-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IdXj8f0w6ITBsLZt42Nyfe1iBT8k1+olOkgXtNbrJF+/5tkFzxoeX4FQX1Mv+7iS RINdiJIIDMPOFpi6bENOTw== 0000912057-00-009569.txt : 20000307 0000912057-00-009569.hdr.sgml : 20000307 ACCESSION NUMBER: 0000912057-00-009569 CONFORMED SUBMISSION TYPE: S-3 PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20000303 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GENZYME CORP CENTRAL INDEX KEY: 0000732485 STANDARD INDUSTRIAL CLASSIFICATION: BIOLOGICAL PRODUCTS (NO DIAGNOSTIC SUBSTANCES) [2836] IRS NUMBER: 061047163 STATE OF INCORPORATION: MA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3 SEC ACT: SEC FILE NUMBER: 333-31548 FILM NUMBER: 560309 BUSINESS ADDRESS: STREET 1: ONE KENDALL SQ CITY: CAMBRIDGE STATE: MA ZIP: 02139 BUSINESS PHONE: 6172527500 MAIL ADDRESS: STREET 1: ONE KENDALL SQUARE CITY: CAMBRIDGE STATE: MA ZIP: 02139 S-3 1 FORM S-3 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 3, 2000 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- U.S. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ GENZYME CORPORATION (Exact name of registrant as specified in its charter) MASSACHUSETTS 06-1047163 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number)
------------------------ ONE KENDALL SQUARE CAMBRIDGE, MASSACHUSETTS 02139 (617) 252-7500 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) ------------------------ PETER WIRTH GENZYME CORPORATION ONE KENDALL SQUARE CAMBRIDGE, MASSACHUSETTS 02139 (617) 252-7500 (Name, address, including zip code, and telephone number, including area code, of agent for service) with a copy to: PAUL M. KINSELLA, ESQ. PALMER & DODGE LLP ONE BEACON STREET BOSTON, MASSACHUSETTS 02108 (617) 573-0100 APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: From Time to Time After the Effective Date of This Registration Statement. ------------------------ If the only securities being registered on this Form are being offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. /X/ If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration number of the earlier effective registration statement for the same offering. / / If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. / / (FUNDS TABLE IS ON THE FOLLOWING PAGE.) ------------------------ THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT TO BE OFFERING AGGREGATE OFFERING AMOUNT OF TITLE OF SECURITIES TO BE REGISTERED REGISTERED PRICE PER UNIT(1) PRICE(2)(3) REGISTRATION FEE Debt Securities of Genzyme Corporation(3)........................ Genzyme Preferred Stock, $.01 par value................................. Genzyme General Division Common Stock, $.01 par value ("GENZ Stock")......... Genzyme Molecular Oncology Division Common Stock, $.01 par value ("GZMO Stock")............................... Genzyme Surgical Products Division Common Stock, $.01 par value ("GZSP Stock")............................... Genzyme Tissue Repair Division Common Stock, $.01 par value ("GZTR Stock")............................... Genzyme Common Stock, $.01 par value.... Genzyme Warrants........................ Total for Securities Being Registered for the Account of the Registrant(4)......................... $500,000,000 100% $500,000,000 $132,000
(1) The proposed maximum offering price per unit of the securities being registered for the account of the Registrant will be determined from time to time by the Registrant in connection with the issuance by the Registrant of the securities registered hereunder. (2) The proposed maximum aggregate offering price of the securities being registered for the account of the Registrant has been estimated solely for the purpose of calculating the registration fee pursuant to Rule 457(o) under the Securities Act. Rule 457(o) permits the registration fee to be calculated on the basis of the maximum offering price of all of the securities listed and, therefore, the table does not specify by each class information as to the amount to be registered, the maximum offering price per unit or the proposed maximum aggregate offering price. (3) If any Debt Securities are issued at an original issue discount, then the offering price shall be in such greater principal amount as shall result in an aggregate initial offering price not to exceed $500,000,000. (4) In no event will the aggregate offering price of all securities issued from time to time by the Registrant for its own account pursuant to this Registration Statement exceed $500,000,000 or the equivalent thereof in one or more foreign currencies, foreign currency units or composite currencies. The aggregate amount of GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock, and Genzyme Common Stock registered hereunder for the account of the Registrant is further limited to that which is permissible under Rule 415(a)(4) under the Securities Act. The securities registered hereunder may be sold separately or as units with other securities registered hereby. THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES AND WE ARE NOT SOLICITING AN OFFER TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED. SUBJECT TO COMPLETION, DATED MARCH 3, 2000 PROSPECTUS $500,000,000 GENZYME CORPORATION DEBT SECURITIES, PREFERRED STOCK, GENZYME GENERAL DIVISION COMMON STOCK, GENZYME MOLECULAR ONCOLOGY DIVISION COMMON STOCK, GENZYME SURGICAL PRODUCTS DIVISION COMMON STOCK, GENZYME TISSUE REPAIR DIVISION COMMON STOCK, OTHER SERIES OF GENZYME COMMON STOCK AND WARRANTS We may offer to the public from time to time in one or more series or issuances: - debt securities consisting of debentures, notes or other evidences of indebtedness; - shares of our preferred stock; - shares of Genzyme General Division Common Stock, which we refer to as "GENZ Stock"; - shares of Genzyme Molecular Oncology Division Common Stock, which we refer to as "GZMO Stock"; - shares of Genzyme Surgical Products Division Common Stock, which we refer to as "GZSP Stock"; - shares of Genzyme Tissue Repair Division Common Stock, which we refer to as "GZTR Stock"; - shares of other series of our common stock; or - warrants to purchase any series of common stock, preferred stock or debt securities. GENZ Stock, GZMO Stock, GZSP Stock and GZTR Stock each trade on the Nasdaq National Market under the symbols "GENZ," "GZMO," "GZSP" and "GZTR." Any GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock or other series of our common stock sold by means of a prospectus supplement to this prospectus may be listed on the Nasdaq National Market. This prospectus provides you with a general description of the securities that we may offer. Each time we sell securities, we will provide a prospectus supplement that will contain specific information about the terms of that offering. The prospectus supplement may also add, update or change information contained in this prospectus. You should read both this prospectus and any prospectus supplement together with additional information described under the heading "Where You Can Find More Information" beginning on page 55 of this prospectus before you make your investment decision. SEE RISK FACTORS BEGINNING ON PAGE 4 FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER BEFORE INVESTING IN THESE SECURITIES. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS OR ANY ACCOMPANYING PROSPECTUS SUPPLEMENT IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. This prospectus may not be used to sell securities unless it is accompanied by a prospectus supplement. ------------------------ The date of this prospectus is , 2000 TABLE OF CONTENTS
PAGE -------- Genzyme Corporation......................................... 3 Risk Factors................................................ 4 Note Regarding Forward-Looking Statements................... 24 Use of Proceeds............................................. 25 Ratio of Earnings to Fixed Charges and Preferred Stock Dividends................................................. 25 Description of Debt Securities.............................. 26 Description of Preferred Stock.............................. 35 Description of Genzyme Common Stock......................... 37 Description of Warrants..................................... 46 Description of Management and Accounting Policies........... 48 Plan of Distribution........................................ 53 Legal Matters............................................... 54 Experts..................................................... 54 Where You Can Find More Information......................... 55
2 GENZYME CORPORATION We are a biotechnology company that develops innovative products and services for significant unmet medical needs. We have four operating divisions: - Genzyme General, which develops and markets therapeutic products and diagnostic services and products. It has three therapeutic products on the market and a strong pipeline of products in development focused primarily on the treatment of rare genetic diseases; - Genzyme Molecular Oncology, which is developing cancer products, with a focus on cancer vaccines and angiogenesis inhibitors. It is shaping these new therapies through the integration of its gene discovery, gene therapy, small molecule drug discovery, and protein therapeutic efforts; - Genzyme Surgical Products, which develops and markets a portfolio of mechanical devices, biomaterials and biotherapeutics for the cardiovascular and general surgery markets. It is pioneering the field of "biosurgery," which is being created by the increasing convergence of mechanical and biological approaches to surgery and other interventional procedures; and - Genzyme Tissue Repair, which develops and markets biological products for the treatment of orthopedic injuries, such as cartilage damage, and severe burns. Each of our four designated series of common stock is intended to reflect the value and track the performance of one of our divisions. For purposes of financial presentation, we allocate programs, products, assets and liabilities among our divisions; however, Genzyme, the corporation, continues to own all of the assets and is responsible for all of the liabilities allocated to each of the divisions. We were founded in 1981 and became a Massachusetts corporation in 1991. You can find additional information about us in our filings with the SEC. See "Where You Can Find More Information" on page 55. Our principal offices are located at One Kendall Square, Cambridge, Massachusetts 02139 and our main telephone number is (617) 252-7500. In this prospectus, the words "we," "us," "our," and "Genzyme" refer to Genzyme Corporation and all of its operating divisions taken as a whole, and "our board of directors" or "our board" refer to the board of directors of Genzyme Corporation. "Genzyme" is a registered trademark and service mark of Genzyme Corporation. All rights reserved. 3 . RISK FACTORS If you purchase securities offered by this prospectus you will take on financial risk. In deciding whether to invest, you should carefully consider the following risk factors, the information contained in this prospectus and the other information to which we have referred you. It is especially important to keep these risk factors in mind when you read forward-looking statements. RISKS RELATED TO GENZYME The following risk factors relate to us generally and affect all of our divisions. Accordingly, you should consider these risk factors before you purchase any type of security offered by this prospectus. A REDUCTION IN REVENUES FROM SALES OF PRODUCTS THAT TREAT GAUCHER DISEASE WOULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS. We generate a majority of our product revenues from sales of enzyme-replacement products for patients with Gaucher disease. We entered this market in 1991 with Ceredase-Registered Trademark- enzyme. Because production of Ceredase-Registered Trademark- enzyme was subject to supply constraints, we developed Cerezyme-Registered Trademark- enzyme, a recombinant form of the enzyme. Recombinant technology uses specially engineered cells to produce enzymes, or other substances, by inserting into the cells of one organism the genetic material of a different species. In the case of Cerezyme-Registered Trademark- enzyme, Chinese hamster ovary cells are engineered to produce human alpha glucocerebrosidase. We stopped producing Ceredase-Registered Trademark- enzyme, except for small quantities, during 1998, after substantially all the patients who previously used Ceredase-Registered Trademark- enzyme converted to Cerezyme-Registered Trademark- enzyme. Sales of Ceredase-Registered Trademark- enzyme and Cerezyme-Registered Trademark- enzyme totaled $411.1 million for the year ended December 31, 1998, representing approximately 67% of our, and 81% of Genzyme General's, product revenues for that year, and $351.7 million for the nine months ended September 30, 1999, representing approximately 70% of our, and 84% of Genzyme General's, product revenues for that period. Because our business is highly dependent on Cerezyme-Registered Trademark- enzyme, a reduction in revenue from sales of this product would have an adverse effect on our operations and may cause the value of our securities to decline substantially. Revenues from Cerezyme-Registered Trademark- enzyme would be impacted negatively if competitors develop alternative treatments for Gaucher disease and these alternative products gained commercial acceptance. Some companies have initiated efforts to develop competitive products, and other companies may do so in the future. Cerezyme-Registered Trademark- enzyme has orphan drug status, providing it with market exclusivity in the U.S. until May 2001. We also have patents protecting its manufacturing method until 2010 and its composition until 2013. We cannot predict the effect that the expiration of orphan drug status and market exclusivity will have on sales of Cerezyme-Registered Trademark- enzyme after May 2001. GOVERNMENT REGULATION IMPOSES SIGNIFICANT COSTS AND RESTRICTIONS ON THE DEVELOPMENT AND COMMERCIALIZATION OF OUR PRODUCTS AND SERVICES. Our ability to successfully satisfy regulatory requirements will significantly determine our future success. We cannot guarantee that any required regulatory approvals will be granted or that they will be granted on a timely basis. The production and sale of health care products and provision of health care services are highly regulated. In particular, the FDA and comparable agencies in foreign countries must approve human therapeutic and diagnostic products before they are marketed. This approval process can involve lengthy and detailed laboratory and clinical testing, sampling activities and other costly and time-consuming procedures. This regulation may delay the time at which a product or service first can be sold, limit how a product or service may be used, or adversely impact third party reimbursement. In addition, therapies that have received, or in the future receive, regulatory approval for commercial sale 4 may still face subsequent regulatory difficulties. The FDA and comparable foreign regulatory agencies, for example, may require postmarketing clinical trials. In addition, a marketed therapy, its manufacturer and the manufacturer's facilities are subject to continual review and periodic inspections by regulatory agencies. The discovery of previously unknown problems with a therapy, manufacturer or facility can result in restrictions on the therapy or manufacturer, including withdrawal of the therapy from the market. The failure to comply with applicable regulatory approval requirements can, among other things, result in: - warning letters; - fines and other civil penalties; - suspended regulatory approvals; - refusal to approve pending applications or supplements to approved applications; - suspension of product sales in the U.S. and/or exports from the U.S.; - product recalls; and - seizure of products. LEGISLATIVE CHANGES MAY ADVERSELY IMPACT OUR BUSINESS. Some of our products, including Cerezyme-Registered Trademark- enzyme, have been designated as orphan drugs under the Orphan Drug Act. The Orphan Drug Act provides incentives to manufacturers to develop and market drugs for rare diseases, generally by entitling the first developer that receives FDA marketing approval for an orphan drug to a seven-year exclusive marketing period in the U.S. for that product. Legislation periodically has been introduced in recent years to change the Orphan Drug Act to shorten the period of automatic market exclusivity and to allow marketing rights to simultaneous developers of the drug. We cannot be sure whether the Orphan Drug Act will be amended, or if amended, what effect the changes may have on us. In addition, healthcare reform is an area of significant government focus. Any reform measures, if adopted, could adversely affect: - the pricing of therapeutic products in the U.S. or internationally; and - the amount of reimbursement available from governmental agencies or other third party payers. BECAUSE THE DEVELOPMENT OF OUR PRODUCTS INVOLVES A LENGTHY AND COMPLEX PROCESS, IT IS UNCERTAIN WHETHER WE WILL BE ABLE TO COMMERCIALIZE ANY OF OUR PRODUCTS CURRENTLY IN DEVELOPMENT. Before we can commercialize our development-stage products, we will need to: - conduct substantial research and development; - undertake pre-clinical and clinical testing; and - pursue regulatory approvals. This process is risky and takes several years. We cannot guarantee that we will successfully develop any particular product. Several of our development-stage products are currently in clinical trials to test their safety and effectiveness. We may encounter problems in these clinical trials that cause us to delay or suspend development of these products. In addition, we cannot be sure that the clinical testing, if completed, will show any of these products to be safe and effective. 5 ANY MARKETABLE PRODUCTS THAT WE DEVELOP MAY NOT BE COMMERCIALLY SUCCESSFUL. The commercial success of any marketable product that we develop will depend on many factors, including: - regulation by the FDA and other government authorities; - market acceptance by doctors and hospital administrators; - the effectiveness of our sales force; - the effectiveness of our production and marketing capabilities; - the success of competitive products; and - the availability of third party reimbursement. WE MAY REQUIRE SIGNIFICANT ADDITIONAL FINANCING WHICH MAY NOT BE AVAILABLE ON FAVORABLE TERMS, IF AT ALL. As of September 30, 1999, we had approximately $695.9 million in cash, cash equivalents and short- and long-term investments, excluding investments in equity securities. Although we currently have substantial cash resources and positive cash flow, we intend to use substantial portions of our available cash for: - product development and marketing; - expanding facilities; and - working capital. We will further reduce available cash reserves to pay principal and interest on the following debt: - In May 1998, we issued $250.0 million in convertible notes, the entire principal amount of which is allocated to Genzyme General. These convertible notes bear interest at an annual rate of 5.25% and mature on June 1, 2005. However, the holders of these notes may exchange principal on the notes for shares of GENZ Stock, GZMO Stock, and GZSP Stock. - As of December 31, 1999, we owed approximately $23.0 million under a revolving credit facility with a group of commercial banks. Of this amount, we have allocated $18.0 million to Genzyme Tissue Repair and $5.0 million to Genzyme Molecular Oncology. Amounts borrowed under this revolving credit facility bear interest at a floating rate based upon an applicable margin above either the prime rate announced by Fleet National Bank or the London InterBank Offered Rate. We must repay all borrowings under this facility no later than November 12, 2002. - In August 1998, we issued $21.2 million in convertible debentures, the entire principal amount of which is allocated to Genzyme General. These convertible debentures bear interest at an annual rate of 5% and mature on August 29, 2003, but the holders of these convertible debentures may exchange principal, and under some circumstances interest, on the convertible debentures for shares of GENZ Stock. If we use cash to pay or redeem this debt, including the principal and interest due on it, our cash reserves will be diminished. To satisfy these and other commitments, we may have to obtain additional financing. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on favorable terms. 6 WE MAY FAIL TO PROTECT ADEQUATELY OUR PROPRIETARY TECHNOLOGY, WHICH WOULD ALLOW COMPETITORS TO TAKE ADVANTAGE OF OUR RESEARCH AND DEVELOPMENT EFFORTS. Our long-term success largely depends on our ability to market technologically competitive products. We can prevent unauthorized third parties from using proprietary rights relating to our products and services only if these rights are covered by patents or are kept confidential. We cannot guarantee that the patents issued or licensed to us will remain free from challenge by third parties. While our employees, consultants and corporate partners with access to proprietary information generally are required to enter into confidentiality agreements, we cannot guarantee that these agreements will be honored. In addition, some of our consultants have developed portions of our proprietary technology at universities or in governmental laboratories. These universities or governmental authorities may claim rights to the intellectual property arising out of the research performed at the university or governmental laboratory. We rely upon trade secrets, proprietary know-how and continuing technological innovation to remain competitive. We cannot be sure that other parties will not independently develop that know-how or otherwise obtain access to our technology. WE MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS IN ORDER TO DEVELOP AND COMMERCIALIZE SOME OF OUR PRODUCTS AND SERVICES, AND IT IS UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE. Third party patent rights and pending patent applications filed by third parties, if issued, may cover some of the products that we or our strategic partners are developing or testing. As a result, we or a strategic partner may be required to obtain licenses from the holders of these patents in order to use, manufacture or sell these products and services, and payments under these licenses may reduce the profitability of the products. Furthermore, we cannot be sure that these licenses would be available on acceptable terms. If these licenses are not available, our ability to commercialize our products and services may be impaired. WE MAY INCUR SUBSTANTIAL COSTS AS A RESULT OF LITIGATION OR OTHER PROCEEDINGS RELATING TO PATENT AND OTHER INTELLECTUAL PROPERTY RIGHTS. If we initiate or are required to defend ourselves in patent litigation, it could consume a substantial portion of our resources. We cannot guarantee that we, or our strategic partners, would prevail in any legal action. Any legal action against us or our strategic partners claiming damages or seeking to stop commercial activities relating to the affected products and processes could subject us to substantial liability for damages or negatively impact our financial results. WE MAY BE LIABLE FOR PRODUCT LIABILITY CLAIMS NOT COVERED BY INSURANCE. Individuals who use our products or services may bring product liability claims against us. While we have taken, and continue to take, what we believe are appropriate precautions, we cannot guarantee that we will avoid significant liability exposure. We have only limited amounts of product liability insurance, and we cannot be sure that this insurance will provide sufficient coverage against any product liability claims. If we attempt to obtain additional insurance in the future, we may not be able to do so on acceptable terms, and any additional insurance we do obtain may not provide adequate coverage against any asserted claims. In addition, regardless of merit or eventual outcome, product liability claims may result in: - diversion of management time and attention; - expenditure of large amounts of cash on legal fees, expenses and payment of damages; 7 - decreased demand for our products and services; and - injury to our reputation. OUR COMPETITORS IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES MAY HAVE SUPERIOR PRODUCTS, MANUFACTURING CAPABILITIES OR MARKETING EXPERTISE. The human health care products and services industry is extremely competitive. Our competitors include major pharmaceutical companies and other biotechnology companies. Some of these competitors may have superior research and development, marketing and production capabilities. Some competitors also may have greater financial resources than us. Our future success will depend on our ability to develop and market effectively our products against those of our competitors. IF WE ARE UNABLE TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGES, OUR PRODUCTS OR SERVICES MAY BECOME OBSOLETE. The field of biotechnology is characterized by significant and rapid technological change. Although we attempt to expand our technological capabilities in order to remain competitive, research and discoveries by others may make our products or services obsolete. For example, some of our competitors may develop a product to treat Gaucher disease that is more effective or less expensive than Cerezyme-Registered Trademark- enzyme. IF WE FAIL TO OBTAIN ADEQUATE LEVELS OF REIMBURSEMENT FOR OUR PRODUCTS FROM THIRD-PARTY PAYERS, THE COMMERCIAL POTENTIAL OF OUR PRODUCTS WILL BE SIGNIFICANTLY LIMITED. A substantial portion of our revenue comes from payments by third party payers, including government health administration authorities and private health insurers. Third party payers may not reimburse patients for newly approved health care products. More and more third party payers are attempting to contain health care costs by: - challenging the prices charged for health care products and services; - limiting both coverage and the amount of reimbursement for new therapeutic products; - denying or limiting coverage for products that are approved by the FDA, but are considered experimental or investigational by third party payers; and - refusing, in some cases, to provide coverage when an approved product is used for disease indications in a way that has not received FDA marketing approval. Government and other third party payers may not provide adequate insurance coverage or reimbursement for our products and services, which could impair our financial results. CHANGES IN THE ECONOMIC, POLITICAL, LEGAL AND BUSINESS ENVIRONMENTS IN THE FOREIGN COUNTRIES IN WHICH WE DO BUSINESS COULD CAUSE OUR INTERNATIONAL SALES AND OPERATIONS, WHICH ACCOUNT FOR A SIGNIFICANT PERCENTAGE OF OUR CONSOLIDATED NET SALES, TO BE LIMITED OR DISRUPTED. Our international operations accounted for 40% of our consolidated revenues for the nine month period ended September 30, 1999, 41% of our consolidated revenues in 1998 and 36% of our consolidated revenues in 1997, and we expect that international sales will continue to account for a significant percentage of our revenues for the foreseeable future. In addition, we have direct investments in a number of subsidiaries outside of the U.S., primarily in Europe and Japan. Our international sales and operations could be limited or disrupted, and the value of our direct investments may be adversely affected, by any of the following: - fluctuations in currency exchange rates; - the imposition of government controls; 8 - less favorable intellectual property or other applicable laws; - the inability to obtain any necessary foreign regulatory approvals of products in a timely manner; - import and export license requirements; - political instability; - trade restrictions; - changes in tariffs; - difficulties in staffing and managing international operations; and - longer payment cycles. A significant portion of our business is conducted in currencies other than the U.S. dollar, which is our reporting currency. We recognize foreign currency gains or losses arising from our operations in the period incurred. As a result, currency fluctuations among the U.S. dollar and the currencies in which we do business have caused foreign currency transaction gains and losses in the past and will likely do so in the future. We cannot predict the effects of exchange rate fluctuations upon our future operating results because of the number of currencies involved, the variability of currency exposures and the potential volatility of currency exchange rates. SEVERAL ANTI-TAKEOVER PROVISIONS MAY DEPRIVE OUR STOCKHOLDERS OF THE OPPORTUNITY TO RECEIVE A PREMIUM FOR THEIR SHARES UPON A CHANGE IN CONTROL. Provisions of Massachusetts law and our charter, by-laws and shareholder rights plan could delay or prevent a change in control of Genzyme or a change in our management. Our tracking stock structure may also deprive our stockholders of the opportunity to receive a premium for their shares upon a change in control because, in order to obtain control of a particular division, an acquiror would have to obtain control of the entire corporation. In addition, our board of directors may, in their sole discretion: - exchange shares of GZMO Stock, GZSP Stock or GZTR Stock for GENZ Stock at a 30% premium over the market value of the exchanged shares; and - issue shares of undesignated preferred stock from time to time in one or more series. Either of these board actions could increase the cost of an acquisition of Genzyme and thus discourage a takeover attempt. WE COULD EXPERIENCE SYSTEM FAILURES AND DISRUPTIONS OF OUR OPERATIONS AS A RESULT OF THE YEAR 2000 DATE RECOGNITION PROBLEM. The year 2000 date recognition problem could cause our computer systems to fail, resulting in miscalculations and incorrect data. Parties affected by a disruption in our operations and services could make claims or bring lawsuits against us. Depending upon the extent and duration of any disruptions caused by the year 2000 problem and the specific services affected, these disruptions could have an adverse affect on our business. Computer systems which may be affected by this year 2000 problem include computer systems embedded in production equipment; displays containing computer systems; business data processing systems; production, management and planning systems; and personal computers. Consequently, the year 2000 problem could disrupt our daily commercial activities if we do not take the steps necessary to address it effectively. 9 In addition, we cannot assure you that our customers, suppliers and other third parties that we deal with are or will be year 2000 compliant in a timely manner. Interruptions in the services provided to us or in the purchases made by these third parties could also disrupt our operations. Although, as of the date of this prospectus, we have not experienced any significant disruption in our operations as a result of the year 2000 date recognition problem, we cannot guarantee that we will not experience disruptions in the future. RISKS RELATED TO GENZYME TRACKING STOCKS We have four series of tracking stock: GENZ Stock, GZMO Stock, GZSP Stock and GZTR Stock. These stocks reflect the value and track the performance of our four operating divisions: - GENZ Stock tracks the performance of Genzyme General; - GZMO Stock tracks the performance of Genzyme Molecular Oncology; - GZSP Stock tracks the performance of Genzyme Surgical Products; and - GZTR Stock tracks the performance of Genzyme Tissue Repair. The following are risks related to owning shares of our tracking stock. Accordingly, you should consider these risk factors before investing in GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock or any securities which may be exchanged for, exercised for or converted into shares of these tracking stocks. HOLDERS OF OUR TRACKING STOCK ARE STOCKHOLDERS OF A SINGLE COMPANY AND UNFAVORABLE FINANCIAL TRENDS AFFECTING ONE DIVISION COULD NEGATIVELY AFFECT OUR OTHER DIVISIONS. None of our divisions are separate legal entities. Holders of our tracking stock are stockholders of a single company and face all of the risks of an investment in Genzyme. For purposes of financial presentation, we allocate programs, products, assets and liabilities among our four divisions. Genzyme Corporation, however, continues to own all of the assets and is responsible for all of the liabilities of each division. A holder of GENZ Stock, for example, does not have any specific rights to the assets allocated to Genzyme General in our financial statements. Furthermore, if we are unable to satisfy one division's liabilities out of the assets we allocate to that division, we may be required to satisfy those liabilities with assets we have allocated to another division. Accordingly, we encourage you to review our consolidated financial statements and the financial statements of each of our divisions included in the reports that we file with the SEC. OUR BOARD OF DIRECTORS MAY TAKE ACTIONS THAT, WHILE IN THE BEST INTERESTS OF GENZYME AS A WHOLE, HAVE AN UNEQUAL AND ADVERSE EFFECT ON THE HOLDERS OF ONE OR MORE SERIES OF OUR TRACKING STOCK. There may be times when the interests of holders of each series of our common stock diverge or appear to diverge. Massachusetts law does not define a board of directors' duties in that situation. Based on the advice of counsel, however, we believe that a Massachusetts court would conclude that a board of directors owes an equal duty to all stockholders regardless of class or series and does not have separate or additional duties to any particular group of stockholders. That duty is the fiduciary duty to act in good faith and in a manner the board reasonably believes to be in the best interests of the corporation. Under Massachusetts law, if a disinterested and adequately informed board of directors determines in good faith that an action would be in the corporation's best interests, taking into account both the interests of holders of each series of tracking stock as well as the alternatives reasonably available, then the board of directors should be able to successfully defend against any stockholder claim that the action could have an unequal effect on different series of tracking stock. 10 In March 1999, the Delaware Court of Chancery, in two separate cases, dismissed all stockholder claims that the board of directors had violated its fiduciary duties under Delaware law by approving actions that had a disparate impact on holders of different classes of tracking stock. The court indicated in each case that even where the decision of the board of directors affected holders of separate classes of tracking stock differently, stockholders must allege facts sufficient to indicate that a board of directors' approval was not based on the good faith belief that the approved actions were in the corporation's best interests. While Delaware case law is not binding on a Massachusetts court, we believe that a Massachusetts court would be influenced by these decisions in addressing similar issues. A Massachusetts court hearing a case, however, may apply principles of Massachusetts law other than those described above or develop new principles of Massachusetts law to decide the case. MEMBERS OF OUR BOARD OF DIRECTORS MAY FAVOR ONE SERIES OF TRACKING STOCK OVER ANOTHER IF THEY OWN A DISPROPORTIONATE AMOUNT OF THAT SERIES. A member of our board may own a disproportionate amount of tracking stock in a particular series, or the value of his or her holdings of a particular series of stock may be different from the value of his or her holdings in another series. This disparate stock ownership may cause the board member to favor one series of stock over another. Nevertheless, we believe that a member of our board could properly discharge his or her fiduciary responsibilities even if his or her interests in shares of different series were disproportionate or of unequal values. Our board members may create committees to review matters that raise conflict-of-interest issues. If a committee is formed, it would report to the full board. HOLDERS OF OUR TRACKING STOCK HAVE LIMITED DECISION-MAKING POWER BECAUSE THEY HAVE LIMITED SEPARATE VOTING RIGHTS. Holders of all series of our tracking stock vote together as a single class on all matters requiring common stockholder approval, including the election of directors. Holders of one series of tracking stock do not have the right to vote on matters separately from the other series except in limited circumstances. These circumstances are dictated by Massachusetts law, our charter and the management and accounting policies adopted by our board of directors. Therefore, stockholders of one series of tracking stock generally could not make a proposal that would require approval only of the holders of that series. Instead, they would have to obtain approval from all common stockholders. THE LIQUIDATION RIGHTS FOR EACH SERIES OF TRACKING STOCK ARE NOT ADJUSTED TO REFLECT CHANGES IN THE SERIES' MARKET VALUE. If we dissolve, liquidate or wind up our affairs, other than as part of a merger, business combination or sale of substantially all of our assets, our stockholders will receive any remaining assets according to the percentage of total liquidation units that they hold. The number of liquidation units per share for each series of our tracking stock is as follows: - each share of GENZ Stock has 100 liquidation units; - each share of GZMO Stock has 25 liquidation units; - each share of GZSP Stock has 61 liquidation units; and - each share of GZTR Stock has 58 liquidation units. Although we adjust liquidation units to prevent dilution in the event of some subdivisions, combinations or distributions of common stock, we do not adjust them to reflect changes in the relative market value or performance of the divisions. Accordingly, at the time of a dissolution, liquidation or winding up, the relative liquidation units attributable to each series of tracking stock may not correspond to the value of the underlying assets of that division. 11 OUR BOARD OF DIRECTORS MAY CHANGE OUR MANAGEMENT AND ACCOUNTING POLICIES TO THE DETRIMENT OF ONE SERIES OF TRACKING STOCK WITHOUT STOCKHOLDER APPROVAL. Our board of directors has adopted management and accounting policies that are used to govern our business and to prepare our financial statements. These policies cover the allocation of corporate expenses, assets and liabilities and other accounting matters, and the reallocation of assets between divisions and other matters. Our board generally may modify or rescind these policies or adopt new ones without stockholder approval. Any revised policies could have different effects on each series of our tracking stock and could be detrimental to one series as compared to another. The discretion of our board to make changes is limited only by the policies themselves and the board's fiduciary duty to all of our stockholders. You can review the summary of our management and accounting policies beginning on page 48 of this prospectus. We also encourage you to review the full text of these policies, which are filed as Exhibit 99.1 to the registration statement of which this prospectus is a part. WE MAY ELIMINATE TRACKING STOCK IF A CORPORATE LEVEL TAX IS IMPOSED ON THE ISSUANCE OR RECEIPT OF TRACKING STOCK. In 1999 the Clinton Administration proposed legislation that would have imposed a corporate level tax on issuances of tracking stock. More recently, the Clinton Administration has proposed legislation that would tax stockholders upon the receipt of tracking stock from the issuing corporation as a distribution or in a recapitalization. Although Congress has not enacted either of these proposals into law, if these or similar proposals are enacted into law or effected through Treasury regulations in the future, we could be taxed on an amount up to the gain realized in future financings in which we sell tracking stock, including GENZ Stock. Also, any use of our tracking stock to acquire other companies could be taxed. We also may be taxed if we distribute to stockholders "designated" shares of tracking stock, which are shares designated by the tracked division as issuable at the option of our board for Genzyme General's benefit. In addition, stockholders could be taxed if they receive a distribution of designated shares of tracking stock or if they receive shares of tracking stock in exchange for other Genzyme stock. These or similarly adverse tax consequences could cause us to eliminate tracking stock from our capital structure. We cannot predict, however, whether Congress will enact legislation, or the Treasury Department will issue regulations, effecting these or similar proposals. THE USE OF OPERATING LOSSES TO LOWER THE REPORTED TAX LIABILITY OF OUR PROFITABLE DIVISIONS WILL CAUSE LOWER REPORTED EARNINGS IN THE FUTURE FOR THE DIVISIONS GENERATING THESE OPERATING LOSSES. Genzyme Corporation, rather than its divisions, is liable for taxes. Under our management and accounting policies, for financial reporting purposes we generally allocate taxes among our divisions as if they were separate taxpayers. However, our board of directors has adopted a policy that provides that if any of our divisions is unable to use our operating losses or other projected annual tax benefits to reduce our current or deferred income tax expense, we may reallocate these losses or benefits to our profitable divisions on a quarterly basis for financial reporting purposes. This will result in a division with current losses (such as Genzyme Molecular Oncology, Genzyme Surgical Products and Genzyme Tissue Repair) reporting lower earnings available to its common stockholders in the future than would be the case if that division had retained its historical losses or other benefits in the form of a net operating loss carryforward. We encourage you to review the summary of our tax allocation policy on page 49 of this prospectus, and the full text of this policy which is filed as Exhibit 99.1 to the registration statement of which this prospectus is a part. THE NON-COMPETE POLICY AMONG OUR DIVISIONS MAY NOT COVER ALL OF THE ACTIVITIES OF A PARTICULAR DIVISION. Our board of directors has adopted a policy regarding competition among our divisions. This non-compete policy requires that we develop certain products and services within a given division, as opposed to another division, or through joint ventures involving a given division, because the product 12 or service is within the field of activity of that division. This non-compete policy, however, does not cover the entire field of activity of each division. For example, Genzyme General Division or Genzyme Molecular Oncology may develop certain tissue repair products or services. In order words, we cannot guarantee that all products and services we develop in a given field of activity will be allocated to a division primarily engaged in that field of activity. We encourage you to review the summary of our non-compete policy on page 52 of this prospectus and the full text of this policy, which is filed as Exhibit 99.1 to the registration statement of which this prospectus is a part. FUTURE SALES OR DISTRIBUTIONS OF DESIGNATED SHARES OF GZMO STOCK, GZSP STOCK OR GZTR STOCK MAY SIGNIFICANTLY DILUTE YOUR OWNERSHIP OF THE AFFECTED SHARES OF TRACKING STOCK. Our management and accounting policies require us to sell or distribute any designated shares of GZMO Stock, GZSP Stock or GZTR Stock that may be created, subject to certain limitations. Proceeds from a sale or distribution will not be allocated to the affected divisions and the issuance and sale may substantially dilute your ownership of tracking stock of the affected divisions. Circumstances under which the designated shares of tracking stock will be sold or distributed are described in the section of this document entitled "DESCRIPTION OF GENZYME COMMON STOCK--GZSP Designated Shares, GZMO Designated Shares and GZTR Designated Shares." RISKS RELATING TO GENZYME GENERAL The following risks and uncertainties may adversely affect the business of Genzyme General. Accordingly, you should consider these risks before investing in GENZ Stock or any securities which may be exchanged for, exercised for or converted into GENZ Stock. GENZYME GENERAL MAY NOT BE ABLE TO SUCCESSFULLY COMMERCIALIZE THYROGEN-REGISTERED TRADEMARK- HORMONE AND RENAGEL-REGISTERED TRADEMARK- CAPSULES. In January 1999, Genzyme General, together with Knoll Pharmaceutical Company, launched U.S. sales of Thyrogen-Registered Trademark- recombinant thyroid stimulating hormone for use in the treatment of thyroid cancer. At about the same time, Genzyme General, in collaboration with GelTex Pharmaceuticals, Inc., launched Renagel-Registered Trademark- capsules, a non-absorbed phosphate binder used in the treatment of end-stage renal disease. The commercial success of Thyrogen-Registered Trademark- hormone and Renagel-Registered Trademark- capsules will depend on a number of factors, including: - regulation by the FDA; - the ability to obtain regulatory approvals in foreign countries; - the development and commercial success of competitive products; and - the availability of third party reimbursement. Genzyme General cannot be sure that market penetration of Thyrogen-Registered Trademark- hormone and Renagel-Registered Trademark- capsules will increase. IF THE STRATEGIC ALLIANCES GENZYME GENERAL HAS ENTERED INTO TO DEVELOP AND COMMERCIALIZE ITS PRODUCTS ARE NOT SUCCESSFUL, GENZYME GENERAL'S RESULTS OF OPERATIONS WILL BE ADVERSELY IMPACTED. Several of Genzyme General's strategic initiatives involve alliances with other biotechnology companies and arrangements with academic medical centers. These include: - a joint venture with GelTex Pharmaceuticals, Inc. for the commercialization of Renagel-Registered Trademark- capsules, a non-absorbed phosphate binder for the treatment of end stage renal disease; - an agreement with Knoll Pharmaceutical Company for the marketing of our Thyrogen-Registered Trademark- hormone in the U.S.; 13 - an agreement with Biogen, Inc. for the marketing of AVONEX-Registered Trademark- (Interferon beta1a), Biogen's treatment for relapsing forms of multiple sclerosis, in Japan following regulatory approval; - a joint venture with BioMarin Pharmaceutical Inc. for the development and commercialization of alpha-L-iduronidase for the treatment of the lysosomal storage disorder known as mucopolysaccharidosis I; - a joint venture with Genzyme Transgenics Corporation for the development and commercialization of transgenic antithrombin III, a human protein that Genzyme Transgenics produces in the milk of genetically modified animals; - a joint venture with Pharming Group N.V. for the development and commercialization of human alpha-glucosidase for the treatment of Pompe disease; - an agreement with Genovo Inc. for the development of gene therapy products for the treatment of lysosomal storage disorders; - a relationship with Mount Sinai Medical Center for the development of a therapy for the treatment of Niemann-Pick disease; - a joint venture with Diacrin, Inc. to develop and commercialize products and processes using porcine fetal cells for the treatment of Parkinson's disease and Huntington's disease; and - an agreement with Dyax Corp. to develop and commercialize the protein EPI-KAL2 for the treatment of chronic inflammatory diseases. Genzyme General plans to enter into additional alliances in the future. The success of these arrangements are largely dependent on the efforts and skills of Genzyme General's partners. Genzyme General cannot guarantee that: - these agreements will not be terminated; - its strategic partners will devote significant resources to the collaborations; or - any of these alliances will result in the successful development or commercialization of any products. OUR OPTION TO PURCHASE LIMITED PARTNERSHIP INTERESTS COULD DILUTE THE RIGHTS OF HOLDERS OF GENZ STOCK. We organized Genzyme Development Partners, L.P., a special purpose research and development entity, in 1989 and transferred to it technology and commercial rights to our hyaluronic acid-based products designed to prevent the occurrence and severity of post-operative adhesions. These products, which we refer to as the Sepra products, are now allocated to Genzyme Surgical Products. We have an option to purchase the limited partnership interests in the partnership. If we exercise this option, we may have to issue shares of GENZ Stock or make substantial cash payments or both. If we make payments in GENZ Stock, the rights of holders of GENZ Stock could be diluted and the market price of that stock may fall. If we make cash payments, our cash resources would diminish. RISKS RELATED TO GENZYME MOLECULAR ONCOLOGY The following risks and uncertainties may adversely affect the business of Genzyme Molecular Oncology. Accordingly, you should consider these risks before investing in GZMO Stock or any securities which may be exchanged for, exercised for or converted into GZMO Stock. 14 THE SAGE-TM- GENE EXPRESSION TECHNOLOGY GENERATES ONLY MODEST REVENUES AND IT IS UNCERTAIN WHETHER GENZYME MOLECULAR ONCOLOGY WILL BE ABLE TO DEVELOP AND COMMERCIALIZE OTHER MARKETABLE PRODUCTS AND SERVICES. We do not expect Genzyme Molecular Oncology's products and services to generate significant revenue for several years. Services based on the SAGE-TM- gene expression technology represent its only product or service that is not at an early stage of development. To date, these services have generated only modest revenue, and we compete with several companies in the genomics market. Before commercializing any other products and services, Genzyme Molecular Oncology will need to conduct substantial research and development, including, in some cases, the replication of pre-clinical studies performed by its collaborators, undertake preclinical and clinical testing and pursue regulatory approvals. We cannot guarantee that these efforts will be successful. Clinical trials, for example, may not support the safety or effectiveness of a particular product or service. Currently, Genzyme Molecular Oncology's gene therapy products for melanoma are its only therapeutic products in clinical development. Genzyme Molecular Oncology may encounter problems in these or other clinical trials that lead to delay or suspension of the trials. GENZYME MOLECULAR ONCOLOGY ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE. We expect Genzyme Molecular Oncology to have significant operating losses for the next several years. Genzyme Molecular Oncology plans to spend substantial amounts of money on, among other things: - commercialization of the SAGE-TM- technology; - research and development; - preclinical and clinical testing; and - pursuing regulatory approvals. We cannot guarantee that the efforts underlying these expenditures will be successful or that Genzyme Molecular Oncology's operations will ever be profitable. It may be years before the division generates any revenue from sales of products or services other than those based on the SAGE-TM- technology. IF GENZYME MOLECULAR ONCOLOGY FAILS TO OBTAIN THE CAPITAL NECESSARY TO FUND ITS OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL TRIALS. We anticipate that Genzyme Molecular Oncology's current cash resources, together with amounts available under a line of credit from Genzyme General and revenues generated from the SAGE-TM- technology, license agreements and committed research funding from collaborators, will be sufficient to fund its operations through 2000. However, Genzyme Molecular Oncology's cash needs may differ from those planned because of many factors, including: - the results of research and development and clinical testing; - the achievement of milestones under existing strategic alliances; - the ability to establish and maintain additional strategic alliances and licensing arrangements; - the enforcement of patent and other intellectual property rights; - the development of competitive products and services; and - the ability to satisfy regulatory requirements of the FDA and other government authorities. Genzyme Molecular Oncology may require significant additional financing to continue operations at anticipated levels. We cannot guarantee that the division will be able to obtain any additional 15 financing or find it on favorable terms. If Genzyme Molecular Oncology has insufficient funds or is unable to raise additional funds, it may delay, reduce or eliminate certain of its programs. Genzyme Molecular Oncology may also have to give rights to third parties to attempt to commercialize technologies or products that it would otherwise commercialize itself. GENZYME MOLECULAR ONCOLOGY MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A FAILURE TO ENTER INTO FUTURE COLLABORATIONS. Genzyme Molecular Oncology's strategy to develop and commercialize certain of its products and services includes entering into various arrangements with both academic collaborators, and corporate partners and licensees. Genzyme Molecular Oncology depends on the success of these parties in performing research, preclinical and clinical testing, and marketing. These arrangements may require Genzyme Molecular Oncology to transfer certain important rights to its corporate partners and licensees. While Genzyme Molecular Oncology believes its collaborators and licensees will want to perform their contractual responsibilities, in some cases the amount and timing of resources that they devote to their collaborations with the division, and the ability to terminate the collaboration, will be controlled by the collaborators. As a result, Genzyme Molecular Oncology cannot guarantee that it will receive revenues or profits from these arrangements, that any of its strategic alliances will continue or not terminate early, or that it will be able to enter into future collaborations. ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY APPROVAL OR PUBLIC PERCEPTION OF GENZYME MOLECULAR ONCOLOGY'S GENE THERAPY PRODUCTS. The recent death of a patient undergoing gene therapy using an adenoviral vector to deliver the therapeutic gene has been widely publicized. This death and any other adverse events in the field of gene therapy that may occur in the future may result in greater governmental regulation and potential regulatory delays relating to the testing or approval of Genzyme Molecular Oncology's gene therapy product candidates. As a result of this death, the U.S. Senate has commenced hearings to determine whether additional legislation is required to protect volunteers and patients who participate in gene therapy clinical trials. Additionally, the Recombinant DNA Advisory Committee, which acts as an advisory body to the National Institutes of Health (NIH), has extensively discussed the use of adenoviral vectors in gene therapy clinical trials and intends to issue a report in March 2000 on the adverse events reported by investigators using adenoviral vectors. Any increased scrutiny could delay or increase the costs of Genzyme Molecular Oncology's product development efforts or clinical trials. The commercial success of any gene therapy products developed by Genzyme Molecular Oncology will depend in part on public acceptance of the use of gene therapies for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. Negative public reaction to gene therapy could result in greater government regulation and stricter clinical trial oversight and commercial product labeling requirements of gene therapies and could cause a decrease in the demand for any gene therapy product that Genzyme Molecular Oncology may develop. GENZYME MOLECULAR ONCOLOGY MAY BE REQUIRED TO LICENSE TECHNOLOGY FROM COMPETITORS IN ORDER TO DEVELOP AND COMMERCIALIZE SOME ITS PRODUCTS AND SERVICES, AND IT IS UNCERTAIN WHETHER THESE LICENSES WILL BE AVAILABLE. Third party patent rights and pending patent applications filed by third parties, if issued, may cover some of the products Genzyme Molecular Oncology is developing or testing. As a result, Genzyme Molecular Oncology may be required to obtain licenses from the holders of these patents in order to use or sell certain products and services. We cannot guarantee that these licenses will be available on acceptable terms. If these licenses are not available, Genzyme Molecular Oncology's ability to commercialize its products and services may be impaired. 16 In its immunotherapy program, Genzyme Molecular Oncology is in the process of evaluating the therapeutic administration of genes that encode specific tumor antigens and antigenic peptide products, including MART-1 and gp100. Genzyme Molecular Oncology knows of two issued U.S. patents directed to the gene which encodes MART-1. While Genzyme Molecular Oncology has obtained rights under one of these patents, it is still in the process of evaluating the scope and validity of the other. Genzyme Molecular Oncology is also evaluating an issued U.S. patent covering the gene that encodes gp100 and three published Patent Cooperation Treaty applications by three different applicants which may cover antigens derived from gp100. Genzyme Molecular Oncology is in the process of evaluating the scope and validity of these patents and patent applications to determine whether it needs to obtain licenses. RISKS RELATED TO GENZYME SURGICAL PRODUCTS The following risks and uncertainties may adversely affect the business of Genzyme Surgical Products. Accordingly, you should consider these risks before investing in GZSP Stock or any securities which may be exchanged for, exercised for or converted into GZSP Stock. GENZYME SURGICAL PRODUCTS ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE. Genzyme Surgical Products expects to have significant operating losses for the next several years. It plans to spend substantial amounts of money on, among other things: - conducting research and development activities; - pursuing regulatory approvals; - conducting commercialization activities; and - providing surgeon education and training. We cannot guarantee that the efforts underlying these expenditures will be successful or that Genzyme Surgical Products' operations will ever be profitable. It may be years before the division generates any revenue from sales of products currently under development. IF GENZYME SURGICAL PRODUCTS FAILS TO OBTAIN CAPITAL NECESSARY TO FUND ITS OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL TRIALS. We anticipate that Genzyme Surgical Products' current cash resources, together with revenues generated from its products and distribution agreements, will be sufficient to fund its operations through 2001. However, its cash needs may differ from those planned because of many factors, including: - the ability to become profitable; - the results of research and development efforts; - the ability to establish strategic alliances and licensing arrangements for research and development programs; - the achievement of milestones under strategic alliances; - the ability to establish and maintain additional distribution arrangements; - the enforcement of patent and other intellectual property rights; - market acceptance of novel approaches and therapies; - the development of competitive products; and - the ability to satisfy regulatory requirements of the FDA and other government authorities. Genzyme Surgical Products may require significant additional financing to continue operations at anticipated levels. We cannot guarantee that it will be able to obtain additional financing or find it on favorable terms. If the division has insufficient funds or is unable to raise additional funds, it may delay, reduce or eliminate certain of its programs. It may also have to give rights to third parties to attempt to commercialize technologies or products that it would otherwise commercialize itself. 17 IF GENZYME SURGICAL PRODUCTS EXERCISES AN OPTION TO PURCHASE INTERESTS IN GENZYME DEVELOPMENT PARTNERS, ITS CASH RESOURCES MAY DIMINISH AND THE RIGHTS OF ITS STOCKHOLDERS MAY BE DILUTED. In 1989, we organized Genzyme Development Partners, L.P., a special purpose research and development entity, and transferred to it technology and commercial rights to the Sepra products. We have an option to purchase the limited partnership interests in the partnership under certain circumstances for approximately $26 million plus continuing royalties based on certain sales of the Sepra products. We have allocated the purchase option to Genzyme Surgical Products. The option's exercise price is payable in cash, shares of GENZ Stock or a combination of the two, as determined by Genzyme Surgical Products when it exercises the option. If Genzyme Surgical Products exercises this option, it will have to make substantial cash payments or compensate Genzyme General with shares of GZSP Stock for the GENZ Stock used, or both. If the division makes cash payments, its cash resources would diminish. If it makes the payment in whole or in part in shares of GENZ Stock, then our board of directors would need to approve the issuance of GENZ Stock in return for Genzyme General receiving a number of GZSP designated shares with a fair market value equal to the fair market value of the shares of GENZ Stock. Those GZSP designated shares would be shares of GZSP Stock that our board would have the option to issue from time to time with all proceeds allocable to Genzyme General. Beginning on June 30, 2000, and on every June 30(th) thereafter, we will have to distribute substantially all the GZSP designated shares if the number of those shares exceeds 10% of the number of shares of GZSP Stock then outstanding. See "DESCRIPTION OF GENZYME COMMON STOCK--GZSP Designated Shares, GZMO Designated Shares and GZTR Designated Shares." We cannot guarantee that our board would authorize the issuance of shares of GENZ Stock for payment of the option exercise price and the creation of any GZSP designated shares. If our board creates and subsequently distributes or otherwise disposes of any GZSP designated shares, this would substantially dilute the rights of the holders of GZSP Stock and could significantly affect the market price of GZSP Stock. If Genzyme Surgical Products does not exercise the option, the partnership would have the right to sell or otherwise transfer to a third party a license to background technology that we granted to it. A sale or transfer of this technology may terminate our joint venture with the partnership to manufacture and sell the Sepra products in the U.S. and Canada. In addition, failure to exercise the option would cause the joint venture to become terminable upon 90 days' prior notice by either Genzyme or Genzyme Development Partners. GENZYME SURGICAL PRODUCTS IS DEVOTING SIGNIFICANT RESOURCES TO DEVELOPING NOVEL ALTERNATIVE PRODUCTS AND TREATMENTS THAT MAY NOT BE COMMERCIALLY SUCCESSFUL. Genzyme Surgical Products is devoting a significant amount of money to developing products that will represent alternatives to traditional surgical procedures or treatments. These products will likely require several years of aggressive and costly marketing before they might become widely accepted by the surgical community. Genzyme Surgical Products is developing products that are designed to enable surgeons to perform minimally invasive cardiovascular surgery. The medical conditions that can be treated with minimally invasive cardiovascular surgery are currently being treated with widely accepted surgical procedures such as coronary artery bypass grafting and catheter-based treatments, including balloon angioplasty, atherectomy and coronary stenting. To date, minimally invasive cardiovascular surgery has been performed on a limited basis and its further adoption by the surgical community will partly depend on Genzyme Surgical Products' ability to educate cardiothoracic surgeons about its effectiveness and to facilitate the training of cardiothoracic surgeons in minimally invasive cardiovascular surgery techniques. 18 Similarly, until recently surgeons have not used products designed to reduce the incidence and extent of postoperative adhesions. Since 1996, when Seprafilm-TM- bioresorbable membrane was introduced, market acceptance of anti-adhesion products has been slow. To increase sales of the Sepra products, Genzyme Surgical Products has had to educate surgeons and hospital administrators about the problems of, and costs associated with, adhesions and the benefit of preventing adhesions. It has also had to train surgeons on the proper handling and use of these products. We cannot guarantee that Genzyme Surgical Products' efforts in educating and training the surgical community will result in the widespread adoption of minimally invasive cardiovascular surgery and anti-adhesion products or that surgeons adopting these procedures and products will use Genzyme Surgical Products' products. ADVERSE EVENTS IN THE FIELD OF GENE THERAPY MAY NEGATIVELY AFFECT REGULATORY APPROVAL OR PUBLIC PERCEPTION OF GENZYME SURGICAL PRODUCTS' GENE THERAPY PRODUCTS. The recent death of a patient undergoing gene therapy using an adenoviral vector to deliver the therapeutic gene has been widely publicized. This death and any other adverse events in the field of gene therapy that may occur in the future may result in greater governmental regulation and potential regulatory delays relating to the testing or approval of Genzyme Surgical Products' gene therapy product candidates. As a result of this death, the United States Senate has commenced hearings to determine whether additional legislation is required to protect volunteers and patients who participate in gene therapy clinical trials. Additionally, the Recombinant DNA Advisory Committee, which acts as an advisory body to the NIH, has extensively discussed the use of adenoviral vectors in gene therapy clinical trials and intends to issue a report in March 2000 on the adverse events reported by investigators using adenoviral vectors. Any increased scrutiny could delay or increase the costs of Genzyme Surgical Products' product development efforts or clinical trials. The commercial success of any gene therapy products developed by Genzyme Surgical Products will depend in part on public acceptance of the use of gene therapies for the prevention or treatment of human diseases. Public attitudes may be influenced by claims that gene therapy is unsafe, and gene therapy may not gain the acceptance of the public or the medical community. Negative public reaction to gene therapy could result in greater government regulation and stricter clinical trial oversight and commercial product liability requirements of gene therapy products that Genzyme Surgical Products may develop. COMPETITION FROM OTHER MEDICAL DEVICE AND TECHNOLOGY COMPANIES COULD HURT GENZYME SURGICAL PRODUCTS' PERFORMANCE. The human health care products and services industry is extremely competitive. Major medical device and technology companies compete or may compete with Genzyme Surgical Products. These include such companies as: - Atrium Medical Corporation and Sherwood-Davis & Geck, a division of Tyco International, Ltd. in the cardiovascular chest drainage and fluid management market; - The Ethicon division of Johnson & Johnson Ltd. and U.S. Surgical Corporation, a division of Tyco in the cardiovascular closure market; - CardioThoracic Systems, Inc., Medtronic, Inc., U.S. Surgical, Guidant Corporation, Baxter Healthcare Corporation and Ethicon in the minimally invasive cardiovascular surgery market; - Ethicon, Lifecore Biomedical, Inc., Life Medical Sciences, Inc. and Gliatech, Inc. in the anti-adhesion market; and 19 - Karl Storz Endoscopy America, Inc., Scanlan International, Inc., Pilling Weck Surgical Instruments and the Codman division of Johnson & Johnson Ltd. in the reusable instruments market. These competitors may have superior research and development, marketing and production capabilities. Some competitors also may have greater financial resources than Genzyme Surgical Products. The division is likely to incur significant costs developing and marketing new products without any guarantee that it will be commercially successful. The future success of Genzyme Surgical Products will depend on its ability to effectively develop and market its products against those of its competitors. THE TREND TOWARD CONSOLIDATION IN THE SURGICAL DEVICES INDUSTRY MAY ADVERSELY AFFECT GENZYME SURGICAL PRODUCTS' ABILITY TO MARKET SUCCESSFULLY ITS PRODUCTS TO SOME SIGNIFICANT PURCHASERS. The current trend among hospitals and other significant consumers of surgical devices is to combine into larger purchasing groups to increase their purchasing power and thus reduce their purchase price for surgical devices. Partly in response to this development, surgical device manufacturers have been consolidating to be able to offer a more comprehensive product line to these larger purchasing groups. In order to successfully market its products to larger purchasing groups, Genzyme Surgical Products may have to expand its product lines or enter into joint marketing or distribution agreements with other manufacturers of surgical devices. We cannot guarantee that it will be able to employ either of these initiatives or that, when employed, these initiatives will increase the marketability of its products. GENZYME SURGICAL PRODUCTS MAY NOT RECEIVE SIGNIFICANT PAYMENTS FROM COLLABORATORS DUE TO UNSUCCESSFUL RESULTS IN EXISTING COLLABORATIONS OR A FAILURE TO ENTER INTO FUTURE COLLABORATIONS. Genzyme Surgical Products' strategy to develop and commercialize certain of its products, in particular its gene and cell therapies for the treatment of cardiovascular disease, includes entering into various arrangements with both academic collaborators and corporate partners and licensees. The division may depend on the success of these parties in performing research, pre-clinical and clinical testing and marketing. These arrangements may require the division to transfer certain important rights to these collaborators and licensees. While we believe that Genzyme Surgical Products' collaborators and licensees will want to perform their contractual responsibilities, in some cases the amount and timing of resources that they devote to their collaborations with Genzyme Surgical Products, and the ability to terminate the collaboration, will be controlled by the collaborators and licensees. As a result, we cannot guarantee that Genzyme Surgical Products will receive revenues or profits from these arrangements, that any of its strategic alliances will continue or not terminate early, or that it will be able to enter into future collaborations. RISKS RELATED TO GENZYME TISSUE REPAIR The following risks and uncertainties may adversely affect the business of Genzyme Tissue Repair. Accordingly, you should consider these risks before investing in GZTR Stock or any securities which may be exchanged for, exercised for or converted into GZTR Stock. THE COMMERCIAL SUCCESS OF GENZYME TISSUE REPAIR'S LEAD PRODUCT, CARTICEL-REGISTERED TRADEMARK- CHONDROCYTES, IS UNCERTAIN. Carticel-Registered Trademark- chondrocytes are used to treat knee cartilage damage. This service involves a proprietary process for growing autologous (a patient's own) cartilage cells to replace those that are damaged or lost. Revenues from this service accounted for approximately 72% of Genzyme Tissue Repair's revenue 20 during the first nine months of 1999 and 64% of its 1998 revenue. The commercial success of Carticel-Registered Trademark- chondrocytes will depend on many factors including: - POSITIVE RESULTS FROM POST-MARKETING STUDIES. We have agreed with the FDA to conduct two post-marketing studies to confirm the effectiveness of Carticel-Registered Trademark- chondrocytes. The first study compares clinical outcomes of patients in Genzyme Tissue Repair's registry who did not respond to treatment before being implanted with Carticel-Registered Trademark- chondrocytes. This study will measure outcomes before and after implantation with Carticel-Registered Trademark- chondrocytes. The second study compares the long-term clinical effects of treatment with Carticel-Registered Trademark- chondrocytes to other available treatments. If these studies demonstrate that treatment with Carticel-Registered Trademark- chondrocytes is not superior to the alternatives studied, the FDA may suspend or withdraw its approval of Carticel-Registered Trademark- chondrocytes. If Genzyme Tissue Repair cannot market Carticel-Registered Trademark- chondrocytes in the U.S., its financial results will be negatively impacted. - FDA APPROVAL OF RELATED DEVICE Genzyme Tissue Repair has developed a device to improve the procedure for implanting Carticel-Registered Trademark- chondrocytes and plans to file for marketing approval with the FDA. Genzyme Tissue Repair believes it will begin marketing this device in 2000. We cannot guarantee that the FDA will approve this device, that this device will improve the procedure for implanting Carticel-Registered Trademark- chondrocytes, or that this device will gain commercial acceptance. - THE AVAILABILITY OF THIRD PARTY REIMBURSEMENT. Since the FDA approved Carticel-Registered Trademark- chondrocytes, we have seen a substantial increase in the number of third party payers who cover it. Some third party payers, however, do not cover Carticel-Registered Trademark- chondrocytes. We cannot guarantee that any third party payers will continue to cover it or that additional third party payers will begin to provide reimbursement. Although FDA approval is a crucial factor in insurance plans deciding to cover new treatments, a number of major insurance plans also base such decisions on their own or third party evaluations of such treatments. One independent association that conducts such evaluations is the Blue Cross Blue Shield Association. The Blue Cross Blue Shield Association has determined that its Technology Assessment Committee does not believe that Carticel-Registered Trademark- chondrocytes meets all of its published criteria for new treatments. We believe that Carticel-Registered Trademark- chondrocytes does in fact meet all of such criteria and are discussing the evaluation with the Blue Cross Blue Shield Association. While individual Blue Cross Blue Shield plans representing more than 50% of Blue Cross Blue Shield policyholders have provided policy coverage for Carticel-Registered Trademark- chondrocytes without a favorable evaluation by the Blue Cross Blue Shield Association, many Blue Cross Blue Shield plans have delayed approving Carticel-Registered Trademark- chondrocytes from coverage under their policies as a direct result of this unfavorable ruling. Since these remaining plans represent a significant percentage of insured lives in the U.S., this ruling has delayed our access to a substantial portion of the market for Carticel-Registered Trademark- chondrocytes. - THE SUCCESS OF COMPETITIVE PRODUCTS. The process we use to grow a patient's cartilage cells is not patentable, and we do not yet have significant patent protection covering the other processes used in providing Carticel-Registered Trademark- chondrocytes. Consequently, we cannot prevent a competitor from developing the ability to grow cartilage cells and from offering a product or service that is similar or superior to Carticel-Registered Trademark- chondrocytes. If a competitor were to develop such ability and obtain FDA approval for a competitive product or service, Genzyme Tissue Repair's financial results of operations would be negatively impacted. We are aware of at least two other companies that are growing autologous cartilage cells for cartilage repair in the European market. Also, several pharmaceutical and 21 biotechnology companies are developing alternative treatments for knee cartilage damage. One or more of these companies may develop products or services superior to the Carticel-Registered Trademark- chondrocytes. - MARKET ACCEPTANCE BY ORTHOPEDIC SURGEONS. We are marketing Carticel-Registered Trademark- chondrocytes to orthopedic surgeons. We cannot guarantee that we will train enough surgeons who incorporate it into their practice to make it commercially successful. GENZYME TISSUE REPAIR ANTICIPATES FUTURE LOSSES AND MAY NEVER BECOME PROFITABLE. We expect Genzyme Tissue Repair to have significant operating losses at least through 2000 as it continues to commercialize Carticel-Registered Trademark- chondrocytes and to conduct research and development and clinical programs. We cannot guarantee that Genzyme Tissue Repair's operations will ever be profitable. IF GENZYME TISSUE REPAIR FAILS TO OBTAIN CAPITAL NECESSARY TO FUND ITS OPERATIONS, IT WILL BE UNABLE TO FUND DEVELOPMENT PROGRAMS AND COMPLETE CLINICAL TRIALS. We anticipate that Genzyme Tissue Repair's current cash resources, together with amounts available under an equity line of credit from Genzyme General, will be sufficient to fund Genzyme Tissue Repair's operations through the end of 2000. In 1999, Genzyme Tissue Repair received $25 million in cash from Genzyme General in connection with the transfer to Genzyme General of Genzyme Tissue Repair's interest in our joint venture with Diacrin, Inc. Of this amount, $20 million is subject to the successful achievement of product development milestones by the joint venture. Genzyme Tissue Repair may repay any amounts due to Genzyme General in cash, GZTR designated shares, or combination of both, at its option. These GZTR designated shares would be shares of GZTR Stock that our board would have the option to issue from time to time with all proceeds allocable to Genzyme General. If these milestones are not achieved, and Genzyme Tissue Repair elects to repay Genzyme General in cash, its cash reserves will be substantially diminished or depleted in their entirety. If Genzyme Tissue Repair elects to repay Genzyme General in shares of GZTR designated shares, this would substantially dilute the rights of the holders of GZTR Stock and could significantly affect the market price of GZTR Stock. Genzyme Tissue Repair's cash needs may differ from those planned as a result of various factors, including the: - ability to satisfy regulatory requirements of the FDA and other government agencies; - results of research and development and clinical testing; - enforcement of patent and other intellectual property rights; and - development of competitive products and services. Genzyme Tissue Repair will require substantial additional funds in order to continue operations at current levels beyond 2000. We cannot guarantee that Genzyme Tissue Repair will be able to obtain any additional financing or find it on favorable terms. If Genzyme Tissue Repair has insufficient funds or is unable to raise additional funds, it may be required to delay, scale back or eliminate certain of its programs. Genzyme Tissue Repair may also have to give rights to third parties to commercialize technologies or products that it would otherwise commercialize itself. 22 GENZYME TISSUE REPAIR'S RESULTS FLUCTUATE QUARTERLY AND THIS COULD HAVE AN ADVERSE EFFECT ON ITS OPERATIONS. We expect that the revenues from the sale of the Carticel-Registered Trademark- chondrocytes will fluctuate based on Genzyme Tissue Repair's success in penetrating the market, the availability of competitive procedures and the availability of third party reimbursement. We cannot predict the timing or magnitude of these fluctuations. Furthermore, we expect that revenues from Carticel-Registered Trademark- chondrocytes will be lower in the summer months because fewer operations are typically performed during those months. We also expect that revenues from the sale of Epicel-TM- skin grafts will continue to fluctuate from quarter to quarter. This fluctuation is a result of several unpredictable factors, including the number and survival rate of severe burn patients who are treated with Epicel-TM- skin grafts. Since the Genzyme Tissue Repair must maintain extensive tissue culture facilities and a trained staff for both Carticel-Registered Trademark- chondrocytes and Epicel-TM- skin grafts, a significant portion of its costs are fixed and, therefore, fluctuations in demand can have an adverse effect on its results of operations. GENZYME TISSUE REPAIR RELIES ON KEY COLLABORATORS TO SUPPORT FURTHER RESEARCH AND DEVELOPMENT OF CARTICEL-REGISTERED TRADEMARK- CHONDROCYTES AND THESE EFFORTS COULD SUFFER IF IT EXPERIENCES PROBLEMS WITH THESE COLLABORATORS. Carticel-Registered Trademark- chondrocytes were developed based on the work of a group of Swedish physicians. Genzyme Tissue Repair had consulting agreements with the two leaders of that group. These agreements, however, expired in 1998 and Genzyme Tissue Repair is currently negotiating renewals of these agreements. Pending these negotiations, these physicians are continuing to advise Genzyme Tissue Repair on the commercialization and further development of Carticel-Registered Trademark- chondrocytes. We cannot guarantee that the two physicians will sign a new consulting agreement or continue to advise Genzyme Tissue Repair. In addition, individuals who are familiar with the know-how underlying Carticel-Registered Trademark- chondrocytes through their association with these physicians may disclose such information to our competitors. Either event could have an adverse effect on Genzyme Tissue Repair's results of operations. We have entered into a sponsored research agreement with the University of Gotenburg in Sweden and certain physicians, including the two physicians discussed above. The purpose of the agreement is to conduct additional research on Carticel-Registered Trademark- chondrocytes. The agreement prohibits each member of the research team from disclosing any information relating to Genzyme Tissue Repair or its business that they acquire in connection with their work under the agreement. The agreement also states that all inventions that the members conceive or reduce to practice during the course of the research program will be Genzyme Tissue Repair's property, with royalties payable to the inventing member. We cannot guarantee that these members will honor their obligations under the sponsored research agreement. 23 NOTE REGARDING FORWARD-LOOKING STATEMENTS This prospectus contains forward-looking statements about our: - product development activities and projected expenditures; - receipt of regulatory approvals; - plans for sales and marketing; - projected cash needs; - financial results; and - dividend policy. These forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those suggested by the forward-looking statements. Therefore, you should consider these forward-looking statements in light of all of the information included or referred to in this prospectus, including that set forth under the heading "Risk Factors." Words such as "estimate," "project," "plan," "intend," "expect," "believe," "should," "may" and similar expressions are intended to identify forward-looking statements. These forward-looking statements are found at various places throughout this prospectus and the other documents incorporated by reference, including, but not limited to, our Annual Report on Form 10-K for the year ended December 31, 1998, including any amendments, and our Current Reports on Form 8-K dated June 11, 1999 and June 30, 1999. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this prospectus. We do not undertake any obligation to publicly update or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events or developments. 24 USE OF PROCEEDS Except as otherwise provided in the applicable prospectus supplement, we intend to use the net proceeds from the sale of the securities offered by this prospectus for general corporate purposes, which may include the repayment, refinancing, redemption or repurchase of existing indebtedness or capital stock, working capital, capital expenditures, acquisitions of new technologies and businesses and investments. Additional information on the use of net proceeds from the sale of securities offered by this prospectus may be set forth in the prospectus supplement relating to the specific offering. RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED STOCK DIVIDENDS The following table sets forth our ratio of earnings to combined fixed charges and preferred stock dividends on a historical basis for the periods indicated. For purposes of this calculation, "earnings" consist of income (loss) before income taxes and fixed charges. "Fixed charges" consist of interest, amortization of debt issuance costs, preferred stock dividends and the component of rental expense believed by management to be representative of the interest factor on those amounts.
NINE MONTHS NINE MONTHS YEARS ENDED DECEMBER 31, ENDED ENDED --------------------------------------------------------- SEPTEMBER 30, SEPTEMBER 30, 1994 1995 1996 1997 1998 1998 1999 -------- -------- ------------- -------- -------- ------------- ------------- Ratio of Earnings to Fixed Charges (1)(3)............... 2.6x 3.5x n/a 2.3x 4.4x 3.8x 3.7x Ratio of Earnings to Fixed Charges and Preferred Stock Dividends (2)(3)............. 2.6x 3.5x n/a 2.3x 4.4x 3.8x 3.7x Coverage Deficiency (3)........ n/a n/a $72.3 million n/a n/a n/a n/a
- ------------------------ (1) The ratio of earnings to fixed charges is computed by dividing net income (loss) before income taxes and extraordinary credits and fixed charges (excluding interest capitalized during the period), by fixed charges. (2) The ratio of earnings to fixed charges and preferred stock dividends is computed by dividing net income (loss) before income taxes and extraordinary credits and fixed charges (excluding interest capitalized during the period), by fixed charges and preferred stock dividend requirements. The preferred stock dividend requirements represent the pretax earnings which would have been required to cover the dividend requirements on any preferred stock outstanding. We did not have any preferred stock outstanding during the periods presented above and accordingly there were no preferred stock dividend requirements during these periods. (3) The ratio of earnings to fixed charges is not presented for the year ended December 31, 1996 because fixed charges in 1996 exceeded earnings by $72.3 million due primarily to charges for in-process research and development of $130.6 million. 25 DESCRIPTION OF DEBT SECURITIES We will issue the debt securities (the "Debt Securities") offered by this prospectus and any accompanying prospectus supplement under an indenture (the "Indenture") to be entered into between Genzyme and the trustee identified in the applicable prospectus supplement (the "Trustee"). The terms of the Debt Securities will include those stated in the Indenture and those made part of the Indenture by reference to the Trust Indenture Act of 1939, as in effect on the date of the Indenture. We have filed a copy of the proposed form of Indenture as an exhibit to the registration statement in which this prospectus is included. Each Indenture will be subject to and governed by the terms of the Trust Indenture Act of 1939. We may offer under this prospectus up to an aggregate principal amount of $500,000,000 in Debt Securities. If Debt Securities are issued at a discount, or in a foreign currency, foreign currency units or composite currency, the principal amount as may be sold for an initial public offering price of up to $500,000,000. Unless otherwise specified in the applicable prospectus supplement, the Debt Securities will represent direct, unsecured obligations of Genzyme and will rank equally with all of our other unsecured indebtedness. The following statements relating to the Debt Securities and the Indenture are summaries and do not purport to be complete, and are subject in their entirety to the detailed provisions of the Indenture. GENERAL We may issue the Debt Securities in one or more series with the same or various maturities, at par, at a premium, or at a discount. We will describe the particular terms of each series of Debt Securities in a prospectus supplement relating to that series, which we will file with the SEC. To review the terms of a series of Debt Securities, you must refer to both the prospectus supplement for the particular series and to the description of Debt Securities in this prospectus. The prospectus supplement will set forth the following terms of the Debt Securities in respect of which this prospectus is delivered: - the title of the series; - the aggregate principal amount; - the issue price or prices, expressed as a percentage of the aggregate principal amount of the Debt Securities; - any limit on the aggregate principal amount; - the date or dates on which principal is payable; - the interest rate or rates (which may be fixed or variable) or, if applicable, the method used to determine such rate or rates; - the date or dates from which interest, if any, will be payable and any regular record date for the interest payable; - the place or places where principal and, if applicable, premium and interest, is payable; - the terms and conditions upon which we may, or the holders may require us to, redeem or repurchase the Debt Securities; - the denominations in which such Debt Securities may be issuable, if other than denominations of $1,000 or any integral multiple of that number; - whether the Debt Securities are to be issuable in the form of certificated Debt Securities (as described below) or global Debt Securities (as described below); 26 - the portion of principal amount that will be payable upon declaration of acceleration of the maturity date if other than the principal amount of the Debt Securities; - the currency of denomination; - the designation of the currency, currencies or currency units in which payment of principal and, if applicable, premium and interest, will be made; - if payments of principal and, if applicable, premium or interest, on the Debt Securities are to be made in one or more currencies or currency units other than the currency of denomination, the manner in which the exchange rate with respect to such payments will be determined; - if amounts of principal and, if applicable, premium and interest may be determined by reference to an index based on a currency or currencies or by reference to a commodity, commodity index, stock exchange index or financial index, then the manner in which such amounts will be determined; - the provisions, if any, relating to any collateral provided for such Debt Securities; - any addition to or change in the covenants and/or the acceleration provisions described in this prospectus or in the Indenture; - any Events of Default, if not otherwise described in this prospectus under "Events of Default"; - the terms and conditions for conversion into or exchange for shares of common stock or preferred stock; - any depositaries, interest rate calculation agents, exchange rate calculation agents or other agents; - the terms and conditions, if any, upon which the Debt Securities shall be subordinated in right of payment to other indebtedness of Genzyme; - if applicable, whether the Debt Securities will be defeasible; and - any other terms, which may modify or delete any provision of the Indenture insofar as it applies to the series. We may issue discount Debt Securities ("Discount Securities") that provide for an amount less than the stated principal amount to be due and payable upon acceleration of the maturity of such Debt Securities in accordance to the terms of the Indenture. We may also issue Debt Securities in bearer form, with or without coupons. If we issue Discount Securities or Debt Securities in bearer form, we will describe U.S. federal income tax considerations and other special considerations which apply to these Debt Securities in the applicable prospectus supplement. We may issue Debt Securities denominated in or payable in a foreign currency or currencies or a foreign currency unit or units. If we do, we will describe the restrictions, elections, general tax considerations, specific terms and other information relating to the Debt Securities and the foreign currency or currencies or foreign currency unit or units in the applicable prospectus supplement. EXCHANGE AND/OR CONVERSION RIGHTS We may issue Debt Securities which can be exchanged for or converted into shares of GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock, other series of common stock or preferred stock. If we do, we will describe the term of exchange or conversion in the prospectus supplement relating to these Debt Securities. 27 TRANSFER AND EXCHANGE We may issue Debt Securities that will be represented by either: - "book-entry securities," which means that there will be one or more global securities registered in the name of The Depository Trust Company, as Depository (the "Depository"), or a nominee of the Depository; or - "certificated securities," which means that they will be represented by a certificate issued in definitive registered form. We will specify in the prospectus supplement applicable to a particular offering whether the Debt Securities offered will be book-entry or certificated securities. Except as set forth under "--Global Debt Securities and Book Entry System" below, book-entry Debt Securities will not be issuable in certificated form. CERTIFICATED DEBT SECURITIES If you hold certificated Debt Securities, you may transfer or exchange such debt securities at the Trustee's office or at the paying agency in accordance with the terms of the Indenture. You will not be charged a service charge for any transfer or exchange of certificated Debt Securities, but may be required to pay an amount sufficient to cover any tax or other governmental charge payable in connection with such transfer or exchange. You may effect the transfer of certificated Debt Securities and of the right to receive the principal of, premium, and/or interest, if any, on the certificated Debt Securities only by surrendering the certificate representing the certificated Debt Securities and having us or the Trustee issue a new certificate to the new holder. GLOBAL DEBT SECURITIES AND BOOK ENTRY SYSTEM The Depository has indicated that it would follow the procedures described below to book-entry Debt Securities. Beneficial interests in book-entry Debt Securities may be owned only by participants that have accounts with the Depository for the related global Debt Security or persons that hold interests through participants. Upon the issuance of a global Debt Security, the Depository will credit, on its book-entry registration and transfer system, each participants' account with the principal amount of the book-entry Debt Securities represented by such global Debt Security that is beneficially owned by the participant. The accounts to be credited will be designated by any dealers, underwriters or agents participating in the distribution of such book-entry Debt Securities. Ownership of book-entry Debt Securities will be shown on, and the transfer of such ownership interests will be effected only through, records maintained by the Depository for the related global Debt Security (with respect to interests of participants) and on the records of participants (with respect to interests of persons holding through participants). The laws of some states may require that certain purchasers of securities take physical delivery of such securities in definitive form. These laws may impair your ability to own, transfer or pledge beneficial interests in book-entry Debt Securities. So long as the Depository for a global Debt Security, or its nominee, is the registered owner of a global Debt Security, the Depository or its nominee will be considered the sole owner or holder of the book-entry Debt Securities represented by the global Debt Security for all purposes under the Indenture. Except as described below, beneficial owners of book-entry Debt Securities will not be entitled to have such securities registered in their names, will not receive or be entitled to receive physical delivery of a certificate in definitive form representing the securities and will not be considered the owners or holders of the securities under the Indenture. Accordingly, each person who beneficially 28 owns book-entry Debt Securities and desires to exercise its rights as a holder under the Indenture, must rely on the procedures of the Depository for the related global Debt Security. If a person is not a participant, they must rely on the procedures of the participant through which they own their interest, to exercise the rights. We understand, however, that under existing industry practice, the Depository will authorize the persons on whose behalf it holds a global Debt Security to exercise certain rights of holders of Debt Securities. Genzyme, the Trustee, and any of their agents, will treat as the holder of a Debt Security the persons specified in a written statement of the Depository with respect to the global Debt Security for purposes of obtaining any consents or directions required to be given by holders of the Debt Securities under the Indenture. Payments of principal and, if applicable, premium and interest, on book-entry Debt Securities will be made to the Depository or its nominee, as the case may be, as the registered holder of the related global Debt Security. Genzyme and the Trustee, and any of their agents will not have any responsibility or liability for any aspect of the records relating to or payments made on account of beneficial ownership interests in such global Debt Security or for maintaining, supervising or reviewing any records relating to the beneficial ownership interests. We expect that the Depository, upon receipt of any payment of principal of, premium, if any, or interest, if any, on a global Debt Security, will immediately credit participants' accounts with payments in amounts proportionate to the amounts of book-entry Debt Securities held by each participant as shown on the records of the Depository. We also expect that payments by participants to owners of beneficial interests in book-entry Debt Securities held through the participants will be governed by standing customer instructions and customary practices, as is now the case with the securities held for the accounts of customers in bearer form or registered in "street name." These payments will be the responsibility of the participants. If the Depository is at any time unwilling or unable to continue as Depository or ceases to be a clearing agency registered under the Securities Exchange Act of 1934, we will appoint a successor Depository. If we do not appoint a successor Depository registered as a clearing agency under the Securities Exchange Act of 1934 within 90 days, we will issue certificated Debt Securities in exchange for each global Debt Security. In addition, we may at any time and in our sole discretion determine not to have the book-entry Debt Securities of any series represented by one or more global Debt Securities. If this happens, we will issue certificated Debt Securities in exchange for the global Debt Securities of the effected series. Global Debt Securities will also be exchangeable by the holders for certificated Debt Securities if an Event of Default (see "Events of Default" below) with respect to the book-entry Debt Securities represented by the global Debt Securities has occurred and is continuing. Any certificated Debt Securities issued in exchange for a global Debt Security will be registered in such name or names as the Depository shall instruct the Trustee. We expect that such instructions will be based upon directions received by the Depository from participants. We obtained the information in this section concerning the Depository and the Depository's book-entry system from sources we believe to be reliable, but we do not take any responsibility for the accuracy of this information. NO PROTECTION IN THE EVENT OF CHANGE OF CONTROL The Indenture does not have any covenants or other provisions providing for a put or increased interest or otherwise that would afford holders of Debt Securities additional protection in the event of a recapitalization transaction, a change of control of Genzyme or a highly leveraged transaction. If we offer any covenants or provisions of this type with respect to any Debt Securities in the future, we will describe them in the applicable prospectus supplement. 29 COVENANTS Unless otherwise indicated in this prospectus or a prospectus supplement, the Debt Securities will not have the benefit of any covenants that limit or restrict our business or operations, the pledging of our assets or the incurrence by us of indebtedness. We will describe in the applicable prospectus supplement any material covenants in respect of a series of Debt Securities. With respect to any series of senior subordinated Debt Securities, we will agree not to issue debt which is, expressly by its terms, subordinated in right of payment to any other debt of Genzyme and which is not ranked on a parity with, or subordinate and junior in right of payment to, the senior subordinated Debt Securities. CONSOLIDATION, MERGER AND SALE OF ASSETS We have agreed in the Indenture that we will not consolidate with or merge into any other person or convey, transfer, sell or lease our properties and assets substantially as an entirety to any person, unless: - the person formed by the consolidation or into or with which we are merged or the person to which our properties and assets are conveyed, transferred, sold or leased, is a corporation organized and existing under the laws of the U.S., any state or the District of Columbia or a corporation or comparable legal entity organized under the laws of a foreign jurisdiction and, if we are not the surviving person, the surviving person has expressly assumed all of our obligations, including the payment of the principal of and, premium, if any, and interest on the Debt Securities and the performance of the other covenants under the Indenture; and - immediately after giving effect to the transaction, no event of default, and no event which, after notice or lapse of time or both, would become an Event of Default, has occurred and is continuing under the Indenture. EVENTS OF DEFAULT Unless otherwise specified in the applicable prospectus supplement, the following events will be Events of Default under the Indenture with respect to Debt Securities of any series: - we fail to pay any principal of, or premium, if any, when it becomes due; - we fail to pay any interest within 30 days after it becomes due; - we fail to observe or perform any other covenant in the Debt Securities or the Indenture for 60 days after written notice specifying the failure from the Trustee or the holders of not less than 25% in aggregate principal amount of the outstanding Debt Securities of that series; - we are in default under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of indebtedness under which we or any significant subsidiaries then has more than $25 million in outstanding indebtedness, individually or in the aggregate, and either (a) the indebtedness is already due and payable in full or (b) the default or defaults have resulted in the acceleration of the maturity of such indebtedness; - any final judgment or judgments which can no longer be appealed for the payment of more than $25 million in money (not covered by insurance) is rendered against us or any of our significant subsidiaries and has not been discharged for any period of 60 consecutive days during which a stay of enforcement is not in effect; and - certain events occur involving bankruptcy, insolvency or reorganization of Genzyme or any of our significant subsidiaries. 30 The Trustee may withhold notice to the holders of the Debt Securities of any series of any default, except in payment of principal or premium, if any, or interest on the Debt Securities of a series, if the Trustee considers it to be in the best interest of the holders of the Debt Securities of that series to do so. If an Event of Default (other than an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization) occurs, and is continuing, then the Trustee or the holders of not less than 25% in aggregate principal amount of the outstanding Debt Securities of any series may accelerate the maturity of the Debt Securities. If this happens, the entire principal amount, plus the premium, if any, of all the outstanding Debt Securities of the affected series plus accrued interest to the date of acceleration will be immediately due and payable. At any time after the acceleration, but before a judgment or decree based on such acceleration is obtained by the Trustee, the holders of a majority in aggregate principal amount of outstanding Debt Securities of such series may rescind and annul such acceleration if: - all Events of Default (other than nonpayment of accelerated principal, premium or interest) have been cured or waived; - all overdue interest and overdue principal has been paid; and - the rescission would not conflict with any judgment or decree. In addition, if the acceleration occurs at any time when Genzyme has outstanding indebtedness which is senior to the Debt Securities, the payment of the principal amount of outstanding Debt Securities may be subordinated in right of payment to the prior payment of any amounts due under the senior indebtedness, in which case the holders of Debt Securities will be entitled to payment under the terms prescribed in the instruments evidencing the senior indebtedness and the Indenture. If an Event of Default resulting from certain events of bankruptcy, insolvency or reorganization occurs, the principal, premium and interest amount with respect to all of the Debt Securities of any series will be due and payable immediately without any declaration or other act on the part of the Trustee or the holders of the Debt Securities of that series. The holders of a majority in principal amount of the outstanding Debt Securities of a series will have the right to waive any existing default or compliance with any provision of the Indenture or the Debt Securities of that series and to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee, subject to certain limitations specified in the Indenture. No holder of any Debt Security of a series will have any right to institute any proceeding with respect to the Indenture or for any remedy under the Indenture, unless: - the holder gives to the Trustee written notice of a continuing Event of Default; - the holders of at least 25% in aggregate principal amount of the outstanding Debt Securities of the affected series make a written request and offer reasonable indemnity to the Trustee to institute a proceeding as trustee; - the Trustee fails to institute a proceeding within 60 days of such request; and - the holders of a majority in aggregate principal amount of the outstanding Debt Securities of the affected series do not give the Trustee a direction inconsistent with such request during such 60-day period. However, these limitations do not apply to a suit instituted for payment on Debt Securities of any series on or after the due dates expressed in the Debt Securities. 31 MODIFICATION AND WAIVER From time to time, we and the Trustee may, without the consent of holders of the Debt Securities of one or more series, amend the Indenture or the Debt Securities of one or more series, or supplement the Indenture, for certain specified purposes, including: - to provide that the surviving entity following a change of control of Genzyme permitted under the Indenture will assume all of our obligations under the Indenture and Debt Securities; - to provide for uncertificated Debt Securities in addition to certificated Debt Securities; - to comply with any requirements of the SEC under the Trust Indenture Act of 1939; - to cure any ambiguity, defect or inconsistency, or make any other change that does not materially and adversely affect the rights of any holder; - to issue and establish the form and terms and conditions; and - to appoint a successor Trustee under the Indenture with respect to one or more series. From time to time we and the trustee may, with the consent of holders of at least a majority in principal amount of the outstanding Debt Securities, amend or supplement the indenture or the Debt Securities, or waive compliance in a particular instance by us with any provision of the indenture or the Debt Securities. However, we may not, without the consent of each holder affected by such action, modify or supplement the indenture or the Debt Securities or waive compliance with any provision of the indenture or the Debt Securities in order to: - reduce the amount of Debt Securities whose holders must consent to an amendment, supplement, or waiver to the Indenture or such Debt Security; - reduce the rate of or change the time for payment of interest; - reduce the principal of or premium on or change the stated maturity; - make any Debt Security payable in money other than that stated in the Debt Security; - change the amount or time of any payment required or reduce the premium payable upon any redemption, or change the time before which no such redemption may be made; - waive a default on the payment of the principal of, interest on, or redemption payment; or - take any other action otherwise prohibited by the Indenture to be taken without the consent of each holder affected by the action. DEFEASANCE OF DEBT SECURITIES AND CERTAIN COVENANTS IN CERTAIN CIRCUMSTANCES The Indenture permits us, at any time, to elect to discharge our obligations with respect to one or more series of Debt Securities by following certain procedures described in the Indenture. These procedures will allow us either: - to defease and be discharged from any and all of our obligations with respect to any Debt Securities except for the following obligations (which discharge is referred to as "legal defeasance"): (1) to register the transfer or exchange of such Debt Securities; (2) to replace temporary or mutilated, destroyed, lost or stolen Debt Securities; (3) to compensate and indemnify the Trustee; or 32 (4) to maintain an office or agency in respect of the Debt Securities and to hold monies for payment in trust; or - to be released from our obligations with respect to the Debt Securities under certain covenants contained in the Indenture, as well as any additional covenants which may be contained in the applicable supplemental indenture (which release is referred to as "covenant defeasance"). In order to exercise either defeasance option, we must deposit with the Trustee or other qualifying trustee, in trust for that purpose: - money; - U.S. Government Obligations (as described below) or Foreign Government Obligations (as described below) which through the scheduled payment of principal and interest in accordance with their terms will provide money; or - a combination of money and/or U.S. Government Obligations and/or Foreign Government Obligations sufficient in the written opinion of a nationally-recognized firm of independent accountants to provide money; which in each case specified above, provides a sufficient amount to pay the principal of, premium, if any, and interest, if any, on the Debt Securities of a series, on the scheduled due dates or on a selected date of redemption in accordance with the terms of the Indenture. In addition, defeasance may be effected only if, among other things: - in the case of either legal or covenant defeasance, we deliver to the Trustee an opinion of counsel, as specified in the Indenture, stating that as a result of the defeasance neither the trust nor the Trustee will be required to register as an investment company under the Investment Company Act of 1940; - in the case of legal defeasance, we deliver to the Trustee an opinion of counsel stating that we have received from, or there has been published by, the Internal Revenue Service a ruling to the effect that, or there has been a change in any applicable federal income tax law with the effect that (and the opinion shall confirm that), the holders of outstanding Debt Securities will not recognize income, gain or loss for U.S. federal income tax purposes solely as a result of such legal defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner, including as a result of prepayment, and at the same times as would have been the case if legal defeasance had not occurred; - in the case of covenant defeasance, we deliver to the Trustee an opinion of counsel to the effect that the holders of the outstanding Debt Securities will not recognize income, gain or loss for U.S. federal income tax purposes as a result of covenant defeasance and will be subject to U.S. federal income tax on the same amounts, in the same manner and at the same times as would have been the case if covenant defeasance had not occurred; and - certain other conditions described in the Indenture are satisfied. If we fail to comply with our remaining obligations under the Indenture and applicable supplemental indenture after a covenant defeasance of the Indenture and applicable supplemental indenture, and the Debt Securities are declared due and payable because of the occurrence of any undefeased Event of Default, the amount of money and/or U.S. Government Obligations and/or Foreign Government Obligations on deposit with the Trustee could be insufficient to pay amounts due under the Debt Securities of the affected series at the time of acceleration. We will, however, remain liable in respect of these payments. 33 The term "U.S. Government Obligations" as used in the above discussion means securities which are direct obligations of or non-callable obligations guaranteed by the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. The term "Foreign Government Obligations" as used in the above discussion means, with respect to Debt Securities of any series that are denominated in a currency other than U.S. dollars (1) direct obligations of the government that issued or caused to be issued such currency for the payment of which obligations its full faith and credit is pledged or (2) obligations of a person controlled or supervised by or acting as an agent or instrumentality of such government the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by that government, which in either case under clauses (1) or (2), are not callable or redeemable at the option of the issuer. REGARDING THE TRUSTEE We will identify the Trustee with respect to any series of Debt Securities in the prospectus supplement relating to the applicable Debt Securities. You should note that if the Trustee becomes a creditor of the Company, the Indenture and the Trust Indenture Act of 1939 limit the rights of the Trustee to obtain payment of claims in certain cases, or to realize on certain property received in respect of any such claim, as security or otherwise. The Trustee and its affiliates may engage in, and will be permitted to continue to engage in, other transactions with us and our affiliates. If, however, the Trustee, acquires any "conflicting interest" within the meaning of the Trust Indenture Act of 1939, it must eliminate such conflict or resign. The holders of a majority in principal amount of the then outstanding Debt Securities of any series may direct the time, method and place of conducting any proceeding for exercising any remedy available to the Trustee. If an Event of Default occurs and is continuing, the Trustee, in the exercise of its rights and powers, must use the degree of care and skill of a prudent person in the conduct of his or her own affairs. Subject to that provision, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the holders of the Debt Securities, unless they have offered to the Trustee reasonable indemnity or security. 34 DESCRIPTION OF PREFERRED STOCK We currently have authorized 6,600,000 shares of undesignated preferred stock, none of which were issued and outstanding as of the date of this prospectus. Under Massachusetts law and our charter, our board is authorized, without stockholder approval to issue shares of preferred stock from time to time in one or more series. Subject to limitations prescribed by Massachusetts law and our charter and by-laws, the board can determine the number of shares constituting each series of preferred stock and the designation, preferences, voting powers, qualifications, and special or relative rights or privileges of that series. These may include such provisions as may be desired concerning voting, redemption, dividends, dissolution or the distribution of assets, conversion or exchange, and other subjects or matters as may be fixed by resolution of the board or an authorized committee of the board. Our board could authorize the issuance of shares of preferred stock with terms and conditions which could have the effect of discouraging a takeover or other transaction which holders of some, or a majority, of these shares might believe to be in their best interests or in which holders of some, or a majority, of these shares might receive a premium for their shares over the then-market price of the shares. If we offer a specific series of preferred stock under this prospectus, we will describe the terms of the preferred stock in the prospectus supplement for such offering and will file a copy of the certificate establishing the terms of the preferred stock with the SEC. This description will include: - the title and stated value; - the number of shares offered, the liquidation preference per share and the purchase price; - the dividend rate(s), period(s) and/or payment date(s), or method(s) of calculation for such dividends; - whether dividends will be cumulative or non-cumulative and, if cumulative, the date from which dividends will accumulate; - the procedures for any auction and remarketing, if any; - the provisions for a sinking fund, if any; - the provisions for redemption, if applicable; - any listing of the preferred stock on any securities exchange or market; - whether the preferred stock will be convertible into any series of Genzyme common stock, and, if applicable, the conversion price (or how it will be calculated) and conversion period; - whether the preferred stock will be exchangeable into Debt Securities, and, if applicable, the exchange price (or how it will be calculated) and exchange period; - voting rights, if any, of the preferred stock; - whether interests in the preferred stock will be represented by depositary shares; - a discussion of any material and/or special U.S. federal income tax considerations applicable to the preferred stock; - the relative ranking and preferences of the preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of the affairs of the company; 35 - any limitations on issuance of any class or series of preferred stock ranking senior to or on a parity with the series of preferred stock as to dividend rights and rights upon liquidation, dissolution or winding up of Genzyme; and - any other specific terms, preferences, rights, limitations or restrictions of the preferred stock. The preferred stock offered by this prospectus will, when issued, be fully paid and nonassessable and will not have, or be subject to, any preemptive or similar rights. Unless we specify otherwise in the applicable prospectus supplement, the preferred stock will, with respect to dividend rights and rights upon liquidation, dissolution or winding up of Genzyme, rank as follows: - senior to all classes or series of Genzyme common stock, and to all equity securities issued by Genzyme the terms of which specifically provide that they rank junior to the preferred stock with respect to those rights; - on a parity with all equity securities issued by Genzyme that do not rank senior or junior to the preferred stock with respect to those rights; and - junior to all equity securities issued by Genzyme the terms of which do not specifically provide that they rank on a parity with or junior to the preferred stock with respect to these rights (including any entity with which Genzyme may be merged or consolidated or to which all or substantially all the assets of Genzyme may be transferred or which transfers all or substantially all of the assets of Genzyme). As used for these purposes, the term "equity securities" does not include convertible debt securities. 36 DESCRIPTION OF GENZYME COMMON STOCK AUTHORIZED COMMON STOCK We are authorized to issue 390,000,000 shares of common stock of which: - 200,000,000 shares have been designated GENZ Stock; - 40,000,000 shares have been designated GZMO Stock; - 60,000,000 shares have been designated GZSP Stock; - 40,000,000 shares have been designated GZTR Stock; and - 50,000,000 remain undesignated as to series. Under Massachusetts law and our charter, our board is authorized to issue undesignated shares of common stock from time to time in one or more series. Subject to limitations prescribed by Massachusetts law and our charter and by-laws, the board may determine the number of shares constituting each series of common stock and the designation, preferences, voting powers, qualifications, and special or relative rights or privileges of that series. These may include provisions concerning dividends, dissolution or the distribution of assets, conversion or exchange, and other subjects or matters as may be fixed by resolution of the board or an authorized committee of the board. If we offer a specific series of newly designated common stock under this prospectus, we will describe the terms of the common stock in the prospectus supplement for such offering and will file a copy of the certificate establishing the terms of the common stock with the SEC. This description will describe: - the title and stated value; - the number of shares offered and the purchase price; - the dividend rights; - any listing of the common stock on any securities exchange or market; - any conversion or exchange provisions; - voting rights - liquidation rights; and - other specific terms, preferences, rights, limitations or restrictions of the common stock. We may also issue shares of GENZ Stock, GZMO Stock, GZSP Stock and GZTR Stock. Below is a summary of the current terms of Genzyme common stock. For a more complete understanding of the terms of our capital stock you should read our charter and by-laws, which are incorporated by reference in this document. See "Where You Can Find More Information" on page 55. The common stock offered by this prospectus will, when issued, be fully paid and nonassessable and will not have, or be subject to, any preemptive or similar rights. In this description of Genzyme's common stock, the "fair market value" of any series of common stock means the average per share closing price for the 20 consecutive trading days beginning the 30(th) trading day before the shares are valued. 37 DIVIDENDS We have never paid cash dividends on our stock. Currently, we intend to retain our earnings to finance future growth. Accordingly, we do not expect to pay any cash dividends on our common stock in the near future. We can declare and pay dividends on a series of our common stock only in amounts permitted by our charter, and only if we have funds legally available. Under Massachusetts law, we can pay a dividend if we are solvent, would remain solvent after paying the dividend, and the payment would not violate our charter. Subject to these limitations and the preferences of any outstanding shares of preferred stock, our board may, in its sole discretion, declare and pay dividends exclusively on any series of our common stock in equal or unequal amounts. Our charter sets the amount available for dividends on a division's tracking stock. The amount available is the excess of the greater of either: - the fair value of the net assets allocated to the division; or - the equity amount initially allocated to the division as adjusted to reflect: -- the division's net income or loss; -- any dividends or other distributions, including by reclassification or exchange, declared or paid on shares of the division's capital stock, excluding those paid in shares of the division's own capital stock; -- repurchases or issuances of capital stock attributed to the division; and -- any other adjustments made to stockholders' equity of the division consistent with GAAP; over the sum of - the total par value of all outstanding shares of the division's capital stock; and - unless our charter permits otherwise, the total amount of preferential payments that would be due to the division's preferred stockholders, if any, upon our dissolution less that preferred stock's aggregate par value and any amount needed by the division to pay its debts as they become due. If that available dividend amount is less than would be otherwise available under Massachusetts law, assuming that the division were a separate corporation, then the greater amount permitted by law will be the available dividend amount. EXCHANGE OF GZMO STOCK, GZSP STOCK AND GZTR STOCK We may exchange GZMO Stock, GZSP Stock or GZTR Stock for any combination of cash and/or GENZ Stock upon the terms described below. OPTIONAL EXCHANGE Under our charter, the board may, at any time, exchange all outstanding shares of GZMO Stock, GZSP Stock or GZTR Stock for any combination of cash and/or GENZ Stock with a fair market value of 130% of the fair market value of the series to be exchanged. We will determine the fair market value of the series on the day we first publicly announce the exchange. The optional exchange provision allows us to redeem all outstanding shares of GZMO Stock, GZSP Stock and/or GZTR Stock and leave outstanding one, two or three series of Genzyme common stock that would, after the exchange, collectively represent the entire equity interest in all of our businesses. We could exercise the optional exchange at any future time if our board determines that 38 considering current facts and circumstances, an equity structure consisting of four series of common stock is no longer in the best interests of all of our stockholders. We may make an exchange, however, at a time that is disadvantageous to the holders of a particular series of our common stock. The board's right to exchange at any time all outstanding shares of GZMO Stock, GZSP Stock or GZTR Stock for any combination of cash and/or GENZ Stock with a fair market value 30% greater than the fair market value of the stock being exchanged does not prevent the board from offering to exchange the shares on other terms. Although the holders of the shares to be exchanged would have to approve any alternative offer, we could make the offer on terms less favorable than those provided in our charter. See the risk factor entitled "Our board of directors may take actions that, while in the best interests of Genzyme as a whole, have an unequal and adverse effect on the holders of one or more series of our tracking stock" on page 10 of this prospectus. If at any time we receive an opinion of tax counsel that an "adverse tax event" has occurred due to a "tax law change," we may exchange the GZSP Stock for GENZ Stock, and not for cash, at its fair market value. This means that the holders of the GZSP Stock will not receive any premium in the exchange. The phrase "adverse tax event" means an event making it more likely than not, for U.S. federal income tax purposes, that: - Genzyme or its stockholders are, or will be in the future, taxed upon issuance of shares of GZSP Stock; or - GZSP Stock is not, or will not be in the future, treated solely as Genzyme common stock. When tax counsel renders this opinion, it will assume that any legislative or administrative proposals will be adopted or enacted as proposed. The phrase "tax law change" means either: - any enactment of or change in federal, state or other tax laws or regulations, including any proposed changes announced by a legislative committee or administrative agency; or - any official or administrative pronouncement, action or judicial decision interpreting or applying the tax laws or regulations. MANDATORY EXCHANGE If we transfer to a third party in one or more related transactions all or substantially all of the properties and assets allocated to Genzyme Molecular Oncology, Genzyme Surgical Products, or Genzyme Tissue Repair, we must exchange each outstanding share of GZMO Stock, GZSP Stock or GZTR Stock as follows:
IF WE ARE TRANSFERRING THE AMOUNT OF CASH AND/OR GENZ STOCK ASSETS OF . . . THEN WE MUST EXCHANGE GIVEN IN EXCHANGE WOULD EQUAL . . . - ----------------------------- ----------------------------- ------------------------------------ Genzyme Molecular Oncology each share of GZMO Stock for a 30% premium over the fair market cash and/or shares of GENZ value of the GZMO Stock being Stock. exchanged. Genzyme Surgical Products each share of GZSP Stock for the fair market value of the GZSP cash and/or shares of GENZ Stock being exchanged. Stock. Genzyme Tissue Repair each share of GZTR Stock for a 30% premium over the fair market cash and/or shares of GENZ value of the GZTR Stock being Stock. exchanged.
39 Fair market value will be determined as of the date the transfer is first publicly announced. This mandatory exchange does not apply, however, where we sell all or substantially all of our assets, or where the transfer is to a wholly-owned subsidiary or any entity formed at our direction to obtain financing for the programs or products of Genzyme Molecular Oncology, Genzyme Surgical Products or Genzyme Tissue Repair, as the case may be. TERMINATION OF CASH EXCHANGE FEATURE If we receive an opinion of tax counsel at any time that, because of a tax law change, our right to exchange GZMO Stock, GZSP Stock or GZTR Stock for cash would cause an adverse tax event, then our board may by majority vote elect to terminate our cash exchange right. If Genzyme's board elects to terminate this right, then the GZMO Stock, GZSP Stock or GZTR Stock, as the case may be, will only be exchangeable for GENZ Stock, and not for cash. VOTING RIGHTS Stockholders of all series of our common stock vote together as one class on all matters that common stockholders generally are entitled to vote, including the election of directors. The following chart shows the number of votes per share each series of common stock is entitled to on those matters, as well as each series' relative voting power based on the number of shares outstanding on December 31, 1999:
NUMBER OF VOTES PER SHARE APPROXIMATE PERCENTAGE SERIES (UNTIL DECEMBER 31, 2000) OF TOTAL VOTING POWER - ------ ------------------------- ---------------------- GENZ Stock......................................... 1.00 87.7% GZMO Stock......................................... 0.08 1.1% GZSP Stock......................................... 0.61 9.4% GZTR Stock......................................... 0.06 1.8%
You can calculate the percentage of the total voting power held by a series of common stock, at any time, by dividing that series' number of votes per share by the total number of votes per share held by all series. On January 1, 2001 and on January 1st every two years after this date, we will adjust the number of votes per share to which GZMO Stock, GZSP Stock and GZTR Stock are entitled as follows: Number of votes per share of GZMO Stock = fair market value of a share of GZMO Stock --------------------------------------- fair market value of a share of GENZ Stock Number of votes per share of GZSP Stock = fair market value of a share of GZSP Stock --------------------------------------- fair market value of a share of GENZ Stock Number of votes per share of GZTR Stock = fair market value of a share of GZTR Stock --------------------------------------- fair market value of a share of GENZ Stock
If no shares of GENZ Stock are outstanding on that date, then of the series that are outstanding, the one with the highest fair market value per share becomes the "base" series. That series becomes the denominator in the formula above and has one vote per share. Each other series then has the number of votes per share determined under the above formulas, after replacing GENZ Stock in the denominator with the new base series. We will adjust the voting rights of the GZMO Stock, GZSP Stock and the GZTR Stock to avoid dilution of any series' voting rights in the event the outstanding shares of any series are subdivided or combined by stock split, reverse stock split, reclassification or otherwise, or a stock dividend or distribution is issued to stockholders of that series. If shares of only one series are outstanding, or if shares of any series are entitled to vote separately as a class, each share of that series will have one vote. 40 While generally all common stockholders vote together as a single class, our charter requires that holders of a series affected by any of the following proposals approve the proposal at a meeting at which both a quorum is present and the votes in favor of the proposal exceed those against it: - to allow any proceeds from a disposition of the properties or assets allocated to a division to be used in the business of another division without fair compensation; - to allow any properties or assets allocated to a division to be used in the business of another division or to declare or pay any dividend or distribution on any series of common stock not attributed to that division without fair compensation; - to issue shares of any series of common stock without allocating the proceeds of the issuance to the division represented by that series except, however, for specifically "designated" shares as described below under the heading "GZMO Designated Shares, GZSP Designated Shares and GZTR Designated Shares"; - to change the rights or preferences of any series in a manner that affects the series adversely; or - to effect any merger or business combination in which (a) stockholders of all series together will no longer own, directly or indirectly, at least fifty percent (50%) of the voting power of the surviving corporation, and (b) stockholders of all series will not receive the same form of consideration, distributed among stockholders in proportion to the market capitalization of each series of our common stock as of the date of the first public announcement of the merger or business combination. If, however, we receive an opinion of tax counsel at any time that, because of a tax law change, the special voting rights described above for the GZMO Stock, GZSP Stock or GZTR Stock would cause an adverse tax event, then our board may amend our charter to delete the special voting rights of the GZMO Stock, GZSP Stock or GZTR Stock, as the case may be, with the approval of holders of a majority of all series of our outstanding capital stock voting together as a single class. Under Massachusetts law, any amendment to our charter that would adversely alter or change the powers, preferences or special rights of any series of common stock, must be approved by a majority of the outstanding shares of each affected series, voting together as a single class. Massachusetts law does not currently provide for any other separate voting rights for a series of common stock. Consequently, because most matters brought to a stockholder vote will require only the approval of a majority of all of our outstanding capital stock entitled to vote and because the GENZ stockholders currently have more than the number of votes required to approve a matter, GENZ stockholders are currently in a position to control the outcome of the vote. See the risk factor entitled "Holders of our tracking stock have limited decision-making power because they have limited separate voting rights" on page 11 of this prospectus. LIQUIDATION RIGHTS If we voluntarily or involuntarily dissolve, liquidate or wind up our affairs, common stockholders will be entitled to receive any net assets remaining for distribution after we have satisfied or made provision for our debts and obligations and for payment to any stockholders with preferential rights to receive distributions of our net assets. We will distribute any remaining assets to common stockholders on a per share basis in proportion to each series' respective per share liquidation units. Common 41 stockholders will have no direct claim against any of our particular assets or those of our subsidiaries. Each series has the following number of liquidation units per share:
NUMBER OF SERIES LIQUIDATION UNITS - ------ ----------------- GENZ Stock................................................ 100 GZMO Stock................................................ 25 GZSP Stock................................................ 61 GZTR Stock................................................ 58
We will adjust the liquidation units of the GZMO Stock, the GZSP Stock and the GZTR Stock only to avoid dilution in the aggregate liquidation rights of any series in the event the outstanding shares of any series are subdivided or combined by stock split, reverse stock split, reclassification or otherwise, or a dividend or distribution is given to stockholders of that series. A merger or business combination or a sale of all or substantially all of our assets will not be treated as a liquidation. We may not, however, without approval from GENZ stockholders, GZMO stockholders, GZSP stockholders and GZTR stockholders voting as separate series of stock, effect a merger or business combination involving Genzyme that results in: - stockholders of all series no longer owning, directly or indirectly, at least 50% of the voting power of the surviving corporation; and - stockholders of each series not receiving the same form of consideration distributed among stockholders in proportion to the market capitalization of each series of common stock as of the date of the first public announcement of the merger or business combination. GZMO DESIGNATED SHARES, GZSP DESIGNATED SHARES AND GZTR DESIGNATED SHARES GZMO designated shares, GZSP designated shares or GZTR designated shares are authorized but unissued shares which our board of directors may from time to time issue, sell or otherwise distribute without allocating the proceeds or other benefits of the issuance, sale or distribution to the division tracked by the shares. Until the shares are issued by our board, designated shares are not outstanding shares of stock, may not receive dividends and cannot be voted by us. GZMO DESIGNATED SHARES On September 30, 1999, there were 1,409,992 GZMO designated shares, representing a potential 10.0% equity interest in Genzyme Molecular Oncology. Of these designated shares, 682,316 were reserved for issuance upon conversion of our 5 1/4% convertible subordinated notes and under our directors' deferred compensation plan. The number of GZMO designated shares, from time to time will be: - adjusted to reflect subdivisions or combinations by stock split, reverse stock split or otherwise of the GZMO Stock and dividends or distributions of shares of GZMO Stock to GZMO stockholders and other reclassifications of GZMO Stock; - decreased by -- the number of any designated shares of GZMO Stock that we issue, the proceeds of which are allocated to Genzyme General, -- the number of any shares of GZMO Stock issued upon the exercise or conversion of securities convertible into GZMO Stock that are attributed to Genzyme General, and -- the number of any shares of GZMO Stock that we issue as a dividend or distribution or by reclassification, exchange or otherwise to GENZ stockholders; and 42 - increased by -- the number of any outstanding shares of GZMO Stock that we repurchase, the consideration for which is allocated to Genzyme General; or -- the number of shares of GZMO Stock equal to the fair value, as determined by our board, of assets or properties allocated to Genzyme General that are reallocated to Genzyme Molecular Oncology excluding reallocations that represent sales at fair value between those divisions divided by the fair market value of one share of GZMO Stock on the date of that reallocation. Our charter prohibits us from taking any action that would reduce the number of GZMO designated shares below zero. GZSP DESIGNATED SHARES On September 30, 1999, there were 1,164,839 GZSP designated shares, representing a potential 7.3% equity interest in Genzyme Surgical Products. That number from time to time will be: - adjusted to reflect subdivisions or combinations by stock split, reverse stock split or otherwise of the GZSP Stock and dividends or distributions of shares of GZSP Stock to GZSP stockholders and other reclassifications of GZSP Stock; - decreased by -- the number of any designated shares of GZSP Stock that we issue, the proceeds of which are allocated to Genzyme General, -- the number of any shares of GZSP Stock issued upon the exercise or conversion of securities convertible into GZSP Stock that are attributed to Genzyme General, and -- the number of any shares of GZSP Stock that we issue as a dividend or distribution or by reclassification, exchange or otherwise to GENZ stockholders; and - increased by -- the number of any outstanding shares of GZSP Stock that Genzyme repurchases, the consideration for which is allocated to Genzyme General, -- the number of shares of GZSP Stock equal to the fair value, as determined by our board, of assets or properties allocated to Genzyme General that are reallocated to Genzyme Surgical Products excluding reallocations that represent sales at fair value between those divisions divided by the fair market value of one share of GZSP Stock as of the date of that reallocation, or -- the number of shares of GZSP Stock equal to (i) the aggregate fair market value of any shares of GENZ Stock issued to the limited partners of Genzyme Development Partners in connection with our exercise on behalf of Genzyme Surgical Products of our purchase option to reacquire all of the limited partnership interests of that partnership divided by (ii) the fair market value of one share of GZSP Stock on the date of the exercise. Our charter prohibits us from taking any action that would reduce the number of GZSP designated shares below zero. 43 GZTR DESIGNATED SHARES On September 30, 1999, there were 2,260,494 GZTR designated shares, representing a potential 8.1% equity interest in Genzyme Tissue Repair. That number from time to time will be: - adjusted as appropriate to reflect subdivisions or combinations by stock split, reverse stock split or otherwise of the GZTR Stock and dividends or distributions of shares of GZTR Stock to GZTR stockholders and other reclassifications of GZTR Stock; - decreased by -- the number of any designated shares of GZTR Stock that we issue, the proceeds of which are allocated to Genzyme General, -- the number of any shares of GZTR Stock issued upon the exercise or conversion of securities convertible into GZTR Stock that are attributed to Genzyme General, and -- the number of any shares of GZTR Stock issued as a dividend or distribution or by reclassification, exchange or otherwise to GENZ stockholders; and - increased by -- the number of any outstanding shares of GZTR Stock that we repurchase, the consideration for which is allocated to Genzyme General; and -- the number of shares of GZTR Stock equal to the fair value, as determined by our board, of assets or properties allocated to Genzyme General that are reallocated to Genzyme Tissue Repair excluding reallocations that represent sales at fair value between those divisions, divided by the fair market value of one share of GZTR Stock on the date of the reallocation. Our charter prohibits us from taking any action that would reduce the number of GZTR designated shares below zero. Whenever we issue or sell additional shares of any series of common stock, we will identify: - the number of shares issued and sold for account of a particular division to which they relate, the proceeds of which will be allocated to and reflected in the financial statements of that division, and - the number of shares issued and sold from the designated shares of GZMO Stock, GZSP Stock and/or GZTR Stock, which will reduce the number of designated shares, and the proceeds of which may be used for any proper corporate purpose. If we repurchase outstanding shares of GZMO Stock, GZSP Stock or GZTR Stock, we will identify the number of shares that are repurchased for consideration that were allocated to Genzyme General and the number of designated shares may increase accordingly. DETERMINATIONS BY OUR BOARD Any determination made by our board in good faith under any of the provisions described above will be final and binding on all stockholders. "ANTI-TAKEOVER" PROVISIONS CONTRACTUAL MEASURES Our charter and by-laws contain provisions that could discourage potential takeover attempts and prevent stockholders from changing our management. For example, our board is authorized to issue 44 shares of common stock and preferred stock in series, enlarge the board's size and fill any vacancies on the board. Also, stockholders face restrictions on calling a special meeting of stockholders, bringing business before an annual meeting and nominating candidates for election as directors. We also have agreements with some officers containing change of control provisions. In addition, we have a stockholder rights plan. Under the plan, each outstanding share of our common stock carries with it a right, currently unexercisable, that if triggered permits the holder to purchase large amounts of our or any successor entity's securities at a discount and/or trade those purchase rights separately from the common stock. The rights are triggered when a person acquires, or makes a tender or exchange offer to acquire, 15% of our common stock's voting power. The plan, however, prohibits the 15%- acquiror, or its affiliates, from exercising these purchase rights. As a result, the acquiror's interest in us is substantially diluted. The rights are described completely in a rights agreement between us and American Stock Transfer & Trust Company as rights agent. The agreement is an exhibit to our Form 8-A/A filed with the SEC on June 11, 1999, and is incorporated in this document by reference. BUSINESS COMBINATION STATUTE The Massachusetts Business Combination statute provides that, if a person acquires 5% or more of the outstanding voting stock of a Massachusetts corporation without the approval of its board of directors that person becomes an interested stockholder and he or she may not engage in business combination transactions with the corporation for three years. There are exceptions to this prohibition, including: - if the board of directors approves the acquisition of stock or the transaction before the time that the person became an interested stockholder; - if the interested stockholder acquires 90% of the outstanding voting stock of the company, excluding voting stock owned by directors who are also officers and some employee stock plans, in one transaction; or - if the transaction is approved by the board and by two-thirds of the outstanding voting stock not owned by the interested stockholder. We are subject to the Massachusetts Business Combination statute unless we elect not to be. We have not elected to be exempt and do not currently intend to do so. CONTROL SHARE ACQUISITION STATUTE The Massachusetts Control Share Acquisition statute provides that a person who offers to acquire, or acquires, shares of stock resulting in its controlling at least 20%, 33 1/3% or a majority of the voting power of a corporation, cannot vote those acquired shares unless the acquiror obtains the approval of a majority in interest of the shares held by all stockholders, excluding shares held by the acquiror, officers of the corporation, and directors who are also employees of the corporation. The statute does not require that the acquiror have already purchased the shares before the stockholder vote. As permitted under Massachusetts law, we have elected not to be governed by the Massachusetts Control Share Acquisition statute. However, our board could decide at a future date that it is in the best interests of Genzyme and its stockholders that we be governed by the statute. If so, our board may amend our by-laws accordingly. That amendment, however, would apply only to acquisitions that occur after the effective date of the amendment. 45 REGISTRATION RIGHTS The holders of 3,163,032 shares of our capital stock can, if the conditions to exercising the rights are met, require us to register those shares. Notwithstanding these rights, all of those shares, if held by our nonaffiliates, can be sold without restriction under the federal securities law. TRANSFER AGENT AND REGISTRAR American Stock Transfer & Trust Company is the registrar and transfer agent for each series of our common stock. Its telephone number is (212) 936-5100. DESCRIPTION OF WARRANTS GENERAL We may issue warrants to purchase Debt Securities (the "Debt Warrants"), preferred stock (the "Preferred Stock Warrants") or one or more series of Genzyme common stock (the "Common Stock Warrants" and, collectively with the Debt Warrants and the Preferred Stock Warrants, the "Warrants"). Warrants may be issued independently or together with any other securities offered by this prospectus and may be attached to or separate from the other securities. If Warrants are issued, they will be issued under warrant agreements to be entered into between us and a bank or trust company, as warrant agent (the "Warrant Agent"), all of which will be described in the prospectus supplement relating to the Warrants being offered. DEBT WARRANTS We will describe the terms of the Debt Warrants offered in the applicable prospectus supplement, the Warrant Agreement relating to the Debt Warrants and the Debt Warrant certificates representing the Debt Warrants, including the following: - the title; - the aggregate number offered; - their issue price or prices; - the designation, aggregate principal amount and terms of the Debt Securities purchasable upon exercise, and the procedures and conditions relating to exercise; - the designation and terms of any related Debt Securities and the number of such Debt Warrants issued with each Debt Security; - the date, if any, on and after which the Debt Warrants and the related Debt Securities will be separately transferable; - the principal amount of Debt Securities purchasable upon exercise, and the price at which such principal amount of Debt Securities may be purchased upon exercise; - the commencement and expiration dates of the right to exercise; - the maximum or minimum number which may be exercised at any time; - a discussion of the material U.S. federal income tax considerations applicable to exercise; and - any other terms, procedures and limitations relating to exercise. Debt Warrant certificates will be exchangeable for new Debt Warrant certificates of different denominations, and Debt Warrants may be exercised at the corporate trust office of the Warrant Agent or any other office indicated in the applicable prospectus supplement. Before exercising their Debt 46 Warrants, holders will not have any of the rights of holders of the securities purchasable upon such exercise and will not be entitled to payments of principal of, or premium, if any, or interest, if any, on the securities purchasable upon such exercise. OTHER WARRANTS The applicable prospectus supplement will describe the following terms of Preferred Stock Warrants or Common Stock Warrants offered under this prospectus: - the title; - the securities issuable upon exercise; - the issue price or prices; - the number of such Warrants issued with each share of preferred stock or common stock; - any provisions for adjustment of (1) the number or amount of shares of preferred stock or common stock receivable upon exercise of the Warrants or (2) the exercise price; - if applicable, the date on and after which the Warrants and the related preferred stock or common stock will be separately transferable; - if applicable, a discussion of the material U.S. federal income tax considerations applicable to the exercise of the Warrants; - any other terms, including terms, procedures and limitations relating to exchange and exercise; - the commencement and expiration dates of the right to exercise; and - the maximum or minimum number which may be exercised at any time. EXERCISE OF WARRANTS Each Warrant will entitle the holder to purchase for cash such principal amount of Debt Securities or shares of preferred stock or common stock at the applicable exercise price set forth in, or determined as described in, the applicable prospectus supplement. Warrants may be exercised at any time up to the close of business on the expiration date set forth in the applicable prospectus supplement. After the close of business on the expiration date, unexercised Warrants will become void. Warrants may be exercised by delivering to the corporation trust office of the Warrant Agent or any other officer indicated in the applicable prospectus supplement (a) the Warrant certificate properly completed and duly executed and (b) payment of the amount due upon exercise. As soon as practicable following the exercise, we will forward the Debt Securities or shares of preferred stock or common stock purchasable upon the exercise. If less than all of the Warrants represented by a Warrant certificate are exercised, a new Warrant certificate will be issued for the remaining Warrants. 47 DESCRIPTION OF MANAGEMENT AND ACCOUNTING POLICIES OVERVIEW Because each of our operating divisions are part of a single company, our board has adopted policies to address issues that may arise among divisions and to govern the management of and the relationships between each division. The issues addressed by the policies include: - the financing of each division; - competition among the divisions; - inter-divisional business transactions; - access to technology and know-how; - corporate opportunities; and - the allocation of debt, corporate overhead, interest, taxes and other charges between the divisions. We have summarized below the policies as they relate to our four divisions. We recommend that you read the full text of the policies, which is contained in Exhibit 99.1 to the registration statement of which this prospectus is a part. With a few exceptions that are noted, our board may modify or rescind the policies, or adopt additional policies, in its sole discretion without approval of the stockholders, subject only to our board's fiduciary duty to our stockholders. PURPOSE OF GENZYME GENERAL, GENZYME MOLECULAR ONCOLOGY, GENZYME SURGICAL PRODUCTS AND GENZYME TISSUE REPAIR The purpose of Genzyme General is to develop and market therapeutic products and diagnostic services and products. The purpose of Genzyme Molecular Oncology is to create a focused, integrated oncology business that will develop and commercialize novel therapeutic and diagnostic products and services based on molecular tools and genomic information. The purpose of Genzyme Surgical Products is to create a business with a comprehensive approach to and portfolio of devices, biomaterials, biotherapeutics and other products for the field of biosurgery. The purpose of Genzyme Tissue Repair is to create a business with a comprehensive approach to the field of tissue repair by developing and commercializing a portfolio of novel products for the treatment and prevention of serious tissue injury (excluding products developed on behalf of Genzyme Development Partners). In addition to the programs initially assigned to each of the divisions, we expect that the product and service portfolio of each division will expand through the addition of complementary programs, products and services developed either internally or externally to the division, including outside of Genzyme. We will operate and manage each of the divisions similarly to Genzyme General except as provided in these policies. REVENUE ALLOCATION AND RECOGNITION We credit revenues received from third parties in connection with a particular division's products and services to that division. When products and services that are normally sold by a division to third parties are used by other divisions, we record interdivisional revenue and interdivisional purchases, which we describe in detail in our policy "Other Interdivisional Transactions." EXPENSE ALLOCATION We charge all direct expenses to the division that has incurred the expenses. Our policy "Other Interdivisional Transactions" addresses expenses other than direct expenses. 48 ASSET ALLOCATION We allocate assets that are exclusively dedicated to the production of goods and services of a particular division to that division. We address the use of production assets by more than one division in our policy "Other Interdivisional Transactions." TAX ALLOCATIONS We allocate income taxes to each division based upon the financial statement income, taxable income, credits and other amounts properly allocable to it under generally accepted accounting principles as if it were a separate taxpayer. As of the end of any fiscal quarter, however, if a division cannot use any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we may allocate the tax benefit to the other divisions in proportion to their taxable income without any compensating payment or allocation. ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS If we acquire any programs, products or assets from a third party, we will allocate among our divisions the aggregate cost of the acquisition and the programs, products or assets acquired. In the case of material acquisitions, we will make the allocation in a manner that our board determines to be fair and reasonable to each division and to holders of the common stock representing each division, taking into account matters that our board and its financial advisors, if any, deem relevant. Our policies provide that the determinations by our board will be final and binding on all holders of common stock. DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS If we dispose of any programs, products or assets that do not consist of all or substantially all of the assets of a division, we will allocate all proceeds to the division to which the program, product or asset had been allocated. If a program, product or asset was allocated to more than one division, we will allocate the proceeds among the divisions based on their interests in the program, product or asset. We will make the allocation in a manner that our board determines to be fair and reasonable to each of the divisions and to holders of the common stock representing each of the divisions, taking into account matters that our board and its financial advisors, if any, deem relevant. Our policies provide that the determinations by our board will be final and binding on all holders of common stock. INTERDIVISIONAL ASSET TRANSFERS Our board may at any time reallocate any program, product or other asset from one division to any other division. We will make reallocations at fair market value, determined by our board, taking into account the following criteria in the case of a program under development: - the commercial potential of the program; - the phase of clinical development of the program; - the expenses associated with realizing any income from the program and the likelihood and timing of the realization; and - other matters that our board and its financial advisors, if any, deem relevant. One division may pay another division the consideration for a reallocation in cash or other consideration with a value equal to the fair market value of the reallocated assets. In the case of a reallocation of assets from Genzyme General to another division, our board may elect instead to account for the reallocation as an increase in the designated shares representing the division to which the assets are reallocated in accordance with the provisions of our charter. 49 These policies regarding transfers of assets between divisions will not be changed by our board without the approval of the holders of the common stock representing each of the divisions voting as a separate class. If, however, the policy change affects one or more, but not all of the divisions, only holders of shares of the affected division(s) will be entitled to vote on the matter. OTHER INTERDIVISIONAL TRANSACTIONS Our divisions may engage in transactions directly with one or more other divisions or jointly with one or more other divisions and one or more third parties. These transactions may include agreements by one division to provide products and services for use by another division, license agreements and joint ventures or other collaborative arrangements involving more than one division to develop new products and services jointly and with third parties. These transactions will be subject to the following conditions: - We will charge research and development (including clinical and regulatory support), distribution, sales, marketing, and general and administrative services (including allocated space) performed by one division for another division to the division for which the services are performed on a cost basis. We charge all direct expenses to the division that has incurred the expenses. We will allocate direct labor and indirect costs in reasonable and consistent manners based on the use by a division of relevant services. Divisions performing services for other divisions will not recognize revenue because of the services they have performed. - We will charge the manufacturing of goods and services by one division exclusively for another division to the division for which it is performed on a cost basis. We will include in manufacturing costs an interest charge on the gross fixed assets used in the manufacturing process. We will determine gross fixed assets for the facility used at the beginning of each fiscal year. The interest rate will be our short term borrowing rate at the beginning of each fiscal year. We will allocate direct labor and indirect costs in reasonable and consistent manners based on the benefit received by a division of related goods and services. Divisions performing services for other divisions will not recognize revenue because of the services they have performed. - Other than transactions involving research and development, distribution, sales, marketing, general and administrative services, which are addressed above, all interdivisional transactions will be on terms and conditions obtainable in arm's length transactions with third parties. Divisions performing services for other divisions will not recognize revenue because of the services they have performed. - Our board must approve interdivisional transactions that are performed on terms and conditions other than as described above and that are material to one or more of the participating divisions. In giving its approval, our board must determine that the transaction is fair and reasonable to each participating division and to holders of the common stock representing each participating division. - Divisions may make loans to other divisions. Any loan of $1 million or less will mature within 18 months and interest will accrue at the best borrowing rate available to Genzyme for a loan of a similar type and duration. Our board must approve any loan in excess of $1 million. In giving its approval, our board must determine that the material terms of such loan, including the interest rate and maturity date, are fair and reasonable to each participating division and to holders of the common stock representing each such division. - All material interdivisional transactions will be set forth in a written agreement signed by an authorized member of the management team of each division involved in the transaction. 50 ACCESS TO TECHNOLOGY AND KNOW-HOW Each division will have unrestricted access to all of our technology and know-how that may be useful in that division's business, subject to any obligations or limitations that apply to us. DISPOSITION OF DESIGNATED SHARES OF GZMO STOCK, GZSP STOCK, AND GZTR STOCK Our Board may from time to time and in its sole discretion dispose of designated shares of GZMO Stock, GZSP Stock, and GZTR Stock in the following manner: - issue the designated shares upon the exercise or conversion of outstanding stock options, warrants or convertible securities allocated to Genzyme General; - sell the designated shares for any valid purpose, subject to the restrictions set forth in our policy entitled "Open Market Purchases of Shares of Common Stock," which is set forth below; and - distribute the designated shares as a dividend to the holders of shares of GENZ Stock. GZMO DESIGNATED SHARES. We will distribute substantially all of the designated shares of GZMO Stock to holders of record of GENZ Stock, if as of November 30 of each year, the number of GZMO designated shares exceeds 10% of the number of shares of GZMO stock then issued and outstanding. We will, however, reserve for issuance a number of shares equal to the sum of: - the number of GZMO designated shares reserved for issuance with respect to "GENZ convertible securities" which include stock options, stock purchase rights, warrants or other securities convertible into or exercisable for shares of GENZ Stock then outstanding as a result of anti-dilution adjustments required by the terms of these instruments or approved by our board, plus - the number of GZMO designated shares reserved by our Board as of that date for sale not later than six months afterwards, with the proceeds to be allocated to Genzyme General. GZSP DESIGNATED SHARES. We will distribute substantially all of the designated shares of GZSP Stock to holders of record of GENZ Stock if, as of June 30 of each year, starting on June 30, 2000 the number of GZSP designated shares exceeds 10% of the number of shares of GZSP Stock then issued and outstanding. We will, however, reserve a number of shares equal to the sum of: - the number of GZSP designated shares reserved for issuance with respect to GENZ convertible securities which then outstanding as a result of anti-dilution adjustments required by the terms of these instruments or approved by our board, plus - the number of GZSP designated shares reserved by our board as of that date for sale not later than six months afterwards, with the proceeds to be allocated to Genzyme General. GZTR DESIGNATED SHARES. We will distribute substantially all designated shares of GZTR Stock to holders of record of GENZ Stock, if as of May 31 of each year, the number of GZTR designated shares exceeds 10% of the number of shares of GZTR stock then issued and outstanding. We will, however, reserve for issuance a number of shares equal to the sum of: - the number of GZTR designated shares reserved for issuance with respect to the GENZ convertible securities then outstanding as a result of anti-dilution adjustments required by the terms of these instruments or approved by our board, plus - the number of GZTR designated shares reserved by our Board as of that date for sale not later than six months afterwards, with the proceeds to be allocated to Genzyme General. 51 ISSUANCE AND SALE OF ADDITIONAL SHARES OF COMMON STOCK When we issue additional shares of our common stock, we will identify both: - the number of shares issued and sold for the account of the division to which they relate and the corresponding proceeds, which we will allocate to and reflect in the financial statements of that division; and - the number of shares issued and sold for the account of Genzyme General, which will reduce the number of designated shares of that division. We will not, however, sell any designated shares of a division, except upon exercise or conversion of options, warrants or convertible securities issued by Genzyme General that were adjusted as a result of a dividend of GZSP Stock, GZMO Stock, or GZTR Stock paid to holders of GENZ Stock, unless either: - our board determines that the division has sufficient cash to fund its operations for at least the next 12 months; or - we are then selling shares of a division for its own account in an amount that will produce proceeds sufficient to fund that division's cash needs for the next 12 months. OPEN MARKET PURCHASES OF SHARES OF COMMON STOCK We may purchase our common stock in the open market in accordance with applicable securities law requirements. We will not, however, purchase our common stock if, as an immediate result, the number of designated shares of a division will exceed 60% of the sum of the number of shares of the division outstanding and the number of designated shares. Additionally, we may not, within 90 days of any open market purchase of the common stock of any division, exercise the right provided under our charter to exchange shares of that division for cash and/or shares of GENZ Stock. CLASS VOTING Where we have provided that the approval of the holders of a division's common stock is required to take any action pursuant to these policies or our charter, the requirement may be satisfied if the action is approved by a majority of the votes cast at a meeting of the holders of the division's common stock at which a quorum is present. This is in addition to any stockholder approval required by Massachusetts law. NON-COMPETE Our divisions may not materially engage in each other's principal businesses other than through joint ventures or other collaborative arrangements involving more than one division to develop new products and services jointly and with third parties. These permissible transactions are subject to the conditions set forth above in our policy entitled "Interdivisional Asset Transfers". The divisions may compete in a business which is not a principal business of another division. Our board may determine in its good faith business judgment whether particular activities of one division constitute a material engagement in the principal businesses of another division. CORPORATE OPPORTUNITIES Our board will review any matter which involves the allocation of a corporate opportunity to any of the divisions, or in part to one division and in part to another division. Our board will make its determination with regard to the allocation and benefit of an opportunity in accordance with its good faith business judgment of the best interests of Genzyme and all of its stockholders as a whole. In making this allocation, our board may consider, among other factors: 52 - whether a particular corporate opportunity is principally related to the business of a particular division; - whether one division, because of its managerial or operational expertise, will be better positioned to undertake the corporate opportunity; - whether one division, because of its financial resources, will be better positioned to undertake the corporate opportunity; and - existing contractual agreements and restrictions. PLAN OF DISTRIBUTION We may sell the securities being offered by us in this prospectus: - directly to purchasers; - through agents; - through dealers; - through underwriters; or - through a combination of any of these methods of sale. We and our agents and underwriters may sell the securities being offered by us in this prospectus from time to time in one or more transactions: - at a fixed price or prices, which may be changed; - at market prices prevailing at the time of sale; - at prices related to such prevailing market prices; or - at negotiated prices. We may solicit directly offers to purchase securities. We may also designate agents from time to time to solicit offers to purchase securities. Any agent that we designate, who may be deemed to be an "underwriter" as that term is defined in the Securities Act of 1933, may then resell such securities to the public at varying prices to be determined by such agent at the time of resale. If we use underwriters to sell securities, we will enter into an underwriting agreement with the underwriters at the time of the sale to them. The names of the underwriters will be set forth in the prospectus supplement which will be used by them together with this prospectus to make resales of the securities to the public. In connection with the sale of the securities offered, the underwriters may be deemed to have received compensation from us in the form of underwriting discounts or commissions. Underwriters may also receive commissions from purchasers of the securities. Underwriters may also use dealers to sell securities. If this happens, the dealers may receive compensation in the form of discounts, concessions or commissions from the underwriters and/or commissions from the purchasers for whom they may act as agents. Any underwriting compensation paid by us to underwriters in connection with the offering of the securities offered in this prospectus, and any discounts, concessions or commissions allowed by underwriters to participating dealers, will be set forth in the applicable prospectus supplement. Underwriters, dealers, agents and other persons may be entitled, under agreements that may be entered into with us, to indemnification by us against certain civil liabilities, including liabilities under the Securities Act of 1933, or to contribution with respect to payments which they may be required to 53 make in respect of such liabilities. Underwriters and agents may engage in transactions with, or perform services for, us in the ordinary course of business. If so indicated in the applicable prospectus supplement, we will authorize underwriters, dealers, or other persons to solicit offers by certain institutions to purchase the securities offered by us under this prospectus pursuant to contracts providing for payment and delivery on a future date or dates. The obligations of any purchaser under these contracts will be subject only to those conditions described in the applicable prospectus supplement, and the prospectus supplement will set forth the price to be paid for securities pursuant to those contracts and the commissions payable for solicitation of the contracts. Any underwriter may engage in over-allotment, stabilizing and syndicate short covering transactions and penalty bids in accordance with Regulation M of the Securities Exchange Act of 1934. Over-allotment involves sales in excess of the offering size, which creates a short position. Stabilizing transactions involve bids to purchase the underlying security so long as the stabilizing bids do not exceed a specified maximum. Syndicate short covering transactions involve purchases of securities in the open market after the distribution has been completed in order to cover syndicate short positions. Penalty bids permit the underwriters to reclaim selling concessions from dealers when the securities originally sold by such dealers are purchased in covering transactions to cover syndicate short positions. These transactions may cause the price of the securities sold in an offering to be higher than it would otherwise be. These transactions, if commenced, may be discontinued by the underwriters at any time. Each series of securities offered under this prospectus will be a new issue with no established trading market, other than the GENZ Stock, GZMO Stock, GZSP Stock and GZTR Stock, which are each listed on the Nasdaq National Market. Any shares of GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock or other series of Genzyme Common Stock sold pursuant to a prospectus supplement will be listed on the Nasdaq National Market or on the exchange on which the series of stock offered is then listed, subject to official notice of issuance. Any underwriters to whom we sell securities for public offering and sale may make a market in the securities that they purchase, but the underwriters will not be obligated to do so and may discontinue any market making at any time without notice. We may elect to list any of the securities we may offer from time to time for trading on an exchange or on the Nasdaq National Market, but we are not obligated to do so. The anticipated date of delivery of the securities offered hereby will be set forth in the applicable prospectus supplement relating to each offering. LEGAL MATTERS Our counsel, Palmer & Dodge LLP, Boston, Massachusetts, will give us an opinion on the legality and validity of the securities offered by this prospectus and any accompanying prospectus supplement. EXPERTS The financial statements of Genzyme Corporation, Genzyme Molecular Oncology and Genzyme Tissue Repair incorporated in this prospectus by reference to the Annual Report on Form 10-K for the year ended December 31, 1998, as amended, the combined financial statements of Genzyme Surgical Products incorporated in the prospectus by reference to our Form 8-K as filed on June 11, 1999 and the combined financial statements of Genzyme General incorporated in this prospectus by reference to our Form 8-K as filed on June 30, 1999, and the financial statements of the Genzyme Retirement Savings Plan incorporated in this prospectus by reference to the Form 10-K/A as filed on June 30, 1999 have been so incorporated in reliance on the reports of PricewaterhouseCoopers LLP, independent accountants, given on the authority of said firm as experts in auditing and accounting. 54 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy any reports, statements or other information that we file with the SEC at the SEC's public reference rooms at the following locations: Public Reference Room New York Regional Office Chicago Regional Office 450 Fifth Street, 7 World Trade Center Citicorp Center N.W Room 1024 Suite 1300 500 West Madison Street Washington, D.C. 20549 New York, NY 10048 Suite 1400 Chicago, IL 60661-2511
Please call the SEC at 1-800-SEC-0330 for further information on the public reference rooms. These SEC filings are also available to the public from commercial document retrieval services and at the Internet world wide web site maintained by the SEC at "http://www.sec.gov." Reports, proxy statements and other information concerning Genzyme may also be inspected at the offices of The Nasdaq Stock Market, which is located at 1735 K Street, N.W., Washington, D.C. 20006. The SEC allows us to "incorporate by reference" information into this prospectus, which means that we disclose important information to you by referring you to other documents that we filed separately with the SEC. The information incorporated by reference is considered part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. This prospectus incorporates by reference the documents set forth below that we have previously filed with the SEC. These documents contain important business and financial information about us that is not included in or delivered with this prospectus.
FILINGS (FILE NO. 0-14680) DATE FILED - -------------------------- --------------------------------------------- Annual Report on Form 10-K Filed on March 31, 1999 (except for the financial statements on pages 2-31 of Exhibit 13.1, which we restated and filed on June 30, 1999 as Exhibit 99 to our Form 8-K), as amended by Amendment No. 1 on Form 10-K/A filed on June 30, 1999 Quarterly Reports on Form 10-Q Filed on May 17, 1999 (except for pages 4-9 and 26-28 to the extent the financial statements and related discussion relates to Genzyme General, which we restated and filed on June 30, 1999 as Exhibit 99 to our Form 8-K), August 16, 1999 and November 15, 1999. Current Reports on Form 8-K Filed on March 17, 1999, June 11, 1999, June 30, 1999, October 21, 1999 and January 10, 2000 Proxy Statement on Schedule 14A Filed on April 16, 1999 The description of GENZ Stock, GZMO Stock and Filed on June 18, 1997 GZTR Stock contained in Genzyme's Registration Statement on Form 8-A
55
FILINGS (FILE NO. 0-14680) DATE FILED - -------------------------- --------------------------------------------- The description of GENZ Stock purchase Filed on June 11, 1999 rights, GZMO Stock purchase rights, GZSP Stock purchase rights and GZTR Stock purchase rights contained in Genzyme's Registration Statement on Form 8-A/A The description of GZSP Stock contained in Filed on June 11, 1999 Genzyme's Registration Statement on Form 8-A
We also incorporate by reference additional documents that we may file with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Exchange Act prior to the sale of all of the securities covered by this prospectus. These include periodic reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, as well as proxy statements. Documents incorporated by reference are available from us without charge, excluding all exhibits, except that if we have specifically incorporated by reference an exhibit in this prospectus, the exhibit will also be provided without charge. You may obtain documents incorporated by reference in this prospectus by requesting them in writing or by telephone from us at the following address and telephone number. Genzyme Corporation Shareholder Relations One Kendall Square Cambridge, Massachusetts 02139 (617) 252-7526 You should rely only on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with information that is different from what is contained in this prospectus. This prospectus is dated , 2000. You should not assume that the information contained in this prospectus is accurate as of any date other than that date. Neither the delivery of this prospectus nor the sale of securities creates any implication to the contrary. 56 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following is an estimate of the fees and expenses, other than underwriting discounts and commissions, payable or reimbursable by Genzyme in connection with the issuance and distribution of the offered securities offered by this prospectus. SEC registration fee........................................ $132,000 Printing and engraving expenses............................. $300,000 Legal fees and expenses..................................... 200,000 Accounting fees and expenses................................ 100,000 Rating agency fees.......................................... 50,000 Transfer agent fees and expenses............................ 15,000 Fees and expenses of the Trustee............................ 15,000 Miscellaneous............................................... 13,000 -------- Total................................................... $825,000 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Section 67 of chapter 156B of the Massachusetts Business Corporation Law grants Genzyme the power to indemnify any director, officer, employee or agent to whatever extent permitted by Genzyme's Amended and Restated Articles of Organization, By-laws or a vote adopted by the holders of a majority of the shares entitled to vote thereon, unless the proposed indemnitee has been adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his or her actions were in the best interests of Genzyme or, to the extent that the matter for which indemnification is sought relates to service with respect to an employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan. Such indemnification may include payment by Genzyme of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by the person indemnified to repay such payment if he or she shall be adjudicated to be not entitled to indemnification under the statute. Article VI of Genzyme's By-laws provides that Genzyme shall, to the extent legally permissible, indemnify each person who may serve or who has served at any time as a director or officer of the corporation or of any of its subsidiaries, or who at the request of the corporation may serve or at any time has served as a director, officer or trustee of, or in a similar capacity with, another organization or an employee benefit plan, against all expenses and liabilities (including counsel fees, judgments, fines, excise taxes, penalties and amounts payable in settlements) reasonably incurred by or imposed upon such person in connection with any threatened, pending or completed action, suit or other proceeding, whether civil, criminal, administrative or investigative, in which he or she may become involved by reason of his or her serving or having served in such capacity (other than a proceeding voluntarily initiated by such person unless he or she is successful on the merits, the proceeding was authorized by the corporation or the proceeding seeks a declaratory judgment regarding his or her own conduct); PROVIDED that no indemnification shall be provided for any such person with respect to any matter as to which he or she shall have been finally adjudicated in any proceeding not to have acted in good faith in the reasonable belief that his or her action was in the best interests of Genzyme or, to the extent such matter relates to service with respect to any employee benefit plan, in the best interests of the participants or beneficiaries of such employee benefit plan; and PROVIDED, FURTHER, that as to any matter disposed of by a compromise payment by such person, pursuant to a consent decree or otherwise, the II-1 payment and indemnification thereof have been approved by Genzyme, which approval shall not unreasonably be withheld, or by a court of competent jurisdiction. Such indemnification shall include payment by Genzyme of expenses incurred in defending a civil or criminal action or proceeding in advance of the final disposition of such action or proceeding, upon receipt of an undertaking by the person indemnified to repay such payment if he or she shall be adjudicated to be not entitled to indemnification under Article VI, which undertaking may be accepted without regard to the financial ability of such person to make repayment. The indemnification provided for in Article VI is a contract right inuring to the benefit of the directors, officers and others entitled to indemnification. In addition, the indemnification is expressly not exclusive of any other rights to which such director, officer or other person may be entitled by contract or otherwise under law, and inures to the benefit of the heirs, executors and administrators of such a person. Genzyme also has in place agreements with certain officers and directors which affirm Genzyme's obligation to indemnify them to the fullest extent permitted by law and contain various procedural and other provisions which expand the protection afforded by Genzyme's By-laws. Section 13(b)(1 1/2) of chapter 156B of the Massachusetts Business Corporation Law provides that a corporation may, in its articles of organization, eliminate a director's personal liability to the corporation and its stockholders for monetary damages for breaches of fiduciary duty, except in circumstances involving (i) a breach of the director's duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) unauthorized distributions and loans to insiders, and (iv) transactions from which the director derived an improper personal benefit. Article VI.C.5. of Genzyme's Amended and Restated Articles of Organization provides that no director shall be personally liable to Genzyme or its stockholders for monetary damages for any breach of fiduciary duty as a director, except to the extent that such exculpation is not permitted under the Massachusetts Business Corporation Law as in effect when such liability is determined. ITEM 16. EXHIBITS See Exhibit Index immediately following signature pages. ITEM 17. UNDERTAKINGS (a) The undersigned registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement: (i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement. II-2 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (4) If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Rule 3-19 of this chapter at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnished, PROVIDED, that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3, a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnished to the Commission by the registrant pursuant to Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3. (b) The undersigned registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the registrant's annual report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of any employee benefit plan's annual report pursuant to Section 15(d) of the Securities Act of 1934) that is incorporated by reference in this Registration Statement shall be deemed to be a new registration statement relating to the securities offered herein, and the offering of such securities at that time shall be deemed to be the initial BONA FIDE offering thereof. (c) Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the provisions referred to in Item 15 hereof, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (d) The undersigned registrant hereby undertakes to file an application determining the eligibility of the trustee to act under subsection (a) of Section 310 of the Trust Indenture Act (the "Act") in accordance with the rules and regulations prescribed by the Commission under Section 305(b)(2) of the Act. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Cambridge, Commonwealth of Massachusetts, on March 3, 2000. GENZYME CORPORATION BY: /S/ MICHAEL S. WYZGA ----------------------------------------- Michael S. Wyzga SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
POWER OF ATTORNEY We, the undersigned officers and directors of Genzyme Corporation, hereby severally constitute and appoint Henri A. Termeer, Michael S. Wyzga, Evan M. Lebson and Peter Wirth, each of them singly, our true and lawful attorneys, with full power to them in any and all capacitates, to sign any amendments to this Registration Statement on Form S-3 (including Pre- and Post-Effective Amendments), and any related Rule 462(b) registration statement or Rule 462(c) registration statement or amendment thereto, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- /s/ HENRI A. TERMEER Principal Executive Officer ------------------------------------------- and Director March 3, 2000 Henri A. Termeer /s/ MICHAEL S. WYZGA Principal Financial and ------------------------------------------- Accounting Officer March 3, 2000 Michael S. Wyzga /s/ CONSTANTINE E. ANAGNOSTOPOULOS Director ------------------------------------------- March 3, 2000 Constantine E. Anagnostopoulos /s/ DOUGLAS A. BERTHIAUME Director ------------------------------------------- March 3, 2000 Douglas A. Berthiaume /s/ HENRY E. BLAIR Director ------------------------------------------- March 3, 2000 Henry E. Blair /s/ ROBERT J. CARPENTER Director ------------------------------------------- March 3, 2000 Robert J. Carpenter /s/ CHARLES L. COONEY Director ------------------------------------------- March 3, 2000 Charles L. Cooney /s/ HENRY R. LEWIS Director ------------------------------------------- March 3, 2000 Henry R. Lewis
II-4 EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION - --------------------- ----------- 1.1 Form of Underwriting Agreement. * 4.1 Restated Articles of Organization of Genzyme, as amended. Filed as Exhibit 1 to Genzyme's Registration Statement on Form 8-A filed with the Commission on June 18, 1997, and incorporated herein by reference. 4.2 By-laws of Genzyme, as amended. Filed as Exhibit 3.2 to Genzyme's Form 10-Q for the quarter ended September 30, 1999, and incorporated herein by reference. 4.3 Indenture, dated as of May 22, 1998, between Genzyme and State Street Bank and Trust Company, as Trustee, including the form of Note. Filed as Exhibit 4.3 to Genzyme's Registration Statement on Form S-3 (File No. 333-59513) and incorporated herein by reference. 4.4 Registration Rights Agreement, dated as of May 19, 1998, among Genzyme, Credit Suisse First Boston Corporation, Goldman, Sachs & Co. and Cowen & Company. Filed as Exhibit 4.4 to Genzyme's Registration Statement on Form S-3 (File No. 333-59513) and incorporated herein by reference. 4.5 Purchase Agreement, dated as of May 19, 1998, among Genzyme, Credit Suisse First Boston Corporation, Goldman, Sachs & Co. and Cowen & Company. Filed as Exhibit 4.5 to Genzyme's Registration Statement on Form S-3 (File No. 333-59513) and incorporated herein by reference. 4.6 Series Designation for Genzyme Molecular Oncology Division common stock, $.01 par value. Filed as Exhibit 2 to Genzyme's Registration Statement on Form 8-A filed with the Commission on June 18, 1997, and incorporated herein by reference. 4.7 Series Designation for the Series A, Series B, Series C and Series D Junior Participating Preferred Stock, $.01 par value, of Genzyme. Filed as Exhibit 2 to Amendment No. 1 to Genzyme's Registration Statement on Form 8-A filed with the Commission on June 11, 1999, and incorporated herein by reference. 4.8 Amended and Restated Renewed Rights Agreement dated as of June 10, 1999 between Genzyme and American Stock Transfer and Trust Company. Filed as Exhibit 4 to Amendment No. 1 to Genzyme's Registration Statement on Form 8-A dated June 11, 1999, and incorporated herein by reference. 4.9 Warrant issued to Richard Warren, Ph.D. Filed as Exhibit 4 to the Form 8-K of IG Laboratories, Inc. dated October 11, 1990 (File No. 0-18439), and incorporated herein by reference. 4.10 Form of Genzyme General Division Convertible Debenture dated August 29, 1998, including a schedule with respect thereto filed pursuant to Instruction 2 to Item 601 of Regulation S-K. Filed as Exhibit 4.15 to Genzyme's Registration Statement on Form S-3 (File No. 333-64901) and incorporated herein by reference. 4.11 Registration Rights Agreement dated as of August 29, 1997 by and among Genzyme and the entities listed on the signature pages thereto. Filed as Exhibit 10.8 to Genzyme's Form 10-Q for the quarter ended September 30, 1997, and incorporated herein by reference.
II-5
EXHIBIT NO. DESCRIPTION - --------------------- ----------- 4.12 Warrant Agreement between Genzyme and Comdisco, Inc. Filed as Exhibit 10.22 to a Form 10 of PharmaGenics, Inc. ("PharmaGenics") (File No. 0-20138), and incorporated herein by reference. 4.13 Series Designation for Genzyme Surgical Products Division common stock, $.01 par value. Filed as Exhibit 2 to Genzyme's Registration Statement on Form 8-A filed with the Commission on June 11, 1999, and incorporated herein by reference. 4.14 Form of Indenture. Filed herewith. 4.15 Certificate of Designation of Common Stock. * 4.16 Form of Common Stock Certificate. * 4.17 Certificate of Designation of Preferred Stock. * 4.18 Form of Preferred Stock Certificate. * 4.19 Form of Warrant Agreement. * 4.20 Form of Warrant. * 5.1 Opinion of Palmer & Dodge LLP. Filed herewith. 12.1 Calculation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends. Filed herewith. 23.1 Consent of Palmer & Dodge LLP (contained in Exhibit 5.1 hereto). 23.2 Consent of PricewaterhouseCoopers LLP, independent accountants to Genzyme. Filed herewith. 24.1 Power of Attorney. Included on signature page and filed herewith. 25.1 Statement of Eligibility of Trustee on Form T-1. ** 99.1 Management and Accounting Policies Governing the Relationships of Genzyme Divisions. Filed herewith.
- ------------------------ * To be filed by amendment or by a Current Report on Form 8-K pursuant to Item 601(b) of Regulation S-K. ** To be filed separately pursuant to Section 305(b)(2) of the Trust Indenture Act of 1939. II-6 EX-4.12 2 EXHIBIT 4.12 Exhibit 4.12 GENZYME CORPORATION and _______________________________________, as Trustee INDENTURE Dated as of ___________________, ____ TABLE OF CONTENTS
PAGE Article 1 DEFINITIONS AND INCORPORATION BY REFERENCE..............................1 1.1 Definitions.................................................................1 1.2 Other Definitions...........................................................5 1.3 Incorporation by Reference of Trust Indenture Act...........................6 1.4 Rules of Construction.......................................................6 Article 2 THE SECURITIES..........................................................7 2.1 Issuable in Series..........................................................7 2.2 Establishment of Terms of Series of Securities..............................7 2.3 Execution and Authentication................................................9 2.4 Registrar and Paying Agent.................................................10 2.5 Paying Agent to Hold Assets in Trust.......................................11 2.6 Securityholder Lists.......................................................12 2.7 Transfer and Exchange......................................................12 2.8 Replacement Securities.....................................................13 2.9 Outstanding Securities.....................................................13 2.10 When Treasury Securities Disregarded; Determination of Holders' Action.....13 2.11 Temporary Securities.......................................................14 2.12 Cancellation...............................................................14 2.13 Payment of Interest; Defaulted Interest; Computation of Interest...........14 2.14 CUSIP Number...............................................................15 2.15 Provisions for Global Securities...........................................15 2.16 Persons Deemed Owners......................................................16 Article 3 REDEMPTION.............................................................17 3.1 Notices to Trustee.........................................................17 3.2 Selection by Trustee of Securities to Be Redeemed..........................17 3.3 Notice of Redemption.......................................................17 3.4 Effect of Notice of Redemption.............................................18 3.5 Deposit of Redemption Price................................................18 3.6 Securities Redeemed in Part................................................19 Article 4 COVENANTS..............................................................19
-i-
TABLE OF CONTENTS (CONTINUED) PAGE 4.1 Payment of Securities......................................................19 4.2 SEC Reports................................................................19 4.3 Waiver of Stay, Extension or Usury Laws....................................20 4.4 Compliance Certificate.....................................................20 4.5 Corporate Existence........................................................21 Article 5 SUCCESSOR CORPORATION..................................................21 5.1 Limitation on Consolidation, Merger and Sale of Assets.....................21 5.2 Successor Person Substituted...............................................22 Article 6 DEFAULTS AND REMEDIES..................................................22 6.1 Events of Default..........................................................22 6.2 Acceleration...............................................................24 6.3 Remedies...................................................................24 6.4 Waiver of Past Defaults and Events of Default..............................25 6.5 Control by Majority........................................................25 6.6 Limitation on Suits........................................................25 6.7 Rights of Holders To Receive Payment.......................................26 6.8 Collection Suit by Trustee.................................................26 6.9 Trustee May File Proofs of Claim...........................................26 6.10 Priorities.................................................................27 6.11 Undertaking for Costs......................................................27 Article 7 TRUSTEE................................................................27 7.1 Duties of Trustee..........................................................27 7.2 Rights of Trustee..........................................................28 7.3 Individual Rights of Trustee...............................................29 7.4 Trustee's Disclaimer.......................................................30 7.5 Notice of Default..........................................................30 7.6 Reports by Trustee to Holders..............................................30 7.7 Compensation and Indemnity.................................................30
-ii-
TABLE OF CONTENTS (CONTINUED) PAGE 7.8 Replacement of Trustee.....................................................31 7.9 Successor Trustee by Consolidation, Merger or Conversion...................32 7.10 Eligibility; Disqualification..............................................32 7.11 Preferential Collection of Claims Against Company..........................32 7.12 Paying Agents..............................................................32 Article 8 AMENDMENTS, SUPPLEMENTS AND WAIVERS....................................33 8.1 Without Consent of Holders.................................................33 8.2 With Consent of Holders....................................................34 8.3 Compliance with Trust Indenture Act........................................35 8.4 Revocation and Effect of Consents..........................................35 8.5 Notation on or Exchange of Securities......................................36 8.6 Trustee to Sign Amendments, Etc............................................36 Article 9 DISCHARGE OF INDENTURE; DEFEASANCE.....................................36 9.1 Discharge of Indenture.....................................................36 9.2 Legal Defeasance...........................................................37 9.3 Covenant Defeasance........................................................37 9.4 Conditions to Legal Defeasance or Covenant Defeasance......................37 9.5 Deposited Money and U.S. and Foreign Government Obligations to be Held in Trust; Other Miscellaneous Provisions........................39 9.6 Reinstatement..............................................................40 9.7 Moneys Held by Paying Agent................................................40 9.8 Moneys Held by Trustee.....................................................40 Article 10 MISCELLANEOUS..........................................................41 10.1 Trust Indenture Act Controls...............................................41 10.2 Notices....................................................................41 10.3 Communications by Holders with Other Holders...............................42 10.4 Certificate and Opinion as to Conditions Precedent.........................42 10.5 Statement Required in Certificate and Opinion..............................42 10.6 Rules by Trustee and Agents................................................43
-iii-
TABLE OF CONTENTS (CONTINUED) PAGE 10.7 Business Days; Legal Holidays; Place of Payment............................43 10.8 Governing Law..............................................................43 10.9 No Adverse Interpretation of Other Agreements..............................43 10.10 No Recourse Against Others.................................................44 10.11 Successors.................................................................44 10.12 Multiple Counterparts......................................................44 10.13 Table of Contents, Headings, Etc...........................................44 10.14 Separability...............................................................44 10.15 Securities in a Foreign Currency or in Euro................................44 10.16 Judgment Currency..........................................................45
-iv- CROSS-REFERENCE TABLE
TIA SECTION INDENTURE SECTION 310(a)(1) 7.10 (a)(2) 7.10 (a)(3) N/A (a)(4) N/A (a)(5) 7.10 (b) 7.8; 7.10; 10.4 (b)(1) 7.10 (b)(9) 7.10 311(a) 7.11 (b) 7.11 312(a) 2.6 (b) 10.3 (c) 10.3 313(a) 7.6 (b)(1) 7.6 (b)(2) 7.6 (c) 7.6; 10.4 (d) 7.6 314(a) 4.2; 4.4; 10.4 (b) N/A (c)(1) 10.4; 10.5 (c)(2) 10.4; 10.5 (c)(3) N/A (d) N/A (e) 10.5 (f) N/A 315(a) 7.1, 7.2 (b) 7.5; 10.2 (c) 7.1 (d) 6.5; 7.1; 7.2 (e) 6.11 316(a)(last sentence) 2.10 (a)(1)(A) 6.5 (a)(1)(B) 6.4 (a)(2) 8.2 (b) 6.7 (c) 8.4 317(a)(1) 6.8
v (a)(2) 6.9 (b) 2.5; 7.12 318(a) 10.1
- ------------------------ N/A means not applicable Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a part of the Indenture. vi INDENTURE, dated as of ______________, ____, by and between Genzyme Corporation, a Massachusetts corporation, as Issuer (the "Company") and _____________________, a ________________ organized under the laws of _______________________, as Trustee (the "Trustee"). RECITALS OF THE COMPANY The Company has duly authorized the execution and delivery of this Indenture to provide for the issuance from time to time of its debentures, notes or other evidences of indebtedness to be issued in one or more series (the "Securities"), as herein provided, up to such principal amount as may from time to time be authorized in or pursuant to one or more resolutions of the Board of Directors or by supplemental indenture. All things necessary to make this Indenture a valid agreement of the Company in accordance with its terms have been done, and the execution and delivery thereof have been in all respects duly authorized by the parties hereto. NOW, THEREFORE, THIS INDENTURE WITNESSETH: For and in consideration of the premises and the purchase of the Securities by the Holders thereof, it is mutually agreed, for the equal and proportionate benefit of all Holders of the Securities of a Series thereof, as follows: ARTICLE 1 DEFINITIONS AND INCORPORATION BY REFERENCE 1.1 DEFINITIONS. "Affiliate" of any specified Person means any other Person which directly or indirectly through one or more intermediaries controls, or is controlled by, or is under common control with, such specified Person. For the purposes of this definition, "control" (including, with correlative meanings, the terms "controlling," "controlled by," and "under common control with"), as used with respect to any Person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of such Person, whether through the ownership of voting securities, by agreement or otherwise. "Agent" means any Registrar, Paying Agent, co-registrar or agent for service of notices and demands. "Board of Directors" means the Board of Directors of the Company or any committee duly authorized to act therefor. "Board Resolution" means a copy of a resolution certified pursuant to an Officers' Certificate to have been duly adopted by the Board of Directors of the Company and to be in full force and effect on the date of such certification and delivered to the Trustee. "Capital Stock" means, with respect to any Person, any and all shares or other equivalents (however designated) of capital stock, partnership interests or any other participation, right or other interest in the nature of an equity interest in such Person or any option, warrant or other security convertible into any of the foregoing. "Company" means the party named as such in the first paragraph of this Indenture until a successor replaces such party pursuant to Article 5 of this Indenture and thereafter means the successor and any other primary obligor on the Securities. "Company Order" means a written order signed in the name of the Company by two Officers, one of whom must be its Chief Executive Officer or its Chief Financial Officer. "Company Request" means any written request signed in the name of the Company by its Chief Executive Officer, its President, any Vice President, its Chief Financial Officer or its Treasurer and attested to by the Clerk or any Assistant Clerk of the Company. "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered. "Default" means any event that is, or with the passing of time or giving of notice or both would be, an Event of Default. "Depository" means, with respect to the Securities of any Series issuable or issued in whole or in part in the form of one or more Global Securities, the Person designated as Depository for such Series by the Company, which Depository shall be a clearing agency registered under the Exchange Act, until a successor Depository shall have become such pursuant to the applicable provisions of this Indenture, and thereafter "Depository" shall mean each Person who is then a Depository hereunder, and if at any time there is more than one such Person, such Persons. "Dollars" means the currency of the United States of America. "Euro" means the single currency to be introduced at the start of the third stage of economic and monetary union pursuant to the treaty establishing the European Economic Community, as amended by the Treaty on European Union signed at Maastricht on February 7, 1992. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Foreign Currency" means any currency or currency unit issued by a government other than the government of the United States of America. "Foreign Government Obligations" means with respect to Securities of any Series that are denominated in a Foreign Currency, (i) direct obligations of the government that issued or 2 caused to be issued such currency for the payment of which obligations its full faith and credit is pledged or (ii) obligations of a Person controlled or supervised by or acting as an agency or instrumentality of such government the timely payment of which is unconditionally guaranteed as a full faith and credit obligation by such government, which, in either case under clauses (i) or (ii), are not callable or redeemable at the option of the issuer thereof. "GAAP" means generally accepted accounting principles consistently applied as in effect in the United States from time to time. "Global Security" or "Global Securities" means a Security or Securities, as the case may be, in the form established pursuant to Section 2.2, evidencing all or part of a Series of Securities issued to the Depository for such Series or its nominee, and registered in the name of such Depository or nominee, and bearing the legend set forth in Section 2.15(c) (or such legend as may be specified as contemplated by Section 2.2 for such Securities). "Holder" or "Securityholder" means the Person in whose name a Security is registered on the Registrar's books. "Indebtedness" means (without duplication), with respect to any Person, any indebtedness at any time outstanding, secured or unsecured, contingent or otherwise, which is for borrowed money (whether or not the recourse of the lender is to the whole of the assets of such Person or only to a portion thereof), or evidenced by bonds, notes, debentures or similar instruments or representing the balance deferred and unpaid of the purchase price of any property (excluding any balances that constitute accounts payable or trade payables, and other accrued liabilities arising in the ordinary course of business) if and to the extent any of the foregoing indebtedness would appear as a liability upon a balance sheet of such Person prepared in accordance with GAAP. "Indenture" means this Indenture as amended, restated or supplemented from time to time. "Interest Payment Date" when used with respect to any Security, means the Stated Maturity of an installment of interest on such Security. "Lien" means, with respect to any property or assets of any Person, any mortgage or deed of trust, pledge, hypothecation, assignment, deposit arrangement, security interest, lien, charge, easement, encumbrance, preference, priority, or other security agreement or preferential arrangement of any kind or nature whatsoever on or with respect to such property or assets (including, without limitation, any capitalized lease obligation, conditional sales, or other title retention agreement having substantially the same economic effect as any of the foregoing). "Maturity" when used with respect to any Security, means the date on which the principal of such Security or an installment of principal becomes due and payable as therein or herein provided, whether at the Stated Maturity or by declaration of acceleration, call for redemption, notice of option to elect payment or otherwise. 3 "Officer" means the Chief Executive Officer, the President, any Vice President, the Chief Financial Officer, the Treasurer or the Clerk of the Company or any other officer designated by the Board of Directors, as the case may be. "Officers' Certificate" means, with respect to any Person, a certificate signed by the Chairman, Chief Executive Officer, the President or any Senior or Executive Vice President, and the Chief Financial Officer or any Treasurer of such Person that shall comply with applicable provisions of this Indenture. "Opinion of Counsel" means a written opinion from legal counsel which counsel is reasonably acceptable to the Trustee. The counsel may be an employee of or counsel to the Company. "Person" means any individual, corporation, limited liability company, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government (including any agency or political subdivision thereof). "Redemption Date," when used with respect to any Security of a Series to be redeemed, means the date fixed for such redemption pursuant to this Indenture. "Responsible Officer" when used with respect to the Trustee, means any officer within the corporate trust department or division of the Trustee (or any successor group of the Trustee) or any other officer of the Trustee customarily performing functions similar to those performed by any of the above designated officers and also means, with respect to a particular corporate trust matter, any other officer to whom such matter is referred because of his knowledge of and familiarity with the particular subject. "SEC" means the United States Securities and Exchange Commission as constituted from time to time or any successor performing substantially the same functions. "Securities" means the securities that are issued under this Indenture, as amended or supplemented from time to time pursuant to this Indenture. "Securities Act" means the Securities Act of 1933, as amended. "Series" or "Series of Securities" means each series of debentures, notes or other debt instruments of the Company created pursuant to Sections 2.1 or 2.2 hereof. "Significant Subsidiary" means (i) any direct or indirect Subsidiary of the Company that would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the date hereof, or (ii) any group of direct or indirect Subsidiaries of the Company that, taken together as a group, would be a "significant subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated pursuant to the Securities Act, as such regulation is in effect on the date hereof. "Stated Maturity," when used with respect to any Security or any installment of principal thereof or interest thereon means, the date specified in such Security as the fixed date on which the principal of such Security or such installment of principal or interest is due and payable, and when used with respect to any other Indebtedness, means the date specified in the instrument 4 governing such Indebtedness as the fixed date on which the principal of such Indebtedness, or any installment of interest thereon, is due and payable. "Subsidiary" of any specified Person means any corporation, limited liability company, partnership, joint venture, association or other business entity, whether now existing or hereafter organized or acquired, (i) in the case of a corporation, of which more than 50% of the total voting power of the Capital Stock entitled (without regard to the occurrence of any contingency) to vote in the election of directors thereof is held, directly or indirectly by such Person or any of its Subsidiaries; or (ii) in the case of a partnership, joint venture, association or other business entity, with respect to which such Person or any of its Subsidiaries has the power to direct or cause the direction of the management and policies of such entity by contract or otherwise or if in accordance with GAAP such entity is consolidated with such Person for financial statement purposes. "TIA" means the Trust Indenture Act of 1939 (15 U.S. Code Section 77aaa-77bbbb) as in effect on the date of this Indenture (except as provided in Section 8.3 hereof). "Trustee" means the party named as such in this Indenture until a successor replaces it pursuant to this Indenture and thereafter means the successor, and if at any time there is more than one such Person, "Trustee" as used with respect to the Securities of any Series shall mean the Trustee with respect to Securities of that Series. "U.S. Government Obligations" means direct non-callable obligations of, or non-callable obligations guaranteed by, the United States of America for the payment of which obligation or guarantee the full faith and credit of the United States of America is pledged. 1.2 OTHER DEFINITIONS. The definitions of the following terms may be found in the sections indicated as follows:
TERM DEFINED - ---- IN SECTION ---------- "Bankruptcy Law" 6.1 "Business Day" 10.7 "Covenant Defeasance" 9.3 "Custodian" 6.1 "Event of Default" 6.1 "Journal" 10.15 "Judgment Currency" 10.16 "Legal Defeasance" 9.2 "Legal Holiday" 10.7 "Market Exchange Rate" 10.15 "New York Banking Day" 10.16 "New York Paying Agent" 2.4 "Paying Agent" 2.4 "Place of Payment" 10.7 "Registrar" 2.4
5 "Required Currency" 10.16 "Service Agent" 2.4
1.3 INCORPORATION BY REFERENCE OF TRUST INDENTURE ACT. Whenever this Indenture refers to a provision of the TIA, the portion of such provision required to be incorporated herein in order for this Indenture to be qualified under the TIA is incorporated by reference in and made a part of this Indenture. The following TIA terms used in this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture securityholder" means a Holder or Securityholder. "indenture to be qualified" means this Indenture. "indenture trustee" or "institutional trustee" means the Trustee. "obligor on the indenture securities" means the Company. All other terms used in this Indenture that are defined by the TIA, defined in the TIA by reference to another statute or defined by SEC rule have the meanings therein assigned to them. 1.4 RULES OF CONSTRUCTION. Unless the context otherwise requires: (1) a term has the meaning assigned to it herein, whether defined expressly or by reference; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with GAAP; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) words used herein implying any gender shall apply to each gender; and (6) the words "herein", "hereof" and "hereunder" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. 6 ARTICLE 2 THE SECURITIES 2.1 ISSUABLE IN SERIES. The aggregate principal amount of Securities that may be authenticated and delivered under this Indenture is unlimited. The Securities may be issued in one or more Series. All Securities of a Series shall be identical except as may be set forth in a Board Resolution, a supplemental indenture or an Officers' Certificate detailing the adoption of the terms thereof pursuant to the authority granted under a Board Resolution. In the case of Securities of a Series to be issued from time to time, the Board Resolution, Officers' Certificate or supplemental indenture may provide for the method by which specified terms (such as interest rate, Stated Maturity, record date or date from which interest shall accrue) are to be determined. Securities may differ between Series in respect of any matters, provided that all Series of Securities shall be equally and ratably entitled to the benefits of the Indenture. 2.2 ESTABLISHMENT OF TERMS OF SERIES OF SECURITIES. At or prior to the issuance of any Securities within a Series, the following shall be established (as to the Series generally, in the case of Subsection 2.2(1) and either as to such Securities within the Series or as to the Series generally in the case of Subsections 2.2(2) through 2.2(22) by a Board Resolution, a supplemental indenture or an Officers' Certificate, in each case, pursuant to authority granted under a Board Resolution: (1) the title of the Series (which shall distinguish the Securities of that particular Series from the Securities of any other Series); (2) the price or prices (expressed as a percentage of the principal amount thereof) at which the Securities of the Series will be issued; (3) any limit upon the aggregate principal amount of the Securities of the Series which may be authenticated and delivered under this Indenture (except for Securities authenticated and delivered upon registration of transfer of, or in exchange for, or in lieu of, other Securities of the Series pursuant to Section 2.7, 2.8, 2.11, 3.6 or 8.5); (4) the date or dates on which the principal of the Securities of the Series is payable; (5) the rate or rates (which may be fixed or variable) per annum or, if applicable, the method used to determine such rate or rates (including, but not limited to, any commodity, commodity index, stock exchange index or financial index) at which the Securities of the Series shall bear interest, if any, the date or dates from which such interest, if any, shall accrue, the date or dates on which such interest, if any, shall commence and be payable and any regular record date for the interest payable on any Interest Payment Date; 7 (6) the place or places where the principal of and interest and premium, if any, on the Securities of the Series shall be payable, or the method of such payment, if by wire transfer, mail or other means; (7) if applicable, the period or periods within which, the price or prices at which and the terms and conditions upon which the Securities of the Series may be redeemed, in whole or in part, at the option of the Company; (8) the obligation, if any, of the Company to redeem or purchase the Securities of the Series pursuant to any sinking fund or analogous provisions or at the option of a Holder thereof and the period or periods within which, the price or prices at which and the terms and conditions upon which Securities of the Series shall be redeemed or purchased, in whole or in part, pursuant to such obligation; (9) the dates, if any, on which and the price or prices at which the Securities of the Series will be repurchased by the Company at the option of the Holders thereof and other detailed terms and provisions of such repurchase obligations; (10) if other than denominations of $1,000 and any integral multiple thereof, the denominations in which the Securities of the Series shall be issuable; (11) the forms of the Securities of the Series in bearer (if to be issued outside of the United States) or fully registered form (and, if in fully registered form, whether the Securities will be issuable as Global Securities); (12) if other than the principal amount thereof, the portion of the principal amount of the Securities of the Series that shall be payable upon declaration of acceleration of the Maturity thereof pursuant to Section 6.2; (13) the currency of denomination of the Securities of the Series, which may be Dollars or any Foreign Currency, including, but not limited to, the Euro, and if such currency of denomination is a composite currency other than the Euro, the agency or organization, if any, responsible for overseeing such composite currency; (14) the designation of the currency, currencies or currency units in which payment of the principal of and interest and premium, if any, on the Securities of the Series will be made; (15) if payments of principal of or interest or premium, if any, on the Securities of the Series are to be made in one or more currencies or currency units other than that or those in which such Securities are denominated, the manner in which the exchange rate with respect to such payments will be determined; (16) the manner in which the amounts of payment of principal of or interest and premium, if any, on the Securities of the Series will be determined, if such amounts may be determined by reference to an index based on a currency or 8 currencies or by reference to a commodity, commodity index, stock exchange index or financial index; (17) the provisions, if any, relating to any collateral provided for the Securities of the Series; (18) any addition to or change in the Events of Default which applies to any Securities of the Series and any change in the right of the Trustee or the requisite Holders of such Securities to declare the principal amount thereof due and payable pursuant to Section 6.2; (19) any addition to or change in the covenants set forth in Articles 4 or 5 which applies to Securities of the Series; (20) any depositories, interest rate calculation agents, exchange rate calculation agents or other agents with respect to Securities of such Series if other than those appointed herein; (21) if applicable, that the Securities of the Series, in whole or any specified part, shall be defeasible pursuant to Article 9; and (22) any other terms of the Securities of the Series (which terms shall not be inconsistent with the provisions of this Indenture, except as permitted by Section 8.1, but which may modify or delete any provision of this Indenture insofar as it applies to such Series). All Securities of any one Series need not be issued at the same time and may be issued from time to time, consistent with the terms of this Indenture, if so provided by or pursuant to the Board Resolution, supplemental indenture or Officers' Certificate referred to above, and the authorized principal amount of any Series may not be increased to provide for issuances of additional Securities of such Series, unless otherwise provided in such Board Resolution, supplemental indenture or Officers' Certificate. 2.3 EXECUTION AND AUTHENTICATION. The Securities shall be executed on behalf of the Company by two Officers of the Company or an Officer and an Assistant Clerk of the Company. Each such signature may be either manual or facsimile. The Company's seal may be impressed, affixed, imprinted or reproduced on the Securities and may be in facsimile form. If an Officer whose signature is on a Security no longer holds that office at the time the Security is authenticated, the Security shall nevertheless be valid. A Security shall not be valid until authenticated by the manual signature of the Trustee or an authenticating agent. The signature shall be conclusive evidence that the Security has been authenticated under this Indenture. 9 The Trustee shall at any time, and from time to time, authenticate Securities for original issue in the principal amount provided in the Board Resolution, supplemental indenture hereto or Officers' Certificate, upon receipt by the Trustee of a Company Order. Such Company Order may authorize authentication and delivery pursuant to oral or electronic instructions from the Company or its duly authorized agent or agents, which oral instructions shall be promptly confirmed in writing. Each Security shall be dated the date of its authentication. The aggregate principal amount of Securities of any Series outstanding at any time may not exceed any limit upon the maximum principal amount for such Series set forth in the Board Resolution, supplemental indenture hereto or Officers' Certificate delivered pursuant to Section 2.2, except as provided in Section 2.8. Prior to the issuance of Securities of any Series, the Trustee shall have received and (subject to Section 7.2) shall be fully protected in relying on: (a) the Board Resolution, supplemental indenture hereto or Officers' Certificate establishing the form of the Securities of that Series or of Securities within that Series and the terms of the Securities of that Series or of Securities within that Series, (b) an Officers' Certificate complying with Section 10.4, and (c) an Opinion of Counsel complying with Section 10.4. The Trustee shall have the right to decline to authenticate and deliver any Securities of such Series: (a) if the Trustee, being advised in writing by outside counsel, determines that such action may not lawfully be taken; or (b) if the Trustee in good faith by its board of directors or trustees, executive committee or a trust committee of directors and/or vice-presidents shall reasonably determine that such action would expose the Trustee to personal liability, or cause it to have a conflict of interest with respect to Holders of any then outstanding Series of Securities. The Trustee may appoint an authenticating agent acceptable to the Company to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Any appointment shall be evidenced by instrument signed by an authorized officer of the Trustee, a copy of which shall be furnished to the Company. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate of the Company. 2.4 REGISTRAR AND PAYING AGENT. The Company shall maintain in each Place of Payment for any Series of Securities (i) an office or agency where such Securities may be presented for registration of transfer or for exchange ("Registrar"), (ii) an office or agency where such Securities may be presented for payment ("Paying Agent") (PROVIDED that the Company shall at all times maintain a Paying Agent in the Borough of Manhattan, The City of New York, State of New York (the "New York Paying Agent"), and PROVIDED, FURTHER, that at the option of the Company payment of interest may be made by check mailed to the address of the Person entitled thereto as such address shall appear in the register for the Securities maintained by the Registrar, and (iii) an office or agency where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served ("Service Agent"). The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars and one or 10 more additional paying agents. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or to furnish the Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the address of the Trustee as set forth in Section 10.2. If the Company acts as Paying Agent, it shall segregate the money held by it for the payment of principal of and premium, if any, and interest on the Securities and hold it as a separate trust fund. The Company may change any Paying Agent, Registrar or co-registrar without notice to any Securityholder. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; PROVIDED, HOWEVER, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in each Place of Payment for Securities of any series for such purposes. The Company shall give prompt written notice to the Trustee of such designation or rescission and of any change in the location of any such other office or agency. The Company shall enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or agent for service of notices and demands, or fails to give the foregoing notice, the Trustee shall act as such. The Company hereby appoints the Trustee as the initial Registrar, Paying Agent and Service Agent for each Series unless another Registrar, Paying Agent or Service Agent, as the case may be, is appointed prior to the time Securities of that Series are first issued. The Company hereby initially designates the Corporate Trust Office of the Trustee as such office of the Company. The Company further designates _________________________________, as the New York Paying Agent, with offices at_____________________________________________. 2.5 PAYING AGENT TO HOLD ASSETS IN TRUST. The Trustee as Paying Agent shall, and the Company shall require each Paying Agent other than the Trustee to agree in writing that each Paying Agent shall hold in trust for the benefit of the Holders of any Series of Securities or the Trustee all assets held by the Paying Agent for the payment of principal of, or interest or premium (if any) on, such Series of Securities (whether such assets have been distributed to it by the Company or any other obligor on such Series of Securities), and the Company and the Paying Agent shall notify the Trustee in writing of any Default by the Company (or any other obligor on such Series of Securities) in making any such payment. The Company at any time may require a Paying Agent to distribute all assets held by it to the Trustee and account for any assets disbursed and the Trustee may at any time during the continuance of any payment default with respect to any Series of Securities, upon written request to a Paying Agent, require such Paying Agent to distribute all assets held by it to the Trustee and to account for any assets distributed. Upon distribution to the Trustee of all assets that shall have been delivered by the Company to the Paying Agent, the Paying Agent shall have no further liability for such assets. 11 2.6 SECURITYHOLDER LISTS. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of Securityholders of each Series of Securities. If the Trustee is not the Registrar, the Company shall furnish to the Trustee as of each regular record date for the payment of interest on the Securities of a Series and before each related Interest Payment Date, and at such other times as the Trustee may request in writing, a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of Securityholders of each Series of Securities. 2.7 TRANSFER AND EXCHANGE. When Securities of a Series are presented to the Registrar with a request to register the transfer thereof, the Registrar shall register the transfer as requested if the requirements of applicable law are met, and when such Securities of a Series are presented to the Registrar with a request to exchange them for an equal principal amount of other authorized denominations of Securities of the same Series, the Registrar shall make the exchange as requested. To permit transfers and exchanges, upon surrender of any Security for registration of transfer at the office or agency maintained pursuant to Section 2.4 hereof, the Company shall execute and the Trustee shall authenticate Securities at the Registrar's request. If Securities are issued as Global Securities, the provisions of Section 2.15 shall apply. All Securities issued upon any registration of transfer or exchange of Securities shall be the valid obligations of the Company, evidencing the same debt, and entitled to the same benefits under this Indenture, as the Securities surrendered upon such registration or transfer or exchange. Every Security presented or surrendered for registration of transfer or for exchange shall (if so required by the Company or the Registrar or a co-Registrar) be duly endorsed, or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar or a co-Registrar, duly executed by the Holder thereof or his attorney duly authorized in writing. Any exchange or transfer shall be without charge, except that the Company may require payment by the Holder of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation to a transfer or exchange, but this provision shall not apply to any exchange pursuant to Section 2.11, 3.6 or 8.5 hereof. The Trustee shall not be required to register transfers of Securities of any Series or to exchange Securities of any Series for a period of 15 days before selection for redemption of such Securities. The Trustee shall not be required to exchange or register transfers of Securities of any Series called or being called for redemption in whole or in part, except the unredeemed portion of such Security being redeemed in part. 2.8 REPLACEMENT SECURITIES. If a mutilated Security is surrendered to the Trustee or if the Holder of a Security presents evidence to the satisfaction of the Company and the Trustee that the Security has been lost, destroyed or wrongfully taken, the Company shall issue and the Trustee shall authenticate a replacement Security of the same Series and of like tenor and principal amount and bearing a 12 number not contemporaneously outstanding. An indemnity bond may be required by the Company or the Trustee that is sufficient in the reasonable judgment of the Company or the Trustee, as the case may be, to protect the Company, the Trustee or any Agent from any loss which any of them may suffer if a Security is replaced. The Company may charge such Holder for its out-of-pocket expenses in replacing a Security, including the fees and expenses of the Trustee. Every replacement Security shall constitute an original additional obligation of the Company, whether or not the destroyed, lost or stolen Security shall be at any time enforceable by anyone, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities of that Series duly issued hereunder. 2.9 OUTSTANDING SECURITIES. Securities outstanding at any time are all Securities authenticated by the Trustee except for those canceled by it, those delivered to it for cancellation, and those described in this Section 2.9 as not outstanding. If a Security is replaced pursuant to Section 2.8 (other than a mutilated Security surrendered for replacement), it ceases to be outstanding until the Company and the Trustee receive proof satisfactory to each of them that the replaced Security is held by a bona fide purchaser. A mutilated Security ceases to be outstanding upon surrender of such Security and replacement thereof pursuant to Section 2.8. If a Paying Agent holds on a Redemption Date or the Stated Maturity money sufficient to pay the principal of, premium, if any, and accrued interest on Securities payable on that date and is not prohibited from paying such money to the Holders thereof pursuant to the terms of this Indenture (PROVIDED that, if such Securities are to be redeemed, notice of such redemption has been duly given pursuant to this Indenture or provision therefor satisfactory to the Trustee has been made), then on and after that date such Securities cease to be outstanding and interest on them ceases to accrue. A Security does not cease to be outstanding solely because the Company or an Affiliate holds the Security. 2.10 WHEN TREASURY SECURITIES DISREGARDED; DETERMINATION OF HOLDERS' ACTION In determining whether the Holders of the required aggregate principal amount of the Securities of any Series have concurred in any direction, waiver or consent, the Securities of any Series owned by the Company or any other obligor on such Securities or by any Affiliate of any of them shall be disregarded, except that for the purposes of determining whether the Trustee shall be protected in relying on any such direction, waiver or consent, only Securities of such Series which the Trustee actually knows are so owned shall be so disregarded. Securities of such Series so owned which have been pledged in good faith shall not be disregarded if the pledgee establishes to the satisfaction of the Trustee the pledgee's right so to act with respect to the Securities of such Series and that the pledgee is not the Company or any other obligor upon the Securities of such Series or any Affiliate of any of them. 13 2.11 TEMPORARY SECURITIES. Until definitive Securities are ready for delivery, the Company may prepare and execute and the Trustee shall authenticate temporary Securities. Temporary Securities shall be substantially in the form, and shall carry all rights, of definitive Securities but may have variations that the Company considers appropriate for temporary Securities. Without unreasonable delay, the Company shall prepare and execute and the Trustee shall authenticate definitive Securities in exchange for temporary Securities presented to it without charge to the Holder. 2.12 CANCELLATION. All Securities surrendered for payment, redemption, registration of transfer or exchange or for credit against any sinking fund payment shall, if surrendered to any Person other than the Trustee, be delivered to the Trustee for cancellation. The Company may at any time deliver to the Trustee for cancellation any Securities previously authenticated and delivered hereunder which the Company may have acquired in any manner whatsoever, and may deliver to the Trustee (or to any other Person for delivery to the Trustee) for cancellation any Securities previously authenticated hereunder which the Company has not issued and sold. The Registrar and the Paying Agent shall forward to the Trustee any Securities surrendered to them for transfer, exchange or payment. The Trustee or, at the direction of the Trustee, the Registrar or the Paying Agent, and no one else, shall cancel and at the written request of the Company, shall dispose of all Securities surrendered for transfer, exchange, payment or cancellation. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the Indebtedness represented by such Securities unless and until the same are surrendered to the Trustee for cancellation pursuant to this Section 2.12. No Securities shall be authenticated in lieu of or in exchange for any Securities cancelled as provided in this Section 2.12, except as expressly permitted by this Indenture. 2.13 PAYMENT OF INTEREST; DEFAULTED INTEREST; COMPUTATION OF INTEREST. Except as otherwise provided as contemplated by Section 2.2 with respect to any Series of Securities, interest on any Security which is payable, and is punctually paid or duly provided for, on any Interest Payment Date shall be paid to the Person in whose name that Security is registered at the close of business on the regular record date for such interest, as provided in the Board Resolution, supplemental indenture hereto or Officers' Certificate establishing the terms of such Series. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted amounts, plus any interest payable on defaulted amounts pursuant to Section 4.1 hereof, to the Persons who are Securityholders on a subsequent special record date, which date shall be the fifteenth day next preceding the date fixed by the Company for the payment of defaulted interest or the next succeeding Business Day if such date is not a Business Day. At least 15 days before the special record date, the Company shall mail or cause to be mailed to each Securityholder, with a copy to the Trustee, a notice that states the special record date, the payment date, and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. 14 Except as otherwise specified as contemplated by Section 2.2 for Securities of any Series, interest on the Securities of each Series shall be computed on the basis of a 360-day year of twelve 30-day months. 2.14 CUSIP NUMBER. The Company in issuing the Securities may use one or more "CUSIP" numbers, and if so, the Trustee shall use the CUSIP number(s) in notices of redemption or exchange as a convenience to Holders, PROVIDED that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number(s) printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities and any such redemption shall not be affected by any defect in or omission of any such numbers. 2.15 PROVISIONS FOR GLOBAL SECURITIES. (a) A Board Resolution, a supplemental indenture hereto or an Officers' Certificate shall establish whether the Securities of a Series shall be issued in whole or in part in the form of one or more Global Securities and the Depository for such Global Securities or Securities. (b) Notwithstanding any provisions to the contrary contained in Section 2.7 of the Indenture and in addition thereto, if, and only if (A) the Depository (i) at any time is unwilling or unable to continue as Depository for such Global Security or ceases to be a clearing agency registered under the Exchange Act and (ii) a successor Depository is not appointed by the Company within 90 days after the date the Company is so informed in writing or becomes aware of the same, or (B) a Default or an Event of Default has occurred and is continuing with respect to the Securities represented by such Global Security, the Company promptly will execute and deliver to the Trustee definitive Securities, and the Trustee, upon receipt of a Company Request for the authentication and delivery of such definitive Securities (which the Company will promptly execute and deliver to the Trustee) and an Officers' Certificate to the effect that such Global Security shall be so exchangeable, will authenticate and deliver definitive Securities, without charge, registered in such names and in such authorized denominations as the Depository shall direct in writing (pursuant to instructions from its direct and indirect participants or otherwise) in an aggregate principal amount equal to the principal amount of the Global Security with like tenor and terms. Upon the exchange of a Global Security for definitive Securities, such Global Security shall be canceled by the Trustee. Unless and until it is exchanged in whole or in part for definitive Securities, as provided in this Section 2.15(b), a Global Security may not be transferred except as a whole by the Depository with respect to such Global Security to a nominee of such Depository, by a nominee of such Depository to such Depository or another nominee of such Depository or by the Depository or any such nominee to a successor Depository or a nominee of such a successor Depository. (c) Any Global Security issued hereunder shall bear a legend in substantially the following form: "This Security is a Global Security within the meaning of the Indenture hereinafter referred to and is registered in the name of the Depository or a 15 nominee of the Depository. This Security is exchangeable for Securities registered in the name of a Person other than the Depository or its nominee only in the limited circumstances described in the Indenture, and may not be transferred except as a whole by the Depository to a nominee of the Depository, by a nominee of the Depository to the Depository or another nominee of the Depository or by the Depository or any such nominee to a successor Depository or a nominee of such a successor Depository." (d) The Depository, as a Holder, may appoint agents and otherwise authorize participants to give or take any request, demand, authorization, direction, notice, consent, waiver or other action which a Holder is entitled to give or take under the Indenture. (e) Notwithstanding the other provisions of this Indenture, unless otherwise specified as contemplated by Section 2.2, payment of the principal of and interest and premium, if any, on any Global Security shall be made to the Depository or its nominee in its capacity as the Holder thereof. (f) Except as provided in Section 2.15(e), the Company, the Trustee and any Agent shall treat a Person as the Holder of such principal amount of outstanding Securities of any Series represented by a Global Security as shall be specified in a written statement of the Depository (which may be in the form of a participants' list for such Series) with respect to such Global Security, for purposes of obtaining any consents, declarations, waivers or directions required to be given by the Holders pursuant to this Indenture, PROVIDED that until the Trustee is so provided with a written statement, it may treat the Depository or any other Person in whose name a Global Security is registered as the owner of such Global Security for the purpose of receiving payment of principal of and any premium and (subject to Section 2.13) any interest on such Global Security and for all other purposes whatsoever, and neither the Company, the Trustee nor any agent of the Company or the Trustee shall be affected by notice to the contrary. 2.16 PERSONS DEEMED OWNERS. Prior to due presentment of a Security for registration of transfer, the Company, the Trustee, the Registrar and any agent of the Company, the Registrar or the Trustee may treat the Person in whose name such Security is registered as the owner of such Security for the purpose of receiving payment of principal of and any premium and (subject to Section 2.13) any interest on such Security and for all other purposes whatsoever, and neither the Company, the Trustee, the Registrar nor any agent of the Company, the Registrar or the Trustee shall be affected by notice to the contrary. ARTICLE 3 REDEMPTION 3.1 NOTICES TO TRUSTEE. The Company may, with respect to any Series of Securities, reserve the right to redeem and pay the Series of Securities or may covenant to redeem and pay the Series of Securities or 16 any part thereof prior to the Stated Maturity thereof at such time and on such terms as provided for in such Securities or the related Board Resolution, supplemental indenture or Officers' Certificate. If a Series of Securities is redeemable and the Company elects to redeem such Securities of a Series, it shall notify the Trustee of the Redemption Date and the principal amount of Securities to be redeemed at least 45 days (unless a shorter notice shall be satisfactory to the Trustee) before the Redemption Date. Any such notice may be canceled at any time prior to notice of such redemption being mailed to any Holder and shall thereby be void and of no effect. 3.2 SELECTION BY TRUSTEE OF SECURITIES TO BE REDEEMED. Unless otherwise indicated for a particular Series of Securities by a Board Resolution, a supplemental indenture or an Officers' Certificate, if fewer than all of the Securities of a Series are to be redeemed, the Trustee shall select the Securities of a Series to be redeemed pro rata, by lot or by any other method that the Trustee considers fair and appropriate (unless the Company specifically directs the Trustee otherwise) and, if such Securities are listed on any securities exchange, by a method that complies with the requirements of such exchange. The Trustee shall make the selection from Securities of a Series outstanding and not previously called for redemption and shall promptly notify the Company in writing of the Securities selected for redemption and, in the case of any Security selected for partial redemption, the principal amount thereof to be redeemed at least 35 but not more than 60 days before the Redemption Date. Securities of a Series in denominations of $1,000 may be redeemed only in whole. The Trustee may select for redemption portions of the principal of Securities of a Series that have denominations larger than $1,000. Securities of a Series and portions of them it selects shall be in amounts of $1,000 or, with respect to Securities of any Series issuable in other denominations pursuant to Section 2.2(10), the minimum principal denomination for each Series and integral multiples thereof. Provisions of this Indenture that apply to Securities called for redemption also apply to portions of Securities called for redemption. 3.3 NOTICE OF REDEMPTION. Unless otherwise indicated for a particular Series by Board Resolution, a supplemental indenture hereto or an Officers' Certificate, at least 30 days, and no more than 60 days, before a Redemption Date, the Company shall mail, or cause to be mailed, a notice of redemption by first-class mail to each Holder of Securities to be redeemed at his or her last address as the same appears on the registry books maintained by the Registrar. The notice shall identify the Securities to be redeemed (including the CUSIP number(s) thereof, if any) and shall state: (1) the Redemption Date; (2) the redemption price, and that such redemption price shall become due and payable on the Redemption Date; (3) if any Security of a Series is being redeemed in part, the portion of the principal amount of such Security of a Series to be redeemed and that, after 17 the Redemption Date and upon surrender of such Security of a Series, a new Security or Securities in principal amount equal to the unredeemed portion will be issued; (4) the name and address of the Paying Agent; (5) that Securities of a Series called for redemption must be surrendered to the Paying Agent to collect the redemption price, and the place or places where each such Security is to be surrendered for such payment; (6) that, unless the Company defaults in making the redemption payment, interest on the Securities of a Series called for redemption ceases to accrue on the Redemption Date, and the only remaining right of the Holders of such Securities is to receive payment of the redemption price upon surrender to the Paying Agent of the Securities redeemed; (7) if fewer than all the Securities of a Series are to be redeemed, the identification of the particular Securities of a Series (or portion thereof) to be redeemed, as well as the aggregate principal amount of Securities of a Series to be redeemed and the aggregate principal amount of Securities of a Series to be outstanding after such partial redemption. (8) the CUSIP number, if any, printed on the Securities being redeemed; and (9) that no representation is made as to the correctness or accuracy of the CUSIP number, if any, listed in such notice or printed on the Securities. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's sole expense. 3.4 EFFECT OF NOTICE OF REDEMPTION. Once the notice of redemption described in Section 3.3 is mailed, Securities of a Series called for redemption become due and payable on the Redemption Date and at the redemption price, plus interest, if any, accrued to the Redemption Date. Upon surrender to the Trustee or Paying Agent, such Securities of a Series shall be paid at the redemption price, plus accrued interest, if any, to the Redemption Date, PROVIDED that if the Redemption Date is after a regular interest payment record date and on or prior to the next Interest Payment Date, the accrued interest shall be payable to the Holder of the redeemed Securities registered on the relevant record date, as specified by the Company in the notice to the Trustee pursuant to Section 3.1 hereof. 3.5 DEPOSIT OF REDEMPTION PRICE. On or prior to the Redemption Date (but no later than 11:00 A.M. EST on such date), the Company shall deposit with the Paying Agent money sufficient to pay the redemption price of and accrued interest, if any, on all Securities to be redeemed on that date other than Securities or portions thereof called for redemption on that date which have been delivered by the Company to the Trustee for cancellation. On and after any Redemption Date, if money sufficient to pay the redemption price of and accrued interest on Securities called for redemption shall have been made available in accordance with the preceding paragraph and the Company and the Paying Agent are not 18 prohibited from paying such moneys to Holders, the Securities called for redemption will cease to accrue interest and the only right of the Holders of such Securities will be to receive payment of the redemption price of and, subject to the proviso in Section 3.4, accrued and unpaid interest on such Securities to the Redemption Date. If any Security called for redemption shall not be so paid, interest will be paid, from the Redemption Date until such redemption payment is made, on the unpaid principal of the Security and any interest or premium (if any) not paid on such unpaid principal, in each case, at the rate and in the manner provided in the Securities. 3.6 SECURITIES REDEEMED IN PART. Upon surrender of a Security of a Series that is redeemed in part, the Company shall execute and the Trustee shall authenticate for a Holder a new Security of the same Series equal in principal amount to the unredeemed portion of the Security surrendered. ARTICLE 4 COVENANTS 4.1 PAYMENT OF SECURITIES. The Company shall pay the principal of and interest and premium, if any, on each Series of Securities on the dates and in the manner provided in such Securities and this Indenture. An installment of principal or interest shall be considered paid on the date it is due if the Trustee or Paying Agent holds on that date money designated for and sufficient to pay such installment and is not prohibited from paying such money to the Holders pursuant to the terms of this Indenture or otherwise. The Company shall pay interest on overdue principal, and overdue interest, to the extent lawful, at the rate specified in the Series of Securities. 4.2 SEC REPORTS. The Company will deliver to the Trustee within 15 days after the filing of the same with the SEC, copies of the quarterly and annual report and of the information documents and other reports, if any, which the Company is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act. Notwithstanding that the Company may not be subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company will file with the SEC, to the extent permitted, and provide the Trustee, with such quarterly and annual reports and such information, documents and other reports specified in Section 13 and 15(d) of the Exchange Act. The Company will also comply with the other provisions of TIA Section 314(a). 4.3 WAIVER OF STAY, EXTENSION OR USURY LAWS. The Company covenants (to the extent that it may lawfully do so) that they will not at any time insist upon, or plead (as a defense or otherwise) or in any manner whatsoever claim or take the benefit or advantage of, any stay extension usury or other law which would prohibit or forgive the Company from paying all or any portion of the principal of, premium, if any, and/or 19 interest on the Securities as contemplated herein, wherever enacted, now or at any time hereafter in force, or which may affect the covenants or the performance of this Indenture; and (to the extent that they may lawfully do so) the Company hereby expressly waives all benefit or advantage of any such law, and covenants that it will not hinder, delay or impede the execution of any power herein granted to the Trustee, but will suffer and permit the execution of every such power as though no such law had been enacted. 4.4 COMPLIANCE CERTIFICATE. (a) The Company shall deliver to the Trustee, within 120 days after the end of each fiscal year of the Company (ending December 31), an Officers' Certificate which complies with TIA Section 314(a)(4) stating that a review of the activities of the Company and its Subsidiaries during such fiscal year has been made under the supervision of the signing Officers with a view to determining whether each has kept, observed, performed and fulfilled its obligations under this Indenture, and further stating, as to each such Officer signing such certificate, that to the best of his or her knowledge each has kept, observed, performed and fulfilled each and every covenant contained in this Indenture and is not in default in the performance or observance of any of the terms, provisions and conditions hereof (or, if a Default or Event of Default shall have occurred, describing all such Defaults or Events of Default of which he or she may have knowledge and what action each is taking or proposes to take with respect thereto) and that to the best of his or her knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of or interest or premium, if any, on the Securities is prohibited or if such event has occurred, a description of the event and what action each is taking or proposes to take with respect thereto. (b) (i) If any Default or Event of Default has occurred and is continuing or (ii) if any Holder seeks to exercise any remedy hereunder with respect to a claimed Default under this Indenture or the Securities, the Company shall deliver to the Trustee an Officers' Certificate specifying such event, notice or other action within five Business Days of its becoming aware of such occurrence and what action the Company is taking or proposes to take with respect thereto. 20 4.5 CORPORATE EXISTENCE. Subject to Article 5 hereof, the Company shall do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, in accordance with the organizational documents (as the same may be amended from time to time) of the Company and the rights (charter and statutory), licenses and franchises of the Company; PROVIDED, HOWEVER, that the Company shall not be required to preserve any such right, license or franchise, or its corporate existence, if the Board of Directors shall determine that the preservation thereof is no longer desirable in the conduct of the business of the Company and that the loss thereof is not adverse in any material respect to the Holders. ARTICLE 5 SUCCESSOR CORPORATION 5.1 LIMITATION ON CONSOLIDATION, MERGER AND SALE OF ASSETS. (a) The Company will not, in any transaction or series of transactions, merge or consolidate with or into, or sell, assign, convey, transfer, lease or otherwise dispose of all or substantially all of its properties and assets (as an entirety or substantially as an entirety in one transaction or a series of related transactions), to any Person or Persons, unless at the time of and after giving effect thereto (i) either (A) if the transaction or series of transactions is a merger or consolidation, the Company shall be the surviving Person of such merger or consolidation, or (B) the Person formed by such consolidation or into which the Company is merged or to which the properties and assets of the Company are transferred (any such surviving Person or transferee Person being the "Surviving Entity") shall be a corporation organized and existing under the laws of the United States of America, any state thereof or the District of Columbia or a corporation or comparable legal entity organized under the laws of a foreign jurisdiction and shall expressly assume by a supplemental indenture executed and delivered to the Trustee, in form reasonably satisfactory to the Trustee, all the obligations of the Company (including, without limitation, the obligation to pay the principal of, and premium and interest, if any, on the Securities and the performance of the other covenants) under the Securities of each Series and this Indenture, and in each case, this Indenture shall remain in full force and effect; and 21 (ii) immediately before and immediately after giving effect to such transaction or series of transactions on a pro forma basis (including, without limitation, any Indebtedness incurred or anticipated to be incurred in connection with or in respect of such transaction or series of transactions), no Default or Event of Default shall have occurred and be continuing. (b) In connection with any consolidation, merger or transfer of assets contemplated by this Section 5.1, the Company shall deliver, or cause to be delivered, to the Trustee, in form and substance reasonably satisfactory to the Trustee, an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger or transfer and the supplemental indenture in respect thereto comply with this Section 5.1 and that all conditions precedent herein provided for relating to such transaction or transactions have been complied with. 5.2 SUCCESSOR PERSON SUBSTITUTED. Upon any consolidation or merger, or any transfer of all or substantially all of the assets of the Company in accordance with Section 5.1 above, the successor corporation formed by such consolidation or into which the Company is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein, and thereafter (except with respect to any such transfer which is a lease) the predecessor corporation shall be relieved of all obligations and covenants under this Indenture and the Securities. ARTICLE 6 DEFAULTS AND REMEDIES 6.1 EVENTS OF DEFAULT. "Events of Default," wherever used herein with respect to Securities of any Series, means any one of the following events, unless in the establishing Board Resolution, supplemental indenture or Officers' Certificate, it is provided that such Series shall not have the benefit of said Event of Default: (1) there is a default in the payment of any principal of, or premium, if any, on the Securities when the same becomes due and payable at Maturity, upon acceleration, redemption or otherwise; (2) there is a default in the payment of any interest on any Security of a Series when the same becomes due and payable and the Default continues for a period of 30 days; (3) the Company defaults in the observance or performance of any other covenant in the Securities of a Series or this Indenture for 60 days after written notice from the Trustee or the Holders of not less than 25% in the aggregate principal amount of the Securities of such Series then outstanding which notice must specify the Default, demand that it be remedied and state the notice is a "Notice of Default"; 22 (4) there is a default or are defaults under one or more agreements, instruments, mortgages, bonds, debentures or other evidences of Indebtedness under which the Company or any Significant Subsidiary of the Company then has outstanding Indebtedness in excess of $25 million, individually or in the aggregate, and either (a) such Indebtedness is already due and payable in full or (b) such default or defaults have resulted in the acceleration of the Maturity of such Indebtedness; (5) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law: (A) commences a voluntary case, (B) consents to the entry of an order for relief against it in an involuntary case, (C) consents to the appointment of a Custodian of it or for all or substantially all of its property, (D) makes a general assignment for the benefit of its creditors, or (E) generally is not paying its debts as they become due; (6) a court of competent jurisdiction enters an order or decree under any Bankruptcy Law that: (A) is for relief against the Company or any Significant Subsidiary in an involuntary case; (B) appoints a Custodian of the Company or any Significant Subsidiary or for all or substantially all of the property of the Company or any Significant Subsidiary; or (C) orders the liquidation of the Company or any Significant Subsidiary, and the order or decree remains unstayed and in effect for 90 consecutive days; or 23 (7) any other Event of Default provided with respect to Securities of that Series, which is specified in a Board Resolution, a supplemental indenture hereto or an Officers' Certificate, in accordance with Section 2.2(18). The term "Bankruptcy Law" means Title 11, U.S. Code or any similar Federal or state law for the relief of debtors. The term "Custodian" means any receiver, trustee, assignee, liquidator or similar official under any Bankruptcy Law. The Trustee may withhold notice of any Default (except in payment of principal or premium, if any, or interest on the Securities) to the Holders of the Securities of any Series in accordance with Section 7.5. When a Default is cured, it ceases to exist. 6.2 ACCELERATION. If an Event of Default with respect to Securities of any Series at the time outstanding (other than an Event of Default arising under Section 6.1(6) or (7)) occurs and is continuing, the Trustee by written notice to the Company, or the Holders of not less than 25% in aggregate principal amount of the Securities of that Series then outstanding may by written notice to the Company and the Trustee declare that the entire principal amount of all the Securities of that Series then outstanding plus accrued and unpaid interest to the date of acceleration are immediately due and payable, in which case such amounts shall become immediately due and payable; PROVIDED, HOWEVER, that after such acceleration but before a judgment or decree based on such acceleration is obtained by the Trustee, the Holders of a majority in aggregate principal amount of the outstanding Securities of that Series may rescind and annul such acceleration and its consequences if (i) all existing Events of Default, other than the nonpayment of accelerated principal, premium, if any, or interest that has become due solely because of the acceleration, have been cured or waived, (ii) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal, which has become due otherwise than by such declaration of acceleration, has been paid and (iii) if the rescission would not conflict with any judgment or decree. No such rescission shall affect any subsequent Default or impair any right consequent thereto. In case an Event of Default specified in Section 6.1(6) or (7) with respect to the Company occurs, such principal, premium, if any, and interest amount with respect to all of the Securities of that Series shall be due and payable immediately without any declaration or other act on the part of the Trustee or the Holders of the Securities of that Series. 6.3 REMEDIES. If an Event of Default with respect to Securities of any Series at the time outstanding occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal of, or premium, if any, and interest on the Securities of that Series or to enforce the performance of any provision of the Securities of that Series or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities of that Series or does not produce any of them in the proceeding. A delay or omission by the Trustee or any Securityholder in exercising any right or remedy accruing upon an Event of Default shall not impair the right or remedy or constitute a waiver of or acquiescence in the 24 Event of Default. No remedy is exclusive of any other remedy. All available remedies are cumulative to the extent permitted by law. 6.4 WAIVER OF PAST DEFAULTS AND EVENTS OF DEFAULT. Subject to Sections 6.2, 6.7 and 8.2 hereof, the Holders of a majority in principal amount of the Securities of any Series then outstanding have the right to waive any existing Default or Event of Default with respect to such Series or compliance with any provision of this Indenture (with respect to such Series) or the Securities of such Series. Upon any such waiver, such Default with respect to such Series shall cease to exist, and any Event of Default with respect to such Series arising therefrom shall be deemed to have been cured for every purpose of this Indenture; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. This Section 6.4 shall be in lieu of TIA Section 316(a)(1)(B), and TIA Section 316(a)(1)(B) is hereby expressly excluded from this Indenture and Section as permitted by the TIA. 6.5 CONTROL BY MAJORITY. Subject to Sections 6.2, 6.7 and 8.2 hereof, the Holders of a majority in principal amount of the Securities of any Series then outstanding may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee by this Indenture with respect to such Series. The Trustee, however, may refuse to follow any direction that conflicts with law or this Indenture or that the Trustee determines may be unduly prejudicial to the rights of another Securityholder or that may involve the Trustee in personal liability; PROVIDED that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. This Section 6.5 shall be in lieu of TIA Section 316(a)(1)(A), and TIA Section 316(a)(1)(A) is hereby expressly excluded from this Indenture and Section as permitted by the TIA. 6.6 LIMITATION ON SUITS. Subject to Section 6.7 below, a Securityholder may not institute any proceeding or pursue any remedy with respect to this Indenture or the Securities of a Series unless: (1) the Holder gives to the Trustee written notice of a continuing Event of Default with respect to the Securities of that Series; (2) the Holders of at least 25% in aggregate principal amount of the Securities of such Series then outstanding make a written request to the Trustee to pursue the remedy; (3) such Holder or Holders offer to the Trustee indemnity reasonably satisfactory to the Trustee against any loss, liability or expense to be incurred in compliance with such request; (4) the Trustee does not comply with the request within 60 days after receipt of the request and the offer of indemnity; and (5) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in aggregate principal amount of the Securities of such Series then outstanding. 25 A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. 6.7 RIGHTS OF HOLDERS TO RECEIVE PAYMENT. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security of a Series to receive payment of principal of, and premium, if any, and interest of the Security of such Series on or after the respective due dates expressed in the Security of such Series, or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. 6.8 COLLECTION SUIT BY TRUSTEE. If an Event of Default in payment of principal, premium or interest specified in Section 6.1(1) or (2) hereof with respect to Securities of any Series at the time outstanding occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the Company (or any other obligor on the Securities of that Series) for the whole amount of unpaid principal and premium, if any, and accrued interest remaining unpaid, together with interest on overdue principal and premium, if any, and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate then borne by the Securities of that Series, and such further amounts as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, as set forth in Section 7.7. 6.9 TRUSTEE MAY FILE PROOFS OF CLAIM. The Trustee may file such proofs of claim and other papers or documents, and take other actions (including sitting on a committee of creditors) as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), any of their respective creditors or any of their respective property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same after deduction of its charges and expenses to the extent that any such charges and expenses are not paid out of the estate in any such proceedings and any custodian in any such judicial proceeding is hereby authorized by each Securityholder to make such payments to the Trustee, and in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 7.7 hereof. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan or reorganization, arrangement, adjustment or composition affecting the Securities of a Series or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceedings. 26 6.10 PRIORITIES. If the Trustee collects any money pursuant to this Article 6, it shall pay out the money in the following order: FIRST: to the Trustee for amounts due under Section 7.7 hereof; SECOND: to Securityholders for amounts then due and unpaid for principal, premium, if any, and interest on the Securities in respect of which or for the benefit of which such money has been collected, ratably, without preference or priority of any kind, according to the amounts due and payable on such Securities; for principal and any premium and interest, respectively; and THIRD: to the Company. The Trustee may fix a record date and payment date for any payment to Securityholders pursuant to this Section 6.10. At least 15 days before such record date, the Trustee shall mail to each Securityholder a notice that states the record date, the payment date and amount to be paid. 6.11 UNDERTAKING FOR COSTS. In any suit for the enforcement of any right or remedy under this Indenture or in any suit against the Trustee for any action taken or omitted by it as Trustee, a court in its discretion may require the filing by any party litigant in the suit of an undertaking to pay the costs of the suit, and the court in its discretion may assess reasonable costs, including reasonable attorneys' fees, against any party litigant in the suit, having due regard to the merits and good faith of the claims or defenses made by the party litigant. This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.7 hereof or a suit by Holders of more than 10% in principal amount of the Securities of a Series then outstanding. ARTICLE 7 TRUSTEE 7.1 DUTIES OF TRUSTEE. (a) If an Event of Default has occurred and is continuing, the Trustee shall exercise such of the rights and powers vested in it by this Indenture and use the same degree of care and skill in its exercise as a prudent Person would exercise or use under the same circumstances in the conduct of his own affairs. (b) Except during the continuance of an Event of Default: (1) The Trustee need perform only those duties that are specifically set forth in this Indenture and no covenants or obligations shall be implied in this Indenture against the Trustee. 27 (2) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture but, in the case of any such certificates or opinions which by any provision hereof are specifically required to be furnished to the Trustee, the Trustee shall be under a duty to examine the same to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 7.1. (2) The Trustee shall not be liable for any error of judgment made in good faith by a Responsible Officer, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Sections 6.2 and 6.5 hereof. (d) No provision of this Indenture shall require the Trustee to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its rights or powers if it shall have reasonable grounds for believing that repayment of such funds or adequate indemnity satisfactory to it against such risk or liability is not reasonably assured to it. (e) Whether or not therein expressly so provided, paragraphs (a), (b), (c) and (d) of this Section 7.1 shall govern every provision of this Indenture that in any way relates to the Trustee. (f) The Trustee and Paying Agent shall not be liable for interest on any money received by it except as the Trustee and Paying Agent may agree in writing with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by the law. (g) The Paying Agent, the Registrar and any authenticating agent shall be entitled to the protections, immunities and standard of care set forth in paragraphs (a), (b), (c), (d) and (f) of this Section 7.1 and in Section 7.2 with respect to the Trustee. 7.2 RIGHTS OF TRUSTEE. (a) Subject to Section 7.1 hereof: (1) The Trustee may rely on and shall be protected in acting or refraining from acting upon any document reasonably believed by it to be genuine and to have been signed or presented by the proper Person. The Trustee need not investigate any fact or matter stated in the document. 28 (2) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, or both, which shall conform to the provisions of Section 10.5 hereof. The Trustee shall be protected and shall not be liable for any action it takes or omits to take in good faith in reliance on such certificate or opinion. (3) The Trustee may act through agents and attorneys and shall not be responsible for the misconduct or negligence of any agent appointed by it with due care. (4) The Trustee shall not be liable for any action it takes or omits to take in good faith which it reasonably believes to be authorized or within its rights or powers. (5) The Trustee may consult with counsel reasonably acceptable to the Trustee, which may be counsel to the Company, and the advice or opinion of such counsel as to matters of law shall be full and complete authorization and protection from liability in respect of any action taken, omitted or suffered by it hereunder in good faith and in accordance with the advice or opinion of such counsel. (6) The Trustee shall be under no obligation to exercise any of the rights or powers vested in it by this Indenture at the request, order or direction of any of the Holders pursuant to the provisions of this Indenture, unless such Holders shall have offered to the Trustee reasonable security or indemnity against the costs, expenses and liabilities which may be incurred therein or thereby. (7) The Trustee shall not be deemed to have knowledge of any fact or matter (including, without limitation, a Default or Event of Default) unless such fact or matter is known to a Responsible Officer of the Trustee. (8) Unless otherwise expressly provided herein or in the Securities of a Series or the related Board Resolution, supplemental indenture or Officers' Certificate, the Trustee shall not have any responsibility with respect to reports, notices, certificates or other documents filed with it hereunder, except to make them available for inspection, at reasonable times, by Securityholders, it being understood that delivery of such reports, information and documents to the Trustee is for informational purposes only and the Trustee's receipt of such shall not constitute constructive notice of any information contained therein or determinable from information contained therein, including the Company's compliance with any of its covenants hereunder (except as set forth in Section 4.4). 7.3 INDIVIDUAL RIGHTS OF TRUSTEE. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may make loans to, accept deposits from, perform services for or otherwise deal with the Company, or any Affiliate thereof, with the same rights it would have if it were not 29 Trustee. Any Agent may do the same with like rights. The Trustee, however, shall be subject to Sections 7.10 and 7.11 hereof. 7.4 TRUSTEE'S DISCLAIMER. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities (except that the Trustee represents that it is duly authorized to execute and deliver this Indenture and authenticate the Securities and perform its obligations hereunder), it shall not be accountable for the Company's use of the proceeds from the sale of Securities or any money paid to the Company pursuant to the terms of this Indenture and it shall not be responsible for any statement in the Securities other than its certificates of authentication. 7.5 NOTICE OF DEFAULT. If a Default or an Event of Default occurs and is continuing with respect to the Securities of any Series and if it is known to the Trustee, the Trustee shall mail to each Securityholder of the Securities of that Series notice of the Default or the Event of Default, as the case may be, within 90 days after it occurs or, if later, after a Responsible Officer of the Trustee has knowledge of such Default or Event of Default (except if such Default or Event of Default has been validly cured or waived before the giving of such notice). Except in the case of a Default or an Event of Default in payment of the principal of, or premium, if any, or interest on any Security of any Series, the Trustee may withhold the notice if and so long as the Board of Directors of the Trustee, the executive committee or any trust committee of such board and/or its Responsible Officers in good faith determine(s) that withholding the notice is in the interests of the Securityholders of that Series. 7.6 REPORTS BY TRUSTEE TO HOLDERS. If and to the extent required by the TIA, within 60 days after April 1 of each year, commencing the April 1 following the date of this Indenture, the Trustee shall mail to each Securityholder a brief report dated as of such April 1 that complies with TIA Section 313(a). The Trustee also shall comply with TIA Sections 313(b) and 313(c). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and any stock exchange on which the Securities of that Series are listed. The Company shall promptly notify the Trustee when the Securities of any Series are listed on any stock exchange or any delisting thereof, and the Trustee shall comply with TIA Section 313(d). 7.7 COMPENSATION AND INDEMNITY. The Company shall pay to the Trustee from time to time reasonable compensation for its services. The Trustee's compensation shall not be limited by any provision of law on compensation of a trustee of an express trust. The Company shall reimburse the Trustee within 45 days after receipt of request for all reasonable out-of-pocket disbursements and expenses incurred or made by it in connection with its duties under this Indenture, including the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. 30 The Company shall indemnify the Trustee for, and hold it harmless against, any and all loss or liability incurred by it in connection with the acceptance or performance of its duties under this Indenture including the reasonable costs and expenses of defending itself against any claim or liability in connection with the exercise or performance of any of its powers or duties hereunder. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity. However, the failure by the Trustee to so notify the Company shall not relieve the Company of its obligations. Notwithstanding the foregoing, the Company need not reimburse the Trustee for any expense or indemnify it against any loss or liability incurred by the Trustee through its negligence or bad faith. To secure the payment obligations of the Company in this Section 7.7, the Trustee shall have a lien prior to the Securities of any Series on all money or property held or collected by the Trustee except such money or property held in trust to pay principal of and interest and premium (if any) on particular Securities of that Series. When the Trustee incurs expenses or renders services after an Event of Default specified in Section 6.1(6) or (7) hereof occurs, the expenses and the compensation for the services are intended to constitute expenses of administration under any Bankruptcy Law. For purposes of this Section 7.7, the term "Trustee" shall include any trustee appointed pursuant to Article 9. 7.8 REPLACEMENT OF TRUSTEE. The Trustee may resign with respect to the Securities of one or more Series by so notifying the Company in writing at least 90 days in advance of such resignation. The Holders of a majority in principal amount of the outstanding Securities of any Series may remove the Trustee with respect to that Series by notifying the removed Trustee in writing and may appoint a successor Trustee with respect to that Series with the consent of the Company, which consent shall not be unreasonably withheld. The Company may remove the Trustee with respect to that Series at its election if: (1) the Trustee fails to comply with, or ceases to be eligible under, Section 7.10 hereof; (2) the Trustee is adjudged a bankrupt or an insolvent or an order for relief is entered with respect to the Trustee under any Bankruptcy Law; (3) a Custodian or other public officer takes charge of the Trustee or its property; or (4) the Trustee otherwise becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee with respect to any Series of Securities for any reason, the Company shall promptly appoint, by Board Resolution, a successor Trustee. 31 If a successor Trustee with respect to the Securities of one or more Series does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the outstanding Securities of the applicable Series may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee with respect to the Securities of one or more Series fails to comply with Section 7.10 hereof, any Securityholder of the applicable Series may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately following such delivery, (i) the retiring Trustee with respect to one or more Series shall, subject to its rights under Section 7.7 hereof, transfer all property held by it as Trustee with respect to such Series to the successor Trustee, (ii) the resignation or removal of the retiring Trustee shall become effective, and (iii) the successor Trustee with respect to such Series shall have all the rights, powers and duties of the Trustee under this Indenture. A successor Trustee with respect to the Securities of one or more Series shall mail notice of its succession to each Securityholder of such Series. 7.9 SUCCESSOR TRUSTEE BY CONSOLIDATION, MERGER OR CONVERSION. If the Trustee, or any Agent, consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets to, another corporation, subject to Section 7.10 hereof, the successor corporation without any further act shall be the successor Trustee or Agent, as the case may be. 7.10 ELIGIBILITY; DISQUALIFICATION. This Indenture shall always have a Trustee who satisfies the requirements of TIA Sections 310(a)(1), (2) and (5) in every respect. The Trustee (or in the case of a Trustee that is a Person included in a bank holding company system, the related bank holding company) shall have a combined capital and surplus of at least $100,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b), including the provision in Section 310(b)(1). In addition, if the Trustee is a Person included in a bank holding company system, the Trustee, independently of such bank holding company, shall meet the capital requirements of TIA Section 310(a)(2). If at any time the Trustee shall cease to be eligible in accordance with the provisions of this Section 7.10, it shall resign immediately in the manner and with the effect specified in this Article 7. 7.11 PREFERENTIAL COLLECTION OF CLAIMS AGAINST COMPANY. The Trustee shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. 7.12 PAYING AGENTS. The Company shall cause each Paying Agent other than the Trustee to execute and deliver to it and the Trustee an instrument in which such agent shall agree with the Trustee, subject to the provisions of this Section 7.12: 32 (1) that it will hold all sums held by it as agent for the payment of principal of, or premium, if any, or interest on, the Securities (whether such sums have been paid to it by the Company or by any obligor on the Securities) in trust for the benefit of Holders of the Securities or the Trustee; (2) that it will at any time during the continuance of any Event of Default, upon written request from the Trustee, deliver to the Trustee all sums so held in trust by it together with a full accounting thereof; and (3) that it will give the Trustee written notice within three (3) Business Days of any failure of the Company (or by any obligor on the Securities) in the payment of any installment of the principal of, premium, if any, or interest on, the Securities when the same shall be due and payable. ARTICLE 8 AMENDMENTS, SUPPLEMENTS AND WAIVERS 8.1 WITHOUT CONSENT OF HOLDERS. The Company, when authorized by a Board Resolution, and the Trustee may amend or supplement this Indenture or the Securities of one or more Series without notice to or consent of any Securityholder: (1) to comply with Section 5.1 hereof; (2) to provide for uncertificated Securities in addition to certificated Securities; (3) to comply with any requirements of the SEC under the TIA; (4) to cure any ambiguity, defect or inconsistency, or to make any other change herein or in the Securities that does not materially and adversely affect the rights of any Securityholder; (5) to provide for the issuance of and establish the form and terms and conditions of Securities of any Series as permitted by this Indenture; or (6) to evidence and provide for the acceptance of appointment hereunder by a successor Trustee with respect to the Securities of one or more Series and to add to or change any of the provisions of this Indenture as shall be necessary to provide for or facilitate the administration of the trusts hereunder by more than one Trustee. The Trustee is hereby authorized to join with the Company in the execution of any supplemental indenture authorized or permitted by the terms of this Indenture and to make any further appropriate agreements and stipulations which may be therein contained, but the Trustee 33 shall not be obligated to enter into any such supplemental indenture which adversely affects its own rights, duties or immunities under this Indenture. 8.2 WITH CONSENT OF HOLDERS. (a) The Company, when authorized by a Board Resolution, and the Trustee may amend or supplement this Indenture or the Securities of one or more Series with the written consent of the Holders of not less than a majority in aggregate principal amount of the outstanding Securities of such Series affected by such amendment or supplement without notice to any Securityholder. The Holders of not less than a majority in aggregate principal amount of the outstanding Securities of each such Series affected by such amendment or supplement may waive compliance in a particular instance by the Company with any provision of this Indenture or the Securities of such Series without notice to any Securityholder. Subject to Section 8.4, without the consent of each Securityholder affected, however, an amendment, supplement or waiver, including a waiver pursuant to Section 6.4, may not: (1) reduce the amount of Securities whose Holders must consent to an amendment, supplement or waiver to this Indenture or the Securities; (2) reduce the rate of or change the time for payment of interest on any Security; (3) reduce the principal or change the Stated Maturity of any Security or reduce the amount of, or postpone the date fixed for, the payment of any sinking fund or analogous obligation; (4) make any Security payable in money other than that stated in the Security; (5) change the amount or time of any payment required by the Securities or reduce the premium payable upon any redemption of the Securities, or change the time before which no such redemption may be made; (6) waive a Default or Event of Default in the payment of the principal of or interest or premium, if any, on any Security (except a rescission of acceleration of the Securities of any Series by the Holders of at least a majority in principal amount of the outstanding Securities of such Series and a waiver of the payment default that resulted from such acceleration); (7) waive a redemption payment with respect to any Security or change any of the provisions with respect to the redemption of any Securities; (8) make any changes in Sections 6.4 or 6.7 hereof or this Section 8.2; except to increase any percentage of Securities the Holders of which must consent to any matter; or (9) take any other action otherwise prohibited by this Indenture to be taken without the consent of each Holder affected thereby. 34 (b) Upon the request of the Company, accompanied by a Board Resolution authorizing the execution of any such supplemental indenture, and upon the receipt by the Trustee of evidence reasonably satisfactory to the Trustee of the consent of the Securityholders as aforesaid and upon receipt by the Trustee of the documents described in Section 8.6 hereof, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. (c) It shall not be necessary for the consent of the Holders under this section to approve the particular form of any proposed amendment, supplement or waiver, but it shall be sufficient if such consent approves the substance thereof. After an amendment or supplement under this Section becomes effective, the Company shall mail to Securityholders a notice briefly describing the amendment or supplement. Any failure of the Company to mail any such notice, or any defect therein, shall not, however, in any way impair or affect the validity of any supplemental indenture. 8.3 COMPLIANCE WITH TRUST INDENTURE ACT. Every amendment to or supplement of this Indenture or the Securities shall comply with the TIA as then in effect. 8.4 REVOCATION AND EFFECT OF CONSENTS. Until an amendment, supplement, waiver or other action becomes effective, a consent to it by a Holder of a Security is a continuing consent conclusive and binding upon such Holder and every subsequent Holder of the same Security or portion thereof, and of any Security issued upon the transfer thereof or in exchange therefor or in place thereof, even if notation of the consent is not made on any such Security. Any such Holder or subsequent Holder, however, may revoke the consent as to his Security or portion of a Security, if the Trustee receives the notice of revocation before the date the amendment, supplement, waiver or other action becomes effective. The Company may, but shall not be obligated to, fix a record date for the purpose of determining the Holders entitled to consent to any amendment, supplement, or waiver which record date shall be at least 30 days prior to the first solicitation of such consent. If a record date is fixed, then, notwithstanding the preceding paragraph, those Persons who were Holders at such record date (or their duly designated proxies), and only such Persons, shall be entitled to consent to such amendment, supplement, or waiver or to revoke any consent previously given, whether or not such Persons continue to be Holders after such record date. After an amendment, supplement, waiver or other action becomes effective, it shall bind every Securityholder, unless it makes a change described in any of clauses (1) through (9) of Section 8.2 hereof. In that case the amendment, supplement, waiver or other action shall bind each Holder of a Security who has consented to it and every subsequent Holder of a Security or portion of a Security that evidences the same debt as the consenting Holder's Security; PROVIDED that any such waiver shall not impair or affect the right of any Holder to receive payment of principal of and interest and premium (if any) on a Security, on or after the respective due dates expressed in such Security, or to bring suit for the enforcement of any such payment on or after such respective dates without the consent of such Holder. 35 8.5 NOTATION ON OR EXCHANGE OF SECURITIES. If an amendment, supplement, or waiver changes the terms of a Security of any Series, the Trustee may request the Holder of such Security to deliver it to the Trustee. In such case, the Trustee shall place an appropriate notation on such Security about the changed terms and return it to the Holder. Alternatively, the Company in exchange for such Security may issue and the Trustee shall authenticate a new security that reflects the changed terms. Failure to make the appropriate notation or issue a new Security shall not affect the validity and effect of such amendment, supplement or waiver. 8.6 TRUSTEE TO SIGN AMENDMENTS, ETC. The Trustee shall sign any amendment, supplement or waiver authorized pursuant to this Article 8 if the amendment, supplement or waiver does not adversely affect the rights, duties, liabilities or immunities of the Trustee. If it does, the Trustee may, but need not, sign it. In signing or refusing to sign such amendment, supplement or waiver the Trustee shall be entitled to receive and, subject to Section 7.1 hereof, shall be fully protected in relying upon an Officers' Certificate and an Opinion of Counsel stating that such amendment, supplement or waiver is authorized or permitted by this Indenture. The Company may not sign an amendment or supplement until the Board of Directors of the Company approves it. ARTICLE 9 DISCHARGE OF INDENTURE; DEFEASANCE 9.1 DISCHARGE OF INDENTURE. The Company may terminate its obligations under the Securities of any Series and this Indenture with respect to such Series, except the obligations referred to in the last paragraph of this Section 9.1, if there shall have been canceled by the Trustee or delivered to the Trustee for cancellation all Securities of such Series theretofore authenticated and delivered (other than any Securities of such Series that are asserted to have been destroyed, lost or stolen and that shall have been replaced as provided in Section 2.8 hereof) and the Company has paid all sums payable by it hereunder or deposited all required sums with the Trustee. After such delivery the Trustee upon request shall acknowledge in a writing prepared by or on behalf of the Company the discharge of the Company's obligations under the Securities of such Series and this Indenture except for those surviving obligations specified below. Notwithstanding the satisfaction and discharge of this Indenture, the obligations of the Company in Sections 7.7, 9.5 and 9.6 hereof shall survive. 36 9.2 LEGAL DEFEASANCE. The Company may at its option, by Board Resolution, be discharged from its obligations with respect to the Securities of any Series on the date the conditions set forth in Section 9.4 below are satisfied (hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance means that the Company shall be deemed to have paid and discharged the entire indebtedness represented by the Securities of such Series and to have satisfied all its other obligations under such Securities and this Indenture insofar as such Securities are concerned (and the Trustee, at the expense of the Company, shall, subject to Section 9.6 hereof, execute proper instruments acknowledging the same, as are delivered to it by the Company), except for the following which shall survive until otherwise terminated or discharged hereunder: (A) the rights of Holders of outstanding Securities of such Series to receive solely from the trust funds described in Section 9.4 hereof and as more fully set forth in such section, payments in respect of the principal of, premium, if any, and interest on the Securities of such Series when such payments are due, (B) the Company's obligations with respect to the Securities of such Series under Sections 2.4, 2.5, 2.6, 2.7, 2.8 and 2.9 hereof, (C) the rights, powers, trusts, duties, and immunities of the Trustee hereunder (including claims of, or payments to, the Trustee under or pursuant to Section 7.7 hereof) and (D) this Article 9. Subject to compliance with this Article 9, the Company may exercise its option under this Section 9.2 with respect to the Securities of any Series notwithstanding the prior exercise of its option under Section 9.3 below with respect to the Securities of such Series. 9.3 COVENANT DEFEASANCE. At the option of the Company, pursuant to a Board Resolution, the Company shall be released from its obligations with respect to the outstanding Securities of any Series under Sections 4.2 through 4.5 hereof, inclusive, and Section 5.1 hereof, with respect to the outstanding Securities of such Series, on and after the date the conditions set forth in Section 9.4 hereof are satisfied (hereinafter, "Covenant Defeasance"). For this purpose, such Covenant Defeasance means that the Company may omit to comply with and shall have no liability in respect of any term, condition or limitation set forth in any such specified section or portion thereof, whether directly or indirectly by reason of any reference elsewhere herein to any such specified Section or portion thereof or by reason of any reference in any such specified section or portion thereof to any other provision herein or in any other document, but the remainder of this Indenture and the Securities of any Series shall be unaffected thereby. 9.4 CONDITIONS TO LEGAL DEFEASANCE OR COVENANT DEFEASANCE. The following shall be the conditions to application of Section 9.2 or Section 9.3 hereof to the outstanding Securities of a Series: (1) the Company shall irrevocably have deposited or caused to be deposited with the Trustee (or another trustee satisfying the requirements of Section 7.10 hereof who shall agree to comply with the provisions of this Article 9 applicable to it) as funds in trust for the purpose of making the following payments, specifically pledged as security for, and dedicated solely to, the benefit of the Holders of the Securities, (A) money in an amount, or (B) U.S. Government Obligations or Foreign Government Obligations which through the scheduled payment of principal and interest in respect thereof in accordance with their terms 37 will provide, not later than the due date of any payment, money in an amount, or (C) a combination thereof, sufficient, in the opinion of a nationally recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, to pay and discharge, and which shall be applied by the Trustee (or other qualifying trustee) to pay and discharge, the principal of, premium, if any, and accrued interest on the outstanding Securities of such Series at the Stated Maturity of such principal, premium, if any, or interest, or on dates for payment and redemption of such principal, premium, if any, and interest selected in accordance with the terms of this Indenture and of the Securities of such Series; (2) no Event of Default or Default with respect to the Securities of such Series shall have occurred and be continuing on the date of such deposit, or shall have occurred and be continuing at any time during the period ending on the 91st day after the date of such deposit or, if longer, ending on the day following the expiration of the longest preference period under any Bankruptcy Law applicable to the Company in respect of such deposit as specified in the Opinion of Counsel identified in paragraph (8) below (it being understood that this condition shall not be deemed satisfied until the expiration of such period); (3) such Legal Defeasance or Covenant Defeasance shall not cause the Trustee to have a conflicting interest for purposes of the TIA with respect to any securities of the Company; (4) such Legal Defeasance or Covenant Defeasance shall not result in a breach or violation of, or constitute default under any other agreement or instrument to which the Company is a party or by which it is bound; (5) the Company shall have delivered to the Trustee an Opinion of Counsel stating that, as a result of such Legal Defeasance or Covenant Defeasance, neither the trust nor the Trustee will be required to register as an investment company under the Investment Company Act of 1940, as amended; (6) in the case of an election under Section 9.2 above, the Company shall have delivered to the Trustee an Opinion of Counsel stating that (i) the Company has received from, or there has been published by, the Internal Revenue Service a ruling to the effect that or (ii) there has been a change in any applicable Federal income tax law with the effect that, and such opinion shall confirm that, the Holders of the outstanding Securities of such Series or Persons in their positions will not recognize income, gain or loss for Federal income tax purposes solely as a result of such Legal Defeasance and will be subject to Federal income tax on the same amounts, in the same manner, including as a result of prepayment, and at the same times as would have been the case if such Legal Defeasance had not occurred; (7) in the case of an election under Section 9.3 hereof, the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that the 38 Holders of the outstanding Securities of such Series will not recognize income, gain or loss for Federal income tax purposes as a result of such Covenant Defeasance and will be subject to Federal income tax on the same amounts, in the same manner and at the same times as would have been the case if such Covenant Defeasance had not occurred; (8) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for in this Article 9 relating to either the Legal Defeasance under Section 9.2 above or the Covenant Defeasance under Section 9.3 hereof (as the case may be) have been complied with; (9) the Company shall have delivered to the Trustee an Officers' Certificate stating that the deposit under clause (1) was not made by the Company with the intent of defeating, hindering, delaying or defrauding any creditors of the Company or others; and (10) the Company shall have paid or duly provided for payment under terms mutually satisfactory to the Company and the Trustee all amounts then due to the Trustee pursuant to Section 7.7 hereof. 9.5 DEPOSITED MONEY AND U.S. AND FOREIGN GOVERNMENT OBLIGATIONS TO BE HELD IN TRUST; OTHER MISCELLANEOUS PROVISIONS. All money, U.S. Government Obligations and Foreign Government Obligations (including the proceeds thereof) deposited with the Trustee pursuant to Section 9.4 hereof in respect of the outstanding Securities shall be held in trust and applied by the Trustee, in accordance with the provisions of such Securities and this Indenture, to the payment, either directly or through any Paying Agent as the Trustee may determine, to the Holders of such Securities, of all sums due and to become due thereon in respect of principal, premium, if any, and accrued interest, but such money need not be segregated from other funds except to the extent required by law. The Company shall pay and indemnify the Trustee against any tax, fee or other charge imposed on or assessed against the U.S. Government Obligations and Foreign Government Obligations deposited pursuant to Section 9.4 hereof or the principal, premium, if any, and interest received in respect thereof other than any such tax, fee or other charge which by law is for the account of the Holders of the outstanding Securities. Anything in this Article 9 to the contrary notwithstanding, but subject to payment of any of its outstanding fees and expenses, the Trustee shall deliver or pay to the Company from time to time upon Company Request any money, U.S. Government Obligations or Foreign Government Obligations held by it as provided in Section 9.4 hereof which, in the opinion of a nationally-recognized firm of independent public accountants expressed in a written certification thereof delivered to the Trustee, are in excess of the amount thereof which would then be required to be deposited to effect an equivalent Legal Defeasance or Covenant Defeasance. 39 9.6 REINSTATEMENT. If the Trustee or Paying Agent is unable to apply any money, U.S. Government Obligations or Foreign Government Obligations in accordance with Section 9.1, 9.2, 9.3 or 9.4 hereof by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to this Article 9 until such time as the Trustee or Paying Agent is permitted to apply all such money, U.S. Government Obligations or Foreign Government Obligations, as the case may be, in accordance with Section 9.1, 9.2, 9.3 or 9.4 hereof; PROVIDED, HOWEVER, that if the Company has made any payment of principal of, premium, if any, or accrued interest on any Securities because of the reinstatement of their obligations, the Company shall be subrogated to the rights of the Holders of such Securities to receive such payment from the money, U.S. Government Obligations or Foreign Government Obligations held by the Trustee or Paying Agent. 9.7 MONEYS HELD BY PAYING AGENT. In connection with the satisfaction and discharge of this Indenture, all moneys then held by any Paying Agent under the provisions of this Indenture shall, upon demand of the Company, be paid to the Trustee, or if sufficient moneys have been deposited pursuant to Section 9.1 hereof, to the Company, and thereupon such Paying Agent shall be released from all further liability with respect to such moneys. 9.8 MONEYS HELD BY TRUSTEE. Any moneys deposited with the Trustee or any Paying Agent or then held by the Company in trust for the payment of the principal of, or premium, if any, or interest on any Security that are not applied but remain unclaimed by the Holder of such Security for two years after the date upon which the principal of, or premium, if any, or interest on such Security shall have respectively become due and payable shall be repaid to the Company upon Company Request, or if such moneys are then held by the Company in trust, such moneys shall be released from such trust; and the Holder of such Security entitled to receive such payment shall thereafter, as an unsecured general creditor, look only to the Company for the payment thereof, and all liability of the Trustee or such Paying Agent with respect to such trust money shall thereupon cease; PROVIDED, HOWEVER, that the Trustee or any such Paying Agent, before being required to make any such repayment, may, at the expense of the Company, either mail to each Securityholder affected, at the address shown in the register of the Securities maintained by the Registrar or cause to be published once a week for two successive weeks, in a newspaper published in the English language, customarily published each Business Day and of general circulation in the City of New York, New York, a notice that such money remains unclaimed and that, after a date specified therein, which shall not be less than 30 days from the date of such mailing or publication, any unclaimed balance of such moneys then remaining will be repaid to the Company. After payment to the Company or the release of any money held in trust by the Company, Securityholders entitled to the money must look only to the Company for payment as general creditors unless applicable abandoned property law designates another Person. 40 ARTICLE 10 MISCELLANEOUS 10.1 TRUST INDENTURE ACT CONTROLS. If any provision of this Indenture limits, qualifies or conflicts with another provision which is required to be included in this Indenture by the TIA, the required provision shall control. If any provision of this Indenture modifies or excludes any provision of the TIA which may be so modified or excluded, the latter provision shall be deemed to apply to this Indenture as so modified or to be excluded, as the case may be. 10.2 NOTICES. Any notice or communication shall be given in writing and delivered in Person, sent by facsimile (and receipt confirmed by telephone or electronic transmission report), delivered by commercial courier service or mailed by first-class mail, postage prepaid, addressed as follows: If to the Company: Genzyme Corporation One Kendall Square Cambridge, MA 02139 Fax: (617) 252-7852 Attention: Chief Financial Officer Copy to: Palmer & Dodge LLP One Beacon Street Boston, Massachusetts 02108 Fax: (617) 227-4420 Attention: Paul Kinsella, Esq. If to the Trustee: The Company or the Trustee by written notice to the other may designate additional or different addresses for subsequent notices or communications. Any notice or communication to the Company or the Trustee shall be deemed to have been given or made as of the date so delivered if personally delivered; when receipt is confirmed by telephone or electronic transmission report, if sent by facsimile; and three (3) Business Days after mailing if sent by registered or certified mail, postage prepaid (except that a notice of change of address shall not be deemed to have been given until actually received by the addressee). Any notice or communication mailed to a Securityholder shall be mailed to such Securityholder by first-class mail, postage prepaid, at such Securityholder's address shown on the register kept by the Registrar. 41 Failure to mail a notice or communication to a Securityholder or any defect in it shall not affect its sufficiency with respect to other Securityholders. If a notice or communication to a Securityholder is mailed in the manner provided above, it shall be deemed duly given, three Business Days after such mailing, whether or not the addressee receives it. In case by reason of the suspension of regular mail service, or by reason of any other cause, it shall be impossible to mail any notice as required by this Indenture, then such method of notification as shall be made with the approval of the Trustee shall constitute a sufficient mailing of such notice. In the case of Global Securities, notices or communications to be given to Securityholders shall be given to the Depository, in accordance with its applicable policies as in effect from time to time. In addition to the manner provided for in the foregoing provisions, notices or communications to Securityholders shall be given by the Company by release made to Reuters Economic Services and Bloomberg Business News. 10.3 COMMUNICATIONS BY HOLDERS WITH OTHER HOLDERS. Securityholders of any Series may communicate pursuant to TIA Section 312(b) with other Securityholders of that Series or any other Series with respect to their rights under this Indenture or the Securities of that Series or any other Series. The Company, the Trustee, the Registrar and any other Person shall have the protection of TIA Section 312(c). 10.4 CERTIFICATE AND OPINION AS TO CONDITIONS PRECEDENT. Upon any request or application by the Company to the Trustee to take any action under this Indenture, the Company shall furnish to the Trustee: (1) an Officers' Certificate (which shall include the statements set forth in Section 10.5 below) stating that, in the opinion of the signers, all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with; and (2) an Opinion of Counsel (which shall include the statements set forth in Section 10.5 below) stating that, in the opinion of such counsel, all such conditions precedent have been complied with. 10.5 STATEMENT REQUIRED IN CERTIFICATE AND OPINION. Each certificate and opinion with respect to compliance with a condition or covenant provided for in this Indenture (other than pursuant to Section 4.4 hereof) shall include: (1) a statement that the Person making such certificate or opinion has read such covenant or condition; 42 (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinions contained in such certificate or opinion are based; (3) a statement that, in the opinion of such Person, it or he has made such examination or investigation as is necessary to enable it or him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such Person, such covenant or condition has been complied with. 10.6 RULES BY TRUSTEE AND AGENTS. The Trustee may make reasonable rules for action by or at meetings of Securityholders. The Registrar and Paying Agent may make reasonable rules for their functions. 10.7 BUSINESS DAYS; LEGAL HOLIDAYS; PLACE OF PAYMENT. A "Business Day" is a day that is not a Legal Holiday. A "Legal Holiday" is a Saturday, a Sunday, a federally-recognized holiday or a day on which banking institutions are not authorized or required by law or executive order to be open in the Commonwealth of Massachusetts. If a payment date is a Legal Holiday at a Place of Payment, payment may be made at that place on the next succeeding day that is not a Legal Holiday, and no interest shall accrue for the intervening period. "Place of Payment" means the place or places where the principal of and any premium and interest on the Securities of a Series are payable as specified as contemplated by Section 2.2. If the regular record date is a Legal Holiday, the record date shall not be affected. 10.8 GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW. 10.9 NO ADVERSE INTERPRETATION OF OTHER AGREEMENTS. This Indenture may not be used to interpret another indenture, loan, security or debt agreement of the Company or any Subsidiary thereof. No such indenture, loan, security or debt agreement may be used to interpret this Indenture. 43 10.10 NO RECOURSE AGAINST OTHERS. A director, officer, employee, stockholder or incorporator, as such, of the Company shall not have any liability for any obligations of the Company under the Securities or the Indenture. Each Securityholder by accepting a Security waives and releases all such liability. Such waiver and release are part of the consideration for the issuance of the Securities. 10.11 SUCCESSORS. All covenants and agreements of the Company in this Indenture and the Securities shall bind its successors and assigns, whether so expressed or not. All agreements of the Trustee, any additional trustee and any Paying Agents in this Indenture shall bind their respective successors and assigns. 10.12 MULTIPLE COUNTERPARTS. The parties may sign multiple counterparts of this Indenture. Each signed counterpart shall be deemed an original, but all of them together represent one and the same agreement. 10.13 TABLE OF CONTENTS, HEADINGS, ETC. The table of contents, cross-reference sheet and headings of the Articles and Sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. 10.14 SEVERABILITY. Each provision of this Indenture shall be considered separable and if for any reason any provision which is not essential to the effectuation of the basic purpose of this Indenture or the Securities shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired thereby and a Holder shall have no claim therefor against any party hereto. 10.15 SECURITIES IN A FOREIGN CURRENCY OR IN EURO. Unless otherwise specified in a Board Resolution, a supplemental indenture hereto or an Officers' Certificate delivered pursuant to Section 2.2 of this Indenture with respect to a particular Series of Securities, whenever for purposes of this Indenture any action may be taken by the Holders of a specified percentage in aggregate principal amount of Securities of all Series or all Series affected by a particular action at the time outstanding and, at such time, there are outstanding Securities of any Series which are denominated in a coin or currency other than Dollars (including Euros), then the principal amount of Securities of such Series which shall be deemed to be outstanding for the purpose of taking such action shall be that amount of Dollars that could be obtained for such amount at the Market Exchange Rate at such time. For purposes of this Section 10.15, "Market Exchange Rate" shall mean the noon Dollar buying rate in New York City for cable transfers of that currency as published by the Federal Reserve Bank of New York; PROVIDED, HOWEVER, in the case of Euros, Market Exchange Rate shall mean the rate of exchange determined by the Commission of the European Union (or any successor thereto) as published in the Official Journal of the European Union (such publication or any successor 44 publication, the "Journal"). If such Market Exchange Rate is not available for any reason with respect to such currency, the Trustee shall use, in its sole discretion and without liability on its part, such quotation of the Federal Reserve Bank of New York or, in the case of Euros, the rate of exchange as published in the Journal, as of the most recent available date, or quotations or, in the case of Euros, rates of exchange from one or more major banks in The City of New York or in the country of issue of the currency in question or, in the case of Euros, in Luxembourg or such other quotations or, in the case of Euros, rates of exchange as the Trustee, upon consultation with the Company, shall deem appropriate. The provisions of this paragraph shall apply in determining the equivalent principal amount in respect of Securities of a Series denominated in currency other than Dollars in connection with any action taken by Holders of Securities pursuant to the terms of this Indenture. All decisions and determinations of the Trustee regarding the Market Exchange Rate or any alternative determination provided for in the preceding paragraph shall be in its sole discretion and shall, in the absence of manifest error, be conclusive to the extent permitted by law for all purposes and irrevocably binding upon the Company and all Holders. 10.16 JUDGMENT CURRENCY. The Company agrees, to the fullest extent that it may effectively do so under applicable law, that (a) if for the purpose of obtaining judgment in any court it is necessary to convert the sum due in respect of the principal of or interest or premium (if any) or other amount on the Securities of any Series (the "Required Currency") into a currency in which a judgment will be rendered (the "Judgment Currency"), the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Required Currency with the Judgment Currency on the day on which final unappealable judgment is entered, unless such day is not a New York Banking Day, then, the rate of exchange used shall be the rate at which in accordance with normal banking procedures the Trustee could purchase in The City of New York the Required Currency with the Judgment Currency on the New York Banking Day preceding the day on which final unappealable judgment is entered and (b) its obligations under this Indenture to make payments in the Required Currency (i) shall not be discharged or satisfied by any tender, any recovery pursuant to any judgment (whether or not entered in accordance with subsection (a)), in any currency other than the Required Currency, except to the extent that such tender or recovery shall result in the actual receipt, by the payee, of the full amount of the Required Currency expressed to be payable in respect of such payments, (ii) shall be enforceable as an alternative or additional cause of action for the purpose of recovering in the Required Currency the amount, if any, by which such actual receipt shall fall short of the full amount of the Required Currency so expressed to be payable, and (iii) shall not be affected by judgment being obtained for any other sum due under this Indenture. For purposes of the foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a legal holiday in The City of New York on which banking institutions are authorized or required by law, regulation or executive order to close. IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be duly executed, and their respective corporate seals to be hereunto affixed and attested, all as of the day and year first above written. 45 GENZYME CORPORATION By: ------------------------------------------ Name: Its: [Name of Trustee] By: ------------------------------------------ Name: Its: 46 COMMONWEALTH OF MASSACHUSETTS ) ) SS COUNTY OF _________________ ) On this, the ____ day of __________, ____, before me, a Notary Public in and for said County and State, the undersigned officer, personally appeared _______________________________, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and acknowledged that he or she executed the same for the purposes therein contained. IN WITNESS WHEREOF, I hereunto set my hand and official seal. __________________________________ Notary Public [SEAL] My Commission Expires: __________________________________ COMMONWEALTH OF MASSACHUSETTS ) ) SS COUNTY OF _________________ ) On this, the ____ day of __________, ____, before me, a Notary Public in and for said County and State, the undersigned officer, personally appeared _______________________________, known to me (or satisfactorily proven) to be the person whose name is subscribed to the within instrument and acknowledged that he or she executed the same for the purposes therein contained. IN WITNESS WHEREOF, I hereunto set my hand and official seal. __________________________________ Notary Public [SEAL] My Commission Expires: __________________________________ 47 EX-5.1 3 EXHIBIT 5.1 Exhibit 5.1 [PALMER & DODGE LETTERHEAD] March 3, 2000 Genzyme Corporation One Kendall Square Cambridge, Massachusetts 02139 Re: $500,000,000 Aggregate Offering Price of Securities of Genzyme Corporation Ladies and Gentlemen: We are furnishing this opinion in connection with the registration statement on Form S-3 (the "Registration Statement") of Genzyme Corporation (the "Company"), a Massachusetts corporation, filed on March 3, 2000 with the U.S. Securities and Exchange Commission (the "Commission") under the Securities Act of 1933, as amended (the "Securities Act"). We have reviewed the Registration Statement, including the prospectus (the "Prospectus") which is a part of the Registration Statement. The Prospectus provides that it will be supplemented in the future by one or more supplements to the Prospectus (each a "Prospectus Supplement"). The Prospectus as supplemented by various Prospectus Supplements will provide for the issuance and sale by the Company of up to $500,000,000 aggregate offering price of (i) one or more series of debt securities (the "Debt Securities"), (ii) shares of Preferred Stock, $.01 par value (the "Preferred Stock"), (iii) shares of Genzyme General Division Common Stock, $.01 par value ("GENZ Stock"), (iv) shares of Genzyme Molecular Oncology Division Common Stock, $.01 par value ("GZMO Stock"), (v) shares of Genzyme Surgical Products Division Common Stock, $.01 par value ("GZSP Stock"), (vi) shares of Genzyme Tissue Repair Division Common Stock, $.01 par value ("GZTR Stock"), (vii) shares of one or more yet to be designated series of Genzyme Common Stock, $.01 par value ("New Common Stock"), and (viii) warrants to purchase GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock, New Common Stock, Preferred Stock, or Debt Securities (collectively, the "Warrants"). The Debt Securities, the Preferred Stock, GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock, New Common Stock, and the Warrants are collectively referred to herein as the "Securities." The Registration Statement provides that Debt Securities may be convertible into shares of GENZ Stock, GZMO Stock, GZSP Stock, or GZTR Stock, or shares of New Common Stock or Preferred Stock, and that shares of Preferred Stock may be convertible into shares of GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock or New Common Stock. The Debt Securities will be issued pursuant to one or more indentures in the form filed as an exhibit to the Registration Statement, as amended or supplemented from time to time (each, an "Indenture"), between the Company, as obligor, and a trustee chosen by the Company and qualified to act as such under the Trust Indenture Act of 1939, as amended (each, a "Trustee"). Genzyme Corporation March 3, 2000 Page 2 The Warrants will be issued under one or more warrant agreements (each, a "Warrant Agreement") by and among the Company and a financial institution identified therein as warrant agent (each, a "Warrant Agent"). In our capacity as your counsel in connection with such registration, we are familiar with the proceedings taken and proposed to be taken by the Company in connection with the authorization and issuance of the Securities. We have made such examination as we consider necessary to render this opinion. The opinions rendered herein are limited to the laws of the Commonwealth of Massachusetts and the federal laws of the United States. Based upon the foregoing, we are of the opinion that: 1. When (i) the Board of Directors of the Company adopts a resolution authorizing the issuance of a particular Debt Security and (ii) the Company and the Trustee duly execute and deliver an Indenture which establishes the specific terms of such Debt Security, and such Debt Securities have been duly authenticated by the Trustee and duly executed and delivered on behalf of the Company against payment therefor in accordance with the terms and provisions of the Indenture and as contemplated by the Registration Statement, the Prospectus and the related Prospectus Supplement(s) and (ii) the Registration Statement and any required post-effective amendments thereto have all become effective under the Securities Act, and assuming that (a) the terms of the Debt Securities as executed and delivered are as described in the Registration Statement, the Prospectus and the related Prospectus Supplement(s), (b) the Debt Securities as executed and delivered do not violate any law applicable to the Company or result in a default under or breach of any agreement or instrument binding upon the Company, (c) the Debt Securities as executed and delivered comply with all requirements and restrictions, if any, applicable to the Company, whether imposed by any court or governmental or regulatory body having jurisdiction over the Company and (d) the Debt Securities are then issued and sold as contemplated in the Registration Statement, the Prospectus and the related Prospectus Supplement(s), the Debt Securities will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with the terms of the Debt Securities. 2. The Company has the authority pursuant to its Amended and Restated Articles of Organization (as amended the "Articles"), to issue up to 10,000,000 shares of Preferred Stock of which 3,400,000 shares have been designated and reserved prior to the date hereof. When a series of Preferred Stock has been duly established in accordance with the terms of the Articles and applicable law, including the filing of a Certificate of Vote of Directors Establishing a Series of a Class of Stock (a "Certificate of Designation") relating to such series and any New Common Stock into which such series may be convertible (if applicable), and upon adoption by the Board of Directors of the Company of a resolution in form and content as required by applicable law and upon issuance and delivery of and payment for such shares in the manner contemplated by the Registration Statement, the Prospectus and the related Prospectus Supplement(s) and by such resolution, such shares of such series of Preferred Stock will be validly issued, fully paid and nonassessable. 3. The Company has the authority pursuant to the Articles to issue up to 200,000,000 shares of GENZ Stock, 40,000,000 shares of GZMO Stock, 60,000,000 shares of GZSP Stock, 40,000,000 shares of GZTR Stock and 50,000,000 shares of New Common Stock. Upon adoption by the Board of Directors of the Company of a resolution in form and Genzyme Corporation March 3, 2000 Page 3 content as required by applicable law and, in the case of New Common Stock, upon the establishment of a new Series of Common Stock in accordance with the terms of the Articles and applicable law, including the filing of a Certificate of Designation relating to such New Common Stock and upon issuance and delivery of and payment for such shares in the manner contemplated by the Registration Statement, the Prospectus and the related Prospectus Supplement(s) and by such resolution, such shares of GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock and New Common Stock will be validly issued, fully paid and nonassessable. 4. When (i) the Board of Directors of the Company adopts a resolution authorizing the issuance of particular Warrants and the Securities underlying such Warrants, (ii) to the extent necessary, the Securities underlying such Warrants have been duly established in accordance with the terms of the Articles and applicable law, including the filing of a Certificate of Designation relating to such Securities, (iii) the Company and the Warrant Agent duly execute and deliver a Warrant Agreement which establishes the specific terms of such Warrants, and such Warrants have been duly authenticated by the Warrant Agent and duly executed and delivered on behalf of the Company against payment therefor in accordance with the terms and provisions of the Warrant Agreement and as contemplated by the Registration Statement, the Prospectus and the related Prospectus Supplement(s) and (iv) the Registration Statement and any required post-effective amendments thereto have all become effective under the Securities Act, and assuming that (a) the terms of the Warrants as executed and delivered are as described in the Registration Statement, the Prospectus and the related Prospectus Supplement(s), (b) the Warrants as executed and delivered do not violate any law applicable to the Company or result in a default under or breach of any agreement or instrument binding upon the Company, (c) the Warrants as executed and delivered comply with all requirements and restrictions, if any, applicable to the Company, whether imposed by any court or governmental or regulatory body having jurisdiction over the Company and (d) the Warrants are then issued and sold as contemplated in the Registration Statement, the Prospectus and the related Prospectus Supplement(s), the Warrants will constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms. The opinions set forth in paragraphs 1 and 4 above are subject to the following exceptions, limitations and qualifications: (i) the effect of bankruptcy, insolvency, reorganization, fraudulent conveyance, moratorium or other similar laws now or hereafter in effect relating to or affecting the rights and remedies of creditors; (ii) the effect of general principles of equity, including without limitation, concepts of materiality, reasonableness, good faith and fair dealing and the possible unavailability of specific performance or injunctive relief, regardless of whether enforcement is considered in a proceeding in equity or at law, and the discretion of the court before which any proceeding therefor may be brought; (iii) the unenforceability under certain circumstances under law or court decisions of provisions providing for the indemnification of, or contribution to, a party with respect to a liability where such indemnification or contribution is contrary to public policy; (iv) we express no opinion concerning the enforceability of any waiver of rights or defenses with respect to stay, extension or usury laws; and (v) we express no opinion with respect to whether acceleration of Debt Securities may affect the collectibility of any portion of the stated principal amount thereof which might be determined to constitute unearned interest thereon. We assume for purposes of this opinion that (i) the Company is and will remain duly organized, validly existing and in good standing under applicable state law (ii) that the consideration per share of New Common Stock or Preferred Stock will not be less than $.01 and (iii) the number of shares of Preferred Stock, GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock, or New Common Stock issued or issuable on exercise of the Securities issued pursuant to the Registration Statement, together with the number of shares of such class and series outstanding or reserved at the time of issuance, will not exceed the respective number of shares of Preferred Stock, GENZ Stock, GZMO Stock, GZSP Stock, GZTR Stock or New Common Stock authorized by the Articles on the date hereof, as amended by the Certificate of Designation filed prior to the date hereof, and by any Certificate of Designation or amendment to the Articles hereafter filed by the Company with respect to Preferred Stock or New Common Stock prior to the issuance of such shares. Genzyme Corporation March 3, 2000 Page 4 To the extent that the obligations of the Company under an Indenture may be dependent thereon, we assume for purposes of this opinion that the Company has the organizational power and authority to issue and sell the Securities; that the applicable Indenture has been duly authorized by all necessary organizational action by the Company, has been duly executed and delivered by the Company and constitutes the legally valid, binding and enforceable obligation of the Company enforceable against the Company in accordance with its terms; that the Trustee for each Indenture is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; that the Trustee is duly qualified to engage in the activities contemplated by the applicable Indenture; that the applicable Indenture has been duly authorized, executed and delivered by the Trustee and constitutes a legally valid, binding and enforceable obligation of the Trustee, enforceable against the Trustee in accordance with its terms; that the Trustee is in compliance, generally and with respect to acting as Trustee under the applicable Indenture, with all applicable laws and regulations; and that the Trustee has the requisite organizational and legal power and authority to perform its obligations under the applicable Indenture. To the extent that the obligations of the Company under each Warrant Agreement may be dependent thereon, we assume for purposes of this opinion that the Company has the corporate power and authority to issue and sell the Securities; that the applicable Warrant Agreement has been duly authorized by all necessary corporate action by the Company, has been duly executed and delivered by the Company and constitutes the legally valid, binding and enforceable obligation of the Company enforceable against the Company in accordance with its terms; that the Warrant Agent is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization; that the Warrant Agent is duly qualified to engage in the activities contemplated by the Warrant Agreement; that the Warrant Agreement has been duly authorized, executed and delivered by the Warrant Agent and constitutes the legally valid, binding and enforceable obligation of the Warrant Agent, enforceable against the Warrant Agent in accordance with its terms; that the Warrant Agent is in compliance, generally and with respect to acting as a Warrant Agent under the Warrant Agreement, with all applicable laws and regulations; and that the Warrant Agent has the requisite organizational and legal power and authority to perform its obligations under the Warrant Agreement. We consent to your filing this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Prospectus included therein. Very truly yours, /s/ Palmer & Dodge LLP EX-12 4 EXHIBIT 12 Exhibit 12
GENZYME CORPORATION AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS)
For the Nine Months Ended Year ended December 31, September 30, ----------------------------------------------- ---------------- 1994 1995 1996 1997 1998 1998 1999 ---- ---- ---- ---- ---- ---- ---- Income (loss) before income taxes ...................... $30,784 $43,299 $(69,622) $25,729 $102,437 $60,982 $63,785 Add: Portion of rents representative of the interest factor 2,888 3,335 4,260 5,421 6,142 4,607 5,384 Amortization of debt conversion feature value ........ -- -- -- 2,028 3,025 2,654 -- Amortization of debt discount ........................ -- -- -- 196 955 633 964 Interest on indebtedness ............................. 1,354 1,109 7,170 10,599 18,757 12,915 16,193 -------- -------- -------- -------- -------- ------- -------- As adjusted income (loss) .............................. $35,026 $47,743 $(58,192) $43,973 $131,316 $81,391 $86,326 ======== ======== ======== ======== ======== ======= ======== Fixed charges: Portion of rents representative of the interest factor 2,888 3,335 4,260 5,421 6,142 4,607 5,384 Amortization of debt conversion feature value ........ -- -- -- 2,028 3,025 2,654 -- Amortization of debt discount ........................ -- -- -- 196 955 633 964 Interest on indebtedness ............................. 1,354 1,109 7,404 10,808 18,969 13,111 16,458 Capitalized interest ................................. 8,945 8,736 2,377 470 669 423 539 Capitalized amortization of debt discount ............ 275 275 57 -- -- -- -- ------- ------- ------- ------- ------- ------- ------- Total fixed charges .................................... $13,462 $13,455 $14,098 $18,923 $29,760 $21,428 $23,345 ======= ======= ======= ======= ======= ======= ======= Ratio of earnings to fixed charges (1) ................. 2.6x 3.5x -- 2.3x 4.4x 3.8x 3.7x ======== ======== ======== ======== ======== ======= ========
- ----------------- (1) The ratio of earnings to fixed charges is not presented for the year ended December 31, 1996 because in such year fixed charges exceeded earnings (as set forth above) by $72.3 million due primarily to charges for in-process research and development of $130.6 million. EX-23.1 5 EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this Registration Statement on Form S-3 of Genzyme Corporation of: our reports dated February 23, 1999, relating to the financial statements and financial statement schedules of Genzyme Corporation, Genzyme Tissue Repair and Genzyme Molecular Oncology which appear in Genzyme Corporation's Annual Report on Form 10-K for the year ended December 31, 1998; our report dated June 9, 1999, relating to the financial statements and financial statement schedule of Genzyme Surgical Products which appears in Genzyme Corporation's Form 8-K as filed on June 11, 1999; our report dated June 28, 1999, relating to the financial statements and financial statement schedule of Genzyme General which appears in Genzyme Corporation's Form 8-K as filed on June 30, 1999; and our report dated June 16, 1999, relating to the financial statements of the Genzyme Retirement Savings Plan which appears in Genzyme Corporation's Form 10-K/A as filed on June 30, 1999. We also consent to the reference to us under the heading "Experts" in such Registration Statement. /s/ PRICEWATERHOUSECOOPERS LLP Boston, Massachusetts March 2, 2000 EX-99.1 6 EXHIBIT 99.1 Exhibit 99.1 AS ADOPTED BY THE BOARD OF DIRECTORS ON MAY 26, 1999 AS AMENDED BY THE BOARD OF DIRECTORS ON MARCH 2, 2000 MANAGEMENT AND ACCOUNTING POLICIES GOVERNING THE RELATIONSHIP OF GENZYME DIVISIONS GENZYME'S BOARD OF DIRECTORS HAS ADOPTED THE FOLLOWING POLICIES TO GOVERN THE MANAGEMENT OF GENZYME GENERAL, GENZYME MOLECULAR ONCOLOGY, GENZYME SURGICAL PRODUCTS AND GENZYME TISSUE REPAIR, AND THE RELATIONSHIPS BETWEEN EACH DIVISION. EXCEPT AS OTHERWISE PROVIDED IN THE POLICIES, THE BOARD OF DIRECTORS MAY MODIFY OR RESCIND THE POLICIES, OR ADOPT ADDITIONAL POLICIES, IN ITS SOLE DISCRETION WITHOUT APPROVAL OF THE STOCKHOLDERS, SUBJECT ONLY TO ITS FIDUCIARY DUTY TO THE STOCKHOLDERS. 1. PURPOSE OF GENZYME GENERAL, GENZYME MOLECULAR ONCOLOGY, GENZYME SURGICAL PRODUCTS AND GENZYME TISSUE REPAIR. The purpose of Genzyme General is to develop and market therapeutic products and diagnostic services and products. The purpose of Genzyme Molecular Oncology is to create a focused, integrated oncology business that will develop and commercialize novel therapeutic and diagnostic products and services based upon molecular tools and genomic information. The purpose of Genzyme Surgical Products is to create a business with a comprehensive approach to and portfolio of devices, biomaterials, biotherapeutics and other products for the field of biosurgery. The purpose of Genzyme Tissue Repair is to create a business with a comprehensive approach to the field of tissue repair by developing and commercializing a portfolio of novel products for the treatment and prevention of serious tissue injury (excluding products developed on behalf of Genzyme Development Partners). In addition to the programs initially assigned to each of Genzyme Molecular Oncology, Genzyme Surgical Products and Genzyme Tissue Repair, it is expected that the product and service portfolio of each division will expand through the addition of complementary programs, products and services developed either within or outside of the division, including acquiring or in-licensing programs, products and services from outside of Genzyme. Each of Genzyme Molecular Oncology, Genzyme Surgical Products and Genzyme Tissue Repair will be operated and managed similarly to Genzyme General except as provided herein. 2. REVENUE ALLOCATION. Revenues from the sale or licensing of a division's products and services to entities external to Genzyme Corporation shall be credited to that division. Products and services normally sold by a division to entities external to Genzyme Corporation that are used by other divisions within Genzyme Corporation shall be recorded as interdivisional revenues and interdivisional purchases subject to the policy regarding Other Interdivisional Transactions. 3. EXPENSE ALLOCATION. Direct Expenses shall be charged to the division for whose benefit the Direct Expenses have been incurred. Expenses other than Direct Expenses shall be subject to the policy regarding Other Interdivisional Transactions. 4. ASSET ALLOCATION. Assets that are exclusively dedicated to the production of goods and services of a division shall be allocated to that division. Production assets that are utilized by more than one division shall be subject to the policy regarding Other Interdivisional Transactions. 5. TAX ALLOCATIONS. Income taxes shall be allocated to each division based upon the financial statement income, taxable income, credits and other amounts properly allocable to such division under generally accepted accounting principles as if each division were a separate taxpayer; provided, however, that as of the end of any fiscal quarter of Genzyme, any projected annual tax benefit attributable to any division that cannot be utilized by such division to offset or reduce its current or deferred income tax expense may be allocated to the other divisions in proportion to their taxable income without any compensating payment or allocation. 6. ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS. Upon the acquisition by Genzyme from a third party of any programs, products or assets (whether by acquisitions of assets or stock, merger, consolidation or otherwise), the aggregate cost of the acquisition and the programs, products or assets acquired shall be allocated among the divisions of Genzyme. In the case of material acquisitions, such allocation shall be made in a manner determined by the Genzyme Board to be fair and reasonable to each division and to the holders of the common stock representing each division, taking into account such matters as the Genzyme Board and its financial advisors, if any, deem relevant. Any such determination will be final and binding on the holders of common stock. 7. DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS. Upon the sale, transfer, assignment or other disposition by Genzyme of any program, product or asset not consisting of all or substantially all of the assets of the division, all proceeds from such disposition shall be allocated to the division to which the program, product or asset had been allocated among such divisions based on their respective interests in such program, product or asset. Such allocations shall be made in a manner determined by the Genzyme Board to be fair and reasonable to such divisions and to holders of the common stock representing such divisions, taking into account such matters as the Genzyme Board and its financial advisors, if any, deem relevant. Any such determination by the Genzyme Board will be final and binding on the holders of common stock. 8. INTERDIVISIONAL ASSET TRANSFERS. The Genzyme Board may at any time and from time to time reallocate any program, product or other asset from one division to any other division. All such reallocations shall be done at fair market value, determined by the Genzyme Board, taking into account, in the case of a program under development, the commercial potential of such program, the phase of clinical development of such program, the expenses associated with realizing any income from such program, the likelihood and timing of any such realization and other matters that the Genzyme Board and its financial advisors, if any, deem relevant. The consideration for such reallocation may be paid by one division to another in cash or other consideration with a value equal to the fair market value of the assets being reallocated or, in the case of a reallocation of assets from Genzyme General to Genzyme Molecular Oncology, Genzyme Surgical Products or Genzyme Tissue Repair, the Genzyme Board may elect to account for such reallocation as an increase in the Designated Shares representing the division to which such assets are reallocated in accordance with the provisions of Genzyme's articles of organization. 2 Notwithstanding the foregoing, no Key GMO Program or Key GTR Program, as defined below, may be transferred out of Genzyme Molecular Oncology or Genzyme Tissue Repair, respectively, without a class vote of the holders of the common stock representing the division from which such Key GMO Program or Key GTR Program is to be removed unless the Genzyme Board determines that (i) in the case of a Key GMO Program, such Key GMO Program has application outside of the field of oncology (in which case it may be transferred out only for the non-oncology applications; provided, however that the SAGE Service (as herein defined) may not be transferred out of Genzyme Molecular Oncology for any application without the approval of the holders of the GZMO Stock voting as a separate class) and (ii) in the case of a Key GTR Program, such Key GTR Program has application outside of the field of tissue repair (in which case it may be transferred out only for the non-tissue repair applications). A "Key GMO Program" is any of the following: (i) use of the Serial Analysis of Gene Expression ("SAGE-TM-") technology licensed from The Johns HopkinS University School of Medicine for third parties ("SAGE Service"); (ii) the clinical program developing adenovirus vectors containing the tumor antigens Ad-MART 1 or Ad-gp100 for the treatment of melanoma; (iii) the "suicide" gene therapy research program developing adenovirus and lipid vectors containing genes to enhance chemotherapy for oncology indications; (iv) the research program developing adenovirus and lipid vectors containing tumor suppressor genes for oncology indications; (v) the research program developing adenovirus and lipid vectors containing genes to regulate the immune system for oncology indications, including heat shock proteins; (vi) the research program developing antibody-based gene therapy for the treatment of tumors; and (vii) any additional program, product or service being developed from time to time in Genzyme Molecular Oncology which (a) constituted 20% or more of the research and development budget of Genzyme Molecular Oncology in any one of the three most recently completed fiscal years or (b) has had a cumulative investment of $8 million or more in research and development expenses by Genzyme Molecular Oncology. A "Key GTR Program" is any of the following: (i) Vianain-Registered Trademark- for debridement of necrotic or damaged tissue; (ii) TGF-(beta)2 for all indications licensed from Celtrix as of December 16, 1994; (iii) Epicel-TM- cultured epithelial cell autografts for tissue replacement or repair; (iv) Acticel-TM- cultured epithelial cell allografts for tissue replacement or repair; (v) Carticel-Registered Trademark- Autologous Cultured Chondrocyte Service; and (vi) any additional tissue repair program or product being developed from time to time in Genzyme Tissue Repair which (a) constituted 20% or more of the research and development budget of Genzyme Tissue Repair in any one of the three most recently completed fiscal years or (b) has had a cumulative investment of $8 million or more in research and development expenses by Genzyme Tissue Repair. The foregoing policies regarding transfers of assets between divisions will not be changed by the Genzyme Board without the approval of the holders of the GZMO Stock, the GZSP Stock and the GZTR Stock, each voting as a separate class; PROVIDED, HOWEVER, that if a policy change affects one or more, but not all of, Genzyme Molecular Oncology, Genzyme Surgical Products and/or Genzyme Tissue Repair, only holders of shares representing the affected division(s) will be entitled to vote on such matter. 9. OTHER INTERDIVISIONAL TRANSACTIONS. This policy shall cover interdivisional transactions other than asset transfers, which shall be subject to the policy regarding 3 Interdivisional Asset Transfers. From time to time, a division may engage in transactions directly with one or more other divisions or jointly with one or more other divisions and one or more third parties. Such transactions may include agreements by one division to provide products and services for use by another division and joint venture or other collaborative arrangements involving more than one division to develop new products and services jointly and with third parties. Such transactions shall be subject to the following conditions: (a) Research and development (including clinical and regulatory support), distribution, sales, marketing, and general and administrative services (including allocated space) performed by one division for the benefit of another division will be charged to the division for which work is performed on a cost basis. Direct costs shall be allocated in a manner described above under "Expense Allocation" and such division performing the work will not recognize revenue as a result of performing such work. Direct labor and indirect costs shall be allocated in a reasonable and consistent manner based on the utilization by the division of the services to which such costs relate. The division performing such work will not recognize revenue as a result of performing such work. (b) Manufacturing of goods and services by one division exclusively for the benefit of another division and not for external sale shall be charged to the division for which the work is performed on a cost basis. Manufacturing costs shall include an interest charge on the gross fixed assets employed in such manufacturing process. Gross fixed assets in this case shall be determined at the beginning of each fiscal year for the facility used. The interest rate in this case shall be the short term borrowing rate of Genzyme Corporation at the beginning of each fiscal year. Direct labor and indirect costs shall be allocated in a reasonable and consistent manner based on the receipt of benefit by the division of the goods and services to which such costs relate. The division performing such work will not recognize revenue as a result of performing such work. (c) Other than research and development (including clinical and regulatory support) distribution, sales, marketing, general and administrative services (including allocated space), interdivisional transactions shall be on terms and conditions that would be obtainable in transactions negotiated at arm's length with unaffiliated third parties. The division performing such work will not recognize revenue as a result of performing such work. (d) Any interdivisional transaction (i) to be performed on terms and conditions that deviate from the policies set forth in subparagraphs (a), (b) or (c) above and (ii) that is material to one or more of the participating divisions will require approval by the Genzyme Board, which approval shall include a determination by the Genzyme Board that the transaction is fair and reasonable to each participating division and to the holders of the common stock representing each such division. (e) Loans may be made from time to time between divisions. Any such loan of $1 million or less will mature within 18 months and interest will accrue at the best borrowing rate available to Genzyme for a loan of like type and duration. Amounts borrowed in excess of $1 million will require approval of the Genzyme Board, which approval shall include a determination by the Genzyme Board that the material terms of such loan, including the interest 4 rate and maturity date, are fair and reasonable to each participating division and to holders of the common stock representing such division. (f) All material interdivisional transactions shall be reduced to service contracts and signed by an authorized member of the management team of affected divisions. 10. ACCESS TO TECHNOLOGY AND KNOW-HOW. Each division of Genzyme Corporation shall have unrestricted access to all technology and know-how of the Corporation that may be made useful to such division's business, subject to any obligations or limitations applicable to Genzyme and its divisions. 11. DISPOSITION OF GZMO, GZSP AND GZTR DESIGNATED SHARES. (a) The GZMO Designated Shares, the GZSP Designated Shares and the GZTR Designated Shares may be (i) issued upon the exercise or conversion of outstanding stock options, warrants or convertible securities allocated to Genzyme General, (ii) subject to the restrictions set forth in Paragraph 13, sold for any valid business purpose, or (iii) distributed as a dividend to the holders of shares of GENZ Stock, all as determined from time to time by the Genzyme Board in its sole discretion. (b) If, as of November 30 of each year, the number of GZMO Designated Shares on such date exceeds ten percent (10%) of the number of shares of GZMO Stock then issued and outstanding on such date, substantially all GZMO Designated Shares will be distributed to holders of record of GENZ Stock, subject to reservation of a number of such shares equal to the sum of (x) the number of GZMO Designated Shares reserved for issuance upon the exercise or conversion of GENZ Convertible Securities as a result of anti-dilution adjustments required by the terms of such instruments or approved by the Genzyme Board and (y) the number of GZMO Designated Shares reserved by the Genzyme Board as of such date for sale not later than six months after such date, the proceeds of which sale will be allocated to Genzyme General. (c) If, as of June 30 of each year starting on June 30, 2000 the number of GZSP Designated Shares on such date exceeds ten percent (10%) of the number of shares of GZSP Stock then issued and outstanding on such date, substantially all GZSP Designated Shares will be distributed to holders of record of GENZ Stock, subject to reservation of a number of such shares equal to the sum of (x) the number of GZSP Designated Shares reserved for issuance with respect to stock options, stock purchase rights, warrants or other securities convertible into or exercisable for shares of GENZ Stock outstanding on such date ("GENZ Convertible Securities") as a result of anti-dilution adjustments required by the terms of such instruments or approved by the Genzyme Board and (y) the number of GZSP Designated Shares reserved by the Genzyme Board as of such date for sale not later than six months after such date, the proceeds of which sale will be allocated to Genzyme General. (d) If, as of May 31 of each year, the number of GZTR Designated Shares on such date exceeds ten percent (10%) of the number of shares of GZTR Stock then issued and outstanding on such date, substantially all GZTR Designated Shares will be distributed to holders of record of GENZ Stock, subject to reservation of a number of such shares equal to the sum of 5 (x) the number of GZTR Designated Shares reserved for issuance upon the exercise or conversion of GENZ Convertible Securities as a result of anti-dilution adjustments required by the terms of such instruments or approved by the Genzyme Board and (y) the number of GZTR Designated Shares reserved by the Genzyme Board as of such date for sale not later than six months after such date, the proceeds of which sale will be allocated to Genzyme General. 12. ISSUANCE AND SALE OF ADDITIONAL SHARES OF COMMON STOCK. When additional shares of common stock are issued and sold by Genzyme, Genzyme will identify (i) the number of such shares issued and sold for the account of the division to which they relate, the proceeds of which will be allocated to and reflected in the financial statements of such division and (ii) the number of such shares issued and sold that shall reduce the number of Designated Shares of such division. Notwithstanding the foregoing, Genzyme will not sell any GZMO Designated Shares, GZSP Designated Shares or GZTR Designated Shares (except upon exercise or conversion of options, warrants or convertible securities issued by Genzyme General that were adjusted as a result of a dividend of GZMO, GZSP or GZTR Stock paid to holders of GENZ Stock) unless (i) the Genzyme Board determines that Genzyme Molecular Oncology, Genzyme Surgical Products or Genzyme Tissue Repair, as the case may be, has cash sufficient to fund its operations for at least the next 12 months or (ii) shares of GZMO Stock, GZSP Stock or GZTR Stock, as the case may be, are concurrently being sold for the account of Genzyme Molecular Oncology, Genzyme Surgical Products or Genzyme Tissue Repair, respectively, in an amount that will produce proceeds sufficient to fund such division's cash needs for the next 12 months. 13. OPEN MARKET PURCHASES OF SHARES OF COMMON STOCK. Genzyme may make open market purchases of its common stock in accordance with applicable securities law requirements; provided, however, that in no event shall any such purchases be made if as an immediate result thereof the number of Designated Shares representing a division will exceed 60% of the number of shares of such division outstanding plus such number of Designated Shares. Notwithstanding the foregoing, within 90 days of any open market purchase of the common stock representing any division, Genzyme may not exercise the right provided under its articles of organization to exchange shares representing such division for cash and/or shares of GENZ Stock. 14. CLASS VOTING. In addition to any stockholder approval required by Massachusetts law, whenever the approval of the holders of the common stock representing a division is required to take any action pursuant to these policies or Genzyme's articles of organization, such requirement shall be satisfied if a meeting of the holders of the common stock representing such division is held at which a quorum is present and the votes cast in favor of the proposed action exceed the votes cast against. 15. NON-COMPETE. Genzyme General, Genzyme Molecular Oncology, Genzyme Surgical Products and Genzyme Tissue Repair shall not engage to any material extent in each other's principal businesses other than through joint ventures or other collaborative arrangements involving more than one division to develop new products and services jointly and with third parties, which transactions shall be subject to the conditions set forth in Paragraph 8. The divisions may compete in a business which is not a principal business of another division. The Genzyme Board may determine in its good faith business judgment whether any particular 6 activities of one division involve a material engagement in the principle businesses of another division. 16. CORPORATE OPPORTUNITIES. The Genzyme Board will review any matter which involves the allocation of a corporate opportunity to any of the divisions, or in part to one division and in part to another division. In accordance with Massachusetts law, the Genzyme Board will make its determination with regard to the allocation of any such opportunity and the benefit of any such opportunity in accordance with its good faith business judgment of the best interests of Genzyme and all of its stockholders as a whole. Among the factors that the Genzyme Board may consider in making this allocation are (i) whether a particular corporate opportunity is principally related to the business of Genzyme General, Genzyme Molecular Oncology, Genzyme Surgical Products or Genzyme Tissue Repair; (ii) whether one division, because of its managerial or operational expertise, will be better positioned to undertake the corporate opportunity; (iii) whether one division, because of its financial resources, will be better positioned to undertake the corporate opportunity; and (iv) existing contractual agreements and restrictions. 7 -----END PRIVACY-ENHANCED MESSAGE-----