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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION FILE NO. 333-49130
logo
153 SECOND AVENUE
WALTHAM, MASSACHUSETTS 02451
A MERGER PROPOSAL--YOUR VOTE IS VERY IMPORTANT
The board of directors of GelTex Pharmaceuticals, Inc. has approved a merger
agreement with Genzyme Corporation.
We will hold a special stockholders' meeting on December 13, 2000, at
10:00 a.m., local time, at the offices of GelTex Pharmaceuticals, Inc., 153
Second Avenue, Waltham, Massachusetts 02451, at which time we will ask you to
adopt the merger agreement. If the merger agreement is adopted:
- GelTex Pharmaceuticals, Inc. will become a wholly-owned subsidiary of
Genzyme Corporation; and
- You will receive, at your election, either 0.7272 of a share of Genzyme
General Division common stock or $47.50 in cash, subject to proration and
adjustment as described in this proxy statement/prospectus, in exchange
for each of your shares of GelTex common stock.
Genzyme General Division common stock is one of Genzyme Corporation's four
tracking stocks. It is quoted on The Nasdaq National Market under the trading
symbol "GENZ," and on November 8, 2000, its closing price was $84.375 per share.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS APPROVED THE MERGER
AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR AND IN THE BEST INTERESTS OF
GELTEX AND ITS STOCKHOLDERS. YOUR BOARD OF DIRECTORS DEEMS THE MERGER TO BE
ADVISABLE AND RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
PLEASE CAREFULLY CONSIDER ALL OF THE INFORMATION IN THIS PROXY
STATEMENT/PROSPECTUS REGARDING GELTEX, GENZYME AND THE MERGER, INCLUDING IN
PARTICULAR, THE DISCUSSION IN THE SECTION ENTITLED "RISK FACTORS" BEGINNING ON
PAGE 20.
Whether or not you plan to attend the special meeting, please complete,
sign, date and return your proxy in the enclosed envelope. YOUR VOTE IS VERY
IMPORTANT.
Sincerely,
/s/ Mark Skaletsky
Mark Skaletsky
President and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION APPROVED OR DISAPPROVED THE MERGER DESCRIBED IN THE PROXY
STATEMENT/PROSPECTUS OR THE GENZYME COMMON STOCK TO BE ISSUED IN CONNECTION WITH
THE MERGER, OR DETERMINED IF THE PROXY STATEMENT/PROSPECTUS IS ACCURATE OR
ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS PROXY STATEMENT/PROSPECTUS IS DATED NOVEMBER 9, 2000
AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT NOVEMBER 13, 2000.
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GELTEX PHARMACEUTICALS, INC.
153 SECOND AVENUE
WALTHAM, MASSACHUSETTS 02451
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
------------------------
To the Stockholders of Geltex Pharmaceuticals, Inc.
I am pleased to give you notice of and cordially invite you to attend,
either in person or by proxy, the special meeting of the stockholders of GelTex
Pharmaceuticals, Inc., which will be held on December 13, 2000, at 10:00 a.m.,
local time, at the offices of GelTex Pharmaceuticals, Inc., 153 Second Avenue,
Waltham, Massachusetts 02451, and at any adjournment or postponement of the
special meeting. The purposes of the special meeting are:
1. To consider and vote on a proposal to adopt a merger agreement, dated as
of September 11, 2000, by and among GelTex, Genzyme and a wholly-owned
subsidiary of Genzyme, as amended. The merger agreement provides that
GelTex will be merged with and into a wholly-owned subsidiary of Genzyme.
In the merger, each share of GelTex common stock outstanding at the
effective time of the merger will convert into the right to receive
either 0.7272 of a share of Genzyme General Division common stock or
$47.50 in cash, subject to proration and adjustment as described in the
enclosed proxy statement/prospectus. The merger agreement is attached as
Annex A to, and is described in, this proxy statement/prospectus.
2. To transact any other business which properly comes before the special
meeting or any adjournment or postponement of the special meeting by the
GelTex board of directors.
Only stockholders of record at the close of business on October 24, 2000
will receive notice of and be able to vote at the special meeting and any
adjournments or postponements of it.
The enclosed proxy statement/prospectus describes the merger agreement, the
proposed merger and actions to be taken in connection with the merger. We cannot
complete the merger unless the holders of a majority of the outstanding shares
of GelTex common stock on the record date affirmatively vote to adopt the merger
agreement. It is important that your shares are represented at the special
meeting regardless of the number of shares you hold. Whether or not you plan to
attend the special meeting in person, please sign and return promptly the
enclosed proxy card in the enclosed, postage-paid envelope. You may revoke your
proxy in the manner described in the enclosed proxy statement/prospectus at any
time before it is voted at the special meeting.
Under Delaware law, holders of GelTex common stock are entitled to
dissenters' rights of appraisal if the merger is adopted and made effective. Any
holder of GelTex common stock
- who files with GelTex, before the vote is taken to adopt the merger
agreement, a written objection to the merger stating that he or she
intends to demand payment for his or her shares if the merger is effected,
and
- who does not vote in favor of the merger,
has the right to demand in writing from GelTex, within 20 days after receiving
written notice from GelTex that the merger has become effective, payment for his
or her shares and appraisal of their value. Dissenting stockholders must follow
the procedures regarding appraisal demands contained in section 262 of the
Delaware General Corporation Law, a copy of which is attached as Annex C to this
proxy statement/prospectus.
By Order of the Board of Directors,
/s/ Elizabeth A. Grammer
Elizabeth A. Grammer
Secretary
Waltham, Massachusetts
November 9, 2000
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REFERENCES TO ADDITIONAL INFORMATION
This proxy statement/prospectus incorporates important business and
financial information about Genzyme and GelTex from other documents that are not
included in or delivered with this proxy statement/prospectus. This information
is available to you without charge upon your written or oral request. You can
obtain documents which are incorporated by reference in this proxy statement/
prospectus by requesting them in writing or by telephone from the appropriate
company at the following addresses and telephone numbers:
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<S> <C>
GENZYME CORPORATION GELTEX PHARMACEUTICALS, INC.
ONE KENDALL SQUARE 153 SECOND AVENUE
CAMBRIDGE, MASSACHUSETTS 02139 WALTHAM, MASSACHUSETTS 02451
(617) 252-7500 (781) 290-5888
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY DECEMBER 6, 2000 IN
ORDER TO RECEIVE THEM BEFORE THE SPECIAL MEETING.
For more details on how you can obtain this information, you should read the
section of this proxy statement/prospectus entitled "WHERE YOU CAN FIND MORE
INFORMATION" beginning on page 130.
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TABLE OF CONTENTS
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PAGE
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Questions and Answers About the Merger...................... 1
Summary..................................................... 2
Risk Factors................................................ 20
Special Note Regarding Forward-Looking Statements........... 35
Unaudited Pro Forma Combined Financial Information.......... 36
The GelTex Special Meeting.................................. 68
Proxy Solicitation........................................ 68
Record Date............................................... 68
Quorum Requirement........................................ 68
Vote Required............................................. 68
Voting and Revocation of Proxies.......................... 69
Appraisal Rights.......................................... 69
Genzyme Corporation......................................... 70
GelTex Pharmaceuticals, Inc................................. 71
Background and Reasons For the Merger....................... 72
Background of the Merger.................................. 72
GelTex's Reasons For the Merger........................... 74
Fairness Opinion of GelTex's Financial Advisor............ 76
Potential Conflicts of Interests.......................... 86
Recommendation of GelTex's Board of Directors............. 87
Genzyme's Reasons for the Merger.......................... 87
The Merger and the Merger Agreement......................... 88
General Description of the Merger......................... 88
Effective Time............................................ 88
Merger Consideration...................................... 88
No Fractional Shares...................................... 91
Procedure For Filing Elections............................ 92
Exchange of GelTex Stock Certificates..................... 92
Appraisal Rights of GelTex Stockholders................... 93
Financing the Cash Portion of the Merger Consideration.... 94
Treatment of GelTex Stock Options and Warrants............ 94
Treatment of GelTex Benefits and Other Employee Matters... 95
Accounting Treatment...................................... 96
Material United States Federal Income Tax Consequences of
the Merger.............................................. 96
Covenants Under the Merger Agreement...................... 100
Representations and Warranties............................ 102
Conditions to the Merger.................................. 103
Termination of the Merger Agreement....................... 104
Termination Fees and Expenses............................. 105
Amendments and Waivers.................................... 105
No Relief from Liability for Willful Breach............... 105
Nasdaq Listing of Genzyme General Stock................... 105
Delisting of GelTex Common Stock.......................... 106
Resales of Genzyme General Stock by GelTex Affiliates..... 106
Regulatory Matters........................................ 106
Management After the Merger................................. 107
Board of Directors........................................ 107
Management................................................ 107
</TABLE>
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<S> <C>
Stock Ownership of Directors, Executive Officers and
Principal Stockholders.................................... 108
Ownership of Genzyme Capital Stock........................ 108
Ownership of GelTex Capital Stock......................... 111
Comparative Stock Prices and Dividends...................... 113
Dividend Information...................................... 113
Number of Stockholders and Number of Shares Outstanding... 113
Description of Genzyme Capital Stock........................ 114
General................................................... 114
Overview of Genzyme's "Tracking Stock" Capital
Structure............................................... 114
Authorized Capital Stock.................................. 115
Transfer Agent and Registrar.............................. 116
Comparison of Rights of Genzyme and GelTex Stockholders..... 117
Legal Matters............................................... 129
Experts..................................................... 129
Future GelTex Stockholder Proposals......................... 129
Other Matters............................................... 129
Where You Can Find More Information......................... 130
</TABLE>
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<S> <C>
ANNEXES
Agreement and Plan of Merger among Genzyme Corporation,
Titan Acquisition Corp. and GelTex Pharmaceuticals, Inc.,
as amended................................................ Annex A
Opinion of SG Cowen Securities Corporation.................. Annex B
Delaware Appraisal Law...................................... Annex C
Management and Accounting Policies Governing the
Relationship of Genzyme Divisions......................... Annex D
</TABLE>
NOTE REGARDING TRADEMARKS
Genzyme-Registered Trademark-, Cerezyme-Registered Trademark- and
Ceredase-Registered Trademark- are registered trademarks of Genzyme Corporation.
Fabrazyme-TM- is a trademark of Genzyme Corporation.
Genzyme-Registered Trademark- is a registered servicemark of Genzyme
Corporation.
Renagel-Registered Trademark- is a registered trademark of GelTex
Pharmaceuticals, Inc.
WelChol-TM- is a trademark of Sankyo Pharma Inc.
AVONEX-Registered Trademark- is a registered trademark of Biogen, Inc.
Replagal-TM- is a trademark of Transkaryotic Therapies, Inc.
Synvisc-Registered Trademark- is a registered trademark of Biomatrix, Inc.
ii
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: HOW DO I VOTE?
A: Carefully read and consider the information contained in this proxy
statement/prospectus. Then, please complete, sign and date your proxy and
return it as soon as possible so that your shares will be represented at the
special meeting. If you sign and send in your proxy, your shares will be
voted as you indicate in your proxy. If you sign and send in your proxy but
do not indicate how you want to vote, we will count your proxy as a vote FOR
adoption of the merger agreement. If you abstain from voting or do not vote,
it will have the effect of a vote against adoption of the merger agreement.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY?
A: Yes. You can change your vote at any time before your proxy is voted. You can
do this in one of three ways. First, you can send a written notice stating
that you would like to revoke your proxy. Second, you can complete and
submit a new proxy dated after the date of your original proxy. If you
choose either of these two methods, you must deliver your notice of
revocation or your new proxy to the Corporate Secretary of GelTex at 153
Second Avenue, Waltham, Massachusetts 02451 for receipt before the date of
the special meeting. Third, you can attend the special meeting and vote in
person. Simply attending the meeting, however, will not revoke your proxy;
you must also vote at the special meeting.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: In most cases, your broker will vote your shares only if you provide
instructions on how to vote. Follow the information provided to you by your
broker.
Q: HOW DO I INDICATE THE TYPE OF CONSIDERATION I PREFER TO RECEIVE IN THE
MERGER?
A: You will receive an election form/letter of transmittal separately from this
proxy statement/prospectus, which you should complete, sign and return
together with your GelTex common stock certificates to the exchange agent in
accordance with the instructions in the election form/letter of transmittal.
The exchange agent must receive your properly completed and signed election
form/letter of transmittal together with your GelTex stock certificates by
5:00 p.m., New York City time on December 8, 2000, or your preference will
not be taken into consideration and you will receive the form of
consideration provided to nonelecting stockholders.
If you hold your shares in "street name," your broker will provide you with
instructions as to how to complete and return the election form/letter of
transmittal.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Genzyme and GelTex are working toward completing the merger as quickly as
possible. If we obtain the necessary stockholder approval, we expect to
complete the merger by the end of 2000.
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SUMMARY
THIS SUMMARY HIGHLIGHTS WHAT WE BELIEVE IS THE MOST IMPORTANT INFORMATION
ABOUT THE MERGER. NONETHELESS, TO MORE FULLY UNDERSTAND THE TRANSACTION, YOU
SHOULD READ THIS ENTIRE PROXY STATEMENT/ PROSPECTUS, INCLUDING THE MATERIALS
ATTACHED AS ANNEXES. YOU SHOULD ALSO READ THE DOCUMENTS LISTED IN THE SECTION OF
THIS PROXY STATEMENT/PROSPECTUS ENTITLED "WHERE YOU CAN FIND MORE INFORMATION"
BEGINNING ON PAGE 130. THE PAGE REFERENCES IN PARENTHESES DIRECT YOU TO A MORE
DETAILED DESCRIPTION OF THE TOPICS PRESENTED IN THIS SUMMARY.
THE COMPANIES
GENZYME (SEE PAGE 70)
Genzyme is a biotechnology company that develops innovative products and
services for major unmet medical needs. Genzyme currently has four operating
divisions and four series of tracking stock designed to reflect the value and
track the performance of these operating divisions:
- Genzyme General, which develops and markets therapeutic products and
diagnostic products and services;
- Genzyme Molecular Oncology, which develops cancer products;
- Genzyme Surgical Products, which develops and markets a portfolio of
devices, biomaterials and biotherapeutics for the cardiothoracic and
general surgery markets; and
- Genzyme Tissue Repair, which develops and markets biological products for
orthopedic injuries, such as cartilage damage, and severe burns.
Genzyme is in the process of acquiring Biomatrix, Inc., a Delaware
corporation focused on the development and commercialization of viscoelastic
products for use in therapeutic medical applications and skin care. If Genzyme
completes the acquisition of Biomatrix, Genzyme will combine Biomatrix, Genzyme
Surgical Products and Genzyme Tissue Repair to form a new division named Genzyme
Biosurgery, leaving Genzyme with three operating divisions and three series of
tracking stock--Genzyme General Stock, Molecular Oncology Stock and Biosurgery
Stock. Genzyme Biosurgery will develop and market devices, biomaterials,
biotherapeutics and other products for the orthopedic market and the
cardiovascular, general and plastic surgery markets.
The principal offices of Genzyme, a Massachusetts corporation, are located
at One Kendall Square, Cambridge, Massachusetts 02139, and its telephone number
at these offices is (617) 252-7500.
GELTEX (SEE PAGE 71)
GelTex develops and markets non-absorbed polymer drugs that bind and
eliminate targeted substances within the gastrointestinal tract. In addition,
GelTex is developing small-molecule pharmaceuticals consisting of novel
polyamine analogues and metal chelators.
The principal offices of GelTex, a Delaware corporation, are located at 153
Second Avenue, Waltham, Massachusetts 02451, and its telephone number at these
offices is (781) 290-5888.
THE MERGER
SUMMARY OF THE TRANSACTION (SEE PAGE 88)
In the proposed merger, GelTex will be merged into Titan Acquisition Corp.,
a Massachusetts corporation and wholly-owned subsidiary of Genzyme. Titan
Acquisition Corp. will be the surviving corporation and will be renamed GelTex
Pharmaceuticals, Inc. when the merger is completed.
2
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The proposed merger will occur following adoption of the merger agreement by
the GelTex stockholders and satisfaction or waiver of all other conditions to
the merger. The merger agreement is attached as Annex A to this proxy
statement/prospectus. We encourage you to read it because it is the legal
document that governs the merger.
WHAT THE HOLDERS OF GELTEX COMMON STOCK WILL RECEIVE IN THE MERGER (SEE PAGE 88)
As a result of the merger, each share of GelTex common stock will
automatically convert into the right to receive one of the following:
- $47.50 in cash, without interest, which we refer to as the per share cash
consideration;
- 0.7272 of a share of Genzyme General Stock, which we refer to as the per
share stock consideration; or
- a combination of cash and a fraction of a share of Genzyme General Stock.
We are sending you an election form on which you may indicate your preferred
form of merger consideration. However, because not more than 50% of the shares
of GelTex common stock will be exchanged for the right to receive either the per
share cash consideration or the per share stock consideration, the actual
consideration you receive may differ from what you elect.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 96)
Genzyme and GelTex intend that the merger qualify as a reorganization within
the meaning of section 368 of the Internal Revenue Code. If the merger qualifies
as a reorganization, no gain or loss will be recognized for federal income tax
purposes by GelTex, Genzyme or Titan Acquisition Corp. by reason of the merger.
In addition:
- GelTex stockholders who receive solely shares of Genzyme General Stock in
the merger in exchange for their shares of GelTex common stock will not
recognize gain or loss;
- GelTex stockholders who receive a combination of cash and shares of
Genzyme General Stock in the merger in exchange for their shares of GelTex
common stock will recognize gain in an amount equal to the lesser of the
amount of any cash consideration received and the total gain realized by
the stockholder in the merger. No loss may be recognized by GelTex
stockholders who receive a combination of cash and Genzyme General Stock;
and
- GelTex stockholders who receive solely cash in the merger generally will
recognize gain or loss equal to the difference between the stockholder's
tax basis in the GelTex common stock surrendered and the cash received in
the merger.
Additionally, GelTex stockholders will recognize gain or loss on their
receipt of any cash paid in lieu of a fractional share of Genzyme General Stock.
BECAUSE THE TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON YOUR
PARTICULAR CIRCUMSTANCES, WE URGE YOU TO CONSULT YOUR OWN TAX ADVISORS ABOUT
THE FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES THE MERGER WILL HAVE
ON YOU.
APPRAISAL OR DISSENTERS' RIGHTS (SEE PAGE 93)
GelTex stockholders who properly object to the merger by following the
procedure established by Delaware law will have dissenters' appraisal rights.
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GELTEX'S REASONS FOR THE MERGER (SEE PAGE 74)
GelTex's board of directors concluded that the merger was advisable and in
the best interest of GelTex and its stockholders. In reaching its decision, the
board of directors considered, among other things:
- the projected benefits of having a single entity responsible for all
aspects of Renagel brand phosphate binder;
- the projected ability of the combined entity to more effectively
commercialize GelTex's products; and
- the value of the merger consideration.
FAIRNESS OPINION OF SG COWEN SECURITIES CORPORATION (SEE PAGE 76)
In deciding to approve the merger, the GelTex board of directors considered
an opinion from SG Cowen Securities Corporation, the financial advisor to a
special committee of the GelTex board of directors. On September 10, 2000,
SG Cowen delivered its written opinion to the special committee of the GelTex
board of directors that, as of that date and based on and subject to the matters
set forth in the opinion, the merger consideration to be received by the GelTex
stockholders, other than Genzyme and its affiliates, was fair from a financial
point of view.
The full text of this written opinion is attached as Annex B to this proxy
statement/prospectus and is incorporated by reference into this proxy
statement/prospectus. We encourage you to read this opinion carefully in its
entirety. The opinion of SG Cowen is directed to the special committee of the
GelTex board of directors and is not a recommendation to any stockholder on how
to vote on the merger or the merger agreement.
GENZYME'S REASONS FOR THE MERGER (SEE PAGE 87)
In reaching its decision to approve the merger, the Genzyme board of
directors considered, among other things:
- the commercial potential of Renagel brand phosphate binder;
- the expansion of Genzyme's product pipeline; and
- access to GelTex's scientists, management, and regulatory and clinical
staff.
THE SPECIAL MEETING
DATE AND PURPOSE (SEE PAGE 68)
A special meeting of GelTex stockholders will be held at GelTex's
headquarters at 153 Second Avenue, Waltham, Massachusetts 02451, on December 13,
2000, at 10:00 a.m., local time.
RECORD DATE; VOTING RIGHTS (SEE PAGE 68)
If you owned shares of GelTex common stock as of the close of business on
October 24, 2000, the record date for the special meeting, you may vote on the
proposal to adopt the merger agreement. On that date, there were 21,636,206
shares of GelTex common stock issued and outstanding and held by approximately
241 holders of record. At the special meeting, GelTex stockholders will have one
vote for each share of GelTex common stock they owned on the record date.
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QUORUM; REQUIRED VOTES (SEE PAGE 68)
The holders of a majority of the outstanding shares of GelTex common stock
must be present, in person or by proxy, at the GelTex special meeting for there
to be a quorum. To approve the merger, holders of a majority of the outstanding
shares of GelTex common stock must vote to adopt the merger agreement. If you
fail to vote or abstain from voting, it will have the effect of a vote against
the merger. A broker who holds GelTex common stock as your nominee generally
will not have the authority to vote your shares unless you provide the broker
with instructions on how to vote your shares.
RECOMMENDATION OF THE GELTEX BOARD OF DIRECTORS (SEE PAGE 87)
GELTEX'S BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS ADVISABLE AND IN THE
BEST INTEREST OF GELTEX STOCKHOLDERS AND RECOMMENDS THAT YOU VOTE "FOR" ADOPTION
OF THE MERGER AGREEMENT.
OTHER SELECTED INFORMATION
POTENTIAL CONFLICTS OF INTEREST OF OFFICERS AND DIRECTORS (SEE PAGE 86)
The officers and directors of GelTex may have interests in the merger that
are different from, or in addition to, those of other GelTex's stockholders. For
example, two members of GelTex's board of directors hold positions with Genzyme.
Henri A. Termeer, a GelTex director, is chairman of the board of directors,
president and chief executive officer of Genzyme. Robert J. Carpenter, the
chairman of the GelTex board of directors, is also a director of Genzyme. In
addition, both of these directors own equity in both companies. Because
Mr. Termeer and Mr. Carpenter are directors of both companies, GelTex's board of
directors formed a special committee which excluded these individuals. This
special committee independently negotiated the terms of, and recommended
approval of the merger to the GelTex board of directors. Messrs. Termeer and
Carpenter did not participate in the meeting of the GelTex board of directors at
which the merger agreement was approved.
Other potential conflicts of interests of GelTex's officers and directors
include:
- accelerated vesting of their stock options upon consummation of the
merger;
- severance benefits that will be owed to GelTex officers under employee
retention agreements if they are terminated after the merger; and
- indemnification and insurance coverage with respect to acts and omissions
in their capacities as directors and officers of GelTex.
On the record date, current directors and executive officers of GelTex as a
group beneficially owned approximately 4.6% of the outstanding shares of GelTex
common stock, including options exercisable within 60 days of the record date,
and current directors and executive officers of Genzyme as a group owned
approximately 1.6% of the outstanding shares of Genzyme General Stock, including
options exercisable within 60 days of the record date.
FINANCING THE CASH PORTION OF THE MERGER CONSIDERATION (SEE PAGE 94)
Genzyme estimates that cash payments to GelTex stockholders in the merger
will be approximately $509.4 million. Genzyme currently expects to fund a
portion of this amount through borrowings under senior credit facilities.
Genzyme would allocate any amounts borrowed to Genzyme General, which would also
be allocated the associated interest and expense of this debt.
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TREATMENT OF STOCK OPTIONS AND WARRANTS (SEE PAGE 94)
Each option and warrant to purchase shares of GelTex common stock
outstanding immediately before the effective time of the merger will be assumed
by Genzyme after the merger and will become an option or warrant, as the case
may be, to acquire Genzyme General Stock. Genzyme will adjust the number of
shares issuable upon exercise and the exercise prices to reflect the merger's
exchange ratio.
EMPLOYEE MATTERS (SEE PAGE 95)
Genzyme has agreed to give credit to GelTex employees for time worked at
GelTex under Genzyme's employee benefit plans if they remain with GelTex or
Genzyme after the merger. Genzyme has also agreed to assume GelTex's employment,
severance and other compensation agreements.
ACCOUNTING TREATMENT (SEE PAGE 96)
Genzyme expects to account for the merger under the purchase method of
accounting, which means that the assets and liabilities of GelTex, including its
intangible assets, will be recorded on Genzyme's books at their fair market
values. The results of operations and cash flows of GelTex will be included in
Genzyme's financial statements prospectively as of the closing of the merger.
REGULATORY APPROVALS (SEE PAGE 106)
U.S. antitrust laws prohibit Genzyme and GelTex from completing the merger
until we have furnished information and materials about Genzyme and GelTex and
the merger to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and the required waiting periods have expired. We filed
the required forms with these government agencies in October 2000. We are not
aware of any other governmental or regulatory approvals required for closing the
merger other than compliance with federal securities laws.
CONDITIONS TO THE MERGER (SEE PAGE 103)
We must satisfy the following conditions before completing the merger:
- GelTex stockholders must adopt the merger agreement;
- the registration statement of which this proxy statement/prospectus is a
part must not be the subject of any stop order or related proceeding;
- we must obtain regulatory approvals; and
- we must receive legal opinions that the merger will be a reorganization
for U.S. federal tax purposes.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 104)
We can mutually terminate the merger agreement without completing the
merger.
Either Genzyme or GelTex may terminate the agreement if the merger is not
completed by May 15, 2001, and under other circumstances, including failure to
obtain approval by the GelTex stockholders.
TERMINATION FEES AND EXPENSES (SEE PAGE 105)
If GelTex or Genzyme terminates the merger agreement, GelTex may be required
under specific circumstances to pay a termination fee of $31 million to Genzyme.
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If we do not complete the merger, we will each pay our own expenses. If we
complete the merger, the combined company will be responsible for unpaid
expenses.
COMPARATIVE STOCKHOLDER RIGHTS (SEE PAGE 117)
Genzyme is a Massachusetts corporation governed by the Massachusetts
Business Corporation Law. GelTex is a Delaware corporation governed by the
Delaware General Corporation Law. When we complete the merger, GelTex
stockholders will hold shares of Genzyme General Stock. Accordingly, their
rights as stockholders will be governed by Massachusetts law, Genzyme's charter
and by-laws and the management and accounting policies that govern Genzyme's
treatment of its various divisions and tracking stocks.
COMPARATIVE STOCK PRICE AND DIVIDEND INFORMATION (SEE PAGE 113)
Genzyme General Stock and GelTex common stock are quoted on The Nasdaq
National Market. The following table presents the high, low and closing prices
of Genzyme General Stock (on a historical basis) and of GelTex common stock (on
a historical and equivalent per share basis) on September 8, 2000, the last
business day before we publicly announced the merger agreement, and on
November 8, 2000, the last practicable trading day before the date of this proxy
statement/prospectus. The equivalent per share value of GelTex common stock
equals the closing price of Genzyme General Stock multiplied by 0.7272.
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<CAPTION>
EQUIVALENT PER
SHARE VALUE OF
GENZYME GENERAL STOCK GELTEX COMMON STOCK GELTEX
------------------------------ ------------------------------ COMMON
HIGH LOW CLOSING HIGH LOW CLOSING STOCK
-------- -------- -------- -------- -------- -------- --------------
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September 8, 2000................. $66.500 $63.750 $65.313 $38.000 $35.875 $37.375 $47.50
November 8, 2000.................. $89.125 $84.375 $84.375 $55.438 $53.250 $53.438 $61.36
</TABLE>
The market price of Genzyme General Stock is likely to fluctuate before the
merger is completed. We encourage you to obtain current market quotations for
Genzyme General Stock and GelTex common stock. We cannot predict the future
prices for Genzyme General Stock, or on which markets it will be traded in the
future.
No cash dividends have ever been paid or declared on shares of GelTex common
stock or Genzyme General Stock. Genzyme does not anticipate paying cash
dividends on Genzyme General Stock in the foreseeable future.
7
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA
Genzyme is providing the following information to aid you in your analysis
of the financial aspects of the merger. The table below represents selected
historical consolidated statements of operations and balance sheet data of
Genzyme and its subsidiaries. The statements of operations and balance sheet
data for the years ended December 31, 1995 through December 31, 1999 are derived
from Genzyme's audited financial statements for those periods. The statements of
operations data for the six months ended June 30, 1999 and 2000 and the balance
sheet data as of June 30, 2000 are derived from Genzyme's unaudited financial
statements for those periods. In the opinion of Genzyme's management, the
unaudited financial statements have been prepared on a basis consistent with the
audited financial statements and include all adjustments, consisting only of
normal recurring accruals necessary for a fair presentation of the financial
position and results of operations for these periods. The operating results for
the six months ended June 30, 2000 are not necessarily indicative of the results
that may be expected for the entire fiscal year.
Genzyme has four series of common stock--Genzyme General Stock, Molecular
Oncology Stock, Surgical Products Stock and Tissue Repair Stock--which it refers
to as "tracking stock." Unlike typical common stock, each of Genzyme's tracking
stocks is designed to track the financial performance of a specified subset of
its business operations and its allocated assets, rather than operations and
assets of the entire company. Each tracking stock is a common stock of Genzyme
Corporation, not of a division; each division is not a company or legal entity,
and therefore does not and cannot issue stock.
The chief mechanisms intended to cause each tracking stock to "track" the
financial performance of a division are provisions in Genzyme's charter
governing dividends and distributions. Under these provisions, Genzyme's
charter:
- factors the assets and liabilities and income or losses attributable to a
division into the determination of the amount available to pay dividends
on the associated tracking stock; and
- requires Genzyme to exchange, redeem or distribute a dividend to the
holders of Molecular Oncology Stock, Surgical Products Stock, or Tissue
Repair Stock if all or substantially all of the assets allocated to those
corresponding divisions are sold to a third party.
To determine earnings per share, Genzyme allocates its earnings to each
series of its common stock based on the earnings attributable to that series of
stock. The earnings attributable to each series of stock are defined in
Genzyme's charter as the net income or loss of the corresponding division
determined in accordance with generally accepted accounting principles and as
adjusted for tax benefits allocated to or from the division in accordance with
Genzyme's management and accounting policies. Genzyme's charter also requires
that all income and expenses of Genzyme be allocated among the divisions in a
reasonable and consistent manner. Genzyme's board of directors, however, retains
considerable discretion in determining the type, magnitude and extent of
allocations to each series of common stock without shareholder approval.
Because the earnings allocated to each series of stock are based on the
income or losses attributable to each corresponding division, Genzyme provides
financial statements and management's discussion and analysis of Genzyme
Corporation and of each division to aid investors in evaluating Genzyme's
performance and the performance of each of its divisions.
In addition, because Genzyme is in the process of acquiring Biomatrix and
expects to close the merger in the fourth quarter of 2000 if the required
stockholder approvals are obtained, you should read Genzyme's selected
historical financial data in conjunction with Biomatrix's historical financial
statements and related notes contained in Biomatrix's annual report on
Form 10-K for the fiscal year ended December 31, 1999, as amended, and quarterly
report on Form 10-Q for the quarter ended June 30, 2000, as amended, as filed
with the SEC.
8
<PAGE>
This information is only a summary. You should read it in conjunction with
Genzyme's historical financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in Genzyme's annual reports, quarterly reports and other information
on file with the SEC. For more details on how you can obtain these reports and
other information, you should read the section of this proxy
statement/prospectus entitled "WHERE YOU CAN FIND MORE INFORMATION" beginning on
page 130.
9
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED STATEMENTS OF OPERATIONS
DATA:
Revenues:
Net product sales................................ $304,373 $424,483 $529,927 $613,685 $683,482 $329,575 $385,860
Net service sales................................ 52,450 68,950 67,158 74,791 79,448 38,529 42,313
Revenues from research and development contracts:
Related parties................................ 26,758 23,011 8,356 5,745 2,012 1,455 245
Other.......................................... 202 2,310 3,400 15,114 7,346 869 3,625
-------- -------- -------- -------- -------- -------- --------
Total revenues............................... 383,783 518,754 608,841 709,335 772,288 370,428 432,043
-------- -------- -------- -------- -------- -------- --------
Operating costs and expenses:
Cost of products sold(1)......................... 113,964 155,930 206,028 211,076 182,337 88,386 101,902
Cost of services sold............................ 35,868 54,082 47,289 48,586 49,444 24,502 23,818
Selling, general and administrative.............. 110,447 162,264 200,476 215,203 242,797 125,303 128,979
Research and development (including research and
development related to contracts).............. 68,845 80,849 89,558 119,005 150,516 73,707 84,276
Amortization of intangibles...................... 4,647 8,849 17,245 24,334 24,674 12,373 11,782
Purchase of in-process research and
development(2)................................. 14,216 130,639 7,000 -- 5,436 -- --
Other............................................ -- 1,465 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total operating costs and expenses........... 347,987 594,078 567,596 618,204 655,204 324,271 350,757
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)............................ 35,796 (75,324) 41,245 91,131 117,084 46,157 81,286
-------- -------- -------- -------- -------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated
subsidiaries................................... (1,810) (5,373) (12,258) (29,006) (42,696) (19,100) (19,446)
Gain on affiliate sale of stock(3)............... -- 1,013 -- 2,369 6,683 606 20,270
Minority interest................................ 1,608 -- -- 4,285 3,674 1,730 2,208
Gain on sale of investment in equity
securities..................................... -- 1,711 -- 3,391 1,963 1,963 14,165
Gain on sale of product line(4).................. -- -- -- 31,202 8,018 7,500 --
Charge for impaired investments.................. -- -- -- (3,397) (5,712) (5,487) --
Other(5)......................................... -- -- (2,000) -- 14,527 43 5,195
Investment income................................ 8,814 15,341 11,409 25,055 36,158 17,288 20,575
Interest expense................................. (1,109) (6,990) (12,667) (22,593) (21,771) (11,088) (7,775)
-------- -------- -------- -------- -------- -------- --------
Total other income (expenses)................ 7,503 5,702 (15,516) 11,306 844 (6,545) 35,192
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes.................. 43,299 (69,622) 25,729 102,437 117,928 39,612 116,478
Provision for income taxes......................... (21,649) (3,195) (12,100) (39,870) (46,947) (17,264) (35,168)
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................................. $ 21,650 $(72,817) $ 13,629 $ 62,567 $ 70,981 $ 22,348 $ 81,310
======== ======== ======== ======== ======== ======== ========
</TABLE>
10
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL STOCK(6,7,8,9):
Genzyme General net income (loss)................ $ 40,368 $(10,687) $ 76,642 $133,052 $142,077 $ 61,418 $109,299
Genzyme Surgical Products net loss............... (9,273) (44,313) (29,740) (49,856) (27,523) (27,523) --
Tax benefit allocated from Genzyme Molecular
Oncology....................................... -- -- 2,755 3,527 7,812 4,310 3,537
Tax benefit allocated from Genzyme Surgical
Products....................................... 3,728 7,487 10,112 17,936 16,128 10,350 6,656
Tax benefit allocated from Genzyme Tissue
Repair......................................... 8,857 17,011 17,666 16,394 10,866 7,374 3,180
-------- -------- -------- -------- -------- -------- --------
Net income (loss) allocated to Genzyme General
Stock.......................................... $ 43,680 $(30,502) $ 77,435 $121,053 $149,360 $ 55,929 $122,672
======== ======== ======== ======== ======== ======== ========
Net income (loss) per share of Genzyme General
Stock:
Basic.......................................... $ 0.79 $ (0.45) $ 1.01 $ 1.53 $ 1.80 $ 0.68 $ 1.45
======== ======== ======== ======== ======== ======== ========
Diluted........................................ $ 0.68 $ (0.45) $ 0.98 $ 1.48 $ 1.71 $ 0.65 $ 1.35
======== ======== ======== ======== ======== ======== ========
Weighted average shares outstanding:
Basic.......................................... 55,531 68,289 76,531 79,063 83,092 82,301 84,725
======== ======== ======== ======== ======== ======== ========
Diluted........................................ 63,967 68,289 78,925 85,822 93,228 92,629 94,885
======== ======== ======== ======== ======== ======== ========
ALLOCATED TO MOLECULAR ONCOLOGY STOCK(7,8):
Net loss......................................... $(19,578) $(19,107) $(28,832) $(15,218) $(12,420)
======== ======== ======== ======== ========
Net loss per share of Molecular Oncology
Stock--basic and diluted....................... $ (4.64) $ (3.81) $ (2.25) $ (1.20) $ (0.92)
======== ======== ======== ======== ========
Weighted average shares outstanding.............. 3,929 5,019 12,826 12,667 13,561
======== ======== ======== ======== ========
ALLOCATED TO SURGICAL PRODUCTS STOCK (7,9):
Net loss......................................... $(20,514) $ (880) $(20,410)
======== ======== ========
Net loss per share of Surgical Products
Stock--basic and diluted....................... $ (1.38) $ (0.06) $ (1.37)
======== ======== ========
Weighted average shares outstanding.............. 14,835 14,800 14,880
======== ======== ========
ALLOCATED TO TISSUE REPAIR STOCK(7):
Net loss......................................... $(22,030) $(42,315) $(45,984) $(40,386) $(30,040) $(17,998) $ (9,002)
======== ======== ======== ======== ======== ======== ========
Net loss per share of Tissue Repair Stock--basic
and diluted.................................... $ (2.28) $ (3.38) $ (3.07) $ (1.99) $ (1.26) $ (0.81) $ (0.31)
======== ======== ======== ======== ======== ======== ========
Weighted average shares outstanding.............. 9,659 12,525 14,976 20,277 23,807 22,355 28,598
======== ======== ======== ======== ======== ======== ========
</TABLE>
11
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
------------------------------------------------------------ -----------
1995 1996 1997 1998 1999 2000
-------- ---------- ---------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and investments............................... $326,236 $ 187,955 $ 246,341 $ 575,729 $ 652,990 $ 694,210
Working capital.................................... 352,410 395,605 350,822 417,135 592,249 593,416
Total assets....................................... 905,201 1,270,508 1,295,453 1,688,854 1,787,282 1,895,065
Long-term debt and convertible debt(10)............ 124,473 241,998 170,276 287,225 290,622 291,433
Stockholders' equity............................... 705,207 902,309 1,012,050 1,172,554 1,356,392 1,457,762
</TABLE>
There were no cash dividends paid.
------------------------
(1) Cost of products sold for 1997 includes an $18.1 million charge in
connection with the discontinuance of Genzyme's melatonin, bulk
pharmaceuticals and fine chemicals product lines. Cost of products sold for
1998 includes a $14.8 million charge to write-down excess Ceredase enzyme
inventory and a $10.4 million charge to write-down Genzyme's Sepra products
inventory to net realizable value.
(2) Charges for the purchase of in-process research and development were
incurred in connection with the following acquisitions:
- 1995 - $14.2 million from the acquisition of a minority interest in IG
Laboratories, Inc.
- 1996 - $106.4 million from the acquisition of Neozyme II Corporation
and $24.2 million from the acquisition of Deknatel Snowden
Pencer, Inc.
- 1997 - $7.0 million from the acquisition of PharmaGenics, Inc.
- 1999 - $5.4 million from the acquisition of Peptimmune, Inc.
(3) Gain on affiliate sale of stock in 1999 represents the gain on Genzyme's
investment in Genzyme Transgenics Corporation ("GTC") as a result of GTC's
various issuances of additional shares of its stock.
(4) Gain on sale of product line of $31.2 million in 1998 relates to the sale
of Genzyme's research products business assets to Techne Corporation in
July 1998. Gain on sale of product line in 1999 consists of $7.5 million,
representing the payment of a note receivable that Genzyme received as
partial consideration for the sale of Genetic Design, Inc. to Laboratory
Corporation of America in 1996.
(5) Other income in 1999 includes the receipt of a $14.4 million payment
associated with the termination of Genzyme's agreement to acquire Cell
Genesys, Inc., net of acquisition related expenses.
(6) Until the distribution of Surgical Products Stock on June 28, 1999, Genzyme
Surgical Products' losses were included in the determination of income
allocated to Genzyme General Stock. Further, until the distribution of
Molecular Oncology Stock on June 18, 1997, Genzyme Molecular Oncology's
losses were included in the determination of income allocated to Genzyme
General Stock.
(7) To determine earnings per share, Genzyme allocates earnings to each series
of its common stock based on the earnings attributable to that series of
stock. The earnings attributable to Genzyme General Stock is defined in
Genzyme's charter as the net income or loss of Genzyme General
12
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
determined in accordance with generally accepted accounting principles and
as adjusted for tax benefits allocated to or from Genzyme General in
accordance with Genzyme's management and accounting policies. Earnings
attributable to Molecular Oncology Stock, Surgical Products Stock and
Tissue Repair Stock are defined similarly and, as such, are based on the
net income or loss of the corresponding division.
(8) Genzyme created Genzyme Molecular Oncology on June 18, 1997. Prior to this
date, the operations of Genzyme Molecular Oncology were included in the
results of Genzyme General. Net loss per share of Molecular Oncology Stock
for 1997 is calculated using the net loss allocated to Genzyme Molecular
Oncology for the period June 18, 1997 through December 31, 1997 and the
weighted average shares outstanding during the same period. Loss per share
data is not presented for Genzyme Molecular Oncology for the years ended
December 31, 1995 and 1996, or for the period from January 1, 1997 to
June 17, 1997, as there were no shares of Molecular Oncology Stock
outstanding during those years or periods.
(9) Genzyme created Genzyme Surgical Products on June 28, 1999. Prior to this
date, the operations of Genzyme Surgical Products were included in the
operations allocated to Genzyme General and, therefore, in the net income
allocated to Genzyme General Stock. Net loss per share of Surgical Products
Stock for 1999 is calculated using the net loss allocated to Genzyme
Surgical Products for the period June 28, 1999 through December 31, 1999
and the weighted average shares outstanding during the same period. Loss
per share data is not presented for Genzyme Surgical Products for the years
ended December 31, 1995, 1996, 1997 and 1998, as there were no shares of
Surgical Products Stock outstanding during those years or periods.
(10) Long-term debt and convertible debt consists primarily of $218.0 million
and $118.0 million outstanding under a revolving credit facility in 1996
and 1997, respectively. Long-term debt and convertible debt in 1998 and
1999 consists primarily of $250.0 million in principal of 5 1/4%
convertible subordinated notes due June 2005.
13
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
Genzyme is providing the following information to aid you in your analysis
of the financial aspects of the merger. The table below represents selected
historical combined statements of operations and consolidated balance sheet data
for Genzyme General. Genzyme derived the balance sheet data and the statements
of operations data for the years ended December 31, 1995 through December 31,
1999 from the audited financial statements of Genzyme General for those periods.
Genzyme derived the statements of operations data for the six months ended
June 30, 1999 and 2000 and the balance sheet data as of June 30, 2000 from the
unaudited financial statements of Genzyme General for those periods. In the
opinion of Genzyme's management, the unaudited financial statements for Genzyme
General have been prepared on a basis consistent with its audited financial
statements and include all adjustments, consisting only of normal recurring
accruals, necessary for a fair presentation of the financial position and
results of operations for these periods. The operating results for Genzyme
General for the six months ended June 30, 2000 are not necessarily indicative of
the results that may be expected for the entire fiscal year.
A series of Genzyme's common stock, Genzyme General Division Common Stock
(which Genzyme refers to as Genzyme General Stock) is designed to reflect the
value and track the performance of this division. Genzyme General Stock is
common stock of Genzyme Corporation, not of Genzyme General; Genzyme General is
a division, not a company or legal entity, and therefore does not and cannot
issue stock. The chief mechanisms intended to cause Genzyme General Stock to
"track" the financial performance of Genzyme General are provisions in Genzyme's
charter governing dividends and distributions. Under these provisions, Genzyme's
charter factors the assets and liabilities and income or losses attributable to
Genzyme General into the determination of the amount available to pay dividends
on Genzyme General Stock.
To determine earnings per share, Genzyme allocates its earnings to each
series of its common stock based on the earnings attributable to that series of
stock. The earnings attributable to Genzyme General Stock are defined in
Genzyme's charter as the net income or loss of Genzyme General determined in
accordance with generally accepted accounting principles and as adjusted for tax
benefits allocated to or from Genzyme General in accordance with Genzyme's
management and accounting policies. Genzyme's charter also requires that all
income and expenses of Genzyme be allocated among the divisions in a reasonable
and consistent manner. Genzyme's board of directors, however, retains
considerable discretion in determining the types, magnitudes and extent of
allocations to each series of common stock without shareholder approval.
Because the earnings allocated to Genzyme General Stock are based on the
income or losses attributable to Genzyme General, Genzyme includes financial
statements and management's discussion and analysis of Genzyme General to aid
investors in evaluating its performance.
This information is only a summary. You should read it in conjunction with
Genzyme's historical financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in Genzyme's annual reports, quarterly reports and other information
on file with the SEC. For more details on how you can obtain these reports and
other information, you should read the section of this proxy
statement/prospectus entitled "WHERE YOU CAN FIND MORE INFORMATION" beginning on
page 130.
14
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
SELECTED HISTORICAL COMBINED FINANCIAL DATA (CONTINUED)
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- --------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- --------- -------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL COMBINED STATEMENTS OF OPERATIONS DATA:
Revenues:
Net product sales............................... $304,365 $373,769 $429,092 $509,727 $571,531 $275,541 $326,809
Net service sales............................... 47,230 61,638 55,835 55,445 57,223 28,426 30,181
Revenues from research and development
contracts:
Related parties............................... 26,758 23,011 8,041 3,568 1,516 912 245
Other......................................... 202 2,310 3,400 579 5,096 92 85
-------- -------- -------- -------- -------- -------- --------
Total revenues.............................. 378,555 460,728 496,368 569,319 635,366 304,971 357,320
-------- -------- -------- -------- -------- -------- --------
Operating costs and expenses:
Cost of products sold(1)........................ 113,231 123,276 146,226 138,802 115,125 55,103 69,271
Cost of services sold........................... 31,137 42,889 35,451 34,240 35,637 17,788 17,772
Selling, general and administrative............. 94,944 107,219 118,616 126,172 149,427 78,058 81,194
Research and development (including research and
development related to contracts)............. 51,936 62,276 62,905 73,139 97,746 46,012 58,134
Amortization of intangibles..................... 4,647 5,865 6,887 7,610 8,106 4,103 3,979
Purchase of in-process research and
development(2)................................ 14,216 106,469 -- -- 5,436 -- --
Other........................................... -- 1,000 -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Total operating costs and expenses............ 310,111 448,994 370,085 379,963 411,477 201,064 230,350
-------- -------- -------- -------- -------- -------- --------
Operating income.................................. 68,444 11,734 126,283 189,356 223,889 103,907 126,970
-------- -------- -------- -------- -------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated
subsidiaries.................................. (1,809) (3,656) (5,782) (19,739) (37,423) (14,725) (19,446)
Gain on affiliate sale of stock(3).............. -- 1,013 -- 2,369 6,683 606 20,270
Minority interest............................... 1,608 -- -- 4,285 3,674 1,730 2,208
Gain on sale of investment in equity
securities.................................... -- 1,711 -- 3,391 1,963 1,963 14,165
Gain on sale of product line(4)................. -- -- 31,202 8,018 7,500 --
Charge for impaired investments................. -- -- -- (3,397) (5,712) (5,487) --
Other(5)........................................ -- -- (2,000) -- 14,389 -- 5,153
Investment income............................... 7,428 13,825 9,940 22,953 30,881 16,743 16,726
Interest expense................................ (1,069) (6,784) (8,074) (16,994) (19,885) (10,186) (6,992)
-------- -------- -------- -------- -------- -------- --------
Total other income (expenses)................. 6,158 6,109 (5,916) 24,070 2,588 (1,856) 32,084
-------- -------- -------- -------- -------- -------- --------
Income before income taxes........................ 74,602 17,843 120,367 213,426 226,477 102,051 159,054
Provision for income taxes........................ (34,234) (28,530) (43,725) (80,374) (84,400) (40,633) (49,755)
-------- -------- -------- -------- -------- -------- --------
Division net income (loss)........................ $ 40,368 $(10,687) $ 76,642 $133,052 $142,077 $ 61,418 $109,299
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------------------------------------------- -----------
1995 1996 1997 1998 1999 2000
-------- -------- -------- ---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and investments.................................. $278,663 $169,543 $192,222 $ 556,097 $ 513,905 $ 585,977
Working capital....................................... 307,918 340,817 273,697 381,685 487,561 466,929
Total assets.......................................... 854,411 975,910 960,490 1,410,391 1,399,583 1,529,602
Long-term debt and convertible debt(6)................ 124,473 223,846 117,978 274,646 272,622 273,223
Division equity....................................... 659,106 645,185 745,895 939,967 1,007,614 1,129,864
</TABLE>
15
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
SELECTED HISTORICAL COMBINED FINANCIAL DATA (CONTINUED)
(AMOUNTS IN THOUSANDS)
------------------------
(1) Cost of products sold for 1997 includes an $18.1 million charge in
connection with the discontinuance of Genzyme's melatonin, bulk
pharmaceuticals and fine chemicals product lines. Cost of products sold for
1998 includes a $14.8 million charge to write-down excess Ceredase enzyme
inventory.
(2) Charges for the purchase of in-process research and development were
incurred in connection with the following acquisitions:
- 1995 -- $14.2 million from the acquisition of a minority interest in IG
Laboratories, Inc.
- 1996 -- $106.4 million from the acquisition of Neozyme II Corporation
- 1999 -- $5.4 million from the acquisition of Peptimmune, Inc.
(3) Gain on affiliate sale of stock in 1999 represents the gain on Genzyme's
investment in GTC as a result of GTC's various issuances of additional
shares of its stock.
(4) Gain on sale of product line of $31.2 million in 1998 relates to the sale of
Genzyme's research products business assets to Techne Corporation in
July 1998. Gain on sale of product line in 1999 consists of $7.5 million,
representing the payment of a note receivable that Genzyme received as
partial consideration for the sale of Genetic Design, Inc. to Laboratory
Corporation of America in 1996.
(5) Other income in 1999 includes the receipt of a $14.4 million payment
associated with the termination of Genzyme's agreement to acquire Cell
Genesys, Inc., net of acquisition related expenses.
(6) Long-term debt and convertible debt consists primarily of $200.0 million and
$100.0 million outstanding under a revolving credit facility in 1996 and
1997, respectively. Long-term debt and convertible debt in 1998 and 1999
consists primarily of $250.0 million in principal of 5 1/4% convertible
subordinated notes due June 2005.
16
<PAGE>
GELTEX PHARMACEUTICALS, INC.
SELECTED HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
GelTex is providing the following information to aid you in your analysis of
the financial aspects of the merger. The table below represents selected
historical consolidated income and balance sheet data of GelTex and its
subsidiaries. The income statement and balance sheet data for the years ended
December 31, 1995 through December 31, 1999 are derived from GelTex's audited
financial statements. The income statement data for the six months ended
June 30, 1999 and 2000 are derived from GelTex's unaudited financial statements
for these periods. In the opinion of GelTex's management, the unaudited
financial statements have been prepared on a basis consistent with the audited
financial statements and include all adjustments, consisting only of normal
recurring accruals, necessary for a fair presentation of the financial position
and results of operations for these periods. The operating results for the six
months ended June 30, 2000 are not necessarily indicative of the results that
may be expected for the entire fiscal year.
This information is only a summary. You should read it in conjunction with
GelTex's historical financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in GelTex's annual reports, quarterly reports and other information on
file with the SEC. For more details on how you can obtain these reports and
other information, you should read the section of this proxy
statement/prospectus entitled "WHERE YOU CAN FIND MORE INFORMATION" beginning on
page 130.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
FOR THE YEARS ENDED DECEMBER 31, JUNE 30,
---------------------------------------------------- -------------------
1995 1996 1997 1998 1999 1999 2000
-------- -------- -------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
License fee and research revenue................... $ 750 $ 1,244 $ 1,000 $ 25,000 $ 10,668 $ 1,751 $29,304
Collaborative Joint Venture project
reimbursement.................................... -- -- 9,196 7,658 5,781 2,962 2,441
Research grant..................................... 157 419 289 -- -- -- --
------- -------- -------- -------- -------- -------- -------
Total revenue.................................... 907 1,663 10,485 32,658 16,449 4,713 31,745
Costs and expenses:
Research and development........................... 6,504 21,755 22,251 27,904 32,602 14,414 14,645
Collaborative Joint Venture project costs.......... -- -- 9,196 7,658 5,781 2,962 2,441
------- -------- -------- -------- -------- -------- -------
Total research and development................... 6,504 21,755 31,447 35,562 38,383 17,376 17,086
General and administrative......................... 1,873 2,924 4,089 5,583 6,935 2,610 3,347
Other, nonrecurring................................ -- 230 -- -- 9,530 -- --
------- -------- -------- -------- -------- -------- -------
Total costs and expenses............................. 8,377 24,909 35,536 41,145 54,848 19,986 20,433
------- -------- -------- -------- -------- -------- -------
Income (loss) from operations........................ (7,470) (23,246) (25,051) (8,487) (38,399) (15,273) 11,312
Interest income...................................... 684 3,343 3,095 5,069 4,372 2,448 2,707
Interest expense..................................... (99) (75) (218) (613) (485) (260) (381)
Equity in loss of Joint Venture...................... -- -- (2,310) (7,536) (7,937) (4,068) (604)
------- -------- -------- -------- -------- -------- -------
Net income (loss).................................... $(6,885) $(19,978) $(24,484) $(11,567) $(42,449) $(17,153) $13,034
======= ======== ======== ======== ======== ======== =======
Basic net income (loss) per share.................... $ (0.85) $ (1.60) $ (1.80) $ (0.72) $ (2.50) $ (1.02) $ 0.67
======= ======== ======== ======== ======== ======== =======
Shares used in computing basic net income (loss) per
share.............................................. 8,109 12,513 13,592 16,023 17,003 16,844 19,331
Diluted net income (loss) per share.................. $ (0.85) $ (1.60) $ (1.80) $ (0.72) $ (2.50) $ (1.02) $ 0.66
======= ======== ======== ======== ======== ======== =======
Shares used in computing diluted net income (loss)
per share.......................................... 8,109 12,513 13,592 16,023 17,003 16,844 19,775
</TABLE>
17
<PAGE>
GELTEX PHARMACEUTICALS, INC.
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------------------------- -----------
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and marketable securities............ $33,175 $73,425 $52,623 $104,952 $72,429 $119,086
Working capital............................................. 31,824 72,461 49,099 110,821 68,446 119,307
Total assets................................................ 35,993 78,068 67,118 133,445 106,089 163,263
Long-term obligations, less current portion................. 420 124 6,923 5,206 6,560 5,849
Total stockholders' equity.................................. 33,650 75,056 53,418 120,020 92,702 151,844
</TABLE>
18
<PAGE>
COMPARATIVE PER SHARE DATA
We are providing the following comparative per share information to aid you
in your analysis of the financial aspects of the merger. You should read this
information in conjunction with Genzyme's and GelTex's historical financial
statements that are incorporated by reference into this proxy
statement/prospectus, and the pro forma combined financial statements and the
related notes that are included elsewhere in this proxy statement/prospectus.
The pro forma consolidated per share data presented below reflect the purchase
method of accounting for business combinations. The results may have been
different if our companies had always been consolidated.
Holders of Genzyme General Stock, Molecular Oncology Stock, Surgical
Products Stock and Tissue Repair Stock have no specific rights to any particular
asset or group of assets of Genzyme. Genzyme continues to hold title to all of
its assets and is responsible for all of its liabilities, regardless of what it
deems for financial statement presentation purposes as allocated to any
division. Common stockholders are, therefore, subject to the risks of investing
in the businesses, assets and liabilities of Genzyme as a whole.
Both Genzyme and GelTex have fiscal years ending on December 31. The GelTex
pro forma equivalent per share data equals the exchange ratio of 0.7272
multiplied by the pro forma per share data for Genzyme General Stock. The pro
forma per share data are not necessarily indicative of the results that would
have occurred if the merger had been completed on the dates indicated or the
results that will occur after the merger. For more details, you should read the
section of this proxy statement/prospectus entitled "UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION" beginning on page 36.
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- ----------------
(UNAUDITED)
<S> <C> <C>
GENZYME CORPORATION(1):
Net income per share of Genzyme General Stock:
Historical basic........................................ $ 1.80 $ 1.45
Historical diluted...................................... 1.71 1.35
Pro forma combined--basic(4)............................ 0.70 0.99
Pro forma combined--diluted(4).......................... 0.67 0.94
Net loss per share of Molecular Oncology Stock:
Historical basic and diluted(2)......................... (2.25) (0.92)
Net loss per share of Surgical Products Stock:
Historical basic and diluted(2)(3)...................... (1.38) (1.37)
Net loss per share of Tissue Repair Stock:
Historical basic and diluted(2)......................... (1.26) (0.31)
GELTEX PHARMACEUTICALS, INC.:
Income (loss) per common share:
Historical basic........................................ $(2.50) $ 0.67
Historical diluted...................................... (2.50) 0.66
Pro forma per share equivalent--basic................... 0.51 0.72
Pro forma per share equivalent--diluted................. 0.49 0.68
Historical book value per share at period end............. 5.13 7.43
</TABLE>
--------------------------
(1) Note that book value per share data is not presented because it is not
meaningful.
(2) Pro forma per share equivalent amounts are not shown for Molecular Oncology
Stock, Surgical Products Stock and Tissue Repair Stock because amounts are
the same as historical.
(3) 1999 historical is for the period from June 28, 1999 (date of issuance) to
December 31, 1999.
(4) Pro forma combined per share amounts for Genzyme General Stock also reflect
the changes in earnings allocations resulting from the June 1999
distribution of Surgical Products Stock as if this change took place on
January 1, 1999.
19
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE
IN THIS PROXY STATEMENT/ PROSPECTUS, YOU SHOULD CONSIDER CAREFULLY THE RISK
FACTORS DESCRIBED BELOW IN DECIDING HOW TO VOTE ON THE MERGER PROPOSAL. YOU
SHOULD KEEP THESE RISK FACTORS IN MIND WHEN YOU READ FORWARD-LOOKING STATEMENTS
INCLUDED IN THIS PROXY STATEMENT/PROSPECTUS.
RISKS RELATING TO THE MERGER
BECAUSE GENZYME WILL PAY 50% OF THE MERGER CONSIDERATION WITH GENZYME
GENERAL STOCK VALUED AT A FIXED EXCHANGE RATIO, YOU MAY RECEIVE MERGER
CONSIDERATION WITH A MARKET VALUE OF LESS THAN $47.50.
In the merger, each share of GelTex common stock will convert into the right
to receive $47.50 in cash, 0.7272 of a share of Genzyme General Stock or a
combination of cash and a fraction of a share of Genzyme General Stock. We fixed
the exchange ratio at 0.7272 based on the last sale price for Genzyme General
Stock on September 8, 2000, the last trading day before we signed the merger
agreement. The last sale price on September 8, 2000, was $65.3125. Accordingly,
if the market price of Genzyme General Stock is below $65.3125, then the market
value of 0.7272 of a share of Genzyme General Stock will be less than $47.50.
Conversely, because Genzyme will pay $47.50 in cash for 50% of the GelTex shares
(subject to potential adjustment as described below), GelTex stockholders, in
the aggregate, will not participate fully in any pre-closing appreciation in the
market value of Genzyme General Stock above $65.3125. The market value of
Genzyme General Stock before and after the closing date of the merger may vary
significantly from the price on the date we executed the merger agreement, the
date of this proxy statement/prospectus and the date on which you vote on the
merger.
YOU MAY NOT RECEIVE THE FORM OF CONSIDERATION THAT YOU ELECT.
While you may submit an election form indicating your preferred form of
consideration, you may not receive the form of consideration you indicate.
Subject to the potential adjustments described in this proxy
statement/prospectus, approximately 50% of the outstanding shares of GelTex
common stock will convert into $47.50 in cash and approximately 50% will convert
into 0.7272 of a share of Genzyme General Stock. Accordingly, if GelTex
stockholders, in the aggregate, elect a higher percentage of one form of
consideration, we will need to pro rate that form of consideration. If the price
of Genzyme General Stock declines, GelTex stockholders are more likely to make
cash elections. If proration is required because GelTex stockholders make valid
cash elections for more than 50% of the outstanding shares of GelTex stock and,
at closing, the per share market value of Genzyme General Stock is below
$65.3125, all shares of GelTex common stock will convert into merger
consideration with a market value of less than $47.50. The merger agreement
contains provisions addressing the potential proration of the merger
consideration and a description of these provisions is included under "THE
MERGER AND THE MERGER AGREEMENT--Merger Consideration" beginning on page 88. We
urge you to read these materials carefully.
THE CASH PORTION OF THE MERGER CONSIDERATION WILL BE REDUCED TO THE EXTENT
GELTEX STOCKHOLDERS EXERCISE DISSENTERS' RIGHTS OR IF A TAX-BASED ADJUSTMENT
TO THE MERGER CONSIDERATION IS REQUIRED TO PERMIT THE MERGER TO QUALIFY AS A
REORGANIZATION FOR U.S. FEDERAL INCOME TAX PURPOSES.
The number of GelTex shares that convert into the right to receive the per
share cash consideration will equal 50% of the number of shares of GelTex common
stock outstanding at the effective time of the merger less the number of shares
for which dissenters' rights have been exercised. Accordingly, each share for
which dissenters' rights have been exercised reduces by one the number of shares
held by the stockholders who will receive the per share cash consideration. For
example, if GelTex stockholders exercise dissenters' rights with respect to 5%
of the outstanding shares of GelTex
20
<PAGE>
common stock, 45% of the shares will convert into the right to receive the per
share cash consideration.
In addition, we may adjust the amount of cash merger consideration in order
to help ensure that the merger will qualify as a reorganization for U.S. federal
income tax purposes. This tax-based adjustment may be required if the market
value of Genzyme General Stock at the effective time of the merger is less than
$53.44. If an adjustment is required, then the per share cash consideration to
be paid in exchange for 50% of the shares of GelTex common stock (subject to
reduction for dissenting shares) would consist of a combination of cash and a
fraction of a share of Genzyme General Stock, rather than $47.50 in cash. When a
tax-based adjustment is triggered, a large number of GelTex stockholders are
likely to make cash elections. If GelTex stockholders make valid cash elections
for more than 50% of the shares of GelTex common stock outstanding and a tax
adjustment is triggered, all shares of GelTex common stock will convert into
merger consideration with a market value of less than $47.50. The risk that
shares of GelTex common stock will convert into merger consideration with a
market value of less than $47.50 is further described under the preceding risk
factors entitled "--BECAUSE GENZYME WILL PAY 50% OF THE MERGER CONSIDERATION
WITH GENZYME GENERAL STOCK VALUED AT A FIXED EXCHANGE RATIO, YOU MAY RECEIVE
MERGER CONSIDERATION WITH A MARKET VALUE OF LESS THAN $47.50" and "--YOU MAY NOT
RECEIVE THE FORM OF CONSIDERATION THAT YOU ELECT."
GENZYME FACES RISKS THAT ARE DIFFERENT FROM THOSE FACED BY GELTEX, AND THESE
RISKS MAY CAUSE THE VALUE OF THE SHARES OF GENZYME GENERAL STOCK ISSUED TO
YOU TO DECLINE.
In the merger you will receive shares of Genzyme General Stock, one of
Genzyme's tracking stocks. Genzyme General Stock has recently experienced
extreme fluctuations in price and volume. Genzyme's business and strategy are
somewhat different from that of GelTex, and Genzyme's results of operations, as
well as the price of Genzyme General Stock, will be affected by various factors
different from those affecting GelTex's results of operations and its common
stock price. Future events that may not have affected the price of GelTex common
stock may cause the price of Genzyme General Stock to rise or fall. The market
price for Genzyme General Stock may fluctuate for various reasons, including:
- announcements of technological innovations or new commercial products by
Genzyme or by its competitors;
- governmental regulatory initiatives;
- legal developments regarding patent or proprietary rights developments;
- public concern as to the safety or other implications of biotechnology
products; and
- general market conditions.
We describe the risks in more detail under the subsections entitled "--Risks
Relating to Genzyme General" and "--Risks Relating to Genzyme" below.
GELTEX'S CONTRACT MANUFACTURERS, SUPPLIERS AND LICENSORS MAY TERMINATE THEIR
ARRANGEMENTS WITH GELTEX OR DEMAND NEW ARRANGEMENTS AS A RESULT OF THE
MERGER.
After the merger, GelTex will be a wholly-owned subsidiary of Genzyme and
GelTex's contract manufacturers, suppliers and licensors will indirectly become
contract manufacturers, suppliers and licensors of Genzyme. For competitive or
other reasons, some of these entities may choose to terminate their arrangements
with GelTex rather than conduct business with Genzyme. Alternatively, they may
demand new arrangements with Genzyme. If Genzyme is unable to maintain
relationships on favorable terms with some or all of these contract
manufacturers, suppliers or licensors, Genzyme's future results may be
negatively impacted.
21
<PAGE>
GENZYME'S AND GENZYME GENERAL'S REPORTED FINANCIAL RESULTS WILL SUFFER DUE
TO THE IMPACT OF AMORTIZING GOODWILL AND OTHER INTANGIBLES.
Under U.S. generally accepted accounting principles, Genzyme will account
for the merger with GelTex using the purchase method of accounting. Under
purchase accounting, the aggregate purchase price is allocated among acquired
tangible and intangible assets and liabilities based on their estimated fair
values. Please see "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION"
beginning on page 36 of this proxy statement/prospectus for more information on
how we plan to account for the merger. As we discuss in that section, we
currently estimate that the amount of purchase cost allocated to goodwill and
other intangibles will be approximately $932.7 million and will be amortized
over 5 to 15 years. Genzyme will allocate this expense to Genzyme General. As a
result, using the purchase method of accounting will decrease the reported net
income of Genzyme General and Genzyme Corporation which could have a material
adverse effect on the market value of Genzyme General Stock.
Genzyme's pending merger with Biomatrix will also be accounted for using the
purchase method of accounting, with the associated amortization expense
allocated to Genzyme Biosurgery. The Biomatrix merger and the GelTex merger will
have a significant impact on the reported net income of Genzyme Corporation.
Furthermore, if Genzyme, at some point in the future, exercises its right to
exchange Genzyme General Stock for Genzyme Biosurgery Stock, the amortization
costs associated with both the GelTex and Biomatrix transactions would be
allocated to Genzyme General's reported net income, which would further decrease
Genzyme General's reported net income and which could have a material adverse
effect on the market value of Genzyme General Stock.
RISKS RELATING TO GENZYME GENERAL
In the merger, Genzyme will issue shares of Genzyme General Stock in
exchange for GelTex common stock. Genzyme General Stock is intended to track the
value and reflect the performance of Genzyme General. Accordingly, before voting
on the merger, you should carefully consider the following factors affecting the
business of Genzyme General.
A REDUCTION IN REVENUE FROM SALES OF PRODUCTS THAT TREAT GAUCHER DISEASE
WOULD HAVE AN ADVERSE EFFECT ON GENZYME'S BUSINESS.
Genzyme General generates a majority of its product revenues from sales of
enzyme-replacement products for patients with Gaucher disease. Genzyme General
entered this market in 1991 with Ceredase enzyme. Because production of Ceredase
enzyme was subject to supply constraints, Genzyme General developed Cerezyme
enzyme, a recombinant form of the enzyme. Recombinant technology uses specially
engineered cells to produce enzymes, or other substances, by inserting into the
cells of one organism the genetic material of a different species. In the case
of Cerezyme enzyme, scientists engineer Chinese hamster ovary cells to produce
human alpha glucocerebrosidase. Genzyme General stopped producing Ceredase
enzyme, except for small quantities, during 1998, after substantially all the
patients who previously used Ceredase enzyme converted to Cerezyme enzyme. Sales
of Ceredase enzyme and Cerezyme enzyme totaled $478.5 million for the year ended
December 31, 1999, representing approximately 62% of Genzyme's, and 75% of
Genzyme General's total revenues for that year, and $263.5 million for the six
months ended June 30, 2000, representing approximately 61% of Genzyme's, and 74%
of Genzyme General's total revenues for that period.
Because Genzyme's business is highly dependent on Cerezyme enzyme, a decline
in the growth rate of Cerezyme enzyme sales could have an adverse effect on
Genzyme's operations and may cause the value of Genzyme's securities to decline
substantially. Genzyme will lose revenues from Cerezyme enzyme if competitors
develop alternative treatments for Gaucher disease and these alternative
products gain commercial acceptance. Some companies have initiated efforts to
develop competitive
22
<PAGE>
products, and other companies may do so in the future. In addition, the patient
population with Gaucher disease is limited. Because a significant percentage of
that population already uses Cerezyme enzyme, opportunities for future sales
growth are limited. Further, changes in the methods for treating patients with
Gaucher disease, including treatment protocols that combine Cerezyme enzyme with
other therapeutic products or reduce the amount of Cerezyme enzyme prescribed,
could result in a decline in Cerezyme enzyme sales. Cerezyme enzyme has orphan
drug status, providing Genzyme with exclusive marketing rights for Cerezyme
enzyme in the United States until May 2001. Genzyme also has patents protecting
its method of manufacturing Cerezyme enzyme until 2010 and the composition of
Cerezyme enzyme until 2013. The expiration of market exclusivity and orphan drug
status in May 2001 will likely subject Cerezyme enzyme to increased competition
which may decrease the amount of revenue Genzyme receives from this product or
the growth of that revenue.
GENZYME'S ABILITY TO SIGNIFICANTLY INCREASE SALES OF RENAGEL BRAND PHOSPHATE
BINDER WILL SUBSTANTIALLY DETERMINE WHETHER AND HOW QUICKLY THE MERGER
IMPROVES GENZYME GENERAL'S EARNINGS PER SHARE.
In November 1998, Genzyme General, in collaboration with GelTex, launched
Renagel brand phosphate binder, a non-absorbed phosphate binder approved for use
by patients with end-stage renal disease undergoing a form of treatment known as
hemodialysis. Genzyme and GelTex are currently conducting additional clinical
trials in order to determine the efficacy and safety of Renagel brand phosphate
binder when administered to pre-dialysis patients. A significant factor in
Genzyme's decision to enter into the merger agreement was its optimism regarding
the market potential for Renagel brand phosphate binder. The commercial success
of Renagel brand phosphate binder, however, is subject to substantial
uncertainty and will depend on a number of factors, including:
- the results of additional clinical trials for additional indications and
expanded labeling;
- Genzyme's ability to increase market acceptance and sales of Renagel brand
phosphate binder;
- market acceptance of a tablet formulation of Renagel brand phosphate
binder, which was launched in September 2000 in the United States;
- optimal dosing and patient compliance with respect to Renagel brand
phosphate binder;
- the availability of competing treatments serving the dialysis market;
- the content and timing of Genzyme's submissions to and decisions by
regulatory authorities;
- Genzyme's ability to manufacture Renagel brand phosphate binder at a
reasonable price;
- the availability of reimbursement from third-party payers; and
- the accuracy of available information about dialysis patient populations
and the accuracy of Genzyme's expectations about growth in this
population.
Many of the risks that apply to Renagel brand phosphate binder also apply to
Genzyme's products. Accordingly, we refer you to the regulatory, legislative,
development, reimbursement and market risks described in more detail under the
subsection of this proxy statement/prospectus entitled "--Risks Relating to
Genzyme" below.
GENZYME GENERAL MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE THYROGEN
HORMONE.
In January 1999, Genzyme General, together with Knoll Pharmaceutical Co.,
launched U.S. sales of Thyrogen recombinant thyroid stimulating hormone used to
diagnose thyroid cancer. The commercial success of Thyrogen hormone will depend
on a number of factors, including:
- regulation by the Food and Drug Administration, commonly referred to as
the FDA;
- Genzyme's ability to obtain regulatory approvals in foreign countries;
23
<PAGE>
- the development and commercial success of competitive products; and
- the availability of reimbursement from third-party payers.
Genzyme General cannot be sure that market penetration of Thyrogen hormone will
increase.
IF GENZYME GENERAL'S STRATEGIC ALLIANCES TO DEVELOP AND COMMERCIALIZE ITS
PRODUCTS ARE UNSUCCESSFUL, GENZYME GENERAL'S EARNINGS GROWTH WILL BE
LIMITED.
Several of Genzyme General's strategic initiatives involve alliances with
other biotechnology companies. These include:
- the agreement with Knoll Pharmaceutical for the marketing of Thyrogen
hormone in the United States;
- an agreement with Biogen, Inc. for the marketing of AVONEX (Interferon
beta1a), Biogen's treatment for relapsing forms of multiple sclerosis, in
Japan following regulatory approval;
- a joint venture with BioMarin Pharmaceutical Inc. for the development and
commercialization of alpha-L-iduronidase for the treatment of the
lysosomal storage disorder known as mucopolysaccharidosis I;
- a joint venture with Genzyme Transgenics Corporation for the development
and commercialization of transgenic antithrombin III, a human protein that
Genzyme Transgenics produces in the milk of genetically modified animals;
- a strategic alliance with Pharming Group N.V. for the development and
commercialization of human alpha-glucosidase produced using a Chinese
hamster ovary cell line for the treatment of Pompe disease; and
- a joint venture with Diacrin, Inc. to develop and commercialize products
and processes using porcine fetal cells for the treatment of Parkinson's
disease and Huntington's disease.
Genzyme General plans to enter into additional alliances in the future. The
success of many of these arrangements is largely dependent on technology and
other intellectual property contributed by Genzyme General's strategic partners
to the alliances or the resources, efforts and skills of Genzyme General's
partners. Genzyme General's strategic partners may:
- terminate their agreements and Genzyme General's access to the underlying
intellectual property;
- fail to devote significant financial or other resources to the alliances
and thereby significantly hinder or delay development, manufacturing or
commercialization activities; and
- fail to successfully develop or commercialize any products.
If any of these alliances are terminated and Genzyme General loses access to the
underlying intellectual property, or if Genzyme General and its partners are
unable to successfully develop or commercialize products, Genzyme General's
future earnings's growth potential will be limited.
RISKS RELATING TO GENZYME
The following risk factors relate to Genzyme generally and affect all of its
divisions, including Genzyme General. Holders of Genzyme General Stock are
stockholders of Genzyme and are, therefore, subject to all of the risks and
uncertainties of Genzyme, not just Genzyme General.
Liabilities or contingencies of the divisions of Genzyme other than Genzyme
General that affect Genzyme's resources or financial condition could affect the
financial condition or results of operations
24
<PAGE>
of Genzyme General. Therefore, you should consider carefully these risk factors
before deciding how to vote on the merger.
GOVERNMENT REGULATION IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON THE
DEVELOPMENT AND COMMERCIALIZATION OF GENZYME'S PRODUCTS AND SERVICES.
Genzyme's success will depend on its ability to satisfy regulatory
requirements. Genzyme may not receive the required regulatory approvals on a
timely basis or at all. Government agencies heavily regulate the production and
sale of healthcare products and the provision of healthcare services. In
particular, the FDA and comparable agencies in foreign countries must approve
human therapeutic and diagnostic products before they are marketed. This
approval process can involve lengthy and detailed laboratory and clinical
testing, sampling activities and other costly and time-consuming procedures.
This regulation may delay the time at which a company like Genzyme can first
sell a product or may limit how a consumer may use a product or service or may
adversely impact third-party reimbursement. A company's failure to comply with
applicable regulatory approval requirements may lead regulatory authorities to
take action against the company, including:
- issuing warning letters;
- issuing fines and other civil penalties;
- suspending regulatory approvals;
- refusing approval of pending applications or supplements to approved
applications;
- suspending product sales in the United States and/or exports from the
United States;
- recalling products; and
- seizing products.
Furthermore, therapies that have received regulatory approval for commercial
sale may continue to face regulatory difficulties. The FDA and comparable
foreign regulatory agencies, for example, may require post-marketing clinical
trials or patient outcome studies. In addition, regulatory agencies subject a
marketed therapy, its manufacturer and the manufacturer's facilities to
continual review and periodic inspections. The discovery of previously unknown
problems with a therapy, the therapy's manufacturer or the facility used to
produce the therapy could prompt a regulatory authority to impose restrictions
on the therapy, manufacturer or facility, including withdrawal of the therapy
from the market.
LEGISLATIVE CHANGES MAY ADVERSELY IMPACT GENZYME'S BUSINESS.
The FDA has designated some of Genzyme's products, including Cerezyme
enzyme, as orphan drugs under the Orphan Drug Act. The Orphan Drug Act provides
incentives to manufacturers to develop and market drugs for rare diseases,
generally by entitling the first developer that receives FDA marketing approval
for an orphan drug to a seven-year exclusive marketing period in the United
States for that product. In recent years Congress has considered legislation to
change the Orphan Drug Act to shorten the period of automatic market exclusivity
and to grant marketing rights to simultaneous developers of the drug. If the
Orphan Drug Act is amended in this manner, Cerezyme enzyme, as well as any other
drugs for which Genzyme has been granted exclusive marketing rights under the
Orphan Drug Act, will face increased competition which may decrease the amount
of revenue Genzyme receives from these products.
In addition, the U.S. government has shown significant interest in pursuing
healthcare reform. Any government-adopted reform measures could adversely
affect:
- the pricing of therapeutic products and medical devices in the United
States or internationally; and
25
<PAGE>
- the amount of reimbursement available from governmental agencies or other
third-party payers.
If the U.S. government significantly reduces the amount Genzyme may charge for
its products, or the amount of reimbursement available for purchases of
Genzyme's products declines, Genzyme's future revenues may decline and Genzyme
may need to revise its research and development programs.
THE DEVELOPMENT OF GENZYME'S PRODUCTS INVOLVES A LENGTHY AND COMPLEX
PROCESS, AND GENZYME MAY BE UNABLE TO COMMERCIALIZE ANY OF THE PRODUCTS IT
IS CURRENTLY DEVELOPING.
Before Genzyme can commercialize its development-stage products, Genzyme
will need to:
- conduct substantial research and development;
- undertake preclinical and clinical testing; and
- pursue regulatory approvals.
This process involves a high degree of risk and takes several years. Genzyme's
product development efforts may fail for many reasons, including:
- failure of the product in preclinical studies;
- clinical trial data that is insufficient to support the safety or
effectiveness of the product; or
- Genzyme's failure to obtain the required regulatory approvals.
For these reasons, and others, Genzyme may not successfully commercialize any of
the products it is currently developing.
ANY MARKETABLE PRODUCTS THAT GENZYME DEVELOPS MAY NOT BE COMMERCIALLY
SUCCESSFUL.
Even if Genzyme obtains regulatory approval for any of its development-stage
products, those products may not be accepted by the market, or approved for
reimbursement by third-party payers. A number of factors may affect the rate and
level of market acceptance of these products, including:
- regulation by the FDA and other government authorities;
- market acceptance by doctors and hospital administrators;
- the effectiveness of Genzyme's sales force;
- the effectiveness of Genzyme's production and marketing capabilities;
- the success of competitive products; and
- the availability and extent of reimbursement from third-party payers.
If Genzyme's products fail to achieve market acceptance, Genzyme's profitability
and financial condition will suffer.
GENZYME WILL REQUIRE SIGNIFICANT ADDITIONAL FINANCING WHICH MAY NOT BE
AVAILABLE ON FAVORABLE TERMS, IF AT ALL.
As of June 30, 2000, Genzyme had approximately $694.2 million in cash, cash
equivalents and short- and long-term investments, excluding investments in
equity securities.
Although Genzyme currently has substantial cash resources and positive cash
flow, it intends to use substantial portions of its available cash for:
- product development and marketing;
- expanding facilities and staff;
26
<PAGE>
- working capital; and
- strategic business initiatives.
In addition, Genzyme expects to pay:
- approximately $245.0 million in cash to stockholders of Biomatrix in
connection with its acquisition of that company;
- approximately $509.4 million in cash to stockholders of GelTex in
connection with the merger; and
- approximately $26.0 million in cash to the limited partners of Genzyme
Development Partners, L.P. if Genzyme exercises its option to purchase the
limited partnership interests in that partnership, which option may no
longer be exercised after November 28, 2000.
Genzyme will further reduce available cash reserves to pay principal and
interest on the following debt:
- In May 1998, Genzyme issued $250.0 million in convertible notes, the
entire principal amount of which is allocated to Genzyme General. These
convertible notes bear interest at an annual rate of 5 1/4% and mature on
June 1, 2005. However, the holders of these notes may exchange principal
on the notes for shares of Genzyme General Stock, Molecular Oncology Stock
and Surgical Products Stock. If Genzyme completes its merger with
Biomatrix, Genzyme will combine its Genzyme Tissue Repair and Genzyme
Surgical Products divisions with Biomatrix to create a new division called
Genzyme Biosurgery. After that time, note holders may receive Biosurgery
stock in exchange for principal instead of Surgical Products Stock.
- As of June 30, 2000, Genzyme owed approximately $18.0 million under a
revolving credit facility with a group of commercial banks. Genzyme has
allocated this entire amount to Genzyme Tissue Repair. If Genzyme
completes its merger with Biomatrix, the $18.0 million allocated to
Genzyme Tissue Repair will be allocated to Genzyme Biosurgery. Amounts
borrowed under this revolving credit facility bear interest at a floating
rate based upon an applicable margin above either the prime rate announced
by Fleet National Bank or the London InterBank Offered Rate. Genzyme must
repay all borrowings under this facility by November 12, 2002. In
connection with the proposed acquisitions of Biomatrix and GelTex, Genzyme
expects to increase the amount of this facility and borrow additional
funds to finance a portion of the cash consideration that will be payable
in connection with those acquisitions.
- In August 1998, Genzyme issued $21.2 million in convertible debentures,
the entire principal amount of which is allocated to Genzyme General.
These convertible debentures bear interest at an annual rate of 5% and
mature on August 29, 2003, but the holders of these convertible debentures
may exchange principal, and under some circumstances interest, on the
convertible debentures for shares of Genzyme General Stock.
If Genzyme uses cash to pay or redeem all or a portion of this debt, including
the principal and interest due on it, its cash reserves will be diminished. To
satisfy these and other commitments, Genzyme will have to obtain additional
financing. Genzyme may be unable to obtain any additional financing, extend any
existing financing arrangement, or obtain either on terms that it considers
favorable.
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GENZYME MAY FAIL TO PROTECT ADEQUATELY ITS PROPRIETARY TECHNOLOGY, WHICH
WOULD ALLOW COMPETITORS TO TAKE ADVANTAGE OF ITS RESEARCH AND DEVELOPMENT
EFFORTS.
Genzyme's long-term success largely depends on its ability to market
technologically competitive products. If Genzyme fails to obtain or maintain
these protections it may not be able to prevent third parties from using its
proprietary rights.
Genzyme's currently pending or future patent applications may not result in
issued patents. In the United States patent applications are confidential until
patents issue, and because third parties may have filed patent applications for
technology covered by Genzyme's pending patent applications without it being
aware of those applications, Genzyme's patent applications may not have priority
over any patent applications of others. In addition, Genzyme's issued patents
may not contain claims sufficiently broad to protect it against third parties
with similar technologies or products or provide it with any competitive
advantage. If a third party initiates litigation regarding Genzyme's patents,
its collaborators' patents, or those patents for which Genzyme has license
rights, and is successful, a court could revoke Genzyme's patents or limit the
scope of coverage for those patents.
The U.S. Patent and Trademark Office, commonly referred to as the USPTO, and
the courts have not consistently treated the breadth of claims allowed in
biotechnology patents. If the USPTO or the courts begin to allow broader claims,
the incidence and cost of patent interference proceedings and the risk of
infringement litigation will likely increase. On the other hand, if the USPTO or
the courts begin to allow narrower claims, the value of Genzyme's proprietary
rights may be limited. Any changes in, or unexpected interpretations of, the
patent laws may adversely affect Genzyme's ability to enforce its patent
position.
Genzyme also relies upon trade secrets, proprietary know-how and continuing
technological innovation to remain competitive. Genzyme protects this
information with reasonable security measures, including the use of
confidentiality agreements with its employees, consultants and corporate
collaborators. It is possible that these individuals will breach these
agreements and that any remedies for a breach will be insufficient to allow
Genzyme to recover its costs. Furthermore, Genzyme's trade secrets, know-how and
other technology may otherwise become known or be independently discovered by
its competitors.
GENZYME MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS IN ORDER TO
DEVELOP AND COMMERCIALIZE SOME OF ITS PRODUCTS AND SERVICES, AND IT IS
UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE.
Third-party patent rights may cover some of the products that Genzyme or its
strategic partners are developing or testing. As a result, Genzyme or its
strategic collaborators may be required to obtain licenses from the holders of
these patents in order to use, manufacture or sell these products and services,
and payments under these licenses may reduce Genzyme's revenue from these
products. Furthermore, Genzyme may not be able to obtain these licenses on
acceptable terms or at all. If Genzyme fails to obtain a required license or is
unable to alter the design of its technology to fall outside of a patent,
Genzyme may be unable to effectively market some of its technology and services,
which could limit Genzyme's profitability.
GENZYME MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER
PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS.
A third party may sue Genzyme or one of Genzyme's strategic collaborators
for infringing the third-party's patent rights. Likewise, Genzyme or one of its
strategic collaborators may need to resort to litigation to enforce their patent
rights or to determine the scope and validity of third-party proprietary rights.
For example, Genzyme filed a lawsuit on July 25, 2000 seeking injunctive relief
and damages against Transkaryotic Therapies, Inc. in the U.S. District Court in
Wilmington, Delaware for patent infringement resulting from Transkaryotic
Therapies' manufacture and use of Replagal, its replacement therapy for Fabry
disease. The suit alleges infringement of U.S. Patent No. 5,356,804,
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which Genzyme exclusively licensed from Mount Sinai School of Medicine. The
patent is directed to methods of making alpha-galactosidase in mammalian cells,
as well as the genetically-engineered cells themselves. On September 19, 2000,
Transkaryotic Therapies filed a lawsuit against Genzyme and Mount Sinai School
of Medicine in U.S. District Court in Boston, Massachusetts seeking declaratory
judgments that the manufacture, use and sale of Replagal does not infringe the
patent licensed by Genzyme from Mount Sinai and that the Mount Sinai patent is
invalid.
The cost to Genzyme of any litigation or other proceeding relating to
intellectual property rights, even if resolved in Genzyme's favor, could be
substantial, and the litigation would divert Genzyme's management's efforts.
Some of Genzyme's competitors may be able to sustain the costs of complex patent
litigation more effectively than Genzyme can because they have substantially
greater resources. If Genzyme does not prevail, it or its strategic
collaborators may be required to:
- pay monetary damages;
- stop commercial activities relating to the affected products or services;
- obtain a license in order to continue manufacturing or marketing the
affected products or services; or
- compete in the market with its or their products.
Uncertainties resulting from the initiation and continuation of any
litigation could limit Genzyme's ability to continue its operations. In
addition, a court may require Genzyme to pay expenses or damages and litigation
could disrupt Genzyme's commercial activities.
GENZYME MAY BE LIABLE FOR PRODUCT LIABILITY CLAIMS NOT COVERED BY INSURANCE.
Individuals who use Genzyme's products or services, including those Genzyme
acquires from GelTex or Biomatrix or in other business combinations, may bring
product liability claims against Genzyme or its subsidiaries. While Genzyme has
taken, and continues to take, what it believes are appropriate precautions,
Genzyme may be unable to avoid significant liability exposure. Genzyme has only
limited amounts of product liability insurance, which may not provide sufficient
coverage against any product liability claims. Genzyme may be unable to obtain
additional insurance in the future, or it may be unable to do so on acceptable
terms. Any additional insurance Genzyme does obtain may not provide adequate
coverage against any asserted claims. In addition, regardless of merit or
eventual outcome, product liability claims may result in:
- diversion of management's time and attention;
- expenditure of large amounts of cash on legal fees, expenses and payment
of damages;
- decreased demand for Genzyme's products and services; and
- injury to Genzyme's reputation.
BIOMATRIX FACES LITIGATION THAT GENZYME WILL ASSUME WHEN THAT ACQUISITION IS
COMPLETED.
On July 21 and August 7, 15, and 30, 2000, class action lawsuits requesting
unspecified damages were filed in the U.S. District Court in New Jersey against
Biomatrix and two of its officers and directors, Endre A. Balazs and Rory B.
Riggs. In these actions, the plaintiffs seek to certify a class of all persons
or entities who purchased or otherwise acquired Biomatrix common stock during
the period between July 20, 1999 and April 25, 2000. The plaintiffs allege,
among other things, that the defendants failed to accurately disclose
information relating to Biomatrix's product Synvisc during the period between
July 20, 1999 and April 25, 2000, and assert causes of action under the
Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated under
the Exchange Act. Biomatrix has advised Genzyme that it disagrees with these
claims and believes that information related to Synvisc was properly disclosed.
Biomatrix has advised Genzyme that it intends to defend these actions
vigorously. If
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Genzyme completes its merger with Biomatrix and Biomatrix has not resolved these
matters, Genzyme intends to continue to defend against those actions. If the
Biomatrix merger occurs, Genzyme may be required to pay substantial damages or
settlement costs to the extent that damages or settlement costs are not covered
by insurance. Regardless of their outcome, these actions may cause a diversion
of Genzyme's management's time and attention.
GENZYME'S COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY
HAVE SUPERIOR PRODUCTS, MANUFACTURING CAPABILITIES OR MARKETING POSITION.
The human healthcare products and services industry is extremely
competitive. Genzyme's competitors include major pharmaceutical companies and
other biotechnology companies. Some of these competitors may have more extensive
research and development, marketing and production capabilities. Some
competitors also may have greater financial resources than Genzyme.
Genzyme's future success will depend on its ability to develop and market
effectively its products against those of its competitors. For instance, Genzyme
is seeking orphan drug designation for some of its products that are still in
development or are currently being reviewed by the FDA for marketing approval,
including Fabrazyme enzyme for the treatment of Fabry disease. Genzyme is aware
of other companies developing products for the treatment of Fabry disease.
Transkaryotic Therapies Inc., for example, submitted its application for
marketing approval for its product to the FDA approximately one week before
Genzyme submitted its application for Fabrazyme enzyme. If Transkaryotic
Therapies or any other company receives FDA approval for a Fabry disease therapy
with orphan drug designation before Genzyme receives FDA approval for Fabrazyme
enzyme, the Orphan Drug Act may preclude Genzyme from selling Fabrazyme enzyme
in the United States for up to seven years. If Genzyme's products receive
marketing approval but cannot compete effectively in the marketplace, Genzyme's
profitability and financial position will suffer.
IF GENZYME IS UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, ITS
PRODUCTS OR SERVICES MAY BECOME OBSOLETE.
The field of biotechnology is characterized by significant and rapid
technological change. Although Genzyme attempts to expand its technological
capabilities in order to remain competitive, research and discoveries by others
may make Genzyme's products or services obsolete. For example, some of Genzyme's
competitors may develop a product to treat Gaucher disease that is more
effective or less expensive than Cerezyme enzyme. If Genzyme cannot compete
effectively in the marketplace, its profitability and financial position will
suffer.
IF GENZYME FAILS TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR ITS PRODUCTS
FROM THIRD-PARTY PAYERS, THE COMMERCIAL POTENTIAL OF ITS PRODUCTS WILL BE
SIGNIFICANTLY LIMITED.
A substantial portion of Genzyme's revenue comes from payments by
third-party payers, including government health administration authorities and
private health insurers. As a result of the trend toward managed healthcare in
the United States, as well as legislative proposals to reduce payments under
government insurance programs, third-party payers are increasingly attempting to
contain healthcare costs by:
- challenging the prices charged for healthcare products and services;
- limiting both coverage and the amount of reimbursement for new therapeutic
products;
- denying or limiting coverage for products that are approved by the FDA,
but are considered experimental or investigational by third-party payers;
and
- refusing in some cases to provide coverage when an approved product is
used for disease indications in a way that has not received FDA marketing
approval.
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Government and other third-party payers may not provide adequate insurance
coverage or reimbursement for Genzyme's products and services, which could
impair Genzyme's financial results. In addition, third-party payers may not
reimburse patients for newly approved healthcare products, which could decrease
demand for Genzyme's products.
Furthermore, Congress occasionally has discussed implementing broad-based
measures to contain healthcare costs. It is possible that Congress will enact
legislation specifically designed to contain healthcare costs. If third-party
reimbursement is inadequate to allow Genzyme to recover its costs or if Congress
passes legislation to contain healthcare costs, Genzyme's profitability and
financial condition will suffer.
CHANGES IN THE ECONOMIC, POLITICAL, LEGAL AND BUSINESS ENVIRONMENTS IN THE
FOREIGN COUNTRIES IN WHICH GENZYME DOES BUSINESS COULD CAUSE ITS
INTERNATIONAL SALES AND OPERATIONS, WHICH ACCOUNT FOR A SIGNIFICANT
PERCENTAGE OF ITS CONSOLIDATED NET SALES, TO BE LIMITED OR DISRUPTED.
Genzyme's international operations accounted for 41% of its consolidated
revenues for each of the years ended December 31, 1999 and 1998 and 37% of its
consolidated revenues in 1997, and Genzyme expects that international sales will
continue to account for a significant percentage of its revenues for the
foreseeable future. In addition, Genzyme has direct investments in a number of
subsidiaries outside of the United States, primarily in Europe and Japan.
Genzyme's international sales and operations could be limited or disrupted, and
the value of its direct investments may be diminished, by any of the following:
- fluctuations in currency exchange rates;
- the imposition of governmental controls;
- less favorable intellectual property or other applicable laws;
- the inability to obtain any necessary foreign regulatory approvals of
products in a timely manner;
- import and export license requirements;
- political instability;
- trade restrictions;
- changes in tariffs;
- difficulties in staffing and managing international operations; and
- longer payment cycles.
A significant portion of Genzyme's business is conducted in currencies other
than its reporting currency, the U.S. dollar. Genzyme recognizes foreign
currency gains or losses arising from its operations in the period in which
Genzyme incurs those gains or losses. As a result, currency fluctuations among
the U.S. dollar and the currencies in which Genzyme does business have caused
foreign currency transaction gains and losses in the past and will likely do so
in the future. Because of the number of currencies involved, the variability of
currency exposures and the potential volatility of currency exchange rates,
Genzyme may suffer significant foreign currency transaction losses in the future
due to the effect of exchange rate fluctuations on its future operating results.
SEVERAL ANTI-TAKEOVER PROVISIONS MAY DEPRIVE GENZYME'S STOCKHOLDERS OF THE
OPPORTUNITY TO RECEIVE A PREMIUM FOR THEIR SHARES UPON A CHANGE IN CONTROL.
Provisions of Massachusetts law and Genzyme's charter, by-laws and
shareholder rights plan could delay or prevent a change in control of Genzyme or
a change in its management.
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Genzyme's tracking stock structure may also deprive its stockholders of the
opportunity to receive a premium for their shares upon a change in control
because, in order to obtain control of a particular division, an acquiror would
have to obtain control of the entire corporation.
In addition, Genzyme's board of directors may, in its sole discretion:
- exchange shares of Molecular Oncology Stock, Surgical Products Stock,
Tissue Repair Stock or, if the merger with Biomatrix is completed,
Biosurgery Stock, for Genzyme General Stock at a 30% premium over the
market value of the exchanged shares; and
- issue shares of undesignated preferred stock from time to time in one or
more series.
Either of these board actions could increase the cost of an acquisition of
Genzyme and thus discourage a takeover attempt.
RISKS RELATING TO GENZYME TRACKING STOCKS
The following are risks related to owning shares of Genzyme tracking stock.
You should consider carefully these risk factors before deciding how to vote on
the merger.
THE HOLDERS OF GENZYME TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY
AND UNFAVORABLE FINANCIAL TRENDS AFFECTING ONE DIVISION COULD NEGATIVELY
AFFECT OTHER GENZYME DIVISIONS.
None of Genzyme's divisions are separate legal entities. Holders of Genzyme
General Stock, together with holders of Genzyme's other series of tracking
stock, are stockholders of a single company and face all of the risks of an
investment in Genzyme.
For purposes of financial presentation, Genzyme allocates programs,
products, assets and liabilities among its operating divisions. Genzyme
Corporation, however, continues to own all of the assets and is responsible for
all of the liabilities of each division. A holder of Genzyme General Stock, for
example, does not have any specific rights to the assets allocated to Genzyme
General in Genzyme's financial statements. Furthermore, if Genzyme is unable to
satisfy one division's liabilities out of the assets Genzyme allocates to that
division, Genzyme may be required to satisfy those liabilities with assets it
has allocated to another division. Genzyme encourages you to review its
consolidated financial statements and the financial statements of Genzyme
General included in the reports that Genzyme files with the SEC.
GENZYME'S BOARD OF DIRECTORS MAY TAKE ACTIONS THAT HAVE AN UNEQUAL AND
ADVERSE EFFECT ON ONE OR MORE SERIES OF GENZYME'S TRACKING STOCK.
At times, the interests of the holders of the different series of Genzyme
tracking stock may diverge or appear to diverge from each other. We are not
aware of any legal precedent interpreting the fiduciary duties of the directors
of a Massachusetts corporation in that situation. Recent cases in Delaware have
established that a Delaware court will afford considerable deference to business
decisions that are made in good faith by a disinterested and adequately informed
board of directors even when those decisions involve disparate treatment of
different series of tracking stock. These Delaware cases rely upon the premise
that the board of directors owes its fiduciary duties to the corporation and all
of its stockholders and does not owe separate duties to each class or series of
stockholders. We do not know to what extent a Massachusetts court would be
influenced by these Delaware decisions. If a Massachusetts court were to follow
the reasoning in these Delaware cases, a Genzyme stockholder may not be able to
successfully challenge an action by the board of directors that has a
disadvantageous effect on a particular series of Genzyme's tracking stock.
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MEMBERS OF GENZYME'S BOARD OF DIRECTORS MAY FAVOR ONE SERIES OF TRACKING
STOCK OVER ANOTHER IF THEY OWN A DISPROPORTIONATE AMOUNT OF THAT SERIES.
A member of Genzyme's board of directors may own a disproportionate amount
of tracking stock in a particular series, or the value of his or her holdings of
a particular series of stock may be different from the value of his or her
holdings in another series. This disparate stock ownership may cause the board
member to favor one series of stock over another. Nevertheless, Genzyme believes
that a member of its board of directors could properly perform his or her
fiduciary responsibilities to all of Genzyme's stockholders even if his or her
interests in shares of different series are disproportionate or of unequal
values. Genzyme's board members may create committees to review matters that
raise conflict-of-interest issues. If a committee is formed, it would report to
the full board of directors.
HOLDERS OF GENZYME TRACKING STOCK HAVE LIMITED DECISION-MAKING POWER BECAUSE
THEY HAVE LIMITED SEPARATE VOTING RIGHTS.
Holders of all series of Genzyme tracking stock generally vote together as a
single class on all matters requiring common stockholder approval, including the
election of directors. Holders of one series of tracking stock do not have the
right to vote on matters separately from the other series except in limited
circumstances. These circumstances are dictated by Massachusetts law, Genzyme's
charter and the management and accounting policies adopted by its board of
directors. Therefore, stockholders of one series of tracking stock generally
could not make a proposal that would require approval only of the holders of
that series. Instead, they would have to obtain approval from all common
stockholders.
THE VOTES PER SHARE OF GENZYME'S TRACKING STOCKS ARE ADJUSTED EVERY TWO
YEARS.
Under Genzyme's charter, Genzyme General Stock is entitled to one vote per
share, which is never adjusted. However, the votes per share of Genzyme's other
tracking stocks are adjusted every two years. Specifically, on January 1, 2001
and every second anniversary thereafter, the vote per share to which each
outstanding tracking stock is entitled will be recalculated based on its fair
market value divided by the fair market value of a share of Genzyme General
Stock, with "fair market value" meaning the average closing price over the 20
consecutive trading days beginning the 30th trading day preceding the
January 1st adjustment date. At the time of an adjustment, the per share voting
power of any Genzyme tracking stock relative to the other series of tracking
stock could decrease materially. Additionally, during the intervening period
between adjustments, the per share voting power of each tracking stock will
remain the same even though its market price will fluctuate relative to, and
could become materially greater than, the market prices of the other tracking
stocks.
THE LIQUIDATION RIGHTS FOR EACH SERIES OF TRACKING STOCK ARE NOT ADJUSTED TO
REFLECT CHANGES IN THE MARKET VALUE OF THAT SERIES.
If Genzyme dissolves, liquidates or winds up its affairs, other than as part
of a merger, business combination or sale of substantially all of its assets,
Genzyme's stockholders would receive any remaining assets according to the
percentage of total liquidation units that they hold. The number of liquidation
units per share for each series of Genzyme tracking stock is as follows:
- each share of Genzyme General Stock has 100 liquidation units;
- each share of Molecular Oncology Stock has 25 liquidation units;
- each share of Surgical Products Stock has 61 liquidation units; and
- each share of Tissue Repair Stock has 58 liquidation units.
If Genzyme completes its merger with Biomatrix, each share of Biosurgery Stock
will have 50 liquidation units. Although Genzyme adjusts liquidation units to
prevent dilution in the event of some subdivisions, combinations or
distributions of common stock, Genzyme does not adjust them to reflect
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changes in the relative market value or performance of the divisions. Therefore,
at the time of a dissolution, liquidation or winding up, the relative
liquidation units attributable to each series of tracking stock may not
correspond to the value of the underlying assets allocated to that division.
GENZYME'S BOARD OF DIRECTORS MAY CHANGE ITS MANAGEMENT AND ACCOUNTING
POLICIES TO THE DETRIMENT OF ONE SERIES OF TRACKING STOCK WITHOUT
STOCKHOLDER APPROVAL.
Genzyme's board of directors has adopted management and accounting policies
that are used to govern its business and to prepare Genzyme's financial
statements. These policies cover the allocation of corporate expenses, assets
and liabilities and other accounting matters, and the reallocation of assets
between divisions and other matters. Genzyme's board of directors generally may
modify or rescind these policies or adopt new ones without stockholder approval.
Any revised policies could have different effects on each series of Genzyme
tracking stock and could be detrimental to one series as compared to another.
The discretion of Genzyme's board of directors to make changes is limited only
by the policies themselves and the board's fiduciary duty to all of Genzyme's
stockholders. Genzyme encourages you to review the full text of its management
and accounting policies, a copy of which is attached as Annex D to this proxy
statement/prospectus. If Genzyme completes the acquisition of Biomatrix, these
management and accounting policies will be revised to reflect the creation of
Genzyme's Biosurgery division and the elimination of Genzyme's Surgical Products
and Tissue Repair divisions.
GENZYME MAY ELIMINATE TRACKING STOCK IF A CORPORATE LEVEL TAX IS IMPOSED ON
THE ISSUANCE OF TRACKING STOCK.
In 1999, the Clinton Administration proposed tax legislation that would have
imposed a corporate level tax on issuances of tracking stock. In 2000, the
Clinton Administration proposed legislation that would tax stockholders upon the
receipt of tracking stock from the issuing corporation as a distribution or in a
tracking stock exchange. Congress has not enacted either of these proposals into
law. If these or similar proposals are enacted into law or effected through
Treasury regulations, Genzyme could be taxed on an amount up to the gain
realized in future financings in which Genzyme sells tracking stock, including
Genzyme General Stock. Also, any use of Genzyme tracking stock to acquire other
companies could result in a tax to Genzyme, the stockholders of the target
company, or both. Genzyme also may be taxed if it distributes to stockholders
"designated" shares of tracking stock, which are shares designated by the
tracked division as issuable at the option of Genzyme's board of directors for
Genzyme General's benefit. In addition, stockholders could be taxed if they
receive a distribution of designated shares of tracking stock or if they receive
shares of tracking stock in exchange for other Genzyme stock. These or similarly
adverse tax consequences could cause Genzyme to eliminate tracking stock from
its capital structure. Genzyme cannot predict, however, whether Congress will
enact legislation, or whether the Treasury Department will issue regulations
effecting these or similar proposals.
WE CANNOT ASSURE THAT GENZYME'S TRACKING STOCKS WILL "TRACK" THE PERFORMANCE
OF THE CORRESPONDING DIVISION.
Although Genzyme has attempted to design its tracking stocks to "track" the
performance of their corresponding divisions, we cannot assure that the market
prices of these stocks will indeed reflect that performance. The market may
assign values to a tracking stock that are based on factors other than a
corresponding division's reported financial performance. For instance, we cannot
be certain what, if any, valuation the market might place on the mandatory and
optional exchange features or the differing voting rights and liquidation units
of the tracking stocks. In addition, as discussed above under the subheading
"--THE HOLDERS OF GENZYME TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY
AND UNFAVORABLE FINANCIAL TRENDS AFFECTING ONE DIVISION COULD NEGATIVELY AFFECT
OTHER GENZYME DIVISIONS," financial developments in one division, particularly
if significant and/or adverse, may affect other divisions.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement/prospectus contains forward-looking statements about
Genzyme's and GelTex's financial condition, results of operations, business
strategies, operating efficiencies, competitive positions, growth opportunities
for existing products, future success of development-stage products, plans and
objectives of management and other matters. These forward-looking statements
involve a number of risks and uncertainties that could cause actual results to
differ materially from those suggested by the forward-looking statements.
Forward-looking statements, therefore, should be considered in light of all of
the information included or referred to in this proxy statement/prospectus,
including the information set forth under the heading "RISK FACTORS" beginning
on page 20.
Words such as "estimate," "project," "plan," "intend," "expect," "believe,"
"anticipate," "should," "may," "will" and similar expressions are intended to
identify forward-looking statements. These forward-looking statements are found
at various places throughout this proxy statement/prospectus and the documents
incorporated by reference.
You are cautioned not to place undue reliance on these forward-looking
statements, which speak only as of the date of this proxy statement/prospectus.
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UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION
The following unaudited pro forma combined financial information describes
the pro forma effect of Genzyme's merger with GelTex and Genzyme's merger with
Biomatrix on the
- unaudited statements of operations for the six months ended June 30, 2000
and the year ended December 31, 1999 and
- unaudited balance sheet as of June 30, 2000
of both Genzyme and Genzyme General, the division of Genzyme to which the assets
and liabilities and operations of GelTex will be allocated. In addition, the
Genzyme pro forma statement of operations for the year ended December 31, 1999
reflects the change in earnings allocations resulting from the June 1999
distribution of Surgical Products Stock as if it took place on January 1, 1999.
The purpose of this pro forma financial information is to demonstrate how the
combined financial statements of these businesses might have appeared if each of
the mergers had been completed at the beginning of the periods presented.
To determine earnings per share, Genzyme allocates its earnings to each
series of its common stock based on the earnings attributable to that series of
stock. The earnings attributable to each series of stock are defined in
Genzyme's charter as the net income or loss of the corresponding division
determined in accordance with generally accepted accounting principles and as
adjusted for tax benefits allocated to or from the division in accordance with
Genzyme's management and accounting policies. Genzyme's charter also requires
that all income and expenses of Genzyme be allocated among the divisions in a
reasonable and consistent manner. Genzyme's board of directors, however, retains
considerable discretion in determining the types, magnitudes and extent of
allocations to each series of common stock without shareholder approval.
Because the earnings allocated to Genzyme General Stock are based on the
income or losses attributable to Genzyme General, Genzyme included pro forma
financial statements of Genzyme General to aid investors in evaluating its
performance.
Holders of Genzyme General Stock will have no specific rights to the assets
allocated to Genzyme General. Genzyme Corporation will continue to hold title to
all of the assets allocated to Genzyme General and will be responsible for all
of its liabilities, regardless of what Genzyme deems for financial statement
presentation purposes as allocated to any division. Holders of Genzyme General
Stock, as common stockholders, will therefore be subject to the risks of
investing in the businesses, assets and liabilities of Genzyme, as a whole.
Genzyme has prepared the pro forma financial information using the purchase
method of accounting for both mergers. For the combination of Genzyme Surgical
Products and Genzyme Tissue Repair into Genzyme Biosurgery, no adjustments were
made to the book values of their net assets because these two divisions are
controlled by Genzyme.
Genzyme expects to have reorganization and restructuring expenses as well as
potential operating efficiencies as a result of combining the companies. The
unaudited pro forma information does not reflect these potential expenses and
efficiencies.
As a result of the merger with GelTex, each share of GelTex common stock
will automatically convert into the right to receive one of the following:
- $47.50 in cash;
- 0.7272 of a share of Genzyme General Stock; or
- a combination of cash and a fraction of a share of Genzyme General Stock.
36
<PAGE>
Genzyme estimates that cash payments to GelTex stockholders in the merger
will be approximately $509.4 million. Genzyme currently expects to fund a
portion of this amount through borrowings under senior credit facilities.
Genzyme will allocate any amounts borrowed and the associated interest expense
to Genzyme General.
Under the merger agreement with GelTex, it is expected that 50% of the
shares of GelTex common stock outstanding at the effective time of the merger
will be exchanged for cash, and the remaining 50% of the shares of GelTex common
stock will be converted into shares of Genzyme General Stock at the conversion
rate of 0.7272 share of Genzyme General Stock for each share of GelTex common
stock. If holders of more than 50% of the outstanding shares of GelTex common
stock elect to receive cash, then shares subject to those elections will receive
a combination of cash and Genzyme General Stock on a pro rata basis. Conversely,
if holders of less than 50% of the outstanding shares of GelTex common stock
elect to receive cash, the balance of available cash shall be distributed to the
other shares. Accordingly, the consideration actually received by a GelTex
shareholder may differ from the preference indicated by that stockholder.
In order to help ensure the merger will qualify as a reorganization within
the meaning of Section 368 of the Internal Revenue Code, the merger agreement
provides that, if necessary, the cash portion of the merger consideration will
be reduced at the effective time of the merger in order to ensure that at least
45% of the value of the total consideration paid, including all cash paid in
lieu of issuing fractional shares of Genzyme General Stock and other payments
required to be considered for tax purposes, consists of Genzyme General Stock.
If a tax adjustment is necessary, the per share cash consideration to be
paid in exchange for 50% of the shares of GelTex common stock would consist of a
combination of cash and a fraction of a share of Genzyme General Stock, rather
than $47.50 in cash. This combination would have a pre-tax market value of
$47.50, valuing the fraction of a share of Genzyme General Stock using the last
sale price on the date of the effective time of the merger. The exact
composition of the per share cash consideration, consequently, would depend on
the market price of Genzyme General Stock at the effective time of the merger. A
tax adjustment may be required if the market price per share of Genzyme General
Stock on the date on which the effective time occurs is below approximately
$53.44.
Additionally, each option and warrant to purchase shares of GelTex common
stock outstanding immediately before the effective time of the merger will be
assumed by Genzyme after the merger and will become an option or warrant to
acquire Genzyme General Stock. The conversion of options to purchase GelTex
common stock will be accounted for in accordance with Financial Accounting
Standards Board Interpretation No. 44 ("FIN 44").
PENDING MERGER WITH BIOMATRIX
In connection with the merger with Biomatrix and the related tracking stock
exchanges, each outstanding share of Tissue Repair Stock and Surgical Products
Stock will convert into Biosurgery Stock, the dividend and other provisions of
which are designed to track the financial performance of the Genzyme Biosurgery
division. Holders of Tissue Repair Stock and Surgical Products Stock will,
therefore, remain holders of Genzyme common stock, but will hold a security
whose dividend and other provisions are designed to track a different subset of
Genzyme's operations and assets. Additionally, the votes and liquidation units
per share of their holdings will change.
The earnings attributable to Biosurgery Stock will be defined in Genzyme's
charter as the net income or loss of Genzyme Biosurgery determined in accordance
with generally accepted accounting principles and as adjusted for tax benefits
allocated to or from Genzyme Biosurgery in accordance with Genzyme's management
and accounting policies. The earnings attributable to Surgical Products Stock
and Tissue Repair Stock are currently defined in Genzyme's charter as the net
income or loss of Genzyme Surgical Products and Genzyme Tissue Repair,
respectively, determined in accordance with
37
<PAGE>
generally accepted accounting principles and as adjusted for tax benefits
allocated to or from the division. Accordingly, the merger and tracking stock
exchanges will involve a change in Genzyme's current methodology for allocating
its earnings to its series of common stock.
As a result of the merger with Biomatrix, each outstanding share of
Biomatrix common stock will be automatically converted into, at the election of
the holder and subject to overall percentage limitations, the right to receive
one of the following:
- $37.00 in cash;
- one share of Biosurgery Stock; or
- a combination of cash and a fraction of a share of Biosurgery Stock.
Under the merger agreement, it is expected that 28.38% of the shares of
Biomatrix common stock outstanding at the effective time of the merger will be
exchanged for cash, and the remaining 71.62% of the shares of Biomatrix common
stock will be converted into shares of Biosurgery Stock at the conversion rate
of one share of Biosurgery Stock for each share of Biomatrix common stock.
To ensure that the value of all Biosurgery Stock issued in the merger is at
least 45% of the total merger consideration, the number of shares of Biomatrix
common stock exchanged for shares of Biosurgery Stock in the merger may be
increased and the number of shares of Biomatrix common stock exchanged for cash
may be decreased. This adjustment will occur if the price of Biomatrix common
stock is less than approximately $19.10 per share at the closing date. The
purpose of this adjustment would be to preserve the status of the merger as a
reorganization for U.S. federal income tax purposes. Such an adjustment would
not alter either the cash price of $37.00 per share or the one-for-one share
exchange ratio. For this purpose, the value of the Biosurgery Stock will be as
determined in good faith by the Genzyme board of directors. In addition, the
number of shares of Biomatrix common stock that convert into the cash
consideration will decrease to the extent Biomatrix stockholders exercise
dissenters' rights. The attached pro forma financial statements assume no
dissenting shares. The pro forma financial information has been prepared
assuming that the measurement date for the Biomatrix acquisition is March 6,
2000, the date on which the terms of the merger were fixed and transaction was
publicly announced.
If the Biomatrix common stock is trading at a price below approximately
$19.10 per share at closing, then there would be an increase in the number of
shares of Biomatrix common stock exchanged for shares of Biosurgery Stock, which
would be offset by a decrease in the number of shares of Biomatrix common stock
exchanged for cash, resulting in a net increase to the total number of shares of
Biosurgery Stock issued in the transaction. The change in the number of shares
exchanged would create a new measurement date for the transaction. For example,
if the fair market value of Biomatrix common stock were $19.00 on the closing
date, then the changes in the purchase price allocation would be as follows:
goodwill would decrease from $246 million to $0; intangible assets would
decrease from $460 million to $363 million; in-process research and development
would decrease from $128 million to $101 million; amortization expense per annum
would decrease from $65 million to $34 million; and loss per share would
decrease from $(3.33) to $(2.44). For every $1.00 by which the price of
Biomatrix common stock decreases under $19.00 per share, goodwill would remain
at $0; intangible assets would decrease by $26 million; in-process research and
development would decrease by $7 million; amortization expense would decrease by
$2 million and loss per share would decrease by $0.07.
Upon completion of the Genzyme share exchanges, each outstanding share of
Surgical Products Stock will convert into the right to receive 0.6060 share of
Biosurgery Stock and each outstanding share of Tissue Repair Stock will convert
into the right to receive 0.3352 share of Biosurgery Stock. Additionally, all
outstanding options to purchase Surgical Products Stock, Tissue Repair Stock and
Biomatrix common stock will convert into options to purchase Biosurgery Stock at
the respective
38
<PAGE>
conversion rates. The conversion of options to purchase Biomatrix common stock
will be accounted for in accordance with FIN 44.
These unaudited pro forma balance sheets and statements of operations are
for informational purposes only. They do not purport to indicate the results
that would have actually been obtained had the mergers been completed on the
assumed date or for the periods presented, or which may be obtained in the
future. To produce the pro forma financial information, Genzyme allocated the
purchase price using its best estimates. The unaudited pro forma balance sheets
and statements of operations should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the financial statements, including the notes, of Genzyme, Genzyme General, and
GelTex appearing in the documents described under "WHERE YOU CAN FIND MORE
INFORMATION" beginning on page 130.
39
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
GENZYME
HISTORICAL CORPORATION
GENZYME HISTORICAL PRO FORMA NOTE AND HISTORICAL
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX
------------- ---------------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net product sales........ $ 683,482 $ 72,000 $ -- $ 755,482 $ --
Net service sales........ 79,448 -- -- 79,448 --
Collaborative joint
venture project
reimbursement.......... -- -- -- -- 5,781
Revenues from research
and development
contracts:
Related parties........ 2,012 -- -- 2,012 --
Other.................. 7,346 -- -- 7,346 10,668
Income from licenses,
royalties, research
contracts and grants... -- 7,700 -- 7,700 --
--------- -------- -------- --------- --------
Total revenues......... 772,288 79,700 -- 851,988 16,449
--------- -------- -------- --------- --------
Operating costs and
expenses:
Cost of products sold.... 182,337 21,100 581 B7 204,018 --
Cost of services sold.... 49,444 -- -- 49,444 --
Selling, general and
administrative......... 242,797 18,500 1,728 B7 263,025 6,935
Collaborative joint
venture project
costs.................. -- -- -- -- 5,781
Research and development
(including research and
development relating to
contracts)............. 150,516 9,100 548 B7 160,164 32,602
Amortization of
intangibles............ 24,674 -- 65,051 B6 89,725 --
Purchase of in-process
research and
development............ 5,436 -- -- 5,436 9,530
--------- -------- -------- --------- --------
Total operating costs
and expenses......... 655,204 48,700 67,908 771,812 54,848
--------- -------- -------- --------- --------
Operating income (loss).... 117,084 31,000 (67,908) 80,176 (38,399)
--------- -------- -------- --------- --------
Other income (expenses):
Equity in net loss of
unconsolidated
affiliates............. (42,696) -- -- (42,696) (7,937)
Gain on affiliate sale of
stock.................. 6,683 -- -- 6,683 --
Gain on sale of
investment in equity
securities............. 1,963 -- -- 1,963 --
Minority interest........ 3,674 -- -- 3,674 --
Gain on sale of product
line................... 8,018 -- -- 8,018 --
Charge for impaired
investments............ (5,712) -- -- (5,712) --
Other.................... 14,527 -- -- 14,527 --
Investment income........ 36,158 1,500 (2,453) B11 35,205 4,372
Interest expense......... (21,771) (1,500) (15,000) B11 (38,271) (485)
--------- -------- -------- --------- --------
Total other income
(expenses)........... 844 -- (17,453) (16,609) (4,050)
--------- -------- -------- --------- --------
Income (loss) before income
taxes.................... 117,928 31,000 (85,361) 63,567 (42,449)
Income tax (provision)
benefit.................. (46,947) (12,400) 21,661 B10 (37,686) --
--------- -------- -------- --------- --------
Net income (loss).......... $ 70,981 $ 18,600 $(63,700) $ 25,881 $(42,449)
========= ======== ======== ========= ========
<CAPTION>
PRO FORMA
GENZYME
PRO FORMA NOTE CORPORATION AND
ADJUSTMENTS REFERENCE SUBSIDIARIES
------------- ---------- -----------------
<S> <C> <C> <C>
Revenues:
Net product sales........ $ 17,676 G12 $ 773,158
Net service sales........ -- 79,448
Collaborative joint
venture project
reimbursement.......... (5,781) G11 --
Revenues from research
and development
contracts:
Related parties........ 1,557 G12 3,569
Other.................. -- 18,014
Income from licenses,
royalties, research
contracts and grants... -- 7,700
--------- ---------
Total revenues......... 13,452 881,889
--------- ---------
Operating costs and
expenses:
Cost of products sold.... 5,826 G12 209,844
Cost of services sold.... -- 49,444
Selling, general and
administrative......... 18,624 G12
2,129 G8 290,713
Collaborative joint
venture project
costs.................. (5,781) G11
Research and development
(including research and
development relating to
contracts)............. 2,940 G8
11,154 G12 206,860
Amortization of
intangibles............ 64,350 G7 154,075
Purchase of in-process
research and
development............ -- 14,966
--------- ---------
Total operating costs
and expenses......... 99,242 925,902
--------- ---------
Operating income (loss).... (85,790) (44,013)
--------- ---------
Other income (expenses):
Equity in net loss of
unconsolidated
affiliates............. 7,937 G12
8,107 G12 (34,589)
Gain on affiliate sale of
stock.................. -- 6,683
Gain on sale of
investment in equity
securities............. -- 1,963
Minority interest........ -- 3,674
Gain on sale of product
line................... -- 8,018
Charge for impaired
investments............ -- (5,712)
Other.................... -- 14,527
Investment income........ (19,588) G10
166 G12 20,155
Interest expense......... (11,250) G10 (50,006)
--------- ---------
Total other income
(expenses)........... (14,628) (35,287)
--------- ---------
Income (loss) before income
taxes.................... (100,418) (79,300)
Income tax (provision)
benefit.................. 34,304 G13 (3,382)
--------- ---------
Net income (loss).......... $ (66,114) $ (82,682)
========= =========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
40
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
GENZYME
HISTORICAL HISTORICAL CORPORATION
GENZYME BIOMATRIX, PRO FORMA NOTE AND HISTORICAL PRO FORMA
CORPORATION INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX ADJUSTMENTS
----------- ---------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK:
Genzyme General net income....... $142,077 $ -- $ 142,077 $(108,563)
Genzyme Surgical Products net
loss........................... (27,523) 27,523 B13 --
Tax benefit allocated from
Genzyme Molecular Oncology..... 7,812 7,812
Tax benefit allocated from
Genzyme Surgical Products...... 16,128 (16,128) B12 --
Tax benefit allocated from
Genzyme Tissue Repair.......... 10,866 (10,866) B12 --
Tax benefit allocated from
Genzyme Biosurgery............. -- 20,877 B12 20,877
-------- --------- --------- ---------
Net income allocated to Genzyme
General Stock.................. $149,360 $ 21,406 $ 170,766 $(108,563)
======== ========= ========= =========
Net income per share of Genzyme
General Stock:
Basic.......................... $ 1.80 $ 2.06
======== =========
Diluted........................ $ 1.71 $ 1.94
======== =========
Weighted average shares
outstanding:
Basic.......................... 83,092 83,092 6,182
======== ========= =========
Diluted........................ 93,228 93,228 (537)
======== ========= =========
ALLOCATED TO MOLECULAR ONCOLOGY
STOCK:
Net loss......................... $(28,832) $ (28,832)
======== =========
Net loss per share of Molecular
Oncology Stock -- basic and
diluted........................ $ (2.25) $ (2.25)
======== =========
Weighted average shares
outstanding.................... 12,826 12,826
======== =========
ALLOCATED TO SURGICAL PRODUCTS
STOCK:
Net loss......................... $(20,514) $ 20,514 B9 $ --
======== ========= =========
Net loss per share of Surgical
Products Stock --basic and
diluted........................ $ (1.38) $ 1.38 B9 $ --
======== ========= =========
Weighted average shares
outstanding.................... 14,835 (14,835) B8 --
======== ========= =========
ALLOCATED TO TISSUE REPAIR STOCK:
Net loss......................... $(30,040) $ 30,040 B9 $ --
======== ========= =========
Net loss per share of Tissue
Repair Stock --basic and
diluted........................ $ (1.26) $ 1.26 B9 $ --
======== ========= =========
Weighted average shares
outstanding.................... 23,807 (23,807) B8 --
======== ========= =========
BIOMATRIX, INC.:
Net income....................... $18,600 $ (18,600) B9 $ --
======= =========
Net income per Biomatrix common
share-basic.................... $ 0.81 $ (0.81) B9 $ --
======= =========
Weighted average shares
outstanding.................... 22,959 (22,959) B8 --
======= =========
Net income per Biomatrix common
and common equivalent
share-diluted.................. $ 0.76 $ (0.76) B9 $ --
======= =========
Adjusted weighted average shares
outstanding.................... 24,350 (24,350) B8 --
======= =========
ALLOCATED TO BIOSURGERY STOCK:
Net loss......................... $(117,060) B9 $(117,060)
========= =========
Net loss per share of Biosurgery
Stock --basic and diluted...... $ (3.33) B9 $ (3.33)
========= =========
Weighted average shares
outstanding.................... 35,166 B9 35,166
========= =========
GELTEX PHARMACEUTICALS, INC.:
Net loss......................... $(42,449) $ 42,449
======== =========
Net loss per share of GelTex
common stock--basic and
diluted........................ $ (2.50) $ 2.50
======== =========
Weighted average shares
outstanding.................... 17,003 (17,003)
======== =========
<CAPTION>
PRO FORMA
GENZYME
CORPORATION
NOTE AND
REFERENCE SUBSIDIARIES
--------- ------------
<S> <C> <C>
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK:
Genzyme General net income....... $ 33,514
Genzyme Surgical Products net
loss........................... --
Tax benefit allocated from
Genzyme Molecular Oncology..... 7,812
Tax benefit allocated from
Genzyme Surgical Products...... --
Tax benefit allocated from
Genzyme Tissue Repair.......... --
Tax benefit allocated from
Genzyme Biosurgery............. 20,877
---------
Net income allocated to Genzyme
General Stock.................. $ 62,203
=========
Net income per share of Genzyme
General Stock:
Basic.......................... $ 0.70
=========
Diluted........................ $ 0.67
=========
Weighted average shares
outstanding:
Basic.......................... G9 89,274
=========
Diluted........................ G9 92,691
=========
ALLOCATED TO MOLECULAR ONCOLOGY
STOCK:
Net loss......................... $ (28,832)
=========
Net loss per share of Molecular
Oncology Stock -- basic and
diluted........................ $ (2.25)
=========
Weighted average shares
outstanding.................... 12,826
=========
ALLOCATED TO SURGICAL PRODUCTS
STOCK:
Net loss......................... $ --
=========
Net loss per share of Surgical
Products Stock --basic and
diluted........................ $ --
=========
Weighted average shares
outstanding.................... --
=========
ALLOCATED TO TISSUE REPAIR STOCK:
Net loss......................... $ --
=========
Net loss per share of Tissue
Repair Stock --basic and
diluted........................ $ --
=========
Weighted average shares
outstanding.................... --
=========
BIOMATRIX, INC.:
Net income....................... $ --
=========
Net income per Biomatrix common
share-basic.................... $ --
=========
Weighted average shares
outstanding.................... --
=========
Net income per Biomatrix common
and common equivalent
share-diluted.................. $ --
=========
Adjusted weighted average shares
outstanding.................... --
=========
ALLOCATED TO BIOSURGERY STOCK:
Net loss......................... $(117,060)
=========
Net loss per share of Biosurgery
Stock --basic and diluted...... $ (3.33)
=========
Weighted average shares
outstanding.................... 35,166
=========
GELTEX PHARMACEUTICALS, INC.:
Net loss......................... G14 $ --
=========
Net loss per share of GelTex
common stock--basic and
diluted........................ G14 $ --
=========
Weighted average shares
outstanding.................... G9 --
=========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
41
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
GENZYME
HISTORICAL CORPORATION
GENZYME HISTORICAL PRO FORMA NOTE AND HISTORICAL
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX
------------- ---------------- ------------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net product sales............ $ 385,860 $ 36,500 $ -- $ 422,360 $ --
Net service sales............ 42,313 -- -- 42,313 --
Collaborative joint venture
project reimbursement...... -- -- -- -- 2,441
Revenues from research and
development contracts:
Related parties............ 245 245 --
Other...................... 3,625 -- -- 3,625 29,304
Income from licenses,
royalties, research
contracts and grants....... -- 7,400 -- 7,400 --
--------- -------- -------- --------- --------
Total revenues........... 432,043 43,900 -- 475,943 31,745
--------- -------- -------- --------- --------
Operating costs and expenses:
Cost of products sold........ 101,902 11,000 291 B7 113,193 --
Cost of services sold........ 23,818 -- 23,818 --
Selling, general and
administrative............. 128,979 14,700 864 B7 144,543 3,347
Collaborative joint venture
project costs.............. -- -- -- -- 2,441
Research and development
(including research and
development related to
contracts)................. 84,276 5,300 274 B7 89,850 14,645
Amortization of
intangibles................ 11,782 32,526 B6 44,308 --
--------- -------- -------- --------- --------
Total operating costs and
expenses............... 350,757 31,000 33,955 415,712 20,433
--------- -------- -------- --------- --------
Operating income (loss)........ 81,286 12,900 (33,955) 60,231 11,312
--------- -------- -------- --------- --------
Other income (expenses):
Equity in net loss of
unconsolidated
subsidiaries............... (19,446) -- -- (19,446) (604)
Gain on affiliate sale of
stock...................... 20,270 -- -- 20,270 --
Minority interest............ 2,208 -- -- 2,208 --
Gain on sale of investment in
equity securities.......... 14,165 -- -- 14,165 --
Other........................ 5,195 -- -- 5,195 --
Investment income............ 20,575 1,300 (1,226) B11 20,649 2,326
Interest expense............. (7,775) (500) (7,500) B11 (15,775) --
--------- -------- -------- --------- --------
Total other income
(expenses)............. 35,192 800 (8,726) 27,266 1,722
--------- -------- -------- --------- --------
Income (loss) before income
taxes........................ 116,478 13,700 (42,681) 87,497 13,034
Income tax (provision)
benefit...................... (35,168) (5,500) 10,831 B10 (29,837) --
--------- -------- -------- --------- --------
Net income (loss).............. $ 81,310 $ 8,200 $(31,850) $ 57,660 $ 13,034
========= ======== ======== ========= ========
<CAPTION>
PRO FORMA
GENZYME
CORPORATION
PRO FORMA NOTE AND
ADJUSTMENTS REFERENCE SUBSIDIARIES
------------- ---------- -------------
<S> <C> <C> <C>
Revenues:
Net product sales............ $ 10,570 G12 $ 432,930
Net service sales............ -- 42,313
Collaborative joint venture
project reimbursement...... (2,441) G11 --
Revenues from research and
development contracts:
Related parties............ -- 245
Other...................... 15 G12 32,944
Income from licenses,
royalties, research
contracts and grants....... -- 7,400
--------- ---------
Total revenues........... 8,144 515,832
--------- ---------
Operating costs and expenses:
Cost of products sold........ 4,109 G12 117,302
Cost of services sold........ -- 23,818
Selling, general and
administrative............. 12,235 G12 160,125
Collaborative joint venture
project costs.............. (2,441) G11 --
Research and development
(including research and
development related to
contracts)................. 3,661 G12 108,156
Amortization of
intangibles................ 32,176 G7 76,484
--------- ---------
Total operating costs and
expenses............... 49,740 485,885
--------- ---------
Operating income (loss)........ (41,596) 29,947
--------- ---------
Other income (expenses):
Equity in net loss of
unconsolidated
subsidiaries............... 604 G12
1,789 G11
4,248 G12 (13,409)
Gain on affiliate sale of
stock...................... -- 20,270
Minority interest............ -- 2,208
Gain on sale of investment in
equity securities.......... -- 14,165
Other........................ -- 5,195
Investment income............ (9,645) G10 13,330
Interest expense............. (5,625) G10 (21,400)
--------- ---------
Total other income
(expenses)............. (8,629) 20,359
--------- ---------
Income (loss) before income
taxes........................ (50,225) 50,306
Income tax (provision)
benefit...................... 7,451 G13 (22,386)
--------- ---------
Net income (loss).............. $ (42,774) $ 27,920
========= =========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
42
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS (CONTINUED)
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
GENZYME
HISTORICAL HISTORICAL CORPORATION
GENZYME BIOMATRIX, PRO FORMA NOTE AND HISTORICAL PRO FORMA
CORPORATION INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX ADJUSTMENTS
----------- ---------- ----------- --------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK:
Genzyme General net income....... $109,299 $ -- $109,299 $(29,740)
Tax benefit allocated from
Genzyme Molecular Oncology..... 3,537 3,537
Tax benefit allocated from
Genzyme Surgical Products...... 6,656 (6,656) B12 --
Tax benefit allocated from
Genzyme Tissue Repair.......... 3,180 (3,180) B12 --
Tax benefit allocated from
Genzyme Biosurgery............. -- 7,478 B12 7,478
-------- -------- -------- --------
Net income allocated to Genzyme
General Stock.................. $122,672 $ (2,358) $120,314 $(29,740)
======== ======== ======== ========
Net income per share of Genzyme
General Stock:
Basic.......................... $ 1.45 $ 1.42
======== ========
Diluted........................ $ 1.35 $ 1.32
======== ========
Weighted average shares
outstanding:
Basic.......................... 84,725 84,725 7,029
======== ======== ========
Diluted........................ 94,885 94,885 7,344
======== ======== ========
ALLOCATED TO MOLECULAR ONCOLOGY
STOCK:
Net loss......................... $(12,420) $(12,420)
======== ========
Net loss per share of Molecular
Oncology Stock--basic and
diluted........................ $ (0.92) $ (0.92)
======== ========
Weighted average shares
outstanding.................... 13,561 13,561
======== ========
ALLOCATED TO SURGICAL PRODUCTS
STOCK:
Net loss......................... $(20,410) $ 20,410 B9 $ --
======== ======== ========
Net loss per share of Surgical
Products Stock--basic and
diluted........................ $ (1.37) $ 1.37 B9 $ --
======== ======== ========
Weighted average shares
outstanding.................... 14,880 (14,880) B8 --
======== ======== ========
ALLOCATED TO TISSUE REPAIR STOCK:
Net loss......................... $ (9,002) $ 9,002 B9 $ --
======== ======== ========
Net loss per share of Tissue
Repair Stock--basic and
diluted........................ $ (0.31) $ 0.31 B9 $ --
======== ======== ========
Weighted average shares
outstanding.................... 28,598 (28,598) B8 --
======== ======== ========
BIOMATRIX, INC.:
Net income....................... $ 8,200 $ (8,200) B9 $ --
======= ======== ========
Net income per Biomatrix common
share-basic.................... $ 0.35 $ (0.35) B9 $ --
======= ======== ========
Weighted average shares
outstanding.................... 23,340 (23,340) B8 --
======= ======== ========
Net income per Biomatrix common
and common equivalent
share-diluted.................. $ 0.34 $ (0.34) B9 $ --
======= ======== ========
Adjusted weighted average shares
outstanding.................... 24,489 (24,489) B8 --
======= ======== ========
ALLOCATED TO BIOSURGERY STOCK:
Net loss......................... $(50,704) B9 $(50,704)
======== ========
Net loss per share of Biosurgery
Stock--basic and diluted....... $ (1.44) B9 $ (1.44)
======== ========
Weighted average shares
outstanding.................... 35,166 B9 35,166
======== ========
GELTEX PHARMACEUTICALS, INC.:
Net income..................... $13,034 $(13,034)
======= ========
Net income per GelTex common
share--basic................. $ 0.67 $ (0.67)
======= ========
Weighted average shares
outstanding.................. 19,331 (19,331)
======= ========
Net income per GelTex common
and equivalent share--
diluted...................... $ 0.66 $ (0.66)
======= ========
Adjusted weighted average
shares outstanding........... 19,775 (19,775)
======= ========
<CAPTION>
PRO FORMA
GENZYME
CORPORATION
NOTE AND
REFERENCE SUBSIDIARIES
--------- ------------
<S> <C> <C>
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK:
Genzyme General net income....... $ 79,559
Tax benefit allocated from
Genzyme Molecular Oncology..... 3,537
Tax benefit allocated from
Genzyme Surgical Products...... --
Tax benefit allocated from
Genzyme Tissue Repair.......... --
Tax benefit allocated from
Genzyme Biosurgery............. 7,478
--------
Net income allocated to Genzyme
General Stock.................. $ 90,574
========
Net income per share of Genzyme
General Stock:
Basic.......................... $ 0.99
========
Diluted........................ $ 0.94
========
Weighted average shares
outstanding:
Basic.......................... G9 91,754
========
Diluted........................ G9 102,229
========
ALLOCATED TO MOLECULAR ONCOLOGY
STOCK:
Net loss......................... $(12,420)
========
Net loss per share of Molecular
Oncology Stock--basic and
diluted........................ $ (0.92)
========
Weighted average shares
outstanding.................... 13,561
========
ALLOCATED TO SURGICAL PRODUCTS
STOCK:
Net loss......................... $ --
========
Net loss per share of Surgical
Products Stock--basic and
diluted........................ $ --
========
Weighted average shares
outstanding.................... --
========
ALLOCATED TO TISSUE REPAIR STOCK:
Net loss......................... $ --
========
Net loss per share of Tissue
Repair Stock--basic and
diluted........................ $ --
========
Weighted average shares
outstanding.................... --
========
BIOMATRIX, INC.:
Net income....................... $ --
========
Net income per Biomatrix common
share-basic.................... $ --
========
Weighted average shares
outstanding.................... --
========
Net income per Biomatrix common
and common equivalent
share-diluted.................. $ --
========
Adjusted weighted average shares
outstanding.................... --
========
ALLOCATED TO BIOSURGERY STOCK:
Net loss......................... $(50,704)
========
Net loss per share of Biosurgery
Stock--basic and diluted....... $ (1.44)
========
Weighted average shares
outstanding.................... 35,166
========
GELTEX PHARMACEUTICALS, INC.:
Net income..................... G14 $ --
========
Net income per GelTex common
share--basic................. G14 $ --
========
Weighted average shares
outstanding.................. G9 --
========
Net income per GelTex common
and equivalent share--
diluted...................... G14 $ --
========
Adjusted weighted average
shares outstanding........... G9 --
========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
43
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL GENZYME
GENZYME HISTORICAL PRO FORMA NOTE CORPORATION AND HISTORICAL PRO FORMA
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX ADJUSTMENTS
--------------- --------------- ----------- --------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents......... $ 178,730 $ 37,400 $ (45,000) B1 $ 171,130 $ 67,402 $(100,000)
2,555
Short-term
investments......... 182,877 -- -- 182,877 51,684 (100,000)
Accounts receivable,
net................. 180,947 13,400 -- 194,347 -- (541)
Inventories........... 127,347 8,500 17,900 B5 153,747 -- 9,166
12,317
(315)
Prepaid expenses and
other current
assets.............. 25,720 10,000 -- 35,720 5,228 667
Deferred tax assets--
current............. 40,776 -- -- 40,776 -- --
---------- -------- --------- ---------- -------- ---------
Total current
assets.......... 736,397 69,300 (27,100) 778,597 124,314 (176,151)
Property, plant and
equipment, net........ 396,048 40,200 (1,418) B5 434,830 13,847 7,532
Long-term receivables,
affiliates............ -- -- -- -- 341 (341)
Long-term investments... 332,603 -- -- 332,603 -- (159,416)
Notes
receivable--related
party................. 10,000 -- -- 10,000 -- --
Intangibles, net........ 241,077 -- 245,685 B1
460,273 B1 947,035 7,772 932,653
(7,772)
714
Deferred tax assets--
noncurrent............ 14,690 -- -- 14,690 -- 32,500
Investments in equity
securities............ 108,732 -- -- 108,732 -- (2,044)
Other noncurrent
assets................ 55,518 800 -- 56,318 16,989 (2,134)
(26,067)
---------- -------- --------- ---------- -------- ---------
Total assets...... $1,895,065 $110,300 $ 677,440 $2,682,805 $163,263 $ 599,474
========== ======== ========= ========== ======== =========
<CAPTION>
PRO FORMA
GENZYME
NOTE CORPORATION AND
REFERENCE SUBSIDIARIES
--------- ---------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents......... G1 $ --
G6 141,087
Short-term
investments......... G1 134,561
Accounts receivable,
net................. G4 193,806
Inventories........... G1
G6
G4 174,915
Prepaid expenses and
other current
assets.............. G6 41,615
Deferred tax assets--
current............. 40,776
----------
Total current
assets.......... 726,760
Property, plant and
equipment, net........ G6 456,209
Long-term receivables,
affiliates............ G4 --
Long-term investments... G1 173,187
Notes
receivable--related
party................. 10,000
Intangibles, net........
G1
G5
G6 1,880,402
Deferred tax assets--
noncurrent............ G1 47,190
Investments in equity
securities............ G1 106,688
Other noncurrent
assets................ G4
G4 45,106
----------
Total assets...... $3,445,542
==========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
44
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL GENZYME
GENZYME HISTORICAL PRO FORMA NOTE CORPORATION AND HISTORICAL
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX
----------- --------------- ----------- --------- --------------- ----------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable.............. $ 22,087 $ 1,200 $ -- $ 23,287 $ --
Accrued expenses.............. 71,674 11,100 16,000 B2 98,774 3,494
Income taxes payable.......... 43,609 -- -- 43,609 --
Deferred revenue.............. 4,619 -- -- 4,619 --
Current portion of notes
payable and long-term debt
and capital lease
obligations................. 992 900 -- 1,892 1,513
---------- -------- --------- ---------- -------
Total current
liabilities............. 142,981 13,200 16,000 172,181 5,007
Notes payable and long-term debt
and capital lease
obligations................... 18,283 11,300 200,000 B1 229,583 5,849
Convertible notes and
debentures, net............... 273,150 273,150 --
Deferred tax
liabilities--noncurrent....... -- 172,028 B1 172,028 --
Other noncurrent liabilities.... 2,889 2,889 563
---------- -------- --------- ---------- -------
Total liabilities......... 437,303 24,500 388,028 849,831 11,419
---------- -------- --------- ---------- -------
Stockholders' equity:
Genzyme General Stock, $.01
par value................... 854 854 --
Molecular Oncology Stock, $.01
par value................... 137 137 --
Surgical Products Stock, $.01
par value................... 150 (150) B4 -- --
Tissue Repair Stock, $.01 par
value....................... 288 (288) B4 -- --
Biosurgery Stock, $.01 par
value....................... -- 352 B4 352 --
Treasury Stock--at cost....... (901) (901) --
Additional paid-in capital--
Genzyme General Stock....... 478,455 478,455 --
Additional paid-in capital--
Molecular Oncology Stock.... 84,036 84,036 --
Additional paid-in capital--
Surgical Products Stock..... 542,966 (542,966) B4 -- --
Additional paid-in capital--
Tissue Repair Stock......... 222,959 (222,959) B4 -- --
Additional paid-in capital--
Biosurgery Stock............ -- 542,966 B4
222,959 B4
378,358 B1
65,029 B1
100,200 B3
(16,000) B2
86 B4
1,429 B1
(1,429) B1 1,293,598
Notes receivable--related
parties..................... -- (14,400) B3 (14,400) --
<CAPTION>
PRO FORMA
GENZYME
CORPORATION
PRO FORMA NOTE AND
ADJUSTMENTS REFERENCE SUBSIDIARIES
----------- --------- ------------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable.............. $ (3,914) G4 $ 19,373
Accrued expenses.............. 10,000 G2
4,115 G6 116,383
Income taxes payable.......... -- 43,609
Deferred revenue.............. 240 G6 4,859
Current portion of notes
payable and long-term debt
and capital lease
obligations................. -- 3,405
--------- ---------
Total current
liabilities............. 10,441 187,629
Notes payable and long-term debt
and capital lease
obligations................... 150,000 G1 385,432
Convertible notes and
debentures, net............... -- 273,150
Deferred tax
liabilities--noncurrent....... 161,090 G1 333,118
Other noncurrent liabilities.... -- 3,452
--------- ---------
Total liabilities......... 321,531 1,182,781
--------- ---------
Stockholders' equity:
Genzyme General Stock, $.01
par value................... 78 G1 932
Molecular Oncology Stock, $.01
par value................... -- 137
Surgical Products Stock, $.01
par value................... -- --
Tissue Repair Stock, $.01 par
value....................... -- --
Biosurgery Stock, $.01 par
value....................... -- 352
Treasury Stock--at cost....... -- (901)
Additional paid-in capital--
Genzyme General Stock....... 485,650 G1
71,217 G1 1,035,322
--
Additional paid-in capital--
Molecular Oncology Stock.... -- 84,036
Additional paid-in capital--
Surgical Products Stock..... -- --
Additional paid-in capital--
Tissue Repair Stock......... -- --
Additional paid-in capital--
Biosurgery Stock............
1,293,598
Notes receivable--related
parties..................... -- (14,400)
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
45
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET (CONTINUED)
AS OF JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL GENZYME
GENZYME HISTORICAL PRO FORMA NOTE CORPORATION AND HISTORICAL PRO FORMA
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE BIOMATRIX GELTEX ADJUSTMENTS
--------------- --------------- ----------- --------- --------------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Deferred
compensation........ -- (10,000) B1 (10,000) -- (5,069)
--
Retained earnings
(accumulated
deficit)............ 138,512 (127,975) B1 10,537 -- (118,964)
(3,578)
Biomatrix common
stock, $.0001 par
value............... -- -- -- --
Biomatrix additional
paid-in capital..... -- 83,600 (83,600) B3 -- -- --
Biomatrix notes
receivable--related
parties............. -- (14,400) 14,400 B3 -- -- --
Biomatrix treasury
stock, at cost...... -- (900) 900 B3 -- -- --
Biomatrix retained
earnings............ -- 19,100 (19,100) B3 -- -- --
GelTex Pharmaceuticals
common stock, $.01
par value........... -- -- -- 204 (204)
GelTex Pharmaceuticals
additional paid-in
capital............. -- -- -- 248,098 (248,098)
GelTex Pharmaceuticals
deferred
compensation........ -- -- -- (329) 329
GelTex Pharmaceuticals
accumulated
deficit............. -- -- -- (95,928) 95,928
Accumulated other
comprehensive income
(loss).............. (9,694) (1,600) 1,600 B3 (9,694) (201) 201
453
---------- -------- --------- ---------- -------- ---------
Total
stockholders'
equity.......... 1,457,762 85,800 289,412 1,832,974 151,844 277,943
---------- -------- --------- ---------- -------- ---------
Total liabilities
and
stockholders'
equity.......... $1,895,065 $110,300 $ 677,440 $2,682,805 $163,263 $ 599,474
========== ======== ========= ========== ======== =========
<CAPTION>
PRO FORMA
GENZYME
NOTE CORPORATION AND
REFERENCE SUBSIDIARIES
--------- ---------------
<S> <C> <C>
Deferred
compensation........ G1 (15,069)
Retained earnings
(accumulated
deficit)............ G1
G4 (112,005)
Biomatrix common
stock, $.0001 par
value............... --
Biomatrix additional
paid-in capital..... --
Biomatrix notes
receivable--related
parties............. --
Biomatrix treasury
stock, at cost...... --
Biomatrix retained
earnings............ --
GelTex Pharmaceuticals
common stock, $.01
par value........... G3 --
GelTex Pharmaceuticals
additional paid-in
capital............. G3 --
GelTex Pharmaceuticals
deferred
compensation........ G3 --
GelTex Pharmaceuticals
accumulated
deficit............. G3 --
Accumulated other
comprehensive income
(loss).............. G3
G1 (9,241)
----------
Total
stockholders'
equity.......... 2,262,761
----------
Total liabilities
and
stockholders'
equity.......... $3,445,542
==========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
46
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
GENZYME HISTORICAL PRO FORMA NOTE GENZYME
GENERAL GELTEX ADJUSTMENTS REFERENCE GENERAL
---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
Revenues:
Net product sales......................................... $571,531 $ -- $ 17,676 G25 $589,207
Net service sales......................................... 57,223 -- -- 57,223
Collaborative joint venture project reimbursement......... -- 5,781 (5,781) G24 --
Revenues from research and development contracts:
Related parties......................................... 1,516 -- 1,557 G25 3,073
Other................................................... 5,096 10,668 -- 15,764
-------- -------- -------- --------
Total revenues............................................ 635,366 16,449 13,452 665,267
-------- -------- -------- --------
Operating costs and expenses:
Cost of products sold..................................... 115,125 -- 5,826 G25 120,951
Cost of services sold..................................... 35,637 -- -- 35,637
Selling, general and administrative....................... 149,427 6,935 18,624 G25
2,129 G22 177,115
Collaborative joint venture project costs................. -- 5,781 (5,781) G24 --
Research and development (including research and
development contracts).................................. 97,746 32,602 2,940 G22
11,154 G25 144,442
Amortization of intangibles............................... 8,106 -- 64,350 G21 72,456
Purchase of in-process research and development........... 5,436 9,530 -- 14,966
-------- -------- -------- --------
Total operating costs and expenses...................... 411,477 54,848 99,242 565,567
-------- -------- -------- --------
Operating income (loss)..................................... 223,889 (38,399) (85,790) 99,700
-------- -------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated affiliates........... (37,423) (7,937) 7,937 G25
8,107 G25 (29,316)
Gain on affliate sale of stock............................ 6,683 -- -- 6,683
Gain on sale of investment in equity securities........... 1,963 -- -- 1,963
Minority interest......................................... 3,674 -- -- 3,674
Gain on sale of product line.............................. 8,018 -- -- 8,018
Charge for impaired investments........................... (5,712) -- -- (5,712)
Other..................................................... 14,389 -- -- 14,389
Investment income......................................... 30,881 4,372 (19,588) G23
166 G25 15,831
Interest expense.......................................... (19,885) (485) (11,250) G23 (31,620)
-------- -------- -------- --------
Total other income (expenses)........................... 2,588 (4,050) (14,628) (16,090)
-------- -------- -------- --------
Income before income taxes.................................. 226,477 (42,449) (100,418) 83,610
Income tax (provision) benefit.............................. (84,400) -- 34,304 G26 (50,096)
-------- -------- -------- --------
Division net income (loss).................................. $142,077 $(42,449) $(66,114) $ 33,514
======== ======== ======== ========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
47
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
HISTORICAL FORMA
GENZYME HISTORICAL PRO FORMA NOTE GENZYME
GENERAL GELTEX ADJUSTMENTS REFERENCE GENERAL
---------- ---------- ----------- --------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Net product sales.................................... $326,809 $ -- $ 10,570 G25 $337,379
Net service sales.................................... 30,181 -- -- 30,181
Collaborative joint venture project reimbursement.... -- 2,441 (2,441) G24 --
Revenues from research and development contracts:
Related parties.................................... 245 -- -- G25 245
Other.............................................. 85 29,304 15 29,404
-------- ------- -------- --------
Total revenues....................................... 357,320 31,745 8,144 397,209
-------- ------- -------- --------
Operating costs and expenses:
Cost of products sold................................ 69,271 -- 4,109 G25 73,380
Cost of services sold................................ 17,772 -- -- 17,772
Selling, general and administrative.................. 81,194 3,347 12,235 G25 96,776
Collaborative joint venture project costs............ -- 2,441 (2,441) G24 --
Research and development (including research and
development contracts)............................. 58,134 14,645 3,661 G25 76,440
Amortization of intangibles.......................... 3,979 -- 32,176 G21 36,155
-------- ------- -------- --------
Total operating costs and expenses................. 230,350 20,433 49,740 300,523
-------- ------- -------- --------
Operating income (loss)................................ 126,970 11,312 (41,596) 96,686
-------- ------- -------- --------
Other income (expenses):
Equity in net loss of unconsolidated affiliates...... (19,446) (604) 604 G25
1,789 G24
4,248 G25 (13,409)
Gain on affiliate sale of stock...................... 20,270 -- -- 20,270
Gain on sale of investment in equity securities...... 14,165 -- -- 14,165
Minority interest.................................... 2,208 -- -- 2,208
Other................................................ 5,153 -- -- 5,153
Investment income.................................... 16,726 2,326 (9,645) G23 9,407
Interest expense..................................... (6,992) -- (5,625) G23 (12,617)
-------- ------- -------- --------
Total other income (expenses)...................... 32,084 1,722 (8,629) 25,177
-------- ------- -------- --------
Income before income taxes............................. 159,054 13,034 (50,225) 121,863
Income tax (provision) benefit......................... (49,755) -- 7,451 G26 (42,304)
-------- ------- -------- --------
Division net income (loss)............................. $109,299 $13,034 $(42,774) $ 79,559
======== ======= ======== ========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
48
<PAGE>
GENZYME GENERAL
A DIVISION OF GENZYME CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
GENZYME HISTORICAL PRO FORMA NOTE GENZYME
GENERAL GELTEX ADJUSTMENTS REFERENCE GENERAL
---------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 154,474 $ 67,402 $(100,000) G15 $
2,555 G20 124,431
Short-term investments.................................... 118,650 51,684 (100,000) G15 70,334
Accounts receivable, net.................................. 153,783 -- (541) G18 153,242
Inventories............................................... 86,138 -- 9,166 G15
12,317 G20
(315) G18 107,306
Prepaid expenses and other current assets................. 24,200 5,228 667 G20 30,095
Due from Genzyme Molecular Oncology....................... 4,104 -- -- 4,104
Due from Genzyme Surgical Products........................ 8,368 -- -- 8,368
Due from Genzyme Tissue Repair............................ 214 -- -- 214
Deferred tax assets-current............................... 40,776 -- -- 40,776
---------- -------- --------- ----------
Total current assets.................................... 590,707 124,314 (176,151) 538,870
Property, plant and equipment, net.......................... 375,449 13,847 7,532 G20 396,828
Long-term receivables-affiliates............................ -- 341 (341) G18 --
Long-term investments....................................... 312,853 -- (159,416) G15 153,437
Notes receivable-related party.............................. 10,000 -- -- 10,000
Intangibles, net............................................ 71,177 7,772 932,653 G15
(7,772) G19 --
714 G20 1,004,544
Deferred tax assets-noncurrent.............................. 13,319 -- 32,500 G15 45,819
Investments in equity securities............................ 104,458 -- (2,044) G15 102,414
Other....................................................... 51,639 16,989 (2,134) G18
(26,067) G18 40,427
---------- -------- --------- ----------
Total assets............................................ $1,529,602 $163,263 $ 599,474 $2,292,339
========== ======== ========= ==========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable.......................................... $ 16,278 $ -- $ (3,914) G18 $ 12,364
Accrued expenses.......................................... 59,124 3,494 10,000 G16
4,115 G20 76,733
Income taxes payable...................................... 43,609 -- -- 43,609
Deferred revenue.......................................... 3,880 -- 240 G20 4,120
Current portion of long-term debt and capital lease
obligations............................................. 887 1,513 -- 2,400
---------- -------- --------- ----------
Total current liabilities................................. 123,778 5,007 10,441 139,226
Notes payable and long-term debt and capital lease
obligations............................................. 73 5,849 150,000 G15 155,922
Convertible notes and debentures, net..................... 273,150 -- -- 273,150
Deferred tax liabilities-noncurrent....................... -- -- 161,090 G15 161,090
Other..................................................... 2,737 563 -- 3,300
---------- -------- --------- ----------
Total liabilities....................................... 399,738 11,419 321,531 732,688
---------- -------- --------- ----------
Division equity:
Division equity........................................... 1,129,864 78 G15
485,650 G15
71,217 G15
(5,069) G15
(118,964) G15
(3,578) G18
453 G15 1,559,651
GelTex Pharmaceuticals common stock, $.01 par value....... 204 (204) G17
GelTex Pharmaceuticals additional paid-in capital......... 248,098 (248,098) G17
GelTex Pharmaceuticals deferred compensation.............. (329) 329 G17
GelTex Pharmaceuticals accumulated deficit................ (95,928) 95,928 G17
Accumulated other comprehensive income (loss)............. (201) 201 G17
---------- -------- --------- --- ----------
Total division equity................................... 1,129,864 151,844 277,943 1,559,651
---------- -------- --------- ----------
Total liabilities and division equity................. $1,529,602 $163,263 $ 599,474 $2,292,339
========== ======== ========= ==========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
49
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES AND PRO FORMA INFORMATION
The unaudited pro forma combined financial statements reflect the pro forma
effect of Genzyme's merger with GelTex and Genzyme's merger with Biomatrix on
the
- unaudited statements of operations for the six months ended June 30, 2000
and the year ended December 31, 1999 and
- unaudited balance sheet as of June 30, 2000
of both Genzyme and Genzyme General, the division of Genzyme to which the assets
and liabilities and operations of GelTex will be allocated.
The pro forma balance sheets give effect to the mergers of Genzyme with
Biomatrix and GelTex and the combination of Genzyme Surgical Products and
Genzyme Tissue Repair as if they occurred on June 30, 2000. The pro forma
statements of operations have been presented to give effect to the mergers of
Genzyme with both Biomatrix and GelTex using the purchase method of accounting
and the combination of Genzyme Surgical Products and Genzyme Tissue Repair using
the historical accounting basis as if such transactions had occurred January 1,
1999.
In addition to giving effect to the mergers with Biomatrix and GelTex, the
pro forma statement of operations for the year ended December 31, 1999 shows
Genzyme's earnings allocated to Genzyme General Stock and earnings per share of
Genzyme General Stock, adjusted to reflect the changes in earnings allocations
resulting from the June 1999 creation and distribution of Surgical Products
Stock as if such change took place on January 1, 1999.
(2) GENZYME'S PENDING ACQUISITIONS
(A) GENZYME'S PENDING ACQUISITION OF BIOMATRIX
Genzyme entered into the merger agreement to acquire Biomatrix on March 6,
2000. Upon consummation of the merger Biomatrix will merge into a specially
formed, wholly-owned subsidiary of Genzyme. Concurrently with the merger:
- Genzyme Biosurgery will be created as a new division of Genzyme;
- the businesses of Genzyme Surgical Products and Genzyme Tissue Repair will
be reallocated to Genzyme Biosurgery; and
- the businesses of Biomatrix will be allocated to Genzyme Biosurgery.
For the purposes of the unaudited pro forma financial statements, we used
the following exchange ratios to determine the number of shares of Biosurgery
Stock that would be distributed:
- 0.6060 multiplied by the number of shares of Surgical Products Stock
outstanding;
- 0.3352 multiplied by the number of shares of Tissue Repair Stock
outstanding; and
- 0.7162 multiplied by the number of Biomatrix shares outstanding (based on
a one-for-one exchange ratio for 71.62% of the Biomatrix shares).
This results in approximately:
- 8,990,000 shares of Biosurgery Stock exchanged for 14,835,000 shares of
Surgical Products Stock;
- 9,555,000 shares of Biosurgery Stock exchanged for 28,504,000 shares of
Tissue Repair Stock; and
50
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(2) GENZYME'S PENDING ACQUISITIONS (CONTINUED)
- 16,621,000 shares of Biosurgery Stock and approximately $245.0 million of
cash, exchanged for 23,207,000 shares of Biomatrix common stock.
In addition, options to purchase:
- 2,991,000 shares of Surgical Products Stock under the Genzyme equity
plans,
- 4,176,000 shares of Tissue Repair Stock under the Genzyme equity plans,
and
- 2,731,000 shares of Biomatrix common stock under the Biomatrix equity
plans
will be converted to options to purchase approximately 1,812,000, 1,400,000, and
2,731,000 shares of Biosurgery Stock, respectively. Using the acquisition price
of Biomatrix common stock and certain other assumptions in the Black-Scholes
option valuation model, the Biosurgery options issued in exchange for the
Biomatrix options are valued at approximately $75.0 million. In accordance with
FIN 44, the intrinsic value of the portion of the unvested options related to
the future service period of $10.0 million is allocated to deferred compensation
in stockholders' equity for Genzyme or division equity for Genzyme Biosurgery,
rather than to goodwill. The unvested portion is being amortized to operating
expense over the remaining vesting periods of generally less than four years.
(B) GENZYME'S PENDING ACQUISITION OF GELTEX
Genzyme entered into a merger agreement to acquire GelTex on September 11,
2000. For purposes of the unaudited pro forma financial statements, we assumed
that Genzyme would issue $509.4 million in cash and $485.7 million in Genzyme
General Stock for all of the outstanding shares of GelTex common stock. Using
the stock price of Genzyme General Stock based on the average trading price over
three days before and after the September 11, 2000 announcement of the merger,
approximately 7.8 million shares of Genzyme General Stock will be issued in
exchange for shares of GelTex common stock. In addition, options to purchase
2,323,718 shares of GelTex common stock and warrants to purchase 117,269 shares
of GelTex common stock will be exchanged for options and warrants to purchase
approximately 1,775,086 shares of Genzyme General Stock. The vesting of GelTex
options granted to employees of GelTex before the effective date of the merger
will be accelerated as of the first anniversary of the effective date of the
merger as long as they remain employees of GelTex or Genzyme on the one year
anniversary date. Additionally, the vesting of stock options granted to
directors and several officers of GelTex will be accelerated immediately upon
the effective time of the merger. Using the Black-Scholes valuation model, the
options and warrants to purchase Genzyme General Stock issued in exchange for
the GelTex options and warrants have a value of approximately $71.2 million. In
accordance with FIN 44, the intrinsic value of the portion of the unvested
options related to the future service period of $5.1 million is allocated to
deferred compensation in stockholders' equity for Genzyme. The unvested portion
is being amortized to operating expense over the remaining vesting period of
approximately one year.
(3) PURCHASE PRICE ALLOCATION
(A) BIOMATRIX
The aggregate purchase price of $780.2 million (based on the average closing
prices for the Surgical Products Stock and Tissue Repair Stock, as described in
Note 4) will be allocated to the
51
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
acquired tangible and intangible assets and liabilities based on their estimated
respective fair values as of June 30, 2000 (amounts in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents................................... $ 37,400
Accounts receivable......................................... 13,400
Inventory................................................... 26,400
Prepaid expenses and other current assets................... 10,000
Property, plant & equipment................................. 38,782
Other assets................................................ 800
Intangible assets (to be amortized over 1.5 to 11.0
years).................................................... 460,273
Goodwill (to be amortized over 11.0 years).................. 245,685
In-process research and development......................... 127,975
Acquisition costs........................................... 16,000
Assumed liabilities......................................... (24,500)
Deferred tax liability...................................... (172,028)
---------
Aggregate purchase price............................ $ 780,187
=========
</TABLE>
The total purchase price, the fair value of assets and liabilities acquired,
the allocation of purchase price and the lives of the goodwill and intangible
assets will be determined upon completion of the merger and may vary from the
amounts presented herein.
In connection with the purchase of Biomatrix, Genzyme expects approximately
$128.0 million of the purchase price to be allocated to in-process research and
development, or IPR&D. Genzyme management assumes responsibility for determining
the IPR&D valuation. Genzyme has engaged an independent third-party appraisal
company to assist in the valuation of the intangible assets acquired. The
valuation is expected to be completed upon closing the transaction.
The fair value assigned to purchased IPR&D was estimated by discounting, to
present value, the cash flows expected to result from each project once it has
reached technological feasibility. A discount rate consistent with the risks of
each project was used to estimate the present value of cash flows. In estimating
future cash flows, management considered other tangible and intangible assets
required for successful exploitation of the technology resulting from each
purchased IPR&D project and adjusted future cash flows for a charge reflecting
the contribution to value of these assets. The estimated future cash flows
resulting from purchased IPR&D were adjusted for the contribution of core
technology to the value of each IPR&D project. The value assigned to purchased
research and development was the amount attributable to the efforts of Biomatrix
up to the time of acquisition. This amount was estimated through application of
the "stage of completion" calculation by multiplying total estimated revenue for
IPR&D by the percentage of completion of each purchased research and development
project at the time of acquisition.
The nature of the efforts to develop the purchased IPR&D into commercially
viable products, principally relates to the completion and/or acceleration of
existing development programs, including the mandatory completion of several
phases of clinical trials and the general and administrative costs necessary to
manage the projects and trials. Assuming the approval of the product by the FDA,
costs related to the wide scale manufacturing, distribution, and marketing of
the products are included in the projection. The resulting net cash flows from
such projects are based on Genzyme management's
52
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
estimates of revenues, cost of sales, research and development expenses, sales
and marketing expenses, general and administrative expenses, and the anticipated
income tax effect.
The discounting of net cash flows back to their present value is based on
the weighted average cost of capital, or WACC. The WACC calculation produces the
average required rate of return of an investment in an operating enterprise,
based on various required rates of return from investments in various areas of
that enterprise. The discount rate utilized in discounting the net cash flows
from purchased IPR&D was 25%. This discount rate is higher than Genzyme's WACC
due to the inherent uncertainties surrounding the successful development of the
purchased IPR&D.
The forecast data employed in the analyses was based upon product level
forecast information obtained by Genzyme from numerous internal and external
resources. These resources included publicly available databases, external
market research consultants and internal experts. Genzyme senior management
reviewed and challenged the forecast data and related assumptions and utilized
the information in analyzing IPR&D. The forecast data and assumptions are
inherently uncertain and unpredictable. However, based upon the information
available at this time, Genzyme management believes the forecast data and
assumptions to be reasonable. These assumptions may be incomplete or inaccurate,
and no assurance can be given that unanticipated events and circumstances will
not occur. Accordingly, actual results may vary from the forecasted results. Any
such variance may result in a material adverse effect on Genzyme's financial
condition and results of operations.
In the allocation of purchase price to the IPR&D, the concept of alternative
future use was specifically considered for each of the programs under
development. The acquired IPR&D consists of Biomatrix' work to complete each of
the identified programs. The programs are very specific to the disease and
market for which they are intended. There are no alternative uses for the
in-process programs in the event that the programs fail in clinical trials or
are otherwise not feasible. The development effort for the acquired IPR&D does
not possess an alternative future use for Genzyme as defined by generally
accepted accounting principles.
Below is a brief description of IPR&D projects including an estimation of
when management believes Genzyme may realize revenues from the sale of these
products in the respective application.
VISCOSUPPLEMENTATION. Viscosupplementation is the use of elastoviscous
solutions and viscoelastic gels in disease conditions to supplement tissues and
body fluids, alleviating pain and restoring normal function. Biomatrix expects
to complete clinical studies demonstrating the efficacy of Synvisc as a
treatment for chronic hip pain by late 2000 and receive marketing approval early
in 2001. Prior clinical studies have demonstrated the product's safety. Although
clinical results to date are positive, there can be no assurance that
statistically significant results will be observed in the current clinical
trial. Future costs for this program are estimated to be less than
$1.0 million. A discount rate of 25% was utilized in discounting these estimated
cash flows. This product is already marketed for the treatment of osteoarthritis
of the knee in the United States and 38 foreign countries.
VISCOAUGMENTATION. Viscoaugmentation is the use of viscoelastic gels to
provide scaffolding for tissue regeneration or as an inert elastic filler for
tissues of the skin and the subcutaneous and intermuscular connective tissues.
Hylaform is a viscoelastic Hylan B gel for injection into facial tissue.
Clinical studies in the United States will begin in 2000. These studies will be
completed and analyzed by early 2001. Although clinical results to date are
positive, there can be no assurance that statistically significant results will
be observed in the current clinical trials. Assuming favorable results in these
studies, we expect that approval to market this product will be obtained by
mid-2001 in the United
53
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
States. Biomatrix currently expects to launch the product in the United States
before the end of 2001, although there can be no assurance that the product will
be launched or that the launch will occur within this time period. This product
is already marketed for the same indication in 21 foreign countries.
Hylagel Uro is a viscoelastic Hylan B gel implant for the treatment of
urinary stress incontinence. It is injected intramuscularly to augment the soft
connective tissue in between the sphincter muscle of the urethra. This product
provides an important advancement in the treatment of urinary stress
incontinence, a condition that affects over one million people in the United
States. Pilot clinical studies conducted in the United States at two clinical
centers under FDA approved protocols have been successfully completed. These
initial studies demonstrated that the product is safe and has clinical utility.
A pivotal one-year study will begin in 2000 at clinical centers in the United
States. It is expected that the studies will be completed, evaluated and
submitted for FDA approval by the middle of 2002. When this study is completed,
the data will also be submitted for approval in Canada and Europe. Although
clinical results to date are positive, there can be no assurance that
statistically significant results will be observed in the current clinical
trial. Assuming favorable results in these studies, Biomatrix currently expects
that during 2003 Hylagel Uro will be marketed in the United States and Canada,
although there can be no assurance that the product will be launched or that the
launch will occur within this time period.
The future costs of these programs are estimated to be approximately
$4 million. A discount rate of 25% was utilized in discounting these estimated
cash flows.
VISCOSEPARATION (ANTI-ADHESION). Viscoseparation is the use of viscoelastic
gels and membranes to separate tissues and to decrease formation of adhesions
and excessive scars after surgery.
Hylagel Nuro is for spinal surgery and herniated lumbar intervertabral disc
surgery. Hylagel Nuro is a combination of Hylan A fluid and Hylan B gel for
application directly at the surgical site to reduce post surgical adhesions and
scarring which often cause chronic pain. Hylagel Nuro is classified as a device
by regulatory authorities. A multicenter clinical study started in the United
States in late 1999 and, currently, studies are being initiated in Germany,
France, the United Kingdom and Belgium. The completion of this study is expected
by the fourth quarter of 2001, and submissions for regulatory approvals in the
United States, Canada and Europe will occur shortly thereafter. Although
clinical results to date are positive, there can be no assurance that
statistically significant results will be observed in the current clinical
trial. Assuming favorable results in these studies, Biomatrix believes that
Hylagel Nuro can be launched in Europe by the second quarter of 2002 and in the
United States by the fourth quarter of the same year, although there can be no
assurance that the product will be launched or that the launch will occur within
this time period.
A discount rate of 25% was utilized in discounting these estimated cash
flows. The valuation of these programs assumes that sales of Hylagel Nuro could
begin in 2002. The estimated aggregate future clinical costs to develop this
indication will be approximately $8.0 million.
54
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
The Biomatrix research and development programs currently in process were
valued as follows (amounts in thousands):
<TABLE>
<S> <C>
Viscosupplementation........................................ $ 49,100
Viscoaugmentation........................................... 12,300
Viscoseparation............................................. 66,575
--------
$127,975
========
</TABLE>
(B) GELTEX
The aggregate purchase price of $1,076.4 million will be allocated to the
acquired tangible and intangible assets and liabilities based on their estimated
respective fair value as of June 30, 2000 (amounts in thousands):
<TABLE>
<S> <C>
Cash and investments........................................ $ 119,086
Prepaid expenses and other current assets................... 4,509
Inventory................................................... 21,168
Property, plant & equipment................................. 13,847
Intangible assets (to be amortized over 5 to 15 years)...... 437,812
Goodwill (to be amortized over 15 years).................... 494,841
In-process research and development......................... 118,964
Deferred tax asset.......................................... 32,500
Deferred compensation....................................... 5,069
Other assets, net........................................... 1,074
Assumed liabilities......................................... (11,419)
Deferred tax liability...................................... (161,090)
----------
Aggregate purchase price.................................... $1,076,361
==========
</TABLE>
The total purchase price, the fair value of assets and liabilities acquired,
the allocation of purchase price and the lives of the goodwill and intangible
assets will be determined upon completion of the merger and may vary from the
amounts presented herein.
As part of the acquisition of GelTex, Genzyme will acquire all of GelTex's
interest in RenaGel LLC, a joint venture between Genzyme and GelTex. Prior to
the acquisition of GelTex, Genzyme accounted for its investment in RenaGel LLC
under the equity method. The adjustments below also reflect the consolidation of
RenaGel LLC into Genzyme's financial statements and accounting for the purchase
by Genzyme of GelTex's 50%-interest in the joint venture using the purchase
method of accounting. The assets and liabilities of the joint venture are
reflected in the amounts above. Because Genzyme already owns a 50% interest in
RenaGel LLC, the assets of RenaGel LLC are adjusted to fair value only to the
extent of the 50%-interest Genzyme is acquiring.
In connection with the purchase of GelTex, Genzyme expects approximately
$119.0 million of the purchase price to be allocated to in-process research and
development, or IPR&D. Genzyme management assumes responsibility for determining
the IPR&D valuation. Genzyme has engaged an independent third-party appraisal
company to assist in the valuation of the intangible assets acquired. The
valuation is expected to be completed upon closing the transaction.
55
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
The fair value assigned to purchased IPR&D was estimated by discounting, to
present value, the cash flows expected to result from each project once it has
reached technological feasibility. A discount rate consistent with the risks of
each project was used to estimate the present value of cash flows. In estimating
future cash flows, management considered other tangible and intangible assets
required for successful exploitation of the technology resulting from each
purchased IPR&D project and adjusted future cash flows for a charge reflecting
the contribution to value of these assets. The estimated future cash flows
resulting from purchased IPR&D were adjusted for the contribution of core
technology to the value of each IPR&D project. The value assigned to purchased
research and development was the amount attributable to the efforts of GelTex up
to the time of acquisition. This amount was estimated through application of the
"stage of completion" calculation by multiplying total estimated revenue for
IPR&D by the percentage of completion of each purchased research and development
project at the time of acquisition.
Below is a brief description of the in-process research and development
projects including an estimation of when management believes Genzyme Corporation
may realize revenues from the sale of these products in the respective
application.
RENAGEL. Renagel brand phosphate binder is a non-absorbed polymer for the
treatment of hyperphosphatemia. GelTex has undertaken a series of clinical
studies that are designed to demonstrate the compound's role in the prevention
of cardiac calcification and the mortality and morbidity associated with cardiac
calcification. GelTex has also undertaken clinical studies designed to
demonstrate the compound's role in limiting the complications of
hyperphosphatemia in pre-dialysis patients. Clinical studies are scheduled for
completion in 2002, 2003 and 2004 for these various indications. Although
clinical results to date have been positive, there can be no assurance that
statistically significant results will be observed in ongoing or future clinical
trials.
Future costs for these programs are estimated at $20.0 million. A discount
rate of 35% was utilized in discounting the estimated cash flows associated with
these programs.
C. DIFFICILE. The goal of the C. DIFFICILE program is to develop a
toxin-binding polymer for the treatment and prevention of antibiotic induced
C. DIFFICILE colitis. GelTex has completed a phase I study, and expects to
initiate a phase II study in 2000. Although clinical results to date have been
positive, there can be no assurance that statistically significant results will
be observed in ongoing or future clinical trials. Assuming favorable results in
future studies, it is expected that approval to market this product will be
obtained by 2005 in the U.S., although there can be no assurance that a product
will be launched or that the launch will occur within this time period.
The future cost of this program is estimated to be approximately
$37.0 million. A discount rate of 38% was utilized in discounting these
estimated cash flows.
ORAL MUCOSITIS. Oral Mucositis is common side effect of radiation therapy
and chemotherapy. GelTex has identified a series of compounds that alone and in
combination have demonstrated efficacy in animal models of Oral Mucositis.
GelTex expects that an IND will be filed in the fourth quarter of 2001 and
product launch is expected in 2005, although there can be no assurance that an
IND will be filed or a product launched, or that the filing or launch will occur
within this time period.
The future cost of this program is estimated to be approximately
$25.0 million. A discount rate of 40% was utilized in discounting these
estimated cash flows.
56
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
DENSPM. The DENSPM program is focused on the development of a compound for
the treatment of mild to moderate psoriasis. Toxicology studies are underway and
GelTex expects to file an IND during the first quarter of 2001. Phase I safety
and dose-ranging studies are scheduled for 2001 and product launch is
anticipated in 2005, although there can be no assurance that an IND will be
filed or a product launched, or that the filing or launch will occur within this
time period.
The future cost of this program is estimated to be approximately
$30.0 million. A discount rate of 40% was utilized in discounting these
estimated cash flows.
IRON CHELATION. The iron chelator program is focused on the prevention and
treatment of transfusional or hereditary iron overload. GelTex has identified
small molecule compounds that are highly effective, orally active iron
chelators. Compounds to date display an acceptable tolerability profile for
further progression. GelTex expects to file an IND in 2001 and hopes to launch
the product in 2005, although there can be no assurance that an IND will be
filed or a product launched, or that the filing or launch will occur within this
time period.
The future cost of this program is estimated to be approximately
$31.0 million. A discount rate of 40% was utilized in discounting these
estimated cash flows.
ANTI-OBESITY. The anti-obesity program builds on GelTex's expertise in
non-absorbed polymers. The program is focused on the development of a compound
that will inhibit lipase and bind fat. GelTex expects to file an IND early in
2002 and hopes to launch a product in 2006, although there can be no assurance
that an IND will be filed or a product launched, or that the filing or launch
will occur within this time period.
The future cost of this program is estimated to be approximately
$39.0 million. A discount rate of 40% was utilized in discounting these
estimated cash flows.
GT102-279. GT102-279 is a second generation lipid-lowering compound that
has the attributes of GelTex's WelChol lipid lowering agent, but requires 50%
fewer tablets. This ease of use could result in higher compliance and greater
efficacy, resulting in broader market penetration. One Phase II study has been
completed and a second Phase II study is in progress. GelTex expects to complete
clinical studies late in 2003 with product launch in 2004. Although clinical
results to date have been positive, there can be no assurance that statistically
significant results will be observed in ongoing or future clinical trials, that
a product will be launched, or that the launch will occur within this time
period.
Under the terms of GelTex's collaboration agreement with Sankyo, Sankyo was
granted an option to license this compound. To keep this option in place, Sankyo
must fund the future development cost of this program. A discount rate of 38%
was utilized in discounting these estimated cash flows.
57
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
The GelTex research and development programs currently in process were
valued as follows (amounts in thousands):
<TABLE>
<CAPTION>
<S> <C>
Renagel (Calcification and pre-dialysis) $19,803
C. DIFFICILE 37,508
Iron Chelation 15,767
Anti-Obesity 17,844
DENSPM 3,461
Oral Mucositis 18,375
GT102-279 6,206
--------
$118,964
========
</TABLE>
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX
These adjustments reflect the retirement of all Surgical Products Stock,
Tissue Repair Stock and Biomatrix common stock and the issuance of Biosurgery
Stock. The value ascribed to the Biosurgery Stock to be exchanged for Biomatrix
common stock for purchase price accounting is $27.32 per share, which
approximates the combined five day average closing prices of Surgical Products
Stock and Tissue Repair Stock (commencing March 2 and ending March 8, 2000),
divided by the exchange ratios of 0.6060 and 0.3352, respectively.
The aggregate purchase price is comprised of the following (amounts in
thousands):
<TABLE>
<S> <C>
Issuance of 16,621,000 shares of Biosurgery Stock........... $454,158
Cash payment................................................ 245,000
--------
Subtotal.................................................. 699,158
Issuance of Biosurgery options to Biomatrix optionholders... 65,029
Acquisition costs........................................... 16,000
--------
Aggregate purchase price............................ $780,187
========
</TABLE>
58
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
I. PRO FORMA ADJUSTMENTS TO GENZYME CORPORATION'S CONSOLIDATED BALANCE SHEET
(B1) To record the acquisition of the net assets of Biomatrix for an
aggregate purchase price of $780.2 million (see Note A). The intangible
assets of approximately $706.0 million are as follows:
<TABLE>
<CAPTION>
USEFUL LIFE AMOUNTS
DESCRIPTION IN YEARS IN THOUSANDS
----------- ----------- ------------
<S> <C> <C>
Workforce............................................. 10.0 $ 2,104
Non-compete agreements................................ 1.5 630
Distribution agreements............................... 8.0 14,420
Trademark/trade name.................................. 11.0 89,414
Patented core technology.............................. 11.0 107,496
Current products technology........................... 11.0 246,209
Goodwill.............................................. 11.0 245,685
--------
Total............................................. $705,958
========
</TABLE>
The $128.0 million allocated to in-process technology has been charged to
accumulated deficit for purposes of pro forma balance sheet presentation
only and will be charged to expense in Genzyme's historical financial
statements upon completion of the merger with Biomatrix. The goodwill of
$245.7 million consists of the excess of the purchase price over the fair
market value of net assets acquired. A deferred tax liability of
$172.0 million has been generated from the creation of intangible assets,
excluding goodwill. An amount of $200.0 million of debt will be obtained
by Genzyme in order to finance the cash payment portion of the purchase
price, and the remaining approximately $45.0 million will be paid from
the existing cash balances.
The purchase price includes $65.0 million for the estimated fair value of
the Genzyme Biosurgery options that will be issued in exchange for the
Biomatrix options. This estimated fair value was calculated using the
Black-Scholes option pricing model based on a stock price of $27.32,
which is the value of ascribed to the Biosurgery Stock for purchase price
accounting, and other assumptions in the Black-Scholes model. The portion
of the intrinsic value of unvested options relating to future service,
which is estimated to be $10.0 million, has been allocated to deferred
compensation in the pro forma consolidated balance sheet. In the pro
forma consolidated statements of operations, compensation expense has
been recorded to reflect the amortization of this deferred compensation
over the average remaining vesting period of 3.5 years. This amortization
expense of approximately $2.9 million annually has been recorded to the
appropriate expense category based on the payroll classification of the
grantee. Prior to the closing of the merger and under the terms of the
merger agreement, Biomatrix expects to modify the stock option awards of
one executive and two non-employee directors to immediately accelerate
any unvested options upon the closing of the merger. In addition,
Biomatrix expects to modify the option plan to provide that if any
employee's employment is terminated within one year following the merger
other than (i) by Genzyme Biosurgery for Cause (as defined in the
Biomatrix Separation Pay Plan), (ii) by reason of death or (iii) by the
employee without Good Reason (as defined in the Biomatrix Separation Pay
Plan), all unvested options will immediately vest and become exercisable
as of the date of termination. Biomatrix expects that the aforementioned
modifications will be made upon stockholder and board approvals and
concurrent with the closing of the merger. At the time
59
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
that the options and option plan are modified, Biomatrix will measure any
compensation expense based on the stock price at the date that the
modifications are made. Based on the market value of the Biomatrix' stock
price on August 1, 2000, Biomatrix estimates the impact of the immediate
acceleration of the unvested options of the executive and non-employee
directors to be approximately $0.5 million which will be recorded in the
Biomatrix financial statements at the modification date. Biomatrix will
record additional compensation expense for any unvested options that will
accelerate at the date on which an employee is terminated. Based on
Biomatrix' August 1, 2000 stock price, the intrinsic value of the
employee options is approximately $5.5 million. These amounts are subject
to change based on the stock price at the date of modification and based
on the unvested shares subject to acceleration.
(B2) To record $16.0 million of accrued expenses related to the estimated
acquisition costs that have not been reflected in the historical
balances as of June 30, 2000.
(B3) To eliminate Biomatrix historical stockholders' equity amounts totaling
$100.2 million, except for the Biomatrix notes receivable of
$14.4 million, which will remain outstanding upon completion of the
transaction. Biomatrix received these full recourse notes in exchange
for the purchase of Biomatrix common stock at fair market value by
certain officers, directors and a consultant in accordance with a
restricted stock plan. To the extent the holders receive cash, as
consideration for their restricted shares, it must be used to repay the
balance of the same quantity of shares under the notes. Therefore, the
balance of the notes could change. The quantity of the decrease to the
balance of the notes will not be known until the acquisition is
effective.
(B4) To record the cancellation of Surgical Products Stock and Tissue Repair
Stock, by eliminating the par value of common stock of $150,000 and
$288,000, respectively; and additional paid-in capital of
$543.0 million and $223.0 million, respectively; and to record the
issuance of Biosurgery Stock, with par value of $352,000 and additional
paid-in capital transferred from Surgical Products Stock and Tissue
Repair Stock of $766.0 million.
(B5) To record inventory and fixed assets of Biomatrix at fair value, by
increasing the inventory by $17.9 million and decreasing the fixed
assets by $1.4 million. The increased basis for the inventory valuation
will result in a $17.9 million decrease in gross margin as the units are
sold, after the acquisition. This impact has not been reflected in the
pro forma statements of operations because it is a material
non-recurring charge that will be reflected in operations in the twelve
month period following the merger.
60
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
II. PRO FORMA ADJUSTMENTS TO GENZYME CORPORATION'S CONSOLIDATED STATEMENTS OF
OPERATIONS
(B6) To record the amortization of acquired intangible assets and goodwill
(amounts in thousands):
<TABLE>
<CAPTION>
AMORTIZATION
ASSIGNED ----------------------
VALUE ANNUAL SEMI-ANNUAL
-------- -------- -----------
<S> <C> <C> <C>
Intangible assets:
Workforce (10 years)........................ $ 2,104 $ 210 $ 105
Non-compete agreements (1.5 years).......... 630 420 210
Distribution agreements (8 years)........... 14,420 1,802 901
Trademark/trade name (11 years)............. 89,414 8,129 4,064
Patented core technology (11 years)......... 107,496 9,772 4,886
Current products technology (11 years)...... 246,209 22,383 11,192
Goodwill (11 years)......................... 245,685 22,335 11,168
-------- ------- -------
Pro forma adjustment for amortization of
intangibles........................... $705,958 $65,051 $32,526
======== ======= =======
</TABLE>
(B7) To record amortization of deferred compensation associated with Genzyme
Biosurgery options that will be issued in exchange for Biomatrix
options, compensation expense has been recorded to reflect the
amortization of deferred compensation over the average remaining vesting
period of 3.5 years. The amortization expense of approximately $2.9
million annually has been recorded to the appropriate expense category
based on the payroll classification of the grantee.
(B8) To eliminate Biomatrix' weighted average shares outstanding, and to
record the cancellation of Surgical Products Stock and Tissue Repair
Stock.
(B9) To record the creation of Biosurgery Stock. Net losses for Genzyme
Surgical Products and Genzyme Tissue Repair and net income for Biomatrix
have been transferred to the calculation of loss per share allocated to
Biosurgery Stock. The net income amount for Biomatrix of $13.7 million
for the six months ended June 30, 2000 and $31.0 million for the year
ended December 31, 1999 reflects the elimination of the $5.5 million and
$12.4 million tax provision, respectively because Genzyme Biosurgery
incurred a pro forma net loss for each period. The pro forma statements
of operations for the six months ended June 30, 2000 and the year ended
December 31, 1999 assume 35,166,000 shares of Biosurgery Stock were
issued on January 1, 1999 (see Note 2).
(B10) To adjust the tax provision for the impact of the amortization of
acquired intangibles, the reduction in investment income, the additional
interest expense and the amortization of the deferred tax liability
established in purchase accounting. These adjustments plus the impact of
including Biomatrix' income in determining Genzyme's tax provision would
increase Genzyme's effective tax rate from 29.9% to 34.1% for the six
months ended June 30, 2000 and from 39.8% to 59.3% for the year ended
December 31, 1999. Income taxes are allocated to Genzyme Biosurgery
based upon the financial statement income, taxable income, credits and
other amounts properly allocable to each division under generally
accepted accounting principles as if it were a separate taxpayer. The
realizability of deferred tax assets is assessed at the division level.
61
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
(B11) To record interest expense that would have been incurred on the
$200.0 million of debt, at a rate of 7.5% per annum; and to reduce the
investment income balance to reflect the payment of $45.0 million of
cash at a rate of return of 5.45% per annum.
(B12) To eliminate the tax benefits of Genzyme Surgical Products and Genzyme
Tissue Repair that had been allocated to Genzyme General and to allocate
the pro forma tax benefits of Genzyme Biosurgery to Genzyme General.
Genzyme's management and accounting policies provide that, if as of the
end of any fiscal quarter, a division can not use any projected annual
tax benefit attributable to it to offset or reduce its current or
deferred income tax expense, Genzyme may allocate the tax benefit to
other divisions in proportion to their taxable income without any
compensating payments or allocation to the division generating the
benefit. The tax benefits allocated to Genzyme General from Genzyme
Surgical Products and Genzyme Tissue Repair totaled $27 million for the
year ended December 31, 1999 and $9.8 million in the six months ended
June 30, 2000. On a pro forma basis, the tax benefits allocated to
Genzyme General from Genzyme Biosurgery would have been $20.8 million
for the year ended December 31, 1999 and $7.5 million for the six months
ended June 30, 2000. The tax benefits generated by Genzyme Biosurgery
and allocated to Genzyme General are lower on a pro forma basis due to
Biomatrix' profitability offsetting losses incurred by Genzyme Surgical
Products and Genzyme Tissue Repair.
(B13) To eliminate Genzyme Surgical Products' loss from earnings allocated to
Genzyme General Stock to reflect the change in Genzyme's earnings
allocation resulting from the creation and distribution of Surgical
Products Stock in June 1999.
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX
The following adjustments reflect the acquisition of GelTex by Genzyme for a
combination of cash and stock and the replacement of GelTex options and warrants
with options and warrants to purchase Genzyme General Stock. As part of the
acquisition of GelTex, Genzyme will acquire all of GelTex's interest in RenaGel
LLC, a joint venture between Genzyme and GelTex. Prior to the acquisition of
GelTex, Genzyme accounted for its investment in RenaGel LLC under the equity
method. The adjustments below reflect the consolidation of RenaGel LLC into
Genzyme's financial statements and accounting for Genzyme's purchase of GelTex'
interest in the joint venture using the purchase method of accounting.
I. PRO FORMA ADJUSTMENTS TO GENZYME CORPORATION'S CONSOLIDATED BALANCE SHEET
(G1) To record the acquisition of the net assets of GelTex for an aggregate
purchase price of $1,076.4 million. The aggregate purchase price is comprised of
the following (amounts in thousands):
<TABLE>
<S> <C>
Issuance of 7,799,000 shares of Genzyme General Stock....... $ 485,728
Cash payment................................................ 509,416
----------
Subtotal.................................................... 995,144
Issuance of Genzyme General options and warrants to GelTex
option and warrant holders................................ 71,217
Acquisition costs........................................... 10,000
----------
Aggregate purchase price.................................... $1,076,361
==========
</TABLE>
62
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
The aggregate purchase price of $1,076.4 million will be allocated to the
acquired tangible and intangible assets and liabilities based on their estimated
respective fair value as of June 30, 2000 (amounts in thousands):
<TABLE>
<S> <C>
Cash and investments........................................ $ 119,086
Prepaid expenses and other current assets................... 4,509
Inventory................................................... 21,168
Property, plant & equipment................................. 13,847
Intangible assets (to be amortized over 5 to 15 years)...... 437,812
Goodwill (to be amortized over 15 years).................... 494,841
In-process research and development......................... 118,964
Deferred tax asset.......................................... 32,500
Deferred compensation....................................... 5,069
Other assets, net........................................... 1,074
Assumed liabilities......................................... (11,419)
Deferred tax liability...................................... (161,090)
----------
Aggregate purchase price.................................... $1,076,361
==========
</TABLE>
The $119.0 million allocated to in-process technology has been charged to
retained earnings for purposes of pro forma balance sheet presentation only and
will be charged to expense in Genzyme's historical financial statements upon
completion of the merger with GelTex. The goodwill of $494.8 million consists of
the excess of the purchase price over the fair market value of net assets
acquired. A deferred tax liability of $161.1 million has been generated from the
creation of intangible assets, excluding goodwill. An amount of $150.0 million
of debt will be obtained by Genzyme in order to finance the cash payment portion
of the purchase price, and the remaining approximately $359.4 million will be
paid from the existing cash and investment balances. The purchase price includes
$71.2 million for the estimated fair value of the Genzyme General options and
warrants that will be issued in exchange for the GelTex options and warrants.
This estimated fair value was calculated using the Black-Scholes valuation
model. The portion of the intrinsic value of unvested options relating to future
service, which is estimated to be $5.1 million, has been allocated to deferred
compensation in the pro forma consolidated balance sheet. In the pro forma
consolidated statements of operations, compensation expense has been recorded to
reflect the amortization of this deferred compensation over the average
remaining vesting period of approximately one year. This amortization expense of
approximately $5.1 million has been recorded to the appropriate expense category
based on the payroll classification of the grantee. The remaining vesting period
of approximately one year is the result of a consent granted by Genzyme to
GelTex pursuant to the merger agreement which allows GelTex to amend GelTex
options granted to employees before the effective date of the merger to provide
that vesting will be accelerated as of the first anniversary of the effective
date of the merger as long as they remain employees of GelTex or Genzyme on the
one year anniversary date.
(G2) To record $10.0 million of accrued expenses related to the estimated
acquisition costs that have not been reflected in the historical balances as of
June 30, 2000.
(G3) To eliminate GelTex's historical stockholders' equity amounts totaling
$151.8 million.
(G4) To eliminate intercompany balances between Genzyme, GelTex and RenaGel
LLC.
(G5) To eliminate GelTex's intangible assets.
63
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
(G6) To eliminate Genzyme's and GelTex's investment in RenaGel LLC and to
consolidate RenaGel LLC with Genzyme. The assets of the joint venture have been
adjusted to fair value to the extent of the percentage ownership of RenaGel LLC
acquired by Genzyme in this transaction (i.e., 50%). Assets of RenaGel LLC for
which book value does not approximate fair value are as follows (amounts in
thousands):
<TABLE>
<CAPTION>
DESCRIPTION BOOK VALUE FAIR VALUE RECORDED VALUE
----------- ---------- ---------- --------------
<S> <C> <C> <C>
Inventory.................................. $12,317 $30,649 $21,483
Renagel Technology......................... 0 413,168 206,584
</TABLE>
The inventory and Renagel technology are reflected in adjustment (G1) above.
The increased basis for the inventory will result in a $9.2 million decrease to
Genzyme's gross margin as the units are sold after the acquisition. The impact
of this charge has not been reflected in the pro forma statements of operations
because it is a material non-recurring charge that will be reflected in
operations in the twelve-month period following the merger.
II. PRO FORMA ADJUSTMENTS TO GENZYME CORPORATION'S CONSOLIDATED STATEMENTS OF
OPERATIONS
(G7) To record the amortization of acquired intangible assets and goodwill
(amounts in thousands):
<TABLE>
<CAPTION>
AMORTIZATION
----------------------
INTANGIBLE ASSETS: ASSIGNED VALUE ANNUAL SEMI-ANNUAL
------------------ -------------- -------- -----------
<S> <C> <C> <C> <C>
Workforce (3 years)................................. $ 2,327 $ 776 $ 388
Patents (15 years).................................. 115,683 7,712 3,856
Trademarks/trade name (15 years).................... 6,523 435 217
Core technology (15 years).......................... 59,778 3,985 1,993
Current products technology (5 to 15 years)......... 253,501 18,453 9,227
Goodwill (15 years)................................. 494,841 32,989 16,495
-------- ------- -------
Pro forma adjustment for amortization of
intangibles....................................... $932,653 $64,350 $32,176
======== ======= =======
</TABLE>
(G8) To record amortization of deferred compensation associated with Genzyme
General options that will be issued in exchange for GelTex options.
(G9) To eliminate GelTex's weighted average shares outstanding, to reflect
the issuance of 7,799,000 shares of Genzyme General Stock and to reflect the
dilutive effect of the issuance of options to purchase Genzyme General Stock to
holders of GelTex options.
(G10) To record interest expense that would have been incurred on the
$150.0 million of debt, at a rate of 7.5% per annum; and to reduce the
investment income balance to reflect the payment of $359.4 million of cash at a
rate of return of 5.45% per annum.
(G11) To eliminate intercompany transactions between Genzyme, GelTex and
RenaGel LLC.
(G12) To eliminate Genzyme's and GelTex's equity in the net loss of RenaGel
LLC and to consolidate RenaGel LLC with Genzyme.
(G13) To adjust the tax provision for the impact of the reduction in
investment income, the additional interest expense and the amortization of the
deferred tax liability established in purchase
64
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
accounting. These adjustments plus the impact of including GelTex's loss in
determining Genzyme's tax provision and the effects of the Biomatrix merger
would increase Genzyme's effective tax rate from 29.9% to 44.5% for the six
months ended June 30, 2000 and would decrease Genzyme's effective tax rate from
39.8% to (4.3)% for the year ended December 31, 1999.
(G14) The net loss of GelTex has been transferred to the calculation of net
income per share allocated to Genzyme General Stock.
III. PRO FORMA ADJUSTMENTS TO GENZYME GENERAL'S COMBINED BALANCE SHEET
(G15) To record the acquisition of the net assets of GelTex for an aggregate
purchase price of $1,076.4 million. The aggregate purchase price is comprised of
the following (amounts in thousands):
<TABLE>
<S> <C>
Issuance of 7,799,000 shares of Genzyme General Stock....... $ 485,728
Cash payment................................................ 509,416
----------
Subtotal.................................................... 995,144
Issuance of Genzyme General options and warrants to GelTex
option and warrant holders................................ 71,217
Acquisition costs........................................... 10,000
----------
Aggregate purchase price.................................... $1,076,361
==========
</TABLE>
The aggregate purchase price of $1,076.4 million will be allocated to the
acquired tangible and intangible assets and liabilities based on their estimated
respective fair value as of June 30, 2000 (amounts in thousands):
<TABLE>
<S> <C>
Cash and investments........................................ $ 119,086
Prepaid expenses and other current assets................... 4,509
Inventory................................................... 21,168
Property, plant & equipment................................. 13,847
Intangible assets (to be amortized over 5 to 15 years)...... 437,812
Goodwill (to be amortized over 15 years).................... 494,841
In-process research and development......................... 118,964
Deferred tax asset.......................................... 32,500
Deferred compensation....................................... 5,069
Other assets, net........................................... 1,074
Assumed liabilities......................................... (11,419)
Deferred tax liability...................................... (161,090)
----------
Aggregate purchase price.................................... $1,076,361
==========
</TABLE>
The $119.0 million allocated to in-process technology has been charged to
division equity for purposes of pro forma balance sheet presentation only and
will be allocated to expense in Genzyme General's historical financial
statements upon completion of the merger with GelTex. The goodwill of
$494.8 million consists of the excess of the purchase price over the fair market
value of net assets acquired. A deferred tax liability of $161.1 million has
been generated from the creation of intangible assets, excluding goodwill. An
amount of $150.0 million of debt will be obtained by Genzyme and allocated to
Genzyme General in order to finance the cash payment portion of the purchase
price, and
65
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
the remaining approximately $359.4 million will be paid from Genzyme General's
existing cash and investment balances. The purchase price includes
$71.2 million for the estimated fair value of the Genzyme General options and
warrants that will be issued in exchange for the GelTex options and warrants.
This estimated fair value was calculated using the Black-Scholes valuation
model. The portion of the intrinsic value of unvested options relating to future
service, which is estimated to be $5.1 million, has been allocated to deferred
compensation, included in division equity in the pro forma combined balance
sheet. In the pro forma combined statements of operations, compensation expense
has been recorded to reflect the amortization of this deferred compensation over
the average remaining vesting period of approximately one year. This
amortization expense of approximately $5.1 million has been recorded to the
appropriate expense category based on the payroll classification of the grantee.
The remaining vesting period of approximately one year is the result of a
consent granted by Genzyme to GelTex pursuant to the merger agreement which
allows GelTex to amend GelTex options granted to employees before the effective
date of the merger to provide that vesting will be accelerated as of the first
anniversary of the effective date of the merger as long as they remain employees
of GelTex or Genzyme on the one year anniversary date.
(G16) To record $10.0 million of accrued expenses related to the estimated
acquisition costs that have not been reflected in the historical balances as of
June 30, 2000.
(G17) To eliminate GelTex's historical stockholders' equity amounts totaling
$151.8 million.
(G18) To eliminate intercompany balances between Genzyme General, GelTex and
RenaGel LLC.
(G19) To eliminate GelTex's intangible assets.
(G20) To eliminate Genzyme General's and GelTex's investment in RenaGel LLC
and to consolidate RenaGel LLC with Genzyme General. The assets of the joint
venture have been adjusted to fair value to the extent of the percentage
ownership of RenaGel LLC acquired by Genzyme and allocated to Genzyme General in
this transaction (i.e., 50%). Assets of RenaGel LLC for which book value does
not approximate fair value are as follows (amounts in thousands):
<TABLE>
<CAPTION>
DESCRIPTION BOOK VALUE FAIR VALUE RECORDED VALUE
----------- ---------- ---------- --------------
<S> <C> <C> <C>
Inventory.................................. $12,317 $30,649 $21,483
Renagel Technology......................... 0 413,168 206,584
</TABLE>
The inventory and Renagel technology are reflected in adjustment (G15)
above. The increased basis for the inventory will result in a $9.2 million
decrease to Genzyme General's gross margin as the units are sold after the
acquisition. The impact of this charge has not been reflected in the pro forma
statements of operations because it is a material non-recurring charge that will
be reflected in operations in the twelve-month period following the merger.
66
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
IV. PRO FORMA ADJUSTMENTS TO GENZYME GENERAL'S COMBINED STATEMENTS OF OPERATIONS
(G21) To record the amortization of acquired intangible assets and goodwill
(amounts in thousands):
<TABLE>
<CAPTION>
AMORTIZATION
----------------------
INTANGIBLE ASSETS: ASSIGNED VALUE ANNUAL SEMI-ANNUAL
------------------ -------------- -------- -----------
<S> <C> <C> <C> <C>
Workforce (3 years)................................. $ 2,327 $ 776 $ 388
Patents (15 years).................................. 115,683 7,712 3,856
Trademarks/trade name (15 years).................... 6,523 435 217
Core technology (15 years).......................... 59,778 3,985 1,993
Current products technology (5 to 15 years)......... 253,501 18,453 9,227
Goodwill (15 years)................................. 494,841 32,989 16,495
-------- ------- -------
Pro forma adjustment for amortization of
intangibles....................................... $932,653 $64,350 $32,176
======== ======= =======
</TABLE>
(G22) To record amortization of deferred compensation associated with
Genzyme General options and warrants that will be issued in exchange for GelTex
options and warrants.
(G23) To record interest expense that would have been incurred on the
$150.0 million of debt allocated to Genzyme General, at a rate of 7.5% per
annum; and to reduce the investment income balance to reflect the payment of
$359.4 million of cash at a rate of return of 5.45% per annum.
(G24) To eliminate intercompany transactions between Genzyme General, GelTex
and RenaGel LLC.
(G25) To eliminate Genzyme General's and GelTex's equity in the net loss of
RenaGel LLC and to consolidate RenaGel LLC with Genzyme General.
(G26) To adjust the tax provision for the impact of the reduction in
investment income, the additional interest expense and the amortization of the
deferred tax liability established in purchase accounting. These adjustments
plus the impact of including GelTex's loss in determining Genzyme General's tax
provision and the effects of the Biomatrix merger would increase Genzyme
General's effective tax rate from 31.3% to 34.7% for the six months ended
June 30, 2000 and from 37.3% to 59.9% for the year ended December 31, 1999.
67
<PAGE>
THE GELTEX SPECIAL MEETING
PROXY SOLICITATION
This proxy statement/prospectus is being delivered to you in connection with
the solicitation by the GelTex board of directors of proxies to be voted at the
special meeting to be held on December 13, 2000 at 10:00 a.m., local time, at
the offices of GelTex Pharmaceuticals, Inc., 153 Second Avenue, Waltham,
Massachusetts 02451. GelTex is paying Corporate Investor Communications, Inc., a
proxy solicitation firm, $7,000 plus expenses to help it with the solicitation.
GelTex will pay all of its expenses in connection with solicitation of proxies.
Officers, directors and regular employees of GelTex, who will receive no
additional compensation for their services, may solicit proxies by telephone or
personal call. GelTex has asked brokers and nominees who hold stock in their
names to give the proxy statement/ prospectus to their customers. This proxy
statement/prospectus is first being mailed on or about November 13, 2000.
RECORD DATE
Stockholders of record at the close of business on October 24, 2000 are
entitled to notice of, and to vote at, the special meeting. Each holder of
record of GelTex common stock at the close of business on the record date is
entitled to one vote for each share then held on each matter voted on by
stockholders. At the close of business on the record date, there were 21,636,206
shares of GelTex common stock issued and outstanding held by approximately 241
holders of record and by approximately 5,356 persons or entities holding in
nominee name.
QUORUM REQUIREMENT
The holders of a majority of the outstanding shares entitled to vote at the
special meeting must be present in person or represented by proxy to constitute
a quorum for the transaction of business. Abstentions are counted for purposes
of determining whether a quorum exists. If you hold your shares of GelTex common
stock through a broker, bank or other nominee, generally the nominee may only
vote your GelTex common stock in accordance with your instructions. However, if
your nominee has not timely received your instructions, the nominee may vote on
matters for which it has discretionary voting authority. Brokers generally will
not have discretionary voting authority to vote on the proposal to adopt the
merger agreement. If a nominee cannot vote on a matter because it does not have
discretionary voting authority, this is a "broker non-vote" on that matter.
Broker non-votes are counted as shares present or represented at the special
meeting for purposes of determining whether a quorum exists, but will be counted
as votes against adoption of the merger agreement.
VOTE REQUIRED
Under Delaware law, holders of a majority of the outstanding shares of
GelTex common stock entitled to vote at the special meeting must vote to adopt
the merger agreement. For purposes of the vote required under Delaware law, a
failure to vote, a vote to abstain and a broker non-vote will each have the same
legal effect as a vote against adoption of the merger agreement. If you execute
a proxy card without giving instructions, the shares of GelTex common stock
represented by that proxy card will be voted "FOR" adoption of the proposed
merger agreement. The GelTex board of directors is not aware of any other
matters to be voted on at the special meeting. If any other matters properly
come before the special meeting, including a motion to adjourn the special
meeting in order to solicit additional proxies, the persons named on the proxy
card will vote the shares represented by all properly executed proxies on those
matters in their discretion, except that shares represented by proxies that have
been voted "AGAINST" adoption of the merger agreement will not be used to vote
"FOR" adjournment of the special meeting to allow additional time to solicit
additional votes "FOR" the merger agreement.
68
<PAGE>
VOTING AND REVOCATION OF PROXIES
You may revoke your proxy at any time before it is exercised by one of the
following means:
- sending the Corporate Secretary of GelTex a notice revoking your proxy
which must be received before the special meeting;
- submitting a duly executed proxy with a later date before the date of the
special meeting; or
- voting in person at the special meeting.
All shares represented by each properly executed and not revoked proxy
received by the Corporate Secretary of GelTex before the special meeting will be
voted in accordance with the instructions given on the proxy. If no instructions
are indicated, the proxy will be voted to adopt the merger agreement.
APPRAISAL RIGHTS
Under Delaware law, GelTex stockholders who, before the taking of the vote
to adopt the merger agreement, file written notice of their intention to seek
appraisal of their shares, may elect to receive the "fair value" (as determined
under Delaware law) of their shares. To be entitled to appraisal of your shares,
you must comply strictly with the requirements of the Delaware statute, which is
reproduced in Annex C of this proxy statement/prospectus. For a detailed
description of GelTex stockholder appraisal rights, see the discussion under the
heading "THE MERGER AND THE MERGER AGREEMENT--Appraisal Rights of GelTex
Stockholders" beginning on page 93.
69
<PAGE>
GENZYME CORPORATION
Genzyme is a biotechnology company that develops innovative products and
services for major unmet medical needs. Genzyme was founded in 1981 and became a
Massachusetts corporation in 1991. Genzyme currently has four operating
divisions. Genzyme also has four series of common stock--or "tracking"
stock--which are designed to reflect the value and track the financial
performance of its operating divisions. Its four operating divisions are:
- Genzyme General, which develops and markets therapeutic products and
diagnostic products and services, with an emphasis on therapies for
genetic diseases;
- Genzyme Molecular Oncology, which develops cancer products, with a focus
on cancer vaccines and angiogenisis inhibitors;
- Genzyme Surgical Products, which develops and markets a portfolio of
devices, biomaterials and biotherapeutics for the cardiothoracic and
general surgery markets; and
- Genzyme Tissue Repair, which develops and markets biological products for
orthopedic injuries, such as cartilage damage, and severe burns.
Genzyme is in the process of acquiring Biomatrix, Inc., a Delaware
corporation focused on the development and commercialization of viscoelastic
products for use in therapeutic medical applications and skin care. If Genzyme
completes that acquisition, Genzyme will combine Biomatrix, Genzyme Surgical
Products and Genzyme Tissue Repair to form a new division named Genzyme
Biosurgery, leaving Genzyme with three operating divisions and three series of
tracking stocks. Genzyme Biosurgery will develop and market devices,
biomaterials, biotherapeutics and other products for the orthopedic market and
the cardiovascular, general and plastic surgery markets.
Genzyme allocates all of its products, services, programs, assets and
liabilities among its divisions for purposes of financial statement
presentation; however, Genzyme, the corporation, continues to own all of the
assets and is responsible for all of the liabilities allocated to each of the
divisions.
You can find additional information regarding Genzyme, including its pending
acquisition of Biomatrix, in its filings with the SEC. For more details about
how you can obtain this information, you should read the section of this proxy
statement/prospectus entitled "WHERE YOU CAN FIND MORE INFORMATION" beginning on
page 130.
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GELTEX PHARMACEUTICALS, INC.
Founded in 1991, GelTex has historically focused its efforts on the
development of non-absorbed, polymer-based pharmaceuticals that selectively bind
to and eliminate target substances from the intestinal tract. With its
acquisition of SunPharm Corporation in November 1999, GelTex acquired expertise
in two chemically-related classes of molecules--polyamines and iron chelators.
In October 1998, GelTex received approval from the FDA for its first
commercial product, Renagel brand phosphate binder. The FDA approved the
marketing of a capsule formulation of Renagel brand phosphate binder in 400 mg
strength for the reduction of serum phosphorus in patients with end-stage renal
disease who are on hemodialysis. GelTex began selling Renagel brand phosphate
binder in November 1998 through GelTex's joint venture with Genzyme, RenaGel
LLC. In early 2000, GelTex received marketing authorization for Renagel brand
phosphate binder in Canada and the European Union. In July 2000, GelTex received
FDA approval for a tablet formulation of Renagel brand phosphate binder in 400
mg and 800 mg strengths. The 400 mg tablet is smaller than the capsule
formulation, while the 800 mg tablet can be used by physicians to manage
patients who may need higher dosages but have been reluctant to take the
required number of capsules.
In May 2000, GelTex received approval from the FDA for a
cholesterol-lowering product which is currently being marketed in the United
States by Sankyo-Parke Davis under the tradename WelChol. The FDA approved
WelChol for administration alone or in combination with an HMG-CoA reductase
inhibitor, or statin, as adjunctive therapy to diet and exercise for the
reduction of elevated LDL cholesterol in patients with primary
hypercholesterolemia. GelTex recently completed a Phase 2 study of its
second-generation lipid altering product, and together with Sankyo, plans to
continue development of a second-generation product.
GelTex has ongoing product development efforts focused on therapeutic agents
for the treatment of obesity, infectious diseases and iron overload. In
June 2000, GelTex filed an investigational new drug application with the FDA for
a non-absorbed toxin binding polymer, GT160-246, for the treatment and
prevention of CLOSTRIDIUM DIFFICILE (C. DIFFICILE) colitis. C. DIFFICILE is the
most common cause of antibiotic-associated diarrhea and is a significant problem
in hospitals and extended care facilities, affecting at least 500,000 patients
per year in the United States. GelTex completed a Phase 1 trial of GT160-246
during the third quarter of 2000 and plans to commence a Phase 2 trial before
the end of the year.
You can find additional information regarding GelTex in its filings with the
SEC. For more details about how you can obtain this information, you should read
the section of this proxy statement/ prospectus entitled "WHERE YOU CAN FIND
MORE INFORMATION" beginning on page 130.
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BACKGROUND AND REASONS FOR THE MERGER
BACKGROUND OF THE MERGER
Genzyme and GelTex have had a business relationship with each other for
several years. In June 1997, GelTex and Genzyme entered into a joint venture for
the final development and commercialization of GelTex's Renagel brand phosphate
binder. Genzyme and GelTex each hold a 50% ownership interest in the joint
venture, known as RenaGel LLC. Each of GelTex and Genzyme is funding half of the
joint venture's costs and expenses, and, to the extent that they continue to do
so, each will share equally in the profits of the joint venture. Henri A.
Termeer, the president, chief executive officer and chairman of the board of
directors of Genzyme, also serves on the board of directors of GelTex.
Mr. Termeer became a director of GelTex in 1992 as a founding investor. Robert
J. Carpenter, a founder and the chairman of the board of directors of GelTex, is
also a director of Genzyme. Mr. Carpenter became a director of Genzyme in 1994
in connection with Genzyme's acquisition of BioSurface Technology, Inc. Genzyme
currently owns 100,000 shares of GelTex common stock, which it acquired in
connection with the establishment of the joint venture in 1997.
On August 23, 2000, at a regularly scheduled meeting of the Genzyme board of
directors, Mr. Termeer discussed his interest in a possible business combination
with GelTex. After the board meeting, Mr. Termeer met with Mr. Mark Skaletsky,
president and chief executive officer of GelTex, to discuss the merits of a
possible strategic transaction between Genzyme and GelTex, including, among
other things, a possible business combination. At the meeting, Mr. Skaletsky and
Mr. Termeer reviewed the potential for synergies between GelTex and Genzyme.
From August 23, 2000 to September 7, 2000, Mr. Skaletsky and Mr. Termeer held
several additional discussions relating to the businesses of Genzyme and GelTex
and a possible business combination between the companies.
On August 29, 2000, Genzyme presented a non-binding written proposal for a
merger of GelTex with and into a wholly-owned subsidiary of Genzyme, in which
the GelTex stockholders would receive, for each share of GelTex common stock,
0.2824 of a share of Genzyme General Stock and an amount in cash equal to the
market value of 0.2824 of a share of Genzyme General Stock at the closing of a
merger. This proposal was based on the closing price of $71.38 for Genzyme
General Stock on August 29, 2000, implying merger consideration of $40.30 per
GelTex share. Mr. Skaletsky communicated this offer to the GelTex board of
directors at a special telephone meeting on August 29, 2000. Mr. Termeer and
Mr. Carpenter each recused himself from this meeting. The board of directors
determined that the merits of a possible business combination between the
companies warranted further discussion and analysis. The board of directors
authorized Mr. Skaletsky to engage SG Cowen Securities Corporation to consider
the economic terms of the proposal provided by Genzyme, to advise the board of
directors as to the fairness, from a financial point of view, of a transaction
with Genzyme to the stockholders of GelTex other than Genzyme and its
affiliates, and to assist the board of directors in negotiating with Genzyme.
For more information about SG Cowen's fairness opinion, you should read the
section of this proxy statement/prospectus entitled "--Fairness Opinion of
GelTex's Financial Advisor" beginning on page 76.
On August 29, 2000, Mr. Skaletsky spoke with representatives of SG Cowen
regarding SG Cowen's work on behalf of the board of directors in connection with
the potential transaction with Genzyme. From this date through the execution of
the definitive merger agreement, Mr. Skaletsky regularly discussed with SG Cowen
the possible business combination with Genzyme. From August 29, 2000 through the
execution of the definitive merger agreement, GelTex's financial advisors
continued to conduct financial due diligence on Genzyme, and Genzyme's financial
advisors conducted financial due diligence on GelTex.
On August 31, 2000, the Genzyme board of directors met to discuss the
proposed transaction. Mr. Carpenter elected not to participate in this meeting,
and Mr. Termeer recused himself from the board deliberations and voting on the
possible business combination. At this meeting, following
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presentations from Genzyme management and Genzyme's financial advisor, Credit
Suisse First Boston Corporation, the Genzyme board of directors approved a
business combination with GelTex provided that agreement could be reached within
financial parameters established by the board of directors. The Genzyme board of
directors also appointed a special merger committee consisting of Mr. Douglas
Berthiaume, Mr. Henry Blair and Mr. Charles Cooney and charged this committee
with evaluating definitive terms for a transaction if agreement were reached
within the financial parameters established at the meeting. Through the
execution of the definitive merger agreement, members of Genzyme's management
regularly discussed with Credit Suisse First Boston the possible business
combination with GelTex. That evening, Palmer & Dodge LLP, counsel for Genzyme,
provided Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., counsel for
GelTex, with a draft of a merger agreement relating to the proposed transaction.
During the week of September 4, 2000, Mr. Skaletsky, representatives of SG
Cowen and other members of GelTex management met with Mr. Peter Wirth, executive
vice president and chief legal officer of Genzyme, other members of Genzyme
management and representatives of Genzyme's financial advisor in order to
continue their ongoing financial due diligence investigation of Genzyme.
On September 7, 2000, at a regularly scheduled meeting, the GelTex board of
directors determined that, because two of its members were also members of the
Genzyme board of directors, it would appoint a special committee of
disinterested members of the board, comprised of Dr. J. Richard Crout, Mr. Mark
Skaletsky and Dr. Jesse Treu, to negotiate the terms of any proposed transaction
with Genzyme. SG Cowen described to, and discussed with, the special committee
the financial terms of the proposed transaction. After discussion, the special
committee determined that the financial terms of the August 29th proposal were
inadequate, and accordingly decided to reject the offer. The special committee
instructed Mr. Skaletsky and SG Cowen to communicate this decision to Genzyme,
and to present Genzyme with a counteroffer which valued GelTex common stock at
$55.00 per share. The special committee's decision and the counteroffer were
communicated to Genzyme by Mr. Skaletsky on September 7, 2000.
On September 8, 2000, Mr. Wirth contacted Mr. Skaletsky to present a revised
Genzyme proposal as a response to the GelTex special committee's counteroffer.
Throughout the day, Genzyme and the GelTex special committee had substantial
contact with their respective financial advisors to narrow the gap between
Genzyme's offer of approximately $40.00 per share and the GelTex special
committee's counteroffer of $55.00 per share. After considerable negotiation,
GelTex and Genzyme agreed upon a revised proposal under which the stockholders
of GelTex would receive, subject to aggregate limits, their choice of either
0.7272 of a share of Genzyme General Stock or $47.50 in cash in exchange for
each of their shares of GelTex common stock. A meeting of the GelTex special
committee was called for the afternoon of September 8, 2000, at which the GelTex
special committee authorized proceeding with the proposed transaction on the
revised terms, subject to the negotiation of a mutually acceptable merger
agreement and approval of the merger agreement by the GelTex board of directors.
From September 8, 2000 until September 11, 2000, Genzyme's legal advisors
conducted legal due diligence on GelTex, and GelTex's legal advisors conducted
legal due diligence on Genzyme. Meetings relating to the parties' due diligence
review were held at GelTex's offices and at the offices of Palmer & Dodge and
Mintz Levin.
On September 9 and 10, 2000, members of management of GelTex and Genzyme,
along with their respective legal and financial advisors, met to discuss the
terms of the proposed merger of GelTex and Genzyme and to negotiate the terms of
the merger agreement, including the following:
- termination rights under the merger agreement;
- the conditions upon which a breakup fee would be payable; and
- the representations, warranties and covenants to be made by both parties.
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On the morning of September 10, 2000, the special merger committee of
Genzyme's board of directors held a meeting, at which Mr. Wirth and
representatives from Palmer & Dodge and Credit Suisse First Boston outlined the
status of the negotiations with respect to the merger agreement. Credit Suisse
First Boston presented its financial review of the proposed transaction. After
discussion, the Genzyme special merger committee approved the principal terms of
the proposed transaction and authorized management to finalize the details of
the merger agreement.
During the evening of September 10, 2000, the GelTex special committee held
a special meeting, at which representatives from Mintz Levin and SG Cowen
outlined the status of the negotiations with respect to the merger agreement. SG
Cowen described the procedures that it had followed in conducting its financial
analysis of the proposed transaction, and the GelTex special committee asked
questions regarding that analysis. SG Cowen then presented its opinion to the
special committee that the proposed consideration to be received by the GelTex
stockholders, other than Genzyme and its affiliates, under the merger agreement
was fair from a financial point of view. Representatives of Mintz Levin then
described in detail the terms of the proposed merger agreement and the
negotiations that had taken place with Genzyme and its representatives regarding
the agreement, and the board of directors' fiduciary duties in making a decision
to approve a transaction of this type. After discussion, the GelTex special
committee determined that the proposed merger was advisable and recommended to
the GelTex board of directors that it approve the merger agreement. Thereafter,
the GelTex board of directors approved the merger agreement in the form in which
it had been presented at the meeting, authorized management to finalize the
details of the merger agreement, and resolved to present the definitive merger
agreement for adoption by the GelTex stockholders at a special meeting to be
called for that purpose.
Following the GelTex board of directors meeting on September 10, 2000,
Genzyme, GelTex and their respective legal representatives worked towards
resolving outstanding issues and finalizing the definitive merger agreement.
GelTex and Genzyme entered into the merger agreement on September 11, 2000,
which was amended on October 19, 2000, to clarify sections of the merger
agreement. The companies issued a joint press release announcing the agreement
on the morning of September 11, 2000. On September 12, 2000, Titan Acquisition
Corp. executed and delivered an agreement of joinder and became a party to the
merger agreement.
GELTEX'S REASONS FOR THE MERGER
GelTex's board of directors has determined that the terms of the merger and
the merger agreement are fair and in the best interests of GelTex and its
stockholders. Accordingly, GelTex's board of directors deems the merger to be
advisable, has approved the merger agreement and the consummation of the merger
and recommends that you vote FOR adoption of the merger agreement.
In reaching its decision, GelTex's board of directors consulted with the
GelTex special committee, management of GelTex and with its financial and legal
advisors, and considered the following material factors:
- THE ABILITY OF THE COMBINED COMPANY TO CONTROL ALL ASPECTS OF THE
MARKETING AND DISTRIBUTION OF RENAGEL BRAND PHOSPHATE BINDER. The GelTex
board of directors and management concluded that sales of Renagel, and the
resulting benefits of these sales, would be optimized if all activities
associated with the product were controlled by a single entity, rather
than by the RenaGel LLC joint venture.
- THE POTENTIAL BENEFITS OF A COMBINATION OF THE FINANCIAL, MARKETING AND
DISTRIBUTION RESOURCES OF GENZYME WITH GELTEX'S PRODUCT PIPELINE. The
GelTex board of directors concluded that the combined entity would be able
to take advantage of the potential benefits resulting from the
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combination of Genzyme's greater financial resources, marketing
capabilities and experience in developing distribution networks with the
products being developed by GelTex. The combined company and its
stockholders would benefit from synergies created by combining existing
products and industry relationships developed by GelTex, such as the
distribution arrangement between GelTex and Sankyo Pharma Inc. for the
distribution of WelChol brand bile acid sequestrant, and the experience in
marketing, distributing and enhancing products and relationships possessed
by Genzyme.
- THE STRONG EXISTING RELATIONSHIP BETWEEN GELTEX AND GENZYME, WHICH WOULD
HELP TO MINIMIZE ANY DIFFICULTIES IN COORDINATING BETWEEN THE TWO
COMPANIES. GelTex and Genzyme have worked closely together on the RenaGel
LLC joint venture since June 1997. Accordingly, the companies already have
an established working relationship, which would serve as a foundation for
coordination between the companies following the merger.
- THE PREMIUM OVER GELTEX'S STOCK PRICE REPRESENTED BY THE PROPOSED
CONSIDERATION ON THE TRADING DAY BEFORE ANNOUNCEMENT OF THE TRANSACTION.
The proposed merger consideration represented a premium of approximately
27% over the closing price per share of GelTex common stock on
September 8, 2000, the last trading day before the announcement of the
merger agreement.
- THE FLEXIBILITY AFFORDED TO GELTEX STOCKHOLDERS BY THE CHOICE OF FORMS OF
CONSIDERATION UNDER THE MERGER AGREEMENT, SUBJECT TO THE LIMITATIONS SET
FORTH IN THE AGREEMENT. GelTex stockholders who wish to retain their
equity interest in the form of Genzyme General Stock following the merger,
and thereby participate in the potential growth of their investment
following the merger, may choose to do so, subject to the limitations
described in this proxy statement/prospectus. Conversely, GelTex
stockholders who wish to obtain immediate liquidity of their investment in
GelTex common stock may opt to receive cash in exchange for their shares,
subject to the limitations described in this proxy statement/prospectus.
In the course of deliberations, the GelTex board of directors reviewed with
the GelTex special committee, GelTex management and its legal and financial
advisors a number of additional factors relevant to the merger, including the
following:
- historical information concerning Genzyme's and GelTex's respective
businesses, financial performance and condition, operations, management
and competitive position, including public reports concerning results of
operations during the most recent fiscal year and fiscal quarter for each
company filed with the SEC;
- GelTex management's view of the financial condition, results of operations
and businesses of Genzyme and GelTex before and after giving effect to the
merger based on management due diligence and the existing relationship
between the companies;
- current financial market conditions and historical market prices,
volatility and trading information with respect to Genzyme General Stock
and GelTex common stock;
- the terms of the merger agreement, including GelTex's ability to terminate
the merger agreement in order to accept an alternative transaction under
specified circumstances, the parties' respective representations,
warranties and covenants and the conditions to the parties' respective
obligations;
- the absence of a stock option agreement between Genzyme and GelTex that
might prevent a competing transaction from being accounted for using the
pooling method of accounting for business combinations;
- the expected tax-free treatment to GelTex's stockholders of the portion of
GelTex common stock exchanged for the portion of the merger consideration
consisting of Genzyme General Stock;
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- GelTex management's view as to the potential for other third parties to
enter into strategic relationships with or to acquire GelTex;
- the detailed financial analysis prepared by SG Cowen and presented to the
special committee of the GelTex board of directors, including SG Cowen's
opinion to the special committee that the proposed consideration to be
received in the merger by GelTex stockholders, other than Genzyme and its
affiliates, is fair, from a financial point of view, as described more
fully in the text of the entire opinion attached as Annex B to this proxy
statement/prospectus; and
- the impact of the merger on GelTex's employees, noting in this regard the
stated intention of Genzyme to maintain GelTex's offices in Waltham,
Massachusetts.
GelTex's board of directors also considered the provisions of the merger
agreement regarding GelTex's rights to consider and negotiate other strategic
transaction proposals, as well as the possible effects of the provisions
regarding termination fees. GelTex's board of directors considered various
alternatives to the merger, including remaining as an independent company and
seeking other strategic partners. GelTex's board of directors believed that
these factors, including its review of the terms of the merger agreement,
supported the board of directors' determination as to the advisability of the
merger and its recommendation of the merger, when viewed together with the risks
and potential benefits of the merger.
GelTex's board of directors also identified and considered a variety of
potentially negative factors in its deliberations concerning the merger,
including, but not limited to:
- the risk that the potential benefits sought in the merger might not be
fully realized;
- the possibility that the merger might not be completed and the potential
adverse effect of the public announcement of the merger on:
-- GelTex's collaborations and other key relationships,
-- GelTex's ability to attract and retain key management, marketing and
technical personnel, and
-- GelTex's overall competitive position;
- the risk that despite the efforts of the combined company, key technical
and management personnel might choose not to remain employed by the
combined company; and
- many of the risks described under "RISK FACTORS" beginning on page 20 of
this proxy statement/prospectus.
GelTex's board of directors believed that these risks were outweighed by the
potential benefits of the merger. The foregoing discussion is not exhaustive of
all factors considered by GelTex's board of directors. Each member of GelTex's
board of directors may have considered different factors, and GelTex's board
evaluated these factors as a whole and did not quantify or otherwise assign
relative weights to factors considered.
FAIRNESS OPINION OF GELTEX'S FINANCIAL ADVISOR
Pursuant to an engagement letter dated September 7, 2000, GelTex retained SG
Cowen Securities Corporation to act as exclusive financial advisor to GelTex in
connection with the proposed transaction.
On September 10, 2000, SG Cowen delivered some of its written analyses and
its oral opinion to the special committee of the GelTex board of directors. SG
Cowen subsequently confirmed its oral opinion in writing as of the same date, to
the effect that, subject to the various assumptions set forth in the opinion, as
of September 10, 2000, the consideration to be received in the transaction was
fair,
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from a financial point of view, to the holders of GelTex common stock, other
than Genzyme and its affiliates.
THE FULL TEXT OF THE WRITTEN OPINION OF SG COWEN IS ATTACHED AS ANNEX B AND
IS INCORPORATED INTO THIS PROXY STATEMENT/PROSPECTUS BY REFERENCE. HOLDERS OF
GELTEX COMMON STOCK ARE URGED TO READ THE SG COWEN OPINION IN ITS ENTIRETY FOR
THE ASSUMPTIONS MADE, PROCEDURES FOLLOWED, OTHER MATTERS CONSIDERED AND LIMITS
OF THE REVIEW BY SG COWEN. THIS SUMMARY OF THE WRITTEN OPINION OF SG COWEN IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF ITS OPINION. SG
COWEN'S ANALYSES AND OPINION WERE PREPARED FOR AND ADDRESSED TO THE SPECIAL
COMMITTEE OF THE GELTEX BOARD OF DIRECTORS AND ARE DIRECTED ONLY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED IN
THE TRANSACTION, AND DO NOT CONSTITUTE AN OPINION AS TO THE MERITS OF THE
TRANSACTION OR A RECOMMENDATION TO ANY STOCKHOLDER AS TO HOW TO VOTE ON THE
PROPOSED TRANSACTION. THE CONSIDERATION TO BE RECEIVED IN THE TRANSACTION WAS
DETERMINED THROUGH NEGOTIATIONS BETWEEN GELTEX AND GENZYME AND NOT PURSUANT TO
RECOMMENDATIONS OF SG COWEN.
In arriving at its opinion, SG Cowen reviewed and considered the financial
and other matters that it deemed relevant, including, among other things:
- a draft of the merger agreement dated September 10, 2000;
- publicly available information for GelTex, including its annual reports
filed on Form 10-K for each of the years ended December 31, 1999 and
December 31, 1998, and its quarterly reports filed on Form 10-Q for each
of the quarters ended March 31, 2000 and June 30, 2000 and other relevant
financial and operating data furnished to SG Cowen by GelTex management;
- publicly available information for Genzyme, including its annual reports
filed on Form 10-K for each of the years ended December 31, 1999 and
December 31, 1998, and its quarterly reports filed on Form 10-Q for each
of the quarters ended March 31, 2000 and June 30, 2000 and other relevant
financial and operating data furnished to SG Cowen by Genzyme management;
- internal financial analyses, financial forecasts, reports and other
information concerning GelTex prepared by the management of GelTex;
- financial projections contained in Wall Street analyst reports for each of
GelTex and Genzyme General;
- discussions SG Cowen had with members of management of GelTex concerning
the historical and current business operations, financial conditions, and
prospects of GelTex and other matters as SG Cowen deemed relevant;
- discussions SG Cowen had with members of management of Genzyme concerning
the historical and current business operations, financial conditions, and
prospects of Genzyme General and other matters as SG Cowen deemed
relevant;
- the reported price and trading histories of the shares of GelTex common
stock and Genzyme General Stock as compared to the reported price and
trading histories of publicly traded companies that SG Cowen deemed
relevant;
- financial terms of the transaction as compared to the financial terms of
selected business combinations that SG Cowen deemed relevant;
- based on the internal financial analyses, financial forecasts, reports and
other information concerning GelTex prepared by the management of GelTex
and the financial projections contained in Wall Street analyst reports for
Genzyme General, the cash flows generated by each of GelTex and Genzyme
General on a stand-alone basis to determine the present value of the
discounted cash flows;
- selected pro forma financial analysis, excluding goodwill, of the
transaction on an accretion/ dilution basis; and
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- other information, financial studies, analyses and investigations and
other factors that SG Cowen deemed relevant for the purposes of its
opinion.
In conducting its review and arriving at its opinion, SG Cowen, with the
special committee's consent, assumed and relied upon, without independent
investigation, the accuracy and completeness of all financial and other
information provided to it by GelTex and Genzyme or which was publicly
available. SG Cowen did not undertake any responsibility for the accuracy,
completeness or reasonableness of, or to independently verify this information.
In addition, SG Cowen did not conduct any physical inspection of the properties
or facilities of GelTex or Genzyme. SG Cowen further relied upon the assurance
of the management of GelTex that they were unaware of any facts that would make
the information provided to SG Cowen with respect to GelTex, incomplete or
misleading in any respect. SG Cowen, with GelTex's consent, assumed that the
internal financial analyses, financial forecasts, reports and other information
concerning GelTex prepared by the management of GelTex and provided to SG Cowen
were reasonably prepared by the management of GelTex, and reflected the best
available estimates and good faith judgments of management as to the future
performance of GelTex and that these analyses, forecasts, reports and
information and the financial projections contained in Wall Street analyst
reports for each of GelTex and Genzyme General provided a reasonable basis for
SG Cowen's opinion. For purposes of SG Cowen's pro forma transaction analysis
described above, SG Cowen assumed that 50% of the consideration to be paid to
GelTex stockholders would be in the form of Genzyme General Stock and 50% would
be in the form of cash.
SG Cowen did not make or obtain any independent evaluations, valuations or
appraisals of the assets or liabilities of GelTex or Genzyme, nor was SG Cowen
furnished with these materials. With respect to all legal matters relating to
GelTex and Genzyme, SG Cowen relied on the advice of legal counsel to GelTex. SG
Cowen's services to GelTex in connection with the transaction were comprised of
rendering its opinion, from a financial point of view, with respect to the
merger consideration. SG Cowen's opinion was necessarily based upon economic and
market conditions and other circumstances as they existed and could be evaluated
by SG Cowen on the date of its opinion. It should be understood that although
subsequent developments may affect its opinion, SG Cowen does not have any
obligation to update, revise or reaffirm its opinion and SG Cowen expressly
disclaims any responsibility to do so.
For purposes of rendering its opinion, SG Cowen assumed, in all respects
material to its analysis, that the representations and warranties of each party
contained in the merger agreement were true and correct, that each party would
perform all of the covenants and agreements required to be performed by it under
the merger agreement and that all conditions to the consummation of the
transaction would be satisfied without being waived. SG Cowen assumed that the
final form of the merger agreement would be substantially similar to the last
draft received by SG Cowen before rendering its opinion. SG Cowen also assumed
that all governmental, regulatory and other consents and approvals contemplated
by the merger agreement would be obtained and that, in the course of obtaining
any of those consents, no restrictions would be imposed or waivers made that
would have an adverse effect on the contemplated benefits of the transaction.
GelTex informed SG Cowen, and SG Cowen assumed, that the transaction was
structured to qualify as a tax-free reorganization.
SG Cowen's opinion does not constitute a recommendation to any stockholder
as to how the stockholder should vote with respect to the proposed transaction,
as to what form of consideration to elect or to take any other action in
connection with the transaction or otherwise. SG Cowen did not express any
opinion as to the actual value of Genzyme General Stock when it is issued to
GelTex stockholders. In addition, for purposes of its opinion, SG Cowen did not
take into consideration any of the rights, preferences or limitations of Genzyme
General Stock. SG Cowen was not requested to opine to, and its opinion does not
in any manner address GelTex's underlying business decision to effect the
proposed transaction. Furthermore, SG Cowen expressed no view as to the price or
trading range for shares of Genzyme General Stock following consummation of the
proposed transaction.
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The following is a summary of the principal financial analyses performed by
SG Cowen to arrive at its opinion. Some of the summaries of the financial
analyses include information presented in tabular format. In order to fully
understand the financial analyses, the tables must be read together with the
text of each summary. The tables alone do not constitute a complete description
of the financial analyses. Considering the data set forth in the tables without
considering the full narrative description of the financial analyses, including
the methodologies and assumptions underlying the analyses, could create a
misleading or incomplete view of the financial analyses. SG Cowen performed
various procedures, including each of the financial analyses described below,
and reviewed with the management of GelTex the assumptions on which these
analyses were based and other factors, including the historical and projected
financial results of GelTex and Genzyme General. No limitations were imposed by
the special committee of the GelTex board of directors with respect to the
investigations made or procedures followed by SG Cowen in rendering its opinion.
ANALYSIS OF SELECTED TRANSACTIONS
SG Cowen reviewed the financial terms, to the extent publicly available, of
31 selected acquisitions involving the acquisition of companies in the
biotechnology industry, which were announced or completed since October 5, 1998.
These transactions were (listed as acquiror/target):
- ALZA Corp./SEQUUS Pharmaceuticals, Inc.;
- Warner-Lambert & Co./Agouron Pharmaceuticals, Inc.;
- Alkermes, Inc./Advanced Inhalation Research, Inc.;
- Corixa Corp./Ribi ImmunoChem Research, Inc.;
- Celltech plc/Chiroscience Group plc;
- Johnson & Johnson/Centocor, Inc.;
- Biovail Corp. International/Fuisz Technologies, Ltd.;
- Shire Pharmaceuticals plc/Roberts Pharmaceuticals Corp.;
- Merck & Co./SIBIA Neurosciences, Inc.;
- Affymetrix, Inc./Genetic Microsystems;
- MedImmune, Inc./US Biosciences, Inc.;
- DuPont E.I. de Nemours & Co./CombiChem, Inc.;
- Millenium Pharmaceuticals, Inc./LeukoSite, Inc.;
- Celltech Chiroscience plc/Medeva plc;
- King Pharmaceuticals, Inc./Medco Research, Inc.;
- Invitrogen Corp./Research Genetics, Inc.;
- Gemini Genomics plc/Eurona Medical AB;
- Elan Corp. plc/Liposome Company Inc.;
- Discovery Partners International/Axys Advanced Technologies, Inc.;
- CeNeS Pharmaceuticals, Inc./Cambridge NeuroSciences, Inc.;
- Guilford Pharmaceuticals, Inc./Gliatech, Inc.;*
- Qiagen NV/Operon Technologies;
- Molecular Devices Corp./LJL BioSystems, Inc.;
- Celgene Corp./Signal Pharmaceuticals, Inc.;
- Millenium Pharmaceuticals, Inc./Cambridge Discovery Chemistry;
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- Invitrogen Corp./Life Technologies, Inc.;
- Cytogen Corp./Advanced Magnetics, Inc.;*
- Cephalon, Inc./Anesta Corp.;
- Evotec BioSystems AG/Oxford Asymmetry International plc;
- Chiron Corp./Pathogenesis Corp.; and
- Exelixis, Inc./Agritope, Inc.
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* Transaction terminated.
SG Cowen reviewed the enterprise value (defined as market capitalization of
common stock plus total debt less cash and equivalents) paid in these
biotechnology transactions as a multiple of estimated 2000, projected 2001 and
projected 2002 calendar year revenues based on Wall Street analyst research.
The following table presents, for the periods indicated, the multiples
implied by the ratio of enterprise value to estimated 2000, projected 2001 and
projected 2002 calendar year revenues based on Wall Street analyst research. The
information in the table is based on the closing stock prices of GelTex common
stock and Genzyme General Stock on September 8, 2000.
<TABLE>
<CAPTION>
MULTIPLE IMPLIED BY
MULTIPLES FOR BIOTECHNOLOGY TRANSACTIONS CONSIDERATION TO BE
-------------------------------------------------- RECEIVED IN THE
LOW MEAN MEDIAN HIGH TRANSACTION FOR GELTEX
-------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Enterprise Value as a ratio of:
CY 2000E Revenue....................... 1.69x 8.23x 5.93x 24.16x 22.59x*
CY 2001P Revenue....................... 1.36x 4.92x 4.59x 10.13x 23.30x
CY 2002P Revenue....................... 1.13x 3.54x 3.36x 7.96x 12.59x
</TABLE>
------------------------
* Excluding milestone payments of $24.8 million relating to WelChol and
GelTex's second generation bile acid sequestrant, CY 2000E sales multiple is
53.28x.
Although the biotechnology industry transactions were used for comparison
purposes, none of those transactions is directly comparable to the proposed
transaction, and none of the companies in those transactions is directly
comparable to GelTex or Genzyme General. Accordingly, an analysis of the results
of such a comparison is not purely mathematical, but instead involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the companies involved and other
factors that could affect the acquisition value of these companies or GelTex to
which they are being compared.
ANALYSIS OF PREMIUMS PAID IN SELECTED TRANSACTIONS
SG Cowen reviewed the premiums of the offer prices over the trading prices
four weeks before, and the highest closing trading prices during the 52 weeks
before, the announcement date of each of the biotechnology transactions.
The following table presents the median and the mean of the premiums paid in
the biotechnology transactions based on the offer prices over (1) the trading
prices four weeks before and (2) the highest closing trading prices during the
52 weeks before each of the announcement dates for the biotechnology
transactions and the premiums implied for GelTex based on the consideration to
be
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received in the transaction under the merger agreement. The information in the
table is based on the closing stock prices of GelTex common stock and Genzyme
General Stock on September 8, 2000.
<TABLE>
<CAPTION>
PREMIUMS PAID IN
BIOTECHNOLOGY
TRANSACTIONS PREMIUM IMPLIED BY
---------------------- CONSIDERATION TO BE RECEIVED IN
MEDIAN MEAN THE TRANSACTION FOR GELTEX
-------- -------- -------------------------------
<S> <C> <C> <C>
Premiums Paid to Stock Price:
Four weeks before announcement.................. 43.1% 51.1% 35.7%
52-week high before announcement................ 12.4% (0.4)% 17.2%
</TABLE>
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES FOR GELTEX
To provide contextual data and comparative market information, SG Cowen
compared selected historical operating and financial data and ratios for GelTex
to the corresponding financial data and ratios of other companies whose
securities are publicly traded and which SG Cowen believes have operating,
market valuation and trading valuations similar to what might be expected of
GelTex. These companies, referred to as the GelTex selected companies, were:
- Cephalon, Inc.;
- COR Therapeutics, Inc.;
- Enzon, Inc.;
- Gilead Sciences, Inc.;
- Guilford Pharmaceuticals, Inc.; and
- Texas Biotechnology Corp.
The data and ratios included the enterprise value of the GelTex selected
companies as multiples of estimated 2000, projected 2001 and projected 2002
calendar year revenues and the ratio of price to projected 2002 calendar year
earnings per share using projected revenues and earnings based on Wall Street
analyst research.
The following table presents, for the periods indicated, the multiples
implied by the ratios of enterprise value to estimated 2000, projected 2001 and
projected 2002 calendar year revenues and the ratio of price to projected 2002
calendar year earnings per share. The information in the table is based on the
closing stock price of GelTex common stock on September 8, 2000.
<TABLE>
<CAPTION>
MULTIPLE IMPLIED BY
GELTEX SELECTED COMPANY MULTIPLES CONSIDERATION TO BE
----------------------------------------- RECEIVED IN THE
LOW MEAN MEDIAN HIGH TRANSACTION FOR GELTEX
-------- -------- -------- -------- ----------------------
<S> <C> <C> <C> <C> <C>
Enterprise Value as a ratio of:
CY 2000E Revenue........................ 19.84x 30.73x 25.59x 58.65x 22.59x*
CY 2001P Revenue........................ 11.96x 26.49x 20.10x 50.92x 23.30x
CY 2002P Revenue........................ 9.63x 18.92x 16.48x 35.32x 12.59x
Price as a ratio of:
CY 2002P Earnings per share............. 40.9x 53.7x 53.4x 67.0x 29.0x
</TABLE>
------------------------
* Excluding milestone payments of $24.8 million relating to WelChol and
GelTex's second generation bile acid sequestrant, CY 2000E sales multiple is
53.28x.
Although the GelTex selected companies were used for comparison purposes,
none of those companies is directly comparable to GelTex. Accordingly, an
analysis of the results of such a
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comparison is not purely mathematical, but instead involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the GelTex selected companies and
other factors that could affect the public trading value of the GelTex selected
companies or GelTex to which they are being compared.
HISTORICAL EXCHANGE RATIO ANALYSIS
SG Cowen analyzed the ratios of the closing prices of GelTex common stock to
those of Genzyme General Stock over various periods ending September 8, 2000.
Although the total consideration proposed to be issued in the merger will be 50%
Genzyme General Stock and 50% cash, SG Cowen calculated the implied exchange
ratio for the transaction assuming a 100% stock-for-stock exchange for
illustrative purposes. Both cash/stock and 100% stock cases equate to an offer
price of $47.50 per share based on the closing price of Genzyme General Stock on
September 8, 2000. The table below illustrates the ratios for those periods.
<TABLE>
<CAPTION>
PERIOD COVERED EXCHANGE RATIO
-------------- --------------
<S> <C>
Latest twelve months average................................ 0.354
Latest six months average................................... 0.398
Latest three months average................................. 0.434
Latest one month average.................................... 0.523
High (latest twelve months)................................. 0.603
Low (latest twelve months).................................. 0.222
Current (September 8, 2000)................................. 0.572
Implied exchange ratio for GelTex........................... 0.7272
</TABLE>
STOCK TRADING HISTORY
To provide contextual data and comparative market data, SG Cowen reviewed
the historical market prices of GelTex common stock for the twelve month period
ended September 8, 2000. SG Cowen noted that the high and low share prices of
GelTex common stock were $40.52 and $9.50 for the twelve month period. The
closing share price of GelTex common stock on September 8, 2000 was $37.38.
SG Cowen also reviewed the historical market prices of Genzyme General Stock
for the twelve month period ended September 8, 2000. SG Cowen noted that the
high and low share prices of Genzyme General Stock were $75.06 and $32.94 for
the twelve month period. The closing share price of Genzyme General Stock on
September 8, 2000 was $65.31.
CONTRIBUTION ANALYSIS
SG Cowen analyzed the respective contributions of calendar year 2000
estimated and 2001, 2002, 2003, 2004 and 2005 projected revenues, earnings
before interest and taxes, referred to as EBIT, and net income of GelTex and
Genzyme General to the combined company for the fiscal years ended December 31,
based upon the projected financial results of GelTex and Genzyme General. The
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financial forecasts for GelTex were prepared by the management of GelTex. The
financial forecasts for Genzyme General were based upon Wall Street analyst
research.
<TABLE>
<CAPTION>
% OF COMBINED COMPANY
---------------------------
GENZYME GELTEX
CONTRIBUTION CONTRIBUTION
------------ ------------
<S> <C> <C>
Operating Results
FY (Dec.)
2000E Revenue.............................. 94.6% 5.4%
2001P Revenue.............................. 95.6% 4.4%
2002P Revenue.............................. 93.3% 6.7%
2003P Revenue.............................. 91.9% 8.1%
2004P Revenue.............................. 92.2% 7.8%
2005P Revenue.............................. 91.3% 8.7%
2000E EBIT................................. 99.6% 0.4%
2001P EBIT................................. 103.0% (3.0)%
2002P EBIT................................. 93.5% 6.5%
2003P EBIT................................. 88.9% 11.1%
2004P EBIT................................. 88.9% 11.1%
2005P EBIT................................. 86.9% 13.1%
2000E Net Income........................... 97.0% 3.0%
2001P Net Income........................... 101.9% (1.9)%
2002P Net Income........................... 89.3% 10.7%
2003P Net Income........................... 83.9% 16.1%
2004P Net Income........................... 89.1% 10.9%
2005P Net Income........................... 87.6% 12.4%
</TABLE>
PRO FORMA OWNERSHIP ANALYSIS
SG Cowen analyzed the pro forma ownership in the combined company by the
holders of GelTex and Genzyme and noted that holders of GelTex common stock
would own approximately 8.3%, and 7.8% on a fully-diluted basis, of the
outstanding shares of Genzyme General Stock after giving effect to the proposed
transaction, based on the Genzyme General Stock closing share price on
September 8, 2000.
DISCOUNTED CASH FLOW ANALYSIS FOR GELTEX
SG Cowen estimated a range of values for GelTex common stock based upon the
discounted present value of the projected after-tax cash flows of GelTex
described in the financial forecasts provided by management of GelTex for the
fiscal years ended December 31, 2001 through December 31, 2009, and of the
terminal value of GelTex at December 31, 2009, based upon multiples of EBIT for:
- a base case, which was based on the assumption of the management of GelTex
for Renagel brand phosphate binder sales of $93 million in 2001 growing to
$600 million in 2009; and
- an upside case based on the assumption of the management of GelTex for
Renagel brand phosphate binder sales of $130 million in 2001 growing to
$1 billion in 2009.
After-tax cash flow was calculated by taking projected EBIT and subtracting from
this amount projected taxes, capital expenditures, changes in working capital
and changes in other assets and liabilities and adding back projected
depreciation and amortization. This analysis was based upon the assumptions
described by, projections supplied by and discussions held with the management
of GelTex. In performing this analysis, SG Cowen utilized discount rates ranging
from 16% to 20%, which were
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selected based on the estimated industry weighted average cost of capital. SG
Cowen utilized terminal multiples of EBIT ranging from 14.0 times to 18.0 times,
these multiples representing the general range of multiples of EBIT for the
companies selected by SG Cowen for the purpose of this analysis. Utilizing this
methodology, the equity value per share of GelTex common stock ranged from
$32.59 to $58.85 per share in the base case and from $43.85 to $72.33 in the
upside case. Based on the per share price of Genzyme General Stock on
September 8, 2000, the equity value implied by the consideration to be received
by GelTex stockholders is $47.50 per share.
ANALYSIS OF SELECTED PUBLICLY TRADED COMPANIES FOR GENZYME GENERAL
To provide contextual data and comparative market information, SG Cowen
compared selected historical operating and financial data and ratios for Genzyme
General to the corresponding financial data and ratios of other companies whose
securities are publicly traded and which SG Cowen believes have operating,
market valuation and trading valuations similar to what might be expected of
Genzyme General. These companies, referred to as the Genzyme General selected
companies, were:
- Amgen, Inc.;
- Biogen, Inc.;
- Chiron Corp.;
- Genentech, Inc.;
- Immunex Corp.; and
- MedImmune, Inc.
The data and ratios included the enterprise value of the Genzyme General
selected companies as multiples of estimated 2000, projected 2001 and projected
2002 calendar year sales and EBIT and the ratio of price per share to projected
2002 calendar year earnings per share using projected revenues and earnings
based on Wall Street analyst research and/or first call estimates.
The following table presents, for the periods indicated, the multiples
implied by the ratio of enterprise value to estimated 2000, projected 2001 and
projected 2002 calendar year sales and EBIT and the ratio of price per share to
estimated 2000, projected 2001 and projected 2002 calendar year earnings per
share. The information in the table is based on the closing stock price of
Genzyme General Stock on September 8, 2000.
<TABLE>
<CAPTION>
GENZYME GENERAL
SELECTED COMPANY MULTIPLES
----------------------------------------- GENZYME
LOW MEAN MEDIAN HIGH GENERAL
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Enterprise Value as a ratio of:
CY 2000E Sales.................................... 9.14x 20.68x 23.95x 30.73x 7.56x
CY 2001P Sales.................................... 7.74x 16.43x 18.96x 23.53x 6.28x
CY 2002P Sales.................................... 6.94x 13.04x 14.99x 18.26x 5.30x
CY 2000E EBIT..................................... 25.7x 41.9x 49.4x 50.8x 19.8x
CY 2001P EBIT..................................... 20.8x 42.3x 43.4x 61.4x 15.5x
CY 2002P EBIT..................................... 17.4x 36.1x 32.9x 56.9x 12.7x
Price as a ratio of:
CY 2000E Earnings per Share....................... 36.3x 55.3x 60.3x 69.4x 29.4x
CY 2001P Earnings per Share....................... 31.0x 47.9x 55.6x 57.2x 25.6x
CY 2002P Earnings per Share....................... 26.3x 46.8x 45.7x 69.5x 22.3x
</TABLE>
Although the Genzyme General selected companies were used for comparison
purposes, none of those companies is directly comparable to Genzyme General.
Accordingly, an analysis of the results of such a
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comparison is not purely mathematical, but instead involves complex
considerations and judgments concerning differences in historical and projected
financial and operating characteristics of the Genzyme General selected
companies and other factors that could affect the public trading value of the
Genzyme General selected companies or Genzyme General to which they are being
compared.
DISCOUNTED CASH FLOW ANALYSIS FOR GENZYME GENERAL
SG Cowen estimated ranges of values for Genzyme General Stock based upon the
discounted present value of the projected after-tax cash flows of Genzyme
General described in the financial projections from Wall Street analyst reports
for the fiscal years ended December 31, 2001 through December 31, 2005, and of
the terminal value of Genzyme General at December 31, 2005, based upon multiples
of EBIT. After-tax cash flow was calculated by taking projected EBIT and
subtracting from this amount projected taxes, capital expenditures, changes in
working capital and changes in other assets and liabilities and adding back
projected depreciation and amortization. In performing this analysis, SG Cowen
utilized discount rates ranging from 15% to 17%, which were selected based on
the estimated industry weighted average cost of capital. SG Cowen utilized
terminal multiples of EBIT ranging from 15.0 times to 17.0 times, these
multiples representing the general range of multiples of EBIT for the companies
selected by SG Cowen for the purpose of this analysis. Utilizing this
methodology, the equity value per share of Genzyme General Stock ranged from
$66.45 to $79.94. On September 8, 2000, Genzyme General Stock closed at $65.31.
The summary set forth above describes all material analyses performed by SG
Cowen, but does not purport to be a complete description of all the analyses
performed by SG Cowen. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of these methods to the particular circumstances
and, therefore, an opinion is not readily susceptible to partial analysis or
summary description. SG Cowen did not attribute any particular weight to any
analysis or factor considered by it, but rather made qualitative judgments as to
the significance and relevance of each analysis and factor. Accordingly,
notwithstanding the separate factors summarized above, SG Cowen believes, and
has advised the special committee of the GelTex board of directors, that its
analyses must be considered as a whole and that selecting portions of its
analyses and the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the process underlying its opinion.
In performing its analyses, SG Cowen made numerous assumptions with respect to
industry performance, business and economic conditions and other matters, many
of which are beyond the control of GelTex and Genzyme. These analyses performed
by SG Cowen are not necessarily indicative of actual values or future results,
which may be significantly more or less favorable than suggested by these
analyses. In addition, analyses relating to the value of businesses do not
purport to be appraisals or to reflect the prices at which businesses or
securities may actually be sold. Accordingly, these analyses and estimates are
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of the parties or their respective advisors. None of GelTex,
Genzyme, SG Cowen or any other person assumes responsibility if future results
are materially different from those projected. The analyses supplied by SG Cowen
and its opinion were among several factors taken into consideration by the
special committee of the GelTex board of directors in making its decision to
recommend that the GelTex board of directors deem the merger advisable and enter
into the merger agreement and should not be considered as determinative of that
decision.
SG Cowen was selected by the special committee of the GelTex board of
directors to render its opinion because SG Cowen is an internationally
recognized investment banking firm and because, as part of its investment
banking business, SG Cowen is continually engaged in the valuation of businesses
and their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. SG Cowen is
providing financial services for GelTex for which it will receive customary
fees.
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In addition, in the ordinary course of its business, SG Cowen and its affiliates
actively trade the equity securities of GelTex and Genzyme for their own account
and for the accounts of their customers, and, accordingly, may at any time hold
a long or short position in these securities. SG Cowen and its affiliates in the
ordinary course of business have from time to time provided, and in the future
may continue to provide, commercial and investment banking services to GelTex
and Genzyme, and have received and may in the future receive fees for rendering
these services. In November 1995, for example, SG Cowen acted as lead manager of
GelTex's initial public offering and in 1996 and 1998 as lead manager of
GelTex's public offerings. In addition, SG Cowen acted as a co-manager of a 1998
offering of Genzyme's 5 1/4% convertible subordinated notes, a 1997 public
offering of Tissue Repair Stock, and the public offerings in 1995 of Genzyme
General Stock and Tissue Repair Stock.
Pursuant to the SG Cowen engagement letter, if the transaction is completed,
SG Cowen will be entitled to receive a transaction fee of approximately
$5.5 million. GelTex has also agreed to pay a fee of $1.75 million to SG Cowen
for rendering its opinion, which fee will be credited against any transaction
fee paid. Additionally, GelTex has agreed to reimburse SG Cowen for its
out-of-pocket expenses, including attorneys' fees, and has agreed to indemnify
SG Cowen against various liabilities, including liabilities under the federal
securities laws. The terms of the fee arrangement with SG Cowen, which are
customary in transactions of this nature, were negotiated at arm's length
between GelTex and SG Cowen, and the special committee of the GelTex board of
directors was aware of the arrangement, including the fact that a significant
portion of the fee payable to SG Cowen is contingent upon the completion of the
proposed transaction.
POTENTIAL CONFLICTS OF INTERESTS
When you consider the recommendation of the GelTex board of directors with
respect to the merger, you should be aware that some officers and directors of
GelTex have interests in connection with the merger that are different from, or
in addition to yours, as summarized below. In making its determination as to the
advisability of the merger and its decision to recommend the merger, the GelTex
board of directors was aware of these interests and considered them among the
other matters described above under the section entitled "--GelTex's Reasons for
the Merger" beginning on page 74.
Officers and directors of GelTex who own GelTex common stock will be able to
elect to receive cash or shares of Genzyme General Stock on the same terms as
all the other stockholders of GelTex.
As of the record date, the members of the GelTex board of directors and
executive officers of GelTex beneficially owned 450,472 shares of GelTex common
stock, or approximately 2.1% of GelTex's outstanding shares, and accordingly are
eligible to receive a maximum aggregate amount of $21,397,420 or 327,583 shares
of Genzyme General Stock in the merger. In addition, these board members and
executive officers hold options to acquire 843,361 shares of GelTex common
stock, with exercise prices ranging from $0.125 to $28.75 per share, which will
be assumed by Genzyme and be converted into options to acquire shares of Genzyme
General Stock on the same terms as all the other holders of GelTex stock options
except that the vesting of their options will accelerate upon consummation of
the merger. For more information about these options, you should read the
section of this proxy statement/ prospectus entitled "THE MERGER AND THE MERGER
AGREEMENT--Treatment of GelTex Stock Options and Warrants" beginning on
page 94.
Further, two members of the GelTex board of directors hold director or
officer positions with Genzyme. Henri A. Termeer, president, chief executive
officer and chairman of the board of directors of Genzyme, is also a director of
GelTex. Robert J. Carpenter, chairman of the board of directors of GelTex, is
also a director of Genzyme.
Other potential conflicts of interests of GelTex's officers and directors
include:
- accelerated vesting of their stock options upon consummation of the
merger;
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- severance benefits that will be owed to GelTex's officers under employee
retention agreements in the event they are terminated after the merger;
and
- indemnification and insurance coverage with respect to acts and omissions
in their capacities as directors and officers of GelTex.
RECOMMENDATION OF GELTEX'S BOARD OF DIRECTORS
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS HAS DETERMINED THE
MERGER TO BE FAIR AND IN THE BEST INTERESTS OF THE STOCKHOLDERS AND GELTEX, AND
DECLARED THE MERGER ADVISABLE.
GELTEX'S BOARD OF DIRECTORS APPROVED THE MERGER AGREEMENT AND RECOMMENDS
YOUR ADOPTION OF THE MERGER AGREEMENT.
GENZYME'S REASONS FOR THE MERGER
In considering whether to approve the merger agreement, Genzyme's board of
directors consulted with management, as well as Credit Suisse First Boston,
which acted as its financial advisor. During deliberations, the board of
directors considered the following positive factors:
- acquiring complete ownership of Renagel brand phosphate binder, which
Genzyme believes has substantial market potential once it is fully joined
with Genzyme's financial resources and operational infrastructure;
- acquiring GelTex's other marketed product, WelChol, which was launched in
September 2000;
- expanding Genzyme's product pipeline by adding GelTex's product pipeline
and its polymer technology platform, particularly its toxin binder known
as GT160-246 for C. DIFFICILE and a potential new class of fat-absorption
inhibitors; and
- access to GelTex's well-respected scientists, management, and regulatory
and clinical staff.
Genzyme's board of directors also considered a number of potentially
negative factors regarding the merger, including:
- the risk that the potential advantages of the merger might not be
realized; and
- the dilutive impact of the merger on Genzyme's earnings over the next few
years.
After evaluating these factors and risks, Genzyme's board of directors
concluded that the GelTex merger should provide significant long-term benefits
to Genzyme stockholders. Consequently, the board of directors approved the
merger. When making its determination, the Genzyme board of directors was fully
aware that Messrs. Termeer and Carpenter are directors of GelTex and hold equity
in GelTex.
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THE MERGER AND THE MERGER AGREEMENT
The following is a summary of significant provisions of the merger
agreement. For a more complete understanding of the merger agreement, you should
read the agreement, attached as Annex A and incorporated by reference into this
proxy statement/prospectus.
GENERAL DESCRIPTION OF THE MERGER
In the proposed merger, GelTex will merge into Titan Acquisition Corp., a
specially formed wholly-owned subsidiary of Genzyme, under the laws of the
states of Massachusetts and Delaware. The surviving corporation in the merger
will have the name GelTex Pharmaceuticals, Inc., will be a Massachusetts
corporation and will be a wholly-owned subsidiary of Genzyme.
EFFECTIVE TIME
We expect to close the merger before December 31, 2000. The merger will be
effective upon the filing of appropriate documents with the Delaware and
Massachusetts secretaries of state, or at a later time that we specify in those
documents. We plan to file those documents soon after the GelTex special meeting
of stockholders.
MERGER CONSIDERATION
GENERAL
As a result of the merger, each outstanding share of GelTex common stock
will automatically convert into the right to receive one of the following:
- $47.50 in cash, without interest, which we refer to as the per share cash
consideration;
- 0.7272 of a share of Genzyme General Stock, which we refer to as the per
share stock consideration; or
- a combination of cash and a fraction of a share of Genzyme General Stock.
Shares of GelTex common stock held by GelTex as treasury stock, by Genzyme, or
by a wholly-owned direct or indirect subsidiary of GelTex or Genzyme will be
cancelled and not converted into the merger consideration. No fractional shares
of Genzyme General Stock will be issued in the merger. For more details on the
treatment of fractional shares, you should read the section of this proxy
statement/ prospectus entitled "--No Fractional Shares" beginning on page 91.
COMPOSITION OF CONSIDERATION
We are sending an election form/letter of transmittal to each record holder
of GelTex common stock as of October 24, 2000, separately from this proxy
statement/prospectus. We will also try to make the election form/letter of
transmittal available to persons who become holders of GelTex common stock after
the record date and request a copy of the form. Each holder of GelTex common
stock may indicate on this election form a preference for:
- the per share cash consideration, which we call a cash election; or
- the per share stock consideration, which we call a stock election.
You are not required to elect the same consideration for all of your shares of
GelTex common stock. The election form permits you to indicate a preference for
the per share cash consideration with respect to some or all of your shares and
the per share stock consideration with respect to some or all of the rest of
your shares. You also can indicate that you have no preference as to the form of
consideration with respect to some or all of your shares.
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Regardless of your individual elections, not more than 50% of the shares of
GelTex common stock will be exchanged for the right to receive either the per
share cash consideration or the per share stock consideration. Accordingly, the
consideration payable to GelTex stockholders who elect to receive the cash
consideration or the stock consideration may be prorated as described below.
SHARES FOR WHICH HOLDERS MAKE A CASH ELECTION. To determine the
consideration payable with respect to shares of GelTex common stock for which a
valid cash election has been made, we first will determine the aggregate number
of shares of GelTex common stock for which the per share cash consideration is
available. This number, which we refer to as the "available cash shares," will
be arrived at by:
- multiplying the number of GelTex shares outstanding at the closing of the
merger by 50%; and
- subtracting the number of GelTex shares for which stockholders have
exercised dissenters' appraisal rights.
If the number of shares of GelTex common stock for which stockholders have
made valid cash elections is less than or equal to the number of available cash
shares, then each share of GelTex common stock for which stockholders have
validly elected to receive the cash consideration will convert into the right to
receive $47.50, assuming no tax-based adjustment is required. On the other hand,
if the number of shares of GelTex common stock for which stockholders have made
valid cash elections exceeds the number of available cash shares, then the cash
merger consideration will be prorated. Assuming that no tax-based adjustment
will be required, each share for which a valid cash election has been made will
convert into the right to receive:
- cash equal to $47.50 multiplied by the cash proration factor described
below; and
- a fraction of a share of Genzyme General Stock equal to the product of
(x) 0.7272 and (y) one minus the cash proration factor.
The cash proration factor would equal the ratio of (x) the number of
available cash shares to (y) the number of shares for which valid elections to
receive the per share cash consideration have been made.
Below are examples of how this proration process would work. These examples
assume that (1) no GelTex stockholders exercise dissenters' appraisal rights and
(2) no tax-based adjustment is required.
- If GelTex stockholders elect, in the aggregate, for 25% of the GelTex
shares to receive cash consideration, each share of GelTex common stock
subject to a valid cash election will convert into the right to receive
$47.50.
- If GelTex stockholders elect, in the aggregate, for 50% of the GelTex
shares to receive cash consideration, each share of GelTex common stock
subject to a valid cash election will convert into the right to receive
$47.50.
- If GelTex stockholders elect, in the aggregate, for 75% of the GelTex
shares to receive cash consideration, the cash proration factor will be
0.6667 and each share of GelTex common stock subject to a valid cash
election will convert into the right to receive (1) $31.67
($47.50 X 0.6667) in cash and (2) 0.2424 (0.7272 X 0.3333) of a share of
Genzyme General Stock.
- If GelTex stockholders elect, in the aggregate, for 100% of the GelTex
shares to receive cash consideration, the cash proration factor will be
0.5000 and each share of GelTex common stock subject to a valid cash
election will convert into the right to receive (1) $23.75
($47.50 X 0.5000) in cash and (2) 0.3636 (0.7272 X 0.5000) of a share of
Genzyme General Stock.
SHARES FOR WHICH HOLDERS MAKE A STOCK ELECTION. The number of shares of
GelTex common stock that will convert into the per share stock consideration
will equal 50% of the number of GelTex shares
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outstanding at the effective time of the merger. Due to this limitation, GelTex
stockholders who elect to receive the per share stock consideration may instead
receive a combination of cash and shares of Genzyme General Stock.
If the number of shares of GelTex common stock for which stockholders have
made valid stock elections is less than or equal to the number of shares that
will convert into the right to receive the per share stock consideration, then
each share of GelTex common stock subject to a valid stock election will convert
into the right to receive 0.7272 of a share of Genzyme General Stock. On the
other hand, if the number of shares of GelTex common stock for which
stockholders have made valid stock elections exceeds the number of shares that
will convert into the right to receive the per share stock consideration, then
the number of shares of Genzyme General Stock will be prorated; specifically,
each share for which a valid stock election has been made will convert into the
right to receive:
- a fraction of a share of Genzyme General Stock equal to (x) 0.7272
multiplied by (y) the stock proration factor described below; and
- cash equal to $47.50 multiplied by one minus the stock proration factor.
The stock proration factor would equal the ratio of (x) 50% of the number of
shares of GelTex stock outstanding to (y) the number of shares for which the
stock consideration has been elected.
Below are examples of how this proration process would work.
- If GelTex stockholders elect, in the aggregate, for 25% of the GelTex
shares to receive the stock consideration, each share of GelTex common
stock subject to a valid stock election will convert into the right to
receive 0.7272 of a share of Genzyme General Stock.
- If GelTex stockholders elect, in the aggregate, for 50% of the GelTex
shares to receive the stock consideration, each share of GelTex common
stock subject to a valid stock election will convert into the right to
receive 0.7272 of a share of Genzyme General Stock.
- If GelTex stockholders elect, in the aggregate, for 75% of the GelTex
shares to receive stock consideration, the stock proration factor will be
0.6667 and each share of GelTex common stock subject to a valid stock
election will convert into the right to receive (1) 0.4848
(0.6667 X 0.7272) of a share of Genzyme General Stock and (2) $15.83
($47.50 X 0.3333) (with 0.3333 being equal to one minus the proration
factor) in cash.
- If GelTex stockholders elect, in the aggregate, for 100% of the GelTex
shares to receive stock consideration, the stock proration factor will be
0.5000 and each share of GelTex common stock subject to a valid stock
election will convert into the right to receive (1) 0.3636
(0.5000 X 0.7272) of a share of Genzyme General Stock and (2) $23.75
($47.50 X 0.5000) (with 0.5000 being equal to one minus the proration
factor) in cash.
TREATMENT OF NON-ELECTIONS
As an alternative to electing the per share cash consideration or the per
share stock consideration, you can indicate that you have no preference as to
the form of consideration with respect to some or all of your shares of GelTex
common stock. Each of these shares will be exchanged for cash, a fraction of a
share of Genzyme General Stock or a combination of the two in a manner designed
to honor the preferences of GelTex stockholders who have made cash elections or
stock elections. Specifically,
- if other GelTex stockholders validly elect, in the aggregate, for more
than 50% of the GelTex shares to convert into the per share cash
consideration, each share of GelTex common stock for which no preference
was indicated will convert into the right to receive the per share stock
consideration;
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- if other GelTex stockholders validly elect, in the aggregate, for more
than 50% of the GelTex shares to convert into the per share stock
consideration, each share of GelTex common stock for which no preference
was indicated will convert into the right to receive the per share cash
consideration; and
- if other GelTex stockholders do not validly elect, in the aggregate, for
either (1) more than 50% of the GelTex shares to convert into the per
share cash consideration or (2) more than 50% of the GelTex shares to
convert into the per share stock consideration, shares of GelTex common
stock for which no preference was indicated will convert into the right to
receive cash and a fraction of a share of Genzyme General Stock on a
proportionate basis so that, in the aggregate, 50% of the GelTex shares
convert into the right to receive the per share stock consideration and
50% of the GelTex shares convert into the right to receive the per share
cash consideration (assuming no GelTex stockholders exercise dissenters'
rights and no tax-based adjustment is required).
If you do not make a valid election before the election deadline you will be
treated as if you had not indicated a preference as to the form of consideration
to be received.
POTENTIAL ADJUSTMENTS
POTENTIAL TAX ADJUSTMENT. In order to help ensure the merger will qualify
as a reorganization within the meaning of Section 368 of the Internal Revenue
Code, the merger agreement provides that, if necessary, the cash portion of the
merger consideration will be reduced on the date on which the effective time
occurs in order to ensure that at least 45% of the value of the total
consideration paid, including all cash paid in lieu of issuing fractional shares
of Genzyme General Stock and other payments required to be considered for tax
purposes, consists of Genzyme General Stock.
If a tax adjustment is necessary, the per share cash consideration to be
paid in exchange for 50% of the shares of GelTex common stock would consist of a
combination of cash and a fraction of a share of Genzyme General Stock, rather
than $47.50 in cash. This combination would have a pre-tax market value of
$47.50, valuing the fraction of a share of Genzyme General Stock using the last
sale price on the date of the effective time of the merger. The exact
composition of the per share cash consideration, consequently, would depend on
the market price of Genzyme General Stock at the effective time of the merger.
This provision would be triggered if the market price per share of Genzyme
General Stock on the date on which the effective time occurs is below
approximately $53.44. You should note that if more than 50% of the shares of
GelTex common stock make valid cash elections and a tax adjustment is triggered,
all shares of GelTex common stock subject to valid cash elections will be
prorated and, consequently, will convert into the merger consideration with a
market value of less than $47.50.
In no event will Genzyme issue more than 19,670,586 shares of Genzyme
General Stock as merger consideration. If Genzyme General Stock were at a price
that implied a tax adjustment that would result in issuing more than that number
of shares (approximately $14.15), the parties will not effect the merger at that
time.
POTENTIAL RECAPITALIZATION ADJUSTMENT. If, before the effective time of the
merger, Genzyme undertakes a stock split, reverse stock split, stock dividend or
similar transaction that results in a change in the number of outstanding shares
of Genzyme General Stock, the per share cash consideration and the per share
stock consideration would be equitably adjusted.
NO FRACTIONAL SHARES
Genzyme will not issue fractional shares in the merger. Instead, it will pay
cash to each GelTex stockholder who otherwise would be entitled to receive a
fractional share of Genzyme General Stock.
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The cash amount will equal the fractional share number multiplied by the last
sale price of the Genzyme General Stock on the trading day immediately preceding
the effective time of the merger.
PROCEDURE FOR FILING ELECTIONS
We will mail an election form/letter of transmittal to each record holder of
GelTex common stock as of the record date for the special meeting. In addition,
we will attempt to make the election form/ letter of transmittal available to
anyone who becomes a GelTex stockholder between the record date and December 1,
2000 and who requests a copy of the materials in writing from GelTex's Corporate
Secretary. To be effective, an election form/letter of transmittal must be:
- properly completed and signed by the holder of record;
- accompanied by the certificates for the shares of GelTex common stock for
which the election is being made; and
- received by American Stock Transfer & Trust Company, the exchange agent,
by 5:00 p.m., New York City time, on December 8, 2000.
A valid election, as long as received by the election deadline, will be
treated the same as others that make the same election, regardless of when
received--that is, not on a first come, first served basis. You may revoke an
election form/letter of transmittal only by written notice received by American
Stock Transfer & Trust Company by 5:00 p.m., New York City time, on December 8,
2000. The election form/letter of transmittal provides further details
concerning the mechanics of making and revoking an election. The exchange agent
may make rules for the implementation of the election process, consistent with
the merger agreement.
If you do not wish to make an election, you may nonetheless submit your
GelTex certificates to the exchange agent with the election form/letter of
transmittal without completing the election section of the form.
If you plan to submit an election form/letter of transmittal, you should
read the next section, "Exchange of GelTex Stock Certificates," for information
concerning lost, stolen or destroyed certificates and requests to issue
certificates for Genzyme General Stock to a person other than yourself. If an
election form/letter of transmittal is not received by the exchange agent before
the deadline, or if an election form/letter of transmittal is determined by the
exchange agent or Genzyme not to be properly completed, the holders submitting
the late or improper election form/letter of transmittal will be treated as if
they indicated no preference as to their shares.
If you surrender certificates for GelTex common stock, together with a duly
executed election form/letter of transmittal, then, after the merger, the
exchange agent will deliver to you the shares of Genzyme General Stock, cash or
the combination of shares of Genzyme General Stock and cash to which you are
entitled.
EXCHANGE OF GELTEX STOCK CERTIFICATES
Promptly after the effective time of the merger, Genzyme or the exchange
agent will mail the following materials to each person who held shares of GelTex
common stock as of the effective time but did not already submit a valid
election form/letter of transmittal:
- a letter of transmittal that you may use to surrender certificates and
send them to the exchange agent to be exchanged for the merger
consideration; and
- instructions explaining what to do to effect the exchange of shares of
GelTex common stock for the merger consideration.
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If you have not already submitted all certificates for shares of GelTex common
stock to the exchange agent with an election form/letter of transmittal, you
should complete and sign the letter of transmittal and return it to the exchange
agent, together with any certificates for GelTex common stock you hold.
If certificates for any shares of GelTex common stock have been lost, stolen
or destroyed, you must submit to the exchange agent appropriate evidence
regarding the ownership, loss, theft or destruction of the certificate, an
affidavit to that effect, a customary indemnification agreement, and, if
reasonably requested, a bond securing performance of the indemnification
agreement.
Genzyme will honor a request from a person surrendering a GelTex common
stock certificate to issue the shares of Genzyme General Stock being exchanged
to a person other than the registered holder named on the exchange agent's books
so long as the requesting person:
- submits all documents necessary to evidence and effect the transfer to the
new holder; and
- pays any transfer or other taxes resulting from issuing shares of Genzyme
General Stock to a person other than the registered holder of the GelTex
certificate, unless the requesting person satisfactorily establishes to
Genzyme that any tax has been paid or is inapplicable.
Holders of GelTex common stock exchanged for Genzyme General Stock in the
merger will be entitled to receive dividends and other distributions on Genzyme
General Stock (without interest) that are declared or made with a record date
after the effective time of the merger. Dividends or other distributions will
not be paid to any former holder of GelTex common stock, however, until that
holder surrenders shares of GelTex common stock to the exchange agent.
APPRAISAL RIGHTS OF GELTEX STOCKHOLDERS
Holders of GelTex common stock who object to the merger are entitled to
appraisal rights under Delaware law. If you choose to exercise your rights of
appraisal, you should refer to Section 262 of the Delaware General Corporation
Law, referred to in this document as the DGCL, which sets forth the rights and
duties applicable to you, GelTex and Genzyme and the procedures governing the
appraisal of your shares. A copy of Section 262 of the DGCL is attached to this
proxy statement/prospectus as Annex C.
HOW TO DEMAND PAYMENT FOR AND APPRAISAL OF YOUR SHARES
If GelTex stockholders adopt the merger agreement, Genzyme and GelTex intend
to file articles of merger in Massachusetts and a certificate of merger in
Delaware as soon as practicable after the special meeting. Once those states
declare the merger effective, GelTex stockholders who objected to the merger and
did not vote for the merger will be entitled to perfect their appraisal rights
under Delaware law.
If you wish to exercise your dissenter's rights, you must strictly adhere to
the procedures set forth in the Delaware statute. The following is a summary of
those procedures.
- You must file a written objection to the merger with GelTex
Pharmaceuticals, Inc., 153 Second Avenue, Waltham, Massachusetts 02451,
Attention: Corporate Secretary, before the special meeting, stating your
intention to demand payment for your shares of GelTex common stock if the
merger and merger agreement are approved and made effective. If you file
your objection with GelTex before the meeting, you do not need to vote
against the merger and the merger agreement. A vote by proxy or in person
against the merger proposal alone does not constitute a demand for payment
and appraisal, nor does it constitute a waiver of your rights of
appraisal.
- You must not vote in favor of the merger and the merger agreement;
otherwise you will have waived your rights of appraisal.
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- Genzyme will notify you within ten (10) days of the merger becoming
effective. You must send Genzyme a written demand for payment for your
shares of GelTex common stock within twenty (20) days after receiving
Genzyme's notice.
If you have followed the procedures established under Delaware law which are
briefly summarized above and the merger becomes effective, Genzyme will contact
you in order to determine the fair value of your stock. The "fair value" of your
stock will be determined as of the day before GelTex stockholders adopted the
merger agreement and will exclude any value arising from the expectation or
effectiveness of the merger.
Within 120 days after the effective date of the merger, Genzyme or any
dissenting stockholders may file a petition in the Delaware Court of Chancery
for the appraisal of their shares, although they may, within 60 days of the
effective date, withdraw their demand for appraisal. Notwithstanding the
foregoing, within 120 days of the effective date, the holders of dissenting
shares may also, upon written request, receive from Genzyme a statement setting
forth the aggregate number of shares with respect to which demands for
appraisals have been received and the aggregate number of holders of the shares.
If you are considering seeking appraisal of your shares of GelTex common
stock, you should note that the fair value of your shares determined under the
Delaware statute could be more, the same or less than the merger consideration
you would have received in the merger. Your appraisal rights are your only
remedy if you object to approval of the merger and the merger agreement, unless
adoption of the merger and merger agreement is determined to have been illegal,
fraudulent or in breach of the GelTex board of directors' fiduciary duties.
FINANCING THE CASH PORTION OF THE MERGER CONSIDERATION
Genzyme estimates that cash payments to GelTex stockholders in the merger
will be approximately $509.4 million. Genzyme currently expects to fund a
portion of this amount through borrowings under senior credit facilities and the
remainder with cash on hand.
Any amounts Genzyme borrows to pay all or a portion of the cash portion of
the merger consideration would be allocated to Genzyme General. As a
consequence, Genzyme General's balance sheet would carry that debt and its
income statement would reflect the associated interest expense. See the pro
forma financial information presented under the heading "UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION" beginning on page 36.
TREATMENT OF GELTEX STOCK OPTIONS AND WARRANTS
STOCK OPTIONS
At the effective time of the merger, each outstanding option to purchase
shares of GelTex common stock, including those options granted under GelTex's
Amended and Restated 1992 Equity Incentive Plan, GelTex's Amended and Restated
1995 Director Stock Option Plan, options granted outside of any stock option
plan and options assumed by GelTex in connection with its acquisition of
SunPharm Corporation, whether or not exercisable, will be assumed by Genzyme.
Each assumed option will continue to be governed by the same terms and
conditions that governed it under the applicable GelTex stock option plan or
option certificate or agreement immediately before the effective time of the
merger except that:
- each option will be exercisable for a number of shares of Genzyme General
Stock equal to the number of shares of GelTex common stock issuable upon
exercise of the option multiplied by 0.7272, rounded down to the nearest
whole number of shares of Genzyme General Stock;
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- the per share exercise price for the shares of Genzyme General Stock
issuable upon exercise of the assumed option will be equal to the exercise
price per share of the GelTex option divided by 0.7272, rounded up to the
nearest whole cent;
- the vesting of stock options granted to directors and several officers of
GelTex will be accelerated immediately upon the effective time of the
merger; and
- the vesting of stock options granted to all other employees of GelTex
before the closing date of the merger will be accelerated as of the first
anniversary of the effective date of the merger as long as they remain
employees of GelTex or Genzyme on the one year anniversary date.
On October 30, 2000, options to purchase 2,046,997 shares of GelTex common
stock were outstanding. The weighted average exercise price per share of those
options was $18.02 per share.
Genzyme has agreed to file a registration statement on Form S-8 and/or
Form S-3 for the shares of Genzyme General Stock subject to GelTex stock
options. Genzyme expects that the registration statement will be effective
shortly after the effective time of the merger, and Genzyme has agreed to use
commercially reasonable efforts to maintain the effectiveness of that
registration statement for so long as former GelTex stock options remain
outstanding.
WARRANTS
All outstanding GelTex warrants as of the effective time of the merger will
be assumed by Genzyme. Each assumed warrant will continue to be governed by the
same terms and conditions that governed it immediately before the effective time
of the merger except that the warrants shall be exercisable for shares of
Genzyme General Stock rather than GelTex common stock. The number of shares of
Genzyme General Stock issuable upon exercise of the assumed warrants, as well as
the exercise price, will be adjusted based on the merger's exchange ratio of
0.7272.
Genzyme has agreed to file a registration statement on Form S-3 for the
shares of Genzyme General Stock subject to GelTex warrants. Genzyme expects that
the registration statement will be effective shortly after the effective time of
the merger, and Genzyme has agreed to use commercially reasonable efforts to
maintain the effectiveness of that registration statement for so long as former
GelTex warrants remain outstanding.
TREATMENT OF GELTEX BENEFITS AND OTHER EMPLOYEE MATTERS
Genzyme has agreed to give GelTex employees who remain employed by GelTex or
Genzyme after the merger full credit for time worked at GelTex in terms of
eligibility, vesting, benefit accrual (except benefit accrual under defined
benefit pension plans) and determination of the level of benefits, under any
Genzyme employee benefit plans. Genzyme has also agreed to waive limitations for
pre-existing condition exclusions and waiting periods under any Genzyme welfare
benefit plans that a continuing GelTex employee is eligible to participate in
after the merger. This waiver would not include, however, limitations and
waiting periods that have not been satisfied under any GelTex welfare plan
maintained for the employee before the merger.
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Genzyme has further agreed to assume and honor all GelTex employment,
severance and other compensation agreements existing before execution of the
merger agreement.
GelTex has agreed that it and its subsidiaries will not make any
discretionary contribution to the GelTex 401(k) plan or make any required
contribution to it in GelTex common stock. GelTex has agreed to terminate its
401(k) plan on the closing date of the merger, if requested by Genzyme, at which
time GelTex employees would be eligible to participate in Genzyme's 401(k) plan.
ACCOUNTING TREATMENT
Genzyme will account for the merger using the purchase method of accounting
for a business combination. Under this method of accounting, the assets and
liabilities of GelTex, including intangible assets, will be recorded at their
fair market values. The results of operations and cash flows of GelTex will be
included in Genzyme's financial statements following the completion of the
merger. Consistent with generally accepted accounting principles, or GAAP,
amounts assigned to purchased in-process research and development--i.e., GelTex
research and development projects that are still in process at the closing of
the merger, but which, if unsuccessful, have no alternative future use--must be
charged as expenses on the date that the merger closes.
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
The following discussion summarizes the material U.S. federal income tax
consequences of the merger that are generally applicable to holders of GelTex
common stock. The discussion does not deal with all income tax considerations
that may be relevant to you in light of your individual circumstances, nor does
the discussion apply to stockholders who are subject to special treatment under
the U.S. federal income tax laws, such as dealers in securities or traders who
mark to market, foreign persons, banks, insurance companies or tax-exempt
entities, stockholders who hold their shares as part of a hedging, straddle,
conversion, or other risk reduction transaction and stockholders who acquired
their shares in connection with stock option or stock purchase plans or in other
compensatory transactions. In addition, the discussion does not address the U.S.
federal income tax consequences to stockholders who do not hold their stock as a
capital asset. Furthermore, the discussion does not consider the potential
effects of any foreign, state or local tax laws.
This discussion is based on current provisions of the Internal Revenue Code,
Treasury Department regulations, published positions of the Internal Revenue
Service or IRS and court decisions as of the date of this proxy
statement/prospectus. All of the foregoing are subject to change, and any such
change could affect the continuing validity of this discussion. Accordingly, we
cannot assure you that the statements made in this document will remain accurate
in the future.
This section, as it relates to matters of U.S. federal income tax law,
constitutes the opinion of Palmer & Dodge LLP, counsel to Genzyme, which is
attached as Exhibit 8.1 to the Registration Statement in which this proxy
statement/prospectus is included. Additionally, Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C., counsel to GelTex, has delivered to GelTex an opinion
as to the tax treatment of the merger, which is attached as Exhibit 8.2 to the
Registration Statement in which this proxy statement/prospectus is included. The
opinions of Palmer & Dodge LLP and Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C. are based on current law and the following assumptions:
- that the facts relating to the merger described in this proxy
statement/prospectus are true, correct and complete in all material
respects;
- that the representations and warranties contained in this proxy
statement/prospectus and the merger agreement and the factual
representations contained in letters delivered to counsel by GelTex,
Genzyme and the merger subsidiary in connection with their tax opinions
are, at the
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time they are made, and will remain at all times through the effective
time of the merger, true, correct and complete;
- that, as to all matters for which a person or entity has represented that
the person or entity is not a party to, does not have, or is not aware of,
any plan, intention, understanding or agreement, there is no such plan,
intention, understanding or agreement;
- that all parties to the merger agreement and to any other documents
examined by counsel have acted, and will act, in accordance with the terms
of the merger agreement and documents;
- that the merger will be completed at the effective time under the terms,
conditions and covenants in the merger agreement without the waiver or
modification of any material terms, conditions and covenants; and
- that Genzyme, the merger subsidiary and GelTex each will comply with all
reporting obligations required under the Internal Revenue Code and
Treasury Regulations relating to the merger.
Any inaccuracy in, or breach of, any of the preceding statements,
representations or assumptions or change in current law could adversely affect
the tax opinions.
An opinion of counsel only represents counsel's best judgment, and has no
binding effect or official status of any kind. No assurance can be given that
contrary positions may not be taken by the IRS or a court considering the
issues. Neither Genzyme nor GelTex has requested or will request a ruling from
the IRS with regard to any of the federal income tax consequences of the merger.
To qualify as a reorganization under Section 368(a) of the Internal Revenue
Code, the merger must satisfy, in addition to other requirements, a "continuity
of interest" test, which requires that the holders of GelTex common stock, as a
group, retain a substantial proprietary interest in the GelTex business that
Genzyme will conduct following the merger. IRS ruling guidelines provide that
this requirement will be satisfied if the holders of GelTex common stock, as a
group, receive an amount of Genzyme stock in the merger having a value equal to
at least 50% of the value of the formerly outstanding GelTex common stock.
However, these guidelines only describe the circumstances in which the IRS will
issue a favorable ruling in advance of the consummation of a transaction, and
are not a statement of the substantive law regarding the qualification of a
merger as a reorganization under Section 368(a) of the Internal Revenue Code.
The case law is more liberal than the IRS ruling guidelines in this area and, in
one early case, the Supreme Court held that the continuity requirement was
satisfied where the stockholders of the acquired company received stock of the
acquiring company having a value of less than 45% of the value of the formerly
outstanding stock of the acquired company. If the IRS guideline percentage is
not satisfied, the merger agreement contains a mechanism that ensures that the
value of the Genzyme stock issued in the merger will be equal to at least 45% of
the value of the formerly outstanding GelTex common stock. For more details
about this mechanism, you should read the section of this proxy
statement/prospectus entitled "THE MERGER AND THE MERGER AGREEMENT--Merger
Consideration" beginning on page 88. At this 45% level, as a matter of law, the
"continuity of interest" requirement will be satisfied, even if the IRS advance
ruling guideline is not met.
Based upon and subject to the assumptions and limitations stated above, it
is the opinion of Palmer & Dodge and Mintz Levin that the merger will constitute
a reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. As a result of the qualification of the merger as a reorganization, the
material federal income tax consequences will be as described below.
TREATMENT OF GELTEX, GENZYME AND THE MERGER SUBSIDIARY
No gain or loss will be recognized by GelTex, Genzyme or the merger
subsidiary by reason of the merger.
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TREATMENT OF STOCKHOLDERS WHO EXCHANGE GELTEX COMMON STOCK SOLELY FOR
GENZYME GENERAL STOCK
Except as discussed below with respect to the receipt of cash in lieu of
fractional shares, a holder of GelTex common stock who receives solely Genzyme
General Stock in exchange for GelTex common stock in the merger will not
recognize gain or loss upon such exchange. The aggregate tax basis of the
Genzyme General Stock received by a holder, including any fractional shares
deemed received, as described below, will be equal to the aggregate tax basis of
the GelTex common stock surrendered, and the holding period of the Genzyme
General Stock will include the holding period of the GelTex common stock
surrendered.
TREATMENT OF STOCKHOLDERS WHO EXCHANGE GELTEX COMMON STOCK FOR A COMBINATION
OF GENZYME GENERAL STOCK AND CASH
Except as discussed below with respect to the receipt of cash in lieu of
fractional shares, a holder of GelTex common stock who receives a combination of
Genzyme General Stock and cash, other than cash in lieu of fractional shares, in
exchange for GelTex common stock in the merger will recognize gain, but not
loss, on the exchange. The gain, if any, that the holder will recognize will
equal the lesser of (i) the amount of cash received in the exchange and
(ii) the amount of gain that the holder realizes in the exchange. The amount of
gain that the holder realizes in the exchange will equal the excess of (i) the
sum of the cash plus the fair market value of the Genzyme General Stock received
in the exchange over (ii) the tax basis of the GelTex common stock surrendered.
For this purpose, stockholders who acquired different blocks of GelTex common
stock at different times for different prices must calculate gain or loss
separately for each identifiable block of shares surrendered in the exchange and
cannot use a loss realized on one block of shares to offset a gain realized on
another block of shares. The aggregate tax basis of the Genzyme General Stock
received, including any fractional shares deemed received, as described below,
will be equal to the aggregate tax basis of the GelTex common stock surrendered
in the exchange, decreased by the amount of cash received and increased by the
amount of gain recognized. The holding period of the Genzyme General Stock
received will include the holding period of the GelTex common stock surrendered
in exchange therefor. Except as discussed below, any gain recognized by a holder
with respect to the exchange will be capital gain and will be long-term capital
gain if the holding period of the shares of GelTex common stock exchanged for
cash in the merger is more than one year as of the effective date of the merger.
In limited circumstances, a GelTex stockholder receiving a combination of
Genzyme General Stock and cash could be required to treat part or all of the
holder's recognized gain as dividend income. Dividend treatment will apply if
the receipt of cash has the effect of a distribution of a dividend within the
meaning of the Internal Revenue Code. Generally, the requirements for
non-dividend treatment will be satisfied if (i) the percentage of Genzyme
capital stock owned by the stockholder immediately after the merger (by vote and
value) is less than 80% of the percentage of Genzyme capital stock that the
holder would have owned if the holder had received solely Genzyme General Stock
in exchange for GelTex common stock in the merger, and the holder owns less than
50% (by vote) of all outstanding Genzyme capital stock after the merger, or
(ii) the cash received in the merger results in a "meaningful reduction" in the
amount of Genzyme capital stock that the stockholder would have owned if the
stockholder had received solely Genzyme General Stock in exchange for GelTex
common stock in the merger. If a holder's percentage ownership of Genzyme
capital stock is minimal and the holder exercises no control over the affairs of
Genzyme, even a small reduction in the holder's percentage ownership should
satisfy the "meaningful reduction" test. In determining whether either of these
tests are satisfied, holders must generally take into account not only the stock
they own or are deemed to own directly, but also stock that they are treated as
owning constructively by reason of the attribution rules under Section 318 of
the Internal Revenue Code. GELTEX STOCKHOLDERS ARE URGED TO CONSULT WITH THEIR
OWN TAX ADVISERS AS TO APPLICATION OF THIS TEST TO THEIR PARTICULAR
CIRCUMSTANCES, AND AS TO THE POTENTIAL COLLATERAL CONSEQUENCES OF DIVIDEND
TREATMENT.
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TREATMENT OF STOCKHOLDERS WHO EXCHANGE GELTEX COMMON STOCK SOLELY FOR CASH
A holder of GelTex common stock who receives solely cash in exchange for
GelTex common stock in the merger generally will recognize gain or loss equal to
the difference between the tax basis of the GelTex common stock surrendered and
the amount of cash received for those shares. Such gain or loss generally will
be capital gain or loss, and will be long-term capital gain or loss if the
holding period of the GelTex common stock surrendered in the merger is more than
one year as of the effective date of the merger. If the holder owns Genzyme
stock actually or constructively immediately after the merger, however, it is
possible that the holder could be treated as receiving a dividend taxable as
ordinary income, unless the cash payment to the holder, if received as a
distribution in redemption of the holder's stock, by GelTex, or possibly by
Genzyme, would satisfy rules similar to the requirements for non-dividend
treatment discussed above under--"TREATMENT OF STOCKHOLDERS WHO EXCHANGE GELTEX
COMMON STOCK FOR A COMBINATION OF GENZYME GENERAL STOCK AND CASH."
RECEIPT OF CASH IN LIEU OF FRACTIONAL SHARES
A holder of GelTex common stock who receives cash in lieu of fractional
shares of Genzyme General Stock will be treated as having received fractional
shares in the merger and then as having exchanged such fractional shares for
cash in a redemption by Genzyme. The holder will recognize gain or loss on this
deemed redemption in an amount equal to the difference between the portion of
the tax basis of the holder's GelTex common stock surrendered in the merger that
is allocated to any fractional shares and the cash received in lieu of those
fractional shares. Such gain or loss generally will be capital gain or loss, and
will be long-term capital gain or loss if the holding period of the GelTex
common stock surrendered in the merger is more than one year as of the effective
date of the merger.
BACKUP WITHHOLDING
Unless a holder of GelTex common stock complies with reporting and/or
certification procedures or is an exempt recipient under the backup withholding
and information reporting provisions of the Code and Treasury regulations, cash
payments in exchange for the holder's GelTex common stock in the merger may be
subject to "backup withholding" at a rate of 31% for federal income tax
purposes. Any amounts withheld under the backup withholding rules may be allowed
as a refund or a credit against the holder's federal income tax liability,
provided the required information is furnished to the IRS.
The obligation of Genzyme and GelTex to complete the merger is conditioned
on (1) delivery of an opinion to GelTex from Mintz Levin and (2) delivery of an
opinion to Genzyme from Palmer & Dodge. Each opinion must state that the merger
will be treated for U.S. federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code and that GelTex and Genzyme will each
be a party to that reorganization within the meaning of Section 368(b) of the
Code. Such opinions will be based on assumptions and subject to limitations and
qualifications similar to those set forth above.
THE ABOVE DISCUSSION IS ONLY INTENDED TO PROVIDE YOU WITH A GENERAL SUMMARY.
IT IS NOT A COMPLETE ANALYSIS OR DESCRIPTION OF EVERY POTENTIAL U.S. FEDERAL
INCOME TAX CONSEQUENCE OR ANY OTHER CONSEQUENCE OF THE MERGER. IN ADDITION, THE
DISCUSSION DOES NOT ADDRESS TAX CONSEQUENCES THAT MAY VARY WITH, OR ARE
CONTINGENT ON, YOUR INDIVIDUAL CIRCUMSTANCES. MOREOVER, THIS DISCUSSION DOES NOT
ADDRESS ANY NON-INCOME TAX OR ANY FOREIGN, STATE OR LOCAL TAX CONSEQUENCES OF
THE MERGER. ACCORDINGLY, WE URGE YOU TO CONSULT WITH YOUR TAX ADVISOR TO
DETERMINE THE PARTICULAR U.S. FEDERAL, STATE, LOCAL OR FOREIGN TAX CONSEQUENCES
TO YOU OF THE MERGER.
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COVENANTS UNDER THE MERGER AGREEMENT
GELTEX'S INTERIM OPERATIONS
Until the closing of the merger, GelTex has agreed to operate its business
solely in the ordinary course consistent with its past practices. GelTex also
agreed to:
- use reasonable commercial efforts to keep available the services of its
employees;
- use reasonable commercial efforts to maintain its insurance policies;
- use reasonable commercial efforts to preserve intact its business and
physical properties;
- use reasonable best efforts to preserve and protect its proprietary
rights;
- use reasonable commercial efforts to comply in all material respects with
the terms of its material contracts;
- take all reasonable actions with respect to its outstanding options and
warrants necessary to effectuate the merger agreement; and
- consult with Genzyme upon receipt of any material communication from the
FDA or before making any material submission to the FDA, before materially
changing any study protocol or development timeline for product candidates
or programs or before adding new clinical trials.
Genzyme may agree to exceptions to these obligations in writing.
GelTex has also agreed until the merger closes, with some exceptions, that
it will not do or agree to do any of the following without Genzyme's prior
written consent:
- sell or transfer any of its assets other than sales or transfers in the
ordinary course of business not exceeding $250,000;
- incur any indebtedness for borrowed money, obligation or liability or
enter into any contracts or commitments other than in the ordinary course
of business and in an amount, in any case, not exceeding $500,000;
- change the compensation of any officer, director, employee, agent or
consultant; adopt or increase benefits under any employee plan; or enter
into any employment, severance or other agreement with an officer,
director or employee, except in accordance with existing agreements or in
the ordinary course of business consistent with past practices;
- change the amount of its authorized, issued or outstanding capital stock;
grant, accelerate or modify any option, warrant or other right to purchase
its capital stock; declare or pay any dividend or other distribution on
shares of its capital stock; or sell, transfer, repurchase or redeem any
shares of its capital stock, except to honor the exercise of convertible
securities outstanding on the date of execution of the merger agreement or
to issue 291,073 shares of common stock to an existing institutional
stockholder;
- amend its charter or by-laws;
- acquire a material amount of property or assets outside the ordinary
course of business;
- authorize capital expenditures exceeding $250,000 singly or $500,000 in
the aggregate;
- change any of its accounting practices or principles or restate its
consolidated financial statements except as may be required by law or to
comply with generally accepted accounting principles;
- take any action that would prevent the merger from qualifying as a
reorganization within Section 368(a) of the Internal Revenue Code;
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- settle or compromise any material tax liability, change its tax accounting
methods or periods, enter into any tax-related closing agreement,
surrender its right to any tax refund, or consent to any extension or
waiver of the limitations period applicable to any tax claim or
assessment;
- settle or compromise any pending or threatened material legal proceeding;
- adopt any plan of liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization, other than this
merger;
- pay or satisfy any material liabilities other than in the ordinary course
of business consistent with past practice;
- effectuate any plant closings or mass layoffs;
- amend its stockholder rights plan, redeem the purchase rights issued under
the plan or render the plan inapplicable to a transaction other than this
merger;
- enter into or modify any material license, development, research or
collaboration agreement; or
- modify, amend, terminate or assign any material rights or claims under any
confidentiality agreement to which GelTex is a party.
NO SOLICITATION BY GELTEX
GelTex has agreed not to (1) solicit any person regarding either a business
combination with GelTex or any other transaction as an alternative to this
merger or (2) participate in any negotiations with or provide information to,
any person to seek any alternative transaction to this merger, unless GelTex's
board of directors or officers are otherwise required by their fiduciary duties,
to negotiate with, or furnish information to, a third party regarding an
alternative transaction. GelTex has agreed to inform Genzyme of any inquiry it
receives relating to an alternative transaction.
RECOMMENDATION OF THE GELTEX BOARD OF DIRECTORS
The GelTex board of directors has agreed to take all lawful action that does
not interfere with its fiduciary duties to secure the vote of its stockholders
to adopt the merger agreement.
INDEMNIFICATION AND INSURANCE FOR GELTEX OFFICERS AND DIRECTORS
Genzyme has agreed to cause the surviving corporation in the merger to honor
GelTex's indemnification obligations under agreements with its directors and
officers and its charter and by-laws in effect before the effective time of the
merger. GelTex is permitted and intends to purchase a directors' and officers'
liability insurance policy that will be effective for six years following the
closing of the merger and will provide coverage substantially similar to the
coverage provided to GelTex's directors and officers on the date of the merger
agreement for events occurring before the effective time of the merger. GelTex,
however, may not pay more than $1.0 million for directors' and officers'
liability insurance coverage without Genzyme's prior written consent.
OTHER COVENANTS
The merger agreement contains covenants of both parties relating to, among
other things, public announcements, notifications, regulatory filings, employee
matters, reporting of the transaction for federal income tax purposes, and
further assurances, and cooperation in obtaining consents and approvals.
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GelTex has also agreed, among other things, to:
- grant Genzyme access to company information as is reasonably necessary to
investigate GelTex; and
- terminate its 401(k) plan on the closing date of the merger if requested
by Genzyme.
Genzyme has also agreed, among other things, to notify The Nasdaq National
Market of the shares of Genzyme General Stock to be issued in the merger.
REPRESENTATIONS AND WARRANTIES
Each of Genzyme and GelTex has made customary representations and warranties
to the other in the merger agreement regarding, among other things:
- its organization and similar corporate matters;
- the authorization, execution, delivery and performance of the merger
agreement;
- its capital structure;
- reports and financial statements filed with the SEC and the accuracy of
the information contained in those documents;
- the absence of any undisclosed liabilities and material adverse events
since June 30, 2000;
- the absence of litigation;
- necessary governmental consents and filings;
- ownership, use and non-infringement of intellectual property rights;
- commercial relationships with suppliers, collaborators, licensors and
licensees;
- the absence of conflicts, violations or defaults under its organizational
documents and other agreements and documents as a result of executing the
merger agreement;
- the absence of conflicts with or violations of any laws as a result of
executing the merger agreement; and
- the accuracy of the information in this proxy statement/prospectus.
GelTex has made additional representations and warranties to Genzyme
regarding, among other things:
- its subsidiaries;
- its material contracts;
- insurance coverage;
- the filing of tax returns and payment of taxes;
- its employee benefit plans;
- compliance with governmental regulations concerning employees and
relations with employees;
- compliance with environmental laws and other environmental matters;
- board approval of the merger and amending the GelTex stockholder rights
plan to permit the merger;
- receipt of a fairness opinion; and
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- merger-related brokers' and finders' fees.
Genzyme has made additional representations and warranties to GelTex
regarding, among other things:
- the availability of funds to pay the cash portion of the merger
consideration;
- the capitalization of Titan Acquisition Corp., the subsidiary Genzyme
formed to effect the merger; and
- the business activities of Titan Acquisition Corp.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
Genzyme and GelTex do not have to complete the merger unless the following
conditions are met or waived:
- GelTex stockholders must adopt the merger agreement;
- the registration statement of which this proxy statement/prospectus is a
part must not be subject to any stop order or related proceeding;
- Genzyme and GelTex must obtain all required approvals from governmental
entities and satisfy any required waiting periods; and
- Genzyme common stock shall continue to be quoted on Nasdaq.
CONDITIONS TO THE OBLIGATION OF GENZYME
Genzyme does not have to complete the merger unless the following additional
conditions are met or waived:
- GelTex must have performed and complied, in all material respects, with
all its agreements and covenants in the merger agreement, and the
representations and warranties of GelTex contained in the merger agreement
must be true and correct when made and, other than representations and
warranties made as of a particular date, on and as of the closing date as
if made at and as of that date, except for any inaccuracies or failures to
perform that would not reasonably be expected to have a material adverse
effect on GelTex;
- Genzyme must receive the customary closing documents described in the
merger agreement;
- Genzyme must receive an opinion from Palmer & Dodge LLP, its tax counsel,
stating that the merger will qualify for U.S. federal income tax purposes
as a reorganization under Section 368(a) of the Internal Revenue Code and
that GelTex, Genzyme and Titan Acquisition Corp. will each be a party to
that reorganization within the meaning of Section 368(b) of the Code;
- GelTex must obtain waivers and consents with respect to some of its
material agreements; and
- the number of shares held by any GelTex stockholders exercising their
dissenter's appraisal rights must not exceed 5% of GelTex's issued and
outstanding stock on the closing date of the merger.
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CONDITIONS TO THE OBLIGATION OF GELTEX
GelTex does not have to complete the merger unless the following additional
conditions are met or waived:
- Genzyme must have performed and complied, in all material respects, with
all its agreements and covenants in the merger agreement, and the
representations and warranties of Genzyme contained in the merger
agreement must be true and correct when made and, other than
representations and warranties made as of a particular date, on and as of
the closing date as if made at and as of that date, except for any
inaccuracies or failures to perform that would not reasonably be expected
to have a material adverse effect on Genzyme;
- Titan Acquisition Corp. must have executed the merger documents to be
filed with the secretaries of state of Delaware and Massachusetts; and
- GelTex must receive an opinion of Mintz, Levin, Cohn, Ferris, Glovsky and
Popeo, P.C., its tax counsel, stating that the merger will qualify for
U.S. federal income tax purposes as a reorganization under Section 368(a)
of the Internal Revenue Code and that GelTex, Genzyme and Titan
Acquisition Corp. will each be a party to that reorganization.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated at any time before the effective
time, whether before or after its adoption by GelTex stockholders:
- by mutual written consent of Genzyme and GelTex;
- by GelTex:
-- for material misrepresentations or uncured breaches by Genzyme; or
-- if the GelTex board of directors, in the exercise of its fiduciary
duties, is obligated to approve or recommend an alternative to the
merger;
- by Genzyme:
-- for material misrepresentations or uncured breaches by GelTex;
-- if the GelTex board of directors withdraws its recommendation of the
merger agreement, recommends an alternative to the merger or fails to
recommend against, or takes a neutral position with respect to, any
tender or exchange offer by a third party;
-- if any person or group, other than Genzyme, becomes the owner of at
least 15% of the outstanding shares of GelTex common stock; or
-- if GelTex engages in discussions or negotiations with respect to an
alternative to the merger for more than 15 business days after it is
obligated to notify Genzyme of the proposed alternative transaction;
- by either Genzyme or GelTex:
-- if the merger has not closed by May 15, 2001, unless that party's own
breach of the agreement is the reason that the merger has not been
completed;
-- if there is a non-appealable government action prohibiting the
consummation of the merger; or
-- if GelTex stockholders do not vote to adopt the merger agreement.
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TERMINATION FEES AND EXPENSES
PAYMENT OF TERMINATION FEE
GelTex has agreed to pay Genzyme $31.0 million, if:
- GelTex's board of directors, in the exercise of its fiduciary duties,
terminates the merger agreement in light of a proposed alternative
transaction with a third party;
- Genzyme or GelTex terminates the merger agreement because GelTex
stockholders have failed to adopt the merger agreement and, at that time,
an alternative transaction between GelTex and a third party has been
announced and not withdrawn;
- Genzyme terminates the agreement because GelTex's board of directors:
-- has failed to recommend, or has withdrawn, modified or qualified its
recommendation of, the adoption of the merger agreement;
-- has approved or recommended an alternative transaction; or
-- has failed to recommend against a third party's tender or exchange offer
for GelTex common stock;
- Genzyme terminates the merger agreement because GelTex has breached a
negative covenant; or
- GelTex terminates the merger agreement after May 15, 2001, and at that
time:
-- a proposal for an alternative transaction between GelTex and a third
party has been announced and not withdrawn;
-- the merger could be completed; and
-- Genzyme is not in breach of the merger agreement.
PAYMENT OF EXPENSES
Genzyme and GelTex will each pay its own merger-related fees and expenses.
AMENDMENTS AND WAIVERS
Generally, Genzyme and GelTex may amend or waive any provision of the merger
agreement before the GelTex stockholders adopt the merger agreement. However,
after GelTex stockholders have adopted the merger agreement, their further
approval would be required to modify the amount or type of consideration that
they will receive in the merger, to alter the charter of the surviving
corporation or to otherwise alter the merger agreement in a manner materially
adverse to them.
NO RELIEF FROM LIABILITY FOR WILLFUL BREACH
No termination of the merger agreement will relieve either party of its
liability for willful breach of the agreement.
NASDAQ LISTING OF GENZYME GENERAL STOCK
Genzyme has agreed to file a listing notification with Nasdaq covering the
Genzyme General Stock to be issued to GelTex stockholders in the merger.
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DELISTING OF GELTEX COMMON STOCK
If the merger is completed, GelTex common stock will cease to be quoted on
The Nasdaq National Market.
RESALES OF GENZYME GENERAL STOCK BY GELTEX AFFILIATES
GelTex stockholders may freely transfer the shares of Genzyme General Stock
they receive in the merger, unless they are individuals or entities who are
deemed to be "affiliates" of GelTex before the merger or affiliates of Genzyme
after the merger. Persons who may be deemed to be affiliates of GelTex or
Genzyme include individuals or entities that control, are controlled by, or are
under common control with, GelTex or Genzyme and may include executive officers
and directors as well as principal stockholders. These affiliates or their
brokers risk being characterized as "underwriters" when they sell shares of
Genzyme General Stock received in the merger. The U.S. securities laws require
registration of shares sold by underwriters. An affiliate and the affiliate's
broker can avoid being characterized as an underwriter and, therefore, avoid the
registration requirements of the Securities Act of 1933, as amended, by selling
shares in compliance with Rule 145 or Rule 144 under the Securities Act.
Rule 145 covers sales by GelTex affiliates, and Rule 144 covers sales by Genzyme
affiliates. Each rule limits the number of shares an affiliate can sell in a
particular period of time. The merger agreement requires GelTex to use its
commercially reasonable efforts to cause each of its affiliates to execute and
deliver to Genzyme a written agreement to the effect that the affiliate will not
offer or sell or otherwise dispose of Genzyme General Stock issued to the
affiliate in the merger in violation of the Securities Act or the related rules
and regulations adopted by the SEC.
This proxy statement/prospectus does not cover resales of Genzyme General
Stock received by any person who may be deemed to be an affiliate of GelTex
and/or Genzyme.
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act and related rules,
this merger may not be completed unless information and materials about the
companies and the merger are furnished to the Antitrust Division of the
Department of Justice and the Federal Trade Commission and the appropriate
waiting period requirements have been satisfied. Genzyme and GelTex have made
the required filings with both agencies. At any time before or after the
completion of the merger, the Department of Justice, the Federal Trade
Commission or others could take action under the antitrust laws, including
seeking to prevent the merger, to rescind the merger or to conditionally approve
the merger upon the divestiture of substantial assets of Genzyme or GelTex.
Genzyme and GelTex cannot guarantee that a challenge to the merger on antitrust
grounds will not be made or, if a challenge is made, that it would not be
successful.
Genzyme and GelTex are not aware of any other material governmental or
regulatory requirements that must be complied with regarding the merger, other
than federal securities laws and the filing of documents describing principal
terms of the merger agreement with the secretaries of state of Delaware and
Massachusetts.
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MANAGEMENT AFTER THE MERGER
BOARD OF DIRECTORS
Genzyme's board of directors will not change as a result of the merger.
Information regarding Genzyme's directors can be found in its proxy statement
for its 2000 annual meeting of stockholders and its annual report on Form 10-K
for the fiscal year ended December 31, 1999, as amended. As indicated in the
proxy statement for the 2000 annual meeting, Henry Lewis retired from Genzyme's
board of directors.
In October 2000, Genzyme appointed Victor J. Dzau, M.D. to fill the vacancy
created by Mr. Lewis' retirement until the 2003 annual meeting of stockholders.
Dr. Dzau, age 54, is the Hersey Professor of the Theory and Practice of Physics
at the Harvard Medical School and Chairman of the Department of Medicine,
Physician in Chief and Director of Research at Brigham and Women's Hospital in
Boston, Massachusetts. Prior to this, Dr. Dzau was the Arthur L. Bloomfield
Professor and Chairman of the Department of Medicine at Stanford University in
Stanford, California. Dr. Dzau also serves as a director of MDVista and
Corgentech, Inc. and serves on the board of trustees of Partners Healthcare
System and Brigham and Women's Hospital.
MANAGEMENT
The composition of Genzyme's management will not change as a result of the
merger. Mr. Timothy Noyes, Vice President, Marketing and Business Development of
GelTex, will be appointed general manager of the surviving corporation. Other
key staff positions within the surviving corporation have not yet been finally
determined. From time to time before the merger, decisions may be made with
respect to the management and operations of GelTex after the merger, including
its officers and managers.
Information about Genzyme's directors and executive officers, including
biographical information, executive compensation and relationships and related
transactions between management and the company, can be found in Genzyme's most
recent annual meeting proxy statement, annual report on Form 10-K for the fiscal
year ended December 31, 1999, as amended, and current reports on Form 8-K, which
are incorporated by reference into this proxy statement/prospectus. For more
details about how you can obtain copies of Genzyme's annual meeting proxy
statement, Form 10-K and Forms 8-K, you should read the section of this proxy
statement/prospectus entitled "WHERE YOU CAN FIND MORE INFORMATION" beginning on
page 130.
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STOCK OWNERSHIP OF DIRECTORS,
EXECUTIVE OFFICERS AND PRINCIPAL STOCKHOLDERS
OWNERSHIP OF GENZYME CAPITAL STOCK
This table shows how many shares are held by anyone owning more than 5% of
any series of Genzyme's common stock as of September 30, 2000. The information
in this table is based on the most recent SEC filings by these entities or other
information obtained by Genzyme as to their ownership of Genzyme's stock. Unless
otherwise noted, each stockholder has sole voting and investment power for the
shares listed in the table.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED
------------------------------------------------------------------------------------------
GENZYME MOLECULAR SURGICAL TISSUE
GENERAL ONCOLOGY PRODUCTS REPAIR
STOCK % STOCK % STOCK % STOCK %
---------- -------- --------- -------- --------- -------- --------- --------
(*INDICATES LESS THAN 1%)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Citigroup Inc. (1)......... 3,883,091 4.5 137,080 * 2,205,371 14.7 0 *
153 East 53rd Street
New York, NY 10043
High Rock Capital LLC (2) . 0 * 0 * 1,109,800 7.4 0 *
28 State Street, 18th
Floor
Boston, MA 02109
Iridian Asset Management,
LLC (3) ................. 4,852,400 5.6 35,500 * 0 * 0 *
276 Post Road West
Westport, CT 06880
State of Wisconsin
Investment Board (4) .... 5,600 * 0 * 0 * 3,062,148 10.6
P.O. Box 7842
Madison, WI 53707
Wellington Management Co.,
L.L.P. (5) .............. 11,560,271 13.3 643,699 4.2 2,088,022 13.9 327,902 1.1
75 State Street
Boston, MA 02109
</TABLE>
------------------------
(1) Citigroup Inc. is a holding company and investment manager and advisor for
Citicorp Bank, and is reporting the shares listed for some of its
subsidiaries. Citigroup has sole power to vote 3,309,639 of the shares of
Genzyme General Stock, 130,373 of the shares of Molecular Oncology Stock,
and 1,818,976 of the shares of Surgical Products Stock. No single client of
Citigroup or its subsidiaries owns more than 5% of the shares listed.
(2) High Rock Capital LLC is a registered investor advisor. No single client of
High Rock Capital owns more than 5% of the shares listed.
(3) Iridian is a registered investment advisor and is reporting the shares
listed as part of a group that includes:
- LC Capital Management LLC;
- CL Investors, Inc.;
- COLE Partners LLC;
- Iridian Partners Fund, L.P.;
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- Iridian Private Business Value Equity Fund, L.P.; and
- David L. Cohen and Harold J. Levy.
Iridian has sole power to vote or to direct the vote with respect to
3,605,920 shares of Genzyme General Stock. No single client of Iridian owns
more than 5% of the shares listed.
(4) The State of Wisconsin Investment Board is a government agency that manages
public pension funds.
(5) Wellington Management Co., L.L.P. is a registered investment advisor. Its
clients can receive or direct the receipt of dividends and proceeds from
sales of shares disposed of by Wellington Management. No single client owns
more than 5% of the shares listed. Wellington Management has shared power to
vote or to direct the vote with respect to 1,316,340 shares of Genzyme
General Stock, 441,414 shares of Molecular Oncology Stock, 78,318 shares of
Surgical Products Stock and 224,285 shares of Tissue Repair Stock.
Wellington does not have the authority to vote or to direct the vote with
respect to 4,804,920 shares of Genzyme General Stock, 97,850 shares of
Molecular Oncology Stock, 170,300 shares of Surgical Products Stock and
71,817 shares of Tissue Repair Stock.
This table shows, as of September 30, 2000, how much of each series of
Genzyme's common stock is held by Genzyme's chief executive officer, its five
most highly compensated executive officers, its directors, and all of its
current executive officers and directors together. It also includes information
about the ownership of Genzyme Transgenics, a 28% owned subsidiary of Genzyme,
whose stock is referred to as Genzyme Transgenics common stock. Unless otherwise
noted, each director and officer has sole voting and investment power for the
shares listed. Except as otherwise indicated, the address of each stockholder is
c/o Genzyme Corporation, One Kendall Square, Cambridge, Massachusetts 02139.
<TABLE>
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED (1)
-----------------------------------------------------------------
GENZYME MOLECULAR SURGICAL
GENERAL ONCOLOGY PRODUCTS
STOCK % STOCK % STOCK %
--------- -------- --------- -------- -------- --------
(*INDICATES LESS THAN 1%)
<S> <C> <C> <C> <C> <C> <C>
Henri A. Termeer (2)........... 777,774 * 120,909 * 261,059 1.7
Earl M. Collier, Jr. (3)....... 79,767 * 10,992 * 83,708 *
Alan E. Smith.................. 144,287 * 26,272 * 7,836 *
G. Jan van Heek (4)............ 10,499 * 11,309 * 6,044 *
Peter Wirth.................... 120,739 * 32,644 * 54,150 *
Constantine E.
Anagnostopoulos.............. 39,000 * 6,916 * 5,074 *
Douglas A. Berthiaume (5)...... 48,100 * 11,277 * 7,311 *
Henry E. Blair................. 54,600 * 23,276 * 8,475 *
Robert J. Carpenter (6)........ 33,095 * 7,764 * 5,756 *
Charles L. Cooney (7).......... 16,350 * 8,478 * 6,841 *
Vincent J. Dzau, M.D........... -- * -- * -- *
All current officers and
directors as a group (14
people)...................... 1,404,447 1.6 280,728 1.8 461,049 3.1
<CAPTION>
NUMBER OF SHARES BENEFICIALLY OWNED (1)
---------------------------------------------
TISSUE GENZYME
REPAIR TRANSGENICS
STOCK % STOCK %
--------- -------- ----------- --------
(*INDICATES LESS THAN 1%)
<S> <C> <C> <C> <C>
Henri A. Termeer (2)........... 999,360 3.5 37,500 *
Earl M. Collier, Jr. (3)....... 30,524 * 1,000 *
Alan E. Smith.................. 49,804 * -- *
G. Jan van Heek (4)............ 58,456 * 2,500 *
Peter Wirth.................... 49,726 * 2,000 *
Constantine E.
Anagnostopoulos.............. 19,378 * -- *
Douglas A. Berthiaume (5)...... 86,355 * -- *
Henry E. Blair................. 26,151 * 26,000 *
Robert J. Carpenter (6)........ 35,213 * -- *
Charles L. Cooney (7).......... 28,919 * -- *
Vincent J. Dzau, M.D........... -- * -- *
All current officers and
directors as a group (14
people)...................... 1,439,911 5.0 69,000 *
</TABLE>
------------------------
(1) The shares listed include the following stock options exercisable within
60 days of September 30, 2000:
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<TABLE>
<CAPTION>
GENZYME MOLECULAR SURGICAL GENZYME
GENERAL ONCOLOGY PRODUCTS TISSUE REPAIR TRANSGENICS
STOCK OPTIONS STOCK OPTIONS STOCK OPTIONS STOCK OPTIONS STOCK OPTIONS
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Henri A. Termeer...... 557,400 101,520 63,000 196,079 28,000
Earl M. Collier,
Jr.................. 79,642 10,985 63,000 24,544 --
Alan E. Smith......... 115,015 26,245 7,800 42,456 --
G. Jan van Heek....... 6,353 11,257 3,840 43,485 2,000
Peter Wirth........... 117,983 32,467 3,840 45,063 2,000
Constantine E.
Anagnostopoulos..... 28,000 6,700 4,000 17,218 --
Douglas A.
Berthiaume.......... 29,600 10,575 4,000 22,067 --
Henry E. Blair........ 29,600 10,575 4,000 22,067 25,000
Robert J. Carpenter... 22,400 6,700 4,000 17,208 --
Charles L. Cooney..... 7,000 6,700 4,000 17,218 --
Vincent J. Dzau,
M.D................. -- -- -- -- --
All current officers
and directors as a
group (14 people)... 1,062,886 244,399 173,120 491,113 57,000
</TABLE>
The shares listed in this footnote for Mr. van Heek and for all current
officers and directors as a group include 2,080 shares of Genzyme General Stock,
813 shares of Molecular Oncology Stock and 2,269 shares of Tissue Repair Stock
subject to stock options held by Mr. van Heek's wife. Mr. van Heek disclaims
beneficial ownership of shares held by his wife.
(2) The stock beneficially owned by Mr. Termeer includes:
<TABLE>
<CAPTION>
GENZYME MOLECULAR SURGICAL TISSUE
GENERAL ONCOLOGY PRODUCTS REPAIR
STOCK STOCK STOCK STOCK
-------- --------- -------- --------
<S> <C> <C> <C> <C>
- Shares held by his wife......................... 1,123 120 201 6,900
- Shares held in a trust.......................... 500 -- -- 8,649
</TABLE>
The shares held in trust are for the benefit of Mr. Termeer's son.
Mr. Termeer disclaims beneficial ownership of all shares held by his wife
and the trust.
(3) Mr. Collier's wife owns 9,000 shares of Surgical Products Stock.
Mr. Collier disclaims beneficial ownership of all shares held by his wife.
(4) Mr. van Heek's wife owns 1,631 shares of Genzyme General Stock, 42 shares of
Molecular Oncology Stock, 168 shares of Surgical Products Stock and 1,363
shares of Tissue Repair Stock. Mr. van Heek disclaims beneficial ownership
of all shares held by his wife.
(5) Mr. Berthiaume's wife owns 2,000 shares of Genzyme General Stock, 216 shares
of Molecular Oncology Stock, 358 shares of Surgical Products Stock and 1,560
shares of Tissue Repair Stock. Mr. Berthiaume disclaims beneficial ownership
of all shares held by his wife.
(6) Mr. Carpenter's wife owns 348 shares of Genzyme General Stock, 41 shares of
Molecular Oncology Stock, 62 shares of Surgical Products Stock, and 44
shares of Tissue Repair Stock. Mr. Carpenter disclaims beneficial ownership
of all shares held by his wife.
110
<PAGE>
(7) The stock beneficially owned by Dr. Cooney includes:
<TABLE>
<CAPTION>
GENZYME MOLECULAR SURGICAL TISSUE
GENERAL ONCOLOGY PRODUCTS REPAIR
STOCK STOCK STOCK STOCK
-------- --------- -------- --------
<S> <C> <C> <C> <C>
- Held jointly with his wife..................... 8,623 1,732 2,763 11,689
- Held by his wife............................... 120 12 21 3
- Held by his son................................ 607 34 57 9
</TABLE>
Dr. Cooney disclaims beneficial ownership of all shares held individually by
his wife and by his son.
OWNERSHIP OF GELTEX CAPITAL STOCK
This table shows how many shares of GelTex common stock are held by anyone
owning more than 5% of its outstanding common stock as of September 30, 2000.
The information in this table is based on the most recent SEC filings by these
entities or other information obtained by GelTex as to their ownership of
GelTex's stock. Unless otherwise noted, each stockholder has sole voting and
investment power for the shares listed in the table.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY OWNED %
------------------ --------
<S> <C> <C>
Wellington Management Company, LLP (1)...................... 1,870,000 8.7%
75 State Street
Boston, MA 02109
OrbiMed Advisors Inc. (2)................................... 1,737,000 8.2%
c/o OrbiMed Advisors LLC
767 Third Avenue, 6th Floor
New York, NY 10010
Acqua Wellington North American Equities Fund, Ltd.......... 1,311,849 6.1%
425 5th Avenue, 29th Floor
New York, NY 10018
</TABLE>
------------------------
(1) Includes shares beneficially owned by Wellington Management Company, LLP in
its capacity as investment adviser for securities owned of record by its
clients.
(2) Includes shares held by OrbiMed Advisors Inc., OrbiMed Advisors LLC,
Caduceus Capital Trust, Caduceus Capital II, L.P., Finsbury Worldwide
Pharmaceutical Trust, and Worldwide Health Sciences Portfolio.
111
<PAGE>
This table shows, as of September 30, 2000, how many shares of GelTex common
stock are held by GelTex's chief executive officer, its most highly compensated
executive officers, its directors, and all of its current executive officers and
directors together. Unless otherwise noted, each director and officer has sole
voting and investment power for the shares listed. Except as otherwise
indicated, the address of each stockholder is c/o GelTex Pharmaceuticals, Inc.,
153 Second Avenue, Waltham, Massachusetts 02451.
<TABLE>
<CAPTION>
NUMBER OF OPTIONS EXERCISABLE TOTAL SHARES
SHARES HELD WITHIN 60 DAYS (1) BENEFICIALLY OWNED (1) %
----------- ------------------- ---------------------- --------
(*INDICATES LESS THAN 1%)
<S> <C> <C> <C> <C>
Mark Skaletsky (2)....................... 89,500 246,705 336,205 1.5%
Steven K. Burke, M.D. (3)................ 41,400 34,330 75,730 *
Edmund J. Sybertz, Ph.D.................. -- 89,997 89,997 *
Paul J. Mellett, Jr...................... -- 63,226 63,226 *
Douglas Reed, M.D. (4)................... 2,151 -- 2,151 *
Robert J. Carpenter...................... 179,317 33,000 212,317 *
Henri A. Termeer......................... 106,505 16,000 122,505 *
Jesse Treu, Ph.D......................... 14,750 -- 14,750 *
J. Richard Crout (5)..................... 16,300 12,000 28,300 *
All directors and current executive
officers
as a group (11 persons)(6)............. 458,472 593,448 1,051,920 4.8%
</TABLE>
------------------------
(1) Consist of the stock options exercisable within 60 days of September 30,
2000.
(2) Mr. Skaletsky's wife owns 10,000 shares and Mr. Skaletsky's daughter owns
3,000 shares of GelTex common stock. Mr. Skaletsky disclaims beneficial
ownership of the shares held by his wife and daughter.
(3) The stock beneficially owned by Dr. Burke includes 1,860 shares held in two
trusts for the benefit of his children and 400 shares owned by his mother.
Dr. Burke disclaims beneficial ownership of the shares held in trust for his
children.
(4) Dr. Reed resigned from his position as a Vice President of GelTex in January
2000, although his employment with GelTex continued until July 4, 2000.
(5) The stock beneficially owned by Dr. Crout includes 6,500 shares held in
trust for the benefit of Dr. Crout's son, 700 shares held in an IRA account
for the benefit of his son, and 3,100 shares owned by his wife. Dr. Crout
disclaims beneficial ownership of all these shares.
(6) See footnotes (1) through (5) above.
112
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
Genzyme General Stock is quoted on The Nasdaq National Market under the
trading symbol "GENZ." GelTex common stock is quoted on The Nasdaq National
Market under the trading symbol "GELX." The following table sets forth, for the
periods indicated, the high and low sale prices per share of Genzyme General
Stock and GelTex common stock as reported on The Nasdaq National Market.
<TABLE>
<CAPTION>
GELTEX COMMON
GENZ STOCK STOCK
------------------- -------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
<S> <C> <C> <C> <C>
CALENDAR QUARTER
1998
First Quarter................................. $34.000 $25.375 $29.875 $25.625
Second Quarter................................ $33.000 $23.500 $27.063 $18.625
Third Quarter................................. $36.250 $23.750 $24.750 $14.625
Fourth Quarter................................ $50.000 $29.688 $27.375 $16.250
CALENDAR QUARTER
1999
First Quarter................................. $55.750 $41.625 $29.000 $13.500
Second Quarter................................ $52.625 $36.375 $22.875 $13.250
Third Quarter................................. $63.125 $44.750 $18.125 $10.000
Fourth Quarter................................ $48.375 $30.750 $14.875 $ 9.250
CALENDAR QUARTER
2000
First Quarter................................. $63.500 $39.688 $23.438 $12.813
Second Quarter................................ $60.750 $40.375 $21.375 $13.625
Third Quarter................................. $76.500 $56.875 $47.000 $20.438
Fourth Quarter (through November 8, 2000)..... $89.125 $61.625 $55.438 $44.563
</TABLE>
DIVIDEND INFORMATION
No cash dividends have ever been paid or declared on shares of Genzyme
General Stock or on shares of GelTex common stock. Genzyme does not anticipate
paying cash dividends on its common stock in the foreseeable future. Genzyme's
present intention is to retain its earnings for the future operation and
expansion of its business. Any future payment of dividends on any Genzyme common
stock will be at the discretion of the board of directors and will depend upon,
among other things, Genzyme's earnings, financial condition, capital
requirements, level of indebtedness and other factors that Genzyme's board of
directors deems relevant.
NUMBER OF STOCKHOLDERS AND NUMBER OF SHARES OUTSTANDING
As of November 8, 2000 Genzyme had the following stockholders of record and
shares outstanding.
<TABLE>
<CAPTION>
STOCKHOLDERS SHARES
OF RECORD OUTSTANDING
------------ -----------
<S> <C> <C>
Genzyme General Stock....................................... 2,258 87,217,843
Molecular Oncology Stock.................................... 2,144 15,868,121
Surgical Products Stock..................................... 1,970 14,998,985
Tissue Repair Stock......................................... 5,602 28,871,695
</TABLE>
As of November 8, 2000 GelTex had approximately 236 holders of record and
21,754,243 shares of GelTex common stock outstanding.
113
<PAGE>
DESCRIPTION OF GENZYME CAPITAL STOCK
GENERAL
Under its current capital structure, Genzyme has four series of common
stock--Genzyme General Stock, Molecular Oncology Stock, Surgical Products Stock
and Tissue Repair Stock--which are referred to as "tracking stocks." In
connection with Genzyme's proposed acquisition of Biomatrix, all outstanding
shares of Surgical Products Stock and Tissue Repair Stock would be converted
into shares of Biosurgery Stock. If Genzyme completes its acquisition of
Biomatrix, Genzyme will have three series of common stock--Genzyme General
Stock, Molecular Oncology Stock and Biosurgery Stock. The terms of each series
of Genzyme common stock can be found in Genzyme's current report on Form 8-K
filed with the SEC on June 30, 2000, which is incorporated by reference into
this proxy statement/prospectus. For more details about how you can obtain a
copy of Genzyme's Form 8-K, you should read the section of this proxy
statement/prospectus entitled "WHERE YOU CAN FIND MORE INFORMATION" beginning on
page 130.
OVERVIEW OF GENZYME'S "TRACKING STOCK" CAPITAL STRUCTURE
The chief mechanism intended to cause a Genzyme tracking stock to "track"
the financial performance of its corresponding division is special provisions in
Genzyme's charter governing dividends and distributions. The provisions
governing dividends provide that Genzyme's board of directors has discretion to
decide if and when to declare dividends subject to limitations. Those
limitations are dependent, in part, upon the excess of earnings and paid-in
capital or of the fair value of the net assets allocated to the related division
over the outstanding tracking stock's combined par value and amounts needed to
satisfy preferences and debt obligations allocated to the related division.
Within these and other general limitations under Genzyme's charter and
Massachusetts law, the amount of any dividend payment will be at the board's
discretion. When deciding whether to declare a dividend, and for how much, the
board of directors would consider, among other things, Genzyme's earnings,
financial condition, capital requirements and level of indebtedness. To date,
Genzyme has never paid or declared a cash dividend on shares of any of its
series of common stock, nor does it anticipate doing so in the foreseeable
future. Unless declared, dividends do not accrue on Genzyme's tracking stock.
The charter provisions governing distributions require that a distribution
be made to holders of Molecular Oncology Stock, Surgical Products Stock or
Tissue Repair Stock if all or substantially all of the assets allocated to that
stock's corresponding division are sold to a third-party. If Genzyme completes
the proposed acquisition of Biomatrix, Biosurgery Stock will have the same
charter provisions governing distributions. This mandatory distribution can be
in the form of a dividend, a redemption of the division's related tracking stock
or an exchange of that tracking stock for Genzyme General Stock, as chosen by
Genzyme's board of directors in its discretion. The distribution, if by dividend
or redemption, must equal in value the net after-tax proceeds received from the
sale. If Genzyme's board of directors chooses to make the distribution by
issuing Genzyme General Stock in exchange for the selling division's related
tracking stock, then the exchange must be effected at a 10% premium to the
corresponding tracking stock's average market price following announcement of
the sale.
Genzyme aids investors in evaluating the net worth and earnings performance
of each of its divisions by:
- defining in its charter those programs that will initially comprise the
division; and
- publishing quarterly financial statements that break out the assets and
liabilities and results of operations of each tracked division for the
reported periods.
114
<PAGE>
The financial statements include audited annual and unaudited quarterly
financial statements and separate management's discussion and analysis for each
division and Genzyme Corporation. Genzyme manages and accounts for transactions
between the division and its other divisions and with third parties, and any
resulting re-allocations of assets and liabilities, by applying consistently
across divisions a detailed set of policies established by Genzyme's board of
directors. Genzyme publicly discloses these divisional management and accounting
policies. A copy of these policies appears in Annex D of this proxy
statement/prospectus. With some exceptions contained in the policies, Genzyme's
board of directors retains the discretion to revise the policies at any time,
subject to its fiduciary duties to stockholders. If Genzyme completes the
proposed acquisition of Biomatrix, these policies will be revised to reflect the
elimination of Genzyme's Surgical Products and Tissue Repair divisions and the
creation of Genzyme's Biosurgery division.
The separate financial statements do not represent any physical segregation
of assets among divisions or separate division accounts. They are an accounting
presentation only, for the purpose of permitting investors to assess the
financial performance of the operations and assets allocated to each division.
While tracking stock is designed to reflect a division's performance, it
remains common stock of the entire company. Therefore, a tracking stockholder is
a common stockholder subject to risks of investing in the businesses, assets and
liabilities of Genzyme as a whole. For instance, the assets allocated to any
division are nonetheless subject to company-wide claims of creditors, product
liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme
liquidation, insolvency or similar event, a holder of tracking stock would have
no direct claim against the assets allocated to the corresponding tracked
division; a holder of tracking stock would only have the rights of a common
stockholder in the combined assets of Genzyme, subject also to the Genzyme
charter's allocation of liquidation units. For more details, you should read the
section of this proxy statement/prospectus entitled "RISK FACTORS--Risks
Relating to Genzyme Tracking Stocks--THE HOLDERS OF GENZYME TRACKING STOCK ARE
STOCKHOLDERS OF A SINGLE COMPANY AND UNFAVORABLE FINANCIAL TRENDS AFFECTING ONE
DIVISION COULD NEGATIVELY AFFECT OTHER GENZYME DIVISIONS" on page 32.
AUTHORIZED CAPITAL STOCK
Genzyme is authorized to issue 390,000,000 shares of common stock, $0.01 par
value per share, of which:
- 200,000,000 shares have been designated Genzyme General Stock;
- 40,000,000 shares have been designated Molecular Oncology Stock;
- 60,000,000 shares have been designated Surgical Products Stock;
- 40,000,000 shares have been designated Tissue Repair Stock; and
- 50,000,000 shares remain undesignated as to a series.
In addition, Genzyme is authorized to issue 10,000,000 shares of preferred
stock, $0.01 par value per share, of which:
- 2,000,000 shares have been designated Series A Junior Participating
Preferred Stock;
- 400,000 shares have been designated Series B Junior Participating
Preferred Stock;
- 400,000 shares have been designated Series C Junior Participating
Preferred Stock;
- 600,000 shares have been designated Series D Junior Participating
Preferred Stock; and
- 6,600,000 shares remain undesignated as to a series.
115
<PAGE>
Each series of junior participating preferred stock is meant to be
associated with one of the series of common stock and would be issued under
Genzyme's stockholder rights plan.
If the Biomatrix acquisition is approved, all outstanding shares of, and
shares reserved for issuance under securities convertible into or exercisable
for, Surgical Products Stock and Tissue Repair Stock will be converted into
shares of Biosurgery Stock. Upon elimination of the Surgical Products Stock and
Tissue Repair Stock as series of Genzyme's common stock, shares currently
designated as to those series will be authorized but undesignated and unissued
shares of common stock. Upon creation of the Biosurgery Stock, 100,000,000
shares of authorized but undesignated common stock will be designated Biosurgery
Stock, and consequently, 50,000,000 shares of Genzyme common stock will remain
undesignated as to a series. In addition, the Series B Junior Participating
Preferred Stock and Series D Junior Participating Preferred Stock, of which no
shares have been issued or are outstanding, will be eliminated and revert to
authorized shares undesignated as to a series. These two series of preferred
stock were created under Genzyme's stockholder rights plan, and are associated
with the Surgical Products Stock and Tissue Repair Stock. One million shares of
preferred stock to be associated with the Biosurgery Stock under the stockholder
rights plan will be designated as the new Series B Junior Participating
Preferred Stock, and 6,600,000 shares of preferred stock shall remain
undesignated as to a series.
TRANSFER AGENT AND REGISTRAR
American Stock Transfer & Trust Company is the registrar and transfer agent
for each series of Genzyme's common stock. Its telephone number is
(212) 936-5100.
116
<PAGE>
COMPARISON OF RIGHTS OF GENZYME AND GELTEX STOCKHOLDERS
Genzyme is a Massachusetts corporation subject to the provisions of the
Massachusetts Business Corporation Law or MBCL. GelTex is a Delaware corporation
subject to the provisions of the Delaware General Corporation Law or DGCL. Upon
completion of the merger, GelTex stockholders, whose rights are currently
governed by the GelTex charter, by-laws and the DGCL, will become stockholders
of Genzyme and their rights will be governed by the Genzyme charter, by-laws and
the MBCL.
The following description summarizes material differences which may affect
the rights of holders of Genzyme General Stock and GelTex common stock. This is
not a complete statement of all those differences, or a complete description of
the specific provisions referred to in this summary. The identification of
specific differences is not intended to indicate that other equally or more
significant differences do not exist. For additional information regarding the
specific rights of holders of Genzyme capital stock, you should read the section
of this proxy statement/prospectus entitled "DESCRIPTION OF GENZYME CAPITAL
STOCK" beginning on page 114. You should read carefully the relevant provisions
of the MBCL and the DGCL, the charter and by-laws of Genzyme and the charter and
by-laws of GelTex, which are incorporated by reference into this proxy
statement/prospectus.
<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
-------------------------------- --------------------------------
<S> <C> <C>
CORPORATE GOVERNANCE The rights of Genzyme The rights of GelTex
stockholders are governed by stockholders are currently
Massachusetts law and Genzyme's governed by Delaware law and
charter and by-laws. Upon GelTex's charter and by-laws.
completion of the merger, the Upon completion of the merger,
rights of Genzyme stockholders the rights of GelTex
will continue to be governed by stockholders will be governed by
Massachusetts law and Genzyme's Massachusetts law and Genzyme's
charter and by-laws. charter and by-laws.
AUTHORIZED CAPITAL STOCK The authorized capital of The authorized capital stock of
Genzyme is set forth under the GelTex consists of 50 million
"DESCRIPTION OF GENZYME CAPITAL shares of common stock and 5
STOCK" beginning on page 114. million shares of preferred
stock. Of the authorized
preferred stock, 500,000 shares
are designated as Series A
Junior Participating Preferred
Stock.
BOARD AUTHORITY TO ISSUE The Genzyme board of directors The GelTex board of directors is
CAPITAL STOCK is authorized, without authorized, without stockholder
stockholder approval, to issue approval, to issue shares of
shares of common or preferred preferred stock in one or more
stock in one or more new series series, and to determine the
and to determine the rights, privileges,
preferences, voting powers, qualifications, limitations and
qualifications, and special or restrictions of any such series,
relative rights or privileges of including the dividend rights,
any such series. dividend rates, voting rights,
the rights and terms of
redemption, redemption prices,
the rights and terms of
conversion, liquidation
preferences, sinking fund terms,
the number of shares
constituting any such class or
series, and the designation of
such class or series.
</TABLE>
117
<PAGE>
<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
-------------------------------- --------------------------------
<S> <C> <C>
DIVIDENDS AND STOCK REPURCHASES Under the MBCL, a corporation Under the DGCL, a corporation
may pay dividends or repurchase may pay dividends out of surplus
its own stock so long as: or net profits for the current
- the corporation is solvent; or preceding fiscal year,
- the dividend or repurchase provided that the capital of the
does not render the corporation corporation is not less than the
insolvent; and aggregate liquidation preference
- the dividend or repurchase of the corporation's outstanding
does not violate the stock having a preference upon
corporation's charter. distribution of assets.
Unless the terms of any GelTex's board of directors may
outstanding series of preferred declare and pay dividends on
stock require otherwise, common stock only from legally
Genzyme's board of directors may available funds for the payment
declare and pay dividends on a of such dividends. Under
series of common stock only from GelTex's charter, holders of
legally available funds or in an common stock are treated equally
amount permitted under Genzyme's for the purpose of dividend
charter, whichever is less. rights. GelTex has never paid
Genzyme has never paid cash cash dividends on its common
dividends on any of its series stock.
of common stock.
LIQUIDATION RIGHTS In the event of a voluntary or In the event of a voluntary or
involuntary dissolution, involuntary dissolution,
liquidation or winding up of liquidation or winding up of
Genzyme's affairs, the holders GelTex's affairs, the holders of
of Genzyme's common stock are GelTex common stock are entitled
entitled to receive any net to receive any net assets
assets remaining for available for distribution after
distribution after Genzyme has GelTex has made any payments to
satisfied or made provision for holders of preferred stock of
its debts and obligations and the full amount to which they
for payment to any preferred are entitled.
stockholders. Under Genzyme's
charter, a merger or business
combination or a sale of all or
substantially all of Genzyme's
assets will not be treated as a
liquidation.
VOTING RIGHTS Stockholders of all series of The outstanding voting
Genzyme common stock vote securities of GelTex are the
together as one class on all shares of GelTex common stock.
matters on which common Holders of GelTex common stock
stockholders generally are have one vote per share held by
entitled to vote. Holders of them.
Genzyme General Stock are
entitled to one vote for each
share of stock held at any
meeting of stockholders. Under
the Genzyme charter, some
specifically listed matters
require a separate series vote.
</TABLE>
118
<PAGE>
<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
-------------------------------- --------------------------------
<S> <C> <C>
REDEMPTION AND EXCHANGE Under its charter, Genzyme has Under GelTex's charter, holders
FEATURES the option, at any time--and in of common stock have no
some circumstances, is redemption rights and GelTex has
required--to exchange or redeem no option to exchange or redeem
some or all of the outstanding any shares of common stock.
shares of the Molecular Oncology
Stock, Surgical Products Stock,
and Tissue Repair Stock, for
cash, Genzyme General Stock or
other property.
MEETINGS OF STOCKHOLDERS; A special meeting of A special meeting of
NOTICE stockholders may be called only stockholders may be called by
by the President or by the board the President, the chairman of
of directors, upon the written the board, the board of
application of stockholders who directors, the Corporate
hold at least 90% (or any lesser Secretary or any other officer
percentage required by law) of upon written application of one
the stock entitled to vote at or more GelTex stockholders who
the meeting. hold at least two-thirds of the
outstanding shares of GelTex
stock entitled to vote at the
meeting.
A written notice stating the A written notice stating the
time, place and purpose of the time, place and purpose of the
meeting shall be given at least meeting shall be given at least
7 days before the meeting to 10 days but no more than 60 days
each stockholder entitled to before the meeting to each
notice. In the case of a special stockholder entitled to notice.
meeting called upon the written Under GelTex's by-laws, written
application of stockholders, the notice of stockholders'
meeting must be called at least meetings, including annual
60 but not more than 90 days meetings, must include a
before the meeting date, and statement of the purposes for
notice must be given to which the meeting is called.
stockholders entitled to vote at Also, stockholder-proposed
least 20 days before the business may only be transacted
meeting. if the proposing stockholder
provides timely written notice
to an officer of the
corporation.
STOCKHOLDER ACTION BY WRITTEN Under the MBCL, stockholders may Under the DGCL, stockholders may
CONSENT take any action without a take any action without a
meeting so long as they act by meeting. GelTex's charter,
unanimous written consent. however, provides that
Genzyme's charter, however, stockholder actions can be taken
provides that stockholder only at a duly called annual or
actions can be taken only at a special meeting and not by
duly called annual or special written consent.
meeting and not by written
consent.
STOCKHOLDER PROPOSALS Genzyme's by-laws provide that GelTex's by-laws provide that
for a stockholder proposal to be for a stockholder proposal to be
brought properly before an brought property before an
annual meeting, the stockholder annual meeting, the stockholder
must notify Genzyme of the must notify the Chairman of the
proposal either: (1) 60 days board of directors, the
before the annual meeting or (2) President, the Secretary or the
90 but not more than 120 days Treasurer of the proposal not
before the less than 50 days nor
</TABLE>
119
<PAGE>
<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
-------------------------------- --------------------------------
<S> <C> <C>
anniversary date of the prior more than 75 days prior to the
years' annual meeting, whichever meeting. However, if less than
is earlier. This, however, does 65 days' notice of such
not apply if there was no annual stockholders meeting is given to
meeting in the prior year or if GelTex stockholders, any
the date of the current annual proposal to GelTex will be
meeting is more than 30 days considered timely so long as it
from the anniversary date of the was received by GelTex not later
prior year's annual meeting. than the close of business on
the 15th day following the day
the notice of the stockholders
meeting was mailed to GelTex
stockholders or public
disclosure of the date of the
meeting is made, whichever
occurs first.
GelTex's by-laws provide that
for a stockholder to nominate a
director, the stockholder must
notify the Chairman of the board
of directors, the President, the
Secretary or the Treasurer of
the nomination proposal not less
than 50 days nor more than 75
days before the meeting.
However, if less than 65 days
notice of the stockholders
meeting is given to GelTex
stockholders, any notice to
GelTex nominating a person for
election as a director will be
considered timely so long as it
was received by GelTex not later
than the close of business on
the 15th day following the day
the notice of the meeting was
mailed to GelTex stockholders.
QUORUM FOR MEETING OF The holders of a majority in The holders of a majority of the
STOCKHOLDERS interest of all outstanding outstanding shares of GelTex
stock entitled to vote at a stock entitled to vote at a
Genzyme stockholder meeting, meeting, present in person or
present in person or represented represented by proxy,
by proxy, constitutes a quorum constitutes a quorum for
for transacting business at a transacting business at a
meeting. meeting.
STOCKHOLDER INSPECTION RIGHTS By law, stockholders have the Under the DGCL any stockholder
right for a proper purpose to has the right to inspect the
inspect the company's charter, company's stock ledger,
by-laws, records of all meetings stockholder list, and other
of incorporators and books and records for a purpose
stockholders, and stock and reasonably related to the
transfer records, including the person's interest as a
stockholder list. Additionally, stockholder.
stockholders have a qualified
right to inspect other books and
records of the corporation.
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<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
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<S> <C> <C>
NUMBER OF DIRECTORS Genzyme currently has seven GelTex currently has five
directors. Genzyme's by-laws directors. GelTex's charter
provide that the board of provides that the board of
directors shall be at least directors shall be at least
three. The number of directors three and not more than fifteen.
is fixed by the board and may be The number of directors is fixed
enlarged at any time by a vote by the board and may be enlarged
of the majority of directors. at any time by a vote of the
majority of directors.
CLASSIFICATION OF BOARD OF Genzyme's charter provides that GelTex's charter provides that
DIRECTORS the board of directors will the board of directors will
consist of three classes, with consist of three classes, with
each class being as equal in each class being as equal in
size as possible. Each class of size as possible. Each class of
directors is elected for a directors is elected for a
three-year term at alternating three-year term at alternating
annual meetings of the annual meetings of the
stockholders. stockholders.
REMOVAL OF DIRECTORS Directors may be removed only Directors may be removed only
for cause by a majority vote of for cause by a majority vote of
stockholders. Under Genzyme's stockholders. Under GelTex's
by-laws, vacancies on the board charter vacancies on the board
of directors may be filled by of directors may be filled by
the board. Vacancies resulting the board.
from the enlargement of the
board may be filled by a
majority of the directors then
in office, though less than a
quorum.
LIMITATION ON PERSONAL Genzyme's charter provides that GelTex's charter provides that
LIABILITY OF DIRECTORS AND directors shall not be directors shall not be
OFFICERS personally liable to Genzyme or personally liable to GelTex or
its stockholders for monetary its stockholders for monetary
damages for breaching their damages for breaching their
fiduciary duties except to the fiduciary duties except to the
extent eliminating or limiting extent eliminating or limiting
their liability is not permitted their liability is not permitted
under the MBCL. Under the MBCL, under the DGCL.
a director is generally not
excused from liability for
making unauthorized loans or
distributions to insiders.
INDEMNIFICATION OF DIRECTORS Massachusetts law permits, and GelTex's charter provides that
AND OFFICERS Genzyme's charter provides for, GelTex shall, to the fullest
indemnification of directors and extent permitted by the DGCL as
officers for all expenses and amended from time to time,
liabilities imposed upon them indemnify each person who was or
due to any proceeding in which is a party or is threatened to
they may become involved by be made a party to any
serving or having served as threatened, pending or completed
directors or officers. action, suit or proceeding
Indemnification is denied, whether civil, criminal,
however, if the person is found administrative or investigative,
not to have acted in good faith by reason of the fact that he is
with the reasonable belief that or was, or has agreed to become
his or her action was in a director or officer of GelTex,
Genzyme's best interest. or is or was serving, or has
Genzyme's by-laws provide
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<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
-------------------------------- --------------------------------
<S> <C> <C>
that indemnification is a agreed to serve at the request
contract right for the benefit of GelTex as a director, officer
of the directors, officers and or trustee of, or in a similar
other persons entitled to be capacity with, another
indemnified. corporation, partnership, joint
venture, trust or other
enterprise.
The MBCL does not explicitly Delaware law permits, and
address indemnifying persons GelTex's by-laws provide for,
against judgments in actions GelTex to purchase and maintain
brought by or in the right of insurance on behalf of any
the corporation. The previously person who is or was a director,
discussed standard applies to officer, employee or agent, or
these cases. is or was serving at the request
of GelTex as a director,
officer, employee or agent of
another corporation,
partnership, joint venture,
trust or other enterprise
against any liability asserted
against that person and incurred
by that person in any such
capacity or arising out of that
person's status as such.
The DGCL does not permit a
corporation to indemnify persons
against judgments in actions
brought by or in the right of
the corporation.
AMENDMENTS TO CHARTER Under the MBCL, a majority vote Under DGCL, a majority vote of
of stockholders is required to stockholders is required to
amend some charter provisions, amend a company's charter.
such as increasing a company's However, under GelTex's charter,
authorized capital stock. For any amendments to the provisions
most other amendments, the MBCL relating to (a) the merger,
requires a two-thirds vote, such consolidation or sale or
as to change a corporate name, disposition of all or
change the nature of the substantially all of the assets
corporate business, or authorize of GelTex, (b) the issuance or
the sale, mortgage, pledge, transfer of more than $500,000
lease or exchange of all the of securities of GelTex in
company's property or assets. exchange for the securities or
The MBCL does, however, permit a assets of another corporation or
corporate charter to specify a (c) the prohibition of
threshold vote of less than stockholder action by written
two-thirds, but of at least a consent requires the affirmative
majority; Genzyme's charter vote of two-thirds of the shares
expressly permits a majority of all classes of stock of
vote to make any amendments to GelTex entitled to vote for the
its charter. election of directors, voting as
a single class.
AMENDMENTS TO BY-LAWS Genzyme's by-laws may be GelTex's by-laws may be amended,
amended, altered or repealed, altered or repealed, and new by-
and new by-laws may be adopted, laws may be adopted, by a
by a majority vote of the majority of directors present at
stockholders. The directors may any meeting at which a quorum
also make, amend or repeal the (consisting of a majority of the
by-laws, board of directors)
</TABLE>
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<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
-------------------------------- --------------------------------
<S> <C> <C>
except any by-law provision is present. The GelTex by-laws
which under law, the charter or may also be amended by a
the by-laws requires a majority vote of the
stockholder vote. If the stockholders.
directors make, amend or repeal
any by-law, Genzyme must notify
the stockholders of that action
at or before the time notice of
the next stockholder meeting is
given.
ANTI-TAKEOVER PROVISIONS The Massachusetts "Business Section 203 of the DGCL
Combination" statute prohibits a prohibits a Delaware corporation
Massachusetts corporation from from engaging in a "business
engaging in a "business combination" with a person
combination" with a person owning 15% or more of the
owning 5% or more of the corporation's voting stock, or
corporation's voting stock an interested stockholder, for
without the approval of its three years following the time
board of directors to acquire that person became an interested
that stock, or an interested stockholder, unless the:
stockholder, for three years - board of directors approves
from the time the person became the stock acquisition or the
an interested stockholder, business combination before
unless the: the person becomes an
- board of directors approves interested stockholder;
the stock acquisition or the - person became an interested
combination transaction before stockholder and 85% owner of
the person becomes an the voting stock in the
interested stockholder; transaction, excluding shares
- interested stockholder owned by directors and
acquires 90% of the outstanding officers and shares owned by
voting stock of the company some employee stock plans; or
(excluding stock owned by - combination transaction is
directors-officers or some approved by the board of
employee stock plans) in one directors by at least
transaction; or two-thirds of the outstanding
- combination transaction is voting stock not owned by the
approved by the board of interested stockholder.
directors and by two-thirds of
the outstanding voting stock
not owned by the interested
stockholder.
Genzyme is subject to the A Delaware corporation can elect
Massachusetts Business in its charter or by-laws not to
Combination statute unless it be governed by Section 203.
elects, with stockholder GelTex has not made that
approval, not to be. Genzyme has election.
not made that election.
CONTROL SHARE ACQUISITION The Massachusetts Control Share Delaware does not have a Control
STATUTE Acquisition statute provides Share Acquisition statute.
that each and any acquisition by
a person of 20%, 33 1/3% or a
majority of the corporation's
voting stock cannot vote the
shares exceeding that threshold
unless a
</TABLE>
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<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
-------------------------------- --------------------------------
<S> <C> <C>
majority of the outstanding
shares not owned by the acquiror
and the corporation's officers
and employee-directors vote to
permit it. Under its by-laws,
Genzyme has elected not to be
governed by this statute.
SHAREHOLDER RIGHTS PLAN As described in the rights As described in the rights
agreement dated June 10, 1999 agreement dated March 11, 1996
between Genzyme and American between GelTex and American
Stock Transfer & Trust Company, Stock Transfer & Trust Company,
as rights agent, each as rights agent, each
outstanding share of Genzyme outstanding share of GelTex
General Stock, Molecular common stock will permit the
Oncology Stock, Surgical holder to purchase one
Products Stock, and Tissue one-hundredth of a share of
Repair Stock also represents a GelTex Series A Junior
right that, if triggered, will Participating Preferred Stock,
permit the holder to purchase par value $0.01 per share, at a
one one-hundredth of a share of price of $100.00 per share,
Genzyme's: subject to adjustment.
- Series A Junior Participating
preferred stock for each
Genzyme General Stock purchase
right, at a price of $300;
- Series B Junior Participating
preferred stock for each
Tissue Repair Stock purchase
right, at a price of $26;
- Series C Junior Participating
preferred stock for each
Molecular Oncology Stock
purchase right, at a price of
$26; and
- Series D Junior Participating
preferred stock for each
Surgical Products Stock
purchase right, at a price of
$150.
The rights are not currently The rights are not currently
exercisable but will become exercisable but will become
exercisable upon the earlier of: exercisable upon the earlier of:
- 10 days following the public - 10 days following the public
announcement that a person or announcement that a person or
group has acquired 15% or more group has acquired 20% or more
of the voting power of all of GelTex's outstanding common
series of Genzyme's stock, or
outstanding common stock, or
</TABLE>
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<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
-------------------------------- --------------------------------
<S> <C> <C>
SHAREHOLDER RIGHTS PLAN - 10 days after any person or - 10 days following the
(CONTINUED) group announces a tender or commencement of a tender or
exchange offer which, if exchange offer which, if
completed, would result in the completed, would result in the
offeror owning 15% or more of offeror owning 20% or more of
the voting power of all series the outstanding shares of
of Genzyme's outstanding GelTex common stock.
common stock.
When exercisable, each right When exercisable, each right
permits its holder to buy that permits its holder to buy that
number of shares of a series of number of shares of a series of
Genzyme's common stock equal in GelTex's common stock equal in
value to twice the right's value to twice the right's
purchase price. The acquirer who purchase price. The acquirer who
triggers the rights cannot triggers the rights cannot
exercise or transfer its rights. exercise or transfer its rights.
If any person acquiring 15% or If, after the rights are
more of the voting power of exercisable, GelTex is involved
Genzyme's outstanding common in a merger or other business
stock is involved in a merger or combination or if 50% or more of
other business combination with the assets or earning power of
Genzyme in which Genzyme is not GelTex and its subsidiaries are
the surviving corporation, each sold, each rightholder will be
rightholder will be allowed to allowed to buy shares of the
buy shares of the acquiring acquiring company's common stock
company's common stock at half at half their average market
their average market value upon value upon paying the right's
paying the right's purchase purchase price.
price.
The rights expire on March 28, The rights will expire on March
2009 unless redeemed. The 11, 2006, unless redeemed. The
Genzyme board of directors may GelTex board of directors may
redeem the rights at $0.001 per redeem the rights at $.001 per
right any time before the tenth right any time before the tenth
day after the 15% or greater day after the 20% or greater
acquisition. The rights have acquisition. The rights have
anti-takeover effects. They can anti-takeover effects. They can
cause substantial dilution to a cause substantial dilution to a
person or group that attempts to person or group that attempts to
acquire Genzyme on terms that acquire GelTex on terms that are
are not approved by the board of not approved by the board of
directors. The rights should not directors. The rights should not
interfere with any merger or interfere with any merger or
other business combination that other business combination that
Genzyme's board of directors GelTex's board of directors
approves since Genzyme can approves since GelTex can redeem
redeem the rights before they the rights before they become
become exercisable. exercisable.
PROVISIONS RELATING TO SOME Under the MBCL, the affirmative Under GelTex's charter, the
BUSINESS COMBINATIONS vote of two-thirds of the affirmative vote of two-thirds
outstanding shares of each class of the shares of all classes of
of stock (or such lower GelTex's stock voting as a
proportion permitted by the single class and entitled to
charter, but not less than a vote for the election of
majority) is required to directors is necessary to merge,
</TABLE>
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<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
-------------------------------- --------------------------------
<S> <C> <C>
authorize a merger or consolidate or sell or dispose
consolidation of Genzyme into of all or substantially all of
any other corporation, or the the assets of GelTex, to
sale, lease, or exchange of all authorize the sale or transfer
or substantially all of of more than $500,000 of GelTex
Genzyme's property and assets. securities in exchange for the
Genzyme's charter provides that assets or securities of another
a majority of the outstanding corporation or to engage in any
shares of each class must transaction whose effect is to
approve a merger or sale of all continue business with that of
or substantially all of another corporation that is the
Genzyme's assets. beneficial owner of 5% or more
of the outstanding shares of
GelTex stock eligible to vote
for the election of directors.
Two-thirds stockholder approval
is not necessary, however, if
the combination is approved by a
majority of the board of
directors, so long as the
directors voting in favor of the
combination include a majority
of the persons who were duly
elected and acting members of
the board of directors before
the time the other corporation
became a beneficial owner of 5%
or more of the shares of GelTex
stock eligible to vote for the
election of directors.
Under the MBCL, unless the
corporation's charter otherwise
provides for a stockholder vote,
a surviving corporation need not
obtain stockholder approval for
a merger if:
- any shares of the surviving
corporation to be issued or
delivered in the merger will
not increase the number of
shares of common stock
outstanding before the merger
by more than 15%; and
- the merger agreement does not
amend the charter of the
surviving corporation.
</TABLE>
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<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
-------------------------------- --------------------------------
<S> <C> <C>
PROVISIONS RELATING TO SOME Genzyme's charter requires that
BUSINESS COMBINATIONS holders of each series of
(CONTINUED) Genzyme common stock, with each
series voting separately,
approve any merger or business
combination resulting in:
- stockholders of all series
together no longer owning,
directly or indirectly, at
least 50% of the voting power
of the surviving corporation;
and
- stockholders of all series not
receiving the same form of
consideration, distributed
among stockholders in
proportion to the market
capitalization of each series
of Genzyme common stock on the
date of the first public
announcement of the merger or
business combination.
APPRAISAL OR DISSENTERS' RIGHTS Under MBCL, a properly Under the DGCL, the right of
dissenting stockholder is dissenting stockholders to
entitled to receive the obtain the fair value for their
appraised value of his shares shares is available in
when the corporation votes to: connection with some mergers or
- sell, lease, or exchange all consolidations. Unless otherwise
or substantially all of its provided in the corporate
property and assets; charter, appraisal rights are
- adopt an amendment to its not available to stockholders
charter that adversely affects when the corporation will be the
the rights of the stockholder; surviving corporation in a
or merger and no vote of its
- merge or consolidate with stockholders is required to
another corporation. approve the merger. In addition,
No appraisal rights are no appraisal rights are
available, however, to available to holders of shares
stockholders of a corporation of any class of stock which is
surviving the merger, if the either:
merger does not require the - listed on a national
approval of these stockholders. securities exchange or
designated as a national
market system security on an
interdealer quotation system
by the NASD;
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<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS RIGHTS OF GELTEX STOCKHOLDERS
-------------------------------- --------------------------------
<S> <C> <C>
APPRAISAL OR DISSENTERS' RIGHTS In order to exercise their - held of record by more than
(CONTINUED) appraisal rights, stockholders 2,000 stockholders; or
must not vote in favor of the - unless those stockholders are
corporate action triggering the required by the terms of the
appraisal right. Also, they must merger to accept anything
send the corporation a written other than (1) shares of stock
objection to the corporate of the surviving corporation,
action stating their intention (2) shares of stock of another
to demand payment for their corporation which, on the
shares. If stockholders follow effective date of the merger
the appraisal procedures set out or consolidation, are of the
under Massachusetts law, the kind described above,
"fair value" of their stock will (3) cash instead of fractional
be determined as of the day shares of stock, or (4) any
before effectiveness of the combination of the
corporate action. The appraisal consideration set forth in (1)
rights provisions are the only through (3).
remedy for stockholders who
object to the corporate action,
unless the corporate action is
determined to have been illegal,
fraudulent or in breach of the
board's fiduciary duties.
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LEGAL MATTERS
The validity of the Genzyme General Stock to be issued in the merger and the
tax treatment of the merger will be passed upon for Genzyme by Palmer & Dodge
LLP, Boston, Massachusetts.
The tax treatment of the merger will be passed upon for GelTex by Mintz,
Levin, Cohn, Ferris, Glovsky and Popeo, P.C., Boston, Massachusetts.
EXPERTS
The financial statements of Genzyme Corporation, Genzyme General, Genzyme
Molecular Oncology, Genzyme Surgical Products and Genzyme Tissue Repair
incorporated in this proxy statement/prospectus by reference to Genzyme's annual
report on Form 10-K for the year ended December 31, 1999, as amended, have been
so incorporated in reliance on the reports of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of GelTex Pharmaceuticals, Inc. at
December 31, 1999 and 1998, and for each of the three years in the period ended
December 31, 1999, incorporated by reference in this proxy statement/prospectus
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon and incorporated by reference elsewhere herein which, as
to the years 1999 and 1998, are based in part on the reports of
PricewaterhouseCoopers LLP, independent auditors. The financial statements
referred to above are included in reliance upon such reports given on the
authority of such firms as experts in accounting and auditing.
The financial statements of RenaGel LLC as of December 31, 1999 and 1998 and
for each of the two years in the period ended December 31, 1999 incorporated by
reference in this proxy statement/ prospectus by reference to GelTex's annual
report on Form 10-K for the year ended December 31, 1999 and have been so
incorporated in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Biomatrix, Inc. incorporated in
this proxy statement/ prospectus by reference to its annual report on Form 10-K
for the year ended December 31, 1999, as amended, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of such firm as experts in auditing and accounting.
FUTURE GELTEX STOCKHOLDER PROPOSALS
GelTex will hold its 2001 annual meeting of stockholders only if the merger
is not completed. GelTex's by-laws provide that in order for a stockholder to
bring business before or propose director nominations at an annual meeting, the
stockholder must give written notice to GelTex not less than 50 days nor more
than 75 days before the meeting. The notice must contain specified information
about the proposed business or each nominee and the stockholder making the
proposal or nomination. If less than 65 days notice or prior public disclosure
of the date of the annual meeting is given or made to stockholders, the notice
given by the stockholder must be received not later than the 15th day following
the day on which the notice of the annual meeting date was mailed or public
disclosure made, whichever first occurs.
OTHER MATTERS
GelTex does not presently intend to bring before its special meeting any
matters other than those specified in the notice accompanying this proxy
statement/prospectus, and neither Genzyme nor GelTex has any knowledge of any
other matters which may be brought up by other persons. However, if any other
matters come before the GelTex special meeting or any adjournments or
postponements of that meeting, the persons named in the enclosed form of the
GelTex proxy, including any substitutes, will use their best judgment to vote
the proxies.
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WHERE YOU CAN FIND MORE INFORMATION
Genzyme and GelTex file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission.
You may read and copy any reports, statements or other information that Genzyme
and GelTex file with the SEC at the SEC's public reference rooms at the
following locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Suite 1400
Chicago, IL 60661-2511
</TABLE>
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. These SEC filings are also available to the public from
commercial document retrieval services and at the Internet world wide web site
maintained by the SEC at "http://www.sec.gov." Reports, proxy statements and
other information concerning Genzyme and GelTex may also be inspected at the
offices of The Nasdaq Stock Market, which is located at 1735 K Street, N.W.,
Washington, D.C. 20006.
Genzyme filed a registration statement on Form S-4 to register with the SEC
the Genzyme General Stock to be issued to GelTex stockholders in the merger.
This proxy statement/prospectus is a part of that registration statement and
constitutes a prospectus in addition to being a proxy statement of GelTex. As
allowed by SEC rules, this proxy statement/prospectus does not contain all the
information you can find in Genzyme's registration statement or the exhibits to
the registration statement.
The SEC allows Genzyme and GelTex to "incorporate by reference" information
into this proxy statement/prospectus, which means that the companies can
disclose important information to you by referring you to other documents filed
separately with the SEC. The information incorporated by reference is considered
part of this proxy statement/prospectus, except for any information superseded
by information contained directly in this proxy statement/prospectus or in
later-filed documents incorporated by reference in this proxy
statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that Genzyme, GelTex and Biomatrix have previously filed with the
SEC. These documents contain important business and financial information about
Genzyme, GelTex and Biomatrix that is not included in or delivered with this
proxy statement/prospectus.
<TABLE>
<CAPTION>
GENZYME FILINGS (FILE NO. 0-14680) PERIOD AND/OR DATE FILED
---------------------------------- ---------------------------------------------
<S> <C>
Annual Report on Form 10-K Fiscal year ended December 31, 1999 filed on
March 30, 2000, amended June 28, 2000 and
October 17, 2000
Quarterly Report on Form 10-Q Fiscal quarter ended March 31, 2000 filed on
May 15, 2000, as amended on October 17, 2000
Quarterly Report on Form 10-Q Fiscal quarter ended June 30, 2000 filed on
August 14, 2000, as amended on October 17,
2000
Current Reports on Form 8-K Filed on January 10, 2000, March 15, 2000,
March 23, 2000, June 30, 2000, July 14, 2000,
July 19, 2000, September 12, 2000 and
September 13, 2000
</TABLE>
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<TABLE>
<CAPTION>
GENZYME FILINGS (FILE NO. 0-14680) (CONTINUED) PERIOD AND/OR DATE FILED (CONTINUED)
---------------------------------------------- ---------------------------------------------
<S> <C>
Proxy Statement on Schedule 14A Filed on April 18, 2000, amended on May 11,
2000 and May 30, 2000
The description of Genzyme General Stock, Filed on June 30, 2000
Genzyme Molecular Oncology Stock and Genzyme
Tissue Repair Stock contained in Genzyme's
Registration Statement on Form 8-A
The description of Genzyme General Stock Filed on June 11, 1999
purchase rights, Genzyme Molecular Oncology
Stock purchase rights and Genzyme Tissue
Repair Stock purchase rights contained in
Genzyme's Registration Statement on
Form 8-A/A
The description of Genzyme Surgical Products Filed on June 30, 2000
Stock and Genzyme Surgical Products Stock
purchase rights contained in Genzyme's
Registration Statement on Form 8-A
GELTEX FILINGS (FILE NO. 0-26872) PERIOD AND/OR DATE FILED
--------------------------------------------- ---------------------------------------------
Annual Report on Form 10-K Fiscal year ended December 31, 1999 filed on
March 30, 2000, amended on November 7, 2000
Quarterly Report on Form 10-Q Fiscal quarter ended March 31, 2000 filed on
May 15, 2000
Quarterly Report on Form 10-Q Fiscal quarter ended June 30, 2000 filed on
August 14, 2000
Current Reports on Form 8-K Filed on March 6, 2000, March 21, 2000,
September 11, 2000 and September 14, 2000
Proxy Statement on Schedule 14A Filed on April 24, 2000
The description of GelTex Stock contained in Filed on September 26, 1995, amended on
GelTex's Registration Statement on Form 8-A October 12, 1995
The description of GelTex Junior Participating Filed on March 5, 1996, amended on
Preferred Stock Purchase Rights contained in August 12, 1997
GelTex's Registration Statement on Form 8-A
as amended on GelTex's Quarterly Report on
Form 10-Q
BIOMATRIX FILINGS (FILE NO. 0-19373) PERIOD OR DATE FILED
--------------------------------------------- ---------------------------------------------
Consolidated Financial Statements set forth on Fiscal year ended December 31, 1999 filed on
pages F-1 to F-21 of Biomatrix's Annual March 30, 2000, amended April 26, 2000 and
Report on Form 10-K October 26, 2000
Condensed Consolidated Financial Statements Fiscal quarter ended June 30, 2000 filed on
set forth on pages 2 to 11 of Biomatrix's August 14, 2000, as amended on October 26,
Quarterly Report on Form 10-Q 2000
</TABLE>
Genzyme and GelTex also incorporate by reference additional documents that
may be filed with the SEC under Sections 13(a), 13(c), 14 or 15(d) of the
Exchange Act between the date of this proxy statement/prospectus and the date of
the GelTex special meeting including any adjournments or postponements. These
include periodic reports, such as annual reports on Form 10-K, quarterly reports
on Form 10-Q and current reports on Form 8-K, as well as proxy statements.
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Genzyme has supplied all information contained or incorporated by reference
in this proxy statement/prospectus relating to Genzyme, and GelTex has supplied
all information relating to GelTex.
If you are a Genzyme or GelTex stockholder, the companies may have
previously sent you some of the documents incorporated by reference, but you can
obtain any of them through the companies, the SEC or the SEC's Internet web site
as described above. Documents incorporated by reference are available from the
companies without charge, excluding all exhibits, except that if the companies
have specifically incorporated by reference an exhibit in this proxy
statement/prospectus, the exhibit will also be provided without charge. You may
obtain documents incorporated by reference in this proxy statement/prospectus by
requesting them in writing or by telephone from the appropriate company at the
following addresses:
<TABLE>
<S> <C>
Genzyme Corporation GelTex Pharmaceuticals, Inc.
Shareholder Relations Chief Financial Officer
One Kendall Square 153 Second Avenue
Cambridge, Massachusetts 02139 Waltham, Massachusetts 02451
(617) 252-7526 (781) 290-5888
</TABLE>
You should rely only on the information contained or incorporated by
reference in this proxy statement/prospectus. Genzyme and GelTex have not
authorized anyone to provide you with information that is different from what is
contained in this proxy statement/prospectus. This proxy statement/prospectus is
dated November 9, 2000. You should not assume that the information contained in
this proxy statement/prospectus is accurate as of any date other than that date.
Neither the mailing of this proxy statement/prospectus to stockholders nor the
issuance of Genzyme General Stock in the merger creates any implication to the
contrary.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
GENZYME CORPORATION
AND
GELTEX PHARMACEUTICALS, INC.
----------------------------
DATED AS OF SEPTEMBER 11, 2000,
AS AMENDED THROUGH
OCTOBER 19, 2000
----------------------------
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TABLE OF CONTENTS
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SECTION 1--THE MERGER............................................. A-1
1.1 The Merger.................................................. A-1
1.2 Effective Time.............................................. A-1
1.3 Effects of the Merger....................................... A-2
1.4 Articles of Organization and By-Laws........................ A-2
1.5 Directors and Officers...................................... A-2
1.6 Conversion of Common Stock.................................. A-2
1.7 Company Options, Warrants and Purchase Rights............... A-5
1.8 Closing of Company Transfer Books........................... A-6
1.9 Exchange of Certificates.................................... A-6
1.10 No Liability................................................ A-7
1.11 Lost Certificates........................................... A-7
1.12 Withholding Rights.......................................... A-7
1.13 Distributions with Respect to Unexchanged Shares............ A-8
1.14 Further Assurances.......................................... A-8
SECTION 2--REPRESENTATIONS AND WARRANTIES OF COMPANY.............. A-8
2.1 Organization and Qualification.............................. A-8
2.2 Authority to Execute and Perform Agreements................. A-8
2.3 Capitalization and Title to Shares.......................... A-9
2.4 Company Subsidiaries........................................ A-10
2.5 SEC Reports................................................. A-10
2.6 Financial Statements........................................ A-11
2.7 Absence of Undisclosed Liabilities.......................... A-11
2.8 Absence of Adverse Changes.................................. A-11
2.9 Compliance with Laws........................................ A-11
2.10 Actions and Proceedings..................................... A-12
2.11 Contracts and Other Agreements.............................. A-12
2.12 Intellectual Property....................................... A-13
2.13 Insurance................................................... A-13
2.14 Commercial Relationships.................................... A-13
2.15 Tax Matters................................................. A-14
2.16 Employee Benefit Plans...................................... A-15
2.17 Employee Relations.......................................... A-16
2.18 Environmental Matters....................................... A-17
2.19 No Breach................................................... A-18
2.20 Board Approvals............................................. A-19
2.21 Financial Advisor........................................... A-19
2.22 Proxy Statement and Registration Statement.................. A-20
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SECTION 3--REPRESENTATIONS AND WARRANTIES OF PARENT............... A-20
3.1 Organization and Qualification.............................. A-20
3.2 Authority to Execute and Perform Agreement.................. A-20
3.3 Capitalization.............................................. A-20
3.4 SEC Reports................................................. A-21
3.5 Financial Statements........................................ A-21
3.6 Absence of Undisclosed Liabilities.......................... A-21
3.7 Absence of Adverse Changes.................................. A-21
3.8 Actions and Proceedings..................................... A-22
3.9 Intellectual Property....................................... A-22
3.10 No Breach................................................... A-22
3.11 Proxy Statement and Registration Statement.................. A-22
3.12 Financing................................................... A-22
3.13 Merger Sub.................................................. A-23
SECTION 4--COVENANTS AND AGREEMENTS............................... A-23
4.1 Conduct of Business......................................... A-23
4.2 Corporate Examinations and Investigations................... A-25
4.3 Expenses.................................................... A-26
4.4 Authorization from Others................................... A-26
4.5 Further Assurances.......................................... A-26
4.6 Preparation of Disclosure Documents......................... A-26
4.7 Public Announcements........................................ A-27
4.8 Affiliate Letters........................................... A-27
4.9 Nasdaq Listings............................................. A-27
4.10 No Solicitation............................................. A-28
4.11 Regulatory Filings.......................................... A-28
4.12 Notification of Certain Matters............................. A-29
4.13 Registration of Certain Shares.............................. A-29
4.14 Employee Matters............................................ A-29
4.15 Indemnification............................................. A-30
4.16 Section 16 Approval......................................... A-30
4.17 Participation in Certain Actions and Proceedings............ A-30
4.18 Guarantee of Merger Sub's Obligations....................... A-30
SECTION 5--CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH PARTY
TO CONSUMMATE THE MERGER.......................................... A-31
5.1 Stockholder Approval........................................ A-31
5.2 Registration Statement...................................... A-31
5.3 Absence of Order............................................ A-31
5.4 Regulatory Approvals........................................ A-31
5.5 HSR Act..................................................... A-31
5.6 Nasdaq...................................................... A-31
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SECTION 6--CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT AND
MERGER SUB TO CONSUMMATE THE MERGER............................... A-31
6.1 Representations, Warranties and Covenants................... A-31
6.2 Corporate Certificates...................................... A-31
6.3 Secretary's Certificate..................................... A-32
6.4 Affiliate Letters........................................... A-32
6.5 Tax Opinion................................................. A-32
6.6 Consents.................................................... A-32
6.7 Dissenting Shares........................................... A-32
SECTION 7--CONDITIONS PRECEDENT TO THE OBLIGATION OF COMPANY TO
CONSUMMATE THE MERGER............................................. A-32
7.1 Representations, Warranties and Covenants................... A-32
7.2 Merger Documents............................................ A-32
7.3 Tax Opinion................................................. A-32
SECTION 8--TERMINATION, AMENDMENT AND WAIVER...................... A-33
8.1 Termination................................................. A-33
8.2 Effect of Termination....................................... A-34
8.3 Termination Fee............................................. A-34
8.4 Amendment................................................... A-35
8.5 Waiver...................................................... A-35
SECTION 9--MISCELLANEOUS.......................................... A-35
9.1 No Survival................................................. A-35
9.2 Notices..................................................... A-35
9.3 Entire Agreement............................................ A-36
9.4 Governing Law............................................... A-36
Binding Effect; No Assignment; No Third-Party
9.5 Beneficiaries............................................... A-36
9.6 Section Headings, Construction.............................. A-36
9.7 Counterparts................................................ A-36
9.8 Severability................................................ A-36
9.9 Submission to Jurisdiction; Waiver.......................... A-36
9.10 Enforcement................................................. A-37
9.11 Rules of Construction....................................... A-37
9.12 Waiver of Jury Trial........................................ A-37
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EXHIBITS
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Exhibit A Form of Agreement of Joinder
Exhibit B Form of Affiliate Letter
</TABLE>
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AGREEMENT AND PLAN OF MERGER
(AS AMENDED BY AMENDMENT NO. 1 DATED
AS OF OCTOBER 19, 2000
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of
September 11, 2000 is among Genzyme Corporation ("Parent"), a Massachusetts
corporation and GelTex Pharmaceuticals, Inc. ("Company"), a Delaware
corporation. The parties wish to effect a business combination through a merger
(the "Merger") of the Company with and into a wholly-owned subsidiary of Parent
to be formed as a Massachusetts corporation ("Merger Sub") on the terms and
conditions set forth herein.
R E C I T A L S
A. For United States Federal income tax purposes, it is intended that the
Merger will qualify as a reorganization under the provisions of Section 368(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), and that this
Agreement constitutes a plan of reorganization within the meaning of
Section 1.368-2(g) of the income tax regulations promulgated under the Code. For
financial accounting purposes, it is intended that the Merger will be accounted
for using the purchase method of accounting.
B. For purposes of this Agreement, "Parent Common Stock" shall mean Genzyme
General Division Common Stock, $0.01 par value per share, together with an
associated Genzyme General Division Common Stock Purchase Right under Parent's
Amended and Restated Renewed Rights Agreement (the "Genzyme's Rights Plan").
In consideration of the mutual representations, warranties and covenants
contained herein, the parties hereto agree as follows:
SECTION 1--THE MERGER
1.1 THE MERGER.
(a) Upon the terms and subject to the conditions hereof, and in accordance
with the Business Corporation Law of the Commonwealth of Massachusetts (the
"MBCL") and the General Corporation Law of the State of Delaware (the "DGCL"),
Company shall be merged with and into Merger Sub. The Merger shall occur at the
Effective Time (as defined herein). Following the Merger, Merger Sub shall
continue as the surviving corporation (sometimes referred herein as the
"Surviving Corporation") and the separate corporate existence of Company shall
cease.
(b) Promptly following execution of this Agreement but in no event later
than the date the Registration Statement (as defined in Section 2.22) is filed
with the Securities and Exchange Commission (the "SEC"), Parent shall cause
Merger Sub to be incorporated as a Massachusetts corporation, to adopt a charter
and such other organizational documents as may be necessary or advisable and
which shall be appropriate for effecting the purposes of this Agreement, and to
become a party to this Agreement pursuant to an Agreement of Joinder
substantially in the form attached hereto as EXHIBIT A.
(c) The name of the Surviving Corporation shall be "GelTex
Pharmaceuticals, Inc." The purpose of the Surviving Corporation shall be to
develop, manufacture and sell human health care products and to engage generally
in any business that may lawfully be carried on by a corporation formed under
Chapter 156B of the General Laws of Massachusetts.
1.2 EFFECTIVE TIME. As soon as practicable after satisfaction or waiver of
all conditions to the Merger, the parties shall cause articles of merger (the
"Articles of Merger") with respect to the Merger
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to be filed and recorded in accordance with the MBCL and a certificate of merger
(the "Certificate of Merger") with respect to the Merger to be filed and
recorded in accordance with the DGCL, and shall take all such further actions as
may be required by law to make the Merger effective. The Merger shall be
effective at such time as the Articles of Merger and the Certificate of Merger
are duly filed with the Secretary of State of the Commonwealth of Massachusetts
and the Secretary of State of the State of Delaware, respectively, in accordance
with the MBCL and the DGCL, or at such later time as is specified in the
Articles of Merger and the Certificate of Merger (the "Effective Time").
Immediately prior to the filing of the Articles of Merger and the Certificate of
Merger, a closing (the "Closing") will be held at the offices of Palmer & Dodge
LLP, One Beacon Street, Boston, Massachusetts (or such other place as the
parties may agree) for the purpose of confirming the foregoing. The date on
which the Closing occurs is referred to herein as the "Closing Date."
1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set forth in
Sections 80 and 81 of the MBCL and Sections 259, 260 and 261 of the DGCL.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers and franchises of
Company and Merger Sub shall vest in the Surviving Corporation, and all debts,
liabilities, obligations and duties of Company and Merger Sub shall become the
debts, liabilities, obligations and duties of the Surviving Corporation.
1.4 ARTICLES OF ORGANIZATION AND BY-LAWS. Subject to Section 4.15, the
Articles of Organization and By-Laws of Merger Sub, in each case as in effect
immediately prior to the Effective Time, shall be the Articles of Organization
and By-Laws of the Surviving Corporation until thereafter changed as provided
therein or by applicable law.
1.5 DIRECTORS AND OFFICERS.
(a) The directors and officers of Merger Sub immediately prior to the
Effective Time shall be the directors and officers of the Surviving Corporation,
in each case, until the earlier of his or her resignation or removal or
otherwise ceasing to be a director or officer, as the case may be, or until his
or her respective successor is duly elected and qualified.
(b) Each current director of Company shall submit his or her resignation at
the Closing to be effective at the Effective Time.
1.6 CONVERSION OF COMMON STOCK
(a) MERGER CONSIDERATION. At the Effective Time, by virtue of the Merger
and without any action on the part of Parent or Company:
(i) Subject to payment of cash in lieu of fractional shares as provided
below, each share of Company common stock, $0.01 par value per share
(together with the associated rights (as defined in Section 2.20(c))
"Company Common Stock") outstanding immediately prior to the Effective Time,
other than shares held by Company as treasury stock, shares held by any
wholly-owned Company Subsidiary (as defined in Section 2.4(a)), shares held
by Parent, Merger Sub, or any other wholly-owned subsidiary of Parent and
Dissenting Shares (as defined in Section 1.6(d)), shall be cancelled and
extinguished and automatically converted into and become the right to
receive, subject to the election, allocation and adjustment procedures in
this Section 1.6, either:
(A) 0.7272 (the "Exchange Ratio") of a share of Parent Common Stock
(the "Per Share Stock Consideration") or
(B) $47.50 in cash, without interest (the "Per Share Cash
Consideration").
(ii) The number of shares of Company Common Stock to be converted into
the right to receive the Per Share Cash Consideration (the "Cash Election
Number") will, subject to Section 1.6(a)(vii), equal the difference between
(A) fifty percent (50%) of (I) the total number of
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shares of Company Common Stock outstanding immediately prior to the
Effective Time less (II) the number of shares held by the Company as
treasury stock and shares held by a wholly-owned Company Subsidiary, shares
held by Parent, Merger Sub, or any other wholly-owned subsidiary of Parent,
rounded to the nearest whole number, less (B) the number of Dissenting
Shares. Other than shares held by the Company as treasury stock, shares held
by a wholly-owned Company Subsidiary, shares held by Parent, Merger Sub, or
any other wholly-owned subsidiary of Parent and Dissenting Shares, each of
the remaining shares of Company Common Stock outstanding immediately prior
to the Effective Time (the "Stock Election Number") will be converted into
the right to receive the Per Share Stock Consideration.
(iii) Subject to the allocation and election procedures set forth in this
Section 1.6, each record holder of shares of Company Common Stock will be
entitled (A) to elect to receive the Per Share Cash Consideration for such
shares (a "Cash Election"), (B) to elect to receive the Per Share Stock
Consideration for such shares (a "Stock Election"), or (C) to indicate that
such record holder elects to receive the Per Share Cash Consideration, the
Per Share Stock Consideration, or a combination thereof as determined
pursuant to this Section 1.6 for Combined Election Shares (as defined below)
(a "Combined Election"). All such elections will be made on a form designed
for that purpose (an "Election Form").
(iv) If the aggregate number of shares covered by valid Cash Elections
(the "Cash Election Shares") exceeds the Cash Election Number, all shares of
Company Common Stock covered by valid Stock Elections (the "Stock Election
Shares") and all shares of Company Common Stock covered by Combined
Elections (the "Combined Election Shares") will be converted into the right
to receive the Per Share Stock Consideration, and the Cash Election Shares
will be converted into the right to receive Parent Common Stock and cash in
the following manner:
Each Cash Election Share will be converted into the right to receive
(A) an amount in cash, without interest, equal to the product of (x) the
Per Share Cash Consideration and (y) a fraction (the "Cash Fraction"),
the numerator of which will be the Cash Election Number and the
denominator of which will be the total number of Cash Election Shares,
and (B) a number of shares of Parent Common Stock equal to the product of
(x) the Exchange Ratio and (y) a fraction equal to one minus the Cash
Fraction.
(v) If the aggregate number of Stock Election Shares exceeds the Stock
Election Number, all Cash Election Shares and all Combined Election Shares
will be converted into the right to receive the Per Share Cash
Consideration, and all Stock Election Shares will be converted into the
right to receive Parent Common Stock and cash in the following manner:
Each Stock Election Share will be converted into the right to receive
(A) a number of shares of Parent Common Stock equal to the product of
(x) the Exchange Ratio and (y) a fraction (the "Stock Fraction"), the
numerator of which will be the Stock Election Number and the denominator
of which will be the total number of Stock Election Shares, and (B) an
amount in cash, without interest, equal to the product of (x) the Per
Share Cash Consideration and (y) a fraction equal to one minus the Stock
Fraction.
(vi) In the event that neither subparagraph (iv) nor subparagraph
(v) above is applicable, all Cash Election Shares will be converted into the
right to receive the Per Share Cash Consideration, all Stock Election Shares
will be converted into the right to receive the Per Share Stock
Consideration, and all Combined Election Shares will be converted into the
right to receive shares of Parent Common Stock and the right to receive cash
on a proportionate basis so that, in the aggregate, the number of shares of
Company Common Stock outstanding immediately prior to the Effective Time
that convert into the Per Share Cash Consideration is as nearly equal to the
Cash Election Number as practical.
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(vii) In the event that the value of the shares of Parent Common Stock
(excluding fractional shares to be paid in cash) to be issued in the Merger,
valued at the last sale price as reported by the Nasdaq National Market for
the date during which the Effective Time occurs, minus the aggregate
discount, if any, due to trading restrictions on the Parent Common Stock to
be issued in the Merger (the "Parent Common Stock Value") is less than 45%
of the total consideration to be paid in exchange for the shares of Company
Common Stock (including without limitation the amount of cash to be paid in
lieu of fractional shares and any other payments required to be considered
in determining whether the continuity of interest requirement applicable to
reorganizations under Section 368 of the Code has been satisfied) (the
"Total Consideration"), then the Per Share Cash Consideration, rather than
being $47.50 in cash, without interest, shall be a combination of a fraction
of a share of Parent Common Stock and cash, without interest, with a
combined market value equal to $47.50, with the Parent Common Stock valued
at the last sale price as reported by the Nasdaq National Market for the
date during which the Effective Time occurs, rounded to the nearest cent, so
that the Parent Common Stock Value is at least 45% of the Total
Consideration; provided, however, in no event shall Parent be obligated to
issue in excess of 19,670,586 shares, subject to equitable adjustment, of
Parent Common Stock pursuant to the terms of this Agreement and the
transactions contemplated hereby.
(viii) If prior to the Effective Time there is a change in the number of
issued and outstanding shares of Parent Common Stock as the result of
reclassification, subdivision, recapitalization, stock split (including
reverse stock split) or stock dividend, the Exchange Ratio and the Per Share
Cash Consideration shall be equitably adjusted to give effect to such event.
(ix) The shares of Parent Common Stock and cash payable pursuant to this
Section 1.6, together with cash payments in lieu of fractional shares
pursuant to Section 1.6(c), are referred to collectively as the "Merger
Consideration."
(b) ELECTION PROCEDURE. At the time of mailing of the Proxy
Statement/Prospectus (as defined in Section 2.22) to holders of record of
Company Common Stock entitled to vote at the Company Stockholders Meeting (as
defined in Section 4.6(b)), Parent will mail, or cause to be mailed, an Election
Form and a letter of transmittal to each such holder. To be effective, an
Election Form must be properly completed, signed and actually received by the
Exchange Agent (as defined in Section 1.9) not later than 5:00 p.m., New York
City time, on the trading day that is three trading days prior to the date of
the Company Stockholders Meeting (the "Election Deadline") and, in the case of
the shares that are not held in book entry form, accompanied by the certificates
(the "Certificates") representing all of the shares of Company Common Stock as
to which such Election Form relates, duly endorsed in blank or otherwise in form
acceptable for transfer (or accompanied by an appropriate guarantee of delivery
by an eligible organization). For shares that are held in book entry form,
Parent shall establish reasonable procedures for the delivery of such shares.
Parent shall have reasonable discretion, which it may delegate in whole or in
part to the Exchange Agent, to determine whether Election Forms have been
properly completed, signed and timely submitted or to disregard defects in
Election Forms. Any such determination of Parent or the Exchange Agent shall be
conclusive and binding. Neither Parent nor the Exchange Agent shall be under any
obligation to notify any person of any defect in an Election Form submitted to
the Exchange Agent. The Exchange Agent shall also make all computations
contemplated by this Section 1.6, and computations will be conclusive and
binding on the former holders of Company Common Stock absent manifest error. Any
shares of Company Common Stock (other than shares held by Company as treasury
shares, shares held by any Company Subsidiary and Dissenting Shares) for which
the record holder has not, as of the Election Deadline, properly submitted to
the Exchange Agent a properly completed Election Form will be deemed Combined
Election Shares. Any Election Form may be revoked, by the stockholder who
submitted such Election Form to the Exchange Agent, only by written notice
received by the Exchange Agent (i) prior to the Election Deadline or (ii) after
such time if (and only to the extent that) the Exchange Agent is legally
required
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to permit revocations and only if the Effective Time shall not have occurred
prior to such date. In addition, all Election Forms shall automatically be
revoked, and all Certificates returned, if the Exchange Agent is notified in
writing by Parent and Company that this Agreement has been terminated. The
Exchange Agent may make such rules as are consistent with this Section 1.6 for
the election process.
(c) NO FRACTIONAL SHARES. No fractional shares of Parent Common Stock
shall be issued pursuant to this Agreement. In lieu of fractional shares, each
stockholder who would otherwise have been entitled to a fraction of a share of
Parent Common Stock hereunder (after aggregating all fractional shares to be
received by such stockholder), shall receive, without interest, an amount in
cash (rounded to the nearest whole cent) determined by multiplying such fraction
by the per share last sale price of Parent Common Stock as reported by the
Nasdaq National Market on the trading day immediately preceding the date during
which the Effective Time occurs.
(d) DISSENTING SHARES
(i) Shares of Company Common Stock held by a stockholder who has
properly exercised appraisal rights with respect thereto in accordance with
Section 262 of the DGCL (collectively, the "Dissenting Shares") shall not be
converted into Merger Consideration. From and after the Effective Time, a
stockholder who has properly exercised such appraisal rights shall not have
any rights of a stockholder of Company, Parent or the Surviving Corporation
with respect to such shares, except those provided under Section 262 of the
DGCL. If, after the Effective Time of the Merger, any such stockholder fails
to perfect or loses any such right to appraisal, such shares shall be
treated as if they had been converted as of the Effective Time into the
right to receive the Merger Consideration.
(ii) Company shall give Parent (A) prompt notice of any written demands
under Section 262 of the DGCL with respect to any shares of Company Common
Stock, any withdrawal of any such demand and any other instruments served
pursuant to the DGCL and received by Company and (B) the right to
participate in all negotiations and proceedings with respect to any such
demands. Company shall cooperate with Parent concerning, and shall not,
except with the prior written consent of Parent, voluntarily make any
payment with respect to, or offer to settle or settle, any such demands.
(e) CANCELLED STOCK. All shares of Company Common Stock (and the
associated Rights) held at the Effective Time by Company as treasury stock or by
a Company Subsidiary or by Parent, Merger Sub or another wholly-owned subsidiary
of Parent shall be cancelled and extinguished and no payment shall be made with
respect thereto.
(f) MERGER SUB STOCK. Each issued and outstanding share of the capital
stock of Merger Sub shall continue to be outstanding following, and shall be
unaffected by, the Merger.
1.7 COMPANY OPTIONS, WARRANTS AND PURCHASE RIGHTS
(a) At the Effective Time, each outstanding option to purchase shares of
Company Common Stock (the "Company Options") (i) including those options granted
under the Company's Amended and Restated 1992 Equity Incentive Plan and the
Company's Amended and Restated 1995 Directors Stock Option Plan (the "Company
Stock Option Plans") and those options granted outside of the Company Stock
Option Plans and disclosed on Section 2.3 of the Company Disclosure Schedule and
(ii) including those options assumed by the Company in connection with the
acquisition of SunPharm Corporation, whether or not then exercisable, shall be
assumed by Parent. Each Company Option so assumed by Parent under this Agreement
shall continue to have, and be subject to, the same terms and conditions set
forth in the applicable Company Stock Option Plan or in the applicable stock
option agreement or certificate immediately prior to the Effective Time
(including, without limitation, any repurchase rights), except that (i) each
Company Option shall be exercisable (or shall become
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exercisable in accordance with its terms) for that number of shares of Parent
Common Stock equal to the product of the number of shares of Company Common
Stock that were issuable upon exercise of such Company Option immediately prior
to the Effective Time multiplied by the Exchange Ratio, rounded down to the
nearest whole number of shares of Parent Common Stock, (ii) the per share
exercise price for the shares of Parent Common Stock issuable upon exercise of
such assumed Company Option shall be equal to the quotient determined by
dividing the exercise price per share of Company Common Stock at which such
Company Option was exercisable immediately prior to the Effective Time by the
Exchange Ratio, rounded up to the nearest whole cent and (iii) the vesting of
such options may have been accelerated as indicated on Section 2.3(b) of the
Company Disclosure Schedule. After the Effective Time, Parent shall issue to
each holder of an outstanding Company Option a notice describing the foregoing
assumption of such Company Options by Parent. The adjustments provided herein
with respect to any Company Options that are "incentive stock options" as
defined in Section 422 of the Code shall be and are intended to be effected in a
manner which is consistent with Section 424(a) of the Code so as to preserve the
benefits of such "incentive stock options."
(b) At the Effective Time, each outstanding warrant to purchase shares of
Company Common Stock (the "Company Warrants"), whether or not then exercisable,
shall be assumed by Parent. Each Company Warrant so assumed by Parent under this
Agreement shall continue to have, and be subject to, the same terms and
conditions set forth in the applicable warrant immediately prior to the
Effective Time (including, without limitation, any repurchase rights), except
that (i) each Company Warrant shall be exercisable (or shall become exercisable
in accordance with its terms) for that number of shares of Parent Common Stock
equal to the product of the number of shares of Company Common Stock that were
issuable upon exercise of such Company Warrant immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded to the nearest whole
number of shares of Parent Common Stock, and (ii) the per share exercise price
for the shares of Parent Common Stock issuable upon exercise of such assumed
Company Warrant shall be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Company Option
was exercisable immediately prior to the Effective Time by the Exchange Ratio,
rounded to the nearest whole cent. After the Effective Time, Parent shall issue
to each holder of an outstanding Company Warrant a notice describing the
foregoing assumption of such Company Warrants by Parent.
(c) Company shall amend its 1995 Employee Stock Purchase Plan (the "Company
Purchase Plan") so that as of the Effective Time (i) the Company Purchase Plan
is terminated and (ii) there are no outstanding rights of participants under the
Company Purchase Plan. Prior to the Effective Time, Company shall take all
actions (including, if appropriate, amending the terms of the Company Purchase
Plan) that are necessary to give effect to this Section 1.7(c).
1.8 CLOSING OF COMPANY TRANSFER BOOKS. At the Effective Time, the stock
transfer books of Company shall be closed and no further registration of
transfers of shares of Company Common Stock shall thereafter be made. On or
after the Effective Time, any Certificates presented to the Exchange Agent or
Parent for any reason shall be converted into the right to receive Merger
Consideration with respect to the shares of Company Common Stock formerly
represented thereby and any dividends or other distributions to which the
holders thereof are entitled pursuant to Section 1.13.
1.9 EXCHANGE OF CERTIFICATES.
(a) Parent shall authorize American Stock Transfer & Trust Company or one or
more other persons reasonably acceptable to Company to act as Exchange Agent
hereunder (the "Exchange Agent"). Promptly after the Effective Time, Parent
shall cause the Exchange Agent to mail, to former record holders of shares of
Company Common Stock who have not previously submitted letters of transmittal
together with Certificates, instructions for surrendering their Certificates in
exchange for the Merger Consideration. The fees and expenses of the Exchange
Agent shall be paid by Parent and
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Parent shall indemnify the Exchange Agent and Company against actions taken by
the Exchange Agent pursuant hereto and pursuant to any Exchange Agent agreement
other than for acts or omissions which constitute willful misconduct or gross
negligence, pursuant to the agreement with the Exchange Agent.
(b) Promptly after the Effective Time, Parent shall deliver to the Exchange
Agent sufficient shares of Parent Common Stock and cash to satisfy the Merger
Consideration. After the Effective Time, upon receipt of Certificates for
cancellation, together with a properly completed letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss of, and title
to, the Certificates shall pass, only upon delivery of the Certificates to the
Exchange Agent) and other requested documents and in accordance with the
instructions thereon, the holder of such Certificates shall be entitled to
receive in exchange therefor (i) a certificate representing that number of whole
shares of Parent Common Stock into which the shares of Company Common Stock
theretofore represented by the Certificates so surrendered shall have been
converted pursuant to Section 1 and (ii) a check in the amount of any cash due
pursuant to Section 1. No interest shall be paid or shall accrue on any such
amounts.
(c) Until surrendered in accordance with the provisions of this
Section 1.9, each Certificate shall represent for all purposes only the right to
receive Merger Consideration and, if applicable, amounts under Section 1.13.
Shares of Parent Common Stock into which shares of Company Common Stock shall be
converted in the Merger at the Effective Time shall be deemed to have been
issued at the Effective Time. If any certificates representing shares of Parent
Common Stock are to be issued in a name other than that in which the Certificate
surrendered is registered, it shall be a condition of such exchange that the
person requesting such exchange deliver to the Exchange Agent all documents
necessary to evidence and effect such transfer and pay to the Exchange Agent any
transfer or other taxes required by reason of the issuance of a certificate
representing shares of Parent Common Stock in a name other than that of the
registered holder of the Certificate surrendered, or establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable. Beginning the date which is twelve months following the Closing
Date, Parent shall act as the Exchange Agent and thereafter any holder of an
unsurrendered Certificate shall look solely to Parent for any amounts to which
such holder may be due, subject to applicable law. Notwithstanding any other
provisions of this Agreement, any portion of the Merger Consideration remaining
unclaimed five years after the Effective Time (or such earlier date immediately
prior to such time as such amounts would otherwise escheat to, or become
property of, any governmental entity) shall, to the extent permitted by law,
become the property of Parent free and clear of any claims or interest of any
person previously entitled thereto.
1.10 NO LIABILITY. None of Parent, the Surviving Corporation or the
Exchange Agent shall be liable to any person in respect of any shares (or
dividends or distributions with respect thereto) or cash payments delivered to a
public official pursuant to any applicable escheat, abandoned property or
similar law.
1.11 LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if reasonably required by
Parent, the posting by such person of a bond in such reasonable amount as Parent
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Exchange Agent shall deliver in exchange for
such lost, stolen or destroyed Certificate, the Merger Consideration and any
amounts due pursuant to Section 1.13.
1.12 WITHHOLDING RIGHTS. Parent shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of shares of Company Common Stock such amounts as it is required to
deduct and withhold with respect to the making of such payment under the Code,
or any provision of state, local or foreign tax law. To the extent that amounts
are so withheld by Parent, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Company Common Stock in respect of which such deduction and withholding was
made.
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1.13 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividend or
other distribution declared with respect to Parent Common Stock with a record
date after the date during which the Effective Time occurs shall be paid to
holders of unsurrendered Certificates or holders who comply with the provisions
of Section 1.11 (with regard to lost certificates) until such holders surrender
such Certificates or submit an affidavit (and any reasonably required bond) in
accordance with Section 1.11. Upon the surrender of such Certificates in
accordance with Section 1.9 or submission of an affidavit (and any reasonably
required bond) in accordance with Section 1.11, there shall be paid to such
holders, promptly after such surrender or submission, as the case may be, the
amount of dividends or other distributions, without interest, declared with a
record date after the date during which the Effective Time occurs and not paid
because of the failure to surrender such Certificates for exchange.
1.14 FURTHER ASSURANCES. At and after the Effective Time, the officers and
directors of the Surviving Corporation shall be authorized to execute and
deliver, in the name and on behalf of Company, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on behalf of
Company, any other actions and things to vest, perfect or confirm of record or
otherwise in the Surviving Corporation any and all right, title and interest in,
to and under any of the rights, properties or assets acquired or to be acquired
by the Surviving Corporation as a result of, or in connection with, the Merger.
SECTION 2--REPRESENTATIONS AND WARRANTIES OF COMPANY
Except as set forth on the disclosure schedule delivered by Company to
Parent on the date hereof (the "Company Disclosure Schedule"), the section
numbers of which are numbered to correspond to the section numbers of this
Agreement to which they refer, Company hereby makes the following
representations and warranties to Parent and Merger Sub:
2.1 ORGANIZATION AND QUALIFICATION.
(a) Each of Company and each Company Subsidiary (as defined in
Section 2.4(a)) is a corporation or other legal entity duly organized, validly
existing and in good standing under the laws of its jurisdiction of organization
and has corporate or similar power and authority to own, lease and operate its
assets and to carry on its business as now being and as heretofore conducted.
Each of Company and each Company Subsidiary is qualified or otherwise authorized
to transact business as a foreign corporation or other organization in all
jurisdictions in which such qualification or authorization is required by law,
except for jurisdictions in which the failure to be so qualified or authorized
could not reasonably be expected to have a Company Material Adverse Effect.
"Company Material Adverse Effect" shall mean a material adverse effect on the
assets, properties, business, results of operations or financial condition of
Company and the Company Subsidiaries, taken as a whole; provided that "Company
Material Adverse Effect" shall not include any such adverse effect primarily
related to (i) the economy or securities markets of the United States or any
other region in general or (ii) conditions affecting the biotechnology and
biopharmaceutical industries generally, in each case, without a disproportionate
impact on Company and the Company's Subsidiaries.
(b) Company has previously provided or made available to Parent true and
complete copies of the charter and bylaws or other organizational documents of
Company and each Company Subsidiary as presently in effect, and none of Company
or any Company Subsidiary is in default in the performance, observation or
fulfillment of such documents, except, in the case of Company Subsidiaries, such
defaults that, in the aggregate, could not reasonably be expected to have a
Company Material Adverse Effect.
2.2 AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. Company has the corporate
power and authority to enter into, execute and deliver this Agreement and,
subject, in the case of consummation of the Merger, to the adoption of this
Agreement by the holders of Company Common Stock, to perform fully its
obligations hereunder. The execution and delivery of this Agreement and the
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consummation of the transactions contemplated hereby have been duly authorized
by the Board of Directors of Company. No other action on the part of Company is
necessary to consummate the transactions contemplated hereby (other than
adoption of this Agreement by the holders of Company Common Stock and execution
of the Rights Amendment (as defined in Section 2.20(c)), which the Company will
execute promptly after execution of this Agreement). This Agreement has been
duly executed and delivered by Company and constitutes a valid and binding
obligation of Company, enforceable in accordance with its terms.
2.3 CAPITALIZATION AND TITLE TO SHARES
(a) Company is authorized to issue 50,000,000 shares of Company Common
Stock, of which 21,144,432 shares were issued and outstanding as of
September 7, 2000. All of the issued and outstanding shares of Company Common
Stock are duly authorized, validly issued, fully paid, nonassessable and free of
pre-emptive rights.
(b) Company has reserved 4,476,033 shares of Company Common Stock for
issuance pursuant to all of the Company Options. Company Options to purchase
2,323,718 shares of Company Common Stock were outstanding as of September 8,
2000. Section 2.3(b) of the Company Disclosure Schedule includes a true and
complete list of all Company Options outstanding as of September 8, 2000 with
vesting schedules and exercise prices. True and complete copies of all
instruments (or the forms of such instruments) referred to in this section have
been furnished or made available to Parent. Except as indicated in
Section 2.3(b) of the Company Disclosure Schedule, the Company is not obligated
to accelerate the vesting of any Company Options as a result of the Merger.
(c) Company has reserved 160,147 shares of Company Common Stock for issuance
pursuant to all of the Company Warrants. Company Warrants to purchase 117,269
shares of Company Common Stock were outstanding as of September 8, 2000.
Section 2.3(c) of the Company Disclosure Schedule includes a true and complete
list of all outstanding warrants outstanding as of September 8, 2000 with
vesting schedules and exercise prices. True and complete copies of all
instruments (or the forms of such instruments) referred to in this section have
been furnished or made available to Parent.
(d) Company has reserved 37,034 shares of Company Common Stock for future
issuance under the Company Purchase Plan.
(e) Company is authorized to issue 5,000,000 shares of Preferred Stock
("Company Preferred Stock"), none of which are issued and outstanding.
(f) Except for (i) shares indicated as issued and outstanding on
September 7, 2000 in Section 2.3(a), (ii) 291,073 shares to be issued to Acqua
Wellington North American Equities Fund, Ltd. ("AW") on or about the date of
this Agreement and (iii) shares issued after September 7, 2000, upon (A) the
exercise of outstanding Company Options listed in Section 2.3(b) of the Company
Disclosure Schedule or granted after the date of this Agreement in the ordinary
course of business consistent with past practice, (B) the exercise of
outstanding Company Warrants listed in Section 2.3(c) of the Company Disclosure
Schedule, or (C) the exercise of purchase rights in accordance with the Company
Purchase Plan and in an amount not in excess of the number indicated as reserved
for such purpose in Section 2.3(d), there are not as of the date hereof, and at
the Effective Time there will not be, any shares of Company Common Stock issued
and outstanding.
(g) Company's authorized capital stock consists solely of the Company Common
Stock described in Section 2.3(a) and the Company Preferred Stock described in
Section 2.3(e). There are not as of the date hereof, and at the Effective Time
there will not be, authorized or outstanding any subscriptions, options,
conversion or exchange rights, warrants, repurchase or redemption agreements, or
other agreements, claims or commitments of any nature whatsoever obligating
Company to issue, transfer, deliver or sell, or cause to be issued, transferred,
delivered, sold, repurchased or redeemed, additional shares of the capital stock
or other securities of Company or obligating Company to grant, extend or
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enter into any such agreement, other than Company Options listed in
Section 2.3(b) of the Company Disclosure Schedule or granted after the date of
this Agreement in the ordinary course of business consistent with past practice,
Company Warrants listed in Section 2.3(c) of the Company Disclosure Schedule,
and rights to purchase shares of Company Common Stock pursuant to the Company
Purchase Plan. To the best knowledge of Company, there are no stockholder
agreements, voting trusts, proxies or other agreements, instruments or
understandings with respect to the voting of the capital stock of Company.
(h) Neither Company nor any Company Subsidiary beneficially owns any shares
of capital stock of Parent.
(i) Company has no outstanding bonds, debentures, notes or other
indebtedness which have the right to vote on any matters on which stockholders
may vote.
2.4 COMPANY SUBSIDIARIES.
(a) Section 2.4(a) of the Company Disclosure Schedule sets forth all of the
Company Subsidiaries and the jurisdiction in which each is incorporated or
organized. All issued and outstanding shares or other equity interests of each
Company Subsidiary are owned directly by Company free and clear of any charges,
liens, encumbrances, security interests or adverse claims. As used in this
Agreement, "Company Subsidiary" means any corporation, partnership or other
organization, whether incorporated or unincorporated, (i) of which Company or
any Company Subsidiary is a general partner or (ii) at least 50% of the
securities or other interests having voting power to elect a majority of the
board of directors or others performing similar functions with respect to such
corporation, partnership or other organization are directly or indirectly owned
or controlled by Company or by any Company Subsidiary, or by Company and one or
more Company Subsidiaries; provided, however, RenaGel LLC shall not be
considered a Company Subsidiary for purposes of Section 2 of this Agreement.
(b) There are not as of the date hereof, and at the Effective Time there
will not be, any subscriptions, options, conversion or exchange rights,
warrants, repurchase or redemption agreements, or other agreements, claims or
commitments of any nature whatsoever obligating any Company Subsidiary to issue,
transfer, deliver or sell, or cause to be issued, transferred, delivered, sold,
repurchased or redeemed, shares of the capital stock or other securities of
Company or any Company Subsidiary or obligating Company or any Company
Subsidiary to grant, extend or enter into any such agreement. To the best
knowledge of Company, there are no stockholder agreements, voting trusts,
proxies or other agreements, instruments or understandings with respect to the
voting of the capital stock of any Company Subsidiary.
2.5 SEC REPORTS. Company previously has made available to Parent (i) its
Annual Report on Form 10-K for the year ended December 31, 1999 (the "Company
10-K"), as filed with the Securities and Exchange Commission (the "SEC"),
(ii) all proxy statements relating to Company's meetings of stockholders held or
to be held after December 31, 1999 and (iii) all other documents filed by
Company with the SEC under the Securities Exchange Act of 1934, as amended (the
"Exchange Act") since January 1, 1999 and, prior to the date of this Agreement
(the "Company SEC Reports"). As of their respective dates, such documents
complied, and all documents filed by Company with the SEC under the Exchange Act
between the date of this Agreement and the Closing Date will comply, in all
material respects, with applicable SEC requirements and did not, or in the case
of documents filed on or after the date hereof will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since August 31, 1999,
Company has timely filed, and between the date of this Agreement and the Closing
Date will timely file, with the SEC all documents required to be filed by it
under the Exchange Act. No Company Subsidiary is required to file any form,
report or other document with the SEC.
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2.6 FINANCIAL STATEMENTS. The consolidated financial statements contained
in the Company 10-K and in Company's quarterly report on Form 10-Q for the
quarter ended June 30, 2000 (the "Company 10-Q") have been prepared from, and
are in accordance with, the books and records of Company and present fairly, in
all material respects, the consolidated financial condition and results of
operations of Company and the Company Subsidiaries as of and for the periods
presented therein, all in conformity with generally accepted accounting
principles applied on a consistent basis, except as otherwise indicated therein
and subject in the case of the unaudited financial statements included in the
Company 10-Q to normal year-end adjustments, which in the aggregate are not
material, and the absence of notes in the unaudited financial statements.
2.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the Company
SEC Reports, as at December 31, 1999, Company and the Company Subsidiaries had
no material liabilities of any nature, whether accrued, absolute, contingent or
otherwise (including without limitation, liabilities as guarantor or otherwise
with respect to obligations of others or liabilities for taxes due or then
accrued or to become due), required to be reflected or disclosed in the balance
sheet dated December 31, 1999 (or the notes thereto) included in the Company
10-K (the "Company Balance Sheet") that were not adequately reflected or
reserved against on the Company Balance Sheet. Company has no material
liabilities of any nature, whether accrued, absolute, contingent or otherwise,
other than liabilities (i) adequately reflected or reserved against on the
Company Balance Sheet, (ii) reflected in Company's unaudited balance sheet dated
June 30, 2000, included in the Company 10-Q, (iii) included in Section 2.7 of
the Company Disclosure Schedule, (iv) incurred since June 30, 2000 in the
ordinary course of business, (v) disclosed in the Company SEC Reports or
(vi) that could not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.
2.8 ABSENCE OF ADVERSE CHANGES.
(a) Since June 30, 2000, there has not been any change, event or
circumstance that has had, or is reasonably likely to have, a Company Material
Adverse Effect.
(b) Since June 30, 2000, there has not been any action taken by Company or
any Company Subsidiary during the period from June 30, 2000 through the date of
this Agreement that, if taken during the period from the date of this Agreement
through the Effective Time, would constitute a breach of Section 4.1.
2.9 COMPLIANCE WITH LAWS.
(a) Company and the Company Subsidiaries have all licenses, permits,
franchises, orders or approvals of any federal, state, local or foreign
governmental or regulatory body material to the conduct of their businesses
(collectively, "Permits"), other than such Permits the absence of which,
individually or in the aggregate, could not reasonably be expected to have a
Company Material Adverse Effect; such Permits are in full force and effect; and
no proceeding is pending or, to the best knowledge of Company, threatened to
revoke or limit any Permit.
(b) Company and the Company Subsidiaries are not in violation of and have no
liabilities, whether accrued, absolute, contingent or otherwise, under any
federal, state, local or foreign law, ordinance or regulation or any order,
judgment, injunction, decree or other requirement of any court, arbitrator or
governmental or regulatory body, relating to the operation of clinical testing
laboratories, labor and employment practices, health and safety, zoning,
pollution or protection of the environment, except for violations of or
liabilities under any of the foregoing which could not, in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
(c) Each product or product candidate subject to the United States Food and
Drug Administration (the "FDA") jurisdiction under the Federal Food, Drug and
Cosmetic Act ("FDCA") that is manufactured, tested, distributed, held, and/or
marketed by Company or any Company Subsidiary is being manufactured, tested,
distributed, held and marketed in compliance in all material
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respects with all applicable requirements under the FDCA including, but not
limited to, those relating to investigational use, premarket clearance, good
manufacturing practices, labeling, advertising, record keeping, filing of
reports and security.
(d) Company has, prior to the execution of this Agreement, provided or made
available to Parent copies of all documents in its or any Company Subsidiary's
possession material to assessing compliance with the FDCA and its implementing
regulations, including, but not limited to, copies of (i) all warning letters,
notices of adverse findings and similar correspondence received in the last
three years, (ii) all audit reports performed during the last three years, and
(iii) any document concerning any significant oral or written communication
received from the FDA in the last three years.
2.10 ACTIONS AND PROCEEDINGS. There are no outstanding orders, judgments,
injunctions, decrees or other requirements of any court, arbitrator or
governmental or regulatory body against Company, any Company Subsidiary or any
of their assets or properties. Except as disclosed in the Company SEC Reports,
there are no actions, suits or claims or legal, administrative or arbitration
proceedings pending or, to the best knowledge of Company, threatened against
Company, any Company Subsidiary, or any of their securities, assets or
properties. To the best knowledge of Company, there is no fact, event or
circumstance now in existence that reasonably could be expected to give rise to
any action, suit, claim, proceeding or investigation that, individually or in
the aggregate, could be reasonably expected to have a Company Material Adverse
Effect or interfere with Company's ability to consummate the transactions
contemplated hereby.
2.11 CONTRACTS AND OTHER AGREEMENTS.
(a) Neither Company nor any Company Subsidiary is a party to or bound by,
and neither they nor their properties are subject to, any contract or other
agreement required to be disclosed in a Form 10-K, Form 10-Q or Form 8-K of the
SEC which is not disclosed in the Company 10-K, the Company 10-Q or as an
exhibit to a registration statement filed under the Securities Act of 1933, as
amended (the "Securities Act") within the last 12 months. All of such contracts
and other agreements are valid, subsisting, in full force and effect, binding
upon Company or the applicable Company Subsidiary, and, to the best knowledge of
Company, binding upon the other parties thereto in accordance with their terms,
and Company and the Company Subsidiaries have paid in full or accrued all
amounts now due from them thereunder, and have satisfied in full or provided for
all of their liabilities and obligations thereunder which are presently required
to be satisfied or provided for and are not in default under any of them, except
for defaults which individually or in the aggregate could not reasonably be
expected to result in a Company Material Adverse Effect, nor, to the best
knowledge of Company, is any other party to any such contract or other agreement
in default thereunder, except for defaults which individually or in the
aggregate could not reasonably be expected to result in a Company Material
Adverse Effect, nor does any condition exist that with notice or lapse of time
or both would constitute a default thereunder, except for defaults which
individually or in the aggregate could not reasonably be expected to result in a
Company Material Adverse Effect. True and complete copies of all of the
contracts and other agreements referred to in this Section 2.11 have been
provided or made available to Parent.
(b) Other than those contracts disclosed in the Company 10-K, the Company
10-Q or as exhibits to a registration statement filed under the Securities Act,
neither the Company nor any Company Subsidiary is a party to any agreement that
limits or restricts Company, any Company Subsidiary or any of their affiliates
or successors in competing or engaging in any line of business, in any
therapeutic area, in any geographic area or with any person.
(c) Neither the Company nor any Company Subsidiary is a party to any
agreement obligating Company to file a registration statement under the
Securities Act which filing has not yet been made.
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(d) To the best knowledge of Company, no executive officer or director of
Company has (whether directly or indirectly through another entity in which such
person has a material interest, other than as the holder of less than 2% of a
class of securities of a publicly traded company) any material interest in any
property or assets of Company (except as a stockholder) or a Company Subsidiary,
any competitor, customer, supplier or agent of Company or a Company Subsidiary
or any person that is currently a party to any material contract or agreement
with Company or a Company Subsidiary.
(e) Section 2.11(e) of the Company Disclosure Schedule lists all real
property owned by Company or a Company Subsidiary. The Company or Company
Subsidiary, as the case may be, owns good and marketable title to such property.
2.12 INTELLECTUAL PROPERTY. Company and the Company Subsidiaries own, or
are licensed to use, or otherwise have the right to use all patents, trademarks,
service marks, trade names, trade secrets, franchises, inventions, copyrights,
and all other technology and intellectual property (including, without
limitation, biological materials), all registrations of any of the foregoing, or
applications therefor, and all grants and licenses or other rights running to or
from Company or Company Subsidiary relating to any of the foregoing that are
material to their businesses as presently conducted or as contemplated to be
conducted (collectively, the "Proprietary Rights"). All patents, registered
trademarks and copyrights referred to above are valid and subsisting and the
Company will provide Parent with a schedule of any taxes, maintenance fees or
actions falling due within 90 days of the Closing Date. Company is not aware of
any basis for any claim by any third party that the businesses of Company or the
Company Subsidiaries infringe upon the proprietary rights of others, nor has
Company or any Company Subsidiary received any notice or claim of infringement
from any third party. Company is not aware of any existing or threatened
infringement by any third party on, or any competing claim of right to use or
own any of, the Proprietary Rights. Except as disclosed in Section 2.12 of the
Company Disclosure Schedule, Company and the Company Subsidiaries have the right
to sell their products and services (whether now offered for sale or under
development) free from any royalty or other obligations to third parties. To the
best knowledge of Company, none of the activities of the employees of Company or
any Company Subsidiary on behalf of such entity violates any agreement or
arrangement which any such employees have with former employers. All employees
and consultants who contributed to the discovery or development of any of the
Proprietary Rights did so either (a) within the scope of his or her employment
such that, in accordance with applicable law, all Proprietary Rights arising
therefrom became the exclusive property of the Company or the Company Subsidiary
or (b) pursuant to written agreements assigning all Proprietary Rights arising
therefrom to the Company or the Company Subsidiary.
2.13 INSURANCE. All policies or binders of material fire, liability,
product liability, workmen's compensation, vehicular, directors' and officers'
and other material insurance held by or on behalf of Company and the Company
Subsidiaries are in full force and effect, are reasonably believed to be
adequate for the businesses engaged in by Company and the Company Subsidiaries
and are in conformity with the requirements of all leases or other agreements to
which Company or the relevant Company Subsidiary is a party and, to the best
knowledge of Company, are valid and enforceable in accordance with their terms.
Neither Company nor any Company Subsidiary is in default with respect to any
provision contained in such policy or binder nor has any of the Company or a
Company Subsidiary failed to give any notice or present any claim under any such
policy or binder in due and timely fashion. There are no outstanding unpaid
claims under any such policy or binder. Neither Company nor any Company
Subsidiary has received notice of cancellation or non-renewal of any such policy
or binder.
2.14 COMMERCIAL RELATIONSHIPS. None of the Company's or the Company
Subsidiaries' material suppliers, collaborators, licensors and licensees has
canceled or otherwise terminated its relationship with Company or a Company
Subsidiary or has, during the last twelve months, materially altered its
relationship with Company or a Company Subsidiary. Company does not know of any
plan or intention
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of any such entity, and has not received any written threat or notice from any
such entity, to terminate, cancel or otherwise materially modify its
relationship with Company or a Company Subsidiary.
2.15 TAX MATTERS
(a) For purposes of this Agreement, the term "Tax" (and, with correlative
meaning, "Taxes" and "Taxable") means all United States federal, state, and
local, and all foreign, income, profits, franchise, gross receipts, payroll,
transfer, sales, employment, use, property, excise, value added, ad valorem,
estimated, stamp, alternative or add-on minimum, recapture, environmental,
withholding and any other taxes, charges, duties, impositions or assessments,
together with all interest, penalties, and additions imposed on or with respect
to such amounts, including any liability for taxes of a predecessor entity. "Tax
Return" means any return, declaration, report, claim for refund, or information
return or statement filed or required to be filed with any taxing authority in
connection with the determination, assessment, collection or imposition of any
Taxes.
(b) All Tax Returns required to be filed on or before the date hereof by or
with respect to Company and the Company Subsidiaries have been filed within the
time and in the manner prescribed by law. All such Tax Returns are true, correct
and complete in all material respects, and all Taxes owed by Company or the
Company Subsidiaries, whether or not shown on any Tax Return, have been paid.
Company and the Company Subsidiaries file Tax Returns in all jurisdictions where
they are required to so file, and no claim has ever been made by any taxing
authority in any other jurisdiction that Company or the Company Subsidiaries are
or may be subject to taxation by that jurisdiction.
(c) There are no liens or other encumbrances with respect to Taxes upon any
of the assets or properties of Company or the Company Subsidiaries, other than
with respect to Taxes not yet due and payable.
(d) No audit is currently pending with respect to any Tax Return of Company
or the Company Subsidiaries, nor is Company aware of any information which has
caused or should cause them to believe that an audit by any tax authority may be
forthcoming. No deficiency for any Taxes has been proposed in writing against
Company or the Company Subsidiaries, which deficiency has not been paid in full.
No issue relating to Company or the Company Subsidiaries or involving any Tax
for which Company or the Company Subsidiaries might be liable has been resolved
in favor of any taxing authority in any audit or examination which, by
application of the same principles, could reasonably be expected to result in a
deficiency for Taxes of Company or the Company Subsidiaries for any subsequent
period, and Company knows of no other basis for the assertion of such a
deficiency.
(e) There are no outstanding agreements, waivers or arrangements extending
the statutory period of limitation applicable to any claim for, or the period
for the collection or assessment of, Taxes due from or with respect to Company
or the Company Subsidiaries for any taxable period, no power of attorney granted
by or with respect to Company or the Company Subsidiaries relating to Taxes is
currently in force, and no extension of time for filing any Tax Return required
to be filed by or on behalf of Company or any Company Subsidiary is in force.
Company has delivered or made available to Parent a complete and correct copy of
a substantially final version of its 1999 federal income Tax Return.
(f) With respect to any period for which Tax Returns have not yet been
filed, or for which Taxes are not yet due or owing, Company has, in accordance
with generally accepted accounting principles, made due and sufficient accruals
for such Taxes in the Company's books and records.
(g) No consent to the application of Section 341(f)(2) of the Code (or any
predecessor provision) has been made or filed by or with respect to Company or
any Company Subsidiary or any of their assets or properties.
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(h) Company and the Company Subsidiaries have not been and are not currently
in violation (or, with or without notice or lapse of time or both, would be in
violation) of any applicable law or regulation relating to the payment or
withholding of Taxes, and all withholding and payroll Tax requirements required
to be complied with by Company and the Company Subsidiaries up to and including
the date hereof have been satisfied.
(i) Company and the Company Subsidiaries are not and have never been a party
to or bound by, nor do they have or have they ever had any obligation under, any
Tax sharing agreement or similar contract or arrangement. Neither Company nor
any Company Subsidiary has any liability for the Taxes of any other person under
Treasury Regulation 1.1502-6 (or any similar provision of state, local or
foreign law), as a transferee or successor, by contract, or otherwise.
(j) There is no contract or agreement, plan or arrangement obligating
Company or the Company Subsidiaries to make any payment that would not be
deductible by reason of Section 162(m) or 280G of the Code. Neither Company nor
any Company Subsidiary has agreed to, or is required to, make any adjustments
under Section 481(a) of the Code by reason of a change in accounting method or
otherwise.
(k) Neither Company nor the Company Subsidiaries are, or were during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code, a United
States real property holding corporation within the meaning of
Section 897(c)(2) of the Code.
2.16 EMPLOYEE BENEFIT PLANS.
(a) Within five (5) business days of the execution of this Agreement, the
Company will provide Parent with a complete list of all pension, savings, profit
sharing, retirement, deferred compensation, employment, welfare, fringe benefit,
insurance, short and long term disability, incentive, bonus, stock, vacation
pay, severance pay and similar plans, programs or arrangements other than oral
employment agreements that, individually or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect (the "Plans"),
including without limitation all employee benefit plans as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA") maintained by Company or the Company Subsidiaries or to which Company
or any of the Company Subsidiaries are parties or required to contribute.
(b) Company has delivered or made available to Parent (or will do so within
five business days of execution of this Agreement) current, accurate and
complete copies of (i) each Plan that has been reduced to writing and all
amendments thereto, (ii) a summary of the material terms of each Plan that has
not been reduced to writing, including all amendments thereto, (iii) the summary
plan description for each Plan subject to Title I of ERISA, and in the case of
each other Plan, any similar employee summary (including but not limited to any
employee handbook description), (iv) for each Plan intended to be qualified
under Section 401(a) of the Code, the most recent determination or opinion
letter issued by the Internal Revenue Service ("IRS"), (v) for each Plan with
respect to which a Form 5500 series annual report/return is required to be
filed, the most recently filed such annual report/return and annual
report/return for the two preceding years, together with all schedules and
exhibits, (vi) all insurance contracts, administrative services contracts, trust
agreements, investment management agreements or similar agreements maintained in
connections with any Plan, and (vii) for each Plan that is intended to be
qualified under Code Section 401(a), copies of compliance testing results
(nondiscrimination testing (401(a)(4), ADP, ACP, multiple use), 402(g), 415 and
top-heavy tests) for the 1999 plan year.
(c) There is no entity (other than Company or any Company Subsidiary) that
together with Company or any Company Subsidiary would be treated as a
single-employer within the meaning of Section 414(b), (c), (m) or (o) of the
Code or Section 4001(b) of ERISA. Neither Company nor any Company Subsidiary has
ever maintained, contributed to or incurred any liability under any
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"multiemployer plan" as defined in Section 4001(a)(3) of ERISA or a "multiple
employer plan" as defined in Section 413(c) of the Code or a defined benefit
plan (within the meaning of Section 3(35) of ERISA) or other plan subject to
Section 302 of ERISA or a plan intended to be qualified under Section 501(c)(9)
of the Code.
(d) Each Plan maintained by Company or a Company Subsidiary which is
intended to be qualified under Section 401(a) of the Code ("Qualified Plans") is
so qualified, each Plan has been administered in all material respects in
accordance with the terms of such Plan and the provisions of any and all
statutes, orders or governmental rules or regulations, including without
limitation ERISA and the Code, and to the knowledge of Company, nothing has been
done or not done with respect to any Plan that could result in any liability on
the part of Company or any Company Subsidiary under Title I of ERISA or Chapter
43 of the Code, and none of the Plans is currently under examination by the IRS,
Department of Labor or other U.S. government agency or department, except in
each case for matters that, individually or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. All
contributions, premiums and other amounts due to or in connection with each Plan
under the terms of the Plan or applicable law have been timely made, and
provision has been made on the balance sheet included in the Company 10-Q for
such contributions, premiums and other amounts that were not yet due as of the
date of the balance sheet but were attributable to service before such date.
(e) Except for continuation of health coverage to the extent required under
Section 4980B of the Code or Section 601 et seq. of ERISA, other applicable law
or as otherwise set forth in this Agreement, and except for health coverage for
certain former employees of an acquired entity (which coverage will end not
later than December 31, 2000), there are no obligations under any Plan providing
welfare benefits after termination of employment.
(f) Except for individual employment agreements, each Plan can be amended,
modified or terminated without advanced notice to or consent by any employee,
former employee or beneficiary, except as required by law.
2.17 EMPLOYEE RELATIONS.
(a) Upon termination of the employment of any employees, none of Company,
the Company Subsidiaries nor Parent shall be liable, by reason of the Merger or
anything done in connection with the Merger, to any of such employees for
severance pay or any other similar payments (other than accrued salary, vacation
or sick pay in accordance with normal policies). True and complete information
as to the name, current job title and compensation for each of the last three
years of all current directors and executive officers of Company has been made
available previously to Parent.
(b) Company and each Company Subsidiary (i) is in compliance in all material
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to employees,
(ii) has withheld all amounts required by law or by agreement to be withheld
from the wages, salaries and other payments to employees, (iii) is not liable
for any arrears of wages, salaries, commissions, bonuses or other direct
compensation for any services performed or amounts required to be reimbursed to
any employees or consultants or any taxes or any penalty for failure to comply
with any of the foregoing, and (iv) is not liable for any payment to any trust
or other fund or to any governmental entity, with respect to unemployment
compensation benefits, social security or other benefits or obligations for
employees (other than routine payments to be made in the ordinary course of
business and consistent with past practice), except in each case for matters
that, individually or in the aggregate, could not reasonably be expected to
result in a Company Material Adverse Effect.
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(c) No work stoppage or labor strike against Company or any Company
Subsidiary is pending or, to the knowledge of Company, threatened. Neither
Company nor any Company Subsidiary is involved in or, to the knowledge of
Company, threatened with, any labor dispute, grievance, or litigation relating
to labor, safety or discrimination matters involving any employee, including
without limitation charges of unfair labor practices or discrimination
complaints, that, if adversely determined, could reasonably be expected to
result in material liability to Company. Neither Company nor any Company
Subsidiary has engaged in any unfair labor practices within the meaning of the
National Labor Relations Act that could reasonably be expected to result in
material liability to Company. Neither Company nor any Company Subsidiary is
presently, nor has it been in the past, a party to or bound by any collective
bargaining agreement or union contract with respect to employees other than as
set forth in Section 2.17 of the Company Disclosure Schedule and no collective
bargaining agreement is being negotiated by Company or any Company Subsidiary.
No union organizing campaign or activity with respect to non-union employees of
Company or any Company Subsidiary is ongoing, pending or, to the best knowledge
of Company, threatened.
2.18 ENVIRONMENTAL MATTERS.
(a) Neither Company nor any of the Company Subsidiaries has violated, is in
violation of, or has been notified that it is in violation of, Environmental
Law, and except in full compliance with Environmental Laws, neither Company nor
any of the Company Subsidiaries has generated, used, handled, transported or
stored any Hazardous Materials or shipped any Hazardous Materials for treatment,
storage or disposal at any other site or facility. To the best of Company's
knowledge, there has been no generation, use, handling, storage or disposal of
any Hazardous Materials in violation of any Environmental Law at any site owned
or operated by, or premises leased by, Company or any of the Company
Subsidiaries during the period of Company's or such Company Subsidiary's
ownership, operation or lease or, prior thereto, nor has there been or is there
threatened any Release of any Environmental Contaminants into, on, at or from
any such site or premises, including without limitation into the ambient air,
groundwater, surface water, soils or subsurface strata, during such period or,
to the best of Company's knowledge, prior thereto in violation of any
Environmental Law or which created or will create an obligation to report or
respond in any way to such Release. There is no underground storage tank or
other container at any site owned or operated by, or premises leased by Company
or any Company Subsidiary or, to the best of Company's knowledge, on any site
formerly owned or operated by, or premises formerly leased by, Company or any
Company Subsidiary.
(b) Neither Company nor any Company Subsidiary has received notification in
any form that, and Company has no knowledge that, any site currently or formerly
owned or operated by, or premises currently or formerly leased by, Company or
any Company Subsidiary is the subject of any federal, state or local civil,
criminal or administrative investigation evaluating whether, or alleging that,
any action is necessary to respond to a Release or a threatened Release of any
Environmental Contaminant. No such site or premises is listed, or to Company's
knowledge, proposed for listing, on the National Priorities List or the
Comprehensive Environmental Response, Compensation, and Liability Information
System, both as provided under the federal Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"), or any comparable state or local
governmental lists. Neither Company nor any Company Subsidiary has received
written notification of, and Company has no knowledge of, any potential
responsibility of Company or any Company Subsidiary pursuant to the provisions
of (i) CERCLA, (ii) any similar federal, state, local or other Environmental
Law, or (iii) any order issued pursuant to the provisions of any such
Environmental Law with respect to Environmental Contaminants used, manufactured,
generated, stored, or treated at, transported from, or disposed of on, any site
currently or formerly owned or operated by, or premises currently or formerly
leased by, Company or any Company Subsidiary.
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(c) Company and the Company Subsidiaries have obtained all permits required
by Environmental Law necessary to enable them to conduct their respective
businesses and are in compliance in all material respects with the permits.
(d) There is no environmental or health and safety matter that reasonably
could be expected to have a Company Material Adverse Effect. Company previously
has furnished or made available to Parent copies of any and all environmental
audits or risk assessments, site assessments, documentation regarding off-site
disposal of Hazardous Materials or Release of Environmental Contaminant, spill
control plans and all other material correspondence, documents or communications
with any governmental agency or other entity regarding the foregoing.
(e) For purposes of this Agreement:
(i) "Environmental Laws" means any Federal, state, local or foreign laws
(including common law), regulations, codes, rules, orders, ordinances,
permits, requirements and final governmental determinations, in each case as
in effect on the date of this Agreement, pertaining to the environment,
pollution or protection of human health, safety or the environment, as
adopted or in effect in the jurisdictions in which the applicable site or
premises are located, including without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended by
the Superfund Amendments and Reauthorization Act of 1986, 42 U.S.C. Section
9601 et seq.; the Emergency Planning and Community Right-to-Know Act, 42
U.S.C. Section 11001 et seq.; the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq.; the Federal Water Pollution Control Act, 33
U.S.C. Section 1251 et seq.; the Federal Insecticide, Fungicide and
Rodenticide Act, 7 U.S.C. Section 136 et seq.; the Toxic Substance Control
Act, 15 U.S.C. Section 2601 et seq.; the Oil Pollution Act of 1990, 33
U.S.C. Section 1001 et seq.; the Hazardous Materials Transportation Act, as
amended, 49 U.S.C. Section 1801 et seq.; the Atomic Energy Act, as amended
42 U.S.C. Section 2011 et seq.; the Occupational Safety and Health Act, as
amended, 29 U.S.C. Section 651 et seq.; the Federal Food, Drug and Cosmetic
Act, as amended 21 U.S.C. Section 301 et seq. (insofar as it regulates
employee exposure to Hazardous Substances), and any state or local statute
of similar effect; and including without limitation any laws relating to
protection of safety, health or the environment which regulate the use of
biological agents or substances including medical or infectious wastes;
(ii) "Environmental Contaminant" means Hazardous Materials, or any other
pollutants, contaminants, toxic or constituent substances or waste
radioactive substances, materials or special wastes, polychlorinated
bi-phenals, or any other substance or material, in each case regulated by
applicable Environmental Laws;
(iii) "Hazardous Materials" means (A) any chemicals, materials or
substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely hazardous
wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," "hazardous air pollutants," "contaminants," "toxic chemicals,"
"toxins," "hazardous chemicals," "extremely hazardous substances,"
"pesticides," "oil" or related materials as defined in any applicable
Environmental Law, or (B) any petroleum or petroleum products, oil, natural
or synthetic gas, radioactive materials, asbestos-containing materials, urea
formaldehyde foam insulation, radon, and any other substance defined or
designated as hazardous, toxic or harmful to human health, safety or the
environment under any Environmental Law; and
(iv) "Release" has the meaning specified in CERCLA.
2.19 NO BREACH. Except for (a) filings with the SEC under the Exchange
Act, (b) filing the Certificate of Merger with the Secretary of State of
Delaware, (c) the filing of a Notification and Report Form under the
Hart-Scott-Rodino Antitrust Improvements Act, as amended (the "HSR Act") and
(d) matters listed in Section 2.19 of the Company Disclosure Schedule, the
execution, delivery and performance of this Agreement by Company and the
consummation by Company of the transactions
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contemplated hereby will not (i) violate any provision of the Certificate of
Incorporation or By-Laws of Company, (ii) violate, conflict with or result in
the breach of any of the terms or conditions of, result in modification of, or
otherwise give any other contracting party the right to terminate, accelerate
obligations under or receive payment under or constitute (or with notice or
lapse of time or both constitute) a default under, any instrument, contract or
other agreement to which Company or any Company Subsidiary is a party or to
which any of them or any of their assets or properties is bound or subject,
(iii) violate any law, ordinance or regulation or any order, judgment,
injunction, decree or other requirement of any court, arbitrator or governmental
or regulatory body applicable to Company or the Company Subsidiaries or by which
any of Company's or the Company Subsidiaries' assets or properties is bound,
(iv) violate any Permit, (v) require any filing with, notice to, or permit,
consent or approval of, any governmental or regulatory body, (vi) result in the
creation of any lien or other encumbrance on the assets or properties of Company
or a Company Subsidiary, or (vii) cause any of the assets owned by the Company
or any Company Subsidiary to be reassessed or revalued by any taxing authority
or other governmental entity, excluding from the foregoing clauses (ii), (iii),
(iv), (v), (vi) and (vii) violations, breaches and defaults which, and filings,
notices, permits, consents and approvals the absence of which, in the aggregate,
could not reasonably be expected to have a Company Material Adverse Effect and
will not materially interfere with the ability of Company to consummate the
transactions contemplated hereby. Except as set forth in Section 2.19 of the
Company Disclosure Schedule, neither Company nor any Company Subsidiary is or
will be required to give any notice to or obtain any consent or waiver from any
individual or entity in connection with the execution and delivery of this
Agreement or the consummation of the transactions contemplated hereby other than
consents or waivers which, individually or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect.
2.20 BOARD APPROVALS.
(a) The Board of Directors, as of the date of this Agreement, has determined
(i) that the Merger is fair to, and in the best interests of, Company and its
stockholders, (ii) to propose this Agreement for adoption by the Company's
stockholders and to declare the advisability of this Agreement, and (iii) to
recommend that the stockholders of Company adopt this Agreement.
(b) Company has taken all action necessary such that no restrictions
contained in any "fair price," "control share acquisition," "business
combination" or similar statute (including Section 203 of the DGCL) will apply
to the execution, delivery or performance of this Agreement.
(c) The Board of Directors has approved an amendment (the "Rights
Amendment") to the Shareholder Rights Agreement dated as of March 1, 1996
between Company and American Stock Transfer & Trust Company (the "Company Rights
Plan") so as to provide that (i) (A) Parent will not become an "Acquiring
Person" and (B) no "Stock Acquisition Date" or "Distribution Date" (as such
terms are defined in the Company Rights Plan) will occur, in each case, as a
result of the approval, execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby and (ii) the Company Rights
Plan will terminate immediately prior to the Effective Time. Promptly following
the execution and delivery of this Agreement, Company shall take all action
necessary to make the Rights Amendment effective.
2.21 FINANCIAL ADVISOR.
(a) A special committee of the Board of Directors has received the oral
opinion of SG Cowen Securities Corporation to the effect that, as of the date of
this Agreement, the Merger Consideration is fair, from a financial point of
view, to the holders of Company Common Stock other than Parent and its
affiliates. The Company will forward a copy of the written version of such
opinion promptly following receipt.
(b) Other than SG Cowen Securities Corporation, no broker, finder, agent or
similar intermediary has acted on behalf of Company in connection with this
Agreement or the transactions contemplated
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hereby, and there are no brokerage commissions, finders' fees or similar fees or
commissions payable in connection herewith based on any agreement, arrangement
or understanding with Company, or any action taken by Company. Company
previously has provided Parent with a copy of SG Cowen Securities Corporation's
engagement letter.
2.22 PROXY STATEMENT AND REGISTRATION STATEMENT. None of the information
supplied or to be supplied by Company for inclusion or incorporation by
reference in the registration statement on Form S-4 to be filed with the SEC in
connection with the issuance of shares of Parent Common Stock in the Merger (the
"Registration Statement") will, at the time the Registration Statement is filed
with the SEC, at any time it is amended or supplemented or at the time it
becomes effective under the Securities Act, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading. None of the
information supplied or to be supplied by Company for inclusion or incorporation
by reference in the proxy statement/prospectus included in the Registration
Statement (the "Proxy Statement/Prospectus"), on the date it is first mailed to
holders of Company Common Stock or at the time of the Company Stockholders
Meeting (as defined in Section 4.6(b)), will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Proxy
Statement/Prospectus will comply as to form in all material respects with the
requirements of the Exchange Act and the Securities Act and the rules and
regulations of the SEC thereunder.
SECTION 3--REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth on the disclosure schedule delivered by Parent to
Company on the date hereof (the "Parent Disclosure Schedule"), the section
numbers of which are numbered to correspond to the section numbers of this
Agreement to which they refer, Parent hereby makes the following representations
and warranties to Company:
3.1 ORGANIZATION AND QUALIFICATION. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has corporate power and authority to own,
lease and operate its assets and to carry on its business as now being and as
heretofore conducted. Parent is qualified to transact business as a foreign
corporation in all jurisdictions in which such qualification or authorization is
required by law, except for jurisdictions in which the failure to be so
qualified or authorized could not reasonably be expected to have a Parent
Material Adverse Effect. "Parent Material Adverse Effect" shall mean a material
adverse effect on the assets, properties, business, results of operations or
financial condition of Parent and its subsidiaries, taken as a whole (a "Parent
Material Adverse Effect"); provided, however, a "Parent Material Adverse Effect"
shall not include (i) a decline in the price of Parent Common Stock as a result
of the announcement of this Agreement and the transactions contemplated hereby
or (ii) any adverse effect primarily related to (A) the economy or securities
markets of the United States or any other region in general or (B) conditions
affecting the biotechnology and biopharmaceutical industries general, in the
case of (A) or (B) of this clause (ii), without a disproportionate impact on
Parent and its subsidiaries.
3.2 AUTHORITY TO EXECUTE AND PERFORM AGREEMENT. Parent has the corporate
power and authority to enter into, execute and deliver this Agreement and to
perform fully its obligations hereunder and the transactions contemplated
hereby. The Parent's Board of Directors has approved this Agreement. No approval
by Parent's stockholders is required to consummate the transactions contemplated
hereby. This Agreement has been duly executed and delivered by Parent and
constitutes its valid and binding obligations, enforceable against it in
accordance with its terms.
3.3 CAPITALIZATION. The authorized capital stock of Parent consists of
390,000,000 shares of common stock ("Genzyme Common Stock") and 10,000,000
shares of preferred stock, $0.01 par value per share ("Genzyme Preferred
Stock"). Of the Genzyme Common Stock, as of the date of this Agreement,
200,000,000 shares have been designated Genzyme General Division Common Stock
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("GGD Common Stock"), 40,000,000 shares have been designated Genzyme Tissue
Repair Division Common Stock ("GTR Common Stock"), 40,000,000 shares have been
designated Molecular Oncology Division Common Stock, $0.01 par value per share
("GMO Common Stock"), 60,000,000 shares have been designated Genzyme Surgical
Products Division Common Stock ("GSP Common Stock") and 50,000,000 shares have
been undesignated as to series. As of July 31, 2000, 86,328,455 shares of GGD
Common Stock were issued and outstanding, 28,785,846 shares of GTR Common Stock
were issued and outstanding, 15,281,405 shares of GMO Common Stock were issued
and outstanding, and 14,957,403 shares of GSP Common Stock were issued and
outstanding. As of the date of this Agreement, no shares of Genzyme's Preferred
Stock are outstanding. Of the Genzyme Preferred Stock, as of the date of this
Agreement, 2,000,000, 400,000, 400,000 and 600,000 shares have been designated
as Series A Junior Participating Preferred Stock, Series B Junior Participating
Preferred Stock, Series C Junior Participating Preferred Stock and Series D
Junior Participating Preferred Stock, respectively, and reserved for issuance
under Genzyme's Rights Plan. All issued and outstanding shares of GGD Common
Stock, GTR Common Stock, GMO Common Stock and GSP Common Stock are validly
issued, fully paid, non-assessable and free of any preemptive rights.
3.4 SEC REPORTS. Parent previously has made available to Company (i) its
Annual Report on Form 10-K for the year ended December 31, 1999 ("Parent 10-K"),
(ii) all proxy statements relating to Parent's meetings of stockholders held
since January 1, 2000 and (iii) all other documents filed by Parent with the SEC
under the Exchange Act since January 1, 1999 (together with the documents filed
by Parent with the SEC under the Exchange Act prior to the Effective Time, the
"Parent SEC Reports"). As of their respective dates, such documents complied,
and all documents filed by Parent with the SEC under the Exchange Act between
the date of this Agreement and the Closing Date will comply, in all material
respects with applicable SEC requirements and did not, and in the case of
documents filed on or after the date hereof will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Since August 31, 1999,
Parent has timely filed, and between the date of this Agreement and the Closing
Date will timely file, with the SEC all periodic reports required to be filed by
it under the Exchange Act.
3.5 FINANCIAL STATEMENTS. The consolidated financial statements contained
in the Parent's 10-K and Parent's Quarterly Report on Form 10-Q for the quarter
ending June 30, 2000 have been prepared from, and are in accordance with, the
books and records of Parent and fairly present the consolidated financial
condition, results of operations and cash flows of Parent and its consolidated
subsidiaries as of and for the periods presented therein, all in accordance with
generally accepted accounting principles applied on a consistent basis, except
as otherwise indicated therein and subject, in the case of the unaudited
financial statements, to normal year-end and audit adjustments, which in the
aggregate are not material, and the absence of footnote disclosures.
3.6 ABSENCE OF UNDISCLOSED LIABILITIES. Except as disclosed in the Parent
SEC Reports, as at December 31, 1999, Parent had no material liabilities of any
nature, whether accrued, absolute, contingent or otherwise (including, without
limitation, liabilities as guarantor or otherwise with respect to obligations of
others or liabilities for taxes due or then accrued or to become due), required
to be reflected or disclosed in the balance sheet dated December 31, 1999 (or
the notes thereto) in the Parent 10-K that were not adequately reflected or
reserved against on such balance sheet. Except as disclosed in the Parent SEC
Reports, Parent has no such liabilities, other than liabilities (i) adequately
reflected or reserved against on such balance sheet, (ii) reflected in Parent's
unaudited consolidated balance sheet (or the notes thereto) dated June 30, 2000,
(iii) incurred since June 30, 2000 in the ordinary course of business or
(iv) that could not, in the aggregate, reasonably be expected to have a Parent
Material Adverse Effect.
3.7 ABSENCE OF ADVERSE CHANGES. Since June 30, 2000, except as disclosed
in Parent SEC Reports, there has not been any event, change or circumstance
which has had a Parent Material Adverse Effect.
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3.8 ACTIONS AND PROCEEDINGS. Except as set forth in the Parent SEC
Reports, there are no actions, suits or claims or legal, administrative or
arbitration proceedings pending or, to the best knowledge of Parent, threatened
against Parent that individually or in the aggregate could reasonably be
expected to have a Parent Material Adverse Effect or materially interfere with
Parent's ability to consummate the transactions contemplated hereby. To the best
knowledge of Parent, except as disclosed in the Parent SEC Reports there is no
fact, event or circumstance now in existence that reasonably could be expected
to give rise to any suit, action, claim, investigation or proceeding that,
individually or in the aggregate, could reasonably be expected to have a Parent
Material Adverse Effect or materially interfere with Parent's ability to
consummate the transactions contemplated hereby.
3.9 INTELLECTUAL PROPERTY. Parent owns or is licensed to use, or otherwise
has the right to use, all patents, trademarks, servicemarks, tradenames, trade
secrets, franchises and copyrights, and all applications for any of the
foregoing, and all technology, know-how and processes necessary for the conduct
of Parent's business except (a) to the extent failure to have such ownership or
licenses could not reasonably be expected to have a Parent Material Adverse
Effect or (b) as disclosed in the Parent SEC Reports.
3.10 NO BREACH. Except for (a) filings under the Securities Act,
(b) filings under the Exchange Act, (c) filings with the Secretary of State of
Delaware and the Secretary of the Commonwealth of Massachusetts, (d) the filing
of a Notification and Report Form under the HSR Act, (e) consents and waivers
under Parent's credit agreements and debt instruments and (f) the matters listed
in Section 3.10 of the Parent Disclosure Schedule, the delivery and performance
of this Agreement by Parent and consummation by it of the transactions
contemplated hereby will not (i) violate any provision of the charter or by-laws
of Parent, (ii) violate, conflict with or result in the breach of any of the
terms or conditions of, result in modification of, or otherwise give any other
contracting party the right to terminate or accelerate obligations under, or
constitute (or with notice or lapse of time or both constitute) a default under,
any material instrument, contract or other agreement to which Parent is party or
to which it or any of its assets or properties is bound or subject,
(iii) violate any law, ordinance or regulation or any order, judgment,
injunction, decree or requirement of any court, arbitrator or governmental or
regulatory body applicable to Parent or by which any of its assets or properties
is bound, (iv) require any filing with, notice to, or permit, consent or
approval of, any governmental or regulatory body or (v) result in the creation
of any lien or other encumbrance on the assets or properties of Parent,
excluding from the foregoing clauses (ii), (iii), (iv) and (v) violations,
breaches and defaults which, and filings, notices, permits, consents and
approvals the absence of which, in the aggregate, could not have a Parent
Material Adverse Effect and will not materially interfere with Parent's ability
to consummate the transactions contemplated hereby.
3.11 PROXY STATEMENT AND REGISTRATION STATEMENT. None of the information
supplied or to be supplied by Parent for inclusion in the Registration Statement
will, at the time the Registration Statement is filed with the SEC, at any time
it is amended or supplemented or at the time it becomes effective under the
Securities Act, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein not misleading. None of the information supplied or to be
supplied by Parent for inclusion or incorporation by reference in the Proxy
Statement/Prospectus will, at the date it is first mailed to holders of Company
Common Stock or at the time of the Company Stockholders Meeting, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
3.12 FINANCING. Parent has sufficient funds on hand or available to it
under bank lines of credit to satisfy all of Parent's and Merger Sub's
obligations under this Agreement, including, without limitation, the obligation
to pay the cash portion of the Merger Consideration and to pay all fees and
expenses it incurs in connection with the Merger.
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3.13 MERGER SUB.
(a) Merger Sub will, when it is incorporated, be duly organized, validly
existing and in good standing as a Massachusetts corporation.
(b) All of the capital stock of Merger Sub prior to and at the Effective
Time will be duly authorized, validly issued, fully paid and nonassessable and
owned of record and beneficially by Parent.
(c) Merger Sub shall be formed solely for the purpose of engaging in the
transactions contemplated by this Agreement and, prior to the Effective Time,
will not have engaged in any other business activities.
(d) Merger Sub will have the corporate power and authority to enter into the
Agreement of Joinder and to consummate the transactions contemplated hereby. The
execution and delivery of the Agreement of Joinder and the consummation of the
transactions contemplated hereby and thereby will be duly authorized by all
necessary corporate action on the part of Merger Sub.
(e) Except for (i) filings with the Secretary of the Commonwealth of
Massachusetts and filings with the Secretary of the State of Delaware, (ii) the
filing of a Notification and Report form under the HSR Act, (iii) consents and
waivers under Parent's credit agreements and debt instruments and (iv) the
matters listed in Schedule 3.10 of the Parent Disclosure Schedule, the
performance of this Agreement and the Agreement of Joinder by Merger Sub and
consummation by it of the transactions contemplated hereby and thereby will not
(A) violate any provision of the charter or by-laws of Merger Sub, (B) violate,
conflict with or result in the breach of any of the terms or conditions of,
result in modification of the effect of, or otherwise give any other contracting
party the right to terminate or accelerate obligations under, or constitute (or
with notice or lapse of time or both constitute) a default under, any material
instrument, contract or other agreement to which Merger Sub is a party or to
which it or its assets or properties is bound or subject, (C) violate any law,
ordinance or regulation or any order, judgment, injunction, decree or
requirement of any court, arbitrator or governmental or regulatory body
applicable to Merger Sub or by which any of its assets or properties is bound,
(D) require any filing with, notice to, or permit, consent or approval of, any
governmental or regulatory body or (E) result in the creation of any lien or
other encumbrance on its assets or properties, excluding from the foregoing
violations, breaches and defaults which, and filings, notices, permits, consents
and approvals the absence of which, in the aggregate, could not reasonably be
expected to have a material adverse effect on Merger Sub or materially interfere
with Merger Sub's ability to consummate the transactions contemplated hereby and
the Agreement of Joinder.
(f) Merger Sub will comply with Section 252(d) of the DGCL.
SECTION 4--COVENANTS AND AGREEMENTS
4.1 CONDUCT OF BUSINESS. Except with the prior written consent of Parent
and except as otherwise contemplated herein or referred to in Section 4.1 of the
Company Disclosure Schedule, during the period from the date hereof to the
Closing Date, Company shall observe the following covenants:
(a) AFFIRMATIVE COVENANTS PENDING CLOSING. Company shall:
(i) PRESERVATION OF PERSONNEL. Use its reasonable commercial efforts
to preserve intact and keep available the services of present employees of
Company and the Company Subsidiaries;
(ii) INSURANCE. Use reasonable commercial efforts to keep in effect
casualty, public liability, worker's compensation and other insurance
policies in coverage amounts substantially similar to those in effect at the
date of this Agreement;
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(iii) PRESERVATION OF THE BUSINESS; MAINTENANCE OF PROPERTIES,
CONTRACTS. Use reasonable commercial efforts to preserve the business of
Company, advertise, promote and market Company's business activities in
accordance with past practices over the last twelve months, keep Company's
properties substantially intact, preserve its goodwill and business,
maintain all physical properties in such operating condition as will permit
the conduct of Company's business on a basis consistent with past practice,
and perform and comply in all material respects with the terms of the
contracts referred to in Section 2.11.
(iv) INTELLECTUAL PROPERTY RIGHTS. Use its reasonable best efforts to
preserve and protect the Proprietary Rights;
(v) ORDINARY COURSE OF BUSINESS. Operate Company's business in the
ordinary course consistent with past practices;
(vi) COMPANY OPTIONS AND WARRANTS. Take all reasonable actions
necessary with respect to Company Options and Company Warrants to effectuate
the terms of this Agreement, provided, however, that Parent shall have the
right to approve any agreements to modify material terms of the underlying
instruments; and
(vii) FDA MATTERS. Notify and consult with Parent promptly (A) after
receipt of any material communication from the FDA and before giving any
material submission to the FDA, and (B) prior to making any material change
to a study protocol, the addition of new trials, or a material change to the
development timeline for any of its product candidates or programs.
(b) NEGATIVE COVENANTS PENDING CLOSING. Company shall not:
(i) DISPOSITION OF ASSETS. Sell or transfer, or mortgage, pledge,
lease or otherwise encumber any of its assets, including its Proprietary
Rights, other than sales or transfers in the ordinary course of business and
in amounts not exceeding, in the aggregate, $250,000;
(ii) LIABILITIES. Incur any indebtedness for borrowed money in excess
of $500,000, or incur any obligation or liability or enter into any contract
or commitment involving potential payments to or by Company or any Company
Subsidiary other than in the ordinary course of business consistent with
past practice in an amount, in any one case, not exceeding $500,000;
(iii) COMPENSATION. Change the compensation payable to any officer,
director, employee, agent or consultant; or enter into any employment,
severance or other agreement with any officer, director, employee, agent or
consultant of Company or a Company Subsidiary, or adopt, or increase the
benefits under, any employee benefit plan, except, in each case, as required
by law, in accordance with existing agreements or in the ordinary course of
business consistent with past practice;
(iv) CAPITAL STOCK. Make any change in the number of shares of its
capital stock authorized, issued or outstanding or grant or accelerate the
exercisability of, any option, warrant or other right to purchase, or
convert any obligation into, shares of its capital stock, or declare or pay
any dividend or other distribution with respect to any shares of its capital
stock, or sell or transfer any shares of its capital stock, or redeem or
otherwise repurchase any shares of its capital stock, except upon (A) the
exercise of convertible securities outstanding on the date of this Agreement
and disclosed herein or granted after the date of this Agreement in the
ordinary course of business consistent with past practice and (B) the
issuance of 291,073 shares to AW;
(v) CHARTER AND BY-LAWS. Cause, permit or propose any amendments to
the Certificate of Incorporation or By-laws of Company;
(vi) ACQUISITIONS. Make, or permit to be made, any material
acquisition of property or assets outside the ordinary course of business;
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(vii) CAPITAL EXPENDITURES. Authorize any single capital expenditure
in excess of $250,000 or capital expenditures which in the aggregate exceed
$500,000;
(viii) ACCOUNTING POLICIES. Except as may be required as a result of a
change in law or in generally accepted accounting principles, change any of
the accounting practices or principles used by it or restate, or become
obligated to restate, the financial statements included in the Company 10-K
or Company 10-Q;
(ix) TAX TREATMENT. Take, or permit any of the Company Subsidiaries to
take, any action that would prevent the Merger from qualifying as a
reorganization within the meaning of Section 368(a) of the Code.
(x) TAXES. Make any Tax election or settle or compromise any material
federal, state, local or foreign Tax liability, change annual tax accounting
period, change any method of Tax accounting, enter into any closing
agreement relating to any Tax, surrender any right to claim a Tax refund, or
consent to any extension or waiver of the limitations period applicable to
any Tax claim or assessment;
(xi) LEGAL. Settle or compromise any pending or threatened suit,
action or claim which is material to the Company or which relates to the
transactions contemplated hereby;
(xii) EXTRAORDINARY TRANSACTIONS. Adopt a plan of complete or partial
liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Company or any of the Company
Subsidiaries (other than the Merger);
(xiii) PAYMENT OF INDEBTEDNESS. Pay, discharge or satisfy any material
claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business and consistent with past
practice, of liabilities reflected or reserved against in the balance sheet
included in the Company 10-Q or incurred in the ordinary course of business;
(xiv) WARN ACT. Effectuate a "plant closing" or "mass layoff," as
those terms are defined in the Worker Adjustment and Retraining Notification
Act of 1988;
(xv) RIGHTS PLAN. Amend, modify or waive any provisions of the Company
Rights Plan, or take any action to redeem the Rights or render the Rights
inapplicable to any transaction other than the Merger;
(xvi) NEW AGREEMENTS/AMENDMENTS. Enter into or modify, or permit a
Company Subsidiary to enter into or modify, any material license,
development, research or collaboration agreement with any other person or
entity;
(xvii) CONFIDENTIALITY AGREEMENTS. Modify, amend or terminate, or
waive, release or assign any material rights or claims with respect to any
confidentiality agreement to which Company is a party;
(xviii) OBLIGATIONS. Obligate itself to do any of the foregoing;
(c) CONTROL OF COMPANY'S BUSINESS. Nothing contained in this Agreement
shall give Parent, directly or indirectly, the right to control or direct
Company's operations prior to the Effective Time. Prior to the Effective Time,
Company shall exercise, consistent with the terms and conditions of this
Agreement, complete control and supervision over its operations.
4.2 CORPORATE EXAMINATIONS AND INVESTIGATIONS. Prior to the Effective
Time, Parent shall be entitled, through its employees and representatives, to
have such access to the assets, properties, business and operations of Company,
as is reasonably necessary or appropriate in connection with Parent's
investigation of Company with respect to the transactions contemplated hereby.
Any such
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investigation and examination shall be conducted at reasonable times during
business hours upon reasonable advance notice and under reasonable circumstances
so as to minimize any disruption to or impairment of Company's business and
Company shall cooperate fully therein. No investigation by Parent shall diminish
or obviate any of the representations, warranties, covenants or agreements of
Company contained in this Agreement. In order that Parent may have full
opportunity to make such investigation, Company shall furnish the
representatives of Parent during such period with all such information and
copies of such documents concerning the affairs of Company as such
representatives may reasonably request and cause its officers, employees,
consultants, agents, accountants and attorneys to cooperate fully with such
representatives in connection with such investigation. The information and
documents so provided shall be subject to the terms of the Confidentiality
Agreement (as defined in Section 4.10).
4.3 EXPENSES. Company and Parent shall bear their respective expenses
incurred in connection with the preparation, execution and performance of this
Agreement and the transactions contemplated hereby, including without
limitation, all fees and expenses of agents, representatives, counsel and
accountants.
4.4 AUTHORIZATION FROM OTHERS. Prior to the Closing Date, the parties
shall use reasonable commercial efforts to obtain all authorizations, consents
and Permits of others, necessary or desirable to permit the consummation of the
Merger on the terms contemplated by this Agreement.
4.5 FURTHER ASSURANCES. Each of the parties shall execute such documents,
further instruments of transfer and assignment and other papers and take such
further actions as may be reasonably required or desirable to carry out the
provisions hereof and the transactions contemplated hereby. Each party shall use
its respective reasonable commercial efforts to take other such actions to
ensure that, to the extent within its control or capable of influence by it, the
transactions contemplated by this Agreement shall be fully carried out in a
timely fashion, including preparing and filing any documents required to be
prepared and filed under the Exchange Act. Nothing in this Agreement shall
require Parent or Merger Sub to sell, hold separate, license or otherwise
dispose of or conduct their business in a specified manner, or agree to sell,
hold separate, license or otherwise dispose of or conduct their business in a
specified manner, or permit the sale, holding separate, licensing or other
disposition of, any assets of Parent or Merger Sub, whether as a condition to
obtaining any approval from a governmental entity or any other person or for any
other reason.
4.6 PREPARATION OF DISCLOSURE DOCUMENTS
(a) As soon as practicable following the date of this Agreement, Company and
Parent shall prepare the Proxy Statement/Prospectus. Company shall, in
cooperation with Parent, file the Proxy Statement/Prospectus with the SEC as its
preliminary proxy statement and Parent shall, in cooperation with Company,
prepare and file with the SEC the Registration Statement, in which the Proxy
Statement/Prospectus will be included. Each of Company and Parent shall use
reasonable commercial efforts to have the Registration Statement declared
effective under the Securities Act as promptly as practicable after such filing
and to keep the Registration Statement effective as long as is necessary to
consummate the Merger. Company shall mail the Proxy Statement/Prospectus to its
stockholders as promptly as practicable after the Registration Statement is
declared effective under the Securities Act and, if necessary, after the Proxy
Statement/Prospectus shall have been so mailed, promptly circulate supplemental
or amended proxy material, and, if required in connection therewith, resolicit
proxies.
(b) (i) Company shall, as soon as practicable following the date the
Registration Statement is declared effective, duly call, give notice of, convene
and hold a meeting of its stockholders (the "Company Stockholders Meeting") for
the purpose of obtaining the required stockholder votes with respect to this
Agreement, (ii) the Board of Directors of the Company, unless otherwise required
pursuant to the applicable fiduciary duties of the Board of Directors of Company
to the stockholders of Company (as determined in good faith by the Board of
Directors of the Company after consulting with
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outside counsel), shall give its unqualified recommendation that its
stockholders adopt this Agreement and (iii) Company shall take all lawful action
to solicit such adoption. No withdrawal, modification, change or qualification
in the recommendation of the Board of Directors of the Company (or any committee
of the Board of Directors of the Company) shall change the approval of the Board
of Directors of the Company for purposes of causing any state takeover statute
or other state law to be inapplicable to the transactions contemplated hereby,
or change the obligation of Company to present the Merger Agreement for adoption
at the Company Stockholders Meeting. Company agrees to give Parent written
notice at least 48 hours prior to publicly indicating any withdrawal,
modification, change or qualification in the recommendation of the Board of
Directors of the Company; provided, however, that no such advance notice shall
be required prior to such a public indication within 10 days of the date
scheduled for the Company Stockholders Meeting in the Proxy
Statement/Prospectus.
(c) Except as required by law, no amendment or supplement to the Proxy
Statement/Prospectus or the Registration Statement shall be made by Parent or
Company without the approval of the other party (which shall not be unreasonably
withheld or delayed). Each party shall advise the other party, promptly after it
receives notice thereof, of the time when the Registration Statement has become
effective or any supplement or amendment has been filed, of the issuance of any
stop order by the SEC, or of any request by the SEC for amendment of the Proxy
Statement/Prospectus or the Registration Statement or comments thereon and
responses thereto or requests by the SEC for additional information.
(d) Company shall use reasonable efforts to cause to be delivered to Parent
a letter from Company's independent public accountants, dated the date on which
the Registration Statement shall become effective, addressed to Company and
Parent, in form and substance reasonably satisfactory to Parent and customary in
scope and substance for comfort letters delivered by independent public
accountants in connection with registration statements similar to the
Registration Statement.
4.7 PUBLIC ANNOUNCEMENTS. Company shall consult with Parent, and Parent
shall consult with the Company, and each will get the approval of the other
(which will not be unreasonably withheld or delayed), before issuing any press
release or otherwise making any public statement with respect to the Merger or
this Agreement and shall not issue any such press release or make any such
public statement prior to such consultation and approval, except as may be
required by law. Notwithstanding the foregoing, without prior consultation, each
party (a) may communicate with financial analysts and media representatives in a
manner consistent with its past practice and (b) may disseminate material
substantially similar to material included in a press release or other document
previously approved for external distribution by the other party. Each party
agrees to promptly make available to the other party copies of any written
communications made without prior consultation.
4.8 AFFILIATE LETTERS. Prior to the Closing Date, Company shall identify
to Parent all persons who, at the time of the Company Stockholders Meeting,
Company believes may be "affiliates" of Company within the meaning of Rule 145
under the Securities Act. Company shall use reasonable commercial efforts to
provide Parent with such information as Parent shall reasonably request for
purposes of making its own determination of persons who may be deemed to be
affiliates of Company. Company shall use reasonable commercial efforts to
deliver to Parent prior to the Closing Date a letter from each of such
affiliates identified by Company and Parent in substantially the form attached
hereto as EXHIBIT B (the "Affiliate Letters").
4.9 NASDAQ LISTINGS. Prior to the Closing Date, Parent shall timely file
with Nasdaq a Notification for Listing of Additional Shares covering the shares
of Parent Common Stock Parent reasonably expects, at the time of such filing, to
be issued in the Merger. Prior to the Closing Date, Company shall take such
actions as are necessary so that trading of Company Common Stock on the Nasdaq
National Market ceases immediately prior to the Effective Time.
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4.10 NO SOLICITATION. Company shall not, and shall cause each Company
Subsidiary and each director, officer, employee, agent or other representative
(including each financial advisor and attorney) of Company and each Company
Subsidiary not to, (a) solicit, initiate, facilitate, assist or encourage action
by, or discussions with, any person, other than Parent, relating to the possible
acquisition of Company or any Company Subsidiary or of all or a material portion
of the assets or capital stock of Company or any Company Subsidiary or any
merger, reorganization, consolidation, business combination, share exchange,
tender offer, recapitalization, dissolution, liquidation or similar transaction
involving Company or any Company Subsidiary (an "Alternative Transaction"),
(b) participate in any negotiations regarding, or furnish information with
respect to, any effort or attempt by any person to do or to seek any Alternative
Transaction or (c) grant any waiver or release under any standstill or similar
agreement. Notwithstanding the foregoing, Company and the Board of Directors of
Company shall be permitted (i) to comply with Rule 14e-2(a) under the Exchange
Act with regard to an Alternative Transaction (to the extent applicable) and
(ii) prior to the date on which the stockholders of Company adopt the Merger
Agreement, to engage in discussions or negotiations with, or provide information
to, a person who makes an unsolicited BONA FIDE written proposal for an
Alternative Transaction if (and only if) (A) Company is not in breach of its
obligations under this Section 4.10, (B) the Board of Directors of the Company
concludes in good faith (after consultation with its financial advisor) that the
proposal is reasonably likely to lead to an Alternative Transaction more
favorable for Company's stockholders than the Merger (including adjustment to
the terms and conditions proposed by Parent in response to the proposal for the
Alternative Transaction), (C) the Board of Directors of the Company concludes in
good faith (after consultation with its outside legal counsel, who may be
Company's regularly engaged legal counsel) that engaging in such negotiations or
discussions or providing such information is required by the directors'
fiduciary duties under Delaware law and (D) prior to providing any information
or data, the recipient delivers to Company an executed confidentiality agreement
with terms substantially similar to those contained in that certain
confidentiality agreement (the "Confidentiality Agreement") between Parent and
Company related to a potential business combination transaction. Company shall
notify Parent promptly (and, in any case, within 24 hours) of any inquiries,
proposals or offers received by, any information requested from, or any
discussions or negotiations sought to be initiated or continued with, it, any
Company Subsidiary or any of their directors, officers, employees, agents or
other representatives concerning an Alternative Transaction, indicating, in
connection with such notice, the names of the parties and the material terms and
conditions of any proposals or offers and, in the case of written materials,
providing copies of such materials unless such written materials constitute
confidential information of such other party under an effective confidentiality
agreement. Company agrees that it will keep Parent informed, on a reasonably
prompt basis (and, in any case, within 36 hours of any significant development),
of the status and terms of any such proposals or offers and the status of any
such discussions or negotiations. Company agrees that it will cease and cause to
be terminated any existing activities, discussions or negotiations with respect
to any potential Alternative Transaction or similar transaction or arrangement
and request the return or destruction of all confidential information regarding
the Company previously provided in connection with such activities, discussions
or negotiations. Company agrees that it will take the necessary steps to
promptly inform the individuals or entities referred to in the first sentence of
this Section 4.10 of the obligations undertaken in this Section 4.10.
4.11 REGULATORY FILINGS. As soon as is reasonably practicable, Company and
Parent each shall file with the United States Federal Trade Commission (the
"FTC") and the Antitrust Division of the United States Department of Justice
("DOJ") any Notification and Report Forms relating to the Merger required by the
HSR Act, as well as comparable pre-merger notification forms required by the
merger notification and control laws and regulations of any other applicable
jurisdiction, as agreed to by the parties. Company and Parent each shall
promptly (a) supply the other with any information which may be reasonably
required in order to make such filings and (b) supply any additional
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information which may be requested by the FTC, the DOJ or the competition or
merger control authorities of any other jurisdiction and which the parties
reasonably deem appropriate.
4.12 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the
Closing Date, Company shall give prompt notice to Parent, and Parent and Merger
Sub shall give prompt notice to Company, of (a) the occurrence or non-occurrence
of any event or circumstance the occurrence or non-occurrence of which would be
likely to cause any representation or warranty contained in this Agreement to be
untrue or inaccurate if made at such time and (b) any failure of Company, Parent
and Merger Sub, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder.
4.13 REGISTRATION OF CERTAIN SHARES. Promptly after the Effective Time,
Parent shall file registration statements on Form S-8 and Form S-3 (or any
successor or other appropriate forms), with respect to the shares of Parent
Common Stock subject to Company Stock Options and Company Warrants. Parent shall
use reasonable commercial efforts to have such registration statements declared
effective promptly after filing (to the extent such registration statements are
not automatically effective upon filing). Parent shall use reasonable commercial
efforts to maintain the effectiveness of such registration statements for so
long as such options or warrants remain outstanding.
4.14 EMPLOYEE MATTERS.
(a) Parent shall give individuals who are employed by Company or any Company
Subsidiaries immediately prior to the Effective Time and become employees of the
Surviving Corporation or Parent ("Affected Employees") full credit for purposes
of eligibility, vesting, benefit accrual (except for purposes of benefit accrual
under any defined benefit pension plans and except as would result in
duplication of benefits) and determination of the level of benefits under any
employee benefit plans or arrangements (including vacation) maintained by Parent
for each such Affected Employee's service with Company or any Company Subsidiary
to the same extent recognized by Company immediately prior to the Effective
Time.
(b) Parent shall waive all requirements for physical examinations,
limitations as to preexisting conditions exclusions and waiting periods with
respect to participation and coverage requirements applicable to the Affected
Employees under any medical or dental benefit plans that such employees may be
eligible to participate in after the Effective Time, other than limitations or
waiting periods that are already in effect with respect to such employees and
that have not been satisfied as of the Effective Time under any plan maintained
for the Affected Employees immediately prior to the Effective Time. With respect
to any waiting period that is not waived, service with the Company or any
Company Subsidiary will be credited in accordance with Section 4.14(a). Parent
shall credit under any medical or dental plan amounts previously paid by an
Affected Employee (or dependent) during the plan year or calendar year (as
applicable) that includes the Effective Time toward any applicable deductible,
co-payment, out-of-pocket maximum or similar provisions of such Parent medical
or dental plan.
(c) As of the Effective Time, Parent shall assume and honor in accordance
with their terms all employment, severance and other compensation agreements and
arrangements existing prior to the execution of this Agreement which are between
Company and any director, officer or employee thereof except as otherwise
expressly agreed between Parent and such person.
(d) Except with the prior written consent of Parent, during the period from
the date hereof to the Effective Time, Company shall not and shall not permit
any Company Subsidiary (i) to make any discretionary contribution to the Company
401(k) plan (the "401(k) Plan") or (ii) to make any required contribution to the
401(k) Plan in Company Common Stock. If requested by Parent, Company shall
terminate the 401(k) Plan on the Closing Date immediately prior to the Effective
Time.
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4.15 INDEMNIFICATION
(a) Subject to the occurrence of the Effective Time, until the six year
anniversary date on which the Effective Time occurs, the Parent and the
Surviving Corporation agree that all rights to indemnification or exculpation
now existing in favor of each present and former employee (including any
employee who serves or served in a fiduciary capacity of any Plans), agent,
director or officer of Company and Company Subsidiaries (the "Indemnified
Parties") as provided in the respective charters or by-laws or otherwise in
effect as of the date hereof shall survive and remain in full force and effect.
(b) Parent understands and agrees that, prior to the Effective Time, Company
intends to obtain a six-year "tail" insurance policy that provides coverage
substantially similar to the coverage provided under the Company's directors and
officers insurance policy in effect on the date of this Agreement for the
individuals who are directors and officers of Company on the date of this
Agreement for events occurring prior to the Effective Time; provided, however,
without Parent's prior written consent (which consent shall not be unreasonably
withheld or delayed), Company shall not pay more than $1,000,000 to purchase
such policy.
(c) Parent agrees to be jointly and severally liable with the Surviving
Corporation for its indemnification obligations to the Indemnified Parties.
(d) In the event Parent or any of its successors or assigns
(i) consolidates with or merges into any other person and shall not be the
continuing or surviving corporation or entity of such consolidation or merger,
or (ii) transfers or conveys all or substantially all of its properties and
assets to any person, then, and in each such case, to the extent necessary,
proper provision shall be made so that the successors and assigns of Parent
assume the obligations set forth in this Section 4.15.
(e) The provisions of this Section 4.15 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
4.16 SECTION 16 APPROVAL. Prior to the Effective Time, the Board of
Directors of Parent or an appropriate committee of non-employee directors
thereof, shall adopt a resolution consistent with the interpretive guidance of
the SEC so that the acquisition by any officer or director of Company who may
become an officer or director of Parent for purposes of Section 16 of the
Exchange Act and the rules and regulations thereunder ("Section 16") of Parent
Common Stock or options to acquire Parent Common Shares pursuant to this
Agreement and the Merger shall be an exempt transaction for purposes of
Section 16. Parent shall, prior to the Effective Time, provide to counsel for
Company copies of the resolutions adopted by the Board of Directors of Parent or
a committee thereof to implement the foregoing.
4.17 PARTICIPATION IN CERTAIN ACTIONS AND PROCEEDINGS. Until this
Agreement is terminated in accordance with Section 8.1, Parent shall have the
right to participate in the defense of any action, suit or proceeding instituted
against Company (or any of its directors or officers) before any court or
governmental or regulatory body or threatened by any governmental or regulatory
body, to restrain, modify or prevent the consummation of the transactions
contemplated by this Agreement, or to seek damages or a discovery order in
connection with such transactions.
4.18 GUARANTEE OF MERGER SUB'S OBLIGATIONS. Parent hereby unconditionally
and irrevocably guarantees to Company, until the termination of this Agreement
or the Effective Time, the due and timely performance and observance by Merger
Sub of all of its representations, warranties and covenants under this
Agreement.
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SECTION 5--CONDITIONS PRECEDENT TO THE OBLIGATIONS
OF EACH PARTY TO CONSUMMATE THE MERGER
The respective obligations of each party to consummate the Merger shall be
subject to the satisfaction or waiver by consent of the other party, at or
before the Effective Time, of each of the following conditions:
5.1 STOCKHOLDER APPROVAL. Company shall have obtained the vote of holders
of Company Common Stock required to adopt this Agreement in accordance with the
provisions of the DGCL and the Certificate of Incorporation and By-laws of
Company.
5.2 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective; no stop order suspending the effectiveness of the
Registration Statement shall have been issued, and not withdrawn, by the SEC and
no proceedings for that purpose shall be underway at the SEC; and no similar
proceeding in respect of the Proxy Statement shall be underway at the SEC or, to
the knowledge of Parent or Company, threatened by the SEC.
5.3 ABSENCE OF ORDER. No temporary restraining order, preliminary or
permanent injunction or other order issued by a court or other governmental
entity of competent jurisdiction shall be in effect and have the effect of
making the Merger illegal or otherwise prohibiting consummation of the Merger.
Parent and Company each agrees to use reasonable commercial efforts to have any
such order or injunction lifted or stayed.
5.4 REGULATORY APPROVALS. All material approvals from governmental
entities shall have been obtained; provided, however, that the conditions of
this Section 5.4 shall not apply to any party whose failure to fulfill its
obligations under this Agreement shall have been the cause of, or shall have
resulted in, such failure to obtain such approval.
5.5 HSR ACT. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
5.6 NASDAQ. Parent Common Stock shall continue to be quoted on Nasdaq.
SECTION 6--CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
PARENT AND MERGER SUB TO CONSUMMATE THE MERGER
The obligations of Parent and Merger Sub to consummate the Merger are
subject, to the fulfillment of the following conditions, any one or more of
which may be waived by Parent:
6.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties made by Company in this Agreement shall have been accurate as of the
date of this Agreement and, other than representations and warranties made as of
a particular date, shall be accurate as of the Closing Date as if made on and as
of the Closing Date (without giving effect to any materiality or knowledge
qualifiers) except (other than representations and warranties set forth in
Section 2.3) to the extent failure to be accurate, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. The
representations and warranties set forth in Section 2.3 shall be true and
correct in all respects (other than DE MINIMIS variations) as of the Closing
Date as if made on and as of the Closing Date. Company shall have performed and
complied in all material respects with all covenants and agreements required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time. Company shall have delivered to Parent a certificate from its
chief executive officer or chief financial officer, dated the Closing Date, to
the foregoing effect.
6.2 CORPORATE CERTIFICATES. Company shall have delivered a copy of the
Certificate of Incorporation of Company, as in effect immediately prior to the
Closing Date, certified by the Delaware Secretary of State and a certificate, as
of the most recent practicable date, of the Delaware Secretary of State as to
Company's corporate good standing.
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<PAGE>
6.3 SECRETARY'S CERTIFICATE. Company shall have delivered a certificate of
the Secretary of Company, dated as of the Closing Date, certifying as to
(a) the incumbency of officers of Company executing documents executed and
delivered in connection herewith, (b) a copy of the By-Laws of the Company, as
in effect from the date this Agreement was approved by the Board of Directors of
Company until the Closing Date, (c) a copy of the resolutions of the Board of
Directors of the Company authorizing and approving the applicable matters
contemplated hereunder and (iv) a copy of the resolutions of the stockholders of
Company adopting this Agreement.
6.4 AFFILIATE LETTERS. Parent shall have received the Affiliate Letters
referred to in Section 4.8 that the Company has obtained.
6.5 TAX OPINION. Parent shall have received the opinion of Palmer & Dodge
LLP, dated as of the Closing Date, to the effect that (i) the Merger will
constitute a reorganization under Section 368(a) of the Code, and (ii) Parent,
Company and Merger Sub will each be a party to that reorganization. In rendering
such opinion, counsel shall be entitled to rely on customary representation
letters of Parent, Company and Merger Sub and others, in form and substance
reasonably satisfactory to such counsel; provided, however, if Palmer & Dodge
LLP was unwilling to deliver such opinion, this condition shall be deemed
satisfied if Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. delivered such
opinion.
6.6 CONSENTS. Company shall have obtained waivers or consents, which shall
remain in full force and effect, with respect to agreements for which the
absence of such waivers or consents, individually or in the aggregate, could
reasonably be expected to have a Company Material Adverse Effect.
6.7 DISSENTING SHARES. The Dissenting Shares shall not exceed five percent
(5%) of the shares of Company Common Stock issued and outstanding on the Closing
Date.
SECTION 7--CONDITIONS PRECEDENT TO THE OBLIGATION OF
COMPANY TO CONSUMMATE THE MERGER
The obligation of Company to consummate the Merger is subject to the
fulfillment of the following conditions, any one or more of which may be waived
by it:
7.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations and
warranties made by Parent in this Agreement shall have been accurate as of the
date of this Agreement and, other than representations and warranties made as of
a particular date, the representations and warranties of Parent and Merger Sub
shall be accurate as of the Closing Date as if made on and as of the Closing
Date (without giving effect to any materiality or knowledge qualifiers) except
to the extent failure to be accurate, in the aggregate, could not reasonably be
expected to have a Parent Material Adverse Effect. Parent and Merger Sub shall
have performed and complied in all material respects with all covenants and
agreements required by this Agreement to be performed or complied with by it on
or prior to the Effective Time. Parent shall have delivered to Company a
certificate from its chief executive officer or chief financial officer, dated
the Closing Date, to the foregoing effect.
7.2 MERGER DOCUMENTS. Merger Sub shall have executed and delivered the
Certificate of Merger and Articles of Merger referred to in Section 1.2.
7.3 TAX OPINION. Company shall have received the opinion of Mintz, Levin,
Cohn, Ferris, Glovsky and Popeo, P.C., dated as of the Closing Date, to the
effect that (i) the Merger will constitute a reorganization under
Section 368(a) of the Code, and (ii) Parent, Company and Merger Sub will each be
a party to that reorganization. In rendering such opinion, counsel shall be
entitled to rely on customary representation letters of Parent, Company and
Merger Sub and others, in form and substance reasonably satisfactory to such
counsel; provided, however, if Mintz, Levin, Cohn, Ferris, Glovsky and Popeo,
P.C. was unwilling to deliver such opinion, this condition shall be deemed
satisfied if Palmer & Dodge LLP delivered such opinion.
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<PAGE>
SECTION 8--TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated at any time prior to the
Effective Time, whether prior to or after the stockholders of Company adopt this
Agreement:
(a) by either Company or Parent, by written notice to the other, if the
Effective Time shall not have occurred on or before May 15, 2001; provided,
however, that the right to terminate this Agreement under this Section 8.1(a)
shall not be available to any party whose willful failure to fulfill any
material covenant or other material agreement under this Agreement has resulted
in the failure of the Merger to occur on or before such date; provided, further,
however, that it shall be a condition precedent to the termination of this
Agreement by Company pursuant to this Section 8.1(a) that Company shall have
made any payment required by Section 8.3;
(b) by Company (provided that Company is not then in material breach of any
representation, warranty, covenant or other agreement contained herein), by
written notice to Parent, if a circumstance exists or circumstances exist such
that it is reasonably certain that the conditions to Company's obligation to
close that are set forth in Section 7.1 will not be satisfied; provided,
however, Company shall not have a right to terminate this Agreement pursuant to
this Section 8.1(b), (i) if the circumstance is or the circumstances are
susceptible to change through action or inaction by Parent and (ii) within
20 days after written notice from Company, Parent effects a change in the
circumstance or circumstances such that it ceases to be reasonably certain that
the conditions to Company's obligation to close that are set forth in
Section 7.1 will not be satisfied;
(c) by Parent (provided that Parent is not then in material breach of any
representation, warranty, covenant or other agreement contained herein), by
written notice to Company, if a circumstance exists or circumstances exist such
that it is reasonably certain that the conditions to Parent's obligation to
close that are set forth in Section 6.1 will not be satisfied; provided,
however, Parent shall not have a right to terminate this Agreement pursuant to
this Section 8.1(c), (i) if the circumstance is or the circumstances are
susceptible to change through action or inaction by Company and (ii) within
20 days after written notice from Parent, Company effects a change in the
circumstance or circumstances such that it ceases to be reasonably certain that
the conditions to Company's obligation to close that are set forth in
Section 6.1 will not be satisfied;
(d) by either Parent or Company, by written notice to the other, if any
governmental entity of competent jurisdiction shall have issued any injunction
or taken any other action permanently restraining, enjoining or otherwise
prohibiting the consummation of the Merger and such injunction or other action
shall have become final and non-appealable;
(e) by either Parent or Company, by written notice to the other, if the
stockholders of Company shall not have adopted this Agreement within sixty
(60) days after the later of (i) the date Company mails the Proxy
Statement/Prospectus to the Company stockholders or (ii) the date of the most
recent supplemental proxy materials that Company is legally required to
distribute to its stockholders; provided, however, that it shall be a condition
precedent to the termination of this Agreement by Company pursuant to this
Section 8.1(e) that Company shall have made any payment required by
Section 8.3; and provided, further however, that the right to terminate this
Agreement under this Section 8.1(e) shall not be available to any party whose
willful failure to fulfill any material covenant or other material agreement
under this Agreement has been the cause of or resulted in the failure to receive
such stockholder vote on or before such date;
(f) by Parent, by written notice to Company, if the Board of Directors of
the Company (i) fails to include in the Proxy Statement/Prospectus its
recommendation that Company's stockholders vote to adopt this Agreement or
(ii) withdraws, modifies or qualifies its approval of, or its recommendation
that Company stockholders vote in favor of, such action or takes any action or
makes any statement inconsistent with such approval or recommendation,
(iii) adopts resolutions approving or otherwise authorizes or recommends an
Alternative Transaction or (iv) fails to recommend against, or takes a
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<PAGE>
neutral position with respect to, a tender or exchange offer in any position
taken pursuant to Rules 14d-9 and 14e-2(a) under the Exchange Act;
(g) by Parent, in the event that Company or any of its directors takes any
of the actions described in clause (ii) of the second sentence of Section 4.10
in response to a proposal for an Alternative Transaction more than 15 business
days after it is obligated to notify Parent of its receipt of such Alternative
Transaction proposal.
(h) by Company at any time on or prior to the date that is four weeks after
the initial filing of the Registration Statement, if as a result of a proposal
for an Alternative Transaction, the Board of Directors of Company (including
through a special committee or otherwise) shall have determined in good faith,
after consultation with outside legal counsel, that the failure to terminate
this Agreement would be reasonably likely to constitute a breach of their
fiduciary duties under Delaware law in the absence of any limitation on the
right to terminate this Agreement; provided, however, that it shall be a
condition precedent to the termination of this Agreement by Company pursuant to
this Section 8.1(h) that Company shall have made the payment required by
Section 8.3; provided, further, however, that it shall be a condition precedent
to the termination of this Agreement pursuant to Section 8.1(g) that Company
shall have given Parent notice of its intention to terminate at least 48 hours
prior to such termination;
(i) by Parent, if any person or group (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent or any of its affiliates, shall have become the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of at least
15% of the outstanding shares of Company Common Stock; and
(j) at any time with the written consent of Parent and Company.
8.2 EFFECT OF TERMINATION. If this Agreement is terminated as provided in
Section 8.1, this Agreement shall forthwith become void and have no effect,
without liability on the part of Parent, Merger Sub and Company and their
respective directors, officers or stockholders, except that (a) the provisions
of this Section 8, Section 9, Section 4.3 relating to expenses, and Section 4.7
relating to publicity shall survive, and (b) no such termination shall relieve
any party from liability by reason of any willful breach by such party of any of
its representations, warranties, covenants or other agreements contained in this
Agreement.
8.3 TERMINATION FEE
(a) FEE. If this Agreement is terminated by Company pursuant to
Section 8.1(a), (e) or (h), or by Parent (i) pursuant to Section 8.1(e) or
(f) or (ii) pursuant to Section 8.1(c) due to a breach of Section 4.1(b) or
Section 4.10, then Company shall pay to Parent in cash $31 million (the "Fee");
provided, however, that the Fee shall not be owed if this Agreement is
terminated pursuant to 8.1(a) or (e) unless prior to the time of termination a
BONA FIDE Alternative Transaction shall have been announced and not withdrawn;
and, provided, further, however, that the fee shall not be owed if this
Agreement is terminated pursuant to Section 8.1(a) if, at the time of such
termination, the conditions set forth in Sections 5.2, 5.3, 5.4, 5.5, 5.6, 6.5
or Section 7.1 shall not have been satisfied or shall not have been capable of
immediate satisfaction unless such failure was due to a material breach of this
Agreement by the Company, or if Parent is in material breach of this Agreement
on the date of termination. Company shall pay the Fee to Parent concurrently
with Company terminating this Agreement and within one business day of Parent
terminating this Agreement.
(b) PAYMENTS. Any payments required under this Section 8.3 shall be
payable by Company by wire transfer of immediately available funds to an account
designated by Parent. If Company fails to promptly make any payment required
under this Section 8.3 and Parent commences a suit to collect such payment,
Company shall indemnify Parent for its fees and expenses (including attorneys
fees and expenses) incurred in connection with such suit and shall pay Company
interest on the amount of the payment at the prime rate of Fleet National Bank
(or its successors or assigns) in effect on the date the payment was payable
pursuant to this Section 8.3.
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<PAGE>
8.4 AMENDMENT. This Agreement may be amended at any time before or after
adoption of this Agreement by the stockholders of Company by an instrument
signed by each of the parties hereto; provided, however, that after adoption of
this Agreement by the stockholders of Company, without the further approval of
the stockholders of Company, no amendment may be made that (a) alters or changes
the amount or kind of consideration to be received as provided in Section 1.6,
(b) alters or changes any term of the Articles of Organization of the Surviving
Corporation or (c) alters or changes any of the terms and conditions of this
Agreement if such alteration or change would adversely affect the stockholders
of Company.
8.5 WAIVER. At any time prior to the Effective Time, either party hereto
may (a) extend the time for the performance of any of the obligations or other
acts of the other party hereto or (b) waive compliance with any of the
agreements of the other party or any conditions to its own obligations, in each
case only to the extent such obligations, agreements and conditions are intended
for its benefit; provided that any such extension or waiver shall be binding
upon a party only if such extension or waiver is set forth in a writing executed
by such party.
SECTION 9--MISCELLANEOUS
9.1 NO SURVIVAL. None of the representations and warranties of Company,
Parent or Merger Sub contained herein shall survive the Effective Time, and only
those covenants and agreements contained herein that by their terms are to be
performed after the Effective Time shall survive the Effective Time.
9.2 NOTICES. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed given when so delivered in
person, by overnight courier, by facsimile transmission (with receipt confirmed
by telephone or by automatic transmission report) or two business days after
being sent by registered or certified mail (postage prepaid, return receipt
requested), as follows:
(a) if to Parent or Merger Sub, to:
Genzyme Corporation
One Kendall Square
Cambridge, Massachusetts 02139
Attn: Peter Wirth
Telephone: (617) 252-7882
Facsimile: (617) 252-7553
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, Massachusetts 02108
Attn: Paul M. Kinsella
Telephone: (617) 573-0100
Facsimile: (617) 227-4420
(b) if to Company, to:
GelTex Pharmaceuticals, Inc.
Nine Fourth Avenue
Waltham, Massachusetts 02154
Attn: Mark Skaletsky
Telephone: (781) 290-5888
Facsimile: (781) 290-5890
A-35
<PAGE>
with a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Attn: Jeffrey M. Wiesen
Lewis J. Geffen
Telephone: (617) 542-6000
Facsimile: (617) 542-2241
Any party may by notice given in accordance with this Section 9.2 to the other
parties designate another address or person for receipt of notices hereunder.
9.3 ENTIRE AGREEMENT. This Agreement contains the entire agreement between
the parties with respect to the Merger and related transactions, and supersede
all prior agreements, written or oral, between the parties with respect thereto,
other than the Confidentiality Agreement, which shall survive execution of this
Agreement and any termination of this Agreement.
9.4 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Massachusetts without regard to
its conflict of law provisions, except to the extent that the laws of the State
of Delaware apply to the Merger and the rights of Company stockholders relative
to the Merger.
9.5 BINDING EFFECT; NO ASSIGNMENT; NO THIRD-PARTY BENEFICIARIES.
(a) This Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and permitted assigns. This Agreement is
not assignable without the prior written consent of the other parties hereto.
(b) Other than Section 4.15, nothing in this Agreement, express or implied,
is intended to or shall confer upon any person other than Parent, Merger Sub and
Company and their respective successors and permitted assigns and right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
9.6 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Agreement are provided for convenience only and will not affect its construction
or interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Agreement. All words used in this
Agreement will be construed to be of such gender or number as the circumstances
require. Unless otherwise expressly provided, the word "including" does not
limit the preceding words or terms.
9.7 COUNTERPARTS. This Agreement may be executed in two counterparts, each
of which shall be deemed an original, and both of which together shall
constitute one and the same instrument.
9.8 SEVERABILITY. If any provision of this Agreement is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Agreement shall remain in full force and effect. Any provision of this
Agreement held invalid or unenforceable only in part or degree will remain in
full force and effect to the extent not held invalid or unenforceable. The
parties further agree to replace such invalid or unenforceable provision of this
Agreement with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such invalid or
unenforceable provision.
9.9 SUBMISSION TO JURISDICTION; WAIVER. Each of Company, Parent and Merger
Sub (when joined pursuant to the Joinder Agreement) irrevocably agrees that any
legal action or proceeding with respect to this Agreement or for recognition and
enforcement of any judgment in respect hereof brought by the other party hereto
or its successors or assigns may be brought and determined in the courts of the
Commonwealth of Massachusetts and each of Company, Parent and Merger Sub (when
joined pursuant
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<PAGE>
to the Joinder Agreement) hereby irrevocably submits with regard to any action
or proceeding for itself and in respect to its property, generally and
unconditionally, to the nonexclusive jurisdiction of the aforesaid courts. Each
of Company, Parent and Merger sub (when joined pursuant to the Joinder
Agreement) hereby irrevocably waives, and agrees not to assert, by way of
motion, as a defense, counterclaim or otherwise, in any action or proceeding
with respect to this Agreement, (a) any claim that it is not personally subject
to the jurisdiction of the above-named courts for any reason other than the
failure to lawfully serve process, (b) that it or its property is exempt or
immune from jurisdiction of any such court or from any legal process commenced
in such courts (whether through service of notice, attachment prior to judgment,
attachment in aid of execution of judgment, execution of judgment or otherwise),
and (c) to the fullest extent permitted by applicable law, that (i) the suit,
action or proceeding in any such court is brought in an inconvenient forum,
(ii) the venue of such suit, action or proceeding is improper and (iii) this
Agreement, or the subject matter hereof, may not be enforced in or by such
courts.
9.10 ENFORCEMENT. The parties recognize and agree that if for any reason
any of the provisions of this Agreement are not performed in accordance with
their specific terms or are otherwise breached, immediate and irreparable harm
or injury would be caused for which money damages would not be an adequate
remedy. Accordingly, each party agrees that in addition to other remedies the
other party shall be entitled to an injunction restraining any violation or
threatened violation of the provisions of this Agreement. In the event that any
action shall be brought in equity to enforce the provisions of the Agreement,
neither party will allege, and each party hereby waives the defense, that there
is an adequate remedy at law.
9.11 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or ruling
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
9.12 WAIVER OF JURY TRIAL. EACH OF PARENT, COMPANY AND MERGER SUB (WHEN
JOINED PURSUANT TO THE JOINDER AGREEMENT) HEREBY IRREVOCABLY WAIVES THE RIGHT TO
A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM (WHETHER BASED IN
CONTRACT, TORT OR OTHERWISE) ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS
AGREEMENT OR ANY OTHER RELATED DOCUMENT, OR ANY COURSE OF CONDUCT, COURSE OF
DEALINGS, STATEMENT OR ACTION RELATED HERETO OR THERETO.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and Plan of
Merger under seal as of the date first stated above.
<TABLE>
<CAPTION>
GELTEX PHARMACEUTICALS, INC.
<S> <C> <C>
By: /s/ MARK SKALETSKY
-----------------------------------------
Name: Mark Skaletsky
Title: President and Chief Executive
Officer
GENZYME CORPORATION
By: /s/ PETER WIRTH
-----------------------------------------
Name: Peter Wirth
Title: Executive Vice President
</TABLE>
[Signature Page to Agreement and Plan of Merger]
A-38
<PAGE>
EXHIBIT A
[As executed on September 12, 2000.]
AGREEMENT OF JOINDER
The undersigned Titan Acquisition Corp. ("Merger Sub"), a Massachusetts
corporation and wholly-owned subsidiary of Genzyme Corporation, hereby joins in
the foregoing Agreement and Plan of Merger and agrees to be a party thereto and
to perform the obligations of Merger Sub thereunder, as though it had been a
party thereto from the date thereof.
IN WITNESS WHEREOF, Merger Sub has caused this Agreement of Joinder to be
signed as a sealed instrument by its duly authorized officers as of
September 12, 2000.
<TABLE>
<S> <C> <C>
TITAN ACQUISITION CORP.
By: /s/ PETER WIRTH
-----------------------------------------
Peter Wirth
President
By: /s/ PETER WIRTH
-----------------------------------------
Peter Wirth
Treasurer
</TABLE>
A-39
<PAGE>
EXHIBIT B
[FORM OF AFFILIATE LETTER]
, 2000
Genzyme Corporation
One Kendall Square
Cambridge, MA 02139
Ladies and Gentlemen:
I have been advised that as of the date of this letter I may be deemed to be
an "affiliate" of GelTex Pharmaceuticals, Inc.)(the "Company"), a Delaware
corporation, as the term "affiliate" is used in Rule 145 of the rules and
regulations of the Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "Securities Act"). Pursuant to the terms
of the Agreement and Plan of Merger (the "Merger Agreement") dated as of
September , 2000 between Genzyme Corporation ("Parent"), a Massachusetts
corporation, and the Company, the Company will be merged with and into a wholly
owned subsidiary of Parent (the "Merger").
In connection with the Merger, I am entitled to receive shares of Genzyme
General Division common stock, $0.01 par value per share (the "Parent Shares"),
in exchange for the shares owned by me of common stock, $0.01 par value per
share, of the Company (the "Company Shares").
I represent, warrant and covenant to Parent that in the event I receive any
Parent Shares as a result of the Merger:
(a) I shall not make any sale, transfer or other disposition of the Parent
Shares in violation of the Securities Act or the rules and regulations
thereunder.
(b) I have carefully read this letter and the Merger Agreement and discussed
the requirements of such documents and other applicable limitations upon my
ability to sell, transfer or otherwise dispose of the Parent Shares, to the
extent I felt necessary, with my counsel or counsel for the Company.
(c) I have been advised that the issuance of the Parent Shares to me
pursuant to the Merger has been or will be registered with the SEC under the
Securities Act on a Registration Statement on Form S-4; however, because I may
be deemed to be an affiliate of the Company and the distribution of the Parent
Shares by me or on my behalf has not been registered under the Securities Act,
dispositions of the Parent Shares by me or on my behalf may be restricted under
the Securities Act and the rules and regulations thereunder. I will not sell,
transfer, hedge, encumber or otherwise dispose of the Parent Shares issued to me
in the Merger unless the disposition (x) is made in conformity with the volume
and other limitations of Rule 145 under the Securities Act, (y) is made pursuant
to an effective Registration Statement under the Securities Act or (z) is, in
the opinion of counsel reasonably acceptable to Parent or as described in a
"no-action" or interpretive letter from the staff of the SEC, exempt from
registration under the Securities Act.
(d) I understand that Parent is under no obligation to register under the
Securities Act the disposition of the Parent Shares by me or on my behalf or to
take any other action necessary in order to make compliance with an exemption
from such registration available.
(e) I also understand that there will be placed on the certificates for the
Parent Shares issued to me, or any substitutions therefor, a legend stating in
substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A TRANSACTION
TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, APPLIES. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY ONLY BE
TRANSFERRED IN ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE
REGISTERED HOLDER HEREOF AND GENZYME CORPORATION.
<PAGE>
(f) I also understand that unless a sale or transfer is made in conformity
with the provisions of Rule 145 under the Securities Act (and satisfactory
evidence of such conformity is provided to Parent), or pursuant to an effective
registration statement, Parent reserves the right to put the following legend on
the certificates issued to my transferee:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND WERE ACQUIRED FROM A PERSON
WHO RECEIVED SUCH SHARES IN A TRANSACTION TO WHICH RULE 145 PROMULGATED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, APPLIES. THE SHARES HAVE
BEEN ACQUIRED BY THE HOLDER NOT WITH A VIEW TO, OR FOR RESALE IN
CONNECTION WITH, ANY DISTRIBUTION THEREOF WITHIN THE MEANING OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED OR
OTHERWISE TRANSFERRED EXCEPT IN ACCORDANCE WITH AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OF 1933, AS AMENDED.
It is understood and agreed that the legends set forth in paragraphs
(e) and (f) above shall be removed by delivery of substitute certificates
without such legends if the undersigned shall have delivered to Parent a copy of
a "no action" or interpretive letter from the staff of the SEC, or an opinion of
counsel reasonably satisfactory to Parent in form and substance satisfactory to
Parent, to the effect that disposition of the shares by the holder thereof is
not restricted under the Securities Act.
Execution of this letter should not be considered an admission on my part
that I am an "affiliate" of the Company as described in the first paragraph of
this letter, or as a waiver of any rights I may have to object to any claim that
I am such an affiliate on or after the date of this letter.
Very truly yours,
------------------------------------
Name (print):
Address:
Accepted:
GENZYME CORPORATION
By:
--------------------------------------
Name (print):
Title:
Dated:
<PAGE>
ANNEX B
September 10, 2000
Special Committee of the Board of Directors
GelTex Pharmaceuticals, Inc.
153 Second Avenue
Waltham, MA 02451
Ladies and Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of GelTex Pharmaceuticals, Inc. (the "Company"), other
than Parent (as defined below) and its affiliates, of the Consideration (as
defined below) to be received by such stockholders pursuant to the terms of that
certain Agreement and Plan of Merger, to be dated as of September 11, 2000 (the
"Agreement"), by and among the Company and Genzyme Corporation (the "Parent").
As more specifically set forth in the draft Agreement and subject to the
terms, conditions and adjustments set forth in the Agreement, the Parent, a
wholly-owned subsidiary of the Parent to be formed as a Massachusetts
corporation (the "Merger Sub") and the Company intend to effect a merger of the
Company with and into the Merger Sub. Upon consummation of the merger, the
Company will cease to exist and the Merger Sub shall continue as the surviving
corporation. Upon consummation of the merger, each outstanding share of the
common stock of the Company ("Company Common Stock") (other than dissenting
shares, treasury shares, shares held by wholly-owned Company subsidiaries and
shares held by Merger Sub, Parent or any wholly-owned subsidiary of Parent)
shall be cancelled and automatically converted into the right to receive,
subject to certain election and proration procedures specified in the Agreement
(as to which we express no opinion), either (a) 0.7272 of a share of Genzyme
General Division Common Stock, $0.01 par value per share ("Parent Common Stock")
(the "Per Share Stock Consideration), (b) $47.50 in cash (the "Per Share Cash
Consideration") or (c) a combination thereof (collectively, the "Consideration")
(the transaction set forth in the Agreement, the "Transaction").
SG Cowen Securities Corporation ("SG Cowen"), as part of its investment
banking business, is continually engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for corporate and other purposes. In the
ordinary course of our business, we and our affiliates actively trade the
securities of the Company and the Parent for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or short
position in such securities.
We are acting as exclusive financial advisor to Board of Directors of the
Company in connection with the Transaction and will receive a fee from the
Company for our services pursuant to the terms of our engagement letter with the
Company, dated as of September 7, 2000, a significant portion of which is
contingent upon the consummation of the Transaction. We will also receive a fee
for providing this Opinion to the Special Committee. SG Cowen and its affiliates
in the ordinary course of business have from time to time provided, and in the
future may continue to provide, commercial and investment banking services to
the Company and the Parent and have received fees for the rendering of such
services.
In connection with our opinion, we have reviewed and considered such
financial and other matters as we have deemed relevant, including, among other
things:
- a draft of the Agreement dated September 10, 2000;
- certain publicly available information for the Company, including its
annual reports filed on Form 10-K for each of the years ended
December 31, 1999 and December 31, 1998, and its
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quarterly reports filed on Form 10-Q for each for the quarters ended
March 31, 2000 and June 30, 2000 and certain other relevant financial and
operating data furnished to SG Cowen by the Company management;
- certain publicly available information for the Parent, including its
annual reports filed on Form 10-K for each of the years ended
December 31, 1999 and December 31, 1998, and its quarterly reports filed
on Form 10-Q for each for the quarters ended March 31, 2000 and June 30,
2000 and certain other relevant financial and operating data furnished to
SG Cowen by the Parent management.
- certain internal financial analyses, financial forecasts, reports and
other information concerning the Company (the "Company Forecasts"),
prepared by the management of the Company;
- financial projections in Wall Street analyst reports ("Wall Street
Projections") for each of the Company and the Parent;
- discussions we have had with certain members of the managements of each of
the Company and the Parent concerning the historical and current business
operations, financial conditions and prospects of the Company and the
Parent, and such other matters we deemed relevant;
- the reported price and trading histories of the shares of the Company
Common Stock and the Parent Common Stock as compared to the reported price
and trading histories of certain publicly traded companies we deemed
relevant;
- certain financial terms of the Transaction as compared to the financial
terms of certain selected business combinations we deemed relevant;
- based on the Company Forecasts and Wall Street Projections for the Parent,
the cash flows generated by each of the Company and the Parent on a
stand-alone basis to determine the present value of the discounted cash
flows;
- certain pro forma financial effects excluding goodwill of the Transaction
on the accretion/dilution basis; and
- such other information, financial studies, analyses and investigations and
such other factors that we deemed relevant for the purposes of this
opinion.
In conducting our review and arriving at our opinion, we have, with your
consent, assumed and relied, without independent investigation, upon the
accuracy and completeness of all financial and other information provided to us
by the Company and the Parent, or which is publicly available. We have not
undertaken any responsibility for the accuracy, completeness or reasonableness
of, or independently to verify, such information. In addition, we have not
conducted nor have assumed any obligation to conduct any physical inspection of
the properties or facilities of the Company or the Parent. We have further
relied upon the assurance of management of the Company that they are unaware of
any facts that would make the information provided to us incomplete or
misleading in any respect. We have, with your consent, assumed that the Company
Forecasts were reasonably prepared by the management of the Company on bases
reflecting the best currently available estimates and good faith judgments of
such management as to the future performance of the Company, and that the
Company Forecasts and Wall Street Projections provide a reasonable basis for our
opinion. For purposes of our pro forma transaction analysis, as described above,
we have assumed that fifty percent (50%) of the Consideration is in the form of
Parent Common Stock and fifty percent (50%) of the Consideration is in the form
of cash.
We have not made or obtained any independent evaluations, valuations or
appraisals of the assets or liabilities of the Company or the Parent, nor have
we been furnished with such materials. With respect to all legal matters
relating to the Company and the Parent, we have relied on the advice of legal
counsel to the Company. Our services to the Company in connection with the
Transaction have been comprised of rendering an opinion from a financial point
of view with respect to the Consideration. Our opinion is
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necessarily based upon economic and market conditions and other circumstances as
they exist and can be evaluated by us on the date hereof. It should be
understood that although subsequent developments may affect our opinion, we do
not have any obligation to update, revise or reaffirm our opinion and we
expressly disclaim any responsibility to do so. Additionally, we have not been
authorized or requested to, and did not, solicit alternative offers for the
Company or its assets, nor have we investigated any other alternative
transactions that may be available to the Company.
For purposes of rendering our opinion we have assumed in all respects
material to our analysis, that the representations and warranties of each party
contained in the Agreement are true and correct, that each party will perform
all of the covenants and agreements required to be performed by it under the
Agreement and that all conditions to the consummation of the Transaction will be
satisfied without waiver thereof. We have assumed that the final form of the
Agreement will be substantially similar to the last draft reviewed by us. We
have also assumed that all governmental, regulatory and other consents and
approvals contemplated by the Agreement will be obtained and that in the course
of obtained any of those consents no restrictions will be imposed or waivers
made that would have an adverse effect on the contemplated benefits of the
Transaction. You have informed us, and we have assumed, that the Transaction
will be treated as a tax-free reorganization.
It is understood that this letter is intended for the benefit and use of the
Special Committee of the Board of Directors of the Company in its consideration
of the Transaction and may not be used for any other purpose or reproduced,
disseminated, quoted or referred to at any time, in any manner or for any
purpose without our prior written consent, PROVIDED, HOWEVER, that this opinion
may be reproduced in its entirety in any proxy statement or registration
statement relating to the Transaction file by the Company or Parent under the
Securities Exchange Act of 1934, as amended, or the Securities Act of 1933, as
amended (the "Securities Act"), PROVIDED, that it will be reproduced in such
proxy statement or registration statement in full, and any description of or
reference to SG Cowen or summary of this letter in such proxy statement or
registration statement will be in a form acceptable to SG Cowen and its counsel,
and PROVIDED, FURTHER, that in consenting to such inclusion we do not admit or
acknowledge that we com within the category of persons whose consent is required
under Section 7 of the Securities Act or the rules and regulations promulgated
thereunder.
This letter does not constitute a recommendation to any stockholder as to
how such stockholder should vote with respect to the Transaction, as to what
form of Consideration to elect or to take any other action in connection with
the Transaction or otherwise. We are not expressing any opinion as to what the
value of the Parent Common Stock actually will be when issued to the Company's
stockholders' pursuant to the Transaction. In addition, for purposes of our
opinion we have not taken into consideration any of the rights, preferences or
limitations of the Parent Common Stock. We have not been requested to opine as
to, and our opinion does not in any manner address, the Company's underlying
business decision to effect the Transaction. Furthermore, we express no view as
to the price or trading range for shares of the Parent Common Stock following
the consummation of the Transaction.
Based upon and subject to the foregoing, including the various assumptions
and limitations set forth herein, it is our opinion that, as of the date hereof,
the Consideration to be received in the Transaction is fair, from a financial
point of view, to the stockholders of the Company (other than the Parent and its
affiliates).
Very truly yours,
/s/ SG Cowen Securities Corporation
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ANNEX C
DELAWARE APPRAISAL LAW
SECTION 262 OF THE
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
Sections 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
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d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b., and c. of this
paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all the shares of the constituent corporations, and shall include
in such notice a copy of this section. Each stockholder electing to demand
the appraisal of such stockholder's shares shall deliver to the corporation,
before the taking of the vote on the merger or consolidation, a written
demand for appraisal of such stockholder's shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of the
stockholder and that the stockholder intends thereby to demand the appraisal
of such stockholder's shares. A proxy or vote against the merger or
consolidation shall not constitute such a demand. A stockholder electing to
take such action must do so by a separate written demand as herein provided.
Within 10 days after the effective date of such merger or consolidation, the
surviving or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of the date
that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent
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corporation that are entitled to appraisal rights of the effective date of
the merger or consolidation or (ii) the surviving or resulting corporation
shall send such a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
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(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(1) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation. (Last amended
by Ch. 339, L. 98, eff. 7-1-98.)
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ANNEX D
[IF GENZYME COMPLETES THE ACQUISITION OF BIOMATRIX, THESE POLICIES WILL BE
REVISED TO REFLECT THE ELIMINATION OF GENZYME'S SURGICAL PRODUCTS AND TISSUE
REPAIR DIVISIONS AND THE CREATION OF GENZYME'S BIOSURGERY DIVISION.]
AS ADOPTED BY THE BOARD OF DIRECTORS ON MAY 26, 1999
AS LAST AMENDED BY THE BOARD OF DIRECTORS ON MAY 25, 2000
MANAGEMENT AND ACCOUNTING POLICIES GOVERNING
THE RELATIONSHIP OF GENZYME DIVISIONS
GENZYME'S BOARD OF DIRECTORS HAS ADOPTED THE FOLLOWING POLICIES TO GOVERN
THE MANAGEMENT OF GENZYME GENERAL, GENZYME MOLECULAR ONCOLOGY, GENZYME SURGICAL
PRODUCTS AND GENZYME TISSUE REPAIR, AND THE RELATIONSHIPS BETWEEN EACH DIVISION.
EXCEPT AS OTHERWISE PROVIDED IN THE POLICIES, THE BOARD OF DIRECTORS MAY MODIFY
OR RESCIND THE POLICIES, OR ADOPT ADDITIONAL POLICIES, IN ITS SOLE DISCRETION
WITHOUT APPROVAL OF THE STOCKHOLDERS, SUBJECT ONLY TO ITS FIDUCIARY DUTY TO THE
STOCKHOLDERS.
1. PURPOSE OF GENZYME GENERAL, GENZYME MOLECULAR ONCOLOGY, GENZYME SURGICAL
PRODUCTS AND GENZYME TISSUE REPAIR. The purpose of Genzyme General is to develop
and market therapeutic products and diagnostic services and products. The
purpose of Genzyme Molecular Oncology is to create a focused, integrated
oncology business that will develop and commercialize novel therapeutic and
diagnostic products and services based upon molecular tools and genomic
information. The purpose of Genzyme Surgical Products is to create a business
with a comprehensive approach to and portfolio of devices, biomaterials,
biotherapeutics and other products for the field of biosurgery. The purpose of
Genzyme Tissue Repair is to create a business with a comprehensive approach to
the field of tissue repair by developing and commercializing a portfolio of
novel products for the treatment and prevention of serious tissue injury
(excluding products developed on behalf of Genzyme Development Partners). In
addition to the programs initially assigned to each of Genzyme Molecular
Oncology, Genzyme Surgical Products and Genzyme Tissue Repair, it is expected
that the product and service portfolio of each division will expand through the
addition of complementary programs, products and services developed either
within or outside of the division, including acquiring or in-licensing programs,
products and services from outside of Genzyme. Each of Genzyme Molecular
Oncology, Genzyme Surgical Products and Genzyme Tissue Repair will be operated
and managed similarly to Genzyme General except as provided herein.
2. REVENUE ALLOCATION. Revenues from the sale or licensing of a division's
products and services to entities external to Genzyme Corporation shall be
credited to that division. Products and services normally sold by a division to
entities external to Genzyme Corporation that are used by other divisions within
Genzyme Corporation shall be recorded as interdivisional revenues and
interdivisional purchases subject to the policy regarding Other Interdivisional
Transactions.
3. EXPENSE ALLOCATION. Direct Expenses shall be charged to the division for
whose benefit the Direct Expenses have been incurred. Expenses other than Direct
Expenses shall be subject to the policy regarding Other Interdivisional
Transactions.
4. ASSET ALLOCATION. Assets that are exclusively dedicated to the production of
goods and services of a division shall be allocated to that division. Production
assets that are utilized by more than one division shall be subject to the
policy regarding Other Interdivisional Transactions.
5. TAX ALLOCATIONS. Income taxes shall be allocated to each division based upon
the financial statement income, taxable income, credits and other amounts
properly allocable to such division under generally accepted accounting
principles as if each division were a separate taxpayer; provided, however, that
as of the end of any fiscal quarter of Genzyme, any projected annual tax benefit
attributable to any division that cannot be utilized by such division to offset
or reduce its current or deferred income tax
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expense may be allocated to the other divisions in proportion to their taxable
income without any compensating payment or allocation
6. ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS. Upon the acquisition by Genzyme
from a third party of any programs, products or assets (whether by acquisitions
of assets or stock, merger, consolidation or otherwise), the aggregate cost of
the acquisition and the programs, products or assets acquired shall be allocated
among the divisions of Genzyme. In the case of material acquisitions, such
allocation shall be made in a manner determined by the Genzyme Board to be fair
and reasonable to each division and to the holders of the common stock
representing each division, taking into account such matters as the Genzyme
Board and its financial advisors, if any, deem relevant. Any such determination
will be final and binding on the holders of common stock.
7. DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS. Upon the sale, transfer,
assignment or other disposition by Genzyme of any program, product or asset not
consisting of all or substantially all of the assets of the division, all
proceeds from such disposition shall be allocated to the division to which the
program, product or asset had been allocated among such divisions based on their
respective interests in such program, product or asset. Such allocations shall
be made in a manner determined by the Genzyme Board to be fair and reasonable to
such divisions and to holders of the common stock representing such divisions,
taking into account such matters as the Genzyme Board and its financial
advisors, if any, deem relevant. Any such determination by the Genzyme Board
will be final and binding on the holders of common stock.
8. INTERDIVISIONAL ASSET TRANSFERS. The Genzyme Board may at any time and from
time to time reallocate any program, product or other asset from one division to
any other division. All such reallocations shall be done at fair market value,
determined by the Genzyme Board, taking into account, in the case of a program
under development, the commercial potential of such program, the phase of
clinical development of such program, the expenses associated with realizing any
income from such program, the likelihood and timing of any such realization and
other matters that the Genzyme Board and its financial advisors, if any, deem
relevant. The consideration for such reallocation may be paid by one division to
another in cash or other consideration with a value equal to the fair market
value of the assets being reallocated or, in the case of a reallocation of
assets from Genzyme General to Genzyme Molecular Oncology, Genzyme Surgical
Products or Genzyme Tissue Repair, the Genzyme Board may elect to account for
such reallocation as an increase in the Designated Shares representing the
division to which such assets are reallocated in accordance with the provisions
of Genzyme's articles of organization.
Notwithstanding the foregoing, no Key GMO Program or Key GTR Program, as
defined below, may be transferred out of Genzyme Molecular Oncology or Genzyme
Tissue Repair, respectively, without a class vote of the holders of the common
stock representing the division from which such Key GMO Program or Key GTR
Program is to be removed unless the Genzyme Board determines that (i) in the
case of a Key GMO Program, such Key GMO Program has application outside of the
field of oncology (in which case it may be transferred out only for the
non-oncology applications; provided, however that the SAGE Service (as herein
defined) may not be transferred out of Genzyme Molecular Oncology for any
application without the approval of the holders of the GZMO Stock voting as a
separate class) and (ii) in the case of a Key GTR Program, such Key GTR Program
has application outside of the field of tissue repair (in which case it may be
transferred out only for the non-tissue repair applications).
A "Key GMO Program" is any of the following: (i) use of the Serial Analysis
of Gene Expression ("SAGE-TM-") technology licensed from The Johns Hopkins
University School of Medicine for third parties ("SAGE Service"); (ii) the
clinical program developing adenovirus vectors containing the tumor antigens
Ad-MART 1 or Ad-gp100 for the treatment of melanoma; (iii) the "suicide" gene
therapy research program developing adenovirus and lipid vectors containing
genes to enhance chemotherapy for oncology indications; (iv) the research
program developing adenovirus and lipid vectors containing tumor suppressor
genes for oncology indications; (v) the research program developing adenovirus
and
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lipid vectors containing genes to regulate the immune system for oncology
indications, including heat shock proteins; (vi) the research program developing
antibody-based gene therapy for the treatment of tumors; and (vii) any
additional program, product or service being developed from time to time in
Genzyme Molecular Oncology which (a) constituted 20% or more of the research and
development budget of Genzyme Molecular Oncology in any one of the three most
recently completed fiscal years or (b) has had a cumulative investment of
$8 million or more in research and development expenses by Genzyme Molecular
Oncology.
A "Key GTR Program" is any of the following:
(i) Vianain-Registered Trademark- for debridement of necrotic or damaged tissue;
(ii) TGF-(2) for all indications licensed from Celtrix as of December 16, 1994;
(iii) Epicel-TM- cultured epithelial cell autografts for tissue replacement or
repair; (iv) Acticel-TM- cultured epithelial cell allografts for tissue
replacement or repair; (v) Carticel-Registered Trademark- Autologous Cultured
Chondrocyte Service; and (vi) any additional tissue repair program or product
being developed from time to time in Genzyme Tissue Repair which
(a) constituted 20% or more of the research and development budget of Genzyme
Tissue Repair in any one of the three most recently completed fiscal years or
(b) has had a cumulative investment of $8 million or more in research and
development expenses by Genzyme Tissue Repair.
The foregoing policies regarding transfers of assets between divisions will
not be changed by the Genzyme Board without the approval of the holders of the
GZMO Stock, the GZSP Stock and the GZTR Stock, each voting as a separate class;
PROVIDED, HOWEVER, that if a policy change affects one or more, but not all of,
Genzyme Molecular Oncology, Genzyme Surgical Products and/or Genzyme Tissue
Repair, only holders of shares representing the affected division(s) will be
entitled to vote on such matter.
9. OTHER INTERDIVISIONAL TRANSACTIONS. This policy shall cover interdivisional
transactions other than asset transfers, which shall be subject to the policy
regarding Interdivisional Asset Transfers. From time to time, a division may
engage in transactions directly with one or more other divisions or jointly with
one or more other divisions and one or more third parties. Such transactions may
include agreements by one division to provide products and services for use by
another division and joint venture or other collaborative arrangements involving
more than one division to develop new products and services jointly and with
third parties. The division providing such products and services does not
recognize revenue on any of such transactions unless the division provides such
products and services to unrelated third parties in the ordinary course of
business. Such transactions shall be subject to the following conditions:
(a) Research and development (including clinical and regulatory support),
distribution, sales, marketing, and general and administrative services
(including allocated space) performed by one division for the benefit of another
division will be charged to the division for which work is performed on a cost
basis. Direct costs shall be allocated in a manner described above under
"Expense Allocation" and such division performing the work will not recognize
revenue as a result of performing such work. Direct labor and indirect costs
shall be allocated in a reasonable and consistent manner based on the
utilization by the division of the services to which such costs relate.
(b) Manufacturing of goods and services by one division exclusively for the
benefit of another division and not for external sale shall be charged to the
division for which the work is performed on a cost basis. Manufacturing costs
shall include an interest charge on the gross fixed assets employed in such
manufacturing process. Gross fixed assets in this case shall be determined at
the beginning of each fiscal year for the facility used. The interest rate in
this case shall be the short term borrowing rate of Genzyme Corporation at the
beginning of each fiscal year. Direct labor and indirect costs shall be
allocated in a reasonable and consistent manner based on the receipt of benefit
by the division of the goods and services to which such costs relate.
(c) Other than research and development (including clinical and regulatory
support) distribution, sales, marketing, general and administrative services
(including allocated space), interdivisional
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transactions shall be on terms and conditions that would be obtainable in
transactions negotiated at arm's length with unaffiliated third parties.
(d) Any interdivisional transaction (i) to be performed on terms and
conditions that deviate from the policies set forth in subparagraphs (a),
(b) or (c) above and (ii) that is material to one or more of the participating
divisions will require approval by the Genzyme Board, which approval shall
include a determination by the Genzyme Board that the transaction is fair and
reasonable to each participating division and to the holders of the common stock
representing each such division.
(e) Loans may be made from time to time between divisions. Any such loan of
$1 million or less will mature within 18 months and interest will accrue at the
best borrowing rate available to Genzyme for a loan of like type and duration.
Amounts borrowed in excess of $1 million will require approval of the Genzyme
Board, which approval shall include a determination by the Genzyme Board that
the material terms of such loan, including the interest rate and maturity date,
are fair and reasonable to each participating division and to holders of the
common stock representing such division.
(f) All material interdivisional transactions shall be reduced to service
contracts and signed by an authorized member of the management team of affected
divisions.
10. ACCESS TO TECHNOLOGY AND KNOW-HOW. Each division of Genzyme Corporation
shall have unrestricted access to all technology and know-how of the Corporation
that may be made useful to such division's business, subject to any obligations
or limitations applicable to Genzyme and its divisions.
11. DISPOSITION OF GZMO, GZSP AND GZTR DESIGNATED SHARES.
(a) The GZMO Designated Shares, the GZSP Designated Shares and the GZTR
Designated Shares may be (i) issued upon the exercise or conversion of
outstanding stock options, warrants or convertible securities allocated to
Genzyme General, (ii) subject to the restrictions set forth in Paragraph 13,
sold for any valid business purpose, or (iii) distributed as a dividend to the
holders of shares of GENZ Stock, all as determined from time to time by the
Genzyme Board in its sole discretion.
(b) If, as of November 30 of each year, the number of GZMO Designated Shares
on such date exceeds ten percent (10%) of the number of shares of GZMO Stock
then issued and outstanding on such date, substantially all GZMO Designated
Shares will be distributed to holders of record of GENZ Stock, subject to
reservation of a number of such shares equal to the sum of (x) the number of
GZMO Designated Shares reserved for issuance upon the exercise or conversion of
GENZ Convertible Securities as a result of anti-dilution adjustments required by
the terms of such instruments or approved by the Genzyme Board and (y) the
number of GZMO Designated Shares reserved by the Genzyme Board as of such date
for sale not later than six months after such date, the proceeds of which sale
will be allocated to Genzyme General.
(c) If, as of June 30 of each year starting on June 30, 2000 the number of
GZSP Designated Shares on such date exceeds ten percent (10%) of the number of
shares of GZSP Stock then issued and outstanding on such date, substantially all
GZSP Designated Shares will be distributed to holders of record of GENZ Stock,
subject to reservation of a number of such shares equal to the sum of (x) the
number of GZSP Designated Shares reserved for issuance with respect to stock
options, stock purchase rights, warrants or other securities convertible into or
exercisable for shares of GENZ Stock outstanding on such date ("GENZ Convertible
Securities") as a result of anti-dilution adjustments required by the terms of
such instruments or approved by the Genzyme Board and (y) the number of GZSP
Designated Shares reserved by the Genzyme Board as of such date for sale not
later than six months after such date, the proceeds of which sale will be
allocated to Genzyme General.
(d) If, as of May 31 of each year, the number of GZTR Designated Shares on
such date exceeds ten percent (10%) of the number of shares of GZTR Stock then
issued and outstanding on such date, substantially all GZTR Designated Shares
will be distributed to holders of record of GENZ Stock,
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subject to reservation of a number of such shares equal to the sum of (x) the
number of GZTR Designated Shares reserved for issuance upon the exercise or
conversion of GENZ Convertible Securities as a result of anti-dilution
adjustments required by the terms of such instruments or approved by the Genzyme
Board and (y) the number of GZTR Designated Shares reserved by the Genzyme Board
as of such date for sale not later than six months after such date, the proceeds
of which sale will be allocated to Genzyme General.
12. ISSUANCE AND SALE OF ADDITIONAL SHARES OF COMMON STOCK. When additional
shares of common stock are issued and sold by Genzyme, Genzyme will identify
(i) the number of such shares issued and sold for the account of the division to
which they relate, the proceeds of which will be allocated to and reflected in
the financial statements of such division and (ii) the number of such shares
issued and sold that shall reduce the number of Designated Shares of such
division. Notwithstanding the foregoing, Genzyme will not sell any GZMO
Designated Shares, GZSP Designated Shares or GZTR Designated Shares (except upon
exercise or conversion of options, warrants or convertible securities issued by
Genzyme General that were adjusted as a result of a dividend of GZMO, GZSP or
GZTR Stock paid to holders of GENZ Stock) unless (i) the Genzyme Board
determines that Genzyme Molecular Oncology, Genzyme Surgical Products or Genzyme
Tissue Repair, as the case may be, has cash sufficient to fund its operations
for at least the next 12 months or (ii) shares of GZMO Stock, GZSP Stock or GZTR
Stock, as the case may be, are concurrently being sold for the account of
Genzyme Molecular Oncology, Genzyme Surgical Products or Genzyme Tissue Repair,
respectively, in an amount that will produce proceeds sufficient to fund such
division's cash needs for the next 12 months.
13. OPEN MARKET PURCHASES OF SHARES OF COMMON STOCK. Genzyme may make open
market purchases of its common stock in accordance with applicable securities
law requirements; provided, however, that in no event shall any such purchases
be made if as an immediate result thereof the number of Designated Shares
representing a division will exceed 60% of the number of shares of such division
outstanding plus such number of Designated Shares. Notwithstanding the
foregoing, within 90 days of any open market purchase of the common stock
representing any division, Genzyme may not exercise the right provided under its
articles of organization to exchange shares representing such division for cash
and/or shares of GENZ Stock.
14. CLASS VOTING. In addition to any stockholder approval required by
Massachusetts law, whenever the approval of the holders of the common stock
representing a division is required to take any action pursuant to these
policies or Genzyme's articles of organization, such requirement shall be
satisfied if a meeting of the holders of the common stock representing such
division is held at which a quorum is present and the votes cast in favor of the
proposed action exceed the votes cast against.
15. NON-COMPETE. Genzyme General, Genzyme Molecular Oncology, Genzyme Surgical
Products and Genzyme Tissue Repair shall not engage to any material extent in
each other's principal businesses other than through joint ventures or other
collaborative arrangements involving more than one division to develop new
products and services jointly and with third parties, which transactions shall
be subject to the conditions set forth in Paragraph 9. The divisions may compete
in a business which is not a principal business of another division. The Genzyme
Board may determine in its good faith business judgment whether any particular
activities of one division involve a material engagement in the principle
businesses of another division.
16. CORPORATE OPPORTUNITIES. The Genzyme Board will review any matter which
involves the allocation of a corporate opportunity to any of the divisions, or
in part to one division and in part to another division. In accordance with
Massachusetts law, the Genzyme Board will make its determination with regard to
the allocation of any such opportunity and the benefit of any such opportunity
in accordance with its good faith business judgment of the best interests of
Genzyme and all of its stockholders as a whole. Among the factors that the
Genzyme Board may consider in making this allocation are (i) whether a
particular corporate opportunity is principally related to the business of
Genzyme General, Genzyme Molecular Oncology, Genzyme Surgical Products or
Genzyme Tissue Repair; (ii) whether one division, because of its managerial or
operational expertise, will be better positioned to undertake the corporate
opportunity; (iii) whether one division, because of its financial resources,
will be better positioned to undertake the corporate opportunity; and
(iv) existing contractual agreements and restrictions.
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