-----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, S3jJJZv+kZawD4ukmWkBqKhH9uAD4rY2IsCHWDqeK/cHHKHcI19aiiPSwcDb2fVG 5zbKUlL21V/ne6epDEr9Cw== 0000950135-96-003695.txt : 19960816 0000950135-96-003695.hdr.sgml : 19960816 ACCESSION NUMBER: 0000950135-96-003695 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960814 SROS: NASD 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: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-14680 FILM NUMBER: 96615336 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 10-Q 1 GENZYME CORPORATION QUARTERLY REPORT ON FORM 10-Q 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q --------- (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1996 ------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- --------------- Commission file number 0-14680 ------- GENZYME CORPORATION - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Massachusetts 06-1047163 - -------------------------------------------------------------------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) One Kendall Square, Cambridge, Massachusetts 02139 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) (617) 252-7500 - -------------------------------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- The number of shares outstanding of each of the issuer's classes of common stock as of July 31, 1996: Class Outstanding at July 31, 1996: ----- ----------------------------- General Division Common Stock, $0.01 par value ("General Division Stock") 69,338,870 Tissue Repair Division Common Stock, $0.01 par value ("TR Stock") 12,705,906 Total number of pages in document - 67 Exhibit Index located on page - 35 2 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, JUNE 30, 1996 NOTE REGARDING FORWARD-LOOKING STATEMENTS: This Report on Form 10-Q for Genzyme Corporation ("Genzyme" or the "Company") contains forward-looking statements concerning, among other things, the Company's expected future revenues, operations and expenditures, estimates of the potential markets for the Company's products and services, assessments of competitors and potential competitors, projected timetables for the preclinical and clinical development, regulatory approval and market introduction of the Company's products and services and estimates of the capacity of manufacturing and other facilities to support such products and services. All such forward-looking statements are necessarily only estimates of future results and the actual results achieved by the Company may differ materially from these projections due to a number of factors, including (i) the Company's ability to complete successfully preclinical and clinical development and obtain timely regulatory approval and patent and other proprietary rights protection of its products and services, (ii) the content and timing of decisions, made by the U.S. Food and Drug Administration and other agencies regarding the indications for which the Company's products may be approved, (iii) the accuracy of the Company's estimates of the size and characteristics of markets to be addressed by the Company's products and services, (iv) market acceptance of the Company's products and services, (v) the Company's ability to obtain reimbursement for its products from third-party payers, where appropriate, and (vi) the accuracy of the Company's information concerning the products and resources of competitors and potential competitors. See also "Factors Affecting Future Operating Results" under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Company's Annual Report on Form 10-K/A for the year ended December 31, 1995. -2- 3 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, JUNE 30, 1996 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE NO. -------- ITEM 1. Unaudited Condensed Financial Statements GENZYME CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1996 and 1995............. 4 Condensed Consolidated Balance Sheets as of June 30, 1996 and December 31, 1995........................................ 6 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 .......................... 7 Notes to Unaudited Condensed Consolidated Financial Statements.... 8 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 11 GENZYME GENERAL DIVISION Condensed Combined Statements of Operations for the Three and Six Months Ended June 30, 1996 and 1995.............. 16 Condensed Combined Balance Sheets as of June 30, 1996 and December 31, 1995........................................ 18 Condensed Combined Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 .......................... 19 Notes to Unaudited Condensed Combined Financial Statements........ 20 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 22 GENZYME TISSUE REPAIR DIVISION Condensed Combined Statements of Operations for the Three and Six Months Ended June 30, 1996 and 1995.............. 27 Condensed Combined Balance Sheets as of June 30, 1996 and December 31, 1995........................................ 28 Condensed Combined Statements of Cash Flows for the Six Months Ended June 30, 1996 and 1995 .......................... 29 Notes to Unaudited Condensed Combined Financial Statements........ 30 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................... 31 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations PART II. OTHER INFORMATION ITEM 4. Submission of Matters to a Vote of Security Holders ITEM 6. Exhibits and Reports on Form 8-K............................. 33 Signatures.............................................................. 34 -3- 4 GENZYME CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) THREE MONTHS ENDED SIX MONTHS ENDED (DOLLARS IN THOUSANDS) JUNE 30, JUNE 30, - -------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Net product sales ............................... $ 91,087 $74,054 $183,902 $142,325 Net service sales ............................... 18,408 13,048 33,029 26,542 Revenues from research and development contracts: Related parties ............................... 5,956 6,497 11,999 12,823 Other ......................................... 184 6 202 104 -------- ------- -------- -------- 115,635 93,605 229,132 181,794 Operating costs and expenses: Cost of products sold ........................... 29,164 30,843 62,488 56,974 Cost of services sold ........................... 14,880 7,826 25,533 15,777 Selling, general and administrative ............. 39,997 25,902 78,569 51,893 Research and development (including research and development related to contracts) .......... 18,565 17,263 36,255 33,726 Other ........................................... 1,465 - 1,465 - -------- ------- -------- -------- 104,071 81,834 204,310 158,370 -------- ------- -------- -------- Operating income ................................... 11,564 11,771 24,822 23,424 Other income and (expenses): Minority interest in net loss of subsidiaries ... - 501 - 866 Equity in net loss of unconsolidated affiliate .. (1,121) (793) (2,058) (1,742) Gain on investments ............................. 1,711 - 1,711 - Investment income ............................... 4,615 1,297 9,103 3,062 Interest expense ................................ (186) (173) (395) (220) -------- ------- -------- -------- 5,019 832 8,361 1,966 -------- ------- -------- -------- Income before income taxes ......................... 16,583 12,603 33,183 25,390 Provision for income taxes ......................... (6,799) (4,663) (13,107) (9,394) -------- ------- -------- -------- Net income ......................................... $ 9,784 $ 7,940 $ 20,076 $ 15,996 ======== ======= ======== ========
The accompanying notes are an integral part of these unaudited, condensed, consolidated financial statements. -4- 5 GENZYME CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) JUNE 30, JUNE 30, - ----------------------------------------------------------------------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- ATTRIBUTABLE TO GENZYME GENERAL DIVISION: Net income ..................................... $ 15,979 $10,932 $ 31,516 $21,303 Allocated tax benefit generated by Genzyme Tissue Repair Division ........................ 4,305 2,035 7,802 3,662 -------- ------- -------- ------- Net income attributable to General Division Stock .............................. $ 20,284 $12,967 $ 39,318 $24,965 ======== ======= ======== ======= Income per General Division common and common equivalent share: Net income(1).................................. $ 0.27 $ 0.23 $ 0.54 $ 0.44 ======== ======= ======== ======= Average shares outstanding(1) ................. 73,908 56,636 72,880 56,210 ======== ======= ======== ======= Income per General Division Common Share assuming full dilution: Net income(1).................................. $ 0.27 $ 0.21 $ 0.53 $ 0.41 ======== ======= ======== ======= Average fully diluted shares outstanding(1) ... 73,934 60,646 74,300 60,470 ======== ======= ======== ======= ATTRIBUTABLE TO GENZYME TISSUE REPAIR DIVISION: Net loss attributable to TR Stock .............. $(10,500) $(5,027) $(19,242) $(8,969) ======== ======= ======== ======= Per common share: Net loss ...................................... $ (0.83) $ (0.57) $ (1.55) $ (1.03) ======== ======= ======== ======= Average shares outstanding ..................... 12,576 8,763 12,411 8,721 ======== ======= ======== ======= - ------------- (1) Reflects for July 25, 1996 2-for-1 stock split. (See Footnote 12 -- "Subsequent Events").
The accompanying notes are an integral part of these unaudited, condensed, consolidated financial statements. -5- 6 GENZYME CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31, - ----------------------------------------------------------------------------- 1996 1995 ---- ---- ASSETS Current Assets: Cash and cash equivalents ..................... $ 119,331 $144,372 Short-term investments ........................ 163,063 112,303 Accounts receivable, less allowance for doubtful accounts ........................ 97,935 88,959 Inventories ................................... 64,363 53,042 Prepaid expenses and other current assets ..... 13,433 12,531 Deferred tax assets - current ................. 7,729 7,729 ---------- -------- Total current assets ........................ 465,854 418,936 Property, plant and equipment, net .............. 365,341 329,423 Other Assets: Long-term investments ......................... 52,141 69,561 Note receivable - related party ............... 1,467 262 Intangibles, net of accumulated amortization .. 64,049 29,934 Deferred tax assets - noncurrent .............. 27,487 23,645 Other noncurrent assets ....................... 29,990 33,440 ---------- -------- 175,134 156,842 ---------- -------- $1,006,329 $905,201 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable .............................. $ 13,436 $ 21,980 Accrued expenses .............................. 49,065 39,418 Short-term borrowings ......................... 15,000 - Income taxes payable .......................... 8,828 1,316 Deferred revenue .............................. 3,273 1,367 Current portion of long-term debt and capital lease obligations .................... 2,761 2,445 ---------- -------- Total current liabilities ................... 92,363 66,526 Noncurrent Liabilities: Long-term debt and capital lease obligations .. 24,242 124,473 Other noncurrent liabilities .................. 8,679 8,995 ---------- -------- 32,921 133,468 Stockholders' Equity: General Division Stock, $.01 par value ........ 347 312 TR Stock, $.01 par value ...................... 124 121 Treasury Stock - at cost ...................... (881) (882) Additional paid-in capital .................... 879,513 724,342 Accumulated earnings (deficit) ................ 2,918 (17,158) Other equity adjustments ...................... (976) (1,528) ---------- -------- 881,045 705,207 ---------- -------- $1,006,329 $905,201 ========== ========
The accompanying notes are an integral part of these unaudited, condensed, consolidated financial statements. -6- 7 GENZYME CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS) SIX MONTHS ENDED JUNE 30, - -------------------------------------------------------------------------------- 1996 1995 ---- ---- OPERATING ACTIVITIES: Net income ......................................... $ 20,076 $ 15,996 Reconciliation of net income to net cash from operating activities: Depreciation and amortization .................... 11,966 11,595 Provision for bad debts .......................... 3,797 3,699 (Gain)/loss on sale of investments ............... (1,711) 110 Loss on disposal of fixed assets ................. 41 32 Accrued interest/amortization on bonds ........... 176 514 Minority interest in net loss of subsidiaries .... - (866) Equity in net loss of unconsolidated affiliate ... 1,719 1,742 Other ............................................ (136) 1,173 Decrease in cash from working capital: Accounts receivable ............................ (9,849) (4,363) Inventories .................................... (12,138) (4,183) Prepaid expenses and other current assets ...... (361) (710) Accounts payable, accrued expenses and deferred revenue .......................... 4,432 (14,738) -------- -------- Net cash provided by operating activities ...... 18,012 10,001 INVESTING ACTIVITIES: Investment in unconsolidated affiliate ............. (1,674) (4,000) Loans to affiliate ................................. (1,468) (1,857) Purchases of investments ........................... (75,935) (22,027) Sales and maturities of investments ................ 46,934 45,918 Property, plant and equipment ...................... (41,140) (25,675) Other noncurrent assets ............................ (2,758) (541) -------- -------- Net cash used by investing activities .......... (76,041) (8,182) FINANCING ACTIVITIES: Issuance of common stock ........................... 17,311 6,846 Issuance of common stock by subsidiary ............. - 260 Short-term borrowings under bank credit agreement .. 23,000 - Issuance of debt ................................... - 77 Payments of debt and capital lease obligations ..... (8,552) (39,341) -------- -------- Net cash provided by (used by) financing activities ................................... 31,759 (32,158) Effect of exchange rate changes on cash ............... 1,229 (1,655) -------- -------- Decrease in cash and cash equivalents ................. (25,041) (31,994) Cash and cash equivalents, beginning of period ........ 144,372 63,542 -------- -------- Cash and cash equivalents, end of period .............. $119,331 $ 31,548 ======== ======== Supplemental Cash Flow Information: Cash paid during the period for: Interest .......................................... $ 1,196 $ 5,197 Income taxes ...................................... 6,114 14,405
Supplemental Disclosure of Non-Cash Transactions: Additional investment in unconsolidated affiliate -- Note 6 Acquisition of Genetrix, Inc -- Note 9 Conversion of 6 3/4% convertible subordinaated The accompanying notes are an integral part of these unaudited, condensed, consolidated financial statements. -7- 8 GENZYME CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. Basis of Presentation: --------------------- These unaudited, condensed, consolidated financial statements should be read in conjunction with the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1995 and the financial statements and footnotes included therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. Certain items in the 1995 financial statements have been reclassified to conform with the 1996 presentation. The financial statements for the three and six months ended June 30, 1996 and 1995 are unaudited but include, in the Company's opinion, all adjustments (consisting only of normally recurring accruals) necessary for a fair presentation of the results for the periods presented. 2. Accounting Policies: ------------------- The accounting policies underlying the quarterly financial statements are those set forth in Note A of the financial statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1995. 3. Investments: ----------- As of June 30, 1996, the Company's investment portfolio, consisting primarily of debt securities classified as available for sale, was adjusted to its market value. As a result, gross unrealized holding gains of approximately $14,000 and gross unrealized holding losses totaling approximately $1,300,000 were recorded in a separate component of Stockholders' equity. In April 1996, the Company recorded a realized gain of approximately $1,711,000 on the sale of its investment in NABI. As of June 30, 1996, the carrying values of the Company's investments in Aronex, Inc., Celtrix Pharmaceuticals, Inc. and Integramed America, Inc. (formerly IVF America, Inc.), included in Other Noncurrent Assets in the unaudited, condensed, consolidated balance sheets, were adjusted to their respective market values. Gross unrealized holding gains of approximately $4,788,000 were recorded in a separate component of Stockholders' Equity. 4. Inventories: ----------- June 30, 1996 December 31, 1995 ------------- ----------------- Raw Materials ............ $13,981,000 $12,634,000 Work-in-process .......... 31,884,000 14,821,000 Finished products ........ 18,498,000 25,587,000 ----------- ----------- $64,363,000 $53,042,000 =========== ===========
5. Provision for Income Taxes: -------------------------- The tax provision for the three and six months ended June 30, 1996 varies from the U.S. statutory tax rate because of the provision for state income taxes, the Company's share of losses of subsidiaries which generate no current tax benefit, tax credits, taxes on foreign earnings and differences in tax bases due to acquisitions. The effective tax rate was 41% and 39.5%, respectively, for the three and six months ended June 30, 1996, slight increases over the corresponding periods in 1995. -8- 9 GENZYME CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 6. Additional Investments in Unconsolidated Affiliate: -------------------------------------------------- Pursuant to the terms of the Convertible Debt and Development Funding Agreement executed between Genzyme and Genzyme Transgenics Corporation ("GTC") in March 1996, GTC borrowed an additional $500,000 per month in April, May and June 1996 from Genzyme. On June 28, 1996, at GTC's request and in accordance with the Agreement, Genzyme converted $1.5 million plus accrued interest of approximately $23,000 into 193,321 shares of GTC Common Stock which increased Genzyme's interest in GTC to 48.1%. On July 31, 1996, GTC sold 3,000,000 shares of its Common Stock to the public for $4.00 per share. Genzyme purchased 900,000 shares in the offering after which Genzyme will own a 44.8% interest in GTC. 7. Allocation by the General Division to GTR for TR Designated Shares: ------------------------------------------------------------------ In June 1996, pursuant to the terms of an option held by Genzyme to allocate up to $30 million from Genzyme General Division (the General Division) to Genzyme Tissue Repair Division ("GTR"), the Board of Directors voted to allocate $10 million of cash from the General Division to GTR in June 1996 in exchange for an increase in the TR Designated Shares of 1,000,000 shares, which shares have been reserved for distribution at the discretion of the Board of Directors. 8. Short-Term Borrowing Arrangements: --------------------------------- Genzyme has an available line of credit with a commercial bank of $215 million, which may be used by either the General Division or GTR. In March 1996, GTR utilized $8.0 million under this line of credit as temporary financing for the acquisition of certain land and buildings in Framingham, Massachusetts (the "Acquisition") that were purchased for $6.8 million in cash in January 1996 as part of the planned expansion of manufacturing capacity for the CARTICEL[Service Mark] Service programs. In May 1996, GTR repaid the entire $8.0 million borrowed plus accrued interest of approximately $65,000. In June 1996, GTR borrowed $15.0 million under the same credit line at an interest rate of approximately 6.06% to provide further interim financing for the Acquisition and related required renovations until a suitable permanent financing arrangement can be obtained. 9. Acquisition of Genetrix, Inc.: ------------------------------ On April 30, 1996, the Company acquired Genetrix Inc., a privately held genetic testing laboratory based in Phoenix, Arizona, in a tax-free exchange of General Division Stock. In the aggregate, approximately 690,000 shares of General Division Stock valued at approximately $36.5 million were issued. The acquisition was accounted for as a purchase. The excess of the purchase price over the fair market value of the net assets acquired, approximately $34.6 million, was allocated to Goodwill to be amortized over 15 years. 10. Withdrawal of Offer to Acquire the Assets of Genzyme Development ----------------------------------------------------------------- Partners, L.P.: --------------- On May 3, 1996, Genzyme announced that it was withdrawing its offer to acquire substantially all of the assets of Genzyme Development Partners, L.P. (the "Partnership") for shares of Genzyme General Division Common Stock valued at $93 million at the time the offer was made. The withdrawal of the offer by Genzyme does not affect the respective rights and obligations of the Partnership and Genzyme under any of the existing agreements between the parties. 11. Long-Term Debt: --------------- In March 1996, holders of the Company's 6 3/4% percent convertible subordinated notes in the principal amount of $100 million converted such notes into General Division and TR Stock. Holders of the notes received 18.913 shares of General Division Stock and 2.553 shares of TR Stock in conversion of each $1,000 note. As a result of the conversion, the holders forfeited interest which would have been payable by the Company on April 1, 1996. The carrying amount of the debt, net of unamortized discount, plus accrued interest of approximately $2,914,000 was credited to Stockholders' Equity. 12. Subsequent Event: ---------------- On July 1, 1996, Genzyme completed the acquisition of Deknatel Snowden Pencer, Inc. ("DSP"), a privately held surgical products company, for approximately $250.0 million. The purchase price consisted of cash of approximately $190.0 million. Genzyme also assumed and subsequently repaid debt of DSP of approximately $56.5 million, and Genzyme paid acquisition costs of approximately $3.5 million. Funds for the acquisition, the repayment of the debt and the payment of the acquisition costs were provided by borrowings of $200.0 million under a revolving credit facility from Fleet National Bank, due September 1, 1997, with interest payable at LIBOR plus 5/8% (6.16% at July 1, 1996) and approximately $50.0 million was provided from the Company's cash balances. -9- 10 GENZYME CORPORATION AND SUBSIDIARIES NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 12. Subsequent Event (continued): ---------------------------- DSP designs, manufactures and markets cardiovascular devices, precision instruments and specialty surgical products. DSP had net sales of $95.3 million in the fiscal year ending September 30, 1995. Its 70-person sales force calls directly on cardiovascular, general and gynecological surgeons throughout the U.S. and Europe and has a strong presence in the operating rooms of major hospitals. Genzyme will retain DSP personnel and facilities and continue to pursue DSP's growth strategy. Genzyme plans to use DSP's sales force to accelerate the introduction of its Seprafilm[Trademark] bioresorbable membrane to the U.S. surgical market once Seprafilm[Trademark] is approved by the U.S. Food and Drug Administration. In June 1996, the Board of Directors declared a 2-for-1 stock split of shares of General Division Stock to be effected by means of a 100% stock dividend payable on July 25, 1996 to stockholders of record on July 11, 1996, subject to increasing the authorized shares of General Division Stock from 100,000,000 to 200,000,000 shares (the "Amendment"). The Amendment was approved by holders of a majority in interest of the outstanding General Division and TR Stock, voting together as a single class, at a special meeting of the stockholders held on July 24, 1996. On July 25, 1996, a total of 34,669,435 shares of General Division Stock were distributed to stockholders in connection with the dividend. All share and per share amounts have been re-stated to reflect this split. In July 1996, the Company agreed to make a final payment of approximately $7.6 million for a company acquired in 1994. On July 31, 1996, GTC sold 3,000,000 shares of its Common Stock to the public for $4.00 per share. Genzyme purchased 900,000 shares in the offering after which Genzyme will own a 44.8% interest in GTC. On August 13, 1996, the FDA granted approval to market Seprafilm [Registered Trademark] for use in any open abdominal or pelvic surgery. There are estimated to be approximately 3.1 million such surgeries performed annually in the United States. Genzyme, on behalf of the Joint Venture formed between Genzyme and the Partnership, expects to launch Seprafilm[Registered Trademark] broadly in the United States in October, using the DSP sales force. Under the terms of the agreements between Genzyme and the Partnership, the Joint Venture will manufacture and market Seprafilm[Registered Trademark] in North America under contract with Genzyme. Genzyme and the Partnership expect to conclude negotiations during the third quarter to establish definitive terms for the Joint Venture, including the allocation between the parties of profits and losses from the Joint Venture. -10- 11 GENZYME CORPORATION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 The following discussion is a summary of the key factors management considers necessary in reviewing the Company's results of operations, liquidity and capital resources. Forward-looking statements contained in the following discussion are expectations only and there can be no assurance that actual results will not materially differ from these expectations. This discussion should be read in conjunction with the financial statements and related notes of the General Division and GTR. See also "Factors Affecting Future Operating Results" under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Genzyme's Annual Report on Form 10-K/A for the year ended December 31, 1995. RESULTS OF OPERATIONS Revenue - ------- Total revenues for the three and six months ended June 30, 1996 were $115.6 million and $229.1 million, respectively, increases of 24% and 26% over the corresponding periods in 1995. Product and service revenues were $109.5 million and $216.9 million, respectively, increases of 26% and 28% over the same periods in 1995. Product revenues for the three months ended June 30, 1996 increased 23% to $91.1 million from $74.1 million for the corresponding period in 1995, and product revenues for the six months ended June 30, 1996 increased 29% to $183.9 million from $142.3 million for the corresponding period in 1995. Sales of Therapeutic, Diagnostic Product and Pharmaceutical products increased 20%, 14% and 74%, respectively, during the second quarter of 1996 and 19%, 19% and 147%, respectively during the six months ended June 30, 1996 as compared to the comparable periods in 1995. The increase in sales of Therapeutic products resulted primarily from increased shipments of Ceredase[Registered Trademark] and Cerezyme[Registered Trademark] due to an increase in the number of patients treated, primarily outside of the U.S. The General Division's results of operations are highly dependent on these products. Combined Ceredase[Registered Trademark] and Cerezyme[Registered Trademark] sales were 71% and 67% of product sales during the second quarter and during the six months ended June 30, 1996, respectively, and were 73% of product sales during each the comparable periods in 1995. The increase in Diagnostic Product sales resulted from growth in each of its businesses, most notably in the Cardiovascular Direct LDL[Trademark] test sales. The substantial increase in Pharmaceutical sales resulted primarily from sales of Melatonin which commenced in the third quarter of 1995 and Cosmetic Grade HA Powder which were classified as Therapeutics revenue until the fourth quarter of 1995. The Company believes sales of Melatonin products may decrease in the second half of 1996. Service revenues for the three months ended June 30, 1996 increased 41% to $18.4 million from $13.0 million for the corresponding period in 1995 and service revenues for the six months ended June 30 1996 increased 24% to $33.0 million from $26.5 million for the corresponding period in 1995. The increases were due primarily to the acquisition of Genetrix, Inc. ("Genetrix") completed May 1, 1996 and, to a lesser degree, to higher genetic testing unit volume and pricing changes. See "Liquidity and Capital Resources". Service revenue for the three months ended June 30, 1996 included $0.8 million sales of Epicel[Trademark] skin grafts as compared to $1.2 million in the corresponding period in 1995, and $0.9 million sales of CARTICEL[Service Mark] cartilage repair service as compared to minimal sales in the corresponding period in 1995. CARTICEL[Service Mark] service commenced in the first quarter of 1995. Epicel service was $2.0 million in the first six months of 1996, compared to $2.2 million in the same period of 1995. Had the Genetrix acquisition occurred January 1, 1996, service revenues for the three and six months ended June 30, 1996 would have been $20.2 million and $40.3 million. International sales represented approximately 43% and 40% of product sales in the second quarter and first six months of 1996,respectively, compared with approximately 41% and -11- 12 42% of second quarter and first six months of 1995 product sales, respectively. The increases occurred due to increased international sales of Ceredase[Registered Trademark] and Cerezyme[Registered Trademark] offset slightly by weakening of the exchange rate of the U.S. Dollar to the Netherlands Guilder during the three and six months ended June 30, 1996. Revenues from research and development contracts for the three and six months ended June 30, 1996 were $6.1 million and $12.2 million, respectively, as compared to $6.5 million and $12.9 million for the corresponding periods in 1995. The decreases were due primarily to decreased revenues from Neozyme II Corporation ("Neozyme II") which resulted from a reduction in the external contract expenses incurred by the Company on behalf of the Neozyme II development programs. Margins and Operating Expenses - ------------------------------ Total gross margin for the quarters ended June 30, 1996 and 1995 were 60% and 56%, respectively, and total gross margin for the six months ended June 30, 1996 and 1995 were 59% and 57%, respectively. The Company provides a broad range of health care products and services, resulting in a range of gross margins depending on the particular market conditions of each product or service. Product margins for the quarter and six months ended June 30, 1996 increased to 68% from 58% and to 66% from 60%, respectively, for the same periods in 1995 due primarily to the higher volume of Melatonin and Ceredase[Registered Trademark]/Cerezyme[Registered Trademark] sales in 1996 and improved product mix. Service margins were 19% and 40% for the three months ended June 30, 1996 and 1995, respectively, and 23% and 41% for the six months ended June 30, 1996 and 1995, respectively. Service margins declined during the three and six months ended June 30, 1996 due to increased GTR spending for the expansion of manufacturing capacity and due to the effect of the Genetrix acquisition. Genetrix margins have been minimal since the acquisition. The Company expects these margins will improve over the next several months as laboratory facilities are consolidated. Had the Genetrix acquisition occurred January 1, 1996, service margins for the three and six months ended June 30, 1996 would have been, 20% and 23%, respectively. Selling, general and administrative expenses for the three months ended June 30, 1996 were $40.0 million, an increase of 54% over the same period in 1995, and selling, general, and administrative expenses for the six months ended June 30, 1996 were $78.6 million, an increase of 51% over the same period in 1995. The increases were due to increased expenses and staffing to support growth in product lines, and significantly increased staffing in connection with the launch of Seprafilm[Trademark] in Europe and in anticipation of domestic introduction. GTR selling, general and administrative expenses have increased due to increased surgeon training costs, additional staffing related to CARTICEL[Service Mark] Service, and increased CARTICEL[Service Mark] marketing costs. Selling, general, administrative and other expenses related to services also increased due to the Genetrix acquisition. Had the Genetrix acquisition occurred January 1, 1996, selling, general and administrative expenses would have been $0.8 million and $1.9 million higher for the three and six months ended June 30, 1996. As a percentage of total revenues, selling, general and administrative expenses were 35% and 34%, respectively, for the three and six months ended June 30, 1996 compared to 28% and 29%, respectively, for the corresponding periods in 1995. Excluding the effects of the Genetrix acquisition and the above described charge, selling, general and administrative expenses were, respectively, 34% for the three and six months ended June 30, 1996. Research and development expenses for the three and six months ended June 30, 1996 were $18.6 and $36.3 million, increases of 8%, respectively, over the same periods in 1995 due to increased spending on internal programs. -12- 13 Other operating expenses were $1.5 million in the respective three and six months ended June 30, 1996, primarily the result of a $1.3 million charge incurred in the second quarter of 1996 to eliminate redundant service operations. Other Income and Expenses - ------------------------- Investment income for the three and six months ended June 30, 1996 increased to $4.6 million and $9.1 million, respectively, from $1.3 and $3.1 million for the same periods in 1995, due primarily to higher average cash and investment balances which resulted from the General Division and GTR public offerings in October 1995 and September 1995, respectively, the exercise of stock options and warrants and cash generated from operations. Interest expense for the three and six months ended June 30, 1996 was $0.2 million and $0.4 million, respectively, net of capitalized interest on construction in progress of $0.5 million and $2.2 million, respectively. In March 1996, holders of the Company's 6 3/4% percent convertible subordinated notes (the "Notes") in the principal amount of $100 million converted the Notes into General Division and TR Stock. Holders of the Notes received 18.913 shares of General Division Stock and 2.553 shares of TR Stock in conversion of each $1,000 Note. As a result of the conversion, the holders forfeited interest which would have been payable by the Company on April 1, 1996. Accordingly, in the three months ending June 30, 1996, interest expense relating to the Notes declined $1.7 million as compared to second quarter of 1995, and in the six months ending June 30, 1996, interest relating to the Notes declined 62% to $1.3 million from $3.4 million in corresponding period in 1995. The Company also incurred interest expense in the three and six months ended June 30, 1996 of $0.4 million and $0.8 million, respectively, related to a $21.5 million mortgage note issued in the second quarter of 1994, $0.1 million and $0.2 million, respectively, related to a deferred liability established to acquire the remaining shares of a Swiss company acquired, in part, in July 1994 and the remainder related to interest on capitalized leases. The tax provision for the three and six months ended June 30, 1996 varies from the U.S. statutory tax rate because of the provision for state income taxes, the General Division's share of losses of subsidiaries which generate no current tax benefit, tax credits, taxes on foreign earnings and differences in tax bases due to acquisitions. The effective tax rate was 41% and 39.5%, respectively, for the three and six months ended June 30, 1996, slight increases over the corresponding periods in 1995. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1996, the Company had cash, cash equivalents and investments in marketable securities totaling $334.5 million, an increase of $8.3 million from December 31, 1995. In the first six months of 1996, the Company spent $41.1 million on increased manufacturing capacity and invested an additional $1.7 million in an unconsolidated affiliate. These expenditures were financed primarily by operations, $18.0 million, net short-term borrowings under a credit line with a commercial bank, $15.0 million and by the issuance of common stock through exercises of stock options and warrants, $17.3 million. As of June 30, 1996, the Company had accounts receivable of $97.9 million, an increase of $9 million from December 31, 1995, due to increased Ceredase[Registered Trademark] and Cerezyme[Registered Trademark] and Melatonin sales. Inventories increased $11.3 million to $64.4 million as of June 30, 1996 as compared to December 31, 1995. The increase was due primarily to support of increased business operations in Therapeutics and Surgical Products business lines and, in part, to exchange rate fluctuations. Genzyme has an available line of credit with a commercial bank of $215 million, which may be used by either the General Division or GTR. As of July 1, 1996, the General Division utilized $200 million under this credit line for the purchase of DSP (See "Subsequent Events") and GTR utilized $15 million for capital expansion. In March 1996, GTR utilized $8.0 million under this credit line as temporary financing for the acquisition of certain land and buildings in Framingham, Massachusetts (the "Acquisition") that were purchased for $6.8 million in cash in January 1996 as part of the planned expansion of manufacturing capacity for the -13- 14 CARTICEL[Service Mark] Service programs. In May 1996, GTR repaid the entire $8.0 million borrowed plus accrued interest of approximately $65,000. In June 1996, GTR borrowed $15.0 million under the same credit line at an interest rate of approximately 6.06% to provide further interim financing for the Acquisition and related required renovations until a suitable permanent financing arrangement can be obtained. Pursuant to the terms of the Convertible Debt and Development Funding Agreement executed between Genzyme and GTC in March 1996, GTC borrowed an additional $500,000 per month in April, May and June 1996 from Genzyme. On June 28, 1996, at GTC's request and in accordance with the Agreement, Genzyme converted $1.5 million plus accrued interest of approximately $23,000 into 193,321 shares of GTC Common Stock which increased Genzyme's interest in GTC to 48.1%. On April 30, 1996, the General Division acquired Genetrix Inc., a privately held genetic testing laboratory based in Phoenix, Arizona, in a tax-free exchange of General Division Stock. In the aggregate, approximately 690,000 shares of General Division Stock valued at approximately $36.5 million were issued. The acquisition was accounted for as a purchase. The excess of the purchase price over the fair market value of the net assets acquired, approximately $34.6 million, was allocated to Goodwill to be amortized over 15 years. On May 3, 1996, Genzyme announced that it was withdrawing its offer to acquire substantially all of the assets of Genzyme Development Partners, L.P. (the "Partnership") for shares of Genzyme General Division Common Stock valued at $93 million at the time the offer was made. The withdrawal of the offer by Genzyme does not affect the respective rights and obligations of the Partnership and Genzyme under any of the existing agreements between the parties. The Company expects that its available cash, investments and cash flow from research contracts and product and service sales will be sufficient to finance its planned operations and capital requirements for at least the next two years. Although the General Division currently has substantial cash resources, it has committed to utilize a portion of its resources for certain purposes, such as completing validation of the manufacturing facility in Boston, Massachusetts, completing its commitment to develop manufacturing capacity sufficient to meet the requirements for commercialization of the Partnership's products, the market introduction of the Surgical Products, making certain payments to third parties in connection with strategic collaborations and making a final payment for a company acquired in 1994. Genzyme's commitment to allocate up to $30 million from the General Division to fund the operations of GTR was eliminated when GTR sold new TR Stock to the public in September 1995; however, Genzyme retained the right to make voluntary allocations of up to $30 million from the General Division to the GTR. In June 1996, the Board of Directors voted to allocate $10 million of cash from the General Division to GTR in exchange for an increase in the TR Designated Shares of 1,000,000 shares which shares have been reserved for issuance at the discretion of the Board of Directors. Subsequent to this allocation of $10 million in cash from the General Division to GTR, the General Division retains the right, exercised in the discretion of the Board of Directors, to make additional allocations of up to $20 million from the General Division to GTR. In addition, working capital and other capital requirements may change because of unanticipated changes in business conditions, and such other considerations as expansion of operations, results of research and development activities, competitive and technological developments, the timing and costs of obtaining required regulatory approvals for new products and future acquisitions of technology and/or product rights. As a result, Genzyme may have to obtain additional financing. There can be no assurance that such financing will be available on acceptable terms. SUBSEQUENT EVENTS On July 1, 1996, Genzyme completed the acquisition of DSP, a privately held surgical products company, for approximately $250.0 million. The purchase price -14- 15 consisted of cash of approximately $190.0 million. Genzyme also assumed and subsequently repaid debt of DSP of approximately $56.5 million, and Genzyme paid acquisition costs of approximately $3.5 million. Funds for the acquisition, the repayment of the debt and the payment of the acquisition costs were provided by borrowings of $200.0 million under a revolving credit facility from Fleet National Bank, due September 1, 1997, with interest payable at LIBOR plus 5/8% (6.16% at July 1, 1996) and approximately $50.0 million was provided from Genzyme's General Division cash balances. DSP designs, manufactures and markets cardiovascular devices, precision instruments and specialty surgical products. DSP had net sales of $95.3 million in the fiscal year ending September 30, 1995. Its 70-person sales force calls directly on cardiovascular, general and gynecological surgeons throughout the U.S. and Europe and has a strong presence in the operating rooms of major hospitals. Genzyme will retain DSP personnel and facilities and continue to pursue DSP's growth strategy. Genzyme plans to use DSP's sales force to accelerate the introduction of its Seprafilm[Registered Trademark] bioresorbable membrane to the U.S. surgical market once it is approved by the U.S. Food and Drug Administration. In June 1996, the Board of Directors declared a 2-for-1 stock split of shares of General Division Stock to be effected by means of a 100% stock dividend payable on July 25, 1996 to stockholders of record on July 11, 1996, subject to increasing the authorized shares of General Division Stock from 100,000,000 to 200,000,000 shares (the "Amendment"). The Amendment was approved by holders of a majority in interest of the outstanding General Division and TR Stock, voting together as a single class, at a special meeting of the stockholders held on July 24, 1996. On July 25, 1996, a total of 34,669,435 shares of General Division Stock were distributed to stockholders in connection with the dividend. All share and per share amounts have been re-stated to reflect this split. In July 1996, the Company agreed to make a final payment of approximately $7.6 million for a company acquired in 1994. On July 31, 1996, GTC sold 3,000,000 shares of its Common Stock to the public for $4.00 per share. Genzyme purchased 900,000 shares in the offering after which Genzyme will own a 44.8% interest in GTC. On August 13, 1996, the FDA granted approval to market Seprafilm [Registered Trademark] for use in any open abdominal or pelvic surgery. There are estimated to be approximately 3.1 million such surgeries performed annually in the United States. Genzyme, on behalf of the Joint Venture formed between Genzyme and the Partnership, expects to launch Seprafilm[Registered Trademark] broadly in the United States in October, using the DSP sales force. Under the terms of the agreements between Genzyme and the Partnership, the Joint Venture will manufacture and market Seprafilm[Registered Trademark] in North America under contract with Genzyme. Genzyme and the Partnership expect to conclude negotiations during the third quarter to establish definitive terms for the Joint Venture, including the allocation between the parties of profits and losses from the Joint Venture. -15- 16 GENZYME GENERAL DIVISION CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED (DOLLARS IN THOUSANDS) JUNE 30, JUNE 30, - ---------------------------------------------------------------------------------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Net product sales ................................. $ 91,087 $74,054 $183,902 $142,325 Net service sales ................................. 16,761 11,801 29,668 24,265 Revenues from research and development contracts: Related parties ................................. 5,956 6,497 11,999 12,823 Other ........................................... 184 6 202 104 -------- ------- -------- -------- 113,988 92,358 225,771 179,517 Operating costs and expenses: Cost of products sold ............................. 29,164 29,963 62,488 55,369 Cost of services sold ............................. 11,424 7,826 19,651 15,777 Selling, general and administrative ............... 33,267 23,361 65,593 47,600 Research and development (including research and development related to contracts) ........... 16,215 14,148 31,551 27,797 Other ............................................. 1,465 - 1,465 - -------- ------- -------- -------- 91,535 75,298 180,748 146,543 -------- ------- -------- -------- Operating income ..................................... 22,453 17,060 45,023 32,974 Other income and (expenses) Minority interest in net loss of subsidiaries ..... - 501 - 866 Equity in net loss of unconsolidated affiliate .... (1,121) (793) (2,058) (1,742) Gain on investments ............................... 1,711 - 1,711 - Investment income ................................. 4,226 1,035 8,144 2,481 Interest expense .................................. (186) (173) (395) (220) -------- ------- -------- -------- 4,630 570 7,402 1,385 -------- ------- -------- -------- Income before income taxes ........................... 27,083 17,630 52,425 34,359 Provision for income taxes ........................... (11,104) (6,698) (20,909) (13,056) -------- ------- -------- -------- Net income ........................................... 15,979 10,932 31,516 21,303 Allocated tax benefit generated by Genzyme Tissue Repair Division .............................. 4,305 2,035 7,802 3,662 -------- ------- -------- -------- Net income attributable to Genzyme General Division Stock .............................. $ 20,284 $12,967 $ 39,318 $ 24,965 ======== ======= ======== ========
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -16- 17 GENZYME GENERAL DIVISION CONDENSED COMBINED STATEMENTS OF OPERATIONS (CONTINUED) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) JUNE 30, JUNE 30, - ----------------------------------------------------------------------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Net income attributable to Genzyme General Division Stock .......................... $20,284 $12,967 $39,318 $24,965 ======= ======= ======= ======= Income per General Division common and common equivalent share: Net income(1) ................................. $ 0.27 $ 0.23 $ 0.54 $ 0.44 ======= ======= ======= ======= Average shares outstanding(1) ................. 73,908 56,636 72,880 56,210 ======= ======= ======= ======= Income per General Division Common Share assuming full dilution: Net income(1) ................................. $ 0.27 $ 0.21 $ 0.53 $ 0.41 ======= ======= ======= ======= Average fully diluted shares outstanding(1) ... 73,934 60,646 74,300 60,470 ======= ======= ======= ======= (1) Reflects for July 25, 1996 2-for-1 stock split. (See Footnote 11 - "Subsequent Events".)
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -17- 18 GENZYME GENERAL DIVISION COMBINED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31, - --------------------------------------------------------------------------- 1996 1995 ---- ---- ASSETS Current Assets: Cash and cash equivalents..................... $ 85,354 $103,631 Short-term investments ....................... 161,060 105,471 Accounts receivable, less allowance for doubtful accounts........................ 96,719 87,121 Inventories .................................. 62,989 52,281 Prepaid expenses and other current assets .... 13,002 12,345 Due from Genzyme Tissue Repair Division ...... 2,308 2,034 Deferred tax assets - current ................ 7,729 7,729 -------- -------- Total current assets ....................... 429,161 370,612 Property, plant and equipment, net ............. 344,658 327,461 Other Assets: Long-term investments ........................ 52,141 69,561 Note receivable - affiliate .................. 1,467 262 Intangibles, net of accumulated amortization.. 64,049 29,934 Deferred tax assets - noncurrent ............. 27,487 23,645 Other noncurrent assets ...................... 29,878 33,111 -------- -------- 175,022 156,513 -------- -------- $948,841 $854,586 ======== ======== LIABILITIES AND DIVISION EQUITY Current Liabilities: Accounts payable ............................. $ 12,063 $ 19,548 Accrued expenses ............................. 46,847 38,069 Income taxes payable ......................... 8,828 1,316 Deferred revenue ............................. 3,273 1,367 Current portion of long-term debt and capital lease obligations ................... 2,724 2,276 -------- -------- Total current liabilities .................. 73,735 62,576 Noncurrent Liabilities: Long-term debt and capital lease obligations.. 24,242 124,473 Other noncurrent liabilities ................. 7,928 8,256 -------- -------- 32,170 132,729 Division equity ................................ 842,936 659,281 -------- -------- $948,841 $854,586 ======== ========
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -18- 19 GENZYME GENERAL DIVISION CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS) SIX MONTHS ENDED JUNE 30, - ------------------------------------------------------------------------------- 1996 1995 ---- ---- OPERATING ACTIVITIES: Net income ........................................ $ 39,318 $ 24,965 Reconciliation of net income to net cash from operating activities: Depreciation and amortization ................... 11,708 11,282 Provision for bad debts ......................... 3,641 3,699 (Gain)/loss on sale of investments .............. (1,711) 110 Loss on disposal of fixed assets ................ 41 32 Accrued interest/amortization on bonds .......... 102 613 Minority interest in net loss of subsidiaries ... - (866) Equity in net loss of unconsolidated affiliate .. 1,719 1,742 Other ........................................... (110) 1,173 Decrease in cash from working capital: Accounts receivable ........................... (10,315) (4,854) Inventories ................................... (11,525) (4,149) Prepaid expenses and other current assets ..... (116) (806) Accounts payable, accrued expenses and deferred revenue ......................... 4,623 (13,350) Due from Genzyme Tissue Repair Division ....... (185) (655) -------- -------- Net cash provided by operating activities ..... 37,190 18,936 INVESTING ACTIVITIES: Cash allocated to Genzyme Tissue Repair Division .. (10,000) - Investment in unconsolidated affiliate ............ (1,674) (4,000) Loans to affiliate ................................ (1,468) (1,857) Purchases of investments .......................... (70,931) (11,070) Sales and maturities of investments ............... 37,172 37,831 Property, plant and equipment ..................... (22,161) (25,516) Other noncurrent assets ........................... (2,987) (549) -------- -------- Net cash provided by investing activities ..... (72,049) (5,161) -------- -------- FINANCING ACTIVITIES: Issuance of General Division Common Stock ......... 15,773 6,461 Issuance of common stock by subsidiary ............ - 260 Issuance of debt - 77 Payments of debt and capital lease obligations .... (420) (39,181) -------- -------- Net cash provided by financing activities ...... 15,353 (32,383) Effect of exchange rate changes on cash .............. 1,229 (1,655) -------- -------- Decrease in cash and cash equivalents ................ (18,277) (20,263) Cash and cash equivalents, beginning of period ....... 103,631 46,549 -------- -------- Cash and cash equivalents, end of period ............. $ 85,354 $ 26,286 ======== ======== Supplemental Cash Flow Information: Cash paid during the period for: Interest ......................................... $ 1,125 $ 5,173 Income taxes ..................................... 5,543 14,405
Supplemental Disclosure of Non-Cash Transactions: Additional investment in unconsolidated affiliate -- Note 6 Acquisition of Genetrix, Inc. -- Note 8 Conversion of 6 3/4% convertible subordinated notes in the principal amount of $100 million -- Note 10 The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -19- 20 GENZYME GENERAL DIVISION NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS 1. Basis of Presentation: --------------------- These unaudited, condensed, combined financial statements should be read in conjunction with the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1995 and the financial statements and footnotes for Genzyme General Division included therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. The financial statements for the three and six months ended June 30, 1996 and 1995 are unaudited but include, in the Division's opinion, all adjustments (consisting only of normally recurring accruals) necessary for a fair presentation of the results for the periods presented. 2. Accounting Policies: ------------------- The accounting policies underlying the quarterly financial statements are those set forth in Note A of the General Division's financial statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1995. 3. Investments: ----------- As of June 30, 1996, the General Division's investment portfolio, consisting primarily of debt securities classified as available for sale, was adjusted to its market value. As a result, gross unrealized holding gains of approximately $14,000 and gross unrealized holding losses totaling approximately $1,293,000 were recorded in a separate component of Division equity. In April 1996, the General Division recorded a realized gain of approximately $1,711,000 on the sale of its investment in NABI. As of June 30, 1996, the carrying values of the General Division's investments in Aronex, Inc., Celtrix Pharmaceuticals, Inc. and Integramed America, Inc. (formerly IVF America, Inc.), included in Other Noncurrent Assets in the unaudited, condensed, combined balance sheets, were adjusted to their respective market values. Gross unrealized holding gains of approximately $4,788,000 were recorded in a separate component of Division equity. 4. Inventories: -----------
June 30, 1996 December 31, 1995 ------------- ----------------- Raw Materials.............. $13,855,000 $12,527,000 Work-in-process............ 30,636,000 14,167,000 Finished products.......... 18,498,000 25,587,000 ----------- ----------- $62,989,000 $52,281,000 =========== ===========
5. Provision for Income Taxes: -------------------------- The tax provision for the three and six months ended June 30, 1996 varies from the U.S. statutory tax rate because of the provision for state income taxes, the General Division's share of losses of subsidiaries which generate no current tax benefit, tax credits, taxes on foreign earnings and differences in tax bases due to acquisitions. The effective tax rate was 41% and 39.9% for the three and six months ended June 30, 1996, slight increases over the corresponding periods in 1995. The allocated tax benefit generated by GTR of $4.3 million and $2.0 million in the second quarter of 1996 and 1995, respectively, reduced the General Division's tax rate for those periods to 25.1% and 26.4%, respectively. For the six months ended June 30, 1996 and 1995, the allocated tax benefit generated by GTR of $7.8 million -20- 21 GENZYME GENERAL DIVISION NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS 5. Provision for Income Taxes (continued): -------------------------------------- and $3.7 million, respectively, reduced the General Division's tax rate for the respective six month periods to 25% and 27.3%. 6. Additional Investments in Unconsolidated Affiliate: -------------------------------------------------- Pursuant to the terms of the Convertible Debt and Development Funding Agreement executed between Genzyme and GTC in March 1996, GTC borrowed an additional $500,000 per month in April, May and June 1996 from the General Division. On June 28, 1996, at GTC's request, the General Division converted $1.5 million plus accrued interest of approximately $23,000 into 193,321 shares of GTC Common Stock which increased the General Division's interest in GTC to 48.1%. On July 31, 1996, GTC sold 3,000,000 shares of its common stock to the public for $4.00 per share. Genzyme purchased 900,000 shares in the offering after which Genzyme will own a 44.8% interest in GTC. 7. Allocation by the General Division to GTR for TR Designated Shares: ------------------------------------------------------------------ In June 1996, pursuant to the terms of an option held by Genzyme to allocate up to $30 million from the General Division to GTR, the Board of Directors voted to allocate $10 million of cash from the General Division to GTR in exvchange for an increase in the TR Designated Shares of 1,000,000 shares, which shares have been reserved for distribution at the discretion of the Board of Directors. 8. Acquisition of Genetrix, Inc. ----------------------------- On April 30, 1996, the General Division acquired Genetrix, Inc., a privately held genetic testing laboratory based in Phoenix, Arizona, in a tax-free exchange of General Division Stock. In the aggregate, approximately 690,000 shares of General Division Stock valued at approxmiately $36.5 million were issued. The acquisition was accounted for as a purchase. The excess of the purchase price over the fair market value of the net assets acquired, approximately $34.6 million, was allocated to Goodwill to be amortized over 15 years. 9. Withdrawal of Offer to Acquire the Assets of Genzyme Development Partners, L.P.: -------------------------------------------- On May 3, 1996, Genzyme announced that it was withdrawing its offer to acquire substantially all of the assets of Genzyme Development Partners, L.P. (the "Partnership") for shares of Genzyme General Division Common Stock valued at $93 million at the time the offer was made. The withdrawal of the offer by Genzyme does not affect the respective rights and obligations of the Partnership and Genzyme under any of the existing agreements between the parties. 10. Long-Term Debt: -------------- In March 1996, holders of the Company's 6 3/4% percent convertible subordinated notes in the principal amount of $100 million converted such notes into General Division and TR Stock. Holders of the notes received 18.913 shares of General Division Stock and 2.553 shares of TR Stock in conversion of each $1,000 note. As a result of the conversion, the holders forfeited interest which would have been payable by the Company on April 1, 1996. The carrying amount of the debt, net of unamortized discount, plus accrued interest of approximately $2,914,000 was credited to Stockholders' Equity. 11. Subsequent Events: ----------------- On July 1, 1996, the General Division completed the acquisition of DSP, a privately held surgical products company, for approximately $250.0 million. The purchase price consisted of cash of approximately $190.0 million. The General Division also assumed and subsequently repaid debt of DSP of approximately $56.5 million, and the General Division paid acquisition costs of approximately $3.5 million. Funds for the acquisition, the repayment of the debt and the payment of the acquisition costs were provided by borrowings of $200.0 million under a revolving credit facility from Fleet National Bank, due September 1, 1997, with interest payable at LIBOR plus 5/8% (6.16% at July 1, 1996) and approximately $50.0 million was provided from General Division cash balances. DSP designs, manufactures and markets cardiovascular devices, precision instruments and specialty surgical products. DSP had net sales of $95.3 million in the fiscal year ending September 30, 1995. Its 70-person sales force calls directly on cardiovascular, general and gynecological surgeons throughout the U.S. and Europe and has a strong presence in the operating rooms of major hospitals. The General Division will retain DSP personnel and facilities and continue to pursue DSP's growth strategy. The General Division plans to use DSP's sales force to accelerate the introduction of its Seprafilm[Registered Trademark] bioresorbable membrane to the U.S. surgical market once Seprafilm[Trademark] is approved by the U.S. Food and Drug Administration. In June 1996, the Board of Directors declared a 2-for-1 stock split of shares of General Division Stock to be effected by means of a 100% stock dividend payable on July 25, 1996 to stockholders of record on July 11, 1996, subject to increasing the authorized shares of General Division Stock from 100,000,000 to 200,000,000 shares (the "Amendment"). The Amendment was approved by holders of a majority in interest of the outstanding General Division and TR Stock, voting together as a single class, at a special meeting of the stockholders held on July 24, 1996. On July 25, 1996, a total 34,669,435 shares of General Division Stock were distributed to stockholders in connection with the dividend. All share and per share amounts have been re-stated to reflect this split. In July 1996, the General Division agreed to make a final payment of approximately $7.6 million for a company acquired in 1994. On July 31, 1996, GTC sold 3,000,000 shares of its Common Stock to the public for $4.00 per share. Genzyme purchased 900,000 shares in the offering after which Genzyme will own a 44.8% interest in GTC. On August 13, 1996, the FDA granted approval to market Seprafilm [Registered Trademark] for use in any open abdominal or pelvic surgery. There are estimated to be approximately 3.1 million such surgeries performed annually in the United States. Genzyme, on behalf of the Joint Venture formed between Genzyme and the Partnership, expects to launch Seprafilm[Registered Trademark] broadly in the United States in October, using the DSP sales force. Under the terms of the agreements between Genzyme and the Partnership, the Joint Venture will manufacture and market Seprafilm[Registered Trademark] in North America under contract with Genzyme. Genzyme and the Partnership expect to conclude negotiations during the third quarter to establish definitive terms for the Joint Venture, including the allocation between the parties of profits and losses from the Joint Venture. -21- 22 GENZYME GENERAL DIVISION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1996 The following discussion is a summary of the key factors management considers necessary in reviewing the General Division's results of operations, liquidity and capital resources. Forward-looking statements contained in the following discussion are expectations only and there can be no assurance that actual results will not materially differ from these expectations. This discussion should be read in conjunction with the financial statements and related notes of the General Division. See also "Factors Affecting Future Operating Results" under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Genzyme's Annual Report on Form 10-K/A for the year ended December 31, 1995. RESULTS OF OPERATIONS Revenue - ------- Total revenues for the three and six months ended June 30, 1996 were $114.0 million and $225.8 million, respectively, increases of 23% and 26% over the corresponding periods in 1995. Product and service revenues were $107.8 million and $213.6 million, respectively, increases of 26% and 28% over the same periods in 1995. Product revenues for the three months ended June 30, 1996 increased 23% to $91.1 million from $74.1 million for the corresponding period in 1995, and product revenues for the six months ended June 30, 1996 increased 29% to $183.9 million from $142.3 million for the corresponding period in 1995. Sales of Therapeutic, Diagnostic Product and Pharmaceutical products increased 20%, 14% and 74%, respectively, during the second quarter of 1996 and 19%, 19% and 147%, respectively, during the six months ended June 30, 1996 as compared to the comparable periods in 1995. The increase in sales of Therapeutic products resulted primarily from increased shipments of Ceredase[Registered Trademark] and Cerezyme[Registered Trademark] due to an increase in the number of patients treated, primarily outside of the U.S. The General Division's results of operations are highly dependent on these products. Combined Ceredase[Registered Trademark] and Cerezyme[Registered Trademark] sales were 71% and 67% of product sales during the second quarter and during the six months ended June 30, 1996 respectively, and were 73% of product sales during each the comparable periods in 1995. The increase in Diagnostic Product sales resulted from growth in each of its businesses, most notably in the Cardiovascular Direct LDL[Registered Trademark] test sales. The substantial increase in Pharmaceutical sales resulted primarily from sales of Melatonin which commenced in the third quarter of 1995 and Cosmetic Grade HA Powder which were classified as Therapeutics revenue until the fourth quarter of 1995. The General Division believes sales of Melatonin products may decrease in the second half of 1996. Service revenues from genetic testing for the three months ended June 30, 1996 increased 42% to $16.8 million from $11.8 million for the corresponding period in 1995 and service revenues for the six months ended June 30 1996 increased 22% to $29.7 million from $24.3 million for the corresponding period in 1995. The increases were due primarily to the Genetrix acquisition completed May 1, 1996 and to a lesser degree to higher unit volume and pricing changes. Had the Genetrix acquisition occurred January 1, 1996, service revenues for the three and six months ended June 30, 1996 would have been $18.6 million and $36.9 million. International sales represented approximately 43% and 40% of product sales in the second quarter and first six months of 1996 compared with approximately 41% and 42% of second quarter and first six months of 1995 product sales. The increases occurred due to increased international sales of Ceredase[Registered Trademark] and Cerezyme[Registered Trademark] offset slightly by weakening of the exchange rate of the U.S. Dollar to the Netherlands Guilder during the three and six months ended June 30, 1996. -22- 23 Revenues from research and development contracts for the three and six months ended June 30, 1996 were $6.1 million and $12.2 million, respectively, as compared to $6.5 million and $12.9 million for the corresponding periods in 1995. The decreases were due primarily to decreased Neozyme II revenues which resulted from a reduction in the external contract expenses incurred by the General Division on behalf of the Neozyme II development programs. Margins and Operating Expenses - ------------------------------ Total gross margin for the quarters ended June 30, 1996 and 1995 were 62% and 56%, respectively, and total gross margin for the six months ended June 30, 1996 and 1995 were 62% and 57%, respectively. The General Division provides a broad range of health care products and services, resulting in a range of gross margins depending on the particular market conditions of each product or service. Product margins for the quarter and six months ended June 30, 1996 increased to 68% from 60% and to 66% from 61%, respectively, for the same periods in 1995 due primarily to the higher volume of Melatonin and Ceredase[Registered Trademark]/Cerezyme[Registered Trademark] sales in 1996, and improved product mix. Service margins were 32% and 34% for the three months ended June 30, 1996 and 1995, respectively and 34% and 35% for the six months ended June 30, 1996. Service margins declined during the three and six months ended June 30, 1996 due to the effect of the Genetrix acquisition. The Company expects these margins will improve over the next several months as laboratory facilities are consolidated. Had the Genetrix acquisition occurred January 1, 1996, service margins for the three and six months ended June 30, 1996 would have been, respectively, 31%. Selling, general and administrative expenses for the three months ended June 30, 1996 were $33.3 million, an increase of 42% over the same period in 1995, and selling, general and administrative expenses for the six months ended June 30, 1996 were $65.6 million, an increase of 38% over the same period in 1995. The increases were due to increased expenses and staffing to support growth in product lines, significantly increased staffing in connection with the launch of Seprafilm[Trademark] in Europe and anticipation of domestic introduction. Selling, general and administrative expenses related to services increased due to the Genetrix acquisition. Had the Genetrix acquisition occurred January 1, 1996, selling, general and administrative expenses would have been $0.8 million and $1.9 million higher for the three and six months ended June 30, 1996. As a percentage of total revenues, selling, general and administrative expenses were, respectively, 29% for the three and six months ended June 30, 1996 compared to 25% and 27%, respectively, for the corresponding periods in 1995. Excluding the effects of the Genetrix acquisition and the above described charge, selling, general and administrative expenses were, respectively, 29% for the three and six months ended June 30, 1996. Research and development expenses for the three and six months ended June 30, 1996 were $16.2 million and $31.6 million, respectively, increases of 15% and 14%, over the same periods in 1995 due to increased spending on internal programs. Other operating expenses were $1.5 million in the three and six months ended June 30, 1996, primarily the result of a $1.3 million charge incurred in the second quarter of 1996 to eliminate redundant service operations. Other Income and Expenses - ------------------------- Investment income for the three and six months ended June 30, 1996 increased to $4.2 million and $8.1 million, respectively, from $1.0 million and $2.5 million for the same periods in 1995, due primarily to higher average cash and investment balances which resulted from the General Division's public offering in October 1995, the exercise of stock options and warrants and cash generated form operations. -23- 24 Interest expense for the three and six months ended June 30, 1996 was $0.2 million and $.4 million, respectively, net of capitalized interest on construction in progress of $0.5 million and $2.2 million, respectively. In March 1996, holders of the Company's 6 3/4% percent convertible subordinated notes (the "Notes") in the principal amount of $100 million converted the notes into General Division and TR Stock. Holders of the Notes received 18,913 shares of General Division Stock and 2,553 shares of TR Stock in conversion of each $1,000 Note. As a result of the conversion, the holders forfeited interest which would have been payable by the Company on April 1, 1996. Accordingly, in the three months ending June 30, 1996, interest expense relating to the Notes declined $1.7 million as compared to second quarter of 1995, and in the six months ending June 30, 1996, interest relating to the Notes declined 62% to $1.3 million from $3.4 million in corresponding period in 1995. The General Division also incurred interest expense in the three and six months ended June 30, 1996 of $0.4 million and $0.8 million, respectively, related to a $21.5 million mortgage note issued in the second quarter of 1994, $0.1 million and $0.2 million, respectively, related to a deferred liability established to acquire the remaining shares of a Swiss company acquired, in part, in July 1994 and the remainder related to interest on capitalized leases. The tax provision for the three and six months ended June 30, 1996 varies from the U.S. statutory tax rate because of the provision for state income taxes, the General Division's share of losses of subsidiaries which generate no current tax benefit, tax credits, taxes on foreign earnings and differences in tax bases due to acquisitions. The effective tax rate was 41% and 39.9% for the three and six months ended June 30, 1996, slight increases over the corresponding periods in 1995. The allocated tax benefit generated by GTR of $4.3 million and $2.0 million in the second quarter of 1996 and 1995, respectively, reduced the General Division's tax rate for those periods to 25.1% and 26.4%, respectively. For the six months ended June 30, 1996 and 1995, the allocated tax benefit generated by GTR was $7.8 million and $3.7 million, respectively, reduced the General Division's tax rate for the respective six month periods to 25% and 27.3%. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1996, the General Division had cash, cash equivalents and investments in marketable securities totaling $298.6 million, an increase of $19.9 million from December 31, 1995. In the first six months of 1996, the General Division spent $22.2 million on increased manufacturing capacity, $3.5 million on acquisition costs and invested an additional $1.7 million in an unconsolidated affiliate. In June 1996, the Board of Directors voted to allocate $10 million of cash from the General Division to GTR pursuant to its option to allocate to up to $30 million to GTR, at $10 per TR Designated Share in exchange for an increase in the TR Designated Shares of 1,000,000 shares which have been reserved for issuance at the discretion of the Board of Directors. These expenditures were financed by operations, $37.2 million, and by the issuance of common stock through exercises of stock options and warrants, $15.8 million. Pursuant to the terms of the Convertible Debt and Development Funding Agreement executed between Genzyme and GTC in March 1996, GTC borrowed an additional $500,000 per month in April, May and June 1996 from the General Division. On June 28, 1996, at GTC's request and in accordance with the terms of the Agreement, the General Division converted $1.5 million plus accrued interest of approximately $23,000 into 193,321 shares of GTC Common Stock which increased the General Division's interest in GTC to 48.1%. As of June 30, 1996, the General Division had accounts receivable of $96.7 million, an increase of $9.6 million from December 31, 1995, due to increased Ceredase[Registered Trademark] and Cerezyme[Registered Trademark] and Melatonin sales. Inventories increased $10.7 million to $63.0 million as of June 30, 1996 as compared to December 31, 1995. The increase was due primarily to support of increased business operations in Therapeutics and Surgical Products business lines and, in part, to exchange rate fluctuations. Genzyme has an available line of credit with a commercial bank of $215 million which may be used by either the General Division of GTR. As of July 1, 1996, the General Division utilized $200 million under this credit line for the purchase of DSP (See "Subsequent Events") and GTR utilized $15 million for capital expansion. On April 30, 1996, the General Division acquired Genetrix Inc., a privately held genetic testing laboratory based in Phoenix, Arizona, in a tax-free exchange of General Division Stock. In the aggregate, approximately 690,000 shares of General Division Stock valued at approximately $36.5 million were issued. The acquisition was accounted for as a purchase. The excess of the purchase price over the fair -24- 25 market value of the net assets acquired, approximately $34.6 million, will be allocated to Goodwill to be amortized over 15 years. On May 3, 1996, Genzyme announced that it was withdrawing its offer to acquire substantially all of the assets of Genzyme Development Partners, L.P. (the "Partnership") for shares of Genzyme General Division Common Stock valued at $93 million at the time the offer was made. The withdrawal of the offer by Genzyme does not affect the respective rights and obligations of the Partnership and Genzyme under any of the existing agreements between the parties. The General Division expects that its available cash, investments and cash flow from research contracts and product and service sales will be sufficient to finance its planned operations and capital requirements for at least the next two years. Although the General Division currently has substantial cash resources, it has committed to utilize a portion of its resources for certain purposes, such as completing validation of the manufacturing facility in Boston, Massachusetts, completing its commitment to develop manufacturing capacity sufficient to meet the requirements for commercialization of the Partnership's products, the market introduction of the Surgical Products, making certain payments to third parties in connection with strategic collaborations and making a final payment for a company acquired in 1994. Genzyme's commitment to allocate up to $30 million from the General Division to fund the operations of GTR was eliminated when GTR sold new TR Stock to the public in September 1995; however, Genzyme retained the right to make voluntary allocations of up to $30 million from the General Division to the GTR. In June 1996, the Board of Directors voted to allocate $10 million of cash from the General Division to GTR in exchange for an increase in the TR Designated Share of 1,000,000 which shares have been reserved for issuance at the discretion of the Board of Directors. Subsequent to this allocation of $10 million in cash from the General Division to GTR, the General Division retains the right, exercised in the discretion of the Board of Directors, to make additional allocations of up to $20 million from the General Division to GTR. In addition, working capital and other capital requirements may change because of unanticipated changes in business conditions, and such other considerations as expansion of operations, results of research and development activities, competitive and technological developments, the timing and costs of obtaining required regulatory approvals for new products and future acquisitions of technology and/or product rights. As a result, the General Division may have to obtain additional financing. There can be no assurance that such financing will be available on acceptable terms. SUBSEQUENT EVENTS On July 1, 1996, the General Division completed the acquisition of DSP, a privately held surgical products company, for approximately $250.0 million. The purchase price consisted of cash of approximately $190.0 million. The General Division also assumed and subsequently repaid debt of DSP of approximately $56.5 million, and the General Division paid acquisition costs of approximately $3.5 million. Funds for the acquisition, the repayment of the debt and the payment of the acquisition costs were provided by borrowings of $200.0 million under a revolving credit facility from Fleet National Bank, due September 1, 1997, with interest payable at LIBOR plus 5/8% (6.16% at July 1, 1996) and approximately $50.0 million was provided from General Division cash balances. -25- 26 DSP designs, manufactures and markets cardiovascular devices, precision instruments and specialty surgical products. DSP had net sales of $95.3 million in the fiscal year-ending September 30, 1995. Its 70-person sales force calls directly on cardiovascular, general and gynecological surgeons throughout the U.S. and Europe and has a strong presence in the operating rooms of major hospitals. Genzyme will retain DSP personnel and facilities and continue to pursue DSP's growth strategy. Genzyme plans to use DSP's sales force to accelerate the introduction of its Seprafilm[Trademark] bioresorbable membrane to the U.S. surgical market once it is approved by the U.S. Food and Drug Administration. In June 1996, the Board of Directors declared a 2-for-1 stock split of shares of General Division Stock to be effected by means of a 100% stock dividend payable on July 25, 1996 to stockholders of record on July 11, 1996, subject to increasing the authorized shares of General Division Stock from 100,000,000 to 200,000,000 shares (the "Amendment"). The Amendment was approved by holders of a majority interest of the outstanding General Division and TR Stock, voting together as a single class, at a special meeting of the stockholders held on July 24, 1996. On July 25, 1996, a total of 34,669,435 shares of General Division Stock were distributed to stockholders in connection with the dividend. All share and share amounts have been re-stated to reflect this split. In July 1996, the General Division agreed to make a final payment of approximately $7.6 million for a company acquired in 1994. On July 31, 1996 GTC sold 3,000,000 shares of its Common Stock to the public for $4.00 per share. Genzyme purchased 900,000 shares in the offering after which Genzyme will own a 44.8% interest in GTC. On August 13, 1996, the FDA granted approval to market Seprafilm [Registered Trademark] for use in any open abdominal or pelvic surgery. There are estimated to be approximately 3.1 million such surgeries performed annually in the United States. Genzyme, on behalf of the Joint Venture formed between Genzyme and the Partnership, expects to launch Seprafilm[Registered Trademark] broadly in the United States in October, using the DSP sales force. Under the terms of the agreements between Genzyme and the Partnership, the Joint Venture will manufacture and market Seprafilm[Registered Trademark] in North America under contract with Genzyme. Genzyme and the Partnership expect to conclude negotiations during the third quarter to establish definitive terms for the Joint Venture, including the allocation between the parties of profits and losses from the Joint Venture. -26- 27 GENZYME TISSUE REPAIR DIVISION CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) JUNE 30, JUNE 30, - --------------------------------------------------------------------------------------------- 1996 1995 1996 1995 ---- ---- ---- ---- Revenues: Net service sales .................... $ 1,647 $ 1,247 $ 3,361 $ 2,277 Operating costs and expenses: Cost of services sold ................ 3,456 880 5,882 1,605 Selling, general and administrative .. 6,730 2,541 12,976 4,293 Research and development ............. 2,350 3,115 4,704 5,929 -------- ------- -------- ------- 12,536 6,536 23,562 11,827 -------- ------- -------- ------- Operating loss .......................... (10,889) (5,289) (20,201) (9,550) ======== ======= ======== ======= Investment income ....................... 389 262 959 581 ======== ======= ======== ======= Net loss ................................ $(10,500) $(5,027) $(19,242) $(8,969) ======== ======= ======== ======= Per Tissue Repair Division Common share: Net loss ............................. $ (0.83) $ (0.57) $ (1.55) $ (1.03) ======== ======= ======== ======= Average shares outstanding ........... 12,576 8,763 12,411 8,721 ======== ======= ======== =======
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -27- 28 GENZYME TISSUE REPAIR DIVISION COMBINED BALANCE SHEETS (UNAUDITED)
(DOLLARS IN THOUSANDS) JUNE 30, DECEMBER 31, - ------------------------------------------------------------------------- 1996 1995 ---- ---- ASSETS Current Assets: Cash and cash equivalents .................... $33,977 $40,741 Short-term investments ....................... 2,003 6,832 Accounts receivable, less allowance for doubtful accounts ....................... 1,216 1,838 Inventories .................................. 1,374 761 Prepaid expenses and other current assets .... 431 186 ------- ------- Total current assets ....................... 39,001 50,358 Property, plant and equipment, net ............. 20,683 1,962 Other Assets: Other noncurrent assets ...................... 112 329 ------- ------- 112 329 ------- ------- $59,796 $52,649 ======= ======= LIABILITIES AND DIVISION EQUITY Current Liabilities: Accounts payable ............................. $ 1,373 $ 2,432 Accrued expenses ............................. 2,218 1,349 Payable to Genzyme General Division .......... 2,308 2,034 Short-term borrowings ........................ 15,000 - Current portion of capital lease obligations . 37 169 ------- ------- Total current liabilities .................. 20,936 5,984 Noncurrent Liabilities: Other noncurrent liabilities ................. 751 739 ------- ------- 751 739 Division equity ................................ 38,109 45,926 ------- ------- $59,796 $52,649 ======= =======
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -28- 29 GENZYME TISSUE REPAIR DIVISION CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(DOLLARS IN THOUSANDS) SIX MONTHS ENDED JUNE 30, - ---------------------------------------------------------------------------------- 1996 1995 ---- ---- OPERATING ACTIVITIES: Net loss ............................................. $(19,242) $ (8,969) Reconciliation of net loss to net cash used by operating activities: Depreciation and amortization ...................... 258 313 Provision for bad debts ............................ 156 Accrued interest/amortization on bonds ............. 74 (99) Other .............................................. (26) - Increase (decrease) in cash from working capital: Accounts receivable .............................. 466 491 Inventories ...................................... (613) (34) Prepaid expenses and other current assets ........ (245) 96 Accounts payable, accrued expenses and deferred revenue ............................ (191) (1,388) Due to Genzyme General Division .................. 185 655 -------- -------- Net cash used by operating activities ............ (19,178) (8,935) INVESTING ACTIVITIES: Purchases of investments ............................. (5,004) (10,957) Sales and maturities of investments .................. 9,762 8,087 Property, plant and equipment ........................ (18,979) (159) Other noncurrent assets .............................. 217 8 -------- -------- Net cash used by investing activities ............ (14,004) (3,021) FINANCING ACTIVITIES: Proceeds from issuance of TR Stock .................... 1,538 385 Short-term borrowings under bank credit agreement ..... 23,000 - Payments of debt and capital lease obligations ........ (8,132) (139) Cash allocated from Genzyme General Division .......... 10,000 - Other ................................................. 12 (21) -------- -------- Net cash provided by financing activities ........ 26,418 225 -------- -------- Decrease in cash and cash equivalents ................... (6,764) (11,731) Cash and cash equivalents, beginning of period .......... 40,741 16,993 -------- -------- Cash and cash equivalents, end of period ................ $ 33,977 $ 5,262 ======== ======== Supplemental Cash Flow Information: Cash paid during the period for interest ............. $ 71 $ 24
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -29- 30 GENZYME TISSUE REPAIR DIVISION NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS 1. Basis of Presentation: --------------------- These unaudited, condensed, combined financial statements should be read in conjunction with the Company's Annual Report on Form 10-K/A for the fiscal year ended December 31, 1995 and the financial statements and footnotes for GTR included therein. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the Securities and Exchange Commission rules and regulations. The financial statements for the three and six months ended June 30, 1996 and 1995 are unaudited but include, in GTR's opinion, all adjustments (consisting only of normally recurring accruals) necessary for a fair presentation of the results for the periods presented. 2. Accounting Policies: ------------------- The accounting policies underlying the quarterly financial statements are those set forth in Note A of GTR's financial statements included in the Company's Annual Report on Form 10-K/A for the year ended December 31, 1995. 3. Investments: ----------- As of June 30, 1996, GTR's investment portfolio, consisting primarily of debt securities classified as available for sale, was adjusted to its market value. As a result, gross unrealized holding losses totaling approximately $7,000 were recorded in a separate component of Division equity. 4. Inventories: -----------
June 30, 1996 December 31, 1995 ------------- ----------------- Raw Materials.............. $ 126,000 $107,000 Work-in-process............ 1,248,000 654,000 ---------- -------- $1,374,000 $761,000 ========== ========
5. Allocation by the General Division to GTR for TR Designated Shares: ------------------------------------------------------------------ In June 1996, pursuant to the terms of an option held by Genzyme to allocate up to $30 million from Genzyme General Divisison (the General Division) to Genzyme Tissue Repair Division ("GTR"), the Board of Directors voted to allocate $10 million of cash from the General Division to GTR in June 1996 in exchange for an increase in the TR Designated Shares of 1,000,000 shares, which shares have been reserved for distribution at the discretion of the Board of Directors. 6. Short-Term Borrowing Arrangements: --------------------------------- Genzyme has an available line of credit with a commercial bank of $215 million, which may be used by either the General or Tissue Repair Division. In March 1996, GTR utilized $8.0 million under this credit line as temporary financing for the acquisition of certain land and buildings in Framingham, Massachusetts (the "Acquisition") that were purchased for $6.8 million in cash in January 1996 as part of the planned expansion of manufacturing capacity for the CARTICEL[Service Mark] Service programs. In May 1996, GTR repaid the entire $8.0 million borrowed plus accrued interest of approximately $65,000. In June 1996, GTR borrowed $15.0 million under the same credit line at an interest rate of approximately 6.06% to provide further interim financing for the Acquisition and related required renovations until a suitable permanent financing arrangement can be obtained. -30- 31 GENZYME TISSUE REPAIR DIVISION MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30, 1996 The following discussion is a summary of the key factors management considers necessary in reviewing the GTR's results of operations, liquidity and capital resources. Forward-looking statements contained in the following discussion are expectations only and there can be no assurance that actual results will not materially differ from these expectations. This discussion should be read in conjunction with the financial statements and related notes of GTR. See also "Factors Affecting Future Operating Results" under Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of the Genzyme's Annual Report on Form 10-K/A for the year ended December 31, 1995. RESULTS OF OPERATIONS Revenue - ------- Service revenues for the three months ended June 30, 1996 increased 33% to $1.6 million compared to $1.2 million for the same period ended in 1995. Service revenues for the six months ended June 30, 1996 increased 48% to $3.4 million compared to $2.3 million for the same period ended in 1995. Service revenue for the three months ended June 30, 1996 included $0.8 million sales of Epicel[Trademark] skin grafts as compared to $1.2 million in the corresponding period in 1995, and $0.9 million sales of CARTICEL[Service Mark] cartilage repair service as compared to minimal sales in the corresponding period in 1995. CARTICEL[Service Mark] service commenced in the first quarter of 1995. Epicel service was $2.0 million in the first six months of 1996, compared to $2.2 million in the same period of 1995. Margins and Operating Expenses - ------------------------------ Gross margins for the three and six months ended June 30, 1996 declined $2.2 million and $3.2 million, respectively, as compared to the corresponding periods in 1995 due to increased spending for the expansion of manufacturing capacity. Selling, general and administrative expenses for the three months ended June 30, 1996 were $6.7 million, an increase of $4.2 million compared to the same period ended in 1995. Selling, general and administrative expenses for the six months ended June 30, 1996 were $13.0 million, an increase of $8.7 million compared to the same period ended in 1995. Increases in selling, general and administrative costs during the quarters and six months ended June 30, 1996 and 1995 are due to increased surgeon training costs, additional staffing related to the CARTICEL[Service Mark] Service, and increased CARTICEL[Service Mark] marketing costs. GTR's selling, general and administrative expenses consist of direct expenses and expenses charged by the General Division for work performed by the General Division on behalf of GTR. General Division expenses charged to GTR were $1.7 million in the second quarter of 1996 compared to $0.9 million in the same period in 1995 and were $4.3 million in the first six months of 1996 compared to $1.9 million in the same period of 1995. Research and development expenses were $2.4 million in the second quarter of 1996, a $0.8 million decrease compared to the same period ended in 1995. Research and development expenses were $4.7 million in the first six months of 1996, a $1.2 million decrease compared to the same period ended in 1995. GTR's research and development expenses consist of direct expenses and expenses charged by the General Division for work performed by the General Division on behalf of GTR. General Division research and development expenses charged to GTR -31- 32 were $2.3 million in the second quarter of 1996 compared to $1.4 million in the same period in 1995 and were $3.3 million in the first six months of 1996 compared to $2.4 million in the same period of 1995. OTHER INCOME Investment income for the three and six months ended June 30, 1996 increased to $0.4 million and $1.0 million, respectively, from $0.3 million and $0.6 million for the same periods in 1995, due primarily to higher average cash and investment balances which resulted from GTR's public offering in September 1995 and the exercise of stock options and warrants. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1996, GTR had cash, cash equivalents and investments in marketable securities totaling $36.0 million, a decrease of $11.6 million from December 31, 1995. The decrease was due to GTR's net loss from operations, working capital requirements and capital spending, net of cash from the issuance of common stock through exercises of stock options and warrants of $1.5 million. As of June 30, 1996, GTR had accounts receivable of $1.2 million, a decrease of $0.6 million from December 31, 1995, due to prompt collections. Inventories increased $0.6 million, to $1.4 million as of June 30, 1996 as compared to December 31, 1995 due primarily to an increase in the number of in-process biopsies. Genzyme has an available line of credit with a commercial bank of $215 million which may be used by either the General Division or GTR. As of July 1, 1996, the General Division utilized $200 million under this credit line for the purchase of DSP (See "Subsequent Events") and GTR utilized $15 million for capital expansion. In March 1996, GTR utilized $8.0 million under this credit line as temporary financing for the acquisition of certain land and buildings in Framingham, Massachusetts (the "Acquisition") that were purchased for $6.8 million in cash in January 1996 as part of the planned expansion of manufacturing capacity for the CARTICEL[Service Mark] Service programs. In May 1996, GTR repaid the entire $8.0 million borrowed plus accrued interest of approximately $65,000. In June 1996, GTR borrowed $15.0 million under the same credit line at an interest rate of approximately 6.06% to provide further interim financing for the Acquisition and related required renovations until a suitable permanent financing arrangement can be obtained. In June 1996, pursuant to the terms of an option held by Genzyme to allocate up to $30 million from Genzyme General Division (the General Division) to Genzyme Tissue Repair Division ("GTR"), the Board of Directors voted to allocate $10 million of cash from the General Division to GTR in June 1996 in exchange for an increase in the TR Designated Shares of 1,000,000 shares, which shares have been reserved for distribution at the discretion of the Board of Directors. GTR expects that its available cash and investments will be sufficient to finance its planned operations and capital requirements for at least one year. Significant additional funds will be required to complete the commercialization and clinical testing of GTR's products and services and to complete the expansion of manufacturing capacity for its CARTICEL[Service Mark] Service. There can be no assurance that such funds will be available on attractive terms, if at all. -32- 33 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, JUNE 30, 1996 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for Genzyme, the General Division and GTR on the pages listed in the Index on Page 2 of this report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its annual meeting of stockholders on Thursday, May 16, 1996. The following represents the results of the voting on proposals submitted to a vote of stockholders at such meeting: a. Proposal to elect directors: Constantine E. Anagnostopoulos, by a vote of 28,966,003 in favor and 434,941 votes withheld, Robert J. Carpenter, by a vote of 28,966,967 in favor and 433,978 votes withheld, and Charles L. Cooney, by a vote of 28,966,726 in favor and 434,219 withheld, were re-elected as directors of the Company for a term of office expirint in 1999. There were no abstentions or broker non-votes. b. Proposal to amend the Company's 1990 Equity Incentive Plan to increase the number of shares of General Division Common Stock covered by the Plan to 9,000,000. Number of Number of Number of Votes Number of Votes for Votes Against Abstaining Broker Non-Votes --------- ------------- --------------- ---------------- 16,344,564 6,894,344 79,796 6,082,242 c. Proposal to amend the Company's 1990 Equity Incentive Plan to increase the number of shares of Tisue Repair Division Common Stock covered by the Plan to 3,300,000. Number of Number of Number of Votes Number of Votes for Votes Against Abstaining Broker Non-Votes --------- ------------- --------------- ---------------- 19,892,368 3,418,707 79,163 6,010,708 d. Proposal to amend the Company's 1990 Director Stock Option Plan to increase the size of the annual option grants to directors under the Plan. Number of Number of Number of Votes Number of Votes for Votes Against Abstaining Broker Non-Votes --------- ------------- --------------- ---------------- 21,677,588 1,621,130 91,374 6,010,854 e. Proposal to approve the Genzyme Corporation Directors' Referral Compensation Plan. Number of Number of Number of Votes Number of Votes for Votes Against Abstaining Broker Non-Votes --------- ------------- --------------- ---------------- 22,256,799 1,145,521 106,856 5,891,770 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Restated Articles of Orgaization of Genzyme Corporation. Filed herewith. 10.1 1990 Equity Incentive Plan. Filed as Exhibit 99 to the Company's Registration Statement on Form S-8 (Commission File No. 333-10003) and incorporated herein by reference. 10.2 Genzyme Corporation Directors' Deferred compensation Plan. Filed as Exhibit 99 to the Company's Resistration Statement on Form S-8 (Commission File No. 333-10005) and incorporated herein by reference. 11 Computation of weighted average shares used in computing earnings per share amounts. Filed herewith. 27 Financial Data Schedules for Genzyme General Division and Genzyme Tissue Repair Division (for EDGAR filing purposes only). Filed herewith. -33- 34 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, JUNE 30, 1996 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. GENZYME CORPORATION DATE: August 14, 1996 By: /s/David J. McLachlan ---------------------- David J. McLachlan Duly Authorized Officer and Chief Financial Officer -34- 35 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, SEPTEMBER 30, 1995 EXHIBIT INDEX Exhibit No. Description Page No. - ------- ----------- -------- 3.1 Restated Articles of Orgaization of Genzyme Corporation. 37 Filed herewith. 10.1 1990 Equity Incentive Plan. Filed as Exhibit 99 to the Company's Registration Statement on Form S-8 (Commission File No. 333-10003) and incorporated herein by reference. 10.2 Genzyme Corporation Directors' Deferred Compensation Plan. Filed as Exhibit 99 to the Company's Resistration Statement on Form S-8 (Commission File No. 333-10005) and incorporated herein by reference. 11 Computation of weighted average shares used in computing earnings per share amounts. Filed herewith. 62-63 27 Financial Data Schedules for Genzyme General Division Genzyme Tissue Repair Division (for EDGAR filing purposes only). Filed herewith. 64 -35- EX-3.1 2 RESTATED AARTICLES OF ORGANIZATION 1 EXHIBIT 3.1 -36- 2 Federal Identification Number: 06-1047163 ---------- THE COMMONWEALTH OF MASSACHUSETTS William Francis Galvin Secretary of the Commonwealth One Ashburton Place, Boston, Massachusetts 02108-1512 RESTATED ARTICLES OF ORGANIZATION (GENERAL LAWS, CHAPTER 156B, SECTION 74) We, Henri A. Termeer, *President and Peter Wirth, *Clerk of Genzyme Corporation located at One Kendall Square, Cambridge, MA 02139 do hereby certify that the following Restatement of the Articles of Organization was duly adopted at a meeting held on June 6, 1996 by a vote of the directors _____ shares of _________________ of _________ shares outstanding _____ shares of _________________ of _________ shares outstanding, and _____ shares of _________________ of _________ shares outstanding, **being at least a majority of each type, class or series outstanding and entitled to vote thereon:/**being at least two-thirds of each type, class or series outstanding and entitled to vote thereon and of each type, class or series of stock whose rights are adversely affected thereby: ARTICLE I The name of the corporation is: GENZYME CORPORATION ARTICLE II The purpose of the corporation is to engage in the following business activities: TO DEVELOP, MANUFACTURE AND SELL HUMAN HEALTH CARE PRODUCTS AND TO ENGAGE GENERALLY IN ANY BUSINESS THAT MAY LAWFULLY BE CARRIED ON BY A CORPORATION FORMED UNDER CHAPTER 156B OF THE GENERAL LAWS OF MASSACHUSETTS. *Delete the inapplicable words. **Delete the inapplicable clause. 1For amendments adopted pursuant to Chapter 156B, Section 70. 2For amendments adopted pursuant to Chapter 156B, Section 71. 3 ARTICLE III State the total number of shares and par value, if any, of each class of stock which the corporation is authorized to issue:
================================================================================ WITHOUT PAR VALUE WITH PAR VALUE - -------------------------------------------------------------------------------- TYPE NUMBER OF TYPE NUMBER OF PAR VALUE SHARES SHARES - -------------------------------------------------------------------------------- Common: Common: 240,000,000* $.01 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Preferred: Preferred: 10,000,000** $.01 - -------------------------------------------------------------------------------- ================================================================================ *of which 200,000,000 shares shall have been designated as General Division Common Stock and 40,000,000 shares have been designated as Tissue Repair Division Common Stock **of which 1,000,000 shares have been designated as Series A Junior Participating Preferred Stock and 400,000 shares have been designated as Series B Junior Participating Preferred Stock.
ARTICLE IV If more than one class of stock is authorized, state a distinguishing designation for each class. Prior to the issuance of any shares of a class, if shares of another class are outstanding, the corporation must provide a description of the preferences, voting powers, qualifications, and special or relative rights or privileges of that class and of each other of which shares are outstanding and of each series then established within any class. SEE CONTINUATION PAGES ARTICLE V The restrictions, if any, imposed by the Articles of Organization upon the transfer of shares of stock of any class are: NONE ARTICLE VI **Other lawful provisions, if any, for the conduct and regulation of the business and affairs of the corporation, for its voluntary dissolution, or for limiting, defining, or regulating the powers of the corporation, or of its directors or stockholders, or of any class of stockholders: SEE CONTINUATION PAGES **If there are no provisions state "None". 4 NOTE: The preceding six (6) articles are considered to be permanent and may ONLY be changed by filing appropriate Articles of Amendment. ARTICLE VII The effective dat of the Restated Articles of Organization of the corporation shall be the date approved and filed by the Secretary of the Commonwealth. If a LATER effective date is desired, specify such date which shall nor be more than THIRTY DAYS after the date of filing. ARTICLE VIII THE INFORMATION CONTAINED IN ARTICLE VII IS NOT A PERMANENT PART OF THE ARTICLES OF ORGANIZATION. a. The street address (post office boxes are not acceptable) of the principal office of the Corporation in MASSACHUSETTS is: One Kendall Square, Cambridge, MA 02139 b. The name, residential address and post office address of each director and officer is as follows:
NAME RESIDENTIAL ADDRESS POST OFFICE ADDRESS President: Henri A. Termeer 65-3 Commercial Wharf c/o Genzyme Corporation Boston, MA 02110 One Kendall Square Cambridge, MA 02139 Treasurer: Evan M. Lebson 5 Arbetter Drive same as above Framnigham, MA 01701 Clerk: Peter Wirth 37 Hancock Street same as above Boston, MA 02114 Directors: Henri A. Termeer same as above same as above Douglas A. Berthiaume 114 Cara Drive same as above N. Andover, MA 01845 Robert J. Carpenter 9 Lowell Road same as above Wellesley, MA 02181
5 Henry R. Lewis 35 Clover Street same as above Belmont, MA 02178 Constantine Anagstopoulos 29 Portland Drive same as above St. Louis, MO 63131 Henry E. Blair 2580 Main Street same as above Barnstable, MA 02630 Charles L. Cooney 35 Chestnut Street same as above Brookline, MA 02139 c. The fiscal year (i.e. tax year) of the corporation shall end on the last day of the month of: December d. The name and business address of the resident agent, if any, of the corporation is: NONE ** We further certify that the foregoing Restated Articles of Organization affect no amendments to the Articles of Organization of the corporation as heretofore amended, except amendments to the following article. Briefly describe amendments below: NONE
SIGNED UNDER THE PENALTIES OF PERJURY, this 25th day of July, 1996, /s/ Henri A. Termeer President -------------------------------- /s/ Peter Wirth Clerk -------------------------------- 6 ARTICLE IV DESCRIPTION OF CAPITAL STOCK ---------------------------- A. AUTHORIZED CAPITAL STOCK The total number of shares of all classes of capital stock which the Corporation shall be authorized to issue is two hundred fifty million (250,000,000) shares, consisting of two hundred million (200,000,000) shares of General Division Common Stock, $.01 par value per share (the "General Stock"), forty million (40,000,000) shares of Tissue Repair Division Common Stock, $.01 par value per share (the "TR Stock"), and ten million (10,000,000) shares of Preferred Stock, $.01 par value per share (the "Preferred Stock"). On December 16, 1994, the effective date of the amendment to these Articles that created the Tissue Repair Division Common Stock, and without any further action on the part of the Corporation or its stockholders, each share of the Corporation's Common Stock then issued and outstanding was redesignated as one fully paid and nonassessable share of General Stock. B. DESCRIPTION OF THE GENERAL STOCK AND THE TR STOCK A description of the General Stock and the TR Stock and a statement of their respective preferences, voting powers, qualifications and special or relative rights or privileges is as follows: 1. DIVIDENDS AND DISTRIBUTIONS Subject to the express terms of any outstanding series of Preferred Stock, dividends may be declared and paid upon the General Stock or the TR Stock upon the terms provided for below with respect to each such class, in such amounts and at such times as the Board of Directors may determine. A. DIVIDENDS ON GENERAL STOCK. Dividends on General Stock may be declared and paid only out of the lesser of (a) funds of the Corporation legally available therefor and (b) the Available General Dividend Amount. B. DIVIDENDS ON TR STOCK. Dividends on TR Stock may be declared and paid only out of the lesser of (a) funds of the Corporation legally available therefor and (b) the Available Tissue Repair Dividend Amount. 7 C. DISCRIMINATION BETWEEN CLASSES OF GENERAL STOCK. Subject to the provisions of paragraphs IV.B.1.a. and IV.B.1.b., the Board of Directors may, in its sole discretion, declare and pay dividends exclusively on either class of common stock, or both, in equal or unequal amounts, notwithstanding the amounts available for the payment of dividends on each class, the respective voting and liquidation rights of each class, the amounts of prior dividends declared on each class or any other factor. 2. EXCHANGE OF TR STOCK. Shares of TR Stock are subject to exchange upon the terms and conditions set forth below: A. OPTIONAL EXCHANGE OF TR STOCK. At any time after the later of (i) December 31, 1995 and (ii) equity investments in TR Stock by investors (other than purchasers of TR Stock pursuant to the Corporation's stock option, stock purchase or other employee benefit plans), the proceeds of which are allocated to the Tissue Repair Division, or the allocation of cash or cash equivalents from the General Division to the Tissue Repair Division, or any combination of such equity investments and allocations, aggregating not less than ten million dollars ($10,000,000), the Board of Directors may declare that each of the outstanding shares of TR Stock shall be exchanged, on an Exchange Date set forth in a notice to holders of TR Stock pursuant to paragraph IV.B.2.c.(1), for (a) a number of fully paid and nonassessable shares of General Stock (calculated to the nearest five decimal places) equal to (1) 130% of the Fair Market Value of one share of the TR Stock (the "Exchange Amount") as of the date of the first public announcement by the Corporation (the "Announcement Date") of such exchange divided by (2) the Fair Market Value of one share of General Stock as of such Announcement Date or (b) cash equal to the Exchange Amount, or (c) any combination of General Stock and cash equal to the Exchange Amount as determined by the Board of Directors. B. MANDATORY EXCHANGE OF TR STOCK. In the event of the Disposition, in one transaction or a series of related transactions, by the Corporation of all or substantially all of the properties and assets allocated to the Tissue Repair Division (other than in connection with the Disposition by the Corporation of all or substantially all of its properties and assets in one transaction or a series of related transactions) to any person, entity or group (other than (x) any entity in which the Corporation, directly or indirectly, owns all of the equity interest or (y) any entity formed at the direction of the Corporation in connection with obtaining financing for the programs or products of the Tissue Repair Division under an arrangement which provides the Corporation with an option to reacquire such properties and assets or retain or obtain substantial manufacturing or marketing rights with respect to any products developed by such entity, in each case for the benefit of the Tissue Repair Division), the Corporation shall, on or prior to the first Business Day after the 90th day following the consummation of such Disposition, exchange each outstanding share of TR Stock for (a) a number of fully paid and nonassessable shares of General Stock (calculated to the nearest five decimal places) equal to (1) the Exchange Amount as of the Announcement Date of such Disposition divided by (2) the Fair Market Value of one share of General Stock as of such Announcement Date or (b) cash equal to the Exchange Amount, or (c) any combination of General Stock and cash equal to the Exchange Amount as determined by the Board of Directors. For purposes of this paragraph: 8 (1) "substantially all of the properties and assets allocated to the Tissue Repair Division" shall mean a portion of the properties and assets allocated to the Tissue Repair Division (A) that represents at least 80% of the then-current fair value (as determined by the Board of Directors) of, or (B) to which is attributable at least 80% of the aggregate revenues for the immediately preceding twelve fiscal quarterly periods of the Corporation derived from, the properties and assets allocated to the Tissue Repair Division; and (2) in the case of a Disposition of properties and assets in a series of related transactions, such Disposition shall not be deemed to have been consummated until the consummation of the last of such transactions. C. GENERAL EXCHANGE PROVISIONS. In the event of any exchange of TR Stock for shares of General Stock pursuant to paragraph IV.B.2.a. or IV.B.2.b., the following provisions shall apply: (1) The Corporation shall cause to be given to each record holder of shares of the TR Stock a notice stating (a) that shares of TR Stock shall be exchanged for shares of General Stock or for cash or a combination thereof, (b) the date on which the exchange shall become effective (the "Exchange Date"), (c) the number of shares of General Stock or cash or combination thereof to be received by such holder with respect to each share of the TR Stock held by such holder, including details as to the calculation thereof and (d) the place or places where certificates for shares of TR Stock, properly endorsed or assigned for transfer are to be surrendered for delivery of certificates for shares of General Stock or cash or a combination thereof (unless the Corporation shall waive such requirement). Such notice shall be sent by first-class mail, postage prepaid, not less than 30 nor more than 60 days prior to the Exchange Date to each holder of shares of TR Stock at such holder's address as the same appears on the stock transfer books of the Corporation. Neither the failure to mail such notice to any particular holder of shares TR Stock nor any defect therein shall affect the sufficiency thereof with respect to any other holder of shares of TR Stock. (2) The Corporation shall not be required to issue or deliver fractional shares of General Stock to any holder of shares of TR Stock upon any such exchange. If more than one share of TR Stock shall be held by the same holder of record, the Corporation shall aggregate the number of shares of General Stock that shall be issuable to such holder upon any such exchange. If the total number of shares of General Stock to be so issued to any holder of record of shares of TR Stock includes a fraction, the Corporation shall, if such fraction is not issued or delivered to such holder, either arrange for the disposition of such fraction by or on behalf of such holder or pay the fair value of such fraction, based upon the Fair Market Value of the General Stock on the Exchange Date. (3) No adjustments in respect of dividends shall be made upon the exchange of any shares of TR Stock; provided, however, that if the Exchange Date shall be subsequent to the record date for determining holders of TR Stock entitled to the payment of a dividend or other distribution thereon or with respect thereto, the holders of shares of TR 9 Stock at the close of business on such record date shall be entitled to receive the dividend or other distribution payable on or with respect to such shares on the date set for payment of such dividend or other distribution, notwithstanding the exchange of such shares. (4) Before any holder of shares of TR Stock shall be entitled to receive certificates representing shares of General Stock or cash or a combination thereof to be received by such holder with respect to the exchange of such shares of TR Stock, such holder shall surrender at such place as the Corporation shall specify certificates for such shares of TR Stock, properly endorsed or assigned for transfer (unless the Corporation shall waive such requirement). The Corporation will as soon as practicable after such surrender of certificates representing such shares of TR Stock deliver to the person for whose account such shares of TR Stock were so surrendered, or to the nominee or nominees of such person, certificates representing the number of shares of General Stock or cash or a combination thereof to which such person shall be entitled as aforesaid, together with any fractional share payment contemplated by paragraph IV.B.2.c.(2). (5) From and after the Exchange Date, all rights of a holder of shares of TR Stock shall cease except for the right, upon surrender of the certificates representing such shares of TR Stock, to receive certificates representing shares of General Stock or cash or a combination thereof, together with any fractional share payment contemplated by paragraph IV.B.2.c.(2), and rights to dividends as provided in paragraph IV.B.2.c.(3). No holder of a certificate that immediately prior to the Exchange Date represented shares of TR Stock shall be entitled to receive any dividend or other distribution with respect to the General Stock to be issued in exchange until surrender of such holder's certificate for a certificate or certificates representing shares of General Stock (unless the Corporation shall waive such requirement). Upon such surrender, there shall be paid to the holder the amount of any dividends or other distributions (without interest) which theretofore became payable with respect to a record date after the Exchange Date, but that were not paid by reason of the foregoing, with respect to the number of shares of General Stock represented by the certificate or certificates issued upon such surrender. From and after the Exchange Date, the Corporation shall, however, be entitled to treat the certificates for TR Stock that have not yet been surrendered for exchange as evidencing the ownership of the number of shares of General Stock for which the shares of TR Stock represented by such certificates shall have been exchanged, notwithstanding the failure to surrender such certificates. (6) The Corporation will pay any and all documentary, stamp or similar issue or transfer taxes that may be payable in respect of the issue or delivery of any shares of General Stock in exchange for shares of TR Stock pursuant hereto. The Corporation shall not, however, be required to pay any tax that may be payable in respect of any transfer involved in the issue and delivery of any shares of General Stock issued in exchange in a name other than that in which the shares of TR Stock so exchanged were registered and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Corporation the amount of any such tax, or has established to the satisfaction of the Corporation that such tax has been paid. 10 (7) After the Exchange Date, any share of TR Stock issued upon conversion or exercise of any Convertible Security shall, immediately upon issuance pursuant to such conversion or exercise and without any notice or any other action on the part of the Corporation or its Board of Directors or the holder of such share of TR Stock, be exchanged for the number of shares of General Stock or cash or combination thereof (together with any payments in lieu of fractional shares or dividends, if any) that a holder of such Convertible Security would have been entitled to receive pursuant to the terms of such Convertible Security had such terms provided that the conversion privilege in effect immediately prior to any exchange by the Corporation of any shares of TR Stock for shares of any other capital stock of the Corporation would be adjusted so that the holder of any such Convertible Security thereafter surrendered for conversion would be entitled to receive the number of shares of capital stock of the Corporation he or she would have owned immediately following such action had such Convertible Security been converted immediately prior to such exchange. The foregoing provisions shall not apply to the extent that equivalent adjustments are otherwise made pursuant to the provisions of such Convertible Security. 3. VOTING RIGHTS A. GENERAL STOCK. The holders of General Stock, voting together with the holders of TR Stock as a single class of stock, shall have the exclusive right to vote for the election of directors and on all other matters requiring action by the stockholders or submitted to the stockholders for action, except as may be determined by the Board of Directors in establishing any series of Preferred Stock or as may otherwise be required by law. Each share of the General Stock shall entitle the holder thereof to one vote. B. TR STOCK. The holders of TR Stock, voting together with the holders of General Stock as a single class of stock, shall have the exclusive right to vote for the election of directors and on all other matters requiring action by the stockholders or submitted to the stockholders for action, except as may be determined by the Board of Directors in establishing any series of Preferred Stock or as may otherwise be required by law. Each share of TR Stock shall entitle the holder thereof to .29 votes from the Effective Date through December 31, 1996. On January 1, 1997 and on each January 1 every two years thereafter, the number of votes to which the holder of each share of TR Stock shall be entitled shall be adjusted and fixed for two-year periods to equal the quotient (expressed as a decimal and rounded to the nearest two decimal places) obtained by dividing (i) the Fair Market Value of one share of TR Stock by (ii) Fair Market Value of one share of General Stock as of such date. If no shares of General Stock are outstanding on such date, or if shares of TR Stock are entitled to vote separately as a class, each share of TR Stock shall have one vote. C. VOTING OF CONTROLLED SHARES. Shares of any class of common stock held by a corporation or other entity controlled by the Corporation (other than an employee benefit plan) shall be voted on any proposal requiring a vote of the holders of such class in the same proportion as votes are cast for or against such proposal by all other holders of such class. 11 D. SPECIAL VOTING RIGHTS. The Corporation shall not, without approval by the holders of the affected class of common stock at a meeting at which a quorum is present and the votes cast in favor of the proposal exceed those cast against: (1) allow any proceeds from the Disposition of the properties or assets allocated to any Division represented by such class of common stock to be used in the business of any other Division not represented by such class of common stock without fair compensation being allocated to the Division whose properties or assets are disposed of as determined by the Board of Directors; (2) allow any properties or assets allocated to any Division represented by a class of common stock to be used in the business of any other Division not represented by such class of common stock or for the declaration or payment of any dividend or distribution on any such other class of common stock without fair compensation being allocated to the Division to which such properties or assets were allocated as determined by the Board of Directors; (3) issue, sell or otherwise distribute shares of either class of common stock without allocating the proceeds or other benefits of such issuance, sale or distribution to the Division represented by such class of common stock; PROVIDED, HOWEVER, that the Corporation may without such approval issue General Designated Shares and TR Designated Shares; (4) change the rights or preferences of any class of common stock so as to affect the class adversely; or (5) effect any merger or business combination involving the Corporation as a result of which (a) the holders of all classes of common stock of the Corporation shall no longer own, directly or indirectly, at least fifty percent (50%) of the voting power of the surviving corporation and (b) the holders of all classes of common stock of the Corporation do not receive the same form of consideration, distributed among such holders in proportion to the Market Capitalization of each class of common stock as of the date of the first public announcement of such merger or business combination. 4. LIQUIDATION, DISSOLUTION OR WINDING UP Upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the rights of the holders of General Stock and TR Stock shall be as follows: a. After the Corporation has satisfied or made provision for its debts and obligations and for the payment to the holders of shares of any class or series of capital stock having preferential rights to receive distributions of the net assets of the Corporation (including any accumulated and unpaid dividends), the holders of General Stock and TR Stock shall be entitled to receive the net assets of the Corporation remaining for distribution, on a per share basis in proportion to the respective liquidation units per share of such class. Each share of General Stock shall have one liquidation unit and each share of TR Stock 12 shall, subject to paragraph b. below, have the number of liquidation units equal to the number of votes to which one share of TR Stock is entitled on the Effective Date. b. For the purposes of paragraph IV.B.4.a., any merger or business combination involving the Corporation or any sale of all or substantially all of the assets of the Corporation shall not be treated as a liquidation. 5. ADJUSTMENTS RELATIVE TO VOTING RIGHTS AND LIQUIDATION If after the Effective Date, the Corporation shall in any manner subdivide (by stock split, reclassification or otherwise) or combine (by reverse stock split, reclassification or otherwise) the outstanding shares of General Stock or TR Stock, or pay a dividend or make a distribution in shares of any class of common stock to holders of such class, the per share voting rights and the liquidation units of TR Stock shall be appropriately adjusted so as to avoid dilution in the aggregate voting and liquidation rights of either class. The issuance by the Corporation of shares of any class of common stock (whether by a dividend or otherwise) to the holders of any other class of common stock shall not require adjustment pursuant to this paragraph. 6. RANK The General Stock and TR Stock shall rank junior with respect to the payment of dividends and the distribution of assets to all series of the Corporation's Preferred Stock that specifically provide that they shall rank prior to the General Stock and TR Stock. Nothing herein shall preclude the Board from creating any series of Preferred Stock ranking on a parity with or prior to the General Stock and TR Stock as to the payment of dividends or the distribution of assets. 7. FRACTIONAL SHARES The General Stock and the TR Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of the General Stock and the TR Stock, respectively. 8. DEFINITIONS As used in these Articles of Organization, the following terms shall have the following meanings (with terms defined in the singular having comparable meaning when used in the plural and vice versa), unless another definition is provided or the context otherwise requires: a. "Available General Dividend Amount," on any date, shall mean the greater of: (a) the excess of 13 (i) the greater of (x) the fair value on such date of the net assets of the General Division and (y) an amount equal to $335,378,000 (stockholders' equity allocated to the General Division at June 30, 1994), such dollar amount to be increased or decreased, as appropriate, to reflect, after June 30, 1994, (A) the Earnings Attributable to the General Division, (B) any dividends or other distributions (including by reclassification or exchange) declared or paid with respect to, or repurchases or issuances of, any shares of General Stock or any other class of capital stock attributed to the General Division, but excluding dividends or other distributions paid in shares of General Stock to the holders thereof or in shares of any other class of capital stock attributed to the General Division to the holders thereof, and (C) any other adjustments to the stockholders' equity of the General Division made in accordance with generally accepted accounting principles, over (ii) the sum of (x) the aggregate par value of all outstanding shares of General Stock and any other class of capital stock attributed to the General Division and (y) unless these Articles of Organization permit otherwise, the aggregate amount that would be needed to satisfy any preferential rights to which holders of all outstanding Preferred Stock attributed to the General Division are entitled upon dissolution of the Corporation in excess of the aggregate par value of such Preferred Stock, provided that such excess shall be reduced by any amount necessary to enable the General Division to pay its debts as they become due, and (b) the amount legally available for the payment of dividends determined in accordance with Massachusetts law applied as if the General Division were a separate corporation. b. "Available Tissue Repair Dividend Amount," on any date, shall mean the greater of: (a) the excess of (i) the greater of (x) the fair value on such date of the net assets of the Tissue Repair Division and (y) an amount equal to $28,712,000 (stockholders' equity allocated to the Tissue Repair Division at June 30, 1994), such dollar amount to be increased or decreased, as appropriate, to reflect, after June 30, 1994, (A) the Earnings Attributable to the Tissue Repair Division, (B) any dividends or other distributions (including by reclassification or exchange) declared or paid with respect to, or repurchases or issuances of, any shares of TR Stock or any other class of capital stock attributed to the Tissue Repair Division, but excluding dividends or other distributions paid in shares of TR Stock to the holders thereof or in shares of any other class of capital stock attributed to the Tissue Repair Division to the holders thereof, and (C) any other adjustments to the stockholders' equity of the Tissue Repair Division made in accordance with generally accepted accounting principles, over 14 (ii) the sum of (x) the aggregate par value of all outstanding shares of TR Stock and any other class of capital stock attributed to the Tissue Repair Division and (y) unless these Articles of Organization permit otherwise, the aggregate amount that would be needed to satisfy any preferential rights to which holders of all outstanding Preferred Stock attributed to the Tissue Repair Division are entitled upon dissolution of the Corporation in excess of the aggregate par value of such Preferred Stock, provided that such excess shall be reduced by any amount necessary to enable the Tissue Repair Division to pay its debts as they become due, and (b) the amount legally available for the payment of dividends determined in accordance with Massachusetts law applied as if the Tissue Repair Division were a separate corporation. c. "Business Day" shall mean each weekday other than any day on which any relevant class of common stock is not traded on any national securities exchange or the National Association of Securities Dealers Automated Quotations National Market System or in the over-the-counter market. d. "Convertible Securities" shall mean any securities (including employee stock options) of the Corporation that are convertible into or evidence the right to purchase any shares of any class of common stock. e. "Disposition" shall mean the sale, transfer, assignment or other disposition (whether by merger, consolidation, sale or contribution of assets or stock or otherwise) of any properties or assets, other than by pledge, hypothecation or grant of any security interest in such properties or assets. f. "Earnings Attributable" to a particular Division for any period, shall mean the net income or loss of such Division for such period (or for the fiscal periods of the Corporation commencing prior to the Effective Date and after June 30, 1994, pro forma net income or loss of such Division as if the Effective Date were June 30, 1994) determined in accordance with generally accepted accounting principles, with all income and expenses of the Corporation being allocated between Divisions in a reasonable and consistent manner in accordance with policies adopted by the Board of Directors; PROVIDED, HOWEVER, that as of the end of any fiscal quarter of the Corporation, any projected annual tax benefit attributable to any Division that cannot be utilized by such Division to offset or reduce its allocated tax liability may be allocated to any other Division without any compensating payment or allocation. g. "Effective Date" shall mean the date on which this Amendment to the Articles of Organization shall become effective. h. "Exchange Date" shall mean the date, if any, fixed for the exchange of shares of TR Stock, as set forth in a notice to holders of TR Stock pursuant to paragraph IV.B.2.c.(1). 15 i. "Fair Market Value" as to shares of any class of stock shall as of any date mean the average of the daily closing prices for the 20 consecutive trading days commencing on the 30th trading day prior to such date. The closing price for each day shall be (x) if the shares of such class of stock are listed or admitted to trading on a national securities exchange, the closing price on the New York Stock Exchange Composite Tape (or any successor composite tape reporting transactions on national securities exchanges) or, if such composite tape shall not be in use or shall not report transactions in such shares, the last reported sales price regular way on the principal national securities exchange on which such shares are listed or admitted to trading (which shall be the national securities exchange on which the greatest number of shares of such class of stock has been traded during such consecutive trading days), or, if there is no such sale on any such day, the mean of the bid and asked prices on such day, or (y) if such shares are not listed or admitted to trading on any such exchange, the closing price, if reported, or, if the closing price is not reported, the mean of the closing bid and asked prices as reported by the National Association of Securities Dealers Automated Quotations National Market System or a similar source selected from time to time by the Corporation for the purpose. In the event such closing prices are unavailable, Fair Market Value shall be determined by the Board of Directors. j. "General Division" shall mean, at any time, the Corporation's interest in (i) all of the businesses, products, development programs or research projects in which the Corporation or any of its subsidiaries (or any of their predecessors or successors) is or has been engaged, directly or indirectly, other than those allocated to the Tissue Repair Division; and (ii) all assets and liabilities of the Corporation to the extent allocated to any such businesses, products, development programs or research projects in accordance with generally accepted accounting principles consistently applied for all of the Corporation's business units. From and after the date on which all of the outstanding shares of TR Stock are exchanged for shares of General Stock, cash or a combination thereof, all of the businesses, products, development programs, research projects, assets and liabilities of the Tissue Repair Division shall be included in the General Division. The General Division shall be represented by the General Stock. k. "General Designated Shares" as of any date shall mean a number of shares of General Stock that shall initially be zero, which number shall be subject to adjustment as provided in the next sentence. The number of General Designated Shares shall from time to time be (i) adjusted as appropriate to reflect subdivisions (by stock split or otherwise) and combinations (by reverse stock split or otherwise) of the General Stock and dividends or distributions of shares of General Stock to holders of General Stock and other reclassifications of General Stock, (ii) decreased by (A) the number of any shares of General Stock issued by the Corporation, the proceeds of which are allocated to the Tissue Repair Division, (B) the number of any shares of General Stock issued upon the exercise or conversion of Convertible Securities attributed to the Tissue Repair Division, (C) the number of any shares of General Stock issued by the Corporation as a dividend or distribution or by 16 reclassification, exchange or otherwise to holders of TR Stock, and (D) the number equal to the fair value (as determined by the Board of Directors) of assets or properties allocated to the General Division that are reallocated to the Tissue Repair Division (other than reallocations that represent sales at fair value between such Divisions) divided by the Fair Market Value of one share of General Stock as of such date, and (iii) increased by (A) the number of any outstanding shares of General Stock repurchased by the Corporation, the consideration for which was allocated to the Tissue Repair Division, and (B) the number equal to the fair value (as determined by the Board of Directors) of assets or properties allocated to the Tissue Repair Division that are reallocated to the General Division (other than reallocations that represent sales at fair value between such Divisions) divided by the Fair Market Value of one share of General Stock as of the date of such reallocation; PROVIDED that no adjustment shall be made pursuant to clause (ii)(D) if the Board of Directors elects instead to make the adjustment set forth in clause (iii)(B) or (C) of the definition of TR Designated Shares and PROVIDED, FURTHER that the Corporation shall take no action which would have the effect of reducing the General Designated Shares to a number which is less than zero. Within 45 days after the end of each fiscal quarter of the Corporation, the Corporation shall prepare and file a statement of such change with the transfer agent for the General Stock and with the Clerk of the Corporation. l. "Market Capitalization" of any class of common stock on any date shall mean the product of (i) the Fair Market Value of one share of such class of common stock on such date and (ii) the number of shares of such class of common stock outstanding on such date. m. "Tissue Repair Division" shall mean, at any time, the Corporation's interest in (i) the following businesses, products, development programs or research projects: (A) Vianain[Registered Trademark] for debridement of necrotic or damaged tissue; (B) TGF-(beta)2 for all indications licensed from Celtrix Pharmaceuticals, Inc. on the Effective Date; (C) Epicel[Trademark] cultured epithelial cell autografts for tissue replacement or repair, including but not limited to skin, ocular or oral tissue; (D) Acticel[Trademark] cultured epithelial cell allografts for tissue replacement or repair, including but not limited to skin, ocular or oral tissue; (E) Chondrograft cultured chondrocyte auto- and allografts; (F) tissue-type plasminogen activator ("tPA") for all tissue repair indications licensed by the Corporation from Genentech, Inc. on the Effective Date; (G) the leukocyte-derived growth factor ("LDGF") research program; (H) the dermal replacement research program; (I) the cultured fibroblast dermal replacement research program and (J) the research program on cultured keratinocyte or fibroblast cell extracts or derivatives, each as being conducted by the Corporation on the Effective Date; (ii) all assets and liabilities of the Corporation to the extent allocated to any such businesses, products, development programs or research projects in accordance with generally accepted accounting principles consistently applied for all of the Corporation's business units; and (iii) such businesses, products, development programs or research projects developed in, or acquired by the Corporation for, the Tissue Repair Division after the Effective Date, in each case as determined by the Board of Directors; PROVIDED, HOWEVER, that, from and after any 17 Disposition or transfer to the General Division of any business, product, development program, research project, assets or properties, the Tissue Repair Division shall no longer include the business, product, development program, research project, assets or properties so disposed of or transferred. The Tissue Repair Division shall be represented by the TR Stock. n. "TR Designated Shares" as of any date shall mean a number of shares of TR Stock that shall initially be 5,000,000, which number shall be subject to adjustment as provided in the next sentence. The number of TR Designated Shares shall from time to time be (i) adjusted as appropriate to reflect subdivisions (by stock split or otherwise) and combinations (by reverse stock split or otherwise) of the TR Stock and dividends or distributions of shares of TR Stock to holders of TR Stock and other reclassifications of TR Stock, (ii) decreased by (A) the number of any shares of TR Stock issued by the Corporation, the proceeds of which are allocated to the General Division, (B) the number of any shares of TR Stock issued upon the exercise or conversion of Convertible Securities attributed to the General Division, and (C) the number of any shares of TR Stock issued by the Corporation as a dividend or distribution or by reclassification, exchange or otherwise to holders of General Stock, and (iii) increased by (A) the number of any outstanding shares of TR Stock repurchased by the Corporation, the consideration for which was allocated to the General Division, (B) one for each $10.00 reallocated from the General Division to the Tissue Repair Division from time to time in satisfaction of the funding commitment or the purchase option of the General Division set forth in sections 4.17 and 4.18 of the Agreement and Plan of Reorganization among the Corporation, Phoenix Acquisition Corporation and BioSurface Technology, Inc. dated as of July 25, 1994, up to a maximum $30,000,000, and (C) the number equal to the fair value (as determined by the Board of Directors) of assets or properties allocated to the General Division that are reallocated to the Tissue Repair Division (other than reallocations that represent sales at fair value between such Divisions or reallocations described in the foregoing clause (B)) divided by the Fair Market Value of one share of TR Stock as of the date of such reallocation; PROVIDED, that the Corporation shall take no action which would have the effect of reducing the TR Designated Shares to a number which is less than zero. Within 45 days after the end of each fiscal quarter of the Corporation, the Corporation shall prepare and file a statement of such change with the transfer agent for the TR Stock and with the Clerk of the Corporation. 9. DETERMINATIONS BY THE BOARD OF DIRECTORS Any determinations with respect to any Division or the rights of holders of any series of common stock made by the Board of Directors of the Corporation in good faith pursuant 18 to or in furtherance of any provision of this paragraph B. shall be final and binding on all stockholders of the Corporation. C. DESCRIPTION OF THE PREFERRED STOCK 1. UNDESIGNATED PREFERRED STOCK Shares of Preferred Stock may be issued from time to time in one or more series. The Board of Directors may determine, in whole or in part, the preferences, voting powers, qualifications and special or relative rights or privileges of any such series before the issuance of any shares of that series. The Board of Directors shall determine the number of shares constituting each series of Preferred Stock and each series shall have a distinguishing designation. 2. SERIES A AND SERIES B JUNIOR PARTICIPATING PREFERRED STOCK By vote adopted October 13, 1994 pursuant to paragraph IV(C)(1) of this Corporation's Articles of Organization, the Board of Directors established two series of Preferred Stock of the Corporation with the following designations, powers, preferences and rights: 1. AUTHORIZED AMOUNTS AND DESIGNATIONS. One million shares of Preferred Stock of the Corporation are designated as Series A Junior Participating Preferred Stock (the "Series A Preferred Stock") and 400,000 shares of Preferred Stock are designated as Series B Junior Participating Preferred Stock (the "Series B Preferred Stock," and together with the Series A Preferred Stock, the "Junior Preferred Stock"). To the extent legally permitted, such numbers of shares may be increased or decreased by vote of the Board of Directors, provided that no decrease shall reduce the number of shares of Junior Preferred Stock of either series to a number less than the number of shares of such series then outstanding plus the number of shares of such series reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into such series of Junior Preferred Stock. 2. DIVIDENDS AND DISTRIBUTIONS. (A) Subject to the prior and superior rights of the holders of any shares of any series of Preferred Stock ranking prior and superior to the Junior Preferred Stock with respect to dividends, the holders of shares of Junior Preferred Stock, in preference to the holders of General Division Common Stock (the "General Stock") and Tissue Repair Division Common Stock (the "TR Stock" and together with the General Stock, the "Common Shares") of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board of Directors out of funds legally available for the purpose, quarterly dividends payable in cash on the first day of March, June, September and December in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share 19 or fraction of a share of Junior Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $1.00 or (b) subject to the provision for adjustment hereinafter set forth, 100 times the aggregate per share amount of all cash dividends, and 100 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend on Common Shares payable in Common Shares of the same class or a subdivision of the outstanding Common Shares (by reclassification or otherwise), declared on the General Stock in the case of the Series A Preferred Stock and on the TR Stock in the case of the Series B Preferred Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Junior Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on any class of Common Shares payable in Common Shares of the same class, or effect a subdivision or combination or consolidation of the outstanding Common Shares of any class (by reclassification or otherwise than by payment of a dividend in the same class of Common Shares) into a greater or lesser number of Common Shares of such class, then in each such case the amount to which holders of shares of Junior Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, (i) the numerator of which is the number of shares of General Stock outstanding immediately after such event and the denominator of which is the number of shares of General Stock that were outstanding immediately prior to such event in the case of the Series A Preferred Stock, and (ii) the numerator of which is the number of shares of TR Stock outstanding immediately after such event and the denominator of which is the number of shares of TR Stock that were outstanding immediately prior to such event in the case of the Series B Preferred Stock. (B) The Corporation shall declare a dividend or distribution on the Junior Preferred Stock as provided in paragraph (A) of this Section 2 immediately after it declares a dividend or distribution on any class of Common Shares (other than a dividend payable in Common Shares of such class), provided that, in the event no dividend or distribution shall have been declared on the General Stock or the TR Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $1.00 per share on the Series A Preferred Stock or the Series B Stock, as the case may be, shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Junior Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Junior Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Junior Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on 20 such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board of Directors may fix a record date for the determination of holders of shares of Junior Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. 3. VOTING RIGHTS. The holders of shares of Junior Preferred Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 100 votes on all matters submitted to a vote of the stockholders of the Corporation and each share of Series B Preferred Stock shall entitle the holder thereof to 100 times the number of votes to which the holder of each outstanding share of TR Stock is then entitled on all such matters. In the event the Corporation shall at any time declare or pay any dividend on any class of Common Shares payable in Common Shares of such class, or effect a subdivision or combination or consolidation of the outstanding Common Shares of any class (by reclassification or otherwise than by payment of a dividend in Common Shares of such class) into a greater or lesser number of Common Shares of such class, then in each such case the number of votes per share to which holders of shares of Junior Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, (i) the numerator of which is the number of shares of General Stock outstanding immediately after such event and the denominator of which is the number of shares of General Stock that were outstanding immediately prior to such event in the case of the Series A Preferred Shares, and (ii) the numerator of which is the number of shares of TR Stock outstanding immediately after such event and the denominator of which is the number of shares of TR Stock that were outstanding immediately prior to such event in the case of the Series B Preferred Stock. (B) Except as otherwise provided herein, in the Articles of Organization, in any other vote of the Board of Directors of the Corporation creating a series of Preferred Stock, or by law, the holders of shares of Junior Preferred Stock and the holders of Common Shares and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) Except as set forth herein or as otherwise provided by law, holders of Junior Preferred Stock shall have no voting rights. 4. CERTAIN RESTRICTIONS. (A) Whenever quarterly dividends or other dividends or distributions payable on the Junior Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Junior Preferred Stock outstanding shall have been paid in full, the Corporation shall not: 21 (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, except dividends paid ratably on the Junior Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) redeem or purchase or otherwise acquire for consideration shares of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Junior Preferred Stock; or (iv) redeem, purchase or otherwise acquire for consideration any shares of Junior Preferred Stock, or any shares of stock ranking on a parity with the Junior Preferred Stock, except in accordance with a purchase offer made in writing or by publication (as determined by the Board of Directors) to all holders of such shares upon such terms as the Board of Directors, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this section 4 purchase or otherwise acquire such shares at such time and in such manner. 5. REACQUIRED SHARES. Any shares of Junior Preferred Stock purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock, subject to the conditions and restrictions on issuance set forth herein, in the Articles of Organization, in any other vote of the Board of Directors of the Corporation creating a series of Preferred Stock, or as otherwise required by law. 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Junior Preferred Stock unless, prior thereto, the holders of shares of Junior Preferred Stock shall have received $100 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Junior Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, 22 equal to 100 times the aggregate amount to be distributed per share to holders of shares of General Stock in the case of the Series A Preferred Stock and 100 times the aggregate amount to be distributed per share to the holders of shares of TR Stock in the case of the Series B Preferred Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Junior Preferred Stock, except distributions made ratably on the Junior Preferred Stock and all other such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. In the event the Corporation shall at any time declare or pay any dividend on any class of Common Shares payable in Common Shares of such class, or effect a subdivision or combination or consolidation of the outstanding Common Shares of any class (by reclassification or otherwise than by payment of a dividend in Common Shares of such class) into a greater or lesser number of Common Shares of such class, then in each such case the aggregate amount to which holders of shares of Junior Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, (i) the numerator of which is the number of shares of General Stock outstanding immediately after such event and the denominator of which is the number of shares of General Stock that were outstanding immediately prior to such event in the case of the Series A Preferred Stock, and (ii) the numerator of which is the number of shares of TR Stock outstanding immediately after such event and the denominator of which is the number of shares of TR Stock that were outstanding immediately prior to such event in the case of the Series B Preferred Stock. 7. CONSOLIDATION, MERGER, ETC. In case the Corporation shall enter into any consolidation, merger, combination or other transaction in which Common Shares are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock and Series B Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share (subject to the provision for adjustment hereinafter set forth) equal to 100 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of General Stock and TR Stock, respectively, is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on any class of Common Shares payable in Common Shares of such class, or effect a subdivision or combination or consolidation of the outstanding shares of any class of Common Shares (by reclassification or otherwise than by payment of a dividend in shares of Common Shares of such class) into a greater or lesser number of Common Shares of such class, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Junior Preferred Stock shall be adjusted by multiplying such amount by a fraction, (i) the numerator of which is the number of shares of General Stock outstanding immediately after such event and the denominator of which is the number of shares of General Stock that were outstanding immediately prior to such event in the case of the Series A Preferred Stock, and (ii) the numerator of which is the number of shares of TR Stock outstanding immediately after such event and the denominator of which is the number of shares of TR Stock that were outstanding immediately prior to such event in the case of the Series B Preferred Stock. 23 8. REDEMPTION. The shares of Junior Preferred Stock shall not be redeemable. 9. RANK. The Series A Preferred Stock and the Series B Preferred Stock shall rank equally with respect to the payment of dividends and the distribution of assets. The Junior Preferred Stock shall rank junior with respect to the payment of dividends and the distribution of assets to all series of the Corporation's Preferred Stock that specifically provide that they shall rank prior to the Junior Preferred Stock. Nothing herein shall preclude the Board from creating any series of Preferred Stock ranking on a parity with or prior to the Junior Preferred Stock as to the payment of dividends or the distribution of assets. 10. AMENDMENT. The Articles of Organization of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock or the Series B Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding Series A Preferred Stock or Series B Preferred Stock, respectively, voting together as a single series. 11. FRACTIONAL SHARES. The Junior Preferred Stock may be issued in fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and to have the benefit of all other rights of holders of the Junior Preferred Stock. 24 ARTICLE VI OTHER LAWFUL PROVISIONS ----------------------- A. BOARD OF DIRECTORS ------------------ 1. CLASSIFICATION. The directors shall be divided into three classes, as nearly equal in number as the then total number of directors constituting the entire Board permits, with the term of office of one class expiring each year. The initial directors of all classes shall be elected by the incorporator and shall serve until their respective successors shall be elected and shall qualify. Thereafter, the directors of the first class shall be elected to hold office for a term expiring at the first annual meeting of stockholders, the directors of the second class shall be elected to hold office for a term expiring at the second annual meeting of stockholders and the directors of the third class shall be elected to hold office for a term expiring at the third annual meeting of stockholders. At each annual meeting of stockholders, successors to the class of directors whose term expires at that meeting shall be elected for a term expiring at the third annual meeting following their election and until their successors shall be elected and qualified, subject to prior death, resignation, retirement or removal. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, but in no event will a decrease in the number of directors shorten the term of any incumbent director. Notwithstanding the foregoing, and except as otherwise required by law, whenever the holders of any one or more series of Preferred Stock shall have the right, voting separately as a class, to elect one or more directors of the Corporation, the election, terms of office and other features of such directorships shall be governed by the terms of the vote establishing such series, and such directors so elected shall not be divided into classes pursuant to this Article VI unless expressly provided by such terms. 2. VACANCIES. Except as otherwise determined by the Board of Directors in establishing a series of Preferred Stock as to directors elected by holders of such series, any vacancies in the Board of Directors, including a vacancy resulting from the enlargement of the Board, may be filled by the directors then in office, though less than a quorum. Each director so chosen to fill a vacancy shall be elected to complete the term of office of the director who is being succeeded. In the case of any election of a new director to fill a directorship created by an enlargement of the Board, the Board shall in such election assign the class of directors to which such additional director is being elected, and each director so elected shall hold office for the same term as the other members of the class to which the director is assigned. 3. REMOVAL. Except as otherwise determined by the Board of Directors in establishing a series of Preferred Stock as to directors elected by holders of such series, at any special meeting of the stockholders called at least in part for the purpose, any director or directors may, by the affirmative vote of the holders of at least a majority of the stock entitled to vote for the election of directors, be removed from office for cause. The provisions of this subsection shall be the exclusive method for the removal of directors. 25 B. STOCKHOLDER VOTE REQUIRED FOR CERTAIN ACTIONS --------------------------------------------- The Corporation, by vote of a majority of the stock outstanding and entitled to vote thereon may (i) authorize any amendment to these Articles of Organization, (ii) authorize the sale, lease or exchange of all or substantially all of the Corporation's property and assets, including its goodwill and (iii) approve a merger or consolidation of the Corporation with or into any other corporation; so long as such amendment, sale, lease, exchange, merger or consolidation shall have been approved by the Board of Directors. C. ADDITIONAL PROVISIONS --------------------- 1. Meetings of the stockholders may be held anywhere within the United State. 2. No contract or other transaction of this corporation with any other person, corporation, association, or partnership shall be affected or invalidated by the fact that (i) this corporation is a stockholder or partner in such other corporation, association, or partnership, or (ii) any one or more of the officers or directors of this corporation is an officer, director or partner of such other corporation, association or partnership, or (iii) any officer or director of this corporation, individually or jointly with others, is a party to or is interested in such contract or transaction. Any director of this corporation may be counted in determining the existence of a quorum at any meeting of the board of directors for the purpose of authorizing or ratifying any such contract or transaction, and may vote thereon, with like force and effect as if he were not so interested or were not an officer, director, or partner of such other corporation, association, or partnership. 3. The corporation may be a partner in any business enterprise which it would have power to conduct itself. 4. The by-laws may provide that the directors may make, amend, or repeal the by-laws in whole or in part, except with respect to any provision thereof which by law, these Articles of Organization, or the by-laws requires action by the stockholders. 5. A director shall not be liable to the corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except to the extent that the elimination or limitation of liability is not permitted under the Massachusetts Business Corporation Law as in effect when such liability is determined. No amendment or repeal of this provision shall deprive a director of the benefits hereof with respect to any act or omission occurring prior to such amendment or repeal. 6. Except as otherwise required by law, any action required or permitted to be taken by the stockholders of the Corporation must be taken at a duly called annual or special meeting of such holders and may not be taken by any consent in writing by such holders. EX-11 3 COMPUTATION OF PER SHARE EARNINGS 1 EXHIBIT 11 -62- 2 GENZYME CORPORATION AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF WEIGHTED AVERAGE SHARES USED IN COMPUTING INCOME PER SHARE AMOUNTS (Unaudited, in thousands)
POST-SPLIT BASIS ------------------------------------------------ THREE MONTHS ENDED ------------------------------------------------ JUNE 30, 1996 JUNE 30, 1995 ---------------------- --------------------- COMMON COMMON AND COMMON ASSUMING AND COMMON ASSUMING EQUIVALENT FULL EQUIVALENT FULL SHARE DILUTION SHARE DILUTION ---------- -------- ---------- -------- APPLICABLE TO GENERAL DIVISION STOCK(A) Common stock outstanding, beginning of period......... 67,719 67,719 53,192 53,192 Weighted average common stock issued during the period 1,016 1,016 124 253 Weighted average common stock assuming exercise of options.................................. 2,979 2,980 2,064 2,111 Weighted average common stock assuming exercise of warrants................................. 2,194 2,220 1,257 1,308 Weighted average common stock assuming conversion of 6 3/4% Convertible Subordinated Notes................ 0 0 (B) 3,783 ------ ------ ------ ------ Weighted average number of shares outstanding......... 73,908 73,935 56,637 60,647 ====== ====== ====== ====== SIX MONTHS ENDED ------------------------------------------------ JUNE 30, 1996 JUNE 30, 1995 ---------------------- --------------------- COMMON COMMON AND COMMON ASSUMING AND COMMON ASSUMING EQUIVALENT FULL EQUIVALENT FULL SHARE DILUTION SHARE DILUTION ---------- -------- ---------- -------- APPLICABLE TO GENERAL DIVISION STOCK(A) Common stock outstanding, beginning of period......... 62,372 62,372 52,893 52,893 Weighted average common stock issued during the period 4,248 4,248 253 515 Weighted average common stock assuming exercise of options.................................. 3,609 3,612 1,152 2,068 Weighted average common stock assuming exercise of warrants................................. 2,652 2,729 1,911 1,212 Weighted average common stock assuming conversion of 6 3/4% Convertible Subordinated Notes................ 0 1,339 (B) 3,783 ------ ------ ------ ------ Weighted average number of shares outstanding......... 72,881 74,300 56,209 60,471 ====== ====== ====== ====== (A) Reflects for July 25, 1996 2-for-1 stock split. (B) These securities are "other potentially dilutive" securities which effect is included, to the extent such effect is dilutive, in the determination of weighted average shares assuming full dilution.
3 GENZYME CORPORATION AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF WEIGHTED AVERAGE SHARES USED IN COMPUTING INCOME PER SHARE AMOUNTS (CONTINUED) (Unaudited, in thousands)
THREE MONTHS ENDED ------------------------------------------------ JUNE 30, 1996 JUNE 30, 1995 ------------------------------------------------ COMMON COMMON AND COMMON ASSUMING AND COMMON ASSUMING EQUIVALENT FULL EQUIVALENT FULL SHARE DILUTION SHARE DILUTION ---------- -------- ---------- -------- Common stock outstanding, beginning of period......... 12,569 8,753 Weighted average common stock issued during the period 7 10 Weighted average common stock assuming exercise of options.................................. (B) (B) Weighted average common stock assuming exercise of warrants................................. (B) (B) Weighted average common stock assuming conversion of 6 3/4% Convertible Subordinated Notes................ (A) (A) ------ ----- Weighted average number of shares outstanding......... 12,576 8,763 ====== ===== SIX MONTHS ENDED ------------------------------------------------ JUNE 30, 1996 JUNE 30, 1995 ------------------------------------------------ COMMON COMMON AND COMMON ASSUMING AND COMMON ASSUMING EQUIVALENT FULL EQUIVALENT FULL SHARE DILUTION SHARE DILUTION ---------- -------- ---------- -------- Common stock outstanding, beginning of period......... 12,113 8,675 Weighted average common stock issued during the period 298 46 Weighted average common stock assuming exercise of options.................................. (B) (B) Weighted average common stock assuming exercise of warrants................................. (B) (B) Weighted average common stock assuming conversion of 6 3/4% Convertible Subordinated Notes................ (A) (A) ------ ----- Weighted average number of shares outstanding......... 12,411 8,721 ====== ===== (A) These securities are "other potentially dilutive" securities which effect is included, to the extent such effect is dilutive, in the determination of weighted average shares assuming full dilution. (B) The effect of assumed conversion is antidilutive.
EX-27 4 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS OF GENZYME CORPORATION FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. GENZYME CORPORATION REPORTS EARNINGS BASED ON ITS TWO TYPES OF TRACKING STOCK-GENERAL DIVISION AND TISSUE REPAIR DIVISION AND THEREFORE, CONSOLIDATED EARNINGS PER SHARE DATA IS NOT APPLICABLE. FOR THE SIX MONTHS ENDED JUNE 30, 1996, GENZYME GENERAL DIVISION HAD A NET INCOME OF $39,318 OR EPS-PRIMARY OF $0.54 AND EPS-DILUTED OF $0.53 (PRO FORMA FOR JULY 25, 1996 2-FOR-1 STOCK SPLIT). FOR THE SIX MONTHS ENDED JUNE 30, 1996, GENZYME TISSUE REPAIR DIVISION HAD A NET LOSS OF $19,242 OR EPS-PRIMARY $(1.55). 1,000 U.S. DOLLARS 6-MOS DEC-31-1996 JAN-01-1996 JUN-30-1996 1 119,331 163,063 107,382 9,447 64,363 485,854 407,025 41,684 1,006,329 92,363 32,922 471 0 0 880,574 1,006,329 216,931 229,132 88,021 204,310 1,121 3,797 395 33,183 13,107 20,076 0 0 0 20,076 N/A N/A
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