<PAGE>
Filed Pursuant to Rule 424(b)(3)
Registration File No. 333-34972
<TABLE>
<S> <C>
GENZYME CORPORATION
One Kendall Square
[LOGO] Cambridge, MA 02139
(617) 252-7500
</TABLE>
NOVEMBER 3, 2000
Dear Stockholders:
We cordially invite you to attend a special meeting of the stockholders of
Genzyme Corporation at The Residence Inn, 6 Cambridge Center, Cambridge,
Massachusetts on December 15, 2000, at 2:00 p.m. Boston time.
At the special meeting, we will ask you to vote on several proposals related
to the creation of a new Genzyme tracking stock, the exchange of outstanding
shares of two series of our tracking stock into the new stock, and a merger with
Biomatrix, Inc.
The merger agreement provides for the acquisition of Biomatrix in exchange
for cash and shares of the new series of Genzyme common stock, which we refer to
as Genzyme Biosurgery Division Common Stock. Genzyme Biosurgery Division Common
Stock is intended to reflect the value and track the performance of Genzyme
Biosurgery, a new division of Genzyme that we propose to establish by combining
Genzyme Tissue Repair, Genzyme Surgical Products, and Biomatrix.
The key items on the agenda for the special meeting are proposals to:
- amend our charter to cancel Genzyme Surgical Products Division Common
Stock and Genzyme Tissue Repair Division Common Stock and create the
Genzyme Biosurgery Division Common Stock;
- approve the exchange of each outstanding share of Genzyme Surgical
Products Division Common Stock for 0.6060 share of Genzyme Biosurgery
Division Common Stock; and
- approve the exchange of each outstanding share of Genzyme Tissue Repair
Division Common Stock for 0.3352 share of Genzyme Biosurgery Division
Common Stock.
If approved, the above proposals will become effective only if and when the
merger becomes effective. Genzyme has applied for quotation of the Genzyme
Biosurgery Division Common Stock on the Nasdaq National Market under the trading
symbol "GZBX."
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY APPROVED
THE PROPOSALS RELATED TO THE FORMATION OF GENZYME BIOSURGERY AND DETERMINED THAT
THE FORMATION OF GENZYME BIOSURGERY IS IN THE BEST INTERESTS OF GENZYME AND ITS
STOCKHOLDERS. YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
EACH OF THE PROPOSALS.
ACCOMPANYING THIS LETTER IS A NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND
A JOINT PROXY STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THESE MATERIALS IN
THEIR ENTIRETY AND TO CONSIDER CAREFULLY THE MATTERS DISCUSSED UNDER "RISK
FACTORS" BEGINNING ON PAGE 30 BEFORE VOTING.
Whether or not you plan to attend the special meeting, please complete,
sign, date and return your proxy in the enclosed envelope. Alternatively, you
may give us instructions by telephone or over the Internet. YOUR VOTE IS VERY
IMPORTANT.
Sincerely,
[/S/ HENRI A. TERMEER]
Henri A. Termeer
Chairman of the Board, President and
Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE CHARTER AMENDMENT, SHARE EXCHANGES OR
MERGER DESCRIBED IN THE JOINT PROXY STATEMENT/PROSPECTUS OR THE GENZYME
BIOSURGERY DIVISION COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER AND
THE SHARE EXCHANGES, OR DETERMINED IF THE JOINT PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED NOVEMBER 3, 2000
AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT NOVEMBER 9, 2000.
<PAGE>
GENZYME CORPORATION
ONE KENDALL SQUARE
CAMBRIDGE, MASSACHUSETTS 02139
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 15, 2000 AT 2:00 P.M.
------------------------
To the Stockholders of Genzyme Corporation:
We will hold a special meeting of the stockholders of Genzyme Corporation at
The Residence Inn, 6 Cambridge Center, Cambridge, Massachusetts, on
December 15, 2000, at 2:00 p.m., Boston time, for the following purposes:
1. To consider and vote upon a proposal to amend and restate the Genzyme
charter to create a new series of common stock designated as Genzyme
Biosurgery Division Common Stock and to cancel the Genzyme Surgical
Products Division Common Stock and the Genzyme Tissue Repair Division
Common Stock, after which the authorized capitalization of Genzyme will
include 390,000,000 shares of common stock, 200,000,000 shares of which
will be designated as Genzyme General Division Stock, 40,000,000 shares
of which will be designated Genzyme Molecular Oncology Division Common
Stock, 100,000,000 shares of which will be designated Genzyme Biosurgery
Division Common Stock and 50,000,000 shares of which will be
undesignated, all as contemplated by the merger agreement among Genzyme
Corporation, a specially formed, wholly owned subsidiary of Genzyme, and
Biomatrix, Inc.
2. For the holders of Genzyme Surgical Products Division Common Stock,
voting as a separate class, to consider and vote upon a proposal to
cancel the Genzyme Surgical Products Division Common Stock and receive in
exchange 0.6060 share of Genzyme Biosurgery Division Common Stock for
each share of Genzyme Surgical Products Division Common Stock, and to
transfer the assets of Genzyme Surgical Products to Genzyme Biosurgery as
contemplated by the merger agreement.
3. For the holders of Genzyme Tissue Repair Division Common Stock, voting
as a separate class, to consider and vote upon a proposal to cancel the
Genzyme Tissue Repair Division Common Stock and receive in exchange
0.3352 share of Genzyme Biosurgery Division Common Stock for each share
of Genzyme Tissue Repair Division Common Stock, and to transfer the
assets of Genzyme Tissue Repair to Genzyme Biosurgery as contemplated by
the merger agreement.
4. To transact such other business as may properly be brought before the
special meeting or any adjournment of it by the Genzyme board of
directors.
We cannot take the actions contemplated in paragraph (1) unless holders of a
majority of the outstanding shares of all series of Genzyme common stock voting
together as a single class affirmatively approve the proposal. We cannot take
the actions contemplated in paragraph (2) unless the holders of a majority of
the outstanding shares of all Genzyme Surgical Products Division Common Stock,
voting separately as a class, approve of the proposal. We cannot take the
actions contemplated in paragraph (3) unless the holders of a majority of the
outstanding shares of all Genzyme Tissue Repair Division Common Stock, voting as
a separate class, approve of the proposal. We cannot complete the merger unless
the charter amendment and share exchanges contemplated in paragraphs (1), (2),
and (3), are approved. Likewise, the charter amendment and share exchanges, if
approved, will not be effected unless the merger occurs. Only stockholders who
owned shares of Genzyme common stock at the close of business on October 25,
2000, the record date for the special meeting, are entitled to notice of, and to
vote at, the special meeting and any adjournments or postponements of it.
<PAGE>
Under Massachusetts law, a holder of Genzyme Surgical Products Division
Common Stock or Genzyme Tissue Repair Division Common Stock is entitled to
assert dissenters' rights of appraisal if the charter amendment and share
exchanges are adopted and made effective. If the proposals for the charter
amendment and share exchanges are approved by Genzyme's stockholders and
effected by Genzyme, then any holder of Genzyme Surgical Products Division
Common Stock or Genzyme Tissue Repair Division Common Stock:
- who, prior to the taking of those votes, files with Genzyme a written
objection to the charter amendment and share exchanges stating that he or
she intends to demand payment for his or her shares if those actions are
effected, and
- whose shares are not voted in favor of those proposals,
has the right to demand in writing from Genzyme, within 20 days after receiving
written notice from Genzyme that the charter amendment and share exchanges have
become effective, payment for his or her shares and appraisal of their value.
Genzyme and dissenting stockholders will have the rights and duties, and must
follow the procedures, regarding appraisal demands contained in sections 86
through 98 of Chapter 156B of the General Laws of Massachusetts, a copy of which
is attached as Annex H to the accompanying joint proxy statement/prospectus.
For more information about the merger and the charter amendment and share
exchanges, please review the accompanying joint proxy statement/prospectus and
the merger agreement attached as Annex A.
By order of the Board of Directors,
[/S/ PETER WIRTH]
Peter Wirth
Executive Vice President, Chief Legal
Officer and Clerk
Cambridge, Massachusetts
November 3, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. ALTERNATIVELY, YOU MAY VOTE YOUR INSTRUCTIONS BY PHONE OR VIA THE
INTERNET, INSTRUCTIONS FOR WHICH CAN BE FOUND ON YOUR PROXY CARD. YOU CAN REVOKE
YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
<PAGE>
BIOMATRIX, INC.
65 RAILROAD AVENUE
RIDGEFIELD, NEW JERSEY 07657
November 3, 2000
Dear Biomatrix Stockholder:
We cordially invite you to attend a special meeting of the stockholders of
Biomatrix, Inc. at the Marriott at Glenpointe, 100 Frank W. Burr Boulevard,
Teaneck, New Jersey 07666 on December 7, 2000, at 10:00 a.m. local time.
At the special meeting, we will ask you to vote on a proposal to adopt a
merger agreement with Genzyme Corporation that will cause Biomatrix to become a
wholly owned subsidiary of Genzyme. In the merger, each one of your shares of
Biomatrix common stock will be converted into either
- $37.00 in cash,
- one share of a new series of Genzyme common stock designated as "Genzyme
Biosurgery Division Common Stock" or
- a combination of cash and a fraction of a share of Genzyme Biosurgery
Division Common Stock, all according to the procedures described in the
joint proxy statement/prospectus.
In connection with the merger, the business of Biomatrix will be combined
with the businesses of Genzyme's Tissue Repair and Surgical Products Divisions
to form Genzyme Biosurgery, a new division that Genzyme will create if approved
by its stockholders.
Upon completion of the merger, Genzyme Biosurgery Division Common Stock will
be one of Genzyme Corporation's tracking stocks. Genzyme has applied for
quotation of the Genzyme Biosurgery Division Common Stock on the Nasdaq National
Market under the trading symbol "GZBX."
If approved, the merger will become effective only if and when the amendment
of Genzyme's charter necessary to create the Genzyme Biosurgery Division Common
Stock becomes effective.
AFTER CAREFUL CONSIDERATION, YOUR BOARD OF DIRECTORS UNANIMOUSLY APPROVED
THE MERGER AND THE MERGER AGREEMENT AND DETERMINED THAT THE MERGER IS FAIR AND
IN THE BEST INTERESTS OF BIOMATRIX AND ITS STOCKHOLDERS. YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE MERGER AGREEMENT.
ACCOMPANYING THIS LETTER IS A NOTICE OF SPECIAL MEETING OF STOCKHOLDERS AND
A JOINT PROXY STATEMENT/PROSPECTUS. WE ENCOURAGE YOU TO READ THE ENTIRE JOINT
PROXY STATEMENT/PROSPECTUS AND TO CONSIDER CAREFULLY THE MATTERS DISCUSSED UNDER
"RISK FACTORS" BEGINNING ON PAGE 30 BEFORE VOTING.
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/ ENDRE A. BALAZS, MD]
Endre A. Balazs, MD
Chief Executive Officer and Chief
Scientific Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATOR HAS APPROVED OR DISAPPROVED THE MERGER DESCRIBED IN THE JOINT PROXY
STATEMENT/PROSPECTUS OR THE GENZYME BIOSURGERY DIVISION COMMON STOCK TO BE
ISSUED IN CONNECTION WITH THE MERGER AND THE CREATION OF GENZYME BIOSURGERY, OR
DETERMINED IF THE PROXY STATEMENT/PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THIS JOINT PROXY STATEMENT/PROSPECTUS IS DATED NOVEMBER 3, 2000
AND IS FIRST BEING MAILED TO STOCKHOLDERS ON OR ABOUT NOVEMBER 9, 2000.
<PAGE>
BIOMATRIX, INC.
65 RAILROAD AVENUE
RIDGEFIELD, NEW JERSEY 07657
------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 7, 2000 AT 10:00 A.M.
------------------------
To the Stockholders of Biomatrix, Inc.:
We will hold a special meeting of the stockholders of Biomatrix, Inc. at the
Marriott at Glenpointe, 100 Frank W. Burr Boulevard, Teaneck, New Jersey 07666
on December 7, 2000, at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to adopt the merger agreement among
Genzyme Corporation, a wholly owned subsidiary of Genzyme and Biomatrix.
In the merger, Biomatrix will become a wholly owned subsidiary of
Genzyme, and all outstanding shares of Biomatrix common stock will be
converted into the right to receive cash, shares of Genzyme Biosurgery
Division common stock or a combination of cash and shares.
2. To transact such other business as may properly be brought before the
special meeting or any adjournment of it by the Biomatrix board of
directors.
We cannot complete the merger unless a majority of the shares outstanding on
November 2, 2000, the record date for the special meeting, affirmatively adopt
the merger agreement. Only stockholders who owned shares of Biomatrix common
stock at the close of business on November 2, 2000 are entitled to notice of,
and to vote at, the special meeting and any adjournments or postponements of it.
If approved, the merger will become effective only if and when the creation of
the Genzyme Biosurgery Division Common Stock is approved by Genzyme stockholders
and made effective.
Under Delaware law, a holder of Biomatrix common stock is entitled to assert
dissenters' rights of appraisal if the merger is adopted and made effective. If
the merger is approved by Biomatrix' stockholders and effected by Biomatrix,
then any holder of Biomatrix common stock:
- who, prior to the taking of the vote approving the merger, files with
Biomatrix 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
- whose shares are not voted in favor of the merger,
has the right to demand in writing from Biomatrix, within 20 days after
receiving written notice from Biomatrix that the merger has become effective,
payment for his or her shares and appraisal of their value. Biomatrix and
dissenting stockholders will have the rights and duties, and 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 G to the
accompanying joint proxy statement/prospectus.
For more information about the merger, please review the accompanying joint
proxy statement/prospectus and the merger agreement attached as Annex A.
By Order of the Board of Directors,
[/s/ ENDRE A. BALAZS, MD]
Endre A. Balazs, MD
Chief Executive Officer and Chief
Scientific Officer
Ridgefield, New Jersey
November 3, 2000
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, SIGN AND
DATE THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID
ENVELOPE. ALTERNATIVELY, YOU MAY VOTE YOUR INSTRUCTIONS BY PHONE OR VIA THE
INTERNET, INSTRUCTIONS FOR WHICH CAN BE FOUND ON YOUR PROXY CARD. YOU CAN REVOKE
YOUR PROXY AT ANY TIME BEFORE IT IS VOTED.
<PAGE>
REFERENCES TO ADDITIONAL INFORMATION
This joint proxy statement/prospectus incorporates important business and
financial information about Genzyme and Biomatrix from other documents that are
not included in or delivered with this joint proxy statement/prospectus. This
information is available to you without charge upon your written or oral
request. You can obtain those documents, which are incorporated by reference in
this joint proxy statement/prospectus, by requesting them in writing or by
telephone from the appropriate company at the following addresses and telephone
numbers:
<TABLE>
<S> <C>
Genzyme Corporation Biomatrix, Inc.
Shareholder Relations Investor Relations
One Kendall Square 65 Railroad Avenue
Cambridge, Massachusetts 02139 Ridgefield, New Jersey 07657
(617) 252-7526 (201) 945-9550
</TABLE>
IF YOU WOULD LIKE TO REQUEST DOCUMENTS, PLEASE DO SO BY NOVEMBER 30, 2000 IN
ORDER TO RECEIVE THEM BEFORE THE BIOMATRIX SPECIAL MEETING OR BY DECEMBER 8,
2000 IN ORDER TO RECEIVE THEM BEFORE THE GENZYME SPECIAL MEETING.
See "WHERE YOU CAN FIND MORE INFORMATION" beginning on page 197.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
QUESTIONS & ANSWERS FOR GENZYME STOCKHOLDERS ABOUT THE
CHARTER AMENDMENT AND TRACKING STOCK EXCHANGES............ 1
QUESTIONS & ANSWERS FOR BIOMATRIX STOCKHOLDERS ABOUT THE
MERGER.................................................... 2
SUMMARY..................................................... 4
COMPARATIVE PER SHARE DATA.................................. 27
COMPARATIVE STOCK PRICES AND DIVIDENDS...................... 28
RISK FACTORS................................................ 30
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS........... 57
UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION.......... 58
THE GENZYME SPECIAL MEETING................................. 88
THE BIOMATRIX SPECIAL MEETING............................... 91
GENZYME CORPORATION......................................... 93
BIOMATRIX................................................... 94
BACKGROUND AND REASONS FOR THE MERGER....................... 95
Background................................................ 95
Biomatrix' Reasons for the Merger......................... 99
Fairness Opinion of Biomatrix' Financial Advisor.......... 101
Genzyme's Reasons for the Merger.......................... 109
Fairness Opinion of Genzyme's Financial Advisor........... 111
Interests of Biomatrix' Directors and Officers in the
Merger.................................................. 122
THE MERGER AND THE MERGER AGREEMENT......................... 124
General Description of the Merger......................... 124
Effective Time............................................ 124
Merger Consideration for Biomatrix Common Stock........... 124
No Fractional Shares...................................... 129
Procedure for Filing Elections and Converting Biomatrix
Common Stock into Merger Consideration.................. 129
Exchange of Biomatrix Stock Certificates.................. 129
Treatment of Biomatrix Stock Options...................... 130
Treatment of Biomatrix Convertible Note................... 131
Treatment of Biomatrix Benefits and Other Employee
Matters................................................. 131
Appraisal Rights of Biomatrix Stockholders................ 131
Accounting Treatment...................................... 132
Material United States Federal Income Tax Consequences of
the Merger.............................................. 132
Financing the Cash Portion of the Merger Consideration.... 132
Covenants Under the Merger Agreement...................... 133
Representations and Warranties............................ 136
Conditions to the Merger.................................. 137
Termination of the Merger Agreement....................... 138
Termination Fees and Expenses............................. 139
Amendments and Waivers.................................... 140
No Relief from Liability for Willful Breach............... 140
Nasdaq Listing of Biosurgery Stock........................ 140
Delisting of Biomatrix Common Stock....................... 140
Resales of Biosurgery Stock by Biomatrix Affiliates....... 140
Stockholder Voting Agreements............................. 141
Stock Option Agreement.................................... 141
Regulatory Matters........................................ 143
MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF
THE MERGER AND THE GENZYME TRACKING STOCK EXCHANGES....... 144
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
THE GENZYME TRACKING STOCK EXCHANGE PROPOSALS............... 150
Reasons for the Genzyme Tracking Stock Exchange
Proposals............................................... 150
Description of the Tracking Stock Exchange Proposals...... 150
Effects of the Tracking Stock Exchange on Holders of
Surgical Products Stock................................. 151
Effects of the Tracking Stock Exchange on Holders of
Tissue Repair Stock..................................... 151
Effects of the Tracking Stock Exchange on Holders of
Genzyme General Stock................................... 152
Effects of the Tracking Stock Exchange on Holders of
Molecular Oncology Stock................................ 152
Mechanics of the Tracking Stock Exchanges................. 153
No Fractional Shares...................................... 153
Accounting Treatment...................................... 153
Material United States Federal Income Tax Consequences of
the Genzyme Tracking Stock Exchanges.................... 154
Appraisal Rights of Holders of Surgical Products Stock and
Tissue Repair Stock..................................... 154
Effect of the Tracking Stock Exchanges on the Genzyme
Benefit Plans........................................... 155
MANAGEMENT AFTER THE TRACKING STOCK EXCHANGES AND THE
MERGER.................................................... 156
STOCK OWNERSHIP OF DIRECTORS, EXECUTIVE OFFICERS AND
PRINCIPAL STOCKHOLDERS.................................... 157
DESCRIPTION OF GENZYME CAPITAL STOCK........................ 162
DESCRIPTION OF GENZYME'S MANAGEMENT AND ACCOUNTING
POLICIES.................................................. 175
COMPARISON OF RIGHTS OF GENZYME AND BIOMATRIX
STOCKHOLDERS.............................................. 181
COMPARISON OF RIGHTS OF HOLDERS OF BIOSURGERY STOCK AND OF
SURGICAL PRODUCTS STOCK AND TISSUE REPAIR STOCK........... 194
LEGAL MATTERS............................................... 195
EXPERTS..................................................... 195
FUTURE BIOMATRIX STOCKHOLDER PROPOSALS...................... 195
FUTURE GENZYME STOCKHOLDER PROPOSALS........................ 196
OTHER MATTERS............................................... 196
NOTICE OF AMENDMENT OF GENZYME BY-LAWS...................... 196
WHERE YOU CAN FIND MORE INFORMATION......................... 197
</TABLE>
<TABLE>
<S> <C>
ANNEXES
------------------------------------------------------------
AMENDED AGREEMENT AND PLAN OF MERGER AMONG GENZYME
CORPORATION, SEAGULL MERGER CORPORATION, AND BIOMATRIX,
INC....................................................... Annex A
STOCK OPTION AGREEMENT...................................... Annex B
OPINION OF LEHMAN BROTHERS.................................. Annex C
OPINION OF MERRILL LYNCH.................................... Annex D
GENZYME MANAGEMENT AND ACCOUNTING POLICIES, AS PROPOSED TO
BE AMENDED AND RESTATED................................... Annex E
TERMS OF BIOSURGERY STOCK................................... Annex F
DELAWARE APPRAISAL LAW...................................... Annex G
MASSACHUSETTS APPRAISAL LAW................................. Annex H
</TABLE>
NOTE REGARDING TRADEMARKS
Genzyme-Registered Trademark-, Cerezyme-Registered Trademark-,
Ceredase-Registered Trademark-, Sepra Film-Registered Trademark- and
Carticel-REGISTERED TRADEMARK- are registered trademarks of Genzyme Corporation.
Fabrazyme-TM- is a trademark of Genzyme Corporation.
Genzyme-Registered Trademark- is a registered service mark of Genzyme
Corporation.
Synvisc-REGISTERED TRADEMARK-, Hylasine-Registered Trademark- and
Hylaform-Registered Trademark- are registered trademarks of Biomatrix, Inc.
Biomatrix-Registered Trademark- is a registered service mark of Biomatrix, Inc.
Renagel-Registered Trademark- is a registered trademark of GelTex
Pharmaceuticals, Inc.
NeuroCell-TM--PD is a trademark of Diacrin, Inc.
ii
<PAGE>
QUESTIONS & ANSWERS FOR GENZYME STOCKHOLDERS
ABOUT THE CHARTER AMENDMENT AND TRACKING STOCK EXCHANGES
Q: HOW DO I VOTE ON THE CHARTER AMENDMENT AND TRACKING STOCK EXCHANGE
PROPOSALS?
A: Carefully read and consider the information contained in this joint proxy
statement/ prospectus. Then, please complete, sign and date your proxy and
return it as soon as possible so that your shares may be represented at the
Genzyme special meeting. You may also vote, instead, by telephone or on the
Internet, instructions for which can be found on your proxy card.
If you sign and send in a proxy card but do not indicate how you want to
vote, Genzyme will count your proxy as a vote FOR the proposals. If you
abstain from voting or do not vote, it will have the effect of a vote
against the proposals.
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 send your notice of
revocation to Genzyme or submit a new proxy.
Third, you can attend the Genzyme 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: Your broker will vote your shares only if you provide instructions on how to
vote. Follow the information provided to you by your broker.
Without instructions, your broker will not vote your shares, which will have
the effect of a vote against the tracking stock exchanges and amendment.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After Genzyme and Biomatrix have received the necessary stockholder
approvals and the charter amendment and the merger are completed, holders of
Surgical Products Stock and Tissue Repair Stock will receive written
instructions for exchanging their stock certificates. The tracking stock
exchanges and the merger do not affect certificates representing Genzyme
General Stock or Molecular Oncology Stock. Please do not send in your stock
certificates with your proxy.
Q: WHEN DO YOU EXPECT THE TRACKING STOCK EXCHANGES AND THE MERGER TO BE
COMPLETED?
A: Genzyme and Biomatrix are working toward completing the tracking stock
exchanges and the merger as quickly as possible. If we obtain the necessary
stockholder approvals, we expect to complete the tracking stock exchanges
and the merger during the second half of 2000.
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: You should call Genzyme Shareholder Relations at (617) 252-7526.
You can also obtain additional information about Genzyme and Biomatrix from
documents filed with the SEC by following the instructions in the section
entitled "WHERE YOU CAN FIND MORE INFORMATION" beginning on page 197 of this
joint proxy statement/prospectus.
1
<PAGE>
QUESTIONS & ANSWERS FOR BIOMATRIX STOCKHOLDERS ABOUT THE MERGER
Q: HOW DO I VOTE ON THE MERGER?
A: Carefully read and consider the information contained in this joint proxy
statement/ prospectus. Then, please complete, sign and date your proxy and
return it as soon as possible so that your shares may be represented at the
Biomatrix special meeting. You may also vote, instead, by telephone or on
the Internet, instructions for which can be found on your proxy card.
If you sign and send in your proxy, but do not indicate how you want to
vote, Biomatrix 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 the merger.
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. Third, you
can attend the Biomatrix 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: Your broker will vote your shares only if you provide instructions on how to
vote. Follow the information provided to you by your broker.
Without instructions your broker will not vote your shares, which will have
the effect of a vote against the merger.
Q: HOW DO I ELECT THE TYPE OF CONSIDERATION I WOULD LIKE TO RECEIVE IN THE
MERGER?
A: You will be receiving an election form/letter of transmittal. You should
complete and sign that form and return it together with your Biomatrix
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 certificates by 5:00 p.m., Boston Time on
December 6, 2000.
If you hold your Biomatrix common stock in "street name," your broker will
provide you with instructions as to how to complete and return the election
form/letter of transmittal.
Q: CAN I CHANGE MY ELECTION AFTER I SUBMIT MY ELECTION FORM/LETTER OF
TRANSMITTAL?
A: Yes. You may change your election or revoke it at any time before 5:00 p.m.,
Boston Time on December 6, 2000, by submitting a written notice to the
exchange agent, who must receive it before that time.
Q: AM I GUARANTEED TO RECEIVE THE TYPE OF CONSIDERATION I ELECT?
A: No. As described in detail later in this joint prospectus/proxy statement,
the amounts of cash and Genzyme Biosurgery Division Common Stock available
as merger consideration are both limited. Accordingly, you may not receive
the type of consideration you elect.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. You should complete and sign your election form/letter of transmittal and
return it together with your Biomatrix common stock certificates to the
exchange agent in accordance with the instructions accompanying the election
form/letter of transmittal. If the exchange agent does not receive a
properly completed election form/ letter of transmittal and stock
certificates by the deadline indicated above, you will be deemed not to have
made an election. In this case, following the merger, the exchange agent
will send to you instructions for surrendering your stock certificates in
order to receive merger consideration. If you hold your shares of Biomatrix
common stock in "street name," your broker will provide you with
instructions.
Q: WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: Genzyme and Biomatrix are working toward completing the merger as quickly as
possible. If we obtain the necessary stockholder approvals, we expect to
complete the merger during the fourth quarter of 2000.
2
<PAGE>
Q: WHOM SHOULD I CALL WITH QUESTIONS?
A: You should call Biomatrix Investor Relations at (201) 945-9550.
At any time before the closing of the polls, by calling toll-free at
1-877-430-9939 (stockholders in the 617 area code should call 617-761-8520),
you can obtain information as to what would be the expected result of your
election to receive cash, Biosurgery Stock or the standard consideration for
a share of your Biomatrix stock, based on elections and dissenter
notifications received to date.
You can also obtain additional information about Genzyme and Biomatrix from
documents filed with the SEC by following the instructions in the section
entitled "WHERE YOU CAN FIND MORE INFORMATION" beginning on page 197 of this
joint proxy statement/prospectus.
3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS WHAT GENZYME AND BIOMATRIX BELIEVE IS THE MOST
IMPORTANT INFORMATION ABOUT THE MERGER AND THE TRACKING STOCK EXCHANGES.
NONETHELESS, TO MORE FULLY UNDERSTAND THE TRANSACTIONS, YOU SHOULD READ THIS
ENTIRE JOINT PROXY STATEMENT/PROSPECTUS, INCLUDING THE MATERIALS ATTACHED AS
ANNEXES, AS WELL AS THE OTHER DOCUMENTS TO WHICH WE HAVE REFERRED YOU. SEE
"WHERE YOU CAN FIND MORE INFORMATION" BEGINNING ON PAGE 197. THE PAGE REFERENCES
IN PARENTHESES WILL DIRECT YOU TO A MORE DETAILED DESCRIPTION OF TOPICS
PRESENTED IN THIS SUMMARY.
THE COMPANIES
GENZYME (SEE PAGE 93)
Genzyme is a biotechnology company that develops innovative products and
services for major unmet medical needs. Genzyme currently has four 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 has the following four series of tracking stock, which are designed
to reflect the value and track the performance of those divisions:
- Genzyme General Division Common Stock (or Genzyme General Stock);
- Genzyme Molecular Oncology Division Common Stock (or Molecular Oncology
Stock);
- Genzyme Surgical Products Division Common Stock (or Surgical Products
Stock); and
- Genzyme Tissue Repair Division Common Stock (or Tissue Repair Stock).
In September, Genzyme entered into an agreement calling for GelTex
Pharmaceuticals, Inc., a developer and marketer of non-absorbed polymer drugs,
to merge into a wholly-owned subsidiary of Genzyme. Under the merger agreement,
GelTex's common stockholders will receive, in the aggregate, approximately
7.8 million shares of Genzyme General Stock and $509 million in cash. If that
merger is completed, Genzyme will allocate the former GelTex assets and
liabilities to Genzyme General. If approved by GelTex's stockholders, the merger
is expected to close in late 2000 or early 2001.
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.
BIOMATRIX (SEE PAGE 94)
Biomatrix, founded in 1981, develops, manufactures and commercializes a
series of proprietary viscoelastic products made of biological polymers called
hylans for use in therapeutic medical applications and skin care. Hylans are
chemically modified forms of the naturally occurring hyaluronan (also known as
hyaluronic acid or sodium hyaluronate). Hylans are the second generation of
viscoelastics used in medicine, and are characterized by significantly enhanced
physical (rheological) properties (elasticity, viscosity and pseudoplasticity)
as compared to naturally occurring hyaluronan, from which the first generation
viscoelastics are made. The discovery of hylans has allowed Biomatrix to develop
a range of patented products with superior viscoelastic properties in the forms
of fluids, gels and solids. Biomatrix' operations consist of therapeutic medical
products and skin care intermediate products.
The principal offices of Biomatrix, a Delaware corporation, are located at
65 Railroad Avenue, Ridgefield, New Jersey 07657, and its telephone number at
these offices is (201) 945-9550.
4
<PAGE>
THE TRACKING STOCK EXCHANGES AND THE MERGER
SUMMARY OF THE TRANSACTIONS (SEE PAGE 124)
In the proposed merger, Biomatrix will merge into a specially formed, wholly
owned subsidiary of Genzyme. The merger subsidiary will be the surviving
corporation and will be renamed Genzyme Biosurgery Corporation.
Concurrently with the merger, Genzyme will combine Genzyme Tissue Repair,
Genzyme Surgical Products and Biomatrix to form a new division named Genzyme
Biosurgery and will create a new series of common stock designated as "Genzyme
Biosurgery Division Common Stock," or Biosurgery Stock, designed to track the
new division's performance.
The proposed merger will occur following adoption of the merger agreement by
the Biomatrix stockholders, approval of Genzyme's tracking stock exchanges by
the Genzyme stockholders, and satisfaction or waiver of all other conditions to
the merger. The merger agreement is attached as Annex A and is incorporated
herein by reference. We encourage you to read it because it is the legal
document that governs the merger.
HOW BIOSURGERY STOCK WILL "TRACK" THE PERFORMANCE OF THE GENZYME BIOSURGERY
DIVISION (SEE PAGE 162)
Biosurgery Stock will be a "tracking stock." This means that it will be a
series of Genzyme common stock designed to reflect the financial performance of
the company's Genzyme Biosurgery division, rather than the performance of the
company as a whole. The chief mechanisms intended to cause Biosurgery Stock to
"track" the financial performance of Genzyme Biosurgery are provisions in
Genzyme's charter governing dividends and distributions. Under these provisions,
Genzyme's charter will:
- factor the assets and liabilities and income or losses attributable to
Genzyme Biosurgery into the determination of the amount available to pay
dividends on Biosurgery Stock; and
- require the company to exchange, redeem or distribute a dividend on the
Biosurgery Stock if all or substantially all of the assets allocated to
the Genzyme Biosurgery division are sold to a third party. A dividend or
redemption payment must equal in value the net after-tax proceeds from the
sale; an exchange must be for Genzyme General Stock at a 10% premium to
the Biosurgery's Stock average market price following announcement of the
sale.
The Genzyme board, subject to state laws and limits in Genzyme's charter,
including those discussed above, will be able to declare dividends on Biosurgery
Stock in its discretion. To date, Genzyme has never paid or declared cash
dividends on shares of any of its tracking stocks, nor does it anticipate paying
cash dividends on any of its tracking stocks, including Biosurgery Stock, in the
foreseeable future.
WHAT THE HOLDERS OF BIOMATRIX COMMON STOCK WILL RECEIVE IN THE MERGER (SEE PAGE
124)
As a result of the merger, each outstanding share of Biomatrix common stock
will be automatically converted into the right to receive one of the following:
- $37.00 in cash, which we refer to as the cash consideration;
- one share of Biosurgery Stock, which we refer to as the stock
consideration; or
- a combination of cash and a fraction of a share of Biosurgery Stock.
Each record holder of Biomatrix common stock can indicate on an election
form the stockholder's preference, with respect to some or all of its shares,
for:
- the cash consideration;
- the stock consideration; or
- a fixed combination of cash and Biosurgery Stock that we refer to as the
standard consideration.
5
<PAGE>
The following table illustrates the relative pre-tax market value of the
merger consideration that a holder of 100 shares of Biomatrix common stock would
receive under each of the three available elections at various assumed per share
trading prices for Biosurgery Stock. It assumes that the stockholder receives
exactly the proportion of cash and Biosurgery Stock that he elects. The table is
for illustrative purposes only and does not reflect the actual amounts of cash
and stock that any individual Biomatrix stockholder will receive. Neither
Genzyme nor Biomatrix can predict the future trading price of a share of
Biosurgery Stock.
<TABLE>
<CAPTION>
MARKET
PER SHARE MARKET VALUE OF
BIOSURGERY VALUE OF ALL STOCK VALUE OF ALL STANDARD
PRICE ELECTION* CASH ELECTION* ELECTION*
--------------------- ------------------ -------------- -----------
<S> <C> <C> <C> <C>
$ 8.00 $ 800 $3,700 $1,406
10.00 1,000 3,700 1,671
12.00 1,200 3,700 1,910
14.00 1,400 3,700 2,053
16.00 1,600 3,700 2,196
18.00 1,800 3,700 2,339
20.00 2,000 3,700 2,482
22.00 2,200 3,700 2,626
24.00 2,400 3,700 2,769
26.00 2,600 3,700 2,912
28.00 2,800 3,700 3,055
30.00 3,000 3,700 3,199
32.00 3,200 3,700 3,342
34.00 3,400 3,700 3,485
</TABLE>
------------------------
* Assumes that the shareholder receives exactly what he elects.
However, regardless of each stockholder's individual election, a fixed
percentage of the shares of Biomatrix common stock that receive merger
consideration will be exchanged for the right to receive the cash consideration.
This percentage will not exceed 28.38% and may be reduced
- to reflect the number of shares for which Biomatrix stockholders exercise
dissenters' rights; or
- to preserve the status of the merger as a reorganization for federal
income tax purposes.
Because the percentage of outstanding shares of Biomatrix common stock that
will convert into the cash consideration will be fixed, Biomatrix stockholders
may not receive any or all of the type of consideration that they elect. For
example, a Biomatrix stockholder who elects cash consideration may receive a
combination of cash and Biosurgery Stock or, if more than 28.38% of the
Biomatrix shares are dissenting shares, all Biosurgery Stock. Similarly, a
Biomatrix stockholder who elects the stock consideration may receive a
combination of Biosurgery Stock and cash.
The standard consideration will consist of (l) cash equal to $37 multiplied
by the percentage of the shares receiving merger consideration in the form of
cash and (2) a fraction of a share of Biosurgery Stock equal to the percentage
of shares receiving merger consideration in the form of Biosurgery Stock. If no
Biomatrix stockholders exercise dissenters' rights and there is no tax-based
adjustment, as discussed below, the standard consideration for each share of
Biomatrix common stock will be paid at the rate of $10.50 in cash and 0.7162 of
a share of Biosurgery Stock. The composition of the standard consideration will
not be subject to prorating but will be subject to adjustment for dissenting
shares or if there is a tax-based adjustment.
The following table illustrates the amount of cash and fraction of a share
of Biosurgery Stock comprising the standard consideration based upon various
assumed numbers of shares of Biomatrix common stock held by dissenting
shareholders and assuming 23,500,000 shares of Biomatrix common stock are
outstanding at closing. The table does not reflect the actual amounts of cash
and stock that
6
<PAGE>
any individual Biomatrix stockholder will receive. The assumed numbers of
Biomatrix shares held by dissenting shareholders are for illustrative purposes
only.
<TABLE>
<CAPTION>
REVISED
PERCENTAGE OF CASH RECEIVED BIOSURGERY SHARES
PERCENTAGE OF TOTAL NUMBER OF OUTSTANDING FOR EACH SHARE RECEIVED FOR EACH
TOTAL SHARES NUMBER OF SHARES THAT WILL TOTAL NON- SHARES THAT WILL ELECTING THE SHARE ELECTING
OUTSTANDING THAT SHARES CONVERT INTO DISSENTING CONVERT INTO STANDARD THE STANDARD
DISSENT DISSENTING CASH SHARES CASH ELECTION ELECTION
--------------------- ---------- ---------------- ---------- ---------------- -------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
0 % -- 6,669,300 23,500,000 28.38% $10.50 0.7162
1 235,000 6,434,300 23,265,000 27.66 10.23 0.7234
2 470,000 6,199,300 23,030,000 26.92 9.96 0.7308
3 705,000 5,964,300 22,795,000 26.16 9.68 0.7384
4 940,000 5,729,300 22,560,000 25.40 9.40 0.7460
5 1,175,000 5,494,300 22,325,000 24.61 9.11 0.7539
10 2,350,000 4,319,300 22,150,000 20.42 7.56 0.7958
20 4,700,000 1,969,300 18,800,000 10.48 3.88 0.8953
</TABLE>
In addition to the limitations described above, the aggregate number of
shares of Biosurgery Stock included in the merger consideration may be
increased, and the amount of cash included in the merger consideration may be
decreased, in order to ensure that the fair market value of all Biosurgery Stock
issued in the merger represents at least 45% of the total consideration. This
adjustment would be intended to preserve the status of the merger as a
reorganization for U.S. federal income tax purposes. This adjustment, if
required, would not alter either the cash price of $37 per share or the
one-for-one share exchange ratio. To determine the need for, and the magnitude
of, an adjustment, the fair value of the Biosurgery Stock would be as determined
in good faith by the Genzyme board of directors. Assuming that there were
23,500,000 shares of Biomatrix common stock outstanding at closing and that no
Biomatrix stockholders exercise dissenters' rights, this provision would be
triggered if the value per share of Biosurgery Stock were below approximately
$12.00 as determined by Genzyme's board at the effective time. Based on those
same assumptions, and subject to the terms of the Merger Agreement, if the value
of a share of Biosurgery Stock were determined by the board to be less than
$12.00, the amount of cash and fraction of a share of Biosurgery Stock
comprising the standard consideration would be as illustrated in the following
table. The table does not reflect actual amounts of cash and stock that any
individual Biomatrix stockholder will receive. The assumed values of a share of
Biosurgery Stock and the cash and shares of Biosurgery Stock that would be
received are for illustrative purposes only. This table is based on certain
assumptions; the actual value of a share, if less than $12.00, could be
different than any values reflected in the table.
<TABLE>
<CAPTION>
MARKET VALUE TOTAL NUMBER OF REVISED PERCENTAGE CASH RECEIVED FOR BIOSURGERY SHARES
PER SHARE OF SHARES THAT WILL OF OUTSTANDING EACH SHARE ELECTING RECEIVED FOR EACH SHARE
BIOSURGERY CONVERT INTO SHARES THAT WILL THE STANDARD ELECTING THE STANDARD
STOCK CASH CONVERT INTO CASH CONSIDERATION CONSIDERATION
--------------------- ---------------- ------------------ ------------------- -----------------------
<S> <C> <C> <C> <C>
$12.00 6,669,300 28.38% $10.50 0.7162
11.00 6,263,216 26.65 9.86 0.7335
10.00 5,835,214 24.83 9.19 0.7517
9.00 5,385,417 22.92 8.48 0.7708
8.00 4,912,114 20.90 7.73 0.7910
</TABLE>
Biomatrix has reported positive earnings during each of the last four years,
including net income of $18.6 million for 1999. Genzyme Biosurgery, on the other
hand, on a pro forma basis, would have experienced a division net loss of
$117.1 million in 1999. A majority of this loss is attributable to net losses
reported by Genzyme Tissue Repair and Genzyme Surgical Products and amortization
of intangibles resulting from purchase accounting. For details on this financial
data, please see "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION" beginning
on page 58. Genzyme expects that Genzyme Biosurgery will continue to report
losses for at least through the first half of 2001.
7
<PAGE>
WHAT THE HOLDERS OF SURGICAL PRODUCTS STOCK WILL RECEIVE IN THE TRACKING STOCK
EXCHANGE (SEE PAGE 151)
Under the terms of the merger agreement and the tracking stock exchange,
each outstanding share of Surgical Products Stock will convert into 0.6060 share
of Biosurgery Stock. The holders of 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, namely those of the Genzyme Biosurgery division.
Additionally, the votes and liquidation units per share of their holdings will
change, as described below.
DIFFERENCES BETWEEN THE RIGHTS OF HOLDERS OF SURGICAL PRODUCTS STOCK AND OF
BIOSURGERY STOCK (SEE PAGE 151)
The rights of a holder of Biosurgery Stock will differ from the rights of a
holder of Surgical Products Stock in the following respects:
- The Biosurgery Stock will be designed to reflect the financial performance
of the new Genzyme Biosurgery division, whereas Surgical Products Stock is
designed to reflect the performance of the Genzyme Surgical Products
division.
- The Biosurgery Stock will have a different number of votes and liquidation
units per share than the Surgical Products Stock; combined with the
tracking stock exchange's conversion ratio, this will result in an
immediate reduction in each Surgical Products Stock holder's relative
voting power by 50% and liquidation units by 50%.
Genzyme Surgical Products and Genzyme Tissue Repair have each recently
generated losses in excess of the net income generated by Biomatrix. In
addition, although we expect Genzyme Biosurgery to break even on an operating
basis in 2001, Genzyme Biosurgery's future reported earnings will be decreased
due to the amortization of goodwill and other intangible assets required under
the purchase method of accounting. The combination of these factors results in a
pro forma net loss allocated to a share of Biosurgery Stock significantly in
excess of that allocated to Surgical Products Stock. For details on this
financial data, please see "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION"
on page 58.
WHAT THE HOLDERS OF TISSUE REPAIR STOCK WILL RECEIVE IN THE TRACKING STOCK
EXCHANGE (SEE PAGE 151)
Under the terms of the merger agreement and the tracking stock exchange,
each outstanding share of Tissue Repair Stock will convert into 0.3352 share of
Biosurgery Stock. The holders of Tissue Repair 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, namely those of the Genzyme Biosurgery division.
Additionally, the votes and liquidation units per share of their holdings will
change, as described below.
DIFFERENCES BETWEEN THE RIGHTS OF HOLDERS OF TISSUE REPAIR STOCK AND OF
BIOSURGERY STOCK (SEE PAGE 151)
The rights of a holder of Biosurgery Stock will differ from the rights of a
holder of Tissue Repair Stock in the following respects:
- The Biosurgery Stock will be designed to reflect the financial performance
of the new Genzyme Biosurgery division, whereas Tissue Repair Stock is
designed to reflect the performance of the Genzyme Tissue Repair division.
- The Biosurgery Stock will have a different number of votes and liquidation
units per share than the Tissue Repair Stock; combined with the tracking
stock exchange's conversion ratio, this will result in an immediate
increase in each Tissue Repair Stock holder's relative voting power of
179%, but a reduction in relative liquidation units by 71%.
8
<PAGE>
Genzyme Tissue Repair and Genzyme Surgical Products have each recently
generated losses in excess of the net income generated by Biomatrix. In
addition, although we expect Genzyme Biosurgery to break even on an operating
basis in 2001, Genzyme Biosurgery's future reported earnings will be decreased
due to the amortization of goodwill and other intangible assets required under
the purchase method of accounting. The combination of these factors results in a
pro forma net loss allocated to a share of Biosurgery Stock significantly in
excess of that allocated to Tissue Repair Stock. For details on this financial
data, please see "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION" on page
58.
WHAT PERCENTAGES OF THE BIOSURGERY STOCK OUTSTANDING AFTER THE MERGER WILL BE
HELD BY FORMER HOLDERS OF BIOMATRIX COMMON STOCK, SURGICAL PRODUCTS STOCK AND
TISSUE REPAIR STOCK
We anticipate that immediately after the merger, approximately 47% of the
outstanding shares of Biosurgery Stock will be held by former Biomatrix common
stockholders, 26% will be held by former holders of Surgical Products Stock and
27% will be held by former holders of Tissue Repair Stock. The exact percentage
of Biosurgery Stock outstanding after the merger that will be held by former
holders of Biomatrix common stock, Surgical Products Stock and Tissue Repair
Stock will depend upon the number of shares of each stock outstanding
immediately prior to the merger. It will also depend upon whether holders of
those shares will have exercised dissenters rights and if any tax-based
adjustment is made to the number of shares of Biosurgery Stock issued to former
Biomatrix stockholders.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 144)
Genzyme and Biomatrix intend the merger to qualify as a reorganization
within the meaning of section 368 of the Internal Revenue Code. If the merger
does qualify as a reorganization, no gain or loss will be recognized by
Biomatrix, Genzyme or the merger subsidiary by reason of the merger. In
addition:
- Biomatrix stockholders who receive solely shares of Biosurgery Stock in
the merger in exchange for their shares of Biomatrix common stock will not
recognize gain or loss;
- Biomatrix stockholders who receive a combination of cash and shares of
Biosurgery Stock in the merger in exchange for their shares of Biomatrix
common stock will recognize gain in an amount equal to the lesser of the
amount of cash received and the total gain realized by the stockholder in
the merger; and
- Biomatrix 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 Biomatrix common stock surrendered and the
cash received in the merger.
Additionally, Biomatrix stockholders will recognize gain or loss on their
receipt of any cash in lieu of a fractional share of Biosurgery Stock.
BECAUSE THE TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON EACH
BIOMATRIX STOCKHOLDER'S PARTICULAR CIRCUMSTANCES, WE URGE BIOMATRIX
STOCKHOLDERS TO CONSULT THEIR OWN TAX ADVISORS ABOUT THE FEDERAL, STATE,
LOCAL OR FOREIGN TAX CONSEQUENCES TO THEM OF THE MERGER.
APPRAISAL OR DISSENTERS' RIGHTS (SEE PAGES 131 AND 154)
Biomatrix stockholders who object to the merger will have dissenters'
appraisal rights. Holders of either Surgical Products Stock or Tissue Repair
Stock who object to the tracking stock exchanges also will have dissenters'
appraisal rights.
9
<PAGE>
BIOMATRIX' REASONS FOR THE MERGER (SEE PAGE 99)
In reaching its decision to approve the merger, the Biomatrix board
considered, among other things, the following benefits:
- the board's view that the combined company will have an increased ability
to fund marketing, sales, research and development of Biomatrix' products
and product candidates, and the exploitation of Biomatrix' platform
technologies;
- the companies' complementary operating strengths, market segment and
geographical presence, networks of distribution channels and productivity;
in particular, it was expected that the combined company would create one
of the industry's leading biomaterials and biosurgery franchises, in terms
of the strength of its marketed products, and one of the largest
hyaluronan franchises in the world;
- the board's view that the complementary scientific expertise, technology
and products of Biomatrix, Genzyme Surgical Products and Genzyme Tissue
Repair will help build a fully integrated biopharmaceutical company;
- the board's view that Biomatrix' ability to raise capital was subject to
considerable risks;
- the board's view that, based in part on the opinion of Lehman Brothers,
from a financial point of view, the consideration to be offered to
Biomatrix stockholders is fair to those stockholders;
- the board's view that the complementary businesses of Biomatrix, Genzyme
Surgical Products and Genzyme Tissue Repair made the growth and value
prospects of the combined companies very attractive;
- the board's view that the integration of the Genzyme business and the
Biomatrix business could be achieved quickly and without significant
interruption because of the complementary nature of the companies'
operations and corporate cultures; and
- the board's view that the terms of the merger agreement, including the
parties' factual representations, warranties and covenants, are reasonable
and the fact that the agreement did not contain any extraordinary
conditions to Genzyme's obligation to close the merger.
In addition, Biomatrix's board considered some potentially negative factors,
including:
- the fixed nature of the exchange ratio and the resulting risk that, should
there be a significant decrease in the market value of the Surgical
Products Stock and/or the Tissue Repair Stock, the value of the Biosurgery
Stock to be received by Biomatrix stockholders would be diminished;
- the loss of control over the future operations of Biomatrix following the
merger;
- the dilution to the Biomatrix stockholders of the potential benefits of
one or more or its new product candidates being successfully
commercialized;
- the increases in the market prices of Surgical Products Stock and Tissue
Repair Stock in the weeks prior to the merger and the fact that those
prices were at or near their 52-week highs;
- the fact that a significant portion of the merger consideration will be in
the form of tracking stock and the risks related to ownership of tracking
stock;
- the fact that Genzyme Surgical Products and Genzyme Tissue Repair had
sustained losses in their operations to date;
- the number of proposals requiring Genzyme stockholder approval that are a
condition to completing the merger and, therefore, the risk that the
transaction might not close; and
- the risks that the benefits sought to be achieved in the merger may not be
achieved.
10
<PAGE>
FAIRNESS OPINION OF LEHMAN BROTHERS (SEE PAGE 101)
In August 1999, Biomatrix formally retained Lehman Brothers to act as its
financial advisor to review strategic alternatives, including a potential sale
of Biomatrix. At the March 4, 2000 meeting of the Biomatrix board of directors,
Lehman Brothers made an oral presentation regarding the merger and on March 6,
2000 rendered its written opinion that, as of the date of such opinion, and
based upon and subject to the various considerations set forth in its opinion,
the consideration to be received by the Biomatrix stockholders in the merger is
fair from a financial point of view to such holders.
The full text of the written opinion of Lehman Brothers, dated March 6,
2000, is contained in Annex C to this joint proxy statement/prospectus and is
incorporated herein by reference. In connection with the preparation of its
opinion, Lehman Brothers performed a variety of financial and comparative
analyses including historical trading range, selected comparable transactions,
transaction premiums analysis, comparable company analysis, discounted cash flow
analysis and contribution analysis.
GENZYME'S REASONS FOR THE MERGER (SEE PAGE 109)
In reaching its decision to approve the merger, the Genzyme board
considered, among other things, the benefits of:
- expanding Genzyme Biosurgery's portfolio of existing and potential
products by adding Biomatrix' portfolio of existing and proposed products,
particularly its Synvisc product for the treatment of osteoarthritis of
the knee;
- acquiring Biomatrix' significant intellectual property assets, which
should provide Genzyme Biosurgery with expanded expertise in developing
products for a wide range of surgical and medical applications;
- assimilating Biomatrix' manufacturing expertise and capacity for producing
products derived from hyaluronan; and
- combining Biomatrix' financial assets, including product revenues, with
the financial assets that Genzyme Surgical Products and Genzyme Tissue
Repair will contribute to Genzyme Biosurgery.
In addition, Genzyme's board considered some potentially negative factors,
including:
- the risk that the advantages of the merger listed above might not be
realized; and
- the level of Biomatrix' sales of Synvisc during the first two months of
2000.
FAIRNESS OPINION OF MERRILL LYNCH (SEE PAGE 111)
Merrill Lynch, an internationally recognized investment banking firm, has
acted as financial adviser to Genzyme in connection with the merger and the
tracking stock exchanges and on April 17, 2000, delivered to the Genzyme board
of directors its written opinion that, as of that date and taking into account
all aspects of the merger and the tracking stock exchanges deemed relevant by
Merrill Lynch:
- the proposed consideration to be paid by Genzyme pursuant to the merger is
fair to Genzyme from a financial point of view;
- the exchange ratio for the Tissue Repair Stock is fair to the holders of
Tissue Repair Stock from a financial point of view; and
- the exchange ratio for the Surgical Products Stock is fair to the holders
of Surgical Products Stock from a financial point of view.
The opinion of Merrill Lynch is based upon and subject to the assumptions,
limitations and other matters set forth in the opinion, and is attached to this
joint prospectus/proxy statement as Annex D. Stockholders are urged to read the
opinion carefully and in its entirety. Merrill Lynch will receive a fee for its
opinion.
11
<PAGE>
THE GENZYME SPECIAL MEETING
DATE AND PURPOSE (SEE PAGE 88)
A special meeting of Genzyme stockholders will be held at The Residence Inn,
6 Cambridge Center, Cambridge, Massachusetts on December 15, 2000 at 2:00 p.m.,
Boston time.
RECORD DATE; VOTING RIGHTS (SEE PAGE 88)
Genzyme stockholders who owned shares of Genzyme common stock as of the
close of business on October 25, 2000, the record date for the Genzyme special
meeting, may vote on proposals at the Genzyme special meeting. Genzyme currently
has four series of common stock. The following table shows the outstanding
shares as of October 25, 2000 and their relative voting power.
<TABLE>
<CAPTION>
SHARES NUMBER OF
COMMON STOCK OUTSTANDING VOTES PER SHARE TOTAL VOTES
------------ ----------- --------------- -----------
<S> <C> <C> <C>
Genzyme General Stock.................. 86,952,792 1.00 86,952,792
Molecular Oncology Stock............... 15,866,293 0.08 1,269,303
Surgical Products Stock................ 14,998,985 0.61 9,149,380
Tissue Repair Stock.................... 28,868,052 0.06 1,732,083
</TABLE>
QUORUM; REQUIRED VOTES (SEE PAGES 89)
In order to hold and complete the business of the Genzyme special meeting,
Genzyme must have a majority in interest of the outstanding shares of its four
series of common stock, voting together as a single class, represented at the
Genzyme special meeting. Genzyme must also have a majority in interest of the
holders of Surgical Products Stock and Tissue Repair Stock, each voting as a
separate class, represented at the Genzyme special meeting.
Approval of the charter amendment requires the affirmative vote of holders
of a majority in interest of the outstanding shares of Genzyme common stock,
voting together as a single class. Approval of the transfer of assets of Genzyme
Surgical Products into Genzyme Biosurgery and conversion of all outstanding
shares of Surgical Products Stock into shares of Biosurgery Stock requires the
affirmative vote of a majority in interest of the outstanding shares of Surgical
Products Stock. Approval of the transfer of assets of Genzyme Tissue Repair into
Genzyme Biosurgery and conversion of all outstanding shares of Tissue Repair
Stock into shares of Biosurgery Stock requires the affirmative vote of a
majority in interest of the outstanding shares of Tissue Repair Stock. On the
record date, Genzyme directors, executive officers and their affiliates, as a
group, held shares representing approximately 0.6% of the voting power of all
outstanding shares of Genzyme common stock, approximately 1.9% of the voting
power of the outstanding shares of Surgical Products Stock and approximately
3.2% of the voting power of the outstanding shares of Tissue Repair Stock.
Brokers who hold shares of Genzyme common stock as nominees will not have
authority to vote those shares for the tracking stock exchanges unless Genzyme
stockholders provide them with voting instructions.
RECOMMENDATION OF THE GENZYME BOARD (SEE PAGE 89)
GENZYME'S BOARD OF DIRECTORS BELIEVES THAT THE CHARTER AMENDMENT AND
TRACKING STOCK EXCHANGE PROPOSALS ARE IN THE BEST INTEREST OF GENZYME
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT GENZYME STOCKHOLDERS VOTE "FOR" THE
PROPOSALS. In approving the tracking stock exchanges and the merger, Genzyme's
board of directors focused primarily on the expected impact on Genzyme Tissue
Repair and Genzyme Surgical Products. The board also was aware of the impact on
Genzyme General and Genzyme Molecular Oncology. The board believes that the
acquisition of Biomatrix has the potential to benefit all Genzyme stockholders.
12
<PAGE>
THE BIOMATRIX SPECIAL MEETING
DATE AND PURPOSE (SEE PAGE 91)
A special meeting of Biomatrix stockholders will be held at the Marriott at
Glenpointe, 100 Frank W. Burr Boulevard, Teaneck, New Jersey 07666 on
December 7, 2000, at 10:00 a.m., local time.
RECORD DATE; VOTING RIGHTS (SEE PAGE 91)
Biomatrix stockholders who owned shares of Biomatrix common stock as of the
close of business on November 2, 2000, the record date for the Biomatrix special
meeting, may vote on the adoption of the merger agreement.
On that date, there were 23,636,129 shares of Biomatrix common stock
outstanding. Biomatrix stockholders will have one vote at the Biomatrix special
meeting for each share of Biomatrix common stock they owned on the record date.
QUORUM; REQUIRED VOTES (SEE PAGES 91)
The holders of a majority of the outstanding shares of Biomatrix common
stock must be present, in person or by proxy, at the Biomatrix special meeting
for there to be a quorum. To approve the merger, holders of a majority of the
outstanding shares of Biomatrix common stock must vote to adopt the merger
agreement. If you fail to vote or abstain from voting, it has the effect of a
vote against the merger. Brokers who hold shares of Biomatrix common stock as
nominees will not have authority to vote those shares unless Biomatrix
stockholders provide them with voting instructions.
On the record date, directors and executive officers of Biomatrix and their
affiliates as a group held approximately 37.8% of the outstanding shares of
Biomatrix common stock. Of these directors and officers, four who together held
on the record date approximately 36.2% of the outstanding shares of Biomatrix
common stock, have entered into written agreements to vote in favor of the
merger.
RECOMMENDATION OF THE BIOMATRIX BOARD (SEE PAGE 91)
BIOMATRIX' BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE BEST
INTEREST OF BIOMATRIX STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT BIOMATRIX
STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER.
OTHER SELECTED INFORMATION
STOCK OPTION AGREEMENT (SEE PAGE 141)
As an inducement to entering into the merger agreement, Biomatrix granted
Genzyme an option to purchase 4,600,000 shares of Biomatrix common stock at an
exercise price per share of $30.00. Genzyme may exercise the option in the event
that the merger agreement is terminable under circumstances that would entitle
Genzyme to receive a termination fee. These events relate to circumstances when
Biomatrix might not complete the merger because it has the opportunity to enter
into an alternative transaction with a third party. Genzyme has the right to
require Biomatrix to repurchase the stock option and any shares of Biomatrix
common stock purchased by Genzyme under the stock option agreement.
The stock option agreement may increase the likelihood that the merger will
occur and decrease the likelihood that a third party will propose an alternative
transaction. We urge you to read the stock option agreement, which is attached
as Annex B, in its entirety.
INTERESTS OF BIOMATRIX OFFICERS AND DIRECTORS (SEE PAGE 122)
The officers and directors of Biomatrix may have interests in the merger
that are different from, or in addition to, those of Biomatrix stockholders. The
Biomatrix and Genzyme boards were aware of these interests and considered them
in approving the merger agreement.
13
<PAGE>
FINANCING THE CASH PORTION OF THE MERGER CONSIDERATION (SEE PAGE 132 )
Genzyme currently expects that it will borrow under bank credit facilities
to fund the cash consideration paid to Biomatrix stockholders. Genzyme would
allocate any borrowed amounts to Genzyme Biosurgery division, which would also
be allocated the associated interest expense.
TREATMENT OF STOCK OPTIONS (SEE PAGE 130)
Each option to purchase shares of Biomatrix common stock outstanding after
the tracking stock exchanges and the merger will be assumed by Genzyme and will
become an option to acquire Biosurgery Stock. Each option to purchase shares of
Surgical Products Stock and Tissue Repair Stock outstanding after the tracking
stock exchanges and the merger will become an option to acquire Biosurgery
Stock. Genzyme will adjust the number of shares issuable upon exercise and the
exercise prices to reflect the exchange ratios.
TREATMENT OF BIOMATRIX CONVERTIBLE NOTE (SEE PAGE 131)
Genzyme Biosurgery will assume the outstanding 6.9% Convertible Subordinated
Note due May 14, 2003 in favor of SBC Warburg Dillon Read Inc. The note will
continue to be governed by the same terms and conditions as before the merger,
except that it will be convertible into the standard consideration issued in the
merger.
EMPLOYEE MATTERS (SEE PAGE 131)
Genzyme has agreed to give credit for time served with Biomatrix under
Genzyme's employee benefit plans to Biomatrix employees who remain with Genzyme
after the merger. Genzyme has also agreed to assume Biomatrix' employment,
severance and other compensation agreements.
ACCOUNTING TREATMENT (SEE PAGE 132)
Genzyme expects to account for the merger under the purchase method of
accounting, which means the assets and liabilities of Biomatrix, including its
intangible assets, will be recorded on Genzyme's books at their fair market
values. The results of operations and cash flows of Biomatrix will be included
in Genzyme's financials prospectively as of the closing of the merger. The
combination of Genzyme Surgical Products and Genzyme Tissue Repair into Genzyme
Biosurgery will not require that any adjustments be made to the book values of
the net assets of the divisions.
REGULATORY APPROVALS (SEE PAGE 143)
U.S. antitrust laws prohibit Genzyme and Biomatrix from completing the
merger until they have furnished information and materials about the companies
and the merger to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and the required waiting period has expired. Genzyme
and Biomatrix filed the required forms with these government agencies in March
2000 and the waiting period expired in April 2000. Neither Genzyme nor Biomatrix
is 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 137)
Genzyme and Biomatrix must satisfy the following conditions before
completing the merger:
- Biomatrix stockholders must adopt the merger agreement;
- holders of all four series of Genzyme common stock, voting together as a
single class, must approve the amendment to the Genzyme charter to create
the Biosurgery Stock and cancel the Surgical Products Stock and Tissue
Repair Stock;
14
<PAGE>
- holders of Surgical Products Stock, with that series voting as a separate
class, must approve the exchange of their stock for shares of Biosurgery
Stock and the reallocation of the assets of Genzyme Surgical Products to
Genzyme Biosurgery;
- holders of Tissue Repair Stock, with that series voting as a separate
class, must approve the exchange of their stock for shares of Biosurgery
Stock and the reallocation of the assets of Genzyme Tissue Repair to
Genzyme Biosurgery;
- the registration statement of which this joint proxy statement/prospectus
is a part must have been declared effective and must not be subject to any
stop order or related proceeding;
- Biosurgery Stock must be approved for quotation on the Nasdaq National
Market; and
- both of us must receive legal opinions that the merger will be a
reorganization for U.S. federal income tax purposes.
Either party may elect to waive the condition that it receive a legal
opinion that the merger will be a reorganization for tax purposes. If any
material condition is waived, Genzyme will amend the registration statement of
which this prospectus proxy statement forms a part, and Biomatrix will resolicit
proxies for the adoption of the merger agreement.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 138)
Genzyme and Biomatrix can mutually terminate the merger agreement without
completing the merger. Either of us may terminate the agreement if the merger is
not completed by December 31, 2000, provided that on December 29, 2000 either of
us can extend that date out to January 31, 2001 if in the process of soliciting
proxies, or under other circumstances, including failure to obtain required
stockholder approvals.
TERMINATION FEES AND EXPENSES (SEE PAGE 139)
If Genzyme or Biomatrix terminates the merger agreement under circumstances
involving an alternative acquisition proposal made to or by Genzyme or Biomatrix
or through a tender or exchange offer, Genzyme or Biomatrix may be required to
pay a termination fee of $22 million to the other party, including up to
$2 million to reimburse out-of-pocket expenses.
COMPARATIVE STOCKHOLDER RIGHTS (SEE PAGE 181)
When Genzyme and Biomatrix complete the tracking stock exchanges and the
merger, holders of Biomatrix common stock, Surgical Products Stock and Tissue
Repair Stock will hold shares of Biosurgery Stock. The rights of former holders
of Biomatrix common stock will thus be governed by Genzyme's charter and by-laws
and the management and accounting policies that govern the Genzyme board's
treatment of its various divisions and tracking stocks.
COMPARATIVE STOCK PRICE INFORMATION (SEE PAGE 28)
Surgical Products Stock and Tissue Repair Stock are quoted on the Nasdaq
National Market. Biomatrix common stock is quoted on The New York Stock
Exchange. On March 3, 2000, the last full trading day prior to our public
announcement of the proposed merger, Surgical Products Stock closed at $16.50,
Tissue Repair Stock closed at $9.13 and Biomatrix common stock closed at $34.31.
On November 1, 2000, Surgical Products Stock closed at $7.38, Tissue Repair
Stock closed at $3.49, and Biomatrix common stock closed at $18.81.
15
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
Genzyme is providing the following information to aid you in your analysis
of the financial aspects of the share exchanges and the merger. The table below
represents selected historical consolidated income 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 such 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 each 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 is 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. Our 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 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.
Income (loss) allocated to Genzyme General Stock and Surgical Products Stock
and earnings per share of Genzyme General Stock, have been revised as discussed
in Note A to Genzyme's consolidated
16
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
financial statements included in its Annual Report on Form 10-K for the fiscal
year ended December 31, 1999, as amended, filed with the SEC.
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. See "WHERE YOU CAN FIND MORE INFORMATION" beginning on
page 197.
In addition, because Genzyme has signed an agreement to merge GelTex
Pharmaceuticals into a wholly-owned subsidiary of Genzyme, expected to occur in
late 2000 or early 2001 if approved by that company's stockholders, you should
read Genzyme's selected historical financial data also in conjunction with the
historical financial statements and related notes about GelTex Pharmaceuticals
found under the heading "Selected Financial Data" of that company's annual
report on Form 10-K for the year ended December 31, 2000 and under the heading
"Financial Statements" of that company's quarterly report for the quarter ended
June 30, 2000, which are both on file with the SEC. See "WHERE YOU CAN FIND MORE
INFORMATION" beginning on page 197. For more information about the accounting
treatment and other financial aspects of that merger see the discussions under
"UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION" beginning on page 58 and
"GENZYME CORPORATION" beginning on page 93.
17
<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>
18
<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 (7,9,10):
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>
19
<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, cash equivalents, short- and long-term
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(11)............. 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 a $18.1 million charge in
connection with the discontinuance of our 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-Registered Trademark-
enzyme inventory and a $10.4 million charge to write-down our 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 its earnings to each
series of our 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
20
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
General determined in accordance with generally accepted accounting
principles and as adjusted for tax benefits allocated to or from Genzyme
General in accordance with its 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) The allocation of Genzyme's historical earnings has been revised to
reflect an allocation of Genzyme's earnings to each series of common stock
actually outstanding in periods prior to June 1999 and to each series of
common stock, including Surgical Products Stock, thereafter. See Note A.
to the consolidated financial statements.
(11) 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.
21
<PAGE>
GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS)
Genzyme is providing the following information to aid you in your analysis
of the financial aspects of the share exchanges and the merger. The table below
represents selected historical combined statement of operations and balance
sheet data for Genzyme Surgical Products. Genzyme derived the balance sheet data
and income statement data from audited financial statements of Genzyme Surgical
Products for the years ended December 31, 1995 through December 31, 1999.
Genzyme derived the income statement 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 Surgical Products for such periods. In the
opinion of Genzyme's management, the unaudited financial statements for Genzyme
Surgical Products 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
Surgical Products 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 Surgical Products Division
Common Stock (which we refer to as "Surgical Products Stock") is designed to
reflect the value and track the performance of this division. Surgical Products
Stock is common stock of Genzyme Corporation, not of Genzyme Surgical Products;
Genzyme Surgical Products is a division, not a company or legal entity, and
therefore does not and cannot issue stock. The chief mechanisms intended to
cause Surgical Products Stock to "track" the financial performance of Genzyme
Surgical Products 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 Surgical Products into the determination of the amount available
to pay dividends on Surgical Products Stock; and
- requires Genzyme to exchange, redeem or distribute a dividend to the
holders of Surgical Products Stock if all or substantially all of the
assets allocated to Genzyme Surgical Products 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 Surgical Products Stock is defined in
Genzyme's charter as the net income or loss of Genzyme Surgical Products
determined in accordance with generally accepted accounting principles and as
adjusted for tax benefits allocated to or from Genzyme Surgical Products 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 Surgical Products Stock are based on the
income or losses attributable to Genzyme Surgical Products, Genzyme includes
financial statements and management's discussion and analysis of Genzyme
Surgical Products 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
22
<PAGE>
GENZYME SURGICAL PRODUCTS
A DIVISION OF GENZYME CORPORATION
SELECTED HISTORICAL FINANCIAL DATA (CONTINUED)
(AMOUNTS IN THOUSANDS)
other information on file with the SEC. See "WHERE YOU CAN FIND MORE
INFORMATION" beginning on page 197.
<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 COMBINED STATEMENTS OF
OPERATIONS DATA:
Net product sales(1)................................. $ 8 $ 50,714 $100,835 $103,958 $111,981 $ 54,034 $ 59,051
Operating costs and expenses:
Cost of products sold(2)........................... 733 32,654 59,802 72,274 67,242 33,283 32,631
Selling, general and administrative................ 2,576 28,399 54,061 57,297 63,237 31,779 33,442
Research and development........................... 5,971 7,693 11,287 18,618 28,056 14,585 13,972
Amortization of intangibles........................ -- 2,984 5,647 5,748 5,750 2,861 2,853
Purchase of in-process research and
development(3)................................... -- 24,170 -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Total operating costs and expenses............... 9,280 95,900 130,797 153,937 164,285 82,508 82,898
------- -------- -------- -------- -------- -------- --------
Operating loss....................................... (9,272) (45,186) (29,962) (49,979) (52,304) (28,474) (23,847)
Other income (expenses):
Equity in net income (loss) of unconsolidated
affiliates....................................... (1) 2 (78) (6) (35) -- --
Other.............................................. -- 8 236 60 138 43 47
Investment income(4)............................... -- 84 98 144 4,199 63 3,391
Interest expense................................... -- (58) (34) (75) (35) (35) (1)
------- -------- -------- -------- -------- -------- --------
Total other income (expenses).................... (1) 36 222 123 4,267 71 3,437
------- -------- -------- -------- -------- -------- --------
Loss before income taxes............................. (9,273) (45,150) (29,740) (49,856) (48,037) (28,403) (20,410)
Tax benefit.......................................... -- 837 -- -- -- -- --
------- -------- -------- -------- -------- -------- --------
Division net loss.................................... $(9,273) $(44,313) $(29,740) $(49,856) $(48,037) $(28,403) $(20,410)
======= ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and investments(4)..................................... $ -- $ 2,182 $ 975 $ -- $126,125 $ 95,890
Working capital(4).......................................... 118 40,556 34,279 32,714 98,465 114,885
Total assets(4)............................................. 175 253,609 242,566 234,216 370,924 354,231
Division equity(4).......................................... 175 239,040 234,969 227,088 353,918 331,753
</TABLE>
------------------------------
(1) On July 1, 1996, we acquired Deknatel Snowden Pencer, Inc., or DSP.
(2) Cost of products sold for 1998 includes a $10.4 million charge to write-down
our Sepra products inventory to net realizable value.
(3) In 1996, we recorded a $24.2 million charge for the purchase of in-process
research and development in connection with its acquisition of DSP.
(4) Genzyme created Genzyme Surgical Products as a separate division of Genzyme
on June 28, 1999. Prior to this date, the operations of Genzyme Surgical
Products were included in the allocated results of Genzyme General. On
June 28, 1999, Genzyme General transferred $150.0 million in cash, cash
equivalents, investments and certain other assets, to Genzyme Surgical
Products in connection with the creation of Genzyme Surgical Products as a
separate division of Genzyme. In exchange for this transfer, Genzyme issued
approximately 14.8 million shares of Surgical Products Stock.
23
<PAGE>
GENZYME TISSUE REPAIR
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 share exchanges and the merger. The table below
represents selected historical combined statement of operations and balance
sheet data for Genzyme Tissue Repair. Genzyme derived the balance sheet data and
income statement data from audited financial statements of Genzyme Tissue Repair
for the years ended December 31, 1995 through December 31, 1999. Genzyme derived
the income statement 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 Tissue Repair for such periods. In the opinion of
Genzyme's management, the unaudited financial statements for Genzyme Tissue
Repair 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
Tissue Repair 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 Tissue Repair Division Common
Stock (which we refer to as "Tissue Repair Stock") is designed to reflect the
value and track the performance of this division. Tissue Repair Stock is common
stock of Genzyme Corporation, not of Genzyme Tissue Repair; Genzyme Tissue
Repair is a division, not a company or legal entity, and therefore does not and
cannot issue stock. The chief mechanisms intended to cause Tissue Repair Stock
to "track" the financial performance of Genzyme Tissue Repair 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 Tissue Repair into the determination of the amount available to
pay dividends on Tissue Repair Stock; and
- requires Genzyme to exchange, redeem or distribute a dividend to the
holders of Tissue Repair Stock if all or substantially all of the assets
allocated to Genzyme Tissue Repair 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 Tissue Repair Stock is defined in our
charter as the net income or loss of Genzyme Tissue Repair determined in
accordance with generally accepted accounting principles and as adjusted for tax
benefits allocated to or from Genzyme Tissue Repair 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 Tissue Repair Stock are based on the
income or losses attributable to Genzyme Tissue Repair, Genzyme includes
financial statements and management's discussion and analysis of Genzyme Tissue
Repair 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. See "WHERE YOU CAN FIND MORE INFORMATION" beginning on
page 197.
24
<PAGE>
GENZYME TISSUE REPAIR
A DIVISION OF GENZYME CORPORATION
SELECTED HISTORICAL FINANCIAL DATA
(AMOUNTS IN THOUSANDS)
<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 COMBINED STATEMENTS OF OPERATIONS DATA:
Net service sales.................................... $ 5,220 $ 7,312 $ 10,856 $ 17,117 $ 20,402 $ 8,688 $ 12,154
Operating costs and expenses:
Cost of services sold............................ 4,731 11,193 11,788 13,438 13,237 6,219 6,046
Selling, general and administrative.............. 12,927 27,111 25,571 24,579 24,604 12,429 11,365
Research and development......................... 10,938 10,880 10,845 10,432 8,019 3,971 3,323
-------- -------- -------- -------- -------- -------- --------
Total operating costs and expenses............. 28,596 49,184 48,204 48,449 45,860 22,619 20,734
-------- -------- -------- -------- -------- -------- --------
Operating loss....................................... (23,376) (41,872) (37,348) (31,332) (25,458) (13,931) (8,580)
Other income (expenses):
Equity in net loss of joint venture(1)........... -- (1,727) (6,719) (7,674) (3,368) (3,368) --
Other............................................ -- -- -- -- -- -- (5)
Interest income.................................. 1,386 1,432 979 1,176 609 165 208
Interest expense................................. (40) (148) (2,896) (2,556) (1,823) (864) (625)
-------- -------- -------- -------- -------- -------- --------
Total other income (expenses).................. 1,346 (443) (8,636) (9,054) (4,582) (4,067) (422)
-------- -------- -------- -------- -------- -------- --------
Division net loss.................................... $(22,030) $(42,315) $(45,984) $(40,386) $(30,040) $(17,998) $ (9,002)
======== ======== ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
COMBINED BALANCE SHEET DATA:
Cash and investments........................................ $47,573 $16,230 $31,915 $ 7,732 $ 9,373 $ 4,382
Working capital............................................. 44,374 14,232 31,623 (6,461) 12,112 9,365
Total assets................................................ 52,649 42,593 57,226 18,954 19,648 15,101
Long-term debt.............................................. -- 18,000 31,089 12,579 18,000 18,000
Division equity............................................. 45,926 18,084 20,203 (16,396) (3,455) (6,587)
</TABLE>
------------------------------
(1) Operations of Diacrin/Genzyme LLC, Genzyme's joint venture with Diacrin,
Inc., commenced in October 1996. In May 1999, Genzyme reallocated its
ownership interest in the joint venture from Genzyme Tissue Repair to
Genzyme General.
25
<PAGE>
BIOMATRIX, INC.
SELECTED HISTORICAL FINANCIAL DATA
Biomatrix is providing the following information to aid you in your analysis
of the financial aspects of the share exchanges and the merger. The table below
represents selected historical consolidated income and balance sheet data of
Biomatrix and its subsidiaries. The income statement and balance sheet data for
the years ended December 31, 1995 through December 31, 1999 are derived from
Biomatrix' audited financial statements. The income statement data for the six
months ended June 30, 2000 and 1999 are derived from Biomatrix' unaudited
financial statements for such periods. In the opinion of Biomatrix' 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
Biomatrix' historical financial statements and related notes and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in Biomatrix' annual reports, quarterly reports and other information
on file with the SEC. See "WHERE YOU CAN FIND MORE INFORMATION" on page 197.
<TABLE>
<CAPTION>
SIX MONTHS
FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------------------------------------- -------------------------
1995 1996 1997 1998 1999 1999 2000
----------- ----------- ----------- ----------- ----------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS DATA:
Net sales....................... $ 3,614 $ 4,951 $ 11,735 $ 37,847 $ 71,964 $ 34,611 $ 36,467
Income from license fees,
royalties, research contracts
and grants.................... 7,457 10,628 20,829 9,769 7,733 7,205 7,464
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues.................. 11,071 15,579 32,564 47,616 79,697 41,816 43,931
Costs and expenses:
Cost of goods sold.............. 1,911 2,563 3,610 9,138 21,095 10,104 11,025
Research and development........ 5,137 5,485 5,927 10,291 9,139 4,166 5,281
Selling, general and
administrative................ 4,943 5,320 7,806 14,494 18,486 8,520 14,698
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total costs and expenses........ 11,991 13,368 17,343 33,923 48,720 22,790 31,004
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) from operations... (920) 2,211 15,221 13,693 30,977 19,026 12,927
Other income (expense), net..... 701 694 1,053 460 (34) (312) 799
Provision for income taxes...... -- (135) (536) (2,024) (12,339) (7,693) (5,500)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)............... $ (219) $ 2,770 $ 15,738 $ 12,129 $ 18,604 $ 11,021 $ 8,226
=========== =========== =========== =========== =========== =========== ===========
Net income (loss) per
share--basic.................. $ (0.01) $ 0.14 $ 0.72 $ 0.54 $ 0.81 $ 0.48 $ 0.35
Net income (loss) per
share--diluted................ $ (0.01) $ 0.13 $ 0.69 $ 0.51 $ 0.76 $ 0.45 $ 0.34
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Shares used in computing net
income (loss) per share:
Basic............................. 19,753,174 20,868,460 21,789,538 22,450,398 22,959,394 22,862,843 23,340,298
=========== =========== =========== =========== =========== =========== ===========
Diluted........................... 19,753,174 21,790,052 22,654,412 23,703,758 24,349,952 25,240,877 24,489,291
=========== =========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------- JUNE 30,
1995 1996 1997 1998 1999 2000
-------- -------- -------- -------- -------- -----------
(IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE
SHEET DATA:
Working capital...................................... $10,078 $13,834 $21,902 $27,020 $46,852 $ 56,096
Total assets......................................... 17,382 25,994 44,225 83,291 99,027 110,344
Long-term debt and capital lease
obligations (excluding current portion)............ 729 5,799 5,599 17,602 11,885 11,255
Total shareholders' equity........................... 14,116 17,704 34,609 51,383 77,178 85,849
</TABLE>
26
<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 the historical financial statements that are
incorporated by reference into this joint proxy statement/prospectus, and pro
forma combined financial statements and the related notes that are included
elsewhere in this joint proxy statement/prospectus. The pro forma combined 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 combined.
Holders of Genzyme General Stock, Molecular Oncology Stock, Surgical
Products Stock and Tissue Repair Stock have no specific rights to the assets of
the company. Genzyme continues to hold title to all of the company's assets and
is responsible for all of its liabilities, regardless of what it deems for
financial statement presentation purposes as allocated to any division. Those
stockholders, as common stockholders, are therefore subject to the risks of
investing in the businesses, assets and liabilities of Genzyme as a whole.
Both Genzyme and Biomatrix have fiscal years ending on December 31. The
Genzyme Biosurgery pro forma equivalent per share data assumes exchange ratios,
on the date of the merger, of:
- 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 Biomatrix' shares).
The pro forma per share data are not necessarily indicative of the results
that would have occurred if Genzyme's merger with Biomatrix had been completed
on the date indicated or the results that will occur after the mergers. See
"UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION" beginning on page 58.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, 1999 JUNE 30, 2000
----------------- -------------
<S> <C> <C>
GENZYME CORPORATION (1):
Net income per share of Genzyme General Stock:
Historical basic (2).................................. $ 1.80 $ 1.45
Historical diluted (2)................................ 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 (3)...................... $ (1.38) $ (1.37)
Pro forma per share equivalent........................ (2.02) (0.87)
Net loss per share of Tissue Repair Stock:
Historical basic and diluted.......................... $ (1.26) $ (0.31)
Pro forma per share equivalent........................ (1.12) (0.48)
Net loss per share of Biosurgery Stock:
Pro forma combined--basic and diluted................. $ (3.33) $ (1.44)
BIOMATRIX, INC.:
Income (loss) per common share:
Historical basic...................................... $ 0.81 $ 0.35
Historical diluted.................................... 0.76 0.34
Pro forma per share equivalent........................ (2.38) (1.03)
Historical book value per share at period end........... 3.32 3.66
</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 because amounts are the same as historical.
(3) 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.
27
<PAGE>
COMPARATIVE STOCK PRICES AND DIVIDENDS
Surgical Products Stock and Tissue Repair Stock are quoted on the Nasdaq
National Market under the trading symbols "GZSP" and "GZTR." Biomatrix common
stock is quoted on The New York Stock Exchange under the trading symbol "BXM"
and, prior to July 23, 1998, was quoted on the Nasdaq National Market. The
following table sets forth, for the periods indicated, the high and low sale
prices per share of Surgical Products Stock and Tissue Repair Stock as reported
on the Nasdaq National Market and the high and low sale prices per share of
Biomatrix common stock (adjusted for stock splits) as reported on the Nasdaq
National Market and The New York Stock Exchange, as applicable:
<TABLE>
<CAPTION>
SURGICAL PRODUCTS BIOMATRIX
STOCK TISSUE REPAIR STOCK COMMON STOCK
----------------------- ----------------------- -----------------------
HIGH LOW HIGH LOW HIGH LOW
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
CALENDAR QUARTER
1997
First Quarter................ -- -- $14.88 $6.88 $ 9.25 $ 6.38
Second Quarter............... -- -- $13.00 $8.50 $ 10.75 $ 5.25
Third Quarter................ -- -- $12.50 $9.00 $ 20.94 $ 9.13
Fourth Quarter............... -- -- $10.75 $6.25 $ 19.06 $13.13
CALENDAR QUARTER
1998
First Quarter................ -- -- $ 9.38 $6.50 $ 17.81 $13.75
Second Quarter............... -- -- $ 9.19 $5.00 $ 20.50 $13.88
Third Quarter................ -- -- $ 7.13 $2.38 $ 29.19 $19.61
Fourth Quarter............... -- -- $ 3.75 $2.03 $ 30.50 $11.56
CALENDAR QUARTER
1999
First Quarter................ -- -- $ 4.13 $2.22 $ 39.84 $22.38
Second Quarter............... $ 8.00 $4.00 $ 2.63 $1.94 $ 45.00 $19.00
Third Quarter................ $ 7.63 $3.31 $ 2.25 $1.56 $ 31.75 $18.13
Fourth Quarter............... $ 6.44 $4.63 $ 3.56 $1.31 $ 27.00 $17.63
CALENDAR QUARTER
2000
First Quarter................ $20.00 $5.00 $11.63 $2.84 $ 38.50 $18.50
Second Quarter............... $13.25 $7.00 $ 6.88 $3.50 $ 24.94 $17.00
Third Quarter................ $12.00 $7.50 $ 6.75 $3.75 $ 22.13 $17.25
Fourth Quarter (through
November 1, 2000).......... $ 8.19 $6.13 $ 4.31 $3.44 $ 19.25 $15.81
</TABLE>
RECENT CLOSING PRICES
The following table sets forth the high, low and closing sale prices per
share of Surgical Products Stock, Tissue Repair Stock as reported on the Nasdaq
National Market and high, low and closing sale prices per share of Biomatrix
common stock as reported on The New York Stock Exchange on March 3, 2000, the
last trading day before our public announcement of the merger agreement, and on
November 1, 2000, the last practicable trading day before the date of this
document:
<TABLE>
<CAPTION>
BIOMATRIX
SURGICAL PRODUCTS STOCK TISSUE REPAIR STOCK COMMON STOCK
------------------------------ ------------------------------ ------------------------------
HIGH LOW CLOSING HIGH LOW CLOSING HIGH LOW CLOSING
-------- -------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
March 3, 2000.................. $16.81 $14.38 $16.50 $9.50 $8.25 $9.13 $35.00 $33.00 $34.31
November 1, 2000............... $ 7.75 $ 7.25 $ 7.38 $3.97 $3.75 $3.94 $19.19 $18.63 $18.81
</TABLE>
28
<PAGE>
The market prices of Surgical Products Stock, Tissue Repair Stock and
Biomatrix common stock are likely to fluctuate prior to the tracking stock
exchanges and the merger. You should obtain current market quotations. As a
condition to completion of the merger, Biosurgery Stock must be approved for
quotation on the Nasdaq National Market. Neither Genzyme nor Biomatrix can
predict the future prices for Surgical Products Stock, Tissue Repair Stock,
Biosurgery Stock or Biomatrix common stock, nor following the tracking stock
exchanges and the merger on which market Biosurgery Stock will be traded.
DIVIDEND INFORMATION
No cash dividends have ever been paid or declared on the shares of Surgical
Products Stock, Tissue Repair Stock or Biomatrix common stock. Genzyme does not
anticipate paying cash dividends on its common stock for 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 board's discretion and will depend upon, among other
things, Genzyme's earnings, financial condition, capital requirements, level of
indebtedness and other factors that Genzyme's board deems relevant.
NUMBER OF STOCKHOLDERS AND NUMBER OF SHARES OUTSTANDING
As of November 2, 2000 Genzyme had the following stockholders of record and
shares outstanding:
<TABLE>
<CAPTION>
STOCKHOLDERS OF RECORD SHARES OUTSTANDING
---------------------- ------------------
<S> <C> <C>
Genzyme General Stock............... 2,227 87,047,843
Molecular Oncology Stock............ 2,090 15,866,633
Surgical Products Stock............. 1,978 14,998,985
Tissue Repair Stock................. 5,608 28,870,843
</TABLE>
As of November 2, 2000, there were 313 stockholders of Biomatrix of record
who held an aggregate of 23,636,129 shares of Biomatrix common stock.
29
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION INCLUDED AND INCORPORATED BY REFERENCE
IN THIS JOINT PROXY STATEMENT/PROSPECTUS, YOU SHOULD CONSIDER CAREFULLY THE RISK
FACTORS DESCRIBED BELOW BEFORE DECIDING HOW TO VOTE ON THE TRACKING STOCK
EXCHANGES OR THE MERGER, OR BOTH. YOU SHOULD KEEP THESE RISK FACTORS IN MIND
WHEN YOU READ FORWARD-LOOKING STATEMENTS.
RISKS RELATED TO THE TRACKING STOCK EXCHANGES AND THE MERGER
THE VALUE OF BIOSURGERY STOCK YOU RECEIVE IN THE TRACKING STOCK EXCHANGES OR
THE MERGER MAY DECLINE.
Upon completion of the tracking stock exchanges, all outstanding shares of
Surgical Products Stock will convert into the right to receive 0.6060 share of
Biosurgery Stock, and all outstanding shares of Tissue Repair Stock will convert
into the right to receive 0.3352 share of Biosurgery Stock. Upon completion of
the merger, some shares of Biomatrix common stock will be converted into rights
to receive either Biosurgery Stock or a combination of Biosurgery Stock and
cash, with shares of Biomatrix common stock and shares of Biosurgery Stock
converting on a one-for-one basis. We will not adjust the conversion ratios by
which Surgical Products Stock, Tissue Repair Stock and Biomatrix common stock
will become Biosurgery Stock in the event of any increase or decrease in the
price of either Surgical Products Stock, Tissue Repair Stock or Biomatrix common
stock. Since we announced the tracking stock exchanges and the merger, the
prices of Surgical Products Stock, Tissue Repair Stock and Biomatrix common
stock have been interrelated. Accordingly, if the price of any of them declines,
then the prices of the other two would also likely decline and the market value
of the shares of Biosurgery Stock to be issued in the tracking stock exchanges
and the merger would decline.
The prices of Biomatrix common stock, Surgical Products Stock and Tissue
Repair Stock when the tracking stock exchanges and the merger take place may
vary from their prices at the date of this joint proxy statement/prospectus and
at the date of the special meetings. During the twelve month period ended on
October 31, 2000, the closing price of Biomatrix common stock varied from a low
of $16.25 to a high of $37.00 and ended that period at $19.13; the closing price
of Surgical Products Stock varied from a low of $4.84 to a high of $18.94 and
ended that period at $7.47; and the closing price of Tissue Repair Stock varied
from a low of $1.44 to a high of $10.75 and ended that period at $3.94. See
"COMPARATIVE PER SHARE DATA" and "COMPARATIVE STOCK PRICES AND DIVIDENDS AND
MARKET PRICES" above for further information. Variations in the price of each
stock will occur prior to completion of the tracking stock exchanges and the
merger as the result of:
- changes in the business, operations and prospects of Biomatrix, Genzyme
Surgical Products, Genzyme Tissue Repair or Genzyme Biosurgery;
- market assessments of the likelihood that the tracking stock exchanges and
the merger will be completed; and
- the timing of completion, general market and economic conditions and other
factors.
Because Biosurgery Stock is not expected to trade before the completion of
the tracking stock exchanges and the merger, at the time of the special meetings
neither Biomatrix common stockholders nor holders of Surgical Products Stock or
Tissue Repair Stock will know the exact value of the Biosurgery Stock that they
will receive when the tracking stock exchanges and the merger are completed.
Holders of Biomatrix common stock, Surgical Products Stock and Tissue Repair
Stock should obtain current market quotations for Biomatrix common stock,
Surgical Products Stock and Tissue Repair Stock.
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THE CASH PORTION OF THE MERGER CONSIDERATION TO BE PAID TO BIOMATRIX
STOCKHOLDERS MAY BE REDUCED TO THE EXTENT BIOMATRIX STOCKHOLDERS EXERCISE
DISSENTERS' RIGHTS AND WILL BE REDUCED IF NECESSARY TO PERMIT THE MERGER TO
QUALIFY AS A REORGANIZATION FOR U.S. FEDERAL INCOME TAX PURPOSES.
The cash portion of the merger consideration to be paid to Biomatrix
stockholders may be reduced to the extent dissenters' rights are exercised.
Furthermore, it will be adjusted to the extent necessary to permit the merger to
qualify as a reorganization for U.S. federal income tax purposes. An adjustment
may be necessary if the market prices of Surgical Products Stock, Tissue Repair
Stock or Biomatrix common stock immediately before the effective date of the
tracking stock exchanges and the merger imply a value per share of Biosurgery
Stock of less than approximately $12.00. In this case, the amount of cash
consideration would be adjusted by decreasing the aggregate number of shares of
Biomatrix common stock exchanged for cash and increasing the aggregate number of
shares exchanged for shares of Biosurgery Stock to the extent necessary to
ensure that at least 45% of the total consideration paid to Biomatrix common
stockholders (including all cash paid in lieu of fractional shares and other
payments required to be considered for U.S. federal income tax purposes)
consists of Biosurgery Stock. If an adjustment occurs, the per share cash price
of $37 and the one-for-one exchange would not change. The terms of the merger
agreement provide instead for reducing the aggregate number of shares of
Biomatrix common stock that would be exchanged for cash.
BIOMATRIX STOCKHOLDERS MAY NOT RECEIVE THE FORM OF CONSIDERATION THAT THEY
ELECT.
Although each Biomatrix stockholder may submit an election form indicating
its preferred form of consideration, because a fixed percentage of the shares of
Biomatrix common stock that receive merger consideration will be exchanged for
the right to receive the cash consideration, a Biomatrix stockholder may not
receive the form of consideration it has elected. To the extent Biomatrix
stockholders receive cash in exchange for their shares, they will receive $37
per Biomatrix share. To the extent they receive shares of Genzyme Biosurgery
stock in exchange for their shares, they will receive one share of Genzyme
Biosurgery stock per Biomatrix share. The per-share value of Genzyme Biosurgery
stock will be determined by the public trading market following the merger, and
it is possible that this value may be materially different from $37.00.
Additionally, the amount of cash payable to Biomatrix stockholders who elect to
receive cash may be reduced in the event that stockholders of Biomatrix exercise
dissenters' rights. The merger agreement contains provisions addressing the
allocation of the merger consideration and a description of these provisions is
included under "THE MERGER AND THE MERGER AGREEMENT--Merger Consideration for
Biomatrix Common Stock" beginning on page 124. We urge you to read these
materials closely.
GENZYME MAY ATTRIBUTE TO BIOSURGERY STOCK SIGNIFICANT LOSSES PER SHARE
COMPARED TO THE POSITIVE EARNINGS PER SHARE THAT BIOMATRIX HAS REPORTED.
The Biosurgery Stock that Genzyme will issue in the merger in exchange for
Biomatrix common stock will be designed to reflect the combined businesses of
Genzyme Surgical Products, Genzyme Tissue Repair and Biomatrix. The operating
results of these combined businesses may differ significantly from those that
may have been reported by only Biomatrix if it continued as a separate company.
Specifically, Genzyme Surgical Products and Genzyme Tissue Repair have
historically experienced net losses and Surgical Products Stock and Tissue
Repair Stock have experienced net losses per share, while Biomatrix has reported
positive net income and earnings per share on its common stock during the last
four fiscal years. For example, during 1999 and the first half of 2000,
Biomatrix has reported net income of $18.6 million and $8.2 million and earnings
per share of $0.81 and $0.35, respectively. However, on a pro forma basis,
Genzyme Biosurgery would have experienced for those same periods net losses of
$117.1 million and $50.7 million and Biosurgery Stock net losses per share of
$3.33 and $1.44. This is a result of the combined losses of the Tissue Repair
and Surgical Products divisions during those periods, net of positive income
reported by Biomatrix, plus purchase
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accounting adjustments such as amortization of goodwill and other intangible
assets. See "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION" beginning on
page 58 for a fuller explanation of how the Genzyme Biosurgery pro forma
financial data is derived. We expect that Genzyme Biosurgery will incur net
losses at least through the first half of 2001 as substantial amounts of the
division's funds are spent on research, development, regulatory,
commercialization and other activities.
GENZYME'S AND GENZYME BIOSURGERY'S REPORTED FINANCIAL RESULTS WILL SUFFER
DUE TO THE IMPACT OF AMORTIZING GOODWILL AND OTHER INTANGIBLES.
Genzyme will account for the merger with Biomatrix using the purchase method
of accounting. Under purchase accounting, the aggregate purchase price is
allocated among the acquired tangible and intangible assets and liabilities
based on their estimated fair values. Please see "UNAUDITED PRO FORMA COMBINED
FINANCIAL INFORMATION" beginning on page 58 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 $706.0 million and will be amortized over 1 1/2 to
11 years. Genzyme will allocate this amortization expense to Genzyme Biosurgery.
As a result, using the purchase method of accounting will increase the reported
net loss for Genzyme Biosurgery, which could have a material and adverse effect
on the market value of Genzyme Biosurgery Stock.
Genzyme's pending merger with GelTex will also be accounted for using the
purchase method of accounting, with the associated amortization expense
allocated to Genzyme General. The combined effect of 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,
exercised its right to exchange Genzyme General Stock for Genzyme Biosurgery
Stock, Genzyme General's reported net income would be decreased by the
amortization costs associated with both transactions, which could have a
material and adverse effect on the market value of Genzyme General Stock.
BIOSURGERY STOCK MAY HAVE A VOLATILE PUBLIC TRADING PRICE AND LOW TRADING
VOLUME.
Prior to the merger and the share exchanges, Genzyme had no outstanding
shares of Biosurgery Stock. Consequently, unlike Biomatrix common stock, Tissue
Repair Stock and Surgical Products Stock, Biosurgery Stock has never traded on a
public market. We have conditioned closing the merger on Biosurgery Stock being
included for quotation on the Nasdaq. However, an active public market for
Biosurgery Stock may not develop or be sustained after the merger and the share
exchanges. The market prices of Biomatrix common stock, Tissue Repair Stock and
Surgical Products Stock have each been highly volatile. The market price of
Biosurgery Stock may be even more volatile. Many factors could have a
significant adverse effect on the market price of Biosurgery Stock, including:
- quarterly fluctuations in revenues and other financial results;
- results of clinical trials;
- announcement of technological innovations or new commercial products by
Genzyme or its competitors;
- publicity regarding actual or potential results with respect to products
under development by Genzyme or its competitors;
- regulatory developments; and
- the views of market participants concerning biosurgery.
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GENZYME SURGICAL PRODUCTS, GENZYME TISSUE REPAIR AND BIOMATRIX MAY NOT
SUCCESSFULLY INTEGRATE OPERATIONS, AND THE INTEGRATION OF THE BUSINESSES MAY
BE COSTLY.
After the tracking stock exchanges and the merger, Genzyme Surgical
Products, Genzyme Tissue Repair and Biomatrix, each of which previously operated
separately, will begin to integrate operations. The integration will require
efforts from each of them. Genzyme Surgical Products and Genzyme Tissue Repair,
whose principal facilities are in Massachusetts and Georgia, may encounter
difficulties in supervising Biomatrix operations, whose principal facilities are
in New Jersey and Canada. Personnel in each organization may leave because of
the merger, and customers, distributors or suppliers may terminate their
arrangements or demand new arrangements. Integrating operations of these
businesses may distract management's attention from the day-to-day business of
the combined entity. If Genzyme Biosurgery is unable to successfully integrate
the operations of the three businesses or if this integration process costs more
than expected, Genzyme Biosurgery's future results will be negatively impacted.
IN DECIDING HOW TO VOTE, GENZYME STOCKHOLDERS SHOULD RECOGNIZE THAT THE
ACQUISITION OF BIOMATRIX WILL DISPARATELY IMPACT GENZYME'S TRACKING STOCKS.
The acquisition of Biomatrix and creation of the Genzyme Biosurgery division
will impact each of Genzyme's current divisions, and therefore Genzyme's
separate series of tracking stocks, differently, as described below.
IMPACT ON HOLDERS OF TISSUE REPAIR STOCK. Holders of Tissue Repair Stock
will experience an exchange of their shares of Tissue Repair Stock for shares of
a new series of Genzyme common stock, Biosurgery Stock. This new series of stock
will be designed to track an expanded subset of Genzyme's business.
Specifically, it will be designed to track not only the business currently
allocated to Genzyme Tissue Repair, but also the business currently allocated to
Genzyme Surgical Products and contained in Biomatrix. Consequently, the new
tracking stock will be designed to reflect the liabilities and risks associated
with those three businesses, which risks and liabilities are discussed below
under "RISK FACTORS--Risks Related to Genzyme Biosurgery." It also, as a result,
is intended to reflect the operating performance of the combined businesses,
which may differ significantly from the performance that would have been
realized by Genzyme Tissue Repair had it continued to be reported as a separate
division. For example, for 1999 and the first half of 2000, Genzyme Biosurgery
division and Biosurgery Stock would have been allocated significantly larger net
losses and net losses per share, on a pro forma basis, than were allocated to
Genzyme Tissue Repair and Tissue Repair Stock for the same periods.
Specifically, Genzyme Biosurgery would have been allocated pro forma net losses
of $117.1 million and $50.7 million and Biosurgery Stock net losses per share of
$3.33 and $1.44 for the respective periods compared to Genzyme Tissue Repair's
net losses of $30.0 million and $9.0 million and Tissue Repair Stock's net
losses per share of $1.26 and $0.31. See "UNAUDITED PRO FORMA COMBINED FINANCIAL
INFORMATION" beginning on page 58 for more pro forma financial information.
These differences result from the size of the combined losses of the Tissue
Repair and Surgical Products divisions, net of income reported by Biomatrix,
plus required purchase accounting adjustments such as amortization of goodwill
as a charge against earnings. We expect that Genzyme Biosurgery will incur net
losses at least through the first half of 2001 as substantial amounts of the
division's funds are spent on research, development, regulatory,
commercialization and other activities. A further impact of the tracking stock
exchange on holders of Tissue Repair Stock will be that Biosurgery Stock will be
entitled, by its terms, to a greater number of votes per share, but a decreased
number of liquidation units per share, compared to that of the Tissue Repair
Stock, as discussed under "THE GENZYME TRACKING STOCK EXCHANGE
PROPOSALS--Effects of the Exchange on Holders of Tissue Repair Stock" beginning
on page 151.
IMPACT ON HOLDERS OF SURGICAL PRODUCTS STOCK. Like holders of Tissue Repair
Stock, the holders of Surgical Products Stock will experience an exchange of
their tracking stock shares for shares of
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Biosurgery Stock. Therefore, their new common stock in Genzyme will be designed
to reflect the liabilities and risks associated not only with the business that
Genzyme currently allocates to its Genzyme Surgical Products division, but also
the businesses allocated to the Genzyme Tissue Repair division and contained in
Biomatrix. Those combined risks and liabilities are discussed below under "RISK
FACTORS--Risks Related to Genzyme Biosurgery." It also, as a result, is intended
to reflect the operating performance of the combined businesses, which may
differ significantly from the performance that would have been realized by
Genzyme Surgical Products had it continued to be reported as a separate
division. For example, for 1999 and the first half of 2000, Genzyme Biosurgery
division and Biosurgery Stock would have been allocated significantly larger net
losses and net losses per share, on a pro forma basis, than were allocated to
Genzyme Surgical Products and Surgical Products Stock for the same periods.
Specifically, Genzyme Biosurgery would have been allocated pro forma net losses
of $117.1 million and $50.7 million and Biosurgery Stock net losses per share of
$3.33 and $1.44 for the respective periods compared to Genzyme Surgical
Products' net losses of $20.5 million and $20.4 million and Surgical Products
Stock's net losses per share of $1.38 and $1.37. See "UNAUDITED PRO FORMA
COMBINED FINANCIAL INFORMATION" beginning on page 58 for more pro forma
financial information. These differences result from the size of the combined
losses of the Surgical Products and Tissue Repair divisions, net of income
reported by Biomatrix, plus required purchase accounting adjustments such as
amortization of goodwill as a charge against earnings such as amortization of
goodwill as a charge against earnings. We expect that Genzyme Biosurgery will
incur net losses at least through the first half of 2001 as substantial amounts
of the division's funds are spent on research, development, regulatory,
commercialization and other activities. A further impact of the tracking stock
exchange on holders of Surgical Products Stock will be that Biosurgery Stock
will be entitled, by its terms, to a lesser number of votes per share and
liquidation units per share compared to that of the Surgical Products Stock, as
discussed under "THE GENZYME TRACKING STOCK EXCHANGE PROPOSALS--Effects of the
Exchange on Holders of Surgical Products Stock" beginning on page 151.
IMPACT ON HOLDERS OF GENZYME GENERAL STOCK. The particular subset of
Genzyme's business and operations currently allocated to Genzyme General
division will not be altered by the Biomatrix acquisition or the creation of
Genzyme Biosurgery. Specifically, Genzyme will not allocate to Genzyme General
any of the businesses currently allocated to the Genzyme Surgical Products or
Genzyme Tissue Repair divisions or contained in Biomatrix, nor will it
reallocate to Genzyme Biosurgery any of the business currently allocated to the
Genzyme General division. Nonetheless, the newly acquired assets and liabilities
of Biomatrix may still impact Genzyme General Stock. Generally, Genzyme attempts
to satisfy the liabilities allocated to a given division by first utilizing the
assets allocated to that division. However, if those assets are insufficient to
satisfy the division's allocated liabilities, then Genzyme may use assets
allocated to another division. Therefore, if Genzyme were unable to satisfy
liabilities allocated to Genzyme Biosurgery out of the assets allocated to that
division, Genzyme may also use assets allocated to Genzyme General. The
liabilities allocated to Genzyme Biosurgery are expected to include
- approximately $200 million in debt that Genzyme intends to incur to
finance the cash portion of the merger consideration;
- liabilities reflected on the balance sheets of Biomatrix, Genzyme Tissue
Repair and Genzyme Surgical Products; and
- any contingent liabilities attributable to Biomatrix, Genzyme Tissue
Repair and Genzyme Surgical Products.
Product liability and securities litigation claims are examples of potential
contingent liabilities. Please read "RISK FACTORS--Risks Related to Genzyme
Biosurgery" below for a description of risks
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related to the businesses allocated to that division and "RISK FACTORS--Risks
Related to Genzyme" for a discussion of risks related to all of Genzyme's
businesses including those in Genzyme Biosurgery.
Even though the business and operations allocated to Genzyme General will
not be altered by the creation of Genzyme Biosurgery, the merger and the share
exchanges will impact income allocated to Genzyme General Stock. Income
allocated to Genzyme General may be positively affected because, under Genzyme's
management and accounting policies, more overhead may be allocated to Genzyme
Biosurgery than would have been allocated to Genzyme Surgical and Genzyme Tissue
Repair combined. Also, the amount of tax benefits allocated to Genzyme General
from Genzyme Biosurgery may differ from those that would have been allocated to
Genzyme General from Genzyme Surgical Products and Genzyme Tissue Repair
combined. If losses generated by Genzyme Biosurgery are less than the combined
losses that would have been generated by Genzyme Surgical Products and Genzyme
Tissue Repair - which could occur, for instance, to the extent the former
Biomatrix businesses in Genzyme Biosurgery are profitable - then the tax benefit
allocated to Genzyme General will decline. For example, the tax benefits
allocated to Genzyme General from Genzyme Surgical Products and Genzyme Tissue
Repair totaled $27.0 million in 1999 and $9.8 million for the first half of
2000. On a pro forma basis, the tax benefits allocated to Genzyme General from
Genzyme Biosurgery would have been $20.9 million in 1999 and $7.5 million for
the first half of 2000. See 'UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION'
beginning on page 58.
If, rather than creating Genzyme Biosurgery, Genzyme issued General Stock to
acquire Biomatrix and allocated the operations of Biomatrix to Genzyme General,
the earnings per share allocated to Genzyme General Stock would have decreased.
The effects of purchase accounting and the dilutive effect of issuing additional
shares of Genzyme General Stock would have resulted in a decline in the earnings
per share allocated to Genzyme General Stock.
IMPACT ON HOLDERS OF MOLECULAR ONCOLOGY STOCK. The subset of Genzyme's
business and operations currently allocated to the Genzyme Molecular Oncology
division will not be altered by the Biomatrix acquisition or the creation of
Genzyme Biosurgery. Specifically, Genzyme will not allocate to Genzyme Molecular
Oncology any of the businesses currently allocated to the Genzyme Surgical
Products or Genzyme Tissue Repair divisions or contained in Biomatrix, nor will
it reallocate to Genzyme Biosurgery any of the business currently allocated to
the Genzyme Molecular Oncology. Nonetheless, the newly acquired assets and
liabilities of Biomatrix may still impact Molecular Oncology Stock. For example,
if Genzyme were unable to satisfy the liabilities allocated to Genzyme
Biosurgery out of the assets allocated to that division, Genzyme may also use
assets allocated to Genzyme Molecular Oncology to satisfy those liabilities. The
liabilities allocated to Genzyme Biosurgery are listed in the immediately
preceding paragraph, which discusses the similar risk faced by holders of
Genzyme General Stock. Please read "RISK FACTORS--Risks Related to Genzyme
Biosurgery" below for a description of risks related to the businesses allocated
to that division and "RISK FACTORS--Risks Related to Genzyme" for a discussion
of risks related to all of Genzyme's businesses including those in Genzyme
Biosurgery.
NO SPECIAL SAFEGUARDS ESTABLISHED BY THE BOARD IN CONSIDERING THESE
DISPARATE IMPACTS. While the acquisition and tracking stock exchanges will
disparately impact Genzyme's different series of tracking stocks, as described
below under "RISK FACTORS--Risks Related to Genzyme Tracking Stocks," Genzyme's
board of directors may not owe separate fiduciary duties to each series. The
board believes that in completing the merger and the tracking stock exchanges,
the interests of the Genzyme tracking stock divisions are aligned inasmuch as
all of the divisions will benefit, or suffer, depending upon the success of
Genzyme Biosurgery, even if the divisions benefit or suffer to differing
extents. In light of this determination, and the fact that the merger was
negotiated with a third party, the board did not believe it was necessary to:
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- appoint a special board committee to specifically evaluate the impact of
the tracking stock exchanges and the merger on each series of Genzyme
stock;
- employ separate management teams to negotiate on behalf of different
stockholder groups; or
- engage separate financial advisors to analyze the exchange and the merger
from the perspective of holders of Genzyme General Stock or Molecular
Oncology Stock.
RISKS RELATED TO GENZYME BIOSURGERY
In the tracking stock exchanges Genzyme will issue Biosurgery Stock in
exchange for Surgical Products Stock and Tissue Repair Stock; in the merger it
will issue shares of Biosurgery Stock and cash in exchange for Biomatrix common
stock. Biosurgery Stock is intended to track the value and reflect the
performance of a newly formed Biosurgery division of Genzyme. The new Genzyme
Biosurgery is intended to be a combination of the businesses of Genzyme Surgical
Products, Genzyme Tissue Repair and Biomatrix.
Accordingly, before deciding how to vote on the tracking stock exchanges or
the merger, you should carefully consider the following factors affecting the
business of the new Genzyme Biosurgery.
A FAILURE TO INCREASE SALES OF SYNVISC COULD HAVE A NEGATIVE EFFECT ON THE
PRICE OF BIOSURGERY STOCK.
Genzyme Biosurgery will generate a substantial portion of its product
revenues from sales of Synvisc, Biomatrix' product for treatment of
osteoarthritis of the knee. Biomatrix began marketing Synvisc in 1993. Net
product sales of Synvisc totaled $68.3 million for the year ended December 31,
1999, which represented approximately 95% of Biomatrix' product revenues, and
which, on a pro forma basis after giving effect to the tracking stock exchanges
and the merger, would have represented approximately 32% of Genzyme Biosurgery's
total revenues for 1999.
Failure to achieve sales growth for Synvisc may cause the value of
Biosurgery Stock to decline. Revenues from Synvisc could be impacted negatively
if competitive treatments for osteoarthritis of the knee are deemed more
efficacious or cost effective. Some companies are developing competitive
products, and other companies may do so in the future.
The commercial success of Synvisc also will depend on many other factors,
including the following:
- THE AVAILABILITY OF THIRD PARTY REIMBURSEMENT.
Many third party payers in the United States and abroad cover Synvisc.
Genzyme Biosurgery will continue to discuss reimbursement for Synvisc with
European government agencies. Genzyme cannot guarantee that any third party
payers will continue to cover Synvisc or that additional third party payers
will begin to provide reimbursement.
- CONTINUED RELATIONS WITH MARKETING PARTNERS.
Biomatrix has entered into several distribution agreements for marketing
and distributing Synvisc. Biomatrix has in the past and may in the future
periodically reacquire distribution rights in some territories if partners
cease to perform under agreements relating to those territories. Genzyme
Biosurgery may not be able to maintain or replace these marketing partners.
In this event, there may be disruptions in sales associated with
restructuring Genzyme Biosurgery's distribution arrangements.
THE COMMERCIAL SUCCESS OF GENZYME BIOSURGERY'S PRODUCT, CARTICEL
CHONDROCYTES, IS UNCERTAIN.
Carticel cartilage repair is a service used to treat knee cartilage damage.
This service involves a proprietary process for growing autologous chondrocytes
(a patient's own cartilage cells) to replace those that are damaged or lost.
Revenues from Carticel chondrocytes accounted for approximately 75%
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of Genzyme Tissue Repair's total revenue during 1999 and, after giving effect to
the tracking stock exchanges and the merger, would have represented
approximately 7.0% of Genzyme Biosurgery's total revenue during 1999. The
commercial success of Carticel chondrocytes will depend on many factors,
including the following:
- POSITIVE RESULTS FROM POST-MARKETING STUDIES.
Genzyme has agreed with the FDA to conduct two post-marketing studies to
confirm the effectiveness of Carticel chondrocytes. The first study
compares clinical outcomes of patients in Genzyme Tissue Repair's registry
who did not respond to treatment before being implanted with Carticel
chondrocytes. This study will measure outcomes before and after
implantation with Carticel chondrocytes. The second study compares the
long-term clinical effects of treatment with Carticel chondrocytes to other
available treatments. If these studies demonstrate that treatment with
Carticel chondrocytes is not superior to the alternatives studied, the FDA
may suspend or withdraw its approval of Carticel chondrocytes. If Genzyme
Biosurgery cannot market Carticel chondrocytes in the U.S., its financial
results may be negatively impacted.
- FDA APPROVAL OF RELATED DEVICE.
Genzyme Tissue Repair has developed a device to improve the procedure for
implanting Carticel chondrocytes and plans to file for marketing approval
with the FDA. Genzyme believes Genzyme Biosurgery will begin marketing this
device in 2000. However, Genzyme cannot guarantee that the FDA will approve
this device, that this device will improve the procedure for implanting
Carticel chondrocytes, or that this device will gain commercial acceptance.
- THE AVAILABILITY OF THIRD PARTY REIMBURSEMENT.
Since the FDA approved Carticel chondrocytes, Genzyme has seen a
substantial increase in the number of third party payers who cover it. Some
third party payers, however, do not cover Carticel chondrocytes. Genzyme
cannot guarantee that any third party payers will continue to cover it or
that additional third party payers will begin to provide reimbursement.
Although FDA approval is a crucial factor in insurance plans deciding to
cover new treatments, a number of major insurance plans also base such
decisions on their own or third party evaluations of treatments. One
independent association that conducts evaluations is the Blue Cross Blue
Shield Association. The Blue Cross Blue Shield Association has determined
that its Technology Assessment Committee does not believe that Carticel
chondrocytes meets all of its published criteria for new treatments.
Genzyme believes that Carticel chondrocytes does in fact meet all of these
criteria and are discussing the evaluation with the Blue Cross Blue Shield
Association. While individual Blue Cross Blue Shield plans representing
more than 50% of Blue Cross Blue Shield policyholders have provided policy
coverage for Carticel chondrocytes without a favorable evaluation by the
Blue Cross Blue Shield Association, many Blue Cross Blue Shield plans have
delayed approving Carticel chondrocytes from coverage under their policies
as a direct result of this unfavorable ruling. Since these remaining plans
represent a significant percentage of insured lives in the U.S., this
ruling has restricted our access to a substantial portion of the market for
Carticel chondrocytes.
- THE SUCCESS OF COMPETITIVE PRODUCTS.
The process Genzyme uses to grow a patient's cartilage cells is not
patentable, and Genzyme does not yet have significant patent protection
covering the other processes used in providing Carticel chondrocytes.
Consequently, Genzyme cannot prevent a competitor from developing the
ability to grow cartilage cells and from offering a product or service that
is similar or superior to Carticel chondrocytes. If a competitor were to
develop such ability and obtain FDA approval for a competitive product or
service, Genzyme Biosurgery's results of operations would be negatively
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impacted. Genzyme is aware of at least two other companies that are growing
autologous cartilage cells for cartilage repair in the European market.
Also, several pharmaceutical and biotechnology companies are developing
alternative treatments for knee cartilage damage. One or more of these
companies may develop products or services superior to the Carticel
chondrocytes.
- MARKET ACCEPTANCE BY ORTHOPEDIC SURGEONS.
Genzyme is marketing Carticel chondrocytes to orthopedic surgeons. Genzyme
cannot guarantee that it will train enough surgeons who incorporate
Carticel chondrocytes into their practice to make it commercially
successful.
- FLUCTUATING REVENUES DUE TO SEASONAL FACTORS.
Genzyme expects that the revenues from the sale of the Carticel
chondrocytes will fluctuate based on Genzyme Biosurgery's success in
penetrating the market, the availability of competitive procedures and the
availability of third party reimbursement. Genzyme cannot predict the
timing or magnitude of these fluctuations. Furthermore, Genzyme expects
that revenues from Carticel chondrocytes will be lower in the summer months
because fewer operations are typically performed during those months.
- RELIANCE ON KEY COLLABORATORS.
Carticel chondrocytes were developed based on the work of a group of
Swedish physicians. Genzyme Tissue Repair had consulting agreements with
the two leaders of that group. These agreements, however, expired in 1998,
and Genzyme Tissue Repair is currently negotiating renewals of these
agreements. Pending these negotiations, these physicians are continuing to
advise Genzyme Tissue Repair on the commercialization and further
development of Carticel chondrocytes. Genzyme cannot guarantee that the two
physicians will sign a new contract or advise Genzyme Biosurgery.
In addition, individuals who are familiar with the know-how underlying
Carticel chondrocytes through their association with these physicians may
disclose the information to our competitors. This event could have an adverse
effect on Genzyme Biosurgery's results of operations.
Genzyme Biosurgery will have a sponsored research agreement with the
University of Gothenburg in Sweden and certain physicians, including the two
physicians who lead the group that developed Carticel chondrocytes. The purpose
of the agreement is to conduct additional research on Carticel chondrocytes. The
agreement will prohibit members of the research team from disclosing any
information relating to Genzyme Biosurgery or its business that they acquire in
connection with their work under the agreement. The agreement also will state
that all inventions that the members conceive or reduce to practice during the
course of the research program will be Genzyme Biosurgery's property, with
royalties payable to the inventing member. Genzyme cannot guarantee that these
members will honor their obligations under the sponsored research agreement.
GENZYME BIOSURGERY WILL DEVOTE SIGNIFICANT RESOURCES TO DEVELOP NOVEL
PRODUCTS AND TREATMENTS THAT MAY NOT BE COMMERCIALLY SUCCESSFUL.
Genzyme Surgical Products has devoted a significant amount of money to
developing products that will represent alternatives to traditional surgical
procedures or treatments. These products, which, after completion of the
tracking stock exchanges and the merger, will be products of Genzyme Biosurgery,
will likely require several years of aggressive and costly marketing before they
might become widely accepted by the surgical community. Genzyme Biosurgery
expects to develop products that are designed to enable surgeons to perform
minimally invasive cardiovascular surgery. The medical conditions that can be
treated with minimally invasive cardiovascular surgery are currently being
treated with widely accepted surgical procedures such as coronary artery bypass
grafting and catheter-based treatments,
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including balloon angioplasty, atherectomy and coronary stenting. To date,
minimally invasive cardiovascular surgery has been performed on a limited basis
and its further adoption by the surgical community will partly depend on Genzyme
Biosurgery's ability to educate cardiothoracic surgeons about its effectiveness
and to facilitate the training of cardiothoracic surgeons in minimally invasive
cardiovascular surgery techniques.
Similarly, until recently surgeons have not used products designed to reduce
the incidence and extent of postoperative adhesions. Since 1996, when Sepra Film
bioresorbable membrane was introduced, market acceptance of anti-adhesion
products has been slow. To increase sales of the Sepra products, Genzyme
Surgical Products has had to educate surgeons and hospital administrators about
the problems of, and costs associated with, adhesions and the benefits of
preventing adhesions. Genzyme Surgical Products also has had to, and continues
to have to, train surgeons on the proper handling and use of these products.
Biomatrix also has devoted a significant amount of resources to developing a
portfolio of anti-adhesion products. These products are based on proprietary
hylan technology and are in the form of gels, films and membranes. Since these
therapeutics are in the development stage, significant resources will be needed
to commercialize them and to gain market acceptance, with no guarantee of
success.
Genzyme cannot guarantee that either Genzyme Surgical Products' past efforts
or Genzyme Biosurgery's continued efforts in educating and training the surgical
community will result in the widespread adoption of minimally invasive
cardiovascular surgery and anti-adhesion products or that surgeons adopting
these procedures and products will use Genzyme Biosurgery's products.
ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY
APPROVAL OR PUBLIC PERCEPTION OF GENZYME BIOSURGERY'S GENE THERAPY PRODUCTS.
The recent death of a patient undergoing gene therapy using an adenoviral
vector to deliver a therapeutic gene has been widely publicized. This death and
any other adverse events in the field of gene therapy that may occur in the
future may result in greater governmental regulation and potential regulatory
delays relating to the testing or approval of Genzyme Biosurgery's gene therapy
products. As a result of the death, the U.S. Senate has commenced hearings to
determine whether additional legislation is required to protect volunteers and
patients who participate in gene therapy clinical trials. Additionally, the
Recombinant DNA Advisory Committee, which acts as an advisory body to the
National Institutes of Health, has extensively discussed the use of adenoviral
vectors in gene therapy clinical trials and recently issued a draft report on
the safety of adenoviral vectors. While this draft report recommends that
clinical trials using adenoviral vectors should continue with caution, it also
suggested a number of changes in the way gene therapy clinical trials are
conducted.
The commercial success of any gene therapy products that Genzyme Biosurgery
develops will depend in part on public acceptance of the use of gene therapies
for the prevention or treatment of human diseases. Public attitudes may be
influenced by claims that gene therapy is unsafe, and gene therapy may not gain
the acceptance of the public or the medical community. Negative public reaction
to gene therapy could result in greater government regulation and stricter
clinical trial oversight and commercial product labeling requirements of gene
therapies and could cause a decrease in the demand for any gene therapy product
that Genzyme Biosurgery may develop.
BECAUSE GENZYME BIOSURGERY WILL HAVE SIGNIFICANT FIXED PAYMENTS, IT MAY NEED
TO DEVOTE A SUBSTANTIAL PORTION OF ITS CASH FLOW TO MAKE THE PAYMENTS AND
MAY NEED TO BORROW MONEY IN THE FUTURE TO MAKE DEBT PAYMENTS AND OPERATE ITS
BUSINESS.
Genzyme expects to incur approximately $200 million in long-term debt to
finance the cash costs of the merger. The amount of this debt will increase to
the extent holders of Surgical Products Stock
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and Tissue Repair Stock exercise dissenters' rights and will increase to the
extent Biomatrix stockholders exercise dissenters' rights with respect to shares
in excess of 28.38% of the shares of Biomatrix common stock outstanding.
Although Genzyme will allocate this debt to Genzyme Biosurgery, it will remain a
liability of the corporation as a whole. Genzyme Biosurgery will use a large
part of its cash flow from operations to make principal and interest payments on
this debt. If Genzyme Biosurgery's cash flow from operations is insufficient to
meet these obligations, the division may need to borrow to make these payments.
Genzyme cannot guarantee that such additional financing will be available or
available on favorable terms.
In addition to amounts that may be borrowed to finance the merger, Genzyme's
significant cash obligations allocated to Genzyme Biosurgery include the
following:
- GENZYME SURGICAL PRODUCTS.
In 1989, Genzyme organized Genzyme Development Partners, L.P., a special
purpose research and development entity. Genzyme transferred to the
partnership technology and commercial rights to the Sepra products and
entered into a joint venture with the partnership to develop and
commercialize the Sepra products in the U.S. and Canada. Genzyme has an
option to purchase the limited partnership interests in the partnership
under certain circumstances for approximately $26 million plus continuing
royalties based on certain sales of the Sepra products. Genzyme allocated
the purchase option to Genzyme Surgical Products, and thus, after
completion of the tracking stock exchanges and the merger, this option will
belong to Genzyme Biosurgery. The option's exercise price is payable in
cash, shares of Genzyme General Stock or a combination of the two, as
determined by Genzyme Biosurgery if it exercises the option.
This option terminates unless Genzyme Biosurgery exercises the option by
November 28, 2000. If Genzyme Biosurgery exercises this option, it will
have to make substantial cash payments or compensate Genzyme General with
designated shares of Biosurgery Stock for the Genzyme General Stock used,
or both. If the division makes cash payments, its cash resources would
diminish. If it makes the payment in whole or in part in shares of Genzyme
General Stock, then Genzyme's board of directors would need to approve the
issuance of Genzyme General Stock in return for Genzyme General receiving a
number of Biosurgery designated shares with a fair market value equal to
the fair market value of the shares of Genzyme General Stock.
Genzyme cannot guarantee that its board would authorize the issuance of
shares of Genzyme General Stock for payment of the option exercise price
and the creation of any Biosurgery designated shares. If Genzyme's board
creates and subsequently distributes or otherwise disposes of any
Biosurgery designated shares, this may substantially dilute the rights of
the holders of Biosurgery Stock and significantly affect the market price
of Biosurgery Stock.
If Genzyme Biosurgery does not exercise the option, the partnership would
have the right to sell or otherwise transfer to a third party a license to
background technology that Genzyme granted to it. A sale or transfer of
this technology may terminate Genzyme's joint venture with the partnership
to manufacture and sell the Sepra products in the U.S. and Canada. In
addition, failure to exercise the option would cause the joint venture to
become terminable upon 90 days' prior notice by either Genzyme or Genzyme
Development Partners.
In addition, Genzyme may propose an acquisition of the partnership or the
limited partnership interests outside of the purchase option. This sort of
acquisition proposal might involve cash, Biosurgery Stock, Genzyme General
Stock, debt or some other currency as consideration.
Genzyme currently expects that it will exercise the purchase option during
November and pay the approximately $26 million option price in cash.
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- GENZYME TISSUE REPAIR.
In 1999, Genzyme Tissue Repair received $25 million in cash from Genzyme
General in connection with the transfer to Genzyme General of Genzyme's
interest in Genzyme Tissue Repair's joint venture with Diacrin, Inc. If the
joint venture does not initiate a Phase III clinical trial of NeuroCell-PD
by June 30, 2001, Genzyme Tissue Repair will be required to repay Genzyme
General $20 million plus accrued interest at 13.5% per year. Genzyme
Biosurgery, as Genzyme Tissue Repair's successor, would be able to repay
this amount in cash, Biosurgery designated shares, or a combination of
both, at its option. If these milestones are not achieved, and Genzyme
Biosurgery elects to repay Genzyme General in cash, Genzyme Biosurgery's
cash reserves will be diminished. If Genzyme Biosurgery elects to repay
Genzyme General in shares of Biosurgery designated shares, this would
dilute the rights of the holders of Biosurgery Stock and could adversely
affect the market price of Biosurgery Stock.
- BIOMATRIX.
Genzyme Biosurgery will assume the outstanding 6.9% Convertible
Subordinated Note due May 14, 2003 in favor of SBC Warburg Dillon
Read Inc. At December 31, 1999, $10 million of this note remained
outstanding. Genzyme Biosurgery will use a part of its cash flow to satisfy
debt service on this note. If all or a portion of the note is not converted
at the option of the holder into Biosurgery Stock, at maturity Genzyme
Biosurgery's cash reserves will be diminished by the amount necessary to
repay the outstanding principal of the note.
GENZYME BIOSURGERY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME
PROFITABLE.
Neither Genzyme Surgical Products nor Genzyme Tissue Repair has ever
operated profitably. Genzyme Biosurgery expects to have operating losses before
amortization of intangibles and goodwill through at least the second quarter of
2001 as it combines the operations of Genzyme Surgical Products, Genzyme Tissue
Repair and Biomatrix, and as it continues to spend substantial amounts of money
on, among other things, conducting research, development, regulatory and
commercialization activities to support its expanded product lines. This
strategy involves risks, which include supporting higher levels of operating
expenses, attracting and retaining employees, and dealing with other management
difficulties that arise from rapid growth. If Genzyme Biosurgery cannot manage
growth effectively, it may not become profitable.
IF GENZYME BIOSURGERY FAILS TO OBTAIN CAPITAL NECESSARY TO FUND ITS
OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE
CLINICAL TRIALS.
Genzyme anticipates that Genzyme Biosurgery's current cash resources,
together with revenues generated from products sales, will be sufficient to fund
its operations through at least 2001.
Genzyme Biosurgery's cash needs may differ from those planned because of
many factors, including the:
- ability to become profitable;
- results of research and development efforts and clinical testing;
- ability to establish strategic alliances and licensing arrangements for
research and development programs;
- achievement of milestones under strategic alliances;
- ability to establish and maintain additional distribution arrangements;
- cost of protecting its intellectual property rights;
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- market's acceptance of novel approaches and therapies;
- development of competing products; and
- ability to satisfy regulatory requirements of the FDA and other government
authorities.
Genzyme Biosurgery may require significant additional financing to continue
operations at anticipated levels. Genzyme cannot guarantee that it will be able
to obtain additional financing or find it on favorable terms. If Genzyme
Biosurgery has insufficient funds or is unable to raise additional funds, it may
have to delay, reduce or eliminate certain of its programs. Genzyme Biosurgery
may also have to give third parties rights to attempt to commercialize
technologies or products that it would otherwise have sought to commercialize
itself. See "RISK FACTORS--Risks Related to Genzyme Biosurgery--BECAUSE GENZYME
BIOSURGERY WILL HAVE SIGNIFICANT FIXED PAYMENTS, IT MAY NEED TO DEVOTE A
SUBSTANTIAL PORTION OF ITS CASH FLOW TO MAKE THE PAYMENTS AND MAY NEED TO BORROW
MONEY IN THE FUTURE TO MAKE DEBT PAYMENTS AND OPERATE ITS BUSINESS" above.
CHANGES IN GENZYME BIOSURGERY'S MANUFACTURING CAPABILITIES COULD
SIGNIFICANTLY REDUCE ITS ABILITY TO DELIVER ITS PRODUCTS.
After completion of the tracking stock exchanges and the merger, Genzyme
Biosurgery will engage in the production of a wide variety of products and
services. Genzyme Biosurgery's manufacturing processes are highly complex and
are regulated by the government. Genzyme Biosurgery intends to seek to achieve
manufacturing synergies after the tracking stock exchanges and the merger. It is
possible that Genzyme Biosurgery will have problems maintaining or expanding its
facilities in the future and achieving the merger synergies. These problems
could cause delays in production or delivery. Any significant disruption in
Genzyme Biosurgery's manufacturing operations or in its ability to manufacture
products cost effectively could have an adverse effect on its business, results
of operations, and financial condition.
COMPETITION FROM OTHER MEDICAL DEVICE AND TECHNOLOGY COMPANIES COULD HURT
GENZYME BIOSURGERY'S PERFORMANCE.
The human health care products and services industry is extremely
competitive. Major medical device and technology companies compete or may
compete with Genzyme Biosurgery. These include such companies as:
- Atrium Medical Corporation and Sherwood-Davis & Geck, a division of Tyco
International, Ltd., in the cardiovascular chest drainage and fluid
management market;
- The Ethicon division of Johnson & Johnson Ltd. and U.S. Surgical
Corporation, a division of Tyco, in the cardiovascular closure market;
- CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical, Guidant
Corporation, Baxter Healthcare Corporation and Ethicon in the minimally
invasive cardiovascular surgery market;
- Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc. and
Gliatech, Inc. in the anti-adhesion market;
- Karl Storz Endoscopy America, Inc., Scanlan International, Inc., Pilling
Weck Surgical Instruments and the Codman division of Johnson &
Johnson Ltd. in the reusable instruments market; and
- Fidia S.p.A., Sanofi and OrthoLogic Corp., Anika Therapeutics, Inc. and
Zimmer, Inc., and Seikagiku Corporation and Smith & Nephew in the
viscosupplementation products market.
These competitors may have superior research and development, marketing and
production capabilities. Some competitors also may have greater financial
resources than Genzyme Biosurgery. The
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division is likely to incur significant costs developing and marketing new
products without any guarantee that they will be competitively successful in one
or more markets. The future success of Genzyme Biosurgery will depend on its
ability to effectively develop and market its products against those of its
competitors.
THE TREND TOWARD CONSOLIDATION IN THE SURGICAL DEVICES INDUSTRY MAY
ADVERSELY AFFECT GENZYME BIOSURGERY'S ABILITY TO MARKET SUCCESSFULLY ITS
PRODUCTS TO SOME SIGNIFICANT PURCHASERS.
The current trend among hospitals and other significant consumers of
surgical devices is to combine into larger purchasing groups to increase their
purchasing power and thus reduce their purchase price for surgical devices.
Partly in response to this development, surgical device manufacturers have been
consolidating to be able to offer a more comprehensive product line to these
larger purchasing groups. In order to market successfully its products to larger
purchasing groups, Genzyme Biosurgery may have to expand its product lines or
enter into joint marketing or distribution agreements with other manufacturers
of surgical devices. Genzyme cannot guarantee that it will be able to employ
either of these initiatives or that, when employed, these initiatives will
increase the marketability of its products.
IF GENZYME BIOSURGERY CANNOT MAINTAIN OR REPLACE BIOMATRIX' EXISTING
MARKETING PARTNERS, THERE MAY BE DISRUPTIONS IN SALES ASSOCIATED WITH
RESTRUCTURING GENZYME BIOSURGERY'S DISTRIBUTION ARRANGEMENTS.
Biomatrix has entered into several distribution agreements for marketing and
distributing some of its products, including Synvisc and Hylaform. As a result,
Genzyme Biosurgery will depend on these marketing partners for sales of its
products in countries in which it will have marketing and distribution
agreements. It is possible that Genzyme Biosurgery will not be able to maintain
or replace these marketing partners or replace them following termination of the
related agreements. If this happens, there may be disruptions in sales
associated with restructuring Genzyme Biosurgery's distribution arrangements.
BIOMATRIX FACES LITIGATION THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON
GENZYME BIOSURGERY'S BUSINESS, FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
On July 21 and August 7, 15, and 30, 2000, class action lawsuits requesting
unspecified damages were filed in the United States District Court for the
District of 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 related to Biomatrix' product
Synvisc-Registered Trademark- during the period between July 20, 1999 and
April 25, 2000, and assert causes of action under the Exchange Act and
Rule 10b-5 promulgated under that Act. Biomatrix disagrees with these claims and
believes that information related to Synvisc-Registered Trademark- was properly
disclosed. Biomatrix intends to defend these actions vigorously. If the matters
are unresolved prior to the merger, Genzyme intends to continue in the defense
against those actions. However, we can give no assurance as to the outcome of
the matters. It is possible that Biomatrix or, if the merger occurs, Genzyme may
be required to pay substantial damages or settlement costs to the extent that
those damages or settlement costs are not covered by insurance. Regardless of
the outcome of the actions, these actions may cause a diversion of Biomatrix'
and/or Genzyme Biosurgery's management time and attention. Under Biomatrix'
charter, officers and directors of Biomatrix are entitled to indemnification for
these types of claims from Biomatrix to the full extent permitted by Delaware
law. At the effective time of the merger it is anticipated that Mr. Riggs will
be employed by Genzyme Biosurgery.
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RISKS RELATED TO GENZYME
The following risk factors relate to Genzyme generally and affect all of its
divisions, including Genzyme Biosurgery. Biomatrix stockholders in particular
should consider carefully these risk factors before deciding how to vote on the
merger. Genzyme stockholders should focus on the application of these risks to
the business acquired from Biomatrix; after the merger, former Biomatrix
products and product candidates will be Genzyme products and product candidates,
subject to the risks and uncertainties described below.
A REDUCTION IN REVENUES FROM SALES OF PRODUCTS THAT TREAT GAUCHER DISEASE
WOULD HAVE AN ADVERSE EFFECT ON GENZYME'S BUSINESS.
Genzyme generates a majority of its product revenues from sales of
enzyme-replacement products for patients with Gaucher disease. Genzyme entered
this market in 1991 with Ceredase enzyme. Because production of Ceredase enzyme
was subject to supply constraints, Genzyme 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, Chinese hamster ovary cells are engineered to produce human
alpha glucocerebrosidase. Genzyme 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 total revenues
for that year, and $263.5 million for the six months ended June 30, 2000,
representing approximately 61% of Genzyme'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 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 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 U.S. 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.
IF GENZYME COMPLETES ITS MERGER WITH GELTEX, GENZYME'S FUTURE EARNINGS
GROWTH WILL BE DEPENDANT ON ITS ABILITY TO INCREASE SALES OF RENAGEL BRAND
PHOSPHATE BINDER.
In November 1998, Genzyme, 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 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
its merger agreement with GelTex was Genzyme's 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;
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- 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;
- the accuracy of available information about dialysis patient populations
and the accuracy of Genzyme's expectations about growth in this
population; and
Many of the risks that apply generally to Genzyme's products, including
regulatory, legislative, development, reimbursement and market risks described
in this section.
GOVERNMENT REGULATION IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON THE
DEVELOPMENT AND COMMERCIALIZATION OF GENZYME PRODUCTS AND SERVICES.
Genzyme's success will depend on its ability to successfully 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 product or service first can be
sold, limit how a consumer may use a product or service, or 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 to approve pending applications or supplements to approved
applications;
- suspending product sales in the U.S. and/or exports from the U.S.;
- recalling products; and
- seizing products.
Furthermore, therapies that have received, or in the future receive,
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
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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 U.S. 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 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 U.S. or
internationally; and
- 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 of third-party reimbursement.
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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 and
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;
- 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 the merger;
- approximately $509.4 million in cash to stockholders of GelTex in
connection with Genzyme's proposed merger with GelTex; 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 5.25% 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. Upon completion of the tracking stock
exchanges and the merger, Biosurgery Stock will be available for issue to
note holders 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. Upon completion of
the tracking stock exchanges and the merger, 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 its 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 considerations 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.
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If Genzyme uses cash to pay or redeem 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.
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 its future patent applications may not result
in issued patents. In the U.S., 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 the 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,
Genzyme's 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 diminished. Any changes in or interpretations of the patent laws
may adversely affect Genzyme's 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 the profitability of the 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 on 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
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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 by the
manufacture and use of Replagal-TM-, Transkaryotic Therapies' replacement
therapy for Fabry disease. The suit alleges infringement of U.S. patent
No. 5,356,804, which Genzyme licenses from Mount Sinai School of Medicine on an
exclusive basis. 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 United States District Court in Boston,
Massachusetts seeking declaratory judgments that the manufacture, use and sale
of Replagal-TM- 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 with a substantially similar product.
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 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 any acquired
from Biomatrix or GelTex or in other business combinations, may bring product
liability claims against Genzyme or its subsidiaries. While Genzyme has taken,
and continues to take, what Genzyme 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. If Genzyme attempts to obtain
additional insurance in the future, it may not be able to do so on acceptable
terms, and any additional insurance it 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.
GENZYME'S COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY
HAVE SUPERIOR PRODUCTS, MANUFACTURING CAPABILITIES OR MARKETING POSITION.
The human health care 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
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its competitors. For instance, Genzyme is aware of other companies developing
products for the treatment of Fabry disease that would compete with the
Fabrazyme enzyme treatment that Genzyme is developing. If any of those companies
receive FDA approval for a Fabry disease therapy with orphan drug designation
before Genzyme receives FDA approval for Fabrazyme enzyme, the Orphan Drug Act
will preclude Genzyme from selling Fabrazyme enzyme in the U.S. for up to seven
years.
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 its 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 U.S., 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.
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 could 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
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of the U.S., 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 the U.S. dollar, which is its reporting currency. 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 operation 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.
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 their sole discretion:
- exchange shares of Molecular Oncology Stock, or, after completion of the
tracking stock exchanges and the merger, 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 RELATED TO GENZYME TRACKING STOCKS
If the tracking stock exchanges and the merger are approved, Genzyme will
have three series of tracking stock designed to reflect the value and track the
performance of Genzyme's three operating divisions as follows:
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- Genzyme General Stock designed to track the performance of Genzyme
General;
- Molecular Oncology Stock designed to track the performance of Genzyme
Molecular Oncology; and
- Biosurgery Stock designed to track the performance of Genzyme Biosurgery.
The following are risks related to owning shares of Genzyme's tracking
stock. Biomatrix stockholders in particular should consider carefully these risk
factors before deciding how to vote on the merger.
HOLDERS OF GENZYME'S TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY AND
UNFAVORABLE FINANCIAL TRENDS AFFECTING ANOTHER DIVISION COULD NEGATIVELY
AFFECT GENZYME BIOSURGERY.
None of Genzyme's divisions are separate legal entities. Holders of
Genzyme's tracking stock are stockholders of a single company and face all of
the risks of an investment in Genzyme.
Upon completion of the tracking stock exchanges and the merger and for
purposes of financial presentation, Genzyme will allocate programs, products,
assets and liabilities among its three 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 Biosurgery Stock, for example, will not have any
specific rights to the assets allocated to Genzyme Biosurgery in Genzyme's
financial statements. Furthermore, if Genzyme is unable to satisfy one
division's liabilities out of the assets it allocates to that division, such as,
for example, the approximately $200 million in debt Genzyme expects to incur to
partially finance the cash portion of the merger consideration and allocate to
Genzyme Biosurgery, Genzyme may be required to satisfy those liabilities with
assets it has allocated to another division.
GENZYME'S BOARD OF DIRECTORS MAY TAKE ACTIONS THAT HAVE AN UNEQUAL AND
ADVERSE EFFECT ON THE HOLDERS OF 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.
MEMBERS OF GENZYME'S BOARD OF DIRECTORS MAY FAVOR ANOTHER SERIES OF TRACKING
STOCK OVER BIOSURGERY STOCK IF THEY OWN A DISPROPORTIONATE AMOUNT OF THAT
SERIES.
A member of Genzyme's board 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 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 were 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.
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HOLDERS OF GENZYME'S TRACKING STOCK HAVE LIMITED DECISION-MAKING POWER
BECAUSE THEY HAVE LIMITED SEPARATE VOTING RIGHTS.
Holders of all series of Genzyme's tracking stock 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.
We anticipate that after the merger, the relative voting power of Genzyme's
tracking stocks will be as follows:
<TABLE>
<CAPTION>
APPROXIMATE PERCENTAGE
SERIES OF TOTAL VOTING POWER
------ ----------------------
<S> <C>
Genzyme General Stock................................... 83%
Biosurgery Stock........................................ 16%
Molecular Oncology Stock................................ 1%
</TABLE>
The exact relative voting power of each series will depend upon the number
of shares of Biosurgery Stock issued in the tracking stock exchanges and merger,
which in turn is dependent upon the number of shares outstanding at the time of
the merger, whether any dissenters rights are exercised and whether a tax-based
adjustment is made to the number of shares issued to former Biomatrix
stockholders. The table above assumes no exercise of dissenters rights or
tax-based adjustment. The votes per share of each series will be adjusted on
January 1, 2001 based on their relative average market prices at that time,
which could result in a material change in relative voting percentages. See
"DESCRIPTION OF GENZYME CAPITAL STOCK--Voting Rights" beginning on page 168 for
a description of how the voting power of the tracking stocks is periodically
adjusted.
THE VOTES PER SHARE OF GENZYME'S TRACKING STOCKS ARE ADJUSTED EVERY TWO
YEARS.
Under Genzyme's charter, the 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
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 BIOSURGERY STOCK ARE NOT ADJUSTED TO REFLECT
CHANGES IN ITS MARKET VALUE.
If Genzyme were to dissolve, liquidate or wind up its affairs, other than as
part of a merger, business combination or sale of substantially all of its
assets, its stockholders would receive any remaining assets according to the
percentage of total liquidation units that they hold. Assuming the tracking
stock exchanges and the merger are approved, the number of liquidation units per
share for each series of its tracking stock will be as follows:
- each share of Genzyme General Stock has 100 liquidation units;
- each share of Molecular Oncology Stock has 25 liquidation units; and
- each share of Biosurgery Stock has 50 liquidation units.
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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 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 GENZYME'S 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 Genzyme's business and to prepare its 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 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's
tracking stock and could be detrimental to one series as compared to another.
The discretion of Genzyme's board to make changes is limited only by the
policies themselves and the board's fiduciary duty to all of its stockholders.
The full text of these policies, as proposed to be amended and restated to give
effect to the tracking stock exchanges and the merger, is included as Annex D to
this joint proxy statement/prospectus.
GENZYME'S BOARD CAN REQUIRE INVESTORS TO EXCHANGE THEIR SHARES OF GENZYME
TRACKING STOCK.
Genzyme's board of directors may at any time, in its sole discretion, decide
to exchange shares of Molecular Oncology Stock, Surgical Products Stock, Tissue
Repair Stock and/or, if it is created, Biosurgery Stock, for any combination of
cash and shares of Genzyme General Stock at a 30% premium over the exchanged
stock's then current market value. At any time that all of a division's assets
are held through a wholly-owned subsidiary, Genzyme's board can choose to "spin
off" that division by exchanging the outstanding shares of tracking stock
corresponding to that division for shares in the spun off company, whereupon
former tracking stockholders will no longer be stockholders of Genzyme. If
Genzyme transfers or sells to a third party all or substantially all of the
assets allocated to Genzyme Biosurgery, the board would have to either redeem,
make a dividend payment on or exchange outstanding Biosurgery Stock. The board
will have sole discretion in deciding whether to effect that redemption,
dividend payment or exchange using Genzyme General Stock or any combination of
cash or other property regardless of the form of consideration paid by the
buyer. However, Genzyme's charter will require that any exchange for Genzyme
General Stock be at a 10% premium to the Biosurgery Stock's average market price
following public announcement of the sale and that any payment of cash or other
property be equal in value to the sale's after-tax net proceeds. The charter
requires similar treatment of Molecular Oncology Stock, Surgical Products Stock
and Tissue Repair Stock upon a sale of the assets allocated to the corresponding
division.
Also, Genzyme's board can exchange shares of Molecular Oncology Stock,
Surgical Products Stock, Tissue Repair Stock and/or, if it is created,
Biosurgery Stock into Genzyme General Stock at no premium to the exchanged
stocks' market value in the event of certain adverse tax developments, as
discussed in the immediately following risk factor.
GENZYME MAY ELIMINATE TRACKING STOCK IF A CORPORATE OR SHAREHOLDER LEVEL TAX
IS IMPOSED ON THE ISSUANCE OR RECEIPT 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 Department regulations, Genzyme could be taxed on an amount up to the
gain realized in future financings in which Genzyme sells
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tracking stock, including Biosurgery Stock. Also, any use of Genzyme tracking
stock to acquire other companies could result in a tax on 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 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 TRACKING STOCK 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
"--HOLDERS OF GENZYME'S TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY AND
UNFAVORABLE FINANCIAL TRENDS AFFECTING ANOTHER DIVISION COULD NEGATIVELY AFFECT
GENZYME BIOSURGERY," financial developments in one division, particularly if
significant and/or adverse, may affect other divisions.
THE USE OF GENZYME BIOSURGERY'S OPERATING LOSSES TO LOWER THE REPORTED TAX
LIABILITY OF GENZYME'S PROFITABLE DIVISIONS WILL CAUSE GENZYME BIOSURGERY TO
REPORT LOWER EARNINGS IN THE FUTURE.
Genzyme Corporation, rather than its divisions, is liable for taxes. Under
Genzyme's management and accounting policies, for financial reporting purposes
Genzyme generally allocates taxes among its divisions as if they were separate
taxpayers. However, Genzyme's board of directors has adopted a policy that
provides that if any of Genzyme's divisions is unable to use its operating
losses or other projected annual tax benefits to reduce its current or deferred
income tax expense, Genzyme may reallocate these losses or benefits to its
profitable divisions on a quarterly basis for financial reporting purposes. This
will result in a division with current losses (such as Genzyme Molecular
Oncology and Genzyme Biosurgery) reporting lower earnings available to its
common stockholders in the future than would be the case if that division had
retained its historical losses or other benefits in the form of a net operating
loss carryforward. The full text of this policy, as proposed to be amended and
restated to give effect to the tracking stock exchanges and the merger, is
included as Annex D to this joint proxy statement/prospectus.
THE NON-COMPETE POLICY AMONG GENZYME'S DIVISIONS MAY NOT COVER ALL OF THE
ACTIVITIES OF A PARTICULAR DIVISION.
Genzyme's board of directors has adopted a policy regarding competition
among its divisions. This non-compete policy requires that Genzyme develop
certain products and services within a given division, as opposed to another
division, or through joint ventures involving a given division, because the
product or service is within the field of activity of that division. This
non-compete policy, however, does not cover the entire field of activity of each
division. For example, Genzyme General Division or Genzyme Molecular Oncology
may develop certain tissue repair products or services. In order words, Genzyme
cannot guarantee that all products and services it develops in a given field of
activity will be allocated to a division primarily engaged in that field of
activity. The full text of this policy, as proposed to be amended and restated
to give effect to the tracking stock exchanges and the merger, is included as
Annex D to this joint proxy statement/prospectus.
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FUTURE SALES OR DISTRIBUTIONS OF DESIGNATED SHARES OF BIOSURGERY STOCK MAY
SIGNIFICANTLY DILUTE YOUR OWNERSHIP OF BIOSURGERY STOCK.
Genzyme's management and accounting policies require it to sell or
distribute any designated shares of a division, including designated shares of
Biosurgery Stock, that may be held by Genzyme General, subject to certain
limitations. Designated shares are created when cash or other assets are
transferred from Genzyme General to a division. Proceeds from a sale or
distribution will not be allocated to Genzyme Biosurgery and the issuance and
sale may substantially dilute your ownership of Genzyme Biosurgery.
Circumstances under which designated shares of Biosurgery Stock will be sold or
distributed are described in the section of this document entitled "DESCRIPTION
OF GENZYME CAPITAL STOCK--Molecular Oncology Designated Shares, Surgical
Products Designated Shares, Tissue Repair Designated Shares and Biosurgery
Designated Shares" beginning on page 170.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This joint proxy statement/prospectus contains forward-looking statements
about Genzyme's and Biomatrix' 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
joint proxy statement/ prospectus, including the information set forth under the
heading "RISK FACTORS" beginning on page 30.
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 joint proxy statement/prospectus and the other
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 joint 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 Biomatrix and Genzyme's merger
with GelTex Pharmaceuticals 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 Biosurgery the division of Genzyme that will be
created from the merger of Biomatrix and the combination of Genzyme Surgical
Products and Genzyme Tissue Repair. 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 these businesses might have
looked if each of the mergers had been completed at the beginning of the periods
presented.
In connection with the merger with Biomatrix and the tracking stock
exchange, 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, as described in "THE GENZYME TRACKING
STOCK EXCHANGE PROPOSALS" beginning on page 150.
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 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 generally accepted
accounting principles and as adjusted for tax benefits allocated to or from the
division. Accordingly, the merger and tracking stock exchange will involve a
change in Genzyme's current methodology for allocating its earnings to its
series of common stock.
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 Biosurgery Stock will be based on the
income or losses attributable to Genzyme Biosurgery, we included pro forma
financial statements of Genzyme Biosurgery to aid investors in evaluating its
performance.
Holders of Biosurgery Stock will have no specific rights to the assets
allocated to Genzyme Biosurgery. Genzyme Corporation will continue to hold title
to all of the assets allocated to Genzyme Biosurgery 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 Biosurgery 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
58
<PAGE>
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 our companies. The
unaudited pro forma information does not reflect these potential expenses and
efficiencies.
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 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 that 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
59
<PAGE>
conversion rates. The conversion of options to purchase Biomatrix common stock
will be accounted for in accordance with Financial Accounting Standards Board
Interpretation No. 44 ("FIN 44").
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.
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 Division.
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 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 merger 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 Surgical
Products, Genzyme Tissue Repair and Biomatrix appearing in the documents
described under "WHERE YOU CAN FIND MORE INFORMATION" beginning on page 197.
60
<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.
61
<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) (CONTINUED)
<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.
62
<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.
63
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
GENZYME
HISTORICAL HISTORICAL CORPORATION
GENZYME BIOMATRIX, PRO FORMA NOTE AND
CORPORATION INC. ADJUSTMENTS REFERENCE BIOMATRIX
----------- ---------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C>
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK:
Genzyme General net income....... $109,299 $ -- $109,299
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
======== ======== ========
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
======== ========
Diluted........................ 94,885 94,885
======== ========
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.....................
Net income per GelTex common
share--basic.................
Weighted average shares
outstanding..................
Net income per GelTex common
and equivalent
share--diluted...............
Adjusted weighted average
shares outstanding...........
<CAPTION>
PRO FORMA
GENZYME
CORPORATION
HISTORICAL PRO FORMA NOTE AND
GELTEX ADJUSTMENTS REFERENCE SUBSIDIARIES
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
NET INCOME (LOSS) PER SHARE:
ALLOCATED TO GENZYME GENERAL
STOCK:
Genzyme General net income....... $(29,740) $ 79,559
Tax benefit allocated from
Genzyme Molecular Oncology..... 3,537
Tax benefit allocated from
Genzyme Surgical Products...... 0
Tax benefit allocated from
Genzyme Tissue Repair.......... 0
Tax benefit allocated from
Genzyme Biosurgery............. 7,478
-------- --------
Net income allocated to Genzyme
General Stock.................. $(29,740) $ 90,574
======== ========
Net income per share of Genzyme
General Stock:
Basic.......................... $ 0.99
========
Diluted........................ $ 0.94
========
Weighted average shares
outstanding:
Basic.......................... 7,029 G9 91,754
======== ========
Diluted........................ 7,344 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..................... $13,034 $(13,034) G14 $ --
======= ======== ========
Net income per GelTex common
share--basic................. $ 0.67 $ (0.67) G14 $ --
======= ======== ========
Weighted average shares
outstanding.................. 19,331 (19,331) G9 --
======= ======== ========
Net income per GelTex common
and equivalent
share--diluted............... $ 0.66 $ (0.66) G14 $ --
======= ======== ========
Adjusted weighted average
shares outstanding........... 19,775 (19,775) G9 --
======= ======== ========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
64
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
GENZYME HISTORICAL PRO FORMA NOTE
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE
--------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents......... $ 178,730 $ 37,400 $ (45,000) B1
Short-term
investments......... 182,877 -- --
Accounts receivable,
net................. 180,947 13,400 --
Inventories........... 127,347 8,500 17,900 B5
Prepaid expenses and
other current
assets.............. 25,720 10,000 --
Deferred tax assets--
current............. 40,776 -- --
---------- -------- ---------
Total current
assets.......... 736,397 69,300 (27,100)
Property, plant and
equipment, net........ 396,048 40,200 (1,418) B5
Long-term receivables,
affiliates............ -- -- --
Long-term investments... 332,603 -- --
Notes
receivable--related
party................. 10,000 -- --
Intangibles, net........ 241,077 -- 245,685 B1
460,273 B1
Deferred tax assets--
noncurrent............ 14,690 -- --
Investments in equity
securities............ 108,732 -- --
Other noncurrent
assets................ 55,518 800 --
---------- -------- ---------
Total assets...... $1,895,065 $110,300 $ 677,440
========== ======== =========
<CAPTION>
PRO FORMA PRO FORMA
GENZYME GENZYME
CORPORATION AND HISTORICAL PRO FORMA NOTE CORPORATION AND
BIOMATRIX GELTEX ADJUSTMENTS REFERENCE SUBSIDIARIES
--------------- ---------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents......... $ 171,130 $ 67,402 $(100,000) G1 $ --
2,555 G6 141,087
Short-term
investments......... 182,877 51,684 (100,000) G1 134,561
Accounts receivable,
net................. 194,347 -- (541) G4 193,806
Inventories........... 153,747 -- 9,166 G1
12,317 G6
(315) G4 174,915
Prepaid expenses and
other current
assets.............. 35,720 5,228 667 G6 41,615
Deferred tax assets--
current............. 40,776 -- -- 40,776
---------- -------- --------- ----------
Total current
assets.......... 778,597 124,314 (176,151) 726,760
Property, plant and
equipment, net........ 434,830 13,847 7,532 G6 456,209
Long-term receivables,
affiliates............ -- 341 (341) G4 --
Long-term investments... 332,603 -- (159,416) G1 173,187
Notes
receivable--related
party................. 10,000 -- -- 10,000
Intangibles, net........
947,035 7,772 932,653 G1
(7,772) G5
714 G6 1,880,402
Deferred tax assets--
noncurrent............ 14,690 -- 32,500 G1 47,190
Investments in equity
securities............ 108,732 -- (2,044) G1 106,688
Other noncurrent
assets................ 56,318 16,989 (2,134) G4
(26,067) G4 45,106
---------- -------- --------- ----------
Total assets...... $2,682,805 $163,263 $ 599,474 $3,445,542
========== ======== ========= ==========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
65
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
GENZYME HISTORICAL PRO FORMA NOTE
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE
----------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable.............. $ 22,087 $ 1,200 $ --
Accrued expenses.............. 71,674 11,100 16,000 B2
Income taxes payable.......... 43,609 -- --
Deferred revenue.............. 4,619 -- --
Current portion of notes
payable and long-term debt
and capital lease
obligations................. 992 900 --
---------- -------- ---------
Total current
liabilities............. 142,981 13,200 16,000
Notes payable and long-term debt
and capital lease
obligations................... 18,283 11,300 200,000 B1
Convertible notes and
debentures, net............... 273,150
Deferred tax
liabilities--noncurrent....... -- 172,028 B1
Other noncurrent liabilities.... 2,889
---------- -------- ---------
Total liabilities......... 437,303 24,500 388,028
---------- -------- ---------
Stockholders' equity:
Genzyme General Stock, $.01
par value................... 854
Molecular Oncology Stock, $.01
par value................... 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
Treasury Stock--at cost....... (901)
Additional paid-in capital--
Genzyme General Stock....... 478,455
Additional paid-in capital--
Molecular Oncology Stock.... 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
Notes receivable--related
parties..................... -- (14,400) B3
<CAPTION>
PRO FORMA
PRO FORMA GENZYME
GENZYME CORPORATION
CORPORATION AND HISTORICAL PRO FORMA NOTE AND
BIOMATRIX GELTEX ADJUSTMENTS REFERENCE SUBSIDIARIES
--------------- ---------- ----------- --------- ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS'
EQUITY
Current liabilities:
Accounts payable.............. $ 23,287 -- (3,914) G4 19,373
Accrued expenses.............. 98,774 3,494 10,000 G2
4,115 G6 116,383
Income taxes payable.......... 43,609 -- -- 43,609
Deferred revenue.............. 4,619 -- 240 G6 4,859
Current portion of notes
payable and long-term debt
and capital lease
obligations................. 1,892 1,513 -- 3,405
---------- ------- --------- ---------
Total current
liabilities............. 172,181 5,007 10,441 187,629
Notes payable and long-term debt
and capital lease
obligations................... 229,583 5,849 150,000 G1 385,432
Convertible notes and
debentures, net............... 273,150 -- -- 273,150
Deferred tax
liabilities--noncurrent....... 172,028 -- 161,090 G1 333,118
Other noncurrent liabilities.... 2,889 563 -- 3,452
---------- ------- --------- ---------
Total liabilities......... 849,831 11,419 321,531 1,182,781
---------- ------- --------- ---------
Stockholders' equity:
Genzyme General Stock, $.01
par value................... 854 -- 78 G1 932
Molecular Oncology Stock, $.01
par value................... 137 -- -- 137
Surgical Products Stock, $.01
par value................... -- -- -- --
Tissue Repair Stock, $.01 par
value....................... -- -- -- --
Biosurgery Stock, $.01 par
value....................... 352 -- -- 352
Treasury Stock--at cost....... (901) -- -- (901)
Additional paid-in capital--
Genzyme General Stock....... 478,455 -- 485,650 G1
71,217 G1 1,035,322
--
Additional paid-in capital--
Molecular Oncology Stock.... 84,036 -- -- 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 1,293,598
Notes receivable--related
parties..................... (14,400) -- -- (14,400)
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
66
<PAGE>
GENZYME CORPORATION AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL
GENZYME HISTORICAL PRO FORMA NOTE
CORPORATION BIOMATRIX, INC. ADJUSTMENTS REFERENCE
--------------- --------------- ----------- ---------
<S> <C> <C> <C> <C>
Deferred
compensation........ -- (10,000) B1
Retained earnings
(accumulated
deficit)............ 138,512 (127,975) B1
Biomatrix, Inc.
preferred stock,
none issued......... --
Biomatrix, Inc. 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........... -- --
GelTex Pharmaceuticals
additional paid-in
capital............. -- --
GelTex Pharmaceuticals
deferred
compensation........ -- --
GelTex Pharmaceuticals
accumulated
deficit............. -- --
Accumulated other
comprehensive income
(loss).............. (9,694) (1,600) 1,600 B3
---------- -------- ---------
Total
stockholders'
equity.......... 1,457,762 85,800 289,412
---------- -------- ---------
Total liabilities
and
stockholders'
equity.......... $1,895,065 $110,300 $ 677,440
========== ======== =========
<CAPTION>
PRO FORMA PRO FORMA
GENZYME GENZYME
CORPORATION AND HISTORICAL PRO FORMA NOTE CORPORATION AND
BIOMATRIX GELTEX ADJUSTMENTS REFERENCE SUBSIDIARIES
--------------- ---------- ----------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Deferred
compensation........ (10,000) -- (5,069) G1 (15,069)
--
Retained earnings
(accumulated
deficit)............ 10,537 -- (118,964) G1
(3,578) G4 (112,005)
Biomatrix, Inc.
preferred stock,
none issued......... -- -- -- --
Biomatrix, Inc. 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........... -- 204 (204) G3 --
GelTex Pharmaceuticals
additional paid-in
capital............. -- 248,098 (248,098) G3 --
GelTex Pharmaceuticals
deferred
compensation........ -- (329) 329 G3 --
GelTex Pharmaceuticals
accumulated
deficit............. -- (95,928) 95,928 G3 --
Accumulated other
comprehensive income
(loss).............. (9,694) (201) 201 G3
453 G1 (9,241)
---------- -------- --------- ----------
Total
stockholders'
equity.......... 1,832,974 151,844 277,943 2,262,761
---------- -------- --------- ----------
Total liabilities
and
stockholders'
equity.......... $2,682,805 $163,263 $ 599,474 $3,445,542
========== ======== ========= ==========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
67
<PAGE>
GENZYME BIOSURGERY
A DIVISION OF GENZYME CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1999
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO
GENZYME GENZYME FORMA
SURGICAL TISSUE HISTORICAL PRO FORMA NOTE GENZYME
PRODUCTS REPAIR BIOMATRIX, INC. ADJUSTMENTS REFERENCE BIOSURGERY
------------------ --------------- --------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net product sales............... $ 111,981 $ -- $ 72,000 $ -- $ 183,981
Net service sales............... -- 20,402 -- -- 20,402
Income from licenses, royalties,
research contracts and
grants........................ -- -- 7,700 -- 7,700
--------- -------- -------- -------- ---------
Total revenues................ 111,981 20,402 79,700 -- 212,083
--------- -------- -------- -------- ---------
Operating costs and expenses:
Cost of products sold........... 67,242 -- 21,100 581 B20 88,923
Cost of services sold........... -- 13,237 -- -- 13,237
Selling, general and
administrative................ 63,237 24,604 18,500 1,728 B20 108,069
Research and development........ 28,056 8,019 9,100 548 B20 45,723
Amortization of intangibles..... 5,750 -- -- 65,051 B19 70,801
--------- -------- -------- -------- ---------
Total operating costs and
expenses.................... 164,285 45,860 48,700 67,908 326,753
--------- -------- -------- -------- ---------
Operating income (loss)........... (52,304) (25,458) 31,000 (67,908) (114,670)
--------- -------- -------- -------- ---------
Other income (expenses):
Equity in net loss of
unconsolidated affiliates and
joint venture................. (35) (3,368) -- -- (3,403)
Other........................... 138 -- -- -- 138
Investment income............... 4,199 609 1,500 (2,453) B22 3,855
Interest expense................ (35) (1,823) (1,500) (15,000) B22 (18,358)
--------- -------- -------- -------- ---------
Total other income
(expenses).................. 4,267 (4,582) -- (17,453) (17,768)
--------- -------- -------- -------- ---------
Income (loss) before income
taxes........................... (48,037) (30,040) 31,000 (85,361) (132,438)
Income tax (provision) benefit.... -- -- (12,400) 12,400 B21 --
-- -- -- 15,378 B21 15,378
--------- -------- -------- -------- ---------
Division net income (loss)........ $ (48,037) $(30,040) $ 18,600 $(57,583) $(117,060)
========= ======== ======== ======== =========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
68
<PAGE>
GENZYME BIOSURGERY
A DIVISION OF GENZYME CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO
HISTORICAL HISTORICAL FORMA
HISTORICAL GENZYME GENZYME TISSUE BIOMATRIX, PRO FORMA NOTE GENZYME
SURGICAL PRODUCTS REPAIR INC. ADJUSTMENTS REFERENCE BIOSURGERY
------------------ --------------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Net product sales.................... $ 59,051 $12,132 $36,500 $ -- $107,683
Net service sales.................... -- -- -- --
Income from licenses, royalties,
research contracts and grants...... -- 22 7,400 -- 7,422
-------- ------- ------- -------- --------
Total revenues..................... 59,051 12,154 43,900 -- 115,105
-------- ------- ------- -------- --------
Operating costs and expenses:
Cost of products sold................ 32,631 -- 11,000 291 B20 43,922
Cost of services sold................ -- 6,046 -- 6,046
Selling, general and
administrative..................... 33,442 11,365 14,700 864 B20 60,371
Research and development............. 13,972 3,323 5,300 274 B20 22,869
Amortization of intangibles.......... 2,853 -- 32,526 B19 35,379
-------- ------- ------- -------- --------
Total operating costs and
expenses......................... 82,898 20,734 31,000 33,955 168,587
-------- ------- ------- -------- --------
Operating income (loss)................ (23,847) (8,580) 12,900 (33,955) (53,482)
-------- ------- ------- -------- --------
Other income (expenses):
Other................................ 47 (5) -- -- 42
Investment income.................... 3,391 208 1,300 (1,226) B22 3,673
Interest expense..................... (1) (625) (500) (7,500) B22 (8,626)
-------- ------- ------- -------- --------
Total other income (expenses)...... 3,437 (422) 800 (8,726) (4,911)
-------- ------- ------- -------- --------
Income (loss) before income taxes...... (20,410) (9,002) 13,700 (42,681) (58,393)
Income tax (provision) benefit......... -- -- (5,500) 5,500 B21 --
7,689 B21 7,689
-------- ------- ------- -------- --------
Division net income (loss)............. $(20,410) $(9,002) $ 8,200 $(29,492) $(50,704)
======== ======= ======= ======== ========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
69
<PAGE>
GENZYME BIOSURGERY
A DIVISION OF GENZYME CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
AS OF JUNE 30, 2000
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL
GENZYME GENZYME PRO FORMA
SURGICAL TISSUE HISTORICAL PRO FORMA NOTE GENZYME
PRODUCTS REPAIR BIOMATRIX, INC. ADJUSTMENTS REFERENCE BIOSURGERY
---------------- ---------------- --------------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ 18,789 $ 4,382 $ 37,400 $ (45,000) B14 $ 15,571
Short-term investments.......... 57,351 -- -- -- 57,351
Accounts receivable, net........ 21,230 5,795 13,400 -- 40,425
Inventories..................... 38,869 2,340 8,500 17,900 B18 67,609
Prepaid expenses and other
current assets................ 1,124 384 10,000 -- 11,508
-------- ------- -------- --------- -----------
Total current assets.......... 137,363 12,901 69,300 (27,100) 192,464
Property, plant and equipment,
net............................. 17,795 2,099 40,200 (1,418) B18 58,676
Long-term investments............. 19,750 -- -- -- 19,750
Intangibles, net.................. 169,900 -- -- 245,685 B14 875,858
460,273 B14
Deferred tax assets--non-current 1,371 -- -- 1,371
Investments in equity
securities...................... 4,274 -- -- 4,274
Other............................. 3,778 101 800 4,679
-------- ------- -------- --------- -----------
Total assets.................. $354,231 $15,101 $110,300 $ 677,440 $ 1,157,072
======== ======= ======== ========= ===========
LIABILITIES AND DIVISION EQUITY
Current liabilities:
Accounts payable................ $ 5,360 $ 449 $ 1,200 $ -- $ 7,009
Accrued expenses................ 8,750 2,873 11,100 16,000 B15 38,723
Current portion of notes
payable....................... -- -- 900 900
Due to Genzyme General.......... 8,368 214 -- 8,582
-------- ------- -------- --------- -----------
Total current liabilities..... 22,478 3,536 13,200 16,000 55,214
Notes payable and long-term
debt............................ -- 18,000 11,300 200,000 B14 229,300
Deferred tax
liabilities--non-current........ -- -- -- 172,028 B14 172,028
Other............................. -- 152 -- -- 152
-------- ------- -------- --------- -----------
Total liabilities............. 22,478 21,688 24,500 388,028 456,694
Division equity:
Division equity................. 331,753 (6,587) -- 352 B17
(150) B17
(288) B17
100,200 B16
378,358 B14
65,029 B14
(127,975) B14
(16,000) B15
86 B17
1,429 B14
(1,429) B14
(14,400) B16
(10,000) B14 700,378
Biomatrix common stock.......... -- --
Biomatrix additional-paid in
capital....................... -- -- 83,600 (83,600) B16 --
Biomatrix notes
receivable--related parties... -- -- (14,400) 14,400 B16 --
Biomatrix treasury stock, at
cost.......................... -- -- (900) 900 B16 --
Biomatrix retained earnings..... -- -- 19,100 (19,100) B16 --
Biomatrix other comprehensive
loss.......................... -- -- (1,600) 1,600 B16 --
-------- ------- -------- --------- -----------
Total division equity........... 331,753 (6,587) 85,800 289,412 700,378
-------- ------- -------- --------- -----------
Total liabilities and division
equity...................... $354,231 $15,101 $110,300 $ 677,440 $ 1,157,072
======== ======= ======== ========= ===========
</TABLE>
SEE NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS.
70
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES AND PRO FORMA INFORMATION
The accounting policies for Genzyme, Biomatrix and GelTex are in conformity
in all material respects. The unaudited pro forma combined financial statements
reflect the pro forma effect of Genzyme's merger with Biomatrix and Genzyme's
merger with GelTex 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 Biosurgery, the division of Genzyme that will be
created from the merger of Biomatrix and the combination of Genzyme Surgical
Products and Genzyme Tissue Repair.
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;
- 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
71
<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 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
72
<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 the
seller 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 estimates of revenues, cost of
sales, research and development expenses, sales and marketing expenses, general
and administrative expenses, and the anticipated income tax effect.
73
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
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 we will
see statistically significant results 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, we can give no assurance that we will see statistically significant
results 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 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
74
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
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, we can give no assurance that we will see
statistically significant results 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 we can
give 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 we will
see statistically significant results 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 the 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. We estimate the aggregate future clinical costs to develop this
indication will be approximately $8.0 million.
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>
75
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
(B) GELTEX
The aggregate purchase price of $1,075.2 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' 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.
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 the
seller up to the time of acquisition. This amount was estimated through
application of the "stage of completion" calculation by multiplying total
estimated
76
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
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 initiated 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
this study, 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 significant 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 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
$25.0 million. A discount rate of 40% was utilized in discounting these
estimated cash flows.
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
77
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(3) PURCHASE PRICE ALLOCATION (CONTINUED)
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 drug that has the attributes
of GelTex's WelChol lipid lowering agent, but requires 50% fewer tablets. This
increased ease of use should 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 in 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.
The GelTex research and development programs currently in process were
valued as follows (amounts in thousands):
<TABLE>
<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.
78
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
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>
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
79
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
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 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.
80
<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.
(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.
81
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
(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.
III. PRO FORMA ADJUSTMENTS TO GENZYME BIOSURGERY COMBINED BALANCE SHEET
(B14) To record the acquisition of the net assets of Biomatrix for an
aggregate purchase price of $780.2 million (see Note 3). 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 research and development has
been charged to accumulated deficit for purposes of pro forma balance
sheet presentation only and will be charged to expense in Genzyme
Biosurgery'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 Biosurgury 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 Biosurgury Stock for purchase price
accounting, and other assumptions in the Black-Scholes
82
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
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 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 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 Biomatrix 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 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.
(B15) 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.
(B16) 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
resticted stock plan. To the extent the holders receive cash as
consideration for their resticted 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 of the
balance of the notes will not be known until the acquisition is
effective.
(B17) To record the cancellation of Surgical Products Stock and Tissue Repair
Stock and issue Biosurgery Stock.
(B18) 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.
83
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(4) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF BIOMATRIX (CONTINUED)
IV. PRO FORMA ADJUSTMENTS TO GENZYME BIOSURGERY COMBINED STATEMENTS OF
OPERATIONS
(B19) 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>
(B20) 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.
(B21) To eliminate the Biomatrix provision for income taxes because Genzyme
Biosurgery incurred a net loss for each year. To record the deferred tax
benefit from the reduction of the deferred tax liability which results
from the amortization of the acquired intangibles. 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.
(B22) 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 payment of the $45.0 million of
cash, at a rate of return of 5.45% per annum.
(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 with options
to purchase Genzyme General Stock. The acquisition of GelTex will result in
RenaGel LLC, a joint venture between Genzyme and GelTex, becoming a wholly-owned
subsidiary of Genzyme. 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.
84
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
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 $1,075.2 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 to GelTex option
holders................................................... 71,217
Acquisition costs........................................... 10,000
----------
Aggregate purchase price.................................... $1,026,361
==========
</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
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
method. 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
85
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
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' historical stockholders' equity amounts totaling
$151.8 million.
(G4) To eliminate intercompany balances between Genzyme, GelTex and RenaGel
LLC.
(G5) To eliminate GelTex intangible assets.
(G6) To eliminate Genzyme's and GelTex' 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' 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.
86
<PAGE>
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS (CONTINUED)
(5) PRO FORMA ADJUSTMENTS RELATED TO THE ACQUISITION OF GELTEX (CONTINUED)
(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' 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 accounting. These adjustments
plus the impact of including GelTex' 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.
87
<PAGE>
THE GENZYME SPECIAL MEETING
The Genzyme board of directors is soliciting the proxies of Genzyme
stockholders in connection with the special meeting of stockholders to vote on
proposals related to the tracking stock exchanges. Approval of the tracking
stock exchanges is a condition to the merger. This joint proxy statement/
prospectus contains information about the tracking stock exchanges, including
proposed amendments to the Genzyme charter, and the merger to help Genzyme
stockholders in determining how to vote.
DATE, TIME, PLACE AND PURPOSE OF THE GENZYME SPECIAL MEETING
The special meeting of stockholders of Genzyme will be held at The Residence
Inn, 6 Cambridge Center, Cambridge, Massachusetts on December 15, 2000 at 2:00
p.m., Boston time. At the meeting, Genzyme will ask stockholders to vote on
several proposals related to the tracking stock exchanges and the merger.
The proposed terms of the Biosurgery Stock, which will be created by the
charter amendment that is part of the tracking stock exchanges, are attached as
Annex E to this joint proxy statement/ prospectus. Please read it and the other
information contained in this joint proxy statement/prospectus carefully before
deciding how to vote.
RECORD DATE AND OUTSTANDING SHARES
Only record holders of Genzyme common stock at the close of business on
October 25, 2000 can vote at the Genzyme special meeting. Genzyme currently has
four series of common stock. The following table shows the outstanding shares as
of October 25, 2000 and their relative voting power.
<TABLE>
<CAPTION>
NUMBER OF
COMMON STOCK HOLDERS OF RECORD SHARES OUTSTANDING VOTES PER SHARE TOTAL VOTES
------------ ----------------- ------------------ --------------- ---------------
<S> <C> <C> <C> <C>
Genzyme General Stock......... 2,290 86,952,792 1.00 86,952,792
Molecular Oncology Stock...... 2,164 15,866,293 0.08 1,269,303
Surgical Products Stock....... 1,983 14,998,985 0.61 9,149,380
Tissue Repair Stock........... 5,625 28,868,052 0.06 1,732,083
</TABLE>
VOTES REQUIRED
The following votes are required to approve the tracking stock exchange
proposals to be brought before the Genzyme stockholders at the special meeting:
<TABLE>
<CAPTION>
STOCKHOLDER ACTION REQUIRED VOTE
------------------ -------------
<S> <C>
- Adoption of the amended and restated Majority in interest of the shares of Genzyme
charter creating the Biosurgery Stock common stock outstanding and entitled to
and, eliminating Surgical Products vote, voting together as a single class, with
Stock and Tissue Repair Stock each series having the number of votes per
share as shown in the table above
- The transfer of the assets and property Majority in interest of the shares of
of Genzyme Surgical Products into Surgical Products Stock outstanding and
Genzyme Biosurgery and the conversion entitled to vote, voting as a single class,
of all outstanding shares of Surgical with each share having one vote
Products Stock into shares of
Biosurgery Stock
- The transfer of the assets and property Majority in interest of the shares of Tissue
of Genzyme Tissue Repair into Genzyme Repair Stock outstanding and entitled to
Biosurgery and the conversion of all vote, voting as a single class, with each
outstanding shares of Tissue Repair share having one vote
Stock into shares of Biosurgery Stock
</TABLE>
Only if each of these three proposals is approved, and only if and when the
merger is approved by Biomatrix stockholders and made effective, will the
tracking stock exchanges be effected.
88
<PAGE>
RECOMMENDATION OF THE GENZYME BOARD
THE GENZYME BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT GENZYME
STOCKHOLDERS VOTE "FOR" ADOPTION OF ALL THE PROPOSALS. In approving the tracking
stock exchanges and the merger, Genzyme's board of directors focused primarily
on the expected impact on Genzyme Tissue Repair and Genzyme Surgical Products.
The board was aware of the impact on Genzyme General and Genzyme Molecular
Oncology, particularly the implications of the use of the corporation's
borrowing capacity to finance the cash portion of the merger consideration. The
board believes that the acquisition of Biomatrix has the potential to strengthen
the businesses currently allocated to Genzyme Tissue Repair and Genzyme Surgical
Products and, thereby, strengthen the entire corporation to the benefit of all
Genzyme stockholders.
SHARE OWNERSHIP OF MANAGEMENT AND AFFILIATED STOCKHOLDERS
On the record date, directors, executive officers of Genzyme and their
affiliates as a group held the following number of shares of Genzyme common
stock, representing the following number of votes and percentage of voting
power:
<TABLE>
<CAPTION>
PERCENTAGE OF
SERIES SHARES HELD VOTES HELD OUTSTANDING VOTES
------ ----------- ---------- -----------------
<S> <C> <C> <C>
Genzyme General Stock.................. 330,104 330,104 0.4%
Molecular Oncology Stock............... 36,284 2,902 0.2%
Surgical Products Stock................ 287,929 175,636 1.9%
Tissue Repair Stock.................... 936,444 56,186 3.2%
All series of common stock............. N/A 564,828 0.6%
</TABLE>
QUORUM; ABSTENTIONS; BROKER NON-VOTES
In order to hold and complete the business of the Genzyme special meeting,
Genzyme must have a majority of the outstanding shares of the four series of
common stock, voting together as a single class, represented at the Genzyme
special meeting. Genzyme also must have a majority of the holders of each of the
Surgical Products Stock and Tissue Repair Stock, each voting separately as a
class, represented at the Genzyme special meeting. Stockholders may be present
in person or by proxy. Abstentions will count toward the quorum and be treated
as votes at the Genzyme special meeting, but they will have the effect of votes
against the tracking stock exchange proposals. Broker non-votes will also have
the effect as votes against the tracking stock exchange proposals.
VOTING OF PROXIES
Accompanying the copy of this joint proxy statement/prospectus sent to
Genzyme stockholders of record is a proxy card by which the Genzyme board of
directors is soliciting the proxy of Genzyme stockholders. Please complete, date
and sign the proxy card and promptly return it in the enclosed self-addressed
envelope. Genzyme stockholders may also vote their shares by telephone or on the
Internet. All properly executed proxies received prior to taking the vote at the
Genzyme special meeting, and not revoked, will be voted as instructed on the
proxy card. If no instructions are given, Genzyme will vote the proxy in favor
of all proposals. A Genzyme stockholder may revoke or amend a proxy before it is
voted by writing to Genzyme directly, submitting a new proxy with a later date,
or by attending the Genzyme special meeting and voting in person.
Holders of Surgical Products Stock or Tissue Repair Stock should not send
any certificates representing Surgical Products Stock or Tissue Repair Stock
with their proxies. After the charter amendment and the merger are effective,
these holders will receive instructions for the actual surrender and exchange of
their stock certificates.
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APPRAISAL RIGHTS
Under Massachusetts law, holders of Surgical Products Stock and Tissue
Repair Stock who file written notice of their intention to seek appraisal of
their shares before the taking of the vote to adopt the charter amendment may
elect to receive the "fair value" (as determined under Massachusetts law) of
their shares.
To be entitled to appraisal of your shares, you must comply strictly with
the requirements of the Massachusetts statute, which is reproduced in Annex H of
this joint proxy statement/prospectus. For a detailed description of your
appraisal rights as a holder of Surgical Products Stock or Tissue Repair Stock,
see the discussion under the heading "THE GENZYME TRACKING STOCK EXCHANGE
PROPOSALS--Appraisal Rights of Holders of Surgical Products Stock and Tissue
Repair Stock" beginning on page 154.
SOLICITATION OF PROXIES
Genzyme will bear its own proxy solicitation expenses. Genzyme is paying
Innisfree M&A Incorporated, a proxy solicitation firm, $20,000 plus expenses to
help with this proxy solicitation, and will indemnify Innisfree against any
losses arising out of its proxy soliciting services on Genzyme's behalf.
Genzyme's employees may solicit proxies personally, electronically, by telephone
or by mail. Genzyme will also reimburse, on request, the fees and expenses of
brokers and other nominees for forwarding the proxy materials to beneficial
holders and obtaining voting instructions.
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THE BIOMATRIX SPECIAL MEETING
The Biomatrix board of directors is soliciting the proxies of Biomatrix'
common stockholders in connection with the special meeting of common
stockholders to vote on the proposed merger. This joint proxy
statement/prospectus contains information about the proposed merger to help
Biomatrix stockholders in determining how to vote.
DATE, TIME, PLACE AND PURPOSE OF THE BIOMATRIX SPECIAL MEETING
The special meeting of stockholders of Biomatrix will be held at the
Marriott at Glenpointe, 100 Frank W. Burr Boulevard, Teaneck, New Jersey 07666
on December 7, 2000 at 10:00 a.m., local time. At the meeting, Biomatrix will
ask stockholders to adopt the merger agreement.
The merger agreement is attached as Annex A to this proxy
statement/prospectus. Please read it and the other information contained in this
joint proxy statement/prospectus carefully before deciding how to vote.
RECORD DATE AND OUTSTANDING SHARES
Only record holders of Biomatrix common stock at the close of business on
November 2, 2000 are entitled to vote on the merger. Each stockholder is
entitled to one vote for each share of Biomatrix common stock held on the record
date.
At the close of business on the record date, 23,636,129 shares of Biomatrix
common stock were outstanding. They were held of record by 313 stockholders.
Biomatrix has been informed that there are approximately 13,160 beneficial
owners.
VOTE REQUIRED
To approve the merger, a majority in interest of the shares of Biomatrix
common stock outstanding must affirmatively vote for adoption of the merger
agreement.
RECOMMENDATION OF THE BIOMATRIX BOARD
THE BIOMATRIX BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT BIOMATRIX
STOCKHOLDERS VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
SHARE OWNERSHIP OF MANAGEMENT AND AFFILIATED STOCKHOLDERS
On the record date, directors and executive officers of Biomatrix as a group
held 8,933,869 shares of Biomatrix common stock, or approximately 37.8% of the
outstanding shares. Officers and directors who together held on the record date
approximately 36.2% of the outstanding shares of Biomatrix common stock have
entered into written agreements to vote in favor of the merger.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
A majority of the shares of Biomatrix common stock outstanding on the record
date must be present at the Biomatrix special meeting to establish a quorum.
Stockholders may be present in person or by proxy. Abstentions will count toward
the quorum and be treated as votes at the meeting, but they will have the effect
of votes against the merger. Broker non-votes will also have the effect as votes
against the merger.
VOTING OF PROXIES
Accompanying the copy of this joint proxy statement/prospectus sent to
Biomatrix stockholders is a proxy card by which the Biomatrix board of directors
is soliciting proxies from Biomatrix stockholders.
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Please complete, date and sign the proxy card and promptly mail it in the
enclosed self-addressed envelope. All properly executed proxies received prior
to taking the vote at the Biomatrix special meeting, and not revoked, will be
voted as instructed on the proxy card. If no instructions are given, Biomatrix
will vote the proxy in favor of adopting the merger agreement. Biomatrix
stockholders may revoke or amend their proxies before it is voted by writing to
Biomatrix directly, submitting a new proxy with a later date; or by attending
the Biomatrix special meeting and voting in person.
APPRAISAL RIGHTS
Under Delaware law, Biomatrix stockholders who file written notice of their
intention to seek appraisal of their shares before the taking of the vote to
approve the merger, 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 G of this joint proxy statement/prospectus. For a detailed
description of Biomatrix stockholder appraisal rights, see the discussion under
the heading "THE MERGER AND THE MERGER AGREEMENT--Appraisal Rights of Biomatrix
Stockholders" beginning on page 131.
SOLICITATION OF PROXIES
Biomatrix will bear its own proxy solicitation expenses. Biomatrix is paying
Morrow & Co., a proxy solicitation firm, $7,500 plus expenses to help it with
the solicitation, and will indemnify Morrow & Co. against any losses arising out
of its proxy soliciting services on Biomatrix' behalf. Biomatrix' employees may
solicit proxies personally, electronically, by telephone or by mail. Biomatrix
will also reimburse, on request, the fees and expenses of brokers and other
nominees for forwarding the proxy materials to beneficial holders and obtaining
voting instructions.
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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 its value and track its financial
performance of its four divisions. Its four 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. It is shaping these new
therapies through the integration of its genomics, gene discovery, cell
therapy, gene therapy, small molecule drug discovery and protein
therapeutic efforts;
- 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.
If the tracking stock exchanges and the merger are completed, Genzyme
Surgical Products, Genzyme Tissue Repair and Biomatrix will combine to form
Genzyme Biosurgery, leaving Genzyme with three operating divisions. 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.
On September 11, 2000, Genzyme entered into a merger agreement with GelTex
Pharmaceuticals, Inc., a Delaware corporation, under which GelTex will merge
with and into Titan Acquisition Corp., a Massachusetts corporation and
wholly-owned subsidiary of Genzyme. GelTex will thereby become a wholly-owned
subsidiary of Genzyme. The merger will be accounted for using the purchase
method of accounting and is expected to close in late 2000 or early 2001. Under
the GelTex merger agreement, outstanding shares of GelTex's common stock will be
converted, in the aggregate, into approximately $509 million in cash and
7.8 million shares of Genzyme General Stock. Completing the merger will require
the approval of GelTex's stockholders, receipt of regulatory approvals and
satisfaction or waiver of customary closing conditions. GelTex, which is
headquartered in Waltham, Massachusetts, develops and markets non-absorbed
polymer drugs that bind and eliminate targeted substances within the
gastrointestinal tract. GelTex is also developing small-molecule pharmaceuticals
consisting of novel polyamine analogues and metal chelators.
You can find additional information regarding Genzyme, including its
proposed merger with GelTex, in Genzyme's filings with the SEC. See "WHERE YOU
CAN FIND MORE INFORMATION" beginning on page 197.
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BIOMATRIX
Biomatrix, founded in 1981, develops, manufactures and commercializes a
series of proprietary viscoelastic products made of biological polymers called
hylans for use in therapeutic medical applications and skin care. Hylans are
chemically modified forms of the naturally occurring hyaluronan (also known as
hyaluronic acid or sodium hyaluronate). Hylans are the second generation of
viscoelastics used in medicine, and are characterized by significantly enhanced
physical (rheological) properties (elasticity, viscosity and pseudoplasticity)
as compared to naturally occurring hyaluronan, from which the first generation
viscoelastics are made. The discovery of hylans has allowed Biomatrix to develop
a range of patented products with superior viscoelastic properties in the forms
of fluids, gels and solids. Biomatrix' operations consist of therapeutic medical
products and skin care intermediate products.
You can find additional information regarding Biomatrix in Biomatrix'
filings with the SEC. See "WHERE YOU CAN FIND MORE INFORMATION" beginning on
page 197.
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BACKGROUND AND REASONS FOR THE MERGER
BACKGROUND
In the second quarter of 1999, Biomatrix management initiated an internal
assessment of how best to accelerate the commercialization of new biomedical
products based on Biomatrix' proprietary hylan technology. Several strategic
alternatives were discussed at the regularly scheduled Biomatrix board of
directors meeting held on May 17, 1999. At this meeting, the Biomatrix board
directed Dr. Endre Balazs, Chief Executive Officer, Chief Scientific Officer and
a director of Biomatrix, Dr. Julius Vida, a director of Biomatrix, and Mr. Rory
Riggs, President and a director of Biomatrix, to develop a list of likely
candidates for a potential strategic alliance. In a telephone conference on
June 8, 1999, the Biomatrix board discussed the list of candidates developed by
Drs. Balazs and Vida and Mr. Riggs, and added companies suggested by other
Biomatrix board members and management. The Biomatrix board then directed
Drs. Balazs and Vida and Mr. Riggs to contact several companies, including
certain of Biomatrix' current distribution partners, to explore the possibility
of a transaction with Biomatrix. The results of such efforts were reported to
the Biomatrix board at a special meeting held on June 25, 1999, and then again
at the regularly scheduled Biomatrix board meeting held on July 9, 1999. At the
later meeting, after careful consideration and discussion of the results of the
contacts made to date, the Biomatrix board unanimously authorized Dr. Balazs,
Mr. Riggs and Mr. Morreale, a director of Biomatrix, to contact certain
investment banking firms to request proposals for assisting Biomatrix with
respect to strategic matters. At a special meeting of the Biomatrix board held
on July 30, l999, Dr. Balazs and Mr. Riggs reviewed the results of their
discussions with potential alliance partners, and Dr. Balazs, Mr. Riggs and
Mr. Morreale reported that several investment banking firms had been contacted
and were interested in assisting Biomatrix with respect to strategic matters. A
meeting date of August 11, l999 was established for a meeting to interview the
investment banking firms.
At the August 11, 1999 meeting, several leading investment banking firms
made presentations to the Biomatrix board about strategic alternatives available
to Biomatrix, including remaining independent, entering into a strategic
partnership and seeking a merger partner. The presentations included a
discussion of recent mergers and acquisitions in the biomedical and
pharmaceutical industries, relative valuations in these transactions, risks
relating to these types of transactions and the proposed process to complete a
transaction. At the conclusion of the meeting, after careful consideration and
discussion, the Biomatrix board determined that Biomatrix would engage Lehman
Brothers, Inc. and that they should be directed to seek a merger partner for
Biomatrix. Several factors were considered in making the decision to seek a
merger partner including: (1) the maximization of long-term stockholder value
that could result from being a part of a larger company with more diverse
product offerings; (2) the increased access to the capital markets that a larger
organization would have; and (3) the resulting increased ability to fund
development of Biomatrix' pipeline products that would result from being merged
with a larger company with greater access to financing and other resources. The
Biomatrix board also considered remaining as a stand alone company, but
determined that, at such time, the risks of remaining a stand alone company,
including financial risks and the risk of being dependent primarily upon sales
of Synvisc, were outweighed by the benefits of combining with a larger
organization. The engagement letter with Lehman Brothers was signed on
August 31, 1999.
While Biomatrix management and Lehman Brothers prepared a descriptive
memorandum to be sent to potential interested companies, Mr. Riggs and
Dr. Balazs continued to meet with companies that had been contacted by
management and Biomatrix board members prior to the engagement of Lehman
Brothers. As the memorandum was nearing completion, Lehman Brothers began
contacting a number of companies and sent non-confidential summary information
to some of these companies. In November and December of 1999, Biomatrix entered
into confidentiality agreements with several companies, each of whom
subsequently received the memorandum. One of these companies, Genzyme
Corporation, signed a confidentiality agreement on December 2, 1999.
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At a special meeting of the Biomatrix board in early December, Lehman
Brothers provided the Biomatrix board with a progress report and recommended
that management meet formally with several companies in mid-December and early
January. A meeting date of December 16, 1999 was established for Genzyme
Corporation.
Prior to the December 16, 1999 meeting, there were exploratory discussions
and informal meetings between Genzyme Corporation and Biomatrix starting in
July, 1999, with the first meeting occurring on August 24, 1999 among
Mr. Riggs, Mr. Earl Collier, Jr., President of Genzyme Surgical Products, and
Timothy Surgenor, who at that time was the President of Genzyme Tissue Repair.
Messrs. Riggs and Collier also met on October 27, 1999, during a technology
conference held in New York City, to discuss how they might advance these
earlier discussions. It was decided that an appropriate next step was to arrange
a meeting among Mr. Henri Termeer, the Chief Executive Officer of Genzyme
Corporation, Dr. Balazs and other senior officers of the companies. On
November 15, 1999, Dr. Balazs, Dr. Janet Denlinger, the Executive Vice President
and a director of Biomatrix, and Mr. Riggs met with Mr. Termeer and Mr. Collier
in Boston. At this meeting, it was agreed there was mutual interest in
evaluating a strategic combination of Biomatrix with Genzyme Surgical Products
and Genzyme Tissue Repair. Mr. Riggs informed Mr. Collier that Biomatrix had
hired Lehman Brothers to assist Biomatrix in the evaluation process and that
Lehman Brothers would send Genzyme a confidentiality agreement.
Genzyme Surgical Products, since its formation in June 1999, has focused on
developing and marketing medical devices, biomaterials and biotherapeutics for
cardiothoracic, general and other surgical markets. Genzyme Tissue Repair, since
its formation in 1994, has concentrated on developing biological products for
the treatment of orthopedic injuries and severe burns.
In December of 1999, Genzyme Tissue Repair and Genzyme Surgical Products
became strategically aligned after changes in the Genzyme Corporation reporting
structure were implemented. Under the new reporting structure, the President of
Genzyme Tissue Repair began reporting directly to Mr. Collier. This change was
intended to encourage the two divisions to work more closely together to
leverage their related scientific expertise and resources. Both prior to this
reporting change and after, management of each of the two divisions discussed
the possibility of combining to create one division. Moreover, management for
each of the divisions considered, and continues to consider, strategic
opportunities that would involve third parties. In reviewing these
opportunities, management focused on companies with complementary technology,
established product pipelines and positive cash flow. It was in this context
that the acquisition of Biomatrix was introduced. Management of each of Genzyme
Tissue Repair and Genzyme Surgical Products believed that the benefits of
creating a larger organization by combining with Biomatrix might expedite the
growth of each divisions' separate product lines and sustain the combined entity
for the long term. In addition, management at both Genzyme Surgical Products and
Genzyme Tissue Repair viewed a potential strategic combination with Biomatrix as
a chance to create a business unit with an enhanced capacity to take advantage
of the opportunities in the emerging field of biosurgery, a term used to
describe the convergence of mechanical and biological approaches to surgery and
other interventional procedures.
In light of the evolving nature of the discussions with Biomatrix, in
December Genzyme contacted Merrill Lynch, Pierce, Fenner & Smith
Incorporated--referred to as Merrill Lynch--about acting as its financial
advisor in connection with a potential transaction with Biomatrix. The
engagement letter with Merrill Lynch was signed on January 17, 2000. During this
period, Genzyme also engaged outside legal counsel to advise on the corporate,
securities and tax aspects of a combination.
On December 16, 1999, a meeting between Biomatrix and Genzyme was held at
the Marriott Hotel in Teaneck, New Jersey. Representatives of Lehman Brothers
and Merrill Lynch also attended the meeting. Members of Biomatrix' senior
management made presentations to members of Genzyme's senior management about
the business, technology and finances of Biomatrix. This meeting was followed by
a visit to Biomatrix' manufacturing facility in Ridgefield, New Jersey. A
follow-up meeting
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was held at Genzyme's offices in Cambridge, Massachusetts on January 6, 2000
among Drs. Balazs and Denlinger and Mr. Riggs of Biomatrix and Mr. Collier and
Dr. James Burns of Genzyme.
In early January, 2000, Biomatrix held meetings with other potential
interested merger partners and had further discussions with companies who had
signed confidentiality agreements. The companies included several large,
multi-national pharmaceutical companies, several specialty pharmaceutical
companies and companies that distribute Biomatrix' lead product, Synvisc. Lehman
Brothers notified all interested parties that non-binding indications of
interest in Biomatrix were due later in January. On January 24, 2000, Genzyme
delivered to Lehman Brothers a letter setting forth Genzyme's non-binding
indication of interest, valuing Biomatrix between approximately $630 million and
$770 million and offering a combination of stock and cash. The proposed merger
transaction was subject to approval by the Genzyme board and was also subject to
various stockholder approvals, depending on the structure of the transaction.
The letter indicated that the transaction would not be subject to financing.
On January 25, 2000 at a special meeting of the Biomatrix board, Lehman
presented a status report of the process and proposals, including a summary of
the letter from Genzyme. After careful deliberation and discussion, the
Biomatrix board determined that Biomatrix should continue discussions with
Genzyme on a non-exclusive basis. Lehman Brothers sent a letter to Genzyme on
January 26, 2000 requesting that Genzyme make a final proposal on or before
February 6, 2000, including specific written comments on a form of merger
agreement that was previously provided to Genzyme. On February 2, 2000,
representatives of Genzyme, including their advisors, Merrill Lynch,
PricewaterhouseCoopers LLP and Palmer & Dodge LLP, visited the offices of
Bingham Dana LLP in New York City where members of Biomatrix' senior management
and Biomatrix' advisors made presentations about the business, technology and
finances of Biomatrix. Representatives of Genzyme, and their advisors,
PricewaterhouseCoopers and Palmer & Dodge, also conducted a due diligence
investigation of information assembled within a data room set up by Biomatrix.
Members of Biomatrix management also made presentations about the business of
Biomatrix during the day. Drs. Balazs and Denlinger and Mr. Riggs had dinner
that evening with Mr. Collier and Dr. Burns of Genzyme.
On February 7, 2000, Genzyme delivered a letter to Lehman Brothers
containing an offer which valued Biomatrix at approximately $700 million.
Included with this offer was a mark-up of the merger agreement. The cash portion
of this proposal was for up to 50% of the total consideration. The proposed
transaction would combine Biomatrix with the businesses of Genzyme Surgical
Products and Genzyme Tissue Repair to form a new division of Genzyme Corporation
to be called Genzyme Biosurgery. The proposed transaction was not subject to
financing contingencies, specified a combination of cash and stock, required
approval of various stockholder groups and was subject to further due diligence.
The mark-up of the merger agreement included proposals that (1) Biomatrix enter
into a stock option agreement whereby Genzyme would have an option to purchase
an unstated number of shares of Biomatrix common stock under certain conditions,
(2) some stockholders of Biomatrix would agree to vote their shares in favor of
the transaction and (3) Biomatrix pay a $30 million break-up fee if the merger
agreement was terminated under certain circumstances. A special meeting of the
Biomatrix board was held on February 8, 2000 to discuss this proposed
transaction; representatives of Lehman Brothers and Bingham Dana were also
present.
The Biomatrix board directed management to continue discussions with
Genzyme, to obtain additional clarification on the terms of the proposed
transaction and to commence a formal due diligence investigation of Genzyme as a
potential merger partner.
During the period from February 9 to February 18, a series of meetings and
discussions were held in various places, including Cambridge, Massachusetts and
New York City and telephonically between Biomatrix management and their advisors
and Genzyme management and their advisors. The purposes of these meetings and
discussions were for Biomatrix management and Lehman Brothers to conduct their
due diligence on Genzyme Corporation, for Genzyme management and their advisors
to continue
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their due diligence on Biomatrix and for Biomatrix to obtain further
clarification of the terms of the proposed merger with Genzyme. During this time
period, further negotiations of the mark-up of the merger agreement were also
conducted.
On Saturday, February 19, 2000 the Biomatrix board held a special meeting to
discuss the results of management's due diligence review of Genzyme and the
details of the proposed merger agreement. Lehman Brothers summarized the
financial terms of the proposed transaction and Bingham Dana summarized the
agreement terms, including the proposed break-up fee, termination provisions and
option agreement. The Biomatrix board directed management to continue
negotiations with Genzyme on a non-exclusive basis.
Genzyme continued its due diligence investigation of Biomatrix during the
week of February 21, 2000, including an additional data room visit, additional
meetings with various members of Biomatrix management and a meeting with
representatives of one of Biomatrix' distributors, American Home Products
Corporation. On Friday, February 25, 2000, management updated the Biomatrix
board as to the status of the discussions and informed the Biomatrix board that
Genzyme expected to deliver a proposal to Lehman Brothers on Monday, February
28, 2000, which would be fully descriptive of all of the terms and conditions of
a proposed transaction with Biomatrix.
On February 28, 2000, Genzyme delivered to Biomatrix a non-binding proposal.
This proposal valued Biomatrix at approximately $700 million. The cash portion
of this proposal was limited to a range from 25% of the consideration or
approximately $175 million, to 50% of the consideration or approximately $350
million. In addition, Genzyme was still requesting an option for 19.9% of
Biomatrix and a $30 million break-up fee. On February 29, 2000, Biomatrix'
board, its senior management, Lehman Brothers and Bingham Dana met to discuss
the terms of the revised Genzyme proposal.
After a detailed review of the financial terms by Lehman Brothers and the
agreement terms by Bingham Dana, the Biomatrix board gave management negotiating
parameters relating to break-up fees, an option to acquire Biomatrix stock,
insider voting agreements, a proposal not to solicit alternative transaction
proposals and exchange ratios for stock to be issued as part of the merger.
During the period from February 28 until March 6, 2000 there were active
negotiations between the companies. These negotiations covered many topics
including, but not limited to, the results of final due diligence for each
company, the movement of each company's stock price and the overall movement in
the stock market in general.
Prior to the regularly scheduled March 2 Genzyme board of directors meeting,
Genzyme management provided the board members with information regarding the
potential combination of Genzyme Surgical Products, Genzyme Tissue Repair and
Biomatrix. At the board meeting, Mr. Termeer, Mr. Collier, Dr. Burns and other
members of Genzyme's management reported to the Genzyme board of directors on
the results of the legal and financial due diligence of Biomatrix and outlined
the terms of a potential combination. At this meeting, market consultants
engaged by Genzyme to evaluate the market potential for Synvisc delivered a
detailed presentation. Merrill Lynch commented upon a potential combination, but
did not render any opinion concerning the transaction. The Genzyme board of
directors authorized management subject to certain financial guidelines to
proceed with a transaction and established a special committee consisting of
Messrs. Termeer, Douglas Berthiaume and Robert Carpenter to approve the final
terms of a merger agreement with Biomatrix.
The Biomatrix board met again on March 3, 2000 to receive a status report on
the progress of the negotiations. A special meeting was set for Saturday,
March 4, 2000 so that Lehman Brothers could present their formal recommendations
to the Biomatrix board. Representatives of Bingham Dana summarized the terms of
the merger agreement and described the Biomatrix board's duties in considering
whether to approve this agreement. At the meeting, Lehman advised orally that
the transaction would be fair from a financial point of view to the Biomatrix
stockholders.
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Negotiations continued during the remainder of the weekend on the terms of
the merger and the merger agreement, with Dr. Balazs keeping the Biomatrix board
informed during a series of calls. On Sunday evening at approximately
7:30 p.m., the Biomatrix board met with representatives of Lehman Brothers and
Bingham Dana to discuss the final terms for the proposed transaction. In this
proposal, which included both stock and cash, the consideration offered to
Biomatrix stockholders, and the exchange ratios for Surgical Products Stock and
Tissue Repair Stock, were set based on the closing prices of Biomatrix, Genzyme
Tissue Repair and Genzyme Surgical Products on Friday, March 3, 2000. Of the
merger consideration, the cash consideration was fixed at $37.00 per share for a
maximum of 28.38% of Biomatrix' shares, or approximately $245 million of cash
consideration. The stock consideration was fixed at one share of Biosurgery
Stock for each share of Biomatrix common stock for a maximum of 71.62% of
Biomatrix' shares. The final terms and conditions of the merger were described
in detail and the Biomatrix board unanimously determined that the merger and the
merger agreement were in the best interests of Biomatrix and its stockholders.
The Biomatrix board authorized the execution and delivery of the merger
agreement and recommended that Biomatrix stockholders vote to approve the merger
agreement. The Biomatrix board also specifically approved the stock option
agreement and a reduced break-up fee of $22 million. Lehman Brothers delivered
its written opinion that the transaction would be fair from a financial point of
view to the Biomatrix stockholders.
At a telephone meeting on Saturday, March 4, the special committee of the
Genzyme board discussed the proposed terms of the merger, together with in-house
legal advisors, and received a report from Merrill Lynch confirming that, as of
that time, nothing had occurred that materially affected the comments made by
Merrill Lynch to the complete Genzyme board on March 2. The special committee
met again by telephone on Sunday evening, together with in-house legal advisors,
and approved the terms of the merger and authorized appropriate officers to sign
and deliver the final version of the merger agreement.
On the following morning, Monday, March 6, 2000, the parties executed and
delivered the merger agreement and the stock option agreement, and Drs. Balazs
and Denlinger and Mr. Riggs and Ms. Seifert executed voting agreements and
affiliate letters. A press release announcing the transaction was issued at
approximately 8:30 a.m. that morning.
On April 17, 2000, Genzyme and Biomatrix amended the merger agreement to
create a standard election option for Biomatrix stockholders to indicate a
preference for a fixed combination of cash consideration and stock
consideration. On August 25, 2000, they amended the agreement to extend to
October 31, 2000 the date before which the merger would need to become effective
for purposes of the rights of termination provision in the merger agreement. A
third amendment executed on October 25, 2000 extended that date out further to
December 31, 2000, provided that on December 29, 2000 either party can extend
that date out to January 31, 2001 if that party is in the process of soliciting
proxies. This amendment is described more fully under "--Termination of the
Merger Agreement" below.
BIOMATRIX' REASONS FOR THE MERGER
In deciding whether to approve the merger agreement, the Biomatrix board of
directors considered the following positive factors relevant to the merger,
among others:
- the board's view that the combined company will have an increased ability
to fund marketing, sales, research and development of Biomatrix' products
and product candidates, and the exploitation of Biomatrix' platform
technologies;
- the companies' complementary operating strengths, market segment and
geographical presence, networks of distribution channels and productivity;
in particular, it was expected that the combined company would create the
industry's leading biomaterials and biosurgery franchise, in terms of the
strength of its marketed products, and the largest hyaluronan franchise in
the world;
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- the board's view that the complementary scientific expertise, technology
and products of Biomatrix, Genzyme Surgical Products and Genzyme Tissue
Repair will help build a fully integrated biopharmaceutical company;
- the board's view that Biomatrix' ability to raise capital was subject to
considerable risks;
- the board's view that, based in part on the opinion of Lehman Brothers,
from a financial point of view, the consideration to be offered to
Biomatrix stockholders is fair to stockholders;
- the board's view that the complementary businesses of Biomatrix, Genzyme
Surgical Products and Genzyme Tissue Repair made the growth and value
prospects of the combined companies very attractive;
- the board's view that the integration of the Genzyme business and the
Biomatrix business could be achieved quickly and without significant
interruption because of the complementary nature of the companies'
operations and corporate cultures; and
- the board's view that the terms of the merger agreement, including the
parties' factual representations, warranties and covenants, are reasonable
and the fact that the agreement did not contain any extraordinary
conditions to Genzyme's obligation to close the merger.
The Biomatrix board also considered a number of potential negative factors,
including but not limited to:
- the fixed nature of the exchange ratio and the resulting risk that, should
there be a significant decrease in the market value of the Surgical
Products Stock and/or the Tissue Repair Stock, the value of the Biosurgery
Stock to be received by Biomatrix stockholders would be diminished;
- the loss of control over the future operations of Biomatrix following the
merger;
- the dilution to the Biomatrix stockholders of the potential benefits of
one or more or its new product candidates being successfully
commercialized;
- the increases in the market prices of Surgical Products Stock and Tissue
Repair Stock in the weeks prior to the merger and the fact that those
prices were at or near their 52-week highs;
- the fact that a significant portion of the consideration will be in the
form of tracking stock and the risks related to ownership of tracking
stock, including the risks detailed in Genzyme's filings under the
Exchange Act which were explained to the board by counsel and Lehman
Brothers;
- the fact that Genzyme Surgical Products and Genzyme Tissue Repair had
sustained losses in their operations to date;
- the number of proposals requiring Genzyme stockholder approval that are a
condition to completing the merger and, therefore, the risk that the
transaction might not close; and
- the risks that the benefits sought to be achieved in the merger may not be
achieved.
The Biomatrix board discussed with Lehman Brothers the possibility that the
benefits described above and other benefits could be achieved through some other
combination or transaction and the risk and benefits of continuing to remain
independent. After reviewing the potentially negative factors, the Biomatrix
board concluded that they were outweighed by the positive factors and determined
that the merger is fair to, and in the best interests of, Biomatrix and its
stockholders.
THE BIOMATRIX BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE BIOMATRIX
STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
The discussion of information and factors considered by the Biomatrix board
is not intended to be exhaustive but is believed to include the material factors
that were considered. The Biomatrix board did not assign relative weight to, or
quantify the importance of, the factors considered. Accordingly, individual
members of the Biomatrix board may have given differing weight to different
factors and may have viewed distinct factors as affecting the determination of
fairness differently.
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FAIRNESS OPINION OF BIOMATRIX' FINANCIAL ADVISOR
In August, 1999, Biomatrix formally retained Lehman Brothers to act as its
financial advisor to review strategic alternatives, including a potential sale
of Biomatrix. At the March 4, 2000 meeting of the Biomatrix board of directors,
Lehman Brothers made an oral presentation regarding the merger and on March 6,
2000 rendered its written opinion that, as of the date of such opinion, and
based upon and subject to the various considerations set forth in its opinion,
the consideration to be received by the Biomatrix stockholders in the merger is
fair from a financial point of view to such holders.
The full text of the written opinion of Lehman Brothers, dated March 6,
2000, is attached hereto as Annex C (the "Lehman Opinion") and is incorporated
herein by reference. Stockholders may read the Lehman Opinion for a description
of assumptions made, factors considered and limitations on the review undertaken
by Lehman Brothers in rendering its opinion. Biomatrix stockholders are urged
to, and should, read the Lehman Opinion carefully and in its entirety. The
Lehman Opinion is directed to the Biomatrix board of directors and addresses
only the fairness of the consideration to be received by the holders of shares
of Biomatrix common stock from a financial point of view as of the date of the
opinion. The Lehman Opinion does not address any other aspect of the merger and
does not constitute a recommendation to any holder of Biomatrix, Surgical
Products Stock and Tissue Repair Stock as to how to vote with respect to the
merger or the tracking stock exchanges. The summary of the Lehman Opinion set
forth in this joint proxy statement/prospectus is qualified in its entirety by
reference to the full text of such opinion.
In arriving at its opinion, Lehman Brothers reviewed and analyzed:
- the merger agreement and the specific terms of the merger,
- publicly available information concerning Biomatrix, Genzyme, Genzyme
Surgical Products and Genzyme Tissue Repair that Lehman Brothers believed
to be relevant to its analysis, including their respective Annual Reports
on Form 10-K for the fiscal year ended December 31, 1998 and Quarterly
Reports on Form 10-Q for the quarter ended September 30, 1999,
- financial and operating information with respect to the business,
operations and prospects of Biomatrix furnished to us by Biomatrix,
including financial projections prepared by the management of Biomatrix,
- financial and operating information with respect to the businesses,
operations and prospects of Genzyme, Genzyme Surgical Products and Genzyme
Tissue Repair furnished to Lehman Brothers by Genzyme, including financial
projections prepared by the management of Genzyme, Genzyme Surgical
Products and Genzyme Tissue Repair,
- a trading history of Biomatrix' common stock from January 1, 1999 to
March 3, 2000 and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant,
- a trading history of the Surgical Products Stock from June 28, 1999 to
March 3, 2000 and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant,
- a trading history of the Tissue Repair Stock from January 1, 1999 to
March 3, 2000 and a comparison of that trading history with those of other
companies that Lehman Brothers deemed relevant,
- a comparison of the historical financial results, present financial
condition and estimates of future financial performance of Biomatrix with
those of other companies that Lehman Brothers deemed relevant,
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- a comparison of the historical financial results, present financial
condition and estimates of future financial performance of Genzyme
Surgical Products with those of other companies that Lehman Brothers
deemed relevant,
- a comparison of the historical financial results, present financial
condition and estimates of future financial performance of Genzyme Tissue
Repair with those of other companies that Lehman Brothers deemed relevant,
- the historical financial results, present financial condition and
estimates of future financial performance of the combined businesses
comprising the Biosurgery Stock on a pro forma basis and a comparison of
the historical financial results, present financial condition and
estimates of future financial performance of Biosurgery with those of
other companies that Lehman Brothers deemed relevant,
- a comparison of the financial terms of the merger with the financial terms
of certain other transactions that Lehman Brothers deemed relevant,
- the relative contributions of Biomatrix, Genzyme Surgical Products and
Genzyme Tissue Repair to the financial and operating results of Genzyme
Biosurgery upon the consummation of the merger,
- published estimates of third party research analysts with respect to the
future financial performance of Biomatrix, and
- the results of Lehman Brothers' efforts to solicit indications of interest
from third parties with respect to a purchase of all or a portion of
Biomatrix' business.
In addition, Lehman Brothers had discussions with the managements of
Biomatrix and Genzyme concerning the respective businesses, operations, assets,
financial conditions and prospects of Biomatrix, Genzyme, Genzyme Surgical
Products, Genzyme Tissue Repair and Genzyme Biosurgery (including the cost
savings, operating synergies and strategic benefits expected by the managements
of Biomatrix and Genzyme to result from the combination of the businesses of
Biomatrix, Genzyme Surgical Products and Genzyme Tissue Repair) and undertook
such other studies, analyses and investigations as Lehman Brothers deemed
appropriate.
In arriving at its opinion, Lehman Brothers assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without assuming any responsibility for independent verification of such
information and have further relied upon the assurances of managements of
Biomatrix, Genzyme, Genzyme Surgical Products and Genzyme Tissue Repair that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of Biomatrix, upon advice of Biomatrix, Lehman Brothers assumed that such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of Biomatrix as to
the future financial performance of Biomatrix. However, for purposes of its
analysis, Lehman Brothers also considered somewhat more conservative assumptions
and estimates which resulted in certain adjustments to the projections of
Biomatrix. Lehman Brothers discussed these adjusted projections with the
management of Biomatrix and they agreed with the appropriateness of the use of
such projections in performing its analysis. The following table includes these
projections:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
(AMOUNTS IN MILLIONS) -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Total Revenue....................... $104.9 $176.1 $353.7 $516.3 $674.4
EBIT................................ 45.6 50.5 91.3 123.3 147.9
Net Income.......................... 28.7 32.4 58.4 79.6 96.7
</TABLE>
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These financial projections are different from the projections relied upon by
Merrill Lynch, Genzyme's financial advisor, for its opinion regarding the
fairness of the merger. For a description of the projections relied upon by
Merrill Lynch, see the discussion under the heading "Fairness Opinion of
Genzyme's Financial Advisor" beginning on page 111. The Lehman Brothers
projections shown above were not prepared for public disclosure and therefore
should not be regarded as a representation by Lehman Brothers, Genzyme or
Biomatrix that the projected results will be achieved. The projections were
necessarily subjective in many respects and thus susceptible to various
interpretations. They, like other forward-looking information, were and remain
inherently subject to significant economic and business uncertainties and
contingencies. We could not and do not give assurance that these projections
will be realized; actual results may be worse or better than those projected. We
urge you to read the section of this document under the caption "RISK FACTORS"
beginning on page 30 because it identifies significant uncertainties and
contingencies.
With respect to the financial projections of each of Genzyme Surgical
Products and Genzyme Tissue Repair, Lehman Brothers assumed that such
projections have been reasonably prepared on a basis reflecting the best
currently available estimates and judgments of the management of Genzyme as to
the future financial performance of each of Genzyme Surgical Products and
Genzyme Tissue Repair and that each of Genzyme Surgical Products and Genzyme
Tissue Repair will perform substantially in accordance with such projections. In
arriving at its opinion, Lehman Brothers conducted only a limited physical
inspection of the properties and facilities of Biomatrix, Genzyme Surgical
Products and Genzyme Tissue Repair and did not make or obtain any evaluations or
appraisals of the assets or liabilities of Biomatrix, Genzyme Surgical Products
and Genzyme Tissue Repair. Upon the advice of Biomatrix and its legal and
accounting advisors, Lehman Brothers assumed that the merger will qualify as a
tax-free transaction to the stockholders of Biomatrix with respect to any gain
attributable to the shares of Biosurgery Stock received by such stockholders.
Lehman Brothers' opinion necessarily is based upon market, economic and other
conditions as they exist on, and can be evaluated as of, the date of the Lehman
Opinion.
In addition, Lehman Brothers did not express any opinion as to the prices at
which the shares of Biosurgery Stock will trade following consummation of the
merger and its opinion should not be viewed as providing any assurance that the
market value of the Biosurgery Stock to be received by the stockholders of
Biomatrix will be in excess of the market value of the shares of Biomatrix
common stock owned by such stockholders at any time prior to consummation of the
merger.
In connection with the preparation of its opinion, Lehman Brothers performed
a variety of financial and comparative analyses as summarized below. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant method of financial and comparative analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description. Furthermore,
in arriving at its opinion, Lehman Brothers 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, Lehman Brothers believes that its analyses must be considered as a
whole and that considering any portions of such analyses and factors without
considering all analyses and factors could create a misleading or incomplete
view of the process underlying its opinion. In its analysis, Lehman Brothers
made numerous assumptions with respect to industry performance, general business
and economic conditions and other matters, many of which are beyond the control
of Biomatrix, Genzyme, Genzyme Surgical Products and Genzyme Tissue Repair. Any
estimates contained in these analyses are not necessarily indicative of actual
values or predictive of future results or values, which may be significantly
more or less favorable than as set forth therein. In addition, analyses relating
to the value of businesses do not purport to be appraisals or to reflect the
prices at which businesses actually may be sold.
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PricewaterhouseCoopers LLP, the independent accountants of Biomatrix,
Genzyme Corporation, Genzyme General, Genzyme Molecular Oncology, Genzyme
Surgical Products and Genzyme Tissue Repair has neither examined, compiled nor
performed any procedures with respect to the aforementioned prospective
financial information and, accordingly, PricewaterhouseCoopers LLP does not
express an opinion or any other form of assurance with respect thereto. The
PricewaterhouseCoopers LLP reports incorporated by reference in this prospectus
relate to the historical information of Biomatrix, Genzyme Corporation, Genzyme
General, Genzyme Molecular Oncology, Genzyme Surgical Products and Genzyme
Tissue Repair, respectively. The reports do not extend to the prospective
financial information and should not be read to do so.
The following is a brief summary of the analyses performed by Lehman
Brothers and reviewed with the Biomatrix Board of Directors in connection with
rendering its opinion letter dated March 6, 2000.
HISTORICAL TRADING RANGE
Lehman Brothers considered various historical data concerning the trading
prices for Biomatrix versus an index of its respective comparable companies for
the period from March 3, 1999 to March 2, 2000. During this period, Biomatrix'
stock price declined 5.7% in comparison to an index of its comparable companies
which increased 14.1%. The companies used for the purposes of this analysis
included:
- Anika Therapeutics,
- Closure Medical,
- Genzyme Tissue Repair,
- Genzyme Surgical Products,
- Gliatech,
- LifeCore Biomedical,
- INAMED,
- Interpore International,
- Mentor,
- Orthofix and
- Osteotech.
Lehman Brothers also examined the low and high trading prices for Biomatrix
stock for the periods February 28, 2000 to March 3, 2000, the five days before
the announcement, and October 26, 1999 to March 3, 2000, the ninety days before
the announcement. The following table presents low and high trading prices for
Biomatrix for these two periods prior to the announcement.
<TABLE>
<CAPTION>
TRADING PERIOD LOW HIGH
-------------- -------- --------
<S> <C> <C>
Five days before announcement............................... $28.25 $37.00
Ninety days before announcement............................. $18.13 $37.00
</TABLE>
COMPARABLE TRANSACTIONS ANALYSIS
The comparable transactions analysis provides a market benchmark based on
the consideration paid in selected comparable transactions. For this analysis,
Lehman Brothers reviewed publicly available information to determine the
purchase prices and multiples paid in certain transactions that were
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publicly announced since January 1, 1997 involving target companies which were
similar to Biomatrix in terms of business mix, product portfolio, and/or markets
served. These included seven transactions from 1997 to the present including:
- Johnson & Johnson's acquisition of Innovasive Devices,
- INAMED's acquisition of Collagen Aesthetics,
- Exogen's acquisition of Smith & Nephew,
- Synthes' acquisition of Stratec Holding AG,
- Johnson & Johnson's acquisition of DePuy,
- DePuy's acquisition of Acromed and
- CONMED's acquisition of Linvatec.
For this analysis, Lehman Brothers reviewed publicly available information
to determine the purchase prices and multiples in these Comparable Transactions.
Lehman Brothers calculated the enterprise value of the relevant transactions
(calculated as the consideration offered for the common equity and short- and
long-term debt, and subtracting its cash and cash equivalents), and applied it
to certain historical financial criteria (including revenue, EBITDA, and EBIT)
of the acquired business for the LTM period. Lehman Brothers also calculated the
equity value of the relevant transactions (the consideration offered for the
common equity), and applied it to certain historical financial criteria
(including LTM and forward year net income). The following table presents the
LTM revenue, LTM EBITDA and LTM EBIT, LTM and forward year net income multiples
for the selected transactions.
<TABLE>
<CAPTION>
MEAN MEDIAN
METRIC COMPARABLES COMPARABLES
------ ----------- -----------
<S> <C> <C>
EQUITY VALUE MULTIPLES
LTM Net Income.............................................. 25.8x 28.2x
Forward Year Net Income..................................... 21.6x 24.1x
ENTERPRISE VALUE MULTIPLES
LTM Revenue................................................. 3.60x 4.02x
LTM EBITDA.................................................. 13.2x 13.4x
LTM EBIT.................................................... 16.2x 15.5x
</TABLE>
Using the median LTM Revenue Multiple, LTM EBITDA Multiple and the LTM EBIT
Multiple from the relevant comparable transactions and historical financial
data, an implied share price ranging between $14.07 and $20.62 per share was
determined for Biomatrix. The consideration offered to Biomatrix stockholders
represented a premium to the implied share price range calculated using the
comparable transactions analysis.
In selecting the companies and transactions to be included in the comparable
transactions analysis, Lehman Brothers included all transactions which Lehman
Brothers, in its judgment, believed to be comparable to the merger. However,
because the reasons for and the circumstances surrounding each of the relevant
comparable transactions were specific to such transactions, and because of the
inherent differences among the businesses, operations and prospects of Biomatrix
and the selected acquired companies analyzed, Lehman Brothers believed that it
was inappropriate to, and therefore did not, rely solely on the quantitative
results of the comparable transactions analysis and, accordingly, also made
qualitative judgments concerning differences between the terms and
characteristics of the Merger and the relevant comparable transactions that
would affect the transaction values of Biomatrix and such acquired companies. In
particular, Lehman Brothers considered the size and desirability of the markets
served by the companies included, the strategic fit involved in the
transactions, and the form of consideration of the transactions. These
qualitative judgments did not lead to specific conclusions
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regarding the implied share price of Biomatrix, but rather were part of Lehman
Brothers' evaluation of the relevancy of the comparable transactions analysis
under the particular circumstances of the merger.
TRANSACTION PREMIUMS ANALYSIS
The transaction premiums analysis measures the amount paid by the acquiror
over the target share price before public announcement of the transaction. For
this analysis, Lehman Brothers considered premiums paid in selected comparable
transactions in the biomaterials sector from January 1, 1998 through March 3,
2000. The transactions for the purposes of this analysis included:
- Johnson & Johnson's acquisition of Innovasive Devices,
- INAMED's acquisition of Collagen Aesthetics and
- Johnson & Johnson's acquisition of DePuy, Inc.
Lehman Brothers calculated the premium per share paid by the acquiror
compared to the share price of the target company (i) for one day prior to the
announcement and (ii) for the thirty day average prior to the announcement of
the transaction. The following table presents the mean and median premiums paid
to the target company's share price at these two given periods for the relevant
transactions.
<TABLE>
<CAPTION>
MEAN PREMIUM OF MEDIAN PREMIUM OF
PERIOD COMPARABLES COMPARABLES
------ --------------- -----------------
<S> <C> <C>
One day before announcement................................. 14.6% 11.1%
Thirty day average before announcement...................... 14.7% 19.1%
</TABLE>
In selecting the transactions to be included in the transaction premiums
analysis, Lehman Brothers included all transactions which Lehman Brothers, in
its judgment, believed to be comparable to the merger. However, because the
reasons for and the circumstances surrounding each of the relevant transactions
were specific to such transactions, and because of the inherent differences
among the businesses, operations and prospects of Biomatrix and the selected
acquired companies analyzed, Lehman Brothers believed that it was inappropriate
to, and therefore did not, rely solely on the quantitative results of the
transaction premium analysis and, accordingly, also made qualitative judgments
concerning differences between the terms and characteristics of the Merger and
the relevant transactions that would affect the transaction values of Biomatrix
and such acquired companies. In particular, Lehman Brothers considered the size
and desirability of the markets served by the companies included, the strategic
fit involved in the transactions, and the form of consideration of the
transactions. These qualitative judgments did not lead to specific conclusions
regarding the implied share price of Biomatrix, but rather were part of Lehman
Brothers' evaluation of the relevancy of the transaction premiums analysis under
the particular circumstances of the merger.
COMPARABLE COMPANIES ANALYSIS
The comparable companies trading analysis provides a market valuation
benchmark based on the common stock trading multiples of selected comparable
companies. Using publicly available information, Lehman Brothers compared
selected financial data of Biomatrix with similar data of comparable companies
engaged in businesses considered by Lehman Brothers to be comparable to that of
Biomatrix including:
- Anika Therapeutics
- Closure Medical
- Genzyme Tissue Repair
- Genzyme Surgical Products
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- Gliatech
- LifeCore Biomedical
- INAMED
- Interpore International
- Mentor
- Orthofix
- Osteotech
For each of the relevant comparable companies, Lehman Brothers calculated
and analyzed the common equity market value multiples of certain historical and
projected financial criteria (such as net income) and enterprise value multiples
of certain historical financial criteria (such as revenues, EBITDA and EBIT) as
of March 3, 2000, the last trading day prior to announcement. Projected revenues
for the selected comparable companies was based on research analysts' estimates
published by I/B/E/S Corporation, a service reporting equity analyst revenue
estimates. Net income for the selected companies was based on research analysts'
estimates published by First Call, a service reporting equity analyst estimates.
The following table presents the revenue, EBITDA, EBIT and net income multiples
for the relevant comparable companies.
<TABLE>
<CAPTION>
MEAN MEDIAN
METRIC COMPARABLES COMPARABLES
------ ----------- -----------
<S> <C> <C>
EQUITY VALUE MULTIPLES
2000 Net Income............................................. 19.4x 18.8x
2001 Net Income............................................. 18.4x 16.6x
ENTERPRISE VALUE MULTIPLES
LTM Revenue................................................. 5.37x 4.62x
2000 Revenue................................................ 3.91x 3.52x
2001 Revenue................................................ 3.19x 2.84x
LTM EBITDA.................................................. 14.7x 15.6x
LTM EBIT.................................................... 15.7x 15.8x
</TABLE>
Using the enterprise value to revenue, EBITDA and EBIT multiples for the
relevant comparable companies, historical financial data and the projections
prepared in consultation with the management of Biomatrix ("Biomatrix
Projections"), an implied share price ranging between $16.02 and $24.29 per
share was determined for Biomatrix. In addition, Lehman Brothers prepared a
sensitivity case ("Lehman Brothers Sensitivity Projections") based on the
Biomatrix Projections by assuming lower projected revenues and operating
margins. Using the same median multiples above, historical financial data and
Lehman Brothers Sensitivity Projections, an implied share price ranging between
$15.69 and $23.03 per share was determined for Biomatrix. In both cases, the
consideration offered to Biomatrix stockholders represented a premium to the
implied share price range calculated using the comparable companies analysis.
In selecting the companies to be included in the comparable companies
analysis, Lehman Brothers included all companies which Lehman Brothers, in its
judgment, believed to be comparable to Biomatrix. However, because of the
inherent differences between the businesses, operations and prospects of
Biomatrix and the business operations and prospects of the companies included as
the relevant comparable companies, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the comparable company analysis, and accordingly also made qualitative
judgments concerning differences between the financial and operating
characteristics and prospects of Biomatrix and the companies included in the
relevant comparable companies that would affect the public market valuations of
such companies. In particular, Lehman Brothers considered the size and
desirability of the markets served by the companies included. These qualitative
judgments did not lead to specific conclusions regarding the implied share price
of Biomatrix, but rather were part of Lehman Brothers' evaluation of the
relevancy of the comparable companies analysis under the particular
circumstances of the merger.
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DISCOUNTED CASH FLOW ANALYSIS
The discounted cash flow analysis provides a net present valuation of the
projected after-tax unlevered free cash flows (defined as operating cash flow
available after working capital, capital spending, tax and other operating
requirements). In preparing the discounted cash flow analysis, Lehman Brothers
used forecasts of cash flows of Biomatrix for the years 2000 through 2004
prepared in consultation with the management of Biomatrix. In addition, Lehman
Brothers prepared a sensitivity case based on the Biomatrix Projections by
assuming lower projected revenues and operating margins.
To determine the present value of the cash flows, Lehman Brothers discounted
such cash flows at discount rates ranging from 15.0% to 30.0% per annum for
Biomatrix. The discount rates chosen reflect Lehman Brothers' judgement
regarding the appropriate expected returns by investors in Biomatrix' business.
The terminal values were computed based on projected EBIT in the year 2004 for
Biomatrix and a range of terminal EBIT multiples between 12.0x and 18.0x were
chosen based on a review of the trading characteristics of companies included as
comparable companies. The following table presents that implied share price
ranges calculated for Biomatrix using both sets of projections.
<TABLE>
<CAPTION>
BIOMATRIX PROJECTIONS LEHMAN BROTHERS SENSITIVITY PROJECTIONS
--------------------- ---------------------------------------
<S> <C>
$38.32--$52.21....... $ 28.70--$38.94
</TABLE>
Based on the Biomatrix Projections, the consideration offered to Biomatrix
stockholders is less than the implied price per share range calculated using the
discounted cash flow analysis. Based on the Lehman Brothers Sensitivity
Projections, the consideration offered to Biomatrix stockholders fell within the
implied price per share range calculated using the discounted cash flow
analysis. However, because of the subjectivity inherent in the assignment of
discount rates to projected cash flows, Lehman Brothers believed that it was
inappropriate to, and therefore did not, rely solely on the quantitative results
of the discounted cash flow analysis.
CONTRIBUTION ANALYSIS
The contribution analysis measures the relative contribution of Biomatrix to
the combined company for various measures such as EBITDA, EBIT and net income.
Lehman Brothers utilized the Biomatrix Projections and Surgical Products and
Tissue Repair management projections to calculate the relative contributions of
each company to the pro forma combined company with respect to estimated
calendar year 2000 revenues. In 2000, it is estimated that Biomatrix would
contribute 42.2% of revenues to the combined company. Lehman Brothers compared
such contributions to the pro forma ownership of the combined company by
Biomatrix stockholders of approximately 47.3%.
Lehman Brothers is an internationally recognized investment banking firm
and, as part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, competitive bids, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Biomatrix Board of Directors
selected Lehman Brothers because of its expertise, reputation and familiarity
with Biomatrix and the biomaterials industry generally and because its
investment banking professionals have substantial experience in transactions
comparable to the merger.
As compensation for its services in connection with the merger, Biomatrix
has agreed to pay Lehman Brothers a transaction fee of 1.0% of the transaction
value (as measured on the last trading day prior to closing) upon the
consummation of the merger. In addition, Biomatrix has agreed to reimburse
Lehman Brothers for reasonable out-of-pocket expenses incurred in connection
with the merger and to indemnify Lehman Brothers for certain liabilities that
may arise out of its engagement by Biomatrix and the rendering of the Lehman
Opinion.
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In the ordinary course of its business, Lehman Brothers may actively trade
in the debt or equity securities of Biomatrix, Genzyme, Surgical Products and
Tissue Repair for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
GENZYME'S REASONS FOR THE MERGER
The Genzyme board of directors viewed the acquisition of Biomatrix as an
opportunity to augment significantly the portion of Genzyme's business focussed
on developing biomaterial-based medical devices. The board believes that
combining the assets and operations of Biomatrix, Genzyme Surgical Products and
Genzyme Tissue Repair will create a single, cohesive operating division with a
product portfolio and pipeline, pool of scientific expertise and the sales and
marketing resources sufficient to make the division a leader in the emerging
biosurgery market. In considering whether to approve the merger, the board
consulted with management and Genzyme's financial, legal, accounting and
marketing advisors. During the board's deliberations, the following were the
material factors in favor of proceeding with the merger:
- SIGNIFICANT PRODUCT PORTFOLIO. A belief that Genzyme Biosurgery can be a
prominent player in the emerging biosurgery field if it offers one of the
largest portfolios of existing biosurgery products. By combining the
product lines of Genzyme Tissue Repair and Genzyme Surgical Products with
the Synvisc and Hylaform products of Biomatrix, Genzyme Biosurgery would
begin with a portfolio of 22 major marketed products. The division would
additionally have in its pipeline 10 significant products in various
stages of clinical development.
- SELF-SUSTAINING PROGRAM. Genzyme Biosurgery will have a significantly
improved financial profile compared to that of Genzyme Surgical Products
and Genzyme Tissue Repair as separate divisions. Genzyme believes that
combining Biomatrix' positive cash flow from product sales with the
financial resources of the two Genzyme divisions has the potential to
create in Genzyme Biosurgery a self-sustaining business capable of
supporting a full product research and development program.
- INCREASED HYALURONAN EXPERTISE. The Genzyme board believes hyaluronan
technology has the potential to provide the basis for an increasing range
of surgical and medical applications in the biosurgery field. Genzyme's
ability to tap this potential would be enhanced by acquiring Biomatrix'
significant intellectual property position in hyaluronan technology.
Genzyme will also benefit by obtaining access to Biomatrix' experienced
scientific, manufacturing, sales and product development organization.
- EFFICIENT MANUFACTURING CAPACITY. The board believes that Biomatrix will
contribute to Genzyme Biosurgery's highly efficient capacity to produce
bulk quantities of hyaluronan and hyaluronan based products. Further,
Biomatrix's expertise in sophisticated associated manufacturing
capabilities such as fill/finish, quality control and production
engineering will supplement Genzyme's strength in these areas. These
resources and skills should enable Genzyme Biosurgery to reduce production
costs, more readily meet customer demands, reduce plant capital
expenditures and more quickly scale-up new product production.
- POTENTIAL SIGNIFICANCE OF THE FIELD OF BIOSURGERY. The board believes
that there is an increasing trend toward convergence of mechanical and
biological approaches to surgery. It believes that surgeons may continue
to turn to these biosurgery products as alternatives to mechanical devices
and other traditional technologies in treating orthopedic, cardiovascular
and other injuries, conditions and diseases. Because of the potential
significance of this market, the board would like to position Genzyme as
an innovator and major participant early during the market's emergence.
The board believes it is important to Genzyme's success that it remain
current with significant trends in this field of technology. The board
expects that acquiring Biomatrix and
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forming a division focussed on biosurgery, with marketed products, a broad
pipeline and a tested research and development and marketing
infrastructure, will enable Genzyme to capitalize on opportunities
presented by the emerging field of biosurgery.
The Genzyme board weighed the advantages cited above against potential risks
of the merger. The following summarizes the material, potentially negative
factors of the merger and how the board viewed them:
- RISK THAT ADVANTAGES ARE NOT REALIZED. The Genzyme board recognized that,
as with any merger, there is a risk that difficulties in integrating the
operations of Biomatrix, Genzyme Tissue Repair and Genzyme Surgical
Products may impede the realization of the merger's anticipated
advantages. The Genzyme board did not identify any aspects of the proposed
Biomatrix acquisition that would make the contemplated merger materially
more difficult than would be typical. It believes that Genzyme is
sufficiently prepared and able to accomplish a successful merger, given
the past experience of Genzyme's management in integrating operations
acquired from third parties.
- THE LOW LEVEL OF EXPECTED 2000 FIRST QUARTER SALES BY BIOMATRIX OF SYNVISC
IN RELATION TO ANALYST ESTIMATES. The Genzyme board, acting through a
special merger committee, considered the relatively low level of
Biomatrix' sales of Synvisc during the first two months of the first
quarter of 2000. The board evaluated these results in the context of
increasing year-to-year growth in Synvisc sales, the customary variability
of sales for newly launched products and the relatively short period of
time that has transpired since Synvisc was introduced in the United
States. Genzyme believes these factors, combined with Genzyme's experience
in marketing hyaluronan-based products and the expected efforts of Synvisc
distributors to promote Synvisc, should result in Synvisc maintaining or
exceeding the sales at levels commensurate with the board's expectations
that were a basis for the amount of merger consideration Genzyme agreed to
pay.
- REDUCTION IN SHARE OWNERSHIP. The board recognized that Genzyme
stockholder ownership overall, and of Genzyme Surgical Products and
Genzyme Tissue Repair in particular, would be diluted as a result of the
merger. However, it did not view the extent of potential dilution to
outweigh the anticipated benefits of the transaction. In addition, the
Genzyme board approved a merger structure that permits all holders of
Genzyme stock to vote on the tracking stock exchanges, with the tracking
stock exchanges being a necessary condition to the merger.
- IMPACT ON GENZYME'S FINANCIAL CONDITION. The board considered the impact
of the merger on Genzyme's overall financial condition, particularly the
assumption of debt to finance the cash portion of the merger
consideration. However, the Genzyme board believed that the amount of
incremental debt is reasonable given the cash flow that the products
acquired from Biomatrix are expected to generate and Genzyme's overall
financial condition.
- INHERENT UNCERTAINTY OF THE SUCCESS OF BIOMATRIX PRODUCTS AND PRODUCT
CANDIDATES. The Genzyme board recognized that marketing and
commercializing biotechnology products entails significant risks--such as
risks relating to regulatory approvals, market penetration, reimbursement,
manufacturing and product liability, among others. Accordingly, Genzyme
conducted extensive due diligence on Biomatrix and evaluated these risks
in the light of Genzyme's expertise in marketing and commercializing
biotechnology products and its knowledge of both products based on
hyaluronan and treatment modalities for the knee. In evaluating Synvisc,
which generates a substantial portion of Biomatrix' revenues, Genzyme, in
addition to deploying its considerable in-house expertise, engaged several
outside consultants. The primary consultant reported directly to the board
on the results of its assessment.
All of these factors were evaluated in a comparison between Genzyme Surgical
Products and Genzyme Tissue Repair continuing to operate as separate divisions
as opposed to as a single division
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combined with the Biomatrix business. The board also reviewed the possibility of
collaborating with Biomatrix by means of an alliance not involving an
acquisition. The board determined that the complementary technology, established
product pipelines and positive cash flow offered by Biomatrix could best be
realized by combining the Biomatrix' business with those of Genzyme Surgical
Products and Genzyme Tissue Repair into one division of Genzyme through the
proposed merger and tracking stock exchanges. Further, the board concluded that
combining with Biomatrix would accelerate product research, development and
sales because of the increased resources and financial stability of the combined
entity.
The close strategic fit of these three businesses, the potential synergies
to be obtained by combining their management and operations, and the potential
for confusion in the public markets if all three similar businesses operated as
separate divisions of Genzyme each with a corresponding tracking stock, caused
the board to decide that the tracking stock exchanges were advisable. The board
further considered the general acceptance in the securities markets of Genzyme's
tracking stocks as investments designed to reflect the performance of their
corresponding businesses. Given that acceptance, the board concluded that it was
reasonable to anticipate that the Biosurgery Stock would also be accepted as a
security designed to reflect the performance of the Genzyme Biosurgery
division's business.
Because Genzyme was responding to a solicitation from Biomatrix, the board
did not seek alternative merger candidates. The unique characteristics of
Biomatrix in relation to Genzyme, including in particular its complementary
technology focus, manufacturing expertise and product lines, would have made
identification of comparable candidates difficult. Moreover, the board was
advised by Genzyme management that following this transaction, as a result of
Genzyme Biosurgery's larger scale, financial profile and prominence, Genzyme
would have increased its opportunities for merger and acquisition prospects that
involve combining a candidate's business with that of Genzyme Biosurgery and/or
using of Biosurgery Stock as merger currency.
After considering the potential positive and negative factors of the merger,
the Genzyme directors did not attempt to quantify or prioritize particular
considerations. Each board member may have viewed the various considerations
differently than did other board members. Ultimately, Genzyme's board
unanimously concluded that the Biomatrix merger should provide significant
long-term benefits to Genzyme stockholders to an extent that outweighed
potential risks. Consequently, the board approved the merger and tracking stock
exchanges.
FAIRNESS OPINION OF GENZYME'S FINANCIAL ADVISOR
In December 1999, Genzyme retained Merrill Lynch, Pierce, Fenner & Smith
Incorporated--referred to in this document as Merrill Lynch--to act as its
financial advisor concerning a potential merger or combination with Biomatrix
and related transactions, including the tracking stock exchanges. On April 17,
2000, Merrill Lynch delivered to the Genzyme board its written opinion that, as
of such date and based upon and subject to the assumptions, limitations and
other matters set forth therein, taking into account all relevant aspects of the
merger and the tracking stock exchanges:
- the proposed consideration to be paid by Genzyme pursuant to the merger is
fair to Genzyme from a financial point of view;
- the Tissue Repair exchange ratio is fair to the holders of Tissue Repair
Stock from a financial point of view; and
- the Surgical Products exchange ratio is fair to the holders of Surgical
Products Stock from a financial point of view.
THE FULL TEXT OF THE MERRILL LYNCH FAIRNESS OPINION--WHICH SETS FORTH THE
ASSUMPTIONS MADE, MATTERS CONSIDERED, AND QUALIFICATIONS AND LIMITATIONS ON THE
REVIEW UNDERTAKEN--IS INCLUDED IN
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APPENDIX D TO THIS DOCUMENT AND IS INCORPORATED HEREIN BY REFERENCE. WE REFER TO
THIS DOCUMENT AS THE "MERRILL LYNCH FAIRNESS OPINION." THE SUMMARY OF THE
MERRILL LYNCH FAIRNESS OPINION SET FORTH IN THIS DOCUMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT THEREOF. YOU ARE URGED TO READ THE
MERRILL LYNCH FAIRNESS OPINION IN ITS ENTIRETY. No limitations were imposed by
Genzyme or the Genzyme board with respect to the investigations made or
procedures followed by Merrill Lynch in rendering its opinion.
The Merrill Lynch Fairness Opinion was provided to the Genzyme board for its
use and benefit and is directed only:
- to the fairness to Genzyme from a financial point of view of the proposed
consideration to be paid by Genzyme pursuant to the merger;
- to the fairness from a financial point of view of the Tissue Repair
exchange ratio to the holders of Tissue Repair Stock; and
- to the fairness from a financial point of view of the Surgical Products
exchange ratio to the holders of Surgical Products Stock.
The Merrill Lynch Fairness Opinion does not address any other aspect of the
merger or the tracking stock exchanges and does not constitute a recommendation
to any stockholder of Genzyme as to how the stockholder should vote in
connection with the tracking stock exchanges or any other related matter. The
terms of the merger and the tracking stock exchanges were developed by the
management of Genzyme and Biomatrix and were approved by the Genzyme board.
The preparation of a fairness opinion is a complex analytic process
involving various determinations as to the most appropriate and relevant methods
of financial analysis and the application of those methods to the particular
circumstances and, therefore, this type of opinion is not readily susceptible to
partial analysis or summary description. In arriving at its opinion, Merrill
Lynch 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, Merrill Lynch believes
that its analyses must be considered as a whole and that selecting portions of
its analyses, without considering all analyses, would create an incomplete view
of the process underlying its opinion.
In performing its analyses, Merrill Lynch made numerous assumptions with
respect to industry performance, general business, economic, market and
financial conditions and other matters, many of which are beyond the control of
Genzyme. Any estimates contained in the analyses performed by Merrill Lynch are
not necessarily indicative of actual values or future results, which may be
significantly more or less favorable than suggested by such analyses.
Additionally, estimates of the value of businesses or securities do not purport
to be appraisals or to reflect the prices at which such businesses or securities
might actually be sold. Accordingly, such analyses and estimates are inherently
subject to substantial uncertainty. The Genzyme board did not request Merrill
Lynch to render an opinion prior to the signing of the merger agreement, and,
accordingly, the Genzyme board, in making its determination to approve the
merger and the tracking stock exchanges, did not take the Merrill Lynch Fairness
Opinion into consideration. Consequently, the Merrill Lynch Fairness Opinion
should not be viewed as a contributing factor to the decision of the Genzyme
board with respect to the fairness of the merger or the tracking stock
exchanges. The Genzyme board, however, did wish Genzyme stockholders to have the
benefit of the Merrill Lynch Fairness Opinion and, accordingly, requested
Merrill Lynch to render an opinion prior to the mailing of this document.
In arriving at its opinion, Merrill Lynch, among other things:
- reviewed Genzyme's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1997,
December 31, 1998 and December 31, 1999;
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- reviewed Biomatrix' Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1997,
December 31, 1998 and December 31, 1999;
- reviewed the audited combined financial statements of Genzyme Tissue
Repair and related financial information for the three fiscal years ended
December 31, 1997, December 31, 1998 and December 31, 1999;
- reviewed the audited combined financial statements of Genzyme Surgical
Products and related financial information for the two fiscal years ended
December 31, 1998 and December 31, 1999;
- reviewed certain information, including historical financial data and
financial projections, relating to the business, earnings, cash flow,
assets and prospects of Genzyme Tissue Repair and Genzyme Surgical
Products furnished to Merrill Lynch by Genzyme;
- reviewed certain information, including historical financial data and
financial projections, relating to the business, earnings, cash flow,
assets and prospects of Biomatrix, furnished to Merrill Lynch by Biomatrix
and Genzyme;
- conducted discussions with members of management of Genzyme concerning the
businesses and prospects of Genzyme Tissue Repair, Genzyme Surgical
Products and Genzyme Biosurgery, and their views regarding the strategic
rationale for, and the effects on Genzyme of, the tracking stock
exchanges;
- conducted discussions with members of management of Genzyme concerning the
businesses and prospects of Genzyme Biosurgery and Biomatrix, and their
views regarding the strategic rationale for, and the effects on Genzyme
and the proposed Genzyme Biosurgery of, the merger;
- compared the historical and projected results of operations of Biomatrix,
Genzyme Tissue Repair and Genzyme Surgical Products with that of certain
companies which it deemed to be reasonably similar to Biomatrix, Genzyme
Tissue Repair and Genzyme Surgical Products, respectively;
- reviewed the historical market prices and trading activity for the
Surgical Products Stock and the Tissue Repair Stock and compared them with
that of certain publicly traded companies which it deemed to be reasonably
similar to Genzyme Surgical Products and Genzyme Tissue Repair,
respectively;
- reviewed the historical market prices and trading activity for Biomatrix
shares and compared them with that of certain publicly traded companies
which it deemed to be reasonably similar to Biomatrix;
- considered the pro forma effects of the merger on Genzyme, including,
without limitation, the pro forma effects of the merger on Genzyme's
balance sheets, earnings and cash flow;
- reviewed the existing articles of organization and by-laws of Genzyme and
the current Genzyme Management and Accounting Policies;
- reviewed the merger agreement, as amended, and exhibits thereto, including
Exhibit A-1, the proposed amended Genzyme Management and Accounting
Policies, and Exhibit A-2, the terms of the proposed Biosurgery Stock; and
- reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as it deemed
necessary, including an assessment of general economic, market and
monetary conditions.
In preparing the Merrill Lynch Fairness Opinion, Merrill Lynch relied on the
accuracy and completeness of all information supplied or otherwise made
available to it, discussed with or reviewed by or for it, or publicly available,
and Merrill Lynch did not assume any responsibility for independently
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verifying such information or undertake an independent evaluation or appraisal
of the assets or liabilities of Genzyme, Genzyme Tissue Repair, Genzyme Surgical
Products or Biomatrix and was not furnished with any such evaluation or
appraisal. In addition, Merrill Lynch did not assume any obligation to conduct,
nor did Merrill Lynch conduct, any physical inspection of the properties or
facilities of Genzyme, Genzyme Tissue Repair, Genzyme Surgical Products or
Biomatrix.
In preparing the Merrill Lynch Fairness Opinion, Merrill Lynch assumed that
the financial projections furnished to it or discussed with it by Genzyme and
Biomatrix prior to the execution of the merger agreement were reasonably
prepared and reflected the best currently available estimates and judgments of
the managements of Genzyme and Biomatrix as to the expected future financial
performance of Genzyme, Genzyme Tissue Repair, Genzyme Surgical Products and
Biomatrix, as the case may be. The projections that were used by Merrill Lynch
in conducting its analysis with respect to Biomatrix are set forth below and
were based upon and derived pursuant to discussions with Genzyme management:
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004
(AMOUNTS IN MILLIONS, EXCEPT EPS AMOUNTS) -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues.............................. $ 93.8 $ 124.4 $168.5 $234.0 $309.2
EBITDA................................ 33.7 51.4 61.1 87.4 129.9
EBIT.................................. 29.6 46.4 55.6 79.8 119.8
EPS (diluted)......................... 0.80 1.13 N/A N/A N/A
</TABLE>
These financial projections are different from the projections prepared and
relied upon by Lehman Brothers, Biomatrix's financial advisor, for its opinion
regarding the fairness of the merger. For a description of the projections
relied upon by Lehman Brothers, see the discussion under the heading "Fairness
Opinion of Biomatrix' Financial Advisor" beginning on page 101. The Merrill
Lynch projections shown above were not prepared for public disclosure and
therefore should not be regarded as a representation by Merrill Lynch, Genzyme
or Biomatrix that the projected results will be achieved. The projections were
necessarily subjective in many respects and thus susceptible to various
interpretations. They, like other forward-looking information, were and remain
inherently subject to significant economic and business uncertainties and
contingencies. We could not and do not give assurance that these projections
will be realized; actual results may be worse or better than those projected. We
urge you to read the section of this document under the caption "RISK FACTORS"
beginning on page 30 because it identifies significant uncertainties and
contingencies.
PricewaterhouseCoopers LLP, the independent accountants of Biomatrix,
Genzyme Corporation, Genzyme General, Genzyme Molecular Oncology, Genzyme
Surgical Products and Genzyme Tissue Repair has neither examined, compiled nor
performed any procedures with respect to the aforementioned prospective
financial information and, accordingly, PricewaterhouseCoopers LLP does not
express an opinion or any other form of assurance with respect thereto. The
PricewaterhouseCoopers LLP reports incorporated by reference in this prospectus
relate to the historical information of Biomatrix, Genzyme Corporation, Genzyme
General, Genzyme Molecular Oncology, Genzyme Surgical Products and Genzyme
Tissue Repair, respectively. The reports do not extend to the prospective
financial information and should not be read to do so.
Merrill Lynch assumed when preparing the Merrill Lynch Fairness Opinion that
each of the merger and the tracking stock exchanges would be consummated in
accordance with its terms. Merrill Lynch also assumed that the merger would have
the accounting treatment set forth in this document and will qualify as a
reorganization within the meaning of Section 368(a) of the Internal Revenue
Code. The Merrill Lynch Fairness Opinion is necessarily based upon market,
economic, financial and other conditions, including generally accepted
accounting principals, as they existed, and on the information made available to
Merrill Lynch, and could be evaluated as of the date of the Merrill Lynch
Fairness Opinion. Merrill Lynch assumed that in the course of obtaining the
necessary regulatory or other consents or approvals (contractual or otherwise)
for the merger, no restrictions, including any
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divestiture requirements or amendments or modifications, would be imposed that
will have any material adverse effect on the contemplated benefits of the
merger. Merrill Lynch expresses no opinion as to the prices at which Biosurgery
Stock will trade subsequent to the consummation of the tracking stock exchanges
or the merger.
In preparing the Merrill Lynch Fairness Opinion, Merrill Lynch performed
certain valuation and other analyses of Biomatrix, Genzyme Tissue Repair and
Genzyme Surgical Products, as described below.
VALUATION OF BIOMATRIX
BIOMATRIX COMPARABLE PUBLIC COMPANIES ANALYSIS
In connection with its valuation of Biomatrix, Merrill Lynch performed a
comparable public companies analysis. The comparable public companies analysis
provides a market valuation benchmark based on the common stock trading
multiples of selected comparable companies, and is commonly used to value
businesses for purchase or sale. The first step in conducting this analysis
consisted of identifying a group of publicly traded companies which are engaged
in businesses that are reasonably similar to that of Biomatrix, and which have
operating profiles and financial statistics that are reasonably similar to those
of Biomatrix, or which are valued in the public markets on a basis reasonably
similar to that of Biomatrix.
The comparable companies used by Merrill Lynch in its analysis were:
- in the field of orthopedics,
-- Biomet Inc.,
-- Smith & Nephew PLC,
-- Stryker Corp.,
-- Sulzer Medica Ltd. and
-- Synthes-Stratec,
- and, in the field of bio-orthopedics,
-- Advanced Tissue Sciences, Inc.,
-- Anika Therapeutics, Inc.,
-- Arthrocare Corp.,
-- Focal Inc.,
-- Gliatech Inc.,
-- Integra Lifesciences Corp.,
-- Interpore Cross International,
-- Orthologic Corp. and
-- Osteotech Inc.,
collectively referred to in this discussion as the "Biomatrix Comparable Public
Companies."
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Once this group of comparable public companies was identified, the analysis
consisted of reviewing and comparing such companies' operating and trading
statistics, including sales, earnings before interest, taxes, depreciation and
amortization, which is referred to as "EBITDA," earnings per share, stock price
and market capitalization (which was defined, for purposes of this analysis, as
the market value of equity, plus debt, plus preferred stock, plus minority
interests, and minus cash and cash equivalents).
Historical financial information used in connection with this analysis was
as of the date of the most recent financial statements publicly available for
each company. Estimates of future financial performance used in this analysis
were based on First Call estimates and selected equity research analyst reports
available for each company.
For each of the Biomatrix Comparable Public Companies, Merrill Lynch
calculated multiples of
- closing stock price to estimated 2000 and 2001 earnings per share,
- market capitalization to estimated 2000 and 2001 revenues, and
- market capitalization to estimated 2000 and 2001 EBITDA.
Those analyses, based on closing stock prices on April 7, 2000, yielded
multiples of
- closing stock price to estimated 2000 and 2001 earnings per share ranging
from 14.9x to 85.0x and from 12.7x to 48.6x, respectively,
- market capitalization to 2000 and 2001 revenues ranging from 1.80x to
24.38x and from 1.63x to 18.89x, respectively, and
- market capitalization to estimated 2000 and 2001 EBITDA ranging from 7.6x
to 47.2x and from 6.2x to 58.1x, respectively.
Merrill Lynch applied certain of the multiples it derived from its analysis
of the Biomatrix Comparable Public Companies described above to comparable data
for Biomatrix. The process by which such applied multiples were chosen is based
on the financial and operating characteristics of the comparable companies and
of each valuation measure. As a result of this calculation, Merrill Lynch
derived a range of estimated equity value of Biomatrix as of April 7, 2000 of
$22.91 to $30.81 per share of Biomatrix Stock.
The companies used in this comparable public companies analysis were
selected on the basis that they are public companies that are engaged in
businesses that are reasonably similar to that of Biomatrix, and because these
companies have operating profiles and financial statistics which are reasonably
similar to those of Biomatrix or which are valued in the public market on a
basis reasonably similar to that of Biomatrix. However, no company used in this
comparable public companies analysis was identical to Biomatrix and,
accordingly, an analysis of the results of such a comparison is not purely
mathematical; rather, it involves complex considerations and judgments, based on
the financial advisor's professional experience, concerning differences in
historical and projected financial and operating characteristics of the
comparable companies and other factors that could affect the public trading
value of the comparable companies or company to which they are being compared.
SELECTED TRANSACTIONS ANALYSIS
In connection with its valuation of Biomatrix, Merrill Lynch performed a
selected transactions analysis. This analysis consists of reviewing and
comparing the financial terms of transactions involving the acquisition of
entities that are engaged in reasonably similar businesses to that of Biomatrix
and that have reasonably similar operating profiles and financial statistics to
those of Biomatrix, or which are valued in the public market on a basis
reasonably similar to that of Biomatrix.
Merrill Lynch's selected transactions analysis included the review of
certain publicly available information and estimates of future financial
performance (based on IBES estimates and available
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equity research analyst reports) regarding selected transactions--collectively
referred to in this discussion as the "Selected Transactions." The Selected
Transactions comprised the business combinations involving:
- Medtronic Inc. and Xomed Surgical Products Inc.,
- Synthes USA and Stratec Holding AG,
- Medtronic Inc. and Arterial Vascular Engineering, Inc.,
- Medtronic Inc. and Sofamor Danek Group,
- Johnson & Johnson and DePuy Inc.,
- DePuy Inc. and AcroMed Corp.,
- Sulzer Medica Ltd. and Spine-Tech Inc.,
- St. Jude Medical Ltd. and Daig Corp.,
- Wright Medical Technology Inc. and Orthomet Inc.,
- DePuy Inc. and Orthopedic Technology Inc., and
- Danek Group and Sofamor.
For each of the Selected Transactions, Merrill Lynch calculated:
- the offer value (defined, for purposes of this analysis, as the offer
price for stock or assets purchased) to last twelve months ("LTM")
earnings and estimated forward earnings,
- the transaction value (defined, for purposes of this analysis, as the
offer price for stock or assets purchased plus assumed net debt) as a
multiple of LTM revenues,
- the transaction value as a multiple of LTM EBITDA, and
- the transaction value as a multiple of LTM EBIT.
Such analysis yielded multiples of:
- offer value to LTM earnings and projected forward earnings ranging from
16.4x to 67.4x and from 18.3x to 60.0x, respectively,
- transaction value to LTM revenues ranging from 2.19x to 13.19x,
- transaction value to LTM EBITDA ranging from 12.8x to 47.8x, and
- transaction value to LTM EBIT ranging from 10.1x to 49.8x.
Merrill Lynch applied certain of the multiples it derived from its analysis
of the Selected Transactions described above to comparable data for Biomatrix.
The process by which such applied multiples were chosen is based on the
financial and operating characteristics of the comparable transactions and of
each valuation measure. As a result of this calculation, Merrill Lynch derived a
range of estimated equity value of Biomatrix as of April 7, 2000 of $15.49 to
$35.68 per share of Biomatrix stock.
The transactions used in the analysis were selected because they involved
the acquisition of companies that are engaged in businesses that are reasonably
similar to that of Biomatrix, and because such acquired companies have operating
profiles and financial statistics that are similar to those of Biomatrix, or
which are valued in the public markets on a basis similar to that of Biomatrix.
However, none of the selected transactions were identical to the proposed
transaction between Biomatrix and Genzyme and, accordingly, an analysis of the
results of such a comparison is not purely mathematical; rather, it involves
complex considerations and judgments, based on the financial advisor's
professional experience, concerning differences in historical and projected
financial and operating characteristics of
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the comparable acquired businesses and other factors that could affect the
acquisition value of such business and Biomatrix.
DISCOUNTED CASH FLOW ANALYSIS
In connection with its valuation of Biomatrix, Merrill Lynch performed a
discounted cash flow analysis of Biomatrix. A discounted cash flow analysis is
generally used to calculate a valuation range for a company by calculating the
present value of the expected future cash flows that will be generated by the
company, discounted at a rate that reflects the uncertainty of such estimated
future cash flows. Merrill Lynch performed a discounted cash flow analysis of
Biomatrix on a stand-alone basis. This analysis was based in part on the
estimates as to the future financial performance of Biomatrix. Using these
projections, Merrill Lynch calculated ranges of total enterprise value for
Biomatrix and, in so doing, utilized (1) terminal multiples of fiscal year 2004
EBITDA of 8x to 10x and (2) discount rates, reflecting Biomatrix' weighted
average cost of capital, ranging from 15% to 20%. As a result thereof, Merrill
Lynch derived ranges of estimated equity value of Biomatrix of $22.33 to $32.15
per share of Biomatrix Stock.
VALUATION OF GENZYME TISSUE REPAIR
GENZYME TISSUE REPAIR COMPARABLE PUBLIC COMPANIES ANALYSIS
In connection with its valuation of Genzyme Tissue Repair, Merrill Lynch
performed a comparable public companies analysis. The comparable public
companies analysis provides a market valuation benchmark based on the common
stock trading multiples of selected comparable companies, and is commonly used
to value businesses for purchase or sale. The first step in conducting this
analysis consisted of identifying a group of publicly traded companies which are
engaged in businesses that are reasonably similar to that of Genzyme Tissue
Repair, which have operating profiles and financial statistics that are
reasonably similar to those of Genzyme Tissue Repair, or which are valued in the
public markets on a basis reasonably similar to that of Genzyme Tissue Repair.
The comparable companies used by Merrill Lynch in its analysis were:
- Advanced Tissue Sciences Inc.,
- Focal Inc.,
- Integra LifeSciences Corp.,
- LifeCell Corp.,
- Organogenesis Inc., and
- Ortec International Inc.,
collectively referred to in this discussion as the "Tissue Repair Comparable
Public Companies."
Once this group of comparable public companies was identified, the analysis
consisted of reviewing and comparing such companies' operating and trading
statistics, including sales, earnings before interest and taxes, which is
referred to as "EBIT," EBITDA, earnings per share, stock price and market
capitalization.
Historical financial information used in connection with this analysis was
as of the date of the most recent financial statements publicly available for
each company. Estimates of future financial performance used in this analysis
were based on First Call estimates and selected equity research analyst reports
available for each company.
For each of the Tissue Repair Comparable Public Companies, Merrill Lynch
calculated multiples of
- closing stock price to estimated 2001 and 2002 earnings per share,
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- market capitalization to estimated 2001 revenues,
- market capitalization to estimated 2001 EBITDA, and
- market capitalization to estimated 2001 EBIT.
Such analysis, based on closing stock prices on April 7, 2000, yielded multiples
of
- closing stock price to estimated 2001 and 2002 earnings per share ranging
from 22.9x to 38.7x and from 12.9x to 20.0x, respectively,
- market capitalization to 2001 revenues ranging from 1.72x to 18.89x,
- market capitalization to 2001 EBITDA ranging from 12.4x to 58.1x, and
- market capitalization to estimated 2001 EBIT ranging from 18.2x to 127.3x.
Merrill Lynch applied certain of the multiples it derived from its analysis
of the Tissue Repair Comparable Public Companies described above to comparable
data for Genzyme Tissue Repair (which, in the case of estimates of future
financial performance, were provided to Merrill Lynch by management of Genzyme).
The process by which such applied multiples were chosen is based on the
financial and operating characteristics of the comparable public companies and
of each valuation measure. As a result of this calculation, Merrill Lynch
derived a range of estimated equity value of Genzyme Tissue Repair as of
April 7, 2000 of $5.67 to $11.77 per share of Tissue Repair Stock.
The companies used in this comparable public companies analysis were
selected on the basis that they are public companies that are engaged in
businesses that are reasonably similar to that of Genzyme Tissue Repair, and
because these companies have operating profiles and financial statistics which
are reasonably similar to those of Genzyme Tissue Repair or which are valued in
the public markets on a basis reasonably similar to that of Genzyme Tissue
Repair. However, no company used in this comparable public companies analysis
was identical to Genzyme Tissue Repair and, accordingly, an analysis of the
results of such a comparison is not purely mathematical; rather, it involves
complex considerations and judgments, based on the financial advisor's
professional experience, concerning differences in historical and projected
financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS
In connection with its valuation of Genzyme Tissue Repair, Merrill Lynch
performed a discounted cash flow analysis of Genzyme Tissue Repair. A discounted
cash flow analysis is generally used to calculate a valuation range for a
company by calculating the present value of the expected future cash flows that
will be generated by the company, discounted at a rate that reflects the
uncertainty of such estimated future cash flows. Merrill Lynch performed a
discounted cash flow analysis of Genzyme Tissue Repair on a stand-alone basis.
This analysis was based in part on estimates as to the future financial
performance of Genzyme Tissue Repair, which estimates were provided to Merrill
Lynch by Genzyme management. Using these projections, Merrill Lynch calculated
ranges of total enterprise value for Genzyme Tissue Repair and, in so doing,
utilized (1) terminal multiples of fiscal year 2006 EBITDA of 10x to 15x and
(2) discount rates, reflecting Genzyme Tissue Repair 's weighted average cost of
capital, ranging from 15% to 20%. As a result thereof, Merrill Lynch derived
ranges of estimated equity value of Genzyme Tissue Repair of $4.13 to $8.50 per
share of Tissue Repair Stock.
VALUATION OF GENZYME SURGICAL PRODUCTS
GENZYME SURGICAL PRODUCTS COMPARABLE PUBLIC COMPANIES ANALYSIS
In connection with its valuation of Genzyme Surgical Products, Merrill Lynch
performed a comparable public companies analysis. The comparable public
companies analysis provides a market
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valuation benchmark based on the common stock trading multiples of selected
comparable companies, and is commonly used to value business for purchase or
sale. The first step in conducting this analysis consisted of identifying a
group of publicly traded companies which are engaged in businesses that are
reasonably similar to that of Genzyme Surgical Products, which have operating
profiles and financial statistics that are reasonably similar to those of
Genzyme Surgical Products, or which are valued in the public markets on a basis
reasonably similar to that of Genzyme Surgical Products.
The comparable companies used by Merrill Lynch in its analysis were:
- C. R. Bard Inc.,
- Conmed Corp.,
- St. Jude Medical Inc.,
- Sulzer Medica Ltd.,
- Focal Inc.,
- Heartport Inc.,
- Merit Medical Systems Inc., and
- Possis Medical Inc.,
collectively referred to in this discussion as the "Surgical Products Comparable
Public Companies."
Once this group of comparable public companies was identified, the analysis
consisted of reviewing and comparing such companies' operating and trading
statistics, including sales, EBIT, EBITDA, earnings per share, stock price and
market capitalization.
Historical financial information used in connection with this analysis was
as of the date of the most recent financial statements publicly available for
each company. Estimates of future financial performance used in this analysis
were based on First Call estimates and selected equity research analyst reports
available for each company.
For each of the Surgical Products Comparable Public Companies, Merrill Lynch
calculated multiples of
- closing stock price to estimated 2001 and 2002 earnings per share,
- market capitalization to estimated 2000 and 2001 revenues,
- market capitalization to estimated 2000 and 2001 EBITDA, and
- market capitalization to estimated 2000 and 2001 EBIT.
Such analysis, based on closing stock prices on April 7, 2000, yielded multiples
of
- closing stock price to estimated 2001 and 2002 earnings per share ranging
from 11.2x to 17.6x and from 9.5x to 16.2x, respectively,
- market capitalization to 2000 and 2001 revenues ranging from 1.15x to
19.23x and from 1.05x to 3.96x, respectively,
- market capitalization to estimated 2000 and 2001 EBITDA ranging from 7.2x
to 9.5x and from 6.6x to 58.1x, respectively, and
- market capitalization to estimated 2000 and 2001 EBIT ranging from 9.7x to
13.3x and from 8.8x to 127.3x, respectively.
Merrill Lynch applied certain of the multiples it derived from its analysis
of the Surgical Products Comparable Companies described above to comparable data
for Genzyme Surgical Products (which, in the case of estimates of future
financial performance, were provided to Merrill Lynch by management
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of Genzyme). The process by which such applied multiples were chosen is based on
the financial and operating characteristics of the comparable companies and of
each valuation measure. As a result of this calculation, Merrill Lynch derived a
range of estimated equity value of Genzyme Surgical Products as of April 7, 2000
of $12.33 to $19.99 per share of Surgical Products Stock.
The companies used in this comparable public companies analysis were
selected on the basis that they are public companies that are engaged in
businesses that are reasonably similar to that of Genzyme Surgical Products, and
because these companies have operating profiles and financial statistics which
are reasonably similar to those of Genzyme Surgical Products or which are valued
in the public markets on a basis reasonably similar to that of Genzyme Surgical
Products. However, no company used in this comparable public companies analysis
was identical to Genzyme Surgical Products and, accordingly, an analysis of the
results of such a comparison is not purely mathematical; rather, it involves
complex considerations and judgments, based on the financial advisor's
professional experience, concerning differences in historical and projected
financial and operating characteristics of the comparable companies and other
factors that could affect the public trading value of the comparable companies
or company to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS
In connection with its valuation of Genzyme Surgical Products, Merrill Lynch
performed a discounted cash flow analysis of Genzyme Surgical Products. A
discounted cash flow analysis is generally used to calculate a valuation range
for a company by calculating the present value of the expected future cash flows
that will be generated by the company, discounted at a rate that reflects the
uncertainty of such estimated future cash flows. Merrill Lynch performed a
discounted cash flow analysis of Genzyme Surgical Products on a stand-alone
basis. This analysis was based in part on estimates as to the future financial
performance of Genzyme Surgical Products, which estimates were provided to
Merrill Lynch by Genzyme management. Using these projections, Merrill Lynch
calculated ranges of total enterprise value for Genzyme Surgical Products and,
in so doing, utilized (1) terminal multiples of fiscal year 2005 EBITDA of 8x to
10x and (2) discount rates, reflecting Surgical Products's weighted average cost
of capital, ranging from 12.5% to 20%. As a result thereof, Merrill Lynch
derived ranges of estimated equity value of Genzyme Surgical Products of $9.55
to $14.08 per share of Surgical Products Stock.
CONTRIBUTION ANALYSIS
Merrill Lynch performed a contribution analysis, which analyzed the relative
contribution of each of Biomatrix, Genzyme Tissue Repair and Genzyme Surgical
Products to Genzyme Biosurgery with respect to the discounted cash flow
valuation of Genzyme Biosurgery and compared such relative contributions to the
relative ownership of Genzyme Biosurgery by each of Biomatrix, Genzyme Tissue
Repair and Genzyme Surgical Products (adjusted for the cash consideration
received by Biomatrix). From the discounted cash flow valuation analyses
described above, Merrill Lynch calculated the discounted cash flow equity value
range of Genzyme Biosurgery--referred to in this discussion as the "Biosurgery
DCF Value Range"--to be the sum of the discounted cash flow equity value ranges
of Biomatrix, Genzyme Tissue Repair and Genzyme Surgical Products. In addition,
Merrill Lynch calculated:
- the range of relative contribution of Biomatrix with respect to the
Biosurgery DCF Value Range (equal to the range of discounted cash flow
equity values of Biomatrix, less the Cash Consideration, divided by the
Biosurgery DCF Value Range) to be 52% to 53%, and the resulting implied
exchange ratio for Biomatrix to be 1.1064 to 1.1277;
- the range of relative contribution of Genzyme Tissue Repair with respect
to the Biosurgery DCF Value Range (equal to the range of discounted cash
flow equity values of Genzyme Tissue
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Repair divided by the Biosurgery DCF Value Range) to be 21% to 25%, and
the resulting implied exchange ratio for Genzyme Tissue Repair to be
0.2687 to 0.3199; and
- the range of relative contribution of Genzyme Surgical Products with
respect to the Biosurgery DCF Value Range (equal to the range of
discounted cash flow equity values of Genzyme Surgical Products divided by
the Biosurgery DCF Value Range) to be 23% to 27%, and the resulting
implied exchange ratio for Genzyme Surgical Products to be 0.5201 to
0.6105.
Based on the terms of the merger and the tracking stock exchanges, and shares
outstanding for Biomatrix, Genzyme Tissue Repair and Genzyme Surgical Products,
each as of March 1, 2000, Merrill Lynch calculated the pro forma ownership of
Genzyme Biosurgery of each of Biomatrix, Genzyme Tissue Repair and Genzyme
Surgical Products to be approximately 47%, 27% and 26%, respectively.
OTHER
In rendering its opinion, Merrill Lynch considered other factors, including
current and historical market prices and trading activity of Biomatrix stock,
Tissue Repair Stock and Surgical Products Stock, historical and financial
projections relating to Biomatrix, Genzyme Tissue Repair and Genzyme Surgical
Products, and the capitalization and financial condition of Biomatrix, Genzyme
Tissue Repair and Genzyme Surgical Products.
GENERAL
As part of its investment banking business, Merrill Lynch is engaged
continually in the valuation of businesses and their securities in connection
with mergers and acquisitions and strategic transactions and for other purposes.
Genzyme retained Merrill Lynch because Merrill Lynch is an internationally
recognized investment banking firm, with substantial experience in complex
strategic transactions, and because Merrill Lynch was familiar with Genzyme
(including its capital structure). Pursuant to an engagement letter dated
January 17, 2000, as amended on March 28, 2000 (the "Merrill Lynch Engagement
Letter"), Genzyme agreed to pay Merrill Lynch fees of (1) $150,000 on the date
of the Merrill Lynch Engagement Letter; (2) $750,000 upon the announcement of
the merger; (3) $1,900,000 upon the delivery of the Merrill Lynch Fairness
Opinion; and (4) $3,600,000 upon consummation of the merger. Genzyme also agreed
to reimburse Merrill Lynch for its reasonable out-of-pocket expenses incurred in
connection with Merrill Lynch's activities under the Merrill Lynch Engagement
Letter, including the reasonable fees and disbursements of its legal counsel,
and to indemnify Merrill Lynch and certain related persons and entities for
certain liabilities, including liabilities under securities laws, related to or
arising out of its engagement.
Merrill Lynch has, in the past, provided financial advisory and financing
services to Genzyme and Biomatrix and may continue to do so, and Merrill Lynch
has received, and may receive, fees for the rendering of such services. In
addition, in the ordinary course of its business, Merrill Lynch may actively
trade shares of the Genzyme General Division Stock, Tissue Repair Stock,
Surgical Products Stock and other securities of Genzyme, and Biomatrix Stock for
its own account and for the accounts of its customers and, accordingly, may at
any time hold a long or short position in such securities.
INTERESTS OF BIOMATRIX' DIRECTORS AND OFFICERS IN THE MERGER
Executive officers and the members of the board of directors of Biomatrix
may have interests in the merger that are different from, or in addition to,
those of Biomatrix stockholders. The Biomatrix and Genzyme boards were aware of
these interests and considered them, among other matters, in approving the
merger agreement and the transactions contemplated thereby. The Biomatrix board
does not believe these interests affected its decision. Neither board believes
that these interests either supported or detracted from the fairness of the
merger to their respective companies' stockholders.
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Biomatrix has entered into change of control agreements with Dr. Denlinger
and Ms. Seifert, each of whom are executive officers of Biomatrix. Under the
change of control agreements, these individuals will be paid severance payments
approximately equal to 24 months salary. Dr. Balazs, Dr. Denlinger and
Ms. Seifert will receive health insurance benefits for a period of 24 months
after the merger. Genzyme has entered into an employment agreement with
Mr. Riggs in which Mr. Riggs agreed to be employed by Genzyme after the merger
at least until December 31, 2000. On that date, or earlier if he is terminated
by Genzyme without cause, pursuant to the employment agreement, Mr. Riggs is
entitled to a severance payment approximately equal to 24 months salary payable
upon termination of his employment with Genzyme.
Dr. Balazs, Dr. Denlinger, Mr. Riggs and Ms. Seifert have purchased
restricted stock of Biomatrix subject to certain repurchase rights of Biomatrix.
Pursuant to the terms of the restricted stock purchase agreements entered into
at the time each of these directors and officers purchased restricted stock,
repurchase rights for 363,200 shares of Biomatrix common stock will lapse at the
time of the merger. Promissory notes in an aggregate amount of $12.3 million
(Mr. Riggs $9.0 million, Dr. Denlinger $1.4 million, Ms. Seifert $1.0 million
and Dr. Balazs $0.9 million), issued to Biomatrix by these officers and
directors in connection with the purchase of restricted stock, remain payable
subject to the terms of the notes.
Upon its stockholders' and its board's approvals of the proposed merger, and
as required by the merger agreement, Biomatrix expects to modify the option
awards of Maxine Seifert, Chief Financial Officer, by accelerating the vesting
of options to purchase 36,000 shares. Biomatrix also plans to modify the option
awards of Kurt Mark and Julius Vida, non-employee directors of Biomatrix, by
accelerating the vesting of options to purchase an aggregate of 33,333 shares.
Based on the closing price of Biomatrix' stock on October 23, 2000, the expense
related to this modification is currently estimated to be approximately $0.1
million. That expense is expected to be measured and recorded in the financial
statements of Biomatrix when the awards are modified, which will be concurrent
with the closing of the merger.
In addition, also upon its stockholders' and its board's approval of the
proposed merger, and as required by the merger agreement, Biomatrix expects to
modify the option awards of all employees to provide that if an employee's
employment is terminated within one year following the merger other than (i) by
the company 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 options to purchase common stock held
by the employee shall become fully exercisable as of the date of termination.
The expense related to this modification will be measured at the time the awards
are modified. Based on the closing price of Biomatrix' stock on August 1, 2000,
the expense related to this modification is currently estimated to be
approximately $5.5 million. The expense will be recorded when and if an employee
actually receives the benefit. The current estimated expense of these award
modifications is based on the price of Biomatrix common stock and the number of
unvested shares subject to acceleration and is therefore subject to change.
The merger agreement provides that Genzyme will indemnify each present and
former director or officer of Biomatrix or any of its subsidiaries to the extent
that they were indemnified by Biomatrix on the date of the merger agreement. The
merger agreement also provides that Genzyme will maintain Biomatrix' current
directors' and officers' liability insurance coverage for six years after the
date of the merger and on terms no less favorable than the current policy in
effect. However, Genzyme is not obligated to pay more than 150% of the amount
currently paid for annual premiums by Biomatrix.
Contemporaneously with this transaction, Genzyme will make a charitable
donation of approximately $425,000 to the Matrix Charitable Institute, a
charitable public foundation founded by Dr. Balazs.
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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. The agreement is attached as Annex A and is incorporated
into this proxy statement/prospectus by reference.
GENERAL DESCRIPTION OF THE MERGER
In the proposed merger, Biomatrix will merge into 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 Genzyme Biosurgery Corporation, will be a Massachusetts corporation and
will be a wholly-owned subsidiary of Genzyme. In connection with the merger,
Genzyme will form a new division named Genzyme Biosurgery and will create a new
series of common stock designated as "Genzyme Biosurgery Division Common Stock,"
or "Biosurgery Stock," intended to track the performance of this new division.
Genzyme will initially allocate to this new division the assets currently
allocated to Genzyme Tissue Repair and Genzyme Surgical Products, along with the
assets of Biomatrix.
EFFECTIVE TIME
We expect to close the merger before the end of calendar year 2000. The
merger will be effective upon the filing of appropriate documents with the
Delaware and Massachusetts secretaries of state, or a later time that we specify
in those documents. We plan to file those documents soon after the Genzyme and
Biomatrix special stockholders meetings.
MERGER CONSIDERATION FOR BIOMATRIX COMMON STOCK
GENERAL
As a result of the merger, each outstanding share of Biomatrix common stock
will be automatically converted into the right to receive one of the following:
- $37.00 in cash, which we refer to as the cash consideration;
- one share of Biosurgery Stock, which we refer to as the stock
consideration; or
- a combination of cash and a fraction of a share of Biosurgery Stock.
Shares of Biomatrix common stock held by Biomatrix as treasury stock or by a
wholly owned direct or indirect subsidiary of Biomatrix will be cancelled and
not converted into merger consideration.
The merger consideration was agreed to in arm's-length negotiations between
representatives of Genzyme and Biomatrix, with the benefit of advice from their
respective financial advisors.
COMPOSITION OF CONSIDERATION
Biomatrix is sending to each record holder as of November 2, 2000 of
Biomatrix common stock, in a separate mailing from this joint proxy
statement/prospectus, an election form. Each record holder of Biomatrix common
stock may indicate on this election form the stockholder's preference, with
respect to some or all of its shares, for:
- the cash consideration;
- the stock consideration; or
- the standard consideration, which consists of (1) cash equal to $37
multiplied by the percentage of the merger consideration represented by
the cash consideration and (2) a fraction of a share of Biosurgery Stock
equal to the percentage of the merger consideration represented by the
stock consideration. As described below, if no Biomatrix stockholders
exercise dissenters' rights
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and there is no tax-based adjustment to the merger consideration, as
discussed at the end of this section, the standard consideration per share
will consist of about $10.50 cash and 0.7162 of a share of Biosurgery
Stock.
The following table illustrates the relative pre-tax market value of the
merger consideration that a holder of 100 shares of Biomatrix common stock would
receive under each of the three available elections at various assumed per share
prices for Biosurgery Stock. It assumes that the stockholder receives exactly
the proportion of cash and Biosurgery Stock that he elects. The table is for
illustrative purposes only and does not reflect the actual amounts of cash and
stock that any individual Biomatrix stockholder would receive. Neither Genzyme
nor Biomatrix can predict the future price of a share of Biosurgery Stock.
<TABLE>
<CAPTION>
PER SHARE MARKET
BIOSURGERY VALUE OF ALL VALUE OF ALL VALUE OF
PRICE STOCK ELECTION* CASH ELECTION* STANDARD ELECTION*
--------------------- --------------- -------------- ------------------
<S> <C> <C> <C>
$ 8.00 $ 800 $3,700 $1,406
10.00 1,000 3,700 1,671
12.00 1,200 3,700 1,910
14.00 1,400 3,700 2,053
16.00 1,600 3,700 2,196
18.00 1,800 3,700 2,339
20.00 2,000 3,700 2,482
22.00 2,200 3,700 2,626
24.00 2,400 3,700 2,769
26.00 2,600 3,700 2,912
28.00 2,800 3,700 3,055
30.00 3,000 3,700 3,199
32.00 3,200 3,700 3,342
34.00 3,400 3,700 3,485
</TABLE>
------------------------
* Assumes that the shareholder receives exactly what he elects.
Regardless of each stockholders' individual election, a fixed percentage of
the shares of Biomatrix common stock that receive the merger consideration will
be exchanged for the right to receive cash. This percentage will not exceed
28.38%. Because this percentage will be fixed, the consideration payable to
Biomatrix stockholders who elect to receive the cash consideration or the stock
consideration may be subject to prorating as described below.
SHARES FOR WHICH HOLDERS ELECT THE STANDARD CONSIDERATION. The mix of cash
and Biosurgery Stock that comprise the standard consideration will depend on the
number of shares for which dissenters' rights have been effectively exercised
and whether a tax-based adjustment is triggered. If no Biomatrix stockholders
dissent and there is no tax-based adjustment to the merger consideration, then
the standard consideration per share will consist of about $10.50 and 0.7162
share of Biosurgery Stock. If some Biomatrix stockholders dissent or there is a
tax-based adjustment to the merger consideration, then the standard
consideration will consist of less cash and more stock. The precise composition
of the standard consideration will not be known until closing.
SHARES FOR WHICH HOLDERS FAIL TO MAKE AN ELECTION. Shares of Biomatrix
common stock for which a valid election has not been made will convert into the
right to receive the standard consideration. We refer to these shares as
non-electing shares.
SHARES FOR WHICH HOLDERS ELECT THE CASH CONSIDERATION. The number of shares
of Biomatrix common stock that will convert into the right to receive the cash
consideration will be fixed. Therefore, Biomatrix stockholders who elect to
receive the cash consideration may instead receive a combination of cash and
shares of Biosurgery Stock (or, potentially, only Biosurgery Stock). To
determine the consideration payable with respect to Biomatrix shares for which a
valid cash election has been made,
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Genzyme first will determine the aggregate number of shares of Biomatrix common
stock for which the cash consideration is available. This number of available
cash shares will be arrived at by:
- multiplying the number of Biomatrix shares outstanding at closing by
28.38% (or the lower percentage required due to a tax-based adjustment);
- subtracting the number of Biomatrix shares for which stockholders have
exercised dissenters' rights; and
- subtracting the portion of the standard election shares and non-electing
shares that convert into the right to receive cash.
If the number of shares of Biomatrix 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 Biomatrix common stock for which stockholders
have validly elected to receive the cash consideration will convert into the
right to receive $37. On the other hand, if the number of shares of Biomatrix
common stock for which stockholders have made valid cash elections exceeds the
number of available cash shares, then the cash payable will be prorated;
specifically, each share for which a valid cash election has been submitted will
convert into:
- cash equal to $37 multiplied by the cash proration factor; and
- a fraction of a share of Biosurgery Stock equal to 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 the cash
consideration has been elected.
Below are examples of how this proration process will work. These examples
assume that (1) there are 23,500,000 shares of Biomatrix common stock
outstanding at closing, (2) no Biomatrix stockholders exercise dissenters'
rights, (3) no Biomatrix stockholders receive the standard consideration by
election or failure to elect, and (4) no tax-based adjustment is required.
- If Biomatrix stockholders elect, in the aggregate, for 25% of the
Biomatrix shares to receive cash consideration and for 75% of the
Biomatrix shares to receive stock consideration, each share of Biomatrix
common stock subject to a valid cash election will convert into the right
to receive $37.
- If Biomatrix stockholders elect, in the aggregate, for 50% of the
Biomatrix shares to receive stock consideration and for 50% of the
Biomatrix shares to receive cash consideration, the cash proration factor
will be 0.5676 and each share of Biomatrix common stock subject to a valid
cash election will convert into the right to receive (1) $21.00
($37 X 0.5676) in cash and (2) 0.4324 share of Biosurgery Stock.
- If Biomatrix stockholders elect, in the aggregate, for 75% of the
Biomatrix shares to receive cash consideration and for 25% of the
Biomatrix shares to receive stock consideration, the cash proration factor
will be 0.3784 and each share of Biomatrix common stock subject to a valid
cash election will convert into the right to receive (1) $14.00
($37 X 0.3784) in cash and (2) 0.6216 share of Biosurgery Stock.
- If Biomatrix stockholders elect, in the aggregate, for 100% of the
Biomatrix shares to receive cash consideration, the stock proration factor
will be 0.2838 and each share of Biomatrix common stock subject to a valid
stock election will convert into the right to receive (1) $10.50
($37 X 0.2838) in cash and (2) 0.7162 share of Biosurgery Stock.
SHARES FOR WHICH HOLDERS ELECT THE STOCK CONSIDERATION. The number of
shares of Biomatrix common stock that will convert into shares of Biosurgery
Stock is limited. Therefore, Biomatrix stockholders who elect to receive the
stock consideration may instead receive a combination of cash and shares of
Biosurgery Stock. Genzyme will establish the number of shares of Biosurgery
Stock that
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will be issued to satisfy stock elections by performing the following
calculations in the following sequence:
- multiplying the number of Biomatrix shares outstanding at closing by
71.62% (or the higher percentage required due to a tax adjustment, as
discussed at the end of this section); and
- subtracting the portion of the standard election shares and non-electing
shares that convert into the right to receive Biosurgery Stock.
If the number of shares of Biomatrix common stock for which stockholders
have made valid stock elections is less than or equal to the number of available
shares of Biosurgery Stock, then each share of Biomatrix common stock subject to
a valid stock election will convert into the right to receive a share of
Biosurgery Stock. On the other hand, if the number of shares of Biomatrix common
stock for which stockholders have made valid stock elections exceeds the number
of available shares of Biosurgery Stock, then the number of shares of Biosurgery
Stock will be prorated; specifically, each share for which a valid stock
election has been made will convert into:
- cash equal to $37 multiplied by the stock proration factor; and
- a fraction of a share of Biosurgery Stock equal to one minus the stock
proration factor.
The stock proration factor would equal (x) the number of available cash
shares less the number of shares for which the cash consideration has been
elected divided by (y) the number of shares for which the stock consideration
has been elected.
Below are examples of how this proration process will work. These examples
assume that (1) there are 23,500,000 shares of Biomatrix common stock
outstanding at closing, (2) no Biomatrix stockholders exercise dissenters'
rights, (3) no Biomatrix stockholders receive the standard consideration by
election or failure to elect, and (4) no tax adjustment is required.
- If Biomatrix stockholders elect, in the aggregate, for 25% of the
Biomatrix shares to receive the stock consideration and for 75% of the
Biomatrix shares to receive cash consideration, each share of Biomatrix
common stock subject to a valid stock election will convert into the right
to receive one share of Biosurgery Stock.
- If Biomatrix stockholders elect, in the aggregate, for 50% of the
Biomatrix shares to receive the stock consideration and for 50% of the
Biomatrix shares to receive cash consideration, each share of Biomatrix
common stock subject to a valid stock election will convert into the right
to receive one share of Biosurgery Stock.
- If Biomatrix stockholders elect, in the aggregate, for 75% of the
Biomatrix shares to receive stock consideration and for 25% of the
Biomatrix shares to receive cash consideration, the stock proration factor
will be 0.0451 and each share of Biomatrix common stock subject to a valid
stock election will convert into the right to receive (1) $1.67
($37 X 0.0451) in cash and (2) 0.9549 share of Biosurgery Stock.
- If Biomatrix stockholders elect, in the aggregate, for 100% of the
Biomatrix shares to receive stock consideration, the stock proration
factor will be 0.2838 and each share of Biomatrix common stock subject to
a valid stock election will convert into the right to receive (1) $10.50
($37 X 0.2838) in cash and (2) 0.7162 share of Biosurgery Stock.
POTENTIAL ADJUSTMENTS
POTENTIAL ADJUSTMENT DUE TO DISSENTING SHARES. As noted above, the cash
portion of the merger consideration will be reduced to the extent Biomatrix
stockholders exercise dissenters' rights. For example, the aggregate number of
shares of Biomatrix common stock that can receive the cash consideration is
reduced by each share for which dissenters' rights have been exercised. In
addition, the amount of cash that is included in the standard consideration
decreases in proportion to the number of
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shares for which Biomatrix stockholders exercise dissenters' rights. Genzyme and
Biomatrix do not know what percentage of Biomatrix stockholders will exercise
dissenters' rights. Furthermore, the merger agreement does not contain as a
condition to closing a limit on the number of dissenting shares.
The following table illustrates the amount of cash and fraction of a share
of Biosurgery Stock comprising the standard consideration based upon various
assumed numbers of Biomatrix shares held by dissenting shareholders. The table
does not reflect the actual amounts of cash and stock that any individual
Biomatrix stockholder will receive. The assumed numbers of Biomatrix shares held
by dissenting shareholders are for illustrative purposes only.
<TABLE>
<CAPTION>
BIOSURGERY
REVISED SHARES
PERCENTAGE OF CASH RECEIVED RECEIVED FOR
PERCENTAGE OF TOTAL NUMBER OF OUTSTANDING FOR EACH SHARE EACH SHARE
TOTAL SHARES NUMBER OF SHARES THAT WILL TOTAL NON- SHARES THAT WILL ELECTING THE ELECTING THE
OUTSTANDING THAT SHARES CONVERT INTO DISSENTING CONVERT INTO STANDARD STANDARD
DISSENT DISSENTING CASH SHARES CASH ELECTION ELECTION
--------------------- ---------- ---------------- ---------- ---------------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
0% 6,669,300 23,500,000 28.38% $10.50 0.7162
1% 235,000 6,434,300 23,265,000 27.66% 10.23 0.7234
2% 470,000 6,199,300 23,030,000 26.92% 9.96 0.7308
3% 705,000 5,964,300 22,795,000 26.16% 9.68 0.7384
4% 940,000 5,729,300 22,560,000 25.40% 9.40 0.7460
5% 1,175,000 5,494,300 22,325,000 24.61% 9.11 0.7539
10% 2,350,000 4,319,300 21,150,000 20.42% 7.56 0.7958
20% 4,700,000 1,969,300 18,800,000 10.48% 3.88 0.8953
</TABLE>
POTENTIAL TAX ADJUSTMENTS. In order to permit the merger to 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 by decreasing the number of shares exchanged for
cash and increasing the number of shares exchanged for Biosurgery Stock 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 Biosurgery
Stock and other payments required to be considered for tax purposes) consists of
Biosurgery Stock. To determine the need for an adjustment, the fair value of the
Biosurgery Stock would be as determined in good faith by the Genzyme board of
directors. Assuming that there are 23,500,000 shares of Biomatrix common stock
outstanding at closing and that no Biomatrix stockholders exercise dissenters'
rights, this provision would be triggered if the price per share of Biosurgery
Stock were below approximately $12.00. Based on those same assumptions, if the
value of a share of Biosurgery Stock were determined by the board to be less
than $12.00, the amount of cash and fraction of a share of Biosurgery Stock
comprising the standard consideration would be as illustrated in the following
table. The table does not reflect actual amounts of cash and stock that any
individual Biomatrix stockholder will receive. The assumed values of a share of
Biosurgery Stock are for illustrative purposes only; the actual value of a
share, if less than $12.00, could be significantly less than any values
reflected in the table.
<TABLE>
<CAPTION>
MARKET VALUE TOTAL NUMBER OF REVISED PERCENTAGE CASH RECEIVED FOR BIOSURGERY SHARES
PER SHARE OF SHARES THAT WILL OF OUTSTANDING EACH SHARE ELECTING RECEIVED FOR EACH SHARE
BIOSURGERY CONVERT INTO SHARES THAT WILL THE STANDARD ELECTING THE STANDARD
STOCK CASH CONVERT INTO CASH CONSIDERATION CONSIDERATION
--------------------- ---------------- ------------------ ------------------- -----------------------
<S> <C> <C> <C> <C>
$12.00 6,669,300 28.38% $10.50 0.7162
11.00 6,263,216 26.65 9.86 0.7335
10.00 5,835,214 24.83 9.19 0.7517
9.00 5,385,417 22.92 8.48 0.7708
8.00 4,912,114 20.90 7.73 0.7910
</TABLE>
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NO FRACTIONAL SHARES
Genzyme will not issue fractional shares in the merger. Instead, it will pay
cash to each Biomatrix stockholder who otherwise would be entitled to receive a
fractional share of Biosurgery Stock. The cash amount will equal the fractional
share number multiplied by the per share value of the Biosurgery Stock as
determined in good faith by Genzyme.
PROCEDURE FOR FILING ELECTIONS AND CONVERTING BIOMATRIX COMMON STOCK INTO MERGER
CONSIDERATION
Biomatrix is sending an election form/letter of transmittal in a separate
mailing from this joint proxy statement/prospectus to each record holder of
Biomatrix common stock as of the record date for the Biomatrix special meeting.
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 Biomatrix 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., Boston time, on December 6, 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. A Biomatrix
stockholder may revoke an election form/letter of transmittal only by written
notice received by American Stock Transfer & Trust Company, by 5:00 p.m., Boston
time, on December 6, 2000. The election form/letter of transmittal provides
further details concerning the mechanics of making or revoking an election. The
exchange agent may, with the mutual agreement of Biomatrix and Genzyme, make
rules for the implementation of the election, consistent with the merger
agreement, necessary or desirable to complete the elections.
Biomatrix stockholders that do not wish to make an election may nonetheless
submit their Biomatrix certificates with the election form/letter of transmittal
without completing the election form portion by delivering them to the exchange
agent.
Biomatrix stockholders who plan to submit their certificates with the
election form/letter of transmittal should read the next section, "Exchange of
Biomatrix Stock Certificates," for information concerning lost, stolen, or
destroyed certificates and requests to issue Biosurgery Stock to a person other
than that stockholder. 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 to be not properly
made, the holder submitting such election form/letter of transmittal will be
treated as if they indicated no preference as to the form of consideration to be
received.
If a Biomatrix stockholder surrenders its certificates for Biomatrix common
stock, together with a duly executed letter of transmittal, then, after the
merger, the exchange agent will deliver to that stockholder Biosurgery Stock,
cash or the combination of shares of Biosurgery Stock and cash to which the
stockholder is entitled.
EXCHANGE OF BIOMATRIX 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
Biomatrix common stock as of the effective time but did not already submit a
valid election form/letter of transmittal:
- a letter of transmittal to be used by the holder to surrender its shares
and send them to the exchange agent to be exchanged for the merger
consideration; and
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- instructions explaining to the holder what to do to effect the exchange of
its shares of Biomatrix common stock for the merger consideration.
If the holder has not already submitted all its certificates for shares of
Biomatrix common stock to the exchange agent with an election form/letter of
transmittal, the holder should complete and sign the letter of transmittal and
return it to the exchange agent, together with any certificates for Biomatrix
common stock held by the holder.
If certificates for any shares of Biomatrix common stock have been lost,
stolen or destroyed, the holder must submit appropriate evidence regarding the
ownership, loss, theft or destruction of the certificate, an affidavit to that
effect and a customary indemnification agreement to the exchange agent.
Genzyme will honor a request from a person surrendering a Biomatrix common
stock certificate that the Biosurgery Stock being given in exchange be issued 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
Biosurgery Stock to a person other than the registered holder of the
certificate, unless the requesting person satisfactorily establishes to
Genzyme that any tax has been paid or is inapplicable.
Holders of Biomatrix common stock exchanged for Biosurgery Stock in the
merger will be entitled to receive dividends and other distributions on
Biosurgery Stock (without interest) that are declared or made with a record date
after the effective time. Dividends or other distributions will not be paid to
any former holder of Biomatrix common stock, however, until that holder
surrenders its shares of Biomatrix common stock to the exchange agent.
TREATMENT OF BIOMATRIX STOCK OPTIONS
At the effective time of the merger, each outstanding option to purchase
shares of Biomatrix common stock under Biomatrix' 1994 Stock Option Plan and
Nonemployee Director Option Plan, 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 Biomatrix stock option plan
immediately before the effective time of the merger except that the option shall
be exercisable for shares of Biosurgery Stock rather than Biomatrix common
stock. The number of shares of Biosurgery Stock issuable upon exercise of the
assumed option, as well as the exercise price, will be the same as the number of
shares of Biomatrix common stock issuable and the exercise price under the
original Biomatrix option.
On October 23, 2000, options to purchase 2,376,668 shares of Biomatrix
common stock were outstanding. The weighted average exercise price per share of
those options was $14.24 per share.
Genzyme has agreed to file a registration statement on Form S-8 for the
shares of Biosurgery Stock subject to Biomatrix 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 Biomatrix stock options remain outstanding.
The Biomatrix stock options for one officer and two non-employee directors
will accelerate at the effective time of the merger. In addition, upon approval
of the merger, Biomatrix expects to modify the option awards of all employees to
provide for acceleration upon employee termination under some termination
scenarios within one year following the merger. Please read "BACKGROUND AND
REASONS FOR THE MERGER--Interests of Biomatrix' Directors and Officers in the
Merger" beginning on page 122 for a description of these option modifications.
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TREATMENT OF BIOMATRIX CONVERTIBLE NOTE
At the effective time of the merger, the outstanding 6.9% Convertible
Subordinated Note Due May 14, 2003 made by Biomatrix in favor of SBC Warburg
Dillon Read Inc., convertible into shares of Biomatrix common stock, will be
assumed by the merger subsidiary and allocated to Genzyme Biosurgery. The note
will continue to be governed by the same terms and conditions set forth in the
note immediately prior to the effective time and the note will be convertible
for the standard consideration issued in the merger.
TREATMENT OF BIOMATRIX BENEFITS AND OTHER EMPLOYEE MATTERS
Genzyme has agreed to give Biomatrix employees who remain with Genzyme after
the merger full credit for time served with Biomatrix 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 Biomatrix 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 Biomatrix welfare plan maintained for the
employee prior to the merger.
Genzyme has further agreed to assume and honor all Biomatrix employment,
severance and other compensation agreements existing prior to execution of the
merger agreement.
Biomatrix has agreed that it and its subsidiaries will not make any
discretionary contribution to the Biomatrix 401(k) plan or make any required
contribution to it in Biomatrix common stock. Biomatrix has agreed to terminate
its 401(k) plan before closing the merger. When the merger is completed,
Biomatrix employees will participate in Genzyme Biosurgery's 401(k) plan.
APPRAISAL RIGHTS OF BIOMATRIX STOCKHOLDERS
Holders of Biomatrix 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 your, Biomatrix'
and Genzyme's rights and duties and the procedures governing the appraisal of
your shares. A copy of Section 262 of the DGCL is attached to this proxy
statement as Annex G.
HOW TO DEMAND PAYMENT FOR AND APPRAISAL OF YOUR SHARES
If Biomatrix stockholders adopt the merger agreement, Genzyme and Biomatrix
intend to file the articles of merger in Massachusetts and Delaware as soon as
practicable after the special meetings. Once those states declare the merger
effective, Biomatrix stockholders who objected to the amendment will be entitled
to 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 Biomatrix, Inc., 65
Railroad Avenue, Ridgefield, New Jersey 07657, Attention: Secretary, prior
to the special meeting, stating your intention to demand payment for your
shares of Biomatrix common stock if the merger and merger agreement are
approved and made effective. If you file your objection with Biomatrix
prior to 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.
- 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 Biomatrix common stock within twenty (20) days after receiving
Genzyme's notice.
If you have followed the procedures 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
Biomatrix stockholders approved adoption of the merger agreement and will
exclude any value arising from the expectation or effectiveness of the merger.
Within 120 days after the effective date, Genzyme or any dissenting
stockholder 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 the holders of the shares.
If you are considering seeking appraisal of your shares of Biomatrix 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. Your appraisal rights are your only remedy if you
object to approval of the merger and merger agreement, unless adoption of the
merger and merger agreement is determined to have been illegal, fraudulent or in
breach of the Biomatrix board of directors' fiduciary duties.
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 Biomatrix, including intangible assets, will be recorded at their
fair market values. The results of operations and cash flows of Biomatrix will
be included in the financial statements of Genzyme Biosurgery following the
completion of the tracking stock exchanges and the merger. Consistent with GAAP,
amounts assigned to purchased in-process research and development--i.e.,
Biomatrix 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
For a summary of material U.S. federal income tax consequences of the
merger, see the discussion under the section heading "MATERIAL UNITED STATES
FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER AND THE TRACKING STOCK EXCHANGES"
beginning on page 144.
FINANCING THE CASH PORTION OF THE MERGER CONSIDERATION
Genzyme estimates that cash payments to Biomatrix stockholders in the merger
will be approximately $245 million. Genzyme currently expects to fund
$200 million of this amount through borrowings under senior credit facilities.
The remainder will be paid with Genzyme Biosurgery 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 Biosurgery. As a
consequence, Genzyme Biosurgery'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
CONDENSED COMBINED FINANCIAL INFORMATION" beginning on page 58.
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COVENANTS UNDER THE MERGER AGREEMENT
BIOMATRIX INTERIM OPERATIONS
Until the closing of the merger, Biomatrix has agreed to carry on its
business solely in the ordinary course consistent with its past practices.
Biomatrix also agreed to:
- use reasonable commercial efforts to preserve its business;
- operate its business in the ordinary course, consistent with past
practice;
- use reasonable commercial efforts to preserve and protect its proprietary
rights;
- use reasonable commercial efforts consistent with past practices to keep
available the services of its employees;
- take all actions necessary with respect to Biomatrix outstanding options
and the convertible note necessary to effectuate the merger;
- use reasonable commercial efforts to maintain its insurance policies;
- notify Genzyme upon receiving any material communication from and before
making any material submission to the FDA; and
- pay all taxes when due.
There are exceptions to these obligations in the merger agreement. Genzyme
may also agree to further exceptions in writing.
Biomatrix 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
consent:
- sell or encumber 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 involving payments of $250,000 or
more;
- increase the compensation of any officer, director, employee, agent or
consultant; adopt or increase benefits under any employee plan except as
required by law; or enter into any employment, severance or other
agreement with an officer or director;
- change the amount of its authorized, issued or outstanding capital stock;
grant, accelerate or modify any option, warrant or other right to
purchase; 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;
- amend its charter or bylaws;
- acquire a material amount of property or assets outside the ordinary
course of business;
- authorize capital expenditures exceeding $100,000 singly or $500,000 in
the aggregate;
- change any of its accounting practices or principles or restate its
financial statements;
- take any action that would prevent the merger from qualifying as a
reorganization within Section 368(a) the Internal Revenue Code;
- 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;
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- settle or compromise any pending or threatened material legal proceeding;
- adopt any plan of liquidation, dissolution, merger, consolidation,
restructuring, tracking stock exchanges or other reorganization, other
than this merger;
- satisfy any liabilities other than in the ordinary course of business
consistent with past practices;
- effectuate any plant closings or mass layoffs; or
- enter into or modify any license, development, research or collaboration
agreement.
GENZYME INTERIM OPERATIONS
Until the closing of the merger, Genzyme has agreed to carry on the business
of Genzyme Surgical Products and Genzyme Tissue Repair in the ordinary course
consistent with past practices. Genzyme also agreed, with respect to the assets
and operations of Genzyme Surgical Products and Genzyme Tissue Repair, to:
- use reasonable commercial efforts to preserve its business;
- operate its business in the ordinary course, consistent with past
practice;
- use reasonable commercial efforts consistent with past practices to
preserve and protect its proprietary rights;
- use reasonable commercial efforts consistent with past practices to keep
available the service of its employees;
- use reasonable commercial efforts to maintain its insurance policies; and
- notify Biomatrix upon receipt of any material communication from the FDA
regarding a serious adverse event or serious adverse device event.
There are exceptions to these obligations in the merger agreement. Biomatrix
may also agree to further exceptions in writing.
Genzyme has also agreed until the merger closes, with some exceptions, that
it will not do or agree to do any of the following without Biomatrix' consent:
- sell or encumber any of its assets related to Genzyme Surgical Products or
Genzyme Tissue Repair, other than sales or transfers in the ordinary
course of business not exceeding $500,000;
- incur any indebtedness for borrowed money to Genzyme Surgical Products or
Genzyme Tissue Repair or issue any indebtedness convertible into or with
voting rights related to the Surgical Products Stock or the Tissue Repair
Stock;
- to the extent it relates to Genzyme Surgical Products or Genzyme Tissue
Repair, increase the compensation of any officer, director, employee,
agent or consultant, except in the ordinary course consistent with past
practice or adopt or increase benefits under any employee plan;
- issue shares of, or rights to acquire, Biosurgery Stock other than
Biosurgery Stock and rights to acquire Biosurgery Stock relating to the
merger;
- except as related to the Genzyme tracking stock exchanges, change the
amount of its authorized, issued or outstanding Tissue Repair Stock or
Surgical Products Stock; grant, accelerate or modify any option, warrant
or other right to purchase Tissue Repair Stock or Surgical Products Stock;
declare or pay any dividend or other distribution on shares of Surgical
Products Stock or Tissue Repair Stock; or sell, transfer, repurchase or
redeem any shares of Surgical Products Stock or Tissue Repair Stock,
except (1) to honor the exercise of convertible securities outstanding on
the date of execution of the merger agreement, (2) issuances made in the
ordinary course of business not exceeding 900,000 shares in the aggregate
made in connection
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with research and development or the grant of non-employee options, and
(3) repurchases from employees and consultants pursuant to the terms of
their existing agreements;
- except as related to the Genzyme tracking stock exchanges, amend its
charter or bylaws, or propose changes that would require the approval of
the holders of Biosurgery Stock as a class if shares were outstanding;
- acquire a material amount of property or assets relating to Genzyme
Surgical Products or Genzyme Tissue Repair other than in the ordinary
course of business;
- change any of its accounting practices or principles or restate its
financial statements relating to the Genzyme Surgical Products or Genzyme
Tissue Repair;
- take any action that would prevent the merger from qualifying as a
reorganization within the meaning of Section 368(a) the Internal Revenue
Code;
- adopt any plan of liquidation, dissolution, merger, consolidation,
restructuring, recapitalization exchange or other reorganization that
would require a class vote of Biosurgery Stock if it were outstanding,
other than the tracking stock exchanges and the merger relating to
creating Genzyme Biosurgery; or
- effectuate any plant closings or mass layoffs relating to Genzyme Surgical
Products or Genzyme Tissue Repair.
NO SOLICITATION BY BIOMATRIX
Biomatrix has agreed not to (1) solicit any person regarding either a
business combination with Biomatrix or any other transaction as an alternative
to the merger or (2) unless Biomatrix' board or officers are otherwise required
by their fiduciary duties, negotiate with, or furnish information to, a third
party regarding such a transaction. Biomatrix has agreed to inform Genzyme of
any written inquiry it receives relating to an alternative transaction.
CALL SPECIAL MEETINGS OF STOCKHOLDERS
Genzyme and Biomatrix each has agreed to call and hold a special meeting of
their stockholders to obtain the required stockholder votes with respect to the
tracking stock exchanges and the merger. The Genzyme and Biomatrix boards of
directors have agreed to take all lawful action that does not interfere with
their fiduciary duties to secure the votes of their stockholders related to the
merger.
OTHER COVENANTS
The merger agreement contains mutual covenants, including covenants relating
to, among other things:
- access to information;
- reporting of the transaction for federal income tax purposes;
- best efforts and further assurances;
- compliance with legal requirements;
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- cooperation relating to consents and approvals and confidential treatment
of non-public information of both parties;
- preparation of disclosure documents;
- public announcements, notifications, and regulatory filings; and
- expenses.
Genzyme has also agreed, among other things, to use reasonable commercial
efforts to list the shares of Biosurgery Stock to be issued in the merger for
trading on the Nasdaq National Market.
REPRESENTATIONS AND WARRANTIES
Each of Genzyme and Biomatrix has made customary representations and
warranties to the other in the merger agreement regarding, among other things:
- its and its subsidiaries' organization and similar corporate matters;
- the authorization, execution, delivery and performance of the merger
agreement;
- 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;
- 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 December 31, 1999 for Biomatrix, and since September 30, 1999 for
Genzyme;
- material contracts;
- compliance with local and federal laws;
- necessary governmental consents and filings;
- the absence of litigation;
- ownership, use and non-infringement of intellectual property rights;
- insurance coverage;
- 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 actions necessary to complete the merger;
- merger-related brokers' and finders' fees;
- the accuracy of the information in this joint proxy statement/prospectus;
and
- year 2000 compliance;
Biomatrix has made additional representations and warranties to Genzyme
regarding, among other things:
- ownership of its subsidiaries;
- its commercial relationships with its collaborators and contract
manufacturers;
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- the filing of tax returns and payment of taxes;
- the inapplicability of any anti-takeover statutes to the merger;
- the receipt of a fairness opinion; and
- its not being subject to regulation as an investment company.
Genzyme has made additional representations and warranties to Biomatrix
regarding, among other things, having sufficient funds to complete the merger.
CONDITIONS TO THE MERGER
CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER
Genzyme and Biomatrix do not have to consummate the merger unless the
following conditions are met or waived:
- Biomatrix stockholders must adopt the merger agreement;
- holders of all four series of Genzyme Common Stock, voting together as a
single class, must approve the amendment to Genzyme's charter to create
the Biosurgery Stock and cancel the Surgical Products Stock and Tissue
Repair Stock;
- holders of Surgical Products Stock and Tissue Repair Stock, voting as
separate classes, must approve of the exchange of their stock for shares
of Biosurgery Stock and the transfer of assets from Genzyme Surgical
Products and Genzyme Tissue Repair to Genzyme Biosurgery;
- the registration statement of which this joint proxy statement/prospectus
is a part must have been declared effective and must not be subject to any
stop order or related proceeding;
- Genzyme and Biomatrix must have obtained all required approvals from
governmental entities and satisfied any required waiting periods; and
- Biosurgery Stock must be listed on the Nasdaq National Market.
CONDITIONS TO THE OBLIGATION OF GENZYME
Genzyme does not have to consummate the merger unless the following
additional conditions are met or waived:
- Biomatrix must have performed and complied with all its agreements and
covenants in the merger agreement, and the representations and warranties
of Biomatrix contained in the merger agreement must be true and correct
when made and on and as of the closing date as if made at and as of such
date, except for any inaccuracies or failures to perform that would not
reasonably be expected to have a material adverse effect on Biomatrix;
- 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 Biomatrix and Genzyme will each be a party to that reorganization
within the meaning of Section 368(b) of the code; and
- Biomatrix must have executed the merger documents to be filed with the
Secretary of State of Delaware and Massachusetts.
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CONDITIONS TO THE OBLIGATION OF BIOMATRIX
Biomatrix does not have to consummate the merger unless the following
additional conditions are met or waived:
- Genzyme must have performed and complied with all of its agreements and
covenants in the merger agreement, and the representations and warranties
of Genzyme contained in the merger agreement shall be true and correct
when made and on and as of the closing date as if made at and as of such
date, except for any inaccuracies or failures to perform that would not
reasonably be expected to have a material adverse effect on Genzyme;
- Biomatrix must receive the customary closing documents described in the
merger agreement;
- Biomatrix must receive an opinion of Bingham Dana 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 Biomatrix and Genzyme will each be a party to that reorganization
within the meaning of Section 368(b) of the code;
- Biomatrix must receive evidence that the Genzyme tracking stock exchanges
will occur on or before the closing date; and
- Genzyme must have executed the merger documents to be filed with the
Secretaries of State of Delaware and Massachusetts.
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 Biomatrix stockholders or before
or after the approval of the tracking stock exchanges by Genzyme stockholders:
- by mutual written consent of Genzyme and Biomatrix;
- by Biomatrix:
-- for an uncured breach by Genzyme that would reasonably be expected to
have a material adverse effect on Genzyme's business or financial
condition;
-- if the Biomatrix board of directors, in the exercise of its fiduciary
duties, is obligated to terminate the agreement; or
-- if the Genzyme board of directors withdraws or adversely qualifies its
recommendation of the merger agreement.
- by Genzyme:
-- for an uncured breach by Biomatrix that would reasonably be expected to
have a materially adverse effect on Biomatrix' business or financial
condition; or
-- if the Biomatrix board of directors withdraws or adversely qualifies its
recommendation of the merger agreement, recommends an alternative to the
merger or fails to recommend against any tender or exchange offer.
- by either Genzyme or Biomatrix:
-- if the merger has not closed by December 31, 2000, unless that party's
own breach of the agreement is the reason that the merger has not been
completed; provided, however, that either party may extend that date to
January 31, 2001 if that party is then in the process of soliciting
proxies for its special meeting;
-- if there is a non-appealable government action prohibiting completion of
the merger; or
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-- if Biomatrix stockholders do not vote to adopt the merger agreement or
Genzyme stockholders do not approve the amendment to Genzyme's charter
or the Genzyme tracking stock exchanges.
TERMINATION FEES AND EXPENSES
PAYMENT OF EXPENSES
Genzyme and Biomatrix will share equally the fees and expenses of printing
and filing this joint proxy statement/prospectus and the registration statement.
Otherwise, Genzyme and Biomatrix will each pay its own merger-related fees and
expenses.
Biomatrix will reimburse Genzyme's out-of-pocket expenses and fees up to
$2,000,000 if Genzyme terminates the agreement due to the Biomatrix board of
directors withdrawing its recommendation of the merger agreement, recommending
an alternative to the merger or failing to recommend against any tender or
exchange offer.
Genzyme will reimburse Biomatrix' out-of-pocket expenses and fees up to
$2,000,000 if Biomatrix terminates the agreement due to the Genzyme board of
directors withdrawing its recommendation to stockholders of the tracking stock
exchanges.
PAYMENT OF TERMINATION FEE
Biomatrix has agreed to pay Genzyme $22,000,000 less any amount it has
reimbursed Genzyme for out-of-pocket expenses as described above, if:
- Biomatrix' board of directors, in the exercise of its fiduciary duties,
terminates the agreement because of a proposed alternative transaction
with a third party;
- Genzyme or Biomatrix terminates the merger agreement because Biomatrix
stockholders have failed to adopt the merger agreement, if at the same
time that the stockholders fail to adopt the agreement, an alternative
transaction between Biomatrix and a third party has been announced or
commenced and Biomatrix:
-- has agreed with that third party to engage in the transaction; or
-- within 12 months following the stockholders' failure to approve the
merger, either engages in or recommends an alternative transaction with
that party or a competing party; or
- Genzyme terminates the agreement because Biomatrix' board of directors
-- has failed to recommend, or has withdrawn or adversely modified its
recommendation of, the adoption of the merger;
-- has approved or recommended an alternative transaction; or
-- has failed to recommend against a tender or exchange offer for the
Biomatrix stock; if at the same time Biomatrix has announced, commenced
or received a proposal for an alternative transaction and:
-- has agreed to engage in that transaction; or
-- within 12 months following Genzyme's terminating the agreement either
engages in or recommends an alternative transaction with that party or a
competing party.
Genzyme has agreed to pay Biomatrix $22,000,000, less any amount it has
reimbursed Biomatrix for out-of-pocket expenses, as described above, if:
- Genzyme or Biomatrix terminates the merger agreement because Genzyme
stockholders have failed to approve the tracking stock exchanges, if at
the same time that the stockholders fail to
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approve the tracking stock exchanges, an alternative transaction between
Genzyme and a third party has been announced or commenced and Genzyme:
-- has agreed with that third party to engage in the transaction; or
-- within 12 months following the stockholders' failure to approve the
tracking stock exchanges either engages in or recommends an alternative
transaction with that party or a competing party; or
- Biomatrix terminates the agreement because Genzyme's board of directors
has failed to recommend, or has withdrawn or adversely modified its
recommendation of, the approval of the tracking stock exchanges, if at the
same time Genzyme has announced, commenced or received a proposal for an
alternative proposal and
-- has agreed to engage in that transaction; or
-- within 12 months following Biomatrix' terminating the agreement either
engages in or recommends an alternative transaction with that party or a
competing party.
AMENDMENTS AND WAIVERS
Generally, Genzyme and Biomatrix may amend or waive any provision of the
merger agreement before the effective time of the merger, including the
condition that the waiving party receive an opinion that the merger will qualify
for U.S. federal income tax purposes as a reorganization under Section 368(a) of
the Internal Revenue Code. However, if a material condition is waived, Genzyme
will amend the registration statement of which this prospectus/proxy statement
forms a part, and Biomatrix will resolicit proxies for the adoption of the
merger agreement. Moreover, after Biomatrix stockholders have approved the
merger, their further approval would be required to modify the amount or type of
consideration that they will receive in the merger 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 BIOSURGERY STOCK
Genzyme has filed a listing notification with Nasdaq concerning the
Biosurgery Stock to be issued to holders of Biomatrix common stock, Surgical
Products Stock and Tissue Repair Stock in the merger.
DELISTING OF BIOMATRIX COMMON STOCK
If the merger is completed, Biomatrix common stock will cease to be listed
on The New York Stock Exchange and Surgical Products Stock and Tissue Repair
Stock will cease to be quoted on the Nasdaq National Market.
RESALES OF BIOSURGERY STOCK BY BIOMATRIX AFFILIATES
Biomatrix stockholders may freely transfer the shares of Biosurgery Stock
received in the merger, unless they are individuals or entities who are deemed
to be "affiliates" of Biomatrix before the merger or affiliates of Genzyme after
the merger. Persons who may be deemed to be affiliates of Biomatrix or Genzyme
generally include individuals or entities that control, are controlled by, or
are under common control with, the company 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
Biosurgery Stock received in the merger. The U.S. securities laws require
registration of shares sold by underwriters. An affiliate and its broker can
avoid being characterized as an underwriter
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and, therefore, avoid the Securities Act registration requirements by selling
shares in compliance with Rule 145 or Rule 144 under the Securities Act.
Rule 145 covers sales by Biomatrix 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 Biomatrix to use
its best efforts to cause each of its affiliates to execute and deliver to
Genzyme a written agreement to the effect that such affiliate will not offer or
sell or otherwise dispose of Biosurgery 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 joint proxy statement/prospectus does not cover resales of Biosurgery
Stock received by any person who may be deemed to be an affiliate of Biomatrix
and/or Genzyme.
STOCKHOLDER VOTING AGREEMENTS
Four executive officers of Biomatrix have entered into stockholder voting
agreements with Genzyme.
Each of these stockholders has agreed, until five days after termination of
the merger agreement, that he or she will (1) not transfer or otherwise dispose
of any shares of Biomatrix common stock owned by him or her and (2) vote all
shares of Biomatrix common stock in favor of adopting the merger agreement and
approval of any matter that could facilitate the merger, and against
- any proposal made in opposition to or in competition with the merger;
- any merger, consolidation, sale of assets, reorganization or
recapitalization with any party other than Genzyme; and
- any proposed liquidation or winding up of Biomatrix.
The stockholders that have signed these agreements have each granted certain
officers of Genzyme irrevocable proxies to vote their shares accordingly. In
addition, these stockholders have agreed not to accept cash consideration for
more than 28.38% of their shares in the merger.
These executive officers have the right to vote in the aggregate
8,547,506 shares of Biomatrix common stock, or approximately 36.2% of the
Biomatrix common stock outstanding as of the record date (excluding shares that
the stockholder has the right to acquire upon the exercise of stock options).
STOCK OPTION AGREEMENT
As a condition and inducement to entering into the merger agreement,
Biomatrix granted to Genzyme an option to purchase up to 4,600,000 shares of its
common stock pursuant to a stock option agreement. Because the description of
the stock option agreement contained in this joint proxy statement/prospectus is
a summary, it does not contain all the information that may be important to you.
You should carefully read the entire copy of the stock option agreement attached
as Annex B to this joint proxy statement/prospectus.
TERMS OF THE OPTION
NUMBER OF SHARES AND EXERCISE PRICE. Under the stock option agreement,
Biomatrix has granted to Genzyme an option to purchase up to 4,600,000 shares of
Biomatrix common stock at an exercise price per share equal to $30.00.
The number and type of securities subject to the stock option and the
related exercise price will be adjusted for any change in Biomatrix common stock
by reason of a stock dividend, split-up, merger (other than the merger with
Genzyme), recapitalization, combination, exchange of shares or any similar event
so as to fully preserve the economic benefits provided under the stock option
agreement.
EXERCISE RIGHTS. Genzyme may exercise the stock option if the merger
agreement becomes terminable (regardless of whether it actually is terminated)
because:
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- Biomatrix' board of directors
-- has failed to recommend, or has withdrawn or adversely modified its
recommendation of, the adoption of the merger;
-- has approved or recommended an alternative transaction; or
-- has failed to recommend against a tender or exchange offer for Biomatrix
stock;
if at the same time Biomatrix has announced, commenced or received a
proposal for an alternative transaction and:
-- has agreed to engage in that transaction; or
-- within 12 months following Genzyme's terminating the agreement either
engages in or recommends an alternative transaction with that party or a
competing party.
- Biomatrix stockholders have failed to adopt the merger agreement, if at
the same time an alternative transaction between Biomatrix and a third
party has been announced and not withdrawn.
EXPIRATION. To the extent the stock option has not been exercised, the
stock option agreement will expire upon the earliest of:
- the effectiveness of the merger;
- 180 days after the first exercise event; or
- 30 days after the date on which an exercise event could no longer occur.
GENZYME RIGHT TO REQUIRE REPURCHASE
At any time while the stock option is exercisable Genzyme can require that
Biomatrix purchase from Genzyme all or any portion of the option as well as any
of the shares of common stock Genzyme may have purchased under the option. The
per share price at which Biomatrix would have to repurchase any common stock
issued under the option would be the then current "market/offer" price of
Biomatrix common stock. The per share price at which Biomatrix would have to
purchase the option would be the difference between the Biomatrix common stock's
then current market/offer price and the option's exercise price. The
"market/offer" price of a share of Biomatrix common stock is the higher of
- the highest price per share offered by a third party under an outstanding
alternative transaction; and
- the average closing price per share during the prior ten trading days.
If it wishes, Genzyme could reduce the repurchase price to an amount
necessary to avoid Biomatrix' having to obtain any stockholder vote that might
be required to approve the repurchase.
CASH PAYMENT LIMITATIONS
The termination fee paid by Biomatrix to Genzyme pursuant to the merger
agreement, any cash proceeds received by Genzyme from the transfer or sale of
the stock option or any stock option shares can not exceed $22 million.
REGISTRATION RIGHTS
Pursuant to the stock option agreement, Genzyme has the right to require
Biomatrix to file up to two registration statements under the Securities Act in
order to permit the sale or other disposition of any shares issued upon exercise
of the option. In connection with any such registration that is
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underwritten, Biomatrix and Genzyme will provide to each other and any
underwriter of the offering customary representations, warranties, covenants,
indemnifications and contributions.
EFFECT OF STOCK OPTION AGREEMENT
The stock option agreement increases the likelihood that the merger will be
consummated in accordance with the terms of the merger agreement. The stock
option agreement could have the effect of making an acquisition or other
combination of Biomatrix by or with a third party more costly because of the
need in any such transaction to acquire, account for or pay the price of the
stock option shares that would be issued under the stock option agreement.
Biomatrix believes that the exercisability of the stock option could prohibit
any other acquiror of Biomatrix from accounting for any such acquisition using
the pooling of interests accounting method. Accordingly, the stock option
agreement may discourage a third party who might be interested in effecting such
an acquisition or combination from considering or proposing the transaction or
may cause such third party to offer to pay a lower price than such party would
have proposed if pooling of interest accounting were available. In addition,
Genzyme would have a significant stake in Biomatrix if it exercised the stock
option and held the stock.
REGULATORY MATTERS
Under the Hart-Scott-Rodino Antitrust Improvements Act and related rules,
the 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 Biomatrix have made
the required filings with both agencies and the waiting period has expired. 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 Biomatrix. Genzyme and Biomatrix cannot guarantee that a
challenge to the merger on antitrust grounds will not be made or, if such a
challenge is made, that it would not be successful.
Genzyme and Biomatrix 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 Massachusetts and
Delaware.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
OF THE MERGER AND THE GENZYME TRACKING STOCK EXCHANGES
The following discussion summarizes the material U.S. federal income tax
consequences of the merger and Genzyme's tracking stock exchanges that are
generally applicable to holders of Biomatrix common stock, holders of Surgical
Products Stock and holders of Tissue Repair Stock. The discussion does not deal
with all income tax considerations that may be relevant to particular
stockholders in light of their 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 and court decisions. All of the foregoing are subject to change, and any
such change could affect the continuing validity of this discussion. In
particular, Congress could enact legislation affecting the treatment of stock
with characteristics similar to the Biosurgery Stock, Tissue Repair Stock and
Surgical Products Stock, or the Treasury Department could issue regulations that
change the current law, including regulations issued pursuant to its broad
authority under Section 337(d) of the Internal Revenue Code. Any future
legislation or regulations could apply retroactively. Accordingly, we cannot
assure you that the statements made in this document will remain accurate in the
future.
TAX TREATMENT OF THE BIOSURGERY STOCK, SURGICAL PRODUCTS STOCK AND TISSUE REPAIR
STOCK
The discussion below is based on the conclusion of Palmer & Dodge LLP and
Bingham Dana LLP that, under current law, the Biosurgery Stock will be
considered common stock of Genzyme for U.S. federal income tax purposes and the
conclusion of Palmer & Dodge LLP that, under current law, the Tissue Repair
Stock and Surgical Products Stock will be considered common stock of Genzyme for
U.S. federal income tax purposes. The IRS has announced, however, that it will
not issue any advance rulings on the classification of instruments with
characteristics similar to those of the Biosurgery Stock, Tissue Repair Stock
and Surgical Products Stock. Also, there are no court decisions or other
authorities that bear directly on the tax effects of the issuance and
classification of stock with the features of the Biosurgery Stock, Tissue Repair
Stock and Surgical Products Stock. Thus, we cannot assure you that positions
contrary to the foregoing conclusions will not be successfully asserted by the
IRS or adopted by a court if the issues are litigated. In addition, legislative
proposals made by the Clinton Administration in its budget proposals for the
fiscal years 2000 and 2001 would, if enacted, permit the Treasury Department to
treat tracking stock, such as the Biosurgery Stock, Tissue Repair Stock and
Surgical Products Stock, as property other than stock of the issuing
corporation, which could result in taxation of the issuer and the recipients of
such stock. As proposed by the Clinton Administration, these provisions would be
effective for tracking stock issued on or after the date of enactment by
Congress. No tax legislation has been enacted incorporating the Clinton
Administration's proposals. We cannot predict, however, whether Congress will
adopt legislation embodying either of the Clinton Administration's proposals
and, if it does so, whether such legislation will be on the terms proposed by
the Clinton Administration (including whether such legislation will be
retroactive in effect).
TAX CONSEQUENCES OF THE MERGER
This section, as it relates to matters of United States Federal income tax
law, constitutes the opinion of Palmer & Dodge LLP, counsel to Genzyme.
Additionally, Bingham Dana LLP, counsel to Biomatrix, has delivered to Biomatrix
an opinion as to the tax treatment of the merger, which is
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attached as Exhibit 8.2 to the Registration Statement in which this joint proxy
statement/prospectus is included. The opinions of Palmer & Dodge LLP and Bingham
Dana LLP are based on current law and the following assumptions:
- that the facts relating to the merger described in this joint proxy
statement/prospectus are true, correct and complete in all material
respects;
- that the representations and warranties contained in this joint proxy
statement/prospectus and the merger agreement and the factual
representations contained in letters delivered to counsel by Biomatrix,
Genzyme and the merger subsidiary in connection with their tax opinions
are, at the 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 us have acted, and will act, in accordance with the terms of
such merger agreement and documents;
- that the terms of the Biosurgery Stock issued in the merger will be
substantially in the form described in Annex F of this joint proxy
statement/prospectus;
- that the merger will be consummated at the effective time pursuant to the
terms, conditions and covenants in the merger agreement without the waiver
or modification of any of those terms, conditions and covenants; and
- that Genzyme, the merger subsidiary and Biomatrix 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 Biomatrix 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 Code, the merger
must satisfy, in addition to other requirements, a "continuity of interest"
test, which requires that the holders of Biomatrix common stock, as a group,
retain a substantial proprietary interest in the Biomatrix business that Genzyme
will conduct following the merger. IRS ruling guidelines provide that this
requirement will be satisfied if the holders of Biomatrix 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 Biomatrix 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 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 Biomatrix common stock. See "THE MERGER AND THE MERGER
AGREEMENT--Merger Consideration for Biomatrix Common Stock" beginning on
page 124. 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.
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Based upon and subject to the assumptions and limitations stated above, it
is the opinion of Palmer & Dodge LLP and Bingham Dana LLP that the merger will
constitute a reorganization within the meaning of Section 368(a) of the 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 BIOMATRIX, GENZYME AND THE MERGER SUBSIDIARY. No gain or loss
will be recognized by Biomatrix, Genzyme or the merger subsidiary by reason of
the merger.
TREATMENT OF STOCKHOLDERS WHO EXCHANGE BIOMATRIX COMMON STOCK SOLELY FOR
BIOSURGERY STOCK. Except as discussed below with respect to the receipt of cash
in lieu of fractional shares, a holder of Biomatrix common stock who receives
solely Biosurgery Stock in exchange for Biomatrix common stock in the merger
will not recognize gain or loss upon such exchange. The aggregate tax basis of
the Biosurgery Stock received by such holder (including any fractional shares
deemed received, as described below) will be equal to the aggregate tax basis of
the Biomatrix common stock surrendered, and the holding period of the Biosurgery
Stock will include the holding period of the Biomatrix common stock surrendered.
TREATMENT OF STOCKHOLDERS WHO EXCHANGE BIOMATRIX COMMON STOCK FOR A
COMBINATION OF BIOSURGERY STOCK AND CASH. Except as discussed below with respect
to the receipt of cash in lieu of fractional shares, a holder of Biomatrix
common stock who receives a combination of Biosurgery Stock and cash (other than
cash in lieu of fractional shares) in exchange for Biomatrix 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
Biosurgery Stock received in the exchange over (ii) the tax basis of the
Biomatrix common stock surrendered. For this purpose, stockholders who acquired
different blocks of Biomatrix 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 Biosurgery Stock received (including any fractional shares
deemed received, as described below) will be equal to the aggregate tax basis of
the Biomatrix 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 Biosurgery Stock received will include the holding period of the
Biomatrix 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 Biomatrix 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 Biomatrix stockholder receiving a combination of
Biosurgery 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 stock owned by the
stockholder immediately after the merger (by vote and value) is less than 80% of
the percentage of Genzyme stock that the holder would have owned if the holder
had received solely Biosurgery Stock in exchange for Biomatrix common stock in
the merger, and the holder owns less than 50% (by vote) of Genzyme stock after
the merger, or (ii) the cash received in the merger results in a "meaningful
reduction" in the amount of Genzyme stock that the stockholder would have owned
if the stockholder had received solely Biosurgery Stock in exchange for
Biomatrix common stock in the merger. If a holder's percentage ownership of
Genzyme 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
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constructively by reason of the attribution rules under Section 318 of the
Internal Revenue Code. BIOMATRIX 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.
TREATMENT OF STOCKHOLDERS WHO EXCHANGE BIOMATRIX COMMON STOCK SOLELY FOR
CASH. A holder of Biomatrix common stock who receives solely cash in exchange
for such holder's Biomatrix common stock in the merger generally will recognize
gain or loss equal to the difference between the tax basis of the Biomatrix
common stock surrendered and the amount of cash received therefor. 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 Biomatrix 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 Biomatrix, or
possibly by Genzyme, would satisfy rules similar to the requirements for
non-dividend treatment discussed above under "Treatment of stockholders who
exchange Biomatrix common stock for a combination of Biosurgery Stock and cash."
RECEIPT OF CASH IN LIEU OF FRACTIONAL SHARES. A holder of Biomatrix common
stock who receives cash in lieu of fractional shares of Biosurgery Stock will be
treated as having received such fractional shares pursuant to 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 Biomatrix common stock surrendered in the merger that is allocated to
such fractional shares and the cash received in lieu thereof. 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 Biomatrix common stock surrendered in the
merger is more than one year as of the effective date of the merger.
In its fiscal year 2000 budget proposal issued in February 1999, the Clinton
Administration proposed that Congress enact legislation that would alter the
results described above by imposing a corporate-level tax on the issuance of
stock similar to the Biosurgery Stock. This proposal has not been enacted. In
its fiscal year 2001 budget proposal issued in February 2000, the Clinton
Administration proposed legislation that would tax the receipt of tracking stock
distributed by a corporation and would also grant the Treasury authority to
treat tracking stock as property other than stock of the issuer in other
contexts. As proposed, the provision would be effective for tracking stock
issued on or after the date of enactment by Congress. If either of the Clinton
Administration's proposals or similar legislation were enacted prior to the
merger (or where enacted subsequent to the merger, but with retroactive effect),
Genzyme and the Biomatrix stockholders could be subject to tax upon the issuance
and receipt of the Biosurgery Stock in the merger. Tax legislation enacted by
Congress subsequent to the first Clinton Administration proposal has not
included any provision corresponding to the proposal. We cannot predict,
however, whether Congress will adopt legislation embodying either of the Clinton
Administration's proposals and, if it does so, whether such legislation will be
on the terms proposed by the Clinton Administration.
BACKUP WITHHOLDING. Unless a holder of Biomatrix 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 such holder's Biomatrix 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 Biomatrix to complete the merger is
conditioned on (1) delivery of an opinion to Biomatrix from Bingham Dana LLP,
and (2) delivery of an opinion to Genzyme from Palmer & Dodge LLP. Each opinion
must state that the merger will be treated for U.S. federal income
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tax purposes as a reorganization within the meaning of Section 368(a) of the
Code and that Biomatrix 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.
TAX CONSEQUENCES OF THE TRACKING STOCK EXCHANGES TO GENZYME STOCKHOLDERS
This section, as it relates to matters of United States federal income tax,
constitutes the opinion of Palmer & Dodge, counsel to Genzyme. This opinion is
subject to the limitations set forth above and is based on current law and the
following assumptions:
- that the facts relating to the tracking stock exchanges described in this
joint proxy statement/ prospectus are true, correct and complete in all
material respects;
- that the factual representations contained in a letter delivered to
Palmer & Dodge LLP by Genzyme regarding the tax opinion are, at the time
they are made, and will remain at all times through the effective time of
the tracking stock exchanges, 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 the terms of the Surgical Products Stock and Tissue Repair Stock
exchanged for Biosurgery Stock in the tracking stock exchanges will be
substantially in the form set forth in the Restated Articles of Genzyme,
as amended to date, and that the terms of the Biosurgery Stock issued in
the tracking stock exchanges will be substantially in the form described
in Annex F of this joint proxy statement/prospectus; and
- that the tracking stock exchanges will be consummated pursuant to the
terms and conditions contained in the merger agreement.
Any inaccuracy in, or breach of, any of the aforementioned representations
or assumptions or change in current law could adversely affect the tax opinion.
An opinion of counsel only represents counsel's best judgment, and has no
binding effect or official status of any kind, and no assurance can be given
that contrary positions may not be taken by the IRS or a court considering the
issues. Genzyme does not intend to request a ruling from the IRS with regard to
any of the federal income tax consequences of the tracking stock exchanges.
Based upon and subject to the assumptions and limitations stated above, it
is the opinion of Palmer & Dodge LLP that, under current law, the material
federal income tax consequences of the tracking stock exchanges will be as
follows:
- no gain or loss will be recognized by Genzyme upon issuance of the shares
of Biosurgery Stock in exchange for the shares of Tissue Repair Stock and
Surgical Products Stock in the tracking stock exchanges;
- except as discussed below with respect to the receipt of cash in lieu of
fractional shares, no gain or loss will be recognized by holders of Tissue
Repair Stock and Surgical Products Stock upon their receipt of Biosurgery
Stock in exchange for their shares of Tissue Repair Stock or Surgical
Products Stock in the tracking stock exchanges;
- the aggregate tax basis of the shares of Biosurgery Stock received by
holders of Tissue Repair Stock or Surgical Products Stock in the tracking
stock exchanges (including any fractional shares deemed received, as
described below) will be the same as the aggregate tax basis of the shares
of Tissue Repair Stock or Surgical Products Stock exchanged therefor;
- the holding period of the shares of Biosurgery Stock received by holders
of Tissue Repair Stock or Surgical Products Stock in the tracking stock
exchanges (including any fractional shares
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deemed received, as described below) will include the holding period of
the shares of Tissue Repair Stock or Surgical Products Stock exchanged
therefor; and
- holders of Tissue Repair Stock and Surgical Products Stock who receive
cash in lieu of fractional shares of Biosurgery Stock will be treated as
having received such fractional shares in exchange for their Tissue Repair
Stock or Surgical Products Stock in the tracking stock exchanges and then
as having those fractional shares redeemed for cash by Genzyme; a 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
Tissue Repair Stock or Surgical Products Stock surrendered in the exchange
that is allocated to the fractional shares and the cash received in lieu
thereof; 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 Tissue
Repair Stock or Surgical Products Stock surrendered in the exchange is
more than one year.
In its fiscal year 2001 budget proposal issued in February 2000, the Clinton
Administration has proposed that Congress enact legislation that would alter the
results described above by treating the receipt of tracking stock, such as the
Biosurgery Stock, in exchange for other stock in the issuing corporation as a
taxable event to the recipients and, possibly, to the issuing corporation as
well. As currently put forth, the Clinton Administration's proposal would apply
to tracking stock issued on or after the date the proposal is enacted into law.
If the Clinton Administration's proposal were enacted prior to the tracking
stock exchanges, a holder of Tissue Repair Stock or Surgical Products Stock
could recognize gain equal to the difference between the fair market value of
the Biosurgery Stock received in the tracking stock exchanges and the holder's
adjusted tax basis in the Tissue Repair Stock or Surgical Products Stock
exchanged therefor. We cannot predict whether Congress will adopt legislation
embodying the Clinton Administration's proposal and, if it does so, whether such
legislation will be on the terms proposed by the Clinton Administration.
BACKUP WITHHOLDING. A holder of Tissue Repair Stock or Surgical Products
Stock who receives cash in lieu of fractional shares of Biosurgery Stock in the
tracking stock exchanges may be subject to "backup withholding" at a rate of 31%
unless the holder 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. 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 FOREGOING 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 AND THE
TRACKING STOCK EXCHANGES. 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 AND THE TRACKING
STOCK EXCHANGES. 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 AND THE TRACKING STOCK EXCHANGES.
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THE GENZYME TRACKING STOCK EXCHANGE PROPOSALS
The stockholders of Genzyme are being asked to consider and approve
exchanges of Genzyme stock that will result in the cancellation of two series of
Genzyme's common stock, the Surgical Products Stock and the Tissue Repair Stock,
and the exchange of all outstanding shares of those series into a newly created
series of common stock, Biosurgery Stock. These tracking stock exchanges will be
accomplished through the amendment and restatement of Genzyme's charter and the
exchange of the Surgical Products Stock and Tissue Repair Stock for Biosurgery
Stock. These tracking stock exchanges are a condition to the merger and, if
approved by Genzyme's stockholders, will occur simultaneously with the
completion of the merger.
REASONS FOR THE GENZYME TRACKING STOCK EXCHANGE PROPOSALS
It is a condition to completing the merger that the tracking stock exchange
proposals be approved and made effective. In determining to enter into a merger
agreement requiring these exchanges, the Genzyme Board considered the factors
described in this joint proxy statement/prospectus under the heading "BACKGROUND
AND REASONS FOR THE MERGER--Genzyme's Reasons for the Merger" beginning on
page 109.
DESCRIPTION OF THE TRACKING STOCK EXCHANGE PROPOSALS
There are four components to the tracking stock exchange proposals:
- the creation of a new series of Genzyme common stock, called the
Biosurgery Stock, which will be designed to reflect the assets and track
the performance of Genzyme Biosurgery;
- the reallocation of assets and property from Genzyme Surgical Products and
Genzyme Tissue Repair into Genzyme Biosurgery;
- the conversion of all outstanding shares of Surgical Products Stock and
Tissue Repair Stock into shares of Biosurgery Stock; and
- the elimination of the Surgical Products Stock and Tissue Repair Stock as
series of Genzyme common stock.
The creation of the Biosurgery Stock and the elimination of the Surgical
Products Stock and Tissue Repair Stock as series of Genzyme common stock will be
accomplished through an amendment and restatement of the Genzyme's charter.
Under the proposed charter amendment, the 60,000,000 shares of common stock
designated as Surgical Products Stock and the 40,000,000 shares designated as to
Tissue Repair Stock will become undesignated as to a series, and 100,000,000
shares of common stock will be designated as to the Biosurgery Stock. See
"DESCRIPTION OF GENZYME CAPITAL STOCK--Authorized Capital Stock" in this
document. The Biosurgery Stock will have the terms set forth in Annex E to this
joint proxy statement/prospectus.
The holders of Surgical Products Stock will receive 0.6060 share of
Biosurgery Stock in exchange for each share of Surgical Products Stock, and the
holders of Tissue Repair Stock will receive 0.3352 share of Biosurgery Stock in
exchange for each share of Tissue Repair Stock. All outstanding options to
purchase Surgical Products Stock and Tissue Repair Stock will also be converted
into options to purchase Biosurgery Stock based on the same exchange ratio, with
a corresponding adjustment to each option's exercise price by dividing the
exercise price by the applicable exchange ratio. Adjustments to any other
security convertible into Surgical Products Stock or Tissue Repair Stock will be
made according to the adjustment provisions of the particular security.
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EFFECTS OF THE TRACKING STOCK EXCHANGE ON HOLDERS OF SURGICAL PRODUCTS STOCK
As a result of the tracking stock exchange, holders of Surgical Products
Stock will receive shares of Biosurgery Stock in exchange for their shares of
Surgical Products Stock. The principal difference between the Biosurgery Stock
and the Surgical Products Stock is that the former will have dividend and other
provisions designed to reflect the performance and value of Genzyme Biosurgery
while the latter has provisions designed to reflect instead the performance and
value of Genzyme Surgical Products. The provisions that are intended to make the
stocks reflect the financial performance of the respective divisions are
essentially identical for each series of stock and are discussed more fully in
the discussion of Genzyme's tracking stock under "DESCRIPTION OF GENZYME CAPITAL
STOCK" beginning on page 162.
Another difference between these two tracking stocks is the vote per share
to which each is entitled. Prior to the tracking stock exchange, each share of
Surgical Products Stock will be, as it currently is, entitled to 0.61 vote per
share. As a result of the tracking stock exchange, each share of Surgical
Products Stock will convert into 0.6060 share of Biosurgery Stock entitled to
0.50 vote per share. Consequently, combining the effect of the exchange ratio
and the decreased vote per share, holders of Surgical Products Stock will
experience a 50% reduction in their per share voting power. Note, however, that
the above figures assume that the tracking stock exchange is effective before
the end of the year. If the exchange becomes effective in 2001, then the
Biosurgery Stock will be entitled to 0.5 vote per share, but the vote per share
of Surgical Products Stock will have automatically adjusted under Genzyme's
charter, as explained under "DESCRIPTION OF GENZYME CAPITAL STOCK--Voting
Rights." Because the size of the automatic adjustment will depend upon the
relative fair market values of Surgical Products Stock and Genzyme General
Stock, we cannot anticipate whether a subsequent tracking stock exchange would
cause an increase, reduction or any change at all in the per share voting power
of the Surgical Products Stock when it converts into Biosurgery Stock.
Also, because each share of Biosurgery Stock is entitled to 50 liquidation
units as compared to 61 liquidation units per share of Surgical Products Stock,
the combined effect of the exchange ratio and lower per share liquidation unit
will cause a 50% reduction in the total liquidation units of each holder of
Surgical Products Stock.
Lastly, Genzyme Surgical Products and Genzyme Tissue Repair have each
recently generated losses in excess of the net income generated by Biomatrix. In
addition, although we expect Genzyme Biosurgery to break even on an operating
basis in 2001, Genzyme Biosurgery's future reported earnings will be decreased
due to the amortization of goodwill and other intangibles required under the
purchase method of accounting. The combination of these factors results in a pro
forma net loss allocated to a share of Biosurgery Stock significantly in excess
of that allocated to Surgical Products Stock. For details on this financial
data, please see "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION" on page
58.
EFFECTS OF THE TRACKING STOCK EXCHANGE ON HOLDERS OF TISSUE REPAIR STOCK
As a result of the tracking stock exchange, holders of Tissue Repair Stock
will receive shares of Biosurgery Stock in exchange for their shares of Tissue
Repair Stock. The principal difference between the Biosurgery Stock and the
Tissue Repair Stock is that the former will have dividend and other provisions
designed to reflect the performance and value of Genzyme Biosurgery while the
latter has provisions designed to reflect instead the performance and value of
Genzyme Tissue Repair. The provisions that are intended to make the stock
reflect the financial performance of the respective divisions are essentially
identical for each series of stock and are discussed more fully in the
discussion of Genzyme's tracking stock under "DESCRIPTION OF GENZYME CAPITAL
STOCK" beginning on page 162.
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Another difference between these two tracking stocks is the vote per share
to which each is entitled. Prior to the tracking stock exchange, each share of
Tissue Repair Stock will be, as it currently is, entitled to 0.06 vote per
share. As a result of the tracking stock exchange, each share of Tissue Repair
Stock will convert into 0.3352 share of Biosurgery Stock entitled to 0.50 vote
per share. Consequently, combining the effect of the exchange ratio and the
increased vote per share, holders of Tissue Repair Stock will experience a 179%
increase in their per share voting power. Note, however, that the above figures
assume that the tracking stock exchange is effective before the end of the year.
If the exchange becomes effective in 2001, then the Biosurgery Stock will be
entitled to 0.5 vote per share, but the vote per share of Tissue Repair Stock
will have automatically adjusted under Genzyme's charter, as explained under
"DESCRIPTION OF GENZYME CAPITAL STOCK--Voting Rights." Because the size of the
automatic adjustment will depend upon the relative fair market values of Tissue
Products Stock and Genzyme General Stock, we cannot anticipate whether a
subsequent tracking stock exchange would cause an increase, reduction or any
change at all in the per share voting power of the Tissue Repair Stock when it
converts into Biosurgery Stock.
Also, because each share of Biosurgery Stock is entitled to 50 liquidation
units as compared to 58 liquidation units per share of Tissue Repair Stock, the
combined effect of the exchange ratio and lower per share liquidation unit will
cause a 71% reduction in the total liquidation units of each holder of Tissue
Repair Stock.
Lastly, Genzyme Tissue Repair and Genzyme Surgical Products have each
recently generated losses in excess of the net income generated by Biomatrix. In
addition, although we expect Genzyme Biosurgery to break even on an operating
basis in 2001, Genzyme Biosurgery's future reported earnings will be decreased
due to the amortization of goodwill and other intangibles required under the
purchase method of accounting. The combination of these factors results in a pro
forma net loss allocated to a share of Biosurgery Stock significantly in excess
of that allocated to Tissue Repair Stock. For details on this financial data,
please see "UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION" on page 58.
EFFECTS OF THE TRACKING STOCK EXCHANGE ON HOLDERS OF GENZYME GENERAL STOCK
Shares of Genzyme General Stock will not be exchanged in the tracking stock
exchange, nor will the dividend provisions, voting rights, liquidation units or
any other terms of the Genzyme General Stock be altered. The effect of the
tracking stock exchange on holders of Genzyme General Stock will be a change in
their combined voting power and liquidation rights as a class relative to that
of the holders of Genzyme's other tracking stocks. The size of the change will
depend upon the number of shares of each tracking stock outstanding on the
effective date of the share exchange. Currently, holders of Genzyme General
Stock, which is entitled to one vote per share and 100 liquidation units per
share, hold approximately 87.7% of all votes and 74.4% of all liquidation units
held by Genzyme stockholders. After the tracking stock exchange and the merger
with Biomatrix, holders of Genzyme General Stock will instead hold approximately
82.0% of all votes and 80.0% of all liquidation units, assuming no change in the
current number of shares of Genzyme General Stock and Molecular Oncology Stock
outstanding and approximately 35.5 million shares of Biosurgery Stock
outstanding. Genzyme will readjust the number of votes per share for each
tracking stock on January 1, 2001 based on relative fair market values, as
required by its charter; liquidation units per share will remain fixed. For a
description of the voting and liquidation rights of the tracking stocks, see the
discussion under "DESCRIPTION OF GENZYME CAPITAL STOCK--Voting Rights" and
"--Liquidation Rights," beginning on page 168.
EFFECTS OF THE TRACKING STOCK EXCHANGE ON HOLDERS OF MOLECULAR ONCOLOGY STOCK
Shares of Molecular Oncology Stock will not be exchanged in the tracking
stock exchange, nor will the dividend provisions, voting rights, liquidation
units or any other terms of the Molecular Oncology
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Stock be altered. The effect of the tracking stock exchange on holders of
Molecular Oncology Stock will be a change in their combined voting power and
liquidation rights as a class relative to that of the holders of Genzyme's other
tracking stocks. The size of the change will depend upon the number of shares of
each tracking stock outstanding on the effective date of the share exchange.
Currently, holders of Molecular Oncology Stock, which is entitled to 0.08 vote
per share and 25 liquidation units per share, hold approximately 1.2% of all
votes and 3.3% of all liquidation units held by Genzyme stockholders. After the
tracking stock exchange and the merger with Biomatrix, holders of Molecular
Oncology Stock will continue to hold approximately 1.2% of all votes but will
instead hold approximately 3.5% of all liquidation units, assuming no change in
the current number of shares of Genzyme General Stock and Molecular Oncology
Stock outstanding and approximately 35.5 million shares of Biosurgery Stock
outstanding. Genzyme will readjust the number of votes per share for each
tracking stock on January 1, 2001 based on relative fair market values, as
required by its charter; liquidation units per share will remain fixed. For a
description of the voting and liquidation rights of the tracking stocks, see the
discussion under "DESCRIPTION OF GENZYME CAPITAL STOCK--Voting Rights" and
"--Liquidation Rights," beginning on page 168.
MECHANICS OF THE TRACKING STOCK EXCHANGES
After completion of the tracking stock exchanges and the merger, Genzyme
will mail transmittal forms to record holders of Surgical Products Stock and
Tissue Repair Stock for use in exchanging their stock certificates for
certificates of Biosurgery Stock and any cash for fractional shares. Along with
the transmittal forms, Genzyme will send instructions specifying details of the
exchange.
DO NOT SEND IN YOUR SURGICAL PRODUCTS STOCK OR TISSUE REPAIR STOCK
CERTIFICATES UNTIL YOU RECEIVE A TRANSMITTAL FORM.
After the effective time of the merger and the charter amendment related to
the tracking stock exchanges, each certificate evidencing shares of Surgical
Products Stock and Tissue Repair Stock will be deemed, until surrendered and
actuallly exchanged, to represent the right to receive the number of shares of
Biosurgery Stock into which the shares of Surgical Products Stock and Tissue
Repair Stock evidenced by the certificate have been converted.
Genzyme will honor a request from a person surrendering a Surgical Products
Stock certificate or a Tissue Repair Stock certificate that the Biosurgery Stock
being given in exchange be issued to a person other than the stock certificate's
registered holder named in the transfer 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
Biosurgery Stock to a person other than the registered holder of the
certificate, unless the requesting person satisfactorily establishes to
Genzyme that any tax has been paid or is inapplicable.
NO FRACTIONAL SHARES
Genzyme will not issue fractional shares in the tracking stock exchanges.
Instead, it will pay cash to each holder of Surgical Products Stock or Tissue
Repair Stock who otherwise would be entitled to receive a fractional share of
Biosurgery Stock. The cash amount will equal the fractional share number
multiplied by the per share value of the Biosurgery Stock as determined in good
faith by Genzyme.
ACCOUNTING TREATMENT
The combination of Genzyme Surgical Products and Genzyme Tissue Repair as
part of Genzyme Biosurgery will not require that any adjustments be made to the
book values of the net assets of the divisions because they will remain
divisions of the same company.
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MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE TRACKING STOCK
EXCHANGES
The federal income tax consequences of the tracking stock exchanges are
described under the heading "MATERIAL UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER AND THE GENZYME TRACKING STOCK EXCHANGES--Tax
Consequences of the Tracking Stock Exchanges to Genzyme Stockholders" beginning
on page 144.
APPRAISAL RIGHTS OF HOLDERS OF SURGICAL PRODUCTS STOCK AND TISSUE REPAIR STOCK
Holders of Surgical Products Stock and Tissue Repair Stock who object to the
tracking stock exchange proposals will have dissenters' appraisal rights. This
is so because the number of liquidation units to which each holder of Tissue
Repair Stock and the voting power and number of liquidation units to which each
holder of Surgical Products Stock will be entitled after the exchange of those
tracking stocks into Biosurgery Stock, will be reduced. See the discussion under
"THE GENZYME TRACKING STOCK EXCHANGE PROPOSALS--Effects of the Tracking Stock
Exchanges on Holders of Surgical Products Stock" and "--Effects of the Tracking
Stock Exchanges on Holders of Tissue Repair Stocks" beginning on page 151.
Those reductions in liquidation preferences and voting rights give rise
under Massachusetts law to stockholder rights of appraisal. If a Genzyme
stockholder chooses to exercise its rights of appraisal, the holder should refer
to Chapter 156B of the General Laws of Massachusetts, sections 86 to 98,
inclusive, which set forth your and Genzyme's rights and duties and the
procedures governing the appraisal of your shares. A copy of those sections of
the statute is attached to this proxy statement as Annex H.
HOW TO DEMAND PAYMENT FOR AND APPRAISAL OF SURGICAL PRODUCTS STOCK AND TISSUE
REPAIR STOCK
If the Genzyme stockholders approve the proposed charter amendment and the
Biomatrix stockholders approve the merger, Genzyme intends to file the amended
charter with the Secretary of the Commonwealth of Massachusetts as soon as
practicable after the special meeting. Once the Secretary declares the amendment
effective, holders of Surgical Products Stock and Tissue Repair Stock who
objected to the amendment will be entitled to appraisal rights under
Massachusetts law. If you hold Surgical Products Stock or Tissue Repair Stock
and wish to exercise your dissenter's rights, you must strictly adhere to the
procedures set forth in the Massachusetts statute. The following is a summary of
those procedures:
- You must file a written objection to the charter amendment with Genzyme
Corporation, One Kendall Square, Cambridge, Massachusetts 02139,
Attention: Clerk, prior to the special meeting, stating your intention to
demand payment for your shares of Surgical Products Stock or Tissue Repair
Stock if the amendment is approved and made effective. If you file your
objection with Genzyme prior to the special meeting, you do not need to
vote against the amendment. A vote by proxy or in person against the
amendment alone does not constitute a demand for payment and appraisal.
- You must not vote in favor of the amendment, otherwise you will have
waived your rights of appraisal.
- Genzyme will notify you within ten (10) days of the amendment becoming
effective. You must send the company a written demand for payment for your
shares of Surgical Products Stock or Tissue Repair Stock within twenty
(20) days after receiving our notice.
If you have followed the procedures summarized above and the amendment
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 Genzyme stockholders approved adoption of the amendment and will exclude
any value arising from the expectation or effectiveness of the amendment. If
Genzyme and you have not agreed as to the fair value of your stock within fifty
(50) days after you
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receive Genzyme's notice that the amendment became effective, both you and
Genzyme will have the right to have the court determine the fair value by filing
a bill in equity in the Superior Court Department of Middlesex County,
Massachusetts no later than four (4) months after the expiration of the
negotiation period. The determination of fair value of, plus any accrued
interest on, the shares as made by the court will be binding on and enforceable
by you and the other stockholders who have properly exercised their appraisal
rights.
Stockholders considering seeking appraisal of their shares of Surgical
Products Stock or Tissue Repair Stock should note that the fair value of their
shares determined under the Massachusetts statute could be more, the same or
less than the market price of that stock after effectiveness of the amendment.
The costs of the appraisal proceeding may be determined by the court and
allocated among the parties as the court deems equitable in the circumstances.
Your appraisal rights are your only remedy if you object to adoption of the
amendment, unless adoption of the amendment is determined to have been illegal,
fraudulent or in breach of Genzyme's board of directors' fiduciary duties.
EFFECT OF THE TRACKING STOCK EXCHANGES ON THE GENZYME BENEFIT PLANS
Currently, Genzyme can grant options, purchase rights and other equity-based
awards for Surgical Products Stock and Tissue Repair Stock, in addition to
Genzyme General Stock and Molecular Oncology Stock, under its five benefit
plans, the 1990 Equity Incentive Plan, the 1997 Equity Incentive Plan, the 1998
Director Stock Option Plan, the 1999 Employee Stock Purchase Plan and the 1996
Directors' Deferred Compensation Plan. Under the terms of these plans, if a
tracking stock exchange occurs, Genzyme's board can authorize appropriate
adjustments to the common stock reserved under the plans and underlying
outstanding awards and to the exercise prices of those awards. Accordingly, on
March 2, 2000, the board approved an amendment and restatement of these plans to
provide for, upon completion of the tracking stock exchanges and the merger:
- the issuance of Biosurgery Stock under the plans and elimination of
references to the Surgical Products Stock and Tissue Repair Stock;
- an adjustment based on the tracking stock exchange's exchange ratios to
the shares of Surgical Products Stock and Tissue Repair Stock reserved
under the plans and underlying outstanding awards such that those shares
become shares of Biosurgery Stock; and
- an accompanying adjustment to any exercise or purchase price of those
awards.
As a result, if and when the tracking stock exchanges and the merger are
completed, the number of shares of Biosurgery Stock that will be available for
issuance under each plan, based on the shares available under the plans as of
September 30, 2000, will be as follows:
<TABLE>
<CAPTION>
PRE-TRACKING STOCK EXCHANGE
----------------------------------- POST-TRACKING STOCK EXCHANGE
SHARES OF SHARES OF ----------------------------
SURGICAL PRODUCTS TISSUE REPAIR SHARES OF BIOSURGERY
STOCK AVAILABLE STOCK AVAILABLE STOCK AVAILABLE
BENEFIT PLAN UNDER THE PLAN UNDER THE PLAN UNDER THE PLAN
------------ ----------------- --------------- ----------------------------
<S> <C> <C> <C>
1990 Equity Incentive Plan............... 183,350 570,413 302,312
1997 Equity Incentive Plan............... 435,050 1,407,374 735,392
Director Stock Option Plan............... 44,000 63,376 47,908
Purchase Plan............................ 393,778 171,578 296,142
Directors' Deferred Compensation Plan.... 49,544 87,061 59,207
</TABLE>
--------------------------
Note: "Available" shares refer to the number of authorized and unissued shares
not subject to any outstanding awards as of September 30, 2000.
Also upon completion of the tracking stock exchanges and the merger, all
outstanding options, rights and other equity-based awards relating to Surgical
Products Stock and Tissue Repair Stock under the plans shall be appropriately
adjusted to become awards relating to Biosurgery Stock.
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MANAGEMENT AFTER THE TRACKING STOCK EXCHANGES AND THE MERGER
BOARD OF DIRECTORS
Genzyme's board of directors will not change as a result of the tracking
stock exchanges and 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
indicated in the proxy statement for the 2000 annual meeting, Henry Lewis
retired from Genzyme's board. In October 2000, the board appointed Victor J.
Dzau, M.D., to fill that vacancy until the 2003 annual stockholders meeting.
Dr. Dzau, age 54, is the Hersey Professor of the Theory and Practice of Physics
at the Harvard Medical School, Chairman of the Department of Medicine, Physician
in Chief and Director of Research at the Brigham and Women's Hospital. Prior to
this, Dr. Dzau was the Arthur L. Bloomfield Professor and Chairman of the
Department of Medicine at Stanford University. 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
Earl M. Collier, Jr., president of Genzyme Surgical Products, will become
president of Genzyme Biosurgery. Other key staff positions within the surviving
corporation have not yet been finally determined. From time to time before the
tracking stock exchanges and the merger, decisions may be made with respect to
the management and operations of Genzyme Biosurgery after the tracking stock
exchanges and the merger, including its officers and managers.
Information about Genzyme directors and executive officers, including
biographical information, executive compensation and relationships and related
transactions between management and the companies, can be found in the most
recent of their respective annual meeting proxy statements and annual reports on
Form 10-K for the fiscal year ended December 31, 1999, which are incorporated by
reference into this joint proxy statement/prospectus. See "WHERE YOU CAN FIND
MORE INFORMATION" beginning on page 197.
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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 -- --
153 East 53rd Street
New York, NY 10043
High Rock Capital LLC (2)............ -- -- -- -- 1,109,800 7.4 -- --
28 State Street, 18th Floor
Boston, MA 02109
Iridian Asset Management, LLC (3).... 4,852,400 5.6 35,500 * -- -- -- --
276 Post Road West
Westport, CT 06880
State of Wisconsin Investment Board
(4).................................. 5,600 * -- -- -- -- 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 certain 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
listed, 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 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.;
- Iridian Private Business Value Equity Fund, L.P.; and
157
<PAGE>
- 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 Indian 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. No single client owns more than
5% of the shares listed. Wellington 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.
158
<PAGE>
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 30% owned subsidiary of Genzyme,
whose stock is referred to by its ticker symbol, GZTC. 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 *
Victor 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
REPAIR GZTC
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 * -- --
Victor 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:
<TABLE>
<CAPTION>
GENZYME MOLECULAR SURGICAL TISSUE
GENERAL ONCOLOGY PRODUCTS REPAIR GZTC
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 --
Victor 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>
------------------------
(1) 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 as 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.
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<PAGE>
(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.
(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 BIOMATRIX CAPITAL STOCK
The following table sets forth, as of September 30, 2000, the ownership of
Biomatrix' common stock held by: (1) each person known by Biomatrix to be the
beneficial owner of more than five percent of its outstanding common stock;
(2) each director, each nominee for election as a director and each named
executive officer of Biomatrix; and (3) all of Biomatrix' executive officers and
directors as a group. As of such date, Biomatrix had 23,603,365 shares of common
stock outstanding. The number of shares and the percentage beneficially owned by
the persons named in the table and by all executive officers and directors as a
group are presented in accordance with Rule 13d-3 of the Securities
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<PAGE>
Exchange Act and include, in addition to shares issued and outstanding, unissued
shares which are issuable upon exercise of options within 60 days of
September 30, 2000.
<TABLE>
<CAPTION>
NUMBER OF SHARES
BENEFICIALLY
OWNED(1) %
---------------- --------
(* INDICATES LESS THAN 1%)
--------------------------
<S> <C> <C>
Endre A. Balazs, M.D........................................ 4,395,836(2) 18.6
Janet L. Denlinger, Ph.D.................................... 2,355,670(3) 10.0
Rory B. Riggs............................................... 1,746,000(4) 7.4
H. Stuart Campbell.......................................... 201,828(5) *
Justin P. Morreale.......................................... 110,000(6) *
Maxine Seifert.............................................. 133,000(7) *
Donald Woodhouse............................................ 76,650(8) *
Julius A. Vida, Ph.D........................................ 101,000(9) *
Kurt Mark................................................... 50,667(10) *
All executive officers and directors as a group (12
persons).................................................. 9,361,706(11) 39.7
</TABLE>
(1) Unless otherwise indicated in these footnotes, each shareholder has sole
voting and investment power with respect to the shares beneficially owned.
(2) Excludes 2,325,670 shares of common stock and 30,000 shares of common stock
subject to exercisable options held by Dr. Denlinger, as to which shares
Dr. Balazs disclaims beneficial ownership. Includes 500,000 shares of common
stock held by a charitable institute of which Dr. Balazs serves as a
trustee. Dr. Balazs has no voting or investment control of such shares and
disclaims beneficial ownership thereof. The address of such person is 65
Railroad Avenue, Ridgefield, NJ 07657.
(3) Excludes 4,395,836 shares held by Dr. Balazs, as to which shares
Dr. Denlinger disclaims beneficial ownership. Includes 30,000 shares of
common stock subject to issuance upon exercise of options within 60 days of
September 30, 2000. The address of such person is 65 Railroad Avenue,
Ridgefield, NJ 07657.
(4) The address of such person is 65 Railroad Avenue, Ridgefield, NJ 07657.
(5) Includes 54,000 shares of common stock subject to issuance upon exercise of
options within 60 days of September 30, 2000. Excludes 19,672 shares of
Common Stock owned by Mr. Campbell's wife, as to which shares Mr. Campbell
disclaims beneficial ownership.
(6) Excludes 2,000 shares of common stock owned by Mr. Morreale's wife, as to
which shares Mr. Morreale disclaims beneficial ownership.
(7) Includes 63,000 shares of common stock subject to issuance upon exercise of
options within 60 days of September 30, 2000.
(8) Includes 25,500 shares of common stock subject to issuance upon exercise of
options within 60 days of September 30, 2000. Excludes 600 shares of common
stock owned by Mr. Woodhouse's daughter as to which shares Mr. Woodhouse
disclaims beneficial ownership.
(9) Represents shares of common stock subject to issuance upon exercise of
options within 60 days of September 30, 2000. Excludes 1,682 shares of
common stock owned by Dr. Vida's wife and children as to which shares
Dr. Vida disclaims beneficial ownership.
(10) Represents shares of common stock subject to issuance upon exercise of
options within 60 days of September 30, 2000.
(11) Includes 442,873 shares of common stock subject to issuance upon exercise
of options within 60 days of September 30, 2000.
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<PAGE>
DESCRIPTION OF GENZYME CAPITAL STOCK
OVERVIEW OF GENZYME'S "TRACKING STOCK" CAPITAL STRUCTURE
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 it refers to as "tracking stock." Tracking stock
is common stock of Genzyme that, unlike typical common stock, is designed to
track the financial performance of a specific subset of the company's business
operations and related allocated assets, rather than operations and assets of
the entire company. For instance, operations and assets dedicated to Genzyme's
cancer treatment business are referred to as the Genzyme Molecular Oncology
division. That division is not a company or legal entity; consequently, the
division does not and could not issue stock. Therefore, Molecular Oncology Stock
is not stock of Genzyme Molecular Oncology division, but rather a series of
Genzyme Corporation's common stock containing special provisions intended to tie
the value of that stock primarily to the operations and assets of Genzyme
Corporation that it attributes to its Genzyme Molecular Oncology division.
The chief mechanism intended to cause a Genzyme tracking stock, including
the proposed Biosurgery Stock, to "track" the financial performance of its
corresponding division are special provisions in Genzyme's charter governing
dividends and distributions. The provisions governing dividends provide that
Genzyme's board has discretion to decide if and when to declare dividends
subject to certain 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 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. 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 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 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.
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.
Genzyme publicly discloses these divisional
162
<PAGE>
management and accounting policies; the policies appear in Annex E of this joint
proxy statement/ prospectus. With some exceptions contained in the policies,
Genzyme's board retains the discretion to revise the policies at any time,
subject to its fiduciary duties to stockholders.
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 as discussed below under the heading
"Liquidation Rights." See "RISK FACTORS--RISKS RELATED TO GENZYME TRACKING
STOCKS--HOLDERS OF GENZYME'S TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY
AND UNFAVORABLE FINANCIAL TRENDS AFFECTING ANOTHER DIVISION COULD NEGATIVELY
AFFECT GENZYME BIOSURGERY" beginning on page 52.
AUTHORIZED CAPITAL STOCK
UNDER THE CURRENT CHARTER. 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.
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 upon the occurrence of events described below
under the heading "Anti-Takeover Measures."
AFTER THE TRACKING STOCK EXCHANGES AND MERGER. If the tracking stock
exchanges and the merger are approved, upon their completion, all outstanding
shares, 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
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<PAGE>
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.
Also in connection with the tracking stock exchanges, two series of our
preferred stock, namely 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 our stockholder rights plan, and are associated with the Surgical Products
Stock and Tissue Repair Stock, as described more fully below under the heading
"Anti-Takeover Measures". 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.
Throughout this description of Genzyme's capital stock, unless otherwise
stated, the "fair market value" of any series of Genzyme common stock means its
average per share closing price for the 20 consecutive trading days beginning on
the 30th trading day before the shares are valued.
DIVIDENDS
Genzyme has never paid cash dividends on its stock. Currently, Genzyme
intends to retain its earnings to finance future growth. Therefore, it does not
expect to pay any cash dividends on its common stock in the near future.
Genzyme can declare and pay dividends on a series of its common stock only
in amounts permitted by its charter, and only if it has funds legally available
for that purpose. Under state law, Genzyme can pay a dividend if it is solvent,
would remain solvent after paying the dividend, and the payment would not
violate its charter. Subject to these limitations, Genzyme's board may, in its
sole discretion, declare and pay dividends exclusively on any series of its
common stock in equal or unequal amounts.
Genzyme's charter sets the amount available for dividends payable on a
tracking stock. The amount available is the excess of either:
- the fair value of the net assets allocated to the tracking stock's
corresponding division; or, if greater,
- the equity amount initially allocated to that division as adjusted to
reflect:
-- the net income or loss attributable to the division as adjusted for the
allocation of tax benefits in accordance with our management and
accounting policies;
-- any dividends or other distributions, including by reclassification or
exchange, declared or paid on shares of capital stock attributable to
the division, excluding those paid with a stock attributable to a
division to holders of that stock;
-- repurchases or issuances of capital stock attributed to the division;
and
-- any other adjustments made to stockholders' equity of the division
consistent with GAAP;
over the sum of:
- the total par value of all outstanding shares of capital stock attributed
to the division; and
- unless Genzyme's charter permits otherwise, the total amount of
preferential payments that would be due to holders of preferred stock
attributed to the division, if any, upon Genzyme's
164
<PAGE>
dissolution less that preferred stock's aggregate par value and any amount
needed by the division to pay debts allocated to the divison as they
become due.
If the above-described available dividend amount is less than would
otherwise be available under Massachusetts law, assuming that the division were
a separate corporation, then the greater amount permitted by law shall be the
available dividend amount.
EXCHANGE OF BIOSURGERY STOCK, MOLECULAR ONCOLOGY STOCK, SURGICAL PRODUCTS STOCK
AND TISSUE REPAIR STOCK
Genzyme may exchange any series of its tracking stock, other than Genzyme
General Stock, for cash, securities, other property and/or Genzyme General Stock
upon the terms described below.
OPTIONAL EXCHANGE
Under Genzyme's charter, the board may, at any time, exchange all
outstanding shares of Molecular Oncology Stock, Surgical Products Stock, Tissue
Repair Stock and, upon its creation, Biosurgery Stock, for any combination of
cash and/or Genzyme General Stock having a fair market value equal to 130% of
the fair market value of the series to be exchanged. Fair market value will be
determined as of the day Genzyme first publicly announces the exchange.
Genzyme could exercise the optional exchange at any future time if its board
determines that, considering current facts and circumstances, an equity
structure consisting of several series of common stock is no longer in the best
interests of all of its stockholders. Genzyme could make an exchange, however,
at a time that is disadvantageous to the holders of a particular series of its
common stock. The board's right to exchange at any time all outstanding shares
of Molecular Oncology Stock, Surgical Products Stock, Tissue Repair Stock or
Biosurgery Stock for any combination of cash and/or Genzyme General Stock with a
fair market value 30% greater than the fair market value of the stock being
exchanged does not prevent the board from offering to exchange the shares on
other terms. Although the holders of the shares to be exchanged would have to
approve any alternative offer, Genzyme could make the offer on terms less
favorable than those of this optional exchange provision.
If at any time Genzyme receives an opinion of tax counsel that an "adverse
tax event" has occurred due to a "tax law change," Genzyme may exchange the
Molecular Oncology, Surgical Products, Tissue Repair or Biosurgery Stock for
Genzyme General Stock, and not for cash, at its fair market value. This means
that the holders of the exchanged stock would not receive any premium in the
exchange.
The phrase "adverse tax event," with respect to any series of Genzyme's
common stock, means an event making it more likely than not, for U.S. federal
income tax purposes, that:
- Genzyme or its stockholders are, or will be in the future, taxed upon
issuance of shares of that series; or
- shares of that series or of Genzyme General Stock are not, or will not be
in the future, treated solely as Genzyme's common stock.
The phrase "tax law change" means either:
- any enactment of or change in federal, state or other tax laws or
regulations, including any proposed changes announced by a legislative
committee or administrative agency; or
- any official or administrative pronouncement, action or judicial decision
interpreting or applying the tax laws or regulations.
For purposes of tax counsel's opinion, it may be assumed that any
legislative or administrative proposals will be adopted or enacted as proposed.
165
<PAGE>
A third optional exchange provision provides that at any time at which all
of the assets allocated to a division (excluding Genzyme General) --and only
that division's assets-- are held by a wholly-owned subsidiary (or subsidiaries)
of Genzyme, the board can redeem all outstanding shares of the division's
corresponding tracking stock in exchange for the subsidiary's stock. This type
of transaction is commonly referred to as a "spin off" of a line of business to
existing shareholders. The end result, in the case of Biosurgery Stock, for
example, would be that Genzyme Biosurgery would exist as a separate corporate
entity, owned by stockholders who had formerly held Biosurgery Stock. If at the
time of the spin off, any shares of tracking stock corresponding to the spun off
division were designated for the benefit of Genzyme General, then an appropriate
number of shares of the spun off corporation would be issued to Genzyme and
allocated to Genzyme General.
MANDATORY EXCHANGE
Under Genzyme's charter, following the sale of all or substantially all of
the assets of Genzyme Molecular Oncology, Genzyme Surgical Product, Genzyme
Tissue Repair or, upon its creation, Genzyme Biosurgery, as the case may be,
Genzyme's board would be required to authorize, chosen at its sole discretion,
one of the following mandatory payments to holders of the tracking stock
corresponding to the sold division:
- PAYMENT METHOD 1. A pro rata dividend payment of cash, securities (other
than Genzyme common stock) or other property to those tracking
stockholders in an amount equal to the after-tax net proceeds of the sale.
- PAYMENT METHOD 2. A redemption of all or a portion of the outstanding
stock corresponding to that division. If all of the assets allocated to
the division were sold, Genzyme would redeem all outstanding stock
corresponding to that division for cash, securities (other than Genzyme
common stock) or other property in an amount equal to the sale's net
proceeds. If substantially all (but not all) of the assets allocated to
that division were sold, Genzyme would redeem a pro rata portion of the
stock corresponding to that division in an amount equal to the sale's net
proceeds.
- PAYMENT METHOD 3. An exchange of each share of stock corresponding to
that division for shares of Genzyme General Stock equal to 110% of the
average closing price of the exchanged stock. The average closing price of
each stock would be calculated during the 10-day trading period beginning
on the fifth trading day AFTER Genzyme's announcement of the sale's
estimated net proceeds.
The board's decision may be made at any time prior to 20 business days after
the date on which Genzyme announces the estimated net proceeds received from the
sale. The redemption or dividend payment under methods 1 and 2 described above
could be in the form of cash, securities or other property, but not Genzyme
common stock, and need not be in the same form as the cash, securities and/or
other property paid by the third party purchasing the assets. An exchange under
method 3, on the other hand, could be completed only with Genzyme General Stock.
To determine the amount of cash, securities or other property distributable
to stockholders after the sale of the associated division's assets, two
calculations would be made. First, the net proceeds of the sale would be
computed. Net proceeds would equal the gross proceeds of the sale, less taxes,
transactional costs, liabilities allocated to another Genzyme division because
of the sale, and amounts payable to any holders of preferred stock that
corresponds to the division. Second, the amount of net proceeds allocable for
distribution to the division's corresponding tracking stockholders would be
calculated. This amount is the product of the net proceeds multiplied by a
fraction. The fraction equals the outstanding shares of the division's
corresponding tracking stock divided by the sum of those outstanding shares plus
the shares corresponding to the division then designated for the benefit of
Genzyme General. (For an explanation of designated shares, see "Molecular
Oncology Designated
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Shares, Surgical Products Designated Shares, Tissue Repair Designated Shares and
Biosurgery Designated Shares" below.)
In establishing the value of the cash, property and/or securities that
comprise the gross proceeds of a sale:
- cash will be valued at face value;
- securities will be valued at the average of their intra-day high and low
trading prices (or if there is no market for the security, at their fair
value determined by Genzyme's board) on the date of the sale; and
- property, other than cash and securities, will be valued at its fair value
on the date of the sale, as determined by Genzyme's board.
Similarly, the value of cash, property and/or securities (other than Genzyme
General Stock distributed under Payment Method 3) distributed to stockholders
will be established in the same manner and as of the date of the sale. Interest
earned up until the record date on any cash net proceeds distributed to
stockholders will be included in that distribution payment.
Genzyme's board must announce the estimated net proceeds of the sale no
later than 20 business days after the sale is completed. Within 20 business days
following that announcement, the board must choose and announce which of the
three payment methods it will use. Within 60 business days after the
announcement of the payment method selected, Genzyme must complete the
distribution to the stockholders.
Under the terms of the Molecular Oncology Stock, Surgical Products Stock,
Tissue Repair Stock and Biosurgery Stock, there are four types of asset sales
that will not trigger a mandatory payment to stockholders:
- a sale of assets to an entity controlled, as determined by the board, by
Genzyme;
- a sale of assets primarily for equity in a buyer that Genzyme's board
determines is engaged primarily in a business similar or complementary to
that of the division;
- a distribution to a division's corresponding tracking stockholders of
Genzyme's equity interest (which is allocated entirely to that division)
in one or more Genzyme subsidiaries that hold all of the assets allocated
to that division (and only those assets)--namely, a "spin off" of
Genzyme's ownership of the division to that division's corresponding
stockholders; and
- a sale of a assets allocated to a division conditioned on the affirmative
vote of that division's corresponding stockholders voting together as a
single class.
TERMINATION OF CASH EXCHANGE FEATURE
Under Genzyme's charter, if Genzyme receives an opinion of tax counsel at
any time that, because of a tax law change, its right to exchange Molecular
Oncology, Surgical Products, Tissue Repair or, upon its creation, Biosurgery
Stock for cash would cause an adverse tax event, then Genzyme's board may by
majority vote elect to terminate its right to exchange that tracking stock for
cash. If Genzyme's board elects to terminate this right, then we will only have
the right to exchange that tracking stock for Genzyme General Stock, and not for
cash. In the case of the mandatory exchange feature, elimination of the cash
exchange right will result in the mandatory exchange provision requiring Genzyme
to exchange the tracking stock corresponding to a division whose associated
assets are being sold into shares of Genzyme General Stock based on both stocks'
fair market value as of the date of the sale's announcement and at no premium.
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VOTING RIGHTS
UNDER THE CURRENT CHARTER. Stockholders of all series of Genzyme's common
stock vote together as one class on all matters on which common stockholders
generally are entitled to vote, including the election of directors. The
following chart shows the number of votes per share to which each series of
common stock is entitled on such matters, as well as each series' relative
voting power based on the number of shares outstanding on November 2, 2000:
<TABLE>
<CAPTION>
NUMBER OF VOTES PER SHARE APPROXIMATE PERCENTAGE
SERIES SHARES OUTSTANDING (UNTIL DECEMBER 31, 2000) OF TOTAL VOTING POWER
------ ------------------ ------------------------- ----------------------
<S> <C> <C> <C>
Genzyme General Stock............. 87,047,843 1.00 87.8%
Molecular Oncology Stock.......... 15,866,633 0.08 1.3
Surgical Products Stock........... 14,998,985 0.61 9.2
Tissue Repair Stock............... 28,870,843 0.06 1.7
</TABLE>
You can calculate the percentage of a series' total voting power at any time, by
dividing that series' number of votes by the total number of votes held by all
series.
On January 1, 2001 and on January 1st every two years afterward, Genzyme's
charter requires it to adjust the number of votes per share to which Molecular
Oncology Stock, Surgical Products Stock and Tissue Repair Stock are entitled as
follows:
<TABLE>
<S> <C> <C>
fair market value of a share of Molecular Oncology Stock
Number of votes per = --------------------------------------------------
share of Molecular Oncology Stock fair market value of a share of Genzyme General Stock
fair market value of a share of Surgical Products Stock
Number of votes per = --------------------------------------------------
share of Surgical Products Stock fair market value of a share of Genzyme General Stock
fair market value of a share of Tissue Repair Stock
Number of votes per = --------------------------------------------------
share of Tissue Repair Stock fair market value of a share of Genzyme General Stock
</TABLE>
If no shares of Genzyme General Stock are outstanding on that date, then of the
series that are outstanding, the one with the highest fair market value per
share becomes the "base" series. That series becomes the denominator in the
formula above and has one vote per share. Each other series then has the number
of votes per share determined under the above formulas, after replacing Genzyme
General Stock in the denominator with the new base series.
Genzyme's charter provides for adjustment of the voting rights of the
Molecular Oncology Stock, Surgical Products Stock and Tissue Repair Stock to
avoid dilution of any series' voting rights in the event the outstanding shares
of any series are subdivided or combined by stock split, reverse stock split,
reclassification or otherwise, or a stock dividend or distribution is issued to
stockholders of that series. If shares of only one series are outstanding, or if
shares of any series are entitled to vote separately as a class, each share of
that series will have one vote.
The purpose of the periodic adjustments to the relative voting rights of
each series is to ensure that a holder's voting rights more closely reflect the
market value of the holder's investment in Genzyme. These adjustments to voting
rights may influence the investment activities of an investor interested in
acquiring and maintaining a fixed percentage of Genzyme's voting power. The
adjustments will limit the ability of an investor in one series to obtain for
the same consideration more or less voting power per share than investors in
another series. If the relative market values of each series of common stock
change before the first adjustment or in between any adjustments an investor in
one series may acquire relatively more or less voting power for the same
consideration when compared with investors in another series.
While generally all Genzyme common stockholders vote together as a single
class, Genzyme's charter requires that holders of a series affected by any of
the following proposals approve the proposal
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at a meeting at which both a quorum is present and the votes in favor of the
proposal exceed those against it:
- to allow any proceeds from a disposition of the properties or assets
allocated to a division to be used in the business of another division
without fair compensation;
- to allow any properties or assets allocated to a division to be used in
the business of another division or to declare or pay any dividend or
distribution on any series of common stock not attributed to that division
without fair compensation;
- to issue shares of any series of common stock without allocating the
proceeds of the issuance to the division represented by that series
except, however, for "designated" shares;
- to change the rights or preferences of any series in a manner that affects
the series adversely; or
- to effect any merger or business combination in which (a) stockholders of
all series together will no longer own, directly or indirectly, at least
fifty percent (50%) of the voting power of the surviving corporation, and
(b) stockholders of all series will not receive the same form of
consideration, distributed among stockholders in proportion to the market
capitalization of each series of Genzyme's common stock as of the date of
the first public announcement of the merger or business combination.
If, however, Genzyme receives an opinion of tax counsel at any time that,
because of a tax law change, the special voting rights described above would
cause an adverse tax event, then Genzyme may, by vote of a majority of all of
its common stock outstanding voting as one class--without need of an additional,
separate series vote--eliminate the special voting rights of the Molecular
Oncology, Surgical Products and/or Tissue Repair Stock.
Under Massachusetts law, any amendment to Genzyme's charter that would
adversely alter or change the powers, preferences or special rights of any
series of common stock must be approved by a majority of the outstanding shares
of each affected series, voting together as a single class.
The following types of charter amendments are considered to adversely affect
a series of stock under Massachusetts law:
- alteration or abolishment any of any preferential right of stock having
preferences;
- creation, alteration or abolishment of any redemption right of the stock;
- alteration or abolishment of any preemptive right of the stock;
- creation or alteration (other than abolishment) of any restriction on
transfer of the stock; and
- exclusion or limitation of the stockholder's right to vote on a matter
except a limitation by virtue of voting rights given to new shares being
authorized of a new or existing class of stock.
Massachusetts law does not currently provide for any other separate voting
rights for a series of common stock. Consequently, because most matters brought
to a stockholder vote will require only the approval of a majority of all of
Genzyme's outstanding capital stock entitled to vote and because the holders of
Genzyme General Stock currently have more than the number of votes required to
approve a matter, those stockholders currently are in a position to control the
outcome of most votes.
AFTER THE TRACKING STOCK EXCHANGES AND MERGER. Upon completing the tracking
stock exchanges and the merger, the voting-related terms and rights of the
Genzyme General Stock and Molecular Oncology Stock will remain unchanged. The
newly-created Biosurgery Stock will have .50 vote per share, which will adjust
on the periodic schedule and in the same manner as the Molecular Oncology Stock,
as described above. The Biosurgery Stock will also have the same special voting
rights as the Molecular Oncology Stock, as well as the provision described above
permitting stockholder elimination of those special voting rights to avoid an
adverse tax consequence.
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LIQUIDATION RIGHTS
If Genzyme voluntarily or involuntarily dissolves, liquidates or winds up
its affairs, common stockholders will be entitled to receive any net assets
remaining for distribution after Genzyme has satisfied or made provision for its
debts and obligations and for payment to any stockholders with preferential
rights to receive distributions of its net assets. Genzyme will distribute any
remaining assets to common stockholders on a per share basis in proportion to
each series' respective per share liquidation units. Common stockholders will
have no direct claim against any particular assets of Genzyme or its
subsidiaries. Each series has the following number of liquidation units per
share:
<TABLE>
<CAPTION>
PRE-TRACKING STOCK EXCHANGE POST-TRACKING STOCK EXCHANGE
NUMBER OF NUMBER OF
SERIES LIQUIDATION UNITS LIQUIDATION UNITS
------ --------------------------- ----------------------------
<S> <C> <C>
Genzyme General Stock......... 100 100
Molecular Oncology Stock...... 25 25
Surgical Products Stock....... 61 N/A
Tissue Repair Stock........... 58 N/A
Biosurgery Stock (when
created).................... N/A 50
</TABLE>
Genzyme will adjust the liquidation units of the Biosurgery Stock, Molecular
Oncology Stock, Surgical Products Stock and Tissue Repair Stock only to avoid
dilution in the aggregate liquidation rights of any series in the event the
outstanding shares of any series are subdivided or combined by stock split,
reverse stock split, reclassification or otherwise, or a dividend or
distribution is given to stockholders of that series. A merger or business
combination or a sale of all or substantially all of its assets will not be
treated as a liquidation.
Genzyme may not, however, without approval from each series voting as a
separate class, effect a merger or business combination involving Genzyme that
results in:
- stockholders of all series no longer owning, directly or indirectly, at
least 50% of the voting power of the surviving corporation; and
- stockholders of each series not receiving the same form of consideration
distributed among stockholders in proportion to the market capitalization
of each series of common stock as of the date of the first public
announcement of the merger or business combination.
MOLECULAR ONCOLOGY DESIGNATED SHARES, SURGICAL PRODUCTS DESIGNATED SHARES,
TISSUE REPAIR DESIGNATED SHARES AND BIOSURGERY DESIGNATED SHARES
Designated shares are authorized but unissued shares which Genzyme's board
may from time to time issue, sell or otherwise distribute without allocating the
proceeds or other benefits of the issuance, sale or distribution to the division
tracked by the shares. Until the shares are issued by Genzyme's board,
designated shares are not outstanding shares of stock, and, therefore, may not
receive dividends and cannot be voted by Genzyme.
MOLECULAR ONCOLOGY DESIGNATED SHARES
On September 30, 2000, there were 2,000,198 Molecular Oncology designated
shares, which, if issued, would represent 11.5% of the outstanding shares of
Molecular Oncology Stock. The number of Molecular Oncology designated shares,
from time to time will be:
- adjusted to reflect subdivisions or combinations by stock split, reverse
stock split or otherwise of the Molecular Oncology Stock and dividends or
distributions of shares of Molecular Oncology Stock to holders of
Molecular Oncology Stock and other reclassifications of Molecular Oncology
Stock;
- decreased by
- the number of any designated shares of Molecular Oncology Stock that
Genzyme issues;
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- the number of any shares of Molecular Oncology Stock issued upon the
exercise or conversion of securities convertible into Molecular
Oncology Stock that are attributed to Genzyme General; and
- the number of any shares of Molecular Oncology Stock that Genzyme
issues as a dividend or distribution or by reclassification, exchange
or otherwise to holders of Genzyme General Stock; and
- increased by
- the number of any outstanding shares of Molecular Oncology Stock that
Genzyme repurchases, the consideration for which was paid by Genzyme
General; and
- the number of shares of Molecular Oncology Stock equal to the fair
value, as determined by Genzyme's board, of assets or properties
allocated to Genzyme General that are reallocated to Genzyme Molecular
Oncology (excluding reallocations that represent sales at fair value
between those divisions) divided by the fair market value of one share
of Molecular Oncology Stock on the date of that reallocation.
SURGICAL PRODUCTS DESIGNATED SHARES
On September 30, 2000, there were 1,164,839 Surgical Products designated
shares, which, if issued, would represent 7.2% of the outstanding shares of
Surgical Products Stock. Up until the completion of the tracking stock
exchanges, the number from time to time may be:
- adjusted to reflect subdivisions or combinations by stock split, reverse
stock split or otherwise of the Surgical Products Stock and dividends or
distributions of shares of Surgical Products Stock to holders of Surgical
Products Stock and other reclassifications of Surgical Products Stock; and
- decreased by
- the number of any designated shares of Surgical Products Stock that
Genzyme issues;
- the number of any shares of Surgical Products Stock issued upon the
exercise or conversion of securities convertible into Surgical Products
Stock that are attributed to Genzyme General; and
- the number of any shares of Surgical Products Stock Genzyme issued as a
dividend or distribution or by reclassification, exchange or otherwise
to holders of Genzyme General Stock; and
- increased by
- the number of any outstanding shares of Surgical Products Stock that
Genzyme repurchases, the consideration for which was paid by Genzyme
General;
- the number of shares of Surgical Products Stock equal to the fair
value, as determined by Genzyme's board, of assets or properties
allocated to Genzyme General that are reallocated to Genzyme Surgical
Products (excluding reallocations that represent sales at fair value
between those divisions) divided by the fair market value of one share
of Surgical Products Stock as of the date of that reallocation; and
- the number of shares of Surgical Products Stock equal to (1) the
aggregate fair market value of any shares of Genzyme General Stock
issued to the limited partners of Genzyme Development Partners in
connection with Genzyme's exercise on behalf of Genzyme Surgical
Products of its purchase option to reacquire all of the limited
partnership interests of that partnership divided by (2) the fair
market value of one share of Surgical Products Stock on the date of the
exercise.
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TISSUE REPAIR DESIGNATED SHARES
On September 30, 2000, there were 3,846,844 Tissue Repair designated shares,
which, if issued, would represent 11.8% of the outstanding shares of Tissue
Repair Stock. Up until the completion of the tracking stock exchanges that
number from time to time will be:
- adjusted as appropriate to reflect subdivisions or combinations by stock
split, reverse stock split or otherwise of the Tissue Repair Stock and
dividends or distributions of shares of Tissue Repair Stock to holders of
Tissue Repair Stock and other reclassifications of Tissue Repair Stock;
and
- decreased by
- the number of any designated shares of Tissue Repair Stock that Genzyme
issues;
- the number of any shares of Tissue Repair Stock issued upon the
exercise or conversion of securities convertible into Tissue Repair
Stock that are attributed to Genzyme General; and
- the number of any shares of Tissue Repair Stock issued as a dividend or
distribution or by reclassification, exchange or otherwise to holders
of Genzyme General Stock; and
- increased by
- the number of any outstanding shares of Tissue Repair Stock that
Genzyme repurchases, the consideration for which was paid by Genzyme
General; and
- the number of shares of Tissue Repair Stock equal to the fair value, as
determined by Genzyme's board, of assets or properties allocated to
Genzyme General that are reallocated to Genzyme Tissue Repair
(excluding reallocations that represent sales at fair value between
those divisions), divided by the fair market value of one share of
Tissue Repair Stock on the date of the reallocation.
Genzyme's charter prohibits it from taking any action that would reduce the
number of designated shares of any series of common stock below zero.
BIOSURGERY DESIGNATED SHARES
When the Biosurgery Stock is created and issued at the completion of the
tracking stock exchanges and the merger, Biosurgery designated shares will also
be created. The initial number of these designated shares will be the aggregate
total of the pre-existing Surgical Products designated shares converted into
Biosurgery designated shares at a ratio of 1-for-0.6060 and of the pre-existing
Tissue Repair designated shares converted at a ratio of 1-for-0.3352. Both
ratios are the same as the ratios being applied to the conversions of the
Surgical Products Stock and Tissue Repair Stock into Biosurgery Stock in the
tracking stock exchange.
Based on the number of Surgical Products designated shares and Tissue Repair
designated shares existing as of September 30, 2000, upon the creation of
Genzyme Biosurgery, there would be 1,995,354 Biosurgery designated shares,
which, if issued, would represent 5.4% of the outstanding shares of Biosurgery
Stock, assuming that there are 34,800,000 shares of Biosurgery Stock outstanding
after the tracking stock exchange and the merger. Following the tracking stock
exchange and the merger, that number, from time to time will be:
- adjusted to reflect subdivisions or combinations by stock split, reverse
stock split or otherwise of the Biosurgery Stock and dividends or
distributions of shares of Biosurgery Stock to holders of Biosurgery Stock
and other reclassifications of Biosurgery Stock;
- decreased by
- the number of any designated shares of Biosurgery Stock that Genzyme
issues;
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- the number of any shares of Biosurgery Stock issued upon the exercise
or conversion of securities convertible into Biosurgery Stock that are
attributed to Genzyme General; and
- the number of any shares of Biosurgery Stock Genzyme issued as a
dividend or distribution or by reclassification, exchange or otherwise
to Genzyme General Stockholders; and
- increased by
- the number of any outstanding shares of Biosurgery Stock that Genzyme
repurchases, the consideration for which was paid by Genzyme General;
- the number of shares of Biosurgery Stock equal to the fair value, as
determined by Genzyme's board, of assets or properties allocated to
Genzyme General that are reallocated to Genzyme Biosurgery (excluding
reallocations that represent sales at fair value between those
divisions) divided by the fair market value of one share of Biosurgery
Stock on the date of that reallocation; and
- the number of shares of Biosurgery Stock equal to (1) the aggregate
fair market value of any shares of Genzyme General Stock issued to the
limited partners of Genzyme Development Partners in connection with
Genzyme's exercise on behalf of Genzyme Biosurgery of Genzyme's
purchase option to reacquire all of the limited partnership interests
of that partnership divided by (2) the fair market value of one share
of Biosurgery Stock on the date of the exercise.
Whenever Genzyme issues or sells additional shares of any series of common
stock, Genzyme will identify:
- the number of shares issued and sold for account of a particular division
to which they relate, the proceeds of which will be allocated to and
reflected in the financial statements of that division; and
- the number of shares issued and sold from the designated shares of
Molecular Oncology Stock, Surgical Products Stock, Tissue Repair Stock
and/or Biosurgery Stock.
If Genzyme repurchases outstanding shares of Molecular Oncology Stock,
Surgical Products Stock, Tissue Repair Stock or Biosurgery Stock, Genzyme will
identify the number of shares that are repurchased for consideration that was
derived from Genzyme General and the number of designated shares may increase
accordingly.
DETERMINATIONS BY GENZYME'S BOARD
Any determination made by Genzyme's board in good faith under any of the
provisions described above will be final and binding on all stockholders.
"ANTI-TAKEOVER" PROVISIONS
CONTRACTUAL MEASURES
Genzyme's charter and by-laws contain provisions that could discourage
potential takeover attempts and prevent stockholders from changing Genzyme's
management. For example, Genzyme's board is authorized to issue shares of common
stock and preferred stock in series, enlarge the board's size and fill any
vacancies on the board. Also, stockholders face restrictions on calling a
special meeting of stockholders, bringing business before an annual meeting and
nominating candidates for election as directors. Genzyme also has agreements
with some of its officers that contain change of control provisions.
In addition, Genzyme has a stockholder rights plan. Under the plan, each
outstanding share of Genzyme's common stock carries with it a right, currently
unexercisable, that if triggered permits the holder to purchase large amounts of
Genzyme's or any successor entity's securities at a discount and/or
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trade those purchase rights separately from the common stock. The rights are
triggered when a person acquires, or makes a tender or exchange offer to
acquire, 15% of Genzyme's common stock's voting power. The plan, however,
prohibits the 15%-acquiror, or its affiliates, from exercising its Genzyme
shares' purchase rights. As a result, the acquiror's interest in Genzyme is
substantially diluted.
Upon effecting the tracking stock exchanges and the merger, Genzyme will
amend its shareholder rights plan:
- so that each share of Biosurgery Stock issued to Biomatrix common
stockholders in the merger and to holders of Surgical Products Stock and
Tissue Repair Stock in the tracking stock exchanges will carry with it one
of these Genzyme stock purchase rights; and
- to eliminate the provisions governing purchase rights associated with the
Surgical Products Stock and Tissue Repair Stock.
A summary of the rights is contained in the "COMPARISON OF RIGHTS OF GENZYME
AND BIOMATRIX STOCKHOLDERS" beginning on page 181. The rights are described more
completely in a rights agreement between Genzyme and American Stock Transfer &
Trust Company as rights agent. The agreement is an exhibit to Genzyme's
Form 8-A/A filed with the SEC on June 11, 1999, and is incorporated in this
document by reference.
BUSINESS COMBINATION STATUTE
Under the Massachusetts Business Combination statute, if a person acquires
5% or more of the outstanding voting stock of a Massachusetts corporation
without the approval of its board of directors, that person becomes an
interested stockholder and he or she may not engage in business combination
transactions with the corporation for three years. There are exceptions to this
prohibition, including:
- if the board of directors approves the acquisition of stock or the
transaction before the time that the person became an interested
stockholder;
- if the interested stockholder acquires 90% of the outstanding voting stock
of the company, excluding voting stock owned by directors who are also
officers and some employee stock plans, in one transaction; or
- if the transaction is approved by the board and by two-thirds of the
outstanding voting stock not owned by the interested stockholder.
Genzyme is subject to the Massachusetts Business Combination statute unless
it elects, with stockholder approval, not to be. Genzyme has not elected to be
exempt and does not currently intend to do so.
CONTROL SHARE ACQUISITION STATUTE
The Massachusetts Control Share Acquisition statute provides that each and
any time a person offers to acquire, or acquires, shares of stock permitting it
to control at least 20%, 33 1/3% or a majority of the voting power of a
corporation, it cannot vote those acquired shares unless the acquiror obtains
the approval of a majority in interest of the shares held by all stockholders,
excluding shares held by the acquiror, officers of the corporation, and
directors who are also employees of the corporation. The statute does not
require that the acquiror have already purchased the shares before the
stockholder vote.
As permitted under Massachusetts law, Genzyme has elected not to be governed
by the Massachusetts Control Share Acquisition statute. However, the statute
permits Genzyme's board to elect at a future date to be governed by the statute
by amending the company's by-laws accordingly. Any such amendment, however,
would apply only to acquisitions that occur after the effective date of the
amendment.
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.
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DESCRIPTION OF GENZYME'S MANAGEMENT AND ACCOUNTING POLICIES
OVERVIEW
Because each of Genzyme's operating divisions is part of a single company,
Genzyme's board has adopted policies to address issues that may arise among
divisions and to govern the management of and the relationships between each
division. The issues addressed by the policies include:
- the financing of each division;
- competition among the divisions;
- inter-divisional business transactions;
- access to technology and know-how;
- corporate opportunities; and
- the allocation of debt, corporate overhead, interest, taxes and other
charges among the divisions.
Summarized below are the policies as they relate to Genzyme's four
divisions. We recommend that you read the full text of the policies, which is
contained in Exhibit 3 to a current report on Form 8-K filed by Genzyme with the
SEC on June 30, 2000. Similar policies will apply to Genzyme Biosurgery upon its
creation. You should read the full text of the policies, as proposed to amended
and restated upon completion of the tracking stock exchanges and the merger,
contained in Annex E to this joint proxy statement/prospectus. With a few
exceptions that are noted, Genzyme's board may modify or rescind the policies,
or adopt additional policies, in its sole discretion without approval of the
stockholders, subject only to the board's fiduciary duty to Genzyme's
stockholders.
PURPOSE OF GENZYME GENERAL, GENZYME MOLECULAR ONCOLOGY, GENZYME SURGICAL
PRODUCTS, GENZYME TISSUE REPAIR AND GENZYME BIOSURGERY
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 on
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). The purpose of Genzyme Biosurgery will be to create a
business with a comprehensive approach to the field of biosurgery by developing
and commercializing a portfolio of products for the treatment and prevention of
serious tissue injury (excluding products developed on behalf of Genzyme
Development Partners) and a portfolio of devices, biomaterials, biotherapeutics
and other products for the field of biosurgery.
In addition to the programs initially assigned to each of the divisions,
Genzyme expects that the product and service portfolio of each division will
expand through the addition of complementary programs, products and services
developed either internally or externally, including outside of Genzyme. Genzyme
will operate and manage each of the divisions similarly to Genzyme General
except as provided in the policies.
REVENUE ALLOCATION AND RECOGNITION
Genzyme allocates revenues from the sale or licensing of products and
services to the division to which those products or services had been allocated.
When products and services that are normally sold by a division to third parties
are used by other divisions, Genzyme records interdivisional revenue and
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interdivisional purchases, which Genzyme describes in detail in its policy
"Other Interdivisional Transactions."
EXPENSE ALLOCATION
Genzyme charges all direct expenses to the division that has incurred the
expenses. Genzyme's policy "Other Interdivisional Transactions" addresses
expenses other than direct expenses.
ASSET ALLOCATION
Genzyme allocates assets that are exclusively dedicated to the production of
goods and services of a particular division to that division. Genzyme addresses
the use of production assets by more than one division in its policy "Other
Interdivisional Transactions."
TAX ALLOCATIONS
Genzyme allocates income taxes to each division based upon the financial
statement income, taxable income, credits and other amounts properly allocable
to it under generally accepted accounting principles as if it were a separate
taxpayer. As of the end of any fiscal quarter, however, if a division cannot 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
the other divisions in proportion to their taxable income without any
compensating payment or allocation.
ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS
If Genzyme acquires any programs, products or assets from a third party, it
will allocate among its divisions the aggregate cost of the acquisition and the
programs, products or assets acquired. In the case of material acquisitions,
Genzyme will make the allocation in a manner that its board determines to be
fair and reasonable to each division and to holders of the common stock
representing each division, taking into account matters that its board and its
financial advisors, if any, deem relevant. Genzyme's policies provide that the
determinations by its board will be final and binding on all holders of common
stock.
DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS
If Genzyme disposes of any programs, products or assets that do not consist
of all or substantially all of the assets allocated to a division, it will
allocate all proceeds to the division to which the program, product or asset had
been allocated. If a program, product or asset was allocated to more than one
division, Genzyme will allocate the proceeds among the divisions based on their
interests in the program, product or asset. Genzyme will make the allocation in
a manner that its board determines to be fair and reasonable to each of the
divisions and to holders of the common stock representing each of the divisions,
taking into account matters that its board and its financial advisors, if any,
deem relevant. Genzyme's policies provide that the determinations by its board
will be final and binding on all holders of common stock.
INTERDIVISIONAL ASSET TRANSFERS
Genzyme's board may at any time reallocate any program, product or other
asset from one division to any other division. It will make reallocations at
fair market value, determined by its board, taking into account the following
criteria in the case of a program under development:
- the commercial potential of the program;
- the phase of clinical development of the program;
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- the expenses associated with realizing any income from the program and the
likelihood and timing of the realization; and
- other matters that Genzyme's board and its financial advisors, if any,
deem relevant.
One division may pay another division the consideration for a reallocation
in cash or other consideration with a value equal to the fair market value of
the reallocated assets. In the case of a reallocation of assets from Genzyme
General to another division, Genzyme's board may elect instead to account for
the reallocation as an increase in the designated shares representing the
division to which the assets are reallocated in accordance with the provisions
of Genzyme's charter.
These policies regarding transfers of assets between divisions will not be
changed by Genzyme's board without the approval of the holders of the common
stock representing each of the divisions voting as a separate class. If,
however, the policy change affects one or more, but not all of the divisions,
only holders of shares of the affected division(s) will be entitled to vote on
the matter.
OTHER INTERDIVISIONAL TRANSACTIONS
Genzyme's divisions 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. These transactions may include agreements by one division to
provide products and services for use by another division, license agreements
and joint ventures or other collaborative arrangements involving more than one
division to develop new products and services jointly and with third parties.
The division providing the products or services does not recognize revenue
unless the division provides those products or services to unrelated third
parties as part of its ordinary conduct of business. The transactions will be
subject to the following conditions:
- Genzyme will charge research and development (including clinical and
regulatory support), distribution, sales, marketing, and general and
administrative services (including allocated space) performed by one
division for another division to the division for which the services are
performed on a cost basis. It charges all direct expenses to the division
that has incurred the expenses. It will allocate direct labor and indirect
costs in reasonable and consistent manners based on the use by a division
of relevant services.
- Genzyme will charge the manufacturing of goods and services by one
division exclusively for another division to the division for which it is
performed on a cost basis. It will include in manufacturing costs an
interest charge on the gross fixed assets used in the manufacturing
process. It will determine gross fixed assets for the facility used at the
beginning of each fiscal year. The interest rate will be Genzyme's short
term borrowing rate at the beginning of each fiscal year. Genzyme will
allocate direct labor and indirect costs in reasonable and consistent
manners based on the benefit received by a division of related goods and
services.
- Other than transactions involving research and development, distribution,
sales, marketing, general and administrative services, which are addressed
above, all interdivisional transactions will be on terms and conditions
obtainable in arm's length transactions with third parties.
- Genzyme's board must approve interdivisional transactions that are
performed on terms and conditions other than as described above and that
are material to one or more of the participating divisions. In giving its
approval, Genzyme's board must determine that the transaction is fair and
reasonable to each participating division and to holders of the common
stock representing each participating division.
- Divisions may make loans to other divisions. Any 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 a similar type and
duration. Genzyme's board must approve any loan in excess of $1 million.
In
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giving its approval, the board must determine 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 each such division.
- All material interdivisional transactions will be set forth in a written
agreement signed by an authorized member of the management team of each
division involved in the transaction.
ACCESS TO TECHNOLOGY AND KNOW-HOW
Each division will have unrestricted access to all of Genzyme's technology
and know-how that may be useful in that division's business, subject to any
obligations or limitations that apply to the company.
DISPOSITION OF DESIGNATED SHARES OF MOLECULAR ONCOLOGY STOCK, SURGICAL PRODUCTS
STOCK, TISSUE REPAIR STOCK AND BIOSURGERY STOCK
Genzyme's board may from time to time and in its sole discretion dispose of
designated shares of Molecular Oncology Stock, Surgical Products Stock, Tissue
Repair Stock and, when created, Biosurgery Stock in the following manner:
- issue the designated shares upon the exercise or conversion of outstanding
stock options, warrants or convertible securities allocated to Genzyme
General;
- sell the designated shares for any valid purpose, subject to the
restrictions set forth in Genzyme's policy entitled "Issuance and Sale of
Additional Shares of Common Stock," which is set forth on page 179; and
- distribute the designated shares as a dividend to the holders of shares of
Genzyme General Stock.
MOLECULAR ONCOLOGY DESIGNATED SHARES
Genzyme will distribute substantially all of the designated shares of
Molecular Oncology Stock to holders of record of Genzyme General Stock, if as of
November 30 of each year, the number of Molecular Oncology designated shares
exceeds 10% of the number of shares of Molecular Oncology Stock then issued and
outstanding. Genzyme will, however, reserve for issuance a number of shares
equal to the sum of:
- the number of Molecular Oncology designated shares reserved for issuance
with respect to securities convertible into Genzyme General Stock which
include stock options, stock purchase rights, warrants or other securities
convertible into or exercisable for shares of Genzyme General Stock, then
outstanding as a result of anti-dilution adjustments required by the terms
of these instruments or approved by Genzyme's board, plus
- the number of Molecular Oncology designated shares reserved by Genzyme's
board as of that date for sale not later than six months afterwards, with
the proceeds to be allocated to Genzyme General.
SURGICAL PRODUCTS DESIGNATED SHARES
Genzyme will distribute substantially all of the designated shares of
Surgical Products Stock to holders of record of Genzyme General Stock if, as of
June 30 of each year, the number of Surgical Products designated shares exceeds
10% of the number of shares of Surgical Products Stock then issued and
outstanding. Genzyme will, however, reserve a number of shares equal to the sum
of:
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- the number of Surgical Products designated shares reserved for issuance
with respect to securities convertible into Genzyme General Stock then
outstanding as a result of anti-dilution adjustments required by the terms
of these instruments or approved by Genzyme's board, plus
- the number of Surgical Products designated shares reserved by Genzyme's
board as of that date for sale not later than six months afterwards, with
the proceeds to be allocated to Genzyme General.
TISSUE REPAIR DESIGNATED SHARES
Genzyme will distribute substantially all designated shares of Tissue Repair
Stock to holders of record of Genzyme General Stock, if as of May 31 of each
year, the number of Tissue Repair designated shares exceeds 10% of the number of
shares of Tissue Repair stock then issued and outstanding. Genzyme will,
however, reserve for issuance a number of shares equal to the sum of:
- the number of Tissue Repair designated shares reserved for issuance with
respect to securities convertible into Genzyme General Stock then
outstanding as a result of anti-dilution adjustments required by the terms
of these instruments or approved by Genzyme's board, plus
- the number of Tissue Repair designated shares reserved by Genzyme's board
as of that date for sale not later than six months afterwards, with the
proceeds to be allocated to Genzyme General.
BIOSURGERY DESIGNATED SHARES
Genzyme will distribute substantially all of the designated shares of
Biosurgery Stock to holders of record of Genzyme General Stock if, as of
September 30 of each year, starting on September 30, 2000, the number of
Biosurgery designated shares exceeds 10% of the number of shares of Biosurgery
Stock then issued and outstanding. Genzyme will, however, reserve a number of
shares equal to the sum of:
- the number of Biosurgery designated shares reserved for issuance with
respect to securities convertible into Genzyme General Stock which then
outstanding as a result of anti-dilution adjustments required by the terms
of these instruments or approved by Genzyme's board, plus
- the number of Biosurgery designated shares reserved by Genzyme's board as
of that date for sale not later than six months afterwards, with the
proceeds to be allocated to Genzyme General.
ISSUANCE AND SALE OF ADDITIONAL SHARES OF COMMON STOCK
When Genzyme issues additional shares of its common stock, it will identify
both:
- the number of shares issued and sold for the account of the division to
which they relate and the corresponding proceeds, which Genzyme will
allocate to and reflect in the financial statements of that division; and
- the number of shares issued and sold for the account of Genzyme General,
which will reduce the number of designated shares of that division.
Genzyme will not, however, sell any designated shares of a division, 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
Surgical Products Stock, Molecular Oncology Stock, Tissue Repair Stock or, when
created, Biosurgery Stock paid to holders of Genzyme General Stock, unless
either:
- Genzyme's board determines that the division has sufficient cash to fund
its operations for at least the next 12 months; or
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- Genzyme is then selling shares of a division for that division's own
account in an amount that will produce proceeds sufficient to fund that
division's cash needs for the next 12 months.
OPEN MARKET PURCHASES OF SHARES OF COMMON STOCK
Genzyme may purchase its common stock in the open market in accordance with
applicable securities law requirements. Genzyme will not, however, purchase its
Molecular Oncology Stock, Surgical Products Stock, Tissue Repair Stock, or, if
created, Biosurgery Stock if, as an immediate result, the number of that series'
designated shares will exceed 60% of the sum of the number of that series'
shares outstanding and the number of its designated shares. Additionally,
Genzyme may not, within 90 days of any open market purchase of shares of any of
those series, exercise the right provided under its charter to exchange shares
of that series for cash and/or shares of Genzyme General Stock.
CLASS VOTING
Where Genzyme has provided that the approval of the holders of a series of
its tracking stock is required to take any action pursuant to these policies or
Genzyme's charter, the requirement may be satisfied if the action is approved by
a majority of the votes cast at a meeting of the holders of that series at which
a quorum is present. This is in addition to any stockholder approval required by
Massachusetts law.
NON-COMPETE
Genzyme's divisions may not materially engage 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. These permissible transactions are subject to the
conditions set forth on page 176 in Genzyme's policy entitled "Interdivisional
Asset Transfers." The divisions may compete in a business which is not a
principal business of another division. Genzyme's board may determine in its
good faith business judgment whether particular activities of one division
constitute a material engagement in the principal businesses of another
division.
CORPORATE OPPORTUNITIES
Genzyme's 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. The board will make its determination
with regard to the allocation and benefit of an opportunity in accordance with
its good faith business judgment of the best interests of Genzyme and all of its
stockholders as a whole. In making this allocation, the board may consider,
among other factors:
- whether a particular corporate opportunity is principally related to the
business of a particular division;
- whether one division, because of its managerial or operational expertise,
will be better positioned to undertake the corporate opportunity;
- whether one division, because of its allocated financial resources, will
be better positioned to undertake the corporate opportunity; and
- existing contractual agreements and restrictions.
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COMPARISON OF RIGHTS OF GENZYME AND BIOMATRIX STOCKHOLDERS
Genzyme is a Massachusetts corporation subject to the provisions of the
Massachusetts Business Corporation Law or MBCL. Biomatrix is a Delaware
corporation subject to the provisions of the Delaware General Corporation Law or
DGCL. Upon completion of the merger, Biomatrix stockholders, whose rights are
currently governed by the Biomatrix charter, bylaws 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 Biosurgery Stock and Biomatrix 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, see "DESCRIPTION OF GENZYME
CAPITAL STOCK" beginning on page 162. You should read carefully the relevant
provisions of the MBCL and the DGCL, the charter and by-laws of Genzyme and the
charter and bylaws of Biomatrix, which are incorporated by reference into this
joint proxy statement/prospectus.
<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
CORPORATE GOVERNANCE The rights of Genzyme stockholders The rights of Biomatrix
are governed by Massachusetts law stockholders are currently
and Genzyme's charter and by-laws. governed by Delaware law and
Upon completion of the merger, the Biomatrix' charter and bylaws.
rights of Genzyme stockholders will Upon completion of the merger,
continue to be governed by the rights of Biomatrix
Massachusetts law and Genzyme's stockholders who become Genzyme
charter and by-laws. stockholders in the merger will
be governed by Massachusetts law
and Genzyme's charter and
bylaws.
AUTHORIZED CAPITAL STOCK The authorized capital of Genzyme The authorized capital stock of
is set forth under the "DESCRIPTION Biomatrix consists of 60,000,000
OF GENZYME CAPITAL STOCK" beginning shares of common stock, $0.0001
on page 162. par value per share, and 3,000
shares of preferred stock,
$0.001 par value per share.
BOARD AUTHORITY TO ISSUE The Genzyme board is authorized, With respect to Biomatrix'
CAPITAL STOCK without stockholder approval, to preferred stock, the Biomatrix
issue shares of common or preferred board is authorized, without
stock in one or more new series and stockholder approval, to issue
to determine the preferences, shares of preferred stock in one
voting powers, qualifications, and or more series. The Biomatrix
special or relative rights or board may determine or alter the
privileges of any such series. rights, preferences, privileges
and restrictions granted to or
imposed upon unissued series of
preferred stock.
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<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
DIVIDENDS AND STOCK REPURCHASES Under the MBCL, a corporation may Under the DGCL, a corporation
pay dividends or repurchase its own may pay dividends out of surplus
stock so long as: or net profits for the current
- the corporation is solvent; or preceding fiscal year,
- the dividend or repurchase does provided that the capital of the
not render the corporation corporation is not less than the
insolvent; and aggregate liquidation preference
- the dividend or repurchase does of the corporation's outstanding
not violate the corporation's stock having a preference upon
charter. distribution of assets.
Under the DGCL, a corporation
may repurchase its own stock so
long as the capital of the
corporation is not impaired,
except that the corporation can
repurchase shares
- entitled to preferences over a
different class or series in a
distribution of the
corporation's assets, or
- if no such preferred shares
are outstanding, any of the
company's shares
provided that the repurchased
shares are retired and cause a
reduction in capital in the
manner specified by the statute.
Shares redeemable at the
corporation's option cannot,
under the DGCL, be repurchased
for more than their redemption
price.
Unless the terms of any outstanding Under the Biomatrix certificate
series of preferred stock require of incorporation, Biomatrix'
otherwise, Genzyme's board may board may declare and pay
declare and pay dividends on a dividends on its common stock
series of common stock only from from legally available funds,
legally available funds or in an subject to the dividend rights
amount permitted under Genzyme's of any outstanding preferred
charter, whichever is less. The stock. Biomatrix has never paid
amount available for dividends on cash dividends on its common
each series of Genzyme common stock stock.
is described in the section
entitled "DESCRIPTION OF GENZYME
CAPITAL STOCK" beginning on
page 162. Genzyme has never paid
cash dividends on any of its series
of common stock.
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<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
LIQUIDATION RIGHTS In the event of a voluntary or In the event of a voluntary or
involuntary dissolution, involuntary liquidation,
liquidation or winding up of dissolution or winding up of
Genzyme's affairs, the holders of Biomatrix, after Biomatrix has
Genzyme's common stock are entitled satisfied or made provision for
to receive any net assets remaining its debts and obligations and
for distribution after Genzyme has for payment to any preferred
satisfied or made provision for its stockholders, the common
debts and obligations and for stockholders are entitled to any
payment to any preferred remaining assets available for
stockholders. Holders of Biosurgery distribution. The merger of
Stock will be entitled to a Biomatrix or sale of its assets
distribution of any remaining is not considered a liquidation
assets in proportion to other or dissolution under the
series' respective per share Biomatrix charter.
liquidation units, as adjusted.
Holders of Biosurgery Stock will
have 50 liquidation units per
share. 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 Biomatrix common stockholders
Genzyme common stock vote together vote together as one class on
as one class on all matters on all matters that common
which common stockholders generally stockholders are entitled to
are entitled to vote. Holders of vote. Subject to any voting
Biosurgery Stock are entitled to rights that may be granted to
.50 vote for each share of stock holders of preferred stock, all
held at any meeting of the voting powers of Biomatrix
stockholders. Under the Genzyme are vested in the Biomatrix
charter, some specifically listed common stockholders. Holders of
matters require a separate series Biomatrix common stock are
votes. For a more detailed entitled to one vote for each
discussion of the voting rights of share of stock held at any
Genzyme Stock see "DESCRIPTION OF meeting of stockholders.
GENZYME CAPITAL STOCK--Voting
Rights" beginning on page 168.
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<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
REDEMPTION AND EXCHANGE Under its charter, Genzyme has the Biomatrix does not have the
FEATURES option, at any time--and in some option or obligation under its
circumstances, is required--to charter or by-laws to exchange
exchange or redeem some or all of or redeem its outstanding common
the outstanding shares of the stock.
Molecular Oncology Stock, Surgical
Products Stock, Tissue Repair Stock
and, when it is created, the
Biosurgery Stock, for cash, Genzyme
General Stock or other property in
the manner described under the
heading "DESCRIPTION OF GENZYME
CAPITAL STOCK--Exchange of
Biosurgery Stock, Molecular
Oncology Stock, Surgical Products
Stock and Tissue Repair Stock"
beginning on page 165.
MEETINGS OF STOCKHOLDERS; A special meeting of stockholders A special meeting of
NOTICE may be called only by the president stockholders may be called for
or by the board of directors, upon any purpose only by the chairman
the written application of of the board or the chief
stockholders who hold at least 90% executive officer.
(or any lesser percentage required
by law) of the stock entitled to
vote at the meeting.
A written notice stating the time, A written notice stating the
place and purpose of the meeting time, place and purpose of the
shall be given at least 7 days meeting shall be given at least
before the meeting to each 10 but not more than 50 days
stockholder entitled to notice. In before the date of the meeting
the case of a special meeting to each stockholder entitled to
called upon the written application vote at the meeting.
of stockholders, the meeting must
be called at least 60 but not more
than 90 days before the meeting
date, and notice must be given to
stockholders entitled to vote at
least 20 days before the meeting.
STOCKHOLDER ACTION BY WRITTEN Under the MBCL, stockholders may Under the DGCL, stockholders may
CONSENT take any action without a meeting take any action without a
so long as they act by unanimous meeting so long as the consent
written consent. Genzyme's charter, is signed by no less than the
however, provides that stockholder minimum number of stockholders
actions can be taken only at a duly who would otherwise be required
called annual or special meeting to take the actions if they
and not by written consent. actually held a meeting.
Biomatrix' charter, however,
provides that no stockholder
action may be taken unless the
consent is signed by the holders
of all outstanding stock.
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<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
STOCKHOLDER PROPOSALS Genzyme's by-laws provide that for Biomatrix' bylaws provide that
a stockholder proposal to be for a stockholder proposal to be
brought properly before an annual brought properly before an
meeting, the stockholder must annual meeting, the stockholder
notify Genzyme of the proposal must notify Biomatrix of the
either: (1) 60 days before the proposal not less than 75 days
annual meeting or (2) 90 but not before the anniversary date of
more than 120 days before the the prior years' annual meeting.
anniversary date of the prior In the case of a special
years' annual meeting, whichever is meeting, the stockholder must
earlier. This, however, does not notify Biomatrix not less than
apply if there was no annual 30 days but not more than 75
meeting in the prior year or if the days prior to the meeting date
date of the current annual meeting specified in the notice.
is more than 30 days from the However, if notice or public
anniversary date of the prior disclosure of the special
year's annual meeting. meeting was given within 40 days
of the meeting, then the
stockholder must notify
Biomatrix no later than the 10th
day following the date of the
notice or public disclosure.
QUORUM FOR MEETING OF The holders of a majority in The holders of a majority of the
STOCKHOLDERS interest of all outstanding stock outstanding shares of Biomatrix
entitled to vote at a Genzyme stock entitled to vote at a
stockholder meeting, present in meeting, present in person or
person or represented by proxy, represented by proxy,
constitutes a quorum for constitutes a quorum for
transacting business at a meeting. transacting business at a
meeting.
STOCKHOLDER INSPECTION RIGHTS By law, stockholders have the right Under the DGCL any stockholder
for a proper purpose to inspect the has the right to inspect the
company's charter, by-laws, records company's stock ledger,
of all meetings of incorporators stockholder list, and other
and stockholders, and stock and books and records for a purpose
transfer records, including the reasonably related to the
stockholder list. Additionally, person's interest as a
stockholders have a qualified right stockholder.
to inspect other books and records
of the corporation.
NUMBER OF DIRECTORS Genzyme currently has seven Biomatrix currently has seven
directors. Genzyme's by-laws directors. Biomatrix' charter
provide that the board of directors and bylaws provide that the
shall be at least three. The number board of directors shall be at
of directors is fixed by the board least three but not more than
and may be enlarged at any time by thirteen directors, the actual
a vote of the majority of number to be determined from
directors. time to time by resolution of
the board.
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<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
CLASSIFICATION OF BOARD OF Genzyme's charter provides that the Biomatrix' charter provides that
DIRECTORS board of directors will consist of the board of directors will
three classes, with each class consist of three classes, with
being as equal in size as possible. each class being as equal in
Each class of directors is elected size as possible. Each class of
for a three-year term at directors is elected for a
alternating annual meetings of the three-year term at alternating
stockholders. annual meetings of the
stockholders.
REMOVAL OF DIRECTORS Directors may be removed only for Directors may be removed only
cause by a majority vote of for cause by a majority of
stockholders. Under Genzyme's by- stockholders. Under Biomatrix'
laws, vacancies on the board may be charter, vacancies on the board
filled by the board. Vacancies may be filled by a majority of
resulting from the enlargement of the board, though less than a
the board may be filled by the quorum.
directors then in office, though
less than a quorum.
LIMITATION ON PERSONAL Genzyme's charter provides that Biomatrix' charter provides that
LIABILITY OF DIRECTORS AND directors shall not be personally directors shall not be
OFFICERS liable to Genzyme or its personally liable to Biomatrix
stockholders for monetary damages or its stockholders for monetary
for breaching their fiduciary damages for breaching their
duties except to the extent fiduciary duties except for:
eliminating or limiting their - breaches of their duty of
liability is not permitted under loyalty to Biomatrix or its
the MBCL. Under the MBCL, a stockholders;
director is generally not excused - acts or omissions not in good
from liability for making faith or involving intentional
unauthorized loans or distributions misconduct or a knowing
to insiders. violation of law;
- unlawful payment of dividends
or unlawful repurchases of
stock; or
- transactions from which the
directors derived improper
personal benefit.
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<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
INDEMNIFICATION OF DIRECTORS Massachusetts law permits, and Delaware law permits, and
AND OFFICERS Genzyme's charter provides for, Biomatrix' charter provides for,
indemnification of directors and indemnification of directors,
officers for all expenses and officers, employees and agents
liabilities imposed upon them due for expenses, judgments or
to any proceeding in which they may settlements actually and
become involved by serving or reasonably incurred by them in
having served as directors or legal proceedings if they acted
officers. Indemnification is in good faith and in a manner
denied, however, if the person is they reasonably believed to be
found not to have acted in good in or not opposed to Biomatrix'
faith with the reasonable belief best interests. Biomatrix'
that his or her action was in bylaws provide that
Genzyme's best interest. Genzyme's indemnification is a contract
by-laws provide that right.
indemnification is a contract right Delaware law permits, and
for the benefit of the directors, Biomatrix' charter and bylaws
officers and other persons entitled provide for, the Biomatrix board
to be indemnified. to purchase and maintain
The MBCL does not explicitly insurance on behalf of
address indemnifying persons directors, officers, employees
against judgments in actions and against any liability
brought by or in the right of the asserted against them.
corporation. The previously The DGCL does not permit a
discussed standard applies to such corporation to indemnify persons
cases. against judgments in actions
brought by or in the right of
the corporation.
AMENDMENTS TO CHARTER Under the MBCL, a majority vote of Under the DGCL, a charter may be
stockholders is required to amend amended by the affirmative vote
some charter provisions, such as of a majority of the outstanding
increasing a company's authorized stock and a majority of the
capital stock. For most other outstanding shares of each class
amendments, the MBCL requires a entitled to vote as a class.
two-thirds vote, such as to change Biomatrix' charter provides for
a corporate name, change the nature amendments to be made in the
of the corporate business, or manner prescribed by Delaware
authorize the sale, mortgage, law.
pledge, lease or exchange of all
the company's property or assets.
The MBCL does, however, permit a
corporate charter to specify a
threshold vote of less than
two-thirds, but of at least a
majority; Genzyme's charter
expressly permits a majority vote
to make any amendments to its
charter.
</TABLE>
187
<PAGE>
<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
AMENDMENTS TO BY-LAWS Genzyme's by-laws may be amended, Biomatrix' bylaws may be altered
altered or repealed, and new or repealed, and new bylaws may
by-laws may be adopted, by a be made by the board of
majority vote of the stockholders. directors. Biomatrix
The directors may also make, amend stockholders may also make
or repeal the by-laws, except any additional bylaws and alter or
by-law provision which under law, repeal any bylaws previously
the charter or the by-laws requires adopted by the board or
a 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 owning 15% or more of the
5% or more of the corporation's corporation's voting stock (an
voting stock without the approval "interested stockholder") for
of its board to acquire that stock three years following the time
(an "interested stockholder"), for that person became an interested
three years from the time the stockholder, unless the:
person became an interested - board, before the time the
stockholder, unless the: person became an interested
- board approves the stock stockholder, approved either
acquisition or the combination the business combination or
transaction prior to the person the transaction that resulted
becoming an interested in the person becoming an
stockholder; interested stockholder;
- interested stockholder acquires - person became an interested
90% of the outstanding voting stockholder and 85% owner of
stock of the company (excluding the voting stock in the
stock owned by directors-officers transaction, excluding shares
or some employee stock plans) in owned by directors and
one transaction; or officers and shares owned by
- combination transaction is some employee stock plans; or
approved by the board and by - combination transaction is
two-thirds of the outstanding approved by the board and
voting stock not owned by the authorized by the affirmative
interested stockholder. vote of at least two-thirds of
the outstanding voting stock
not owned by the interested
stockholder.
</TABLE>
188
<PAGE>
<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
Genzyme is subject to the A Delaware corporation can elect
Massachusetts Business Combination in its charter or bylaws not to
statute unless it elects, with be governed by Section 203.
stockholder approval, not to be. Biomatrix has not made that
Genzyme has not made that election. election.
CONTROL SHARE ACQUISITION The Massachusetts "Control Share Delaware does not have a Control
STATUTE Acquisition" statute provides that Share Acquisition statute.
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
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 Biomatrix does not have a
agreement dated June 10, 1999 stockholder rights plan.
between Genzyme and American Stock
Transfer & Trust Company, as rights
agent, each outstanding share of
Genzyme General Stock, Molecular
Oncology Stock, Surgical Products
Stock, and Tissue Repair Stock also
represents a right that, if
triggered, will permit the holder
to purchase one one-hundredth of a
share of Genzyme's:
- 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
</TABLE>
189
<PAGE>
<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
SHAREHOLDER RIGHTS PLAN - Series D Junior Participating (see above)
(CONTINUED) preferred stock for each Surgical
Products Stock purchase right, at
a price of $150.
Upon creation of the Biosurgery
Stock, Genzyme and the rights agent
will amend the rights agreement to
provide for:
- a purchase right to purchase one
one-hundredth of a share of a
newly redesignated Series B
Junior Participating preferred
stock, at a price to be
determined by Genzyme's board
prior to completing the tracking
stock exchanges and merger; and
- the elimination of the purchase
rights to purchase the current
Series B and Series D preferred
stocks.
The rights are not currently
exercisable but will become
exercisable upon the earlier of:
- 10 days following the public
announcement that a person or
group has acquired 15% or more of
the voting power of all series of
Genzyme's outstanding common
stock, or
- 10 days after any person or group
announces a tender or exchange
offer which, if completed, would
result in the offeror owning 15%
or more of the voting power of
all series of Genzyme's
outstanding common stock.
When exercisable, each right
permits its holder to buy that
number of shares of a series of
Genzyme's common stock equal in
value to twice the right's purchase
price. The acquirer who triggers
the rights cannot exercise or
transfer its rights.
</TABLE>
190
<PAGE>
<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
SHAREHOLDER RIGHTS PLAN If any person acquiring 15% or more (see above)
(CONTINUED) of the voting power of Genzyme's
outstanding common stock is
involved in a merger or other
business combination with Genzyme
in which Genzyme is not the
surviving corporation, each
rightholder will be allowed to buy
shares of the acquiring company's
common stock at half their average
market value upon paying the
right's purchase price.
The rights expire on March 28, 2009
unless redeemed. The Genzyme board
may redeem the rights at $0.001 per
right any time before the tenth day
after the 15% or greater
acquisition. The rights have
anti-takeover effects. They can
cause substantial dilution to a
person or group that attempts to
acquire Genzyme on terms that are
not approved by the board. The
rights should not interfere with
any merger or other business
combination that Genzyme's board
approves since Genzyme can redeem
the rights before they become
exercisable.
PROVISIONS RELATING TO SOME Under the MBCL, the affirmative The DGCL generally requires that
BUSINESS COMBINATIONS vote of two-thirds of the a merger and consolidation, or
outstanding shares of each class of sale, lease or exchange of all
stock (or such lower proportion or substantially all of a
permitted by the charter, but not corporation's property and
less than a majority) is required assets be approved by the
to authorize a merger or directors and by a majority of
consolidation of Genzyme into any the outstanding stock. A
other corporation, or the sale, corporation's charter may
lease, or exchange of all or require a greater vote.
substantially all of Genzyme's Biomatrix' charter does not
property and assets. Genzyme's provide for a greater vote.
charter provides that a majority of
the outstanding shares of each
class must approve a merger or sale
of all or substantially all of
Genzyme's assets.
</TABLE>
191
<PAGE>
<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
PROVISIONS RELATING TO SOME Under the MBCL, unless the Under the DGCL, a surviving
BUSINESS COMBINATIONS corporation's charter otherwise corporation need not obtain
(CONTINUED) provides for a stockholder vote, a stockholder approval for a
surviving corporation need not merger if:
obtain stockholder approval for a - each share of the surviving
merger if: corporation's stock
- any shares of the surviving outstanding prior to the
corporation to be issued or merger remains outstanding in
delivered in the merger will not identical form after the
increase the number of shares of merger;
common stock outstanding prior to
the merger by more than 15%; and - the merger agreement does not
amend the charter of the
- the merger agreement does not surviving corporation; and
amend the charter of the
surviving corporation. - either no shares of common
stock of the surviving
corporation are to be issued
or delivered in the merger or,
if common stock will be issued
or delivered, it will not
increase the number of shares
of common stock outstanding
prior to the merger by more
than 20%.
Genzyme's charter requires that
holders of each series of 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.
This vote of the stockholders must
be taken at a meeting at which both
a quorum is present and the votes
in favor of the merger exceed those
against it.
</TABLE>
192
<PAGE>
<TABLE>
<CAPTION>
RIGHTS OF GENZYME STOCKHOLDERS
GENERALLY AND HOLDERS OF BIOSURGERY
STOCK RIGHTS OF BIOMATRIX STOCKHOLDERS
----------------------------------- --------------------------------
<S> <C> <C>
APPRAISAL OR DISSENTERS' RIGHTS Under Massachusetts law, a properly Under Delaware law, the right of
dissenting stockholder is entitled dissenting stockholders to
to receive the appraised value of obtain the fair value for their
his shares when the corporation shares is available in
votes to: connection with some mergers or
- sell, lease, or exchange all or consolidations. Unless otherwise
substantially all of its property provided in the corporate
and assets; charter, appraisal rights are
- adopt an amendment to its charter not available to stockholders
that adversely affects the rights when the corporation will be the
of the stockholder; or surviving corporation in a
- merge or consolidate with another merger and no vote of its
corporation. stockholders is required to
No appraisal rights are available, approve the merger. In addition,
however, to stockholders of a no appraisal rights are
corporation surviving the merger, available to holders of shares
if the merger does not require the of any class of stock which is
approval of these stockholders. either:
In order to exercise their - listed on a national
appraisal rights, stockholders must securities exchange or
not vote in favor of the corporate designated as a national
action triggering the appraisal market system security on an
right. Also, they must send the interdealer quotation system
corporation a written objection to by the NASD, or
the corporate action stating their - held of record by more than
intention to demand payment for 2,000 stockholders,
their shares. If stockholders unless those stockholders are
follow the appraisal procedures set required by the terms of the
out under Massachusetts law, the merger to accept anything other
"fair value" of their stock will be than (1) shares of stock of the
determined as of the day before surviving corporation, (2)
effectiveness of the corporate shares of stock of another
action. The appraisal rights corporation which, on the
provisions are the only remedy for effective date of the merger or
stockholders who object to the consolidation, are of the kind
corporate action, unless the described above, (3) cash
corporate action is determined to instead of fractional shares of
have been illegal, fraudulent or in such stock, or (4) any
breach of the board's fiduciary combination of the consideration
duties. set forth in (1) through (3).
For a description of the Biomatrix stockholders will be
dissenters' appraisals rights that entitled to dissenters'
Genzyme stockholders will have in appraisal rights in connection
connection with the tracking stock with the merger.
exchanges, see "THE GENZYME
TRACKING STOCK EXCHANGE PROPOSALS--
Appraisal Rights of holders of
Surgical Products Stock and Tissue
Repair Stock" beginning on
page 154.
</TABLE>
193
<PAGE>
COMPARISON OF RIGHTS OF HOLDERS OF BIOSURGERY STOCK
AND OF SURGICAL PRODUCTS STOCK AND TISSUE REPAIR STOCK
The rights of holders of Surgical Products Stock and Tissue Repair Stock are
governed by the Genzyme charter and bylaws and the MBCL. After the tracking
stock exchange and merger, the rights of those stockholders, as holders of
Biosurgery Stock will continue to be governed by the Genzyme charter and bylaws
and MBCL. The principal difference between their rights as holders of Biosurgery
Stock as compared to their rights as holders of Surgical Products Stock or
Tissue Repair Stock, is that the terms of the former are designed to reflect the
performance and value of Genzyme Biosurgery rather than of Genzyme Surgical
Products or Genzyme Tissue Repair. The terms of these stocks that are intended
to make each stock reflect the financial performance of its own corresponding
division are essentially identical and are discussed more fully in the
discussion of Genzyme's tracking stock under "DESCRIPTION OF GENZYME CAPITAL
STOCK" beginning on page 162. Other than the fact that each stock is designed to
reflect the financial performance of its corresponding division, the remaining
material differences between these three stocks are as follows:
<TABLE>
<CAPTION>
RIGHTS OF HOLDERS OF
RIGHTS OF HOLDERS OF SURGICAL PRODUCTS RIGHTS OF HOLDERS OF
BIOSURGERY STOCK STOCK TISSUE REPAIR STOCK
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
LIQUIDATION RIGHTS Holders of Biosurgery Holders of Surgical Holders of Tissue
Stock have 50 Products Stock have Repair Stock have 58
liquidation units per 61 liquidation units liquidation units per
share. For a fuller per share. For a share. For a fuller
description of fuller description of description of
liquidation rights, liquidation rights, liquidation rights,
see "DESCRIPTION OF see "DESCRIPTION OF see "DESCRIPTION OF
GENZYME CAPITAL GENZYME CAPITAL GENZYME CAPITAL
STOCK--Liquidation STOCK--Liquidation STOCK--Liquidation
Rights" beginning on Rights." Rights."
page 170.
VOTING RIGHTS Holders of Biosurgery Holders of Surgical Holders of Tissue
Stock are entitled to Products Stock are Repair Stock are
0.50 vote for each entitled to 0.61 vote entitled to 0.06 vote
share of stock held for each share of for each share of
at any meeting of stock held at any stock held at any
stockholders. For a meeting of meeting of
description of other stockholders. For a stockholders. For a
voting rights of description of other description of other
Genzyme Stock see voting rights of voting rights of
"DESCRIPTION OF Genzyme Stock see Genzyme Stock see
GENZYME CAPITAL "DESCRIPTION OF "DESCRIPTION OF
STOCK--Voting Rights" GENZYME CAPITAL GENZYME CAPITAL
beginning on page STOCK--Voting STOCK--Voting
168. Rights." Rights."
</TABLE>
194
<PAGE>
LEGAL MATTERS
The validity of the Biosurgery Stock to be issued in the merger and the tax
treatment of the tracking stock exchanges and 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 Biomatrix by Bingham
Dana LLP, Boston, Massachusetts.
EXPERTS
The financial statements of Genzyme Corporation, Genzyme General, Genzyme
Molecular Oncology, Genzyme Surgical Products and Genzyme Tissue Repair
incorporated in this joint proxy statement/prospectus by reference to the Annual
Report on Form 10-K for the year ended December 31, 1999 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 financial statements of RenaGel LLC incorporated into this joint proxy
statement/prospectus by reference to the Annual Report on Form 10-K of GelTex
Pharmaceuticals, Inc. for the year ended December 31, 1999, 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.
The consolidated financial statements of Biomatrix incorporated in this
joint proxy statement/ prospectus by reference to the Annual Report on
Form 10-K for the year ended December 31, 1999, 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.
Ernst & Young LLP, independent auditors, have audited the consolidated
financial statements of GelTex Pharmaceuticals, Inc. included in its Annual
Report on Form 10-K for the year ended December 31, 1999, as set forth in their
report, which is incorporated by reference in this prospectus and elsewhere in
the registration statement. The consolidated financial statements of GelTex
Pharmaceuticals, Inc. are incorporated by reference in reliance on Ernst & Young
LLP's report, given on their authority as experts in accounting and auditing.
FUTURE BIOMATRIX STOCKHOLDER PROPOSALS
If the merger is not consummated, or is not consummated within the time
period currently contemplated, Biomatrix will hold its 2000 annual meeting of
stockholders or a special meeting in lieu of the annual meeting. The Biomatrix
board will make provision for presentation of proposals by stockholders at the
2000 annual meeting of stockholders, if any such meeting is held, provided such
proposals are submitted by eligible stockholders who have complied with the
relevant regulations of the SEC. To be considered for inclusion in the agenda
for that meeting and the proxy materials relating to that meeting, those
proposals must be received by Biomatrix no later than
- if Biomatrix gives at least 40 days' notice of that meeting, 30 days prior
to the date of that meeting, or
- if Biomatrix gives less than 40 days' notice of that meeting, the tenth
day following the day that Biomatrix mails notice of the date of that
meeting or otherwise publicly discloses the date of that meeting.
195
<PAGE>
FUTURE GENZYME STOCKHOLDER PROPOSALS
To be included in Genzyme's 2001 annual proxy statement or to bring business
before the annual meeting, a shareholder proposal must be received by Genzyme in
writing no later than February 25, 2001. Genzyme's by-laws permit a stockholder
to bring business before or propose director nominations to be considered at an
annual meeting. The notice must contain specified information about the
proposing stockholder and the proposed business or nomination. If any
stockholder proposal is submitted after March 27, 2001, Genzyme's board will be
allowed to use its discretionary voting authority when the proposal is raised at
the annual meeting without any discussion of the matter in the proxy statement.
If you are interested in the procedures required to submit a proposal, please
contact Genzyme Corporation, One Kendall Square, Cambridge, Massachusetts 02139,
Attention: Clerk, phone: (617) 252-7500.
OTHER MATTERS
Neither Genzyme nor Biomatrix presently intends to bring before the Genzyme
or Biomatrix special meetings any matters other than those specified in the
notice accompanying this joint proxy statement/prospectus, and neither Genzyme
nor Biomatrix has any knowledge of any other matters which may be brought up by
other persons. However, if any other matters come before the Genzyme special
meeting or the Biomatrix special meeting or any adjournments of those meetings,
the persons named in the enclosed forms of the Genzyme proxy or Biomatrix proxy,
as the case may be, including any substitutes, will use their best judgment to
vote the proxies.
NOTICE OF AMENDMENT OF GENZYME BY-LAWS
During the fourth quarter of 1999, Genzyme's board approved amendments to
Genzyme's by-laws that (1) changed the date of the annual meeting of
stockholders from the third Thursday of May to the fourth Thursday of May, (2)
allow the board to authorize Genzyme stockholders to appoint proxies by
electronic transmission and (3) changed the advance notice provisions for
stockholder nominations of directors and stockholder-proposed business at an
annual meeting. According to the authority granted to it by the second of these
amendments, the Genzyme board did authorize Genzyme stockholders to appoint
proxies by electronic transmission in connection with the creation of Genzyme
Biosurgery. Before these amendments, the advance notice provisions of Genzyme's
by-laws required that a stockholder notify Genzyme of a nominee for director or
a proposal for business at an annual meeting not less than 50 days nor more than
75 days prior to the date of the meeting of stockholders. As indicated under
"FUTURE GENZYME STOCKHOLDER PROPOSALS," the amended by-laws now require that a
stockholder notify Genzyme of a nominee for director or a proposal for business
at an annual meeting by (1) not less than 90 days nor more than 120 days prior
to the anniversary date of the prior year's annual meeting, provided that there
was an annual meeting in the prior year and the date of the current year's
annual meeting is not more than 30 days from the anniversary date of the prior
year's annual meeting or (2) if earlier, 60 days prior to the annual meeting.
The full text of Genzyme's by-laws, as amended, have been filed as an exhibit to
Genzyme's Quarterly Report on Form 10-Q for the quarter ended September 30,
1999. See "WHERE YOU CAN FIND MORE INFORMATION" beginning on page 197.
196
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
Genzyme, Biomatrix and GelTex Pharmaceuticals 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, Biomatrix and GelTex Pharmaceuticals 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 Pharmaceuticals may also be
inspected at the offices of The Nasdaq Stock Market-Registered Trademark-, which
is located at 1735 K Street, N.W., Washington, D.C. 20006 and concerning
Biomatrix at the New York Stock Exchange, Inc. located at 11 Wall Street, New
York, NY 10005.
Genzyme filed a registration statement on Form S-4 to register with the SEC
the Biosurgery Stock to be issued to holders of Surgical Products Stock and
Tissue Repair Stock in the tracking stock exchanges and Biomatrix stockholders
in the merger. This joint proxy statement/prospectus is a part of that
registration statement and constitutes a prospectus of Genzyme in addition to
being a joint proxy statement of Genzyme and Biomatrix. As allowed by SEC rules,
this joint 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 Biomatrix to "incorporate by reference"
information into this joint 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 joint proxy statement/prospectus, except
for any information superseded by information contained directly in this joint
proxy statement/prospectus or in later-filed documents incorporated by reference
in this joint proxy statement/prospectus.
This joint proxy statement/prospectus incorporates by reference information
from the documents set forth below that Genzyme, Biomatrix and GelTex
Pharmaceuticals have previously filed with the SEC. These documents contain
important business and financial information about Genzyme and Biomatrix or
relevant to the merger that is not included in or delivered with this joint
proxy statement/ prospectus.
<TABLE>
<CAPTION>
GENZYME FILINGS (FILE NO. 0-14680) PERIOD 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 Reports on Form 10-Q Filed on May 15, 2000 and August 14, 2000,
each as amended 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>
197
<PAGE>
<TABLE>
<CAPTION>
GENZYME FILINGS (FILE NO. 0-14680) PERIOD OR DATE FILED
---------------------------------- ---------------------------------------------
<S> <C>
Proxy Statement on Schedule 14A Filed on April 18, 2000
The description of Genzyme General Stock, Filed on June 30, 2000
Molecular Oncology Stock and Tissue Repair
Stock contained in Genzyme's Registration
Statement on Form 8-A/A
The description of Genzyme General Stock Filed on June 11, 1999
purchase rights, Molecular Oncology Stock
purchase rights and Tissue Repair Stock
purchase rights contained in Genzyme's
Registration Statement on Form 8-A/A
The description of Surgical Products Stock Filed on June 30, 2000
and Surgical Products Stock purchase rights
contained in Genzyme's Registration
Statement on Form 8-A/A
BIOMATRIX FILINGS (FILE NO. 0-19373) PERIOD OR DATE FILED
--------------------------------------------- ---------------------------------------------
Annual Report on Form 10-K Fiscal Year ended December 31, 1999, filed on
March 30, 2000, amended April 26, 2000 and
October 26, 2000
Quarterly Reports on Form 10-Q Filed on May 15, 2000, amended October 26,
2000, and August 14, 2000
Current Reports on Form 8-K Filed on March 15, 2000 and September 13,
2000
The description of Biomatrix' common stock Filed on June 12, 1998
contained in Biomatrix' Registration
Statement on Form 8-A.
GELTEX PHARMACEUTICALS FILINGS (NO. 0-26872) PERIOD OR DATE FILED
--------------------------------------------- ---------------------------------------------
Selected Financial Statements, Consolidated Fiscal Year ended December 31, 1999, filed on
Financial Statements and related notes set March 30, 2000
forth on pages 17 and 18 and pages F-3 to
F-20 of GelTex' Annual Report on Form 10-K
Consolidated Financial Statements and related Filed on August 14, 2000
notes set forth on pages 3 to 9 of GelTex'
Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000
</TABLE>
Genzyme and Biomatrix also incorporate by reference additional documents
that may be filed by them with the SEC under Section 13(a), 13(c), 14 or 15(d)
of the Exchange Act between the date of this joint proxy statement/prospectus
and the date of the Genzyme and Biomatrix special meetings. 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.
Genzyme has supplied all information contained or incorporated by reference
in this joint proxy statement/prospectus relating to Genzyme, and Biomatrix has
supplied all such information relating to Biomatrix.
198
<PAGE>
If you are a Genzyme or Biomatrix stockholder, the companies may have 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 joint proxy
statement/prospectus, the exhibit will also be provided without charge.
Stockholders may obtain documents incorporated by reference in this joint proxy
statement/prospectus by requesting them in writing or by telephone from the
appropriate company at the following addresses:
<TABLE>
<S> <C>
Genzyme Corporation Biomatrix, Inc.
Shareholder Relations Investor Relations
One Kendall Square 65 Railroad Avenue
Cambridge, Massachusetts 02139 Ridgefield, New Jersey 07657
(617) 252-7526 (201) 945-9550
</TABLE>
You should rely only on the information contained or incorporated by
reference in this joint proxy statement/prospectus. Genzyme and Biomatrix have
not authorized anyone to provide you with information that is different from
what is contained in this joint proxy statement/prospectus. This joint proxy
statement/prospectus is dated November 3, 2000. You should not assume that the
information contained in this joint proxy statement/prospectus is accurate as of
any date other than that date. Neither the mailing of this joint proxy
statement/prospectus to stockholders nor the issuance of Biosurgery Stock in the
tracking stock exchanges and the merger creates any implication to the contrary.
199
<PAGE>
ANNEX A
AMENDED
AGREEMENT AND PLAN OF MERGER
AMONG
GENZYME CORPORATION,
SEAGULL MERGER CORPORATION,
AND
BIOMATRIX, INC.
----------------------------
DATED AS OF MARCH 6, 2000,
AS AMENDED THROUGH
OCTOBER 25, 2000
----------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C> <C>
ARTICLE I--THE MERGER............................................... A-2
1.1 The Merger.................................................. A-2
1.2 Closing..................................................... A-2
1.3 Effective Time.............................................. A-2
1.4 Articles of Organization and By-Laws........................ A-2
1.5 Directors and Officers...................................... A-2
ARTICLE II--CONVERSION OF SECURITIES................................ A-2
2.1 Conversion of Common Stock.................................. A-2
2.2 Seller Common Stock Elections............................... A-3
2.3 Proration of Cash Election Price............................ A-4
2.4 Anti-Dilution............................................... A-6
2.5 Stock Option Plans.......................................... A-6
2.6 Biomatrix Convertible Note.................................. A-7
2.7 Dissenting Shares........................................... A-7
2.8 Exchange of Certificates.................................... A-7
2.9 No Transfers................................................ A-8
2.10 No Liability................................................ A-8
2.11 Lost Certificates........................................... A-8
2.12 Withholding Rights.......................................... A-8
2.13 Distributions with Respect to Unexchanged Shares............ A-8
2.14 Further Assurances.......................................... A-8
ARTICLE III--CERTAIN RELATED TRANSACTIONS........................... A-9
3.1 Funding of Cash Merger Consideration........................ A-9
3.2 Reorganization.............................................. A-9
ARTICLE IV--REPRESENTATIONS AND WARRANTIES OF BIOMATRIX............. A-10
4.1 Incorporation; Authority.................................... A-10
4.2 Authorization and Enforceability............................ A-10
4.3 Capitalization.............................................. A-10
4.4 Biomatrix Subsidiaries...................................... A-11
4.5 SEC Filings; Financial Statements........................... A-12
4.6 Absence of Undisclosed Liabilities.......................... A-12
4.7 Absence of Certain Events................................... A-12
4.8 Contracts and Other Agreements.............................. A-12
4.9 Compliance with Laws........................................ A-13
4.10 Legal Proceedings........................................... A-14
4.11 Intellectual Property....................................... A-14
4.12 Insurance................................................... A-15
4.13 Commercial Relationships.................................... A-15
4.14 Tax Matters................................................. A-15
4.15 Employee Benefit Plans...................................... A-16
4.16 Employee Relations.......................................... A-17
4.17 Environmental Matters....................................... A-18
4.18 No Breach................................................... A-19
4.19 Board Approval.............................................. A-19
4.20 Anti-Takeover Laws.......................................... A-19
4.21 Opinion of Biomatrix' Financial Advisor..................... A-19
4.22 Brokerage................................................... A-19
4.23 Investment Company Act...................................... A-19
4.24 Proxy Statement and Registration Statement.................. A-19
4.25 Year 2000 Matters........................................... A-20
</TABLE>
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ARTICLE V--REPRESENTATIONS AND WARRANTIES OF GENZYME................ A-21
5.1 Incorporation; Authority.................................... A-21
5.2 Authorization and Enforceability............................ A-21
5.3 Capitalization.............................................. A-22
5.4 SEC Filings; Financial Statements........................... A-23
5.5 Absence of Undisclosed Genzyme Liabilities.................. A-23
5.6 Absence of Certain Events................................... A-24
5.7 Contracts and Other Agreements.............................. A-24
5.8 Compliance with Laws........................................ A-24
5.9 Legal Proceedings........................................... A-25
5.10 No Breach................................................... A-25
5.11 Intellectual Property....................................... A-26
5.12 Insurance................................................... A-26
5.13 Employee Benefit Plans...................................... A-27
5.14 Employee Relations.......................................... A-27
5.15 Environmental Matters....................................... A-27
5.16 Board Approval.............................................. A-28
5.17 Brokerage................................................... A-28
5.18 Year 2000 Matters........................................... A-28
5.19 Proxy Statement and Registration Statement.................. A-28
5.20 Available Funds............................................. A-28
ARTICLE VI--COVENANTS AND AGREEMENTS................................ A-29
6.1 Biomatrix Conduct of Business............................... A-29
6.2 Genzyme Conduct of Business................................. A-31
6.3 Tax-Free Reorganization Treatment........................... A-32
6.4 Corporate Examinations and Investigations................... A-33
6.5 Expenses.................................................... A-33
6.6 Third-Party Consents........................................ A-33
6.7 Further Assurances.......................................... A-33
6.8 Preparation of Disclosure Documents......................... A-34
6.9 Public Announcements........................................ A-35
6.10 Nasdaq Matters.............................................. A-35
6.11 No Solicitation............................................. A-35
6.12 Regulatory Filings.......................................... A-36
6.13 Notification of Certain Matters............................. A-36
6.14 Registration of Option Shares............................... A-36
6.15 Employee Matters............................................ A-36
6.16 Indemnification............................................. A-37
6.17 Affiliates Letters.......................................... A-37
ARTICLE VII--CONDITIONS PRECEDENT TO THE OBLIGATIONS OF EACH PARTY
TO CONSUMMATE THE MERGER............................................ A-38
7.1 Stockholder Approval........................................ A-38
7.2 Registration Statement...................................... A-38
7.3 Absence of Order............................................ A-38
7.4 Regulatory Approvals........................................ A-38
7.5 HSR Act..................................................... A-38
7.6 Nasdaq...................................................... A-38
ARTICLE VIII--CONDITIONS PRECEDENT TO THE OBLIGATION OF GENZYME AND
MERGER SUB TO CONSUMMATE THE MERGER................................. A-38
8.1 Representations, Warranties and Covenants................... A-38
8.2 Delaware Certificates....................................... A-38
8.3 Secretary's Certificates.................................... A-38
8.4 Tax Opinion................................................. A-39
8.5 Merger Filings.............................................. A-39
</TABLE>
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ARTICLE IX--CONDITIONS PRECEDENT TO THE OBLIGATION OF BIOMATRIX TO
CONSUMMATE THE MERGER............................................... A-39
9.1 Representations, Warranties and Covenants................... A-39
9.2 Massachusetts Certificates.................................. A-39
9.3 Clerk's Certificates........................................ A-39
9.4 Tax Opinion................................................. A-39
9.5 Reorganization.............................................. A-40
9.6 Merger Filings.............................................. A-40
ARTICLE X--TERMINATION, AMENDMENT AND WAIVER........................ A-41
10.1 Termination................................................. A-41
10.2 Effect of Termination....................................... A-42
10.3 Expense Reimbursement....................................... A-42
10.4 Break-up Fees............................................... A-43
10.5 Amendment................................................... A-45
10.6 Waiver...................................................... A-45
ARTICLE XI--MISCELLANEOUS........................................... A-46
11.1 No Survival................................................. A-46
11.2 Notices..................................................... A-46
11.3 Entire Agreement............................................ A-46
11.4 Governing Law............................................... A-47
Binding Effect; No Assignment; No Third-Party
11.5 Beneficiaries............................................... A-47
11.6 Section Headings, Construction.............................. A-47
11.7 Counterparts................................................ A-47
11.8 Severability................................................ A-47
11.9 Submission to Jurisdiction; Waiver.......................... A-47
11.10 Waiver of Jury Trial........................................ A-48
11.11 Enforcement................................................. A-48
11.12 Rules of Construction....................................... A-48
</TABLE>
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EXHIBITS
<TABLE>
<S> <C>
A-1 Revised Divisional Policies
A-2 Terms of GBS Division Common Stock
B Form of Affiliate Letter
</TABLE>
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AGREEMENT AND PLAN OF MERGER
(AS AMENDED BY AMENDMENT NO. 1 DATED AS OF APRIL 17, 2000,
AMENDMENT NO. 2 DATED AS OF AUGUST 25, 2000 AND AMENDMENT NO. 3 DATED AS OF
OCTOBER 25, 2000)
This Agreement and Plan of Merger (this "AGREEMENT"), dated as of March 6,
2000, is by and among Genzyme Corporation ("GENZYME"), a Massachusetts
corporation, Seagull Merger Corporation, a Massachusetts corporation and a
wholly owned subsidiary of Genzyme ("MERGER SUB"), and Biomatrix, Inc.
("BIOMATRIX"), a Delaware corporation.
WHEREAS, the Boards of Directors of Genzyme and Biomatrix deem it advisable
and in the best interests of each corporation and its respective stockholders
that Genzyme and Biomatrix combine as described below in order to advance the
long-term business interests of Genzyme and Biomatrix;
WHEREAS, Genzyme through its Genzyme Surgical Products Division (the "GSP
DIVISION") engages in the business of developing, manufacturing and marketing
surgical products for cardiovascular surgery and general surgery, and Genzyme
has issued shares of its Genzyme Surgical Products Division Common Stock, $.01
par value per share (the "GSP DIVISION COMMON STOCK") to reflect the value and
track the performance of the GSP Division and, with respect to each such share,
a certain number of GSP Stock Purchase Rights issued pursuant to the Amended and
Restated Renewed Rights Agreement associated therewith (the "GENZYME RIGHTS
PLAN", with the GSP Stock Purchase Rights associated therewith referred to
collectively as the "GSP STOCK PURCHASE RIGHTS");
WHEREAS, Genzyme through its Genzyme Tissue Repair Division (the "GTR
DIVISION") engages in the business of developing and marketing biological
products for orthopedic injuries, such as cartilage repair, and severe burns,
and Genzyme has issued shares of its Genzyme Tissue Repair Common Stock (the
"GTR DIVISION COMMON STOCK") to reflect the value and track the performance of
the GTR Division and, with respect to each such share, a certain number of GTR
Stock Purchase Rights issued pursuant to the Genzyme Rights Plan), with the GTR
Stock Purchase Rights associated therewith referred to collectively as the "GTR
STOCK PURCHASE RIGHTS");
WHEREAS, Genzyme and Biomatrix would like to combine the business of
Biomatrix with the businesses of the GSP Division and the GTR Division into a
new division, currently referred to as the "Genzyme Biosurgery Division" (the
"GBS DIVISION");
WHEREAS, in connection with the formation of the GBS Division Genzyme will
authorize a new series of common stock to be known as "Genzyme Biosurgery
Division Common Stock" ("GBS DIVISION COMMON STOCK") to reflect the value and
track the performance of the GBS Division, and with respect to each such share,
a certain number of GBS Stock Purchase Rights issued pursuant to the Genzyme
Rights Plan, as amended to reflect the creation and issuance of the GBS Division
Common Stock.
WHEREAS, the combination of Genzyme and Biomatrix shall be effected by the
terms of this Agreement through a merger of Biomatrix with and into Merger Sub,
as a result of which Biomatrix stockholders will have the right to receive cash
and GBS Division Common Stock (the "MERGER");
WHEREAS, in connection with the Merger, Genzyme wishes to combine the GSP
Division and the GTR Division with the GBS Division, and in connection with such
combination, the shares of GSP Division Common Stock and GTR Division Common
Stock will be exchanged for shares of GBS Division Common Stock.
WHEREAS, as a condition to, and concurrently with, the execution of this
Agreement, certain Biomatrix stockholders have executed and delivered to Genzyme
stockholder voting agreements; and
WHEREAS, as a condition to, and concurrently with, the execution of this
Agreement, Genzyme and Biomatrix have entered into an option agreement (the
"STOCK OPTION AGREEMENT"), dated the date
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hereof, granting Genzyme an option to purchase shares of Biomatrix Common Stock,
par value $.0001 per share ("BIOMATRIX COMMON STOCK"); and
WHEREAS, it is intended that the Merger shall qualify as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "CODE") for federal income tax purposes;
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth below, the
parties agree as follows:
ARTICLE I--THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions herein, and
in accordance with the General Corporation Law of the State of Delaware (the
"DGCL") and the Massachusetts Business Corporation Law ("MBCL"), Biomatrix 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 Biomatrix shall cease to exist as a separate corporation.
1.2 CLOSING. The closing of the Merger (the "CLOSING") will take place at
10:00 a.m., Boston time, on a date to be specified by Genzyme and Biomatrix (the
"CLOSING DATE"), which shall be no later than the fifth business day after
satisfaction or waiver of the conditions set forth in Articles VII, VIII and IX
(other than delivery of items to be delivered at the Closing), at the offices of
Bingham Dana LLP, 150 Federal Street, Boston, Massachusetts, unless another
date, place or time is agreed to by Genzyme and Biomatrix.
1.3 EFFECTIVE TIME. At the Closing, the parties shall cause a Certificate
of Merger with respect to the Merger to be filed and recorded in accordance with
the DGCL and Articles of Merger with respect to the Merger to be filed in
accordance with the MBCL (collectively, the "MERGER FILINGS"), 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 applicable Merger Filing is
duly filed with the Secretary of State of Delaware in accordance with the DGCL
and the Massachusetts Secretary of State in accordance with the MBCL, or at such
later time as is specified in the Merger Filings (the "EFFECTIVE TIME"). The
Merger shall have the effects set forth in Sections 259, 260 and 261 of the DGCL
and Sections 78-85 of the MBCL.
1.4 ARTICLES OF ORGANIZATION AND BY-LAWS. The Articles of Organization and
By-Laws of Merger Sub, in each case as and By-Laws 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, except that the name of the Surviving Corporation shall be
changed to "GENZYME BIOSURGERY CORPORATION" or such other name as Genzyme may
designate.
1.5 DIRECTORS AND OFFICERS. 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.
ARTICLE II--CONVERSION OF SECURITIES
2.1 CONVERSION OF COMMON STOCK.
(a) At the Effective Time, by virtue of the Merger and without any action on
the part of Genzyme, Biomatrix or Merger Sub:
(i) Each share of Biomatrix Common Stock owned by Biomatrix or by any
Biomatrix Subsidiary (as defined in Section 4.4(a)) shall be cancelled and
extinguished and no payment shall be made with respect thereto.
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<PAGE>
(ii) Subject to payment of cash in lieu of fractional shares as provided
in Section 2.1(b) and subject to Sections 2.2 - 2.14, each share of
Biomatrix Common Stock outstanding immediately prior to the Effective Time
(other than any Dissenting Shares (as defined in Section 2.7) and shares
held by Biomatrix or any Biomatrix Subsidiary), shall be cancelled and
extinguished and automatically converted into the following (the "MERGER
CONSIDERATION"):
(A) for each such share of Biomatrix Common Stock with respect to
which an election to receive a combination of GBS Division Common Stock
and cash has been effectively made and not revoked or lost, pursuant to
Section 2.2 and 2.3 hereof (a "STANDARD ELECTION"), the right to receive
from Genzyme (x) a fraction of a share of GBS Division Common Stock
(together with that portion of a GBS Stock Purchase Right) calculated by
multiplying the Conversion Number by one minus the Standard Cash
Percentage (as defined in Section 2.3(a)) and (y) an amount of cash equal
to the product of the Cash Election Price and the Standard Cash
Percentage (collectively, the "STANDARD CONSIDERATION"); or
(B) for each such share of Biomatrix Common Stock with respect to
which an election to receive solely cash has been effectively made and
not revoked or lost, pursuant to Section 2.2 and 2.3 hereof (a "CASH
ELECTION"), the right to receive in cash from Genzyme an amount equal to
$37.00 (the "CASH ELECTION PRICE" or "CASH CONSIDERATION");
(C) for each such share of Biomatrix Common Stock with respect to
which an election to receive solely GBS Division Common Stock has been
effectively made and not revoked or lost, pursuant to Section 2.2 and 2.3
hereof (a "STOCK ELECTION"), the right to receive from Genzyme one
(1) (the "CONVERSION NUMBER") share of GBS Division Common Stock together
with that number of GBS Stock Purchase Rights issued pursuant to the
Genzyme Rights Plan (the "STOCK CONSIDERATION");
(D) for each such share of Biomatrix Common Stock with respect to
which no election has been effectively made and not revoked or lost,
pursuant to Section 2.2 and 2.3 hereof (each a "NONELECTING SHARE"), the
right to receive from Genzyme the Standard Consideration.
(iii) Each share of common stock, $0.01 par value per share, of Merger
Sub issued and outstanding immediately prior to the Effective Time shall
continue to be outstanding following, and shall be unaffected by, the
Merger.
(b) In lieu of the issuance of fractional shares of GBS Division Common
Stock, cash adjustments will be paid (without interest) to the holders of
Biomatrix Common Stock immediately prior to the Effective Time in respect of any
fractional share of GBS Division Common Stock that would otherwise be issuable
to them (after aggregating all fractional shares to be received by such
stockholders). The amount of such cash adjustments will be determined by
multiplying each relevant holder's fractional interest by the reported last sale
price on the Nasdaq National Market ("NASDAQ") for the GBS Division Common Stock
on the trading day immediately preceding the Closing Date or, if the GBS
Division Common Stock is not then traded on Nasdaq, the value of the GBS
Division Common Stock on such day as determined in good faith by Genzyme, and
rounding to the nearest cent.
2.2 BIOMATRIX COMMON STOCK ELECTIONS.
(a) Each person who, on or prior to the Election Date referred to in
Section 2.2(b) hereof, is a record holder of shares of Biomatrix Common Stock
will be entitled, with respect to all or any portion of his shares, to make an
unconditional election on or prior to such Election Date to receive a certain
form of Merger Consideration on the basis hereinafter set forth.
(b) Biomatrix shall prepare and mail a form of election (the "FORM OF
ELECTION") with the Proxy Statement/Prospectus to the record holders of
Biomatrix Common Stock as of the record date for the meeting of the stockholders
of Biomatrix referred to in Section 6.8 hereof, which Form of Election may
A-3
<PAGE>
be used by each record holder of shares of Biomatrix Common Stock to specify the
number of shares of Biomatrix Common Stock that such stockholder desires to have
converted into the right to receive the Cash Consideration, the number of shares
of Biomatrix Common Stock that such stockholder desires to have converted into
the right to receive the Stock Consideration, and the number of shares of
Biomatrix Common Stock that such stockholder desires to have converted into the
right to receive the Standard Consideration. Any such holder's election shall
have been properly made only if the Exchange Agent designated pursuant to
Section 2.8 shall have received at its designated office, by 5:00 p.m., Boston
time on the business date (the "ELECTION DATE") immediately preceding the date
of the meeting of the stockholders of Biomatrix referred to in Section 6.8
hereof, a Form of Election properly completed and signed and accompanied by
certificates for the shares of Biomatrix Common Stock to which such Form of
Election relates duly endorsed or otherwise in form acceptable for transfer on
the books of Biomatrix.
(c) Any Form of Election may be revoked by the stockholder submitting it to
the Exchange Agent only by written notice received by the Exchange Agent
(i) prior to 5:00 p.m., Boston time on the Election Date or (ii) after the date
of the Biomatrix Stockholder Meeting (as defined in Section 6.8), if (and to the
extent that) the Exchange Agent is legally required to permit revocations and
the Effective Time shall not have occurred prior to such date. In addition, all
Forms of Election shall automatically be revoked if the Exchange Agent is
notified in writing by Biomatrix and Genzyme that this Agreement has been
terminated in accordance with Article X hereof. If a Form of Election is
revoked, the certificate or certificates (or guarantees of delivery, as
appropriate) for the shares of Biomatrix Common Stock to which such Form of
Election relates shall be promptly returned to the stockholder submitting the
same to the Exchange Agent.
(d) Any determination of the Exchange Agent as to whether an election has
been properly made or revoked pursuant to this Section 2.2 with respect to
shares of Biomatrix Common Stock and as to when elections and revocations were
received by it shall be binding. If the Exchange Agent determines that any
election was not properly made with respect to shares of Biomatrix Common Stock,
such shares shall be treated by the Exchange Agent as Nonelecting Shares. The
Exchange Agent shall also make all computations as to the allocation and the
proration contemplated by Section 2.3, and any such computation shall be
conclusive and binding on the holders of shares of Biomatrix Common Stock. The
Exchange Agent may, with the mutual agreement of Biomatrix and Genzyme, make
such rules as are consistent with this Section 2.2 for the implementation of the
elections provided for herein as shall be necessary or desirable to effect fully
such elections.
2.3. PRORATION. (a) Notwithstanding anything in this Agreement to the
contrary (except as provided in Section 2.3(f)), the number of shares of
Biomatrix Common Stock to be converted into the right to receive cash at the
Effective Time (the "CASH ELECTION NUMBER") shall equal (i) the product of
(x) 0.2838 (the "CASH PERCENTAGE") and (y) the number of shares of Biomatrix
Common Stock outstanding immediately prior to the Effective Time (excluding for
this purpose any shares of Biomatrix Common Stock to be canceled pursuant to
Section 2.1(a)(i)) less (ii) the number of shares owned by Dissenting Holders
with respect to which, at the Effective Time, demands for or rights of appraisal
have not been withdrawn or lost. For purposes of this Agreement, the Standard
Cash Percentage shall equal (x) the Cash Election Number divided by (y)(A) the
number of shares of Biomatrix Common Stock outstanding immediately prior to the
Effective Time (excluding for this purpose any shares of Biomatrix Common Stock
to be canceled pursuant to Section 2.1(a)(i)) less (B) the number of shares
owned by Dissenting Holders with respect to which, at the Effective Time,
demands for or rights of appraisal have not been withdrawn or lost. For purposes
of this Agreement the "STANDARD CASH SHARES" shall equal the Standard Cash
Percentage multiplied by the sum of (i) the number of shares of Biomatrix Common
Stock for which holders have made the Standard Election ("STANDARD ELECTION
SHARES") and (ii) the number of Nonelecting Shares. The number of "AVAILABLE
CASH SHARES" shall be equal to the Cash Election Number minus the number of
Standard Cash Shares.
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<PAGE>
(b) Standard Election Shares and Nonelecting Shares shall (subject to
Section 2.3(f)), be converted into the right to receive the Standard
Consideration.
(c) If the number of shares of Biomatrix Common Stock for which holders have
made Cash Elections ("CASH ELECTION SHARES") exceeds the number of Available
Cash Shares, then:
(i) each Cash Election Share shall be converted into the right to
receive (x) an amount of cash equal to the Cash Election Price multiplied by
the Cash Proration Factor and (y) a fraction of a share of Genzyme
Biosurgery Division Common Stock (and the associated fraction of a GBS Stock
Purchase Right) calculated by multiplying the Conversion Number by one minus
the Cash Proration Factor. The Cash Proration Factor shall equal the number
of Available Cash Shares divided by the number of Cash Election Shares; and
(ii) each share of Biomatrix Common Stock for which a holder has made a
Stock Election (each a "STOCK ELECTION SHARE") shall be converted into the
right to receive the Stock Consideration.
(d) If the number of Cash Election Shares is less than the number of
Available Cash Shares then:
(i) each Cash Election Share shall be converted into the right to
receive the Cash Consideration; and
(ii) each Stock Election Share shall be converted into the right to
receive (x) a fraction of a share of Genzyme Biosurgery Division Common
Stock (and the associated fraction of a GBS Stock Purchase Right) equal to
the Conversion Number multiplied by one minus the Stock Proration Factor and
(y) cash in an amount equal to the product of the Cash Election Price and
the Stock Proration Factor. The Stock Proration Factor shall equal the ratio
of (A) the number of Available Cash Shares less the number of Cash Election
Shares divided by (B) the number of Stock Election Shares.
(e) If the number of Cash Election Shares is equal to the Available Cash
Shares, then (subject to Section 2.3(f)) all Cash Election Shares shall be
converted into the right to receive the Cash Election Price, and all Stock
Election Shares shall be converted into the right to receive Stock
Consideration.
(f) In the event that the GBS Division Common Stock (excluding fractional
shares to be paid in cash pursuant to Section 2.1(b)) to be issued in the Merger
in exchange for shares of Biomatrix Common Stock, valued at the average of the
high and low trading prices of the GBS Division Common Stock as reported on the
Nasdaq for the Effective Date (or, if there is no such trading, as otherwise
determined in good faith by Genzyme with the advice of tax counsel), minus the
aggregate discount, if any, due to trading restrictions on the GBS Division
Common Stock to be issued in the Merger (the "GBS DIVISION COMMON STOCK VALUE")
is less than 45% of the total Merger Consideration to be paid in exchange for
the shares of Biomatrix Common Stock (including without limitation the amount of
cash to be paid in lieu of fractional shares pursuant to Section 2.1(b) and the
estimated amount of cash that will be paid for Dissenting Shares pursuant to
Section 2.7 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 Cash Percentage (and, accordingly, the Standard Cash Percentage) shall
be reduced to the extent necessary to ensure that the GBS Division Common Stock
Value is 45% of the Total Consideration.
(e) In the event that the GBS Division Common Stock (excluding fractional
shares to be paid in cash pursuant to Section 2.1(b)) to be issued in the Merger
in exchange for shares of Biomatrix Common Stock, valued at the average of the
high and low trading prices of the GBS Division Common Stock as reported on the
Nasdaq for the Effective Date (or, if there is no such trading, as otherwise
determined in good faith by Genzyme with the advice of tax counsel), minus the
aggregate discount, if any, due to trading restrictions on the GBS Division
Common Stock to be issued in the Merger (the
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<PAGE>
"GENZYME COMMON STOCK VALUE") is less than 45% of the total Merger Consideration
to be paid in exchange for the shares of Biomatrix Common Stock (including
without limitation the amount of cash to be paid in lieu of fractional shares
pursuant to Section 2.1(b) and the amount of cash paid for Dissenting Shares
pursuant to Section 2.7 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 number of Electing Shares shall be reduced, and the
number of Non-Electing Shares shall be correspondingly increased, to the extent
necessary to ensure that the GBS Division Common Stock Value is 45% of the Total
Consideration.
2.4 ANTI-DILUTION. In the event that, subsequent to the date of this
Agreement but prior to the Effective Time, the outstanding shares of GBS
Division Common Stock shall have been increased, decreased, changed into or
exchanged for a different number or kind of shares or securities through
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split, or other like changes in Genzyme's capitalization, other
than pursuant to this Agreement, as the case may be (a "RECAPITALIZATION"), then
an appropriate and proportionate adjustment shall be made to the Conversion
Number and the Cash Election Price so that each holder of Biomatrix Common Stock
shall receive under Section 2.1(a)(ii) hereof the number of shares of GBS
Division Common Stock (except for fractional shares) and associated GBS Stock
Purchase Rights or the amount of cash that such holder would have held
immediately following the Recapitalization if the Merger had occurred
immediately prior to the Recapitalization or the record date therefor, as
applicable.
2.5. STOCK OPTION PLANS.
(a) As soon as practicable following the date of this Agreement, the Board
of Directors of Biomatrix (or, if appropriate, any committee administering the
Biomatrix Stock Option Plans (as defined below)) shall adopt such resolutions or
take such other actions as may be required to effect the following:
(i) adjust the terms of all outstanding employee or director or
consultant stock options to purchase shares of Biomatrix Common Stock
granted under Biomatrix' 1994 Stock Option Plan or Biomatrix' Nonemployee
Director Option Plan (the "BIOMATRIX STOCK OPTION PLANS"), with such options
referred to as "BIOMATRIX STOCK OPTIONS"), to provide that, at the Effective
Time of the Merger, each Biomatrix Stock Option outstanding immediately
prior to the Effective Time of the Merger shall be assumed by Genzyme; each
Biomatrix Option so assumed by Genzyme under this Agreement will continue to
have, and be subject to, the same terms and conditions set forth in the
applicable Biomatrix Stock Option Plan and option agreements issued
thereunder immediately prior to the Effective Time (including, without
limitation, any repurchase rights, but taking into account as if in effect
prior to the Effective Time any modification of Biomatrix Options required
of or permitted to Biomatrix pursuant to this Agreement), except that
(x) each Biomatrix Option will be exercisable (or will become exercisable in
accordance with its terms) for that number of shares of GBS Division Common
Stock and associated GBS Stock Purchase Rights equal to the product of the
number of shares of Biomatrix Common Stock that were issuable upon exercise
of such Biomatrix Option immediately prior to the Effective Time multiplied
by the Conversion Number, rounded down to the nearest whole number of shares
of GBS Division Common Stock, and (y) the per share exercise price for the
shares of GBS Division Common Stock issuable upon exercise of such assumed
Biomatrix Option will be equal to the quotient determined by dividing the
exercise price per share of Biomatrix Common Stock at which such Biomatrix
Option was exercisable immediately prior to the Effective Time by the
Conversion Number, rounded up to the nearest whole cent, PROVIDED, HOWEVER,
that in the case of any option to which Section 422 of the Code applies
("STATUTORY STOCK OPTIONS"), Biomatrix shall use reasonable efforts to cause
the option price, the number of shares purchasable to such option and the
terms and conditions of exercise of such option to be determined in order to
comply with Section 424(a) of the Code; and
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(ii) except as provided herein or as otherwise agreed to by Biomatrix
and Genzyme, the Biomatrix Stock Option Plans and any other plan, program or
arrangement providing for the issuance or grant of any other interest in
respect of the capital stock of Biomatrix or any subsidiary shall terminate
as of the Effective Time of the Merger, and Biomatrix shall ensure that
following the Effective Time of the Merger no holder of a Biomatrix Stock
Option nor any participant in any Biomatrix Stock Option Plan shall have any
right thereunder to acquire equity securities of Biomatrix or the Surviving
Corporation; and
(iii) adjust the terms of the Biomatrix Stock Options to provide for
accelerated vesting under certain circumstances as provided in Section 2.5
of the Biomatrix Disclosure Schedule.
(b) Genzyme agrees to assume Biomatrix Stock Options as provided in
paragraph (a) above. After the Effective Time, Genzyme will issue to each holder
of an outstanding Biomatrix Option a notice describing the foregoing assumption
of such Biomatrix Options by Genzyme.
2.6 BIOMATRIX CONVERTIBLE NOTE. At the Effective Time, the outstanding
6.9% Convertible Subordinated Note Due May 14, 2003 made by Biomatrix in favor
of SBC Warburg Dillon Read Inc. (the "BIOMATRIX CONVERTIBLE NOTE") to purchase
shares of Biomatrix Common Stock will be assumed by Merger Sub. The Biomatrix
Convertible Note so assumed by Merger Sub under this Agreement will continue to
have, and be subject to, the same terms and conditions set forth in the
Biomatrix Convertible Note immediately prior to the Effective Time, except that
(i) the Biomatrix Convertible Note shall be convertible into such amount of cash
and such number of shares of GBS Division Common Stock and the associated GBS
Stock Purchase Rights, rounded to the nearest whole number of shares of GBS
Division Common Stock, as the holder of the Biomatrix Convertible Note would
have received had such holder converted the Biomatrix Convertible Note in full
immediately prior to the Election Date and failed to make a Cash Election on or
prior to such date and (ii) the Conversion Rate (as defined in the Biomatrix
Convertible Note) will be equal to the product determined by multiplying the
Conversion Rate then in effect by the Conversion Number, rounded to the nearest
whole cent, subject to subsequent adjustment as provided in Section 2 of the
Biomatrix Convertible Note. Prior to the Effective Time, Merger Sub shall
execute and deliver to the holder of the Biomatrix Convertible Note a
supplemental agreement regarding the conversion of the Biomatrix Convertible
Note following the Effective Time in accordance with Section 2(h) thereof and
providing registration rights with respect to the shares issuable upon
conversion of the Biomatrix Convertible Note pursuant to the agreement described
in Section 2.6 of the Biomatrix Disclosure Schedule.
2.7 DISSENTING SHARES. Each share of Biomatrix Common Stock that,
immediately before the Effective Time, was held by any person who has duly
exercised the appraisal rights afforded to dissenting stockholders pursuant to
Section 262 of the DGCL (such shares, collectively, "DISSENTING SHARES") will be
converted into the right to receive the fair value of such shares as determined
in accordance with the provisions of the DGCL.
2.8 EXCHANGE OF CERTIFICATES. At or prior to the date the Proxy
Statement/Prospectus (as defined in Section 6.8) is mailed to shareholders of
Biomatrix, Genzyme shall appoint an exchange agent (the "EXCHANGE AGENT").
Promptly after the Effective Time, Genzyme shall make available to the Exchange
Agent certificates representing the shares of GBS Division Common Stock to be
issued and shall pay to the Exchange Agent the aggregate cash amount to be paid,
pursuant to this Agreement, in exchange for the outstanding shares of Biomatrix
Common Stock. As promptly as practicable after the Effective Time, Genzyme or
the Exchange Agent will send to each former holder of record of shares of
Biomatrix Common Stock that were converted into the right to receive shares of
GBS Division Common Stock and/or cash pursuant to this Agreement transmittal
materials for use in exchanging Certificates for certificates representing the
shares of GBS Division Common Stock and/or cash into which such holder's shares
of Biomatrix Common Stock have been converted. Upon surrender of a Certificate
to Genzyme or the Exchange Agent, together with a duly executed letter of
transmittal and
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any other reasonably required documents, the holder of such Certificate will be
entitled to receive, in exchange therefor, (x) a certificate for the number of
shares of GBS Division Common Stock to which such holder is entitled, plus
(y) a check in the amount of any cash due pursuant to Section 2.1(a)(ii)(A),
Section 2.1(b) or Section 2.13, and such Certificate will be canceled. No
interest will be paid or will accrue on any such amounts. Notwithstanding the
foregoing, any surrendered Certificate that represents Dissenting Shares will be
returned to the person surrendering such Certificate.
2.9 NO TRANSFERS. After the Effective Time, no transfers of shares of
Biomatrix Common Stock will be made in the stock transfer books of Biomatrix.
If, after the Effective Time, any certificate representing shares of Biomatrix
Common Stock (a "CERTIFICATE") is presented (for transfer or otherwise) to the
Surviving Corporation or its transfer agent or the Exchange Agent, such
certificates will be canceled and exchanged in accordance with Section 2.8.
2.10 NO LIABILITY. Neither the Surviving Corporation nor 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.
2.11 LOST CERTIFICATES. In the event that any Certificate has been lost,
stolen, or destroyed, then upon receipt of appropriate evidence as to the
ownership, loss, theft, or destruction of such Certificate and of a customary
indemnification agreement, Genzyme or its transfer agent or the Exchange Agent
will issue in exchange for the lost, stolen, or destroyed Certificate (x) a
certificate representing shares of GBS Division Common Stock and (y) a check in
the amount of any cash due pursuant to Section 2.1(a)(ii)(A), Section 2.1(b) or
Section 2.13; PROVIDED, HOWEVER, that notwithstanding the foregoing, the record
holder of any such Certificate representing Dissenting Shares shall, instead
retain the right to receive the fair value of such shares as determined in
accordance with the provisions of the DGCL.
2.12 WITHHOLDING RIGHTS. Genzyme shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of shares of Biomatrix 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 Genzyme, such withheld amounts shall be treated for all
purposes of this Agreement as having been paid to the holder of the shares of
Biomatrix Common Stock in respect of which such deduction and withholding was
made.
2.13 DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividend or
other distribution declared with respect to GBS Division Common Stock or GBS
Stock Purchase Rights with a record date after the Effective Time will be paid
to holders of unsurrendered Certificates until such holders surrender such
Certificates. Upon the surrender of such Certificates in accordance with
Section 2.8, there shall be paid to such holders, promptly after such surrender,
the amount of dividends or other distributions, without interest, declared with
a record date after the Effective Time and not paid because of the failure to
surrender such Certificates for exchange.
2.14 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 Biomatrix, any deeds, bills of sale,
assignments or assurances and to take and do, in the name and on behalf of
Biomatrix, 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.
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ARTICLE III--CERTAIN RELATED TRANSACTIONS
3.1 FUNDING OF CASH MERGER CONSIDERATION.
(a) Genzyme agrees that it will fund the total cash portion of the Merger
Consideration payable pursuant to Section 2.1(a)(ii)(A) out of (i) cash
currently on hand; and (ii) borrowings under Genzyme's existing credit facility
with Fleet National Bank (as it may be amended, expanded or replaced) or other
borrowings on commercially reasonable terms (the "GENZYME CREDIT FACILITY", with
the total amount of such borrowings referred to as the "ALLOCATED BORROWINGS").
(b) Biomatrix and Genzyme agree that the Allocated Borrowings will be
allocated to the GBS Division in accordance with Genzyme's Divisional Policies
(referred to in Section 3.2).
3.2. REORGANIZATION.
(a) Genzyme agrees that, subject to receipt of the Genzyme Stockholder
Approvals (as defined in Section 5.1(d)), it will (i) create the GBS Division,
(ii) establish the GBS Division Common Stock, (iii) combine the GSP Division and
GTR Division with the GBS Division, (iv) exchange each share of GSP Division
Common Stock for 0.6060 shares of GBS Division Common Stock, (v) exchange each
share of GTR Division Common Stock for 0.3352 shares of GBS Division Common
Stock, (vi) amend its "Management and Accounting Policies Governing the
Relationship of Genzyme Divisions" (the "DIVISIONAL POLICIES") to make
conforming changes to incorporate the GBS Division therein, to be substantially
in the form of EXHIBIT A-1 hereto, (vii) convert all outstanding options to
acquire GSP Division Common Stock and GTR Division Common Stock into options to
acquire shares of GBS Division Common Stock on a basis comparable to the
procedures set forth in Section 2.5 and (viii) make appropriate amendments to
the Genzyme Rights Plan (collectively, the "REORGANIZATION"). Genzyme agrees
that it will use reasonable commercial efforts to complete the Reorganization
prior to or contemporaneous with the Effective Time.
(b) The terms of the GBS Division Common Stock shall be substantially in the
form of EXHIBIT A-2 hereto, and Genzyme agrees that it will not amend the terms
of the GBS Division Common Stock in any material respect prior to the Effective
Time without the consent of Biomatrix. In addition, Genzyme will not amend the
exchange ratios described in paragraph (a) above without Biomatrix' prior
consent.
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ARTICLE IV--REPRESENTATIONS AND WARRANTIES OF BIOMATRIX
Except as set forth on the disclosure schedule delivered by Biomatrix to
Genzyme on the date hereof (the "Biomatrix Disclosure Schedule"), the Section
numbers of which are numbered to correspond to the Section numbers of this
Agreement to which they refer, Biomatrix hereby makes the following
representations and warranties to Genzyme:
4.1 INCORPORATION; AUTHORITY.
(a) Each of Biomatrix and each Biomatrix Subsidiary 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 the requisite corporate or
similar power and authority to own, lease and operate its properties and to
carry on its business as now conducted. Each of Biomatrix and each Biomatrix
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 would not reasonably be
expected to have a material adverse effect on the assets, properties, business
or financial condition of Biomatrix and the Biomatrix Subsidiaries, taken as a
whole (a "BIOMATRIX MATERIAL ADVERSE EFFECT"); provided, however, that any or
all of (i) a decline in the market price of a share of Biomatrix Common Stock or
(ii) litigation arising out of or resulting from the Merger shall not constitute
Biomatrix Material Adverse Effect.
(b) Biomatrix has previously made available to Genzyme true and complete
copies of the charter and bylaws or other organizational documents of Biomatrix
and each Biomatrix Subsidiary as presently in effect, and none of Biomatrix or
any Biomatrix Subsidiary is in default in the performance, observation or
fulfillment of such documents, except, in the case of Biomatrix Subsidiaries,
such defaults that would not reasonably be expected to have a Biomatrix Material
Adverse Effect.
4.2 AUTHORIZATION AND ENFORCEABILITY. Biomatrix 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 Biomatrix Common Stock, to perform fully its obligations hereunder.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of Biomatrix. No other action on the part of Biomatrix is necessary to
consummate the transactions contemplated hereby (other than adoption of this
Agreement by the holders of Biomatrix Common Stock). This Agreement has been
duly executed and delivered by Biomatrix and constitutes a valid and binding
obligation of Biomatrix, enforceable in accordance with its terms.
4.3 CAPITALIZATION.
(a) The authorized capital stock of Biomatrix consists of 60,000,000 shares
of Biomatrix Common Stock, of which 23,382,465 shares were issued and 23,290,171
shares were outstanding as of January 31, 2000, and 3,000 shares of preferred
stock, par value $.0001 per share, none of which were issued and outstanding as
of January 31, 2000. All of the issued and outstanding shares of Biomatrix'
Common Stock are duly authorized, validly issued, fully paid, nonassessable and
free of pre-emptive rights.
(b) Biomatrix has reserved 500,000 shares of Biomatrix Common Stock for
issuance upon conversion of the Biomatrix Convertible Note. A true and complete
copy of the Biomatrix Convertible Note has been furnished previously to Genzyme.
(c) As of January 31, 2000, Biomatrix has reserved 4,145,311 shares of
Biomatrix Common Stock for issuance pursuant to Biomatrix Options. Biomatrix
Options to purchase 2,784,028 shares of Biomatrix Common Stock were outstanding
as of January 31, 2000. Section 4.3(c) of the Biomatrix Disclosure Schedule
includes a true and complete list of all Biomatrix Options outstanding as of
January 31, 2000, and the exercise prices of such Biomatrix Options.
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(d) Except for (i) shares indicated as issued and outstanding on
January 31, 2000, in Section 4.3(a), and (ii) shares issued after such date upon
(A) the conversion of the Biomatrix Convertible Note and (B) the exercise of
outstanding Biomatrix Options listed in Section 4.3(c) of the Biomatrix
Disclosure Schedule, there are not as of the date hereof, and at the Effective
Time there will not be, any shares of Biomatrix Common Stock issued and
outstanding.
(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 Biomatrix
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 Biomatrix or obligating Biomatrix to grant, extend or
enter into any such agreement, other than the Biomatrix Convertible Note and the
Biomatrix Options listed in Section 4.3(c) of the Biomatrix Disclosure Schedule.
To the best knowledge of Biomatrix, there are no stockholder agreements, voting
trusts, proxies or other agreements, instruments or understandings with respect
to the voting of the capital stock of Biomatrix, except as set forth in
Section 4.3(e) of the Biomatrix Disclosure Schedule.
(f) Neither Biomatrix nor any Biomatrix Subsidiary beneficially owns any
shares of capital stock of Genzyme.
(g) Biomatrix has no outstanding bonds, debentures, notes or other
indebtedness which have the right to vote on any matters on which stockholders
may vote.
4.4 BIOMATRIX SUBSIDIARIES.
(a) Section 4.4(a) of the Biomatrix Disclosure Schedule sets forth all of
the Biomatrix Subsidiaries and the jurisdiction in which each is incorporated or
organized. Except as set forth in Section 4.4(a) of the Biomatrix Disclosure
Schedule, all issued and outstanding shares or other equity interests of each
Biomatrix Subsidiary are owned directly by Biomatrix free and clear of any
charges, liens, encumbrances, security interests or adverse claims. As used in
this Agreement, "BIOMATRIX SUBSIDIARY" means any corporation, partnership or
other organization, whether incorporated or unincorporated, (i) of which
Biomatrix or any Biomatrix Subsidiary is a general partner or (ii) of which 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 Biomatrix or by any Biomatrix Subsidiary, or
by Biomatrix and one or more Biomatrix Subsidiary.
(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 Biomatrix 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 Biomatrix or any Biomatrix Subsidiary or obligating Biomatrix or any
Biomatrix Subsidiary to grant, extend or enter into any such agreement. To the
best knowledge of Biomatrix, 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 Biomatrix Subsidiary.
(c) Section 4.4(c) of the Biomatrix Disclosure Schedule sets forth all
equity interests held by Biomatrix as of the date of this Agreement in any
entity that is not a Biomatrix Subsidiary, other than equity interests held for
passive investment purposes that represent less than 10% of the relevant class
of equity of the entity.
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4.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Biomatrix has previously made available to Genzyme its (a) Annual Report
on Form 10-K for the year ended December 31, 1998 (the "BIOMATRIX 10-K"), as
filed with the Securities and Exchange Commission (the "SEC"), (b) the proxy
statements relating to Biomatrix' meeting of stockholders held after
December 31, 1998 and (c) all other documents filed by Biomatrix with the SEC
under the Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT") since
December 31, 1998. As of their respective dates, such documents complied, and
all documents filed by Biomatrix with the SEC under the Exchange Act between the
date of this Agreement and the Closing Date will comply, in each case 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 December 31,
1998, Biomatrix has timely filed, and between the date of this Agreement and the
Closing Date will timely file, with the SEC all reports required to be filed by
it under the Exchange Act. No Biomatrix Subsidiary is required to file any form,
report or other document with the SEC.
(b) The consolidated financial statements contained in the Biomatrix 10-K
and in Biomatrix' quarterly report on Form 10-Q for the quarter ended
September 30, 1999 (the "BIOMATRIX 10-Q") and the unaudited consolidated
financial statements for the year ended December 31, 1999 previously furnished
to Genzyme (the "1999 FINANCIAL STATEMENTS") have been prepared from, and are in
accordance with, the books and records of Biomatrix and present fairly, in all
material respects, the consolidated financial condition, results of operations
and cash flows of Biomatrix and the Biomatrix 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
Biomatrix 10-Q to normal year-end adjustments, which in the aggregate are not
material, and the absence of footnote disclosures.
4.6 ABSENCE OF UNDISCLOSED LIABILITIES. Since December 31, 1999 to the
date of this Agreement, neither Biomatrix nor any Biomatrix Subsidiary has
incurred or been subject to any 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), that would be
required under generally accepted accounting principles to be reflected or
disclosed in a consolidated balance sheet of Biomatrix as of the date of this
Agreement (or the notes thereto), other than liabilities (a) adequately
reflected or reserved against on Biomatrix' consolidated balance sheet as of
December 31, 1999 (or the notes thereto) included in the 1999 Financial
Statements, (b) included in Section 4.6 of the Biomatrix Disclosure Schedule or
(c) incurred since December 31, 1999 in the ordinary course of business
consistent with past practice.
4.7 ABSENCE OF CERTAIN EVENTS. Since December 31, 1999, (a) there has not
been any event that has had, or is reasonably likely to have, a Biomatrix
Material Adverse Effect and (b) Biomatrix has operated its business in the
ordinary course consistent with past practice (including without limitation
taking any of the actions described in clauses (i), (vi) or (xi) of
Section 6.1(b) or agreeing or obligating itself to do so), except for any
actions after the date of this Agreement effected in compliance with
Section 6.1 or otherwise required under this Agreement.
4.8 CONTRACTS AND OTHER AGREEMENTS.
(a) Except for any contracts or agreements entered into after the date of
this Agreement in compliance with Section 6.1, neither Biomatrix nor any
Biomatrix 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 Biomatrix 10-K or in any quarterly report on Form 10-Q or
current report on Form 8-K filed by Biomatrix since December 31, 1998. All of
such contracts and other agreements and all of the contracts required to be
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set forth in Section 4.8 of the Biomatrix Disclosure Schedule are valid,
subsisting, in full force and effect, binding upon Biomatrix or the applicable
Biomatrix Subsidiary, and, to the best knowledge of Biomatrix, binding upon the
other parties thereto in accordance with their terms, and Biomatrix and the
Biomatrix Subsidiaries are not in default under any of them, nor does any
condition exist that with notice or lapse of time or both would constitute a
default thereunder.
(b) Section 4.8 of the Biomatrix Disclosure Schedule sets forth a list of
the following contracts and other agreements to which Biomatrix or any Biomatrix
Subsidiary, as of the date of this Agreement, is a party or by or to which they
or their assets or properties are bound or subject:
(i) any agreement (A) involving research, development or the license of
Proprietary Rights (as defined in Section 4.11(a)), (B) granting a right of
first refusal, or right of first offer or comparable right with respect to
Proprietary Rights, (C) relating to a joint venture, partnership or other
arrangement involving a sharing of profits, losses, costs or liabilities
with another person or entity, (D) providing for the payment or receipt by
Biomatrix or a Biomatrix Subsidiary of milestone payments or royalties, or
(E) that individually requires aggregate expenditures by Biomatrix and/or
any Biomatrix Subsidiary in any one year of more than $250,000;
(ii) any indenture, trust agreement, loan agreement, note, agreement of
surety, guarantee (other than the endorsement of checks) or indemnification
that involves or evidences outstanding or potential indebtedness,
obligations or liabilities for borrowed money in excess of $250,000;
(iii) any agreement that limits or restricts Biomatrix, any Biomatrix
Subsidiary or any of their affiliates or successors in competing or engaging
in any line of business, in any geographic area or with any person;
(iv) any interest rate, equity or other swap or derivative instrument;
or
(v) any agreement obligating Biomatrix to register securities under the
Securities Act of 1933, as amended (the "SECURITIES ACT").
(c) Except as set forth in Section 4.8 of the Biomatrix Disclosure Schedule,
to the best of Biomatrix' knowledge, no executive officer or director of
Biomatrix has, directly or indirectly (through another entity in which such
person has a material interest, other than as the holder of less than 5% of a
class of capital stock), any material interest in any property or assets of
Biomatrix (except as a stockholder) or a Biomatrix Subsidiary, any competitor,
customer, supplier or agent of Biomatrix or a Biomatrix Subsidiary or any person
that is currently a party to any material contract or agreement with Biomatrix
or a Biomatrix Subsidiary.
4.9 COMPLIANCE WITH LAWS.
(a) Except as set forth in Section 4.9 of the Biomatrix Disclosure Schedule,
Biomatrix and the Biomatrix 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"); such Permits are in full force and effect; and no proceeding is
pending or, to the best knowledge of Biomatrix, threatened to revoke or limit
any Permit.
(b) Except as set forth in Section 4.9 of the Biomatrix Disclosure Schedule,
Biomatrix and the Biomatrix 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 would not, in the aggregate,
reasonably be expected to have a Biomatrix Material Adverse Effect.
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(c) Each product or product candidate subject to (i) the United States Food
and Drug Administration (the "FDA") jurisdiction under the Federal Food, Drug
and Cosmetic Act ("FDCA") or (ii) the European Medicines Evaluation Agency (the
"EMEA") that is manufactured, tested, distributed, held, and/or marketed by
Biomatrix or any Biomatrix Subsidiary is being manufactured, tested,
distributed, held and marketed in compliance in all material respects with all
applicable requirements under the FDCA or the rules and regulations of the EMEA,
as the case may be, including, but not limited to, those relating to
investigational use, premarket clearance, good manufacturing practices,
labeling, advertising, record keeping, filing of reports and security and
neither Biomatrix nor any Biomatrix Subsidiary has received any notice and there
has been no threat from any regulatory agency, including without limitation the
FDA or EMEA, claiming or alleging any lack of compliance with any of the
foregoing, except for any of the foregoing that would not reasonably be expected
to have a Biomatrix Material Adverse Effect.
(d) Neither Biomatrix nor any Biomatrix Subsidiary nor, to the best of
Biomatrix' knowledge, any director, officer, agent, employee or other person
acting on behalf of Biomatrix, or any Biomatrix Subsidiary, has used any
corporate or other funds for unlawful contributions, payments, gifts, or
entertainment, or made any unlawful expenditures relating to political activity
to government officials or others, or established or maintained any unlawful or
unrecorded funds in violation of the Foreign Corrupt Practices Act of 1977, as
amended, or any other domestic or foreign law. Neither Biomatrix nor any
Biomatrix Subsidiary nor, to the best of Biomatrix' knowledge, any director,
officer, agent, employee or other person acting on behalf of Biomatrix or any
Biomatrix Subsidiary, has accepted or received any unlawful contributions,
payments, gifts or expenditures.
4.10 LEGAL PROCEEDINGS. Except as set forth in Section 4.10 of the
Biomatrix Disclosure Schedule, there are no outstanding orders, judgments,
injunctions, decrees or other requirements of any court, arbitrator or
governmental or regulatory body against Biomatrix, any Biomatrix Subsidiary or
any of their assets or properties. Except as set forth in Section 4.10 of the
Biomatrix Disclosure Schedule, there are no actions, suits or claims or legal,
administrative or arbitration proceedings pending or, to the best knowledge of
Biomatrix, threatened against Biomatrix, any Biomatrix Subsidiary or any of
their securities, assets or properties.
4.11 INTELLECTUAL PROPERTY.
(a) Biomatrix and the Biomatrix 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 Biomatrix or a
Biomatrix Subsidiary relating to any of the foregoing that are material to their
businesses as presently conducted, including those that are related to the hylan
technology described in the Biomatrix 10-K (collectively, the "PROPRIETARY
RIGHTS"), subject to out licenses listed on Section 4.11 of the Biomatrix
Disclosure Schedule and any other out licenses entered into after the date of
this Agreement in compliance with Section 6.1.
(b) A list of all copyrights, trademarks, service marks, trade names,
patents and patent applications held by Biomatrix or a Biomatrix Subsidiary, as
of the date if this Agreement, has been delivered previously to Genzyme and is
included in Section 4.11 of the Biomatrix Disclosure Schedule. All patents,
registered trademarks and copyrights set forth on the list referred to above are
valid and subsisting.
(c) Biomatrix is not aware of any claim by any third party that the
businesses of Biomatrix or the Biomatrix Subsidiaries infringe upon the
proprietary rights of others, nor has Biomatrix or any Biomatrix Subsidiary
received any written notice or claim of infringement from any third party,
except for any claims that would not reasonably be expected to have a Biomatrix
Material Adverse Effect. Biomatrix is not aware of any existing or threatened
infringement by any third party on, or any
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competing claim of right to use or own any of, the Proprietary Rights. Except as
disclosed in Section 4.11 of the Biomatrix Disclosure Schedule, to the best of
Biomatrix' knowledge, Biomatrix and the Biomatrix Subsidiaries have the
unencumbered right to sell their products and services free from any royalty or
other financial obligations to third parties.
(d) Except as set forth in Section 4.11 of the Biomatrix Disclosure
Schedule, to the best knowledge of Biomatrix, none of the activities of the
employees of Biomatrix or any Biomatrix Subsidiary on behalf of such entity
violates any agreement or arrangement which any such employees have with former
employers. To the best of Biomatrix' knowledge, all employees and consultants
who contributed to the discovery or development of any of the Proprietary Rights
(other than Proprietary Rights licensed to Biomatrix or a Biomatrix Subsidiary
by any party other than a consultant to Biomatrix or Biomatrix Subsidiary) did
so either (i) 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 Biomatrix or the Biomatrix Subsidiary or (ii) pursuant to
written agreements assigning all Proprietary Rights arising therefrom to
Biomatrix or the Biomatrix Subsidiary.
4.12 INSURANCE. Section 4.12 of the Biomatrix Disclosure Schedule sets
forth a true and complete list of all policies or binders of fire, liability,
product liability, workmen's compensation, vehicular, directors' and officers'
and other insurance held by or on behalf of Biomatrix and the Biomatrix
Subsidiaries as of the date of this Agreement. Neither Biomatrix nor any
Biomatrix Subsidiary is in default with respect to any provision contained in
such policy or binder nor has any of Biomatrix or a Biomatrix 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 Biomatrix nor any Biomatrix Subsidiary has received notice of
cancellation or non-renewal of any such policy or binder.
4.13 COMMERCIAL RELATIONSHIPS. The relationships of Biomatrix and the
Biomatrix Subsidiaries with their distributors are generally good commercial
working relationships. Except as set forth in Section 4.13 of the Biomatrix
Disclosure Schedule, no such entity has canceled or otherwise terminated its
relationship with Biomatrix or a Biomatrix Subsidiary or has, during the last
twelve months, materially altered its relationship with Biomatrix or a Biomatrix
Subsidiary. Except as set forth in Section 4.13 of the Biomatrix Disclosure
Schedule, Biomatrix does not know of any plan or intention of any such entity,
and has not received any written threat or notice from any such entity, to
terminate, cancel or otherwise materially and adversely modify its relationship
with Biomatrix or a Biomatrix Subsidiary.
4.14 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 domestic or foreign
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 Biomatrix and the Biomatrix 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 Biomatrix
or the Biomatrix Subsidiaries, whether or not shown on any Tax Return, have been
paid. Biomatrix and the Biomatrix Subsidiaries file Tax Returns in all
jurisdictions where they are required to so file.
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(c) There are no liens or other encumbrances with respect to Taxes upon any
of the assets or properties of Biomatrix or the Biomatrix Subsidiaries, other
than with respect to Taxes not yet due and payable.
(d) No audit is pending with respect to any Tax Return of Biomatrix or the
Biomatrix Subsidiaries, nor is Biomatrix or its officers or directors 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 Biomatrix or the Biomatrix Subsidiaries, which
deficiency has not been paid in full. No issue relating to Biomatrix or the
Biomatrix Subsidiaries or involving any Tax for which Biomatrix or the Biomatrix
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, would
reasonably be expected to result in a deficiency for Taxes of Biomatrix or the
Biomatrix Subsidiaries for any subsequent period, and neither Biomatrix nor its
officers or directors knows of any other basis for the assertion of such a
deficiency.
(e) Biomatrix has made available to Genzyme complete and correct copies of
all income Tax Returns, audit reports and statements of deficiencies for each of
the last three taxable years filed by or issued to or with respect to Biomatrix
or the Biomatrix Subsidiaries.
(f) 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 Biomatrix or
the Biomatrix Subsidiary or any of their assets or properties.
(g) Biomatrix and the Biomatrix Subsidiaries are not a party to or bound by,
nor do they have any obligation under, any Tax sharing agreement or similar
contract or arrangement. Neither Biomatrix nor any Biomatrix 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.
(h) There is no contract or agreement, plan or arrangement obligating
Biomatrix or the Biomatrix Subsidiaries to make any payment that would not be
deductible by reason of Section 162(m) or 280G of the Code. Neither Biomatrix
nor any Biomatrix 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.
(i) There are no outstanding rulings of, or requests for rulings with, any
Tax authority addressed to Biomatrix or any Biomatrix Subsidiary that are, or if
issued would be, binding on Biomatrix or any Biomatrix Subsidiary.
4.15 EMPLOYEE BENEFIT PLANS.
(a) Except as described in Section 4.15 of the Biomatrix Disclosure
Schedule, neither Biomatrix nor any Biomatrix Subsidiary now maintains or
contributes to, nor has any outstanding liability with respect to, any pension,
profit-sharing, deferred compensation, restricted stock bonus, stock option,
share appreciation right, severance, group or individual health, dental,
medical, life insurance, survivor benefit, or similar plan, policy, or
arrangement for the benefit of any director, officer, consultant or employee,
whether active or terminated, of Biomatrix or any Biomatrix Subsidiary. Each of
the arrangements set forth in Section 4.15 of the Biomatrix Disclosure Schedule
is hereinafter referred to as an "EMPLOYEE BENEFIT PLAN."
(b) Biomatrix has delivered to Genzyme true, correct, and complete copies of
each Employee Benefit Plan, and with respect to each such plan (i) any
associated trust, custodial, insurance, or service agreements, (ii) the annual
reports for the three most recent years and summary plan descriptions submitted
to any governmental agency or distributed to participants or beneficiaries
thereunder, and (iii) the most recently received Internal Revenue Service
("IRS") determination letters and any
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governmental advisory opinions or rulings expressly applicable thereto, and
(iv) tests performed for each of the three most recent years for each plan that
is required to be tested for nondiscrimination under Section 401(a)(4), 401(k)
or 401(m) of the Code.
(c) Each Employee Benefit Plan is and has heretofore been maintained and
operated in compliance in all material respects with the terms of such plan and
with the requirements prescribed (whether as a matter of substantive law or as
necessary to secure favorable tax treatment) by any and all statutes,
governmental or court orders, and governmental rules or regulations in effect
from time to time, including but not limited to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and the Code and applicable to such
plan.
(d) (i) There is no pending, or to the best of Biomatrix' knowledge,
threatened, legal action, proceeding, or investigation, other than routine
claims for benefits, concerning any Employee Benefit Plan, or to the best of
Biomatrix' knowledge, any fiduciary or service provider thereof relating to such
Plan.
(ii) Neither Biomatrix nor any Biomatrix Subsidiary has ever sponsored
or participated in a defined benefit pension plan within the meaning of
Section 414(j) of the Code. No liability (contingent or otherwise) to the
Pension Benefit Guaranty Corporation ("PBGC") or any multi-employer plan has
been incurred by Biomatrix or any Biomatrix Subsidiary (other than insurance
premiums satisfied in due course).
(iii) No Employee Benefit Plan nor any party in interest with respect
thereof, has engaged in a prohibited transaction that would subject Biomatrix or
any Biomatrix Subsidiary directly or indirectly to liability under Section 409
or 502(i) of ERISA or Section 4975 of the Code.
(iv) No Employee Benefit Plan provides welfare benefits subsequent to
termination of employment to employees or their beneficiaries (except to the
extent required by applicable state insurance laws and Title I, Part 6 of
ERISA).
(e) With respect to each Employee Benefit Plan for which a separate fund of
assets is or is required to be maintained, full payment has been made of all
amounts that Biomatrix or any Biomatrix Subsidiary is required, under the terms
of each such plan, to have paid as contributions to that plan as of the end of
the most recently ended plan year of that plan.
(f) Except as described on Section 4.15 of the Biomatrix Disclosure
Schedule, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not result in any payment (whether of
severance pay or otherwise) becoming due from any Employee Benefit Plan to any
current or former director, officer, consultant, or employee of Biomatrix or any
Biomatrix Subsidiary or result in the vesting, acceleration of payment, or
increases in the amount of any benefit payable to or in respect of any such
current or former director, officer, consultant, or employee.
(g) No Employee Benefit Plan is a multi-employer plan (within the meaning of
Section 3 of ERISA) or subject to Section 302 of ERISA or Section 412 of the
Code.
4.16 EMPLOYEE RELATIONS.
(a) Except as indicated in Section 4.16 of the Biomatrix Disclosure
Schedule, upon termination of the employment of any employees, none of
Biomatrix, the Biomatrix Subsidiaries nor Genzyme will be liable, by reason of
the Merger or anything done prior to the Effective Time, to any of such
employees for severance pay or any other payments (other than accrued salary,
vacation or sick pay in accordance with normal policies). True and complete
information as to all current directors, officers, employees or consultants of
Biomatrix and the Biomatrix Subsidiaries including, in each case, name, current
job title and annual rate of compensation has been made available previously to
Genzyme.
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(b) No work stoppage or labor strike against Biomatrix or any Biomatrix
Subsidiary is pending or threatened. Neither Biomatrix nor any Biomatrix
Subsidiary is involved in or, to the knowledge of Biomatrix, 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, would result in material liability to Biomatrix. Neither
Biomatrix nor any Biomatrix Subsidiary has engaged in any unfair labor practices
within the meaning of the National Labor Relations Act that would, directly or
indirectly, result in material liability to Biomatrix. Neither Biomatrix nor any
Biomatrix 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 4.16 of the Biomatrix Disclosure
Schedule and no collective bargaining agreement is being negotiated by Biomatrix
or any Biomatrix Subsidiary. No union organizing campaign or activity with
respect to non-union employees of Biomatrix or any Biomatrix Subsidiary is
ongoing, pending or, to the best knowledge of Biomatrix, threatened.
4.17 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in documents filed prior to the date hereof by
Biomatrix with the SEC under the Exchange Act and except for such matters that,
individually or in the aggregate, are not reasonably likely to have a Biomatrix
Material Adverse Effect: (i) Biomatrix and the Biomatrix Subsidiaries have
obtained all permits required by any Environmental Law necessary to conduct
their respective businesses, and complied with all applicable Environmental Laws
(as defined in Section 4.17(b)) and such permits; (ii) to the knowledge of
Biomatrix, the properties currently owned or operated by Biomatrix and the
Biomatrix Subsidiaries (including soils, groundwater, surface water, air,
buildings or other structures) are not contaminated with any Hazardous
Substances (as defined in Section 4.17(c)); (iii) to the knowledge of Biomatrix,
the properties formerly owned or operated by Biomatrix or any of the Biomatrix
Subsidiaries were not contaminated with Hazardous Substances during the period
of ownership or operation by Biomatrix or any of the Biomatrix Subsidiaries;
(iv) neither Biomatrix nor any of the Biomatrix Subsidiaries are subject to
liability or obligated to report or respond in any way for any Hazardous
Substance placement, release disposal or contamination on the property of any
third party; (v) neither Biomatrix nor any of the Biomatrix Subsidiaries have
generated, used, handled, transported, stored or released from or at any
location, including without limitation any properties currently or formerly
owned or operated by or for the benefit of Biomatrix or any of the Biomatrix
Subsidiaries, any Hazardous Substance except in compliance with applicable law;
and (vi) neither Biomatrix nor any of the Biomatrix Subsidiaries has received
any written notice, demand, letter, claim or request for information alleging
that Biomatrix or any of the Biomatrix Subsidiaries may be in violation of,
liable under or have obligations under any Environmental Law.
(b) As used herein, the term "ENVIRONMENTAL LAW" means any federal, state,
local or foreign law, regulation, order, decree, permit, authorization, opinion,
common law or agency requirement relating to: (i) pollution, the protection,
investigation or restoration of the environment, health and safety, or natural
resources, (ii) the handling, use, presence, disposal, release or threatened
release of any Hazardous Substance or (iii) noise, odor, wetlands, pollution,
contamination or any injury or threat of injury to persons or property.
(c) As used herein, the term "HAZARDOUS SUBSTANCE" means any substance that
is: (i) listed, classified, regulated or which falls within the definition of a
"hazardous substance" or "hazardous material" pursuant to any Environmental Law;
(ii) any petroleum product or by-product, asbestos-containing material,
lead-containing paint or plumbing, polychlorinated biphenyls, radioactive
materials or radon; or (iii) any other substance which is the subject of
regulatory action by any governmental entity pursuant to any Environmental Law.
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(d) Biomatrix and the Biomatrix Subsidiaries own no real property except as
set forth in filings with the SEC under the Exchange Act.
4.18 NO BREACH. Except for (a) filings with the SEC under the Exchange
Act, (b) the filing of the Merger Filings as provided in Section 1.3, (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 4.18 of the Biomatrix Disclosure Schedule, the execution, delivery and
performance of this Agreement by Biomatrix and the consummation by Biomatrix of
the transactions contemplated hereby will not (i) violate any provision of the
Certificate of Incorporation or By-Laws of Biomatrix, (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 material default under,
any material instrument, contract or other agreement to which Biomatrix or any
Biomatrix 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 Biomatrix
or the Biomatrix Subsidiaries or by which any of Biomatrix' or the Biomatrix
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 or (vi) result in the creation of any lien or
other encumbrance on the assets or properties of Biomatrix or a Biomatrix
Subsidiary, excluding from the foregoing clauses (iii), (iv), (v) and
(vi) violations, breaches and defaults which, and filings, notices, permits,
consents and approvals the absence of which, in the aggregate, would not
reasonably be expected to have a Biomatrix Material Adverse Effect or interfere
with the ability of Biomatrix to consummate the transactions contemplated
hereby.
4.19 BOARD APPROVAL. The Board of Directors of Biomatrix, as of the date
of this Agreement, has determined (a) that the Merger is fair to, and in the
best interests of, Biomatrix and its stockholders, (b) to propose this Agreement
for adoption by Biomatrix' stockholders and to declare the advisability of this
Agreement, and (c) to recommend that the stockholders of Biomatrix adopt this
Agreement.
4.20 ANTI-TAKEOVER LAWS. Biomatrix has taken all action necessary such
that no "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.
4.21 OPINION OF BIOMATRIX' FINANCIAL ADVISOR. Biomatrix has received the
opinion of Lehman Brothers, dated the date of this Agreement, to the effect
that, as of such date, the Merger Consideration is fair, from a financial point
of view, to the holders of Biomatrix Common Stock.
4.22 BROKERAGE. Other than Lehman Brothers, no broker, finder, agent or
similar intermediary has acted on behalf of Biomatrix in connection with this
Agreement or the transactions contemplated 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 Biomatrix, or
any action taken by Biomatrix. Biomatrix previously has provided Genzyme with a
copy of Lehman Brothers' engagement letter.
4.23 INVESTMENT COMPANY ACT. Neither Biomatrix nor any Biomatrix
Subsidiary is an "Investment Company" within the meaning of such term under the
Investment Company Act of 1940.
4.24 PROXY STATEMENT AND REGISTRATION STATEMENT. None of the information
supplied or to be supplied by Biomatrix 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 Genzyme 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
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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 Biomatrix 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 Biomatrix
Common Stock and holders of Genzyme Common Stock or at the time of the Biomatrix
Stockholders Meeting (as defined in Section 6.8(b)) or the Genzyme Stockholders
Meeting] (as defined in Section 6.8(c)), 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, insofar as it relates to the information required to be
supplied by Biomatrix, 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.
4.25 YEAR 2000 MATTERS. Biomatrix and the Biomatrix Subsidiaries have not
experienced, and do not reasonably expect to experience, any material problems
related to computer hardware, firmware, software, systems, databases, devices,
machinery, equipment and related items (including embedded microcontrollers in
non-computer equipment) ("SYSTEMS") failing to be Year 2000 Compliant. For
purposes of this Agreement, "YEAR 2000 COMPLIANT" means, when used with respect
to Systems, that such Systems whether used alone or in combination, will
correctly differentiate between years, in different centuries, and will
accurately process date/time data (including, where applicable, calculating,
comparing and sequencing) from, into and between the twentieth and twenty-first
centuries, including leap year calculations and unusual date situations, without
interruption.
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ARTICLE V--REPRESENTATIONS AND WARRANTIES OF GENZYME
Except as set forth on the disclosure schedule delivered by Genzyme to
Biomatrix in the date hereof (the "GENZYME DISCLOSURE SCHEDULE"), the Section
numbers of which are numbered to correspond to the Section numbers of this
Agreement to which they refer, Genzyme and Merger Sub, jointly and severally,
hereby make the following representations and warranties to Biomatrix:
5.1 INCORPORATION; AUTHORITY.
(a) Each of Genzyme and each Genzyme Subsidiary 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 the requisite corporate or
similar power and authority to own, lease and operate its assets and to carry on
its business as now being conducted. Each of Genzyme and each Genzyme 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 would not reasonably be
expected to have a material adverse effect on the assets, properties, business
or financial condition of (i) Genzyme and Genzyme Subsidiaries, taken as a whole
or (ii) the GSP Division and GTR Division, taken as a whole (the "COMBINING
GENZYME BUSINESSES"), (with each of the foregoing referred to as a "GENZYME
MATERIAL ADVERSE EFFECT"); PROVIDED, HOWEVER, that any or all of (i) a decline
in the share price of any series of Genzyme Common Stock or (ii) litigation
arising out of or resulting from the Merger shall not be considered a Genzyme
Material Adverse Effect. As used in this Agreement, "GENZYME SUBSIDIARY" means
Merger Sub and any other corporation, partnership or other organization, whether
incorporated or unincorporated, (i) of which Genzyme or any Genzyme Subsidiary
is a general partner or (ii) of which 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 Genzyme or by any Genzyme Subsidiary, or by Genzyme and one or more Genzyme
Subsidiary.
(b) Merger Sub has been 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.
(c) Genzyme has previously made available to Biomatrix true and complete
copies of its charter and bylaws and the Divisional Policies as presently in
effect, and none of Genzyme or any Genzyme Subsidiary is in default in the
performance, observation or fulfillment of its organizational documents or the
Divisional Policies, except, (i) with respect to the Divisional Policies and
(ii) in the case of Genzyme Subsidiaries, such defaults that would not
reasonably be expected to have a Genzyme Material Adverse Effect.
(d) Section 5.1 of the Genzyme Disclosure Schedule accurately describes all
the votes of Genzyme stockholders required for Genzyme to be authorized to
consummate the Merger and the Reorganization (the "GENZYME STOCKHOLDER
APPROVALS").
5.2 AUTHORIZATION AND ENFORCEABILITY. Each of Genzyme and Merger Sub has
the corporate power and authority to enter into, execute and deliver this
Agreement and to perform fully its obligations hereunder, subject to any
required stockholder approvals. Except for the Genzyme Stockholder Approvals,
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of each of Genzyme and Merger Sub. This Agreement
has been duly executed and delivered by each of Genzyme and Merger Sub and
constitutes the valid and binding obligation of each of Genzyme and Merger Sub,
enforceable in accordance with its terms.
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5.3 CAPITALIZATION.
(a) The authorized capital stock of Genzyme 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 ("GGD DIVISION COMMON STOCK"),
40,000,000 shares have been designated GTR Division Common Stock, 40,000,000
have been designated Molecular Oncology Division Common Stock, $0.01 par value
per share ("GMO DIVISION COMMON STOCK"), 60,000,000 shares have been designated
GSP Division Common Stock and 50,000,000 shares have been undesignated as to
series. As of January 31, 2000, 84,345,052 shares of GGD Division Common Stock
were issued and outstanding, 28,503,599 shares of GTR Division Common Stock were
issued and outstanding, 13,431,794 shares of GMO Division Common Stock were
issued and outstanding, and 14,847,687 shares of GSP Division 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
Division Common Stock, GTR Division Common Stock, GMO Division Common Stock and
GSP Division Common Stock are validly issued, fully paid, non-assessable and
free of any preemptive rights. The shares of GBS Division Common Stock to be
issued pursuant to this Agreement will have been duly authorized and when issued
as provided in this Agreement, will be validly issued and fully paid and
non-assessable and issued free of preemptive rights. All of the capital stock of
Merger Sub is as of the date hereof, and will be at the Effective Time, duly
authorized, validly issued, fully paid and nonassessable and owned of record and
beneficially by Genzyme.
(b) As of the Effective Time, Genzyme shall have sufficient shares of GBS
Division Common Stock reserved under its stock option plans for the Biomatrix
Options assumed pursuant to Section 2.5.
(c) As of January 31, 2000, Genzyme has reserved 8,484,135 shares of GSP
Division Common Stock and GTR Division Common Stock for issuance pursuant to
outstanding options and warrants. Options and warrants to purchase 7,038,727
shares of GSP Division Common Stock and GTR Division Common Stock were
outstanding as of January 31, 2000. Section 5.3(c) of the Genzyme Disclosure
Schedule includes a true and complete summary of all options and warrants to
acquire GSP Division Common Stock or GTR Division Common Stock outstanding as of
January 31, 2000, and the exercise prices of such options and warrants.
(d) 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 Genzyme to
issue, transfer, deliver or sell, or cause to be issued, transferred, delivered,
sold, repurchased or redeemed, additional shares of GSP Division Common Stock or
GTR Division Common Stock or obligating Genzyme to grant, extend or enter into
any such agreement, other than the options and warrants or convertible notes
referred to in Sections 5.3(c) and 5.3(d) of the Genzyme Disclosure Schedule and
any options or warrants granted after the date of this Agreement in compliance
with Section 6.2. To the best knowledge of Genzyme, there are no stockholder
agreements, voting trusts, proxies or other agreements, instruments or
understandings with respect to the voting of the GSP Division Common Stock or
GTR Division Common Stock, except as set forth in Section 5.3(d) of the Genzyme
Disclosure Schedule.
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(e) Since January 31, 2000 Genzyme has not issued any shares of GSP Division
Common Stock or shares of GTR Common Stock except for issuances upon the
exercise of outstanding options, warrants or convertible securities.
5.4 SEC FILINGS; FINANCIAL STATEMENTS.
(a) Genzyme previously has made available to Biomatrix its (a) Annual Report
on Form 10-K for the year ended December 31, 1998 (the "GENZYME 10-K"), as filed
with the SEC, (b) all proxy statements relating to Genzyme's meetings of
stockholders held since December 31, 1998 and (c) all other documents filed by
Genzyme with the SEC under the Exchange Act since December 31, 1998 (together
with the documents filed by Genzyme with the SEC under the Exchange Act prior to
the Effective Time, the "GENZYME SEC REPORTS"). As of their respective dates,
such documents complied, and all documents filed by Genzyme with the SEC under
the Exchange Act between the date of this Agreement and the Closing Date will
comply, in each case 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 December 31, 1998, Genzyme 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 under Sections 13, 14 or 15(d) of the Exchange
Act.
(b) The consolidated financial statements contained in the Genzyme 10-K and
in Genzyme's quarterly report on Form 10-Q for the quarter ended September 30,
1999 (the "GENZYME 10-Q") have been prepared from, and are in accordance with,
the books and records of Genzyme and present fairly, in all material respects,
the consolidated financial condition, results of operations and cash flows of
Genzyme 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 included in the Genzyme 10-Q, to
normal year-end and audit adjustments, which in the aggregate are not material,
and the absence of footnote disclosures.
(c) The combined financial statements for the GSP Division contained in the
Genzyme Current Report on Form 8-K dated June 11, 1999 and the Genzyme 10-Q have
been prepared from, and are in accordance with, the books and records of Genzyme
and fairly present in all material respects the combined financial condition,
results of operations and cash flows of the GSP Division 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 included in the
Genzyme 10-Q, to normal year-end and audit adjustments, which in the aggregate
are not material, and the absence of footnote disclosures.
(d) The combined financial statements for the GTR Division contained in the
Genzyme 10-K and the Genzyme 10-Q have been prepared from, and are in accordance
with, the books and records of Genzyme and fairly present in all material
respects the combined financial condition, results of operations and cash flows
of the GTR Division 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 included in the Genzyme 10-Q, to normal year-end
and audit adjustments, which in the aggregate are not material, and the absence
of footnote disclosures.
5.5 ABSENCE OF UNDISCLOSED GENZYME LIABILITIES. Since September 30, 1999
to the date of this Agreement, neither Genzyme nor any Genzyme Subsidiary has
incurred any 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), that would be required under generally
accepted accounting principles to be
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reflected or disclosed in a consolidated balance sheet of Genzyme as of the date
of this Agreement (or the notes thereto), other than liabilities (a) adequately
reflected or reserved against on Genzyme's audited consolidated balance sheet as
of December 31, 1998 included in the Genzyme 10-K, (b) reflected in Genzyme's
unaudited consolidated balance sheet (or the notes thereto) dated September 30,
1999, (c) incurred since September 30, 1999 in the ordinary course of business
or (d) that would not have a Genzyme Material Adverse Effect.
5.6 ABSENCE OF CERTAIN EVENTS. Since September 30, 1999, (a) there has not
been any event that has had, or is reasonably likely to have, a Genzyme Material
Adverse Effect and (b) in so far as it relates to the Combining Genzyme
Businesses, Genzyme has operated its business in the ordinary course consistent
with past practice, except for any actions after the date of this Agreement
effected in compliance with Section 6.2 or otherwise required under this
Agreement.
5.7 CONTRACTS AND OTHER AGREEMENTS.
(a) Except for any contracts or agreements entered into after the date of
this Agreement in compliance with Section 6.2 or for which no consent is
required under Section 6.2, neither Genzyme nor any Genzyme 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 Genzyme 10-K or in any
quarterly report on Form 10-Q or current report on Form 8-K filed by Genzyme
since December 31, 1998. All of such contracts and other agreements which relate
to or affect the Combining Genzyme Businesses and all of the contracts required
to be set forth in Section 5.7 of the Genzyme Disclosure Schedule are valid,
subsisting, in full force and effect, binding upon Genzyme or the applicable
Genzyme Subsidiary, and, to the best knowledge of Genzyme, binding upon the
other parties thereto in accordance with their terms, and Genzyme and the
Genzyme Subsidiaries are not in default under any of them, nor does any
condition exist that with notice or lapse of time or both would constitute a
default thereunder.
(b) Section 5.7 of the Genzyme Disclosure Schedule sets forth a list of:
(i) any agreement that limits or restricts Genzyme, any Genzyme
Subsidiary or any of their affiliates or successors in competing or engaging
in any line of business of the Combining Genzyme Businesses, in any
geographic area or with any person and which would reasonably be expected to
materially interfere with the conduct of the Combining Genzyme Businesses as
currently conducted; and
(ii) any agreement obligating Genzyme to register securities under the
Securities Act.
(c) Except as set forth in Section 5.7 of the Genzyme Disclosure Schedule,
to the best of Genzyme's knowledge, no executive officer or director of Genzyme
has, directly or indirectly (through another entity in which such person has a
material interest, other than as the holder of less than 5% of a class of
capital stock), any material interest in any property or assets of the Combining
Genzyme Businesses (except as a stockholder), any competitor, customer, supplier
or agent of the Combining Genzyme Businesses or any person that is currently a
party to any material contract or agreement with the Combining Genzyme
Businesses.
5.8 COMPLIANCE WITH LAWS.
(a) Except as set forth in Section 5.8 of the Genzyme Disclosure Schedule,
insofar as it relates to the Combining Genzyme Businesses, Genzyme and the
Genzyme 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, "GENZYME PERMITS"); such
Genzyme Permits are in full force and effect; and no proceeding is pending or,
to the best knowledge of Genzyme, threatened to revoke or limit any such Genzyme
Permit.
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(b) Except as set forth in Section 5.8 of the Genzyme Disclosure Schedule,
insofar as it relates to the Combining Genzyme Businesses, Genzyme and the
Genzyme 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 would not, in the aggregate, reasonably be expected to have a Genzyme
Material Adverse Effect.
(c) Each product or product candidate subject to (i) FDA jurisdiction under
the FDCA or (ii) the EMEA that is manufactured, tested, distributed, held,
and/or marketed by Genzyme or any Genzyme Subsidiary and which relates to the
Combining Genzyme Businesses is being manufactured, tested, distributed, held
and marketed in compliance in all material respects with all applicable
requirements under the FDCA or the rules and regulations of the EMEA, as the
case may be, including, but not limited to, those relating to investigational
use, premarket clearance, good manufacturing practices, labeling, advertising,
record keeping, filing of reports and security and neither Genzyme nor any
Genzyme Subsidiary has received any notice and there has been no threat from any
regulatory agency, including without limitation the FDA or EMEA, claiming or
alleging any lack of compliance with any of the foregoing, except for any of the
foregoing that would not reasonably be expected to have a Genzyme Material
Adverse Effect.
(d) Neither Genzyme nor any Genzyme Subsidiary nor, to the best of Genzyme's
knowledge, any director, officer, agent, employee or other person acting on
behalf of Genzyme, or any Genzyme Subsidiary, has, with respect to the Combining
Genzyme Businesses, used any corporate or other funds for unlawful
contributions, payments, gifts, or entertainment, or made any unlawful
expenditures relating to political activity to government officials or others,
or established or maintained any unlawful or unrecorded funds in violation of
the Foreign Corrupt Practices Act of 1977, as amended, or any other domestic or
foreign law. Insofar as it relates to the Combining Genzyme Businesses, neither
Genzyme nor any Genzyme Subsidiary nor, to the best of Genzyme's knowledge, any
director, officer, agent, employee or other person acting on behalf of Genzyme
or any Genzyme Subsidiary, has accepted or received any unlawful contributions,
payments, gifts or expenditures.
5.9 LEGAL PROCEEDINGS. Except as set forth in Genzyme SEC Reports, there
are no outstanding orders, judgments, injunctions, decrees or other requirements
of any court, arbitrator or governmental or regulatory body against Genzyme, any
Genzyme Subsidiary or any of their assets or properties that could reasonably be
expected to have a Genzyme Material Adverse Effect. Except as set forth in
Genzyme SEC Reports, there are no actions, suits or claims or legal,
administrative or arbitration proceedings pending or, to the best knowledge of
Genzyme, threatened against Genzyme, any Genzyme Subsidiary or any of their
securities, assets or properties that could reasonably be expected to have a
Genzyme Material Adverse Effect.
5.10 NO BREACH. Except for (a) the filing of the Registration Statement
with the SEC, (b) filings required under the Exchange Act, (c) the filing of the
Merger Filings as provided in Section 1.3, (d) the filing of a Notification and
Report form under the HSR Act, (e) any required Genzyme stockholder approvals
identified in Section 5.9 of the Genzyme Disclosure Schedule and (f) any
approvals required under Genzyme's debt arrangements or other matters identified
in Section 5.10 of the Genzyme Disclosure Schedule, the execution, delivery and
performance of this Agreement by Genzyme and consummation by it of the
transactions contemplated hereby will not (i) violate any provision of the
charter or by-laws of Genzyme or Merger Sub, (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 material default under, any material
instrument, contract or other agreement to which Genzyme or a Genzyme Subsidiary
is a party or to which any of them or any of
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their 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 Genzyme or a
Genzyme Subsidiary or by which any of their 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 Genzyme or a Genzyme
Subsidiary, 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, would not
reasonably be expected to have a Genzyme Material Adverse Effect or materially
interfere with the ability of Genzyme or Merger Sub to consummate the
transactions contemplated hereby.
5.11 INTELLECTUAL PROPERTY.
(a) Genzyme and the Genzyme Subsidiaries own, or are licensed to use, or
otherwise have the right to use all patents, trademarks, service marks, trade
names, 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 the businesses of the Combining Genzyme Businesses as presently
conducted (the "GENZYME PROPRIETARY RIGHTS") except (i) to the extent failure to
have such ownership or licenses would not reasonably be expected to have a
Genzyme Material Adverse Effect or (ii) as disclosed in the Genzyme SEC Reports.
(b) Genzyme is not aware of any claim by any third party that the businesses
of the Combining Genzyme Businesses infringe upon the proprietary rights of
others, nor has Genzyme or any Genzyme Subsidiary received any written notice or
claim of infringement with respect to such businesses from any third party other
than any claims that would not reasonably be expected to have a Genzyme Material
Adverse Effect. Genzyme 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
Genzyme Proprietary Rights. Except as disclosed in Section 5.11 of the Genzyme
Disclosure Schedule, to the best of Genzyme's knowledge, Genzyme and the Genzyme
Subsidiaries have the unencumbered right to sell the products and services of
the Combining Genzyme Businesses free from any royalty or other financial
obligations to third parties.
(c) Except as set forth in Section 5.11 of the Genzyme Disclosure Schedule,
to the best knowledge of Genzyme, insofar as it relates to the Combining Genzyme
Businesses, none of the activities of the employees of Genzyme or any Genzyme
Subsidiary on behalf of such entity violates any agreement or arrangement which
any such employees have with former employers. To the best of Genzyme's
knowledge, all employees and consultants who contributed to the discovery or
development of any of the Genzyme Proprietary Rights (other than Proprietary
Rights licensed to Genzyme or a Genzyme Subsidiary by any party other than a
consultant to Genzyme or Genzyme Subsidiary) did so either (i) within the scope
of his or her employment such that, in accordance with applicable law, all
Genzyme Proprietary Rights arising therefrom became the exclusive property of
Genzyme or the Genzyme Subsidiary or (ii) pursuant to written agreements
assigning all Genzyme Proprietary Rights arising therefrom to Genzyme or the
Genzyme Subsidiary.
5.12 INSURANCE. Genzyme maintains policies or binders of fire, liability,
product liability, workmen's compensation, vehicular, directors' and officers'
and other insurance as are customary for similar well-managed businesses.
Section 5.12 of the Genzyme Disclosure Schedule describes the products liability
insurance (including any related umbrella coverage) maintained by Genzyme.
Neither Genzyme nor any Genzyme Subsidiary is in default with respect to any
provision contained in such policy or binder nor has any of Genzyme or a Genzyme
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 Genzyme nor any Genzyme Subsidiary has
received notice of cancellation or non-renewal of any such policy or binder.
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5.13 EMPLOYEE BENEFIT PLANS.
(a) Except as described in Section 5.13 of the Genzyme Disclosure Schedule,
neither Genzyme nor any Genzyme Subsidiary now maintains or contributes to, nor
has any outstanding liability with respect to, any pension, profit-sharing,
deferred compensation, restricted stock bonus, stock option, share appreciation
right, severance, group or individual health, dental, medical, life insurance,
survivor benefit, or similar plan, policy, or arrangement for the benefit of any
director, officer, consultant or employee, whether active or terminated, of
Genzyme or any Genzyme Subsidiary and related to the Genzyme Combining
Businesses. Each of the arrangements set forth in Section 5.13 of the Genzyme
Disclosure Schedule is hereinafter referred to as a "GENZYME EMPLOYEE BENEFIT
PLAN."
(b) Genzyme has delivered to Genzyme true, correct, and complete copies of
each Genzyme Employee Benefit Plan.
(c) Each Genzyme Employee Benefit Plan is and has heretofore been maintained
and operated in compliance in all material respects with the terms of such plan
and with the requirements prescribed (whether as a matter of substantive law or
as necessary to secure favorable tax treatment) by any and all statutes,
governmental or court orders, and governmental rules or regulations in effect
from time to time, including but not limited to ERISA and the Code and
applicable to such plan.
(d) There is no pending, or to the best of Genzyme's knowledge, threatened,
legal action, proceeding, or investigation, other than routine claims for
benefits, concerning any Genzyme Employee Benefit Plan, or to the best of
Genzyme's knowledge, any fiduciary or service provider thereof relating to such
Plan.
(e) With respect to each Genzyme Employee Benefit Plan for which a separate
fund of assets is or is required to be maintained, full payment has been made of
all amounts that Genzyme or any Genzyme Subsidiary is required, under the terms
of each such plan, to have paid as contributions to that plan as of the end of
the most recently ended plan year of that plan.
5.14 EMPLOYEE RELATIONS. No work stoppage or labor strike against Genzyme
or any Genzyme Subsidiary and relating to or affecting the Genzyme Combining
Businesses is pending or threatened. Neither Genzyme nor any Genzyme Subsidiary
is involved in or, to the knowledge of Genzyme, threatened with, any labor
dispute, grievance, or litigation relating to labor, safety or discrimination
matters involving any employee of the Genzyme Combining Businesses, including
without limitation charges of unfair labor practices or discrimination
complaints, that, if adversely determined, would result in material liability to
Genzyme. Neither Genzyme nor any Genzyme Subsidiary has engaged in any unfair
labor practices within the meaning of the National Labor Relations Act with
respect to the Genzyme Combining Businesses that would, directly or indirectly
result in material liability to Genzyme. Neither Genzyme nor any Genzyme
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 of
the Genzyme Combining Businesses other than as set forth in Section 5.14 of the
Genzyme Disclosure Schedule and no such collective bargaining agreement is being
negotiated by Genzyme or any Genzyme Subsidiary. No union organizing campaign or
activity with respect to non-union employees of the Genzyme Combining Businesses
is ongoing, pending or, to the best knowledge of Genzyme, threatened.
5.15 ENVIRONMENTAL MATTERS. Except as disclosed in documents filed prior
to the date hereof by Genzyme with the SEC under the Exchange Act and except for
such matters that, individually or in the aggregate, are not reasonably likely
to have a Genzyme Material Adverse Effect, insofar as it relates to the
Combining Genzyme Businesses: (i) Genzyme and the Genzyme Subsidiaries have
obtained all permits required by any Environmental Law necessary to conduct
their respective businesses, and complied with all applicable Environmental Laws
and such permits; (ii) to the knowledge of Genzyme, the properties currently
owned or operated by Genzyme and the Genzyme Subsidiaries (including soils,
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groundwater, surface water, air, buildings or other structures) are not
contaminated with any Hazardous Substances; (iii) to the knowledge of Genzyme,
the properties formerly owned or operated by Genzyme or any of the Genzyme
Subsidiaries were not contaminated with Hazardous Substances during the period
of ownership or operation by Genzyme or any of the Genzyme Subsidiaries;
(iv) neither Genzyme nor any of the Genzyme Subsidiaries are subject to
liability or obligated to report or respond in any way for any Hazardous
Substance placement, release disposal or contamination on the property of any
third party; (v) neither Genzyme nor any of the Genzyme Subsidiaries have
generated, used, handled, transported, stored or released from or at any
location including without limitation any properties currently or formerly owned
or operated by or for the benefit of Genzyme or any Genzyme Subsidiary any
Hazardous Substance except in compliance with applicable law; and (vi) neither
Genzyme nor any of the Genzyme Subsidiaries has received any written notice,
demand, letter, claim or request for information alleging that Genzyme or any of
the Genzyme Subsidiaries may be in violation of, liable under or have
obligations under any Environmental Law.
5.16 BOARD APPROVAL. The Board of Directors of Genzyme, as of the date of
this Agreement, has determined (a) to propose that Genzyme's stockholders
approve the Reorganization and the issuance of the shares of GBS Division Common
Stock issuable pursuant to this Agreement and (b) recommend that the
stockholders of Genzyme approve the Reorganization and the issuance of the
shares of GBS Division Common Stock issuable pursuant to this Agreement.
5.17 BROKERAGE. Other than Merrill Lynch, Pierce, Fenner & Smith
Incorporated, no broker, finder, agent or similar intermediary has acted on
behalf of Genzyme in connection with this Agreement or the transactions
contemplated 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 Genzyme, or any action taken by
Genzyme.
5.18 YEAR 2000 MATTERS. Insofar as it relates to or affects the Combining
Genzyme Businesses, Genzyme and the Genzyme Subsidiaries have not experienced,
and do not reasonably expect to experience, any material problems related to
Systems failing to be Year 2000 Compliant.
5.19 PROXY STATEMENT AND REGISTRATION STATEMENT. None of the information
supplied or to be supplied by Genzyme 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 Genzyme for inclusion or incorporation by reference in the Proxy
Statement/Prospectus will, at the date it is first mailed to holders of
Biomatrix Common Stock or holders of any series of Genzyme Common Stock or at
the time of the Biomatrix Stockholders Meeting or Genzyme 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. The Proxy Statement/Prospectus, insofar as it relates to the
information required to be supplied by Genzyme, 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.
5.20 AVAILABLE FUNDS. Genzyme has sufficient funds on hand or available to
it under the Genzyme Credit Facility as necessary to satisfy all of Genzyme's
and Merger Sub's obligations under this Agreement and in connection with the
transactions contemplated hereby, including, without limitation, the obligation
to pay the cash portion of the Merger Consideration and to pay all related fee
and expenses in connection with the Merger.
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ARTICLE VI--COVENANTS AND AGREEMENTS
6.1 BIOMATRIX CONDUCT OF BUSINESS. Except with the prior written consent
of Genzyme and except as otherwise contemplated herein or referred to in
Section 6.1 of the Biomatrix Disclosure Schedule, during the period from the
date hereof to the Closing Date, Biomatrix shall observe the following
covenants:
(a) AFFIRMATIVE COVENANTS PENDING CLOSING. Biomatrix shall:
(i) PRESERVE THE BUSINESS; MAINTAIN PROPERTIES, CONTRACTS. Use
reasonable commercial efforts to preserve the business of Biomatrix, and
perform and comply in all material respects with the terms of the contracts
referred to in Section 4.8;
(ii) OPERATE IN THE ORDINARY COURSE OF BUSINESS. Operate Biomatrix'
business in the ordinary course consistent with past practices;
(iii) PROTECT INTELLECTUAL PROPERTY RIGHTS. Use reasonable commercial
efforts to preserve and protect the Proprietary Rights;
(iv) RETAIN EMPLOYEES. Use reasonable commercial efforts consistent
with past practices to preserve intact and keep available the services of
present employees of Biomatrix and the Biomatrix Subsidiaries;
(v) COMPLY WITH BIOMATRIX OPTIONS AND CONVERTIBLE NOTE. Take all
actions necessary with respect to Biomatrix Options and the Biomatrix
Convertible Note to effectuate the terms of this Agreement, provided,
however, that Genzyme shall have the right to approve any agreements to
modify terms of the underlying instruments;
(vi) MAINTAIN INSURANCE. Use reasonable commercial efforts to keep in
effect casualty, public liability, worker's compensation and other insurance
policies in coverage amounts not less than those in effect at the date of
this Agreement;
(vii) NOTIFY ON FDA MATTERS. Subject to the terms of applicable
contracts, notify Genzyme promptly (A) after receipt of any material
communication from the FDA and before giving any material submission to the
FDA, except with respect to any product for which Genzyme has or is
developing a competing product, and (B) prior to the addition of new
clinical trials; and
(viii) TAXES. Pay all taxes when due and, except where Biomatrix has
filed for extensions, file all Tax Returns due between the date hereof and
the Effective Time.
(b) NEGATIVE COVENANTS PENDING CLOSING. Biomatrix shall not:
(i) DISPOSE 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 $250,000;
(ii) INCUR LIABILITIES. Incur any indebtedness for borrowed money,
obligation or liability or enter into any contracts or commitments involving
potential payments to or by Biomatrix or any Biomatrix Subsidiary of
$250,000 or more or issue or incur any indebtedness that is convertible into
equity securities or has voting rights;
(iii) PAY COMPENSATION. Except as is otherwise disclosed in this
Agreement, increase the compensation payable to any officer, director,
employee, agent or consultant; or enter into any employment, severance or
other agreement with any officer or director of Biomatrix or a Biomatrix
Subsidiary; or adopt, or increase the benefits under, any employee benefit
plan, except as required by law;
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(iv) CHANGE 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 (1) issuances
upon the exercise or conversion of options, warrants and convertible
securities outstanding on the date of this Agreement and disclosed in the
Biomatrix Disclosure Schedule and (2) repurchases from employees and
consultants pursuant to the terms of agreements in existence on the date of
this Agreement;
(v) AMEND CHARTER AND BY-LAWS. Cause, permit or propose any amendments
to the Certificate of Incorporation or By-laws of Biomatrix;
(vi) MAKE ACQUISITIONS. Make, or permit to be made, any material
acquisition of property or assets outside the ordinary course of business;
(vii) EXPEND CAPITAL. Authorize any single capital expenditure in
excess of $100,000 or capital expenditures which in the aggregate exceed
$500,000;
(viii) CHANGE 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
Biomatrix 10-K or Biomatrix 10-Q;
(ix) MAKE CHANGES RELATING TO TAXES. Settle or compromise any material
federal, state, local or foreign Tax liability, change any annual tax
accounting period, change any method of Tax accounting, enter into any
closing agreement relating to any Tax or surrender any right to claim a Tax
refund or make any election with respect to Taxes;
(x) SETTLE LEGAL PROCEEDINGS. Settle or compromise any pending or
threatened suit, action or claim which is material or which relates to the
transactions contemplated hereby; provided that, at the request of Genzyme,
Biomatrix shall use its reasonable commercial efforts to settle any such
matter prior to the Effective Date on terms mutually satisfactory to
Biomatrix and Genzyme;
(xi) ENTER INTO EXTRAORDINARY TRANSACTIONS. Adopt a plan of complete
or partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Biomatrix or any of the
Biomatrix Subsidiaries (other than the Merger);
(xii) DISCHARGE 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 1999 Financial Statements or incurred in the ordinary course
of business and other than the payment, discharge or satisfaction of
expenses incurred in connection with the transactions contemplated by this
Agreement;
(xiii) TRIGGER WARN ACT OBLIGATIONS. Effectuate a "plant closing" or
"mass layoff," as those terms are defined in the Worker Adjustment and
Retraining Notification Act of 1988;
(xiv) ENTER INTO NEW AGREEMENTS/AMENDMENTS. Enter into or modify in
any material respect, or permit a Biomatrix Subsidiary to enter into or
modify in any material respect, any license, development, research or
collaboration agreement with any other person or entity other than
modifications contemplated by such agreements; or
(xv) ASSUME OBLIGATIONS. Agree or obligate itself to do any of the
foregoing.
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Nothing contained in this Agreement shall give Genzyme, directly or
indirectly, the right to control or direct Biomatrix' operations prior to the
Effective Time. Prior to the Effective Time, Biomatrix shall exercise,
consistent with the terms and conditions of this Agreement, complete control and
supervision over its operations. In the event Genzyme's consent is required
under this Section 6.1, such consent shall not be unreasonably withheld or
delayed.
6.2. GENZYME CONDUCT OF BUSINESS. Except with the prior written consent of
Biomatrix and except as otherwise contemplated herein or referred to in
Section 6.2 of the Genzyme Disclosure Schedule, during the period from the date
hereof to the Closing Date, Genzyme shall observe the following covenants:
(a) AFFIRMATIVE COVENANTS PENDING CLOSING. Genzyme shall, insofar as it
relates to the Combining Genzyme Businesses:
(i) PRESERVE THE BUSINESS; MAINTAIN PROPERTIES, CONTRACTS. Use
reasonable commercial efforts to preserve the business of Genzyme, and
perform and comply in all material respects with the terms of the contracts
referred to in Section 5.7;
(ii) OPERATE IN THE ORDINARY COURSE OF BUSINESS. Operate Genzyme's
business in the ordinary course consistent with past practices;
(iii) PROTECT INTELLECTUAL PROPERTY RIGHTS. Use reasonable commercial
efforts consistent with past practices to preserve and protect the Genzyme
Proprietary Rights;
(iv) RETAIN EMPLOYEES. Use reasonable commercial efforts consistent
with past practices to preserve intact and keep available the services of
present employees of Genzyme and the Genzyme Subsidiaries; and
(v) MAINTAIN INSURANCE. Use reasonable commercial efforts to keep in
effect casualty, public liability, product liability, worker's compensation
and other insurance policies in coverage amounts customary for similar
businesses.
(vi) NOTIFY ON FDA MATTERS. Subject to the terms of applicable
contracts, notify with Biomatrix promptly after receipt of any material
communication from the FDA regarding a Serious Adverse Event or Serious
Adverse Device Event (as defined under applicable FDA regulations), except
where it relates to a product for which Biomatrix has or is developing a
competing product.
(b) NEGATIVE COVENANTS PENDING CLOSING. Genzyme shall not:
(i) DISPOSE OF ASSETS. Insofar as it relates to the Combining Genzyme
Businesses, sell or transfer, or mortgage, pledge, lease or otherwise
encumber any of its assets, including its Genzyme Proprietary Rights, other
than sales or transfers in the ordinary course of business, in connection
with the Allocated Borrowings or in amounts not exceeding $500,000;
(ii) INCUR LIABILITIES. Allocate any indebtedness for borrowed money
to the Combining Genzyme Businesses, other than the Allocated Borrowings and
for working capital, or issue or incur any indebtedness that is convertible
into equity securities relating to or that has voting rights with respect to
the Combining Genzyme Businesses;
(iii) PAY COMPENSATION. Insofar as it relates to or affects the
Combining Genzyme Businesses and except in the ordinary course consistent
with past practice, increase the compensation payable to any officer,
director, employee, agent or consultant; or adopt, or increase the benefits
under, any employee benefit plan, except as required by law;
(iv) ISSUE GBS DIVISION COMMON STOCK. Except pursuant to this
Agreement or the Reorganization, issue any shares of GBS Division Common
Stock or options, warrants or other rights to acquire GBS Division Common
Stock;
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(v) CHANGE CAPITAL STOCK. Except pursuant to the Reorganization, make
any change in the number of shares of GSP Division Common Stock or GTR
Division Common 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 GSP Division Common
Stock or GTR Division Common Stock, or declare or pay any dividend or other
distribution with respect to any shares of its GSP Division Common Stock or
GTR Division Common Stock, or redeem or otherwise repurchase any shares of
GSP Division Common Stock or GTR Division Common Stock, except
(1) issuances upon the exercise or conversion of options, warrants and
convertible securities outstanding on the date of this Agreement and
disclosed herein, (2) issuances in the ordinary course of business
consistent with past practice, not to exceed 900,000 shares in the
aggregate, in connection with research, development and product
commercialization activities or the grant of non-employee options therefor
and (3) repurchases from employees and consultants pursuant to the terms of
agreements in existence on the date of this Agreement;
(vi) AMEND CHARTER AND BY-LAWS. Other than as contemplated by this
Agreement, cause, permit or propose any amendments to the Articles of
Organization or By-laws of Genzyme or cause permit or propose any amendments
to the Divisional Policies which would require the approval of holders of
GBS Division Common Stock as a class if the shares of GBS Division Common
Stock issuable in the Merger were outstanding;
(vii) MAKE ACQUISITIONS. Insofar as it relates to or affects the
Combining Genzyme Businesses, make, or permit to be made, any material
acquisition of property or assets outside the ordinary course of business;
(viii) CHANGE ACCOUNTING POLICIES. Insofar as it relates to or affects
the Combining Genzyme Businesses, 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 Genzyme 10-K
or Genzyme 10-Q;
(ix) ENTER INTO EXTRAORDINARY TRANSACTIONS. Insofar as it relates to
or affects the Combining Genzyme Businesses, adopt a plan of complete or
partial liquidation, dissolution, merger, consolidation, restructuring,
recapitalization or other reorganization of Genzyme or any of the Genzyme
Subsidiaries (other than the Merger and the Reorganization) which would
require the approval of holders of GBS Division Common Stock as a class if
the shares of GBS Division Common Stock issuable in the Merger were
outstanding;
(x) TRIGGER WARN ACT OBLIGATIONS. Insofar as it relates to or affects
the Combining Genzyme Businesses, effectuate a "plant closing" or "mass
layoff," as those terms are defined in the Worker Adjustment and Retraining
Notification Act of 1988;
(xi) ASSUME OBLIGATIONS. Insofar as it relates to or affects the
Combining Genzyme Businesses, agree or obligate itself to do any of the
foregoing.
Nothing contained in this Agreement shall give Biomatrix, directly or
indirectly, the right to control or direct Genzyme's operations prior to the
Effective Time. Prior to the Effective Time, Genzyme shall exercise, consistent
with the terms and conditions of this Agreement, complete control and
supervision over its operations. In the event Biomatrix' consent is required
under this Section 6.2, such consent shall not be unreasonably withheld or
delayed.
6.3 TAX-FREE REORGANIZATION TREATMENT. No party will knowingly take or
cause or permit to be taken any action, whether before or after the Effective
Time, that would disqualify the Merger as a "reorganization" within the meaning
of Section 368(a) of the Code.
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6.4 CORPORATE EXAMINATIONS AND INVESTIGATIONS. (a) Subject to the terms
and conditions set forth in the confidentiality agreement, dated December 2,
1999, between Genzyme and Lehman Brothers Inc., as financial advisor to and on
behalf of, Biomatrix (the "GENZYME CONFIDENTIALITY AGREEMENT"), prior to the
Effective Time, Genzyme shall be entitled, through its employees and
representatives, to have such access to the assets, properties, business and
operations of Biomatrix, as is reasonably necessary or appropriate in connection
with Genzyme's investigation of Biomatrix with respect to the transactions
contemplated hereby. Any such investigation and examination shall be conducted
at reasonable times and under reasonable circumstances so as to minimize any
disruption to or impairment of Biomatrix' business and Biomatrix shall cooperate
fully therein. No investigation by Genzyme shall diminish or obviate any of the
representations, warranties, covenants or agreements of Biomatrix contained in
this Agreement. In order that Genzyme may have full opportunity to make such
investigation, Biomatrix shall furnish the representatives of Genzyme during
such period with all such information and copies of such documents concerning
the affairs of Biomatrix 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.
(b) Subject to the terms and conditions set forth in the confidentiality
agreement, dated February 15, 2000, between Genzyme and Biomatrix (the
"BIOMATRIX CONFIDENTIALITY AGREEMENT" and together, with the Genzyme
Confidentiality Agreement, the "CONFIDENTIALITY AGREEMENTS"), prior to the
Effective Time, Biomatrix shall be entitled, through its employees and
representatives, to have such access to the assets, properties, business and
operations of Genzyme, as is reasonably necessary or appropriate in connection
with Biomatrix' investigation of Genzyme with respect to the transactions
contemplated hereby. Any such investigation and examination shall be conducted
at reasonable times and under reasonable circumstances so as to minimize any
disruption to or impairment of Genzyme "s business and Genzyme shall cooperate
fully therein. No investigation by Biomatrix shall diminish or obviate any of
the representations, warranties, covenants or agreements of Genzyme contained in
this Agreement. In order that Biomatrix may have full opportunity to make such
investigation, Genzyme shall furnish the representatives of Biomatrix during
such period with all such information and copies of such documents concerning
the affairs of Genzyme 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.
6.5 EXPENSES. Prior to the Effective Time, Biomatrix and Genzyme 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.
6.6 THIRD-PARTY CONSENTS. Prior to the Closing Date, the parties shall use
their reasonable commercial efforts to obtain all authorizations, consents and
Permits of others, necessary or desirable in connection with the consummation of
the Merger.
6.7 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.
Nothing in this Agreement shall require Biomatrix or any Biomatrix
subsidiary (prior to or following the Merger) to license, sell, hold separate or
otherwise dispose of or conduct their business in a specified manner, or agree
to license, sell, hold separate or otherwise dispose of or conduct their
business in a specified manner, or permit the license, sale, holding separate or
other disposition of, any assets of Biomatrix or any Biomatrix Subsidiary,
whether as a condition to obtaining any approval from a governmental entity or
any other person or for any other reason.
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6.8 PREPARATION OF DISCLOSURE DOCUMENTS.
(a) As soon as practicable following the date of this Agreement, Biomatrix
and Genzyme shall prepare the Proxy Statement/Prospectus. Biomatrix and Genzyme
shall, in cooperation with the other, file the Proxy Statement/Prospectus with
the SEC as its preliminary proxy statement and Genzyme shall, in cooperation
with Biomatrix, prepare and file with the SEC the Registration Statement, in
which the Proxy Statement/Prospectus will be included. Each of Biomatrix and
Genzyme 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. Biomatrix 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. Genzyme shall mail the Proxy Statement/Prospectus
to its holders of Common Stock 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) Biomatrix shall, as soon as practicable following the date of this
Agreement and the effectiveness of the Registration Statement, duly call, give
notice of, convene and hold a meeting of its stockholders (the "BIOMATRIX
STOCKHOLDERS MEETING") for the purpose of obtaining the required stockholder
votes with respect to this Agreement, (ii) the Board of Directors of Biomatrix,
unless otherwise required pursuant to the applicable fiduciary duties of the
Board of Directors of Biomatrix to the stockholders of Biomatrix (as determined
in good faith by the Board of Directors of Biomatrix based upon the advice of
outside counsel), shall recommend adoption of this Agreement by its stockholders
and (iii) Biomatrix shall take all lawful action to solicit such adoption.
(c) (i) Genzyme shall, as soon as practicable following the date of this
Agreement and the effectiveness of the Registration Statement, duly call, give
notice of, convene and hold a meeting of its holders of Common Stock (the
"GENZYME STOCKHOLDERS MEETING") for the purpose of obtaining the required
stockholder votes with respect to the Reorganization and the issuance of the
shares of GBS Division Common Stock pursuant to this Agreement, (ii) the Board
of Directors of Genzyme, unless otherwise required pursuant to the applicable
fiduciary duties of the Board of Directors of Genzyme to the stockholders of
Genzyme (as determined in good faith by the Board of Directors of Genzyme based
upon the advice of outside counsel), shall recommend approval by its
stockholders of the Reorganization and the issuance of the shares of GBS
Division Common Stock pursuant to this Agreement and (iii) Genzyme shall take
all lawful action to solicit such approval.
(d) Except as required by law, no amendment or supplement to the Proxy
Statement/Prospectus or the Registration Statement shall be made by Genzyme or
Biomatrix without the approval of the other party (which shall not be
unreasonably withheld). 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.
(e) Biomatrix shall use reasonable efforts to cause to be delivered to
Genzyme a letter from Biomatrix' independent public accountants, dated the date
on which the Registration Statement shall become effective, addressed to
Biomatrix, Genzyme and their boards of directors, in form and substance
reasonably satisfactory to Genzyme and customary in scope and substance for
comfort letters delivered by independent public accountants in connection with
registration statements similar to the Registration Statement.
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6.9 PUBLIC ANNOUNCEMENTS. Genzyme and Biomatrix will consult with each
other before issuing any press release or otherwise making any public statements
with respect to the Merger or this Agreement and will not issue any such press
release or make any such public statement without the prior consent of the other
party, which will not be unreasonably withheld or delayed; provided, however,
that a party may, without the prior consent of the other party, issue such press
release or make such public statement as may upon the advice of counsel be
required by law or the rules and regulations of the New York Stock Exchange or
Nasdaq if such party has first used reasonable efforts to consult with the other
party.
6.10 NASDAQ MATTERS. Prior to the Closing Date, Genzyme shall use its
reasonable commercial efforts to list for trading with Nasdaq the shares of GBS
Division Common Stock to be issued in the Merger. Prior to the Closing Date,
Biomatrix shall take such actions as are necessary so that trading of Biomatrix
Common Stock on the New York Stock Exchange ceases prior to the Effective Time.
6.11 NO SOLICITATION. Biomatrix will not, and will not permit any of its
directors, officers, employees, agents or other representatives (including any
financial advisors or attorneys) or those of any Biomatrix Subsidiary to:
(a) solicit, initiate, facilitate or encourage discussions with any person,
other than Genzyme, relating to the possible acquisition of Biomatrix or any
Biomatrix Subsidiary or of all or a material portion of the assets or capital
stock of Biomatrix or any Biomatrix Subsidiary or any merger, reorganization,
consolidation, business combination, share exchange, recapitalization,
dissolution, liquidation or similar transaction involving Biomatrix or any
Biomatrix Subsidiary (an "ALTERNATIVE TRANSACTION");
(b) participate in any negotiations regarding, or furnish to any other
person non-public 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, Biomatrix and the Board of Directors of
Biomatrix shall be permitted:
(i) to the extent applicable, to comply with Rule 14e-2(a) under the
Exchange Act with regard to an Alternative Transaction; and
(ii) to engage in any discussions or negotiations with, or to provide
any information to, a person who makes an unsolicited bona fide written
proposal for an Alternative Transaction with terms which the Board of
Directors of Biomatrix determines in its good faith judgment (after
consultation with its financial advisor) to be more favorable to Biomatrix'
stockholders than the Merger, if and only to the extent that, in the case of
the actions referred to in this clause (ii), (A) Biomatrix is not in breach
of its obligations under this Section 6.11, (B) the Board of Directors of
Biomatrix concludes in good faith, after receipt of the advice of its
outside legal counsel, that the provision of such information or the
engaging in such negotiations or discussions is required by the directors'
fiduciary duties in accordance with Delaware law and (C) prior to providing
any information or data to any person in connection with an Alternative
Transaction, the Board of Directors of Biomatrix receives from such person
an executed confidentiality agreement with terms substantially similar to
those contained in the Confidentiality Agreement (except as to standstill or
non-solicitation provisions, provided that if Biomatrix enters into a
confidentiality agreement without standstill or non-solicitation provisions
or without standstill or non-solicitation provisions that are substantially
similar to those in the Confidentiality Agreement, then Genzyme shall be
relieved of the standstill or non-solicitation provisions, as applicable, in
the Confidentiality Agreement).
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Biomatrix shall notify Genzyme promptly (and, in any case, within one
business day) of any written inquiries, proposals or offers received by, any
information requested from, or any discussions or negotiations sought to be
initiated or continued with, any of its representatives concerning an
Alternative Transaction, indicating, in connection with such notice, the name of
such person and the material terms and conditions of any proposals or offers
and, in the case of written materials, providing copies of such material.
Biomatrix agrees that it will keep Genzyme informed, on a prompt basis (and, in
any case, within one business day), of the status and terms of any such
proposals or offers and the status of any such discussions or negotiations.
Biomatrix agrees that it will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any proposed Alternative Transaction or similar
transaction or arrangement and will not waive any rights under any
confidentiality agreements entered into with such parties. Biomatrix agrees that
it will take the necessary steps to promptly inform the individuals or entities
referred to in the first sentence of this 6.11 of the obligations undertaken in
this Section 6.11. Biomatrix agrees that a breach of this Section 6.11 by any of
its directors, officers, employees, agents or other representatives shall be
deemed a breach by Biomatrix.
6.12 REGULATORY FILINGS. As soon as is reasonably practicable, Genzyme and
Biomatrix shall file, and Biomatrix shall endeavor to cause such stockholders of
Biomatrix as are required to 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. Biomatrix and
Genzyme each shall promptly (a) supply the other with any information which may
be required in order to make such filings and (b) supply any additional
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.
6.13 NOTIFICATION OF CERTAIN MATTERS. Between the date hereof and the
Closing Date, Biomatrix shall give prompt notice to Genzyme, and Genzyme shall
give prompt notice to Biomatrix, 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 in any material respect and (b) any failure of Biomatrix or
Genzyme, as the case may be, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder.
6.14 REGISTRATION OF OPTION SHARES. Promptly after the Effective Time,
Genzyme shall file one or more registration statements on Form S-8 (or any
successor or other appropriate form), with respect to the shares of GBS Division
Common Stock subject to Biomatrix Stock Options, and shall use commercially
reasonable efforts to maintain the effectiveness of such registration statement
for so long as such options or purchase rights remain outstanding.
6.15 EMPLOYEE MATTERS.
(a) Genzyme will give individuals who are employed by Biomatrix and the
Biomatrix Subsidiaries immediately prior to the Effective Time and remain as
employees of Genzyme or a Genzyme Subsidiary ("AFFECTED EMPLOYEES") full credit
for purposes of eligibility, vesting, benefit accrual (excluding however,
benefit accrual under any defined benefit plans) and determination of the level
of benefits under any employee benefit plans or arrangements maintained by
Genzyme or any subsidiary of Genzyme for such Affected Employees' service with
Biomatrix or any subsidiary of Biomatrix to the same extent as though the
Affected Employee had been employed by Genzyme.
(b) Genzyme will waive all limitations as to preexisting conditions
exclusions and waiting periods with respect to participation and coverage
requirements applicable to the Affected Employees under any welfare benefit
plans that such employees may be eligible to participate in after the Effective
Time,
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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 welfare plan maintained for the Affected Employees immediately
prior to the Effective Time.
(c) As of the Effective Time, Genzyme shall assume and honor in accordance
with their terms all written employment, severance and other compensation
agreements and arrangements existing prior to the execution of this Agreement
which are between Biomatrix or any subsidiary and any director, officer,
employee or consultant thereof, including those described in Section 6.15(c) of
the Biomatrix Disclosure Schedule, except as otherwise expressly agreed in
writing between Genzyme and such person.
(d) Except with the prior written consent of Genzyme, during the period from
the date hereof to the Closing Date, Biomatrix shall not and shall not permit
any Biomatrix Subsidiary (i) to make any discretionary contribution to the
Biomatrix 401(k) plan (the "Plan") or (ii) to make any required contribution to
the Plan in Biomatrix Shares. Prior to the Closing Date, Biomatrix shall
terminate the Plan.
6.16 INDEMNIFICATION.
(a) From and after the Effective Time, Genzyme will cause the Surviving
Corporation to fulfill and honor in all respects the obligations, to the extent
legally permissible, of Biomatrix pursuant to any indemnification provisions
under Biomatrix' Certificate of Incorporation or By-laws as in effect on the
date hereof (the persons entitled to indemnification thereunder being referred
to herein as the "INDEMNIFIED PARTIES").
(b) In the event the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges with any other person and shall not be
the continuing or surviving corporation or entity of such consolidation or
merger or (ii) transfers substantially all of its assets to any person in a
single transaction or a series of transactions, then, and in each such case,
Genzyme will either guarantee the indemnification obligations referred to in
this Section 6.16 or will make or cause to be made proper provision so that the
successors and assigns of the Surviving Corporation assumes the indemnification
obligations described herein for the benefit of the Indemnified Parties.
(c) The provisions of this Section 6.16 are (i) intended to be for the
benefit of, and will be enforceable by, each of the Indemnified Parties and
(ii) in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such person may have by contract or
otherwise.
(d) For a period of six years after the Effective Time, Genzyme shall use
its best efforts to maintain in effect the current level and scope of directors'
and officers' liability insurance policy (a copy of which has previously been
delivered to Genzyme) from comparable insurers; PROVIDED, HOWEVER, that in no
event shall Genzyme be required to expend in any one year in excess of 150% of
the annual premium currently paid by Biomatrix for such coverage.
6.17 AFFILIATES LETTERS. Biomatrix will use its commercially reasonable
efforts to cause each person whom Biomatrix believes may be deemed to be an
"affiliate" of Biomatrix, as that term is defined for purposes of paragraphs
(c) and (d) of Rule 145 under the Securities Act, to execute and deliver to it
as promptly as practicable an executed copy of an affiliate letter substantially
in the form of Exhibit B attached hereto. Biomatrix acknowledges that the shares
of GBS Division Common Stock issued to these persons will contain an appropriate
legend referring to the restrictions contained in Rule 145 and may be subject to
stop order instructions with respect thereto.
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ARTICLE VII--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 mutual consent of the other party, at
or before the Effective Time, of each of the following conditions:
7.1 STOCKHOLDER APPROVAL. Biomatrix shall have obtained the required vote
of holders of Biomatrix Common Stock necessary to adopt this Agreement. Genzyme
shall have obtained the Genzyme Stockholder Approvals.
7.2 REGISTRATION STATEMENT. The Registration Statement shall have been
declared effective and shall remain effective and shall not be subject to a stop
order at the Effective Time.
7.3 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.
7.4 REGULATORY APPROVALS. All approvals from governmental entities shall
have been obtained; provided, however, that the conditions of this Section 7.4
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.
7.5 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.
7.6 NASDAQ. The shares of GBS Division Common Stock issuable in the Merger
shall have been listed on Nasdaq.
ARTICLE VIII--CONDITIONS PRECEDENT TO THE OBLIGATIONS OF
GENZYME AND MERGER SUB TO CONSUMMATE THE MERGER
The obligations of Genzyme 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 Genzyme:
8.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Other than changes
contemplated by the Agreement, the representations and warranties made by
Biomatrix in this Agreement (without regard to knowledge or materiality
qualifiers) (a) shall have been accurate as of the date of this Agreement and
(b) shall be accurate as of the Closing Date as if made on and as of the Closing
Date, except (i) to the extent such representations and warranties speak as of a
specific date, in which case such representations and warranties shall be
accurate in all material respects as of such date and (ii) where the failure to
be accurate, considered in the aggregate, would not reasonably be expected to
have a Biomatrix Material Adverse Effect. Biomatrix 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. Biomatrix shall have delivered to Genzyme a certificate from its
chief executive officer, dated the Closing Date, to the foregoing effect.
8.2 DELAWARE CERTIFICATES. Biomatrix shall have delivered a copy of the
Certificate of Incorporation of Biomatrix, 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
Biomatrix' corporate good standing.
8.3 SECRETARY'S CERTIFICATE. Biomatrix shall have delivered a certificate
of the Secretary of Biomatrix, dated as of the Closing Date, certifying as to
(a) the incumbency of officers of Biomatrix executing documents executed and
delivered in connection herewith, (b) a copy of the By-Laws of Biomatrix, as in
effect from the date this Agreement was approved by the Board of Directors of
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Biomatrix until the Closing Date and (c) a copy of the resolutions of the Board
of Directors of Biomatrix authorizing and approving the applicable matters
contemplated hereunder.
8.4 TAX OPINION. Genzyme shall have received the opinion of Palmer & Dodge
LLP, counsel to Genzyme, to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion (a) 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 (b) each of Biomatrix and Genzyme will
be a party to that reorganization within the meaning of Section 368(b) of the
Code. The issuance of such opinion shall be conditioned on receipt of
representation letters from each of Biomatrix and Genzyme. The specific
provisions of each such representation letter shall be in form and substance
satisfactory to Palmer & Dodge LLP and Bingham Dana LLP, and each such
representation letter shall be dated on or before the date of such opinion and
shall not have been withdrawn or modified in any material respect as of the
Closing Date.
8.5 MERGER FILINGS. Biomatrix shall have executed and delivered the Merger
Filings referred to in Section 1.3.
ARTICLE IX--CONDITIONS PRECEDENT TO THE OBLIGATION OF
BIOMATRIX TO CONSUMMATE THE MERGER
The obligation of Biomatrix to consummate the Merger is subject to the
fulfillment of the following conditions, any one or more of which may be waived
by it:
9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Other than changes
contemplated by this Agreement, the representations and warranties made by each
of Genzyme and Merger Sub in this Agreement (without regard to knowledge or
materiality qualifiers) (a) shall have been accurate as of the date of this
Agreement and (b) shall be accurate as of the Closing Date as if made on and as
of the Closing Date, except (i) to the extent such representations and
warranties speak as of a specific date, in which case such representations and
warranties shall be accurate in all material respects as of such date and
(ii) where the failure to be accurate, considered in the aggregate, would not
reasonably be expected to have a Genzyme Material Adverse Effect. Each of
Genzyme 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. Each of
Genzyme and Merger Sub shall have delivered to Biomatrix a certificate from its
chief executive officer, dated the Closing Date, to the foregoing effect.
9.2 MASSACHUSETTS CERTIFICATES. Each of Genzyme and Merger Sub shall have
delivered (i) a copy of its Articles of Organization, as in effect immediately
prior to the Closing Date, certified by the Massachusetts Secretary of State and
(ii) a certificate, as of the most recent practicable date, of the Massachusetts
Secretary of State as to its corporate good standing.
9.3 CLERK'S CERTIFICATES. Each of Genzyme and Merger Sub shall have
delivered a certificate of its Clerk, dated as of the Closing Date, certifying
as to (a) the incumbency of its officers executing documents executed and
delivered in connection herewith, (b) a copy of its By-Laws, as in effect from
the date this Agreement was approved by its Board of Directors until the Closing
Date and (c) a copy of the resolutions of its Board of Directors authorizing and
approving the applicable matters contemplated hereunder.
9.4 TAX OPINION. Biomatrix shall have received the opinion of Bingham Dana
LLP, counsel to Biomatrix, to the effect that, on the basis of the facts,
representations and assumptions set forth in such opinion (a) the Merger will be
treated for United States Federal income tax purposes as a reorganization within
the meaning of Section 368(a) of the Code and (b) each of Biomatrix and Genzyme
will be a party to that reorganization within the meaning of Section 368(b) of
the Code. The issuance of such opinion shall be conditioned on receipt of
representation letters from each of
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Biomatrix and Genzyme. The specific provisions of each such representation
letter shall be in form and substance satisfactory to Bingham Dana LLP and
Palmer & Dodge LLP, and each such representation letter shall be dated on or
before the date of such opinion and shall not have been withdrawn or modified in
any material respect as of the Closing Date.
9.5 REORGANIZATION. Biomatrix shall have received evidence reasonably
satisfactory to it that the Reorganization shall occur on or before the Closing
Date.
9.6 MERGER FILINGS. Genzyme shall have executed and delivered the Merger
Filings referred to in Section 1.3.
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ARTICLE X--TERMINATION, AMENDMENT AND WAIVER
10.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether prior to or after adoption by holders of Biomatrix
Common Stock:
(a) by either Biomatrix or Genzyme, by written notice to the other, if the
Effective Time shall not have occurred on or before December 31, 2000 (the
"Outside Date"); provided, however, that the right to terminate this Agreement
under this Section 10.1(a) shall not be available to any party whose breach of a
representation or warranty or failure to fulfill any covenant or agreement under
this Agreement has been the cause of or resulted in the failure of the Merger to
occur on or before such date; and provided, further, however, that on
December 29, 2000, either party, by written notice to the other, may extend the
Outside Date to a date that is not later than January 31, 2001, if such party is
in the process of soliciting proxies for the Biomatrix Stockholders Meeting or
the Genzyme Stockholders Meeting, as the case may be;
(b) by Biomatrix (provided that Biomatrix is not then in breach of any
representation, warranty, covenant or other agreement contained herein, where
all of such breaches in the aggregate would reasonably be expected to result in
a Biomatrix Material Adverse Effect), by written notice to Genzyme, if there
shall have been a breach of any of the covenants or agreements or any of the
representations or warranties contained in this Agreement on the part of
Genzyme, and (i) such breach and each other such breach in the aggregate would
reasonably be expected to result in a Genzyme Material Adverse Effect, and
(ii) such breach is either not cured within twenty (20) days following written
notice to Genzyme or by its nature cannot be cured;
(c) by Genzyme (provided that Genzyme is not then in material breach of any
representation, warranty, covenant or other agreement contained herein, where
all of such breaches in the aggregate would reasonably be expected to result in
a Genzyme Material Adverse Effect), by written notice to Biomatrix, if there
shall have been a material breach of any of the covenants or agreements or any
of the representations or warranties contained in this Agreement on the part of
Biomatrix, and (i) such breach and each other such breach in the aggregate would
reasonably be expected to result in a Biomatrix Material Adverse Effect, and
(ii) such breach is either not cured within twenty (20) days following written
notice to Biomatrix or by its nature cannot be cured;
(d) by either Genzyme or Biomatrix, by written notice to the other, if any
governmental entity 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 Genzyme or Biomatrix, by written notice to the other, if the
stockholders of Biomatrix shall not have adopted this Agreement (a "BIOMATRIX
STOCKHOLDER FAILURE EVENT") or Genzyme has not obtained the Genzyme Stockholder
Approvals (a "GENZYME STOCKHOLDER FAILURE EVENT") within ninety (90) days after
the later of (i) the date the Registration Statement has been declared effective
by the SEC or (ii) the date of the most recent supplemental proxy materials the
SEC requires Biomatrix or Genzyme to distribute to its stockholders; PROVIDED,
HOWEVER, that the right to terminate this Agreement under this Section 10.1(e)
shall not be available to any party whose breach of a representation or warranty
or failure to fulfill any covenant or agreement under this Agreement has been
the cause of or resulted in the failure of stockholder adoption of this
Agreement on or before such date;
(f) by Genzyme, by written notice to Biomatrix, if Biomatrix' Board of
Directors (i) fails to include in the Proxy Statement/Prospectus its
recommendation that Biomatrix' stockholders vote to adopt this Agreement,
(ii) withdraws, modifies or qualifies in a manner materially adverse to Genzyme
its approval of or its recommendation that its stockholders vote for the
adoption of this Agreement, (iii) adopts resolutions approving or otherwise
authorizes or recommends an Alternative Transaction or
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(iv) fails to recommend against a tender or exchange offer in any position taken
pursuant to Rules 14d-9 and 14e-2(a) under the Exchange Act;
(g) by Biomatrix, if as a result of a proposal for an Alternative
Transaction, the Board of Directors of Biomatrix shall have determined in good
faith, after receipt of the advice of outside legal counsel, that the directors
are obligated by their fiduciary duties in accordance with Delaware law to
terminate this Agreement; PROVIDED, HOWEVER, that it shall be a condition
precedent to the termination of this Agreement by Biomatrix pursuant to this
Section 10.1(g) that Biomatrix shall have provided Genzyme at least five
(5) days notice of its intention to exercise its right to terminate pursuant to
this Section 10.1(g);
(h) by Biomatrix, by written notice to Genzyme, if Genzyme's Board of
Directors (i) fails to include in the Proxy Statement/Prospectus its
recommendation that Genzyme's stockholders vote to approve the Reorganization
and the issuance of the GBS Division Common Stock pursuant to this Agreement or
(ii) withdraws, modifies or qualifies in a manner materially adverse to
Biomatrix its approval of or its recommendation that its stockholders vote for
the approval of the Reorganization and the issuance of the GBS Division Common
Stock pursuant to this Agreement; and
(i) at any time with the written consent of Genzyme and Biomatrix.
10.2 EFFECT OF TERMINATION. If this Agreement is terminated as provided in
Section 10.1, this Agreement shall forthwith become void and have no effect,
without liability on the part of Genzyme and Biomatrix and their respective
directors, officers or stockholders, except that (a) the provisions of this
Article X, Article XI, Section 6.5 relating to expenses, Section 6.9 relating to
publicity, and the Confidentiality Agreements 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
agreements contained in this Agreement.
10.3 EXPENSE REIMBURSEMENT.
(a) Biomatrix shall pay to Genzyme an amount equal to all out-of-pocket
expenses and fees incurred by Genzyme, including without limitation fees and
expenses payable to all legal, accounting, financial and professional advisers,
relating to the Merger or the transactions contemplated by this Agreement not
exceeding $2,000,000 in the aggregate, upon the termination of this Agreement by
Genzyme pursuant to Section 10.1(f).
(b) Genzyme shall pay to Biomatrix an amount equal to all out-of-pocket
expenses and fees incurred by Biomatrix, including without limitation fees and
expenses payable to all legal, accounting, financial and professional advisers,
relating to the Merger or the transactions contemplated by this Agreement not
exceeding $2,000,000 in the aggregate, upon the termination of this Agreement by
Biomatrix pursuant to Section 10.1(h).
(c) Any payments required by this Section 10.3 will be payable by wire
transfer of immediately available funds to an account designated by the
receiving party. Notwithstanding Section 6.5, Biomatrix and Genzyme agree that
if either party fails to promptly make any payment required under this
Section 10.3 and the receiving party commences a suit against the paying party
to collect such payment, the losing party shall indemnify the prevailing party
for its costs and expenses (including attorney's fees and expenses) incurred in
connection with such suit and if the receiving party is the prevailing party
then the paying party shall pay the receiving party 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 10.3.
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10.4 BREAK-UP FEES.
(a) Biomatrix shall pay Genzyme a termination fee of $22,000,000 (less any
amount paid pursuant to Section 10.3(a) if applicable) (the "BREAK-UP FEE") upon
the earliest to occur of the following events:
(i) the termination of this Agreement by Biomatrix pursuant to
Section 10.1(g), in which case the Break-Up Fee shall be paid at the time
of, and as a condition to, such termination; or
(ii) the termination of this Agreement pursuant to Section 10.1(e) in
connection with a Biomatrix Stockholder Failure Event if at the time of the
Biomatrix Failure Event,
(A) there shall have been announced or commenced an Alternative
Transaction with a Third Party (as defined below) and Biomatrix shall
have executed or consummated an agreement to engage in the same, in which
case the Break-Up Fee shall be paid at the time of and, in the case of a
termination by Biomatrix as a condition to, such termination, or
(B) there shall have been announced or commenced an Alternative
Transaction with a Third Party and (x) Biomatrix shall have engaged in,
or entered into an agreement to engage in, an Alternative Transaction
with such Third Party or any Affiliate (as defined below) thereof or with
a Competing Party (as defined below) within twelve months after the date
of the Biomatrix Stockholder Failure Event or (y) Biomatrix' Board of
Directors shall have recommended an Alternative Transaction with the
Third Party proposing such Alternative Transaction or any Affiliate
thereof or with a Competing Party within twelve months after the date of
the Biomatrix Stockholder Failure Event, in which case the Break-Up Fee
will be payable upon the occurrence of the event referred to in (x) or
(y) above; or
(iii) the termination of this Agreement by Genzyme pursuant to
Section 10.1(f) if at the time of such termination,
(A) there shall have been announced or commenced, or Biomatrix shall
have received a proposal for, an Alternative Transaction with a Third
Party and Biomatrix shall have executed or consummated an agreement to
engage in the same, in which case the Break-Up Fee shall be paid at the
time of such termination, or
(B) there shall have been announced or commenced, or Biomatrix shall
have received a proposal for, an Alternative Transaction with a Third
Party and (x) Biomatrix shall have engaged in, or entered into an
agreement to engage in, an Alternative Transaction with such Third Party
or any Affiliate thereof or with a Competing Party within twelve months
after the date of such termination or (y) Biomatrix' Board of Directors
shall have recommended an Alternative Transaction with the Third Party
proposing such Alternative Transaction or any Affiliate thereof or with a
Competing Party within twelve months after the date of such termination,
in which case the Break-Up Fee will be payable upon the occurrence of the
event referred to in (x) or (y) above.
(b) Genzyme shall pay Biomatrix a termination fee of $22,000,000 (less any
amount paid pursuant to Section 10.3(b) if applicable) (the "GENZYME BREAK-UP
FEE") upon the earlier to occur of the following events:
(i) the termination of this Agreement pursuant to Section 10.1(e) in
connection with a Genzyme Stockholder Failure Event if at the time of the
Genzyme Stockholder Failure Event,
(A) there shall have been announced or commenced a Genzyme
Alternative Transaction (as defined below) with a Third Party and Genzyme
shall have executed or consummated an agreement to engage in the same, in
which case the Genzyme Break-Up Fee shall be paid at the time of, and in
the case of a termination by Genzyme as a condition to, such termination,
or
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(B) there shall have been announced or commenced a Genzyme
Alternative Transaction with a Third Party and (x) Genzyme shall have
engaged in, or entered into an agreement to engage in, a Genzyme
Alternative Transaction with such Third Party or any Affiliate thereof or
with a Competing Party within twelve months after the date of such
Genzyme Stockholder Failure Event or (y) Genzyme's Board of Directors
shall have recommended an Alternative Transaction with the Third Party
proposing such Alternative Transaction or any Affiliate thereof or with a
Competing Party within twelve months after the date of such Genzyme
Stockholder Failure Event, in which case the Genzyme Break-Up Fee will be
payable upon the occurrence of the event referred to in (x) or
(y) above.
(ii) the termination of this Agreement pursuant to Section 10.1(h) by
Biomatrix if at the time of such termination,
(A) there shall have been announced or commenced, or Genzyme shall
have received a proposal for, a Genzyme Alternative Transaction with a
Third Party and Genzyme shall have executed or consummated an agreement
to engage in the same, in which case the Genzyme Break-Up Fee shall be
paid at the time of such termination, or
(B) there shall have been announced or commenced, or Genzyme shall
have received a proposal for, a Genzyme Alternative Transaction with a
Third Party and (x) Genzyme shall have engaged in, or entered into an
agreement to engage in, a Genzyme Alternative Transaction with such Third
Party or any Affiliate thereof or with a Competing Party within twelve
months after the date of such termination or (y) Genzyme's Board of
Directors shall have recommended an Alternative Transaction with the
Third Party proposing such Alternative Transaction or any Affiliate
thereof or with a Competing Party within twelve months after the date of
such termination, in which case the Genzyme Break-Up Fee will be payable
upon the occurrence of the event referred to in (x) or (y) above.
(c) As used in this Agreement, (A) "Genzyme Alternative Transaction" means
either (i) a transaction pursuant to which any Third Party acquires 30% or more
of the outstanding shares of GTR Division Common Stock or GSP Division Common
Stock, pursuant to a tender offer or exchange offer of otherwise, (ii) a merger,
consolidation or other combination with any Third Party involving Genzyme or any
Genzyme Subsidiary in which the holders of GTR Division Common Stock or GSP
Division Common Stock do not own at least a majority of the equity of the entity
that controls the GTR Division's business or the GSP Division's business after
completion of such transaction, (iii) any other transaction pursuant to which
any Third Party acquires control of assets (including for this purpose the
outstanding equity securities of Subsidiaries of Genzyme) having a fair market
value (as determined by the Board of Directors of Genzyme in good faith) equal
to more than 30% of the fair market value of all the assets of the Combining
Genzyme Businesses immediately prior to such transaction; (B) "Third Party"
means any person (or group of persons) other than Genzyme or Biomatrix or their
Affiliates; (C) "Competing Party" shall mean, in the context of an Alternative
Transaction, any person other than Genzyme or its Affiliates who announces or
commences an Alternative Transaction, or with whom an Alternative Transaction
occurs, while an Alternative Transaction with a Third Party is pending and, in
the context of a Genzyme Alternative Transaction, any person other than
Biomatrix or its Affiliates who announces or commences a Genzyme Alternative
Transaction, or with whom a Genzyme Alternative Transaction occurs while a
Genzyme Alternative Transaction with a Third Party is pending; and
(D) "Affiliate" means, with respect to any person or entity, any other person or
entity that controls, is controlled by, or is under common control with, such
person or entity.
(d) Any payments required by this Section 10.4 will be payable by the paying
party by wire transfer of immediately available funds to an account designated
by the receiving party. Notwithstanding Section 6.5, Genzyme and Biomatrix agree
that if the paying party fails to promptly make any payment required under this
Section 10.4 and the receiving party commences a suit against the paying party
to
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collect such payment, the losing party shall indemnify the prevailing party for
its costs and expenses (including attorneys fees and expenses) incurred in
connection with such suit and if the receiving party is the prevailing party
then the paying party shall pay the receiving party 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 10.4.
(e) The maximum amount payable by Biomatrix pursuant to Section 10.3 and
this Section 10.4 is subject to the limitations of Section 10 of the Stock
Option Agreement.
10.5 AMENDMENT. This Agreement may not be amended except by an instrument
signed by each of the parties hereto by action taken by or on behalf of their
respective Boards of Directors; PROVIDED, HOWEVER, that after adoption of this
Agreement by the stockholders of Biomatrix, without the further approval of the
stockholders of Biomatrix, no amendment may be made that (a) alters or changes
the amount or kind of consideration to be received as provided in Section 2.1,
(b) alters or changes any term of the certificate of incorporation of the
Surviving Corporation to be effected by the Merger, if any, 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 Biomatrix.
10.6 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.
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ARTICLE XI--MISCELLANEOUS
11.1 NO SURVIVAL. None of the representations and warranties of Biomatrix
or Genzyme 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.
11.2 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 Genzyme or Merger Sub, to:
Genzyme Corporation
One Kendall Square
Cambridge, MA 02139-1562
Attn: Earl M. Collier, Jr., Executive Vice President
Telephone: (617) 252-7500
Facsimile: (617) 252-7802
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Attn: Paul Kinsella
Telephone: (617) 573-0100
Facsimile: (617) 227-4420
(b) if to Biomatrix, to:
Biomatrix, Inc.
65 Railroad Avenue
Ridgefield, NJ 07657
Attn: Dr. Endre A. Balazs, Chairman and
Chief Executive Officer
Telephone: 201-945-9550
Facsimile: 201-945-1430
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, MA 02110
Attn: Justin P. Morreale
Telephone: (617) 951-8000
Facsimile: (617) 951-8736
Any party may by notice given in accordance with this Section 10.2 to the
other parties designate another address or person for receipt of notices
hereunder.
11.3 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 Agreements, which shall survive
execution of this Agreement, as they may be modified by Section 6.11 hereof.
Each party confirms that
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<PAGE>
in entering into this Agreement, such party has not relied on any
representation, warranty or other statement of any kind other than such
representations, warranties and other statements as are contained in this
Agreement (including the schedules hereto).
11.4 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 Biomatrix stockholders
relative to the Merger.
11.5 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 party hereto.
(b) Other than Section 6.16, nothing in this Agreement, express or implied,
is intended to or shall confer upon any person other than Genzyme and Biomatrix
and their respective successors and permitted assigns and right, benefit or
remedy of any nature whatsoever under or by reason of this Agreement.
11.6 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.
11.7 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.
11.8 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.
11.9 SUBMISSION TO JURISDICTION; WAIVER. Each of Biomatrix and Genzyme
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
Biomatrix and Genzyme 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 Biomatrix and Genzyme 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.
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11.10 WAIVER OF JURY TRIAL. Each party hereto waives its right to a jury
trial with respect to any action or claim arising out of any dispute in
connection with this Agreement, any agreement, contract or other document or
instrument executed in connection herewith, or any of the transactions
contemplated hereby.
11.11 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.
11.12 RULES OF CONSTRUCTION. (a) 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.
(b) For purposes of this Agreement, with respect to any matter that is
clearly disclosed in any portion of the Biomatrix Disclosure Schedule or Genzyme
Disclosure Schedule in such a way as to make its relevance to the information
called for by another Section of this Agreement readily apparent, such matter
shall be deemed to have been included in the Biomatrix Disclosure Schedule or
Genzyme Disclosure Schedule in response to such other Section, notwithstanding
the omission of any appropriate cross-reference thereto.
(c) The phrase "to the best of Biomatrix' knowledge", to Biomatrix'
knowledge" and similar qualifiers shall mean and be limited to the actual
knowledge after reasonable inquiry of the persons identified in Section 11.12 of
the Biomatrix Disclosure Schedule.
(d) The phrase "to the best of Genzyme's knowledge", to Genzyme's knowledge"
and similar qualifiers shall mean and be limited to the actual knowledge after
reasonably inquiry of the persons identified in Section 11.12 of the Genzyme
Disclosure Schedule.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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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>
<S> <C> <C>
GENZYME CORPORATION
By: /s/ EARL M. COLLIER, JR.
-----------------------------------------
Name: Earl M. Collier, Jr.
Title: Executive Vice President
</TABLE>
<TABLE>
<S> <C> <C>
SEAGULL MERGER CORPORATION
By: /s/ EARL M. COLLIER, JR.
-----------------------------------------
Name: Earl M. Collier, Jr.
Title: President
By: /s/ DAVID B. JOHNSTON
-----------------------------------------
Name: David B. Johnston
Title: Treasurer
</TABLE>
<TABLE>
<S> <C> <C>
BIOMATRIX, INC.
By: /s/ ENDRE A. BALAZS
-----------------------------------------
Name: Endre A. Balazs
Title: Chairman and Chief Executive
Officer, and Chief Scientific Officer
By: /s/ RORY B. RIGGS
-----------------------------------------
Name: Rory B. Riggs
Title: President
By: /s/ MAXINE SEIFERT
-----------------------------------------
Name: Maxine Seifert
Title: Vice President, Finance, Chief
Financial Officer and Treasurer
</TABLE>
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<PAGE>
EXHIBIT A-1 TO THE MERGER AGREEMENT
MANAGEMENT AND ACCOUNTING POLICIES,
AS PROPOSED TO BE AMENDED AND RESTATED
SEE ANNEX E TO THIS JOINT PROXY STATEMENT/PROSPECTUS
<PAGE>
EXHIBIT A-2 TO THE MERGER AGREEMENT
TERMS OF THE GBS DIVISION COMMON STOCK
SEE ANNEX F TO THIS JOINT PROXY STATEMENT/PROSPECTUS
<PAGE>
EXHIBIT B TO THE MERGER AGREEMENT
AFFILIATE LETTER
March 6, 2000
Genzyme Corporation
One Kendall Square, 1400 Building
Cambridge, MA 02139
Ladies and Gentlemen:
Pursuant to the Agreement and Plan of Merger dated as of March 6, 2000 (the
"Merger Agreement") among Genzyme Corporation ("Genzyme"), a Massachusetts
corporation, Seagull Merger Corporation ("Merger Sub"), a Massachusetts
corporation and wholly-owned subsidiary of Genzyme, and Biomatrix, Inc. (the
"Company"), a Delaware corporation, providing for the merger of the Company with
and into Merger Sub (the "Merger"), the undersigned will receive shares of
Genzyme Biosurgery Division Common Stock, $0.01 par value per share (the "GBS
Shares") in exchange for the shares of common stock of the Company (the "Company
Shares") owned by the undersigned. In connection with receipt of the GBS Shares
pursuant to the Merger, the undersigned represents, warrants and agrees as
follows:
1. The undersigned has been advised that if the undersigned is an
"affiliate" of the Company at the time the Merger Agreement was submitted for
approval of the shareholders of the Company and a distribution by the
undersigned of the GBS Shares has not been registered under the Securities Act
of 1933, as amended (the "Act"), Rule 145 under the Act will restrict the
undersigned's sales of GBS Shares received in the Merger. The undersigned will
not sell or otherwise dispose of any GBS Shares, except pursuant to Rule 145(d)
under the Act, an effective registration statement under the Act or an exemption
from the registration requirements under the Act, provided that the undersigned
may make bona fide gifts or distributions (including, if the undersigned is a
partnership, to its partners) without consideration or transfers by operation of
law, so long as any donee or transferee agrees not to sell, transfer or
otherwise dispose of GBS Shares except as provided herein.
2. Genzyme is under no obligation to register the sale, transfer or other
disposition by the undersigned of the GBS Shares, or to take any action
necessary in order to make an exemption from registration available.
The undersigned understands that the certificates representing the GBS
Shares will be placed on the "stop-transfer list" maintained by Genzyme's
transfer agent; will remain so listed so long as the restrictions imposed on the
GBS Shares under Paragraph number 1 above remain in effect; and there will be
placed on the certificates representing such shares and any certificates
delivered in substitution or exchange therefor, a legend stating in substance:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON
TRANSFER CONTAINED IN AN AGREEMENT WITH THE ISSUER DATED MARCH 6, INCLUDING
WITHOUT LIMITATION A RESTRICTION THAT THESE SHARES MAY ONLY BE TRANSFERRED IN
ACCORDANCE WITH RULE 145(D) UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR AN
EFFECTIVE REGISTRATION STATEMENT OR EXEMPTION FROM REGISTRATION UNDER THE ACT.
THE ISSUER WILL FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER UPON WRITTEN
REQUEST AND WITHOUT CHARGE.
The undersigned has carefully read this letter, including the limitations
upon the disposition of the GBS Shares received by the undersigned contained
herein, and has obtained such advice regarding execution of this letter as the
undersigned deemed necessary.
<PAGE>
This letter agreement is governed by the laws of the Commonwealth of
Massachusetts without regard to its conflict of laws principles.
Very truly yours,
------------------------------------
Name:
Address:
Accepted:
GENZYME CORPORATION
By:
--------------------------------------
Name:
Title:
Dated: March 6, 2000
Exhibit B-page 2
<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") dated as of March 6, 2000 is
entered into by and between Genzyme Corporation ("Genzyme"), a Massachusetts
corporation, and Biomatrix, Inc. ("Biomatrix"), a Delaware corporation.
Concurrently with the execution and delivery of this Agreement, Genzyme and
Biomatrix are entering into an Agreement and Plan of Merger (the "Merger
Agreement"), which provides that, among other things, upon the terms and subject
to the conditions thereof, Biomatrix will be merged with and into a wholly owned
subsidiary of Genzyme ("Merger Sub") with Merger Sub continuing as the surviving
corporation (the "Merger"). Capitalized terms used herein but not defined herein
shall have the meanings set forth in the Merger Agreement. As a condition and
inducement to Genzyme's willingness to enter into the Merger Agreement, Genzyme
has required that Biomatrix agree, and Biomatrix has so agreed, to grant to
Genzyme an option to acquire shares of common stock, par value $0.0001 per
share, of Biomatrix ("Biomatrix Common Stock") upon the terms and subject to the
conditions set forth herein.
Accordingly, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein and in the Merger Agreement and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. GRANT OF OPTION.
Biomatrix hereby grants to Genzyme an irrevocable option (the "Option") to
acquire up to 4,600,000 shares (the "Option Shares") of the Biomatrix Common
Stock (being not more than 19.9% of the number of shares of Biomatrix Common
Stock outstanding as of the date hereof) in the manner set forth below at a
price of $30.00 per share (the "Exercise Price"). The number of shares of
Biomatrix Common Stock that may be purchased upon exercise of this Option and
the Exercise Price are subject to adjustment as provided in Section 9.
2. EXERCISE OF OPTION.
(a) The Option may only be exercised by Genzyme, in whole or in part, at any
time or from time to time, after the date (i) the Merger Agreement
becomes terminable under circumstances which would entitle Genzyme to a
payment under Section 10.4 of the Merger Agreement and (ii) assuming the
Merger Agreement had been terminated (regardless of whether it is
terminated), Genzyme in fact would become entitled to a payment under
Section 10.4 of the Merger Agreement (with any such time being referred
to as the "Exercise Event"). Biomatrix shall notify Genzyme promptly in
writing of the occurrence of the Exercise Event, it being understood that
the giving of such notice by Biomatrix shall not be a condition to the
right of Genzyme to exercise the Option. In the event Genzyme wishes to
exercise the Option, Genzyme shall deliver to Biomatrix a written notice
(an "Exercise Notice") specifying the total number of Option Shares it
wishes to acquire. Each closing of a purchase of Option Shares (a
"Closing") shall occur on a date and at a time designated by Genzyme in
an Exercise Notice delivered at least two business days prior to the date
of such Closing, which Closing shall be held at the offices of counsel to
Genzyme. Upon the giving by Genzyme to Biomatrix of the Exercise Notice
and payment of the aggregate Exercise Price with respect to the Option
Shares specified in the Exercise Notice, and provided that the conditions
set forth in Section 3 to Biomatrix' obligation to issue the Option
Shares to Genzyme hereunder have been satisfied or waived, Genzyme shall
be deemed to be the holder of record of the Option Shares issuable upon
such exercise, notwithstanding that the stock transfer book of Biomatrix
shall then be closed or that certificates representing such Option Shares
shall not then be actually delivered to Genzyme.
B-1
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(b) Genzyme may pay the Exercise Price either by (i) cash in the form of a
bank or cashier's check or by wire transfer to an account specified by
Biomatrix or (ii) surrendering a portion of the Option with respect to
such number of Option Shares as is determined by dividing (x) the
aggregate Exercise Price payable in respect of the number of Option
Shares being purchased in such manner by (y) the difference between
(I) the Fair Market Value per share of Biomatrix Common Stock on the date
of the Exercise Notice and (II) the per share Exercise Price. For
purposes of this Agreement, the "Fair Market Value" of a share of
Biomatrix Common Stock shall mean the closing price for a share of
Biomatrix Common Stock on the New York Stock Exchange on the trading day
immediately preceding the applicable date (or if Biomatrix Common Stock
is not quoted on the New York Stock Exchange, on the principal trading
market on which such shares are traded as reported by a recognized
source).
(c) The Option shall terminate upon the earliest to occur of (i) the
Effective Date, (ii) 180 days following the Exercise Event or
(iii) 30 days after the date as of which an Exercise Event could no
longer occur; provided, however, with respect to the preceding
clause (ii) of this sentence, that if the Option cannot be exercised by
reason of any applicable government order or because the waiting period
related to the issuance of the Option Shares under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if
applicable, shall not have expired or been terminated, then the Option
shall not terminate until the tenth business day after such impediment to
exercise shall have been removed or shall have become final and not
subject to appeal.
3. CONDITIONS TO CLOSING.
The obligation of Biomatrix to issue the Option Shares to Genzyme hereunder
is subject to the conditions that (i) any waiting period under the HSR Act
applicable to the issuance of the Option Shares hereunder shall have expired or
been terminated; (ii) all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any Federal, state or local
administrative agency or commission or other Federal, state or local
governmental authority or instrumentality, if any, required in connection with
the issuance of the Option Shares hereunder shall have been obtained or made, as
the case may be; and (iii) no preliminary or permanent injunction or other order
by any court of competent jurisdiction prohibiting or otherwise restraining such
issuance shall be in effect; provided, however, that the parties hereto shall
use their reasonable best efforts to (x) promptly make and process all necessary
filings and applications and obtain all consents, approvals, orders,
authorizations, registrations and declarations or expiration or termination of
any required waiting periods and (y) have any such injunction or other order
vacated or reversed.
4. CLOSING.
At any Closing, (i) Biomatrix shall deliver to Genzyme a single certificate
in definitive form representing the number of Option Shares designated by
Genzyme in its Exercise Notice, such certificate to be registered in the name of
Genzyme and to bear the legend set forth in Section 11 hereof, and (ii) Genzyme
shall pay to Biomatrix the aggregate Exercise Price for the shares of Biomatrix
Common Stock so designated (by cash or surrender of a portion of the Option). At
any Closing at which Genzyme is exercising the Option in part, Genzyme shall
present and surrender this Agreement to Biomatrix, and Biomatrix shall deliver
to Genzyme an executed new agreement with the same terms as this Agreement
evidencing the right to purchase the balance of the shares of Biomatrix Common
Stock constituting the Option Shares purchasable hereunder. Biomatrix shall pay
all of its own expenses, and any and all Federal, state and local transfer or
issuance taxes, and other similar charges that may be payable in connection with
the preparation, issue and delivery of stock certificates under this Section 4.
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<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF BIOMATRIX.
Biomatrix represents and warrants to Genzyme that (i) Biomatrix is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder; (ii) the execution
and delivery of this Agreement by Biomatrix and consummation by Biomatrix of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Biomatrix and no other corporate proceedings on
the part of Biomatrix are necessary to authorize this Agreement or any of the
transactions contemplated hereby; (iii) this Agreement has been duly executed
and delivered by Biomatrix and constitutes a legal, valid and binding obligation
of Biomatrix and, assuming this Agreement constitutes a legal, valid and binding
obligation of Genzyme, is enforceable against Biomatrix in accordance with its
terms, except that any indemnification and contribution provisions may be
limited by considerations of public policy; (iv) except for any filings as may
be required under the HSR Act, Biomatrix has taken all necessary corporate and
other action to authorize and reserve for issuance and to permit it to issue
upon exercise of the Option, and at all times from the date hereof until the
termination of the Option will have reserved for issuance, a sufficient number
of unissued shares of Biomatrix Common Stock for Genzyme to exercise the Option
in full and will take all necessary corporate or other action to authorize and
reserve for issuance all additional shares of Biomatrix Common Stock or other
securities which may be issuable pursuant to Section 9 upon exercise of the
Option, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable
and free of any preemptive rights; (v) upon delivery of the Option Shares and
any other securities to Genzyme upon exercise of the Option or upon becoming
deemed the holder of record of the Option Shares and any other securities upon
exercise of the Option, Genzyme will acquire such Option Shares or other
securities free and clear of all claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever, excluding those imposed by
Genzyme; (vi) the execution and delivery of this Agreement by Biomatrix does
not, and the performance of this Agreement by Biomatrix will not, (A) violate
the Certificate of Incorporation or By-Laws of Biomatrix, (B) conflict with or
violate any law, ordinance or regulation or any order, judgment, injunction,
decree or other requirement of any court, arbitrator, governmental or regulatory
body applicable to Biomatrix or any of the Biomatrix Subsidiaries or by which
they or any of their property is bound or (C) result in any breach of or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give rise to any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the property or assets of Biomatrix or any of the
Biomatrix Subsidiaries pursuant to, any contract or agreement to which Biomatrix
or any of the Biomatrix Subsidiaries is a party or by which Biomatrix or any of
the Biomatrix Subsidiaries or any of their property is bound, except, in the
case of clauses (B) and (C) above, for violations, conflicts, breaches,
defaults, rights of termination, amendment, acceleration or cancellation, liens
or encumbrances which would not, individually or in the aggregate, have a
Biomatrix Material Adverse Effect; (vii) the execution and delivery of this
Agreement by Biomatrix does not, and the performance of this Agreement by
Biomatrix will not, require any consent, approval, authorization or permit of,
or filing with, or notification to, any Governmental Entity except pursuant to
the HSR Act, if applicable; and (viii) none of Biomatrix, any of its affiliates
or anyone acting on its or their behalf, has issued, sold or offered any
security of Biomatrix to any person under circumstances that would cause the
issuance and sale of the Option Shares, as contemplated by this Agreement, to be
subject to the registration requirements of the Securities Act and, assuming the
representations and warranties of Genzyme contained in clause (iv) of Section 6
are true and correct, the issuance, sale and delivery of the Option Shares
hereunder will be exempt from the registration and prospectus delivery
requirements of the Securities Act (and Biomatrix shall not take any action
which would cause the issuance, sale and delivery of the Option Shares hereunder
not to be exempt from such requirements). Until the Option has been exercised or
terminated in full and Genzyme no longer holds any Option Shares, Biomatrix
B-3
<PAGE>
shall not adopt a stockholders' rights plan or similar arrangement that would
restrict the exercise (in whole or in part) of the Option, the beneficial
ownership by Genzyme or any of its affiliates of any of the Option Shares, or
the consummation of the other transactions contemplated hereby.
6. REPRESENTATIONS AND WARRANTIES OF GENZYME.
Genzyme represents and warrants to Biomatrix that (i) Genzyme is a
corporation duly incorporated, validly existing and in good standing under the
laws of the Commonwealth of Massachusetts and has the corporate power and
authority to enter into this Agreement and to carry out its obligations
hereunder; (ii) the execution and delivery of this Agreement by Genzyme and the
consummation by Genzyme of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Genzyme and no other
corporate proceedings on the part of Genzyme are necessary to authorize this
Agreement or any of the transactions contemplated hereby; (iii) this Agreement
has been duly executed and delivered by Genzyme and constitutes a legal, valid
and binding obligation of Genzyme and, assuming this Agreement constitutes a
legal, valid and binding obligation of Biomatrix, is enforceable against Genzyme
in accordance with its terms except that any indemnification and contribution
provisions may be limited by considerations of public policy; and (iv) any
shares of Biomatrix Common Stock acquired upon exercise of the Option will not
be acquired by Genzyme with a view to the public distribution thereof in
violation of applicable law and Genzyme will not sell or otherwise dispose of
such shares in violation of applicable law or this Agreement.
7. CERTAIN RIGHTS.
(A) REPURCHASE RIGHT.
At the request of Genzyme at any time during the period during which this
Option is exercisable (the "Purchase Period"), Biomatrix (or any successor
entity thereof) shall, subject to the limitation set forth in Section 10,
purchase from Genzyme (x) all or any portion of the Option at the price set
forth in subparagraph (i) below or (y) all or any portion of the Option Shares,
if any, acquired by Genzyme pursuant to the Option at the price set forth in
subparagraph (ii) below.
(i) The purchase price for the applicable portion of the Option shall be the
difference between the "Market/Offer Price" (as defined below) for a
share of Biomatrix Common Stock as of the date Genzyme gives notice of
its intent to exercise its rights under this Section 7 and the Exercise
Price, multiplied by the number of Option Shares purchasable pursuant to
the Option (or portion thereof with respect to which Genzyme is
exercising its rights under this Section 7), but only if the Market/Offer
Price is greater than the Exercise Price. For purposes of this
subparagraph (i), "Market/Offer Price" shall mean, as of any date, the
higher of (x) the highest price per share offered as of such date
pursuant to any Alternative Transaction which was initiated prior to such
date and not withdrawn as of such date and (y) the highest Fair Market
Value of a share of Biomatrix Common Stock during the 10 trading days
prior to such date.
(ii) The purchase price of the Option Shares shall be the product of
(x) the Market/Offer Price multiplied by (y) the number of shares of
Biomatrix Common Stock so purchased.
(B) PAYMENT AND REDELIVERY OF SHARES.
In the event Genzyme exercises its rights under Section 7(a), Biomatrix
shall, within three business days after Genzyme delivers notice pursuant to
Section 7(a) (which notice may be delivered prior to consummation of the
exercise of the Option), pay the required amount to Genzyme in immediately
available funds and Genzyme shall surrender to Biomatrix the Option or the
certificates evidencing the Biomatrix Common Stock purchased by Genzyme pursuant
thereto, and Genzyme shall represent and warrant that it owns such shares of
Biomatrix Common Stock and that such shares of Biomatrix
B-4
<PAGE>
Common Stock are then free and clear of all claims, liens, charges, encumbrances
and security interests of any kind or nature whatsoever.
(C) REPURCHASE PRICE REDUCED AT GENZYME'S OPTION.
In the event the repurchase price specified in Section 7(a) would subject
the purchase of the Option or the Option Shares purchased by Genzyme pursuant to
the Option to a vote of the shareholders of Biomatrix pursuant to applicable law
or Biomatrix' Certificate of Incorporation, then Genzyme may, at its election,
reduce the repurchase price to an amount which would permit such repurchase
without the necessity for such a shareholder vote.
8. REGISTRATION RIGHTS.
(a) Following the termination of the Merger Agreement, Genzyme may request,
by written notice (a "Registration Notice") to Biomatrix, that Biomatrix
register under the Securities Act all or any part of the Option Shares
(the "Registrable Securities") in order to permit the public sale or
other disposition of such shares.
(b) Biomatrix shall use its best efforts to prepare and file a registration
statement under the Securities Act covering the Registrable Securities to
cause, as promptly as practicable, the Securities and Exchange Commission
to declare such registration statement effective and to maintain the
effectiveness of such registration statement until the earlier of
180 days after the effective date and the date on which all of the
Registrable Securities covered by the registration statement have been
sold; provided, however, that (i) Genzyme shall not be entitled to more
than an aggregate of two effective registration statements hereunder and
(ii) Biomatrix may delay filing any such registration statement for up to
40 days after a Registration Notice is received if Biomatrix is in
possession of material non-public information that its board of directors
in good faith determines would be materially detrimental if disclosed at
such time and, in the written opinion of counsel to Biomatrix, such
information would have to be disclosed if a registration statement were
filed at that time. Biomatrix shall use all reasonable efforts to cause
any Registrable Securities registered pursuant to this Section 8 to be
qualified for sale under the securities or blue sky laws of such
jurisdictions as Genzyme may reasonably request and shall continue such
registration or qualification in effect in such jurisdictions; provided,
however, that Biomatrix shall not be required to qualify to do business
in, or consent to general service of process in, any jurisdiction by
reason of this provision.
(c) The registration rights set forth in this Section 8 are subject to the
condition that Genzyme shall provide Biomatrix with such information with
respect to itself and its plan for distribution for the Registrable
Securities as is necessary to enable Biomatrix to include in a
registration statement all material facts required to be disclosed with
respect to thereto.
(d) A registration effected under this Section 8 shall be effected at
Biomatrix' expense, except for underwriting discounts and commissions and
the fees and expenses of counsel to Genzyme, and Biomatrix shall provide
such documentation (including certificates, opinions of counsel and
"comfort" letters from auditors) as are customary in connection with
underwritten public offerings. In connection with any underwritten
registration, the parties agree (i) to indemnify each other and any
underwriters in the customary manner, (ii) if applicable, to enter into
an underwriting agreement in form and substance customary for
transactions of this type with the underwriters participating in such
offering, and (iii) to take all further actions which shall be reasonably
necessary to effect such registration and sale (including if any managing
underwriter deems it necessary, participating in road show
presentations).
B-5
<PAGE>
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
In the event of any change in the Biomatrix Common Stock by reason of stock
dividends, split-ups, mergers (other than the Merger), recapitalizations,
combinations, exchanges of shares and the like, the type and number of shares or
securities subject to the Option, and the Exercise Price, shall be adjusted
appropriately, and proper provision shall be made in the agreements governing
such transaction so that Genzyme shall receive, upon exercise of the Option, the
number and class of shares or other securities or property that Genzyme would
have received in respect of the Biomatrix Common Stock if the Option had been
exercised immediately prior to such event or the record date therefor, as
applicable.
10. CASH PAYMENT LIMITATION.
Notwithstanding any other provision of this Agreement, in no event shall the
Maximum Cash Payment exceed $22 million. For purposes of this Agreement, the
term "Maximum Cash Payment" shall mean the aggregate amount of the following:
(i) the amount of cash received by Genzyme pursuant to Sections 10.3 and 10.4 of
the Merger Agreement; (ii) the amount of cash received by Genzyme pursuant to
the exercise of the put right with respect to the Option under Section 7(a)(i);
and (iii) the amount by which proceeds realized by Genzyme upon any and all
dispositions of the Option or any Option Shares by Genzyme (other than to
Biomatrix pursuant to Section 7(a) hereof) exceeds the Exercise Price paid by
Genzyme therefor. Should the Maximum Cash Payment exceed $22 million at any time
or from time to time, Genzyme agrees to remit promptly to Biomatrix the amount
of any such excess, including any excess received upon any disposition of the
Option or any Option Shares to any third party.
11. RESTRICTIVE LEGENDS.
Each certificate representing Option Shares issued to Genzyme hereunder
shall include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE SOLD ONLY IF SO
REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.
12. LISTING AND HSR FILING.
Biomatrix promptly shall take any action necessary for the shares of
Biomatrix Common Stock to be acquired upon exercise of the Option to be listed
on the New York Stock Exchange. Promptly after the date such a filing is
permitted to be made, each of the parties hereto shall file with the Federal
Trade Commission and the Antitrust Division of the United States Department of
Justice all required premerger notification and report forms and other documents
and exhibits required to be filed under the HSR Act, if any, to permit the
acquisition of the shares of Biomatrix Common Stock subject to the Option at the
earliest possible date.
13. BINDING EFFECT.
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Nothing contained
in this Agreement, express or implied, is intended to or shall confer upon any
person other than the parties hereto and their respective successors and
permitted assigns any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement. Certificates representing shares sold in a
registered public offering pursuant to Section 8 shall not be required to bear
the legend set forth in Section 11.
B-6
<PAGE>
14. SPECIFIC PERFORMANCE.
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.
15. ENTIRE AGREEMENT.
This Agreement and the Merger Agreement contain the entire agreement between
the parties with respect to the subject matter hereof and supersede all prior
agreements, both written and oral, between the parties with respect to the
subject matter hereof.
16. FURTHER ASSURANCES.
Each party will execute and deliver all such further documents and
instruments and take all such further action as may be necessary in order to
constitute the transactions contemplated hereby.
17. 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.
18. 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 Genzyme, to:
Genzyme Corporation
One Kendall Square
Cambridge, MA 02139-1562
B-7
<PAGE>
(b) Attn: Earl M. Collier, Jr., Executive Vice President
Telephone: (617) 252-7500
Facsimile: (617) 252-7802
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
(c) if to Biomatrix, to:
Biomatrix, Inc.
65 Railroad Avenue
Ridgefield, NJ 07657
Attn: Dr. Endre A. Balazs,
Chairman and Chief Executive Officer
Telephone: (201) 945-9550
Facsimile: (201) 945-1430
with a copy to:
Bingham Dana LLP
150 Federal Street
Boston, Massachusetts 02110
Attn: Justin P. Morreale
Telephone: (617) 951-8000
Facsimile: (617) 951-8736
19. GOVERNING LAW.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts without regard to any choice of law
principle that would dictate the application of the laws of another
jurisdiction.
20. COUNTERPARTS.
This Agreement may be executed in two counterparts, each of which shall be
deemed to be an original, and both of which together shall constitute one and
the same instrument.
21. EXPENSES.
Except as otherwise expressly provided herein or in the Merger Agreement,
all costs and expenses incurred in connection with the transactions contemplated
by this Agreement shall be paid by the party incurring such expenses.
22. AMENDMENTS; WAIVER.
This Agreement may be amended by the parties hereto and the terms and
conditions hereof may be waived only by an instrument in writing signed on
behalf of each of the parties hereto, or, in the case of a waiver, by an
instrument signed on behalf of the party waiving compliance.
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23. ASSIGNMENT.
Neither of the parties hereto may sell, transfer, assign or otherwise
dispose of any of its rights or obligations under this Agreement or the Option
created hereunder to any other person, without the express written consent of
the other party, except that Genzyme may (a) assign any of its rights hereunder
to any affiliate and (b) assign its registration rights under Section 8 to any
subsequent holder of Option Shares other than a holder who acquired such shares
in a sale that was registered under the Securities Act.
24. SUBMISSION TO JURISDICTION; WAIVER.
Each of Biomatrix and Genzyme 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 Biomatrix and Genzyme 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 Biomatrix and Genzyme 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.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Option
Agreement to be executed by their respective duly authorized officers as of the
date first above written.
GENZYME CORPORATION
<TABLE>
<S> <C> <C>
By: /s/ EARL M. COLLIER, JR.
-----------------------------------------
Earl M. Collier, Jr.
EXECUTIVE VICE PRESIDENT
</TABLE>
BIOMATRIX, INC.
<TABLE>
<S> <C> <C>
By: /s/ ENDRE A. BALAZS
-----------------------------------------
Endre A. Balazs
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND
CHIEF SCIENTIFIC OFFICER
</TABLE>
B-9
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ANNEX C
LEHMAN BROTHERS
March 6, 2000
Board of Directors
Biomatrix, Inc.
65 Railroad Avenue
Ridgefield, NJ 07657
Members of the Board:
We understand that Biomatrix, Inc ("Biomatrix") intends to enter into a
transaction with Genzyme Corporation ("Genzyme") pursuant to which Biomatrix
will merge (the "Merger") with and into a newly-formed subsidiary of Genzyme.
Upon effectiveness of the Merger, each outstanding share of common stock of
Biomatrix will be converted into the right to receive 1.000 shares of a newly
created series of tracking stock (the "Newco Tracking Stock") of Genzyme (the
"Exchange Ratio") or, at the election of the holders of Biomatrix' common stock,
$37.00 in cash (the "Cash Consideration" and, together with the Exchange Ratio,
the "Consideration") (the "Proposed Transaction"). In addition, we understand
that the total amount of cash to be paid by Genzyme will be in an amount equal
to approximately $245 million and, in the event that the stockholders of
Biomatrix elect to receive Cash Consideration in excess of that amount, the
amount of cash to be paid to electing stockholders for each share of common
stock of Biomatrix will be reduced, as applicable, on a pro rata basis, and in
the event that stockholders of Biomatrix elect to receive Cash Consideration in
an aggregate amount less than such amount, the amount of Cash Consideration to
be paid to stockholders electing to receive shares of Newco Tracking Stock will
be increased on a pro rata basis. We further understand that each holder of
Genzyme Surgical Products ("GSP") tracking stock will receive 0.6060 shares of
Newco Tracking Stock in the Proposed Transaction and each holder of Genzyme
Tissue Repair ("GTR") tracking stock will receive 0.3352 shares of Newco
Tracking Stock in the Proposed Transaction, and the business of Biomatrix, the
GSP Division of Genzyme and the GTR Division of Genzyme will be combined into a
new division of Genzyme ("Newco"). The terms and conditions of the Proposed
Transaction are set forth in more detail in the Agreement and Plan of Merger,
dated on or about the date hereof, among Genzyme, Genzyme Merger Subsidiary and
Biomatrix (the "Agreement").
We have been requested by the Board of Directors of Biomatrix to render our
opinion with respect to the fairness, from a financial point of view, to
Biomatrix' stockholders of the Consideration to be offered to such stockholders
in the Proposed Transaction. We have not been requested to opine as to, and our
opinion does not in any manner address, Biomatrix' underlying business decision
to proceed with or effect the Proposed Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreement and
the specific terms of the Proposed Transaction, (2) publicly available
information concerning Biomatrix, Genzyme, GSP and GTR that we believe to be
relevant to our analysis, including their respective Annual Reports on
Form 10-K for the fiscal year ended December 31, 1998 and Quarterly Reports on
Form 10-Q for the quarters ended September 30, 1999, (3) financial and operating
information with respect to the business, operations and prospects of Biomatrix
furnished to us by Biomatrix, including financial projections prepared by the
management of Biomatrix, (4) financial and operating information with respect to
the businesses, operations and prospects of Genzyme, GSP and GTR furnished to us
by Genzyme, including financial projections prepared by the management of
Genzyme, (5) a trading history of Biomatrix' common stock from January 1, 1999
to the present and a comparison of that trading history with those of other
companies that we deemed relevant, (6) a trading history of the GSP tracking
stock from June 28, 1999 to the present and a comparison of that trading history
with
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those of other companies that we deemed relevant, (7) a trading history of the
GTR tracking stock from January 1, 1999 to the present and a comparison of that
trading history with those of other companies that we deemed relevant, (8) a
comparison of the historical financial results, present financial condition and
estimates of future financial performance of Biomatrix with those of other
companies that we deemed relevant, (9) a comparison of the historical financial
results, present financial condition and estimates of future financial
performance of GSP with those of other companies that we deemed relevant,
(10) a comparison of the historical financial results, present financial
condition and estimates of future financial performance of GTR with those of
other companies that we deemed relevant, (11) the historical financial results,
present financial condition and estimates of future financial performance of the
combined businesses comprising the Newco Tracking Stock on a pro forma basis and
a comparison of the historical financial results, present financial condition
and estimates of future financial performance of Newco with those of other
companies that we deemed relevant, (12) a comparison of the financial terms of
the Proposed Transaction with the financial terms of certain other transactions
that we deemed relevant, (13) the relative contributions of Biomatrix, GSP and
GTR to the financial and operating results of Newco upon the consummation of the
Proposed Transaction, (14) published estimates of third party research analysts
with respect to the future financial performance of Biomatrix, and (15) the
results of our efforts to solicit indications of interest from third parties
with respect to a purchase of all or a portion of Biomatrix' business. In
addition, we have had discussions with the managements of Biomatrix and Genzyme
concerning the respective businesses, operations, assets, financial conditions
and prospects of Biomatrix, Genzyme, GSP, GTR and Newco (including the cost
savings, operating synergies and strategic benefits expected by the managements
of Biomatrix and Genzyme to result from the combination of the businesses of
Biomatrix, GSP and GTR) and have undertaken such other studies, analyses and
investigations as we deemed appropriate.
In arriving at our opinion, we have assumed and relied upon the accuracy and
completeness of the financial and other information used by us without assuming
any responsibility for independent verification of such information and have
further relied upon the assurances of managements of Biomatrix and Genzyme that
they are not aware of any facts or circumstances that would make such
information inaccurate or misleading. With respect to the financial projections
of Biomatrix, upon advice of Biomatrix we have assumed that such projections
have been reasonably prepared on a basis reflecting the best currently available
estimates and judgments of the management of Biomatrix as to the future
financial performance of Biomatrix. However, for purposes of our analysis, we
also have considered somewhat more conservative assumptions and estimates which
resulted in certain adjustments to the projections of Biomatrix. We have
discussed these adjusted projections with the management of Biomatrix and they
have agreed with the appropriateness of the use of such projections in
performing our analysis. With respect to the financial projections of each of
GSP and GTR, we have assumed that such projections have been reasonably prepared
on a basis reflecting the best currently available estimates and judgments of
the management of Genzyme as to the future financial performance of each of GSP
and GTR and that each of GSP and GTR will perform substantially in accordance
with such projections. In arriving at our opinion, we have conducted only a
limited physical inspection of the properties and facilities of Biomatrix, GSP
and GTR and have not made or obtained any evaluations or appraisals of the
assets or liabilities of Biomatrix, GSP or GTR. Upon the advice of Biomatrix and
its legal and accounting advisors, we have assumed that the Proposed Transaction
will qualify as a tax free transaction to the stockholders of Biomatrix with
respect to any gain attributable to the shares of Newco Tracking Stock received
by such stockholders. Our opinion necessarily is based upon market, economic and
other conditions as they exist on, and can be evaluated as of, the date of this
letter.
In addition, we do not express any opinion as to the prices at which the
shares of Newco Tracking Stock will trade following consummation of the Proposed
Transaction and this opinion should not be viewed as providing any assurance
that the market value of the Newco Tracking Stock to be received by
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the stockholders of Biomatrix will be in excess of the market value of the
shares of Biomatrix common stock owned by such stockholders at any time prior to
consummation of the Proposed Transaction.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the Consideration to be
offered to the stockholders of Biomatrix in the Proposed Transaction is fair to
such stockholders.
We have acted as financial advisor to Biomatrix in connection with the
Proposed Transaction and will receive a fee for our services which is contingent
upon the consummation of the Proposed Transaction. In addition, Biomatrix has
agreed to indemnify us for certain liabilities that may arise out of the
rendering of this opinion. We also have performed various investment banking
services for Biomatrix and Genzyme in the past and have received customary fees
for such services. In the ordinary course of our business, we actively trade in
the securities of Biomatrix, Genzyme, GSP and GTR 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.
This opinion is for the use and benefit of the Board of Directors of
Biomatrix and is rendered to the Board of Directors in connection with its
consideration of the Proposed Transaction. This opinion is not intended to be
and does not constitute a recommendation to any stockholder of Biomatrix as to
how such stockholder should vote with respect to the Proposed Transaction.
Very truly yours,
LEHMAN BROTHERS
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ANNEX D
FAIRNESS OPINION OF MERRILL LYNCH
April 17, 2000
Board of Directors
Genzyme Corporation
One Kendall Square
Cambridge, MA 02139-1562
Members of the Board:
Genzyme Corporation ("GENZYME"), Seagull Merger Corporation, a wholly owned
subsidiary of Genzyme ("GENZYME MERGER CORP."), and Biomatrix, Inc.
("BIOMATRIX") have entered into an Agreement and Plan of Merger dated as of
March 6, 2000, as amended by Amendment No. 1 to the Agreement dated as of
April 17, 2000 (as so amended, the "Agreement"). The Agreement provides that,
among other things, Biomatrix will be merged (the "MERGER") with and into
Genzyme Merger Corp. and, at the election of the holder of each outstanding
share of Biomatrix common stock, par value $0.0001 per share (each a "BIOMATRIX
SHARE"), each Biomatrix Share will be automatically converted (subject to
adjustment, if any, as contemplated by the Agreement) into the right to receive:
(1) cash (a "CASH ELECTION"), in an amount equal to $37.00; or
(2) one (the "CONVERSION NUMBER") share of Genzyme Biosurgery Division
common stock ("GBS STOCK"; any such election to receive the stock
consideration being, a "STOCK ELECTION"); or
(3) a combination of cash and GBS Stock (a "STANDARD ELECTION") consisting
of (x) a fraction of a share of GBS Stock calculated by multiplying the
Conversion Number by one minus the Cash Election Number (as such term is
defined below) divided by the number of Biomatrix Shares outstanding
immediately prior to the effective time of the Merger (the "STANDARD CASH
PERCENTAGE") and (y) an amount of cash equal to the product of $37.00 and
the Standard Cash Percentage (the consideration described in the
preceding clauses (x) and (y) being, collectively, the "STANDARD
CONSIDERATION").
The Agreement also provides that, with respect to each Biomatrix Share for
which a valid election is not made, such Biomatrix Share will be converted into
the right to receive the Standard Consideration.
The Agreement provides that the number of Biomatrix Shares to be converted
into the right to receive cash consideration (the "CASH ELECTION NUMBER") will
equal approximately 28.38% of the number of Biomatrix Shares outstanding
immediately prior to the Merger. We understand that the total amount of cash to
be paid by Genzyme in the Merger will be in an amount equal to approximately
$245 million. In the event that the number of Biomatrix Shares elected by the
holders thereof to be converted into cash as Cash Elections, or as part of
Standard Elections, exceeds the Cash Election Number, those holders of Biomatrix
Shares who elected Cash Elections will receive a reduced amount of cash
consideration and an increased amount of stock consideration for each of their
Biomatrix Shares, in each case, on a pro rata basis and as set forth in the
Agreement. In the event that the number of Biomatrix Shares elected by the
holders thereof to be converted into cash as Cash Elections, or as part of
Standard Elections, is less than the Cash Election Number, those holders of
Biomatrix Shares who elected Stock Elections will receive an increased amount of
cash consideration, and a reduced amount of stock consideration for each of
their Biomatrix Shares, in each case, on a pro rata basis and as set forth in
the Agreement. The foregoing adjustments are subject to an additional pro rata
adjustment to satisfy the requirements applicable to reorganizations under
Section 368 of the Internal Revenue Code of 1986, as amended (the "CODE"). The
terms and conditions of the Merger are set forth in greater detail in the
Agreement. The Merger is expected to be considered by the
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shareholders of Biomatrix at a special shareholders' meeting to be held in June,
2000, and is expected to be consummated on or shortly after the date of such
meeting, subject to, among other things, the shareholders of Genzyme approving
certain proposals related to the Reorganization (as defined below).
Prior to, and as a condition to the closing of, the Merger, Genzyme will
(a) create a Biosurgery Division (the "GBS DIVISION"), and establish the GBS
Stock through, among other things, certain amendments to Genzyme's articles of
incorporation and its "Management and Accounting Policies Governing the
Relationship of Genzyme Divisions" (the "DIVISIONAL POLICIES") and (b) combine
the Genzyme Tissue Repair Division (the "GTR DIVISION") and the Genzyme Surgical
Products Division (the "GSP DIVISION") with the GBS Division so that the GBS
Division is the surviving division in a transaction in which (x) each
outstanding share of Genzyme Tissue Repair Division Common Stock ("GTR STOCK")
will be converted into a fraction of a share of GBS Stock equal to an exchange
ratio of 0.3352 shares of GBS Stock (the "GTR EXCHANGE RATIO") and (y) each
outstanding share of Genzyme Surgical Products Division Common Stock ("GSP
STOCK") will be converted into a fraction of a share of GBS Stock equal to an
exchange ratio of 0.6060 shares of GBS Stock (the "GSP EXCHANGE RATIO"; the
actions contemplated by clauses (a) and (b) above being, the "REORGANIZATION").
The terms and conditions of the Reorganization are set forth in greater detail
in the Agreement. The Reorganization is expected to be considered by the
shareholders of Genzyme at a special shareholders' meeting to be held in June,
2000, and is expected to be consummated on or shortly after the date of such
meeting, subject to, among other things, the shareholders of Biomatrix approving
the Merger.
You have asked us whether, in our opinion, (1) the proposed consideration to
be paid by Genzyme pursuant to the Merger is fair to Genzyme from a financial
point of view, (2) the GTR Exchange Ratio is fair to holders of GTR Stock from a
financial point of view, and (3) the GSP Exchange Ratio is fair to holders of
GSP Stock from a financial point of view.
In arriving at the opinions set forth below, we have, among other things:
(1) Reviewed Genzyme's Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1997,
December 31, 1998 and December 31,1999;
(2) Reviewed Biomatrix' Annual Reports, Forms 10-K and related financial
information for the three fiscal years ended December 31, 1997,
December 31, 1998 and December 31, 1999;
(3) Reviewed the audited combined financial statements of the GTR Division
and related financial information for the three fiscal years ended
December 31, 1997, December 31, 1998 and December 31, 1999;
(4) Reviewed the audited combined financial statements of the GSP Division
and related financial information for the two fiscal years ended
December 31, 1998 and December 31, 1999;
(5) Reviewed certain information, including historical financial data and
financial projections, relating to the business, earnings, cash flow,
assets and prospects of the GTR Division and the GSP Division furnished
to us by Genzyme;
(6) Reviewed certain information, including historical financial data and
financial projections, relating to the business, earnings, cash flow,
assets and prospects of Biomatrix, furnished to us by Biomatrix and
Genzyme;
(7) Conducted discussions with members of management of Genzyme concerning
the businesses and prospects of the GTR Division, the GSP Division and
the proposed GBS Division, and their views regarding the strategic
rationale for, and the effects on Genzyme of, the Reorganization;
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(8) Conducted discussions with members of management of Genzyme concerning
the businesses and prospects of the GBS Division and Biomatrix, and their
views regarding the strategic rationale for, and the effects on Genzyme
and the proposed GBS Division of, the Merger;
(9) Compared the historical and projected results of operations of
Biomatrix, the GTR Division and the GSP Division with that of certain
companies which we deemed to be reasonably similar to Biomatrix, the GTR
Division and the GSP Division, respectively;
(10) Reviewed the historical market prices and trading activity for the GSP
Stock and the GTR Stock and compared them with that of certain publicly
traded companies which we deemed to be reasonably similar to the GSP
Division and the GTR Division, respectively;
(11) Reviewed the historical market prices and trading activity for
Biomatrix Shares and compared them with that of certain publicly traded
companies which we deemed to be reasonably similar to Biomatrix;
(12) Considered the pro forma effects of the Merger on Genzyme, including,
without limitation, the pro forma effects of the Merger on Genzyme's
balance sheets, earnings and cash flow;
(13) Reviewed the existing articles of incorporation and by-laws of Genzyme
and its current Divisional Policies;
(14) Reviewed the Agreement and exhibits thereto, including Exhibit A-1, the
proposed amended Divisional Policies, and Exhibit A-2, the terms of the
proposed GBS Stock; and
(15) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
In preparing our opinion, we have assumed and relied on the accuracy and
completeness of all information supplied or otherwise made available to us,
discussed with or reviewed by or for us, or publicly available, and we have not
assumed any responsibility for independently verifying such information or
undertaken an independent evaluation or appraisal of the assets or liabilities
of Biomatrix or Genzyme or been furnished with any such evaluation or appraisal.
In addition, we have not assumed any obligation to conduct any physical
inspection of the properties or facilities of Biomatrix or Genzyme. With respect
to the financial projections and analyses furnished to, or discussed with, us by
Biomatrix or Genzyme, as the case may be, we have assumed that they have been
reasonably prepared and reflect the best currently available estimates and
judgment of the management of Biomatrix and Genzyme, as the case may be, as to
the expected future financial performance of Biomatrix, Genzyme, the GTR
Division or the GSP Division, as the case may be. We also have assumed that the
Merger and the Reorganization will have the accounting treatment set forth in
the Agreement and that the Merger will qualify as a reorganization within the
meaning of Section 368(a) of the Code.
Our opinion is necessarily based upon market, economic and other conditions,
including generally accepted accounting principals, as they exist and can be
evaluated on, and on the information made available to us as of, the date
hereof. We have assumed that in the course of obtaining the necessary regulatory
or other consents or approvals (contractual or otherwise) for the Merger, no
restrictions, including any divestiture requirements or amendments or
modifications, will be imposed that will have any material adverse effect on the
contemplated benefits of the Merger.
We are acting as financial advisor to Genzyme in connection with the
Reorganization and the Merger and will receive a fee from Genzyme for our
services, a significant portion of which is contingent upon the consummation of
the Merger. In addition, Genzyme has agreed to indemnify us for certain
liabilities arising out of our engagement. We have, in the past, provided
financial advisory and financing services to Biomatrix and Genzyme and may
continue to do so and receive fees for the
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rendering of such services. In addition, in the ordinary course of our business,
we may actively trade Biomatrix Shares, as well as the GBS Stock and shares of
the other series of the common stock of Genzyme, for our own account or for the
accounts of customers and, accordingly, may at any time hold a long or short
position in such securities.
This opinion is for the use and benefit of the Board of Directors of
Genzyme. Our opinion does not address the merits of the underlying decision by
Genzyme to engage in the Reorganization or the Merger and does not constitute a
recommendation to any shareholder as to how such shareholder should vote on the
proposed Reorganization or any matter related thereto.
We are not expressing any opinion herein as to the prices at which the GBS
Stock, or any other tracking series of common stock of Genzyme, will trade
following the consummation of each of the Reorganization and the Merger. We
express no opinion as to fairness of the Reorganization to the holders of
Genzyme General Division Common Stock or Genzyme Molecular Oncology Division
Common Stock.
On the basis of, and subject to the foregoing, we are of the following
opinions:
1. The proposed consideration to be paid by Genzyme pursuant to the Merger is
fair to Genzyme from a financial point of view.
2. The GTR Exchange Ratio is fair to holders of GTR Stock from a financial
point of view.
3. The GSP Exchange Ratio is fair to holders of GSP Stock from a financial
point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
--------------------------------------
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ANNEX E
GENZYME MANAGEMENT AND ACCOUNTING POLICIES, AS PROPOSED TO BE AMENDED
AND RESTATED UPON COMPLETION OF THE RECAPITALIZATION AND MERGER
THE BOARD OF DIRECTORS OF GENZYME CORPORATION (THE "GENZYME BOARD") HAS
ADOPTED THE FOLLOWING POLICIES TO GOVERN THE MANAGEMENT OF GENZYME BIOSURGERY,
GENZYME GENERAL AND GENZYME MOLECULAR ONCOLOGY, AND THE RELATIONSHIPS BETWEEN
EACH DIVISION. EXCEPT AS OTHERWISE PROVIDED IN THE POLICIES, THE GENZYME BOARD
MAY MODIFY OR RESCIND THE POLICIES, OR ADOPT ADDITIONAL POLICIES, IN ITS SOLE
DISCRETION WITHOUT APPROVAL OF THE STOCKHOLDERS, SUBJECT ONLY TO THE GENZYME
BOARD'S FIDUCIARY DUTY TO THE STOCKHOLDERS OF GENZYME CORPORATION.
1. PURPOSE OF GENZYME BIOSURGERY, GENZYME GENERAL AND GENZYME MOLECULAR
ONCOLOGY. The purpose of Genzyme Biosurgery is to create a business with a
comprehensive approach to the field of biosurgery by developing and
commercializing a portfolio of products for the treatment and prevention of
serious tissue injury (excluding products developed on behalf of GDP) and a
portfolio of devices, biomaterials, biotherapeutics and other products for the
field of biosurgery; these products and services include (i) the products and
services offered or under development by Biomatrix, Inc. as of , 2000, and
included in the Descriptive Memorandum furnished by it to Genzyme Corporation,
and (ii) products and services offered or under development by Genzyme
Corporation's former Genzyme Tissue Repair Division and Genzyme Corporation's
former Genzyme Surgical Products Division as of , 2000. 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. In addition to the programs initially assigned to each of
Genzyme Biosurgery and Genzyme Molecular Oncology, 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 Corporation. Each of Genzyme Biosurgery and
Genzyme Molecular Oncology 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 Corporation, 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
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6. ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS. Upon the acquisition by Genzyme
Corporation 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 Corporation. 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 Corporation 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 Biosurgery or Genzyme Molecular Oncology,
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 Corporation's articles
of organization.
Notwithstanding the foregoing, no Key GMO Program, as defined below, may be
transferred out of Genzyme Molecular Oncology without a class vote of the
holders of the common stock representing Genzyme Molecular Oncology (the
"Molecular Oncology Stock") unless the Genzyme Board determines that 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 Molecular Oncology Stock voting as a separate class.
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
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(b) has had a cumulative investment of $8 million or more in research and
development expenses by Genzyme Molecular Oncology.
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
common stock representing Genzyme Biosurgery (the "Biosurgery Stock") and the
Molecular Oncology Stock, each voting as a separate class; provided, however,
that if a policy change affects one, but not both of, Genzyme Biosurgery and
Genzyme Molecular Oncology, only holders of shares representing the affected
division 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 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 Corporation 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
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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 Corporation and its divisions.
11. DISPOSITION OF BIOSURGERY AND MOLECULAR ONCOLOGY DESIGNATED SHARES.
(a) The Biosurgery Designated Shares and the Molecular Oncology
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 the common stock representing Genzyme
General (the "Genzyme General Stock"), all as determined from time to time
by the Genzyme Board in its sole discretion.
(b) If, as of September 30 of each year starting on September 30, 2000,
the number of Biosurgery Designated Shares on such date exceeds ten percent
(10%) of the number of shares of Biosurgery Stock then issued and
outstanding on such date, substantially all Biosurgery Designated Shares
will be distributed to holders of record of Genzyme General Stock, subject
to reservation of a number of such shares equal to the sum of (x) the number
of Biosurgery Designated Shares reserved for issuance with respect to stock
options, stock purchase rights, warrants or other securities convertible
into or exercisable for shares of Genzyme General Stock outstanding on such
date ("Genzyme General 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 Biosurgery 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 November 30 of each year, the number of Molecular Oncology
Designated Shares on such date exceeds ten percent (10%) of the number of
shares of Molecular Oncology Stock then issued and outstanding on such date,
substantially all Molecular Oncology Designated Shares will be distributed
to holders of record of Genzyme General Stock, subject to reservation of a
number of such shares equal to the sum of (x) the number of Molecular
Oncology Designated Shares reserved for issuance upon the exercise or
conversion of Genzyme General 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 Molecular Oncology
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 Corporation, Genzyme
Corporation 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 Biosurgery Designated Shares or Molecular Oncology 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 Biosurgery or Molecular Oncology Stock paid to holders of Genzyme
General Stock) unless (i) the Genzyme Board determines that Genzyme Biosurgery
or Genzyme Molecular Oncology, as the case may be, has cash
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sufficient to fund its operations for at least the next 12 months or
(ii) shares of Biosurgery Stock or Molecular Oncology Stock, as the case may be,
are concurrently being sold for the account of Genzyme Biosurgery or Genzyme
Molecular Oncology, 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 Corporation 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 Corporation may not exercise the right
provided under its articles of organization to exchange shares representing such
division for cash and/or shares of Genzyme General 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 Corporation'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 Biosurgery, Genzyme General and Genzyme Molecular
Oncology 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 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 Biosurgery, Genzyme General or Genzyme Molecular Oncology; (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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ANNEX F
TERMS OF THE GENZYME BIOSURGERY DIVISION COMMON STOCK
THE PARAGRAPH NUMBERING OF THE FOLLOWING TEXT REFLECTS THE EXPECTED
PARAGRAPH NUMBERING OF THE THAT TEXT WHEN IT BECOMES A PART OF THE ARTICLES OF
ORGANIZATION OF GENZYME CORPORATION.
E. GENZYME BIOSURGERY DIVISION COMMON STOCK
1. AUTHORIZED AMOUNTS AND DESIGNATIONS.
One hundred million (100,000,000) shares of Common Stock are designated as a
series of Common Stock with the following designation: Genzyme Biosurgery
Division Common Stock (the "GBS Stock"). To the extent legally permitted, such
number of shares may be increased or decreased by vote of the Board of
Directors, PROVIDED that no decrease shall reduce the number of shares of GBS
Stock to a number less than the number of shares of such series then outstanding
plus the number of shares of such series reserved for issuance upon the exercise
of outstanding options, rights or warrants or upon the conversion of any
outstanding securities issued by the Corporation convertible into GBS Stock.
2. DIVIDENDS AND DISTRIBUTIONS.
Subject to the express terms of any outstanding series of Preferred Stock,
dividends may be declared and paid upon the GBS Stock, in such amounts and at
such times as the Board of Directors may determine, only out of the lesser of
(a) funds of the Corporation legally available therefor and (b) the Available
GBS Dividend Amount.
3. VOTING RIGHTS.
The holders of GBS Stock, voting together with the holders of shares of all
other series of Common Stock as a single class of stock, shall have the
exclusive right to vote for the election of directors and on all other matters
requiring action by the stockholders or submitted to the stockholders for
action, except as may be determined by the Board of Directors in establishing
any series of Common or Preferred Stock or as may otherwise be required by law.
Each share of GBS Stock shall entitle the holder thereof to .50 votes through
December 31, 2000, or, if no shares of GBS Stock are outstanding on
December 31, 2000, through December 31, 2002. On January 1, 2001, or, if no
shares of GBS Stock are outstanding on December 31, 2000, on January 1, 2003 and
on each January 1 every two years thereafter, the number of votes to which the
holder of each share of GBS Stock shall be entitled shall be adjusted and fixed
for two-year periods to equal the quotient (expressed as a decimal and rounded
to the nearest two decimal places) obtained by dividing (i) the Fair Market
Value of one share of GBS Stock by (ii) the Fair Market Value of one share of
GGD Stock as of such date. If no shares of GGD Stock are outstanding on such
date, then all other series of voting Common Stock outstanding on such date
shall have a number of votes such that each share of the series of outstanding
Common Stock that has the highest Fair Market Value per share on such date (the
"Base Series") shall have one vote and each share of each other series of
outstanding Common Stock shall have the number of votes determined according to
the immediately preceding sentence, treating, for such purpose, the Base Series
as the GGD Stock in such sentence. If shares of GBS Stock are entitled to vote
separately as a class, each share of GBS Stock shall have one vote.
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4. LIQUIDATION, DISSOLUTION OR WINDING UP.
Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, the rights of the holders of GBS Stock shall be as follows:
(a) After the Corporation has satisfied or made provision for its debts and
obligations and for the payment to the holders of shares of any class or
series of capital stock having preferential rights to receive
distributions of the net assets of the Corporation (including any
accumulated and unpaid dividends), the holders of GBS Stock shall be
entitled to receive the net assets of the Corporation remaining for
distribution, on a per share basis in proportion to the respective
liquidation units per share of all series of Common Stock. Each share of
GBS Stock shall, subject to this Section IV.E.4(a), have 50 liquidation
units.
(b) For the purposes of Section IV.E.4(a) any merger or business combination
involving the Corporation or any sale of all or substantially all of the
assets of the Corporation shall not be treated as a liquidation.
5. SPECIAL VOTING RIGHTS.
The Corporation shall not, without approval by the holders of the GBS Stock
at a meeting at which a quorum is present and the votes cast in favor of the
proposal exceed those cast against:
(a) allow any proceeds from the Disposition of the properties or assets
allocated to Genzyme Biosurgery Division to be used in the business of
any other Division without fair compensation being allocated to Genzyme
Biosurgery Division as determined by the Board of Directors;
(b) allow any properties or assets allocated to Genzyme Biosurgery Division
to be used in the business of any other Division or for the declaration
or payment of any dividend or distribution on any series of Common Stock
other than the GBS Stock without fair compensation being allocated to
Genzyme Biosurgery Division as determined by the Board of Directors;
(c) issue, sell or otherwise distribute shares of GBS Stock without
allocating the proceeds or other benefits of such issuance, sale or
distribution to Genzyme Biosurgery Division; PROVIDED, HOWEVER, that the
Corporation may without such approval issue GBS Designated Shares;
(d) change the rights or preferences of the GBS Stock so as to affect the
GBS Stock adversely; or
(e) effect any merger or business combination involving the Corporation as a
result of which (i) the holders of all series of Common Stock of the
Corporation shall no longer own, directly or indirectly, at least fifty
percent (50%) of the voting power of the surviving corporation and
(ii) the holders of all series of Common Stock of the Corporation do not
receive the same form of consideration, distributed among such holders in
proportion to the Market Capitalization of each series of Common Stock as
of the date of the first public announcement of such merger or business
combination.
Notwithstanding the foregoing, if the Corporation receives an opinion of
Qualified Tax Counsel that, by reason of any Tax Law Change, the special voting
rights of the GBS Stock set forth in this subsection 5 would cause a Tax Event
absent the termination of such rights, then the Corporation may, by vote of a
majority of the stock outstanding and entitled to vote thereon, voting together
as a single class, authorize an amendment to these Articles of Organization to
effect the termination of such rights in order to avoid the occurrence of such
Tax Event. Any such amendment shall not be deemed to change the rights or
preferences of the GBS Stock so as to affect the GBS Stock adversely as
contemplated by either Section IV.E.5(d) or Section 77 of the Massachusetts
Business Corporation Law.
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6. EXCHANGE OR REDEMPTION OF GBS STOCK.
Shares of GBS Stock are subject to exchange or redemption upon the terms and
conditions set forth below:
(A) OPTIONAL EXCHANGE OF GBS STOCK.
(1) The Board of Directors may at any time, including without limitation in
the event of the reallocation, in one transaction or a series of related
transactions, by the Corporation and/or its subsidiaries of all or
substantially all of the properties and assets allocated to Genzyme
Biosurgery Division to any other Division of Genzyme (a "GBS
Reallocation"), declare that each of the outstanding shares of GBS Stock
shall be exchanged, on an Exchange Date, as determined by the Board of
Directors, for (a) a number of fully paid and nonassessable shares of GGD
Stock (calculated to the nearest five decimal places) equal to (1) 130%
of the Fair Market Value of one share of the GBS Stock (the "GBS Optional
Exchange Amount") as of the date of the first public announcement by the
Corporation (the "GBS Optional Exchange Announcement Date") of such
exchange divided by (2) the Fair Market Value of one share of GGD Stock
as of such GBS Optional Exchange Announcement Date or (b) cash equal to
the GBS Optional Exchange Amount, or (c) any combination of GGD Stock and
cash equal to the GBS Optional Exchange Amount as determined by the Board
of Directors.
(2) If the Corporation receives an opinion of Qualified Tax Counsel that a
Tax Event has occurred by reason of any Tax Law Change, then the Board of
Directors may at any time declare that each of the outstanding shares of
GBS Stock shall be exchanged, on an Exchange Date, as determined by the
Board of Directors, hereof, for a number of fully paid and nonassessable
shares of GGD Stock (calculated to the nearest five decimal places) equal
to (1) the Fair Market Value of one share of the GBS Stock as of the date
of the first public announcement by the Corporation of such exchange
divided by (2) the Fair Market Value of one share of GGD Stock as of such
date.
(3) At any time at which all of the assets and liabilities attributed to
Genzyme Biosurgery Division (and no other assets or liabilities of the
Corporation or any subsidiary thereof) are held directly or indirectly by
one or more wholly-owned subsidiaries of the Corporation (each, a "GBS
Subsidiary"), the Board of Directors may, provided that there are funds
of the Corporation legally available therefor, exchange on an Exchange
Date, as determined by the Board of Directors, all of the outstanding
shares of GBS Stock for that number of the shares of common stock of each
GBS Subsidiary equal to the number of such GBS Subsidiary shares
outstanding immediately prior to such exchange multiplied by the GBS
Allocation Ratio, such shares of common stock of each GBS Subsidiary to
be delivered to the holders of shares of GBS Stock on the Exchange Date
either directly or indirectly through the delivery of shares of another
GBS Subsidiary that owns directly or indirectly all such shares, and to
be divided among the holders of GBS Stock on a pro rata basis in
accordance with the number of shares of GBS Stock held by each such
holder, each of which shares of common stock of such GBS Subsidiary shall
be, upon such delivery, fully paid and nonassessable; PROVIDED, HOWEVER,
that upon any such exchange, any existing GBS Designated Shares shall be
cancelled in exchange for the allocation to Genzyme General of the direct
or indirect interest of the Corporation in any remaining outstanding
shares of each such GBS Subsidiary that are not transferred to the
holders of GBS Stock in such exchange.
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(B) MANDATORY EXCHANGE OR REDEMPTION OF OR PAYMENT OF DIVIDEND ON GBS STOCK.
(1) GBS MANDATORY PAYMENT. In the event of the Disposition, in one
transaction or a series of related transactions, by the Corporation
and/or its subsidiaries of all or substantially all of the properties and
assets allocated to Genzyme Biosurgery Division to any person, entity or
group (other than a Disposition of a type set forth in subsection (2) of
this subsection (b)), on or prior to the 60th Business Day, or such
earlier date required under this Section IV.E.6, following the date of
the GBS Mandatory Payment Announcement (as defined in
Section IV.E.6(d)(2)), the Corporation shall select one of the following
alternatives, as determined by the Board of Directors in its discretion:
(A) provided that there are funds of the Corporation legally available
therefor, pay to the holders of the shares of GBS Stock a dividend on
a pro rata basis in accordance with the number of shares of GBS Stock
held by each such holder in cash, securities (other than shares of a
series of Common Stock) and/or other property having a Fair Market
Value as of the date of the Disposition in the aggregate equal to the
Fair Market Value as of the date of the Disposition of the GBS Net
Proceeds of such Disposition; or
(B) provided that there are funds of the Corporation legally available
therefor,
(i) if such Disposition involves all (not merely substantially all)
of the properties and assets attributed to Genzyme Biosurgery
Division, redeem or exchange as of a Redemption Date determined
by the Board of Directors, all outstanding shares of GBS Stock in
exchange for, on a pro rata basis, cash, securities (other than
shares of a series of Common Stock) and/or other property having
a Fair Market Value as of the date of the Disposition in the
aggregate equal to the Fair Market Value as of the date of the
Disposition of the GBS Net Proceeds of such Disposition; or
(ii) if such Disposition involves substantially all (but not all) of
the properties and assets attributed to Genzyme Biosurgery
Division, redeem or exchange as of a Redemption Date as
determined by the Board of Directors such number of whole shares
of GBS Stock (which may be all, but not more than all, of such
shares outstanding) as have in the aggregate an average Closing
Price during the period of ten (10) consecutive Business Days
beginning on the first Business Day immediately following the
date of the Estimated GBS Net Proceeds Announcement (as defined
in Section IV.E.6(d)(2)) closest to the Fair Market Value as of
the date of the Disposition of the GBS Net Proceeds of such
Disposition in consideration for, on a pro rata basis, cash,
securities (other than shares of a series of Common Stock) and/or
other property having a Fair Market Value as of the date of the
Disposition in the aggregate equal to such Fair Market Value of
the GBS Net Proceeds; or
(C) declare that each outstanding share of GBS Stock shall be exchanged
as of an Exchange Date as determined by the Board of Directors into a
number of fully paid and nonassessable shares of GGD Stock equal to
110% of the ratio (calculated to the nearest five decimal places) of
the average Closing Price of one share of GBS Stock over the period
of ten (10) consecutive Business Days beginning on the first Business
Day immediately following the date of the Estimated GBS Net Proceeds
Announcement (as defined in Section IV.E.6(d)(2)) to the average
Closing Price of one share of GGD Stock over the same ten Business
Day period.
Any redemption or exchange of or dividend payment on GBS Stock made pursuant
to this Section IV.E.6(b)(1) or Section IV.E.6(c)(3) is hereinafter referred to
as a "GBS Mandatory Payment." Notwithstanding the foregoing provisions of this
Section IV.E.6(b), the Corporation shall redeem GBS
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Stock as provided by Section IV.E.6(b)(1)(B) only if the amount to be paid
pursuant to such redemption is less than or equal to the Available GBS Dividend
Amount as of the Redemption Date.
(2) EXCEPTIONS TO MANDATORY PAYMENT. Notwithstanding the foregoing
Section IV.E.6(b)(1) or Section IV.E.6(c)(3), a GBS Mandatory Payment
shall not be required by the occurrence of a Disposition:
(A) by the Corporation of all or substantially all of the Corporation's
properties and assets in one transaction or a series of related
transactions, including such Disposition in connection with the
dissolution, liquidation or winding up of the Corporation and the
distribution of assets to stockholders as referred to in
Section IV.E.4;
(B) of the properties and assets attributed to Genzyme Biosurgery
Division as contemplated by Section IV.E.6(a)(3) or otherwise to all
holders of GBS Stock divided among such holders on a pro rata basis
in accordance with the number of shares GBS Stock outstanding;
(C) to any person or entity controlled (as determined by the Board of
Directors) by the Corporation;
(D) in connection with a Related Business Transaction in respect of
Genzyme Biosurgery Division; or
(E) that is conditioned upon the affirmative vote of the holders of GBS
Stock, voting as a separate class.
(C) TERMINATION OF CASH EXCHANGE RIGHT.
If the Corporation receives an opinion of Qualified Tax Counsel that, by
reason of any Tax Law Change, the right or obligation of the Corporation to
exchange GBS Stock for cash, securities or other property pursuant to
Section IV.E.6(a)(1) or (3) or IV.E.6(b) (each, a "GBS Cash Exchange Right")
would cause a Tax Event if not terminated, then the Board of Directors may at
any time, by a vote of a majority of the directors then in office, elect to
terminate any or all such GBS Cash Exchange Rights, with the result that the
Corporation shall thereafter have, depending on which GBS Cash Exchange Right(s)
is (are) so terminated:
(1) under Section IV.E.6(a)(1) only the right to cause the exchange of GBS
Stock for GGD Stock and not for cash, securities or other property other
than capital stock of the Corporation,
(2) no right to effect an exchange under Section IV.E.6(a)(3), and/or
(3) no right or obligation to effect a GBS Mandatory Payment under
Section IV.E.6(b), provided that if the Board shall no longer have the
right or obligation to effect a GBS Mandatory Payment under
Section IV.E.6(b), then if a GBS Mandatory Payment thereunder shall
otherwise be or have been required, the Corporation instead shall have
the obligation to effect on or prior to the first Business Day after the
90th day following the consummation of such Disposition, a GBS Mandatory
Payment pursuant to which it shall exchange each outstanding share of GBS
Stock for a number of fully paid and nonassessable shares of GGD Stock
(calculated to the nearest five decimal places) equal to (i) the Fair
Market Value of one share of the GBS Stock as of the date of the first
public announcement of such Disposition by the Corporation by press
release divided by (ii) the Fair Market Value of one share of GGD Stock
as of such date.
Notwithstanding the foregoing, the Board of Directors may not terminate any
GBS Cash Exchange Right during the period commencing on the date of a
Disposition requiring a GBS Mandatory Payment until the date upon which the
related GBS Mandatory Payment is effected by the Corporation.
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(D) EXCHANGE AND REDEMPTION PROCEDURES.
(1) If the Corporation determines to exchange shares of GBS Stock pursuant
to Section IV.E.6(a), the Corporation shall cause notice to be sent not
less than 30 nor more than 60 days prior to the Exchange Date in the form
and manner set forth in Section IV.F.1, and the procedures governing such
exchange shall be those set forth in Section IV.F.1.
(2) Not later than the 20th Business Day following the consummation of a
Disposition described in Section IV.E.6(b)(1) with respect to Genzyme
Biosurgery Division, the Corporation shall announce publicly by press
release (1) the estimated GBS Net Proceeds, (2) the number of outstanding
shares of GBS Stock and (3) the number of shares of GBS Stock into or for
which Convertible Securities are then convertible, exchangeable or
exercisable and the conversion, exchange or exercise price thereof (the
"Estimated GBS Net Proceeds Announcement"). Not earlier than the day
immediately following the 10thBusiness Day, nor later than the 20th
Business Day, following the date of the Estimated GBS Net Proceeds
Announcement, the Corporation shall announce publicly by press release
which of the actions specified in Section IV.E.6(b)(1) that it has
irrevocably determined to make in respect of such Disposition (the "GBS
Mandatory Payment Announcement").
(3) If the Corporation determines to pay a dividend pursuant to
Section IV.E.6(b)(1)(A), the Corporation shall, not later than the 20th
Business Day following the date of the Estimated GBS Net Proceeds
Announcement, cause notice to be sent to the holders of shares of GBS
Stock and to each holder of Convertible Securities that are convertible
into or exchangeable or exercisable for shares of GBS Stock (unless
alternate provision for such notice to the holders of such Convertible
Securities is made pursuant to the terms of such Convertible Securities),
setting forth (1) the record date for determining holders entitled to
receive such dividend, which shall be not earlier than the 10th Business
Day and not later than the 20th Business Day following the date of such
notice, (2) the anticipated payment date of such dividend (which shall
not be more than 60 Business Days following the date of the GBS Mandatory
Payment Announcement), (3) the type and amount of property to be paid as
such dividend in respect of the outstanding shares of GBS Stock, (4) the
GBS Net Proceeds, (5) the number of outstanding shares of GBS Stock and
the number of shares of GBS Stock into or for which outstanding
Convertible Securities are then convertible, exchangeable or exercisable
and the conversion, exchange or exercise price thereof and (6) in the
case of notice to be given to holders of Convertible Securities, a
statement to the effect that a holder of such Convertible Securities
shall be entitled to receive such dividend only if such holder properly
converts, exchanges or exercises such Convertible Securities (unless the
terms of a Convertible Security provide otherwise) on or prior to the
record date referred to in clause (1) of this sentence. Except as
provided in the preceding sentence, such notice shall conform with the
provisions governing notice at Section IV.F.1 and the provisions
governing the payment of such dividend shall be those set for in such
Section IV.F.1 to the extent such provisions are applicable to the
payment of a dividend.
(4) If the Corporation determines to redeem shares of GBS Stock pursuant to
Section IV.E.6(b)(1)(b)(i), the Corporation shall, not later than the
20th Business Day following the date of the Estimated GBS Net Proceeds
Announcement, cause notice to be sent in the form and manner set forth in
Section IV.F.1, and the procedures governing such redemption shall be
those set forth in Section IV.F.1; PROVIDED, however, the Redemption Date
shall not be more than 60 Business Days following the date of the GBS
Payment Method Announcement. Such notice shall also state the GBS Net
Proceeds.
(5) If the Corporation determines to redeem shares of GBS Stock pursuant to
Section IV.E.6(b)(1)(B)(ii), the Corporation shall, not later than the
20th Business Day
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following the date of the GBS Estimated Net Proceeds Announcement, cause
notice to be sent in the form and manner set forth in Section IV.F.1, and
the procedures governing such redemption shall be those set forth in
Section IV.F.1; PROVIDED, however, the Redemption Date shall not be more
than 60 Business Days following the date of the Estimated GBS Net
Proceeds Announcement. The notice delivered hereunder shall also state
(a) the GBS Net Proceeds and (b) a date (the "selection date") not
earlier than the 10th Business Day and not later than the 20th Business
Day following the date of such notice on which shares of GBS Stock shall
be selected for redemption and that the Corporation will not be required
to register a transfer of any shares of GBS Stock for a period of ten
(10) Business Days next preceding the Selection Date.
(6) If the Corporation determines to exchange GBS Stock for GGD Stock
pursuant to Section IV.E.6(b)(1)(C), the Corporation shall cause
notice to be sent in the form and manner set forth in
Section IV.F.1, and the procedures governing such exchange shall be
those set forth in Section IV.F.1; PROVIDED, however, the Exchange
Date shall not be more than 60 Business Days following the date of
the GBS Mandatory Payment Announcement. Such notice shall also state
the GBS Net Proceeds.
(7) If the Corporation determines to exchange GBS Stock for GGD Stock
pursuant to Section IV.E.6(c)(3), the Corporation shall cause notice to
be sent not less than 30 nor more than 60 days in the form and manner set
forth in Section IV.F.1, and the procedures governing such exchange shall
be those set forth in Section IV.F.1.
(E) SPECIAL MANDATORY PAYMENT PROVISIONS.
For purposes of this Section IV.E.6:
(1) "substantially all of the properties and assets allocated to Genzyme
Biosurgery Division" shall mean a portion of the properties and assets
allocated to Genzyme Biosurgery Division (A) that represents at least 80%
of the then-current fair value (as determined by the Board of Directors)
of, or (B) to which is attributable at least 80% of the aggregate
revenues for the immediately preceding twelve fiscal quarterly periods of
the Corporation derived from, the properties and assets allocated to
Genzyme Biosurgery Division;
(2) in the case of a Disposition of properties and assets in a series of
related transactions, such Disposition shall not be deemed to have been
consummated until the consummation of the last of such transactions;
(3) in the event that at the time of any Disposition there are outstanding
any Convertible Securities convertible into or exercisable for shares of
GBS Stock that would give the holders rights to receive any dividend
related to the Disposition upon exercise, conversion or otherwise, or
would adjust as a result of such dividend to give the holder equivalent
economic rights, then the shares of GBS Stock underlying such Convertible
Securities will be taken into account for purposes of computing the GBS
Allocation Ratio and determining the terms of any dividend payment on
such shares;
(4) in the event that as a result of or in connection with a dividend
payment pursuant to Section IV.E.6(b)(1)(A) there ceases to be any
properties or assets attributed to Genzyme Biosurgery Division, then each
outstanding share of GBS Stock shall immediately following such dividend
payment be cancelled and all rights of a holder of a share of GBS Stock
shall cease except for the right to such dividend payment; and
(5) there shall be added to any cash portion of a GBS Mandatory Payment paid
to holders of GBS Stock, which cash comprised a portion of the GBS Net
Proceeds, any interest earned by
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Genzyme Biosurgery Division or the Corporation on such cash from the date
of the Disposition up to the record date of such GBS Mandatory Payment.
7. DEFINITIONS.
As used in this Section IV.E., the following terms shall have the following
meanings (with terms defined in the singular having comparable meaning when used
in the plural and vice versa), unless another definition is provided or the
context otherwise requires. Capitalized terms used but not defined in this
Section IV.E.7 shall have the meanings given them in Section IV.F.7.
(a) "Available GBS Dividend Amount," on any date, shall mean the greater of:
(1) the excess of
(A) the greater of (x) the fair value on such date of the net assets
of Genzyme Biosurgery Division and (y) an amount equal to
$ (division equity allocated to Genzyme Biosurgery
Division at , 2000), such dollar amount to be
increased or decreased, as appropriate, to reflect, after
, 2000, (A) the Earnings Attributable to Genzyme
Biosurgery Division, (B) any dividends or other distributions
(including by reclassification or exchange) declared or paid with
respect to, or repurchases or issuances of, any shares of GBS
Stock or any other class of capital stock attributed to Genzyme
Biosurgery Division, but excluding dividends or other
distributions paid in shares of GBS Stock to the holders thereof
or in shares of any other class of capital stock attributed to
Genzyme Biosurgery Division to the holders thereof, and (C) any
other adjustments to the stockholders' equity of Genzyme
Biosurgery Division made in accordance with generally accepted
accounting principles, over
(B) the sum of (x) the aggregate par value of all outstanding shares
of GBS Stock and any other class of capital stock attributed to
Genzyme Biosurgery Division and (y) unless these Articles of
Organization permit otherwise, the aggregate amount that would be
needed to satisfy any preferential rights to which holders of all
outstanding Preferred Stock attributed to Genzyme Biosurgery
Division are entitled upon dissolution of the Corporation in
excess of the aggregate par value of such Preferred Stock,
PROVIDED that such excess shall be reduced by any amount
necessary to enable Genzyme Biosurgery Division to pay its debts
as they become due, and
(2) the amount legally available for the payment of dividends determined
in accordance with Massachusetts law applied as if Genzyme Biosurgery
Division were a separate corporation.
(b) "Earnings Attributable" to Genzyme Biosurgery Division for any period
shall mean the net income or loss of Genzyme Biosurgery Division for such
period (or for the fiscal periods of the Corporation commencing prior to
the GBS Effective Date and after , 2000, pro forma net income
or loss of Genzyme Biosurgery Division as if the GBS Effective Date were
, 2000) determined in accordance with generally accepted
accounting principles, with all income and expenses of the Corporation
being allocated between Divisions in a reasonable and consistent manner
in accordance with policies adopted by the Board of Directors; PROVIDED,
HOWEVER, that as of the end of any fiscal quarter of the Corporation, any
projected annual tax benefit attributable to any Division that cannot be
utilized by such Division to offset or reduce its allocated tax liability
may be allocated to any other Division without any compensating payment
or allocation.
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(c) "GBS Allocation Ratio," as of any date, shall mean the fraction computed
by dividing the GBS Shares Outstanding by the sum of the GBS Shares
Outstanding plus the GBS Designated Shares.
(d) "GBS Designated Shares" as of any date shall mean a number of shares of
GBS Stock that, as of the GBS Effective Date, shall be ,
which number shall be subject to adjustment as provided in the next
sentence. The number of Genzyme Biosurgery Designated Shares shall from
time to time be
(1) adjusted as appropriate to reflect subdivisions (by stock split or
otherwise) and combinations (by reverse stock split or otherwise) of
the GBS Stock and dividends or distributions of shares of GBS Stock
to holders of GBS Stock and other reclassifications of GBS Stock,
(2) decreased by (A) the number of any shares of GBS Stock issued by the
Corporation, the proceeds of which are allocated to Genzyme General
Division, (B) the number of any shares of GBS Stock issued upon the
exercise or conversion of Convertible Securities attributed to
Genzyme General Division, and (C) the number of any shares of GBS
Stock issued by the Corporation as a dividend or distribution or by
reclassification, exchange or otherwise to holders of GGD Stock, and
(3) increased by (A) the number of any outstanding shares of GBS Stock
repurchased by the Corporation, the consideration for which was
allocated to Genzyme General Division, (B) the number equal to the
fair value (as determined by the Board of Directors) of assets or
properties allocated to Genzyme General Division that are reallocated
to Genzyme Biosurgery Division (other than reallocations that
represent sales at fair value between such Divisions) divided by the
Fair Market Value of one share of GBS Stock as of the date of such
reallocation, (C) the number equal to (i) the aggregate Fair Market
Value of any shares of GGD Stock issued to the limited partners of
Genzyme Development Partners L.P. ("GDP") in connection with the
Corporation's exercise on behalf of Genzyme Biosurgery Division of
its purchase option to reacquire all of the limited partnership
interests of GDP divided by (ii) the Fair Market Value of one share
of GBS Stock as of the date of such exercise, and (D) the number
equal to Fair Market Value of any shares of GBS Stock issued to
Genzyme General Division in satisfaction of its refunding obligations
under the Confirmation and Acknowledgement of Programmer Allocation,
dated as of June 21, 1999, in connection with the transfer by the
Genzyme Tissue Repair Division of its ownership interest in the
Diacrin/Genzyme LLC to the Genzyme General Division.
PROVIDED, that the Corporation shall take no action which would have the
effect of reducing the GBS Designated Shares to a number which is less than
zero. Within 45 days after the end of each fiscal quarter of the Corporation,
the Corporation shall prepare and file a statement of such change with the
transfer agent for the GBS Stock and with the Clerk of the Corporation.
(e) "GBS Effective Date" shall mean , 2000.
(f) "GBS Net Proceeds" shall mean, as of any date, with respect to a
Disposition of any of the properties and assets of Genzyme Biosurgery
Division, a fraction of the proceeds from such disposition determined by
multiplying the GBS Allocation Ratio by the gross proceeds of such
Disposition after any adjustment to such gross proceeds resulting from
payment of, or reasonable provision for, (a) any taxes payable by the
Corporation in respect of either such Disposition or any mandatory
exchange, redemption or dividend payment resulting from such Disposition
(or that would have been payable but for the utilization of tax benefits
attributable to any division or group of the Corporation other than
Genzyme Biosurgery Division (a
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"Non-GBS Division")), (b) any transaction costs borne by a Non-GBS
Division in connection with such Disposition, including, without
limitation, any legal, investment banking and accounting fees and
expenses borne by a Non-GBS Division in connection with such Disposition,
(c) any liabilities and other obligations (contingent or otherwise) of
Genzyme Biosurgery Division borne by a Non-GBS Division in connection
with such Disposition, including, without limitation, any indemnity or
guarantee obligations incurred by a Non-GBS Division in connection with
the Disposition or any liabilities assumed by a Non-GBS Division for
future purchase price adjustments, and (d) any preferential amounts,
accumulated and unpaid dividends and other obligations in respect of any
Preferred Stock attributed to Genzyme Biosurgery Division.
(g) "GBS Shares Outstanding" as of any date shall mean the number of shares
of GBS Stock then issued and outstanding.
(h) "Genzyme Biosurgery Division" shall mean, at any time, the Corporation's
interest in [(i) businesses, products, or development or research
programs relating to (A) the prevention or treatment of tissue damage and
(B) surgical devices, closures, instruments, biomaterials and
biotherapeutics directed toward the cardiovascular, general and plastic
surgery markets, which exist as of the GBS Effective Date (other than
such businesses, products, or development or research programs allocated
to Genzyme Development Partners, L.P. or that were allocated to the
Genzyme Molecular Oncology or Genzyme General divisions immediately prior
to the GBS Effective Date);](ii) all assets and liabilities of the
Corporation to the extent allocated to any such businesses, products, or
development or research programs in accordance with generally accepted
accounting principles consistently applied for all of the Corporation's
business units; and (iii) such businesses, products, or development or
research programs developed in, or acquired by the Corporation for,
Genzyme Biosurgery Division on or after the GBS Effective Date, in each
case as determined by the Board of Directors; PROVIDED, HOWEVER, that,
from and after any Disposition or transfer to another Division of any
business, product, development program, research project, assets or
properties, Genzyme Biosurgery Division shall no longer include the
business, product, development program, research project, assets or
properties so disposed of or transferred. Genzyme Biosurgery Division
shall be represented by the GBS Stock.
[THE FOLLOWING PROVISIONS APPLY GENERALLY TO ALL SERIES OF GENZYME'S COMMON
STOCK.]
F. GENERAL PROVISIONS REGARDING THE COMMON STOCK
8. GENERAL EXCHANGE AND REDEMPTION PROVISIONS.
In the event of any exchange or mandatory redemption or dividend pursuant to
the provisions of these Articles of Organization, the following provisions shall
apply:
(a) Any notice delivered hereunder shall be sent by the Corporation to each
record holder of shares of the Common Stock to be exchanged or redeemed
or upon which will be made a dividend payment (the "Exchange Stock") and
to the holders of Convertible Securities that are convertible into or
exchangeable or exercisable for shares of such Exchange Stock (unless
alternate provision for such notice is made pursuant to the terms of such
Convertible Securities). Unless otherwise required by any other provision
of these Articles of Organization, such notice shall be sent not less nor
more than 60 days prior to the Exchange Date.
(b) With respect to an exchange or redemption, such notice shall state, to
the extent and in the manner applicable, (1) the number of shares of
Exchange Stock outstanding on the record date for such exchange or
redemption and the number of such shares to be redeemed or exchanged,
(2) the aggregate amount and form of consideration, including shares of
Common Stock, other securities, cash or other property, that will be paid
on the Exchange Date or
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Redemption Date upon the exchange or redemption of the shares of Exchange
Stock, (3) the amount and form of such consideration to be received by
such holder with respect to each share of the Exchange Stock held by such
holder, including details as to the calculation thereof, (4) the Exchange
Date or Redemption Date, (5) the place or places where certificates for
shares of Exchange Stock, properly endorsed or assigned for transfer are
to be surrendered for delivery of such consideration (unless the
Corporation shall waive such requirement), (6), if applicable, a
statement to the effect that, subject to Section IV.F.1(e) dividends on
shares of Exchange Stock shall cease to be paid as of such Exchange Date
or Redemption Date, (7) the number of shares of Exchange Stock into or
for which outstanding Convertible Securities are convertible,
exchangeable or exercisable as of the record date for such exchange or
redemption and the conversion, exchange or exercise price thereof and
(8) in the case of notice to holders of Convertible Securities, a
statement to the effect that a holder of Convertible Securities shall be
entitled to receive its pro rata portion of the consideration, as
applicable, upon redemption or exchange only if such holder properly
converts, exchanges or exercises such Convertible Securities (unless the
terms of a Convertible Security provide otherwise) on or prior to the
Exchange Date or Redemption Date and a statement as to what, if anything,
such holder will be entitled to receive pursuant to the terms of such
Convertible Securities if such holder thereafter converts, exchanges or
exercises such Convertible Securities.
(c) Any notice delivered under this Section IV.F.1 shall be sent by
first-class mail, postage prepaid at such holder's address as the same
appears on the stock transfer books of the Corporation. Neither the
failure to mail such notice to any particular holder of shares of
Exchange Stock nor any defect therein shall affect the sufficiency
thereof with respect to any other holder of shares of Exchange Stock or
the validity of any such exchange, redemption or dividend payment.
(d) The Corporation shall not be required to issue or deliver fractional
shares of any series of Common Stock, capital stock, securities or other
property to any holder of shares of Exchange Stock upon any such
exchange, redemption or dividend payment. If more than one share of
Exchange Stock shall be held by the same holder of record, the
Corporation shall aggregate the number of shares of any security that
shall be issuable or any other property that shall be distributable to
such holder upon any such exchange, redemption or dividend payment. If
fractional shares of any security would be required to be issued or
distributed to the holder of Exchange Stock, the Corporation shall, if
such fractional shares are not issued or distributed to such holder,
either arrange for the disposition of such fraction by or on behalf of
such holder or pay the Fair Market Value (without interest) of such
fractional shares.
(e) No adjustments in respect of dividends shall be made upon the exchange
or redemption of any shares of Exchange Stock; provided, however, that if
the Exchange Date shall be subsequent to the record date for determining
holders of Exchange Stock entitled to the payment of a dividend or other
distribution thereon or with respect thereto, the holders of shares of
Exchange Stock at the close of business on such record date shall be
entitled to receive the dividend or other distribution payable on or with
respect to such shares on the date set for payment of such dividend or
other distribution, notwithstanding the exchange or redemption of such
shares.
(f) With respect to an exchange or redemption, before any holder of shares
of Exchange Stock shall be entitled to receive the consideration to be
received by such holder with respect to the exchange or redemption of
such shares of Exchange Stock, such holder shall surrender at such place
as the Corporation shall specify certificates for such shares of Exchange
Stock, properly endorsed or assigned for transfer (unless the Corporation
shall waive such requirement). The Corporation will as soon as
practicable after such surrender of certificates representing such
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shares of Exchange Stock deliver to the person for whose account such
shares of Exchange Stock were so surrendered, or to the nominee or
nominees of such person, the consideration to which such person shall be
entitled as aforesaid, together with any fractional share payment
contemplated by Section IV.F.1(d).
(g) With respect to an exchange or redemption, from and after the Exchange
Date, all rights of a holder of shares of Exchange Stock shall cease
except for the right, upon surrender of the certificates representing
such shares of Exchange Stock, to receive the consideration for which
such shares were exchanged are redeemed, together with any fractional
share payment contemplated by Section IV.F.1(d), and rights to dividends
as provided in Section IV.F.1(e). No holder of a certificate that
immediately prior to the Exchange Date represented shares of Exchange
Stock shall be entitled to receive any dividend or interest payment or
other distribution with respect to the shares of any security or
instrument for which the Exchange Stock was exchanged or redeemed until
surrender of such holder's certificate for a certificate or certificates
or instrument or instruments representing such security (unless the
Corporation shall waive such requirement). Subject to applicable escheat
and similar laws, upon such surrender, there shall be paid to the holder
the amount of any dividend or interest payments or other distributions
(without interest) which theretofore became payable with respect to a
record date after the Exchange Date, but that were not paid by reason of
the foregoing, with respect to the number of shares of the kind of
securities represented by the certificate or certificates issued upon
such surrender. From and after the Exchange Date, the Corporation shall,
however, be entitled to treat the certificates for Exchange Stock that
have not yet been surrendered for exchange or redemption as evidencing
the ownership of the number of shares of the kind of securities for which
the shares of Exchange Stock represented by such certificates shall have
been exchanged or redeemed, notwithstanding the failure to surrender such
certificates.
(h) The Corporation will pay any and all documentary, stamp or similar issue
or transfer taxes that may be payable in respect of the issue or delivery
of any securities in exchange for or upon redemption of or dividend
payment on shares of Exchange Stock pursuant hereto. The Corporation
shall not, however, be required to pay any tax that may be payable in
respect of any transfer involved in the issue and delivery of any such
securities issued in exchange or upon redemption or as a dividend in a
name other than that in which the shares of Exchange Stock so exchanged
or redeemed or paid as a dividend upon were registered and no such issue
or delivery shall be made unless and until the person requesting such
issue has paid to the Corporation the amount of any such tax, or has
established to the satisfaction of the Corporation that such tax has been
paid or that no such tax is due.
(i) After the Exchange Date, any share of Exchange Stock issued upon
conversion or exercise of any Convertible Security shall, immediately
upon issuance pursuant to such conversion or exercise and without any
notice or any other action on the part of the Corporation or its Board of
Directors or the holder of such share of Exchange Stock, be exchanged for
the amount of cash, securities and/or other property thereof (together
with any payments in lieu of fractional shares or dividends, if any) that
a holder of such Convertible Security would have been entitled to receive
pursuant to the terms of such Convertible Security had such terms
provided that the conversion privilege in effect immediately prior to any
exchange by the Corporation of any shares of Exchange Stock would be
adjusted so that the holder of any such Convertible Security thereafter
surrendered for conversion would be entitled to receive the amount of
cash, securities and/or other property he or she would have owned
immediately following such action had such Convertible Security been
converted immediately prior to such exchange. The foregoing provisions
shall not apply to the extent that equivalent adjustments are otherwise
made pursuant to the provisions of such Convertible Security.
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9. VOTING OF CONTROLLED SHARES.
Shares of any series of Common Stock held by a corporation or other entity
controlled by the Corporation (other than an employee benefit plan) shall be
voted on any proposal requiring a vote of the holders of such series in the same
proportion as votes are cast for or against such proposal by all other holders
of such series.
10. DISCRIMINATION BETWEEN CLASSES OF COMMON STOCK.
Subject to the provisions of each series of Common Stock regarding the
payment of dividends on such series of Common Stock, the Board of Directors may,
in its sole discretion, declare and pay dividends exclusively on any series of
Common Stock, or all series, in equal or unequal amounts, notwithstanding the
amounts available for the payment of dividends on any series, the respective
voting and liquidation rights of each series, the amounts of prior dividends
declared on each series or any other factor.
11. ADJUSTMENTS RELATIVE TO VOTING RIGHTS AND LIQUIDATION.
If at any time the Corporation shall in any manner subdivide (by stock
split, reclassification or otherwise) or combine (by reverse stock split,
reclassification or otherwise) the outstanding shares of any series of Common
Stock, or pay a dividend or make a distribution in shares of any series of
Common Stock to holders of such series, the per share voting rights and the
liquidation units of each series of Common Stock other than the GGD Stock shall
be appropriately adjusted so as to avoid dilution in the aggregate voting and
liquidation rights of any series. The issuance by the Corporation of shares of
any series of Common Stock (whether by a dividend or otherwise) to the holders
of any other series of Common Stock shall not require adjustment pursuant to
this paragraph.
12. RANK.
All series of Common Stock shall rank junior with respect to the payment of
dividends and the distribution of assets to all series of the Corporation's
Preferred Stock that specifically provide that they shall rank prior to the
Common Stock. Nothing herein shall preclude the Board from creating any series
of Preferred Stock ranking on a parity with or prior to the Common Stock as to
the payment of dividends or the distribution of assets.
13. FRACTIONAL SHARES.
Any series of Common Stock may be issued in fractions of a share which shall
entitle the holder, in proportion to such holder's fractional shares, to
exercise voting rights, receive dividends, participate in distributions and to
have the benefit of all other rights of holders of such series of Common Stock.
14. DEFINITIONS.
As used in these Articles of Organization, the following terms shall have
the following meanings (with terms defined in the singular having comparable
meaning when used in the plural and vice versa), unless another definition is
provided or the context otherwise requires:
(a) "Business Day" shall mean each weekday other than any day on which any
relevant series of common stock is not traded on any national securities
exchange or the Nasdaq National Market or in the over-the-counter market.
(b) The "Closing Price," with respect to any security, as of any given day,
shall be (x) if such security is listed or admitted to trading on a
national securities exchange, the closing price on the New York Stock
Exchange Composite Tape (or any successor composite tape reporting
transactions on national securities exchanges) or, if such composite tape
shall not be in use or
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shall not report transactions in such shares, the last reported sales
price regular way on the principal national securities exchange on which
such shares are listed or admitted to trading (which shall be the
national securities exchange on which the greatest number of shares of
such series of stock has been traded during such consecutive trading
days), or, if there is no such sale on any such day, the mean of the bid
and asked prices on such day, or (y) if such shares are not listed or
admitted to trading on any such exchange, the closing price, if reported,
or, if the closing price is not reported, the mean of the closing bid and
asked prices as reported by the Nasdaq National Market or a similar
source selected from time to time by the Corporation for the purpose.
(c) "Convertible Securities" shall mean any securities (including employee
stock options) of the Corporation that are convertible into or evidence
the right to purchase any shares of any series of Common Stock.
(d) "Disposition" shall mean the sale, transfer, assignment or other
disposition (whether by merger, consolidation, sale or contribution of
assets or stock or otherwise) of any properties or assets, other than by
pledge, hypothecation or grant of any security interest in such
properties or assets.
(e) "Exchange Date" shall mean, in respect of any exchange of any share of a
series of Common Stock effected pursuant to these Articles of
Organization, the date upon which such exchange becomes effective.
(f) "Fair Market Value" shall mean
(1) as to shares of any series of stock of the Corporation as of any
date, the average of the daily Closing Prices for the 20 consecutive
Business Days commencing on the 30th Business Day prior to such date,
except that in the event such Closing Prices are unavailable, Fair
Market Value shall be determined by the Board of Directors;
(2) in the case of securities other than securities of the Corporation,
if such security of a class that has previously been publicly traded
for a period of at least three months, the Market Value thereof or,
in the case of a security that has not been publicly traded for at
least such period, the fair value per share of stock or per other
unit of such security, on a fully distributed basis, as determined by
an independent investment banking firm experienced in the valuation
of securities selected in good faith by the Board of Directors;
(3) in the case of property other than securities, the "Fair Market
Value" as determined in good faith by the Board of Directors based
upon such appraisals or valuation reports of such independent experts
as the Board of Directors shall in good faith determine to be
appropriate in accordance with good business practice.
(4) Any determination of Fair Market Value made under clauses 2 or 3
above shall be described in a statement filed with the records of the
actions of the Board of Directors.
(g) "Market Capitalization" of any series of Common stock on any date shall
mean the product of (i) the Fair Market Value of one share of such series
of Common Stock on such date and (ii) the number of shares of such series
of Common Stock outstanding on such date.
(h) "Market Value" as of any day of any security shall mean the average of
the high and low reported sales prices regular way of a share of such
class or series on such day (if such day is a trading day, and, if such
day is not a trading day, on the trading day immediately preceding such
day); or, in case no such reported sale takes place on such trading day,
the average of the reported closing bid and asked prices regular way of a
share of such class or series on such trading day, in either case, on the
New York Stock Exchange; or, if the shares of such
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<PAGE>
class or series are not quoted on the New York Stock Exchange on such
trading day, on the Nasdaq National Market; or, if the shares of such
class or series are not quoted on the Nasdaq National Market on such
trading day, the average of the closing bid and asked prices of a share
of such class or series in the over-the-counter market on such trading
day as furnished by any New York Stock Exchange member firm selected from
time to time by the corporation; or, if such closing bid and asked prices
are not made available by any such New York Stock Exchange member firm on
such trading day (including, without limitation, because such securities
are not publicly held), the market value as determined by an independent
investment banking firm experienced in the valuation of securities
selected in good faith by the Board of Directors. Any determination of
Fair Market Value made under the final clause of the preceding sentence
shall be described in a statement filed with the records of the actions
of the Board of Directors.
(i) "Qualified Tax Counsel" shall mean tax counsel who may be regular
outside counsel to the Corporation but shall not be an officer or
employee of the Corporation or any of its affiliates.
(j) "Redemption Date" shall mean, in respect of any redemption of any share
of a series of Common Stock effected pursuant to these Articles of
Organization, the date upon which such redemption becomes effective.
(k) "Related Business Transaction" shall mean, with respect to the
Disposition of all or substantially all the properties and assets
attributed to a particular series of Common Stock, such Disposition in a
transaction or series of related transactions that result in the
Corporation receiving in consideration of such properties and assets
primarily equity securities (including, without limitation, capital
stock, debt securities convertible into or exchangeable for equity
securities or interests in a general or limited partnership or limited
liability company, without regard to the voting power or other management
or governance rights associated therewith) of any entity which
(i) acquires such properties or assets or succeeds (by merger, formation
of a joint venture or otherwise) to the business conducted with such
properties or assets or controls such acquiror or successor and (ii) is
engaged primarily or proposes to engage primarily in one or more
businesses similar or complementary to the businesses conducted by the
division or group of the Corporation to which were attributed such
properties and assets prior to such Disposition, as determined by the
Board of Directors.
(l) "Tax Event" shall mean, with respect to any series of Common Stock that
it has become (or will become, as the context may require) more likely
than not that for United States Federal income tax purposes (i) the
Corporation or the holders of its stock are, or at any time in the future
will be, subject to tax or other adverse tax consequences upon the
issuance or receipt of shares of such series of Common Stock or by reason
of the existence of such series of Common Stock or (ii) either such
series of Common Stock or the GGD Stock is not, or at any time in the
future will not be, treated solely as stock of the Corporation.
(m) "Tax Law Change" shall mean (i) any enactment of, amendment to, or
change in the laws of the United States or any political subdivision
thereof (including any announced proposed change by an applicable
legislative committee or the chair in such laws), (ii) any promulgation
of, amendment to, or change in the regulations under the laws of the
United States or any political subdivision or taxing authority thereof or
therein (including any announced proposed change in or promulgation of
regulations by an administrative agency) or (iii) any official or
administrative pronouncement or action or judicial decision interpreting
or applying such laws or regulations. For purposes of rendering an
opinion as to a Tax Law Change, tax counsel shall assume that any
legislative or administrative proposals will be adopted or enacted as
proposed.
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ANNEX G
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 Section228 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 (1) 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 Section251 (other than a merger effected
pursuant to Section251(g) of this title), Section252, Section254,
Section257, Section258, Section263 or Section264 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 ((S)) 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 SectionSection251, 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;
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c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of
this paragraph; or
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 Section253 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 of 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 subsections (b) or
(c) hereof that appraisal rights are available for any or all of 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 Section228 or
Section253 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
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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
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
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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.
(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
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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.
(l) 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 H
MASSACHUSETTS APPRAISAL LAW
CHAPTER 156B OF THE GENERAL LAWS OF MASSACHUSETTS
SECTION 86. SECTIONS APPLICABLE TO APPRAISAL; PREREQUISITES
If a corporation proposes to take a corporate action as to which any section
of this chapter provides that a stockholder who objects to such action shall
have the right to demand payment for his shares and an appraisal thereof,
sections eighty-seven to ninety-eight, inclusive, shall apply except as
otherwise specifically provided in any section of this chapter. Except as
provided in sections eighty-two and eight-three, no stockholder shall have such
right unless (1) he files with the corporation before the taking of the vote of
the shareholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action is
taken and (2) his shares are not voted in favor of the proposed action.
SECTION 87. STATEMENT OF RIGHTS OF OBJECTING STOCKHOLDERS IN NOTICE OF MEETING;
FORM
The notice of the meeting of stockholders at which the approval of such proposed
action is to be considered shall contain a statement of the rights of objecting
stockholders. The giving of such notice shall not be deemed to create any rights
in any stockholder receiving the same to demand payment for his stock, and the
directors may authorize the inclusion in any such notice of a statement of
opinion by the management as to the existence or non-existence of the right of
the stockholders to demand payment for their stock on account of the proposed
corporate action. The notice may be in such form as the directors or officers
calling the meeting deem advisable, but the following form of notice shall be
sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the corporation
before the taking of the vote on the approval of such action, written objection
to the proposed action stating the he intends to demand payment for his shares
if the action is taken and (2) whose shares are not voted in favor of such
action has or may have the right to demand in writing from the corporation (OR,
IN THE CASE OF A CONSOLIDATION OR MERGER, THE NAME OF THE RESULTING OR SURVIVING
CORPORATION SHALL BE INSERTED), within twenty days after the date of mailing to
him of notice in writing that the corporate action has become effective,
payments for his shares and an appraisal of the value thereof. Such corporation
and any such stockholder shall in such cases have the rights and duties and
shall follow the procedure set forth in sections 88 to 98, inclusive, of chapter
156B of the General Laws of Massachusetts."
SECTION 88. NOTICE OF EFFECTIVENESS OF ACTION OBJECTED TO
The corporation taking such action, or in the case of a merger or
consolidation the surviving or resulting corporation, shall, within ten days
after the date on which such corporate action became effective, notify each
stockholder who filed a written objection meeting the requirements of section
eighty-six and whose shares were not voted in favor of the approval of such
action, that the action approved at the meeting of the corporation of which he
is a stockholder has become effective. The giving of such notice shall not be
deemed to create any rights in any stockholder receiving the same to demand
payment for his stock. The notice shall be sent by registered or certified mail,
addressed to the stockholder at his last known address as it appears in the
records of the corporation.
SECTION 89. DEMAND FOR PAYMENT; TIME FOR PAYMENT
If within twenty days after the date of mailing of a notice under subsection
(e) of section eight-two, subsection (f) of section eighty-three, or section
eighty-eight, any stockholder to whom the
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corporation was required to give such notice shall demand in writing from the
corporation taking such action, or in the case of a consolidation or merger from
the resulting or surviving corporation, payment for his stock, the corporation
upon which such demand is made shall pay to him the fair value of his stock
within thirty days after the expiration of the period during which such demand
may be made.
SECTION 90. DEMAND FOR DETERMINATION OF VALUE; BILL IN EQUITY; VENUE
If during the period of thirty days provided for in section eighty-nine the
corporation upon which such demand is made and any such objecting stockholder
fail to agree as to the value of such stock, such corporation or any such
stockholder may within four months after the expiration of such thirty-day
period demand a determination of the value of the stock of all such objecting
stockholders by a bill in equity filed in the superior court in the county where
the corporation in which such objecting stockholder held stock had or has its
principal office in the commonwealth.
SECTION 91. PARTIES TO SUIT TO DETERMINE VALUE; SERVICE
If the bill is filed by the corporation, it shall name as parties respondent
all stockholders who have demanded payment for their shares and with whom the
corporation has not reached agreement as to the value thereof. If the bill is
filed by a stockholder, he shall bring the bill in his own behalf and in behalf
of all other stockholders who have demanded payment for their shares and with
whom the corporation has not reached agreement as to the value thereof, and
service of the bill shall be made upon the corporation by subpoena with a copy
of the bill annexed. The corporation shall file with its answer a duly verified
list of all such other stockholders, and such stockholders shall thereupon be
deemed to have been added as parties to the bill. The corporation shall give
notice in such form and returnable on such date as the court shall order to each
stockholder party to the bill by registered or certified mail, addressed to the
last known address of such stockholder as shown in the records of the
corporation, and the court may order such additional notice by publication or
otherwise as it deems advisable. Each stockholder who makes demand as provided
in section eighty-nine shall be deemed to have consented to the provisions of
this section relating to notice, and the giving of notice by the corporation to
any such stockholder in compliance with the order of the court shall be a
sufficient service of process on him. Failure to give notice to any stockholder
making demand shall not invalidate the proceedings as to other stockholders to
whom notice was properly given, and the court may at any time before the entry
of a final decree make supplementary orders of notice.
SECTION 92. DECREE DETERMINING VALUE AND ORDERING PAYMENT; VALUATION DATE
After hearing the court shall enter a decree determining the fair value of
the stock of those stockholders who have become entitled to the valuation of and
payment for their shares, and shall order the corporation to make payment of
such value, together with interest, if any, as hereinafter provided, to the
stockholders entitled thereto upon the transfer by them to the corporation of
the certificates representing such stock if certificated or, if uncertificated,
upon receipt of an instruction transferring such stock to the corporation. For
this purpose, the value of the shares shall be determined as of the day
preceding the date of the vote approving the proposed corporate action and shall
be exclusive of any element of value arising from the expectation or
accomplishment of the proposed corporate action.
SECTION 93. REFERENCE TO SPECIAL MASTER
The court in its discretion may refer the bill or any question arising
thereunder to a special master to hear the parties, make findings and report the
same to the court, all in accordance with the usual practice in suits in equity
in the superior court.
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SECTION 94. NOTATION ON STOCK CERTIFICATES OF PENDENCY OF BILL
On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for the notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholders
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
SECTION 95. COSTS; INTEREST
The costs of the bill, including the reasonable compensation and expenses of
any master appointed by the court, but exclusive of fees of counsel or of
experts retained by any party, shall be determined by the court and taxed upon
the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided in
this chapter shall be paid by the corporation. Interest shall be paid upon any
award from the date of the vote approving the proposed corporate action, and the
court may on application of any interested party determine the amount of
interest to be paid in the case of any stockholder.
SECTION 96. DIVIDENDS AND VOTING RIGHTS AFTER DEMAND FOR PAYMENT
Any stockholder who has demanded payment for his stock as provided in this
chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the date of the vote approving the proposed corporate action) unless:
(1) bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation,
or in the case of a consolidation or merger, the resulting or
surviving corporation, deliver to it a written withdrawal of his
objections to and an acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
SECTION 97. STATUS OF SHARES PAID FOR
The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter shall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock or securities.
SECTION 98. EXCLUSIVE REMEDY; EXCEPTION
The enforcement by a stockholder of his right to receive payment for his
shares in the manner provided in this chapter shall be an exclusive remedy
except that this chapter shall not exclude the right of such stockholder to
bring or maintain an appropriate proceeding to obtain relief on the ground that
such corporate action will be or is illegal or fraudulent as to him.
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