<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
--- SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 27, 1998
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
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GENZYME TRANSGENICS CORPORATION
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(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
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(Address of principal executive offices) (Zip Code)
(508) 620-9700
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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 November 4, 1998
------ -------------------------------
Common Stock, $0.01 par value 18,355,353
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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 September 27, 1998
and December 28, 1997 ............................................ 3
Condensed Consolidated Statements of Operations for the Three
Months and Nine Months Ended September 27, 1998 and
September 28, 1997 ............................................... 4
Condensed Consolidated Statements of Cash Flows for the Nine
Months Ended September 27, 1998 and September 28, 1997 ........... 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 6
Exhibits and Reports on Form 8-K ................................. 13
SIGNATURES .......................................................... 14
EXHIBIT INDEX ....................................................... 15
2
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GENZYME TRANSGENICS CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
September 27, December 28,
1998 1997
------------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,219 $ 6,383
Accounts receivable, net 10,095 10,517
Unbilled contract revenue 8,726 6,069
Other current assets 1,508 1,431
-------- --------
Total current assets 30,548 24,400
Net property, plant and equipment 29,804 26,297
Costs in excess of net assets acquired, net 18,691 19,532
Investment in Joint Venture (Note 3) (2,171) --
Other assets 967 751
-------- --------
$ 77,839 $ 70,980
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 3,071 $ 2,091
Accounts payable - Genzyme Corporation 1,717 3,364
Revolving line of credit 4,500 6,000
Revolving line of credit - Genzyme Corporation -- 6,000
Accrued expenses 8,169 7,900
Advance payments 7,881 5,568
Current portion of long-term debt 3,121 1,900
-------- --------
Total current liabilities 28,459 32,823
Long-term debt, net of current portion 8,526 9,862
Deferred lease obligation 727 613
Other liabilities 125 304
-------- --------
Total liabilities 37,837 43,602
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares
authorized, 20,000 shares issued and outstanding
at September 27, 1998 (Note 5) -- --
Common stock, $.01 par value; 24,000,000 shares
authorized; 18,355,153 and 17,403,406 shares
issued and outstanding at September 27, 1998 and
December 28, 1997, respectively (Note 5) 183 174
Capital in excess of par value - preferred stock
(Note 5) 18,813 --
Capital in excess of par value - common stock 62,835 54,478
Accumulated deficit (41,829) (27,274)
-------- --------
Total stockholders' equity 40,002 27,378
-------- --------
$ 77,839 $ 70,980
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
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GENZYME TRANSGENICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
September 27, September 28, September 27, September 28,
1998 1997 1998 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues
Services $ 13,828 $ 10,363 $ 37,216 $ 32,908
Sponsored research and development 2,703 4,375 7,479 12,358
-------- -------- -------- --------
16,531 14,738 44,695 45,266
Costs and operating expenses:
Services 11,538 8,869 31,751 27,564
Research and development
Sponsored 2,983 3,215 7,115 8,446
Internal 1,597 1,301 4,999 3,136
Selling, general and administrative 3,869 3,662 11,955 10,816
Equity in loss of Joint Ventures (Note 3) 993 -- 2,717 531
-------- -------- -------- --------
20,980 17,047 58,537 50,493
-------- -------- -------- --------
Loss from operations (4,449) (2,309) (13,842) (5,227)
Other income (Expense):
Interest Income 121 20 231 112
Interest expense (298) (316) (1,054) (733)
Other income -- 50 100 50
-------- -------- -------- --------
Loss from operations before income taxes (4,626) (2,555) (14,565) (5,798)
Provision (benefit) for income taxes -- -- (10) 25
-------- -------- -------- --------
Net loss $ (4,626) $ (2,555) $(14,555) $ (5,823)
-------- -------- -------- --------
-------- -------- -------- --------
Dividend to preferred shareholders (Note 5) -- -- (1,156) --
-------- -------- -------- --------
Net loss available to common shareholders $ (4,626) $ (2,555) $(15,711) $ (5,823)
-------- -------- -------- --------
-------- -------- -------- --------
Net loss per common share (basic and diluted) $ (0.25) $ (0.15) $ (0.88) $ (0.34)
-------- -------- -------- --------
-------- -------- -------- --------
Weighted average number of shares outstanding
(basic and diluted) 18,262 17,303 17,857 17,217
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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GENZYME TRANSGENICS CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 27, September 28,
1998 1997
------------- -------------
<S> <C> <C>
Cash flows for operating activities:
Net loss $ (14,555) $ (5,823)
Adjustments to reconcile net loss to net cash used by operating activities:
Depreciation and amortization 3,697 3,097
Equity in loss of Joint Ventures 2,717 531
Changes in assets and liabilities, net of effects from purchase of subsidiaries:
Accounts receivable and unbilled contract revenue (2,318) 1,025
Other current assets 506 29
Accounts payable 980 (1,018)
Accounts payable - Genzyme Corporation (1,647) 1,889
Accrued expenses 676 788
Advance payments 1,813 (261)
--------- ---------
Net cash provided by (used in) operating activities (8,131) 257
Cash flows for investing activities:
Purchase of property, plant and equipment (5,119) (5,982)
Investment in Joint Venture (546) (528)
Other assets (293) (480)
--------- ---------
Net cash used in investing activities (5,958) (6,990)
Cash flows from financing activities:
Net proceeds from the issuance of common stock 6,368 --
Net proceeds from employee stock purchase plan 956 572
Net proceeds from the exercise of stock options 456 743
Net proceeds from preferred stock offering 19,000 --
Proceeds from long-term debt 233 5,221
Repayment of long-term debt (1,523) (3,141)
Net borrowings under revolving line of credit (1,500) --
Net borrowings under revolving line of credit - Genzyme Corporation (6,000) --
Other long-term liabilities (65) (210)
--------- ---------
Net cash provided by (used in) financing activities 17,925 3,185
--------- ---------
Net increase (decrease) in cash and cash equivalents 3,836 (3,548)
Cash and cash equivalents at beginning of the period 6,383 8,894
--------- ---------
Cash and cash equivalents at end of period $ 10,219 $ 5,346
--------- ---------
--------- ---------
Noncash Activities:
Property acquired under capital leases $ 1,167 $ 1,207
Receipt of stock for Accounts Receivable and Advance Payment 583 --
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
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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 28, 1997 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.
The financial statements for the nine months ended September 27, 1998
and September 28, 1997 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
28, 1997.
The common stock equivalents of the Company consisted of warrants,
stock options and convertible preferred stock. The Company was in a
net loss position at September 27, 1998 and September 28, 1997,
therefore common stock equivalents were not used to compute diluted
loss per share as the effect was antidilutive. Warrants and stock
options to purchase 3,109,478 and 2,208,250 shares of common stock
were outstanding at September 27, 1998 and September 28, 1997,
respectively. Convertible Preferred Stock with a $20 million face
value which is convertible into the Company's common stock at $14.55
per share through December 20, 1998, was outstanding at September 27,
1998.
3. Joint Ventures:
On January 1, 1998, a definitive collaboration agreement for the ATIII
LLC joint venture ("ATIII LLC") between the Company and Genzyme
Corporation ("Genzyme") was executed. Under the terms of the
agreement, Genzyme and the Company will provide 70% and 30%,
respectively, of the first $33 million of development costs under this
program. The Company's funding obligations
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commenced in September 1998. Development costs in excess of
$33 million will be funded equally by the partners. The Company
and Genzyme will also make capital contributions to ATIII LLC
sufficient to pay 50% each of all new facility costs to be incurred.
In addition to the funding, both partners will contribute
manufacturing, marketing and other resources to ATIII LLC at cost
and will share profits from product sales equally. The agreement
covers all territories other than Asia and may include milestone
payments from Genzyme to the Company after the product has been
approved by the United States Food and Drug Administration.
In 1997, the Company incurred losses on the joint venture with
Sumitomo Metal Industries ("SMIG JV").
4. Primedica Corporation:
In February 1998, the Company announced that it had reorganized its
contract research business under a new name, Primedica Corporation, to
provide a unified identity and a dedicated structure for further
growth of its contract research organization ("CRO") operations.
5. Private Placements:
In March 1998, the Company completed a private placement of $20
million of Series A Convertible Preferred Stock (the "Preferred
Stock") to three institutional investors. The Preferred Stock carries
a $1,000 face value per share, and is subject to mandatory redemption,
if not previously converted, in three years. Such redemption may be
in the form of cash or stock, at the Company's option. The Preferred
Stock may be converted immediately into the Company's common stock at
a price of $14.55 per share through December 20, 1998. Thereafter, it
may be converted into common stock at a per share price equal to the
lower of $14.55 or the average of any five closing bid prices over the
twenty days prior to conversion. Dividends will only accrue if the
holders are unable to convert their Preferred Stock into common stock
in certain circumstances. In connection with the financing, warrants
to purchase 450,000 shares of the Company's common stock were issued.
Each warrant has a four year term at an exercise price of $15.1563 per
share. Because the Preferred Stock could be converted into common
stock immediately, the warrants, valued at approximately $1.2 million,
were recognized as a dividend payment to preferred shareholders during
the first quarter of 1998. As a result of this financing, the amount
available under the line of credit in the Convertible Debt and
Development Funding Agreement with Genzyme has decreased from
approximately $8.3 million to $6.4 million.
In May 1998, the Company completed a private placement of 603,300
shares of common stock at $10.80 per share in a registered direct
offering to a single purchaser raising approximately $6.5 million of
new equity.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Three months ended September 27, 1998 and September 28, 1997
Total revenues for the three-month period ending September 27, 1998 were $16.5
million, compared with $14.7 million in the comparable period of 1997, an
increase of $1.8 million or 12%. Service revenues increased to $13.8 million in
the third quarter of 1998 from $10.4 million in the third quarter of 1997, an
increase of $3.4 million or 33%. Research and development revenues decreased to
$2.7 million in the third quarter of 1998 from $4.4 million in the third quarter
of 1997, a decrease of $1.7 million or 39%. The decrease reflects the impact on
revenue of the establishment, in January 1998, of the joint venture ("ATIII
LLC") for the development of recombinant human antithrombin III ("AT-III") with
Genzyme Corporation ("Genzyme"). Had the AT-III program been structured on the
same basis during the third quarter of 1998 as during the same quarter in 1997,
transgenic research revenues for the third quarter of 1998 would have increased
approximately $400,000 from the third quarter of 1997.
Cost of services for the third quarter of 1998 were $11.5 million compared to
$8.9 million in the comparable period of 1997, an increase of $2.6 million or
29% due to increased service revenues. Sponsored research and development
expenses decreased to $3 million in the third quarter of 1998 from $3.2 million
in the third quarter of 1997, a decrease of $200,000 or 6%. The decrease is due
to impact of the formation of ATIII LLC. In 1997, the full cost of the AT-III
development program, including subcontractor costs, was reflected by the Company
as sponsored research and development expense and, to the extent that the
program was funded, as sponsored research and development revenue. With the
formation of ATIII LLC in 1998, all funding and subcontractor costs are recorded
directly by ATIII LLC. Costs incurred by the Company for the AT-III development
program are being funded by ATIII LLC and, therefore, only these costs are being
recorded equally as sponsored research and development revenue and sponsored
research and development expense. Had the AT-III development program been
structured on the same basis during the third quarter of 1998 as during the same
quarter in 1997, the sponsored research and development expenses would have
increased by approximately $1.9 million over the same quarter in 1997. Internal
research and development expenses increased to $1.6 million in the third quarter
of 1998 from $1.3 million in the third quarter of 1997, an increase of $300,000
or 23%. The increase is due to an increase in activity on internal research
programs.
Gross profit for the third quarter of 1998 amounted to $2 million versus $2.7
million in the third quarter of 1997. The decrease is due to a $1.5 million
research and development milestone recorded in the third quarter of 1997, offset
by the increase in services gross profit. Gross profit on services for the third
quarter of 1998 was $2.3 million, a gross margin of 17%, versus $1.5 million, a
gross margin of 14%, in the second quarter of 1997. The increase in gross
margin is due to improved efficiencies due to increased revenues within the
quarter.
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Selling, general and administrative ("SG&A") expenses increased to $3.9 million
in the third quarter of 1998 from $3.7 million in the third quarter of 1997, an
increase of $200,000 or 5%. The increase is due to the increased marketing
effort for Primedica and to the addition of administrative personnel required to
support the growth in transgenic research and development programs.
Interest income increased to $121,000 in the third quarter of 1998, from $20,000
in the third quarter of 1997, due to an increase in funds available for
investment as a result of proceeds received from the preferred stock offering in
the first quarter and the sale of common stock in a registered direct offering
to a single purchaser in the second quarter. Interest expense decreased to
$298,000 in the third quarter of 1998 from $316,000 in the third quarter of 1997
due to lower borrowings on the revolving line of credit in 1998.
The Company recognized $993,000 of Joint Venture losses incurred on ATIII LLC
during the third quarter of 1998
Nine months ended September 27, 1998 and September 28, 1997
Total revenues for the nine-month period ending September 27, 1998 were $44.7
million, compared with $45.3 million in the comparable period of 1997, a
decrease of $600,000 or 1%. Service revenues increased to $37.2 million during
the first nine months of 1998 from $32.9 million in the comparable period of
1997, an increase of $4.3 million or 13%. Research and development revenues
decreased to $7.5 million during the first nine months of 1998 from $12.4
million in the comparable period of 1997, a decrease of $4.9 million or 40%.
The decrease reflects the impact on revenue of the establishment, in January
1998, of ATIII LLC with Genzyme. Had the AT-III program been structured on the
same basis during the during the first nine months of 1998 as the comparable
period of 1997, transgenic research revenues for the first nine months of 1998
would have increased approximately $700,000 from the same as the comparable
period of 1997.
Cost of services during the first nine-months of 1998 were $31.8 million
compared to $27.6 million in the comparable period of 1997, an increase of $4.2
million or 15% due to increased service revenues. Sponsored research and
development expenses decreased to $7.1 million in the first nine months of 1998
from $8.4 million in the comparable period of 1997, a decrease of $1.3 million
or 15%. The decrease is due to impact of the formation of ATIII LLC. In 1997,
the full cost of the AT-III development program, including subcontractor costs,
was reflected by the Company as sponsored research and development expense and,
to the extent that the program was funded, as sponsored research and development
revenue. With the formation of ATIII LLC in 1998, all funding and subcontractor
costs are recorded directly by ATIII LLC. Costs incurred by the Company for the
AT-III development program are being funded by ATIII LLC and, therefore, only
these costs are being recorded equally as sponsored research and development
revenue and sponsored research and development expense. Had the AT-III
development program been structured on the same basis during the first nine
months of 1998 as during the comparable period of 1997, the sponsored research
and development expenses would have increased by approximately $4.3 million over
the comparable period of 1997. Internal research
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and development expenses increased to $5 million in the first nine months of
1998 from $3.1 million in the comparable period of 1997, an increase of $1.9
million or 61%. The increase is due to increased work on the cancer vaccine
program and an increase in activity on internal research programs.
Gross profit for the first nine months of 1998 amounted to $5.8 million versus
$9.3 million in the comparable period of 1997. The decrease is primarily due to
$3.9 million of milestones recorded in 1997. Gross profit on services for the
first nine months of 1998 was $5.5 million, a gross margin of 15%, versus $5.3
million, a gross margin of 16%, in the comparable period of 1997. The decrease
in gross margin is due to increased revenue recognized on contracts signed in
the first quarter of 1997 for which costs had previously been incurred,
partially offset by improved efficiencies due to increased revenues.
SG&A expenses increased to $12 million in the first nine months of 1998 from
$10.8 million in the comparable period of 1997, an increase of $1.2 million or
11%. The increase is due to the increased marketing effort for Primedica and to
the addition of administrative personnel required to support the growth in
transgenic research and development programs.
Interest income increased to $231,000 in the first nine months of 1998, from
$112,000 in the comparable period of 1997, due to an increase in funds available
for investment as a result of proceeds received from the preferred stock
offering in the first quarter and the sale of common stock in a registered
direct offering in the second quarter. Interest expense increased to $1.1
million in the first nine months of 1998 from $733,000 in the comparable period
of 1997 due to higher borrowings in 1998.
The Company recognized $2.7 million of Joint Venture losses incurred on ATIII
LLC during the first nine months of 1998. In the first nine months of 1997, the
Company incurred $531,000 of Joint Venture losses on the SMIG JV.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash and cash equivalents of $10.2 million at September 27,
1998. During the first nine months of 1998, the Company had a $3.8 million net
increase in cash and cash equivalents. Sources of funds during the period
included net proceeds of $19 million from the issuance of preferred stock, net
proceeds of $6.4 million from the issuance of common stock and $1.4 million of
proceeds received from employee stock purchase and stock option plans. Cash
inflows were offset by $8.1 million of cash used in operations (due primarily to
the net loss of $14.6 million, of which $6.4 million represented non-cash
charges), $5.1 million invested in capital equipment, further expansion of the
transgenic production facility and the expansion of the laboratory facilities,
$7.5 million used to pay down the revolving lines of credit and $1.5 million
used to pay down long-term debt.
The Company had working capital of $2.1 million at September 27, 1998 compared
to a deficit of $8.4 million at December 30, 1997. As of September 27, 1998,
the Company had approximately $6.4 million available under the Genzyme Credit
Line, $1.5 million available
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under a line of credit with a commercial bank and $1.8 million was available
under various capital lease lines. Under the Company's 1998 and 1999
operating plans, existing cash balances, along with funds available under the
bank and lease lines and the Genzyme Credit Line, are expected to be
sufficient to fund the Company into the third quarter of 1999. The Company is
considering various alternative financing strategies, such as collaborative
arrangements, public or private sales of its securities, including securities
in certain subsidiaries, additional mortgage or lease financing, asset sales
and other sources.
Management's current expectations regarding the sufficiency of the Company's
cash resources are forward-looking statements, and the Company's cash
requirements may vary materially from such expectations. Such forward-looking
statements are dependent on several factors, including the results of the
Company's testing services 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 the continuing availability of financing at
acceptable terms. 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 the Company, if at all. If additional financing cannot be
obtained on acceptable terms, to continue its operations the Company 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.
Impact of Year 2000
Certain companies may face problems if the computer processors and software upon
which they directly or indirectly rely are unable to process date values
correctly upon the turn of the millennium ("Year 2000"). Such a system failure
and corruption of data of the Company or its customers or suppliers could
disrupt the Company's operations, including, among other things a temporary
inability to process transactions or engage in other business activities or to
receive information or services from suppliers.
The Company has appointed a Year 2000 task force to address the issues and
assess the potential impact of the Year 2000 problem. The task force is
evaluating the Company's financial systems, computers, software and other
equipment to ensure that the programs and systems will be Year 2000 compliant.
The Company presently believes that its computer systems, software and other
equipment will be Year 2000 compliant by the spring of 1999. The Company
estimates that it will spend approximately $300,000 to $400,000 in capital for
replacement of computers, equipment and software upgrades. The Company will
incur another $100,000 to $200,000 for costs of implementation.
The Company will initiate communications with third party suppliers and is
requesting that they represent that their products and services are to be Year
2000 compliant and that they have a
11
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program to test for compliance. Additionally, the Company is assessing those
vendors that are not Year 2000 compliant and is in the process of finding
alternative vendors that are compliant.
Because the Company currently anticipates that it will achieve Year 2000
compliance, it has not formulated a contingency plan. However, should the
Company determine there is significant risk that it may be unable to adhere to
its compliance timetable, it will assess reasonably likely scenarios resulting
from noncompliance and establish a contingency plan to address such scenarios.
The Company's ability to achieve Year 2000 compliance is subject to various
uncertainties including the Company's ability to successfully identify systems
and programs not Year 2000 compliant, the nature and amount of programming
required to correct or replace affected programs, the availability and magnitude
of labor and consulting costs and the success of the Company's business
partners, vendors and clients in addressing the Year 2000 issue. Therefore,
while the financial impact of implementing Year 2000 compliance remediation has
not been and is not anticipated to be material to the Company's business,
financial position or results of operations, the Company can make no assurances
with respect to the costs of remediation efforts not yet incurred.
Additionally, the Company cannot be certain that it will achieve adequate Year
200 compliance in a timely manner or that any impact of a failure to achieve
such compliance will not have a material adverse effect on the Company's
business, financial condition or results of operation.
12
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PART II
ITEM 6: Exhibits and Reports on From 8-K
(a) Exhibits
See the Exhibit Index immediately following the signature page.
(b) Reports on Form 8-K
No reports were filed on Form 8-K during the quarter ended
September 27, 1998.
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GENZYME TRANSGENICS CORPORATION AND SUBSIDIARY
FORM 10-Q
September 27, 1998
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: November 11, 1998 GENZYME TRANSGENICS CORPORATION
BY: /s/ John B. Green
------------------------------------
John B. Green
Duly Authorized Officer,
Vice President and
Chief Financial Officer
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EXHIBIT INDEX
-------------
Exhibit Description
- ------- -----------
10.1 Employment Agreement dated as of July 1, 1998 between the Company and
Dr. Sandra Nusinoff Lehrman. Filed as Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the period ended June 28, 1998 (File
No. 0-21794) and incorporated herein by reference.
10.2 Amendment No. 1 to Employment Agreement between the Company and
Dr. Sandra Nusinoff Lehrman. Filed herewith.
10.3 Amendment No. 1 to Employment Agreement between the Company and
John B. Green. Filed herewith.
10.4 Consulting Agreement between the Company and James A. Geraghty. Filed
herewith.
27 Financial Data Schedule. Filed herewith (EDGAR).
15
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EXHIBIT 10.2
AMENDMENT No. 1 TO EMPLOYMENT AGREEMENT
(Sandra Nusinoff Lehrman, M.D.)
This Amendment No. 1 dated as of September 21, 1998 between Sandra
Nusinoff Lehrman, M.D. (the "Executive") and Genzyme Transgenics Corporation
(together with its affiliates and subsidiaries, "GTC"), a Massachusetts
corporation amends the Employment Agreement, effective as of July 1, 1998, by
and between Executive and GTC (the "Original Agreement").
GTC and Executive desire to amend the Original Agreement as hereinafter
set forth.
Accordingly, the parties hereto agree as follows:
1. Amendment to Change in Control Provisions. Section 4.1(d) of the
Original Agreement shall be amended and restated in its entirety as follows:
"(d) Executive's employment hereunder may be terminated by
Executive within twenty-four months after the occurrence of any one of the
following (each, a "Change of Control"):
(i) the acquisition (A) by any "person" (as such term is
defined in Section 3(a)(9) of the Securities Exchange Act of 1934) or (B)
by Genzyme Corporation from any party of an amount of GTC's Common Stock so
that it holds or controls 50% or more of GTC's Common Stock;
(ii) a merger or similar combination after which 49% or
more of the voting stock of the surviving corporation is held by persons
who were not stockholders of GTC immediately prior to such merger or
combination; or
(iii) a merger or similar combination in which GTC is
not the surviving corporation; or
(iv) an acquisition, merger or similar combination or a
divestiture of a substantial portion of GTC's business after which the
Executive's role is not substantially the same as such role prior to the
transaction; or
(v) the election by the stockholders of GTC of 20% or more
of the directors of GTC other than pursuant to nomination by GTC's
management; or
(vi) the sale by GTC of all or substantially all of its
assets or business."
16
<PAGE>
2. Miscellaneous.
2.1 Binding Effect. Except as amended hereby, the Original Agreement
shall remain in full force and effect, and, as amended hereby, shall inure to
the benefit of and be binding upon the parties hereto and their successors,
assigns, heirs and personal representatives.
2.2 Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original and shall together constitute one and
the same instrument.
2.3 Severability. If any provision hereof shall, for any reason, be held
to be invalid or unenforceable in any respect, such invalidity or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid or unenforceable provision had not been
included herein. If any provision hereof shall for any reason be held by a
court to be excessively broad as to duration, geographical scope, activity or
subject matter, it shall be construed by limiting and reducing it to make it
enforceable to the extent compatible with applicable law as then in effect.
2.4 Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, without regard to its conflict-of-law provisions.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as of the date first written above.
EXECUTIVE
/s/ Sandra Nusinoff Lehrman
----------------------------------------
Sandra Nusinoff Lehrman, M.D.
GENZYME TRANSGENICS CORPORATION
By: /s/ James A. Geraghty
------------------------------------
Title: Chairman of the Board
17
<PAGE>
EXHIBIT 10.3
AMENDMENT No. 1 TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
(John B. Green)
This Amendment No. 1 dated as of September 21, 1998 between John B. Green
(the "Employee") and Genzyme Transgenics Corporation (together with its
affiliates and subsidiaries, "GTC"), a Massachusetts corporation further amends
the Amended and Restated Agreement, effective as of August 28, 1997, by and
between Employee and GTC (the "Original Agreement").
GTC and Employee desire to amend the Original Agreement as hereinafter set
forth.
Accordingly, the parties hereto agree as follows:
3. Amendment to Change in Control Provisions. Section 4.1(d) of the Original
Agreement shall be amended and restated in its entirety as follows:
"(d) Employee's employment hereunder may be terminated by
Employee within twenty-four months after the occurrence of any one of the
following (each, a "Change of Control"):
(i) the acquisition (A) by any "person" (as such term is
defined in Section 3(a)(9) of the Securities Exchange Act of 1934) or (B)
by Genzyme Corporation from any party of an amount of GTC's Common Stock so
that it holds or controls 50% or more of GTC's Common Stock;
(ii) a merger or similar combination after which 49% or
more of the voting stock of the surviving corporation is held by persons
who were not stockholders of GTC immediately prior to such merger or
combination; or
(iii) a merger or similar combination in which GTC is
not the surviving corporation; or
(iv) an acquisition, merger or similar combination or a
divestiture of a substantial portion of GTC's business after which the
Employee's role is not substantially the same as such role prior to the
transaction; or
(v) the election by the stockholders of GTC of 20% or more
of the directors of GTC other than pursuant to nomination by GTC's
management; or
(vi) the sale by GTC of all or substantially all of its
assets or business."
18
<PAGE>
4. Miscellaneous.
4.1 Binding Effect. Except as amended hereby, the Original Agreement
shall remain in full force and effect, and, as amended hereby, shall inure to
the benefit of and be binding upon the parties hereto and their successors,
assigns, heirs and personal representatives.
4.2 Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original and shall together constitute one and
the same instrument.
4.3 Severability. If any provision hereof shall, for any reason, be held
to be invalid or unenforceable in any respect, such invalidity or
unenforceability shall not affect any other provision hereof, and this Agreement
shall be construed as if such invalid or unenforceable provision had not been
included herein. If any provision hereof shall for any reason be held by a
court to be excessively broad as to duration, geographical scope, activity or
subject matter, it shall be construed by limiting and reducing it to make it
enforceable to the extent compatible with applicable law as then in effect.
2.4 Governing Law. This Agreement shall be governed by the laws of the
Commonwealth of Massachusetts, without regard to its conflict-of-law provisions.
IN WITNESS WHEREOF, the undersigned have duly executed and delivered this
Agreement as of the date first written above.
EMPLOYEE
/s/ John B. Green
----------------------------------------
John B. Green
GENZYME TRANSGENICS CORPORATION
By: /s/ Sandra Nusinoff Lehrman
------------------------------------
Title: President and Chief Executive Officer
19
<PAGE>
EXHIBIT 10.4
GENZYME TRANSGENICS CORPORATION
CONSULTING AGREEMENT
This Consulting Agreement dated as of July 1, 1998 is between James A.
Geraghty (the "Consultant") and Genzyme Transgenics Corporation (the
"Company"), a Delaware corporation.
In consideration of the mutual promises of the parties hereunder, it is agreed
as follows:
5. Consulting Services.
1.1. The Company hereby retains the Consultant and the Consultant hereby
agrees to serve as a consultant to the Company to assist the Company
with its financial and strategic planning and to perform such other
consulting and advisory services relating to the Business (as defined
below) of the Company as the Company may from time to time determine
(such consulting and advisory services being herein referred to as the
"Services"). As used herein, the "Business" of the Company shall mean
the activities of the Company in the research, development,
manufacture, marketing, license and sale of transgenically produced
proteins and related activities and the provision of contract research
services and related activities.
1.2. The Consultant agrees to make himself available to render the
Services, at such time or times and location or locations as may be
mutually agreed, from time to time as requested by the Company. The
Consultant agrees to devote his best efforts to performing the
Services. The Consultant agrees that he shall devote at least three
business days per month to providing Services to the Company.
1.3. For the full, prompt and faithful performance of the Services, the
Company shall pay the Consultant a fee at a daily rate of $1,200 for
three days per month, representing $3,600 per month and $43,200
annually, payable monthly in arrears on the first day of each calendar
month. The Company shall promptly reimburse the Consultant for
reasonable expenses incurred by him in the performance of the Services
in accordance with the policy and practice of the Company.
2. Developments
2.1. The Consultant agrees to make full and prompt disclosure to the
Company of all inventions, improvements, modifications, discoveries,
methods, biological materials, and developments related to the
Business of the Company and which result from the Consultant's
participation in this consulting relationship, his involvement with
employees and/or advisors of the Company and/or ideas and information
supplied to him as part of his consulting duties and interactions (all
of which are collectively termed "Developments" hereinafter), whether
patentable or not, made or conceived by the
20
<PAGE>
Consultant or under the Consultant's direction during the term of
this Agreement, whether or not made or conceived on the premises of
the Company.
2.2. The Consultant agrees that all Developments covered by Paragraph 2.1
shall be the sole property of the Company and its assigns, and the
Company and its assigns shall be the sole owner of all patents and
other rights in connection therewith. The Consultant hereby assigns
to the Company any rights he may have or acquire in all Developments.
The Consultant further agrees as to all Developments to assist the
Company in every proper way (but at the Company's expense) to obtain
and from time to time enforce patents on Developments in any and all
countries, and to that end the Consultant will execute all documents
for use in applying for and obtaining such patents thereon and
enforcing same, as the Company may desire, together with any
assignments thereof to the Company or persons designated by it, and
the Consultant hereby appoints the Company as his attorney to execute
and deliver any such documents or assignments on his behalf in the
event the Consultant fails or refuses to execute and deliver any such
documents or assignments requested by the Company. The Consultant's
obligation to assist the Company in obtaining and enforcing patents
for Developments in any and all countries shall continue beyond the
termination of this Agreement, but the Company shall compensate the
Consultant at a reasonable rate after such termination for time
actually spent at the Company's request on such assistance.
The Consultant understands that these Paragraphs 2.1 and 2.2 do not
apply to Developments for which no equipment, supplies, facility or trade secret
information of the Company was used and (a) which do not relate (1) to the
Business of the Company or (2) to the Company's actual or demonstrably
anticipated research or development, or (b) which do not result from the
Services.
2.3. The Consultant hereby represents that, to the best of his knowledge,
he has no present obligation to assign to any employer or former
employer (or than the Company) or any other person, corporation or
firm, any Developments covered by Paragraph 2.1. The Consultant
further represents that his performance of all the terms of this
Agreement does not and will not breach any agreement to keep in
confidence proprietary information acquired in confidence or in trust
by the Consultant prior to the execution of this Agreement. The
Consultant has not entered into, and the Consultant agrees not enter
into, any agreement (either written or oral) in conflict herewith.
2.4. The Consultant will assign to the Company any and all copyrights and
reproduction rights to any material prepared by the Consultant in
connection with the Developments or the Services.
2.5. The Consultant has not brought and will not bring to the Company or
use in the performance of the Services any materials or documents of
any current or former employer which are not generally available to
the public, unless the Consultant shall have obtained written
authorization from such employer for the possession and use of such
materials or documents.
21
<PAGE>
3. Confidentiality
3.1. In the course of performing the Services, the Consultant may learn of
the Company's confidential information or confidential information
entrusted to the Company by other persons, corporations, or firms.
The Company's confidential information includes matters not generally
known outside the Company, such as information relating to existing
and future products and services marketed or used by the Company and
data relating to the Business of the Company (e.g., concerning sales,
costs, profits, organizations, customer lists, pricing methods, etc.),
any reagents, chemical compounds, cell lines, or subcellular
constituents, organisms or other biological materials or other
Developments. The Consultant agrees not to disclose any confidential
information of the Company or of such other persons, corporations, or
firms to others or to make use of such information, except on the
Company's behalf, whether or not such information is produced by the
Consultant's efforts. The Consultant also may learn of Developments,
ways of business, etc., which in themselves are generally known but
the use of which by the Company is not generally known, and the
Consultant agrees not to disclose to others such use, whether or not
such use is due to the Consultant's own efforts.
3.2. The Consultant agrees that he will not make any notes or memoranda
relating to the Business of the Company otherwise than for the benefit
of the Company and will not at any time use or permit to be used any
such notes or memoranda otherwise than for the benefit of the Company.
3.3. The Consultant agrees to submit to the Company in sufficient time to
enable the Company to ascertain whether a manuscript to be published
contains Company confidential information and/or discloses a
potentially patentable invention to which the Company has rights an
early draft of such manuscript if such manuscript contains information
as to specific areas of the Business designated by the Company as to
which the Consultant is providing active consulting services. The
Consultant shall cooperate with the Company in this respect and shall
delete from the manuscript any confidential information of the Company
as requested by the Company and shall assist the Company as requested
by the Company in filing for patent protection (prior to publication
of such manuscript) for any inventions in and to which the Company has
rights.
4. Non-Competition.
4.1. So long as this Agreement continues in effect, the Consultant shall
not enter into a consulting arrangement with any other person,
corporation, or firm which is engaged in any business or activity
similar to and competitive with the Business of the Company, except
for such other arrangements approved by the Company in writing and
signed by the President of the Company.
4.2. For a period of one (1) year commencing on the date on which this
Agreement is terminated, the Consultant, alone or as a partner,
officer, director, consultant, employee, stockholder or otherwise,
will not engage (directly or indirectly) in any activities or render
any services similar or reasonably related to the Services or any
other activities
22
<PAGE>
engaged in or services rendered by the Consultant to the Company
during any part of the two-year period preceding termination of
this Agreement for any trade or business which directly competes
with the Company in any place where the Business of the Company
is engaged in (or planned to be engaged in), whether now existing
or hereafter established, nor shall the Consultant engage in such
activities nor render such services for any other person or entity
engaged or about to become engaged in such activities to, for or on
behalf of any such trade or business.
4.3. For a period of one (1) year following termination of this Agreement,
the Consultant will not solicit or in any manner encourage employees
of the Company to leave their employ. The Consultant further agrees
that during such period the Consultant will not offer or cause to be
offered employment to any person who was employed by the Company at
any time during the six (6) months prior to the termination of this
Agreement.
4.4. Upon termination of this Agreement, the Consultant agrees to leave
with the Company all records, drawings, notebooks, and other documents
pertaining to the Company's confidential information, whether prepared
by the Consultant or others, and also any equipment, tools or other
devices owned by the Company, then in possession of the Consultant
however such items are obtained, and the Consultant agrees not to
reproduce any document or data relating thereto.
5. Miscellaneous.
5.1. The Consultant agrees that any breach of this Agreement by him could
cause irreparable damage to the Company and that in the event of such
breach the Company shall have the right to obtain injunctive relief,
including, without limitation, specific performance or other equitable
relief to prevent the violation of his obligations hereunder. It is
expressly understood and agreed that nothing herein contained shall be
construed as prohibiting the Company from pursuing any other remedies
available for such breach or threatened breach, including, without
limitation, the recovery of damages by the Company.
5.2. This Agreement shall terminate on June 30, 2000, or on an earlier
date, if terminated by the Company with cause and provided that this
Agreement may be extended by the mutual agreement of the parties
beyond June 30, 2000, on a year-to-year basis. The obligations of the
Consultant hereunder shall survive the termination of this Agreement
regardless of the manner of such termination, and shall be binding
upon the heirs, executors, and administrators of the Consultant.
5.3. It is understood and agreed that the Consultant's relationship to the
Company is that of an independent contractor and that neither this
Agreement nor the Services to be rendered hereunder shall for any
purpose whatsoever or in any way or manner create any
employer-employee relationship between the parties.
5.4. All notices and other communications hereunder shall be delivered or
sent by registered or certified mail, return receipt requested,
addressed to the party at the address herein set forth, or to such
other address as such party may designate in writing to the other.
23
<PAGE>
5.5. This Agreement shall be binding upon and inure to the benefit of the
parties and their respective legal representatives, successors and
permitted assigns. The Consultant agrees that the Company may assign
this Agreement to any person or entity controlled by, in control of,
or under common control with, the Company. The Services to be
rendered by the Consultant are personal in nature. The Consultant may
not assign or transfer this Agreement or any of his rights or
obligations hereunder except to a corporation of which he is the sole
stockholder. In no event shall the Consultant assign or delegate
responsibility for actual performance of the Services to any other
natural person.
5.6. This Agreement constitutes the entire agreement between the parties as
to the subject matter hereof. No provision of this Agreement shall be
waived, altered or cancelled except in writing signed by the party
against whom such waiver, alteration or cancellation is asserted. Any
such waiver shall be limited to the particular instance and the
particular time when and for which it is given.
5.7. This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
5.8. The invalidity or unenforceability of any provision hereof as to an
obligation of a party shall in no way affect the validity or
enforceability of any other provision of this Agreement, provided that
if such invalidity or unenforceability materially adversely affects
the benefits the other party reasonably expected to receive hereunder,
that party shall have the right to terminate this Agreement.
Moreover, if one or more of the provisions contained in this Agreement
shall for any reason be held to be excessively broad as to scope,
activity or subject so as to be unenforceable at law, such provision
or provisions shall be construed by limiting or reducing it or them,
so as to be enforceable to the extent compatible with the applicable
law as it shall then appear.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement under seal
as of the date first above written.
Consultant
/s/ James A. Geraghty
--------------------------------------
James A. Geraghty
24
<PAGE>
ACCEPTED AND AGREED TO:
GENZYME TRANSGENICS CORPORATION
By: /s/ Sandra Nusinoff Lehrman, President
-------------------------------------------
Sandra Nusinoff Lehrman, President
Five Mountain Road
Framingham, MA 01701
25
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