<PAGE> 1
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(C)
OF THE SECURITIES EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
/X/ Preliminary Information Statement
/ / Definitive Information Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14c-5(d)(2))
NEOZYME II CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14c-5(g).
/X/ Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
1) Title of each class of securities to which transaction applies:
CALLABLE COMMON STOCK, $1.00 PAR VALUE PER SHARE
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
1,183,350*
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
$29.00 PER SHARE (PRICE OFFERED)
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$34,317,150*
- --------------------------------------------------------------------------------
5) Total fee paid:
$6,863.43*
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/X/ Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
$21,735
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
SCHEDULE 14D-1
- --------------------------------------------------------------------------------
3) Filing Party:
NEOZYME II ACQUISITION CORP. AND GENZYME CORPORATION
- --------------------------------------------------------------------------------
4) Date Filed:
SEPTEMBER 27, 1996
- --------------------------------------------------------------------------------
* Assumes for fee calculation purposes only that 51% of the Units, each
consisting of one share of Callable Common Stock and one Callable Warrant to
purchase shares of Genzyme Corporation common stock, are purchased by Neozyme
II Acquisition Corp. pursuant to the tender offer made in accordance with the
terms and conditions set forth in the Offer to Purchase dated September 27,
1996 and the related Letter of Transmittal.
<PAGE> 2
NEOZYME II CORPORATION
TODMAN BUILDING, MAIN STREET, ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS
(809) 494-2065
NOTICE OF CORPORATE ACTION TAKEN WITHOUT A MEETING
, 1996
Dear Shareholders:
NOTICE IS HEREBY GIVEN pursuant to Section 83(4) of the British Virgin
Islands ("BVI") International Business Companies Ordinance, 1984 (the "BVI Law")
that, pursuant to a written consent of shareholders of Neozyme II Corporation
("Neozyme II" or the "Company"), a BVI international business company, the
merger (the "Merger") of Neozyme II Merger Corp. ("Merger Corp."), a BVI
international business company, with and into the Company has been approved by
Neozyme II Acquisition Corp. ("Acquisition Corp."), a BVI international business
company and a wholly-owned subsidiary of Genzyme Corporation ("Genzyme"), a
Massachusetts corporation, as the holder of a majority of the Company's
outstanding shares of callable common stock, $1.00 par value per share
("Callable Common Stock"). Merger Corp. is a wholly-owned subsidiary of
Acquisition Corp. The Merger is expected to become effective on or about
December , 1996.
The Merger is the second and final step in the acquisition of Neozyme II by
Genzyme pursuant to a Purchase Agreement dated as of September 20, 1996 (the
"Purchase Agreement") among Genzyme, Acquisition Corp., and the Company, which
was approved by your Board of Directors. A copy of the Purchase Agreement is set
forth in Exhibit A to the accompanying Information Statement.
In the first step, Acquisition Corp. made a tender offer (the "Offer") to
purchase all of the outstanding units (the "Units"), each consisting of one
share of Callable Common Stock and one callable warrant to purchase two shares
of General Division Common Stock, $.01 par value per share, and 0.135 share of
Tissue Repair Division Common Stock, $.01 par value per share, of Genzyme, at a
purchase price of $45.00 per Unit, net to the seller in cash, without interest
thereon, upon the terms and subject to the conditions set forth in an Offer to
Purchase dated September 27, 1996 and in the related Letter of Transmittal, each
of which was previously sent to all Neozyme II shareholders. The Offer was
completed on October 28, 1996, at which time Acquisition Corp. acquired
, or approximately %, of the outstanding Units.
Pursuant to the Purchase Agreement and a plan of merger included therein
(the "Plan of Merger"), a copy of which is also set forth in Exhibit A to the
accompanying Information Statement, Merger Corp. will merge with and into
Neozyme II, with Neozyme II as the surviving corporation. As a result of the
Merger, all shares of Callable Common Stock included in the Units that were not
purchased by Acquisition Corp. pursuant to the Offer (other than shares held by
Genzyme, Neozyme II, Acquisition Corp. of Merger Corp. or their subsidiaries and
shares held by shareholders, if any, who are entitled to and perfect their
appraisal rights under the BVI Law) will be cancelled and converted into the
right to receive a cash payment in the amount of $29.00 per share. Upon
consummation of the Merger, any Callable Warrants not included in Units
purchased by Acquisition Corp. pursuant to the Offer will become exercisable
and, beginning on the effective date of the Merger, will be transferable
separately from the right to receive cash for the shares of Callable Common
Stock formerly associated therewith. Since the Callable Warrants will remain
outstanding after the Merger, no consideration will be paid in the Merger for
the Callable Warrants.
A special committee of the Company's Board of Directors consisting of the
directors of Neozyme II who are neither officers nor directors of Genzyme (the
"Special Committee") carefully reviewed the terms and conditions of the Offer
and the Merger and, having determined that the Offer and the Merger are fair to
and in the best interests of Neozyme II shareholders, unanimously recommended to
the full Neozyme II Board of Directors that the Purchase Agreement be approved.
In arriving at its decision, the Special Committee gave careful consideration to
a number of factors. Among other things, the Special Committee considered the
opinion of Hambrecht & Quist LLC, the financial advisor to the Special
Committee, that, on the basis of and subject to the matters set forth therein,
the cash consideration to be received by the shareholders of the Company in
exchange for their Units in the Offer and in exchange for their shares in the
Merger is fair to
<PAGE> 3
the shareholders of the Company from a financial point of view. Based upon,
among other things, the recommendation of the Special Committee, your Board of
Directors has unanimously approved the Purchase Agreement and determined that
the Merger is fair to and in the best interests of the Company's shareholders.
Acquisition Corp. has approved the Plan of Merger by written consent. Since
Acquisition Corp. owns a majority of the outstanding shares of Callable Common
Stock, the written consent of Acquisition Corp. constitutes the only shareholder
action on the part of the Company required to effect the Merger. Under the BVI
Law, Neozyme II shareholders have certain dissenters' rights of appraisal in
connection with the Merger. See "THE MERGER -- Neozyme II Shareholder Appraisal
Rights" and Exhibit C to the accompanying Information Statement.
The accompanying Information Statement is being delivered to Neozyme II
shareholders in connection with the action taken by Acquisition Corp. by written
consent and pursuant to Rule 14c-2 of the Securities Exchange Act of 1934, as
amended. It provides a summary of the acquisition of Neozyme II and additional
related information, including information about Genzyme's relationship with
Neozyme II, which you should read fully and carefully.
Sincerely,
Paul M. Edwards
President and Treasurer
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. PLEASE DO NOT SEND IN YOUR SHARE CERTIFICATES AT THE PRESENT TIME.
<PAGE> 4
NEOZYME II CORPORATION
TODMAN BUILDING, MAIN STREET, ROAD TOWN, TORTOLA, BRITISH VIRGIN ISLANDS
(809) 494-2065
INFORMATION STATEMENT
This Information Statement (the "Information Statement") relates to the
Merger (the "Merger") of Neozyme II Merger Corp. ("Merger Corp."), a British
Virgin Islands ("BVI") international business company indirectly owned in its
entirety by Genzyme Corporation ("Genzyme"), a Massachusetts corporation, with
and into Neozyme II Corporation ("Neozyme II" or the "Company"), a BVI
international business company.
The Merger is the second and final step in the acquisition of the Company
by Genzyme pursuant to a Purchase Agreement dated as of September 20, 1996 (the
"Purchase Agreement") among Genzyme, Neozyme II Acquisition Corp. ("Acquisition
Corp."), a BVI international business company and a wholly-owned subsidiary of
Genzyme, and the Company, a copy of which is attached to this Information
Statement as Exhibit A. In the first step, Acquisition Corp. made a tender offer
(the "Offer") to purchase all of the outstanding units (the "Units"), each
consisting of one share of callable common stock, $1.00 par value per share (the
"Callable Common Stock"), of Neozyme II and one callable warrant to purchase two
shares of General Division Common Stock, $.01 par value per share, and 0.135
share of Tissue Repair Division Common Stock, $.01 par value per share, of
Genzyme, at a purchase price of $45.00 per Unit, net to the seller in cash,
without interest thereon, upon the terms and subject to the conditions set forth
in an Offer to Purchase dated September 27, 1996 and in the related Letter of
Transmittal, each of which was previously sent to all Neozyme II shareholders.
The Offer was completed on October 28, 1996, at which time Acquisition Corp.
acquired , or approximately %, of the outstanding Units pursuant to
the Offering.
Pursuant to the Purchase Agreement and a plan of merger included therein
(the "Plan of Merger"), a copy of which is also set forth in Exhibit A hereto,
on or about December , 1996, Merger Corp., a wholly-owned subsidiary of
Acquisition Corp, will merge with and into Neozyme II, and Neozyme II, as the
surviving corporation, will become an indirect wholly-owned subsidiary of
Genzyme by virtue of Genzyme's ownership of Acquisition Corp. In connection with
the Merger, all outstanding shares of Callable Common Stock (other than shares
held by Genzyme, Neozyme II, Acquisition Corp. or Merger Corp. or their
subsidiaries and shares held by shareholders, if any, who are entitled to and
perfect their appraisal rights under the applicable provisions of the BVI
International Business Companies Ordinance, 1984 (the "BVI Law")) will be
cancelled and converted into the right to receive a cash payment in the amount
of $29.00 per share (the "Merger Consideration"). Upon consummation of the
Merger, any Callable Warrants not included in Units purchased by Acquisition
Corp. pursuant to the Offer will become exercisable and, beginning on the
effective date of the Merger, will be transferrable separately from the right to
receive cash for the shares of Callable Common Stock formerly associated
therewith. Since the Callable Warrants will remain outstanding after the Merger,
no consideration will be paid in the Merger for the Callable Warrants. See "THE
MERGER".
This Information Statement accompanies a Notice of Corporate Action Taken
Without a Meeting, which provides notice that Acquisition Corp., as the holder
of a majority of the outstanding shares of Callable Common Stock has approved
the Merger by written consent. The written consent of Acquisition Corp.
constitutes the only shareholder action required on the part of the Company to
effect the Merger in accordance with the BVI Law.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. PLEASE DO NOT SEND IN YOUR SHARE CERTIFICATES AT THE PRESENT TIME.
Under the BVI Law, Neozyme II shareholders have certain dissenters' rights
of appraisal in connection with the Merger. See "THE MERGER -- Neozyme II
Shareholder Appraisal Rights" and Exhibit C to this Information Statement. YOU
ARE URGED TO REVIEW THIS INFORMATION STATEMENT CAREFULLY TO DECIDE WHETHER TO
ACCEPT THE MERGER CONSIDERATION OR TO EXERCISE YOUR STATUTORY APPRAISAL RIGHTS
AS PROVIDED BY SECTION 83 OF THE BVI LAW.
All information contained in this Information Statement relating to the
Company has been supplied by the Company, and all information relating to
Genzyme, Acquisition Corp. and Merger Corp. has been supplied by Genzyme,
Acquisition Corp. and Merger Corp., respectively. None of the parties are
responsible for the information provided by the other parties.
The date of this Information Statement is , 1996 and it is
first being mailed or delivered to Neozyme II shareholders on or about that
date.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY............................................................................. 1
The Parties....................................................................... 1
Genzyme........................................................................ 1
Acquisition Corp. and Merger Corp.............................................. 1
Neozyme II..................................................................... 1
Special Factors................................................................... 2
Agreements and Relationships Between the Company and Genzyme................... 2
Background of the Transaction.................................................. 2
Neozyme II's Reasons for the Transaction....................................... 2
Genzyme's Reasons for the Merger............................................... 3
Purpose of the Transaction..................................................... 3
Certain Effects of the Merger.................................................. 3
The Merger........................................................................ 3
Merger......................................................................... 3
Approval of the Merger by Written Consent in Lieu of a Meeting................. 4
Appraisal Rights............................................................... 4
Merger Consideration........................................................... 4
Surrender of Certificates...................................................... 4
Covenants...................................................................... 4
Condition of Merger; Termination............................................... 5
Regulatory Matters............................................................. 5
Accounting Treatment........................................................... 5
Certain Federal Income Tax Consequences........................................... 5
Neozyme II Selected Financial Data................................................ 6
Price Range of Units; Dividends................................................... 8
SPECIAL FACTORS..................................................................... 9
Establishment and History of Neozyme II........................................... 9
Agreements and Relationships Between Genzyme and Neozyme II....................... 9
Technology License Agreement................................................... 9
Development Agreement.......................................................... 10
Purchase Option Agreement...................................................... 10
Series 1992 Note............................................................... 10
Services and Administrative Agreements......................................... 11
Other Relationships Between Genzyme and Neozyme II................................ 11
Background of the Transaction..................................................... 11
Recommendation of the Company's Board of Directors; Fairness of the Transaction... 15
Opinion of Financial Advisor to the Special Committee.......................... 17
Reasons for the Transaction; Purpose and Structure of the Transaction; Plans for
the Company After the Merger................................................... 22
Status of Product Development.................................................. 22
Reasons for the Transaction.................................................... 26
Opinion of Financial Advisor to Genzyme........................................ 27
Purpose and Structure of the Transaction....................................... 33
Plans for the Company After the Merger......................................... 33
Certain Effects of the Merger..................................................... 33
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
THE MERGER.......................................................................... 34
Background........................................................................ 34
Principal Terms................................................................... 34
Merger and Effective Time......................................................... 34
Conversion of Securities.......................................................... 36
Surrender of Certificates......................................................... 36
Indemnification and Insurance..................................................... 36
Designation of Directors.......................................................... 37
Representations and Warranties.................................................... 37
Condition of Merger............................................................... 38
Acquisition Proposals............................................................. 38
Conduct of Business............................................................... 39
Termination....................................................................... 39
Waiver and Amendment.............................................................. 39
Source and Amount of Funds........................................................ 40
Fees and Expenses................................................................. 40
Regulatory Matters................................................................ 41
Accounting Treatment.............................................................. 41
Neozyme II Shareholder Appraisal Rights........................................... 41
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................................. 42
NEOZYME II SHARE OWNERSHIP.......................................................... 45
CERTAIN INFORMATION CONCERNING THE COMPANY AND GENZYME.............................. 46
CERTAIN TRANSACTIONS................................................................ 47
INFORMATION CONCERNING AUDITORS..................................................... 48
DEADLINE FOR SHAREHOLDER PROPOSALS.................................................. 48
AVAILABLE INFORMATION............................................................... 48
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE..................................... 48
ACCOMPANYING NEOZYME II REPORTS..................................................... 49
MISCELLANEOUS....................................................................... 49
SCHEDULE I Members of the Boards of Directors and Executive Officers of Genzyme,
Acquisition Corp. and Merger Corp...................................... I-1
SCHEDULE II Members of the Board of Directors and Executive Officers of Neozyme
II..................................................................... II-1
EXHIBIT A -- Purchase Agreement (including the Plan of Merger set forth in Annex II
thereto).......................................................................... A-1
EXHIBIT B -- Opinion of Hambrecht & Quist LLC....................................... B-1
EXHIBIT C -- Section 83 of the BVI International Business Companies Ordinance,
1984.............................................................................. C-1
</TABLE>
<PAGE> 7
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Information Statement. Certain capitalized terms
used in this summary are defined elsewhere in this Information Statement. This
summary is not intended to be a complete statement of all material features of
the Merger and is qualified in its entirety by reference to the more detailed
information contained elsewhere in this Information Statement, the schedules and
exhibits hereto and the documents incorporated herein by reference. You are
urged to carefully read in their entirety this Information Statement, the
Purchase Agreement attached hereto as Exhibit A, including the copy of the Plan
of Merger included therein, and the other attached schedules and exhibits. The
schedules and exhibits to this Information Statement are incorporated herein by
reference. Cross-references in this summary are to captions in this Information
Statement.
THE PARTIES
GENZYME
Genzyme is a diversified human health care products company that operates
in six major business areas. Genzyme's business activities in the areas of
therapeutics, surgical products, diagnostic services, diagnostic products and
pharmaceuticals are organized as the Genzyme General Division. Genzyme's
activities to develop, produce and market technologically advanced products for
the treatment and prevention of serious tissue damage are conducted through the
Genzyme Tissue Repair Division. The name, business address, principal
occupation, five-year employment history and citizenship of each of the
directors and executive officers of Genzyme are set forth in Schedule I hereto.
Genzyme's executive offices are located at One Kendall Square, Cambridge,
Massachusetts 02139. Its telephone number is (617) 252-7500. See "CERTAIN
INFORMATION CONCERNING THE COMPANY AND GENZYME" for more information about
Genzyme.
ACQUISITION CORP. AND MERGER CORP.
Acquisition Corp., a wholly-owned subsidiary of Genzyme, was incorporated
in September 1996 for the purpose of effecting the Offer and the Merger. Merger
Corp., a wholly-owned subsidiary of Acquisition Corp., was incorporated in
October 1996 for the purpose of effecting the Merger. Neither Acquisition Corp.
nor Merger Corp. has any significant assets or liabilities (other than those
arising under the Purchase Agreement or otherwise in connection with the Offer
or the Merger) or engages in any activities other than those incident to its
respective formation and capitalization and the Offer and the Merger. No
meaningful financial information concerning Acquisition Corp. or Merger Corp. is
available. The name, business address, principal occupation, five-year
employment history and citizenship of the directors and executive officers of
Acquisition Corp. and Merger Corp. are set forth in Schedule I hereto. The
principal executive offices of both Acquisition Corp. and Merger Corp. are
located at Craigmuir Chambers, Road Town, Tortola, British Virgin Islands. The
telephone number for both Acquisition Corp. and Merger Corp. is (809) .
NEOZYME II
Neozyme II was formed in March 1992 to contract with Genzyme to conduct
research, development and clinical testing of biotherapeutic products for the
treatment of cystic fibrosis ("CF") by protein replacement or gene therapy.
Neozyme II's executive offices are located at the Todman Building, Main Street,
Road Town, Tortola, British Virgin Islands. Its telephone number is (809)
494-2065. The name, business address, principal occupation, five-year employment
history and citizenship of each of the directors and the executive officer of
the Company are set forth in Schedule II hereto. See "SPECIAL
FACTORS -- Establishment and History of Neozyme II," "-- Agreements and
Relationships Between Genzyme and Neozyme II" and "-- Other Relationships
Between Genzyme and Neozyme II" for more information about Neozyme II.
1
<PAGE> 8
SPECIAL FACTORS
AGREEMENTS AND RELATIONSHIPS BETWEEN THE COMPANY AND GENZYME
In connection with the formation of the Company, the Company and Genzyme
entered into several agreements, including a Technology License Agreement and a
Development Agreement. Genzyme also entered into a Purchase Option Agreement
with the underwriters of the Company's initial public offering. See "SPECIAL
FACTORS" for a description of these agreements and the other relationships
between the Company and Genzyme.
BACKGROUND OF THE TRANSACTION
The Company, Genzyme and Acquisition Corp. entered into a Purchase
Agreement dated as of September 20, 1996 providing for the acquisition of the
Company. See "SPECIAL FACTORS -- Background of the Transaction" for a
description of the negotiations of the parties leading up to the execution of
the Purchase Agreement.
NEOZYME II'S REASONS FOR THE TRANSATION
On September 20, 1996, the Company's Board of Directors determined, based
upon, among other things, the unanimous recommendation of a committee consisting
of the Company's directors who are neither officers nor directors of Genzyme
(the "Special Committee"), that the Offer and Merger are fair to, and in the
best interests of, the Company's shareholders, and approved the Offer and the
Merger. In making its recommendation to the Board of Directors, the Special
Committee considered, among other things: (i) the financial condition of the
Company, including the fact that the Company's current cash is expected to be
substantially exhausted by December 31, 1996 and the uncertain prospects of
raising new capital in light of the current financing market for biotechnology
companies; (ii) the status of the Company's technology programs; (iii) the
prospects of the Company, including the fact that the Company's gene therapy
programs are unlikely to yield commercially viable products within the CF field
for at least several years; (iv) the fact that the market value of the Units was
significantly lower than the Purchase Option Exercise Price; (v) the valuation
analysis presented to the Special Committee by Hambrecht & Quist LLC ("Hambrecht
& Quist"); (vi) the Hambrecht & Quist opinion discussed below; (vii) the
judgement of the Special Committee that $45 per Unit was the highest price
reasonably available to the Company's shareholders; and (viii) the terms of the
Purchase Agreement, including the right of the Special Committee to terminate
the Purchase Agreement in order to proceed with a Superior Transaction (as
defined therein). The Special Committee also considered the following negative
factors relating to the Offer and the Merger: (i) a number of the Company's
shareholders contacted Hambrecht & Quist and the Special Committee and indicated
that they believed that Genzyme should pay more than $45 per Unit; and (ii) the
upside potential if the Company's technology programs, which are well regarded
in scientific circles, are ultimately successful in discovering one or more
products useful in the treatment of CF. The members of the Special Committee
evaluated the above factors in light of their knowledge of the business of the
Company and their business judgment and concluded that the factors supporting a
decision to approve the Purchase Agreement outweighed the negative factors. See
"SPECIAL FACTORS -- Recommendation of the Company's Board of Directors; Fairness
of the Transaction."
Hambrecht & Quist acted as financial advisor to the Special Committee and
delivered to the Special Committee and the Company's Board of Directors its
written opinion dated September 20, 1996 that, on the basis of and subject to
the matters set forth therein, the cash consideration to be received by the
shareholders of the Company in exchange for Units pursuant to the Offer and in
exchange for shares of Callable Common Stock in the Merger is fair to such
shareholders from a financial point of view (the "H&Q Opinion"). A copy of the
H&Q Opinion is attached to this Information Statement as Exhibit B. SHAREHOLDERS
ARE URGED TO READ THE H&Q OPINION CAREFULLY AND IN ITS ENTIRETY. See "SPECIAL
FACTORS -- Recommendation of the Company's Board of Directors; Fairness of the
Transaction -- Opinion of Financial Advisor to the Special Committee" and
Exhibit B hereto.
2
<PAGE> 9
GENZYME'S REASONS FOR THE MERGER
The Board of Directors of Genzyme reviewed information about Neozyme II and
the status of Neozyme II's product development programs and assessed the current
value of Neozyme II in comparison with the exercise price of the Purchase Option
(See "SPECIAL FACTORS -- Agreements and Relationships Between Genzyme and
Neozyme II -- Purchase Option Agreement"). After considering this information,
the Genzyme Board of Directors concluded that the following factors, among
others, favored the acquisition of the Company: (i) the combined terms of the
Offer and the Merger allow Genzyme to acquire Neozyme II at a price that
appropriately reflects the current value of Neozyme II at its current stage of
development; (ii) the acquisition of Neozyme II allows Genzyme to maintain its
commitment to the CF community while preserving the continuity of its CF efforts
and the competitive advantage of the CF Program, which Genzyme believes is the
most comprehensive program in the field; and (iii) as a result of the
acquisition, Genzyme will become a more attractive partner for potential
collaborators because, with the addition of the Company's CF program, Genzyme
would be able to offer a more comprehensive and advanced set of gene therapy
programs. See "SPECIAL FACTORS -- Reasons for the Transaction; Purpose and
Structure of the Transaction; Plans for the Company After the Merger."
PURPOSE OF THE TRANSACTION
The purpose of the Offer and the Merger is to enable Genzyme, through its
wholly-owned subsidiary, to acquire the entire equity interest in the Company.
See "SPECIAL FACTORS -- Reasons for the Transaction; Purpose and Structure of
the Transaction; Plans for the Company After the Merger -- Purpose and Structure
of the Transaction."
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, Genzyme will own the entire equity interest in
the Company and will thereby be entitled to 100% of the Company's net assets and
earnings and the current shareholders of the Company (other than Acquisition
Corp.) will no longer have an equity interest in the Company. As a result of the
Offer, the Units no longer meet the quantitative requirements of the National
Association of Securities Dealers, Inc. (the "NASD") for continued inclusion in
the Nasdaq National Market (the "NNM"). The Callable Warrants included in Units
that were not purchased by Acquisition Corp. will become exercisable at an
exercise price that will be calculated as the 20-day trailing average of the sum
of the price per share of Genzyme General Division Common Stock multiplied by
two and the price per share of Genzyme Tissue Repair Division Common Stock
multiplied by 0.135. Following the Merger, Genzyme does not intend to list the
outstanding Callable Warrants on the NNM, and therefore, any market that may
develop for the Callable Warrants may be adversely affected. See "SPECIAL
FACTORS -- Certain Effects of the Merger."
THE MERGER
MERGER
This Information Statement relates to the merger of Merger Corp., a
wholly-owned subsidiary of Acquisition Corp., with and into Neozyme II (the
"Merger"). In the Merger, the outstanding shares of Callable Common Stock will
be cancelled and converted into the right to receive cash as described below.
Upon consummation of the Merger, Neozyme II will be the surviving corporation
(the "Surviving Corporation") and will conduct its business as an indirect
wholly-owned subsidiary of Genzyme by virtue of Genzyme's ownership of
Acquisition Corp.
The Merger is expected to become effective on or about December , 1996
(the "Effective Time") or such later time and date as Articles of Merger are
duly filed with the BVI Registrar of Companies. See "THE MERGER -- Principal
Terms" and "-- Merger and Effective Time."
3
<PAGE> 10
APPROVAL OF THE MERGER BY WRITTEN CONSENT IN LIEU OF A MEETING
The record date for determining the holders of record entitled to notice of
the Merger is , 1996 (the "Record Date"). On the Record Date,
Acquisition Corp. owned or approximately %, of the outstanding shares
of Callable Common Stock as a result of the Offer. On , 1996,
Acquisition Corp., as the holder of more than a majority of the outstanding
shares of Callable Common Stock, executed a written consent approving the
Merger. Under the BVI Law and the Company's Memorandum of Association and
Articles of Association, no meeting of shareholders of the Company is necessary
to effect the Merger, and no action on the part of any other shareholder is
necessary to authorize or to consummate the Merger. Under applicable federal
securities laws, the Merger cannot be effected until at least 20 business days
after this Information Statement has been sent or given to shareholders. It is
expected that the Merger will be consummated on or about , 1996,
assuming that the conditions to the Merger set forth in the Purchase Agreement
have been satisfied. WE ARE NOT ASKING YOU FOR A PROXY OR CONSENT AND YOU ARE
REQUESTED NOT TO SEND US A PROXY OR CONSENT.
APPRAISAL RIGHTS
Under the BVI Law, Neozyme II shareholders who properly deliver written
notice of their dissent to the Merger may demand to have the "fair value" of
their shares (as determined in accordance with the BVI Law) paid to them if the
Merger is consummated and if they comply with the provisions of Section 83 of
the BVI Law, a copy of which is attached hereto as Exhibit C. Any deviation from
such requirements may result in the loss of statutory dissenters' rights. See
"THE MERGER -- Neozyme II Shareholder Appraisal Rights" and Exhibit C hereto.
MERGER CONSIDERATION
As a result of the Merger, at the Effective Time each outstanding share of
Callable Common Stock (other than shares held by Genzyme, Neozyme II,
Acquisition Corp. or Merger Corp. or their subsidiaries, and shares of holders
who perfect dissenters' rights under the BVI Law) will be converted into the
right to receive a cash payment in the amount of $29.00 per share. Any Callable
Warrant not included in the Units purchased by Acquisition Corp. pursuant to the
Offer will become exercisable and, beginning on the effective date of the
Merger, will be transferable separately from the right to receive cash for the
shares of Callable Common Stock formerly associated therewith. Since the
Callable Warrants will remain outstanding after the Merger, no consideration
will be paid for the Callable Warrants in the Merger. See "THE MERGER --
Principal Terms," "-- Conversion of Securities" and "-- Surrender of
Certificates."
SURRENDER OF CERTIFICATES
On or prior to the Effective Time, Genzyme will deposit with American Stock
Transfer & Trust Company, who has been designated to act as payment agent for
the Merger (the "Payment Agent"), in trust for the benefit of the holders of
shares of Callable Common Stock being converted in the Merger, an amount equal
to the aggregate Merger Consideration, which will be made available for payment
to the holders of Callable Common Stock upon surrender of their Neozyme II share
certificates.
Holders of Callable Common Stock should not send any Neozyme II share
certificates at the present time. Instead, holders should send such certificates
in accordance with the instructions for surrendering such certificates contained
in a letter of transmittal, which letter will be mailed to such holders after
the Effective Time. See "THE MERGER -- Surrender of Certificates."
COVENANTS
Genzyme, Neozyme II and Acquisition Corp. have made certain covenants and
agreements with each other in the Purchase Agreement relating to, among other
things, (i) indemnification of officers and directors of the Company and
maintenance of directors' and officers' liability insurance policies, (ii) the
designation by Acquisition Corp. of a certain number of the Company's Class A
directors, (iii) the conduct of Neozyme II's business, (iv) confidentiality and
public announcements and (v) certain obligations of Genzyme with respect to the
Merger Consideration. Neozyme II has also agreed that it will not solicit offers
from third parties
4
<PAGE> 11
regarding a potential acquisition of Neozyme II, and will notify Genzyme of any
such written offer received by Neozyme II. See "THE MERGER -- Indemnification
and Insurance," "-- Designation of Directors," "-- Acquisition Proposals" and
"-- Conduct of Business."
CONDITION OF MERGER; TERMINATION
The respective obligations of Neozyme II and Genzyme to consummate the
Merger are subject to the condition that no preliminary or permanent injunction
or other order, decree or ruling issued by a court of competent jurisdiction or
by a governmental, regulatory or administrative agency or commission nor any
statute, rule, regulation or executive order promulgated or enacted by any
governmental authority shall be in effect, which would make the acquisition by
Genzyme or Acquisition Corp. of the Callable Common Stock illegal or otherwise
prevent the consummation of the Merger. See "THE MERGER -- Condition of Merger."
The Purchase Agreement may be terminated by the parties (i) by mutual
written consent or (ii) in the event that the effective date of the Merger does
not occur on or before the six-month anniversary of the Purchase Agreement due
to the failure of the condition described in the preceding paragraph. In the
event that the Purchase Agreement is terminated by Genzyme or Acquisition Corp.
pursuant to clause (ii) in the preceding sentence based upon the failure of the
Company to perform in any material respects its covenants and agreements under
the Purchase Agreement, Neozyme II will be obligated to pay Genzyme $500,000
(the "Termination Fee") upon consummation of a Superior Transaction (as defined
therein). See "THE MERGER -- Termination."
REGULATORY MATTERS
Other than the filing of the Articles of Merger with the BVI Registrar of
Companies, the Company is not aware of any material governmental filings or
approvals required to effect the Merger. See "THE MERGER -- Regulatory Matters."
ACCOUNTING TREATMENT
Genzyme will account for the Offer and the Merger using the purchase method
of accounting. See "THE MERGER -- Accounting Treatment."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Merger will be treated as a taxable
purchase of the Callable Common Stock by Genzyme. Accordingly, in general, each
holder of shares of Callable Common Stock will recognize gain or loss in an
amount equal to the difference between the Merger Consideration for such
holder's shares and the holder's basis in the shares of Callable Common Stock
converted in the Merger. A shareholder should not recognize income, gain or loss
as a result of the acceleration in the exercisability of the Callable Warrants
or their separation from the shares of Callable Common Stock.
Neozyme II shareholders are urged to consult their own tax advisors to
determine the effect of the Merger on them under federal, state, local and
foreign laws and to read the discussion of the federal income tax consequences
of the Merger under "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
5
<PAGE> 12
NEOZYME II CORPORATION
SELECTED FINANCIAL DATA
(HISTORICAL)
The following table sets forth selected historical financial statement data
of Neozyme II. The statement of operations data presented below cumulative from
March 2, 1992 (date of inception) to December 31, 1992 and for each of the years
in the three-year period ended December 31, 1995 are derived from Neozyme II's
financial statements which have been audited by Coopers & Lybrand, L.L.P.,
independent accountants. The financial statements as of December 31, 1994 and
1995 and for each of the years in the three-year period ended December 31, 1995
are included in Neozyme II's Annual Report on Form 10-K which is incorporated by
reference into this Information Statement and the selected financial data
presented below are qualified in their entirety by reference thereto. The
balance sheet data as of June 30, 1996 and the statement of operations data for
the six-month periods ended June 30, 1995 and 1996 and cumulative from March 2,
1992 (date of inception) to June 30, 1996 are derived from Neozyme II's
unaudited financial statements which are included in the Company's Quarterly
Report on Form 10-Q for the quarter ending June 30, 1996 which is incorporated
herein by reference. The operating results for the six months ended June 30,
1996 are not necessarily indicative of the results that may be expected for the
entire fiscal year. The data should be read in conjunction with the historical
financial statements and notes thereto, and related Management's Discussion and
Analysis of Financial Condition and Results of Operations of Neozyme II
incorporated by reference in this Information Statement. See "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE." Amounts in thousands, except for per share
amounts.
<TABLE>
<CAPTION>
CUMULATIVE CUMULATIVE
FROM FROM
MARCH 2, 1992 MARCH 2, 1992
(DATE OF SIX MONTHS ENDED (DATE OF
INCEPTION) TO YEAR ENDED DECEMBER 31, JUNE 30, INCEPTION) TO
DECEMBER 31, --------------------------------- --------------------- JUNE 30,
1992 1993 1994 1995 1995 1996 1996
------------- ------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Investment income........ $ 2,576 $ 5,567 $ 2,522 $ 1,497 $ 820 $ 453 $ 12,615
Operating costs and
expenses:
Selling, general, and
administrative
expenses............... 318 324 227 327 158 162 1,358
Research and development
expenses............... 5,183 12,483 17,785 24,128 11,652 10,596 70,175
Other(1)................. 5,000 -- -- -- -- -- 5,000
------- ------- -------- -------- -------- -------- --------
10,501 12,807 18,012 24,455 11,810 10,758 76,533
------- ------- -------- -------- -------- -------- --------
Net loss................... $(7,925) $(7,240) $(15,490) $(22,958) $(10,990) $(10,305) $ (63,918)
======= ======= ======== ======== ======== ======== ========
Common Share Data:
Per common share......... $ (4.17) $ (3.00) $ (6.41) $ (9.51) $ (4.55) $ (4.27) $ (27.59)
======= ======= ======== ======== ======== ======== ========
Average shares
outstanding............ 1,901 2,415 2,415 2,415 2,415 2,415 2,317
======= ======= ======== ======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30,
1996
--------
<S> <C>
Balance Sheet Data:
Cash and investment(2)..................................................................... $ 13,814
Working capital............................................................................ 14,183
Total assets............................................................................... 14,341
Note payable to Genzyme Corporation........................................................ 100
Stockholders' equity....................................................................... 14,083
Book value per Neozyme II callable common share ($10.10 at December 31, 1995).............. $ 5.83
</TABLE>
6
<PAGE> 13
- ---------------
(1) In May 1992, Neozyme II paid a technology license fee of $5,000,000 to
Genzyme in consideration for Genzyme entering into the Technology License
Agreement and in recognition of Genzyme's expertise and expenditures in
developing technology licensed to Neozyme II.
(2) Cash and investments includes cash, cash equivalents, and short-term
investments.
(3) In May 1992, Neozyme II issued a note in the principal amount of $100,000 to
Genzyme (the "Series 1992 Note") which is due on the day following the
termination of the Purchase Option Agreement with Genzyme and may not be
prepaid.
(4) The ratio of earnings to fixed charges is not presented for Neozyme II due
to the absence of fixed charges.
7
<PAGE> 14
PRICE RANGE OF UNITS; DIVIDENDS
The Units are traded in the over-the-counter market and are included on the
NNM under the symbol "NIIUF". The following table sets forth the high and low
sales prices per Unit on the NNM, as reported in publicly available sources for
each of the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
Year Ended December 31, 1994:
First Quarter............................................................ 37 1/2 31 1/2
Second Quarter........................................................... 37 1/4 33 1/2
Third Quarter............................................................ 34 1/2 32
Fourth Quarter........................................................... 34 1/2 25 1/2
Year Ended December 31, 1995:
First Quarter............................................................ 38 3/4 28 1/2
Second Quarter........................................................... 39 3/4 37 7/8
Third Quarter............................................................ 43 1/2 38 3/4
Fourth Quarter........................................................... 47 3/4 41 1/2
Year Ending December 31, 1996:
First Quarter............................................................ 53 38 1/8
Second Quarter........................................................... 52 3/4 41
Third Quarter............................................................ 45 1/2 43
Fourth Quarter (through October 4, 1996)................................. 45 1/4 44 1/2
</TABLE>
As of the Record Date, there were holders of record of the Units and
in excess of beneficial owners of Units.
On September 5, 1996, the last full trading day prior to Genzyme's issuance
of a press release announcing that it had reached an agreement in principle for
the acquisition of the Company at a price of $45.00 per Unit net to the seller
in cash, the closing sale price per Unit as reported on the NNM was $44 1/16. On
September 19, 1996, the last full trading day prior to the public announcement
of the execution of the Purchase Agreement and of Acquisition Corp.'s intention
to commence the Offer, the closing sale price per Unit as reported on the NNM
was $44 1/2. On September 26, 1996, the last full trading day prior to the
commencement of the Offer, the closing sale price per Unit as reported on the
NNM was $44 1/2. The closing price per Unit as reported in the NNM on the Record
Date was $ .
HOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR THE UNITS.
The Company has never declared or paid any cash dividends in respect of the
Callable Common Stock, and is prohibited by the terms of its Amended and
Restated Memorandum of Association ("Memorandum of Association") from doing so
without the consent of Genzyme.
8
<PAGE> 15
SPECIAL FACTORS
ESTABLISHMENT AND HISTORY OF NEOZYME II
The Company was formed in March 1992 to contract with Genzyme to conduct
research, development and clinical testing of biotherapeutic products
("Products") for the treatment of cystic fibrosis ("CF") by protein replacement
or gene therapy (the "Field"). In August 1993, the Field was expanded to include
the products involved in Genzyme's collaboration with North American
Biologicals, Inc. ("NABI"). As used herein, the term "Field" refers to the Field
as so expanded. The lead product of the NABI collaboration, known as
HyperGAM(TM)+CF, was an antibody-based product for the prevention and treatment
of bacterial infections in CF patients. Development of all products in the NABI
collaboration was discontinued in June 1996 following an interim analysis of
data from a Phase II clinical trial of HyperGAM(TM)+CF. See "SPECIAL
FACTORS -- Reasons for the Transaction; Purpose and Structure of the
Transaction; Plans for the Company After the Merger."
In May 1992, the Company and Genzyme completed a public offering (the "Unit
Offering") of 2,415,000 units (the "Offered Units"), each Offered Unit
consisting of one Share, one Series N Warrant to purchase, prior to the
adjustment described in the next paragraph, one share of common stock, par value
$.01 per share, of Genzyme ("Genzyme Common Stock") and one Callable Warrant to
purchase, prior to the adjustment described in the next paragraph, one share of
Genzyme Common Stock, at a price to the public of $35.00 per Offered Unit. The
Company received all of the approximately $78 million in net proceeds from the
Unit Offering. In connection with the Unit Offering, the Company issued its
Series 1992 Note to Genzyme and entered into a Technology License Agreement,
Development Agreement, Purchase Option Agreement, Services Agreement and
Administrative Agreement with Genzyme. The terms of the Series 1992 Note and
such agreements are summarized below under "SPECIAL FACTORS -- Agreements and
Relationships Between Genzyme and Neozyme II."
The Series N Warrants began trading separately from the Offered Units on
August 4, 1992, resulting in the Offered Units becoming the Units, consisting of
the Callable Common Stock and the Callable Warrants. As a result of a subsequent
recapitalization and stock split by Genzyme, each Callable Warrant now
represents the right to purchase two shares of Genzyme General Division Common
Stock and 0.135 share of Genzyme Tissue Repair Division Common Stock.
AGREEMENTS AND RELATIONSHIPS BETWEEN GENZYME AND NEOZYME II
TECHNOLOGY LICENSE AGREEMENT
Under the Technology License Agreement, Genzyme granted to Neozyme II a
worldwide exclusive right and license to manufacture and sell Products within
the Field based on all patent and other intellectual property rights owned,
controlled or acquired by Genzyme during the term of the Development Agreement
and as to which Genzyme has the right to grant sublicenses.
Neozyme II paid Genzyme $5 million in consideration for Genzyme entering
into the Technology License Agreement and in recognition of Genzyme's expertise
and expenditures in developing the technology licensed to Neozyme II. Genzyme
agreed to use commercially reasonable efforts to secure such technology rights
as it deems reasonably necessary to conduct the research to be performed for
Neozyme II under the Development Agreement. Neozyme II is obligated to assume,
subject to its prior consent, any royalty or other obligations to third parties
undertaken by Genzyme in the primary license. The license is otherwise royalty
free.
Also pursuant to the Technology License Agreement, Neozyme II granted to
Genzyme a royalty-free, fully paid, irrevocable, perpetual, worldwide, exclusive
right and license to engage in any and all uses of Improvements, except for
those that are within the Field. "Improvements" consist of technology
discovered, developed or otherwise acquired in the course of research conducted
by Genzyme for Neozyme II under the Development Agreement. Neozyme II has agreed
that it will not, without first obtaining the consent of Genzyme, sublicense,
disclose or otherwise transfer any rights in the technology licensed to it by
Genzyme, or in Improvements, to any third party before the expiration or
termination of the Purchase Option Agreement.
9
<PAGE> 16
Either party may terminate the Technology License Agreement under certain
circumstances including breach by the other party of the Technology License
Agreement or the Development Agreement that continues unremedied for 60 days. If
the Technology License Agreement is terminated, the parties are obligated to
negotiate commercially reasonable royalties or other compensation for certain
rights, depending on which party terminated the agreement.
DEVELOPMENT AGREEMENT
Under the Development Agreement, Neozyme II has engaged Genzyme to perform
all of its research, development and clinical testing activities relating to the
Products through December 31, 1996 unless terminated earlier. Genzyme agreed to
use commercially reasonable efforts to conduct these activities pursuant to
certain work plans and budgets prepared by Genzyme and approved by Neozyme II.
Neozyme II is obligated to reimburse Genzyme for all costs associated with
Genzyme's work under the Development Agreement up to an amount consisting of
substantially all of the net proceeds from the Unit Offering plus interest
accrued thereon, less the $5 million payment to Genzyme under the Technology
License Agreement, less funds for use by Neozyme II for general and
administrative expenses and less $1 million to be retained by Neozyme II for
working capital (in the aggregate, the "Available Funds"). Genzyme may engage
other parties to assist in the work performed for Neozyme II under the
Development Agreement, provided that amounts paid to non-affiliates of Genzyme
may not exceed $15 million unless otherwise approved by Neozyme II. As of August
31, 1996, Neozyme II had paid approximately $74.5 million to Genzyme under the
Development Agreement. Based upon the work plan and budget approved for 1996 by
the Neozyme II Board of Directors, Neozyme expects the Available Funds to be
substantially exhausted by December 31, 1996.
The Development Agreement may be terminated by either party under certain
circumstances including breach by the other party of the Technology License
Agreement or the Development Agreement that continues unremedied for 60 days.
The Development Agreement also provides that it will terminate 90 days after the
Available Funds become exhausted unless Genzyme elects to continue commercially
reasonable efforts to continue research and development of the Products at its
expense. Genzyme is under no obligation to continue such research and
development. Genzyme may assign its rights and delegate its obligations only to
an affiliate of Genzyme, certain successors of Genzyme or certain parties that
acquire substantially all of the assets of Genzyme under certain circumstances.
Neozyme II may not assign its rights or delegate its obligations under the
Development Agreement.
PURCHASE OPTION AGREEMENT
The Shares are subject to a purchase option agreement (the "Purchase Option
Agreement") pursuant to which Genzyme may purchase all (but not less than all)
of the shares from the holders thereof at any time through December 31, 1996,
unless exercisability is accelerated upon exhaustion of the Available Funds.
The Purchase Option is exercisable until December 31, 1996, at an exercise
price (the "Purchase Option Exercise Price") per share that increases each month
through December 31, 1996 to a maximum of $117.00 per share. The Purchase Option
Exercise Price may be paid in cash, in shares of Genzyme stock, or in any
combination thereof, at Genzyme's discretion. As of the date of this Information
Statement, the Purchase Option Exercise Price per share was $ .
Termination of the Development Agreement or the Technology License
Agreement due to a material breach by one of the parties will cause the Purchase
Option to terminate 60 days thereafter in the case of a breach by Genzyme or 120
days thereafter in the case of a breach by Neozyme II.
SERIES 1992 NOTE
In 1992, Neozyme II issued a note in the principal amount of $100,000 to
Genzyme (the "Series 1992 Note"). The Series 1992 Note is due on the day
following the termination of the Purchase Option Agreement and may not be
prepaid. Pursuant to Neozyme II's Memorandum of Association and Amended and
Restated Articles of Association ("Articles of Association"), Neozyme II and its
shareholders are prohibited from taking any action or permitting any action to
be taken that is inconsistent with Genzyme's rights under the
10
<PAGE> 17
Purchase Option Agreement. In addition, pursuant to the Company's Memorandum of
Association, while the Series 1992 Note is outstanding, Neozyme II may not issue
additional capital stock, borrow more than $1 million in the aggregate, declare
or pay dividends utilizing funds committed to be paid to Genzyme under the
Development Agreement, merge, liquidate or sell all or substantially all of its
assets without the approval of Genzyme.
SERVICES AND ADMINISTRATIVE AGREEMENTS
Pursuant to these agreements, a subsidiary of Genzyme (Genzyme Limited)
provides certain financial, legal and administrative services to Neozyme II on a
cost reimbursement basis, and Neozyme II is required to provide a list of record
holders of the Callable Common Stock to Genzyme upon Genzyme's exercise of the
Purchase Option.
OTHER RELATIONSHIPS BETWEEN GENZYME AND NEOZYME II
Since the Company's inception, the sole executive officer of the Company
has been an employee of Genzyme. From March 1992 until January 1996, G. Jan van
Heek, a Senior Vice President of Genzyme, served as the Company's President and
Treasurer. In January 1996, Mr. van Heek resigned as President and Treasurer of
the Company, and Paul M. Edwards was appointed to these positions. Mr. Edwards
also serves as Vice President and General Manager -- UK Operations for Genzyme,
a position he has held since April 1993. Henri A. Termeer, the Chairman of the
Board of the Company, is the Chairman, President and Chief Executive Officer of
Genzyme. In addition, Mr. Termeer is a trustee of Hambrecht & Quist Healthcare
Investors and Hambrecht & Quist Life Sciences Investors. Hambrecht & Quist has
acted as the Special Committee's financial advisor in connection with the
offering. Gregory D. Phelps, a director of the Company, is an Executive Vice
President of Genzyme. Robert J. Carpenter, a director of the Company, also
serves as a director of Genzyme.
The Company does not have and has never had its own research and
development employees or facilities and, therefore, it is heavily dependent upon
the employees, facilities and other resources of Genzyme. Genzyme and the
Company have also engaged the same independent auditors and outside legal
counsel since the Company's inception. Any material adverse change in the
business or financial condition of Genzyme could have a material adverse effect
upon the Company.
As of the Record Date, Acquisition Corp. owned shares of Callable
Common Stock. In addition, Genzyme is deemed to beneficially own all of the
outstanding shares of Callable Common Stock as a result of its option under the
Purchase Option Agreement.
BACKGROUND OF THE TRANSACTION
Beginning in the spring of 1996, Genzyme began to consider potential
alternatives to its existing contractual relationship with the Company. In
connection with these internal discussions, the members of Genzyme's management
responsible for overseeing the research program in CF (the "CF Program")
undertook an overall assessment of the CF Program, including the various
approaches to the treatment of CF which have been explored, the then-current
status of each such approach, the scientific questions that remained to be
addressed before an effective treatment for CF could be achieved, Genzyme's
knowledge of competitive CF programs, the Company's intellectual property
portfolio and the status of the HyperGAM(TM)+CF clinical trial then being
conducted by NABI, including the significance of the interim analysis for the
trial expected to be received in June 1996. A management report summarizing this
overall CF Program assessment was presented to the Genzyme Board of Directors at
its annual meeting held on May 16, 1996, along with a preliminary analysis of
Genzyme's alternatives to the existing relationship with the Company. No actions
in respect of a transaction with the Company were authorized at the meeting.
Following the May 16, 1996 meeting, Genzyme continued to explore internally
alternative transactions that could be effected with the Company. On June 13,
1996, David J. McLachlan, Chief Financial Officer of Genzyme, contacted Kennett
F. Burnes, a director of the Company who is neither an officer nor a director of
Genzyme. Mr. McLachlan advised Mr. Burnes that, with just over six months
remaining under the terms of
11
<PAGE> 18
the various agreements between Genzyme and the Company, Genzyme was considering
alternatives to its existing relationship with the Company and that, among the
alternatives under discussion, Genzyme was considering the possibility of making
an acquisition proposal on terms different from the Purchase Option or making a
proposal to continue funding the CF Program. Mr. McLachlan further advised that,
while the Genzyme Board of Directors had not approved any proposal concerning
the Company, Genzyme expected to have authorization from the Genzyme Board to
make a proposal to the Company's Board of Directors at the next regularly
scheduled meeting of the Company's Board to be held on July 23, 1996. Mr.
McLachlan then suggested that it would be appropriate for the Company's Board of
Directors to consider engaging independent advisors in connection with any
possible transaction that might occur with Genzyme.
In response to Mr. McLachlan's call, Mr. Burnes contacted the investment
banking firm of Hambrecht & Quist and the law firm of Hale and Dorr to discuss
the possible engagement of these firms to advise the Company's Board of
Directors in any transaction with Genzyme.
On June 20, 1996, NABI and Genzyme received the results of an interim
analysis for the clinical trial being conducted for HyperGAM(TM)+ CF from an
independent statistician. Although no major issues with the safety of the
product were identified, the data also showed no difference in efficacy between
those patients in the trial receiving placebo and those receiving either a high
or low dose of HyperGAM(TM)+ CF. On June 21, 1996, a special meeting of the
Company's Board of Directors was convened and a summary of the interim analysis
for the HyperGAM(TM)+ CF trial was presented to the Board. Following the
presentation, the Company's Board of Directors voted unanimously to terminate
the agreement with NABI and, later that day, the Company and NABI announced the
discontinuation of the trial. There were no discussions regarding the
relationship between Genzyme and the Company at this meeting of the Company's
Board of Directors.
In light of the discontinuation of the HyperGAM(TM)+ CF trial, Genzyme
re-evaluated the alternatives under consideration with respect to the Company.
In connection with these efforts, in July 1996, Genzyme engaged Robertson,
Stephens & Company LLC ("Robertson, Stephens & Company") to provide financial
advisory services to Genzyme in connection with a possible acquisition of the
Company. In connection with its engagement, Robertson, Stephens & Company
conducted a due diligence review of the Company.
On July 18, 1996, at a regularly scheduled meeting of the Genzyme Board of
Directors, Genzyme management presented an analysis of Genzyme's options
regarding the Company, and recommended that Genzyme make an offer to acquire the
outstanding Units. Representatives of Robertson, Stephens & Company then made a
preliminary presentation to the Genzyme Board of Directors. Following the
presentations, the Genzyme Board of Directors voted to authorize management to
initiate discussions regarding the acquisition of the Company with the
independent directors of the Company and, if and when management determined that
an offer would be in the best interest of Genzyme, to make an offer to acquire
the outstanding Units at a price of up to $40 per Unit in cash.
After such meeting, Mr. McLachlan called Mr. Burnes to advise him that
Genzyme was considering the possibility of presenting an acquisition proposal to
the Company's Board of Directors at the meeting scheduled for July 23, 1996.
Following this call, on July 22, 1996 at the request of Mr. Burnes, Dennis J.
Purcell, a Managing Director of Hambrecht & Quist, called Peter Wirth, Genzyme's
General Counsel, to discuss the agenda for the upcoming meeting of the Company's
Board of Directors. Mr. Wirth indicated that, as originally scheduled, the
purpose of the meeting was to provide the Company's Board of Directors with an
update as to the current status of the CF Program and that, as Mr. McLachlan had
related to Mr. Burnes, Genzyme was also considering the possibility of
presenting an acquisition proposal to the Company's Board. In response, Mr.
Purcell suggested that while it was important for Genzyme to provide the
Company's Board of Directors with an update as to the current status of the CF
Program, significant additional due diligence would be required before the
Company's Board would be in a position to respond to any acquisition proposal
Genzyme might make. In response to Mr. Purcell's comments, it was agreed that
the topics of discussion for the next day's meeting would be directed primarily
towards the CF Program update and the process that might be followed in
considering an acquisition proposal from Genzyme once the Company was prepared
to respond to such a proposal.
12
<PAGE> 19
On July 23, 1996, a meeting of the Company's Board of Directors was
convened. In addition to the members of the Board, representatives of Genzyme's
management and Mr. Purcell were present. At the meeting, an update of the report
summarizing the overall CF Program assessment previously presented to the
Genzyme Board of Directors was presented to the Company's Board of Directors.
Following the report, Mr. Wirth advised the Company's Board of Directors that,
in view of the current status of the CF Program, Genzyme did not expect to
exercise the Purchase Option and that, in lieu of the Purchase Option, Genzyme's
management was considering the possibility of making an acquisition proposal
with respect to the Company. Mr. Wirth then described in general terms the
process that might be followed by the Company's Board of Directors in
considering an acquisition proposal from Genzyme and suggested that the
Company's Board appoint a special committee of directors to consider any such
proposal that Genzyme might determine to make.
In response to Mr. Wirth's comments, the Company's Board of Directors
appointed the Special Committee consisting of Mr. Burnes and Robert E. Flynn,
the two directors of the Company who are not officers or directors of Genzyme,
to consider any acquisition proposal which might be made by Genzyme. The members
of the Special Committee and Mr. Purcell then requested that management provide
a list of experts in the CF field who might be retained to perform an
independent technical evaluation of the CF Program. It was further requested
that management make available members of the CF Program staff for purposes of
conducting due diligence. On July 25, 1996, Hambrecht & Quist selected Melissa
Rosenfeld, M.D., a leading scientist in the CF field, as its technical
consultant.
On August 2, 1996, representatives of Hambrecht & Quist and Hale and Dorr
and Dr. Rosenfeld met with representatives of management to conduct a due
diligence review of the Company and the CF Program.
Following such due diligence session, Hambrecht & Quist had discussions
with Robertson Stephens & Company and Hale and Dorr had discussions with Palmer
& Dodge, Genzyme's outside law firm, concerning the timing and process of the
due diligence review and a response to any acquisition proposal Genzyme might
make. Mr. Burnes and Mr. McLachlan also discussed the status of the Special
Committee's efforts by telephone.
On August 7, 1996, a meeting of the Special Committee was held to review
the status of due diligence efforts and discussions with Genzyme regarding a
potential acquisition proposal. Representatives of Hambrecht & Quist and Hale
and Dorr participated in the meeting. The Special Committee approved and
ratified the engagement of Hambrecht & Quist as financial advisor, Hale and Dorr
as legal counsel and Dr. Rosenfeld as technical consultant.
On August 8, 1996, a conference call between representatives of Genzyme,
representatives of Hambrecht & Quist and Mr. Burnes was held. During the call,
Mr. Wirth stated that Genzyme's management was considering making a proposal to
acquire all of the outstanding Units for cash at a price per Unit equal to a
discount of 10% to 15% from the then-current market price of the Units. Messrs.
Wirth and McLachlan explained further that Genzyme believed a below-market price
was justified in view of the current status of the CF Program, including the
failure of HyperGAM[Trademark]+CF, the largely inactive status of the protein
replacement program and the uncertainty surrounding gene therapy. In response to
questions from representatives of Hambrecht & Quist regarding alternatives to a
cash transaction, Mr. McLachlan advised that Genzyme had rejected the use of
Genzyme stock, warrants or contingent value rights due to concerns over dilution
and because it believed that the use of contingent rights would make the
transaction more difficult for investors to value. In response to the comments
from Messrs. Wirth and McLachlan, Messrs. Purcell and Burnes stated that the
Special Committee would be unlikely to accept any offer at a price below market,
but noted that Hambrecht & Quist had not yet concluded its analyses and,
therefore, it was premature to commence negotiations regarding an acquisition
price.
Over the next weeks, Hambrecht & Quist and Hale and Dorr continued to
conduct additional due diligence with respect to the Company. In particular,
Hambrecht & Quist requested, received and reviewed documents from Genzyme
relating to the Company, including general corporate materials, financial and
accounting information, financial projections, license agreements and
collaborations with third parties, copies of reports made to the Board of
Directors concerning progress of the Company's research and development
13
<PAGE> 20
programs and analysts' reports on the Company, its competitors and CF in
general. In addition, representatives of Hambrecht & Quist began to make
informal inquiries as to the possible interest of potential third party
purchasers of the Company. Hale and Dorr reviewed the existing agreements
between the Company and Genzyme as well as the Company's patent position. Dr.
Rosenfeld also continued to conduct additional due diligence with respect to the
Company and the CF Program and provided an assessment of the CF Program to
Hambrecht & Quist.
At a meeting of the Special Committee held on August 22, 1996, Hambrecht &
Quist reported on the status of its due diligence review, indicating that, with
the assistance of Dr. Rosenfeld, progress had been made on assessing the
Company's technology. Hambrecht & Quist also indicated that it had made some
informal inquiries as to the possible interest of potential third party
purchasers, and determined that interest in the Company appeared to be
insignificant due, among other things, to the limited nature of the Company's
technology rights. Hale and Dorr provided an assessment of the Company's patent
portfolio. It was also reported that the Company had agreed to indemnify the
members of the Special Committee against liabilities arising out of their
service on the Special Committee.
On September 3, 1996, Messrs. McLachlan and Wirth met with David G. Golden,
a Managing Director of Hambrecht & Quist, and Mr. Purcell to discuss the
proposed acquisition price. Messrs. McLachlan and Wirth reiterated Genzyme's
position that an acquisition price per Unit equal to a discount of 10% to 15%
from the then-current market price of the Units was appropriate in view of the
status of the CF Program. Hambrecht & Quist stated that it did not believe the
Special Committee would accept an acquisition price below market and that
Genzyme should expect to have to pay a premium over the then-current market
price of the Units. On September 4, 1996 Mr. McLachlan and Mr. Burnes discussed
the previous day's conference. Mr. Burnes reiterated that the Special Committee
believed that any offer should be above the then-current market price.
On the morning of September 5, 1996, the Genzyme Board of Directors
authorized management to propose an acquisition at $45 per Unit in cash if
Genzyme's management could reach an agreement with the Special Committee at such
price and if the Special Committee would recommend such price to the Holders.
Mr. Termeer contacted Mr. Burnes and indicated that Genzyme's management would
be willing to recommend to Genzyme's Board of Directors an increased acquisition
price of $45 per Unit in cash, if the Special Committee would recommend such
price to the holders of the Units (the "Genzyme Proposal"). Mr. Burnes agreed to
review the Genzyme Proposal with Mr. Flynn and Hambrecht & Quist.
In the evening of September 5, 1996, the Special Committee met to consider
the Genzyme Proposal. Hambrecht & Quist presented its preliminary analysis of
the fairness of the Genzyme Proposal to the holders of the Units from a
financial point of view and expressed its preliminary opinion that the Genzyme
Proposal was fair to the holders of the Units from a financial point of view.
Hambrecht & Quist noted that its opinion was subject to negotiation and review
of the documentation for the transaction and satisfactory resolution of the
structure of the transaction with respect to those holders who do not tender
their Units pursuant to the Offer. After review of the foregoing analysis and
other considerations, the Special Committee unanimously approved in principle a
transaction in which Units of the Company would be purchased by Genzyme at a
purchase price of $45 per Unit in cash, subject to (a) negotiation and execution
of definitive agreements, (b) receipt of Hambrecht & Quist's written fairness
opinion, and (c) satisfactory resolution of the structure of the transaction
with respect to non-tendering shareholders.
On September 6, 1996, the Company and Genzyme jointly announced that they
had reached an agreement in principle relating to the acquisition of the Company
for $45 per Unit, subject to negotiation and execution of a definitive
acquisition agreement.
During the next two weeks, drafts of the Purchase Agreement were exchanged
between Genzyme and the Company and their respective legal and financial
advisors and the terms of such agreement were negotiated, including the
structure of the Merger, the amount of consideration to be paid in connection
with the Merger and arrangements between the parties in the event of a superior
transaction, including the payment of a termination fee to Genzyme upon the
consummation of a superior transaction and Genzyme's agreement to
14
<PAGE> 21
consent to the early assignment of the Technology License Agreement in
connection with a superior transaction.
On September 10, 1996, the Special Committee met with its financial and
legal advisors to review issues relating to the draft Purchase Agreement.
Hambrecht & Quist reported that several of the Company's shareholders had
contacted it with respect to the Offer, and indicated that shareholders had
expressed dissatisfaction with the $45 price per Unit, principally due to their
perception that Genzyme had previously led them to believe that any repurchase
of the Units would be at a higher price.
On September 17, 1996, the Genzyme Board of Directors held a special
meeting to assess the status of the proposed transaction. At such meeting,
Robertson, Stephens & Company made a presentation to the Genzyme Board (the
"Robertson, Stephens & Company Presentation"). The Genzyme Board then reviewed
with management the status of negotiations concerning the Purchase Agreement.
On September 20, 1996, the Special Committee met with its financial and
legal advisors to consider the Purchase Agreement. As described more fully below
under "SPECIAL FACTORS -- Recommendation of the Company's Board of Directors;
Fairness of the Transaction", the Special Committee unanimously recommended that
Neozyme II's Board of Directors approve the Offer and the Merger. Thereafter,
the full Neozyme II Board of Directors met and, upon the receiving the
recommendation the Special Committee, unanimously determined (i) to accept the
recommendation of the Special Committee, (ii) that based upon, among other
considerations, the recommendation of the Special Committee, the Offer and the
Merger are fair to, and in the best interests of, holders of the Units and (iii)
to approve the Purchase Agreement and the transactions contemplated thereby.
Following the meeting of the Company's Board of Directors on September 20,
1996, the Genzyme Board of Directors held a special meeting. At such meeting,
Robertson, Stephens & Company delivered to the Genzyme Board its written
opinion, dated September 20, 1996 (the "Robertson, Stephens & Company Opinion"),
that, as of such date, and based upon and subject to the factors and assumptions
set forth in such opinion, the per Unit price to be paid by Genzyme pursuant to
the Offer was fair to Genzyme from a financial point of view. After discussion
with respect to the Offer and the other terms and conditions of and transactions
contemplated by the Purchase Agreement and considering the matters discussed
under "SPECIAL FACTORS -- Recommendation of the Company's Board of Directors;
Fairness of the Transaction" and "-- Reasons for the Transaction; Purpose and
Structure of the Transaction; Plans for the Company After the Merger" and the
Robertson, Stephens & Company Opinion, the Genzyme Board unanimously determined
(i) to approve the Offer, the Merger, the Purchase Agreement and the
transactions contemplated thereby and (ii) that, based upon, among other things,
the conclusion of the Special Committee and the Company's Board, the terms of
the Offer and the Merger are fair to unaffiliated holders of the Units.
The Purchase Agreement was executed by the parties and on September 23,
1996 a press release announcing the execution of the Purchase Agreement was
issued.
On September 27, 1996, Acquisition Corp. commenced the Offer.
The Offer expired at 5:00 p.m., New York City time, on October 28, 1996.
Acquisition Corp. purchased all of the Units (representing
approximately % of the outstanding Units) that had been validly tendered
and not withdrawn prior to the expiration date of the Offer.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS; FAIRNESS OF THE TRANSACTION
At a meeting held on September 20, 1996, the Special Committee unanimously
determined that the Offer and the Merger are fair to, and in the best interests
of, the Company's shareholders and resolved to recommend that the Board (a)
determine that the Offer and the Merger are fair to, and in the best interests
of, the shareholders; (b) adopt and approve the Offer, the Merger, the Purchase
Agreement and the transactions contemplated thereby; and (c) recommend that the
Company's shareholders accept the Offer and tender their Units to Acquisition
Corp. pursuant to the Offer.
15
<PAGE> 22
In determining that the Offer and the Merger are fair to, and in the best
interests of, the shareholders, and in making its recommendation to the Board,
the Special Committee considered the following factors, which, taken as a whole,
supported its decision:
(a) the financial condition of the Company, including the fact that
the Company's current cash is expected to be substantially exhausted by
December 31, 1996 and the uncertain prospects of raising new capital in
light of the current financing market for biotechnology companies,
including the fact that many public offerings of biotechnology companies
have either been postponed or priced below anticipated price ranges;
(b) the status of the Company's technology programs (based, in part,
on input previously provided to Hambrecht & Quist by Dr. Rosenfeld and a
prior oral presentation concerning the patent position of the Company's
technology by Hale and Dorr, the Committee's independent legal counsel),
including the fact that the Company's protein replacement therapy program
has been largely inactive since 1994 and the decision in June 1996 to halt
clinical trials for HyperGAM(TM)+CF;
(c) the prospects of the Company, including the fact that the
Company's gene therapy programs are unlikely to yield commercially viable
products within the CF field for at least several years;
(d) the fact that the market value of the Units is currently
significantly lower than the Purchase Option Exercise Price and, that given
the current status of the Company's technology programs and its prospects,
the likelihood that the per Unit trading price on the NNM will not reach
the Purchase Option Exercise Price prior to the expiration of the Purchase
Option Agreement on December 31, 1996;
(e) the valuation analyses presented to the Special Committee by
Hambrecht & Quist at its September 5, 1996 and September 20, 1996 meetings;
(f) the H&Q Opinion stating that, on the basis of and subject to the
matters set forth therein, the cash consideration to be received by the
shareholders of the Company in exchange for the Units in the Offer and in
exchange for shares of Callable Common Stock in the Merger are fair to the
holders of the Units and the shares of Callable Common Stock from a
financial point of view. The H&Q Opinion contains a description of the
factors considered, the assumptions made and the scope of review undertaken
by Hambrecht & Quist in rendering the H&Q Opinion and is included herein as
Exhibit B and is incorporated herein by reference. SHAREHOLDERS ARE URGED
TO READ THE H&Q OPINION CAREFULLY IN ITS ENTIRETY;
(g) the judgment of the Special Committee that $45 per Unit is the
highest price reasonably available to the Company's shareholders for the
following reasons:
(1) the course of negotiations between the parties regarding the
offering price, including the fact that Genzyme's original indication of
interest was at a price level approximately 10% to 15% below the then
current trading price of the Units of $44 and the fact that the $45 per
Unit price represented a premium over the $44 1/16 trading price of the
Units on the day before an agreement in principle with Genzyme was
announced;
(2) the pursuit of alternate transactions with third parties was
not deemed to be a viable alternative (based, in part, on input received
by Hambrecht & Quist in response to informal inquiries as to the
possible interest of potential third party purchasers) given the nature
of the contractual arrangements between the Company and Genzyme and the
fact that the Company's rights in the technology developed in the course
of its research programs are limited to the Field; and
(3) since September 6, 1996, when Genzyme and the Company publicly
announced an agreement in principle on an acquisition at $45 per Unit in
cash, no third party had expressed an interest in having discussions
with the Company to Hambrecht & Quist, which was identified in the press
release as the Company's contact, or the Special Committee; and
16
<PAGE> 23
(h) the terms and conditions of the Purchase Agreement, including the
right of the Special Committee to terminate the Purchase Agreement in order
to proceed with a Superior Transaction (as defined therein).
The Special Committee also considered the following negative factors
relating to the Offer and the Merger:
(a) since the announcement of an agreement in principle with Genzyme,
a number of the Company's shareholders contacted Hambrecht & Quist and the
Special Committee and indicated they believe Genzyme should pay more than
$45 per Unit, due, in part, to the indirect benefits Genzyme has received
from the Company's technology programs; and
(b) the upside potential if the Company's technology programs, which
are well regarded in scientific circles, are ultimately successful in
discovering one or more products useful in the treatment of CF.
The members of the Special Committee evaluated the above factors in light
of their knowledge of the business of the Company and their business judgment
and concluded that the factors supporting a decision to approve the Purchase
Agreement outweighed the negative factors described above. In view of the wide
variety of factors considered in connection with its evaluation of the Offer and
the Merger, the Special Committee did not find it practicable to, and did not,
quantify or attempt to assign relative weights to the specific factors
considered in reaching its decision.
The Special Committee believes the process it followed in approving the
Offer and the Merger was procedurally fair and unbiased because (a) the Special
Committee, consisting of all the directors of the Company who are not directors
or officers of Genzyme, was constituted to consider and evaluate Genzyme's
acquisition proposal with respect to the Company; (b) the members of the Special
Committee will not personally benefit from the transactions contemplated by the
Purchase Agreement (other than in their capacity as holders of Units); (c) the
Special Committee retained independent advisors to assist it in evaluating
Genzyme's acquisition proposal; (d) the Special Committee obtained the valuation
analysis of Hambrecht & Quist and the H&Q Opinion; and (e) the Special Committee
negotiated with Genzyme on an arm's length basis and with the assistance of its
advisors.
On September 20, 1996, the Board held a meeting and, based upon, among
other things, the unanimous recommendation of the Special Committee (which was
adopted by the Board in all respects), determined that the Offer and the Merger
are fair to, and in the best interests of, the Company's shareholders, approved
the Offer and the Merger and resolved to recommend that the Company's
shareholders accept the Offer and tender their Units to Acquisition Corp.
pursuant to the Offer.
OPINION OF FINANCIAL ADVISOR TO THE SPECIAL COMMITTEE
The Special Committee engaged Hambrecht & Quist to act as its financial
advisor in connection with Genzyme's proposed acquisition of the Company and to
render an opinion as to the fairness from a financial point of view to (a) the
holders of Units of the consideration of $45.00 per Unit to be received by such
holders in connection with the Offer and (b) the holders of the shares of
Callable Common Stock of the consideration of $29.00 per share to be received by
such holders in connection with the Merger. Hambrecht & Quist rendered its oral
opinion (subsequently confirmed in writing) on September 20, 1996 to the Special
Committee that, as of such date, the consideration to be received by the holders
of the Units pursuant to the Offer and the consideration to be received by the
holders of the shares of Callable Common Stock pursuant to the Merger is fair to
such holders from a financial point of view. Hambrecht & Quist also delivered
its oral opinion (subsequently confirmed in writing) to the Company's Board of
Directors at its meeting on September 20, 1996. A COPY OF THE H&Q OPINION, WHICH
SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED, THE SCOPE AND LIMITATIONS
OF THE REVIEW UNDERTAKEN AND THE PROCEDURES FOLLOWED BY HAMBRECHT & QUIST IS
ATTACHED AS EXHIBIT B TO THIS INFORMATION STATEMENT. NEOZYME II SHAREHOLDERS ARE
ADVISED TO READ THE OPINION IN ITS ENTIRETY. Hambrecht & Quist delivered to the
Special Committee written materials covering its methods of analyzing the
Company and the Callable Warrants and the financial results of such analyses in
connection with its September 20, 1996 opinion, which are attached as an exhibit
to the Schedule 13E-3 filed with the Securities and Exchange Commission (the
"Commission") in connection with the Offer and are available for inspection and
copying at the principal executive offices of Genzyme during regular business
17
<PAGE> 24
hours by any interested shareholder of the Company or a representative of such
shareholder who has been so designated in writing.
No limitations were placed on Hambrecht & Quist by the Special Committee
with respect to the investigation made or the procedures followed in preparing
and rendering the H&Q Opinion. Hambrecht & Quist was not requested to and did
not make any recommendation to the Special Committee as to the amount of
consideration to be offered to the Company's shareholders in the Offer and the
Merger, which consideration was determined through negotiations between the
Special Committee and its financial and legal advisors and Genzyme and its
financial and legal advisors. Hambrecht & Quist was not requested to and did not
formally solicit third party indications of interest in acquiring all or any
part of the Company. Hambrecht & Quist did, however, make informal inquiries as
to the possible interest of potential third party purchasers, and determined
that interest in the Company appeared to be insignificant due, among other
things, to the limited nature of the Company's technology rights. The Company's
shareholders should note that the opinion expressed by Hambrecht & Quist was
provided for the information of the Special Committee and the Board of Directors
of the Company in its evaluation of the Offer and the Merger and does not
constitute a recommendation to any shareholder as to how such shareholder should
act.
In connection with its review of the proposed transaction with Genzyme, and
in arriving at its opinion, Hambrecht & Quist, among other things: (i) reviewed
the publicly available consolidated financial statements of the Company for
recent years and interim periods to date and certain other relevant financial
and operating data of the Company made available to Hambrecht & Quist from
published sources and from the internal records of the Company; (ii) discussed
with certain members of the managements of the Company and Genzyme the business,
financial condition and prospects of the Company; (iii) reviewed the publicly
available consolidated financial statements of Genzyme for recent years and
interim periods to date; (iv) reviewed certain internal financial and operating
information, including certain projections, relating to the Company prepared by
the management of Genzyme; (v) reviewed the recent reported prices and trading
activity for the Units and compared such information and certain financial
information of the Company with similar information for certain other companies
engaged in businesses Hambrecht & Quist considered comparable to that of the
Company; (vi) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions; (vii) reviewed drafts of the offer
documents and certain other materials to be filed with the Commission in
connection with the Offer; and (viii) performed such other analyses and
examinations and considered such other information, financial studies, analyses
and investigations and financial, economic and market data as Hambrecht & Quist
deemed relevant.
In rendering its opinion, Hambrecht & Quist assumed and relied upon the
accuracy and completeness of all of the information concerning the Company and
Genzyme considered in connection with its review of the proposed transaction,
and Hambrecht & Quist did not assume any responsibility for independent
verification of such information. Hambrecht & Quist did not prepare any
independent valuation or appraisal of any of the assets or liabilities of the
Company, nor did Hambrecht & Quist conduct a physical inspection of the
properties and facilities of the Company. With respect to the financial
forecasts and projections made available to Hambrecht & Quist and used in its
analysis, Hambrecht & Quist assumed that they reflected the best currently
available estimates and judgments of the expected future financial performance
of the Company. For purposes of its opinion, Hambrecht & Quist assumed that the
Company was not a party to any pending transactions, including external
financings, recapitalizations or material merger discussions, other than the
proposed transaction with Genzyme and those activities undertaken in the
ordinary course of conducting its business. Hambrecht & Quist's opinion was
necessarily based upon market, economic, financial and other conditions as they
existed and could be evaluated as of the date of its opinion and any change in
such conditions would require a reevaluation of that opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analyses set forth below does not purport to be a
complete description of the analyses underlying the H&Q Opinion. In arriving at
its opinion, Hambrecht & Quist 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,
Hambrecht & Quist believes that its analyses and the summary set forth below
must be
18
<PAGE> 25
considered as a whole and that selecting portions of its analyses, without
considering all analyses, or of the summary set forth below, without considering
all factors and analyses, could create an incomplete view of the processes
underlying the analyses set forth in the Hambrecht & Quist presentation to the
Special Committee and the H&Q Opinion. In performing its analyses, Hambrecht &
Quist made numerous assumptions with respect to industry performance, general
business and economic conditions and other matters, many of which are beyond the
control of the Company and Genzyme. The analyses performed by Hambrecht & Quist
(and summarized below) are not necessarily indicative of actual values or actual
future results, which may be significantly more or less favorable than suggested
by such analyses. Additionally, analyses relating to the values of businesses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be sold.
Analysis of Technology and Stage of Development
Hambrecht & Quist reviewed and analyzed, among other things, the Field in
which Neozyme II is engaged (i.e., the research, development and clinical
testing of products for the treatment of cystic fibrosis), Neozyme II's
intellectual property rights (which are limited to technology in the Field, with
all technology developed by the Company with application outside the Field being
licensed back to Genzyme exclusively on a royalty free basis) and approaches to
treating CF. In connection with its review, Hambrecht & Quist retained the
outside consulting services of an independent leading scientist in the field of
CF, Dr. Rosenfeld. The role of Dr. Rosenfeld was not to appraise or value any of
the Company's technology, but to assist Hambrecht & Quist in assessing, among
other things, the quality and progress of the Company's science and its stage of
scientific and clinical development. On the basis of its analysis, Hambrecht &
Quist observed the following: (i) the Company's most advanced approach to
treating cystic fibrosis has been gene therapy using an adenovirus vector; (ii)
this approach has encountered several significant obstacles that make the
development of a gene therapy product unlikely in the next few years (Genzyme
forecasts commercialization in 2003); (iii) while gene therapy approaches using
an adenoassociated virus or a lipid vector hold promise, these approaches are in
comparatively early stages and a pivotal trial for a particular vector is not
likely in the near future; and (iv) Genzyme's work in the areas of protein
replacement and Hypergam(TM)+CF have proved to be disappointments and
development of these products have been suspended and terminated, respectively.
Comparable Company Analysis
Hambrecht & Quist reviewed and compared selected historical financials,
operating and stock market performance data of the Company to the corresponding
data of four publicly traded biotechnology companies with a scientific focus in
the area of gene therapy (the "Gene Therapy Companies"). The Gene Therapy
Companies included in this Group were GeneMedicine Incorporated, Somatix Therapy
Corporation, Targeted Genetics Corporation and Vical Incorporated. Hambrecht &
Quist compared cash, book value, net income, enterprise value (consisting of
equity value plus debt less cash) and burn rate (cash used in operating
activities plus capital expenditures) for the latest available 12 month period
("LTM") for each of the Gene Therapy Companies with the Company. Hambrecht &
Quist also analyzed the financial ratios of market value to cash and market
value to book value. Hambrecht & Quist calculated the ratio of the cash position
to the LTM burn rate of each of the Gene Therapy Companies to determine the
"survival index" (the number of consecutive annual periods that such company
could continue to fund cash losses at the rate experienced in the LTM from the
most recently available reported cash without obtaining additional capital) and
compared such information from such Gene Therapy Companies with the Company. The
average enterprise value of the Gene Therapy Companies was $75.3 million ($70.3
million excluding the high and low) compared to an enterprise value of $61.4
million for the Company based on the Offer (assuming a value of $16.00 per
Callable Warrant). Hambrecht & Quist noted that the Gene Therapy Companies had
research projects in multiple disease areas while the Company is limited to the
Field and has no rights to gene delivery or other technology outside the Field.
Hambrecht & Quist also reviewed and compared selected historical and
projected financials, operating and stock market performance data of certain
publicly traded biotechnology and pharmaceutical companies (the "Established
Companies Comparables"). This comparison provided a basis for the range of
Price-Earnings ("P/E") multiples used in further analysis, particularly the
Terminal Value (as defined below) in
19
<PAGE> 26
connection with the discounted cash flow analyses described below. The companies
included in the Established Companies Comparables were the following: Johnson &
Johnson, Merck & Co, Pfizer Inc., SmithKline Beecham, Glaxo-Wellcome, Chiron
Corp., Amgen Inc. and Genentech Inc. Hambrecht & Quist did not attempt to
prepare any further quantitative valuation analyses based on the Established
Companies Comparables because Hambrecht & Quist believed that any comparative
multiples that might be derived based upon earnings or other financial data of
such companies would not be meaningful when applied to the Company's operating
losses.
Hambrecht & Quist also reviewed and analyzed the acquisition by Chiron of
Viagene and the acquisition of Genetic Therapy by Sandoz. Hambrecht & Quist
observed that Chiron acquired Viagene in a transaction valued at $102 million,
representing a premium of 67% over the market value of Viagene stock one day
prior to the transaction's announcement and that Sandoz acquired Genetic Therapy
in a transaction valued at $295 million, representing a premium of 38% over the
market value of Genetic Therapy stock one day prior to the transaction's
announcement. Hambrecht & Quist did not attempt to prepare any further
quantitative valuation analyses based on these acquisition transactions because
Hambrecht & Quist believed that differences in the technologies of each company
and the differences in the market conditions at the time such acquisitions were
made would make such analyses meaningless.
Comparable SWORD Analysis
Hambrecht & Quist noted that the shares of Callable Common Stock had
originally been offered as part of a unit financing in which purchasers bought a
Unit consisting of (i) one share of Callable Common Stock, (ii) one Series N
Warrant and (iii) one Callable Warrant. Hambrecht & Quist reviewed and analyzed
the original offering of the Units and other comparable public offerings of
special purpose funding companies commonly referred to as Stock Warrant for
Off-Balance Sheet Research and Development Companies ("SWORDs"). Hambrecht &
Quist also reviewed the stock prices and market performances of the Units and
the comparable SWORD offerings. Where the stock of SWORD companies was
repurchased by the SWORD sponsor in a negotiated transaction and not pursuant to
the original purchase option, Hambrecht & Quist analyzed a number of factors,
including the purchase price attributable to the technology, the discount to the
original purchase option price and calculated the implied rate of return from
the original offering date. The sponsor companies of the comparable SWORD
offerings included in this analysis were ALZA Corp., Centocor, Inc. (two such
offerings), Immunex Corporation, Elan Corporation PLC (two such offerings),
Genetics Institute Inc., Gensia, Inc., Cytogen Corp., Genzyme Corporation
(including only Neozyme Corporation and not Neozyme II Corporation), PerSeptive
Biosystems Inc., and Ligand Pharmaceuticals, Inc./Allergan, Inc. (a co-sponsored
SWORD). Hambrecht & Quist observed that the value of the average SWORD units had
appreciated (inclusive of implied appreciation where such units had been
repurchased by the sponsoring companies) approximately 71.6% (from offering date
to September 19, 1996), as compared to a 63.4% increase in value of the Units.
Hambrecht & Quist also observed that, at the time of the unit offering, the
average value of the warrants at an assumed 40% volatility in the SWORD
sponsoring company represented approximately 54.6% of the aggregate SWORD unit
value and that in the case of the Company, the Genzyme warrants represented
approximately 23.7% of the value of the Unit at the time of the original
offering. Accordingly, Hambrecht & Quist observed that, of the $35.00 per Unit
offering price, approximately $8.30 per Unit was allocable to the Series N
Warrants and approximately $26.70 per Unit was allocable to the shares of
Callable Common Stock and the Callable Warrants. The Series N Warrants
originally included in the Units have separated from the Units and now trade
separately under the symbol "GENZZ" (the closing price on September 19, 1996 was
$11.50 per Series N Warrant). These figures were compared with a valuation of
$29.00 per share of Callable Common Stock included in the Units and $16.00 per
warrant for the Callable Warrants included in the Units. In addition, Hambrecht
& Quist observed that the discount to the original purchase option price of
SWORDs repurchased in negotiated transactions was 58.7%, compared to 61.5% for
the Company pursuant to the Offer and that the rate of return in negotiated
repurchases was -9.2% for the comparable SWORD repurchases, compared to 6.5% for
the Units.
20
<PAGE> 27
Discounted Cash Flow Analysis
Hambrecht & Quist analyzed the theoretical valuation of the Company based
on the unlevered discounted cash flow of its projected financial performance
under three scenarios: (i) the Company launches a cystic fibrosis product in
2003 in accordance with the projections Genzyme provided Hambrecht & Quist (the
"Base Case"); (ii) the Company's anticipated product launch is delayed until
2004 (the "Delayed Scenario"); and (iii) the Company's anticipated product
launch is accelerated by one year to 2002 (the "Accelerated Scenario"). In all
three scenarios, Hambrecht & Quist used discount rates ranging from 25% to 40%
to calculate the present value (the "Present Value") of the Company's projected
stream of after-tax cash flows through 2005. Hambrecht & Quist then calculated a
terminal value (the "Terminal Value") for the Company which represents the
hypothetical value of selling the entire business at the end of 2005 and
discounting the amount received from such hypothetical sale to its net present
value (using the same discount rate as applied to the Present Value). The
Terminal Value used under all scenarios was based upon multiples of 14.0x to
24.0x projected net income for the year 2005. The range of 14.0x to 24.0x
projected net income reflects a range of P/E multiples derived from the
Established Companies Comparables. For the purposes of this analysis, Hambrecht
& Quist relied on the Genzyme management's estimate of projected revenues with
respect to all scenarios and altered only the year in which such revenues would
be recognized, with respect to the Delayed Scenario and the Accelerated
Scenario. To estimate the total present value of the Company's business, before
giving effect to its capital structure, Hambrecht & Quist added the Present
Value to the Terminal Value.
Using the Base Case, Hambrecht & Quist calculated a range of present
values, including $41.9 million at a 35% discount rate and an 18.0x exit
multiple, $72.3 million at a 30% discount rate and an 18.0x exit multiple, $50.7
million at a 35% discount rate and an 20.0x exit multiple and $84.8 million at a
30% discount rate and an 20.0x exit multiple. Using the Delayed Scenario,
Hambrecht & Quist calculated a range of present values, including $3.2 million
at a 35% discount rate and an 18.0x exit multiple, $17.0 million at a 30%
discount rate and an 18.0x exit multiple, $8.0 million at a 35% discount rate
and an 20.0x exit multiple and $23.8 million at a 30% discount rate and an 20.0x
exit multiple. Using the Accelerated Scenario, Hambrecht & Quist calculated a
range of present values, including $71.6 million at a 35% discount rate and an
18.0x exit multiple, $114.1 million at a 30% discount rate and an 18.0x exit
multiple, $82.6 million at a 35% discount rate and an 20.0x exit multiple and
$130.0 million at a 30% discount rate and an 20.0x exit multiple. Hambrecht &
Quist observed that the Offer of approximately $70.0 million (assuming a value
of $38.6 million for the Callable Warrants) for the Company fell within the
middle ranges calculated using the Base Case Scenario, above the middle ranges
calculated using the Delayed Scenario and below the middle ranges calculated
using the Accelerated Scenario.
Warrant Valuation Analysis
Hambrecht & Quist analyzed the valuation of the Callable Warrants using the
Black-Sholes option valuation formula. Such formula suggested that the value of
the warrant for two shares of General Division Common Stock based on a range of
volatility of 45% to 55% to be between $13.03 and $16.57. Additionally, such
formula suggested that the value of the warrant for 0.135 share of Tissue Repair
Common Stock based on a range of volatility to be between $0.32 and $0.42.
Hambrecht & Quist also noted that the implied volatility based on a $16.00
warrant valuation was approximately 53.8%. Accordingly, Hambrecht & Quist
concluded that the aggregated value of the Callable Warrants range from $32.2
million to $41.0 million, or $13.33 to $16.98 per Callable Warrant.
Stock Trading History Analysis
Hambrecht & Quist examined the trading history of (i) the Units in terms of
both price and volume from September 5, 1995 to September 4, 1996 and (ii) the
Units and Genzyme common stock, compared to the American Biotechnology Index
from August 4, 1992 to September 6, 1996. Hambrecht & Quist noted that, over the
period, the Units increased in value at a far greater rate than either Genzyme
common stock or the American Biotechnology Index, which tended to trade in
parallel.
21
<PAGE> 28
No company or transaction used in the above analyses is identical to the
Company, Genzyme or the proposed transaction. Accordingly, an analysis of the
results of the foregoing is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading values of the companies or company to which they are compared. The
foregoing description of the H&Q Opinion is qualified in its entirety by
reference to the full text of such opinion, which is attached hereto as Exhibit
B.
Certain Relationship; Terms of Engagement
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, strategic transactions, corporate restructurings,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for corporate and other purposes.
The Special Committee selected Hambrecht & Quist to serve as its financial
advisor in connection with the proposed transaction with Genzyme because it is
an internationally recognized investment banking firm whose professionals have
substantial experience in SWORDs transactions and transactions similar to the
Offer and the Merger. Hambrecht & Quist has, from time to time, provided
financial advisory services to Genzyme, and has received fees for rendering
these services. In July 1996, Hambrecht & Quist acted as managing underwriter
for a public offering of Genzyme Transgenics Corporation, an affiliate of
Genzyme and received as compensation fees and commissions of approximately
$312,000. In the ordinary course of business, Hambrecht & Quist acts as a market
maker and broker in the publicly traded securities of the Company and Genzyme
and receives customary compensation in connection therewith, and also provides
research coverage for Genzyme. In the ordinary course of business, Hambrecht &
Quist actively trades in the equity securities of the Company and Genzyme 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. Hambrecht & Quist may
in the future provide additional investment banking or other financial advisory
services to Genzyme.
Pursuant to an engagement letter dated August 2, 1996, the Company agreed
to pay Hambrecht & Quist a retainer in the amount of $50,000 and a fee in
connection with its services as financial advisor to the Special Committee and
the rendering of a fairness opinion. The Company paid a fee of $200,000 upon the
delivery of the fairness opinion. The retainer and fairness opinion fee shall be
credited against any Transaction Fee (as defined below). Upon consummation by
the Company of the proposed transaction, the Company shall pay Hambrecht & Quist
a fee (the "Transaction Fee"), payable in cash on closing, of 1.0% of the value
of the consideration to be received by holders of Units plus 3.0% of the value
of the consideration to be received by holders of Units in excess of $43.00. The
Company has agreed to reimburse Hambrecht & Quist for its reasonable out of
pocket expenses, and to indemnify Hambrecht & Quist against certain liabilities,
including liabilities under the federal securities laws or relating to or
arising out of Hambrecht & Quist's engagement as financial advisor. The amount
of compensation to be paid to Hambrecht & Quist was determined by negotiations
between the Special Committee and Hambrecht & Quist.
REASONS FOR THE TRANSACTION; PURPOSE AND STRUCTURE OF THE TRANSACTION; PLANS FOR
THE COMPANY AFTER THE MERGER
In determining to seek to acquire the Company, the Board of Directors of
Genzyme carefully considered the status of the technology and product
development of the Company, which is summarized below.
STATUS OF PRODUCT DEVELOPMENT
Product Opportunity
CF is the most common fatal genetic disease afflicting the caucasian
population. Approximately one in every 2,500 infants in the United States is
born with the disease. Although improvements have been made over the last 20
years in alleviating certain symptoms of the disease and delaying its progress,
the underlying disease remains untreated and patients have an average life
expectancy of only 29 years. There are approximately 30,000 CF patients in North
America.
22
<PAGE> 29
CF is caused by one or more mutations in the gene responsible for
determining the molecular structure of a protein called cystic fibrosis
transmembrane conductance regulator ("CFTR"). The absence of functional CFTR
protein from the membrane of airway surface cells disrupts the ion transport
mechanism of the cells and contributes to the formation of a thick, dehydrated
mucus that cannot be eliminated from the lungs in the normal fashion. Build-up
of this mucus fosters recurrent infections that cause breathing difficulties and
damage to the lungs, eventually leading to respiratory failure and death.
Elsewhere in the body, the gene defect often results in digestive, reproductive
and other problems. Such other problems are unlikely to be alleviated in the
event CF-induced airway and lung damage is effectively treated.
Neozyme II's work relating to the treatment of CF initially concentrated on
two promising therapies to correct the basic defect in CF airway cells: gene
therapy to augment the mutant genes with genes that would enable the patient's
cells to produce normal CFTR protein, and protein replacement therapy to augment
the missing or defective CFTR protein with properly functioning CFTR protein.
For technical and competitive reasons, the gene therapy approach has been
emphasized during the last two years, and currently the protein replacement
program is largely inactive. Neozyme II also funded NABI's efforts to develop
passive immunization antibody products primarily for the prevention and
treatment of bacterial infections common in CF patients. See "HyperGAM(TM)+CF"
below.
Progress to Date
The gene responsible for the defective protein present in CF patients was
identified by scientists at the University of Michigan and the Hospital for Sick
Children in Toronto and their findings were published in 1989. Since that time,
and on behalf of Neozyme II since March 1992, Genzyme scientists have
intensively studied the gene and the protein and have made significant technical
progress that should facilitate the development of effective therapies for the
treatment of CF patients. These results have been published in leading
scientific journals, and Genzyme has filed United States and foreign patent
applications covering certain aspects of this work.
GENE THERAPY. Gene therapy is a promising new technique being developed as
a treatment for several genetic diseases including CF. To date, over 139
protocols for preliminary clinical studies of gene therapy for a variety of
diseases have been approved by the National Institutes of Health.
Because of the innovative nature of gene therapy and public policy issues
surrounding the insertion of new genetic information into cells, the Company
expects that early clinical evaluation will continue to entail especially
careful testing in a limited number of patients. On behalf of Neozyme II,
Genzyme is currently conducting preliminary clinical testing of Neozyme II's
gene therapy products. The timing and results of these initial studies will
determine whether and when pivotal trials to determine safety and effectiveness
will be undertaken. These pivotal trials may involve large groups of patients
for lengthy periods of time in order to address the uncertainties surrounding
insertion of new genetic information into humans and to show clinical
effectiveness in the treatment of a progressive disease. All of Genzyme's
efforts related to gene therapies for CF are funded by Neozyme II.
On behalf of Neozyme II, Genzyme scientists have demonstrated that the
defective ion transport mechanism present in airway cells taken from CF patients
can be corrected in vitro by the insertion of normal CFTR genes into the cells.
However, the techniques for inserting genetic material into cells outside the
body are not expected to be useful in gene therapy for CF because there is no
practical way to remove and re-implant cells from the airways of CF patients.
For this reason, Neozyme II's proposed gene therapy Product will likely need to
be administered directly to the airways of the lung. Neozyme II believes that
its gene therapy Product would need to be readministered periodically as the
transferred gene ceases to function or is lost and as the treated cells
naturally die and are replaced.
Vectors are presently regarded as critical components of gene therapeutics
which facilitate targeting and delivery of genetic material to the appropriate
cells and affect the efficiency and duration of gene expression. On behalf of
Neozyme II, Genzyme is developing both viral and non-viral vectors for
delivering the gene encoding CFTR to the surface cells lining the airways.
Animal studies aimed at demonstrating the potential
23
<PAGE> 30
safety and effectiveness of a variety of vectors have been initiated and several
have been successfully completed and reported in scientific journals.
Viral Vectors. On behalf of Neozyme II, Genzyme and collaborators at the
University of Iowa, in 1993, conducted a small study in CF patients using an
adenovirus-gene product administered to nasal epithelium. Results collected from
the study showed that it is possible to correct the biochemical defect in CF
cells in nasal epithelium in vivo. The study results, published in October 1993,
were the first published report of a successful gene transfer in CF patients and
the first successful application of an adenovirus vector in gene therapy.
However, in a 1995 publication reporting the results of a similar study,
researchers from the University of North Carolina questioned the efficacy of
gene transfer using adenovirus.
In December 1993, a Genzyme collaborator received Recombinant DNA Advisory
Committee ("RAC") approval for a study involving repeat administration of
Genzyme's second generation adenovirus vector to the nasal epithelium and sinus
passages of CF patients. The nasal part of this study was initiated during the
first quarter of 1994 and was completed in the second quarter of 1995.
Aggregated data from this study showed limited evidence of gene expression at
the intermediate doses but not at the highest dose. The virus appeared safe, but
a complex immune response to the adenovirus was measured in almost all patients.
This and other data obtained in animals and submitted for publication in 1995
suggest that immune response may limit the efficacy of repeat dose therapy with
adenovirus. The sinus study was not conducted due to the lack of interpretable
baseline data in the CF sinus.
During the fourth quarter of 1994, Genzyme received RAC approval and
submitted a protocol to the United States Food and Drug Administration (the
"FDA") for a two part safety study involving administration of its second
generation adenovirus vector to the lungs of up to 40 CF patients via
bronchoscope and aerosol. Bronchoscopic administration commenced in the first
quarter of 1995, and aerosol administration commenced in September 1995.
Additionally, in September 1995, Genzyme switched to the use of a third-
generation adenovirus vector with an improved safety profile as part of this
same study. The study is currently ongoing.
In parallel with these clinical studies, Genzyme, on behalf of Neozyme II,
is conducting extensive research into proving the safety and efficacy of
adenovirus. Particular emphasis is being placed on immunology, since it now
appears that new vectors or methods need to be developed so as to reduce the
patient's immune response and to increase the efficacy of adenovirus vectors.
Such improvements may be necessary in order for adenovirus vectors to be
clinically useful in chronic therapy.
Non-Viral Vectors. In addition to pursuing adenovirus and other viral
vectors, Neozyme II is developing lipid-DNA complexes as vectors for gene
therapy. Neozyme II believes that lipid-based vectors may offer advantages due
to their reduced immunogenicity and ease of manufacture relative to viral
vectors. Genzyme has synthesized, evaluated and filed patent applications on
numerous new lipids. Several of these have shown significantly greater activity
in vivo than commercially available lipids. To augment its internal efforts,
Genzyme has entered into arrangements with third parties to gain access to
non-viral gene delivery technologies. To date, the most significant such
arrangement is an October 1993 exclusive research agreement with Vical, Inc. to
evaluate Vical's cytofectins as non-viral gene delivery vectors for treating CF.
The plasmid expression system containing the DNA also affects expression
efficiency, and Genzyme has designed various new plasmid constructs to enhance
expression. Although substantial progress has been made in both lipid and
plasmid constructs, currently the optimal formulation of the best lipid-DNA
complex is still less efficient than adenovirus as measured in single dose in
vivo experiments.
In December 1993, a Genzyme collaborator received RAC approval for a CF
nasal protocol utilizing a lipid-DNA complex containing DMRIE, one of Vical's
proprietary cytofectins. This study commenced in September 1995 and is currently
ongoing. In December 1994, Genzyme also initiated a collaboration with a British
academic group for purposes of further studying Neozyme II's proprietary
lipid-DNA complexes.
In December 1995, Genzyme submitted an IND to the FDA for a nasal study
using a proprietary lipid-DNA complex developed by Genzyme. The study was
initiated in January 1996 by Genzyme and its collaborators at the University of
Iowa and completed in the second quarter of 1996. The study entailed the
24
<PAGE> 31
administration of the lipid-DNA complex to one nostril of nine CF patients and
administration of the DNA plasmid alone to the patients' other nostril as a
control. Although the results showed that the lipid-DNA compound was well
tolerated, they did not demonstrate the lipid-DNA compound to be superior to the
plasmid DNA in improving ion exchange across the cell membrane. A follow-on
study to gather additional information is planned for later this year.
Also in the second quarter of 1996, Genzyme completed a safety study in
which the lipid alone was delivered in aerosol form to the lungs of 15 non-CF
volunteers. The study showed that aerosolized delivery of the lipid to the lung
was well tolerated. Based on these results, a pilot study involving aerosol
administration of a lipid-DNA complex to the lungs of CF patients was planned to
start later this year in the United Kingdom ("UK"). The commencement of this
trial was placed on hold by the UK Medicines Control Agency ("MCA"), pending
resolution of certain safety issues raised by the MCA. Genzyme has responded to
these issues and submitted a revised protocol for the trial. There can be no
assurance that the MCA will accept the revised protocol or require additional
data that would further delay the trial. In the event that the revised protocol
is not accepted, Genzyme plans to revise the IND currently on file with the FDA
for the lipid-DNA complex to include an aerosol protocol.
Protein Replacement Therapy. CFTR is a membrane protein, a class of
molecules which historically has been difficult to produce in conventional cell
culture in active form and large quantities. Genzyme, however, has been able to
develop recombinant cell lines that can synthesize the protein and has published
data on the feasibility at laboratory scale of producing and purifying
functional CFTR protein from mammalian and insect cells. In collaboration with
researchers at Tufts University and Genzyme Transgenics Corporation, transgenic
expression techniques were used successfully to breed mice and rabbits that
secrete human CFTR protein in their milk. Based on these results, Genzyme
engaged Genzyme Transgenics Corporation to develop transgenic goats that express
CFTR in their milk. Although one transgenic goat has been born, it did not
synthesize measurable CFTR in its milk and no further work is currently
underway.
As a membrane protein, CFTR must be delivered into the cell membrane to be
effective. On behalf of Neozyme II, Genzyme has investigated various methods to
deliver the CFTR protein across the planar bilayer of epithelial cells. In 1995,
Genzyme reported in several publications the technical feasibility of delivering
small but detectable amounts of functional CFTR to epithelial cells in vitro
using virosomes. However, the effect detected was transient.
As a theoretical matter, gene therapy is significantly more efficient than
protein replacement because each DNA particle delivered will produce multiple
copies of protein; whereas, in protein replacement, each delivered unit results
in delivery of only one protein molecule. Both protein replacement and gene
therapy have significant technical challenges related to delivery, but since
gene therapy is more efficient once delivered, Genzyme has chosen to concentrate
its efforts in this area. Although still a potentially viable approach,
currently the protein replacement program is largely inactive.
HyperGAM(TM)+CF. In August 1993, Genzyme entered into an alliance with NABI
to develop a polyclonal antibody product called HyperGAM(TM)+CF for use in
passive immunization of CF patients infected with Pseudomonas bacteria, which
are a major medical problem associated with CF and a frequent cause of
hospitalization. Neozyme II believed that HyperGAM(TM)+CF could be complementary
to the Company's gene therapy or protein replacement products by preventing or
treating Pseudomonas infections in conjunction with correcting the basic defect
in airway cells. In exchange for funding Genzyme's share of NABI's development
costs, Neozyme II received the exclusive right to market HyperGAM(TM)+CF
worldwide and share in the profits with NABI.
A Phase I clinical trial involving single dose administration of
HyperGAM(TM)+CF was completed in 1994 and showed that HyperGAM(TM)+CF appeared
to be safe and supported a monthly dosing regimen. A multi-center, dose ranging
Phase II clinical trial to assess safety and efficacy of the product in chronic
administration commenced in the first quarter of 1995. In June 1996, Neozyme II
and NABI announced the halt of the Phase II clinical trial for HyperGAM(TM)+CF
because an interim analysis of the trial data showed no evidence of a reduction
in the number of acute pulmonary exacerbations in trial participants. No major
issues with the safety of the product were identified. On June 21, 1996, after
review of the interim analysis data, the Board of
25
<PAGE> 32
Directors of Neozyme II voted unanimously to terminate the license and
development agreement with NABI. Under the terms of the agreement with NABI,
Neozyme II is required to reimburse NABI for certain costs incurred in
connection with the wind down of the HyperGAM(TM)+CF program up to a maximum of
$900,000.
REASONS FOR THE TRANSACTION
Genzyme believes that a gene-based therapy for CF represents the most
promising approach for addressing this important unmet medical need. Despite
significant development progress under the CF Program, however, the key
milestone of demonstrating clinical efficacy of a gene therapy approach has not
been and, Genzyme believes, will not be demonstrated until well after the
expiration of the Purchase Option on December 31, 1996, if at all. Accordingly,
Genzyme believes the value of Neozyme II is significantly below the current
Purchase Option Exercise Price and, absent unforeseen progress in the CF
Program, Genzyme does not intend to exercise the Purchase Option.
Notwithstanding the present intention not to exercise the Purchase Option,
the Genzyme Board of Directors has determined that the acquisition of Neozyme II
at this time on and subject to the terms of the Purchase Agreement is in the
best interests of Genzyme and its stockholders for the following reasons:
Acceptable Valuation and Timing; Avoid Dilution
Genzyme believes that the transaction allows Genzyme to acquire Neozyme II
at a price that appropriately reflects the value of Neozyme II at its current
stage of development and within the time frame contemplated at the inception of
Neozyme II. In addition, as a result of the Offer, the number of outstanding
warrants to acquire Genzyme stock was significantly reduced, thereby reducing
potential future dilution of Genzyme stock.
Continuity of Program Development
Genzyme desires to maintain its commitment to the CF community to continue
the research, development and clinical evaluation of the two gene therapy
approaches currently being evaluated in the CF Program in an effort to reach the
key milestone of demonstrating clinical efficacy as soon as possible. Genzyme
expects, however, that advancing the CF Program through demonstration of
clinical efficacy will require significant additional investment materially in
excess of the remaining resources available from Neozyme II, which resources
will be substantially depleted by the end of 1996. If the Offer had been
rejected, Neozyme II would have been required to seek alternative sources of
capital to continue funding the CF Program, such as raising additional capital,
an acquisition by a third party or some form of collaboration with a third
party. Genzyme believes that any such alternative would have involved
significant time, expense and uncertainty and, more important, could have
resulted in the interruption of the research, development and clinical
evaluation efforts being conducted under the CF Program. Any such interruption
could have a material adverse effect on the time required to demonstrate
clinical efficacy. Acquiring Neozyme II at this time, therefore, allows Genzyme
to maintain its commitment to the CF community, while preserving the continuity
of its CF development efforts.
Preservation of Competitive Advantage
While the CF Program has experienced setbacks relating to the failure of
HyperGAM(TM)+CF and the largely inactive status of the protein replacement
program due to the significant technical challenges related to this approach,
Genzyme believes that, with both viral and non-viral vector systems in clinical
evaluation for CF, the CF Program is the most comprehensive program among those
competitors active in the CF field. Substantially all of the value created by
the CF Program derives, however, from the intellectual property developed under
the CF Program. If Neozyme II had been required to seek alternative sources of
capital to continue funding the CF Program, Genzyme believes that Neozyme II
would have been required to disclose such intellectual property to interested
third parties, including existing or potential competitors, in connection with
seeking such funding and that such disclosure notwithstanding the existence of
non-disclosure agreements, could have jeopardized the competitive position and
diminish the value of the CF Program and related gene delivery technology
developed by Genzyme. Genzyme believes that the acquisition of Neozyme II by
26
<PAGE> 33
Genzyme at this time would avoid the risks of such disclosure and, accordingly,
would allow Genzyme to preserve the competitive advantage of the CF Program.
Investor Relations
Genzyme expects that substantial commitments in time and capital will be
required to advance the CF Program through a demonstration of clinical efficacy.
In view of these commitments, the value realizable by the existing investors in
Neozyme II could fall well below the $45.00 per Unit paid by Genzyme in the
Offer and the $29.00 per share to be paid by Genzyme in the Merger. Accordingly,
Genzyme believes that effecting the Offer and the Merger at the prices set forth
above allows investors to realize a fair price for their investment, while
avoiding the risk of any such future decline in the value of Neozyme II.
Potential Gene Therapy Collaborations
Genzyme views the CF market and the gene therapy approach as an attractive
opportunity that fits well with Genzyme's corporate objectives of developing
novel therapeutics to address significant unmet medical needs. In particular,
Genzyme has developed significant expertise outside of the CF field and the
acquisition of rights to gene therapy-based programs within the CF field
provides Genzyme with the ability to accelerate its overall gene therapy
development by continuing work on the most advanced programs, thereby making
Genzyme a more attractive partner.
In reaching its determination that the acquisition of Neozyme II at this
time on and subject to the terms of the Offer and the Merger is fair to and in
the best interests of Genzyme and its stockholders, the Genzyme Board of
Directors evaluated the factors considered by it in light of the directors'
knowledge of the business and operations of Genzyme and Neozyme II and their
respective business judgments. In addition, the Genzyme Board considered the
Robertson, Stephens & Company Presentation and the Robertson, Stephens & Company
Opinion that, based upon and subject to the factors and assumptions set forth in
such opinion, the price per Unit to be paid in the Offer was fair to Genzyme
from a financial point of view. The Genzyme Board of Directors did not find it
practicable to and did not quantify or assign relative weight to the specific
factors considered by it in reaching its determination. A detailed description
of the Robertson, Stephens & Company Presentation and the Robertson, Stephens &
Company Opinion are set forth below.
OPINION OF FINANCIAL ADVISOR TO GENZYME
Robertson, Stephens & Company acted as Genzyme's exclusive financial
advisor and as Dealer Manager in connection with the Offer. Robertson, Stephens
& Company was engaged on the basis of its experience as a financial advisor in
connection with mergers and acquisitions as well as on its industry knowledge
and familiarity with the Company.
At a special meeting of the Genzyme Board held on September 17, 1996,
Robertson, Stephens & Company made the Robertson, Stephens & Company
Presentation and, on September 20, 1996, Robertson, Stephens & Company delivered
the Robertson, Stephens & Company Opinion to the Genzyme Board. No limitations
were imposed by the Genzyme Board upon Robertson, Stephens & Company with
respect to investigations made or procedures followed by Robertson, Stephens &
Company in rendering the Robertson, Stephens & Company Opinion. Robertson,
Stephens & Company was not requested to opine as to the fairness of the price
per Unit paid in the Offer to the Company or to the Company's shareholders or
the fairness of the consideration to be paid by Genzyme pursuant to the Merger.
The full text of the Robertson, Stephens & Company Opinion, which sets
forth the assumptions made, matters considered and limitations on the review
undertaken by Robertson, Stephens & Company, was filed as an exhibit to the Rule
13E-3 Transaction Statement on Schedule 13E-3 filed by Genzyme, Neozyme II and
Acquisition Corp. in connection with the Offer and is available for inspection
and copying at the Commission's principal office. See "AVAILABLE INFORMATION."
The Robertson, Stephens & Company Opinion has been provided to the Genzyme Board
for its information. It is directed only to the fairness from a financial point
of view to Genzyme of the per Unit price to be paid by Genzyme pursuant to the
Offer and does not constitute a recommendation to any shareholder as to how such
shareholder should act.
27
<PAGE> 34
The summary set forth below does not purport to be a complete description
of the analyses underlying the Robertson, Stephens & Company Opinion or the
Robertson, Stephens & Company Presentation. 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, such an opinion
is not readily susceptible to partial analysis or summary description. In
arriving at its opinion, Robertson, Stephens & Company 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, Robertson, Stephens & Company 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.
For purposes of the Robertson, Stephens & Company Opinion, Robertson,
Stephens & Company, among other things: (i) reviewed financial information
regarding the Company furnished to Robertson, Stephens & Company by the Company,
including certain financial forecasts prepared by the management of the Company;
(ii) reviewed publicly available information regarding the Company; (iii) held
discussions with the management of the Company concerning the business, past and
current business operations, financial condition and future prospects of the
Company; (iv) reviewed a draft dated September 20, 1996 of the Purchase
Agreement; (v) reviewed the stock price and trading history of the Company; (vi)
reviewed the valuations of publicly traded companies that Robertson, Stephens &
Company deemed comparable to the Company; (vii) compared the financial terms of
the Offer with other transactions which Robertson, Stephens & Company deemed
relevant; (viii) prepared a discounted cash flow analysis of the Company; (ix)
analyzed the value of the Callable Warrants; and (x) made such other studies and
inquiries, and reviewed such other data, as Robertson, Stephens & Company deemed
relevant.
In arriving at its opinion, Robertson, Stephens & Company did not
independently verify any of the foregoing information and relied on all such
information being complete and accurate in all material respects. Furthermore,
Robertson, Stephens & Company did not make any independent appraisal of the
properties or assets and liabilities of the Company, nor was Robertson, Stephens
& Company furnished with any such evaluations or appraisals. With respect to the
financial forecasts (and the assumptions and bases therefor) of the Company
provided to Robertson, Stephens & Company by the management of the Company,
Robertson, Stephens & Company assumed that such forecasts had been reasonably
prepared in good faith on the basis of reasonable assumptions and reflected the
best available estimates and judgments of the management of the Company as to
the likely future financial performance of the Company. In that regard,
Robertson, Stephens & Company relied on the assumptions of the management of the
Company with respect to the effect on such forecasts of the potential outcome of
the Company's pending patent applications. The Robertson, Stephens & Company
Opinion was necessarily based upon market, economic, and other conditions that
existed and could be evaluated as of the date of the Robertson, Stephens &
Company Opinion and on information available to Robertson, Stephens & Company as
of such date.
The following is a summary of the analyses performed by Robertson, Stephens
& Company in connection with the preparation of the Robertson, Stephens &
Company Presentation and the Robertson, Stephens & Company Opinion. A copy of
the Robertson, Stephens & Company Presentation will be made available for
inspection and copying at the principal executive offices of Genzyme during
regular business hours by any interested Neozyme II shareholder, or his
representative who has been so designated in writing.
Stock Price and Trading History
Robertson, Stephens & Company reviewed the trading activity of the Units
and the Series N Warrants, including the daily closing price and daily volume of
each of the Units and the Series N Warrants, for the period from January 3, 1995
to September 13, 1996 and identified certain events that had a significant
effect on the prices of the Units and the Series N Warrants.
Valuation Analysis
Introduction. In valuing the Units, Robertson, Stephens & Company performed
a comparable company analysis, a comparable transaction analysis, a discounted
cash flow analysis and a warrant valuation analysis, each of which is described
in detail below. The comparable company analysis, comparable transaction
analysis
28
<PAGE> 35
for acquisitions of non-SWORDS (as defined below) and discounted cash flow
analysis were used to determine ranges for the Technology Value (as defined
below) of the Company. The comparable transaction analysis for acquisitions of
SWORDS was used to calculate the premiums paid by acquiring companies in
comparable acquisitions in order to determine the Equity Value (as defined
below) of the Company. For the warrant valuation analysis, Robertson, Stephens &
Company used the Black-Scholes formula to determine an implied value per
Callable Warrant. By adding to the Technology Value the implied aggregate value
of the Callable Warrants, based on an implied value, solely for purposes of this
analysis, per Callable Warrant of $15.12, Robertson, Stephens & Company
determined the equity value of the Company (the "Equity Value"), which
represents the aggregate market capitalization of the Units.
Comparable Company Analysis. Robertson, Stephens & Company performed an
analysis of companies engaged in research and development activities in the area
of gene therapy and which are considered by Robertson, Stephens & Company to be
reasonably comparable to the Company. The Tier 1 companies identified by
Robertson, Stephens & Company comprise Somatix Therapy Corporation and Vical
Incorporated (the "Tier 1 Companies"), and the Tier 2a companies identified by
Robertson, Stephens & Company comprise Avigen, Inc., Cell Genesys, Inc.,
GeneMedicine, Inc. and Targeted Genetics Corporation (the "Tier 2a Companies").
Robertson, Stephens & Company identified as the Tier 2b companies Immusol, Inc.,
Introgen Therapeutics, Inc. and Transkaryotic Therapies, Inc. (the "Tier 2b
Companies"), each of which had recently filed a registration statement with
respect to an initial public offering. Robertson, Stephens & Company noted that
the Tier 1 Companies generally trade at significantly higher market
capitalizations than the Tier 2a Companies because they have one or more of the
following characteristics: (i) more enabling technologies, (ii) more substantial
corporate endorsements, (iii) broader patent estates, (iv) later stages of
clinical development and (v) more significant disease market opportunities.
Robertson, Stephens & Company then determined a Technology Value range. For
purposes of this methodology, Robertson, Stephens & Company defined Technology
Value as the market capitalization less cash and cash equivalents for each of
the comparable companies. For the Tier 1 Companies and the Tier 2a Companies,
market capitalization was based on market data as of September 13, 1996. For the
Tier 2b Companies, market capitalization was based on the mid-point of the
proposed initial public offering price disclosed in each such company's
registration statement and the expected number of fully diluted shares
outstanding immediately after such offering.
Based on this analysis, Robertson, Stephens & Company determined a range of
Technology Value of (i) between $104.7 million and $169.3 million for the Tier 1
Companies, (ii) between $28.4 million and $57.5 million for the Tier 2a
Companies and (iii) between $115.4 and $168.5 million for the Tier 2b Companies.
By including the implied value of the Callable Warrants, Robertson, Stephens &
Company calculated a range of Equity Value of (i) between $141.2 million and
$205.8 million, or $58.46 and $85.23 per Unit, based on the Tier 1 Companies,
(ii) between $64.9 million and $94.0 million, or $26.89 and $38.91 per Unit,
based on the Tier 2a Companies and (iii) between $151.9 million and $205.0
million, or $62.90 and $84.90 per Unit, based on the Tier 2b Companies.
Robertson, Stephens & Company also reviewed the trading performance of the
Units over the period from January 3, 1995 to September 13, 1996 and compared
such performance with that of indices representing the average trading prices
for each of the Tier 1 Companies and the Tier 2a Companies. Such review
indicated that, over such period, the trading price of the Units, the Tier 1
Companies and the Tier 2a Companies increased by 55.5%, 82.7% and 0.4%,
respectively.
No company utilized in the comparable company analysis was identical to the
Company. In particular, Robertson, Stephens & Company noted that the Company's
assets are limited to determining the application of potential gene therapy
products in the treatment of CF only. Certain of the comparable companies have
broader gene therapy technology programs, with potential applications to CF and
the treatment of other diseases. Accordingly, an analysis of the results of such
a comparison is not purely mathematical as several factors that are not relevant
to the Company could affect the public trading value of the comparable companies
to which the Company is being compared.
29
<PAGE> 36
Comparable Transaction Analysis: Acquisitions of SWORDS
Companies. Robertson, Stephens & Company analyzed publicly available information
for 11 Stock/Warrant for Off balance sheet Research and Development Subsidiary
("SWORDS") acquisitions within the biopharmaceutical industry (the "SWORDS
Acquisitions") considered by Robertson, Stephens & Company to be reasonably
comparable to the Company. The SWORDS Acquisitions analyzed were: (i) PerSeptive
Biosystems, Inc.'s acquisition of PerSeptive Technologies II Corporation, (ii)
Elan Corporation, plc's acquisition of Advanced Therapeutic Systems Limited,
(iii) Cytogen Corporation's acquisition of CytoRad Corporation, (iv) Centocor,
Inc.'s acquisition of Tocor II, Inc., (v) Gensia Pharmaceuticals Inc.'s
acquisition of Aramed, Inc., (vi) Genetics Institute, Inc.'s acquisition of
SciGenics Incorporated, (vii) Genzyme Corporation's acquisition of Neozyme I
Corporation, (viii) Elan Corporation, plc's acquisition of Drug Research Corp.,
(ix) Immunex Corporation's acquisition of Receptech Corp., (x) Centocor, Inc.'s
acquisition of Tocor, Inc. and (xi) Alza NV's acquisition of Bio-Electro
Systems, Inc. In five of the SWORDS Acquisitions, the acquiring sponsor company
exercised its contractual option to acquire the SWORDS company. The other six
SWORDS Acquisitions were negotiated transactions at prices below the option
exercise price.
For each of the SWORDS Acquisitions, Robertson, Stephens & Company
determined (i) the annual compounded return, (ii) the premium paid to the SWORDS
unit price, or to the aggregate price of the SWORDS common stock and the
detachable warrants to acquire the common stock of the sponsor company ("Sponsor
Warrants") for those SWORDS whose Sponsor Warrants had detached from the SWORDS
units and were trading separately (the "Combined Premium"), 28 days prior to the
date of announcement of the SWORDS Acquisition and (iii) the premium paid to the
SWORDS unit price, or to the SWORDS common stock price for those SWORDS whose
Sponsor Warrants had detached from the SWORDS units and were trading separately
(the "Ex-Sponsor Warrant Premium"), 28 days prior to the date of announcement of
the SWORDS Acquisition. Robertson, Stephens & Company determined that (i) the
annual compounded return for the SWORDS Acquisitions ranged from -28.5% to
42.9%, (ii) the Combined Premium ranged from -3.6% to 135.6% and (iii) the
Ex-Sponsor Warrant Premium ranged from 1.5% to 143.8%. Excluding the SWORDS
Acquisitions effected upon the exercise of the sponsor company's contractual
purchase option, such ranges were -28.5% to 26.4%, -3.6% to 135.6% and 2.8% to
143.8%, respectively.
Robertson, Stephens & Company calculated a range for the Equity Value by
(i) applying the annual compounded return to the Unit Offering price of $35.00
per Unit and (ii) applying the Ex-Sponsor Warrant Premium to the market price of
the Units as of September 5, 1996. In each such case, Robertson, Stephens &
Company excluded from its analysis the SWORDS Acquisitions effected upon the
exercise of a contractual purchase option. Based on this analysis, Robertson,
Stephens & Company calculated ranges of Equity Value of (i) between -$7.2
million and $209.4 million, or -$2.97 and $86.71 per Unit, applying the annual
compounded return, and (ii) between $110.1 million and $261.2 million, or $45.60
and $108.16 per Unit, applying the Ex-Sponsor Warrant Premium.
No company utilized in the comparable SWORDS Acquisitions analysis was
identical to the Company, and no transaction utilized in the comparable SWORDS
Acquisitions analysis was identical to the Offer and the Merger. Accordingly, an
analysis of the results of such a comparison is not purely mathematical but
instead involves complex considerations and judgments concerning differences in
historical and projected financial and operating characteristics of the
comparable companies and other factors that could affect the acquisition value
of such companies and the Company.
Comparable Transaction Analysis: Acquisitions of Non-SWORDS Early-Stage
Biotechnology Companies. Robertson, Stephens & Company analyzed publicly
available information for seven acquisitions of non-SWORDS, early-stage
biotechnology companies (the "Non-SWORDS Acquisitions") considered by Robertson,
Stephens & Company to be reasonably comparable to the Company (each, an
"Acquired Company"). The Non-SWORDS Acquisitions analyzed were: (i) Targeted
Genetics Corporation's acquisition of RGene Therapeutics, Inc., (ii)
Schering-Plough Corporation's acquisition of Canji, Inc., (iii) Rhone-Poulenc
Rorer Inc.'s acquisition of Applied Immune Sciences, Inc., (iv) Sandoz AG's
acquisition of Genetic Therapy, Inc., (v) Cytogen Corporation's acquisition of
Cellcor, Inc., (vi) Chiron Corporation's acquisition of Viagene, Inc. and (vii)
Ligand Pharmaceuticals Incorporated's acquisition of Glycomed Incorporated.
30
<PAGE> 37
For the Non-SWORDS Acquisitions, Robertson, Stephens & Company calculated
the price paid by the acquiring company as a multiple of (i) the total research
and development expenses accrued for the Acquired Company since its inception
including, where applicable, in-process research and development (the "R&D
Multiple") and (ii) the Technology Value of the Acquired Company (the
"Technology Value Multiple"). For purposes of this methodology, Robertson,
Stephens & Company defined Technology Value as the equity market capitalization
of the Acquired Company one month prior to the announcement date of the
acquisition plus total debt less current cash. In addition, Robertson, Stephens
& Company calculated the premium paid for the Acquired Company to the price per
share of the Common Stock of the Acquired Company (a) one day prior to the
announcement date of the acquisition (the "One Day Premium") and (b) one month
prior to the announcement date of the acquisition (the "One Month Premium").
Robertson, Stephens & Company excluded from its acquisition premium analysis two
of the Acquired Companies that were not publicly traded as of the date of the
acquisition. Robertson, Stephens & Company determined that (i) the R&D Multiple
ranged from 0.7x to 7.4x, (ii) the Technology Value Multiple ranged from 1.5x to
3.1x, (iii) the One Day Premium ranged from 33.0% to 149.4% and (iv) the One
Month Premium ranged from 35.3% to 95.3%.
Robertson, Stephens & Company calculated a range for the Equity Value by
applying (i) the R&D Multiple to total research and development expenses for the
CFTR gene therapy program (but not for the HyperGAM(TM)+CF and CFTR protein
replacement therapy programs) since the inception of the Company of $36.6
million, (ii) the Technology Value Multiple to an estimated Technology Value
(which, solely for purposes of this analysis, Robertson, Stephens & Company
deemed to be $71.0 million, calculated as the market value of the Company as of
September 13, 1996 less the implied aggregate value of the Callable Warrants),
(iii) the One Day Premium to an acquisition price of $29.25 per share of the
Callable Common Stock and (iv) the One Month Premium to an acquisition price of
$29.25 per share of the Callable Common Stock. Based on this analysis,
Robertson, Stephens & Company calculated a range of Equity Value of (a) between
$61.2 million and $306.6 million, or $25.36 and $126.94 per Unit, applying the
R&D Multiple, (b) between $140.5 million and $256.1 million, or $58.18 and
$106.06 per Unit, applying the Technology Value Multiple, (c) between $130.5
million and $212.7 million, or $54.03 and $88.06 per Unit, applying the One Day
Premium, and (d) between $132.1 million and $174.5 million, or $54.70 and $72.27
per Unit, applying the One Month Premium.
No company utilized in the comparable Non-SWORDS Acquisitions transaction
analysis was identical to the Company, and no transaction utilized in the
comparable Non-SWORDS Acquisitions analysis was identical to the Offer and the
Merger. Accordingly, an analysis of the results of such a comparison is not
purely mathematical but instead involves complex considerations and judgments
concerning differences in historical and projected financial and operating
characteristics of the comparable companies and other factors that could affect
the acquisition value of such companies and the Company.
Discounted Cash Flow Analysis. Robertson, Stephens & Company performed a
discounted cash flow analysis of the projected cash flows of the Company for the
years 1997 through 2006 to 2008, based upon projections provided to Robertson,
Stephens & Company by the management of the Company. In conducting its
discounted cash flow analysis, Robertson, Stephens & Company utilized
projections representing three cases, each developed by the management of the
Company. These cases consisted of a base case (the "Base Case") and two adjusted
cases (the "Upside Case" and the "Downside Case"). In developing the three
cases, the management of the Company made certain assumptions regarding (i)
patient growth, (ii) market penetration, (iii) non-U.S. revenues and (iv)
royalty income. None of the cases assigned any value to discontinued or
suspended research operations, including the HyperGAM(TM)+CF and CFTR protein
replacement therapy programs.
For each of the three cases, Robertson, Stephens & Company calculated a
range for the Technology Value. For purposes of this analysis, Robertson,
Stephens & Company utilized discount rates ranging from 30.0% to 35.0% and
terminal value multiples of earnings before interest and taxes ("EBIT") ranging
from 8.0x to 10.0x.
Based on this analysis, Robertson, Stephens & Company calculated a range of
Technology Value of (i) between $20.9 million and $85.0 million, or $8.64 and
$35.19 per share of the Callable Common Stock,
31
<PAGE> 38
based on the Base Case, (ii) between $49.9 million and $153.8 million, or $20.68
and $63.69 per share of the Callable Common Stock, based on the Upside Case, and
(iii) between $4.0 million and $61.4 million, or $1.65 and $25.41 per share of
the Callable Common Stock, based on the Downside Case. By including the implied
value of $15.12 per Callable Warrant, Robertson, Stephens & Company calculated a
range of Equity Value of (i) between $57.4 million and $121.5 million, or $23.78
and $50.32 per Unit, based on the Base Case, (ii) between $86.4 million and
$190.3 million, or $35.79 and $78.81 per Unit, based on the Upside Case, and
(iii) between $40.5 million and $97.9 million, or $16.78 and $40.55 per Unit,
based on the Downside Case. Robertson, Stephens & Company noted that a
discounted cash flow analysis is a less reliable indicator of value for an
early-stage biopharmaceutical company such as the Company due to, among other
things, the uncertainties in developing a therapeutic product that satisfies
both regulatory and market requirements.
Valuation of Callable Warrants. Robertson, Stephens & Company also
performed a valuation of the maximum theoretical price per Callable Warrant by
using the Black-Scholes formula for valuing warrants of publicly traded
companies. The Black-Scholes formula incorporates the following information: (i)
a price per share of common stock, calculated as the sum of the price per share
of General Division Common Stock, par value $.01 per share, of Genzyme ("General
Share"), multiplied by two and the price per share of Tissue Repair Division
Common Stock, par value $.01 per share, of Genzyme ("Tissue Repair Share")
multiplied by 0.135, (ii) an exercise price of the Callable Warrants, calculated
as the 20-day trailing average of the sum of the price per share of a General
Share multiplied by two and the price per share of a Tissue Repair Share
multiplied by 0.135, (iii) an exercise date of the Callable Warrants of December
31, 1998, (iv) an interest rate of 6.3%, (v) estimated levels of volatility
ranging from 40.9% to 60.9% and (vi) an adjustment in the price per General
Share due to dilution. Robertson, Stephens & Company computed a per Callable
Warrant value ranging from $12.19 to $17.03, respectively. For purposes of this
analysis, Robertson, Stephens & Company noted that one reliable indicator of the
value of the Callable Warrants is the historical 100-day volatility of the
blended General Shares and Tissue Repair Shares, which is 52.9% and yields an
adjusted value per Callable Warrant of $15.12.
General
The preparation of fairness opinions involves various determinations as to
the most appropriate and relevant quantitative and qualitative methods of
financial analysis and the application of those methods to the particular
circumstances and, therefore, such opinions are not readily susceptible to
summary description. Accordingly, Robertson, Stephens & Company believes its
analyses must be considered as a whole and that considering any portion of such
analyses and the factors, without considering all such analyses and current
factors, could create a misleading or incomplete view of the process underlying
such opinions. In its analyses, Robertson, Stephens & Company made numerous
assumptions with respect to industry performance, general business and other
conditions and matters, many of which are beyond the control of the Company. 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 a business do not purport to be appraisals or to reflect the
prices at which such businesses actually may be sold.
Robertson, Stephens & Company was engaged on the basis of its experience as
a financial advisor in connection with mergers and acquisitions as well as on
its industry knowledge and familiarity with the Company. Robertson, Stephens &
Company is a nationally recognized investment banking firm. As part of its
investment banking business, Robertson, Stephens & Company is frequently engaged
in the valuation of businesses and their securities in connection with mergers
and acquisitions, negotiated underwritings, secondary distributions of
securities, private placements and other purposes. In the course of its market-
making and other activities, Robertson, Stephens & Company may, from time to
time, have a long or short position in and buy and sell securities of the
Company.
Genzyme agreed to pay Robertson, Stephens & Company a total fee of $440,000
for its services as financial advisor to Genzyme and as Dealer Manager. Of such
total fee, $50,000 was paid upon the purchase of Units pursuant to the Offer.
Genzyme also agreed to reimburse Robertson, Stephens & Company for its
reasonable out-of-pocket expenses, including the fees and expenses of its legal
counsel. Genzyme has further
32
<PAGE> 39
agreed to indemnify Robertson, Stephens & Company for certain liabilities
relating to or arising out of services provided by Robertson, Stephens & Company
as financial advisor or as Dealer Manager, including, without limitation,
certain liabilities under U.S. federal securities laws.
PURPOSE AND STRUCTURE OF THE TRANSACTION
The purpose of the Offer and the Merger is to enable Genzyme, through its
wholly owned subsidiary, to acquire the entire equity interest of the Company,
and to enable Genzyme to acquire the Callable Warrants associated with the Units
that were tendered to reduce the possible dilution to Genzyme's existing
stockholders. The acquisition of the Company was structured as a cash tender
offer followed by the Merger in order to expedite the opportunity for Genzyme
and Acquisition Corp. to obtain a controlling interest in the Company, to enable
Genzyme to acquire some or all of the Callable Warrants, to provide a prompt and
orderly transfer of ownership of the Company from the Company's current holders
to Acquisition Corp. and to provide the Company's current holders with cash for
all of their Units.
PLANS FOR THE COMPANY AFTER THE MERGER
Following consummation of the Merger, Neozyme II will operate as an
indirect wholly-owned subsidiary of Genzyme through Genzyme's ownership of
Acquisition Corp. Although Genzyme is considering pursuing corporate partnering
arrangements with third parties to jointly develop products based, in part, on
technology owned by the Company, except as described in this Information
Statement, neither Genzyme nor Acquisition Corp. has any present plans or
proposals which relate to or would result in any extraordinary corporate
transaction, such as a merger, reorganization, liquidation, or sale or transfer
of a material amount of assets involving the Company, or any material changes in
the Company's capitalization, dividend policy, corporate structure or business.
The Purchase Agreement provides that, upon the acceptance for payment of
and payment by the Purchaser for any Units pursuant to the Offer, Acquisition
Corp. became entitled to designate persons to be elected as Class A directors of
the Company so as to give Acquisition Corp. representation on the Company's
Board of Directors proportional to its ownership of Units. See "THE
MERGER -- Designation of Directors."
At and immediately after the Effective Time, the sole Director of the
Surviving Corporation will be David J. McLachlan and the officers of the
Surviving Corporation will be David J. McLachlan and Peter Wirth, each of whom
is an executive officer of Genzyme. Biographical data for Messrs. McLachlan and
Wirth is set forth in Schedule I hereto.
CERTAIN EFFECTS OF THE MERGER
Interest in Assets and Earnings
As a result of the Merger, Genzyme (indirectly through Acquisition Corp.)
will own the entire equity interest in the Company and will thereby be entitled
to 100% of the Company's net assets and earnings and the current shareholders
(other than Acquisition Corp.) will no longer have an equity interest in the
Company.
Exercisability of Callable Warrants
The Callable Warrants included in Units that were not purchased by
Acquisition Corp. pursuant to the Offer will become exercisable at an exercise
price that will be calculated as the 20-day trailing average of the sum of the
price per share of Genzyme General Division Common Stock multiplied by two and
the price per share of Genzyme Tissue Repair Division Common Stock multiplied by
0.135.
NNM Quotation
The NASD requires that an issuer have at least 200,000 publicly held
shares, held by at least 400 stockholders or 300 stockholders of round lots,
with a market value of at least $1 million, have net tangible assets of at least
$1 million, $2 million or $4 million (depending on profitability levels during
the issuer's four most recent fiscal years) and have a minimum bid price per
share of $1 (unless the issuer has a public float of at least $3 million and at
least $4 million of net tangible assets) for continued inclusion in the NNM. As
a
33
<PAGE> 40
result of the Offer, the Units no longer meet the quantitative requirements of
the NASD for continued inclusion in the NNM. Following the Merger, Genzyme does
not intend to list the outstanding Callable Warrants on the NNM, and therefore,
any market that may develop for the Callable Warrants may be adversely affected.
Exchange Act Registration
The Units are currently registered under the Exchange Act. The Company
presently intends to terminate the registration of the Units under the Exchange
Act as soon after the consummation of the Merger as the requirements for
termination of registration are met. However, the Company reserves the right to
deregister the Units under the Exchange Act prior to the effective date of the
Merger if the Units become eligible for deregistration prior to such date. The
termination of the registration of the Units under the Exchange Act, assuming
there are no other securities of the Company subject to registration, would
result in the suspension of the Company's obligation to file reports pursuant to
Section 15(d) of the Exchange Act. Genzyme does not intend to register the
Callable Warrants under the Exchange Act.
Margin Regulations
The Units are currently "margin securities" under the rules of the Board of
Governors of the Federal Reserve System (the "Federal Reserve Board"), which has
the effect, among other things, of allowing brokers to extend credit on the
collateral of such Units for the purpose of buying, carrying or trading in
securities ("purpose loans"). Following the Merger, the Units will no longer
constitute "margin securities" for purposes of the Federal Reserve Board's
margin regulations and therefore could no longer be used as collateral for
purpose loans made by brokers.
34
<PAGE> 41
THE MERGER
The detailed terms and conditions to the consummation of the Merger are
contained in the Purchase Agreement and the Plan of Merger, copies of which are
set forth in Exhibit A hereto and incorporated herein by reference. The
following discussion sets forth a description of the material terms and
conditions of the Merger. The description in this Information Statement of the
terms and conditions of the Merger is qualified by, and made subject to, the
more complete information set forth in the Purchase Agreement and the Plan of
Merger.
BACKGROUND
On September 20, 1996, the Company's Board of Directors, based upon, among
other things, the unanimous recommendation of the Special Committee, approved
the Merger on behalf of the Company. See "SPECIAL FACTORS -- Recommendation of
the Company's Board of Directors; Fairness of the Transaction." Pursuant to the
Purchase Agreement, Acquisition Corp. commenced the Offer on September 27, 1996,
for all of the outstanding Units at a purchase price of $45.00 per Unit. On
October 28, 1996, Acquisition Corp. purchased all of the Units
(representing approximately % of the outstanding Units) that had been
validly tendered and not withdrawn prior to the expiration date of the Offer. On
, 1996 Acquisition Corp., as the holder of more than a majority of
the outstanding shares of Callable Common Stock, executed a written consent
approving the Merger. Under the BVI Law and the Company's Memorandum of
Association and Articles of Association, no meeting of the Company's
shareholders is necessary to effect the Merger, and no action on the part of any
other shareholder is necessary to authorize or consummate the Merger. Under
applicable federal securities law, the Merger can not be effected until at least
20 business days after this Information Statement has been sent or given to
shareholders. It is expected that the Merger will be consummated on or about
December , 1996, assuming that the conditions to the Merger as set forth in
the Purchase Agreement have been satisfied. WE ARE NOT ASKING YOU FOR A PROXY OR
CONSENT AND YOU ARE REQUESTED NOT TO SEND US A PROXY OR CONSENT.
PRINCIPAL TERMS
The Purchase Agreement and the Plan of Merger provides for the merger of
Merger Corp., a wholly-owned subsidiary of Acquisition Corp., with and into
Neozyme II. Acquisition Corp. is a wholly-owned subsidiary of Genzyme. Upon
consummation of the Merger, Neozyme II will be the Surviving Corporation and
will conduct its business as an indirect wholly-owned subsidiary of Genzyme by
virtue of Genzyme's ownership of Acquisition Corp.
As a result of the Merger, at the Effective Time the shares of Callable
Common Stock then outstanding will be converted as provided in the Plan of
Merger into the right to receive payment of the Merger Consideration, consisting
of cash in the amount of $29.00 per share. The Merger Consideration will be
allocated among the holders of Callable Common Stock as hereinafter described.
See "THE MERGER -- Conversion of Neozyme II Securities."
For a description of the procedures for exchanging Callable Common Stock
for payment of cash, see "THE MERGER -- Surrender of Certificates."
MERGER AND EFFECTIVE TIME
The date and time of the filing of the Articles of Merger with the BVI
Registrar of Companies or such later time as specified therein, shall be the
Effective Time of the Merger. Neozyme II and Merger Corp. will cause the
Articles of Merger to be filed and recorded as soon as practicable after the
satisfaction or waiver of all conditions to the Merger. See "THE
MERGER -- Condition of Merger." It is expected that the Articles of Merger will
be filed on December , 1996.
35
<PAGE> 42
CONVERSION OF SECURITIES
As a result of the Merger, all shares of Callable Common Stock outstanding
immediately prior to the Effective Time (other than shares held by Genzyme,
Neozyme II, Acquisition Corp. or Merger Corp. or their subsidiaries and shares
of holders who perfect dissenting rights under the BVI law) will be converted
into the right to receive a cash payment in the amount of $29.00 per share. Upon
consummation of the Merger, any Callable Warrants included in Units that were
not purchased by Acquisition Corp. will, upon consummation of the Merger, become
exercisable, and, on the effective date of the Merger, will become transferable
separately from the right to receive payment for the shares of Callable Common
Stock formerly associated therewith. Since the Callable Warrants will remain
outstanding after the Merger, no consideration will be paid in the Merger for
the Callable Warrants.
SURRENDER OF CERTIFICATES
Genzyme will deposit with the Payment Agent, in trust for the benefit of
the shareholders surrendering certificates representing shares of Callable
Common Stock in the Merger, on or prior to the Effective Time, immediately
available funds in an amount equal to the aggregate amount of the Merger
Consideration. As soon as practicable after the Effective Time, Genzyme shall
cause the Payment Agent to mail to all former shareholders of record of Callable
Common Stock instructions for surrendering their certificates representing
shares of Callable Common Stock in exchange for the Merger Consideration. Upon
surrender of a certificate for cancellation to the Payment Agent, the Payment
Agent shall pay to the holder of such certificate the Merger Consideration for
the shares represented by such certificate, and the certificate so surrendered
shall forthwith be canceled. Notwithstanding the foregoing, if delivery of the
Merger Consideration for any shares of Callable Common Stock is to be made to
any person other than the person in whose name the certificate surrendered is
registered, it shall be a condition of such delivery that the certificate so
surrendered shall be properly endorsed or otherwise in proper form for transfer
and that the person requesting such delivery shall pay any transfer or other
taxes required by reason of such delivery or establish to the satisfaction of
Genzyme that such tax has been paid or is not applicable. Furthermore, neither
Genzyme nor any affiliate of Genzyme shall be liable to a holder of shares of
Callable Common Stock for any Merger Consideration delivered to a public
official pursuant to applicable abandoned property, escheat and similar laws.
After the Effective Time, there will be no transfers of the Callable Common
Stock on the stock transfer books of the Company.
Promptly following the date that is six months after the Effective Time,
the Payment Agent shall, upon request by Genzyme, deliver to Genzyme all cash
and other documents in its possession relating to the transaction contemplated
by the Plan of Merger, and the Payment Agent's duties shall terminate.
Thereafter, each holder of a certificate formerly representing shares of
Callable Common Stock may surrender such certificate to Genzyme and receive the
Merger Consideration for the shares represented by such certificates.
From and after the Effective Time, holders of certificates theretofore
evidencing shares of Callable Common Stock shall cease to have any rights as
shareholders of the Company, except as provided in the Purchase Agreement or by
law. Each share of Callable Common Stock surrendered (other than shares held by
shareholders, if any, who are entitled to and perfect their appraisal rights
under the BVI Law) shall represent for all purposes only the right to receive
the Merger Consideration for such shares.
INDEMNIFICATION AND INSURANCE
The Purchase Agreement provides that proper provision will be made so that
any affiliate of Genzyme that succeeds to the assets and liabilities of the
Company or, at Genzyme's option, Genzyme, shall assume all of the obligations of
the Company under the indemnification agreements between the Company and the
members of the Special Committee as in effect on the date of the Purchase
Agreement and, if amended prior to the effective date, on the effective date of
the Merger. Genzyme, Acquisition Corp. and the Company have also agreed that in
the event the Company or the successor entity (i) consolidates with or merges
into any other person and shall not be the surviving corporation or (ii)
transfers all or substantially all of its assets to any person, then, and in
each case, proper provision shall be made so that the successors and assigns of
such successor entity or at Genzyme's option, Genzyme, shall assume the
indemnity obligations under such
36
<PAGE> 43
agreements. The Purchase Agreement also provides that the Company and Genzyme,
shall, to the fullest extent permitted by applicable law, indemnify and hold
harmless each present and former director or officer of the Company against all
losses arising out of any act or omission in their capacity as an officer,
director or employee of the Company. Additionally, Genzyme is obligated to
maintain, for three years from the effective date of the Merger, directors' and
officers' liability insurance policies covering the directors and officers of
the Company with coverages and other terms at least as favorable as is currently
in effect; provided that Genzyme is not obligated to spend more than 150% of the
current annual premiums paid by the Company for such insurance, and, following
such three year period until the sixth anniversary of the effective date of the
Merger, Genzyme has agreed to assume the indemnification obligations of the
Company under the indemnification agreements referred to above to the extent
that it has not already done so.
DESIGNATION OF DIRECTORS
The Purchase Agreement provides that, promptly upon the acceptance for
payment of and payment by Acquisition Corp. for any Units pursuant to the Offer,
and from time to time thereafter as Units are accepted for payment and paid for
by Acquisition Corp., Acquisition Corp. became entitled to designate such number
of Class A directors of the Company, rounded to the nearest whole number, as
will give Acquisition Corp. representation on the Company's Board of Directors
equal to at least that number of directors which equals the product of the total
number of the Company's directors (after giving effect to the directors elected
in accordance with this procedure) multiplied by the percentage that such number
of Units so accepted for payment and paid for by Acquisition Corp. bears to the
number of Units outstanding, and the Company shall, at such time, take such
actions as are necessary to cause Acquisition Corp.'s designees to be so elected
or appointed; provided, however, that, notwithstanding Acquisition Corp.'s right
to designate certain of the Company's directors as described above, until the
effective date of the Merger, the Company's Class A Directors shall include at
least two directors who were directors on September 20, 1996 and who are not
officers or directors of Genzyme or Acquisition Corp. (the "Independent
Directors"); provided further, that, if the number of Independent Directors
shall be reduced below two for any reason whatsoever, any remaining Independent
Director shall be entitled to designate a person who is not an officer or
director of Genzyme or Acquisition Corp. to fill such vacancy who shall be
deemed to be an Independent Director or, if no Independent Directors then
remain, the other directors shall designate two persons to fill such vacancies
who shall not be designees, stockholders, directors, officers or affiliates of
Genzyme or Acquisition Corp., and such persons shall be deemed to be Independent
Directors.
Notwithstanding anything in the Purchase Agreement to the contrary, subject
to the terms of the Company's Memorandum of Association and Articles of
Association, in the event that Acquisition Corp.'s designees are appointed or
elected as the Company's directors, after the acceptance for payment of Units
pursuant to the Offer and prior to the effective date of the Merger, the
affirmative vote of a majority (or, if there are only one or two Independent
Directors, the single or unanimous vote, as the case may be) of the Independent
Directors (who shall act as an independent committee of the Board of Directors
for this purpose) shall be required, and alone shall be sufficient, to (i) amend
or terminate the Purchase Agreement by the Company, (ii) exercise or waive any
of the Company's rights or remedies under the Purchase Agreement, (iii) extend
the time for performance of Genzyme's and Acquisition Corp.'s respective
obligations under the Purchase Agreement or (iv) approve any other action by the
Company that the Independent Directors determine could adversely affect the
interests of the holders (other than Genzyme, Acquisition Corp. and their
affiliates) with respect to the transactions contemplated by the Purchase
Agreement.
REPRESENTATIONS AND WARRANTIES
The Purchase Agreement contains certain customary representations and
warranties of the parties. The Company has made representations and warranties
to Genzyme and Acquisition Corp. regarding, among other things: (i) the
Company's organization and qualification; (ii) the Company's capitalization;
(iii) the Company's authority to enter into and perform its obligations under
the Purchase Agreement; (iv) the compliance of the transactions contemplated by
the Purchase Agreement with the Company's Memorandum of Association and Articles
of Association, certain agreements and applicable laws; and (v) the accuracy and
37
<PAGE> 44
completeness of the Company's Schedule 14D-9 filed in connection with the Offer
and this Information Statement.
Genzyme and Acquisition Corp. have made representations and warranties to
the Company regarding, among other things: (i) Genzyme's and Acquisition Corp.'s
organization and qualification; (ii) Genzyme's and Acquisition Corp.'s authority
to enter into and perform their respective obligations under the Purchase
Agreement; (iii) the compliance of the transactions contemplated by the Purchase
Agreement with Genzyme's and Acquisition Corp.'s respective charters or other
governing instruments, certain agreements and applicable laws; and (iv) the
accuracy and completeness of the documents filed by Genzyme and Acquisition
Corp. with the Commission in connection with the Offer.
The representations and warranties contained in the Purchase Agreement
expired upon consummation of the Offer.
CONDITION OF MERGER
The obligations of each of the Company, Acquisition Corp. and Genzyme to
consummate the Merger are subject to the condition that no preliminary or
permanent injunction or other order, decree or ruling issued by a court of
competent jurisdiction or by a governmental, regulatory or administrative agency
or commission nor any statute, rule, regulation or executive order promulgated
or enacted by any governmental authority shall be in effect, which would make
the acquisition by Genzyme or Acquisition Corp. of the Callable Common Stock
illegal or otherwise prevent the consummation of the Merger.
ACQUISITION PROPOSALS
The Company has agreed in the Purchase Agreement that it shall not,
directly or indirectly through any officer, director, employee, financial
advisor, representative or agent of the Company: (i) solicit or initiate any
inquiries or proposals for a merger, consolidation, business combination, sale
of substantial assets, sale of shares of capital stock (including without
limitation by way of a tender offer) or similar transactions involving the
Company, other than the transactions contemplated by the Purchase Agreement (any
of the foregoing inquiries or proposals being referred to as an "Acquisition
Proposal"); (ii) engage in negotiations or discussions concerning, or provide
any non-public information to any person or entity relating to, any Acquisition
Proposal; or (iii) agree to, approve or recommend any Acquisition Proposal;
provided, however, that nothing contained in the Purchase Agreement shall
prevent the Company, the Company's directors or the Special Committee (through
any officer, director, employee, financial advisor, representative or agent)
from (A) engaging in negotiations or discussions in response to an inquiry that
was not solicited after September 20, 1996; (B) furnishing non-public
information to any person or entity in connection with an unsolicited written
Acquisition Proposal by such person or entity or recommending an unsolicited
written Acquisition Proposal to the Company's shareholders, if and only to the
extent that (1) the Company's Board of Directors or the Special Committee, as
the case may be, believe in good faith (after consultation with its financial
advisor) that the party requesting such non-public information is capable of
financing a transaction more favorable to the Company's shareholders from a
financial point of view than the transaction contemplated by the Purchase
Agreement and the Company's Board of Directors or the Special Committee, as the
case may be, determine in good faith (after consultation with outside legal
counsel) that such action is necessary to comply with their fiduciary duties to
Company's shareholders under applicable law and (2) prior to furnishing such
non-public information to such person or entity, the Company's Board of
Directors or the Special Committee, as the case may be, receive from such person
or entity an executed confidentiality agreement on customary terms or (C)
complying with Rule 14e-2 promulgated under the Exchange Act with regard to an
Acquisition Proposal.
The Company has further agreed that it will notify Genzyme in writing
within 24 hours after receipt by the Company (or its advisors) of any written
Acquisition Proposal or any written request for non-public information pursuant
to which it intends to provide non-public information.
38
<PAGE> 45
CONDUCT OF BUSINESS
Pursuant to the Purchase Agreement the Company has agreed that, except as
otherwise expressly contemplated thereby, prior to the effective date of the
Merger or such earlier time as designees of Acquisition Corp. constitute a
majority of the Company's Directors (determined on the basis of the combined
voting power of the Company's Class A and Class B Directors): (a) the business
of the Company shall in all material respects be conducted only in, and the
Company shall not take any material action except in, the ordinary course of
business and consistent with past practice, and the Company shall use all
reasonable efforts, consistent with past practice or the annual workplan
currently in effect, to maintain and preserve its business organization, assets,
and advantageous business relationships; (b) the Company shall not make any tax
election or, except in the ordinary course of business and consistent with past
practice, settle or compromise any federal, state, local or foreign tax
liability; and (c) the Company shall not agree, in writing or otherwise, to take
any of the foregoing actions or any action which would make any representation
or warranty of the Company in the Purchase Agreement untrue or incorrect in any
material respect, or which would materially impair or prevent the occurrence of
any condition to the Merger.
TERMINATION
Termination of Purchase Agreement
The Purchase Agreement may be terminated at any time prior to the effective
date of the Merger as follows:
(a) by the mutual written consent of the Boards of Directors of
Genzyme, Acquisition Corp. and the Company, with the affirmative vote of a
majority of the Independent Directors (who shall act as an independent
committee of the Board of Directors of the Company for this purpose) being
required, and alone being sufficient, for action by the Board of Directors
of the Company for this purpose;
(b) by the Company upon approval of the Special Committee if the
effective date of the Merger shall not have occurred on or before the
six-month anniversary of the execution of the Purchase Agreement due to a
failure of the condition to the obligation of the Company to effect the
Merger as described above under the heading "Condition of Merger."
(c) by Genzyme or Acquisition Corp. if the effective date of the
Merger shall not have occurred on or before the six-month anniversary of
the date of the Purchase Agreement due to a failure of the condition to the
obligations of Genzyme or Acquisition Corp. to effect the Merger as
described above under the heading "Condition of Merger."
Effect of Termination
In the event of the termination of the Purchase Agreement, all obligations
and agreements of the parties set forth therein shall forthwith terminate and be
of no further force or effect, and there shall be no liability on the part of
Genzyme, Acquisition Corp. or the Company thereunder except (a) as provided
under the heading "Termination Fee" below and (b) that the foregoing shall not
relieve any party for liability for any breach of the Purchase Agreement
occurring prior to such termination.
Termination Fee
In the event of the termination of the Purchase Agreement by Genzyme or
Acquisition Corp. in accordance with clause (c) under the heading "Termination
of Purchase Agreement", if such termination is based on the failure of the
Company to perform in any material respect any of its covenants or agreements
contained in the Purchase Agreement, the Purchase Agreement requires that the
Company pay to Genzyme a termination fee of $500,000 upon the consummation of a
Superior Transaction (as defined therein).
WAIVER AND AMENDMENT
Subject to the amendment provision described above under the heading
"Designation of Directors," the Purchase Agreement may not be amended except by
action of the Boards of Directors of each of the parties to
39
<PAGE> 46
the Purchase Agreement, set forth in an instrument in writing signed on behalf
of each of the parties; provided, however, that the Board of Directors of the
Company shall not act to amend the Purchase Agreement without the approval of
the Special Committee.
At any time prior to the effective date of the Merger, any party to the
Purchase Agreement, subject to the waiver provisions described above under the
heading "Designation of Directors," by action taken by its Board of Directors
(and in the case of the Company, subject to the approval of the Special
Committee), may (i) extend the time for the performance of any of the
obligations or other acts of any other party to the Purchase Agreement or (ii)
subject to the waiver provision described under the heading "Description of
Directors," waive compliance with any of the agreements of any other party or
with any conditions to its own obligations. Any agreement on the part of a party
to the Purchase Agreement to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party by a duly
authorized officer.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by Acquisition Corp. to purchase
Units pursuant to the Offer and the shares of Callable
Common Stock that are included in Units that were not purchased by Acquisition
Corp. pursuant to the Offer, and to pay related fees and expenses is estimated
to be approximately $109 million. Acquisition Corp. obtained such funds in
connection with the Offer from Genzyme and expects to obtain the balance of such
funds from Genzyme in connection with the Merger. Genzyme intends to obtain such
funds from its available corporate funds. Obtaining financing is not a condition
to the Merger.
FEES AND EXPENSES
The following is an estimate of expenses to be incurred in connection with
the Offer and the Merger, other than (i) the fees and expenses of Robertson,
Stephens & company (see "SPECIAL FACTORS -- Reasons for the Transaction; Purpose
and Structure of the Transaction; Plans for the Company After the Merger") and
(ii) the fees and expenses of Hambrecht & Quist (see "SPECIAL
FACTORS -- Recommendation of the Company's Board of Directors; Fairness of the
Transaction"). The Purchase Agreement provides that all costs and expenses
incurred in connection with the Offer and the Merger will be paid by the party
incurring such costs and expenses, whether or not the Offer or the Merger is
consummated, and no party to the Purchase Agreement may recover any such fees
and expenses from another party upon termination of the Purchase Agreement,
except for a termination fee payable to Genzyme as further described under "THE
MERGER -- Termination."
Expenses to be paid by Genzyme and Acquisition Corp.
<TABLE>
<S> <C>
Legal Fees and Expenses................................................... $200,000
Printing and Mailing...................................................... $100,000
Advertising............................................................... $ 65,000
Filing Fees............................................................... $ 65,000
Depositary Fees........................................................... $ 7,500
Information Agent Fees.................................................... $ 15,000
Accounting Fees and Expenses.............................................. $ 50,000
Miscellaneous............................................................. $ 16,125
--------
Total........................................................... $518,625
========
</TABLE>
Expenses to be paid by the Company:
<TABLE>
<S> <C>
Legal Fees and Expenses................................................... $180,000
Printing and Mailing...................................................... $ 25,000
Miscellaneous............................................................. $ 20,000
--------
Total........................................................... $225,000
========
</TABLE>
40
<PAGE> 47
REGULATORY MATTERS
Other than the filing of Articles of Merger with the BVI Registrar of
Companies, the Company is not aware of any other material filing, approval or
other action by any federal or state governmental or administrative authority
that would be required for the Merger, including any approval required under the
Hart-Scott-Rodino Act.
ACCOUNTING TREATMENT
Genzyme will account for the purchase of the shares of Callable Common
Stock pursuant to the Merger under the purchase method of accounting.
NEOZYME II SHAREHOLDER APPRAISAL RIGHTS
If the Merger is consummated, shareholders may have certain rights under
Section 83 of the BVI Law to dissent and demand appraisal of, and to receive
payment in cash of the fair value of, their shares of Callable Common Stock.
Under the BVI Law, holders of shares of a BVI company are entitled to payment of
fair value for their shares upon dissenting from mergers (if the BVI company is
a constituent company in the merger, unless it is the surviving company and the
shareholders continue to hold the same or similar shares), consolidations,
certain dispositions of more than 50% of the company's assets, compulsory
redemptions of shares, and certain other transactions (a "Specified
Transaction"). In order to assert rights under Section 83, the following
procedures must be followed:
- A shareholder who desires to exercise dissenters' rights must give to
the Company before or at the meeting of shareholders at which the
Specified Transaction is submitted to a vote, a written notice of an
objection to the Specified Transaction. The objection must include a
statement that the shareholder proposes to demand payment for his
shares if the action is taken. In the event that the shareholder does
not receive notice of the meeting, or if the proposed action is
authorized by written consent without a meeting, no notice of
objection is required.
- Within 20 days following the authorization of the Specified
Transaction by vote or written consent, the Company must give written
notice of the action to each shareholder who gave written objection or
from whom written objection was not required, except those who voted
for, or consented in writing to, the proposed action. A shareholder to
whom the Company is required to give notice who elects to dissent
must, within 20 days of notice or authorization, give to the Company a
written notice of his decision to elect to dissent, stating such
shareholder's name and address, the number and class or series of
shares involved (which must include all shares held by such
shareholder) and a demand for payment of fair value for the shares.
Upon the giving of notice, the shareholder ceases to have the rights
of a shareholder with the exception of the right to be paid for the
fair value of his shares.
- Within 7 days of the later to occur of: (i) the expiration of the
period within which shareholders may give notice or election of
dissent or (ii) the effective date of the Specified Transaction, the
surviving corporation must make a written offer to each dissenting
shareholder to purchase his shares at a price that the Company
determines to be their fair value.
- If within 30 days of the offer, the Company and the dissenting
shareholder agree on the price to be paid for the shares, the Company
will pay such amount to the shareholder upon surrender of the
certificates representing the shares.
- If the Company and the dissenting shareholder fail to agree on a price
within 30 days, the following shall occur within the next 20 days:
(i) the Company and the shareholder shall each designate an
appraiser;
(ii) the two designated appraisers shall designate a third
appraiser;
41
<PAGE> 48
(iii) the three appraisers shall fix the fair value of the
dissenting shareholders' shares as of the close of business on the day
prior to the vote on the Specified Transaction, excluding any
appreciation or depreciation directly or indirectly induced by the
Specified Transaction, and such value shall be binding on the Company
and the dissenter; and
(iv) the Company shall pay the dissenting shareholder such amount
in money upon the surrender of the certificates representing the shares.
- The enforcement by a shareholder of dissenters' rights will exclude
the enforcement by the shareholder of his other rights as a holder of
shares, other than the shareholder's right to obtain relief on the
ground that the action taken was illegal.
See Exhibit C attached hereto for the full text of Section 83 of the BVI
Law.
Failure to follow the steps required by Section 83 of the BVI Law for
perfecting appraisal rights may result in the loss of such rights.
ANY SHAREHOLDER WHO DESIRES TO EXERCISE APPRAISAL RIGHTS SHOULD REVIEW
CAREFULLY SECTION 83 OF THE BVI LAW AND CONSULT HIS OR HER LEGAL ADVISOR BEFORE
ELECTING OR ATTEMPTING TO EXERCISE SUCH RIGHTS.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material United States federal income tax
consequences of the Merger to shareholders of the Company. The tax consequences
of the Merger will depend in large part on the facts and circumstances
applicable to each shareholder. Therefore, each shareholder is urged to consult
the shareholder's own tax advisors regarding the United States federal income
tax consequences to that shareholder. No information is provided with respect to
state, local, or foreign tax consequences, and shareholders are urged to consult
their own tax advisors with respect to such consequences.
The discussion does not address federal income tax consequences applicable
to all shareholders, some of whom may be subject to special rules (including,
for example, shareholders who own, or are considered as owning pursuant to
certain attribution rules, five percent or more of the outstanding Units). The
discussion focuses on shareholders who are individual citizens or residents of
the United States and domestic corporations and has only limited application to
shareholders who are foreign corporations, regulated investment companies,
insurance companies, dealers in securities, estates, trusts or nonresident
aliens. Also, unless otherwise stated, the discussion assumes that each of the
Units, shares of Callable Common Stock and Callable Warrants are capital assets
in the hands of the shareholder at all relevant times.
The discussion is based upon existing federal income tax law, including the
Internal Revenue Code of 1986, as amended (the "Code"), income tax regulations
issued by the Internal Revenue Service (the "IRS"), rulings of the IRS and court
decisions. Future changes in the federal income tax laws could adversely affect
a shareholder.
CONSEQUENCES OF THE MERGER
For federal income tax purposes, the conversion of shares of Callable
Common Stock pursuant to the Merger into the right to receive cash in an amount
per share equal to the Merger Consideration will be treated as a taxable sale of
the shares of Callable Common Stock. A shareholder whose share of Callable
Common Stock is converted into the right to receive cash will recognize gain or
loss in an amount equal to the difference between the Merger Consideration for
the share of Callable Common Stock and the portion of the shareholder's adjusted
basis in the Unit allocable to the share of Callable Common Stock. Except as
otherwise described below under "Consequences of Passive Foreign Investment
Company Status," this gain or loss will generally be capital gain or loss if the
Unit is held as a capital asset on the effective date of the Merger and will be
long-term capital gain or loss if the Unit has been held for more than one year
on the effective date of the Merger.
42
<PAGE> 49
Shareholders should not recognize income, gain or loss upon the
acceleration in the exercisability of the Callable Warrants or the separation of
the Callable Warrants from the shares of Callable Common Stock as a result of
the Merger.
CONSEQUENCES OF PASSIVE FOREIGN INVESTMENT COMPANY STATUS
In each year that Neozyme II has been in existence, Neozyme II has
determined that it qualified as a Passive Foreign Investment Company ("PFIC")
and has sent to its shareholders the PFIC annual information statement and a
form of an election statement whereby the shareholder could elect to treat
Neozyme II as a qualified electing fund ("QEF") and to include annually in gross
income the shareholder's pro rata share of Neozyme II's ordinary earnings and
net capital gain (the "QEF inclusion").
If a shareholder has not elected to treat Neozyme II as a QEF, any gain
recognized by such non-electing shareholder as a result of the deemed sale of
the shareholder's shares of Callable Common Stock pursuant to the Merger will be
treated as ordinary income. The non-electing shareholder's tax liability with
respect to such gain will be determined by allocating such gain in pro rata
amounts to each day in the shareholder's holding period for the shares of
Callable Common Stock and by multiplying the gain allocated to each taxable year
of the shareholder other than the current taxable year by the highest rate of
tax in effect for the shareholder in that year, without regard to the actual
rate that applied to the shareholder's income in that year. The non-electing
shareholder will be subject to an interest charge on the taxes so determined at
the rates and using the methods in Section 6621 of the Code for underpayments of
tax, as if the shareholder had recognized the gain allocated to each prior
taxable year in that prior taxable year.
If a shareholder elected to treat Neozyme II as a QEF in the first taxable
year that the shareholder held shares of Callable Common Stock or later made the
election and also either (i) elected to treat the shares of Callable Common
Stock generally as if they were sold on the first day of the taxable year for
which the election was made or (ii) elected to include in the shareholder's
gross income the earnings and profits attributable to the shares of Callable
Common Stock as of the first day of the taxable year for which the election was
made, any gain recognized by such electing shareholder as a result of the deemed
sale of the shareholder's shares of Callable Common Stock pursuant to the Merger
will generally be capital gain if the stock is held as a capital asset on the
disposition date.
If for any taxable year an electing shareholder elected under Section 1294
of the Code to extend the time for the payment of the tax on a QEF inclusion and
that extension has not expired, the deemed sale of the shareholder's shares of
Callable Common Stock pursuant to the Merger will cause the extension to expire.
The extension will expire on the due date (without regard to extensions) of the
shareholder's tax return for the taxable year in which the disposition occurs.
Following the consummation of the Merger, Genzyme may make an election
pursuant to Section 338 of the Code. Such an election may cause an electing
shareholder to recognize a substantially increased QEF inclusion. However, the
basis of the electing shareholder's shares of Callable Common Stock should be
increased by the amount of the QEF inclusion. Any additional amounts of net
capital gain QEF inclusion resulting from the Section 338 election should thus
be offset by a reduced amount of capital gain or a capital loss in respect of
the electing shareholder's sale of the shares of Callable Common Stock. However,
any additional amounts of ordinary earnings QEF inclusion resulting from the
Section 338 election could not generally be offset by a capital loss (except
possibly for certain relatively small amounts in the case of individuals).
OTHER CONSIDERATIONS
Uncertainty exists as to the treatment of the initial grant to Genzyme of
the Purchase Option. The IRS might take the position that the Warrants received
as part of a Unit in the initial Unit Offering in April 1992 were issued by
Genzyme in exchange for the separate grant of the Purchase Option by the initial
purchasers of the Units and that the full purchase price of the Units was paid
in exchange for the shares of Callable Common Stock. In that event, upon the
lapse or termination of the Purchase Option, a shareholder might
43
<PAGE> 50
recognize a short-term capital gain in an amount equal to the value of the
Warrants on the closing date of the initial Unit Offering, less the
shareholder's tax basis in the Warrants.
If a shareholder were treated as having paid the full purchase price for
the Unit in exchange for a share of Callable Common Stock and as then having
granted the Purchase Option to Genzyme in exchange for the Warrants, the
shareholder would have an increased tax basis in the share of Callable Common
Stock which would reduce the amount of gain (or increase the amount of loss)
realized upon the deemed sale of the share of Callable Common Stock pursuant to
the Merger. Any such loss would be available to offset any gain taken into
account from a lapse of the Purchase Option.
UNITED STATES TAXATION OF NON-U.S. SHAREHOLDERS
The following is a general discussion of certain anticipated United States
federal income tax consequences of the Merger to a shareholder who, for United
States federal income tax purposes, (1) is not a "United States person", (2) is
not, and has not been, engaged in a United States trade or business and (3) in
the case of an individual, will not be present in the United States for 183 days
or more during the taxable year of the shareholder that includes the effective
date of the Merger (a "Non-U.S. Shareholder"). A "United States person" means a
citizen or resident of the United States for United States federal income tax
purposes, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any state thereof, or an estate or trust,
the income of which is subject to United States federal income tax regardless of
its sources. The following discussion does not consider specific facts and
circumstances that may be relevant to a particular Non-U.S. Shareholder's tax
position. Specifically, this discussion does not address the United States tax
consequences to any person who might own, or be considered as owning pursuant to
certain attribution rules, 5% or more of the outstanding shares of Callable
Common Stock. Furthermore, the following discussion is based on current
provisions of the Code and on administrative and judicial interpretations as of
the date hereof, all of which are subject to change. Each Non-U.S. Shareholder,
as well as each non-United States person who is or has been engaged in a United
States trade or business or who is an individual who has been present in the
United States for 183 days or more during a taxable year, or who may be eligible
for special treatment under an applicable income tax treaty is urged to consult
a tax advisor with respect to the United States federal tax consequences of the
Merger, as well as any tax consequences that may arise under the laws of any
foreign, state, local or other taxing jurisdiction.
A Non-U.S. Shareholder will not be subject to United States federal income
tax (and no tax will generally be withheld) with respect to gain recognized on
the deemed sale of a share of Callable Common Stock pursuant to the Merger.
Backup withholding requirements may apply to the gross proceeds paid to a
Non-U.S. Shareholder upon the deemed sale of the share, unless the holder
certifies its foreign status or otherwise establishes an exemption. A Non-U.S.
Shareholder may obtain a refund of any amounts withheld under the backup
withholding rules by filing the appropriate claim for refund with the IRS.
44
<PAGE> 51
NEOZYME II SHARE OWNERSHIP
None of the Company's executive officers or directors owns any shares of
Callable Common Stock. The following table and footnotes set forth certain
information regarding the beneficial ownership of Neozyme II's Callable Common
Stock as of the Record Date by persons known by the Company to be beneficial
owners of more than 5% of its Callable Common Stock:
<TABLE>
<CAPTION>
SHARES OF CALLABLE
COMMON
STOCK BENEFICIALLY
OWNED(1)
-----------------------
BENEFICIAL OWNER SHARES PERCENT
- ---------------------------------------------------------------------- --------- -------
<S> <C> <C>
Genzyme Corporation................................................... 2,415,000(2) 100.0%
One Kendall Square
Cambridge, MA 02139
Neozyme II Acquisition Corp........................................... %
Craigmuir Chambers
Road Town
Tortola, British Virgin Islands
The Goldman Sachs Group, L.P.......................................... 470,800(3) 19.5%
Goldman, Sachs & Co.
85 Broad Street
New York, NY 10004
Lehman Brothers Inc................................................... 428,226(4) 17.7%
3 World Financial Center
New York, NY 10285
Kingdon Capital Management Corporation................................ 325,000(5) 13.5%
152 West 57th Street
New York, NY 10019
William Harris Investors, Inc......................................... 191,500(6) 7.9%
2 North LaSalle Street, Suite 505
Chicago, IL 60602
Dawson-Samberg Capital Management..................................... 142,100(7) 5.9%
354 Pequot Avenue
Southport, CT 06490
Merrill Lynch & Co., Inc.............................................. 142,000(8) 5.9%
Merrill Lynch, Pierce, Fenner & Smith Incorporated
World Financial Center, North Tower
250 Vesey Street
New York, NY 10281
Chancellor Capital Management Inc..................................... 132,230(9) 5.5%
1166 Avenue of the Americas
New York, NY 10036
</TABLE>
- ---------------
(1) Unless otherwise indicated in these footnotes, each shareholder has sole
voting and investment power with respect to the shares listed in the table.
(2) Represents shares subject to an option granted to Genzyme. See "SPECIAL
FACTORS -- Agreements and Relationships Between Genzyme and Neozyme
II -- Purchase Option Agreement."
(3) Represents shares with respect to which The Goldman Sachs Group, L.P.
shares voting and investment power with Goldman, Sachs & Co. The foregoing
information is based on the Form 13F for the quarter ending June 30, 1996
and the Schedule 13G dated February 13, 1996 filed jointly with the
Securities and Exchange Commission by The Goldman Sachs Group, L.P. and
Goldman, Sachs & Co.
(4) Represents shares held by Lehman Brothers Holdings Inc. for the benefit of
its subsidiary, Lehman Brothers Inc. The foregoing information is based on
the Form 13F for the quarter ending June 30, 1996 and the Schedule 13G
dated December 31, 1995 filed with the Securities and Exchange Commission
by Lehman Brothers Holdings, Inc.
(5) Represents shares held by entities or managed accounts over which Kingdon
Capital Management Corporation has investment discretion. The foregoing
information is based on the Form 13F for the
45
<PAGE> 52
quarter ended June 30, 1996 filed with the Securities and Exchange
Commission by Kingdon Capital Management Corporation.
(6) Based on the Form 13F for the quarter ending June 30, 1996 filed with the
Securities and Exchange Commission by William Harris Investors, Inc.
(7) Based on the Form 13F for the quarter ending June 30, 1996 filed with the
Securities and Exchange Commission by Dawson-Samberg Capital Management.
(8) Represents shares with respect to which Merrill Lynch & Co., Inc. shares
voting and investment power with Merrill Lynch, Pierce, Fenner & Smith Inc.
Merrill Lynch & Co. and Merrill Lynch, Pierce, Fenner & Smith Inc. disclaim
beneficial ownership of these shares. The foregoing information is based on
the Form 13F for the quarter ending June 30, 1996 and the amended Schedule
13G dated February 14, 1996 filed jointly with the Securities and Exchange
Commission by Merrill Lynch & Co., Inc. and Merrill Lynch, Pierce, Fenner &
Smith Inc.
(9) Based on the Form 13F for the quarter ending June 30, 1996 filed with the
Securities and Exchange Commission by Chancellor Capital Management Inc.
CERTAIN INFORMATION CONCERNING THE COMPANY AND GENZYME
CERTAIN INFORMATION CONCERNING THE COMPANY
During the course of discussions between representatives of Genzyme and the
Special Committee that led to the execution of the Purchase Agreement, certain
non-public business and financial information about the Company was reviewed.
The Company does not as a matter of course make public any forecasts or
projections as to future performance or earnings, and the information set forth
below is included in this Information Statement only because such information
was received by representatives of the parties. The forecasted and projected
financial information set forth below was not prepared with a view to public
disclosure or compliance with published guidelines of the Commission or the
guidelines established by the American Institute of Certified Public Accountants
regarding projections and forecasts. None of Genzyme, Acquisition Corp. or the
Company, nor any of their respective financial advisors, assumes any
responsibility for the accuracy of this information. While presented with
numerical specificity, this information is based upon a variety of assumptions
relating to the business of the Company which may not be realized and is subject
to significant uncertainties and contingencies, all of which are difficult to
predict and many of which are beyond the control of the Company. There can be no
assurance that the projected or forecasted results will be realized, and actual
results may vary materially and adversely from those shown. The projections were
based on certain assumptions regarding patient growth, market penetration,
royalty income and other factors. The projections forecast base case net losses
of approximately $8 million to $11 million in each of 1996 through 2002, base
case revenue for 2003, 2004 and 2005 of approximately $26 million, $165 million
and $293 million, respectively, and base case net income for 2003, 2004 and 2005
of approximately $300,000, $42 million and $76 million, respectively.
CERTAIN INFORMATION CONCERNING GENZYME
Genzyme's common stock is divided into two classes, General Division Common
Stock and Tissue Repair Division Common Stock, each of which is traded in the
over-the-counter market and is included on the NNM under the symbol "GENZ" and
"GENZL," respectively.
Genzyme is subject to the disclosure requirements of the Exchange Act and
in accordance therewith is required to file reports, proxy statements and other
information with the Commission relating to its business, financial condition
and other matters. Such reports, proxy statements and other information are
available for inspection and copying at prescribed rates at the offices of the
Commission as set forth in "AVAILABLE INFORMATION."
46
<PAGE> 53
In addition to the Offer described herein, Genzyme has engaged in the
following transactions or negotiations with its affiliates in the last fiscal
year:
(i) IG Laboratories, Inc. In October 1994, Genzyme management began
consulting with its investment bankers regarding the potential acquisition
of all of the shares of the common stock of IG Laboratories, Inc., a
majority owned subsidiary of Genzyme ("IG"), not then owned by Genzyme. At
the same time, the IG Board established a committee (the "IG Independent
Committee") consisting of the directors of IG who were not affiliated with
Genzyme. The IG Independent Committee was charged with investigating and
considering the options available to IG for the further development of its
business or for a business combination with a third party, including
Genzyme. Between October 1994 and February 1995, the IG Independent
Committee consulted independent financial and legal advisors. Such advisors
began meeting with representatives of Genzyme in January 1995.
On February 15, 1995, Genzyme sent a proposal to the IG Independent
Committee to acquire all outstanding shares of IG's common stock not owned
by Genzyme through a merger of IG and Genzyme in which IG stockholders
other than Genzyme would receive shares of Genzyme General Division Common
Stock in exchange for their shares of IG Common Stock. On May 18, 1995,
Genzyme and the IG Independent Committee executed a letter of intent
pursuant to which the IG Independent Committee recommended to the full IG
Board of Directors the acquisition by Genzyme of all the outstanding shares
of IG's Common Stock. Genzyme and IG entered into an Agreement and Plan of
Merger dated as of June 10, 1995 providing, among other things, for the
merger of IG with and into Genzyme and for the exchange of all outstanding
shares of IG Common Stock (other than shares held by IG as treasury stock
or by Genzyme or subsidiaries of IG or Genzyme) for a number of shares of
Genzyme General Division Common Stock determined by dividing $7.00 by the
average of the closing prices reported by the Nasdaq National Market for
Genzyme General Division Common Stock during the ten trading days ending on
the second trading day prior to the closing date. The merger was approved
by a majority of the IG stockholders on September 29, 1995 and was
consummated on October 2, 1995, and each outstanding share of IG Common
Stock (other than as indicated above) was converted into .1201 share of
Genzyme General Division Common Stock in accordance with the Merger
Agreement.
(ii) Surgical Aids Partnership. On January 30, 1996, Genzyme made a
proposal to a special committee (the "Special Committee") of the Board of
Directors of the general partner of the Genzyme Development Partners, L.P.
(the "Partnership") offering to purchase substantially all of the assets of
the Partnership for approximately $93 million payable in shares of Genzyme
General Division Common Stock. The parties were unable to agree upon the
purchase price and negotiations have been terminated.
CERTAIN TRANSACTIONS
On October 28, 1996, Acquisition Corp. purchased Units at $45.00 per
unit pursuant to the Offer. Except for the Purchase Agreement and as otherwise
set forth in this Information Statement, none of Genzyme, Acquisition Corp. or
Merger Corp. beneficially owns or has a right to acquire, directly or
indirectly, any Units and none of Genzyme, Acquisition Corp. or Merger Corp.
nor, to the best knowledge of Genzyme, Acquisition Corp. and Merger Corp., any
of the persons listed in Schedule I to this Information Statement, nor any
associate or majority-owned subsidiary of any of the foregoing, nor any of the
respective executive officers, directors or subsidiaries of any of the
foregoing, has effected any transaction in the Units during the past 60 days
other than pursuant to the Offer.
Except as provided in the Purchase Agreement and as otherwise set forth in
this Information Statement, none of Genzyme, Acquisition Corp. or Merger Corp.
nor, to the best knowledge of Genzyme, Acquisition Corp. and Merger Corp., any
of the persons listed on Schedule I hereto, has any contract, arrangement,
understanding or relationship with any other person with respect to any Units or
other securities of the Company, including, but not limited to, any contract,
arrangement, understanding or relationship concerning the transfer or voting of
any such Units or other securities, joint ventures, loan or option arrangements,
puts or calls, guaranties of loans, guaranties against loss or the giving or
withholding of proxies.
47
<PAGE> 54
Except as set forth in this Information Statement (particularly the
sections entitled "SPECIAL FACTORS -- Agreements and Relationships Between the
Company and Genzyme" and "-- Background of the Transaction"), since January 1,
1993, there have been no contacts, negotiations or transactions between any of
Genzyme, Acquisition Corp., Merger Corp., any subsidiary of Genzyme, Acquisition
Corp. or Merger Corp. or, to the best knowledge of Genzyme, Acquisition Corp.
and Merger Corp., any of the persons listed on Schedule I hereto, on the one
hand, and the Company or any of its officers, directors or affiliates, on the
other hand, concerning a merger, consolidation or acquisition, tender offer or
other acquisition of securities, an election of directors, or a sale or other
transfer of a material amount of assets.
Except as set forth in this Information Statement none of Genzyme,
Acquisition Corp. or Merger Corp. nor, to the best knowledge of Genzyme,
Acquisition Corp. and Merger Corp., any of the persons listed on Schedule I
hereto, has, since January 1, 1993, had any business relationships or
transactions with the Company or any of its executive officers, directors or
affiliates that would require disclosure herein under the rules and regulations
of the Commission applicable to the Offer.
INFORMATION CONCERNING AUDITORS
The balance sheets of Neozyme II as of December 31, 1993, 1994 and 1995 and
the related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995 included
in the Neozyme II's Annual Report on Form 10-K for the year ended December 31,
1995, and the financial statement schedules appearing therein, have been
incorporated by reference into this Information Statement in reliance upon the
report of Coopers & Lybrand L.L.P., independent accountants.
DEADLINE FOR SHAREHOLDER PROPOSALS
In the event that the Merger is not consummated for any reason, in order
for a shareholder proposal to be considered for inclusion in the Company's proxy
materials for the 1997 annual meeting, it must be received by the Company at
Todman Building, Main Street, Road Town, Tortola, British Virgin Islands, no
later than December 27, 1996.
AVAILABLE INFORMATION
Neozyme II is subject to the disclosure requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith is required to file reports, proxy statements and other information
with the Commission. Genzyme has filed a Schedule 14D-1 with the Commission with
respect to the Offer and Neozyme II has filed a statement on Schedule 14D-9
regarding its recommendation to its securityholders with respect to the Offer.
In addition, Genzyme, Neozyme II and Acquisition Corp. have filed a Rule 13e-3
Transaction Statement on Schedule 13E-3 in connection with the Offer and the
Merger and Acquisition Corp. has filed a Issuer Tender Offer Statement on
Schedule 13E-4 in connection with the Offer. Such reports, proxy statements,
Schedules 13E-3, 13E-4, 14D-1 and 14D-9 and other information are available for
inspection at the Commission's public reference facilities at 450 Fifth Street,
N.W., Washington, D.C. 20549 and should also be available for inspection at the
regional offices of the Commission located at 7 World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies may be obtained at prescribed rates from
the Commission's principal office at 450 Fifth Street, N.W., Washington, D.C.
20549. Such reports and other information can also be reviewed through the
Commission's Electronic Data Gathering Analysis and Retrieval System which is
publicly available through the Commission's Web site (http://www.sec.gov).
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by Neozyme II (File No. 0-19918)
with the Commission under the Exchange Act are incorporated herein by reference,
except as superseded or modified herein: (i) Neozyme
48
<PAGE> 55
II's Annual Report on Form 10-K for the fiscal year ended December 31, 1995,
filed with the Commission on April 1, 1996; (ii) Neozyme II's Quarterly Reports
on Form 10-Q for the fiscal quarters ended March 31, 1996 and June 30, 1996,
filed with the Commission on May 15, 1996 and August 14, 1996, respectively; and
(iii) Neozyme II's Current Report on Form 8-K dated September 23, 1996, filed
with the Commission on September 24, 1996.
Any statement contained in a document incorporated herein by reference
shall be deemed to be modified or superseded for purposes hereof to the extent
that a statement contained herein modifies or supersedes such statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Information Statement.
THIS INFORMATION STATEMENT INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. COPIES OF SUCH DOCUMENTS THAT RELATE TO
NEOZYME II (NOT INCLUDING EXHIBITS THERETO, UNLESS SUCH EXHIBITS ARE
SPECIFICALLY INCORPORATED HEREIN BY REFERENCE) ARE AVAILABLE WITHOUT CHARGE TO
EACH PERSON TO WHOM A COPY OF THIS INFORMATION STATEMENT IS DELIVERED, UPON
WRITTEN OR ORAL REQUEST, FROM SUSAN COGSWELL, DIRECTOR, INVESTOR RELATIONS, AT
THE EXECUTIVE OFFICES OF GENZYME, ONE KENDALL SQUARE, CAMBRIDGE, MASSACHUSETTS
02139 (TELEPHONE: (617) 252-7526). IN ORDER TO ENSURE TIMELY DELIVERY OF THESE
DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NOVEMBER , 1996.
ACCOMPANYING NEOZYME II REPORTS
A copy of Neozyme II's Annual Report on Form 10-K for the year ended
December 31, 1995, and a copy of the Neozyme II Quarterly Report on Form 10-Q
for the quarter ended June 30, 1996 are being delivered to Neozyme II
shareholders with this Information Statement.
MISCELLANEOUS
Neozyme II knows of no other business that will be presented for action by
shareholders in connection with the Merger.
The Company, Acquisition Corp. and Genzyme have filed with the Commission a
Rule 13e-3 Transaction Statement on Schedule 13E-3, as amended, together with
exhibits, pursuant to Rule 13e-3 promulgated by the Commission under the
Exchange Act, furnishing certain additional information with respect to the
Offer and the Merger. Such Schedule 13E-3 and any amendments thereto, including
exhibits, may be examined and copies may be obtained at the same places and in
the same manner as set forth with respect to information about the Company in
"AVAILABLE INFORMATION" (except that such Schedule 13E-3 and amendments may not
be available in the regional offices of the Commission).
All information contained in this Information Statement relating to the
Company has been supplied by the Company, and all information relating to
Genzyme, Acquisition Corp. and Merger Corp. has been supplied by Genzyme,
Acquisition Corp. and Merger Corp., respectively. None of the parties are
responsible for the information provided by the other parties.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS INFORMATION STATEMENT AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED. THE DELIVERY OF THIS INFORMATION STATEMENT SHALL, UNDER
NO CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY, GENZYME, ACQUISITION CORP. OR MERGER CORP. SINCE THE
DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
49
<PAGE> 56
SCHEDULE I
MEMBERS OF THE BOARDS OF DIRECTORS AND
EXECUTIVE OFFICERS OF GENZYME, ACQUISITION CORP. AND MERGER CORP.
1. Directors and Executive Officers of Genzyme. The name, business address
and position with Genzyme, present principal occupation or employment and five
year employment history of each of the directors and executive officers of
Genzyme, together with the names, principal businesses and addresses of any
corporations or other organizations in which such principal occupations are
conducted are set forth below. Unless otherwise indicated, each occupation set
forth refers to Genzyme, each individual is a United States citizen and each
individual's business address is One Kendall Square, Cambridge, MA 02139. Unless
otherwise indicated, no director or executive officer of Genzyme beneficially
owns any Units (or rights to acquire Units).
<TABLE>
<CAPTION>
NAME POSITION WITH GENZYME
- --------------------------------------------- ---------------------------------------------
<S> <C>
Henri A. Termeer............................. Chairman of the Board; President; Chief
Executive Officer
Geoffrey F. Cox.............................. Executive Vice President
David D. Fleming............................. Group Senior Vice President, Diagnostics
John V. Heffernan............................ Senior Vice President, Human Resources
Elliott D. Hillback, Jr...................... Senior Vice President, Genomics
Mark A. Hofer................................ Senior Vice President; Chief Patent Counsel
David J. McLachlan........................... Executive Vice President, Finance; Chief
Financial Officer
Gregory D. Phelps............................ Executive Vice President
James R. Rasmussen........................... Senior Vice President, Research
Alan E. Smith................................ Senior Vice President, Research; Chief
Scientific Officer
Peter Wirth.................................. Executive Vice President, Legal Affairs;
Chief Legal Counsel
Evan M. Lebson............................... Vice President and Treasurer
John M. McPherson............................ Senior Vice President, Protein Development
Richard A. Moscicki.......................... Senior Vice President, Clinical, Medical and
Regulatory Affairs; Chief Medical Officer
G. Jan van Heek.............................. Group Senior Vice President, Therapeutics
Constantine E. Anagnostopoulos............... Director
Douglas A. Berthiaume........................ Director
Henry E. Blair............................... Director
Charles L. Cooney............................ Director
Robert J. Carpenter.......................... Director
Henry R. Lewis............................... Director
</TABLE>
Mr. Termeer has served as President and a director of Genzyme since October
1983, as Chief Executive Officer since December 1985 and as Chairman of the
Board since May 1988. For ten years prior to joining Genzyme, Mr. Termeer worked
for Baxter Travenol Laboratories, Inc., a manufacturer of human health care
products. Mr. Termeer is Chairman of the Boards of Genzyme Transgenics
Corporation (an affiliate of Genzyme) and Neozyme II. Mr. Termeer is also a
director of Abiomed, Inc., AutoImmune Inc., GelTex Pharmaceuticals, Inc. and
Xenova Ltd. and a trustee of Hambrecht & Quist Healthcare Investors and
Hambrecht & Quist Life Sciences Investors. Mr. Termeer is a citizen of The
Netherlands.
I-1
<PAGE> 57
Dr. Cox joined Genzyme in June 1984 and served as Senior Vice President,
Operations of Genzyme from May 1988 until September 1996, when he became an
Executive Vice President. For 14 years prior to joining Genzyme, Dr. Cox worked
for the manufacturing division of British Fermentation Products, Ltd., a
division of Gist-Brocades N.V. Mr. Cox is a citizen of the United Kingdom.
Mr. Fleming joined Genzyme in April 1984. He has served as President of
Genzyme Diagnostics Division since January 1989 and a Senior Vice President of
Genzyme from August 1989 until September 1996. He was named Group Senior Vice
President, Diagnostics in September 1996. For 11 years prior to joining Genzyme,
he worked for Baxter Travenol Laboratories, Inc.
Mr. Heffernan joined Genzyme as Vice President, Human Resources in October
1989 and has served as Senior Vice President, Human Resources since May 1992.
Prior to joining Genzyme, he served for more than five years as Vice President,
Human Resources Corporate Staff of GTE Corporation, a diversified communications
and electronics company.
Mr. Hillback became Senior Vice President, Genomics in September 1996. He
served as Senior Vice President and as President of Integrated Genetics
(formerly IG Laboratories, Inc., a majority-owned subsidiary merged into Genzyme
in October 1995) from July 1990 until September 1996. For one year before
joining Genzyme, he was President and Chief Executive Officer of Cellcor
Therapies, Inc., a biotechnology company. Prior to that, Mr. Hillback was
employed for six years in the human health care products business of The BOC
Group, Inc., most recently as President of its Glasrock Home Health Care
subsidiary. For 11 years prior to joining The BOC Group, Inc., he served in
varying capacities at Baxter Travenol Laboratories, Inc. Mr. Hillback is also a
director of IntegraMed America, Inc., an in vitro fertilization services company
in which Genzyme holds a minority interest.
Mr. Hofer joined Genzyme in August 1989 as Vice President and General
Counsel, served as Senior Vice President and General Counsel from May 1992 until
December 1995 and has been Senior Vice President and Chief Patent Counsel since
January 1996. Prior to joining Genzyme, he served as Chief Patent Counsel for
Integrated Genetics, Inc., a biotechnology company, from July 1987 until its
acquisition by Genzyme in August 1989. From March 1981 until July 1987, he
served as Patent Counsel for Johnson & Johnson specializing in biotechnology.
Mr. McLachlan joined Genzyme in December 1989 and served as Senior Vice
President, Finance until September 1996, when he became Executive Vice
President, Finance. He has served as Chief Financial Officer since joining
Genzyme. Prior to joining Genzyme, he served for more than five years as Vice
President of Finance for Adams-Russell Electronics Inc., a defense electronics
manufacturer, and Adams-Russell Co., Inc., a cable television company. Mr.
McLachlan is also a director of HearX, Ltd.
Mr. Phelps joined Genzyme as Senior Vice President in November 1991 and was
named Executive Vice President in September 1996. Prior to joining Genzyme, Mr.
Phelps served as President and Chief Executive Officer of Viagene, Inc., a
biotechnology company, from October 1988 to June 1990, and of ZymoGenetics,
Inc., a biotechnology company, from May 1986 to August 1988, and held various
positions at Baxter Travenol Laboratories, Inc., a manufacturer of human health
care products, from 1975 to 1986. Mr. Phelps is also a director of Neozyme II
and Oxtex International Inc.
Dr. Rasmussen joined Genzyme in June 1984 and has served as Senior Vice
President, Research since August 1989. Prior to joining Genzyme, he was an
Assistant Professor of Chemistry at Cornell University.
Dr. Smith joined Genzyme in August 1989 as Senior Vice President, Research.
He also became Genzyme's Chief Scientific Officer in September 1996. Prior to
joining Genzyme, he served as Vice President-Scientific Director of Integrated
Genetics, Inc., from November 1984 until its acquisition by Genzyme in August
1989. From October 1980 to October 1984, Dr. Smith was head of the Biochemistry
Division of the National Institute for Medical Research, Mill Hill, London,
England. Dr. Smith also serves as a director of Genzyme Transgenics Corporation.
Dr. Smith is a citizen of the United Kingdom.
Mr. Wirth joined Genzyme in January 1996 as Senior Vice President and
General Counsel and became Executive Vice President, Legal Affairs and Chief
Legal Officer in September 1996. He was a partner of
I-2
<PAGE> 58
Palmer & Dodge LLP, a Boston, Massachusetts law firm, a position he held from
1982 until September 30, 1996, at which time he became of Counsel. Palmer &
Dodge LLP is counsel to Genzyme, Acquistion Corp., Merger Corp. and the Company.
Mr. Lebson joined Genzyme in August 1989 as Executive Assistant to the
President and served as Vice President, Financial Operations from April 1990 to
August 1991 and as Vice President and Treasurer since August 1991. Prior to
joining Genzyme, he served as Treasurer and Chief Financial Officer of
Integrated Genetics, Inc. from 1983 until its acquisition by Genzyme in August
1989. Mr. Lebson is also Vice President and Treasurer of Genzyme Transgenics
Corporation.
Dr. McPherson joined Genzyme in August 1989 and served as Vice President,
Therapeutic Protein Development from November 1989 to May 1993 and as Vice
President, Biotherapeutic Product Development until September 1996, when he was
promoted to Senior Vice President, Protein Development. He was also appointed
Vice President, Research and Development of Genzyme Tissue Repair Division in
December 1994. Prior to joining Genzyme, he was, since April 1988, Director,
Protein Chemistry of Integrated Genetics, Inc.
Dr. Moscicki joined Genzyme in March 1992 as Medical Director, became Vice
President, Medical Affairs in early 1993 and was named Vice President, Clinical,
Medical and Regulatory Affairs in December 1993. In September 1996, he became
Senior Vice President, Clinical, Medical and Regulatory Affairs and Chief
Medical Officer. Since 1979, he has also been a physician staff member at the
Massachusetts General Hospital and a faculty member at the Harvard Medical
School.
Mr. van Heek joined Genzyme in September 1991 as General Manager of its
wholly-owned subsidiary, Genzyme, B.V., and became a Genzyme Vice President and
the President of Genzyme Therapeutics Division in December 1993. In September
1996 he was named Group Senior Vice President, Therapeutics. Prior to joining
Genzyme, he was, since 1988, Vice President/General Manager of the Fenwal
Division of Baxter Healthcare Corporation. Mr. van Heek also has served as
President and Treasurer of Neozyme II from March 1992 to January 1996. Mr. van
Heek is a citizen of The Netherlands.
Dr. Anagnostopoulos is Managing General Partner of Gateway Associates,
which is the general partner of Gateway Venture Partners III, L.P., a venture
capital partnership. From January 1986 to April 1987, Dr. Anagnostopoulos was a
consultant to Monsanto Company, a producer of pharmaceuticals, chemicals,
plastics and textiles, and to Alafi Capital, a venture capital firm. From 1982
through 1985, he served as Corporate Vice President of Monsanto Company. His
principal business address is Gateway Associates, 800 Maryland Avenue, Suite
1190, St. Louis, MO 63105.
Mr. Berthiaume is Chairman, President and Chief Executive Officer of Waters
Corporation, a high technology manufacturer of products used for analysis and
purification, formerly a division of Millipore Corporation. From May 1991 to
August 1994, he was President of the Waters Division of Millipore Corporation,
and from 1988 to 1991, he was Chief Financial Officer of Millipore Corporation.
His principal business address is Waters Corporation, 34 Maple Street, Milford,
MA 01757.
Mr. Blair is a consultant to several companies, including Genzyme. Prior to
January 1990, Mr. Blair was Senior Vice President, Scientific Affairs of
Genzyme. Before joining Genzyme in 1981, he was Associate Director of the New
England Enzyme Center at Tufts University School of Medicine. Mr. Blair is also
a director of Genzyme Transgenics Corporation, Dynagen, Inc. and Celtrix
Pharmaceuticals, Inc. His principal business address is P.O. Box 648, 275 Mill
Way, Barnstable, MA 02630.
Mr. Carpenter is President and Chief Executive Officer of VacTex, Inc., a
privately held biotechnology company which he co-founded in November 1995, and
Chairman of GelTex Pharmaceuticals, Inc., a publicly held pharmaceutical
development company which he co-founded in November 1991 and where he served as
President and Chief Executive Officer until May 1993. Mr. Carpenter was Chairman
of the Board, President and Chief Executive Officer of Integrated Genetics,
Inc., a biotechnology company that merged with Genzyme in 1989. Following the
merger and until 1991, Mr. Carpenter was Executive Vice President of Genzyme,
and Chief Executive Officer and Chairman of the Board of IG Laboratories, Inc.
Mr. Carpenter is also a director of Apex Biosciences, Inc. and Neozyme II. His
principal business address is VacTex, Inc., 70 Walnut Street, Wellesley, MA
02181.
I-3
<PAGE> 59
Dr. Cooney is a Professor of Chemical and Biochemical Engineering and
Co-Director of the Program on the Pharmaceutical Industry at Massachusetts
Institute of Technology ("MIT"). Dr. Cooney joined the MIT faculty as an
Assistant Professor in 1970 and became a Professor in 1982. Dr. Cooney is also a
principal of BioInformation Associates, Inc., a consulting company. His
principal business address is Massachusetts Institute of Technology, 25 Ames
Street, Building 66, Room 472, Cambridge, MA 02139.
Mr. Lewis is a consultant to several companies and Chairman of the Board of
Delphax Systems, a manufacturer of high speed non-impact printers, and a member
of the Board of Dyax Corp., a bioseparation, pharmaceutical discovery and
development company. From 1986 to February 1991, Mr. Lewis was the Vice Chairman
of the Board of Dennison Manufacturing Company, a manufacturer and distributor
of products for the stationery, technical paper, and industrial and retail
systems markets. From 1982 to 1986, Mr. Lewis was a Senior Vice President of
Dennison Manufacturing Company. His principal business address is Protein
Engineering Corporation, 35 Clover Street, Belmont, MA 02178.
2. Sole Director and Executive Officers of Acquisition Corp. The name,
business address and position with Acquisition Corp., present principal
occupation or employment and five year employment history of the sole director
and the executive officers of Acquisition Corp., together with the names,
principal businesses and addresses of any corporations or other organizations in
which such principal occupations are conducted are set forth below. Unless
otherwise indicated, each individual is a United States citizen, and no director
or executive officer of Acquisition Corp. beneficially owns any Units (or rights
to acquire Units).
<TABLE>
<CAPTION>
NAME POSITION WITH ACQUISITION CORP.
- --------------------------------------------- ---------------------------------------------
<S> <C>
David J. McLachlan........................... Director, President and Treasurer
Peter Wirth.................................. Secretary
</TABLE>
See Section 1 of this Schedule I for information concerning Messrs.
McLachlan and Wirth.
3. Sole Director and Executive Officers of Merger Corp. The name, business
address and position with Merger Corp., present principal occupation or
employment and five year employment history of the sole director and the
executive officers of Merger Corp., together with the names, principal business
and addresses of any corporations or other organizations in which such principal
occupations are conducted are set forth below. Unless otherwise indicated, each
individual is a United States citizen, and no director or executive officer of
Merger Corp. beneficially owns any Units (or rights to acquire Units).
<TABLE>
<CAPTION>
NAME POSITION WITH MERGER CORP.
- --------------------------------------------- ---------------------------------------------
<S> <C>
David J. McLachlan........................... Director, President and Treasurer
Peter Wirth.................................. Secretary
</TABLE>
See Section 1 of this Schedule I for information concerning Messrs.
McLachlan and Wirth.
I-4
<PAGE> 60
SCHEDULE II
MEMBERS OF THE BOARD OF DIRECTORS AND
EXECUTIVE OFFICERS OF NEOZYME II
The name, business address and position with Neozyme II, present principal
occupation or employment and five year employment history of each of the
directors and executive officers of Neozyme II, together with the names,
principal businesses and addresses of any corporations or other organizations in
which such principal occupations are conducted are set forth below. Unless
otherwise indicated, each individual is a United States citizen and each
individual's business address is One Kendall Square, Cambridge, MA 02139. Unless
otherwise indicated, no director or executive officer of Neozyme II beneficially
owns any Units (or rights to acquire Units).
<TABLE>
<CAPTION>
NAME POSITION WITH NEOZYME II
- ------------------------------------------------------------------- ------------------------
<S> <C>
Paul M. Edwards.................................................... President and Treasurer
Kennett F. Burnes.................................................. Director
Robert J. Carpenter................................................ Director
Robert E. Flynn.................................................... Director
Gregory D. Phelps.................................................. Director
Henri A. Termeer................................................... Director
</TABLE>
Mr. Edwards became President and Treasurer of Neozyme II in January 1996.
Mr. Edwards also serves as Vice President and General Manager -- UK Operations
for Genzyme, a position he has held since April 1993. He joined Genzyme Limited,
a Genzyme Subsidiary in the UK, in 1986 as a Production Manager and became its
Director, Manufacturing Operations in 1990. Prior to joining Genzyme Limited,
Mr. Edwards was employed by Beecham Pharmaceuticals from September 1979 in
varying capacities. Mr. Edwards is a citizen of the United Kingdom.
Mr. Burnes is President and Chief Operating Officer of Cabot Corporation, a
specialty chemicals and materials and energy company, a position he has held
since February 1995. From August 1988 through February 1995, he was Executive
Vice President of Cabot Corporation, and from November 1987 through August 1988,
he was Vice President and General Counsel of Cabot Corporation. Prior to joining
Cabot Corporation, Mr. Burnes was a partner at the Boston, Massachusetts law
firm of Choate, Hall & Stewart. Mr. Burnes is also a director of Cabot
Corporation. His principal business address is Cabot Corporation, 75 State
Street, Boston, MA 02109.
Mr. Carpenter is President and Chief Executive Officer of VacTex, Inc., a
privately held biotechnology company which he co-founded in November 1995, and
Chairman of GelTex Pharmaceuticals, Inc., a publicly held pharmaceutical
development company which he co-founded in November 1991 and where he served as
President and Chief Executive Officer until May 1993. Mr. Carpenter was Chairman
of the Board, President and Chief Executive Officer of Integrated Genetics,
Inc., a biotechnology company that merged with Genzyme in 1989. Following the
merger and until 1991, Mr. Carpenter was Executive Vice President of Genzyme,
and Chief Executive Officer and Chairman of the Board of IG Laboratories, Inc.
Mr. Carpenter is also a director of Apex Biosciences, Inc. and Genzyme. His
principal business address is VacTex, Inc., 70 Walnut Street, Wellesley, MA
02181.
Mr. Flynn has been President of Houghton & Richards, Inc., a privately held
tool steel sales company, since 1976. He is also a director of the Massachusetts
Cystic Fibrosis Foundation and a trustee of the national Cystic Fibrosis
Foundation. His principal business address is Houghton & Richards Corporation,
P.O. Box 509, Marlborough, MA 01752.
Mr. Phelps joined Genzyme as Senior Vice President in November 1991 and was
named Executive Vice President in September 1996. Prior to joining Genzyme, Mr.
Phelps served as President and Chief Executive Officer of Viagene, Inc., a
biotechnology company, from October 1988 to June 1990, and of ZymoGenetics,
Inc., a biotechnology company, from May 1986 to August 1988, and held various
positions at Baxter Travenol
II-1
<PAGE> 61
Laboratories, Inc., a manufacturer of human health care products, from 1975 to
1986. Mr. Phelps is also a director of Oxtex International Inc.
Mr. Termeer has served as President and a Director of Genzyme since October
1983, as Chief Executive Officer since December 1985 and as Chairman of the
Board since May 1988. For ten years prior to joining Genzyme, Mr. Termeer worked
for Baxter Travenol Laboratories, Inc., a manufacturer of human health care
products. Mr. Termeer is Chairman of the Boards of Genzyme Transgenics
Corporation. Mr. Termeer is also a director of Abiomed, Inc., AutomImmune Inc.,
GelTex Pharmaceuticals, Inc. and Xenova Ltd. and a trustee of Hambrecht & Quist
Healthcare Investors and Hambrecht & Quist Life Sciences Investors. Mr. Termeer
is a citizen of The Netherlands.
II-2
<PAGE> 62
EXHIBIT A
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT (this "Agreement") dated as of September 20, 1996
is among Genzyme Corporation ("Genzyme"), a Massachusetts corporation, Neozyme
II Acquisition Corp. (the "Purchaser"), a British Virgin Islands ("BVI")
international business company and a wholly-owned subsidiary of Genzyme, and
Neozyme II Corporation (the "Company"), a BVI international business company.
BACKGROUND
A. The respective Boards of Directors of Genzyme, the Purchaser and the
Company have duly approved the acquisition of the Company pursuant to the terms
of this Agreement.
B. In furtherance of such acquisition, it is proposed that the Purchaser
will make a tender offer (the "Offer") to purchase all of the outstanding units
(the "Units"), each of which consists of one share of Callable Common Stock, par
value $1.00 per share, of the Company (individually, a "Share" and,
collectively, the "Shares") and Callable Warrants (the "Callable Warrants") to
purchase two shares of General Division Common Stock of Genzyme and .135 shares
of Tissue Repair Division Common Stock of Genzyme. The Shares included in the
Units represent all of the issued and outstanding capital stock of the Company.
The Offer will be at a price of $45.00 per Unit in cash and will be subject to
the Minimum Condition (as defined in ANNEX I hereto), and on the terms and
subject to the other conditions set forth in the Offer Documents (as defined in
Section 1.1(b)).
C. If the Offer is consummated, but not all of the Units are tendered and
accepted, Genzyme has agreed to effect a transaction (as more fully described in
Section 2.1) in which Genzyme will acquire, directly or indirectly, all of the
remaining Shares of the Company in exchange for cash in an amount per Share
equal to $29.00 (the "Second Step Consideration"). The Callable Warrants
associated with each such Share shall remain outstanding following consummation
of the Second Step Transaction (as defined in Section 2.1). In order to effect
the Second Step Transaction as promptly as practicable following completion of
the Offer, the Board of Directors of the Company has duly authorized a merger
(the "Merger") of the Company with a wholly-owned subsidiary of the Purchaser on
the terms and subject to the conditions of this Agreement and pursuant to the
plan of merger set forth as ANNEX II hereto (the "Merger Plan") in accordance
with the applicable provisions of the BVI International Business Companies
Ordinance, 1984 (the "BVI Law"). At the request of Genzyme in accordance with
the terms of this Agreement, the Company will solicit the written consents of
its shareholders for the approval of the Merger Plan. At Genzyme's option and
subject to compliance with applicable laws, such solicitation may occur while
the Offer is pending or following its consummation.
D. If the Offer is terminated because the Minimum Condition has not been
satisfied, upon the election and at the request of Genzyme in accordance with
Section 1.1(b)(ii) of this Agreement, the Company shall take all action
(coordinating the timing thereof with Genzyme and the Purchaser) necessary, in
accordance with applicable law and the Company's Memorandum of Association and
Articles of Association, to convene a meeting of its shareholders to consider
and vote upon the approval of the Merger Plan, or to solicit the written consent
of its shareholders to approve the Merger Plan.
E. The Board of Directors of the Company, on the recommendation of a
special committee of the Board of Directors consisting of all of the directors
of the Company who are not officers or directors of Genzyme (the "Special
Committee"), has determined that the Offer and the Second Step Transaction are
fair to, and in the best interests of the holders of the Units and has duly
approved the Offer and the Second Step Transaction and resolved to recommend
acceptance of the Offer by the holders of the Units.
A-1
<PAGE> 63
Accordingly, in consideration of the mutual representations, warranties and
covenants contained herein, the parties hereto agree as follows:
1. THE OFFER
1.1. The Offer.
(a) Provided that this Agreement shall not have been terminated in
accordance with Section 8.1 hereof and nothing shall have occurred and be
continuing that would result in a failure to satisfy any of the conditions set
forth in ANNEX I hereto, the Purchaser shall, as soon as practicable after the
date hereof, and in any event within five business days of the day on which the
Purchaser's intention to make the Offer is publicly announced, which
announcement will be made promptly following the execution of this Agreement,
commence (within the meaning of Rule 14d-2(a) of the U.S. Securities Exchange
Act of 1934, as amended (the "Exchange Act")), the Offer for all Units, subject
to the Minimum Condition (as defined in ANNEX I hereto), at a price of $45.00
per Unit, net to the seller in cash, without interest thereon. The Purchaser
shall conduct the Offer in compliance in all material respects with applicable
laws and consummate the Offer, on the terms and subject to the conditions
thereof. Genzyme represents that it has, and will provide to the Purchaser on a
timely basis, the funds necessary to purchase the Units pursuant to the Offer
and to consummate the Second Step Transaction.
(b) The Offer shall be made by means of the Offer Documents (as defined
below), which shall not contain any condition not set forth in ANNEX I hereto
and shall be open for a period of 21 business days (such 21st business day being
referred to herein as the "Initial Expiration Date"). Without the consent of the
Company, as approved by the Special Committee, the Purchaser shall not amend or
waive the Minimum Condition (as defined in ANNEX I hereto) or the Majority
Consent Condition (as defined below), extend the Offer, reduce the maximum
number of Units to be purchased, reduce the price to be paid per Unit pursuant
to the Offer or amend any other material term of the Offer in a manner adverse
to the holders of the Units; provided, however, that if, on the Initial
Expiration Date, the Minimum Condition has not been satisfied, the Purchaser
may, not later than 9:00 a.m., eastern time, on the next business day following
the Initial Expiration Date, elect either (x) to amend the Offer and, subject to
compliance with applicable laws, proceed in accordance with subsection (i) below
or (y) to terminate the Offer and, subject to compliance with applicable laws,
proceed in accordance with subsection (ii) below. If, on the Initial Expiration
Date, the Minimum Condition has not been satisfied and the Purchaser does not
elect to proceed pursuant to subsection (i) or (ii) below within the time period
and as described in the preceding sentence, then the Company shall have the
right to terminate this Agreement in accordance with Section 8.1(b)(i) and
Genzyme and the Purchaser shall have the right to terminate this Agreement in
accordance with Section 8.1(c)(i).
(i) If the Purchaser elects to amend the Offer and proceed under this
subsection 1.1(b)(i), the Purchaser will (a) extend the Offer for
a period not to exceed sixty days, (b) amend the Offer to delete
the Minimum Condition, (c) amend the Offer to add the Majority
Consent Condition (as defined below), and (d) amend the Offer
Documents to reflect the foregoing and cause the dissemination of
such revised documents in accordance with applicable laws. In such
event, the Company shall promptly commence (coordinating the
timing thereof with Genzyme and the Purchaser) to convene a
meeting of its shareholders or solicit the written consent of its
shareholders for approval of the Merger Plan, such solicitation or
meeting to be conducted in accordance with applicable laws and the
terms of this Agreement. The Majority Consent Condition shall mean
that the sum of (a) the Shares included in the Units tendered and
not withdrawn as of the new expiration date of the Offer (provided
such Shares may be voted in favor of the Merger Plan at the
meeting or pursuant to the consent solicitation by the Purchaser
immediately after the purchase of the Units which include such
Shares in the Offer by the Purchaser) plus (b) the number of
Shares held by holders who have voted in favor of the Merger Plan
at the meeting or pursuant to the consent solicitation as of the
new expiration date of the Offer (but excluding any such Shares
that would result in double counting with (a) above) represents
not less than a majority of the Shares outstanding.
A-2
<PAGE> 64
(ii) If the Purchaser elects to terminate the Offer and proceed under
this subsection 1.1(b)(ii), the Purchaser will promptly return
all tendered Units. In such event, the Company shall promptly
commence (coordinating the timing thereof with Genzyme and the
Purchaser) to convene a meeting of its shareholders or solicit
the written consent of its shareholders for approval of the
Merger Plan, such solicitation or meeting to be conducted in
accordance with applicable laws and the terms of this Agreement.
(c) As soon as practicable on the date of commencement of the Offer, the
Purchaser shall file with the Securities and Exchange Commission (the
"Commission") with respect to the Offer (i) a Tender Offer Statement on Schedule
14D-1 (together with all amendments and supplements thereto, the "Schedule 14D-
1"), (ii) a Rule 13E-3 Transaction Statement on Schedule 13E-3 (together with
all amendments and supplements thereto, the "Schedule 13E-3") and (iii) an
Issuer Tender Offer Statement on Schedule 13E-4 (together with all amendments
and supplements thereto, the "Schedule 13E-4"), which will contain an offer to
purchase and forms of the related letters of transmittal and summary
advertisement (the Schedule 14D-1, the Schedule 13E-3, the Schedule 13E-4, the
offer to purchase and such other documents, together with any supplements or
amendments thereto, are referred to herein collectively as the "Offer
Documents"), all of which Offer Documents will be subject to review by the
Company prior to filing. Genzyme and the Purchaser shall provide the Company and
its counsel with a copy of any written comments or telephonic notification of
any verbal comments Genzyme or the Purchaser may receive from the Commission or
its staff with respect to the Offer Documents promptly after the receipt thereof
and shall provide the Company and its counsel with a copy of any written
responses thereto and telephonic notification of any verbal responses thereto of
Genzyme or the Purchaser or their counsel.
1.2. Company Action.
(a) In connection with the Offer, the Company will comply with the
requirements of Rule 14d-5(b) of the Exchange Act and will, or will cause its
agent to, mail, via first class mail, postage prepaid the Offer Documents and,
if applicable, the Proxy Statement (as defined in 1.2(c)) to the record holders
of the Units in accordance with Rule 14d-5(b). The Company will cooperate with
the Purchaser to the end that any additional Offer Documents furnished to it (or
its agent) are mailed as soon as practicable. The Purchaser shall pay all costs
and expenses of such mailing.
(b) The Company represents and warrants that the Board of Directors of the
Company (the "Company's Directors"), on the recommendation of the Special
Committee, (i) has duly adopted and approved the Offer, the Second Step
Transaction, this Agreement and the transactions contemplated hereby and
thereby, (ii) has determined that the Offer and the Second Step Transaction are
fair to and in the best interests of the shareholders of the Company and (iii)
after consideration of its fiduciary duties under applicable laws, has resolved
to recommend acceptance of the Offer by holders of Units. The Company agrees to
file with the Commission as soon as reasonably practicable on the date of the
commencement of the Offer a Solicitation/Recommendation Statement on Schedule
14D-9 (together with all amendments and supplements thereto, the "Schedule
14D-9") and to disseminate the Schedule 14D-9 to the extent required by Rule
14d-9 under the Exchange Act and any other applicable U.S. federal securities
laws. Subject to the fiduciary duties of the Company's Directors, as advised by
counsel, the Offer Documents and the Schedule 14D-9 shall contain the
recommendation of the Company's Directors that the holders of Units accept the
Offer, and the Company hereby consents to the inclusion in the Offer Documents
of such recommendation. The Company shall provide Genzyme and its counsel with a
copy of any written comments or telephonic notification of any verbal comments
the Company may receive from the Commission or its staff with respect to the
Schedule 14D-9 promptly after the receipt thereof and shall provide Genzyme and
its counsel with a copy of any written responses thereto and telephonic
notification of any verbal responses thereto of the Company or its counsel.
(c) At the request of Genzyme, the Company shall take all action
(coordinating the timing thereof with Genzyme and the Purchaser) necessary, in
accordance with applicable law and the Company's Memorandum of Association and
Articles of Association, to convene a meeting of its shareholders (the
"Shareholders' Meeting"), as promptly as practicable after the purchase of Units
pursuant to the Offer to consider and vote upon the approval of the Merger Plan,
or to solicit the written consent of its shareholders to approve the
A-3
<PAGE> 65
Merger Plan (the "Consent Solicitation") promptly after such purchase or,
promptly after the request of Genzyme, after the commencement of the Offer and
while it is pending or following the termination of the Offer upon the election
of Genzyme pursuant to Section 1.1(b)(ii). If required by applicable law, the
Company shall promptly prepare and file with the Commission, and use its
reasonable best efforts to have cleared by the Commission, a proxy, consent
solicitation or information statement relating to the Second Step Transaction
(the "Proxy Statement") in compliance with applicable law. Subject to the
fiduciary duties of the Company's Directors, as advised by counsel, the Proxy
Statement shall contain a statement as to the approval of the Merger Plan by the
Company's Board of Directors and the determination by the Company's Board of
Directors that the Second Step Transaction is fair to and in the best interests
of the holders of the Shares, and the Company hereby consents to the inclusion
in the proxy, consent solicitation or information statement of such statement.
(d) The Special Committee and the Company's Directors have received the
written opinion of Hambrecht & Quist LLC (the "Financial Adviser") that, on the
basis of and subject to the matters set forth therein, the cash consideration of
$45.00 per Unit to be received by holders of the Units pursuant to the Offer is
fair to the holders of the Units from a financial point of view and the Second
Step Consideration to be received by the holders of the Shares pursuant to the
Second Step Transaction is fair to the holders of the Shares from a financial
point of view (the "Fairness Opinion"). The Company has provided Genzyme and the
Purchaser with a copy of the Fairness Opinion for inclusion in the Offer
Documents.
1.3. Directors.
(a) Promptly upon the acceptance for payment of and payment by the
Purchaser for any Units pursuant to the Offer, and from time to time thereafter
as Units are accepted for payment and paid for by the Purchaser, subject to
compliance with Section 14(f) of the Exchange Act, the Purchaser shall be
entitled to designate such number of the Company's Class A Directors, rounded to
the nearest whole number, as will give the Purchaser representation on the
Company's Board of Directors equal to at least that number of directors which
equals the product of the total number of the Company's Directors (after giving
effect to the directors elected pursuant to this sentence) multiplied by the
percentage that such number of Units so accepted for payment and paid for by the
Purchaser bears to the number of Units outstanding, and the Company shall,
promptly following any such designation by the Purchaser, take such actions as
are necessary to cause the Purchaser's designees to be so elected, including
increasing the size of the Board of Directors or securing the resignations of
incumbent directors or both; provided, however, that notwithstanding the
Purchaser's right to designate certain of the Company's Directors, until the
Effective Date (as defined in Section 2.3 hereof), the Company's Class A
Directors shall include at least two directors who are directors on the date
hereof and who are not officers or directors of Genzyme or the Purchaser (the
"Independent Directors"); provided further that, if the number of Independent
Directors shall be reduced below two for any reason whatsoever, any remaining
Independent Director shall be entitled to designate a person who is not an
officer or director of Genzyme or the Purchaser to fill such vacancy and such
person shall be deemed to be an Independent Director for purposes of this
Agreement or, if no Independent Directors then remain, the other directors shall
designate two persons to fill such vacancies who shall not be designees,
shareholders, directors, officers or affiliates of Genzyme or the Purchaser, and
such persons shall be deemed to be Independent Directors for purposes of this
Agreement. Subject to applicable law, the Company shall take all action
necessary to effect the election of directors as provided in this Section
1.3(a), including mailing to its shareholders the information required by
Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder. Genzyme
and the Purchaser shall supply to the Company and be solely responsible for any
information with respect to them and their nominees, officers, directors and
affiliates required by Section 14(f) and Rule 14f-1.
(b) Notwithstanding anything in this Agreement to the contrary, subject to
the terms of the Company's Memorandum of Association and Articles of
Association, in the event that the Purchaser's designees are appointed or
elected as Company Directors, after the acceptance for payment of Units pursuant
to the Offer and prior to the Effective Date, the affirmative vote of a majority
(or, if there are only one or two Independent Directors, the single or unanimous
vote, as the case may be) of the Independent Directors (who shall act as an
independent committee of the Board of Directors for this purpose) shall be
required, and alone shall be sufficient, to (i) amend or terminate this
Agreement by the Company, (ii) exercise or waive any of the
A-4
<PAGE> 66
Company's rights or remedies hereunder, (iii) extend the time for performance of
Genzyme's and the Purchaser's respective obligations hereunder, or (iv) approve
any other action by the Company that the Independent Directors determine could
adversely affect the interests of the shareholders of the Company (other than
Genzyme, the Purchaser and their affiliates) with respect to the transactions
contemplated hereby.
2. THE SECOND STEP TRANSACTION
2.1. Consummation of the Second Step Transaction.
(a) If the Offer is consummated and 90% or more of the Units are tendered
and accepted, the Purchaser will, as soon as practicable following satisfaction
or waiver of the conditions set forth in Section 7.1 hereof, either (i) effect a
merger of the Company into the Purchaser pursuant to Section 77 of the BVI Law
(the "Short Form Merger") or (ii) cause the Company to redeem all Shares not
held by the Purchaser pursuant to Section 81 of the BVI Law (the "Redemption").
(b) If the Offer is consummated and less than 90% but more that 50% of the
Units are tendered and accepted, the Purchaser will own a majority of the Shares
and will vote those shares in favor of and will effect, as soon as practicable
following satisfaction or waiver of the conditions set forth in Section 7.1
hereof, the Merger.
(c) If the Offer is not consummated on the Initial Expiration Date because
the Minimum Condition is not met and the Purchaser elects to proceed as
described in Section 1.1(b)(i), the Company, the Purchaser and Genzyme shall
take the actions set forth in Section 1.1(b)(i). As soon as practicable
following satisfaction of the Majority Consent Condition and satisfaction or
waiver of the conditions set forth in Annex I (other than the Minimum Condition)
and Section 7.1, the Purchaser will purchase all Units validly tendered and not
withdrawn, vote the Shares thus acquired in favor of the Merger Plan and effect
the Merger.
(d) If the Offer is not consummated because the Minimum Condition is not
met and the Purchaser elects to proceed as described in Section 1.1(b)(ii), the
Company, the Purchaser and Genzyme shall take the actions set forth in Section
1.1(b)(ii). As soon as practicable following satisfaction or waiver of the
conditions set forth in Article 7 hereof, the Purchaser will effect the Merger.
(e) The Short Form Merger, the Redemption and the Merger referred to in
subsections (a)-(d) above are referred to herein as the "Second Step
Transaction." The date of consummation of the Second Step Transaction is
referred to herein as the "Effective Date."
2.2. Second Step Consideration.
(a) On the Effective Date, as a result of the Short Form Merger, if
applicable. the Company will be merged with and into the Purchaser, with the
Purchaser as the surviving corporation and:
(i) The holder of each Share issued and outstanding immediately prior
to the Effective Date (other than Shares owned by Genzyme, the Purchaser,
the Company or any direct or indirect subsidiary of any of them and any
Dissenting Shares (as defined in subsection (d) below)) shall be entitled
to receive an amount in cash per Share equal to the Second Step
Consideration.
(ii) Shares owned by Genzyme, the Purchaser or the Company or any
direct or indirect subsidiary of any of them shall be cancelled.
(b) On the Effective Date, as a result of the Redemption, if applicable,
the holder of each Share issued and outstanding immediately prior to the
Effective Date (other than Shares owned by the Purchaser and any Dissenting
Shares) shall be entitled to receive an amount in cash per Share equal to the
Second Step Consideration.
A-5
<PAGE> 67
(c) On the Effective Date, as a result of the Merger pursuant to Sections
2.1(b)-(d), if applicable, a wholly-owned subsidiary of the Purchaser will be
merged with and into the Company, with the Company as the surviving corporation
and:
(i) The holder of each Share issued and outstanding immediately prior
to the Effective Date (other than Shares owned by Genzyme, the Purchaser,
the Company or any direct or indirect subsidiary of any of them and any
Dissenting Shares) shall be entitled to receive an amount in cash per Share
equal to the Second Step Consideration.
(ii) Shares owned by Genzyme, the Purchaser or the Company or any
direct or indirect subsidiary of any of them shall be cancelled.
(iii) Each issued and outstanding share of capital stock of the
subsidiary of the Purchaser that is a party to the Merger Plan shall be
converted into one fully paid and nonassessable share of common stock of
the surviving corporation.
(d) (i) In the case of the Short Form Merger, the Redemption or the Merger,
shares of capital stock of the Company held by a shareholder who has properly
exercised dissenters rights with respect thereto in accordance with Section 83
of the BVI Law (collectively, the "Dissenting Shares") shall not be converted
into the Second Step Consideration. From and after the Effective Date, a
shareholder who has properly exercised such dissenters' rights shall no longer
retain any rights of a shareholder of the Company, except those provided under
the BVI Law. If after the Effective Date such holder withdraws or loses his
right to demand payment for his Shares, such Shares shall be treated as if they
had been converted as of the Effective Date into the right to receive the Second
Step Consideration payable in respect of such Shares pursuant to Section
2.2(a)(i).
(ii) The Company shall give Genzyme (i) prompt notice of any demands for
payment, or notices of intent to demand payment, with respect to any shares of
capital stock of the Company, any withdrawal of any such demands and any other
instruments served pursuant to the BVI Law and received by the Company and (ii)
the right to participate in all negotiations and proceedings with respect to any
such demands. The Company shall cooperate with Genzyme concerning, and shall
not, except with the prior written consent of Genzyme, voluntarily make any
payment with respect to, or offer to settle or settle, any such demands.
2.3. Exchange of Certificates.
(a) Genzyme shall authorize one or more persons to act as Payment Agent for
the Second Step Consideration (the "Payment Agent"). Genzyme shall deposit with
the Payment Agent in trust for the benefit of the holders of certificates
representing Shares converted pursuant to Section 2.2(a)(i), on or prior to the
Effective Time, immediately available funds in an amount equal to the product of
the Second Step Consideration multiplied by the number of Shares entitled to
payment pursuant to Section 2.2(a)(i). As soon as practicable after the
Effective Time, Genzyme shall cause the Payment Agent to mail to all former
holders of record of Shares instructions for surrendering their certificates
representing Shares in exchange for the Second Step Consideration. Upon
surrender of a Share certificate for cancellation to the Payment Agent, the
Payment Agent shall pay to the holder of such certificate the Second Step
Consideration multiplied by the number of Shares represented by such
certificate, and the certificate so surrendered shall forthwith be canceled.
Notwithstanding the foregoing, if delivery of the Second Step Consideration is
to be made to any person other than the person in whose name the certificate
surrendered is registered, it shall be a condition of such delivery that the
certificate so surrendered shall be properly endorsed or otherwise in proper
form for transfer and that the person requesting such delivery shall pay any
transfer or other taxes required by reason of such delivery or establish to the
satisfaction of Genzyme that such tax has been paid or is not applicable.
Furthermore, neither Genzyme nor any affiliate of Genzyme shall be liable to a
holder of Shares for any Second Step Consideration delivered to a public
official pursuant to applicable abandoned property, escheat and similar laws.
After the Effective Time, there shall be no transfers of the Shares on the stock
transfer books of the Company.
(b) The Payment Agent shall make the payments referred to in Section
2.2(a)(i) out of the funds supplied by Genzyme. Promptly following the date that
is six months after the Effective Date, the Payment
A-6
<PAGE> 68
Agent shall, upon request by Genzyme, deliver to Genzyme all cash, certificates
and other documents in its possession relating to the transactions described in
this Agreement, and the Payment Agent's duties shall terminate. Thereafter, each
holder of a certificate formerly representing a Share may surrender such
certificate to Genzyme and (subject to applicable abandoned property, escheat
and similar laws) receive in exchange therefor the Second Step Consideration,
without any interest thereon but shall have no greater rights against Genzyme
than may be accorded to general creditors of Genzyme under applicable law.
(c) From and after the Effective Date, holders of certificates theretofore
evidencing Shares shall cease to have any rights as shareholders of the Company,
except as provided herein or by law. Until surrendered in accordance with the
provisions of this Section, each Share certificate (other than for Dissenting
Shares) shall represent for all purposes only the right to receive the Second
Step Consideration multiplied by the number of Shares represented by such
certificate.
2.4. Callable Warrants. On the Effective Date, the Callable Warrants
associated with the Shares converted into the right to receive the Second Step
Consideration will become exercisable in accordance with its terms and at the
exercise price computed as stated therein. On the day following the Effective
Date, such Callable Warrants will separate and be transferable separately from
the right to receive the Second Step Consideration on account of the Shares.
3. REPRESENTATIONS AND WARRANTIES OF THE PURCHASER AND GENZYME
The Purchaser and Genzyme represent and warrant to the Company as follows:
3.1. Organization. Each of Genzyme and the Purchaser (i) is a corporation
duly organized, validly existing and in good standing under the laws of its
jurisdiction of organization; and (ii) has the requisite corporate power and
authority to enter into, execute and deliver this Agreement and to perform fully
its respective obligations hereunder.
3.2. Authority. The execution and delivery of this Agreement have been
duly authorized by the Board of Directors of each of Genzyme and the Purchaser.
No other corporate action on the part of Genzyme or the Purchaser is necessary
to consummate the transactions contemplated hereby. This Agreement has been duly
executed and delivered by each of Genzyme and the Purchaser and constitutes a
valid and binding obligation of each, enforceable in accordance with its terms.
3.3. Compliance.
(a) Neither the execution, delivery and performance by Genzyme and the
Purchaser of this Agreement, nor the consummation by Genzyme and the Purchaser
of the transactions contemplated hereby, will (a) violate, conflict with, or
result in a breach of, any provision of the charter or bylaws of Genzyme or the
Purchaser, (b) violate, conflict with or result in a default (or give rise to
any right of termination, cancellation or acceleration) under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
franchise, permit, lease, agreement or other instrument or obligation to which
Genzyme or the Purchaser is a party, or by which its properties or assets may be
bound or (c) subject to compliance with the laws referred to in the next
paragraph, violate any law or any order, judgment, injunction, decree or
requirement of any court, arbitrator or governmental or regulatory body
applicable to Genzyme or the Purchaser or by which any of their assets or
properties is bound, except, in each case, for such violations, breaches or
defaults that, in the aggregate, would not materially impair the ability of the
Purchaser or Genzyme to perform its obligations hereunder.
(b) Other than in connection with or in compliance with the provisions of
the BVI Law, the U.S. Securities Act of 1933, as amended (the "Securities Act"),
the Exchange Act, the "takeover" or "blue sky" laws of various states of the
United States, (and assuming that the Company will, prior to consummation of the
Offer, have total assets of less than $10 million as shown on its last regularly
prepared balance sheet prior to such date) no notice to, filing with or
authorization, consent or approval of, any domestic or foreign public body or
authority is necessary for the consummation by the Purchaser and Genzyme of the
transactions contemplated by this Agreement, except for such notices, filings,
authorizations, consents or approvals the
A-7
<PAGE> 69
absence of which would not, in the aggregate, materially impair the ability of
the Purchaser or Genzyme to perform its obligations hereunder.
3.4. Commission Filings. The Offer Documents, and any information
provided in writing by or on behalf of the Purchaser or Genzyme which is
included in the Schedule 14D-9, on the date the Offer Documents or Schedule
14D-9, as the case may be, are filed with the Commission or first published,
sent or given to security holders, as the case may be, will not 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; provided
that no representation or warranty is made with respect to any information
provided in writing by or on behalf of the Company and included in the Offer
Documents. The information supplied by the Purchaser or Genzyme for inclusion in
the Proxy Statement will not, on the date the Proxy Statement (or any amendment
or supplement thereto) is first mailed to shareholders of the Company, at the
time of the Shareholders' Meeting, if any, and on the Effective Date, contain
any statement which at such time and in light of the circumstances under which
it is made, is false or misleading with respect to any material fact, or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein in the light of the circumstances under which
they are made, not false or misleading or necessary to correct any statement in
any earlier communication with respect to the solicitation of consents or
proxies for the Shareholders' Meeting which shall have become false or
misleading. The Offer Documents shall comply in all material respects as to form
with the requirements of the Exchange Act and the rules and regulations
thereunder. Genzyme and the Purchaser agree to correct the Offer Documents
promptly if and to the extent that any of them shall have become false or
misleading (provided that, with respect to any false or misleading information
provided by or on behalf of the Company and included in the Offer Documents, the
Company shall have provided Genzyme and the Purchaser with correct information)
and Genzyme and the Purchaser shall take all steps necessary to cause the Offer
Documents as so corrected to be filed with the Commission and to be disseminated
to the holders of the Units, in each case as and to the extent required by
applicable U.S. federal securities laws.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchaser and Genzyme as
follows:
4.1. Organization. The Company is an international business company duly
organized, validly existing and in good standing under the laws of the BVI and
has the requisite corporate power and authority to enter into, execute and
deliver this Agreement and, subject to the approval of the Second Step
Transaction by the Company's shareholders (if required under the BVI law), to
perform fully its obligations hereunder.
4.2. Authority. The execution and delivery of this Agreement have been
duly authorized by the Board of Directors of the Company. No other corporate
action on the part of the Company is necessary to consummate the transactions
contemplated hereby (other than approval of the Merger Plan by the shareholders
of the Company to the extent required by the BVI law). This Agreement has been
duly executed and delivered by the Company and, subject to the foregoing,
constitutes a valid and binding obligation of the Company, enforceable in
accordance with its terms.
4.3. Compliance.
(a) Neither the execution, delivery and performance by the Company of this
Agreement, nor the consummation by the Company of the transactions contemplated
hereby, will (a) violate, conflict with, or result in a breach of, any provision
of the Memorandum of Association or Articles of Association of the Company, (b)
violate, conflict with or result in a default (or give rise to any right of
termination, cancellation or acceleration) under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, license, franchise,
permit, lease, agreement or other instrument or obligation to which the Company
is a party, or by which its properties or assets may be bound or (c) subject to
compliance with the laws referred to in the next paragraph, violate any law or
any order, judgment, injunction, decree or requirement of any court, arbitrator
or governmental or regulatory body applicable to the Company or by which any of
its assets or properties is bound, except, in each case, for such violations,
breaches or defaults that, in the aggregate, would not have a material adverse
effect on the financial condition, business or operations of the Company (a
A-8
<PAGE> 70
"Material Adverse Effect"), or materially impair the ability of the Company to
perform its obligations hereunder.
(b) Other than in connection with or in compliance with the provisions of
the BVI Law, the Securities Act, the Exchange Act, the "takeover" or "blue sky"
laws of various states of the United States, (and assuming that the Company
will, prior to consummation of the Offer, have total assets of less than $10
million as shown on its last regularly prepared balance sheet prior to such
date) no notice to, filing with or authorization, consent or approval of, any
domestic or foreign public body or authority is necessary for the consummation
by the Company of the transactions contemplated by this Agreement, except for
such notices, filings, authorizations, consents or approvals the absence of
which would not, in the aggregate materially impair the ability of the Company
to perform its obligations hereunder.
4.4. Capitalization. The authorized capital stock of the Company consists
of 9,000,000 shares of Callable Common Stock, par value $1.00 per share. As of
the date of this Agreement, 2,415,000 Shares were validly issued and
outstanding, fully paid and nonassessable (all of which are included in the
Units); and no Shares were held in the treasury of the Company. Except as set
forth above in this Section 4.4 and the Purchase Option Agreement, there are no
other shares of capital stock or other securities of the Company outstanding and
no other outstanding options, warrants, rights to subscribe to (including any
preemptive rights), calls or commitments of any character whatsoever to which
the Company is a party or may be bound requiring the issuance, transfer or sale
of any shares of capital stock or other securities of the Company or any
securities or rights convertible into or exchangeable or exercisable for any
such shares or securities, and there are no contracts, commitments,
understandings or arrangements by which the Company is or may become bound to
issue additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock or securities
convertible into or exchangeable or exercisable for any such shares.
4.5. Commission Filings. The Schedule 14D-9 and any information provided
in writing by or on behalf of the Company which is included in the Offer
Documents, on the date the Schedule 14D-9 or the Offer Documents, as the case
may be, are filed with the Commission or first published, sent or given to
security holders, as the case may be, will not 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; provided that no
representation or warranty is made with respect to any information provided in
writing by or on behalf of Genzyme or the Purchaser and included in the Schedule
14D-9. The Proxy Statement will not, on the date it (or any amendment or
supplement thereto) is first mailed to shareholders of the Company, at the time
of the Shareholders' Meeting, if any, and on the Effective Date, contain any
statement which at such time and in light of the circumstances under which it is
made, is false or misleading with respect to any material fact, or omit to state
any material fact required to be stated therein or necessary in order to make
the statements made therein in the light of the circumstances under which they
are made, not false or misleading or necessary to correct any statement in any
earlier communication with respect to the solicitation of consents or proxies
for the Shareholders' Meeting which shall have become false or misleading;
provided that no representation or warranty is made with respect to any
information provided in writing by or on behalf of Genzyme or the Purchaser and
included in the Proxy Statement. The Schedule 14D-9 and the Proxy Statement
shall comply in all material respects as to form with the requirements of the
Exchange Act and the rules and regulations thereunder. The Company agrees
promptly to correct the Schedule 14D-9 and the Proxy Statement if and to the
extent that either shall have become false or misleading (provided that, with
respect to any false or misleading information provided by or on behalf of
Genzyme or the Purchaser and included in the Schedule 14D-9 or the Proxy
Statement, Genzyme or the Purchaser shall have provided the Company with correct
information) and the Company shall take all steps necessary to cause the
Schedule 14D-9 or the Proxy Statement as so corrected to be filed with the
Commission and to be disseminated to the holders of the Units and to the
Company's shareholders, as the case may be, as and to the extent required by
applicable U.S. federal securities laws.
A-9
<PAGE> 71
5. CONDUCT OF BUSINESS
5.1. Conduct prior to Effective Date. Except as otherwise expressly
contemplated hereby, the Company covenants and agrees that, unless Genzyme shall
otherwise agree in writing, prior to the Effective Date or such earlier time as
designees of the Purchaser constitute a majority of the Company's Directors
(determined on the basis of combined voting power of the Company's Class A and
Class B directors):
(a) The business of the Company shall in all material respects be
conducted only in, and the Company shall not take any material action
except in, the ordinary course of business and consistent with past
practice, and the Company shall use all reasonable efforts, consistent with
past practice or the annual workplan currently in effect, to maintain and
preserve its business organization, assets and advantageous business
relationships;
(b) The Company shall not make any tax election or, except in the
ordinary course of business and consistent with past practice, settle or
compromise any federal, state, local or foreign tax liability; and
(c) The Company shall not agree in writing or otherwise, to take any
of the foregoing actions or any action that would make any representation
or warranty in Article 1 or Article 4 hereof untrue or incorrect in any
material respect or that would materially impair or prevent the occurrence
of any condition in ANNEX I prior to consummation of the Offer and,
thereafter, Article 7 hereof.
5.2. Commission Filings and Other Matters. The Company shall promptly
provide Genzyme (or its counsel) with copies of all filings made by the Company
with the Commission or any other state or federal governmental entity in
connection with this Agreement and the transactions contemplated hereby.
5.3. Conduct of Business after the Initial Expiration Date.
Notwithstanding any other provision contained herein, if the Minimum Condition
has not been satisfied on the Initial Expiration Date and the Purchaser elects
to amend the Offer in accordance with Section 1.1(b)(i) or to terminate the
Offer in accordance with Section 1.1(b)(ii), then until the earlier of the
Effective Date or the termination of this Agreement, the Special Committee shall
be authorized to take such actions as it may deem appropriate to reduce or
eliminate any discretionary spending by the Company or by Genzyme on behalf of
the Company not contractually committed to with a person or entity that is not a
party to this Agreement; provided that, Genzyme may elect to continue such
spending on its own account and to the extent it elects to do so, the Company
will, if the Merger is effected, reimburse Genzyme for such expenditures
immediately prior to the Effective Date.
6. ADDITIONAL AGREEMENTS
6.1. Preparation of Proxy Statement. Genzyme, the Purchaser and the
Company shall cooperate with each other in the preparation of the Proxy
Statement (if required), and the Company shall notify Genzyme of the receipt of
any comments of the Commission with respect to the Proxy Statement and of any
requests by the Commission for any amendment or supplement thereto or for
additional information and shall provide to Genzyme promptly copies of all
correspondence between the Company or any representative of the Company and the
Commission. The Company shall give Genzyme and its counsel the opportunity to
review the Proxy Statement prior to its being filed with the Commission and
shall give Genzyme and its counsel the opportunity to review all amendments and
supplements to the Proxy Statement and all responses to requests for additional
information and replies to comments prior to their being filed with, or sent to,
the Commission. Each of the Company, Genzyme and the Purchaser agrees to use its
reasonable best efforts, after consultation with the others, to respond promptly
to all such comments of and requests by the Commission and to cause the Proxy
Statement and all required amendments and supplements thereto to be mailed to
the holders of Shares entitled to vote upon the approval of the Second Step
Transaction at the earliest practicable time.
6.2. Fees and Expenses. Each party shall bear all fees and expenses
incurred by it in connection with the negotiation and performance of this
Agreement and no party may recover any such fees and expenses from any other
party upon any termination of this Agreement except as provided in Article 8.
A-10
<PAGE> 72
6.3. Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
consummate and make effective as promptly as practicable the transactions
contemplated by the Offer and this Agreement, and to cooperate with each of the
other parties hereto in connection with the foregoing, including using all
reasonable efforts (which shall not be construed to require the payment of any
money to a third party or the divestiture of any business or assets): (A) to
obtain all necessary waivers, consents and approvals from other parties to
agreements; (B) to obtain all necessary consents, approvals and authorizations
as are required by law; (C) to lift or rescind any injunction or restraining
order or other order adversely affecting the ability of the parties to
consummate the transactions contemplated hereby; (D) to effect all necessary
registrations and filings and submissions of information requested by
governmental authorities; and (E) to fulfill all conditions to this Agreement.
Each of the Company, Genzyme and the Purchaser further covenants and agrees
that, prior to the exercise by Genzyme or the Purchaser of its right to
terminate the Offer under paragraphs (b) or (c) of ANNEX I hereto, each of the
Company, Genzyme and the Purchaser shall use their respective reasonable best
efforts (which shall not be construed to require the payment of any money to a
third party or the divestiture of any business or assets) to prevent the entry
of an injunction or other order adversely affecting the ability of the parties
to consummate the transactions contemplated hereby .
6.4. No Solicitation.
(a) The Company shall not, directly or indirectly, through any officer,
director, employee, financial advisor, representative or agent of the Company,
(i) solicit or initiate any inquiries or proposals regarding a merger,
consolidation, business combination, sale of substantial assets, sale of shares
of capital stock (including without limitation by way of a tender offer) or
similar transactions involving the Company, other than the transactions
contemplated by this Agreement (any of the foregoing inquiries or proposals
being referred to in this Agreement as an "Acquisition Proposal"), (ii) engage
in negotiations or discussions concerning, or provide any non-public information
to any person or entity relating to, any Acquisition Proposal, or (iii) agree
to, approve or recommend any Acquisition Proposal; provided, however, that
nothing contained in this Agreement shall prevent the Company, the Company's
Directors or the Special Committee (through any officer, director, employee,
financial advisor, representative or agent) from (A) engaging in negotiations or
discussions in response to an inquiry that was not solicited after the date
hereof; (B) furnishing non-public information to any person or entity in
connection with an unsolicited written Acquisition Proposal by such person or
entity or recommending an unsolicited written Acquisition Proposal to the
shareholders of the Company, if and only to the extent that (1) the Company's
Directors or the Special Committee, as the case may be, believe in good faith
after consultation with its financial advisor that the party requesting such
non-public information or making such Acquisition Proposal is capable of
financing a transaction more favorable to the Company's shareholders from a
financial point of view than the transaction contemplated by this Agreement and
the Company's Directors or the Special Committee, as the case may be, determine
in good faith after consultation with outside legal counsel that such action is
necessary to comply with their fiduciary duties to shareholders under applicable
law and (2) prior to furnishing such non-public information to such person or
entity, the Company's Directors or the Special Committee, as the case may be,
receive from such person or entity an executed confidentiality agreement on
customary terms; or (C) complying with Rule 14e-2 promulgated under the Exchange
Act with regard to an Acquisition Proposal.
(b) The Company shall notify Genzyme in writing in reasonable detail within
24 hours after receipt by the Company (or its advisors) of any written
Acquisition Proposal or any written request for non-public information to which
the Company intends to affirmatively respond.
(c) Genzyme and the Company acknowledge and confirm that neither (x)
Section 2.3 ("Restrictions Upon Use of Licensed Technology") of the Technology
License Agreement dated April 28, 1992 between them, nor (y) Section 12 of the
Company's Memorandum of Association, is intended or shall be deemed, to prohibit
or restrict any discussions, negotiations or other activity by the Company
permitted by subsection (a) above.
6.5. Notification of Breach. The Company shall give prompt notice to
Genzyme, and Genzyme and the Purchaser shall give prompt notice to the Company,
of the occurrence or failure to occur of any event
A-11
<PAGE> 73
which occurrence or failure to occur causes (x) any representation or warranty
made by it in this Agreement to be untrue or inaccurate in any material respect
at any time from the date hereof to the date of purchase of, and payment for,
Units pursuant to the Offer, or (y) any material failure to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement; provided, however, that no such notification shall be
deemed to cure any breach or otherwise affect the representations or warranties
of such party or the conditions to the obligations of the parties hereunder.
6.6. Access to Information. Except as prohibited by BVI law, the Company
shall afford to Genzyme and to the officers, employees and agents of Genzyme
reasonable access during regular business hours, from the date hereof to the
Effective Date, to the Company's officers, employees, agents, properties, books,
records and contracts, and shall furnish Genzyme all financial, operating and
other data and information as Genzyme, through its officers, employees or
agents, may reasonably request; provided, however, that such access shall not
unreasonably interfere with any of the operations of the Company.
6.7. Directors' and Officers' Indemnification and Insurance.
(a) As of the Effective Date, proper provision will be made so that any
affiliate of Genzyme that succeeds to the assets and liabilities of the Company,
or at Genzyme's option, Genzyme, shall assume all of the obligations of the
Company under the indemnification agreements between the Company and the
Independent Directors as in effect on the date of this Agreement and, if amended
prior to the Effective Date, on the Effective Date. In the event of a transfer
by such successor entity of all or substantially all of its assets or a merger
or consolidation in which such entity is not the surviving entity, proper
provision will also be made so that the successors and assigns of such entity,
or at Genzyme's option, Genzyme, shall assume the obligations of the Company
under such agreements. In addition, the Company and, from and after consummation
of the Offer or, if the Purchaser elects to proceed under Section 1.1(b)(ii),
the Merger, Genzyme shall, to the fullest extent permitted by applicable law,
indemnify and hold harmless each present and former director or officer of the
Company (collectively, "Indemnified Parties") against all costs and expenses
(including attorneys' fees) judgments, fines, losses, claims, damages,
liabilities and settlement amounts paid in connection with any claim, action,
suit, proceeding or investigation (whether arising before or after the
consummation of the Offer) arising out of any act or omission in their capacity
as officer, director or employee of the Company (and shall pay any expenses in
advance of the final disposition of such action or proceeding to each
Indemnified Party to the fullest extent permitted by law). If indemnification is
sought hereunder by any Indemnified Party, then such Indemnified Party shall
promptly notify Genzyme in writing of the claim for which indemnification is
sought; provided, however, that the failure to so notify Genzyme shall not
relieve Genzyme from any liability unless and to the extent that such failure
results in a forfeiture by the Indemnified Party of substantive rights or
defenses. Following such notification, Genzyme may elect to assume the defense
of such claim, and, upon such election, Genzyme shall not be liable for any
legal costs subsequently incurred by such Indemnified Party (other than
reasonable costs of investigation) in connection therewith, unless Genzyme has
failed to provide counsel reasonably satisfactory to such Indemnified Party in a
timely manner or counsel that has been provided by Genzyme reasonably determines
that its representation of such Indemnified Party would present it with a
conflict of interest. The Indemnified Party will cooperate with Genzyme in the
investigation and defense of any claim and shall not settle any claim without
Genzyme's prior written consent.
(b) Genzyme shall maintain in effect for three years from the Effective
Date, if available, directors' and officers' liability insurance policies
covering the directors and officers of the Company, with coverages and other
terms at least as favorable as is currently in effect; provided, however, that
Genzyme shall not be required to spend more than an amount per year equal to
150% of the current annual premium paid by the Company for such insurance.
Following such three year period, and until the sixth anniversary of the
Effective Date, Genzyme will assume the indemnification obligations of the
Company under the indemnification agreements referred to in subsection (a) above
to the extent it has not already done so.
6.8. Genzyme's Guaranty. Genzyme unconditionally guarantees the
Purchaser's obligations (and the obligations of any other affiliate of Genzyme
that is a party to the Merger Plan) under this Agreement and agrees to be
primarily liable for any breach of this Agreement by the Purchaser (or such
other affiliate of Genzyme).
A-12
<PAGE> 74
7. CONDITIONS
7.1. Conditions to Obligation of each party to effect the Second Step
Transaction. The respective obligations of each party to effect the Second Step
Transaction shall be subject to the fulfillment at or prior to the Effective
Date of each of the following conditions:
(a) the Purchaser shall have made the Offer on the terms and
conditions set forth therein and shall have purchased, or caused to be
purchased, all Units validly tendered and not withdrawn pursuant to the
Offer; provided, however, this condition shall not be applicable to the
obligations of Genzyme or the Purchaser if, in breach of this Agreement or
the terms of the Offer, the Purchaser fails to purchase any Units validly
tendered and not withdrawn pursuant to the Offer and provided further than
this condition shall not be applicable if the Purchaser has exercised its
option described in Section 1.1(b)(ii);
(b) the Merger Plan shall have been approved and adopted by the
requisite vote or consent, if any, of the shareholders of the Company
required by the BVI Law and the Company's Memorandum of Association and
Articles of Association; and
(c) no preliminary or permanent injunction or other order, decree or
ruling issued by a court of competent jurisdiction or by a governmental or
regulatory body nor any statute, rule, regulation or order promulgated or
enacted by any governmental body shall be in effect, which would make the
acquisition by Genzyme or the Purchaser of the Shares illegal or otherwise
prevent the consummation of the Second Step Transaction.
7.2. Conditions to Obligation of the Purchaser to effect a Merger Pursuant
to Section 1.1(b)(ii). In addition to the fulfillment of the condition set
forth in subsection 7.1(b), the Purchaser shall not be obligated to effect a
Merger pursuant to Section 1.1(b)(ii) if on or before the Effective Date any of
the following shall occur or shall be determined by the Purchaser to have
occurred and remain in effect:
(a) except for matters which affect generally the economy or the
industry in which the Company is engaged and except for continued losses
incurred by the Company as a result of its operations and continued
depletion of its cash resources in the ordinary course of business or
consistent with the annual workplan currently in effect, any change shall
have occurred in the business, properties, assets, liabilities,
capitalization, stockholders equity, financial condition, operations,
licenses or franchises or results of operations of the Company which has a
Material Adverse Effect; or
(b) there shall have been instituted or be pending any action,
proceeding, application or counterclaim before any court or governmental or
regulatory body which (i) challenges the validity of or seeks to restrain
the consummation of or to impose any material limitation, on any
transaction contemplated by this Agreement or seeks (ii) to obtain any
material amount of damages in connection with such transactions; or
(c) any statute, regulation, order or injunction shall have been
enacted, entered, enforced or deemed applicable to the Merger that is
reasonably likely to, directly or indirectly, result in any of the
consequences referred to in subsection 7.2(b); or
(d) the representations and warranties of the Company set forth in the
Purchase Agreement shall not be true in any material respect as though made
on such date, or the Company shall have failed in any material respect to
perform any material obligation or covenant required in the Purchase
Agreement to be performed or complied with by it; or
(e) the Company shall have entered into, or shall have publicly
announced its intention to enter into, an agreement or agreement in
principle with respect to any Acquisition Proposal.
A-13
<PAGE> 75
8. TERMINATION, AMENDMENT AND WAIVER
8.1. Termination. This Agreement may be terminated at any time prior to
the Effective Date, as follows:
(a) Subject to Section 1.3(b), by mutual written consent of the Boards
of Directors of the Purchaser, Genzyme and the Company (upon the approval
of the Special Committee); or
(b) By the Company upon approval of the Special Committee:
(i) if (A) the Purchaser shall have terminated the Offer without
the purchase of any Units thereunder; or (B) the Purchaser shall not
have paid for all Units validly tendered pursuant to the Offer and not
withdrawn within 90 days after the commencement of the Offer, unless
such termination of the Offer or failure to pay for Units shall have
been caused by or resulted from (a) the failure of the Company to
perform in any material respect any of its covenants or agreements
contained in this Agreement, (b) the material breach by the Company of
any of its representations or warranties contained in this Agreement, or
(c) an election by the Purchaser pursuant to Section 1.1(b)(ii) of this
Agreement to terminate the Offer; or
(ii) if the Effective Date shall not have occurred on or before the
six-month anniversary of the date of this Agreement due to a failure of
any of the conditions to the obligation of the Company to effect the
Second Step Transaction set forth in Section 7.1 or if the Purchaser has
elected to proceed under Section 1.1(b)(i), if the Effective Date shall
not have occurred on or before the six-month anniversary of the date of
this Agreement; or
(iii) prior to the purchase of any Units pursuant to the Offer, or
the Effective Date if the Purchaser has elected to proceed under Section
1.1(b)(ii), if the Purchaser or Genzyme has materially failed to perform
any of its obligations under this Agreement and such nonperformance has
a material adverse effect on the Purchaser's or Genzyme's ability to
consummate the Offer or the Second Step Transaction; or
(iv) if, in the event that the Minimum Condition shall not have
been satisfied on the Initial Expiration Date and the Purchaser shall
have amended the Offer or terminated the Offer pursuant to the proviso
in the second sentence of Section 1.1(b), the Purchaser has materially
failed to perform any of its obligations under Section 1.1(b); or
(v) if, prior to the purchase of Shares pursuant to the Offer, or
the Effective Date if the Purchaser has elected to proceed under Section
1.1(b)(ii), the Special Committee shall have withdrawn or modified its
approval or recommendation of the Offer or this Agreement in order to
approve the execution by the Company of a definitive agreement providing
for the acquisition of the Company or substantially all of its assets or
a merger or other business combination or in order to approve a tender
offer for all of the Shares or Units by a third party, in any case, as
determined by the Special Committee, on terms more favorable to the
Company's stockholders than the Offer (a "Superior Transaction"),
provided, that (i) the Company shall have provided Genzyme with at least
five business days' written notice of such Superior Transaction,
including a copy of the proposed agreement and (ii) the Company shall
not have violated Section 6.4 in connection with such Superior
Transaction.
(c) By Genzyme or the Purchaser:
(i) if, due to an occurrence that would result in a failure to
satisfy any condition set forth in ANNEX I or the Majority Consent
Condition if the Purchaser has elected to proceed pursuant to Section
1.1(b)(i), the Purchaser shall have (A) failed to commence the Offer
within 5 business days of the date on which the Purchaser's intention to
make the Offer is publicly announced; (B) terminated the Offer without
the purchase of any Units thereunder; or (C) failed to pay for all Units
validly tendered pursuant to the Offer and not withdrawn within 90 days
after commencement of the Offer, unless such failure or termination
shall have been caused by or results from (x) the failure of Genzyme or
the Purchaser to perform in any material respect any of its covenants or
A-14
<PAGE> 76
agreements contained in this Agreement, (y) the material breach by
Genzyme or the Purchaser of any of its representations or warranties
contained in this Agreement, or (z) the Purchaser's election to proceed
pursuant to Section 1.1(b)(ii); or
(ii) if the Effective Date shall not have occurred on or before the
six-month anniversary of the date of this Agreement due to (i) a failure
of any of the conditions to the obligations of Genzyme or the Purchaser
to effect the Second Step Transaction set forth in Section 7.1, or (ii)
in the event that the Purchaser has elected to proceed under Section
1.1(b)(ii), a failure of any of the conditions to the obligations of
Genzyme or the Purchaser to effect the Second Step Transaction set forth
in Section 7.2; or
(iii) if, prior to the purchase of Units pursuant to the Offer, or
the Effective Date if the Purchaser has elected to proceed under Section
1.1(b)(ii), the Company's Directors shall have publicly withdrawn or
modified in a manner adverse to the Purchaser their approval or
recommendation of the Offer or this Agreement or recommended acceptance
of a Superior Transaction or shall have resolved to do any of the
foregoing.
8.2. Effect of Termination. In the event of the termination of this
Agreement as provided in Section 8.1, all obligations and agreements of the
parties set forth in this Agreement shall forthwith terminate and be of no
further force or effect, and there shall be no liability on the part of Genzyme,
the Purchaser or the Company hereunder except (a) as provided in Sections 8.3
and 8.4 and (b) that the foregoing shall not relieve any party for liability for
any breach of this Agreement occurring prior to such termination.
8.3. Ancillary Agreements. In the event of any termination of this
Agreement (x) by the Company pursuant to Section 8.1(b)(v) or by Genzyme or the
Purchaser pursuant to Section 8.1(c)(iii), in either case as a result of a
Superior Transaction in connection with which the Company shall not have
violated Section 6.4, or (y) by Genzyme or the Purchaser pursuant to Section
8.1(c)(i), unless such termination is based upon the failure of the Company to
perform in any material respect of its covenants or agreements contained in this
Agreement, Genzyme agrees that, effective upon consummation of a Superior
Transaction, it shall, at the Company's request:
(a) consent to the Superior Transaction in its capacity as holder of
the Company's Series 1992 Note dated April 28, 1992 and pursuant to all
applicable provisions of the Company's Memorandum of Association;
(b) terminate the Purchase Option Agreement dated as of April 28, 1992
among Genzyme and the underwriters named therein, in which event the Series
1992 Note will become due and payable in accordance with its terms;
(c) consent to the assignment by the Company of the Technology License
Agreement dated as of April 28, 1992 between Genzyme and the Company;
(d) at the option of Genzyme, terminate or consent to the assignment
by the Company of each of the following agreements, each of which are dated
as of April 28, 1992:
(i) the Research and Development Agreement between Genzyme and the
Company;
(ii) the Services Agreement between Genzyme Limited (a subsidiary
of Genzyme) and the Company; and
(iii) the Administrative Agreement between Genzyme and the Company.
The termination of any of the foregoing agreements pursuant to this Section 8.3
shall not terminate any provision of such agreement which, by its terms,
survives termination of such agreement.
8.4. Termination Fee. In consideration of Genzyme's agreement set forth
in Section 8.3 and its expenses incurred in connection with the transactions
contemplated by this Agreement, in the event of the termination of this
Agreement (A) by the Company pursuant to Section 8.1(b)(v) or (B) by Genzyme or
the Purchaser pursuant to (x) Section 8.1(c)(iii) or (y) Section 8.1(c)(i) or
(ii) if such termination is based
A-15
<PAGE> 77
upon the failure of the Company to perform in any material respect any of its
covenants or agreements contained in this Agreement, the Company shall pay
Genzyme a termination fee of $500,000 upon consummation of any Superior
Transaction.
8.5. Amendment. This Agreement may not be amended except, subject to
Section 1.3, by action of the Board of Directors of each of the parties hereto
set forth in an instrument in writing signed on behalf of each of the parties
hereto; provided, however, that the Board of Directors of the Company shall not
act to amend this Agreement without the approval of the Special Committee.
8.6. Waiver. At any time prior to the Effective Date, whether before or
after any special meeting or written action of the shareholders of the Company
to approve the Second Step Transaction, any party hereto, subject to Section
1.3(b), by action taken by its Board of Directors (and, in the case of the
Company, subject to the approval of the Special Committee), may (i) extend the
time for the performance of any of the obligations or other acts of any other
party hereto or (ii) subject to the second sentence of Section 1.1(b) and the
proviso contained in Section 8.5, waive compliance with any of the agreements of
any other party or with any conditions to its own obligations. Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party by a
duly authorized officer.
9. GENERAL PROVISIONS
9.1. Closing. Unless this Agreement shall have been terminated pursuant
to the provisions of Article 8, and subject to the provisions of Article 7
hereof, the closing of the Second Step Transaction pursuant to this Agreement
(the "Closing") shall take place at the offices of Palmer & Dodge LLP, One
Beacon Street, Boston, Massachusetts 02108, as soon as practicable following
consummation of the Offer or at such other place, time and date as the parties
may mutually agree. The date and time of such Closing are hereinafter referred
to as the "Closing Date."
9.2. Brokers.
(a) The Company represents and warrants that no broker, finder or
investment banker other than the Financial Adviser is entitled to any brokerage,
finder's or other fee or commission in connection with the Offer or the Second
Step Transaction based upon arrangements made by or on behalf of the Company.
The Company has provided to Genzyme a true and complete copy of its agreement
with the Financial Adviser.
(b) Genzyme and the Purchaser represent and warrant that no broker, finder
or investment banker other than Robertson, Stephens & Company LLC is entitled to
any brokerage, finder's or other fee or commission in connection with the Offer
or the Second Step Transaction based upon arrangements made by or on behalf of
Genzyme, the Purchaser or any of their respective subsidiaries or affiliates.
9.3. Publicity. So long as this Agreement is in effect, except as such
party reasonably believes is required by applicable law or applicable
requirements of the Commission or The Nasdaq Stock Market, Inc., neither the
Company nor Genzyme shall, nor shall either permit any of its subsidiaries to,
issue or cause the publication of any press release or other public announcement
with respect to the transactions contemplated by this Agreement without the
consent of the other party. The parties shall cooperate as to the timing and
contents of any such announcement.
9.4. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been fully given if (i) delivered
personally, (ii) sent by certified or registered mail, return receipt requested,
(iii) sent by overnight courier for delivery on the next business day or (iv)
sent by confirmed telecopy, provided that a hard copy of all such telecopied
materials is thereafter sent within 24 hours in the
A-16
<PAGE> 78
manner described in clauses (i), (ii) or (iii), to the parties at the following
addresses or at such other addresses as shall be specified by the parties by
like notice:
(a) If to the Purchaser or Genzyme:
Genzyme Corporation
One Kendall Square
Cambridge, MA 02139
Attention: Peter Wirth
Telecopy No.: (617) 252-7600
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108
Attention: Maureen P. Manning
Telecopy No.: (617) 227-4420
(b) If to the Company:
Neozyme II Corporation
One Kendall Square
Cambridge, MA 02139
Attention: President
Telecopy No.: (617) 252-7600
with copies to:
The Special Committee of the Board of Directors
of Neozyme II Corporation
c/o Hambrecht & Quist LLC
230 Park Avenue
New York, NY 10169
Attention: Dennis J. Purcell
Telecopy No.: (212) 207-1519
and
Hale and Dorr
60 State Street
Boston, MA 02109
Attention: Steven D. Singer
Telecopy No.: (617) 526-5000
Notices provided in accordance with this Section 9.4 shall be deemed
delivered (i) on the date of personal delivery, (ii) four business days after
deposit in the mail, (iii) one business day after delivery to an overnight
courier, or (iv) on the date of confirmation of the telecopy transmission, as
the case may be.
9.5. Interpretation. When a reference is made in this Agreement to
subsidiaries of Genzyme, the Purchaser or the Company, the word "subsidiaries"
means any corporation more than 50 percent of whose outstanding voting
securities, or any partnership, joint venture or other entity more than 50
percent of whose total equity interest, is directly or indirectly owned by
Genzyme, the Purchaser or the Company, as the case may be; and the word
"affiliates" shall have the meaning assigned to such term under Rule 405 of the
A-17
<PAGE> 79
Securities Act. For purposes of this Agreement, the Company shall not be deemed
to be an affiliate or subsidiary of Genzyme or the Purchaser.
9.6. Representations and Warranties, ETC. The respective representations
and warranties of the Company, Genzyme and the Purchaser contained herein shall
expire upon consummation of the Offer. This Section 9.6 shall have no effect
upon any other obligation of the parties hereto, whether to be performed before
or after the consummation of the Offer.
9.7. Miscellaneous. This Agreement (i) constitutes the entire agreement
and supersedes all other prior agreements and undertakings, both written and
oral, among the parties, or any of them, with respect to the subject matter
hereof; (ii) is not intended to confer upon any other person any rights or
remedies hereunder, create any agreement of employment with any person or
otherwise create any third-party beneficiary hereto, except for the provisions
of Section 6.7 (which provisions are intended to be for the benefit of the
persons referred to therein and may be enforced by such persons); (iii) shall
not be assigned except that the Purchaser may assign its rights and obligations
to Genzyme or to one or more direct or indirect wholly-owned subsidiaries of
Genzyme which in a written instrument shall make all the representations and
warranties of the Purchaser set forth herein and shall agree to assume all of
the Purchaser's obligations hereunder and be bound by all of the terms and
conditions of this Agreement; provided, however, that no such assignment shall
relieve Genzyme or the Purchaser of its obligations hereunder; and (iv) shall be
governed in all respects, including validity, interpretation and effect, by the
internal laws of the Commonwealth of Massachusetts, without giving effect to the
principles of conflict of laws thereof. Only the Purchaser (or Genzyme or a
direct or indirect wholly-owned subsidiary of Genzyme to which the Purchaser
assigns such rights and obligations) may commence the Offer or the purchase of
Shares thereunder.
9.8. Validity. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
9.9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which
together shall constitute one and the same instrument.
9.10. Section Headings. The section headings in this Agreement are for
convenience of reference only and are not intended to affect the meaning or
interpretation of this Agreement.
A-18
<PAGE> 80
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
as of the date first written above.
GENZYME CORPORATION
By /s/ DAVID J. MCLACHLAN
------------------------------------
Senior Vice President, Finance
NEOZYME II ACQUISITION CORP.
By /s/ DAVID J. MCLACHLAN
------------------------------------
President
NEOZYME II CORPORATION
By /s/ PAUL M. EDWARDS
------------------------------------
President
A-19
<PAGE> 81
ANNEX I
CONDITIONS OF THE OFFER
Capitalized terms used in this Annex I have the meanings set forth in the
attached Purchase Agreement.
The Purchaser shall not be required to accept for payment and pay for any
Units tendered pursuant to the Offer, may postpone the purchase of, and payment
for, Units tendered, and may terminate or amend the Offer unless Units that
would constitute not less than a majority of the Units outstanding are validly
tendered prior to expiration of the Offer and not withdrawn (the "Minimum
Condition") and if at or before the time of acceptance for payment of any such
Units (whether or not any Units have theretofore been accepted for payment and
paid for pursuant to the Offer) any of the following shall occur or shall be
determined by the Purchaser to have occurred and remain in effect:
(a) except for matters which affect generally the economy or the
industry in which the Company is engaged and except for continued losses
incurred by the Company as a result of its operations and continued
depletion of its cash resources in the ordinary course of business or
consistent with the annual workplan currently in effect, any change shall
have occurred in the business, properties, assets, liabilities,
capitalization, stockholders equity, financial condition, operations,
licenses or franchises or results of operations of the Company which has a
Material Adverse Effect; or
(b) there shall have been instituted or be pending any action,
proceeding, application or counterclaim before any court or governmental or
regulatory body which (i) challenges the validity of or seeks to restrain
the consummation of or to impose any material limitation, on any
transaction contemplated by the Purchase Agreement or seeks (ii) to obtain
any material amount of damages in connection with such transactions; or
(c) any statute, regulation, order or injunction shall have been
enacted, entered, enforced or deemed applicable to the Offer or the Second
Step Transaction that is reasonably likely to, directly or indirectly,
result in any of the consequences referred to in paragraph (b) above; or
(d) the Board of Directors of the Company shall have publicly
(including by amendment of its Schedule 14D-9 relating to the Offer)
withdrawn or modified in a manner adverse to the Purchaser its approval or
recommendation of the Offer or shall have resolved to do so; or
(e) the representations and warranties of the Company set forth in the
Purchase Agreement shall not be true in any material respect as though made
on such date, or the Company shall have failed in any material respect to
perform any material obligation or covenant required in the Purchase
Agreement to be performed or complied with by it; or
(f) the Company shall have entered into, or shall have publicly
announced its intention to enter into, an agreement or agreement in
principle with respect to any Acquisition Proposal.
The foregoing conditions are for the sole benefit of Genzyme and the Purchaser
and may be waived by Genzyme or the Purchaser, in whole or in part, at any time
in their sole discretion, subject to the limitations set forth in the Purchase
Agreement.
A-20
<PAGE> 82
ANNEX II
PLAN OF MERGER
This Plan of Merger (the "Merger Agreement"), dated as of ,
1996, is between Neozyme II Merger Corp. ("Merger Corp."), a BVI international
business company and wholly-owned subsidiary of Neozyme II Acquisition Corp.,
and Neozyme II Corporation ("Neozyme"), a BVI international business company.
PRELIMINARY STATEMENT
The Board of Directors of Merger Corp. and Neozyme have determined that it
is advisable for Merger Corp. to merge with and into Neozyme pursuant to this
Merger Agreement.
Accordingly, Merger Corp. and Neozyme hereby agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1 The Merger
In accordance with the provisions of this Merger Agreement and the BVI
International Business Companies Ordinance, 1984 (the "BVI Law"), Merger Corp.
shall be merged with and into Neozyme (the "Merger"). Following the Merger, the
separate existence of Merger Corp. shall cease, and Neozyme shall continue as
the surviving corporation (the "Surviving Corporation").
SECTION 1.2 Effectiveness
Following approval of this Merger Agreement and the Merger by the members
of Merger Corp. and Neozyme in accordance with the requirements of the BVI Law,
the Merger shall become effective at 11:59 p.m. on , 1996 or at such
other time and date that this Merger Agreement is made effective in accordance
with applicable law (the date of the effectiveness of the Merger being referred
to herein as the "Effective Date").
ARTICLE 2
THE SURVIVING CORPORATION
SECTION 2.1 Name
The name of the Surviving Corporation upon the effectiveness of the Merger
shall be Neozyme II Corporation.
SECTION 2.2 Memorandum of Association; Articles of Association
The Memorandum of Association and Articles of Association of Merger Corp.
as in effect immediately prior to the Merger shall be the Memorandum of
Association and Articles of Association of the Surviving Corporation, without
amendment except that Article 1 of the Memorandum of Association of the
Surviving Corporation shall be amended to read as follows: "The name of the
Corporation is: Neozyme II Corporation."
SECTION 2.3 Directors and Officers
The directors, committees of directors and officers of Merger Corp.
immediately prior to the effectiveness of the Merger shall be the directors,
committees and officers of the Surviving Corporation each to hold office
A-21
<PAGE> 83
and be constituted, as appropriate, in accordance with the Articles and
Memorandum of Association of the Surviving Corporation.
ARTICLE 3
MANNER OF CONVERSION OF STOCK
SECTION 3.1 Conversion of Merger Corp. Common Stock
(a) Immediately prior to the Effective Date, Merger Corp. has outstanding
shares of Common Stock, $1.00 par value per share, which is its only class
of capital stock and all of which shares are entitled to vote on the Merger as a
single class.
(b) On the Effective Date, each share of Common Stock, $1.00 par value, of
Merger Corp. issued and outstanding immediately prior thereto shall, by virtue
of the Merger and without the surrender of stock certificates or any other
action by the holder of such shares or any other person, be converted into and
exchanged for one fully paid and nonassessable share of Common Stock, $1.00 par
value, of the Surviving Corporation.
SECTION 3.2 Conversion of Neozyme Callable Common Stock
(a) Immediately prior to the Effective Date, Neozyme has outstanding
2,415,000 shares of Callable Common Stock (the "Shares"), $1.00 par value per
share, which is its only class of capital stock and all of which shares are
entitled to vote on the Merger as a single class.
(b) On the Effective Date, by virtue of the Merger and without any action
on the part of Merger Corp. and Neozyme or the holder of any of the following
securities:
(i) Each Share issued and outstanding immediately prior to the
Effective Date (other than Shares to be cancelled pursuant to clause (ii)
below and any Dissenting Shares (as herein defined)) shall be converted
into and become the right to receive an amount in cash per Share equal to
$29.00 (the "Merger Consideration").
(ii) Each Share issued and outstanding immediately prior to the
Effective Date and owned by Genzyme Corporation ("Genzyme"), a
Massachusetts corporation, Neozyme Acquisition Corp., a BVI international
business company and the sole member of Merger Corp. or Neozyme or any
direct or indirect subsidiary of such corporations, shall be canceled, and
no payment shall be made with respect thereto.
(iii) All Dissenting Shares shall be handled in accordance with
Section 3.2(c).
(c) Shares of capital stock of Neozyme held by a shareholder who has
properly exercised dissenters rights with respect thereto in accordance with
Section 83 of the BVI Law (collectively, the "Dissenting Shares") shall not be
converted into Merger Consideration. From and after the Effective Date, a
shareholder who has properly exercised such dissenters' rights shall no longer
retain any rights of a shareholder of Neozyme or the Surviving Corporation,
except those provided under the BVI Law. If after the Effective Date such holder
withdraws or loses his right to demand payment for his Shares, such Shares shall
be treated as if they had been converted as of the Effective Date into the right
to receive the Merger Consideration payable in respect of such Shares pursuant
to Section 3.2(b)(i).
(d) Neozyme shall give Genzyme (i) prompt notice of any demands for
payment, or notices of intent to demand payment, with respect to any shares of
capital stock of Neozyme, any withdrawal of any such demands and any other
instruments served pursuant to the BVI Law and received by Neozyme and (ii) the
right to participate in all negotiations and proceedings with respect to any
such demands. Neozyme shall cooperate with Genzyme concerning, and shall not,
except with the prior written consent of Genzyme, voluntarily make any payment
with respect to, or offer to settle or settle, any such demands.
A-22
<PAGE> 84
SECTION 3.3 Exchange of Certificates
(a) Upon surrender of the Share certificate for cancellation to the Payment
Agent selected by Genzyme, the Payment Agent shall pay to the holder of such
certificate the Merger Consideration multiplied by the number of Shares
represented by such certificate, and the certificate so surrendered shall
forthwith be canceled. Notwithstanding the foregoing, if delivery of the Merger
Consideration is to be made to any person other than the person in whose name
the certificate surrendered is registered, it shall be a condition of such
delivery that the certificate so surrendered shall be properly endorsed or
otherwise in proper form for transfer and that the person requesting such
delivery shall pay any transfer or other taxes required by reason of such
delivery or establish to the satisfaction of Genzyme that such tax has been paid
or is not applicable. Furthermore, neither Genzyme nor any affiliate of Genzyme
shall be liable to a holder of Shares for any Merger Consideration delivered to
a public official pursuant to applicable abandoned property, escheat and similar
laws. After the Effective Date, there shall be no transfers of the Shares on the
stock transfer books of the Company.
(b) Promptly following the date that is six months after the Effective
Date, the Payment Agent shall, upon request by Genzyme, deliver to Genzyme all
cash, certificates and other documents in its possession relating to the
transactions described in this Merger Agreement, and the Payment Agent's duties
shall terminate. Thereafter, each holder of a certificate formerly representing
a Share may surrender such certificate to Genzyme and (subject to applicable
abandoned property, escheat and similar laws) receive in exchange therefor the
Merger Consideration, without any interest thereon but shall have no greater
rights against Genzyme than may be accorded to general creditors of Genzyme
under applicable law.
ARTICLE 4
GENERAL
SECTION 4.1 Termination or Abandonment
Prior to the approval of the members of Merger Corp. or of Neozyme, this
Merger Agreement and the Merger may be terminated or abandoned by action of the
Board of Directors of either Neozyme or Merger Corp., or both if, in the opinion
of the Boards of Directors of Merger Corp. and Neozyme, such action would be in
the best interests of such corporations. In the event of the termination or
abandonment of this Agreement, this Agreement shall become void and have no
effect, without any liability on the part of any party or its members or
directors or officers with respect thereto.
SECTION 4.2 Waiver, Modification, or Amendment
Any of the terms or conditions of this Merger Agreement may be waived
before action thereon by the members of Merger Corp. or of Neozyme, by the party
that is entitled to the benefits thereof. This Merger Agreement may be modified
or amended by the Board of Directors of Merger Corp. and Neozyme before action
thereon by the members of Merger Corp. or Neozyme, except as required by law.
Any waiver, modification, or amendment shall be in writing.
SECTION 4.3 Miscellaneous
This Merger Agreement may be executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. The headings contained in this Agreement are solely
for convenience of reference and shall not be deemed to affect the meaning or
interpretation of any provision contained herein. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
A-23
<PAGE> 85
EXHIBIT B
[HAMBRECHT & QUIST LLC LETTERHEAD]
September 20, 1996
Confidential
- ------------
The Special Committee of The Board of Directors
The Board of Directors
Neozyme II Corporation
Todman Building
Main Street
Road Town, Tortola
British Virgin Islands
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to the holders of the outstanding shares of callable common stock, par value
$1.00 per share ("Common Stock"), of Neozyme II Corporation ("Neozyme" or the
"Company") of the consideration to be received by such holders in connection
with a proposed transaction (the "Proposed Transaction") pursuant to which an
affiliate of Genzyme Corporation ("Genzyme") will offer to purchase the
outstanding units of Neozyme (the "Units") at a purchase price of $45.00 per
Unit in cash (the "Offer"). As of the date hereof, all of the outstanding Common
Stock is owned as part of a Unit, each of which consists of (i) one share of
Common Stock and (ii) one callable warrant to purchase two shares of Genzyme
General Division Common Stock and 0.135 shares of Genzyme Tissue Repair Division
Common Stock. The Offer will be made by means of offering documents (the "Offer
Documents") to be filed with the Securities and Exchange Commission. If the
Offer is consummated, but not all of the Units are tendered and accepted or, if
the Offer is terminated in accordance with Section 1.1(b)(ii) of the Purchase
Agreement, Genzyme has, pursuant to a Purchase Agreement (the "Purchase
Agreement") dated as of September 20, 1996, agreed to effect a second step
transaction (the "Second Step Transaction") in which Genzyme will acquire,
directly or indirectly, all of the remaining Common Stock in exchange for cash
in an amount equal to $29.00 per share of Common Stock.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment banking
services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Special
Committee of the Board of Directors of Neozyme in connection with the Proposed
Transaction, and we will receive a fee for our services, which include the
rendering of this opinion.
We are familiar with Genzyme and have, from time to time, provided financial
advisory services to Genzyme, and we have received fees for rendering these
services. In July 1996, we acted as managing underwriter for a public offering
of Genzyme Transgenics Corporation, an affiliate of Genzyme. In the ordinary
course of business, Hambrecht & Quist acts as a market maker and broker in the
publicly traded securities of Neozyme and Genzyme and receives customary
compensation in connection therewith, and also provides research coverage for
Genzyme. In the ordinary course of business, Hambrecht & Quist actively trades
in the equity securities of Neozyme and Genzyme 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. Hambrecht & Quist may in the future provide
additional investment banking or other financial advisory services to Genzyme.
B-1
<PAGE> 86
In connection with our review of the Proposed Transaction, and in arriving at
our opinion, we have, among other things:
(i) reviewed the publicly available consolidated financial statements of
Neozyme for recent years and interim periods to date and certain
other relevant financial and operating data of Neozyme made
available to us from published sources and from the internal records
of Neozyme;
(ii) discussed with certain members of the managements of Neozyme and
Genzyme the business, financial condition and prospects of Neozyme;
(iii) reviewed the publicly available consolidated financial statements of
Genzyme for recent years and interim periods to date;
(iv) reviewed certain internal financial and operating information,
including certain projections, relating to Neozyme prepared by the
management of Genzyme;
(v) reviewed the recent reported prices and trading activity for the
Common Stock and compared such information and certain financial
information of Neozyme with similar information for certain other
companies engaged in businesses we considered comparable to that of
Neozyme;
(vi) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(vii) reviewed drafts of the Purchase Agreement, the Offer Documents and
certain other materials to be filed with the Securities and Exchange
Commission in connection with the Offer; and
(viii) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations
and financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning Neozyme and Genzyme considered
in connection with our review of the Proposed Transaction, and we have not
assumed any responsibility for independent verification of such information. We
have not prepared any independent valuation or appraisal of any of the assets or
liabilities of Neozyme, nor have we conducted a physical inspection of the
properties and facilities of the Company. With respect to the financial
forecasts and projections made available to us and used in our analysis, we have
assumed that they reflect the best currently available estimates and judgments
of the expected future financial performance of Neozyme. For purposes of this
opinion, we have assumed that Neozyme is not a party to any pending
transactions, including external financings, recapitalizations or material
merger discussions, other than the Proposed Transaction and those activities
undertaken in the ordinary course of conducting its business. Our opinion is
necessarily based upon market, economic, financial and other conditions as they
exist and can be evaluated as of the date of this letter and any change in such
conditions would require a reevaluation of this opinion. We were not requested
to, and did not, formally solicit indications of interest from any other parties
in connection with a possible acquisition of, or business combination with,
Neozyme.
It is understood that this letter is for the information of the Special
Committee and the Board of Directors and may not be used for any other purpose
without our prior written consent; provided, however, that this letter may be
reproduced in full in any filing with the Securities and Exchange Commission
pursuant to the Securities Exchange Act of 1934, including Schedules 14D-1,
14D-9 and 13E-3 to be filed in connection with the Offer. This letter does not
constitute a recommendation to any Neozyme stockholder as to whether such
stockholder should accept the Offer. In addition, we express no opinion,
however, as to the adequacy of any consideration received in the Proposed
Transaction by Genzyme or any of its affiliates.
B-2
<PAGE> 87
Based upon and subject to the foregoing and after considering such other matters
as we deem relevant, we are of the opinion that as of the date hereof the
consideration to be received by the holders of the Units pursuant to the Offer
and the consideration to be received by the holders of the Common Stock pursuant
to the Second Step Transaction is fair to such holders from a financial point of
view.
Very truly yours,
HAMBRECHT & QUIST LLC
By /s/ David G. Golden
-----------------------
David G. Golden
Managing Director
B-3
<PAGE> 88
EXHIBIT C
SECTION 83 OF THE BVI INTERNATIONAL BUSINESS COMPANIES ORDINANCE, 1984
SUMMARY OF STOCKHOLDER APPRAISAL RIGHTS AND TEXT
OF SECTION 83 OF THE BVI INTERNATIONAL BUSINESS COMPANIES ORDINANCE, 1984
Summary of Stockholder Appraisal Rights. No appraisal rights are available
in connection with the Offer. However, if the Second Step Transaction is a
merger, consolidation, sale or other disposition of more than 50 percent of the
assets of the Company, or a redemption, stockholders will have certain rights
under the BVI Law to dissent and demand appraisal of, and to receive payment in
cash of the fair value of, their shares of Callable Common Stock. Such rights to
dissent, if the statutory procedures were complied with, could lead to an
arbitration proceeding to determine the fair value of the Callable Common Stock,
as of the day prior to the date on which the stockholders' vote was taken
approving the Second Step Transaction (excluding any appreciation or
depreciation directly or indirectly induced by the action or its proposal),
required to be paid in cash to such dissenting holders for their shares of
Callable Common Stock. The value determined in an arbitration proceeding could
be the same, more or less than the portion of the purchase price per Unit
attributable to the share of Callable Common Stock included in each Unit in the
Offer or the consideration per share of Callable Common Stock to be paid in the
Second Step Transaction.
RIGHTS OF DISSENTERS
83. (1) A member of a company incorporated under this Ordinance is entitled
to payment of the fair value of his shares upon dissenting from
(a) a merger, if the company is a constituent company, unless the
company is the surviving company and the member continues to hold the same
or similar shares;
(b) a consolidation, if the company is a constituent company;
(c) any sale, transfer, lease, exchange or other disposition of more
than 50 percent of the assets or business of the company, if not made in
the usual or regular course of the business carried on by the company, but
not including
(i) a disposition pursuant to an order of the court having
jurisdiction in the matter;
(ii) a disposition for money on terms requiring all or
substantially all net proceeds to be distributed to the members in
accordance with their respective interests within one year after the
date of disposition; or
(iii) a transfer pursuant to the power described in subsection (2)
of section 9;
(d) a redemption of his shares by the company pursuant to section 81;
and
(e) an arrangement, if permitted by the court.
(2) A member who desires to exercise his entitlement under subsection (1)
must give to the company, before the meeting of members at which the action is
submitted to a vote, or at the meeting but before the vote, written objection to
the action; but an objection is not required from a member to whom the company
did not give notice of the meeting in accordance with this Ordinance or where
the proposed action is authorized by written consent of members without a
meeting.
(3) An objection under subsection (2) must include a statement that the
member proposes to demand payment for his shares if the action is taken.
(4) Within 20 days immediately following the date on which the vote of
members authorizing the action is taken, or the date on which written consent of
members without a meeting is obtained, the company must give written notice of
the authorization or consent to each member who gave written objection or from
whom written objection was not required, except those members who voted for, or
consented to in writing, the proposed action.
C-1
<PAGE> 89
(5) A member to whom the company was required to give notice who elects to
dissent must, within 20 days immediately following the date on which the notice
referred to in subsection (4) is given, give to the company a written notice of
his decision to elect to dissent, stating
(a) his name and address;
(b) the number and classes or series of shares in respect of which he
dissents; and
(c) a demand for payment of the fair value of his shares;
and a member who elects to dissent from a merger under section 77 must give
to the company a written notice of his decision to elect to dissent within
20 days immediately following the date on which the copy of the plan or
merger or an outline thereof is given to him in accordance with section 77.
(6) A member who dissents must do so in respect of all shares that he holds
in the company.
(7) Upon the giving of a notice of election to dissent, the member to whom
the notice relates ceases to have any of the rights of a member except the right
to be paid the fair value of his shares.
(8) Within 7 days immediately following the date of the expiration of the
period within which members may give their notices of election to dissent, or
within 7 days immediately following the date on which the proposed action is put
into effect, whichever is later, the company or, in the case of a merger or
consolidation, the surviving company or the consolidated company, must make a
written offer to each dissenting member to purchase his shares at a specified
price that the company determines to be their fair value; and if, within 30 days
immediately following the date on which the offer is made, the company making
the offer and the dissenting member agree upon the price to be paid for his
shares, the company shall pay to the member the amount in money upon the
surrender of the certificates representing his shares.
(9) If the company and a dissenting member fail, within the period of 30
days referred to in subsection (8), to agree on the price to be paid for the
shares owned by the member, within 20 days immediately following the date on
which the period of 30 days expires, the following shall apply:
(a) the company and the dissenting member shall each designate an
appraiser;
(b) the 2 designated appraisers together shall designate a third
appraiser;
(c) the 3 appraisers shall fix the fair value of the shares owned by
the dissenting member as of the close of business on the day prior to the
date on which the vote of members authorizing the action was taken or the
date on which written consent of members without a meeting was obtained,
excluding any appreciation or depreciation directly or indirectly induced
by the action or its proposal, and that value is binding on the company and
the dissenting member for all purposes; and
(d) the company shall pay to the member the amount in money upon the
surrender by him of the certificates representing his shares.
(10) Shares acquired by the company pursuant to subsection (8) or (9) shall
be cancelled but if the shares are shares of a surviving company, they shall be
available for reissue.
(11) The enforcement by a member of his entitlement under this section
excludes the enforcement by the member of a right to which he might otherwise be
entitled by virtue of his holding shares, except that this section does not
exclude the right of the member to institute proceedings to obtain relief on the
ground that the action is illegal.
(12) Only subsections (1) and (8) to (11) shall apply in the case of a
redemption of shares by a company pursuant to the provisions of Section 81 and
in such case the written offer to be made to the dissenting member pursuant to
subsection (8) shall be made within 7 days immediately following the direction
given to a company pursuant to Section 81 to redeem its shares.
C-2
