<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
- --- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
- --- TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) of
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission file number 0-21794
-------
GENZYME TRANSGENICS CORPORATION
------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-3186494
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Five Mountain Road, Framingham, Massachusetts 01701
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(508) 872-8400
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X . No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at August 7, 1996
----- -----------------------------
Common Stock, $0.01 par value 16,574,768
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GENZYME TRANSGENICS CORPORATION
TABLE OF CONTENTS
PAGE #
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PART I. FINANCIAL INFORMATION
ITEM 1 - Unaudited Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets as of
June 30, 1996 and December 31, 1995................................ 3
Condensed Consolidated Statements of Operations for
the Six Months Ended June 30, 1996 and July 2, 1995................ 4
Condensed Consolidated Statements of Cash Flows for
the Three Months Ended June 30, 1996
and July 2, 1995................................................... 5
Notes to Unaudited Condensed Consolidated
Financial Statements............................................... 6
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 8
PART II. OTHER INFORMATION
ITEM 4
Submission of Matters to a Vote of Security Holders................. 12
ITEM 6
Exhibits and Reports on Form 8-K.................................... 12
SIGNATURES............................................................... 14
Exhibit Index............................................................ 15
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. Unaudited Condensed Consolidated Financial Statements.
------------------------------------------------------
<TABLE>
GENZYME TRANSGENICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED, DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
JUNE 30, DECEMBER 31,
1996 1995
-------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 780 $ 4,400
Restricted cash 475 1,425
Accounts receivable, net 6,624 4,035
Unbilled contract revenue 6,274 5,895
Other current assets 1,153 809
--------- ---------
Total current assets 15,306 16,564
Net property, plant and equipment 18,044 17,776
Costs in excess of net assets acquired, net 21,418 21,856
Investment in Joint Venture 505 639
Other assets 1,245 1,207
--------- ---------
$ 56,518 $ 58,042
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,319 $ 3,229
Accounts payable - Genzyme Corporation 1,973 1,140
Revolving line of credit 6,000 6,000
Revolving line of credit - Genzyme Corporation 1,419 -
Accrued expenses 6,840 6,962
Advance payments 5,232 4,690
Current portion of long-term debt 2,290 1,554
--------- ---------
Total current liabilities 25,073 23,575
Long-term debt, net of current portion 4,549 5,725
Deferred lease obligation 455 402
Other liabilities 823 1,052
--------- ---------
Total liabilities 30,900 30,754
Stockholders' equity:
Preferred stock, $.01 par value, authorized 5,000,000 shares, none
outstanding; - -
Common stock, $.01 par value; 24,000,000 shares
authorized; 13,572,618 and 13,151,113 shares issued and
outstanding at June 30, 1996 and December 31, 1995, respectively 136 132
Capital in excess of par value 39,816 37,351
Accumulated deficit (14,324) (10,185)
Accumulated translation adjustments (10) (10)
--------- ---------
Total stockholders' equity 25,618 27,288
--------- ---------
$ 56,518 $ 58,042
========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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<TABLE>
GENZYME TRANSGENICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
Three months ended Six months ended
------------------ ----------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues
Services $ 9,381 $ 6,166 $18,176 $11,174
Research and development 1,990 1,210 3,548 2,326
------- ------- ------- -------
11,371 7,376 21,724 13,500
Costs and operating expenses:
Services 8,156 5,584 15,777 10,539
Research and development 2,112 1,527 4,099 3,106
Selling, general and administrative 2,834 1,916 5,417 3,987
Equity in loss of Joint Venture 94 191 134 354
------- ------- ------- -------
13,196 9,218 25,427 17,986
------- ------- ------- -------
Loss from continuing operations: (1,825) (1,842) (3,703) (4,486)
Other income (expense)
Interest income 3 21 11 31
Interest expense (363) (238) (673) (496)
Other income - - 318 356
------- ------- ------- -------
Loss from continuing operations before
income taxes (2,185) (2,059) (4,047) (4,595)
Provision for income taxes - - 318 356
------- ------- ------- -------
Loss from continuing operations $(2,185) $(2,059) $(4,139) $(4,629)
Discontinued operations
Income from discontinued clinical
operations (less applicable
income taxes of $(32) and $126) - 388 - 643
------- ------- ------- -------
Net loss $(2,185) $(1,671) $(4,139) $(3,986)
======= ======= ======= -------
Net loss per common share $ (0.16) $ (0.15) $ (0.31) $ (0.38)
======= ======= ======= =======
Number of common shares outstanding
for purposes of computing net
loss per share 13,318 10,797 13,245 10,496
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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<TABLE>
GENZYME TRANSGENICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<CAPTION>
SIX MONTHS ENDED
----------------
JUNE 30, JULY 2,
1996 1995
-------- -------
<S> <C> <C>
Cash flows for operating activities:
Net loss $(4,139) $(3,986)
Adjustments to reconcile net loss to net
cash used by operating activities:
Depreciation and amortization 1,799 1,698
Adjustment to Goodwill (143) -
Deferred tax provision - 182
Equity in loss of Joint Venture 134 354
Changes in assets and liabilities, net of effects
from purchase of subsidiaries:
Accounts receivable and unbilled contract revenue (2,968) (983)
Inventory and other current assets (344) (218)
Decrease in net assets held for sale - 781
Accounts payable (1,910) (1,640)
Accounts payable - Genzyme Corporation 833 654
Accrued income taxes - (519)
Other accrued expenses 144 (1,358)
Advance payments 542 460
------- -------
Net cash used by investing activities (6,052) (4,575)
Cash flows for investing activities:
Purchase of property, plant and equipment (1,457) (2,594)
Purchases of short-term investments - -
Proceeds from sales and maturities of
short-term investments - 1,443
Cash paid for acquisition of TSI Corporation - (314)
Restricted cash 950 -
Other assets (67) (140)
------- -------
Net cash used in investing activities (574) (1,605)
Cash flows from financing activities:
Net proceeds from the issuance of common stock 530 4,348
Proceeds from long-term debt 669 1,128
Repayment of long-term debt (1,109) (409)
Net borrowings under revolving line of credit - 1,324
Investment and advances by Genzyme Corporation 3,092 1,857
Deposits on capital leases - (229)
Other long-term liabilities (176) (157)
------- -------
Net cash provided by financing activities 3,006 7,862
------- -------
Net increase (decrease) in cash and cash equivalents (3,620) 1,682
Effect of exchange rates on cash - 8
Cash and cash equivalents at beginning of the period 4,400 816
------- -------
Cash and cash equivalents at end of period $ 780 $ 2,506
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
GENZYME TRANSGENICS CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1. Basis of Presentation:
----------------------
These unaudited condensed consolidated financial statements should be read
in conjunction with the Company's Annual Report on Form 10-K for the fiscal
year ended December 31, 1995 and the financial statements and footnotes
included therein. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to
Securities and Exchange Commission rules and regulations.
Per share information is based upon the weighted average number of shares
of Common Stock outstanding during the period.
In the third quarter of 1995, the Company disposed of its clinical units
and, accordingly, the results of operations for the clinical units are
reflected, net of tax, as discontinued operations for the second quarter of
1995.
The financial statements for the three months ended June 30, 1996 and July
2, 1995 are unaudited but include, in the Company's opinion, all
adjustments (consisting only of normally recurring accruals) necessary for
a fair presentation of the results for the periods presented.
2. Accounting Policies:
--------------------
The accounting policies underlying the quarterly financial statements are
those set forth in Note 2 of the financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995.
3. Convertible Debt and Development Funding Agreement:
---------------------------------------------------
On March 28, 1996, the Company entered into a Convertible Debt and
Development Funding Agreement (the "Agreement") with Genzyme under which
Genzyme agreed to provide a revolving line of credit in the amount of $10
million and to fund development costs of the Antithrombin III ("AT-III")
program through March 31, 1997. Under the Agreement, GTC granted Genzyme
co-marketing rights to AT-III in all territories other than Asia, subject
to negotiation and execution of a development and supply agreement between
the parties prior to March 31, 1997. The line of credit carries an interest
rate of 7% and is convertible into the Company's common stock (at the
average closing price for the 20-day period ending two days before any
conversion), at GTC's option to maintain GTC's tangible net worth at the
end of each quarter at a level between $4.0 million and $4.2 million or by
Genzyme at any time for up to the full amount outstanding.
6
<PAGE> 7
As of June 30, 1996, $6,908,000 million was available and $1,419,000 was
outstanding under the revolving line of credit, excluding an aggregate of
$1,673,000 of debt previously converted, on March 31 and June 30, 1996,
into 26,244 and 193,321 shares of the Company's common stock at a price of
$5.7156 and $7.8781 per share, respectively. For purposes of determining
availability under the line of credit, principal amounts converted into
Common Stock are deemed outstanding. The Company has agreed to repay the
amount currently outstanding under the Agreement from the proceeds of the
public offering described in the following note.
4. Subsequent Event
----------------
On August 5, 1996, the Company issued 3,000,000 shares of common stock at
$4.00 per share in an underwritten public offering pursuant to an effective
registration statement under the Securities Act of 1933. The Company
received gross proceeds of $11,454,000 in the offering, a portion of which
will be used to repay the outstanding indebtedness to Genzyme under the
Agreement. Genzyme purchased 900,000 shares in the offering, after which
Genzyme owns 45.3% of the Company's outstanding common stock.
7
<PAGE> 8
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three-months ended June 30, 1996 and July 2, 1995
Total revenues for the three-month period ending June 30, 1996 were $11,371,000,
compared with $7,376,000 in the comparable period of 1995, an increase of
$3,995,000 or 54.2%. Service revenues increased to $9,381,000 in the second
quarter of 1996 from $6,166,000 in the second quarter of 1995, an increase of
$3,215,000 or 52.1%. Of the increase, $765,000 represents service revenue
derived from the operations of BioDevelopment Laboratories, Inc. ("BDL"), which
was acquired in July 1995. Exclusive of the BDL acquisition, service revenues
increased $2,450,000 or 39.7%. Research and development revenue increased to
$1,990,000 in the second quarter of 1996 from $1,210,000 in the second quarter
of 1995, an increase of $780,000 or 64.5%, due primarily to an increase in
activity and revenues related to the funding received from Genzyme Corporation
in the development of the lead compound, transgenic antithrombin III ("AT-III").
Cost of services for the second quarter of 1996 were $8,156,000 compared with
$5,584,000 in the comparable period of 1995, an increase of $2,572,000 or 46.1%.
Of the increase, $783,000 represents cost of services derived from the
operations of BDL. Exclusive of the BDL acquisition, cost of services increased
$1,789,000 or 32%. Research and development expenses increased to $2,112,000 in
the second quarter of 1996 from $1,527,000 in the second quarter of 1995, an
increase of $585,000 or 38.3%. The increase was due to increased activity in the
Company's research programs.
Gross margin for the second quarter of 1996 amounted to $1,103,000 versus
$265,000 in the second quarter of 1995. Gross margin on services for the second
quarter of 1996 was $1,225,000 or 13.1% versus $582,000 or 9.4% in the second
quarter of 1995. The improvement in services gross margin was primarily due to
the increase in testing services revenues.
Selling, general and administrative ("SG&A") expenses increased to $2,834,000 in
the second quarter of 1996 from $1,916,000 in the second quarter of 1995, an
increase of $918,000 or 47.9%. Of the increase, $131,000 represents SG&A
expenses of BDL including $107,000 of goodwill amortization related to the BDL
acquisition. Exclusive of BDL, SG&A expense increased by $787,000 or 41.1% due
to continued increased marketing efforts of the Company.
Interest income decreased to $3,000 in the second quarter of 1996, from $21,000
in the second quarter of 1995, due to a reduction in funds available for
investment. Interest expense increased to $363,000 in the second quarter of 1996
from $238,000 in the second quarter of 1995. Of the 1996 expense total, $174,000
represents interest expense
8
<PAGE> 9
incurred under a line of credit with a commercial bank and other financial
obligations relating to the testing operations and $47,000 represents interest
expense incurred under the Convertible Debt and Development Funding Agreement.
The Company recognized $94,000 of Joint Venture losses during the second quarter
of 1996 compared to $191,000 in the comparable period of 1995. The decrease was
due to reduced funding from the Joint Venture.
The Company realized no income from its discontinued clinical operations in the
second quarter of 1996 compared to $388,000 in the second quarter of 1995. The
1995 income represents the results of operations (net of tax) for the first
quarter of 1995 for G.D.R.U. Limited ("GDRU") and Health and Sciences Research
Incorporated ("HSRI"). These operations were acquired by the Company as part of
the TSI acquisition in October 1994. GDRU was sold effective September 1, 1995
and the HSRI operation was shut down in August 1995.
Six-months ended June 30, 1996 and July 2, 1995
Total revenues for the six-month period ending June 30, 1996 were $21,724,000,
compared with $13,500,000 in the comparable period of 1995, an increase of
$8,224,000 or 60.9%. Service revenues increased to $18,176,000 during the first
six months of 1996 from $11,174,000 in the comparable period of 1995, an
increase of $7,002,000 or 62.7%. Of the increase, $1,764,000 represents service
revenue derived from the operations of BioDevelopment Laboratories, Inc.
("BDL"), which was acquired in July 1995. Exclusive of the BDL acquisition,
service revenues increased $5,238,000 or 46.9%. Research and development revenue
increased to $3,548,000 during the first six months of 1996 from $2,326,000 in
the comparable period of 1995, an increase of $1,222,000 or 52.5%, due primarily
to an increase in activity and revenues related to the funding received from
Genzyme Corporation in the development of the Company's lead compound,
transgenic antithrombin III ("AT-III").
Cost of services during the first six months of 1996 were $15,777,000 compared
with $10,539,000 in the comparable period of 1995, an increase of $5,238,000 or
49.7%. Of the increase, $1,511,000 represents cost of services derived from the
operations of BDL. Exclusive of the BDL acquisition, cost of services increased
$3,727,000 or 35.4%. Research and development expenses increased to $4,099,000
during the first six months of 1996 from $3,106,000 in the comparable period of
1995, an increase of $993,000 or 32%. The increase was due to increased activity
in the research programs.
Gross margin during the first six months of 1996 amounted to $1,848,000 versus a
loss of $145,000 in the comparable period of 1995. Gross margin on services
during the first six months of 1996 was $2,399,000 or 13.2% versus $635,000 or
5.7% in the comparable period of 1995. The improvement in services gross margin
was primarily due to the increase in testing services revenues.
Selling, general and administrative ("SG&A") expenses increased to $5,417,000
during the first six months of 1996 from $3,987,000 in the comparable period of
1995, an
9
<PAGE> 10
increase of $1,430,000 or 35.9%. Of the increase, $270,000 represents SG&A
expenses of BDL, including $212,000 of goodwill amortization related to the BDL
acquisition. Exclusive of BDL, SG&A expense increased by $1,160,000 or 29.1% due
to continued increased marketing efforts of the Company.
Interest income decreased to $11,000 during the first six months of 1996, from
$31,000 in the comparable period of 1995, due to a reduction in funds available
for investment. Interest expense increased to $673,000 during the first six
months of 1996 from $496,000 in the comparable period of 1995. Of the 1996
total, $353,000 represents interest expense incurred under a line of credit with
a commercial bank and other financial obligations relating to the testing
operations and $48,000 represents interest expense incurred under the
Convertible Debt and Development Funding Agreement.
The Company recognized $134,000 of Joint Venture losses during the first six
months of 1996 compared to $354,000 in the comparable period of 1995. The
decrease was due to reduced funding from the Joint Venture.
The Company realized no income from its discontinued clinical operations in the
first six months of 1996 compared to $643,000 in the comparable period of 1995.
The 1995 income represents the results of operations (net of tax) for the first
quarter of 1995 for G.D.R.U. Limited ("GDRU") and Health and Sciences Research
Incorporated ("HSRI"). These operations were acquired by the Company as part of
the TSI acquisition in October 1994. GDRU was sold effective September 1, 1995
and the HSRI operation was shut down in August 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, cash equivalents and short-term investments of $780,000 at
June 30, 1996. During the first six months of 1996, the Company had a $3.6
million net decrease in cash; $6.0 million of cash was used in operations (due
primarily to the net loss of $4.1 million and an increase in net assets of $3.7
million offset by $1.8 million of non-cash charges), $1.5 million was invested
in the transgenic production facility and other capital equipment and $1.1
million was used to pay down long-term debt. Sources of funds during the period
included $3.1 million in advances under the Convertible Debt and Development
Funding Agreement with Genzyme (see Note 3), $950,000 in proceeds from the sale
of GDRU which were released from escrow, $669,000 in proceeds from long-term
debt and $530,000 in proceeds from the issuance of common stock.
The Company had a working capital deficit of $9.8 million at June 30, 1996
compared to a deficit of $7.0 million at December 31, 1995. The Company expects
to continue to operate with negative working capital for the foreseeable future.
As of June 30, 1996, the Company had no funds available under its operating line
of credit, $6,900,000 available under the Convertible Debt and Development
Agreement (see Note 3), and $331,000 available under a capital lease line.
10
<PAGE> 11
On August 5, 1996, the Company completed an underwritten public offering of 3
million shares of the Company's common stock (the "Public Offering") with gross
proceeds of $11.4 million to the Company. A portion of such proceeds will be
used to repay the approximately $1.4 million outstanding under the Convertible
Debt and Development Agreement, which Genzyme and the Company have agreed to
continue for possible future borrowing by the Company.
Under the Company's 1996 operating plan, existing cash balances, along with
funds available under the bank line, the Convertible Debt and Development
Agreement with Genzyme and the proceeds from the Public Offering are expected
to be sufficient to fund the Company through 1997.
The Company's cash requirements may vary materially from those now planned,
depending upon the results of TSI's existing business, the ability of the
Company to enter into any transgenic research and development collaborations in
the future and the terms of such collaborations, the results of research and
development and preclinical and clinical testing, competitive and technological
advances, regulatory requirements and other factors. If the Company experiences
increased losses, the Company may have to seek additional financing through
collaborative arrangements or from public or private sales of its securities,
including equity securities. There can be no assurance that additional funding
will be available on terms acceptable to GTC, if at all. If additional financing
cannot be obtained on acceptable terms, GTC could be forced to delay, scale back
or eliminate certain of its research and development programs or to enter into
license agreements with third parties for the commercialization of technologies
or products that the Company would otherwise undertake itself.
11
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1
GENZYME TRANSGENICS CORPORATION AND SUBSIDIARY
FORM 10-Q
JUNE 30, 1996
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
At the Annual Meeting of Stockholders held on May 15, 1996, the Company's
stockholders voted as follows:
(a) To reelect Messrs. Henry E. Blair, Francis J. Bullock and Alan W. Tuck to
the Board of Directors for a three-year term.
Total Vote for Total Vote Withheld
Each Nominee From Each Nominee
------------ -----------------
Henry E. Blair 12,455,025 33,557
Francis J. Bullock 12,456,084 32,497
Alan W. Tuck 12,455,424 33,158
The terms in office of Henri A. Termeer, Robert W. Baldridge, James A. Geraghty
and Alan E. Smith continued after the meeting.
(b) To amend the Company's 1993 Equity Incentive Plan to increase the number of
shares of Common Stock covered by such plan by 725,000 shares.
Total Vote for the Proposal 8,825,752
Total Vote Against the Proposal 199,741
Abstentions 61,166
Broker Non-votes 3,401,922
ITEM 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits.
10.1 1993 Equity Incentive Plan, as amended through May 15, 1996. Filed
herewith.
10.2 First Amendment to Convertible Debt and Development Funding Agreement,
dated as of May 3, 1996. Filed as Exhibit 10.31.2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-05843) and
incorporated herein by reference.
27 Financial Data Schedule. Filed herewith.
12
<PAGE> 13
(b) Reports on Form 8-K.
None.
13
<PAGE> 14
GENZYME TRANSGENICS CORPORATION AND SUBSIDIARY
FORM 10-Q
JUNE 30, 1996
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 9, 1996 GENZYME TRANSGENICS CORPORATION
BY: /s/ John B. Green
----------------------------
John B. Green
Duly Authorized Officer,
Vice President and
Chief Financial Officer
14
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GENZYME TRANSGENICS CORPORATION AND SUBSIDIARY
FORM 10-Q
JUNE 30, 1996
EXHIBIT INDEX
-------------
Exhibits.
10.1 1993 Equity Incentive Plan, as amended through May 15, 1996. Filed
herewith.
10.2 First Amendment to Convertible Debt and Development Funding Agreement,
dated as of May 3, 1996. Filed as Exhibit 10.31.2 to the Company's
Registration Statement on Form S-1 (Registration No. 333-05843) and
incorporated herein by reference.
27 Financial Data Schedule. Filed herewith.
15
<PAGE> 1
EXHIBIT 10.1
1. Adopted by the Board of Directors on May 1, 1993; Approved by the
stockholders on June 25, 1993.
2. Amended by the Board of Directors on September 24, 1993 (No stockholder
approval required).
3. Amended by the Board of Directors on October 24, 1994, March 17, 1995 and
April 6, 1995; Approved by the stockholders on May 19, 1995.
4. Amended by the Board of Directors on March 13, 1996; Approved by the
stockholders on May 15, 1996.
GENZYME TRANSGENICS CORPORATION
1993 Equity Incentive Plan
--------------------------
Section 1. Purpose
-------
The purpose of the Genzyme Transgenics Corporation 1993 Equity Incentive
Plan (the "Plan") is to attract and retain key employees and consultants to
provide an incentive for them to assist the Company to achieve long-range
performance goals, and to enable them to participate in the long-term growth of
the Company.
Section 2. Definitions
-----------
"Affiliate" means any business entity in which the Company owns directly or
indirectly 50% or more of the total combined voting power or has a significant
financial interest as determined by the Committee.
"Award" means any Option, Stock Appreciation Right, Performance
Share, Restricted Stock or Stock Unit awarded under the Plan.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Committee" means either any one of one or more committees of the Board
appointed by the Board to administer the Plan, the members of which are
"disinterested persons" within the meaning of Rule 16b-3 under the Securities
Exchange Act of 1934, as amended, or any successor provision (the "Rule") to the
extent necessary to comply with the Rule.
"Common Stock" or "Stock" means the Common Stock, $0.01 par value, of the
Company.
"Company" means Genzyme Transgenics Corporation.
"Designated Beneficiary" means the beneficiary designated by a Participant,
in a manner determined by the Committee, to receive amounts due or exercise
rights of the
<PAGE> 2
Participant in the event of the Participant's death. In the absence of an
effective designation by a Participant, designated Beneficiary shall mean the
Participant's estate.
"Fair Market Value" means, with respect to Common Stock or any other
property, the fair market value of such property as determined by the Committee
in good faith or in the manner established by the Committee from time to time.
"Incentive Stock Option" means an option to purchase shares of Common Stock
awarded to a Participant under Section 6 which is intended to meet the
requirements of Section 422 of the Code or any successor provision.
"Nonstatutory Stock Option" means an option to purchase shares of Common
Stock awarded to a Participant under Section 6 which is not intended to be an
Incentive Stock Option.
"Option" means an Incentive Stock Option or a Nonstatutory Stock Option.
"Participant" means a person selected by the Committee to receive an Award
under the Plan.
"Performance Cycle" or "Cycle" means the period of time selected by the
Committee during which performance is measured for the purpose of determining
the extent to which an award of Performance Shares has been earned.
"Performance Shares" mean shares of Common Stock which may be earned by the
achievement of performance goals awarded to a Participant under Section 8.
"Reporting Person" means a person subject to Section 16 of the Securities
Exchange Act of 1934 or any successor provision.
"Restricted Period" means the period of time selected by the Committee
during which an award of Restricted Stock may be forfeited to the Company.
"Restricted Stock" means shares of Common Stock subject to forfeiture
awarded to a Participant under Section 9.
"Stock Appreciation Right" or "SAR" means a right to receive any excess in
value of shares of Common Stock over the exercise price awarded to a Participant
under Section 7.
"Stock Unit" means an award of Common Stock or units that are valued in
whole or in part by reference to, or otherwise based on, the value of Common
Stock, awarded to a Participant under Section 10.
Section 3. Administration
--------------
-2-
<PAGE> 3
The Plan shall be administered by the Committee. The Committee shall have
authority to adopt, alter and repeal such administrative rules, guidelines and
practices governing the operation of the Plan as it shall from time to time
consider advisable, and to interpret the provisions of the Plan. The Committee's
decisions shall be final and binding. To the extent permitted by applicable law,
the Committee may delegate to one or more executive officers of the Company the
power to make Awards to Participants who are not Reporting Persons and all
determinations under the Plan with respect thereto, provided that the Committee
shall fix the maximum amount of such Awards for the group and a maximum for any
one Participant.
Section 4. Eligibility
-----------
All employees, and in the case of Awards other than Incentive Stock
Options, consultants of the Company or any Affiliate capable of contributing
significantly to the successful performance of the Company, other than a person
who has irrevocably elected not to be eligible, are eligible to be Participants
in the Plan.
Section 5. Stock Available for Awards
--------------------------
(a) Subject to adjustment under subsection (b), Awards may be made under
the Plan for up to 2,015,000(1) shares of Common Stock. If any Award in respect
of shares of Common Stock expires or is terminated unexercised or is forfeited
for any reason or settled in a manner that results in fewer shares outstanding
than were initially awarded, including without limitation the surrender of
shares in payment for the Award or any tax obligation thereon, the shares
subject to such Award or so surrendered, as the case may be, to the extent of
such expiration, termination, forfeiture or decrease, shall again be available
for award under the Plan, subject, however, in the case of Incentive Stock
Options, to any limitation required under the Code. Common Stock issued through
the assumption or substitution of outstanding grants from an acquired company
shall not reduce the shares available for Awards under the Plan. Shares issued
under the Plan may consist in whole or in part of authorized but unissued shares
or treasury shares.
(b) In the event that the Committee determines that any stock dividend,
extraordinary cash dividend, creation of a class of equity securities,
recapitalization, reorganization, merger, consolidation, split-up, spin-off,
combination, exchange of shares, warrants or rights offering to purchase Common
Stock at a price substantially below fair market value, or other similar
transaction affects the Common Stock such that an adjustment is required in
order to preserve the benefits or potential benefits intended to be made
available under the Plan, then the Committee, subject, in the case of Incentive
Stock Options, to any
- --------
(1) This number includes 224,350 shares reserved for issuance upon the exercise
of outstanding options to purchase shares of common stock of TSI Corporation,
which options were assumed by the Company in October 1994 in connection with the
Company's acquisition of TSI Corporation.
-3-
<PAGE> 4
limitation required under the Code, shall equitably adjust any or all of (i) the
number and kind of shares in respect of which Awards may be made under the Plan,
(ii) the number and kind of shares subject to outstanding Awards, and (iii) the
award, exercise or conversion price with respect to any of the foregoing, and if
considered appropriate, the Committee may make provision for a cash payment with
respect to an outstanding Award, provided that the number of shares subject to
any Award shall always be a whole number.
Section 6. Stock Options
-------------
(a) Subject to the provisions of the Plan, the Committee may award
Incentive Stock Options and Nonstatutory Stock Options and determine the number
of shares to be covered by each Option, the option price therefor and the
conditions and limitations applicable to the exercise of the Option. The terms
and conditions of Incentive Stock Options shall be subject to and comply with
Section 422 of the Code, or any successor provision, and any regulations
thereunder.
(b) The Committee shall establish the option price at the time each
Option is awarded, which price shall not be less than 100% of the Fair Market
Value of the Common Stock on the date of award with respect to Incentive Stock
Options and not less than 50% of the Fair Market Value of the Common Stock on
the date of award with respect to Nonstatutory Stock Options.
(c) Each Option shall be exercisable at such times and subject to such
terms and conditions as the Committee may specify in the applicable Award or
thereafter. The Committee may impose such conditions with respect to the
exercise of Options, including conditions relating to applicable federal or
state securities laws, as it considers necessary or advisable.
(d) No shares shall be delivered pursuant to any exercise of an Option
until payment in full of the option price therefor is received by the Company.
Such payment may be made in whole or in part in cash or, to the extent permitted
by the Committee at or after the award of the Option, by delivery of a note or
shares of Common Stock owned by the optionee, including Restricted Stock, valued
at their Fair Market Value on the date of delivery, or such other lawful
consideration as the Committee may determine.
(e) The Committee may provide for the automatic award of an Option upon
the delivery of shares to the Company in payment of an Option for up to the
number of shares so delivered.
Section 7. Stock Appreciation Rights
-------------------------
(a) Subject to the provisions of the Plan, the Committee may award SARs
in tandem with an Option (at or after the award of the Option), or alone and
unrelated to an Option.
-4-
<PAGE> 5
SARs in tandem with an Option shall terminate to the extent that the related
Option is exercised, and the related Option shall terminate to the extent that
the tandem SARs are exercised. SARs shall have an exercise price of not less
than 50% of the Fair Market Value of the Common Stock on the date of award, or
in the case of SARs in tandem with Options, the exercise price of the related
Option.
(b) An SAR related to an Option which can only be exercised during
limited periods following a change in control of the Company, may entitle the
Participant to receive an amount based upon the highest price paid or offered
for Common Stock in any transaction relating to the change in control or paid
during the thirty-day period immediately preceding the occurrence of the change
in control in any transaction reported in the stock market in which the Common
Stock is normally traded.
Section 8. Performance Shares
------------------
(a) Subject to the provisions of the Plan, the Committee may award
Performance Shares and determine the number of such shares for each Performance
Cycle and the duration of each Performance Cycle. There may be more than one
Performance Cycle in existence at any one time, and the duration of Performance
Cycles may differ from each other. The payment value of Performance Shares shall
be equal to the Fair Market Value of the Common Stock on the date the
Performance Shares are earned or, in the discretion of the Committee, on the
date the Committee determines that the Performance Shares have been earned.
(b) The Committee shall establish performance goals for each Cycle, for
the purpose of determining the extent to which Performance Shares awarded for
such Cycle are earned, on the basis of such criteria and to accomplish such
objectives as the Committee may from time to time select. During any Cycle, the
Committee may adjust the performance goals for such Cycle as it deems equitable
in recognition of unusual or non-recurring events affecting the Company, changes
in applicable tax laws or accounting principles, or such other factors as the
Committee may determine.
(c) As soon as practicable after the end of a Performance Cycle, the
Committee shall determine the number of Performance Shares which have been
earned on the basis of performance in relation to the established performance
goals. The payment values of earned Performance Shares shall be distributed to
the Participant or, if the Participant has died, to the Participant's Designated
Beneficiary, as soon as practicable thereafter. The Committee shall determine,
at or after the time of award, whether payment values will be settled in whole
or in part in cash or other property, including Common Stock or Awards.
Section 9. Restricted Stock
----------------
(a) Subject to the provisions of the Plan, the Committee may award shares
of Restricted Stock and determine the duration of the Restricted Period during
which, and the
-5-
<PAGE> 6
conditions under which, the shares may be forfeited to the Company and the other
terms and conditions of such Awards. Shares of Restricted Stock shall be issued
for no cash consideration or such minimum consideration as may be required by
applicable law.
(b) Shares of Restricted Stock may not be sold, assigned, transferred,
pledged or otherwise encumbered, except as permitted by the Committee, during
the Restricted Period. Shares of Restricted Stock shall be evidenced in such
manner as the Committee may determine. Any certificates issued in respect of
shares of Restricted Stock shall be registered in the name of the Participant
and unless otherwise determined by the Committee, deposited by the Participant,
together with a stock power endorsed in blank, with the Company. At the
expiration of the Restricted Period, the Company shall deliver such certificates
to the Participant or if the Participant has died, to the Participant's
Designated Beneficiary.
Section 10. Stock Units
-----------
(a) Subject to the provisions of the Plan, the Committee may award Stock
Units subject to such terms, restrictions, conditions, performance criteria,
vesting requirements and payment rules as the Committee shall determine.
(b) Shares of Common Stock awarded in connection with a Stock Unit Award
shall be issued for no cash consideration or such minimum consideration as may
be required by applicable law.
Section 11. General Provisions Applicable to Awards
---------------------------------------
(a) REPORTING PERSON LIMITATIONS. Notwithstanding any other provision of
the Plan, to the extent required to qualify for the exemption provided by Rule
16b-3 under the Securities Exchange Act of 1934, and any successor provision,
(i) any Common Stock or other equity security offered under the Plan to a
Reporting Person may not be sold for at least six months after acquisition,
except in case of death or disability and (ii) any Option, SAR or other similar
right related to an equity security, issued under the Plan to a Reporting Person
shall not be transferable other than by will or the laws of descent and
distribution, shall not be exercisable for at least six months except in the
case of death or disability, and shall be exercisable during the Participant's
lifetime only by the Participant or the Participant's guardian or legal
representative.
(b) DOCUMENTATION. Each Award under the Plan shall be evidenced by a
writing delivered to the Participant specifying the terms and conditions thereof
and containing such other terms and conditions not inconsistent with the
provisions of the Plan as the Committee considers necessary or advisable to
achieve the purposes of the Plan or comply with applicable tax and regulatory
laws and accounting principles.
-6-
<PAGE> 7
(c) COMMITTEE DISCRETION. Each type of Award may be made alone, in
addition to or in relation to any other type of Award. The terms of each type of
Award need not be identical, and the Committee need not treat Participants
uniformly. Except as otherwise provided by the Plan or a particular Award, any
determination with respect to an Award may be made by the Committee at the time
of award or at any time thereafter.
(d) SETTLEMENT. The Committee shall determine whether Awards are settled
in whole or in part in cash, Common Stock, other securities of the Company,
Awards or other property. The Committee may permit a Participant to defer all or
any portion of a payment under the Plan, including the crediting of interest on
deferred amounts denominated in cash and dividend equivalents on amounts
denominated in Common Stock.
(e) DIVIDENDS AND CASH AWARDS. In the discretion of the Committee, any
Award under the Plan may provide the Participant with (i) dividends or dividend
equivalents payable currently or deferred with or without interest, and (ii)
cash payments in lieu of or in addition to an Award.
(f) TERMINATION OF EMPLOYMENT. The Committee shall determine the effect
on an Award of the disability, death, retirement or other termination of
employment of a Participant and the extent to which, and the period during
which, the Participant's legal representative, guardian or Designated
Beneficiary may receive payment of an Award or exercise rights thereunder.
(g) CHANGE IN CONTROL. In order to preserve a Participant's rights under
an Award in the event of a change in control of the Company, the Committee in
its discretion may, at the time an Award is made or at any time thereafter, take
one or more of the following actions: (i) provide for the acceleration of any
time period relating to the exercise or realization of the Award, (ii) provide
for the purchase of the Award upon the Participant's request for an amount of
cash or other property that could have been received upon the exercise or
realization of the Award had the Award been currently exercisable or payable,
(iii) adjust the terms of the Award in a manner determined by the Committee to
reflect the change in control, (iv) cause the Award to be assumed, or new rights
substituted therefor, by another entity, or (v) make such other provision as the
Committee may consider equitable and in the best interests of the Company.
(h) WITHHOLDING. The Participant shall pay to the Company, or make
provision satisfactory to the Committee for payment of, any taxes required by
law to be withheld in respect of Awards under the Plan no later than the date of
the event creating the tax liability. In the Committee's discretion, such tax
obligations may be paid in whole or in part in shares of Common Stock, including
shares retained from the Award creating the tax obligation, valued at their Fair
Market Value on the date of delivery. The Company and its Affiliates may, to the
extent permitted by law, deduct any such tax obligations from any payment of any
kind otherwise due to the Participant.
-7-
<PAGE> 8
(i) FOREIGN NATIONALS. Awards may be made to Participants who are foreign
nationals or employed outside the United States on such terms and conditions
different from those specified in the Plan as the Committee considers necessary
or advisable to achieve the purposes of the Plan or comply with applicable laws.
(j) AMENDMENT OF AWARD. The Committee may amend, modify or terminate any
outstanding Award, including substituting therefor another Award of the same or
a different type, changing the date of exercise or realization and converting an
Incentive Stock Option to a Nonstatutory Stock Option, provided that the
Participant's consent to such action shall be required unless the Committee
determines that the action, taking into account any related action, would not
materially and adversely affect the Participant.
Section 12. Miscellaneous
-------------
(a) LIMITATION ON NUMBER OF SHARES GRANTED. Notwithstanding any other
provision of the Plan, the aggregate number of shares of Common Stock subject to
Options and SARs that may be granted within any fiscal year to any one Eligible
Person under the Plan shall not exceed that number of shares equal to 20% of the
total number of shares reserved for issuance under the Plan, except for grants
to new hires during the fiscal year of hiring which shall not exceed that number
of shares equal to 30% of the total number of shares reserved for issuance under
the Plan.
(b) NO RIGHT TO EMPLOYMENT. No person shall have any claim or right to be
granted an Award, and the grant of an Award shall not be construed as giving a
Participant the right to continued employment. The Company expressly reserves
the right at any time to dismiss a Participant free from any liability or claim
under the Plan, except as expressly provided in the applicable Award.
(c) NO RIGHTS AS SHAREHOLDER. Subject to the provisions of the applicable
Award, no Participant or Designated Beneficiary shall have any rights as a
shareholder with respect to any shares of Common Stock to be distributed under
the Plan until he or she becomes the holder thereof. A Participant to whom
Common Stock is awarded shall be considered the holder of the Stock at the time
of the Award except as otherwise provided in the applicable Award.
(d) EFFECTIVE DATE. Subject to the approval of the shareholders of the
Company, the Plan shall be effective on May 1, 1993. Prior to such approval,
Awards may be made under the Plan expressly subject to such approval.
(e) AMENDMENT OF PLAN. The Board may amend, suspend or terminate the Plan
or any portion thereof at any time, provided that no amendment shall be made
without shareholder approval if such approval is necessary to comply with any
applicable tax or regulatory requirement, including any requirement for
exemptive relief under Section 16(b) of the Securities Exchange Act of 1934, or
any successor provision.
-8-
<PAGE> 9
(f) GOVERNING LAW. The provisions of the Plan shall be governed by and
interpreted in accordance with the laws of the Commonwealth of Massachusetts.
-9-
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