEADINGS. The headings in this Warrant are for purposes of
reference only and shall not limit or otherwise affect the meaning of any
provision of this Warrant.
17. GOVERNING LAW. This Warrant will be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts.
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<PAGE> 10
GENZYME CORPORATION
By: /s/ David J. McLachlan
-------------------------------
[Corporate Seal] Title: Executive Vice President
----------------------------
ATTEST:
/s/ Peter Wirth
- ---------------------------
<PAGE> 11
EXHIBIT I
PURCHASE FORM
To:_________________ Dated:____________
The undersigned, pursuant to the provisions set forth in the attached
Warrant (No. A-3), hereby irrevocably elects to purchase _____ shares of the
Common Stock covered by such Warrant. The undersigned herewith makes payment of
$____________, representing the full purchase price for such shares at the price
per share provided for in such Warrant. Such payment takes the form of (check
applicable box or boxes):
[ ] $______ in lawful money of the United States; and/or
[ ] The cancellation of such portion of the attached Warrant as is
exercisable for a total of _____ Warrant Shares (using a Fair Market
Value of $_____ per share for purposes of this calculation).
CANADIAN MEDICAL DISCOVERIES FUND, INC.
By:____________________________________
Address:_______________________________
_______________________________________
<PAGE> 12
EXHIBIT II
ASSIGNMENT FORM
FOR VALUE RECEIVED, Canadian Medical Discoveries Fund, Inc. hereby
sells, assigns and transfers all of the rights of the undersigned under the
attached Warrant (No. A-3) with respect to the number of shares of Common Stock
covered thereby set forth below, unto:
<TABLE>
<CAPTION>
Name Of Assignee Address No. Of Shares
- ---------------- ------- -------------
<S> <C> <C>
Dated:_____________________ Signature:__________________________________
Dated:_____________________ Witness:____________________________________
</TABLE>
<PAGE> 1
EXHIBIT 10.5
PURCHASE AGREEMENT
PURCHASE AGREEMENT (this "AGREEMENT"), dated as of August 29,
1997, by and among Genzyme Corporation, a Massachusetts corporation (the
"COMPANY"), and the entities whose names appear on the signature pages hereof.
Such entities are each referred to herein as a "PURCHASER" and, collectively, as
the "PURCHASERS".
The Company wishes to sell and each Purchaser wishes to buy, subject to
the terms and conditions set forth in this Agreement, a convertible debenture of
the Company in the principal amount set forth on the signature page hereof
executed by such Purchaser, having the terms and conditions and in the form
attached hereto as EXHIBIT A (a "GMO DEBENTURE" and, when taken together with
all of the debentures issued to the other Purchasers hereunder at the Closing
(as defined below), the "GMO DEBENTURES"), in reliance on the exemption from
securities registration afforded by the provisions of Section 4(2) under the
Securities Act of 1933, as amended (the "SECURITIES ACT").
The GMO Debentures are convertible into shares of Genzyme Molecular
Oncology Division Common Stock, $.01 par value (the "GMO STOCK"), and
exchangeable under certain conditions into Genzyme GGD Debentures in the form
attached hereto as EXHIBIT B (the "GGD DEBENTURES"). The GGD Debentures, if and
when issued, are convertible into shares of the Company's General Division
Common Stock, $.01 par value (the "GGD STOCK"). The term (i) "DEBENTURES" shall
mean, collectively, the GMO Debentures and, upon issuance, the GGD Debentures,
(ii) "CONVERSION SHARES" shall mean, at any time, the aggregate of (x) the
number of shares of GMO Stock that are issued or issuable upon conversion of the
GMO Debentures and (y) the number of shares of GGD Stock that are issued or
issuable upon conversion of the GGD Debentures, (iii) "INTEREST PAYMENT SHARES"
shall mean the shares of GMO Stock or GGD Stock, as the case may be, issued by
the Company in payment of interest on the Debentures in accordance with the
terms thereof and (iv) "SECURITIES" shall mean, collectively, the GMO Debentures
and, upon issuance, the GGD Debentures, the Conversion Shares and the Interest
Payment Shares.
The parties hereto agree as follows:
1. PURCHASE AND SALE OF DEBENTURES.
1.1 AGREEMENT TO PURCHASE AND SELL. Upon the terms and subject to the
conditions set forth herein, the Company agrees to sell at the Closing (as
defined below), and each Purchaser agrees to purchase, a GMO Debenture in the
principal amount set forth on the signature page hereof executed by such
Purchaser, at a purchase price equal to such principal amount (the "PURCHASE
PRICE").
1.2 CLOSING. Subject to the satisfaction of the conditions set forth
herein, the closing of the purchase and sale of the GMO Debentures (the
"CLOSING") will be deemed to occur when this Agreement, and the other
Transaction Documents (as defined below), have been executed and delivered by
both the Company and each Purchaser, and full payment of the amount of the
Purchase Price payable by each Purchaser has been made by such Purchaser by wire
transfer of same day
<PAGE> 2
funds to an account designated by the Company against delivery by the Company of
a duly executed GMO Debenture to such Purchaser. The date on which the Closing
is deemed to occur is referred to herein as the "CLOSING DATE".
1.3 CERTAIN DEFINITIONS. When used herein, (A) "business day" shall
mean any day on which the New York Stock Exchange and commercial banks in the
cities of Boston and New York are open for business and (B) an "affiliate" of a
party shall mean any person or entity controlling, controlled by or under common
control with that party.
2. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.
Each Purchaser, solely with respect to it, hereby makes the following
representations and warranties to the Company (which shall be true as of the
Closing and as of any such later date as contemplated hereunder) and agrees with
the Company that:
2.1 AUTHORIZATION; ENFORCEABILITY. Such Purchaser is duly and validly
organized, validly existing and in good standing as a corporation under the laws
of the state of its incorporation with full power and authority to purchase the
Securities and to execute and deliver this Agreement. This Agreement and the
Registration Rights Agreement of even date herewith among the Company and the
Purchasers (the "REGISTRATION RIGHTS AGREEMENT") each constitutes such
Purchaser's valid and legally binding obligation, enforceable in accordance with
its terms, except as such enforcement may be limited by (i) applicable
bankruptcy, insolvency, reorganization or other laws of general application
relating to or affecting the enforcement of creditors' rights generally and (ii)
general principles of equity.
2.2 ACCREDITED INVESTOR; INVESTMENT INTENT. Such Purchaser is (i) an
accredited investor, as defined in Rule 501 of Regulation D under the Securities
Act, (ii) an institution and (iii) except as otherwise disclosed on the
signature page hereto executed by such Purchaser, a "qualified institutional
buyer" as defined in Rule 144A under the Securities Act. Such Purchaser is
acquiring the Securities solely for such Purchaser's own account for investment
purposes as a principal and not with a view to the public resale or distribution
of all or any part thereof; PROVIDED, HOWEVER, that in making such
representation, such Purchaser does not agree to hold the Securities for any
minimum or specific term and reserves the right to sell, transfer or otherwise
dispose of the Securities at any time in accordance with the provisions of this
Agreement and the Registration Rights Agreement and with Federal and state
securities laws applicable to such sale, transfer or disposition.
2.3 INFORMATION. The Company has provided such Purchaser with certain
written information regarding the Company and has granted to such Purchaser the
opportunity to ask questions of and receive answers from representatives of the
Company, its officers, directors, employees and agents concerning the terms and
conditions of the purchase and sale of the Securities hereunder, and the Company
and its business and prospects.
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<PAGE> 3
2.4 LIMITATIONS ON DISPOSITION. Such Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, the Securities have not
been and are not being registered under the Securities Act or any state
securities laws and applicable rules and regulations, and may not be transferred
unless and until:
(a) there is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition
is made in accordance with such registration statement; or
(b)(i) such Purchaser shall have notified the Company in advance
of the proposed disposition, and (ii) if reasonably requested by the
Company, such Purchaser shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration under the Securities Act. It
is agreed that no opinion of counsel will be required for the transfer
of the Securities or any interest therein to an affiliate of such
Purchaser or with respect to a sale thereof made pursuant to Rule 144
under the Securities Act (or any successor provision)("RULE 144");
PROVIDED, HOWEVER, that prior to any sale made pursuant to Rule 144,
such Purchaser will furnish to the Company, upon its request, a
certificate setting forth such representations as are customarily given
by a selling shareholder to the issuer in a Rule 144 transaction.
2.5 LEGEND. Such Purchaser understands that the Debentures, and until
such time as the Conversion Shares and the Interest Payment Shares have been
registered under the Securities Act as contemplated by the Registration Rights
Agreement or otherwise may be sold by such Purchaser pursuant to Rule 144(k),
shall bear at issuance a restrictive legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and may not be sold or transferred in the
absence of an effective registration statement under the
Securities Act or an exemption from the registration requirements
thereunder."
The legend set forth above shall be removed and the Company shall
issue a new certificate without such legend to the holder of any such Security
upon which it is stamped if (i) the sale of such Security is registered under
the Securities Act, (ii) such Security can be sold publicly pursuant to
Rule 144(k) or (iii) such Security has been sold pursuant to Rule 144.
2.6 ISSUANCE OF GGD DEBENTURES; UPDATING OF REPRESENTATIONS. In the
event that the GMO Debentures are exchanged in whole or in part for the GGD
Debentures in accordance with the terms of the GMO Debentures, the
representations made herein with respect to the Debentures, the Conversion
Shares or the Interest Payment Shares, as the case may be, shall be deemed to be
repeated as of such date with respect to the GGD Debentures.
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<PAGE> 4
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company hereby makes the following representations and warranties
to each Purchaser (which shall be true as of the Closing and as of any such
later date as contemplated hereunder) and agrees with each Purchaser that:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. Each of the
Company and its subsidiaries is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation and
has all requisite corporate power and authority to carry on its business as now
conducted. Each of the Company and its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on the consolidated
business or financial condition of the Company and its subsidiaries taken as a
whole. Each of the Company and its subsidiaries is not the subject of any
pending or, to its knowledge, threatened investigation or administrative or
legal proceeding by the Internal Revenue Service, the taxing authorities of any
state or local jurisdiction, the Securities and Exchange Commission (the
"COMMISSION") or any state securities commission or other governmental entity
which could reasonably be expected to have a material adverse effect on the
consolidated business or financial condition of the Company. The term
"SUBSIDIARIES" means corporations in which the Company has an equity interest of
greater than 50%.
3.2 AUTHORIZATION; CONSENTS. All corporate action on the part of the
Company by its officers, directors and shareholders necessary for (A) the
authorization, execution and delivery of, and the performance by the Company of
its obligations under, (i) this Agreement, (ii) the Debentures, (iii) the
Registration Rights Agreement and (iv) all other agreements, documents,
certificates or other instruments delivered by the Company at the Closing (the
instruments described in (i), (ii), (iii) and (iv) being collectively referred
to herein as the "TRANSACTION DOCUMENTS"), and (B) the authorization,
reservation for issuance, and issuance and delivery of the Conversion Shares
upon conversion of the Debentures has been taken. The Transaction Documents
constitute valid and legally binding obligations of the Company, enforceable in
accordance with their respective terms, except as such enforcement may be
limited by (i) applicable bankruptcy, insolvency, reorganization or other laws
of general application relating to or affecting the enforcement of creditors'
rights generally and (ii) general principles of equity. Except as otherwise
provided in the Transaction Documents, the Company has obtained all governmental
or regulatory consents and approvals required for it to execute, deliver and
perform its obligations under the Transaction Documents.
3.3 DISCLOSURE DOCUMENTS; MATERIAL AGREEMENTS; OTHER INFORMATION. The
Company has filed with the Commission: (i) the Company's Annual Report on Form
10-K for the year ended December 31, 1996, (ii) Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1997 and June 30, 1997, (iii) all Current
Reports on Form 8-K required to be filed with the Commission since December 31,
1996, (iv) the Company's definitive Proxy Statement for its 1997 Annual Meeting
of Stockholders and (v) the Company's Prospectus and Joint Proxy Statement dated
May 14, 1997 for its Special Meeting of Stockholders held on June 12, 1997
(collectively, the "DISCLOSURE DOCUMENTS"). The Company is not aware of any
event that would require the filing of, or with respect to which the Company
intends to file, a Form 8-K after the Closing. Each
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<PAGE> 5
Disclosure Document, as of the date of the filing thereof with the Commission,
conformed in all material respects to the requirements of the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), and/or the Securities
Act, as applicable, and the rules and regulations thereunder, and, as of the
date of such filing, such Disclosure Document did not contain an untrue
statement of material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. All material
agreements required to be filed as exhibits to the Disclosure Documents have
been filed as required; neither the Company nor any of its subsidiaries is in
breach of any such agreement where such breach is reasonably likely to have a
material adverse effect on the business or financial condition of the Company.
The information provided to the Purchaser as described in paragraph 2.3 above
does not contain an untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
3.4 CAPITALIZATION. The capitalization of the Company as of
August 27, 1997 is as set forth on SCHEDULE 3.4 hereto, and there have been no
material changes thereto between such date and the Closing Date.
3.5 VALID ISSUANCE. The Debentures, when issued, sold and delivered
in accordance with the terms hereof, and the Conversion Shares and the Interest
Payment Shares, when issued in accordance with the terms of the Debentures, will
be duly and validly issued, fully paid and nonassessable, free and clear of any
liens, claims, preemptive rights or encumbrances imposed by or through the
Company and, based in part upon the representations of such Purchaser in this
Agreement, will be issued in compliance with all applicable Federal and state
securities laws.
3.6 NO CONFLICT WITH OTHER INSTRUMENTS. Neither the Company nor any
of its subsidiaries is in violation or default of any provisions of its charter,
bylaws or other organizational documents, as amended and in effect on and as of
the date hereof, or of any material provision of any material instrument or
contract to which it is a party or by which it is bound, or of any provision of
any Federal or state judgment, writ, decree, order, statute, rule or
governmental regulation applicable to the Company, which would have a material
adverse affect on the Company's consolidated business or financial condition.
The execution, delivery and performance of the Debentures, this Agreement and
the other Transaction Documents, and the consummation of the transactions
contemplated hereby and thereby, will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving of
notice, either a default under any such provision, instrument or contract or an
event which results in the creation of any lien, charge or encumbrance upon any
assets of the Company or of any of its subsidiaries.
3.7 FINANCIAL CONDITION; TAXES; LITIGATION.
3.7.1 The Company's financial condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the Company. Except as
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<PAGE> 6
otherwise described in the Disclosure Documents, there have been no material
adverse changes to the Company's consolidated business or financial condition
since June 30, 1997.
3.7.2 The financial statements contained in the Disclosure
Documents have been prepared in accordance with generally accepted accounting
principles consistently applied and fairly present the consolidated financial
condition of the Company as of the dates of the balance sheets included therein
and the consolidated results of its operations and cash flows for the period
then ended (except as may be indicated therein). Without limiting the foregoing,
there are no material liabilities, contingent or actual, that are required to be
disclosed in the Disclosure Documents that are not so disclosed.
3.7.3 The Company has filed all tax returns required to be filed
by it and paid all taxes which are due, except for taxes which it reasonably
disputes or which could not reasonably be expected to have a material adverse
effect on the consolidated business or financial condition of the Company.
3.7.4 Except as set forth in SCHEDULE 3.7.4, there is no material
claim, litigation or administrative proceeding or inquiry pending, or, to the
best of the Company's knowledge, threatened, against the Company or any of its
subsidiaries, or against any officer, director or employee of the Company or any
such subsidiary in connection with such person's employment therewith. Neither
the Company nor any of its subsidiaries is a party to or subject to the
provisions of any order, writ, injunction, judgment or decree of any court or
government agency or instrumentality which could reasonably be expected to have
a material adverse effect on the consolidated business or financial condition of
the Company.
3.8 REPORTING COMPANY; FORM S-3. The Company is subject to the
reporting requirements of the Exchange Act, has a class of securities registered
under Section 12 of the Exchange Act, and has filed all reports required
thereby. Pursuant to General Instruction I.A. of Form S-3, the Company meets the
eligibility requirements for registering securities on a registration statement
on Form S-3 under the Securities Act.
3.9 INTELLECTUAL PROPERTY. The Company and its subsidiaries own,
possess or can acquire on reasonable terms adequate trademarks, trade names and
other rights to inventions, know-how, patents, copyrights, confidential
information and other intellectual property rights necessary to conduct the
business now operated by them, or presently employed by them, and have not
received any notice of infringement of or conflict with asserted rights of
others with respect to any such rights that, if determined adversely to the
Company or any of its subsidiaries, would individually or in the aggregate have
a material adverse effect on the consolidated business or financial condition of
the Company.
3.10 REGISTRATION RIGHTS; RIGHTS OF PARTICIPATION. Except as
described on SCHEDULE 3.10 hereto, (A) the Company has not granted or agreed to
grant to any person or entity any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority and (B) no person or entity, including, but not
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<PAGE> 7
limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the transactions contemplated by this Agreement or any other Transaction
Document which has not been waived.
3.11 TRADING ON NASDAQ. The GGD Stock is authorized for quotation on
the Nasdaq National Market, and trading in the GGD Stock on Nasdaq has not been
suspended. Shareholder approval for the issuance of the GMO Debentures is not
required under NASD Rule 4460.
3.12 SOLICITATION. Neither the Company nor any of its subsidiaries or
affiliates, nor any person acting on its or their behalf, (i) has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the Securities Act) in connection with the offer or sale of
the GMO Debentures or (ii) has, directly or indirectly, made any offers or sales
of any security or solicited any offers to buy any security, under any
circumstances that would require registration of the GMO Debentures under the
Securities Act.
3.13 OTHER FEES. Except as set forth on SCHEDULE 3.13, the Company is
not obligated to pay any compensation or other fee, cost or related expenditure
to any underwriter, broker, agent or other representative in connection with the
transactions contemplated hereby.
3.14 ISSUANCE OF GGD DEBENTURES; UPDATING OF REPRESENTATIONS. In the
event that the GMO Debentures are exchanged in whole or in part for the GGD
Debentures in accordance with the terms of the GMO Debentures, the
representations made herein with respect to the Debentures, the Conversion
Shares or the Interest Payment Shares, as the case may be, shall be deemed to be
repeated as of such date with respect to the GGD Debentures.
4. COVENANTS OF THE COMPANY.
4.1 CORPORATE EXISTENCE. The Company shall, so long as any Purchaser
or any affiliate of such Purchaser beneficially owns a Debenture or Debentures
(or any interest therein), any Conversion Shares or Interest Payment Shares,
maintain its corporate existence in good standing and shall pay all its taxes
when due except for taxes which the Company reasonably disputes or which could
not reasonably be expected to have a material adverse effect on the consolidated
business or financial condition of the Company.
4.2 PROVISION OF INFORMATION. The Company shall provide each
Purchaser with copies of its Annual Reports on Form 10-K, Quarterly Reports on
Form 10-Q, Current Reports on Form 8-K and proxy statements, in each such case
promptly after filing thereof with the Commission, until the conversion or
redemption in full of the Debenture or Debentures held by such Purchaser.
4.3 FORM D; BLUE-SKY QUALIFICATION. The Company shall, on or before
the Closing, take such action as is necessary to qualify the GMO Debentures for
sale to the Purchasers under applicable state or "blue-sky" laws or obtain an
exemption therefrom, and shall provide evidence of any such action to such
Purchaser. In the event that the GMO Debentures are exchanged in
-7-
<PAGE> 8
whole or in part for the GGD Debentures in accordance with the terms of the GMO
Debentures, the Company shall, prior to such issuance, take such action as is
necessary to qualify such exchange under applicable state or "blue-sky" laws or
obtain an exemption therefrom, and shall provide evidence of any such action to
such Purchaser.
4.4 REPORTING STATUS. As long as such Purchaser or any affiliate of
such Purchaser beneficially owns a Debenture or Debentures, or any interest
therein, or any Conversion Shares or Interest Payment Shares, and until the date
on which any of the foregoing may be sold to the public pursuant to Rule 144(k)
(or any successor rule or regulation), (i) the Company shall timely file with
the Commission all reports required to be so filed pursuant to the Exchange Act
and (ii) the Company shall not terminate its status as an issuer required by the
Exchange Act to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such termination.
4.5 USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the GMO Debentures for general corporate purposes and shall not use such
proceeds to make a loan to or an investment in any other corporation,
partnership or other entity.
4.6 LISTING. The Company shall, (i) as soon as practicable following
the effectiveness of the GMO Registration Statement (as defined in the
Registration Rights Agreement), secure the designation and quotation or listing
of the GMO Stock on the Nasdaq National Market, the New York Stock Exchange or
the American Stock Exchange and shall use its best efforts to maintain such
designation, quotation or listing, and (ii) as soon as practicable following the
issuance of the GGD Debentures, take such measures as may be necessary in order
to secure the designation and quotation or listing of the shares of GGD Stock
issuable thereby on the Nasdaq National Market, the New York Stock Exchange or
the American Stock Exchange and shall use its best efforts to maintain such
designation, quotation or listing of the GGD Stock.
4.7 RESERVATION OF COMMON STOCK. The Company shall at all times have
authorized and reserved for issuance, free from any preemptive rights, solely
for the purpose of effecting conversions of the Debentures hereunder, such
number of shares of GMO Stock and/or GGD Stock, as the case may be, as shall
from time to time be sufficient to effect the conversion of the aggregate
principal amount of the Debentures then outstanding (the "RESERVED AMOUNT"). As
of the Closing Date, the Reserved Amount shall be equal to 3,475,915 shares of
GMO Stock. In the event that the holders of GMO Debentures are entitled to
exchange GMO Debentures for GGD Debentures pursuant to the terms of the GMO
Debentures, the Reserved Amount shall, on the GGD Issue Date (as defined in the
GMO Debentures), be no less than (I) that number of shares of GGD Stock issuable
upon conversion of (a)(i) the unpaid principal amount of the GMO Debentures
eligible to be so exchanged, plus any accrued and unpaid interest thereon as of
the GGD Issue Date, DIVIDED BY (ii) one hundred and thirteen percent (113%) of
the average of the Closing Bid Prices (as defined in the GMO Debentures) of the
GGD Stock on the five (5) Trading Days immediately prior to (but not including)
the GGD Issue Date (the "GGD CONVERSION PRICE") PLUS (b)(i) the aggregate amount
of interest payable on all of the GGD Debentures (assuming for this purpose that
the aggregate principal amount of all of the GGD Debentures for which GMO
Debentures are exchangeable on
-8-
<PAGE> 9
the GGD Issue Date are issued) through the date on which the GGD Debentures
mature DIVIDED BY (ii) the GGD Conversion Price, and (II) that number of shares
of GMO Stock issuable upon conversion of the aggregate unpaid principal amount
of the GMO Debentures, if any, not exchanged or eligible to be so exchanged. If
at any time there occurs a stock split, recapitalization or similar occurrence
whereby the number of outstanding shares of GMO Stock or GGD Stock, as the case
may be, is increased, the Company shall take immediate action (including, if
necessary, seeking shareholder authorization) to increase the Reserved Amount
accordingly. The Company shall not reduce the number of shares reserved for
issuance hereunder without the written consent of the holders of at least 66% of
the then outstanding aggregate principal balance of the Debentures.
4.8 USE OF PURCHASER NAME. Except as required by applicable law or
regulation, the Company shall not use, directly or indirectly, any Purchaser's
name in any advertisement, announcement, press release or other similar
communication unless it has received the prior written consent of such Purchaser
for the specific use contemplated.
4.9 COMPANY'S INSTRUCTIONS TO TRANSFER AGENT. The Company shall,
prior to the Initial Conversion Date (as defined in the GMO Debentures),
instruct its transfer agent (the "TRANSFER AGENT") (i) to convert the GMO
Debentures into GMO Stock and, upon issuance of the GGD Debentures, to convert
the GGD Debentures into GGD Stock, in either such case, upon receipt of a valid
Conversion Notice (as defined in the Debentures) from a Purchaser, (ii) to issue
certificates representing the number of shares of GMO Stock or GGD Stock, as the
case may be, specified in such Conversion Notice, free of any restrictive legend
if at such time the GMO Registration Statement or the GGD Registration Statement
(each as defined in the Registration Rights Agreement), as the case may be, is
effective and available for sales of such shares or such shares are eligible for
sale pursuant to Rule 144(k) under the Securities Act, in the name of the
Purchaser or its nominee and (iii) to deliver such certificates to the Purchaser
no later than the close of business on the third (3rd) business day following
the Conversion Date (as defined in the Debentures). The Company represents to
and agrees with each Purchaser that it will not give any instruction to the
Transfer Agent that will conflict with the foregoing instruction or otherwise
restrict such Purchaser's right to convert the Debentures or receive Conversion
Shares in accordance with the terms of the Debentures, the Registration Rights
Agreement and this Agreement, respectively. In the event the Company's
relationship with the Transfer Agent should be terminated for any reason, the
Transfer Agent shall continue acting as transfer agent pursuant to the terms
hereof until such time that a successor transfer agent is appointed by the
Company and executes and agrees to be bound by the terms hereof.
5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT CLOSING. Each
Purchaser's obligations at the Closing, including without limitation its
obligation to purchase the GMO Debenture to be purchased by it hereunder, are
conditioned upon the fulfillment of each of the following events:
-9-
<PAGE> 10
(a) the representations and warranties of the Company set forth in
this Agreement shall be true and correct in all material respects
as of the Closing Date as if made on such date;
(b) the Company shall have complied with or performed all of the
agreements, obligations and conditions set forth in this
Agreement that are required to be complied with or performed by
the Company on or before the Closing;
(c) the Company shall have delivered to the Purchaser a certificate,
signed by an officer of the Company, certifying that the
conditions specified in paragraphs (a) and (b) above have been
fulfilled;
(d) the Company shall have delivered to the Purchaser an opinion of
counsel for the Company, dated the Closing Date, in the form
attached as EXHIBIT 5.1;
(e) the Company shall have executed and delivered the Registration
Rights Agreement;
(f) there shall have been no material adverse changes in the
Company's consolidated business or financial condition since
June 30, 1997 which have not been disclosed in the Disclosure
Documents; and
(g) the Company shall have authorized and reserved for issuance upon
conversion of the GMO Debentures the number of shares of GMO
Stock specified in paragraph 4.7 above.
5.2 CONDITIONS TO COMPANY'S OBLIGATIONS AT CLOSING. The Company's
obligation at the Closing to issue and sell a GMO Debenture to a Purchaser
hereunder is subject to the satisfaction, at or before the Closing Date, of each
of such Purchaser's Closing Conditions (as defined below). The obligation of the
Company to issue and sell a GMO Debenture to any Purchaser hereunder is distinct
and separate from its obligation to issue and sell GMO Debentures to any other
Purchaser hereunder and the failure by one or more Purchasers to fulfill the
conditions set forth herein or to consummate the purchase of GMO Debentures
hereunder will not relieve the Company of its obligations with respect to any
other Purchaser. The "PURCHASER'S CLOSING CONDITIONS" are as follows:
(a) the representations and warranties of the applicable Purchaser
shall be true and correct in all material respects as of the
Closing Date as if made on such date;
(b) the applicable Purchaser shall have complied with or performed
all of the agreements, obligations and conditions set forth in
this Agreement that are required to be complied with or performed
by such Purchaser on or before the Closing;
-10-
<PAGE> 11
(c) the applicable Purchaser shall have delivered to the Company a
Form W-8 or W-9, as applicable, duly executed by such Purchaser
and confirming that such Purchaser is not subject to back-up
withholding; and
(d) such Purchaser shall have executed and delivered the Registration
Rights Agreement.
6. INDEMNIFICATION.
The Company agrees to indemnify and hold harmless each Purchaser and
its officers, directors, employees and agents, and each person who controls the
Purchaser within the meaning of the Securities Act or the Exchange Act (each, a
"PURCHASER INDEMNIFIED PARTY") against any losses, claims, damages, liabilities
or reasonable out-of-pocket expenses (including the reasonable fees and
disbursements of counsel) as incurred, joint or several, to which it, they or
any of them, may become subject and not otherwise reimbursed, arising out of or
in connection with the breach by the Company of any of its representations,
warranties or covenants made herein.
Each Purchaser agrees to indemnify and hold harmless the Company and
its officers, directors, employees and agents, and each person who controls the
Company within the meaning of the Securities Act or the Exchange Act (each, a
"COMPANY INDEMNIFIED PARTY") (a Purchaser Indemnified Party and a Company
Indemnified Party are each hereinafter referred to as an "INDEMNIFIED PARTY")
against any losses, claims, damages, liabilities or expenses (including the fees
and disbursements of counsel) as incurred, joint or several, to which it, they
or any of them, may become subject and not otherwise reimbursed, arising out of
or in connection with the breach by such Purchaser of any of its
representations, warranties or covenants made herein.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought
hereunder, such Indemnified Party will, if a claim in respect thereof is to be
made against the other party (the "INDEMNIFYING PARTY"), deliver to the
Indemnifying Party a written notice of the commencement thereof and the
Indemnifying Party shall have the right to participate in and to assume the
defense thereof with counsel reasonably selected by the Indemnifying Party that
is reasonably acceptable to the Indemnified Party; PROVIDED, HOWEVER, that an
Indemnified Party shall have the right to retain its own counsel, with the
reasonably incurred fees and expenses of such counsel to be paid by the
Indemnifying Party, if representation of such Indemnified Party by the counsel
retained by the Indemnifying Party would be inappropriate due to actual or
potential conflicts of interest under applicable standards of professional
conduct between such Indemnified Party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
Indemnifying Party within a reasonable time of the commencement of any such
action will not relieve the Indemnifying Party of any of its obligations
hereunder with respect to such action except to the extent such failure is
prejudicial to the Indemnifying Party's ability to defend any such action.
No Indemnifying Party shall, without the prior written consent of the
Indemnified Party, effect any settlement of pending or threatened action in
respect of which an Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified
-11-
<PAGE> 12
Party unless such settlement includes an unconditional release of such
Indemnified Party from all liability on any claims that are the subject matter
of such action. An Indemnifying Party will not be liable for any settlement of
any action or claim effected without its written consent.
7. MISCELLANEOUS.
7.1 SURVIVAL; SEVERABILITY. The representations, warranties,
covenants and indemnities made by the parties herein shall survive the Closing
notwithstanding any due diligence investigation made by or on behalf of the
party seeking to rely thereon. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that in such case the parties shall negotiate
in good faith to replace such provision with a new provision which is not
illegal, unenforceable or void, as long as such new provision does not
materially change the economic benefits of this Agreement to the parties.
7.2 SUCCESSORS AND ASSIGNS. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement. Each Purchaser may assign its rights hereunder, in connection
with any private sale or transfer of a Debenture, as long as, as a condition
precedent to such transfer, the transferee executes an acknowledgment agreeing
to be bound by the applicable provisions of this Agreement, in which case the
term "Purchaser" shall be deemed to refer to such transferee as though such
transferee were an original signatory hereto.
7.3 INDEPENDENT NATURE OF PURCHASERS' OBLIGATIONS AND RIGHTS. The
obligations of each Purchaser hereunder are several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at the Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
7.4 NO RELIANCE. Each party acknowledges that (i) it has such
knowledge in business and financial matters as to be fully capable of evaluating
this Agreement, the other Transaction Documents and the transactions
contemplated hereby and thereby, (ii) it is not relying on any advice or
representation of any other party (other than those contained or described in
this Agreement or the other Transaction Documents) in connection with entering
into this Agreement, the other Transaction Documents or such transactions, (iii)
it has not received from any such party
-12-
<PAGE> 13
any assurance or guarantee as to the merits (whether legal, regulatory, tax,
financial or otherwise) of entering into this Agreement or the other Transaction
Documents or the performance of its obligations hereunder and thereunder, and
(iv) it has consulted with its own legal, regulatory, tax, business, investment,
financial and accounting advisors to the extent that it has deemed necessary,
and has entered into this Agreement and the other Transaction Documents based on
its own independent judgment and on the advice of its advisors as it has deemed
necessary, and not on any view (whether written or oral) expressed by any such
party.
7.5 INJUNCTIVE RELIEF. The Company acknowledges that a breach by it
of its obligations hereunder may cause irreparable harm to each Purchaser and
that the remedy or remedies at law for any such breach may be inadequate and
agrees, in the event of any such breach, in addition to all other available
remedies, such Purchaser shall have the right to obtain equitable relief to
enforce this Agreement.
7.6 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York without regard to the conflict of laws
provisions thereof. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan, for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein, and hereby irrevocably waives, and agrees not to assert in any suit,
action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address in effect for notices to it
under this Agreement and agrees that such service shall constitute good and
sufficient service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any manner permitted
by law.
7.7 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
7.8 HEADINGS. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
7.9 NOTICES. Any notice, demand or request required or permitted to
be given by the Company or a Purchaser pursuant to the terms of this Agreement
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with a hard copy to follow) on or before
5:00 p.m., eastern time, on a business day or, if such day is not a business
day, on the next succeeding business day, (ii) on the next business day after
timely delivery to a nationally recognized overnight courier and (iii) on the
third business day after deposit in the U.S. mail (certified or registered mail,
return receipt requested, postage prepaid), addressed to the parties as follows:
-13-
<PAGE> 14
If to the Company:
Genzyme Corporation
One Kendall Square
Cambridge, Massachusetts 02139
Attn: Chief Legal Officer
Tel: 617-252-7500
Fax: 617-252-7553
and if to any Purchaser, to such address and facsimile number for such Purchaser
as shall appear on the signature page hereof executed by such Purchaser, or as
shall be designated by such Purchaser in writing to the Company.
7.10 EXPENSES. Except as otherwise provided herein, each of the
Company and the Purchasers shall pay all costs and expenses that it incurs in
connection with the negotiation, execution, delivery and performance of this
Agreement.
7.11 ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Debentures and
the other Transaction Documents constitute the entire agreement between the
parties with regard to the subject matter hereof and thereof, superseding all
prior agreements or understandings, whether written or oral, between the
parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and each Purchaser, and no provision hereof may be waived other than
by a written instrument signed by the party against whom enforcement of any such
waiver is sought.
-14-
<PAGE> 15
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first-above written.
GENZYME CORPORATION
By: /s/ David J. McLachlan
------------------------------------------
Name: David J. McLachlan
Title: Executive Vice President Finance
and Chief Financial Officer
PURCHASER NAME: ______________________________
By: __________________________________________
Name:
Title:
ADDRESS:
_____________________________________
_____________________________________
Tel: ________________________________
Fax: ________________________________
WITH COPIES OF NOTICES SENT TO:
_____________________________________
_____________________________________
Tel: ________________________________
Fax: ________________________________
PRINCIPAL AMOUNT OF THE
GMO DEBENTURE TO BE PURCHASED: $______________
| | Check here if Purchaser is NOT a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended.
-15-
<PAGE> 16
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first-above written.
GENZYME CORPORATION
By: __________________________
Name:
Title:
PURCHASER NAME: Swiss Bank Corporation, London Branch
-------------------------------------
By: /s/ Kipp K. Schrage By: /s/ George W. Locasto
------------------------------ ------------------------------------
Name: Kipp K. Schrage Name: George W. Locasto
Title: Executive Director Title: Executive Director,
Convertibles Convertibles
Swiss Bank Corp
(London Branch)
Attorney-in-Fact
ADDRESS:
Swiss Bank House
----------------
One High Timber Street
----------------------
London EC4V35B
--------------
Attn: Lee Lewis
---------------
Tel: 011-44171-567-4899
------------------
Fax: 011-44171-567-4744
------------------
WITH COPIES OF NOTICES SENT TO:
SBC Warburg Dillon Read Inc.
----------------------------
141 West Jackson Boulevard
--------------------------
Chicago, Illinois 60604
-----------------------
Attn: Executive Director - Convertibles
---------------------------------------
Tel: 312-554-5560
------------
Fax: 312-554-5033
------------
PRINCIPAL AMOUNT OF THE
GMO DEBENTURE TO BE PURCHASED: $1,750,000
----------
[ ] Check here if Purchaser is NOT a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended.
<PAGE> 17
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first-above written.
GENZYME CORPORATION
By: ___________________________
Name:
Title:
PURCHASER NAME: Tribeca Investments, L.L.C.
---------------------------
By: /s/ William H. Heyman
------------------------------
Name: William H. Heyman
Title: CEO
ADDRESS:
388 Greenwich Street
--------------------
NY, NY 10013
------------
Tel: 212-816-8905
------------
Fax: 212-816-5579
------------
WITH COPIES OF NOTICES SENT TO:
Allan Teh
---------
Managing Director
-----------------
Tel: 212-816-2344
------------
Fax: 212-816-5555
------------
PRINCIPAL AMOUNT OF THE
GMO DEBENTURE TO BE PURCHASED: $1,000,000
----------
[ ] Check here if Purchaser is NOT a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended.
<PAGE> 18
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first-above written.
GENZYME CORPORATION
By: __________________________
Name:
Title:
PURCHASER NAME: Stark International
-------------------
By: /s/ Michael A. Roth
------------------------------
Name: Michael A. Roth
Title: Managing Member
ADDRESS:
Century House
-------------
31 Richmond Rd.
---------------
Hamilton HM-08 Bermuda
----------------------
Tel: 414-241-1810
------------
Fax: 414-241-1888
------------
WITH COPIES OF NOTICES SENT TO:
Staro Asset Management
----------------------
1500 W. Market Street, Ste. 200
-------------------------------
Mequon, WI 53092
----------------
Tel: 414-241-1810
------------
Fax: 414-241-1888
------------
PRINCIPAL AMOUNT OF THE
GMO DEBENTURE TO BE PURCHASED: $750,000.00
-----------
[ ] Check here if Purchaser is NOT a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended.
<PAGE> 19
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first-above written.
GENZYME CORPORATION
By: __________________________
Name:
Title:
PURCHASER NAME: SoundShore Partners L.P.
------------------------
By: /s/ Thomas Leishman *By: AIG International Asset Management Ltd
------------------------------ as General Partner of
Name: Thomas J. Leishman SoundShore Partners L.P.
Title: Vice-President*
ADDRESS:
29 Richmond Road
----------------
Pembroke HM 08, Bermuda
-----------------------
Tel: 441-295-2121
------------
Fax: 441-295-8891
------------
WITH COPIES OF NOTICES SENT TO:
Mr. Howard Fischer
------------------
Basso Securities Ltd
--------------------
1281 East Main Street, 4th Floor
--------------------------------
Stamford, Connecticut 06902, U.S.A.
-----------------------------------
Tel: 203-324-8400
------------
Fax: 203-324-8496 / 203-861-3317
---------------------------
PRINCIPAL AMOUNT OF THE
GMO DEBENTURE TO BE PURCHASED: $1,000,000.00
-------------
[ ] Check here if Purchaser is NOT a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended.
<PAGE> 20
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first-above written.
GENZYME CORPORATION
By: __________________________
Name:
Title:
PURCHASER NAME: Shepard Investments International, Ltd.
---------------------------------------
By: /s/ Michael A. Roth
--------------------------------------------
Name: Michael A. Roth
Title: General Member of Investment Manager
Staro Asset Management
ADDRESS:
International Fund Administration
---------------------------------
48 Par-La-Ville Road, Ste. 464
------------------------------
Hamilton HM-11 Bermuda
----------------------
Tel: 441-295-4718
------------
Fax: 441-295-9637
------------
WITH COPIES OF NOTICES SENT TO:
Staro Asset Management, LLC
---------------------------
1500 West Market Street, Ste. 200
---------------------------------
Mequon, WI 53092
----------------
Tel: 414-241-1810
------------
Fax: 414-241-1888
------------
PRINCIPAL AMOUNT OF THE
GMO DEBENTURE TO BE PURCHASED: $750,000.00
-----------
[ ] Check here if Purchaser is NOT a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended.
<PAGE> 21
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first-above written.
GENZYME CORPORATION
By: __________________________
Name:
Title:
PURCHASER NAME: Proprietary Convertible Investment Group Inc.
By: /s/ Allan Weine
--------------------------
Name: Allan Weine
Title: Vice-President
ADDRESS:
c/o Credit Suisse First Boston Corp.
------------------------------------
11 Madison Avenue, 3rd Floor
----------------------------
New York, NY 10010
------------------
Tel: 212-325-2302
------------
Fax: 212-325-6519
------------
WITH COPIES OF NOTICES SENT TO:
________________________________
________________________________
Tel: ___________________________
Fax: ___________________________
PRINCIPAL AMOUNT OF THE
GMO DEBENTURE TO BE PURCHASED: $10,000,000
-----------
[X] Check here if Purchaser is NOT a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended.
Accredited Investor
<PAGE> 22
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first-above written.
GENZYME CORPORATION
By: __________________________
Name:
Title:
PURCHASER NAME: Oracle Partners, L.P.
---------------------
By: /s/ Larry N. Feinberg
--------------------------
Name: Larry N. Feinberg
Title: General Partner
ADDRESS:
712 Fifth Avenue, 45th Floor
----------------------------
New York, NY 10019
-------------------
Attn: Norman Schleifer, CFO
---------------------------
Tel: 212-373-9200
------------
Fax: 212-459-0863
------------
WITH COPIES OF NOTICES SENT TO:
________________________________
________________________________
Tel: ___________________________
Fax: ___________________________
PRINCIPAL AMOUNT OF THE
GMO DEBENTURE TO BE PURCHASED: $2,000,000
----------
[ ] Check here if Purchaser is NOT a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended.
<PAGE> 23
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first-above written.
GENZYME CORPORATION
By: __________________________
Name:
Title:
PURCHASER NAME: Och-Ziff Capital Management, L.P.
---------------------------------
By: /s/ Daniel S. Och
-----------------------------------------------------
Name: Daniel S. Och
Title: Managing Member of Och-Ziff Associates, L.L.C.
General Partner of Och-Ziff
ADDRESS:
Och-Ziff Capital Management, L.P.
---------------------------------
153 East 53rd Street, 44th Floor
--------------------------------
New York, NY 10022
------------------
Tel: 212-292-5956
------------
Fax: 212-292-5950
------------
WITH COPIES OF NOTICES SENT TO:
________________________________
________________________________
Tel: ___________________________
Fax: ___________________________
PRINCIPAL AMOUNT OF THE
GMO DEBENTURE TO BE PURCHASED: $1,750,000
----------
[ ] Check here if Purchaser is NOT a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended.
<PAGE> 24
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement
as of the date first-above written.
GENZYME CORPORATION
By: __________________________
Name:
Title:
PURCHASER NAME: Employers Reinsurance Corporation
---------------------------------
By: /s/ Ross S. Margolies
------------------------------
Name: Ross S. Margolies
Title: Director
ADDRESS:
Acting as Investment Advisor
----------------------------
Salomon Brothers Asset Management Inc.
--------------------------------------
7 World Trade Center, 38th Floor
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New York, NY 10048
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Tel: 212-783-0845
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Fax: 212-783-1067
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WITH COPIES OF NOTICES SENT TO:
________________________________
________________________________
Tel: ___________________________
Fax: ___________________________
PRINCIPAL AMOUNT OF THE
GMO DEBENTURE TO BE PURCHASED: $1,000,000
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[ ] Check here if Purchaser is NOT a "qualified institutional buyer" as
defined in Rule 144A under the Securities Act of 1933, as amended.
<PAGE> 1
EXHIBIT 10.6
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS A REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT
THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE, TRANSFER OR
DISPOSITION. THIS DEBENTURE (THIS "DEBENTURE") AND THE OTHER GENZYME MOLECULAR
ONCOLOGY DIVISION ("GMO") CONVERTIBLE DEBENTURES OF EVEN DATE HEREWITH (TOGETHER
WITH THIS DEBENTURE, THE "DEBENTURES") ARE ISSUED SUBJECT TO THE TERMS OF (A) A
PURCHASE AGREEMENT, DATED AS OF AUGUST 29, 1997 ("PURCHASE AGREEMENT"), BY AND
AMONG GENZYME CORPORATION AND THE PURCHASERS NAMED THEREIN AND (B) A
REGISTRATION RIGHTS AGREEMENT, DATED AUGUST 29, 1997 ("REGISTRATION RIGHTS
AGREEMENT"), BY AND AMONG GENZYME CORPORATION AND SUCH PURCHASERS. THIS
DEBENTURE WAS ISSUED WITH "ORIGINAL ISSUE DISCOUNT". THE TOTAL AMOUNT OF
ORIGINAL ISSUE DISCOUNT IS DEPENDENT ON WHETHER THE INTEREST IS PAID IN CASH OR
STOCK. FOR ADDITIONAL INFORMATION, CONTACT THE TREASURER OF GENZYME CORPORATION
AT 617-252-7500.
GENZYME CORPORATION
GMO CONVERTIBLE DEBENTURE
New York, New York $[ ],000,000
August 29, 1997
FOR VALUE RECEIVED, Genzyme Corporation, a Massachusetts
corporation (the "COMPANY"), hereby promises to pay to the order of [ ] or its
assignees (the "HOLDER") the sum of [ ] MILLION DOLLARS ($[ ],000,000) in same
day funds, on or before August 28, 2002 (the "MATURITY DATE"), and to pay
interest thereon from the date hereof (the "ISSUE DATE") as provided herein.
The following terms shall apply to this Debenture:
1. CONVERSION.
(a) RIGHT TO CONVERT. Subject to the limitation contained in
subparagraph (h) below, the holder of this Debenture (the "HOLDER") shall have
the right to convert all or any part of the outstanding unpaid principal of this
Debenture at any time and from time to time on or after the Initial Conversion
Date (as defined below) into fully paid and non-assessable shares, free and
clear of any liens, claims, preemptive rights or encumbrances imposed by or
through the Company (the
<PAGE> 2
"CONVERSION SHARES"), of Genzyme Molecular Oncology Division Common Stock, $.01
par value (the "GMO STOCK"), in accordance with the terms hereof (a
"CONVERSION"). As used herein, the "INITIAL CONVERSION DATE" shall mean the
ninety-first (91st) day following the first day of an initial public offering by
the Company of shares of GMO Stock (the "IPO") pursuant to a registration
statement (the "REGISTRATION STATEMENT") which has become effective under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), or such later date
(not to exceed ninety (90) days from such ninety-first day) as may be determined
in good faith by the managing underwriter for the IPO to be necessary for the
orderly completion of the IPO. The "FIRST DAY OF THE IPO" shall be deemed to
occur on the effective date of the Registration Statement and is referred to
herein as the "IPO DATE".
(b) CONVERSION NOTICE. In order to convert principal of this
Debenture, or any portion thereof, the Holder shall send by facsimile
transmission, at any time prior to 11:59 p.m., eastern time, on the date on
which the Holder wishes to effect such Conversion (the "CONVERSION DATE"), a
notice of conversion to the Company and to its designated transfer agent for the
GMO Stock (the "TRANSFER AGENT") stating the principal amount to be converted,
the amount of interest accrued on the then unpaid principal balance of this
Debenture as provided herein up to and including the Conversion Date, the
applicable Conversion Price and a calculation of the number of shares of GMO
Stock issuable upon such Conversion (a "CONVERSION NOTICE"). The Holder shall
not be required to physically surrender this Debenture to the Company in order
to effect a Conversion. The Company shall maintain a record showing, at any
given time, the unpaid principal amount of this Debenture and the date of each
Conversion or other payment of principal hereof. The Holder shall amend Annex I
hereto upon any such Conversion or payment of principal to reflect the unpaid
principal amount hereof. In the case of a dispute as to the calculation of the
Conversion Price or the number of Conversion Shares issuable upon a Conversion,
the Company shall promptly issue to the Holder the number of Conversion Shares
that are not disputed and shall submit the disputed calculations to its
independent accountants within one (1) business day of receipt of the Holder's
Conversion Notice. The Company shall cause such accountant to calculate the
Conversion Price as provided herein and to notify the Company and the Holder of
the results in writing no later than two (2) business days following the day on
which it received the disputed calculations. Such accountant's calculation shall
be deemed conclusive absent manifest error. The fees of any such accountant
shall be borne by the Company.
(c) NUMBER OF CONVERSION SHARES; CONVERSION PRICE. The number of
Conversion Shares to be delivered by the Company pursuant to a Conversion shall
be equal to the principal amount of this Debenture specified in the Conversion
Notice DIVIDED BY the Conversion Price (as defined below) in effect on the
Conversion Date. "CONVERSION PRICE" shall mean:
(A) with respect to a Conversion occurring on a Conversion Date
during the period beginning on the Initial Conversion Date
and ending on the 450th day following the Issue Date (the
"INITIAL CONVERSION PERIOD"), the price determined by
multiplying (x) the Applicable Percentage (as defined below)
TIMES (y) the average of the Closing Bid Prices (as defined
below) for the GMO Stock on the twenty (20) Trading Days (as
defined below) occurring
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<PAGE> 3
immediately prior to (but not including) the Conversion Date
(the "FLOATING CONVERSION PRICE");
(B) with respect to a Conversion occurring on a Conversion Date
which is on or after the first business day following the
end of the Initial Conversion Period, the lesser of (i) the
Floating Conversion Price and (ii) (x) the average of the
Closing Bid Prices for the GMO Stock on the twenty (20)
Trading Days occurring immediately prior to (but not
including) the last day of the Initial Conversion Period
TIMES (y) eighty-five percent (85%)(the "FIXED CONVERSION
PRICE"); PROVIDED, HOWEVER, that if the Fixed Conversion
Price as so determined is less than $7.70 (the "FLOOR
CONVERSION PRICE"), the Fixed Conversion Price shall be
deemed to be equal to the Floor Conversion Price;
(C) with respect to a Conversion occurring on the Maturity Date
(as defined below), the average of the Closing Bid Prices
for the GMO Stock on the twenty (20) Trading Days occurring
immediately prior to (but not including) the Maturity Date;
and
(D) with respect to a Conversion occurring on an Optional
Redemption Date (as defined below), the average of the
Closing Bid Prices for the GMO Stock on the twenty (20)
Trading Days occurring immediately prior to (but not
including) such Optional Redemption Date.
Conversions may be effected in minimum principal amounts of $100,000
(or such smaller amount of principal as may remain unpaid at the time of such
Conversion). Notwithstanding the foregoing, in no event may the Holder convert
any principal of this Debenture if the Conversion Price, calculated as provided
herein, is less than the Floor Conversion Price; in such event the Holder will
have the remedies provided in Section 8 hereof.
(d) APPLICABLE PERCENTAGE. The "APPLICABLE PERCENTAGE" shall be
determined in accordance with the following schedule, where "X" represents the
Conversion Date:
<TABLE>
<CAPTION>
Number of Days
After Issue Date Applicable Percentage
---------------- ---------------------
<S> <C> <C>
0 < X <= 180 100%
180 < X <= 210 93%
210 < X <= 240 92%
240 < X <= 270 91%
270 < X <= 300 90%
300 < X <= 330 89%
330 < X <= 360 88%
360 < X <= 390 87%
390 < X <= 420 86%
420 < X 85%
</TABLE>
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<PAGE> 4
(e) DELIVERY OF GMO STOCK UPON CONVERSION. Upon receipt of a
Conversion Notice pursuant to paragraph 1(b) above, the Company shall, no later
than the close of business on the third (3rd) business day following the
Conversion Date set forth in such Conversion Notice (the "DELIVERY DATE"), issue
and deliver or caused to be delivered to the Holder the number of Conversion
Shares as shall be determined as provided herein. If any Conversion would create
a fractional Conversion Share, such fractional Conversion Share shall be
disregarded and the number of Conversion Shares issuable upon such Conversion,
in the aggregate, shall be the next higher number of Conversion Shares.
Certificates representing Conversion Shares shall not contain any restrictive
legend as long as the sale of such Conversion Shares is covered by an effective
Registration Statement (as defined in the Registration Rights Agreement) or may
be made pursuant to Rule 144(k) under the Securities Act or any successor rule
or provision.
(f) FAILURE TO DELIVER CONVERSION SHARES. In the event that the
Company fails to deliver to the Holder the number of Conversion Shares specified
in the applicable Conversion Notice on or before the Delivery Date therefor for
any reason (a "CONVERSION DEFAULT"), and such Conversion Default continues for
longer than seven (7) business days, the Company shall pay to the Holder
payments ("CONVERSION DEFAULT PAYMENTS") in the amount of (i) (N/365) MULTIPLIED
BY (ii) the unpaid principal amount of this Debenture represented by the
Conversion Shares which remain the subject of such Conversion Default MULTIPLIED
BY (iii) the lower of twenty-four percent (24%) and the maximum rate permitted
by applicable law, where "N" equals the number of days elapsed between the
original Delivery Date of such Conversion Shares and the earlier to occur of (A)
the date on which all of such Conversion Shares are issued and delivered to the
Holder and (B) the date on which the principal amount represented thereby is
redeemed pursuant to the terms of this Debenture. Cash amounts payable hereunder
shall be paid on or before the fifth (5th) business day of the calendar month
following the calendar month in which such amount has accrued. Nothing herein
shall limit the Holder's right to pursue remedies with respect to its actual
damages resulting from a Conversion Default (including, without limitation,
damages relating to any purchase of shares of GMO Stock by the Holder to make
delivery on a sale effected in anticipation of receiving Conversion Shares upon
Conversion), and the Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief).
(g) PAYMENT OF PRINCIPAL AT MATURITY; OPTIONAL CONVERSION. On the
Maturity Date, the Company shall pay to the Holder the amount of the unpaid
principal amount of this Debenture in same day funds; PROVIDED, HOWEVER, that if
(i) the Holder agrees to receive such payment in shares of GMO Stock and (ii)
the Company has satisfied each of the Optional Conversion Conditions (as defined
below), such unpaid principal amount may be converted into the number of shares
of GMO Stock equal to the amount of such unpaid principal amount DIVIDED BY the
Conversion Price in effect on the Maturity Date (an "OPTIONAL CONVERSION"), and
the Maturity Date shall be deemed the Conversion Date with respect to such
Optional Conversion. If an Optional Conversion occurs, the Company and the
Holder shall follow the procedures for Conversion set forth in this Section 1;
PROVIDED, HOWEVER, that the Holder shall not be required to send the Conversion
Notice contemplated by paragraph 1(b) above. The "OPTIONAL CONVERSION
CONDITIONS" are as follows:
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<PAGE> 5
(i) the GMO Common Stock is designated for quotation on the
Nasdaq National Market system or listed on the New York Stock Exchange ("NYSE")
or the American Stock Exchange ("ASE");
(ii) the market value of the outstanding shares of GMO Stock
on the Maturity Date (not including any such shares represented by the
outstanding principal balance of this Debenture) shall be greater than eighty
million ($80,000,000); and
(iii) the GMO Stock shall have an average daily trading volume
of at least eight hundred thousand dollars ($800,000) for the period of one
hundred and eighty (180) days immediately prior to the fifteenth (15th) day of
the calendar month occurring immediately prior to the calendar month in which
the Maturity Date occurs (based on the weighted average of the Closing Bid
Prices of the GMO Stock during such period).
(h) LIMITATION ON RIGHT TO CONVERT. In no event shall the Holder be
permitted to convert principal of this Debenture in excess of that amount of
principal upon the Conversion of which (x) the number of shares of GMO Stock
beneficially owned by the Holder (other than shares of GMO Stock which may be
deemed beneficially owned except for being subject to a limitation on conversion
or exercise analogous to the limitation contained in this paragraph (h)) PLUS
(y) the number of shares of GMO Stock issuable upon the Conversion of such
principal amount is equal to or exceeds (z) 4.99% of the number of shares of GMO
Stock then issued and outstanding. The determination of whether the limitation
contained in this paragraph (h) applies and whether principal of this Debenture
is convertible (in relation to other securities owned by the Holder) shall be in
the sole discretion of the Holder, and the submission of a Conversion Notice
shall be deemed to be such Holder's determination that such limitation does not
apply and that the principal amount of this Debenture to which such Conversion
Notice relates is convertible. This paragraph may be amended (A) in order to
clarify an ambiguity or otherwise to give effect to the limitation contained in
this paragraph (h), by the Board of Directors of the Company and the written
consent of the Holders of 66% of the aggregate unpaid principal amount of the
Debentures then outstanding and (B) for any other reason, with the further
consent of the holders of a majority of the shares of the Company's common stock
then outstanding. In the event that the limitation contained in this paragraph
(h) applies to all or a portion of the unpaid principal amount of this
Debenture, nothing contained herein shall be deemed to restrict the right of the
Holder to convert such principal amount at such time as such Conversion will not
violate such limitation.
(i) CERTAIN DEFINITIONS. "TRADING DAY" shall mean any day on which
the GMO Stock is traded for any period on the Nasdaq National Market or on the
principal securities exchange or market on which the GMO Stock is then traded.
"CLOSING BID PRICE" means, with respect to a security, the closing bid price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported (i) if the Nasdaq National Market is
the principal market on which the GMO Stock is then traded, by Nasdaq and (ii)
if the Nasdaq National Market is not such principal market, by Bloomberg
Financial Markets or, if Bloomberg Financial Markets is not then reporting
closing bid prices of such security, a comparable reporting service of national
reputation selected by the Company and reasonably acceptable to holders of a
majority of the unpaid principal amount of the Debentures then outstanding
(collectively, "BLOOMBERG"), or
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<PAGE> 6
if the foregoing does not apply, the last reported sale price of such security
in the over-the-counter market on the electronic bulletin board for such
security as reported by Bloomberg, or, if no sale price is reported for such
security by Bloomberg, the average of the bid prices of all market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as reasonably determined by an
investment banking firm selected by the Holders (which may be a holder) of at
least 50% of the aggregate unpaid principal amount of the Debentures then
outstanding, with the reasonable costs of such appraisal to be borne by the
Company.
2. ADJUSTMENTS TO CONVERSION PRICE.
(a) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK
DIVIDEND, ETC. If, after the Initial Conversion Period and prior to the
Conversion of the entire principal amount of this Debenture, (A) the number of
outstanding shares of GMO Stock is increased by a stock split, stock dividend,
reclassification, the distribution to holders of GMO Stock of rights or warrants
entitling them to subscribe for or purchase GMO Stock at less than the current
market price thereof as of the date such right or warrant first becomes
exercisable (other than pursuant to the Company's equity incentive plan, 401(k)
plan, stock option plans, employee stock purchase plan or any warrants
outstanding as of the Issue Date), or other similar event, each of the Fixed
Conversion Price and the Floor Conversion Price shall be proportionately
reduced, or (B) the number of outstanding shares of GMO Stock is decreased by a
reverse stock split, combination or reclassification of shares or other similar
event, each of the Fixed Conversion Price and the Floor Conversion Price shall
be proportionately increased. In such event, the Company shall notify the
Transfer Agent of such change on or before the effective date thereof. For
purposes of this paragraph 2(a), the "CURRENT MARKET PRICE" per share of GMO
Stock on any date shall be the average of the Closing Bid Prices for the GMO
Stock on the five (5) consecutive Trading Days occurring immediately prior to
(but not including) such date. Nothing contained herein shall be construed to
require the adjustment of the Fixed Conversion Price or the Floor Conversion
Price in the event that the Company issues additional series or classes of its
common stock as long as any such issuance does not result in dilution of the
shares of GMO Stock then outstanding.
(b) ADJUSTMENT TO CONVERSION PRICE. If, prior to the Conversion of
the entire principal amount of this Debenture, the number of outstanding shares
of GMO Stock is increased or decreased by a stock split, stock dividend,
combination, reclassification or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any Conversion of the principal balance of this Debenture, the
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all Trading Days immediately preceding the Conversion Date.
(c) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, prior to the
Conversion of the entire principal amount of this Debenture, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization,
redemption or other similar event, as a result of which shares of GMO Stock
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another entity
or there is a sale
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<PAGE> 7
of all or substantially all the Company's assets or there is a change of control
transaction with respect to which, in any such case, the Holder does not
exercise its right to a Mandatory Redemption (as defined below) of the
outstanding principal hereof, then the Holder shall thereafter have the right to
receive upon Conversion of the principal amount of this Debenture, upon the
terms and conditions specified herein and in lieu of the shares of GMO Stock
immediately theretofore issuable upon conversion, such stock, securities and/or
other assets, if any, which the Holder would have been entitled to receive in
such transaction had such principal amount been converted immediately prior to
such transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holder to the end that the provisions
hereof (including, without limitation, provisions for the adjustment of the
Conversion Price (including the Floor Conversion Price) and of the number of
shares issuable upon a Conversion) shall thereafter be applicable as nearly as
may be practicable in relation to any securities thereafter deliverable upon the
exercise hereof. The Company shall not effect any transaction described in this
paragraph 2(c) unless (i) it first gives to the Holder prior notice of such
merger, consolidation, exchange of shares, recapitalization, reorganization,
redemption or other similar event, and makes a public announcement of such event
at the same time that it gives such notice and (ii) the resulting successor or
acquiring entity (if not the Company) assumes by written instrument the
obligations of the Company under this Debenture, including the terms of this
paragraph 2(c).
(d) DISTRIBUTION OF ASSETS. If, prior to the Conversion of the entire
principal amount of this Debenture, the Company shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of GMO
Stock as a partial liquidating dividend, by way of return of capital or
otherwise, including any dividend or distribution in cash or shares of capital
stock of a subsidiary of the Company (collectively, a "DISTRIBUTION"), then,
upon a Conversion by the Holder occurring after the record date for determining
shareholders entitled to such Distribution but prior to the effective date of
such Distribution, the Holder shall be entitled to receive the amount of such
assets which would have been payable to the Holder had the Holder been the
holder of such shares of GMO Stock on the record date for the determination of
shareholders entitled to such Distribution. The Fixed Conversion Price for
amounts of principal of this Debenture not converted prior to the effective date
of a Distribution shall be reduced to a price determined by decreasing the Fixed
Conversion Price in effect immediately prior to the record date of the
Distribution by an amount equal to the fair market value of the assets so
distributed, as determined by mutual agreement of the Company and the Holder.
(e) NO FRACTIONAL SHARES. If any adjustment under this Section 2
would create a fractional share of GMO Stock or a right to acquire a fractional
share of GMO Stock, such fractional share shall be disregarded and the number of
shares of GMO Stock issuable upon Conversion shall be the next higher number of
shares.
3. OPTIONAL EXCHANGE.
(a) RIGHT OF EXCHANGE. In the event of an Optional Exchange Trigger
Event (as defined below), the Holder shall have the right (but not the
obligation), upon prior written notice (an "Optional Exchange Notice") delivered
to the Company during the thirty (30) business day period following the Optional
Exchange Trigger Date (as defined below), to exchange this Debenture for
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<PAGE> 8
a Genzyme General Division ("GGD") Convertible Debenture in the form attached to
the Purchase Agreement as Exhibit B (the "GGD DEBENTURE"). Such notice shall
state the date of such exchange (the "OPTIONAL EXCHANGE DATE"), which date shall
be on or before the last day of such thirty business-day period, and the
principal amount of this Debenture being exchanged, determined as described in
paragraph 3(c) below; PROVIDED, HOWEVER, that the issue date for the GGD
Debenture (the "GGD ISSUE DATE") shall be the Optional Exchange Trigger Date (as
defined below), regardless of the Optional Exchange Date for such GGD Debenture;
and PROVIDED FURTHER that in the event of a Reduced Offering (as defined below)
that is completed prior to the Optional Exchange Trigger Date, the Company and
the Holder shall reasonably agree to a GGD Issue Date that is prior to the
Optional Exchange Trigger Date (which GGD Issue Date shall in no event be later
than thirty (30) business days after the date on which the Holder receives
written notice from the Company that such Reduced Offering has been completed)
in which case the Holder shall deliver an Optional Exchange Notice at any time
prior to such GGD Issue Date. In the event of an exchange of this Debenture as a
result of an Incomplete Offering (as defined below), the Holder shall return
this Debenture to the Company for cancellation on or before the Optional
Exchange Date against delivery of a GGD Debenture in a principal amount equal to
the unpaid principal amount of this Debenture. In the event of an exchange of
this Debenture as a result of a Reduced Offering (as defined below), the Holder
shall amend Annex I hereto to reflect such exchange.
(b) OPTIONAL EXCHANGE TRIGGER EVENT. An "OPTIONAL EXCHANGE TRIGGER
EVENT" shall mean either (i) where the Company fails, on or before the Optional
Exchange Trigger Date (as defined below), to complete the IPO (an "INCOMPLETE
OFFERING") or (ii) where the Company has completed the IPO on or before the
Optional Exchange Trigger Date but where (x) the aggregate proceeds to the
Company from the IPO (inclusive of any GMO shares sold pursuant to an
overallotment option granted to the underwriters) are less then fifteen million
dollars ($15,000,000) or (y) immediately following the completion of the IPO
(including the sale of overallotment shares to the extent that an overallotment
option is exercised), the total equity market capitalization for Genzyme
Molecular Oncology Division is less than ninety million dollars ($90,000,000)
(computed based on the gross price per share offered in the IPO)(a "REDUCED
OFFERING"). As used herein, "OPTIONAL EXCHANGE TRIGGER DATE" shall mean the
first anniversary of the Issue Date.
(c) PRINCIPAL AMOUNT OF GGD DEBENTURE. In the event of (A) an
Incomplete Offering, the GGD Debenture to be exchanged for this Debenture shall
be issued in an amount equal to one hundred percent (100%) of the unpaid
principal amount of this Debenture as of the GGD Issue Date and (B) a Reduced
Offering, the GGD Debenture to be exchanged for this Debenture shall be issued
in a principal amount equal to fifty percent (50%) of such unpaid principal
amount as of the GGD Issue Date and this Debenture shall remain outstanding with
respect to the balance of such principal amount (in either such event, an
"OPTIONAL EXCHANGE"). In the event of an Optional Exchange, interest accrued on
this Debenture and remaining unpaid up to and including the GGD Issue Date may
be paid in cash or, at the option of the Company and in lieu of cash, by
increasing the principal amount of the GGD Debenture to be exchanged for this
Debenture by the amount of such accrued interest.
4. INTEREST.
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(a) INTEREST RATE; STOCK PAYMENT OPTION. This Debenture shall bear
interest on the unpaid principal amount hereof at an annual rate of six percent
(6%) from the Issue Date, computed on the basis of a 360-day year of twelve
30-day months for the actual number of days elapsed. Interest accrued hereunder
shall be due and payable on each Conversion Date, on a Redemption Date (as
defined herein), on the GGD Issue Date and on the Maturity Date, but, in the
case of interest which is due on a Conversion Date and payable in cash, such
interest may be paid on the following business day in the event that a
Conversion Notice (as defined herein) is delivered to the Company after 2 p.m.,
eastern time, on the Conversion Date. Interest accrued hereunder shall not be
subject to a "gross-up" in the event that backup withholding is required by
applicable law. Interest due on a Conversion Date or an Optional Redemption Date
may be paid either in cash or, at the option of the Company (the "STOCK PAYMENT
OPTION"), and upon satisfaction of the conditions set forth in paragraph 4(b)
below, in shares of GMO Stock or in shares of capital stock into which such GMO
Stock may be changed or reclassified. The shares of GMO Stock to be issued and
delivered by the Company pursuant to the Stock Payment Option shall be fully
paid and non-assessable, free and clear of any liens, claims, preemptive rights
or encumbrances imposed by or through the Company, in an amount calculated in
accordance with paragraph 4(c) below (the "INTEREST PAYMENT SHARES"). Any amount
of interest payable on this Debenture in cash which is not paid within three (3)
business days of the date when the same becomes due and payable hereunder (the
"PAYABLE DATE") shall bear interest at an annual rate equal to the lower of (x)
the "prime" rate (as published in the Wall Street Journal) on the Payable Date
PLUS three percent (3%) and (y) the highest rate permitted by applicable law,
for the number of days elapsed from such third (3rd) business day until such
amount is paid in full ("DEFAULT INTEREST"). The Company may not make payments
of Default Interest in shares of GMO Stock.
(b) CONDITIONS TO STOCK PAYMENT OPTION. If the Company wishes to
exercise the Stock Payment Option, it may do so only if each of the following
conditions has been satisfied as of the relevant Conversion Date:
(i) the number of shares of GMO Stock authorized, unissued and
unreserved for all other purposes, or held in the Company's treasury, is
sufficient to pay the aggregate number of (x) Conversion Shares issuable on such
Conversion Date assuming the conversion in full of the Debentures at the
Conversion Price then in effect and (y) the number of Interest Payment Shares
issuable pursuant to such option;
(ii) the Interest Payment Shares are authorized for quotation on
the Nasdaq National Market or for listing or quotation on any other national
securities exchange or market on which the GMO Stock may be listed;
(iii) the Registration Statement (as defined in the Registration
Rights Agreement) is effective and available for the sale of the Interest
Payment Shares by the Holder;
(iv) a Mandatory Redemption Event (as defined herein) shall not
have occurred and be continuing;
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<PAGE> 10
(v) the Company has delivered to the Holder a certificate,
signed by an executive officer of the Company, setting forth:
o the amount of the interest payment to which the Holder
is entitled and, if not the same, the amount of such
payment to be made in Interest Payment Shares;
o the number of Interest Payment Shares to be delivered
in payment of such interest, and the calculation
therefor; and
o a statement to the effect that all of the conditions
set forth in paragraphs 4(b)(i) - (iv) have been
satisfied;
and
(vi) the Holder shall have consented in writing to the
Company's use of the Stock Payment Option on such Conversion Date.
(c) DELIVERY OF INTEREST PAYMENT SHARES. If the Company elects to
exercise the Stock Payment Option, the Company shall deliver to such Holder, on
or before the third (3rd) business day following the applicable Conversion Date
(the "INTEREST PAYMENT SHARE DELIVERY DATE"), one or more certificates
representing the aggregate number of whole Interest Payment Shares that is
determined by dividing (x) the amount of interest which would otherwise be
payable in cash to such Holder on the applicable Conversion Date by (y) the
Conversion Price (as defined herein) then in effect. No fractional Interest
Payment Shares shall be issued; the Company shall, in lieu thereof, either issue
a number of Interest Payment Shares which reflects a rounding up to the next
whole number of shares or pay such amount in cash.
(d) FAILURE TO DELIVER INTEREST PAYMENTS SHARES. If the Company fails
to issue and deliver the appropriate number of Interest Payment Shares to such
Holder on or before the tenth (10th) business day following the Interest Payment
Share Delivery Date, the Company shall not be entitled to utilize the Stock
Payment Option in respect of such interest payment, but instead must immediately
pay such interest payment in cash, together with Default Interest on such unpaid
amount calculated from the applicable Payable Date until the date on which such
amount is paid.
(e) NOTICE OF EXERCISE. Not later than five (5) business days
immediately prior to the first day of each calendar month during which any
principal of this Debenture remains unpaid and outstanding, the Company shall
notify the Holder in writing whether the Company intends, assuming satisfaction
of the conditions set forth in subparagraph (b) above, to pay interest in
Interest Payment Shares in lieu of cash on any Conversion Date occurring during
that month or during such longer period as the Company may specify.
-10-
<PAGE> 11
5. PRIORITY; SUBORDINATION.
(a) NO PAYMENT IF DEFAULT ON SENIOR INDEBTEDNESS. No payment of
principal of, premium, if any, or interest on this Debenture or on account of
any purchase or redemption or other acquisition of the Debenture, whether at
maturity or otherwise, shall be made upon, or accepted with respect to, this
Debenture, and the Holder shall not initiate any action to accelerate the
maturity of the Debenture or exercise any remedy to seek collection if at the
time of such payment the Holder has received written notice from the Company or
a holder of Senior Debt (as defined below) that there exists or, after giving
effect to such payment, there would exist any default in respect of any Senior
Debt or under any agreement pursuant to which such Senior Debt was issued (a
"DEFAULT"); PROVIDED, HOWEVER, that the foregoing restriction shall cease to
apply with respect to a Default upon the earliest to occur of (i) the
commencement by any holder of Senior Debt of the exercise of its remedies
against the Company or its property including, without limitation, any action,
suit or other legal proceeding against the Company or its property based upon
such Default, or (ii) at the expiration of 180 days after the date of such
notice if no holder of Senior Debt shall have commenced the exercise of its
remedies against the Company or its property including, without limitation, any
action, suit or other legal proceeding against the Company or its property based
upon such Default. Upon the maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all principal of, premium, if any, interest and other
amounts due or to become due on all such Senior Debt shall first be paid in full
in cash, cash equivalents or in any other manner acceptable to the holders of
Senior Debt (hereinafter, "PAYMENT IN FULL" or "PAID IN FULL"), or such payment
shall have been provided for to the satisfaction of the holders of Senior Debt,
before any payment on account of principal of, premium, if any, interest or any
other amounts shall be made upon this Debenture. This Debenture shall rank in
priority as to payments of interest, principal, dividends and penalties (if
any), upon the occurrence of a Liquidation Event (as defined below) or
otherwise, senior to all capital stock of the Company and pari passu with any
security or debt instrument which by its terms ranks pari passu with this
Debenture.
(b) PAYMENT UPON DISSOLUTION, ETC.
(i) In the event of (x) any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, or (y) the dissolution or other winding up
of the Company whether total or partial, whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy proceedings or (z) any
assignment for the benefit of creditors or any marshalling of the material
assets or material liabilities of the Company, then, and in any such event
(collectively, a "LIQUIDATION EVENT"), (A) the holders of all Senior Debt shall
first be entitled to receive Payment in Full of all principal, premium, if any,
interest and other amounts due or to become due on the Senior Debt (including,
without limitation, any interest and charges accruing thereon in any such
proceeding, notwithstanding any law to the contrary) before any payment on
account of principal, premium, if any, interest or any other amounts is made on
this Debenture, and (B) in any such proceedings, any payment that may be payable
or deliverable in respect of this Debenture shall be paid to the holders of the
Senior Debt or their representatives, unless and until the principal of,
premium, if any, interest and other amounts due or to become due on all such
Senior Debt shall have been Paid in Full; PROVIDED, HOWEVER, that in the event
that such
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<PAGE> 12
payment consists solely of shares of stock or securities of the Company as
reorganized the payment of which is subordinated, at least to the same extent as
the Debenture, to the payment of all Senior Debt and such payment is authorized
by an order or decree made by a court of competent jurisdiction in a
reorganization proceeding under any applicable law pursuant to a plan of
reorganization and the rights of the holders of Senior Debt are not impaired or
otherwise altered adversely by such reorganization or adjustment, no such
payment shall be required hereby to be made to the holders of the Senior Debt or
their representatives.
(ii) In the event that any such payment shall be received by the
Holder in violation of the subordination provisions hereof before all Senior
Debt is Paid in Full, such payment or distribution shall be received and held in
trust for and shall be paid over to the holders of all Senior Debt remaining
unpaid, or their representatives, until such Senior Debt shall have been Paid in
Full, after giving effect to any concurrent payment or distribution or provision
thereof to the holders of such Senior Debt.
(c) SUBROGATION. Subject to the prior Payment in Full of all Senior
Debt, the Holder shall be subrogated to the rights of the holders of Senior Debt
to receive payments or distributions of assets of the Company applicable to the
Senior Debt to the extent that payments otherwise payable to the Holder under
the Debenture have been applied to the payment of the Senior Debt; PROVIDED,
HOWEVER, that the subrogation rights of the holder of the Debenture shall be
fully subordinated to the rights and remedies of the holders of Senior Debt.
(d) AGREEMENTS OF HOLDER.
(i) The Holder agrees that upon the commencement of any
bankruptcy, insolvency or other similar case or proceeding relative to the
Company, or to its creditors, as such, or to its assets, the Holder shall take
such actions as may be necessary or appropriate to effectuate the subordination
provisions hereof, including, without limitation, that the Holder shall (i)
timely file a proof of claim in respect of the Debenture and the indebtedness
and obligations evidenced hereby, provided, however, that if the Holder fails
within thirty (30) days prior to the expiration of any claims bar date to file a
proof of claim, any holder of Senior Debt shall be entitled to file such a proof
of claim in respect thereof in the name of the Holder and the Holder irrevocably
appoints the holders of Senior Debt and their representatives as its
attorney-in-fact solely for such purpose; (ii) not oppose any motion filed or
supported by any holder of Senior Debt for relief from stay or adequate
protection in respect of the Senior Debt; and (iii) not file or accept any
reorganization plan that impairs or otherwise alters adversely the rights of the
holders of Senior Debt.
(ii) The Company and the Holder, for themselves and their
successors and assigns, covenant to execute and deliver to the holders of Senior
Debt, such further instruments and to take such further action as the holders of
Senior Debt may at any time or times reasonably request in order to carry out
the provisions hereof.
(iii) No holder of Senior Debt shall be prejudiced in its right
to enforce the subordination of this Debenture by any act or failure to act on
the part of the Company.
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<PAGE> 13
(iv) Without notice to or the consent of the Holder, the holders
of Senior Debt may at any time and from time to time, in their discretion,
without impairing or releasing the subordination herein made, change the manner,
place or terms of payment, or change or extend the time of payment of or renew
or alter the Senior Debt, or amend or supplement in any manner any instrument
evidencing the Senior Debt, any agreement pursuant to which the Senior Debt was
issued or incurred or any instrument securing or relating to the Senior Debt;
release any person liable in any manner for the payment or collection of the
Senior Debt; exercise or refrain from exercising any rights in respect of the
Senior Debt against the Company or any other person; apply any moneys or other
property paid by any person or release in any manner to the Senior Debt; or
accept or release any security for the Senior Debt.
(e) CONTINUING OFFER. This Section shall constitute a continuing
offer to all persons who, in reliance on such provisions, become holders of, or
continue to hold, Senior Debt, and such provisions of this Section are made for
the benefit of such holders and may not be amended, modified, changed or waived
without the prior written consent of the holders of Senior Debt.
(f) RIGHTS OF HOLDERS UNIMPAIRED. The foregoing provisions as to
subordination are solely for the purpose of defining the relative rights of the
holders of the Senior Debt on the one hand and the Holder on the other hand.
None of such provisions shall impair, as between the Company and the Holder, the
obligation of the Company, which is unconditional and absolute, to pay the
Holder of this Debenture the amounts due on this Debenture in accordance with
the terms hereof and of the Purchase Agreement, nor shall any such provisions
prevent the Holder from exercising all remedies otherwise permitted by law.
Moreover, nothing contained herein shall be deemed to limit in any way the right
of the Holder to convert, at any time and from time to time, the principal
balance of this Debenture into shares of GMO Stock pursuant to Section 1 hereof
or to receive shares of GMO Stock as payment of interest hereon pursuant to
Section 4 hereof.
(g) DEFINITION OF SENIOR DEBT. For purposes hereof, "SENIOR DEBT"
shall mean (a) the principal of, premium, if any, accrued and unpaid interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company), and any other
monetary obligations on (i) indebtedness of the Company for money borrowed,
whether outstanding on the date of this Debenture or thereafter created,
incurred or assumed (including but not limited to nonrecourse borrowings secured
by receivables), (ii) guaranties by the Company of indebtedness for money
borrowed by any other person, or reimbursement obligations under letters of
credit, in either case, whether outstanding on the date of this Debenture or
thereafter created, incurred or assumed, and (iii) indebtedness evidenced by
notes, debentures, bonds or other instruments of indebtedness (other than this
Debenture) for the payment of which the Company is responsible or liable, by
guarantees or otherwise, whether outstanding on the date of this Debenture or
thereafter created, incurred or assumed, and (b) modifications, renewals,
extensions, refinancings, refundings and replacements of any such indebtedness,
obligations or guarantees; unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is expressly provided that
such indebtedness, obligations or guarantees or such modification, renewal,
extension, refinancing, refunding or replacement thereof are not superior in
right of payment to this Debenture and the holder of such indebtedness has
consented to same; PROVIDED, HOWEVER, that Senior Debt shall not be deemed to
include any obligations of the Company
-13-
<PAGE> 14
to any of its subsidiaries. Without in any way limiting the scope of the
foregoing, it is expressly acknowledged and agreed that Senior Debt shall
include all indebtedness, obligations and guaranties of the Company and its
subsidiaries under that certain Credit Agreement dated November 14, 1996 among
the Company, certain of its subsidiaries, Fleet National Bank, as administrative
agent, The First National Bank of Boston, as documentation agent, and the lender
parties thereto and under all notes, instruments, agreements and documents
entered into pursuant thereto or in connection therewith and all modifications,
renewals, extensions, refinancings, refundings and replacements thereof.
6. OPTIONAL REDEMPTION BY THE COMPANY.
(a) OPTIONAL REDEMPTION. If at any time commencing eighteen (18)
months after the IPO Date, the Closing Bid Price of the GMO Stock for twenty
(20) consecutive Trading Days equals or exceeds 150% of the Fixed Conversion
Price, the Company shall have the right, in its sole discretion, to redeem (an
"OPTIONAL REDEMPTION"), any or all of the principal amount of this Debenture
then outstanding at the Optional Redemption Price (as defined herein); PROVIDED,
HOWEVER, that in order to effect an Optional Redemption, the Company shall have
provided to the Holder thirty (30) Trading Days' prior written notice of the
effective date of the Optional Redemption (the "OPTIONAL REDEMPTION DATE") and
each of the Optional Redemption Conditions (as defined below) has been satisfied
as of the date of such notice and as of the Optional Redemption Date. The
Company shall be entitled to four (4) Optional Redemptions during the term of
this Debenture. Nothing contained herein shall prevent the Holder from
converting any or all of the unpaid principal amount of this Debenture at any
time or from time to time prior to the Optional Redemption Date.
(b) OPTIONAL REDEMPTION PRICE. The "OPTIONAL REDEMPTION PRICE" shall
mean the principal amount of this Debenture being redeemed MULTIPLIED BY the
Optional Redemption Percentage. The "OPTIONAL REDEMPTION PERCENTAGE" initially
shall be 130%; beginning on January 1, 1998 and on the first (1st) day of each
calendar quarter thereafter, the Optional Redemption Percentage shall be reduced
on a straight line basis so that during the last calendar quarter occurring
during the term of this Debenture (assuming that this Debenture has not been
redeemed, converted or paid in full prior thereto) the Optional Redemption
Percentage shall be 100%.
(c) PAYMENT OF OPTIONAL REDEMPTION PRICE.
(i) The Company shall pay the Optional Redemption Price to the
Holder within five (5) business days of the Optional Redemption Date. In the
event that the Company redeems the entire remaining unpaid principal amount of
this Debenture, and pays to the Holder all interest accrued thereon and all
other amounts due in connection therewith, the Holder shall return this
Debenture to the Company for cancellation.
(ii) The Company may, upon fifteen (15) business days' prior
written notice to the Holder, pay the Optional Redemption Price in shares of GMO
Stock in lieu of cash. The number of shares of GMO Stock to be delivered to the
Holder in the event that the Company exercises such option shall be determined
by dividing the Optional Redemption Price by the
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<PAGE> 15
Conversion Price in effect on the Optional Redemption Date. The Company may
exercise its option to pay the Optional Redemption Price in shares of GMO Stock
only if (A) the aggregate number of such shares and of all Conversion Shares and
Interest Payment Shares issuable upon the conversion of the aggregate principal
amount of the Debentures outstanding immediately following such Optional
Redemption has been reserved for issuance upon such conversion, (B) the GMO
Stock is designated for quotation on the Nasdaq National Market system or listed
on the NYSE or ASE, and actively traded thereon and (C) the Holder agrees to
receive such payment in shares of GMO Stock.
(iii) If the Company fails to issue and deliver the appropriate
number of Conversion Shares to such Holder on or before the tenth (10th)
business day following the Optional Redemption Date, the Company shall not be
entitled to pay the Optional Redemption Price in shares of GMO Stock, but
instead must immediately pay such amount in cash, together with Default Interest
on such unpaid amount calculated from the Optional Redemption Date until the
date on which such amount is paid.
(d) OPTIONAL REDEMPTION CONDITIONS. The "OPTIONAL REDEMPTION
CONDITIONS" are as follows:
(i) The GMO Registration Statement (as defined in the
Registration Rights Agreement) is effective and available for resales of the
Conversion Shares, or the Conversion Shares may be sold pursuant to Rule 144(k)
under the Securities Act or any successor rule or provision; and
(ii) the GMO Stock is designated for quotation on the Nasdaq
National Market system, or listed on the NYSE or the ASE.
7. MANDATORY REDEMPTION BY THE COMPANY.
(a) MANDATORY REDEMPTION. In the event that a Mandatory Redemption
Event (as defined herein) occurs, the Holder shall have the right, upon written
notice to the Company, to have all or any portion of the unpaid principal amount
of this Debenture redeemed by the Company (a "MANDATORY REDEMPTION") at the
Mandatory Redemption Price (as defined herein) in same day funds. Such notice
shall specify the effective date of such Mandatory Redemption (the "MANDATORY
REDEMPTION DATE") and the amount of principal to be redeemed. The Optional
Redemption Date and the Mandatory Redemption Date are sometimes each referred to
herein as a "REDEMPTION DATE".
(b) MANDATORY REDEMPTION PRICE. The "MANDATORY REDEMPTION PRICE"
shall be equal to (A) the unpaid principal amount of this Debenture being
redeemed PLUS (B) interest at an annual rate of fifteen percent (15%)
(compounded annually) computed on the basis of a 360-day year of twelve 30-day
months for the actual number of days elapsed from the Issue Date through the
Mandatory Redemption Date MINUS (C) the amount of any interest which has accrued
on such principal amount pursuant to Section 4 hereof and been paid to the
Holder prior to the Mandatory Redemption Date PLUS (D) any other amounts which
may be payable hereunder as of the Mandatory Redemption Date (including any
interest which has accrued on such principal amount pursuant to
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<PAGE> 16
Section 4 hereof but which remains unpaid); PROVIDED, HOWEVER, that with respect
to a Mandatory Redemption which occurs as a result of a Mandatory Redemption
Event described in subparagraph 7(d)(v) below, the Mandatory Redemption Price
shall be equal to the principal amount of this Debenture being redeemed DIVIDED
BY the Applicable Percentage in effect on the Mandatory Redemption Date.
(c) PAYMENT OF MANDATORY REDEMPTION PRICE.
(i) The Company shall pay the Mandatory Redemption Price to
the Holder within five (5) business days of the Mandatory Redemption Date. In
the event that the Company redeems the entire remaining unpaid principal amount
of this Debenture, and pays to the Holder all interest accrued thereon and all
other amounts due in connection therewith, the Holder shall return this
Debenture to the Company for cancellation.
(ii) If Company fails to pay the Mandatory Redemption Price to
the Holder within five (5) business days of the Mandatory Redemption Date, the
Holder shall be entitled to interest thereon at an annual rate equal to the
lower of (x) the "prime" rate (as published in the Wall Street Journal) on such
fifth (5th) business day PLUS three percent (3%) and (y) the highest rate
permitted by applicable law from the Mandatory Redemption Date until the
Mandatory Redemption Price has been paid in full.
(d) MANDATORY REDEMPTION EVENT. Each of the following events shall be
deemed a "MANDATORY REDEMPTION EVENT":
(i) the Company fails for any reason (including without
limitation as a result of not having a sufficient number of shares of GMO Stock
authorized and reserved for issuance) to issue certificates representing shares
of GMO Stock to the Holder in accordance with the provisions of this Debenture
upon Conversion of any principal amount hereof, and such failure continues for
ten (10) business days;
(ii) the Company breaches, in a material respect, any covenant
or other material term or condition of this Debenture, the Purchase Agreement,
the Registration Rights Agreement or any other agreement, certificate or
instrument delivered by the Company at the Closing (as defined in the Purchase
Agreement)(the "TRANSACTION DOCUMENTS"), and such breach continues for a period
of ten (10) business days after written notice thereof to the Company from the
Holder;
(iii) the GMO Registration Statement (as defined in the
Registration Rights Agreement) is not declared effective on or prior to the GMO
Registration Deadline (as defined in the Registration Rights Agreement) or if
the GMO Registration Statement has been declared effective by such date, and the
effectiveness of the GMO Registration Statement lapses for any reason (including
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of Conversion Shares in accordance with the terms of the GMO
Registration Rights Agreement, and such lapse or unavailability continues for a
period of five (5) business days, PROVIDED that the cause of such lapse or
unavailability is not due to factors solely within the control of the Holder,
and PROVIDED, FURTHER, that the GMO Registration Statement shall not be deemed
to
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<PAGE> 17
be unavailable to the Holder, for purposes of this paragraph (iii) only, during
any Standstill Period (as defined in the Registration Rights Agreement);
(iv) the GMO Stock is not quoted on the Nasdaq National Market
or listed on the NYSE or the Amex;
(v) the sale, conveyance or disposition of all or
substantially all of the assets of the Company or all or substantially all of
the assets comprising the Genzyme Molecular Oncology Division, the effectuation
of a transaction or series of transactions, in which more than fifty percent
(50%) of the voting power of the Company is disposed of, or the consolidation,
merger or other business combination of the Company with or into any other
entity, immediately following which the prior stockholders of the Company fail
to own, directly or indirectly, at least fifty percent (50%) of the surviving
entity; and
(vi) the Company or any subsidiary of the Company shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed; or bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company or any
subsidiary of the Company and, in the case of an involuntary action or other
proceeding, remains undismissed and unstayed for a period of sixty (60) days.
(e) FAILURE TO PAY REDEMPTION AMOUNTS. If the Company fails to pay
the Mandatory Redemption Price within ten (10) business days of the Payable Date
therefor, then the Holder shall have the right at any time, so long as the
Company remains in default, to require the Company, upon written notice, to
immediately issue, in lieu of the Mandatory Redemption Price, the number of
shares of GMO Stock of the Company equal to the Mandatory Redemption Price
DIVIDED BY the Conversion Price in effect on such Conversion Date as is
specified by the Holder in writing to the Company.
8. HOLDER'S PUT OPTION.
(a) PUT OPTION REVIEW PERIOD. In the event that, after the one
hundred and eightieth (180th) day following the IPO Date, the Conversion Price
is less than the Floor Conversion Price on every Trading Day occurring during a
period of ninety (90) consecutive days (a "PUT OPTION REVIEW PERIOD"), the
Holder will have the option (the "PUT OPTION") to require the Company (i) to
redeem the unpaid principal amount of this Debenture in its entirety, (ii) upon
such redemption, to pay an amount (the "PUT OPTION AMOUNT") equal to: (A) such
unpaid principal amount PLUS (B) interest at an annual rate of fifteen percent
(15%) (compounded annually) computed on the basis of a 360-day year of twelve
30-day months for the actual number of days elapsed from the Issue Date through
the effective date of such Put Option (the "PUT OPTION EFFECTIVE DATE"),
compounded annually, at an annual rate of fifteen percent (15%) MINUS (C) the
amount of any interest which has accrued on such principal amount pursuant to
Section 4 hereof and been paid to the Holder prior to the Put Option Effective
Date PLUS (D) any other amounts which may be payable hereunder as
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<PAGE> 18
of the Put Option Effective Date (including any interest which has accrued on
such principal amount pursuant to Section 4 hereof but which remains unpaid).
(b) DELIVERY OF PUT OPTION NOTICE. In order to effect a Put Option
hereunder, the Holder must deliver a written notice (a "PUT OPTION NOTICE") to
the Company on or before the fifteenth (15th) day following the 90th day of the
Put Option Review Period. The Put Option Effective Date shall be deemed to occur
on the day on which such notice is delivered.
(c) PAYMENT OF THE PUT OPTION AMOUNT. In the event that the Holder
exercises a Put Option, the Company shall pay the Put Option Amount to such
Holder within five (5) business days after the Put Option Effective Date. If
such Put Option Amount is not paid within such five business day period, such
amount shall bear interest at an annual rate equal to the lower of (x) the
"prime" rate (as published in the Wall Street Journal) on the Put Option
Effective Date PLUS three percent (3%) and (y) the highest rate permitted by
applicable law, for the number of days elapsed from such fifth business day
until such Put Option Amount is paid in full.
(d) SUBSEQUENT PUT OPTION REVIEW PERIODS. In the event that the
Holder does not deliver a Put Option Notice within the fifteen day period
specified in paragraph 8(b) above with respect to a Put Option Review Period, a
period of ninety (90) days from the last day of such Put Review Period must
elapse before another Put Option Review Period may commence.
(e) EXERCISE LIMITATION. The Holder may exercise its Put Option
hereunder only with respect to the first three (3) Put Option Review Periods
which occur while this Debenture is outstanding.
9. MISCELLANEOUS.
(a) FAILURE TO EXERCISE RIGHTS NOT WAIVER. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude any other or further exercise
thereof. All rights and remedies of the Holder hereunder are cumulative and not
exclusive of any rights or remedies otherwise available.
(b) NOTICES. Any notice, demand or request required or permitted to
be given by the Company or the Holder pursuant to the terms of this Debenture
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with a hard copy to follow), (ii) on the
next business day after timely delivery to a nationally recognized overnight
courier and (iii) on the third (3rd) business day after deposit in the U.S. mail
(certified or registered mail, return receipt requested, postage prepaid),
addressed as follows:
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<PAGE> 19
If to the Company:
Genzyme Corporation
One Kendall Square
Cambridge, Massachusetts 02139
Attn: Chief Legal Officer
Tel: 617-252-7500
Fax: 617-252-7553
and if to the Holder, at such address and facsimile number as the Holder shall
have furnished the Company in the Purchase Agreement or at such other address or
facsimile number as the Holder shall have furnished to the Company in accordance
with this paragraph 9(b).
(c) AMENDMENTS. No amendment, modification or other change may be
made to this Debenture unless such amendment, modification or change is set
forth in writing and is signed by the Company and the Holder.
(d) TRANSFER OF DEBENTURE. With the prior consent of the Company,
which consent shall not be unreasonably withheld, the Holder may sell, transfer
or otherwise dispose of all, but not less than all, of this Debenture to any
person or entity as long as such sale, transfer or disposition is the subject of
an effective registration statement under the Securities Act or is exempt from
registration thereunder; PROVIDED, HOWEVER that such consent shall not be
required (but the Company shall nonetheless be entitled to receive written
notice thereof) in the event of a sale, transfer or disposition of this
Debenture to an affiliate (as defined in the Purchase Agreement) of the Holder.
On or before the effective date of any such sale, transfer or disposition, the
transferee shall deliver to the Company a Form W-8 or W-9, as applicable, duly
executed by such transferee, confirming that such transferee is not subject to
backup withholding. From and after the date of such sale, transfer or
disposition, the transferee hereof shall be deemed to be the Holder. Upon any
such sale, transfer or disposition, the Company shall, promptly following the
return of this Debenture by the transferee hereof, issue and deliver to such
transferee a new Debenture identical in all respects to this Debenture, in the
name of such transferee, except that the principal amount of such new Debenture
may reflect the unpaid principal amount of this Debenture at the time of such
sale, transfer or disposition.
(e) LOST OR STOLEN DEBENTURE. Upon receipt by the Company of evidence
of the loss, theft, destruction or mutilation of this Debenture, and (in the
case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Company, and upon surrender and cancellation of the
Debenture, if mutilated, the Company shall execute and deliver to the Holder a
new debenture identical in all respects to this Debenture. Upon the issuance of
any new Debenture hereunder, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge and any expenses
(including reasonable fees and expenses of counsel) in connection therewith.
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<PAGE> 20
(f) GOVERNING LAW. This Debenture shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the conflict of law provisions thereof.
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<PAGE> 21
IN WITNESS WHEREOF, the Company has caused this Debenture to be
executed in its name by its duly authorized officer on the date first above
written.
GENZYME CORPORATION
By: /s/ David J. McLachlan
-----------------------------------------
Name: David J. McLachlan
Title: Executive Vice President, Finance,
and Chief Financial Officer
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<PAGE> 22
ANNEX I
SCHEDULE OF PRINCIPAL
PAYMENTS, CONVERSIONS AND EXCHANGES
<TABLE>
<CAPTION>
Principal Amount Paid, Date of Payment,
Balance Converted or Exchanged Conversion or Exchange
--------- ---------------------- ----------------------
<S> <C> <C>
$[ ],000,000
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
</TABLE>
<PAGE> 23
Schedule 1
The GMO Convertible Debentures dated August 29, 1997 are identical
except with respect to the names of the holders and the principal amounts of the
debentures. Pursuant to Instruction 2 to Item 601 of Regulation S-K, this
schedule lists all of the original holders of the GMO Convertible Debentures and
the principal amounts of their respective debentures.
Principal Amount
Holder of Debenture
------ ------------
Swiss Bank Corporation, London Branch $ 1,750,000
Tribeca Investments, L.L.C. $ 1,000,000
Stark International $ 750,000
SoundShore Partners L.P. $ 1,000,000
Shepherd Investments International, Ltd. $ 750,000
Proprietary Convertible Investment Group Inc. $10,000,000
Oracle Partners, L.P. $ 2,000,000
Och-Ziff Capital Management, L.P. $ 1,750,000
Employers Reinsurance Corporation $ 1,000,000
<PAGE> 1
Exhibit 10.7
EXHIBIT B
TO PURCHASE AGREEMENT
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS A REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT
THERETO, OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE, TRANSFER OR
DISPOSITION. THIS DEBENTURE (THIS "DEBENTURE" AND TOGETHER WITH THE OTHER
GENZYME GENERAL DIVISION ("GGD") CONVERTIBLE DEBENTURES, THE "DEBENTURES") HAS
BEEN ISSUED PURSUANT TO AN EXCHANGE FOR ALL OR PART OF THE PRINCIPAL AMOUNT OF A
GENZYME MOLECULAR ONCOLOGY DIVISION ("GMO") CONVERTIBLE DEBENTURE, THE FORM OF
WHICH IS ATTACHED HERETO (THE "GMO DEBENTURE" AND TOGETHER WITH THE OTHER GMO
DEBENTURES OF EVEN DATE THEREWITH, THE "GMO DEBENTURES"). THE DEBENTURES AND THE
GMO DEBENTURES ARE SUBJECT TO THE TERMS OF (A) A PURCHASE AGREEMENT, DATED AS OF
AUGUST 29, 1997 ("PURCHASE AGREEMENT"), BY AND AMONG GENZYME CORPORATION AND THE
PURCHASERS NAMED THEREIN AND (B) A REGISTRATION RIGHTS AGREEMENT, DATED AUGUST
29, 1997 ("REGISTRATION RIGHTS AGREEMENT"), BY AND AMONG GENZYME CORPORATION AND
SUCH PURCHASERS.
GENZYME CORPORATION
GGD CONVERTIBLE DEBENTURE
New York, New York $[ ],000,000
______________, 1998
FOR VALUE RECEIVED, Genzyme Corporation, a Massachusetts
corporation (the "COMPANY"), hereby promises to pay to the order of [ ] or its
assignees (the "HOLDER") the sum of [ ] MILLION DOLLARS ($[ ],000,000) in same
day funds, on or before ________, 2003 (the "MATURITY DATE"), and to pay
interest thereon from the date hereof (the "ISSUE DATE") as provided herein.
The following terms shall apply to this Debenture:
1. CONVERSION.
(a) RIGHT TO CONVERT. Subject to the limitation contained in
paragraph 1(g) below, the holder of this Debenture (the "HOLDER") shall have the
right to convert all or any part of the outstanding unpaid principal of this
Debenture at any time and from time to time on or after the Issue Date into
fully paid and non-assessable shares, free and clear of any liens, claims,
preemptive rights or encumbrances imposed by or through the Company (the
"CONVERSION SHARES"), of
<PAGE> 2
Genzyme General Division Common Stock, $.01 par value (the "GGD STOCK"), in
accordance with the terms hereof (a "CONVERSION").
(b) CONVERSION NOTICE. In order to convert principal of this
Debenture, or any portion thereof, the Holder shall send by facsimile
transmission, at any time prior to 11:59 p.m., eastern time, on the date on
which the Holder wishes to effect such Conversion (the "CONVERSION DATE"), a
notice of conversion to the Company and to its designated transfer agent for the
GGD Stock (the "TRANSFER AGENT") stating the principal amount to be converted,
the amount of interest accrued on the then unpaid principal balance of this
Debenture as provided herein up to and including the Conversion Date, the
applicable Conversion Price and a calculation of the number of shares of GGD
Stock issuable upon such Conversion (a "CONVERSION NOTICE"). The Holder shall
not be required to physically surrender this Debenture to the Company in order
to effect a Conversion. The Company shall maintain a record showing, at any
given time, the unpaid principal amount of this Debenture and the date of each
Conversion or other payment of principal hereof. The Holder shall amend Annex I
hereto upon any such Conversion or payment of principal to reflect the unpaid
principal amount hereof. In the case of a dispute as to the calculation of the
Conversion Price or the number of Conversion Shares issuable upon a Conversion,
the Company shall promptly issue to the Holder the number of Conversion Shares
that are not disputed and shall submit the disputed calculations to its
independent accountants within one (1) business day of receipt of the Holder's
Conversion Notice. The Company shall cause such accountant to calculate the
Conversion Price and the number of Conversion Shares issuable as provided herein
and to notify the Company and the Holder of the results in writing no later than
two (2) business days following the day on which it received the disputed
calculations. Such accountant's calculation shall be deemed conclusive absent
manifest error. The fees of any such accountant shall be borne by the Company.
(c) NUMBER OF CONVERSION SHARES; CONVERSION PRICE. The number of
Conversion Shares to be delivered by the Company pursuant to a Conversion shall
be equal to the principal amount of this Debenture specified in the Conversion
Notice DIVIDED BY the Conversion Price. The "CONVERSION PRICE" shall mean (x)
the average of the Closing Bid Prices for the GGD Stock on the five (5) Trading
Days occurring immediately prior to (but not including) GGD Issue Date (as
defined in the GMO Debentures) TIMES (y) one hundred and thirteen percent
(113%). Conversions may be effected in minimum principal amounts of $100,000 (or
such smaller amount of principal as may remain unpaid at the time of such
Conversion).
(d) DELIVERY OF GGD STOCK UPON CONVERSION. Upon receipt of a
Conversion Notice pursuant to paragraph 1(b) above, the Company shall, no later
than the close of business on the third (3rd) business day following the
Conversion Date set forth in such Conversion Notice (the "DELIVERY DATE"), issue
and deliver or caused to be delivered to the Holder the number of Conversion
Shares as shall be determined as provided herein. If any Conversion would create
a fractional Conversion Share, such fractional Conversion Share shall be
disregarded and the number of Conversion Shares issuable upon such Conversion,
in the aggregate, shall be the next higher number of Conversion Shares.
Certificates representing Conversion Shares shall not contain any restrictive
legend as long as the sale of such Conversion Shares is covered by an effective
Registration Statement (as defined in the Registration Rights Agreement) or may
be made pursuant to Rule 144(k) under the Securities Act or any successor rule
or provision.
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<PAGE> 3
(e) FAILURE TO DELIVER CONVERSION SHARES. In the event that the
Company fails to deliver to the Holder the number of Conversion Shares specified
in the applicable Conversion Notice on or before the Delivery Date therefor for
any reason (a "CONVERSION DEFAULT"), and such Conversion Default continues for
longer than seven (7) business days, the Company shall pay to the Holder
payments ("CONVERSION DEFAULT PAYMENTS") in the amount of (i) (N/365) MULTIPLIED
BY (ii) the unpaid principal amount of this Debenture represented by the
Conversion Shares which remain the subject of such Conversion Default MULTIPLIED
BY (iii) the lower of twenty-four percent (24%) and the maximum rate permitted
by applicable law, where "N" equals the number of days elapsed between the
original Delivery Date of such Conversion Shares and the earlier to occur of (A)
the date on which all of such Conversion Shares are issued and delivered to the
Holder and (B) the date on which the principal amount represented thereby is
redeemed pursuant to the terms of this Debenture. Cash amounts payable hereunder
shall be paid on or before the fifth (5th) business day of the calendar month
following the calendar month in which such amount has accrued. Nothing herein
shall limit the Holder's right to pursue remedies with respect to its actual
damages resulting from a Conversion Default (including, without limitation,
damages relating to any purchase of shares of GGD Stock by the Holder to make
delivery on a sale effected in anticipation of receiving Conversion Shares upon
Conversion), and the Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief).
(f) PAYMENT OF PRINCIPAL AT MATURITY; OPTIONAL CONVERSION. On the
Maturity Date, the Company shall pay to the Holder the amount of the unpaid
principal amount of this Debenture in same day funds; PROVIDED, HOWEVER, that if
(i) the Holder agrees to receive such payment in shares of GGD Stock and (ii)
the Company has satisfied each of the Optional Conversion Conditions (as defined
below), such unpaid principal amount may be converted into the number of shares
of GGD Stock equal to the amount of such unpaid principal amount DIVIDED BY the
Conversion Price (an "OPTIONAL CONVERSION"), and the Maturity Date shall be
deemed the Conversion Date with respect to such Optional Conversion. If an
Optional Conversion occurs, the Company and the Holder shall follow the
procedures for Conversion set forth in this Section 1; PROVIDED, HOWEVER, that
the Holder shall not be required to send the Conversion Notice contemplated by
paragraph 1(b) above. The "OPTIONAL CONVERSION CONDITIONS" are as follows:
(i) the GGD Common Stock shall be designated for quotation on
the Nasdaq National Market system or listed on the New York Stock Exchange
("NYSE") or the American Stock Exchange ("ASE");
(ii) the market value of the outstanding shares of GGD Stock on
the Maturity Date (not including any such shares represented by the outstanding
principal balance of this Debenture) shall be greater than eighty million
($80,000,000); and
(iii) the GGD Stock shall have an average daily trading volume
of at least eight hundred thousand dollars $800,000 for the period of one
hundred and eighty (180) days immediately prior to the fifteenth (15th) day of
the calendar month occurring immediately prior to the calendar
-3-
<PAGE> 4
month in which the Maturity Date occurs (based on the weighted average of the
Closing Bid Prices of the GGD Stock during such period).
(g) LIMITATIONS ON RIGHT TO CONVERT. In no event shall the Holder be
permitted to convert principal of this Debenture in excess of that amount of
principal upon the Conversion of which (x) the number of shares of GGD Stock
beneficially owned by the Holder (other than shares of GGD Stock which may be
deemed beneficially owned except for being subject to a limitation on conversion
or exercise analogous to the limitation contained in this paragraph (g)) PLUS
(y) the number of shares of GGD Stock issuable upon the Conversion of such
principal amount is equal to or exceeds (z) 4.99% of the number of shares of GGD
Stock then issued and outstanding. The determination of whether the limitation
contained in this paragraph (g) applies and whether principal of this Debenture
is convertible (in relation to other securities owned by the Holder) shall be in
the sole discretion of the Holder, and the submission of a Conversion Notice
shall be deemed to be such Holder's determination that such limitation does not
apply and that the principal amount of this Debenture to which such Conversion
Notice relates is convertible. This paragraph may be amended (A) in order to
clarify an ambiguity or otherwise to give effect to the limitation contained in
this paragraph (g), by the Board of Directors of the Company and the written
consent of the Holders of at least 66% of the aggregate unpaid principal amount
of the Debentures then outstanding and (B) for any other reason, with the
further consent of the holders of a majority of the shares of the Company's
common stock then outstanding. In the event that the limitation contained in
this paragraph (g) applies to all or a portion of the unpaid principal amount of
this Debenture, nothing contained herein shall be deemed to restrict the right
of the Holder to convert such principal amount at such time as such Conversion
will not violate such limitation.
(h) CERTAIN DEFINITIONS. "TRADING DAY" shall mean any day on which
the GGD Stock is traded for any period on the Nasdaq National Market or on the
principal securities exchange or market on which the GGD Stock is then traded.
"CLOSING BID PRICE" means, with respect to a security, the closing bid price of
such security on the principal securities exchange or trading market where such
security is listed or traded as reported (i) if the Nasdaq National Market is
the principal market on which the GGD Stock is then traded, by Nasdaq and (ii)
if the Nasdaq National Market is not such principal market, by Bloomberg
Financial Markets or, if Bloomberg Financial Markets is not then reporting
closing bid prices of such security, a comparable reporting service of national
reputation selected by the Company and reasonably acceptable to holders of a
majority of the unpaid principal amount of the Debentures then outstanding
(collectively, "BLOOMBERG"), or if the foregoing does not apply, the last
reported sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
sale price is reported for such security by Bloomberg, the average of the bid
prices of all market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an investment banking firm selected by the Holders
(which may be a holder) of at least 50% of the aggregate unpaid principal amount
of the Debentures then outstanding, with the reasonable costs of such appraisal
to be borne by the Company.
2. ADJUSTMENTS TO CONVERSION PRICE.
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<PAGE> 5
(a) ADJUSTMENT TO CONVERSION PRICE DUE TO STOCK SPLIT, STOCK
DIVIDEND, ETC. If prior to the Conversion of the entire principal amount of this
Debenture, (A) the number of outstanding shares of GGD Stock is increased by a
stock split, stock dividend, reclassification, the distribution to holders of
GGD Stock of rights or warrants entitling them to subscribe for or purchase GGD
Stock at less than the current market price thereof as of the date such right or
warrant first becomes exercisable (other than pursuant to the Company's equity
incentive plan, 401(k) plan, stock option plans, employee stock purchase plan or
any warrants outstanding as of the Issue Date), or other similar event, the
Conversion Price shall be proportionately reduced, or (B) the number of
outstanding shares of GGD Stock is decreased by a reverse stock split,
combination or reclassification of shares or other similar event, the Conversion
Price shall be proportionately increased. In such event, the Company shall
notify the Transfer Agent of such change on or before the effective date
thereof. For purposes of this paragraph 2(a), the "CURRENT MARKET PRICE" per
share of GGD Stock on any date shall be the average of the Closing Bid Prices
for the GGD Stock on the five (5) consecutive Trading Days occurring immediately
prior to (but not including) such date. Nothing contained herein shall be
construed to require the adjustment of the Conversion Price in the event that
the Company issues additional series or classes of its common stock as long as
any such issuance does not result in dilution of the shares of GGD Stock then
outstanding.
(b) ADJUSTMENT TO CONVERSION PRICE. If during the reference period
for determination of the Conversion Price, the number of outstanding shares of
GGD Stock is increased or decreased by a stock split, stock dividend,
combination, reclassification or other similar event, the Conversion Price shall
be calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event for all Trading Days
included in such calculation.
(c) ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, prior to the
Conversion of the entire principal amount of this Debenture, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization,
redemption or other similar event, as a result of which shares of GGD Stock
shall be changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Company or another entity
or there is a sale of all or substantially all the Company's assets or there is
a change of control transaction with respect to which, in any such case, the
Holder does not exercise its right to a Mandatory Redemption (as defined below)
of the outstanding principal hereof, then the Holder shall thereafter have the
right to receive upon Conversion of the principal amount of this Debenture, upon
the terms and conditions specified herein and in lieu of the shares of GGD Stock
immediately theretofore issuable upon conversion, such stock, securities and/or
other assets, if any, which the Holder would have been entitled to receive in
such transaction had such principal amount been converted immediately prior to
such transaction, and in any such case appropriate provisions shall be made with
respect to the rights and interests of the Holder to the end that the provisions
hereof (including, without limitation, provisions for the adjustment of the
Conversion Price and of the number of shares issuable upon a Conversion) shall
thereafter be applicable as nearly as may be practicable in relation to any
securities thereafter deliverable upon the exercise hereof. The Company shall
not effect any transaction described in this paragraph 2(c) unless (i) it first
gives to the Holder prior notice of such merger, consolidation, exchange of
shares, recapitalization, reorganization, redemption or other similar event, and
makes a public announcement of such event at the same time that it gives such
notice and (ii) the resulting successor or acquiring entity (if not the Company)
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<PAGE> 6
assumes by written instrument the obligations of the Company under this
Debenture, including the terms of this paragraph 2(c).
(d) DISTRIBUTION OF ASSETS. If, prior to the Conversion of the entire
principal amount of this Debenture, the Company shall declare or make any
distribution of its assets (or rights to acquire its assets) to holders of GGD
Stock as a partial liquidating dividend, by way of return of capital or
otherwise, including any dividend or distribution in cash or shares of capital
stock of a subsidiary of the Company (collectively, a "DISTRIBUTION"), then,
upon a Conversion by the Holder occurring after the record date for determining
shareholders entitled to such Distribution but prior to the effective date of
such Distribution, the Holder shall be entitled to receive the amount of such
assets which would have been payable to the Holder had the Holder been the
holder of such shares of GGD Stock on the record date for the determination of
shareholders entitled to such Distribution. The Conversion Price for amounts of
principal of this Debenture not converted prior to the effective date of a
Distribution shall be reduced to a price determined by decreasing the Conversion
Price in effect immediately prior to the record date of the Distribution by an
amount equal to the fair market value of the assets so distributed, as
determined by mutual agreement of the Company and the Holder.
(e) NO FRACTIONAL SHARES. If any adjustment under this Section 2
would create a fractional share of GGD Stock or a right to acquire a fractional
share of GGD Stock, such fractional share shall be disregarded and the number of
shares of GGD Stock issuable upon Conversion shall be the next higher number of
shares.
3. INTEREST.
(a) INTEREST RATE; STOCK PAYMENT OPTION. This Debenture shall bear
interest on the unpaid principal amount hereof at an annual rate of five percent
(5%) from the Issue Date, computed on the basis of a 360-day year of twelve
30-day months for the actual number of days elapsed. Interest accrued hereunder
shall be due and payable on each Conversion Date, on a Redemption Date (as
defined herein) and on the Maturity Date, but, in the case of interest which is
due on a Conversion Date and payable in cash, such interest may be paid on the
following business day in the event that a Conversion Notice (as defined herein)
is delivered to the Company after 2 p.m., eastern time, on the Conversion Date.
Interest accrued hereunder shall not be subject to a "gross-up" in the event
that backup withholding is required by applicable law. Interest due on a
Conversion Date or an Optional Redemption Date may be paid either in cash or, at
the option of the Company (the "STOCK PAYMENT OPTION"), and upon satisfaction of
the conditions set forth in paragraph 3(b) below, in shares of GGD Stock or in
shares of capital stock into which such GGD Stock may be changed or
reclassified. The shares of GGD Stock to be issued and delivered by the Company
pursuant to the Stock Payment Option shall be fully paid and non-assessable,
free and clear of any liens, claims, preemptive rights or encumbrances imposed
by or through the Company, in an amount calculated in accordance with paragraph
3(c) below (the "INTEREST PAYMENT SHARES"). Any amount of interest payable on
this Debenture in cash which is not paid within three (3) business days of the
date when the same becomes due and payable hereunder (the "PAYABLE DATE") shall
bear interest at an annual rate equal to the lower of (x) the "prime" rate (as
published in the Wall Street Journal) on the Payable Date PLUS three percent
(3%) and (y) the highest rate permitted
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<PAGE> 7
by applicable law, for the number of days elapsed from such third (3rd) business
day until such amount is paid in full ("DEFAULT INTEREST"). The Company may not
make payments of Default Interest in shares of GGD Stock.
(b) CONDITIONS TO STOCK PAYMENT OPTION. If the Company wishes to
exercise the Stock Payment Option, it may do so only if each of the following
conditions has been satisfied as of the relevant Conversion Date:
(i) the number of shares of GGD Stock authorized, unissued and
unreserved for all other purposes, or held in the Company's treasury, is
sufficient to pay the aggregate number of (x) Conversion Shares issuable on such
Conversion Date assuming the conversion in full of the Debentures at the
Conversion Price and (y) the number of Interest Payment Shares issuable pursuant
to such option;
(ii) the Interest Payment Shares are authorized for quotation
on the Nasdaq National Market or for listing or quotation on any other national
securities exchange or market on which the GGD Stock may be listed;
(iii) the GGD Registration Statement (as defined in the
Registration Rights Agreement) is effective and available for the sale of the
Interest Payment Shares by the Holder;
(iv) a Mandatory Redemption Event (as defined herein) shall not
have occurred and be continuing;
(v) the Company has delivered to the Holder a certificate,
signed by an executive officer of the Company, setting forth:
o the amount of the interest payment to which the
Holder is entitled and, if not the same, the amount
of such payment to be made in Interest Payment
Shares;
o the number of Interest Payment Shares to be delivered
in payment of such interest, and the calculation
therefor; and
o a statement to the effect that all of the conditions
set forth in paragraphs 3(b)(i) - (iv) have been
satisfied;
and
(vi) the Holder shall have consented in writing to the
Company's use of the Stock Payment Option on such Conversion Date.
(c) DELIVERY OF INTEREST PAYMENT SHARES. If the Company elects to
exercise the Stock Payment Option, the Company shall deliver to such Holder, on
or before the third (3rd) business day following the applicable Conversion Date
(the "INTEREST PAYMENT SHARE DELIVERY DATE"), one or more certificates
representing the aggregate number of whole Interest Payment Shares that is
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<PAGE> 8
determined by dividing (x) the amount of interest which would otherwise be
payable in cash to such Holder on the applicable Conversion Date by (y) the
Conversion Price. No fractional Interest Payment Shares shall be issued; the
Company shall, in lieu thereof, either issue a number of Interest Payment Shares
which reflects a rounding up to the next whole number of shares or pay such
amount in cash.
(d) FAILURE TO DELIVER INTEREST PAYMENTS SHARES. If the Company fails
to issue and deliver the appropriate number of Interest Payment Shares to such
Holder on or before the tenth (10th) business day following the Interest Payment
Share Delivery Date, the Company shall not be entitled to utilize the Stock
Payment Option in respect of such interest payment, but instead must immediately
pay such interest payment in cash, together with Default Interest on such unpaid
amount calculated from the applicable Payable Date until the date on which such
amount is paid.
(e) NOTICE OF EXERCISE. Not later than five (5) business days
immediately prior to the first day of each calendar month during which any
principal of this Debenture remains unpaid and outstanding, the Company shall
notify the Holder in writing whether the Company intends, assuming satisfaction
of the conditions set forth in subparagraph (b) above, to pay interest in
Interest Payment Shares in lieu of cash on any Conversion Date occurring during
that month or during such longer period as the Company may specify.
4. PRIORITY; SUBORDINATION.
(a) NO PAYMENT IF DEFAULT ON SENIOR INDEBTEDNESS. No payment of
principal of, premium, if any, or interest on this Debenture or on account of
any purchase or redemption or other acquisition of the Debenture, whether at
maturity or otherwise, shall be made upon, or accepted with respect to, this
Debenture, and the Holder shall not initiate any action to accelerate the
maturity of the Debenture or exercise any remedy to seek collection if at the
time of such payment the Holder has received written notice from the Company or
a holder of Senior Debt (as defined below) that there exists or, after giving
effect to such payment, there would exist any default in respect of any Senior
Debt or under any agreement pursuant to which such Senior Debt was issued (a
"DEFAULT"); PROVIDED, HOWEVER, that the foregoing restriction shall cease to
apply with respect to a Default upon the earliest to occur of (i) the
commencement by any holder of Senior Debt of the exercise of its remedies
against the Company or its property including, without limitation, any action,
suit or other legal proceeding against the Company or its property based upon
such Default, or (ii) at the expiration of 180 days after the date of such
notice if no holder of Senior Debt shall have commenced the exercise of its
remedies against the Company or its property including, without limitation, any
action, suit or other legal proceeding against the Company or its property based
upon such Default. Upon the maturity of any Senior Debt by lapse of time,
acceleration or otherwise, all principal of, premium, if any, interest and other
amounts due or to become due on all such Senior Debt shall first be paid in full
in cash, cash equivalents or in any other manner acceptable to the holders of
Senior Debt (hereinafter, "PAYMENT IN FULL" or "PAID IN FULL"), or such payment
shall have been provided for to the satisfaction of the holders of Senior Debt,
before any payment on account of principal of, premium, if any, interest or any
other amounts shall be made upon this Debenture. This Debenture shall rank in
priority as to payments of interest, principal, dividends and penalties (if
any), upon the occurrence of a Liquidation Event
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<PAGE> 9
(as defined below) or otherwise, senior to all capital stock of the Company and
pari passu with any security or debt instrument which by its terms ranks pari
passu with this Debenture.
(b) PAYMENT UPON DISSOLUTION, ETC.
(i) In the event of (x) any insolvency or bankruptcy
proceedings, or any receivership, liquidation, reorganization or other similar
proceedings in connection therewith, relative to the Company or to its
creditors, as such, or to its assets, or (y) the dissolution or other winding up
of the Company whether total or partial, whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy proceedings or (z) any
assignment for the benefit of creditors or any marshalling of the material
assets or material liabilities of the Company, then, and in any such event
(collectively, a "LIQUIDATION EVENT"), (A) the holders of all Senior Debt shall
first be entitled to receive Payment in Full of all principal, premium, if any,
interest and other amounts due or to become due on the Senior Debt (including,
without limitation, any interest and charges accruing thereon in any such
proceeding, notwithstanding any law to the contrary) before any payment on
account of principal, premium, if any, interest or any other amounts is made on
this Debenture, and (B) in any such proceedings, any payment that may be payable
or deliverable in respect of this Debenture shall be paid to the holders of the
Senior Debt or their representatives, unless and until the principal of,
premium, if any, interest and other amounts due or to become due on all such
Senior Debt shall have been Paid in Full; PROVIDED, HOWEVER, that in the event
that such payment consists solely of shares of stock or securities of the
Company as reorganized the payment of which is subordinated, at least to the
same extent as the Debenture, to the payment of all Senior Debt and such payment
is authorized by an order or decree made by a court of competent jurisdiction in
a reorganization proceeding under any applicable law pursuant to a plan of
reorganization and the rights of the holders of Senior Debt are not impaired or
otherwise altered adversely by such reorganization or adjustment, no such
payment shall be required hereby to be made to the holders of the Senior Debt or
their representatives.
(ii) In the event that any such payment shall be received by
the Holder in violation of the subordination provisions hereof before all Senior
Debt is Paid in Full, such payment or distribution shall be received and held in
trust for and shall be paid over to the holders of all Senior Debt remaining
unpaid, or their representatives, until such Senior Debt shall have been Paid in
Full, after giving effect to any concurrent payment or distribution or provision
thereof to the holders of such Senior Debt.
(c) SUBROGATION. Subject to the prior Payment in Full of all Senior
Debt, the Holder shall be subrogated to the rights of the holders of Senior Debt
to receive payments or distributions of assets of the Company applicable to the
Senior Debt to the extent that payments otherwise payable to the Holder under
the Debenture have been applied to the payment of the Senior Debt; PROVIDED,
HOWEVER, that the subrogation rights of the holder of the Debenture shall be
fully subordinated to the rights and remedies of the holders of Senior Debt.
(d) AGREEMENTS OF HOLDER.
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<PAGE> 10
(i) The Holder agrees that upon the commencement of any
bankruptcy, insolvency or other similar case or proceeding relative to the
Company, or to its creditors, as such, or to its assets, the Holder shall take
such actions as may be necessary or appropriate to effectuate the subordination
provisions hereof, including, without limitation, that the Holder shall (i)
timely file a proof of claim in respect of the Debenture and the indebtedness
and obligations evidenced hereby, provided, however, that if the Holder fails
within thirty (30) days prior to the expiration of any claims bar date to file a
proof of claim, any holder of Senior Debt shall be entitled to file such a proof
of claim in respect thereof in the name of the Holder and the Holder irrevocably
appoints the holders of Senior Debt and their representatives as its
attorney-in-fact solely for such purpose; (ii) not oppose any motion filed or
supported by any holder of Senior Debt for relief from stay or adequate
protection in respect of the Senior Debt; and (iii) not file or accept any
reorganization plan that impairs or otherwise alters adversely the rights of the
holders of Senior Debt.
(ii) The Company and the Holder, for themselves and their
successors and assigns, covenant to execute and deliver to the holders of Senior
Debt, such further instruments and to take such further action as the holders of
Senior Debt may at any time or times reasonably request in order to carry out
the provisions hereof.
(iii) No holder of Senior Debt shall be prejudiced in its right
to enforce the subordination of this Debenture by any act or failure to act on
the part of the Company.
(iv) Without notice to or the consent of the Holder, the
holders of Senior Debt may at any time and from time to time, in their
discretion, without impairing or releasing the subordination herein made, change
the manner, place or terms of payment, or change or extend the time of payment
of or renew or alter the Senior Debt, or amend or supplement in any manner any
instrument evidencing the Senior Debt, any agreement pursuant to which the
Senior Debt was issued or incurred or any instrument securing or relating to the
Senior Debt; release any person liable in any manner for the payment or
collection of the Senior Debt; exercise or refrain from exercising any rights in
respect of the Senior Debt against the Company or any other person; apply any
moneys or other property paid by any person or release in any manner to the
Senior Debt; or accept or release any security for the Senior Debt.
(e) CONTINUING OFFER. This Section shall constitute a continuing
offer to all persons who, in reliance on such provisions, become holders of, or
continue to hold, Senior Debt, and such provisions of this Section are made for
the benefit of such holders and may not be amended, modified, changed or waived
without the prior written consent of the holders of Senior Debt.
(f) RIGHTS OF HOLDERS UNIMPAIRED. The foregoing provisions as to
subordination are solely for the purpose of defining the relative rights of the
holders of the Senior Debt on the one hand and the Holder on the other hand.
None of such provisions shall impair, as between the Company and the Holder, the
obligation of the Company, which is unconditional and absolute, to pay the
Holder of this Debenture the amounts due on this Debenture in accordance with
the terms hereof and of the Purchase Agreement, nor shall any such provisions
prevent the Holder from exercising all remedies otherwise permitted by law.
Moreover, nothing contained herein shall be
-10-
<PAGE> 11
deemed to limit in any way the right of the Holder to convert, at any time and
from time to time, the principal balance of this Debenture into shares of GGD
Stock pursuant to Section 1 hereof or to receive shares of GGD Stock as payment
of interest hereon pursuant to Section 3 hereof.
(g) DEFINITION OF SENIOR DEBT. For purposes hereof, "SENIOR DEBT"
shall mean (a) the principal of, premium, if any, accrued and unpaid interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company), and any other
monetary obligations on (i) indebtedness of the Company for money borrowed,
whether outstanding on the date of this Debenture or thereafter created,
incurred or assumed (including but not limited to nonrecourse borrowings secured
by receivables), (ii) guaranties by the Company of indebtedness for money
borrowed by any other person, or reimbursement obligations under letters of
credit, in either case, whether outstanding on the date of this Debenture or
thereafter created, incurred or assumed, and (iii) indebtedness evidenced by
notes, debentures, bonds or other instruments of indebtedness (other than this
Debenture) for the payment of which the Company is responsible or liable, by
guarantees or otherwise, whether outstanding on the date of this Debenture or
thereafter created, incurred or assumed, and (b) modifications, renewals,
extensions, refinancings, refundings and replacements of any such indebtedness,
obligations or guarantees; unless, in the instrument creating or evidencing the
same or pursuant to which the same is outstanding, it is expressly provided that
such indebtedness, obligations or guarantees or such modification, renewal,
extension, refinancing, refunding or replacement thereof are not superior in
right of payment to this Debenture and the holder of such indebtedness has
consented to same; PROVIDED, HOWEVER, that Senior Debt shall not be deemed to
include any obligations of the Company to any of its subsidiaries. Without in
any way limiting the scope of the foregoing, it is expressly acknowledged and
agreed that Senior Debt shall include all indebtedness, obligations and
guaranties of the Company and its subsidiaries under that certain Credit
Agreement dated November 14, 1996 among the Company, certain of its
subsidiaries, Fleet National Bank, as administrative agent, The First National
Bank of Boston, as documentation agent, and the lender parties thereto and under
all notes, instruments, agreements and documents entered into pursuant thereto
or in connection therewith and all modifications, renewals, extensions,
refinancings, refundings and replacements thereof.
5. OPTIONAL REDEMPTION BY THE COMPANY.
(a) OPTIONAL REDEMPTION. At any time beginning after the period of
thirty-six (36) months following the Issue Date, the Company shall have the
right, in its sole discretion, to redeem (an "OPTIONAL REDEMPTION"), any or all
of the principal amount of this Debenture then outstanding at the Optional
Redemption Price (as defined herein); PROVIDED, HOWEVER, that in order to effect
an Optional Redemption, the Company shall have provided to the Holder thirty
(30) Trading Days' prior written notice of the effective date of the Optional
Redemption (the "OPTIONAL REDEMPTION DATE") and each of the Optional Redemption
Conditions (as defined below) has been satisfied as of the date of such notice
and as of the Optional Redemption Date. The Company shall be entitled to four
(4) Optional Redemptions during the term of this Debenture. Nothing contained
herein shall prevent the Holder from converting any or all of the unpaid
principal amount of this Debenture at any time or from time to time prior to the
Optional Redemption Date.
-11-
<PAGE> 12
(b) OPTIONAL REDEMPTION PRICE. The "OPTIONAL REDEMPTION PRICE" shall
mean the principal amount of this Debenture being redeemed MULTIPLIED BY the
Optional Redemption Percentage. The "OPTIONAL REDEMPTION PERCENTAGE" shall mean,
where "X" represents the Issue Date:
<TABLE>
<CAPTION>
Number of Months
After Issue Date Optional Redemption Percentage
---------------- ------------------------------
<S> <C>
36 < X <= 48 103%
48 < X <- 60 100%
</TABLE>
(c) PAYMENT OF OPTIONAL REDEMPTION PRICE.
(i) The Company shall pay the Optional Redemption Price to the
Holder within five (5) business days of the Optional Redemption Date. In the
event that the Company redeems the entire remaining unpaid principal amount of
this Debenture, and pays to the Holder all interest accrued thereon and all
other amounts due in connection therewith, the Holder shall return this
Debenture to the Company for cancellation.
(ii) The Company may, upon fifteen (15) business days' prior
written notice to the Holder, pay the Optional Redemption Price in shares of GGD
Stock in lieu of cash. The number of shares of GGD Stock to be delivered to the
Holder in the event that the Company exercises such option shall be determined
by dividing the Optional Redemption Price by the Conversion Price. The Company
may exercise its option to pay the Optional Redemption Price in shares of GGD
Stock only if (A) the aggregate number of such shares and of all Conversion
Shares and Interest Payment Shares issuable upon the conversion of the aggregate
principal amount of the Debentures outstanding immediately following such
Optional Redemption has been reserved for issuance upon such conversion and (B)
the GGD Stock is designated for quotation on the Nasdaq National Market system
or listed on the NYSE or ASE, and actively traded thereon and (C) the Holder
agrees to receive such payment in shares of GGD Stock.
(iii) If the Company fails to issue and deliver the appropriate
number of Conversion Shares to such Holder on or before the tenth (10th)
business day following the Optional Redemption Date, the Company shall not be
entitled to pay the Optional Redemption Price in shares of GGD Stock, but
instead must immediately pay such amount in cash, together with Default Interest
on such unpaid amount calculated from the Optional Redemption Date until the
date on which such amount is paid.
(d) OPTIONAL REDEMPTION CONDITIONS. The "OPTIONAL REDEMPTION
CONDITIONS" are as follows:
(i) The GGD Registration Statement (as defined in the
Registration Rights Agreement) is effective and available for resales of the
Conversion Shares, or the Conversion Shares may be sold pursuant to Rule 144(k)
under the Securities Act or any successor rule or provision; and
-12-
<PAGE> 13
(ii) the GGD Stock is designated for quotation on the Nasdaq
National Market system, or listed on the NYSE or the ASE.
6. MANDATORY REDEMPTION BY THE COMPANY.
(a) MANDATORY REDEMPTION. In the event that a Mandatory Redemption
Event (as defined herein) occurs, the Holder shall have the right, upon written
notice to the Company, to have all or any portion of the unpaid principal amount
of this Debenture redeemed by the Company (a "MANDATORY REDEMPTION") at the
Mandatory Redemption Price (as defined herein) in same day funds. Such notice
shall specify the effective date of such Mandatory Redemption (the "MANDATORY
REDEMPTION DATE") and the amount of principal to be redeemed. The Optional
Redemption Date and the Mandatory Redemption Date are sometimes each referred to
herein as a "REDEMPTION DATE".
(b) MANDATORY REDEMPTION PRICE. The "MANDATORY REDEMPTION PRICE"
shall be equal to (A) the unpaid principal amount of this Debenture being
redeemed MULTIPLIED BY one hundred and twenty percent (120%) PLUS (B) in the
event of a Mandatory Redemption where the Mandatory Redemption Date occurs after
the last day of the third anniversary of the Issue Date, an amount equal to
interest on such unpaid principal amount at an annual rate of fifteen percent
(15%) computed on the basis of a 360-day year of twelve 30-day months for the
actual number of days elapsed (compounded annually) from the such last day
through the Mandatory Redemption Date.
(c) PAYMENT OF MANDATORY REDEMPTION PRICE.
(i) The Company shall pay the Mandatory Redemption Price to
the Holder within five (5) business days of the Mandatory Redemption Date. In
the event that the Company redeems the entire remaining unpaid principal amount
of this Debenture, and pays to the Holder all interest accrued thereon and all
other amounts due in connection therewith, the Holder shall return this
Debenture to the Company for cancellation.
(ii) If Company fails to pay the Mandatory Redemption Price to
the Holder within five (5) business days of the Mandatory Redemption Date, the
Holder shall be entitled to interest thereon at an annual rate equal to the
lower of (x) the "prime" rate (as published in the Wall Street Journal) on such
fifth (5th) business day PLUS three percent (3%) and (y) the highest rate
permitted by applicable law from the Mandatory Redemption Date until the
Mandatory Redemption Price has been paid in full.
(d) MANDATORY REDEMPTION EVENT. Each of the following events shall be
deemed a "MANDATORY REDEMPTION EVENT":
(i) the Company fails for any reason (including without
limitation as a result of not having a sufficient number of shares of GGD Stock
authorized and reserved for issuance) to issue certificates representing shares
of GGD Stock to the Holder in accordance with the provisions of this Debenture
upon Conversion of any principal amount hereof, and such failure continues for
ten (10) business days;
-13-
<PAGE> 14
(ii) the Company breaches, in a material respect, any covenant
or other material term or condition of this Debenture, the Purchase Agreement,
the Registration Rights Agreement or any other agreement, certificate or
instrument delivered by the Company at the Closing (as defined in the Purchase
Agreement)(the "TRANSACTION DOCUMENTS"), and such breach continues for a period
of ten (10) business days after written notice thereof to the Company from the
Holder;
(iii) the GGD Registration Statement (as defined in the
Registration Rights Agreement) is not declared effective on or prior to the GGD
Registration Deadline (as defined in the Registration Rights Agreement) or if
the GGD Registration Statement has been declared effective by such date, and the
effectiveness of the GGD Registration Statement lapses for any reason (including
without limitation, the issuance of a stop order) or is unavailable to the
Holder for sale of Conversion Shares in accordance with the terms of the GGD
Registration Rights Agreement, and such lapse or unavailability continues for a
period of five (5) business days, PROVIDED that the cause of such lapse or
unavailability is not due to factors solely within the control of the Holder,
and PROVIDED, FURTHER, that the GGD Registration Statement shall not be deemed
to be unavailable to the Holder, for purposes of this paragraph (iii) only,
during any Standstill Period (as defined in the Registration Rights Agreement);
(iv) the GGD Stock is not quoted on the Nasdaq National Market
or listed on the NYSE or the Amex;
(v) the sale, conveyance or disposition of all or
substantially all of the assets of the Company or all or substantially all of
the assets comprising the Genzyme General Division, the effectuation of a
transaction or series of transactions, in which more than fifty percent (50%) of
the voting power of the Company is disposed of, or the consolidation, merger or
other business combination of the Company with or into any other entity,
immediately following which the prior stockholders of the Company fail to own,
directly or indirectly, at least fifty percent (50%) of the surviving entity;
and
(vi) the Company or any subsidiary of the Company shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed; or bankruptcy, insolvency, reorganization or liquidation proceedings
or other proceedings for relief under any bankruptcy law or any law for the
relief of debtors shall be instituted by or against the Company or any
subsidiary of the Company and, in the case of an involuntary action or other
proceeding, remains undismissed and unstayed for a period of sixty (60) days.
(e) FAILURE TO PAY REDEMPTION AMOUNTS. If the Company fails to pay
the Mandatory Redemption Price within ten (10) business days of the Payable Date
therefor, then the Holder shall have the right at any time, so long as the
Company remains in default, to require the Company, upon written notice, to
immediately issue, in lieu of the Mandatory Redemption Price, the number of
shares of GGD Stock of the Company equal to the Mandatory Redemption Price
DIVIDED BY the Conversion Price in effect on such Conversion Date as is
specified by the Holder in writing to the Company.
-14-
<PAGE> 15
7. MISCELLANEOUS.
(a) FAILURE TO EXERCISE RIGHTS NOT WAIVER. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude any other or further exercise
thereof. All rights and remedies of the Holder hereunder are cumulative and not
exclusive of any rights or remedies otherwise available.
(b) NOTICES. Any notice, demand or request required or permitted to
be given by the Company or the Holder pursuant to the terms of this Debenture
shall be in writing and shall be deemed given (i) when delivered personally or
by verifiable facsimile transmission (with a hard copy to follow), (ii) on the
next business day after timely delivery to a nationally recognized overnight
courier and (iii) on the third (3rd) business day after deposit in the U.S. mail
(certified or registered mail, return receipt requested, postage prepaid),
addressed as follows:
If to the Company:
Genzyme Corporation
One Kendall Square
Cambridge, Massachusetts 02139
Attn: Chief Legal Officer
Tel: 617-252-7500
Fax: 617-252-7553
and if to the Holder, at such address and facsimile number as the Holder shall
have furnished the Company in the Purchase Agreement or at such other address or
facsimile number as the Holder shall have furnished to the Company in accordance
with this paragraph 7(b).
(c) AMENDMENTS. No amendment, modification or other change may be
made to this Debenture unless such amendment, modification or change is set
forth in writing and is signed by the Company and the Holder.
(d) TRANSFER OF DEBENTURE. With the prior consent of the Company,
which consent shall not be unreasonably withheld, the Holder may sell, transfer
or otherwise dispose of all, but not less than all, of this Debenture to any
person or entity as long as such sale, transfer or disposition is the subject of
an effective registration statement under the Securities Act or is exempt from
registration thereunder; PROVIDED, HOWEVER that such consent shall not be
required (but the Company shall nonetheless be entitled to receive written
notice thereof) in the event of a sale, transfer or disposition of this
Debenture to an affiliate (as defined in the Purchase Agreement) of the Holder.
On or before the effective date of any such sale, transfer or disposition, the
transferee shall deliver to the Company a Form W-8 or W-9, as applicable, duly
executed by such transferee, confirming that such transferee is not subject to
backup withholding. From and after the date of such sale, transfer or
disposition, the transferee hereof shall be deemed to be the Holder. Upon any
such sale, transfer or disposition, the Company shall, promptly following the
return of this Debenture by the transferee hereof, issue and deliver to such
transferee a new Debenture identical in all respects to
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<PAGE> 16
this Debenture, in the name of such transferee, except that the principal amount
of such new Debenture may reflect the unpaid principal amount of this Debenture
at the time of such sale, transfer or disposition.
(e) LOST OR STOLEN DEBENTURE. Upon receipt by the Company of evidence
of the loss, theft, destruction or mutilation of this Debenture, and (in the
case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Company, and upon surrender and cancellation of the
Debenture, if mutilated, the Company shall execute and deliver to the Holder a
new debenture identical in all respects to this Debenture. Upon the issuance of
any new Debenture hereunder, the Company may require the payment of a sum
sufficient to cover any tax or other governmental charge and any expenses
(including reasonable fees and expenses of counsel) in connection therewith.
(f) GOVERNING LAW. This Debenture shall be governed by and construed
in accordance with the laws of the State of New York, without giving effect to
the conflict of law provisions thereof.
-16-
<PAGE> 17
IN WITNESS WHEREOF, the Company has caused this Debenture to be
executed in its name by its duly authorized officer on the date first above
written.
GENZYME CORPORATION
By:
-----------------------------------------
Name:
Title:
-17-
<PAGE> 18
ANNEX I
SCHEDULE OF PRINCIPAL
PAYMENTS AND CONVERSIONS
<TABLE>
<CAPTION>
Principal Amount Paid Date of
Balance Or Converted Payment or Conversion
--------- ------------ ---------------------
<S> <C> <C>
$[ ],000,000
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
_______________________ _______________________ ______________________
</TABLE>
<PAGE> 1
EXHIBIT 10.8
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated August 29,
1997, by and between Genzyme Corporation, a Massachusetts corporation (the
"COMPANY"), and the entities whose names appear on the signature pages hereof.
Such entities are each referred to herein as a "PURCHASER" and, collectively, as
the "PURCHASERS".
Pursuant to the terms and conditions of the Purchase Agreement of even
date herewith (the "PURCHASE AGREEMENT"), the Company has agreed to issue and
sell to each Purchaser a debenture (a "GMO DEBENTURE" and, together with the
other debentures issued to the Purchasers pursuant to the Purchase Agreement,
the "GMO DEBENTURES") the principal of which is convertible into Genzyme
Molecular Oncology Division Common Stock, $.01 par value (the "GMO STOCK"), and
exchangeable, under the terms and conditions set forth in the GMO Debenture, for
a debenture (a "GGD DEBENTURE" and, together with the other debentures
exchangeable for the GMO Debentures, the "GGD DEBENTURES"), the principal of
which is convertible into shares of Genzyme General Division Common Stock, $.01
par value (the "GGD STOCK"). The GMO Debentures and GGD Debentures are sometimes
collectively referred to herein as the "DEBENTURES".
In order to induce the Purchasers to enter into the Purchase Agreement,
the Company has agreed to provide certain registration rights under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), and under applicable
state securities laws.
In consideration of the Purchasers entering into the Purchase
Agreement, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. DEFINITIONS.
For purposes of this Agreement, the following terms shall have the
meanings specified:
(a) "GGD FILING DEADLINE" means, upon the occurrence of an
Optional Exchange Trigger Event, the thirty-fifth (35th) day following the GGD
Issue Date;
(b) "GGD HOLDER" means, upon issuance of the GGD Debentures, any
person owning or having the right to acquire, through conversion of principal of
or payment of interest on the GGD Debentures, GGD Conversion Shares;
(c) "GGD ISSUE DATE" shall have the meaning specified in the GMO
Debentures;
(d) "GGD REGISTRATION DEADLINE" means the ninety-fifth (95th) day
following the GGD Issue Date;
(e) "GMO FILING DEADLINE" means the thirtieth (30th) day
following the IPO Date;
<PAGE> 2
(f) "GMO HOLDER" means any person owning or having the right to
acquire, through conversion of principal of or payment of interest on the GMO
Debentures, GMO Conversion Shares, including initially each Purchaser, and any
permitted assignee thereof;
(g) "GMO REGISTRATION DEADLINE" means the ninetieth (90th) day
following the IPO Date, or such later date (not to exceed one hundred and eighty
days following the IPO Date) as the managing underwriter for the IPO shall
determine in good faith to be necessary in order to ensure the orderly
completion of the IPO;
(h) "HOLDER" means a GGD Holder or a GMO Holder, as the case may
be;
(i) "IPO" shall have the meaning specified in the GMO Debentures;
(j) "IPO DATE" shall have the meaning specified in the GMO
Debentures;
(k) "OPTIONAL EXCHANGE TRIGGER EVENT" shall have the meaning
specified in the GMO Debentures;
(l) "REGISTER", "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement or
statements in compliance with the Securities Act and pursuant to Rule 415 under
the Securities Act ("RULE 415") or any successor rule providing for the offering
of securities on a continuous basis ("REGISTRATION STATEMENT"), and the
declaration or ordering of effectiveness of a Registration Statement by the
Securities and Exchange Commission (the "COMMISSION"); and
(m) "REGISTRABLE SECURITIES" means (A) the shares of GMO Stock
issued or issuable either (i) upon conversion of principal of the GMO Debentures
or (ii) as payment for interest due and payable thereon, and any shares of
capital stock issued or issuable from time to time (with any adjustments) in
replacement of, in exchange for or otherwise in respect of such shares (the "GMO
CONVERSION SHARES") and (B) the shares of GGD Stock issued or issuable either
(i) upon conversion of principal of the GGD Debentures or (ii) as payment for
interest due and payable thereon, and any shares of capital stock issued or
issuable from time to time (with any adjustments) in replacement of, in exchange
for or otherwise in respect of such shares (the "GGD CONVERSION SHARES").
2. MANDATORY REGISTRATION.
(a) REGISTRATION OF GMO CONVERSION SHARES.
(i) FILING OF GMO REGISTRATION STATEMENT. The Company shall
use its best efforts to prepare and file with the Commission, on or before the
GMO Filing Deadline, a Registration Statement on Form S-3 (or, if Form S-3 is
not available, on such form of Registration Statement as is then available to
effect a registration of the GMO Conversion Shares) as a "shelf" registration
statement under Rule 415 covering the resale of no less than 3,475,915 shares of
GMO
2
<PAGE> 3
Stock (the "GMO REGISTRATION STATEMENT"). The GMO Registration Statement shall
state, to the extent permitted by Rule 416 under the Securities Act, that it
also covers such indeterminate number of shares of GMO Stock as may be required
to effect conversion of the GMO Debentures to prevent dilution resulting from
stock splits, stock dividends or similar events, or as may become issuable upon
conversion of the GMO Debentures by reason of reductions in the conversion price
therefor.
(ii) AVAILABILITY OF GMO REGISTRATION STATEMENT. If the GMO
Registration Statement is not declared effective by the Commission on or before
the GMO Registration Deadline, or if, after the GMO Registration Statement has
been declared effective by the Commission, sales of GMO Conversion Shares cannot
be made by a GMO Holder under the GMO Registration Statement for any reason
(other than during a Standstill Period, as defined below), the Company shall pay
to such GMO Holder an amount equal to (A) the lesser of two percent (2%) per
month and the highest rate permitted by applicable law, TIMES (B) the aggregate
unpaid principal amount of the GMO Debenture held by such GMO Holder, accruing
daily and compounded monthly, (x) in the case of the initial effectiveness of
the GMO Registration Statement, from the GMO Registration Deadline until the
date on which the GMO Registration Statement is declared effective and (y) in
the case of the unavailability of the GMO Registration Statement, from the date
of such unavailability until the date on which the GMO Registration Statement
becomes available for sales of GMO Conversion Shares; PROVIDED, HOWEVER, that in
no event shall the amount payable by the Company hereunder exceed twelve percent
(12%) of the amount specified in clause (B) of this paragraph (ii). The amounts
paid or payable by the Company hereunder shall be in addition to any other
remedies available to a GMO Holder at law or in equity or pursuant to the terms
of the Purchase Agreement or the GMO Debenture held by such GMO Holder.
(iii) MAINTENANCE OF AVAILABILITY OF GMO REGISTRATION
STATEMENT. The Company shall, subject to Sections 4(f) and 4(g) hereof, maintain
the effectiveness of the GMO Registration Statement from the effective date
thereof until the earlier to occur of (i) the date on which all of the GMO
Conversion Shares have been sold pursuant to the GMO Registration Statement and
(ii) the date on which all of the remaining GMO Conversion Shares (in the
reasonable opinion of counsel to the Company) may be immediately sold to the
public without registration and without regard to the number of GMO Conversion
Shares which may be sold by a Holder thereof at a given time (the "GMO
REGISTRATION PERIOD"). In the event that the number of GMO Conversion Shares
available to be sold under the GMO Registration Statement is insufficient to
cover all of the GMO Conversion Shares then issuable, the Company shall amend
the GMO Registration Statement, or file a new Registration Statement, or both,
to the extent necessary to cover all of such shares then issuable. Any such
Registration Statement shall state that, to the extent permitted by Rule 416
under the Securities Act, such Registration Statement also covers such
indeterminate number of additional GMO Conversion Shares as may be required to
effect conversion of the GMO Debentures to prevent dilution resulting from stock
splits, stock dividends or similar events, or as may become issuable upon
conversion of the GMO Debentures by reason of reductions in the conversion price
therefor. Unless and until such amendment or new Registration Statement becomes
effective, each GMO Holder shall have the rights described in paragraph 2(a)(ii)
above.
3
<PAGE> 4
(b) REGISTRATION OF GGD CONVERSION SHARES.
(i) FILING OF GGD REGISTRATION STATEMENT. The Company shall
use its best efforts to prepare and file with the Commission, on or before the
GGD Filing Deadline, a Registration Statement on Form S-3 (or, if Form S-3 is
not available, on such form of Registration Statement as is then available to
effect a registration of the GGD Conversion Shares) as a "shelf" registration
statement under Rule 415 covering the resale of no less than the Registrable
Amount (as defined below) of GGD Conversion Shares (the "GGD REGISTRATION
STATEMENT"). The "REGISTRABLE AMOUNT" of GGD Conversion Shares shall be that
number of such shares as shall be determined by dividing (x) the unpaid
principal amount of all of the GMO Debentures exchanged for GGD Debentures
pursuant to the terms of the GMO Debentures, plus any accrued and unpaid
interest thereon, by (y) one hundred and thirteen percent (113%) of the average
of the Closing Bid Prices (as defined in the Debentures) of the GGD Stock during
the five (5) Trading Days immediately prior to (but not including) the GGD Issue
Date. The GGD Registration Statement shall state, to the extent permitted by
Rule 416 under the Securities Act, that it also covers such indeterminate number
of shares of GGD Stock as may be required to effect conversion of the GGD
Debentures to prevent dilution resulting from stock splits, stock dividends or
similar events.
(ii) AVAILABILITY OF GGD REGISTRATION STATEMENT. If the GGD
Registration Statement is not declared effective by the Commission on or before
the GGD Registration Deadline, or if, after the GGD Registration Statement has
been declared effective by the Commission, sales of GGD Conversion Shares cannot
be made by a GGD Holder under the GGD Registration Statement for any reason
(other than during a Standstill Period, as defined below), the Company shall pay
to such GGD Holder an amount equal to (A) the lesser of two percent (2%) per
month and the highest rate permitted by applicable law, TIMES (B) the aggregate
unpaid principal amount of the GGD Debenture held by such GGD Holder, accruing
daily and compounded monthly, from (x) in the case of the initial effectiveness
of the GGD Registration Statement, the GGD Registration Deadline until the date
on which the GGD Registration Statement is declared effective and (y) in the
case of the unavailability of the GGD Registration Statement, from the date of
such unavailability until the date on which the GGD Registration Statement
becomes available for sales of GGD Conversion Shares; PROVIDED, HOWEVER, that in
no event shall the amount payable by the Company hereunder exceed twelve percent
(12%) of the amount specified in clause (B) of this paragraph (ii). The amounts
paid or payable by the Company hereunder shall be in addition to any other
remedies available to a GGD Holder at law or in equity or pursuant to the terms
of the Purchase Agreement or the GGD Debenture held by such GGD Holder.
(iii) MAINTENANCE OF AVAILABILITY OF GGD REGISTRATION
STATEMENT. The Company shall, subject to Sections 4(f) and 4(g) hereof, maintain
the effectiveness of the GGD Registration Statement from the effective date
thereof until the earlier to occur of (i) the date on which all of the GGD
Conversion Shares have been sold pursuant to the GGD Registration Statement and
(ii) the date on which all of the remaining GGD Conversion Shares (in the
reasonable opinion of counsel to the Company) may be immediately sold to the
public without registration and without regard to the amount of GGD Conversion
Shares which may be sold by a Holder thereof at a given time (the "GGD
REGISTRATION PERIOD"). In the event that the number of GGD Conversion
4
<PAGE> 5
Shares available to be sold under the GGD Registration Statement is insufficient
to cover all of the GGD Conversion Shares then issuable, the Company shall amend
the GGD Registration Statement, or file a new Registration Statement, or both,
to the extent necessary to cover all of such shares then issuable. Any such
Registration Statement shall state that, to the extent permitted by Rule 416
under the Securities Act, such Registration Statement also covers such
indeterminate number of additional GGD Conversion Shares as may be required to
effect conversion of the GGD Debentures to prevent dilution resulting from stock
splits, stock dividends or similar events. Unless and until such amendment or
new Registration Statement becomes effective, each Holder shall have the rights
described in Section 2(b)(ii) above.
3. PIGGYBACK REGISTRATION.
(a) GMO PIGGYBACK RIGHTS. If at any time prior to the expiration
of the GMO Registration Period, (i) the Company proposes to register shares of
GMO Stock under the Securities Act in connection with the public offering of
such shares for cash (other than a registration relating solely to the sale of
securities to participants in a Company stock plan or a registration on Form S-4
under the Securities Act or any successor or similar form registering stock
issuable upon a reclassification, a business combination involving an exchange
of securities or an exchange offer for securities of the issuer or another
entity) and (ii) a Registration Statement covering the sale of all of the GMO
Conversion Shares issuable at such time is not then effective and available for
sales thereof by the GMO Holders, the Company shall, at such time, promptly give
to each GMO Holder written notice of such proposed registration. Each GMO Holder
shall have thirty (30) days from its receipt of such notice to deliver to the
Company a written request specifying the amount of GMO Conversion Shares that
such GMO Holder intends to sell and such GMO Holder's intended method of
distribution. Upon receipt of such request, the Company shall use its best
efforts to cause all GMO Conversion Shares which the Company has been requested
to register to be registered under the Securities Act to the extent necessary to
permit their sale or other disposition in accordance with the intended methods
of distribution specified in the request of such GMO Holder; PROVIDED, HOWEVER,
that the Company shall have the right to postpone or withdraw any registration
effected pursuant to this Section 3(a) without obligation to such GMO Holder.
(b) GGD PIGGYBACK RIGHTS. If at any time prior to the expiration
of the GGD Registration Period, (i) the Company proposes to register shares of
GGD Stock under the Securities Act in connection with the public offering of
such shares for cash (other than a registration relating solely to the sale of
securities to participants in a Company stock plan or a registration on Form S-4
under the Securities Act or any successor or similar form registering stock
issuable upon a reclassification, a business combination involving an exchange
of securities or an exchange offer for securities of the issuer or another
entity) and (ii) a Registration Statement covering the sale of all of the GGD
Conversion Shares issuable at such time is not then effective and available for
sales thereof by the GGD Holders, the Company shall, at such time, promptly give
to each GGD Holder written notice of such proposed registration. Each GGD Holder
shall have thirty (30) days from its receipt of such notice to deliver to the
Company a written request specifying the amount of GGD Conversion Shares that
such GGD Holder intends to sell and such GGD Holder's intended method of
distribution. Upon receipt of such request, the Company shall use its best
efforts to cause all
5
<PAGE> 6
GGD Conversion Shares which the Company has been requested to register to be
registered under the Securities Act to the extent necessary to permit their sale
or other disposition in accordance with the intended methods of distribution
specified in the request of such GGD Holder; PROVIDED, HOWEVER, that the Company
shall have the right to postpone or withdraw any registration effected pursuant
to this Section 3(b) without obligation to such GGD Holder.
4. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities
pursuant to a Registration Statement hereunder, the Company shall, in addition
to its other obligations hereunder:
(a) prepare and file with the Commission such amendments and
supplements to such Registration Statement and the prospectus contained in such
Registration Statement as may be necessary to comply with the provisions of the
Securities Act or to maintain the effectiveness of such Registration Statement,
or as may be reasonably requested by a Holder in order to incorporate
information concerning such Holder or such Holder's intended method of
distribution;
(b) prior to the effectiveness of such Registration Statement,
secure the designation and quotation or listing of such Registrable Securities
on the Nasdaq National Market, the New York Stock Exchange or the American Stock
Exchange, as the case may be;
(c) furnish to each Holder such number of copies of the
prospectus included in such Registration Statement, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such
other documents as a Holder may reasonably request in order to facilitate the
disposition of such Holder's Registrable Securities;
(d) use its best efforts to register or qualify such Registrable
Securities under the securities or "blue sky" laws of such jurisdictions within
the United States as shall be reasonably requested from time to time by a
Holder, and do any and all other acts or things which may be necessary or
advisable to enable such Holder to consummate the public sale or other
disposition of such Registrable Securities in such jurisdictions; provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction;
(e) in the event of an underwritten public offering of such
Registrable Securities, enter into and perform its obligations under an
underwriting agreement, in usual and customary form reasonably acceptable to the
Company, with the managing underwriter of such offering;
(f) notify each Holder immediately upon the occurrence of any
event as a result of which the prospectus included in such Registration
Statement, as then in effect, contains an untrue statement of material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances then
existing, and as promptly as practicable, prepare, file and furnish to each
Holder a reasonable number of copies of a supplement or an amendment to such
prospectus as may be necessary so that such
6
<PAGE> 7
prospectus does not contain an untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
PROVIDED, HOWEVER, that the Company may delay preparing, filing and distributing
any such supplement or amendment if the Company determines in good faith that
such supplement or amendment would, in the reasonable judgment of the Company,
(i) interfere with or affect the negotiation or completion of a transaction that
is being contemplated by the Company (whether or not a final decision has been
made to undertake such transaction) or (ii) involve initial or continuing
disclosure obligations that are not in the best interests of the Company's
stockholders at such time; PROVIDED, FURTHER, that (x) the Company will give
notice of any such delay no less than five (5) business days prior to such
delay, (y) such delay shall not extend for a period of more than ten (10)
business days without the written consent of the Holder and (z) the Company may
impose such delay no more than once in each calendar year;
(g) use its best efforts to prevent the issuance of any stop
order or other order suspending the effectiveness of such Registration Statement
and, if such an order is issued, to obtain the withdrawal thereof at the
earliest possible time and to notify each Holder of the issuance of such order
and the resolution thereof;
(h) furnish to each Holder, on the date that such Registration
Statement becomes effective, (i) an opinion, dated such date, of outside counsel
representing the Company (and reasonably acceptable to such Holder) addressed to
such Holder and in form and substance as is customarily given to underwriters in
an underwritten public offering, and (ii) in the case of an underwriting, a
letter, dated such date, from the Company's independent certified public
accountants, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, if any, and to such Holder;
(i) provide each Holder and its representatives the opportunity
to conduct a reasonable inquiry of the Company's financial and other records
during normal business hours and make available its officers, directors and
employees for questions regarding information which such Holder may reasonably
request in order to fulfill any due diligence obligation on its part; and
(j) permit counsel for the Holders to review such Registration
Statement and all amendments and supplements thereto a reasonable period of time
prior to the filing thereof with the Commission.
5. OBLIGATIONS OF HOLDERS.
In connection with the registration of the Registrable Securities
pursuant to a Registration Statement, each Holder shall:
(a) promptly furnish to the Company such information regarding
itself and the intended method of disposition of Registrable Securities (i) as
the Company shall reasonably request
7
<PAGE> 8
in order to effect the registration thereof or (ii) as needed for any
post-effective amendment to the Registration Statement or for any supplement to
the prospectus including therein;
(b) upon receipt of any notice from the Company of the happening
of any event of the kind described in paragraph 4(g), immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement
until withdrawal of the stop order referred to in paragraph 4(g); and
(c) if so requested by the Company, and provided a Registration
Statement or Registration Statements covering the sale of all of the Registrable
Securities is or are then effective, the Holder shall not sell or otherwise
transfer pursuant to any such Registration Statement (i) any GMO Conversion
Shares during the period from the second (2nd) business day prior to the
effective date of a registration statement filed by the Company under the
Securities Act (other than a Registration Statement hereunder) in connection
with a public offering of GMO Stock until the thirtieth (30th) calendar day
following such effective date, (ii) any GGD Conversion Shares during the period
from the second (2nd) business day prior to the effective date of a registration
statement filed by the Company under the Securities Act (other than a
Registration Statement hereunder) in connection with a public offering of GGD
Stock until the thirtieth (30th) calendar day following such effective date, and
(iii) any GMO Conversion Shares or GGD Conversion Shares, as the case may be,
during the period from the date specified in a notice delivered by the Company
pursuant to paragraph 4(f) above that the Company has determined that it will
delay, in accordance with the provisions of paragraph 4(f) above, the
preparation and filing of an amendment or supplement to the prospectus included
in the GMO Registration Statement or the GGD Registration Statement, as the case
may be, until the expiration date specified in such notice (each of the periods
described in clauses (i), (ii) and (iii) hereof being referred to herein as a
"STANDSTILL PERIOD"). The Company agrees that, upon the conversion of principal
of or interest on a GMO Debenture where the Conversion Date (as defined in the
GMO Debenture) therefor occurs after the expiration of a Standstill Period, then
until (and including) the tenth (10th) business day following the date of such
expiration, the Conversion Price (as defined in the GMO Debenture) therefor
shall be the lesser of (A) the lowest applicable Conversion Price in effect
during the Standstill Period and (B) the applicable Conversion Price in effect
on such Conversion Date.
6. INDEMNIFICATION.
In the event that any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company shall indemnify
and hold harmless each Holder, the officers, directors, employees, agents and
representatives of such Holder, and each person, if any, who controls such
Holder within the meaning of the Securities Act or the Securities Exchange Act
of 1934, as amended (the "1934 ACT"), against any losses, claims, damages,
liabilities or reasonable out-of-pocket expenses (whether joint or several)
(collectively, including legal or other expenses reasonably incurred in
connection with investigating or defending same, "LOSSES"), insofar as any such
Losses arise out of or are based upon (i) any untrue statement
8
<PAGE> 9
or alleged untrue statement of a material fact contained in such Registration
Statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, or (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading (collectively, "VIOLATIONS"). The Company
will reimburse such Holder, and each such officer, director, employee, agent,
representative or controlling person for any legal or other expenses as
reasonably incurred by any such entity or person in connection with
investigating or defending any Loss; PROVIDED, HOWEVER, that the foregoing
indemnity shall not apply to amounts paid in settlement of any Loss if such
settlement is effected without the prior written consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be obligated
to indemnify any such person for any Loss to the extent that such Loss arises
out of or is based upon and in conformity with written information furnished by
such person expressly for use in such Registration Statement; and provided,
further that the Company shall not be required to indemnify any such person to
the extent that any Loss results from such person selling Registrable Securities
(i) to a person to whom there was not sent or given, at or prior to the written
confirmation of the sale of such shares, a copy of the prospectus, as most
recently amended or supplemented, if the Company has previously furnished or
made available copies thereof or (ii) during any period following written notice
by the Company to such Holder of an event described in Section 4(f) or 4(g).
(b) To the extent permitted by law, each Holder shall indemnify
and hold harmless the Company, the officers, directors, employees, agents and
representatives of the Company, and each person, if any, who controls the
Company within the meaning of the Securities Act or the 1934 Act, against any
Losses to the extent (and only to the extent) that any such Losses arise out of
or are based upon and in conformity with written information furnished by such
Holder expressly for use in such Registration Statement including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto; and such Holder will reimburse any legal or other
expenses as reasonably incurred by the Company and any such officer, director,
employee, agent, representative, or controlling person, in connection with
investigating or defending any such Loss; provided, however, that the foregoing
indemnity shall not apply to amounts paid in settlement of any such Loss if such
settlement is effected without the prior written consent of such Holder, which
consent shall not be unreasonably withheld; provided, further that in no event
shall any indemnity under this subsection 6(b) exceed the net purchase price of
securities sold by such Holder under the Registration Statement.
(c) Promptly after receipt by an indemnified party under this
Section 6 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 6, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in and to assume the
defense thereof with counsel mutually satisfactory to the parties; PROVIDED,
HOWEVER, that an indemnified party shall have the right to retain its own
counsel, with the reasonably incurred fees and expenses of one such counsel to
be paid by the indemnifying party, if representation of such indemnified party
by the counsel retained by the indemnifying party would be inappropriate under
applicable standards of
9
<PAGE> 10
professional conduct due to actual or potential conflicting interests between
such indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, to the extent
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
6 with respect to such action, but the omission so to deliver written notice to
the indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 6 or with respect to any
other action.
(d) In the event that the indemnity provided in paragraph (a) or
(b) of this Section 6 is unavailable or insufficient to hold harmless an
indemnified party for any reason, the indemnified party and the indemnifying
party agree to contribute to the aggregate Losses to which the indemnified party
or the indemnifying party may be subject in such proportion as is appropriate to
reflect the relative fault of the indemnified party and the indemnifying party
in connection with the statements or omissions which resulted in such Losses;
provided, however, that in no case shall any Holder be responsible for any
amount in excess of the net purchase price of securities sold by it under a
Registration Statement. Relative fault shall be determined by reference to
whether any alleged untrue statement or omission relates to information provided
by the indemnified party or by the indemnifying party. The Company and each of
the Holders agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who is not
guilty of such fraudulent misrepresentation. For purposes of this Section 6,
each person who controls a Holder within the meaning of either the Securities
Act or the 1934 Act and each officer, director, employee, agent or
representative of such Holder shall have the same rights to contribution as such
Holder, and each person who controls the Company within the meaning of either
the Securities Act or the 1934 Act and each officer, director, employee, agent
or representative of the Company shall have the same rights to contribution as
the Company, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) The obligations of the Company and each Holder under this
Section 6 shall survive the conversion or redemption, if any, of the Debentures,
the completion of any offering of Registrable Securities pursuant to a
Registration Statement under this Agreement, or otherwise.
7. REPORTS.
With a view to making available to each Holder the benefits of
Rule 144 under the Securities Act ("RULE 144") and any other rule or regulation
of the Commission that may at any time permit such Holder to sell securities of
the Company to the public without registration, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
10
<PAGE> 11
(b) file with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the 1934
Act and file such reports and other documents as are required by the applicable
provisions of Rule 144; and
(c) furnish to each Holder, so long as such Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company, if true, that it has complied with the reporting requirements of Rule
144, the Securities Act and the 1934 Act, (ii) a copy of the most recent annual
or quarterly report of the Company and such other reports and documents so filed
by the Company, and (iii) such other information as may be reasonably requested
to permit such Holder to sell such securities pursuant to Rule 144 without
registration.
8. MISCELLANEOUS.
(a) EXPENSES OF REGISTRATION. All expenses, other than
underwriting discounts and commissions, brokerage commissions, taxes of any kind
(including without limitation transfer taxes) and fees and expenses of counsel
to any Holder, incurred in connection with the registrations, filings or
qualifications described herein, including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, the
fees and disbursements of counsel for the Company, and the fees and
disbursements incurred in connection with the opinion and letter described in
paragraph 4(h) hereof shall be borne by the Company.
(b) AMENDMENT; WAIVER. Any provision of this Agreement may be
amended only pursuant to a written instrument executed by the Company and the
Holders of at least 51% of the unpaid principal amount of the Debentures then
outstanding. Any waiver of the provisions of this Agreement may be made only
pursuant to a written instrument executed by the party against whom enforcement
is sought. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each Holder, each future Holder and the Company.
(c) NOTICES. Any notice, demand or request required or permitted
to be given by the Company or a Holder pursuant to the terms of this Agreement
shall be in writing and shall be deemed given (i) when delivered personally or
when sent by verifiable facsimile transmission (with a hard copy to follow),
(ii) on the next business day after timely delivery to a nationally-recognized
overnight courier and (iii) on the third business day after deposit in the U.S.
mail (certified or registered mail, return receipt requested, postage prepaid),
addressed to the parties as follows:
If to the Company:
Genzyme Corporation
One Kendall Square
Cambridge, Massachusetts 02139
Attn: Chief Legal Officer
Tel: 617-252-7500
Fax: 617-252-7553
11
<PAGE> 12
and if to any Holder, at such Holder's address and facsimile number as such
Holder shall have furnished to the Company in writing either in the Purchase
Agreement or otherwise in accordance with this paragraph 8(c).
(d) TERMINATION. This Agreement shall terminate on the earlier to
occur of (a) the end of all Registration Periods and (b) the date on which all
of the Registrable Securities have been publicly distributed; but any such
termination shall be without prejudice to (i) the parties' rights and
obligations arising from breaches of this Agreement occurring prior to such
termination and (ii) the indemnification obligations under this Agreement.
(e) ASSIGNMENT. The rights of a Holder hereunder shall be
assigned automatically to any transferee of the GMO Debenture or GGD Debenture,
as the case may be, then held by such Holder as long as: (i) the Company is,
within a reasonable period of time following such transfer, furnished with
written notice of the name and address of such transferee, (ii) immediately
following such transfer, the further disposition of Registrable Securities is
restricted under the Securities Act or under state securities laws, (iii) the
transferee agrees in writing with the Company to be bound by all of the
provisions hereof and (iv) such transfer is made in accordance with the
applicable requirements of the Purchase Agreement.
(f) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without regard
to the conflict of laws provisions thereof.
(g) COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
(h) HEADINGS. The headings in this Agreement are used for
convenience only and are not to be construed in construing or interpreting this
Agreement.
12
<PAGE> 13
IN WITNESS WHEREOF, the undersigned have duly executed this Agreement as of the
date first-above written.
GENZYME CORPORATION
By: /s/ David J. McLachlan
----------------------
Name: David J. McLachlan
Title: Executive Vice President, Finance,
Chief Financial Officer
PURCHASER NAME: Tribeca Investments, L.L.C.
---------------------------
By: /s/ William H. Heyman
---------------------
Name: William H. Heyman
Title: CEO
PURCHASER NAME: Swiss Bank Corporation, London Branch
-------------------------------------
By: /s/ Kipp K. Schrage
-------------------
Name: Kipp K. Schrage
Title: Swiss Bank Corp (London Branch)
attorney in fact
/s/ George W. Locasto
- ---------------------
George W. Locasto
Swiss Bank Corp (London Branch)
attorney in fact
PURCHASER NAME: Stark International
-------------------
By: /s/ Michael A. Roth
-------------------
Name: Michael A. Roth
Title: Managing Member
PURCHASER NAME: SoundShore Partners L.P.
------------------------
By: /s/ Thomas J. Leishman
----------------------
Name: Thomas J. Leishman
Title: Vice President*
*BY: AIG International Asset Management Ltd
as General Partner of
SoundShore Partners L.P.
PURCHASER NAME: Shepherd Investments International, Ltd.
----------------------------------------
By: /s/ Michael A. Roth
-------------------
Name: Michael A. Roth
Title: General Member of Investment Mgr.
Staro Asset Management
PURCHASER NAME: Proprietary Convertible Investment Group Inc.
---------------------------------------------
By: /s/ Allan Weine
---------------
Name: Allan Weine
Title: Vice-President
PURCHASER NAME: Oracle Partners, L.P.
---------------------
By: /s/ Larry N. Feinberg
---------------------
Name: Larry N. Feinberg
Title: General Partner
PURCHASER NAME: Och-Ziff Capital Management, L.P.
---------------------------------
By: /s/ Daniel S. Och
-----------------
Name: Daniel S. Och
Title: Managing Member of Och-Ziff Associates, L.L.C.
General Partner of Och-Ziff Capital Management, L.P.
PURCHASER NAME: Employers Reinsurance Corporation
---------------------------------
By: /s/ Ross S. Margolies
---------------------
Name: Ross S. Margolies
Title: Director
13
<PAGE> 1
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
----------------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 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 ............... 76,399 76,399 69,319 69,319
Weighted average common stock issued during the period....... 437 437 121 121
Weighted average common stock assuming
exercise of options ...................................... 2,603 3,020 -- --
Weighted average common stock assuming
exercise of warrants ..................................... 7 9 -- --
Weighted average common stock assuming conversion of
6 3/4% Convertible Subordinated Notes .................... -- -- -- --
------ ------ ------ ------
Weighted average number of shares outstanding ............... 79,446 79,865 69,440 69,440
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------------------------------------
SEPTEMBER 30, 1997 SEPTEMBER 30, 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 .. 646 646 5,183 5,183
Weighted average common stock assuming
exercise of options .................................. 2,414 2,770 3,178 3,270
Weighted average common stock assuming
exercise of warrants ................................. 7 11 2,291 2,431
Weighted average common stock assuming conversion of
6 3/4% Convertible Subordinated Notes ................ -- -- -- 890
------ ------ ------ ------
Weighted average number of shares outstanding ........... 78,604 78,964 73,024 74,146
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS OF GENZYME CORPORATION FOR THE THREE AND NINE
MONTHS ENDED SEPTEMBER 30, 1997 AND 1996 AND AS OF JUNE 30, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AS INCLUDED
IN THE FORM 10-Q FOR GENZYME CORPORATION DATED SEPTEMBER 30, 1997.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 143,943
<SECURITIES> 33,494
<RECEIVABLES> 119,328
<ALLOWANCES> 0
<INVENTORY> 146,932
<CURRENT-ASSETS> 478,273
<PP&E> 507,117
<DEPRECIATION> 118,118
<TOTAL-ASSETS> 1,274,656
<CURRENT-LIABILITIES> 111,018
<BONDS> 0
0
0
<COMMON> 973
<OTHER-SE> 985,374
<TOTAL-LIABILITY-AND-EQUITY> 1,274,656
<SALES> 442,276
<TOTAL-REVENUES> 448,955
<CGS> 0
<TOTAL-COSTS> 170,622
<OTHER-EXPENSES> 222,427
<LOSS-PROVISION> 5,382
<INTEREST-EXPENSE> 8,543
<INCOME-PRETAX> 42,445
<INCOME-TAX> 19,252
<INCOME-CONTINUING> 23,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,193
<EPS-PRIMARY> 0<F1>
<EPS-DILUTED> 0
<FN>
<F1>Genzyme Corporation has one class of common stock which currently consists
of three series of common stock -- Genzyme General Division Common Stock ("GGD
Stock"), Genzyme Tissue Repair Division Common Stock ("GTR Stock") and Genzyme
Molecular Oncology Division Common Stock ("GMO Stock"). Earnings (loss) per
share is reported separately for each series of common stock. For the three and
nine months ended September 30, 1997, primary EPS and fully diluted EPS
attributable to GGD Stock were $0.31 and $0.88, and $0.30 and $0.87,
respectively. Loss per share for GTR Stock for the three and nine months ended
September 30, 1997 was $(0.72) and $(2.47), respectively. Loss per share
attributable to GMO stock for the three and nine months ended September 30, 1997
was $(1.00) and $(3.29), respectively.
</FN>
</TABLE>
