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EXHIBIT 3
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
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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 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.
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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 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(R) for
debridement of necrotic or damaged tissue; (ii) TGF-(beta)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(R) 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
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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 such transaction unless the division provides such
products and services to unrelated third parties in the ordinary course of
business. Such transactions shall also 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
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
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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,
subject to reservation of a number of such shares equal to the sum of
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(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 8. 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
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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 material 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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