-----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, S2ar9osRyo+ZJJedOBHhW62DTuki2T3oRauzyxkIDUIwlZpxfDEGuiXirWwwWgns I3B0+7njnksVCORYRVPmSQ== 0000950135-97-002489.txt : 19970520 0000950135-97-002489.hdr.sgml : 19970520 ACCESSION NUMBER: 0000950135-97-002489 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19970331 FILED AS OF DATE: 19970515 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: 97609178 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 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 March 31, 1997 -------------- 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 April 30, 1997: Class Outstanding at April 30,1997: ----- ----------------------------- Genzyme General Common Stock, $0.01 par value ("GGD Stock") 76,028,957 Genzyme Tissue Repair Common Stock, $0.01 par value ("GTR Stock") 13,225,682 Total number of pages in document - 61 Exhibit index located on page - 31 -1- 2 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, MARCH 31, 1997 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, and the clinical development, regulatory approval and market introduction of the Company's products and services. These forward-looking statements represent the expectations of Genzyme's management as of the filing date of this Form 10-Q. The Company's actual results could differ materially from those anticipated by the forward looking statements due to a number of factors, including (i) the Company's ability to successfully complete preclinical and clinical development and obtain timely regulatory approval and patent and other proprietary rights protection for its products and services, (ii) decisions, and the 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 actual 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, (vi) the accuracy of the Company's information concerning the products and resources of competitors and potential competitors, and (vii) the risks and uncertainties described under the caption "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 for the year ended December 31, 1996. -2- 3 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, MARCH 31, 1997 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION PAGE NO. ------- ITEM 1. Financial Statements GENZYME CORPORATION AND SUBSIDIARIES Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 1997 and 1996........................ 4-5 Condensed Consolidated Balance Sheets as of March 31, 1997 and December 31, 1996............................................. 6 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996........................ 7-8 Notes to Unaudited Condensed Consolidated Financial Statements...... 9-10 GENZYME GENERAL Condensed Combined Statements of Operations for the Three Months Ended March 31, 1997 and 1996........................ 11-12 Condensed Combined Balance Sheets as of March 31, 1997 and December 31, 1996............................................. 13 Condensed Combined Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996........................ 14-15 Notes to Unaudited Condensed Combined Financial Statements.......... 16-18 GENZYME TISSUE REPAIR Condensed Combined Statements of Operations for Three Months Ended March 31, 1997 and 1996.............................. 19 Condensed Combined Balance Sheets as of March 31, 1997 and December 31, 1996............................................. 20 Condensed Combined Statements of Cash Flows for the Three Months Ended March 31, 1997 and 1996.............................. 21 Notes to Unaudited Condensed Combined Financial Statements.......... 22 ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................... 23-28 ITEM 3. Quantitative and Qualitative Disclosures About Market Risk...... 28 PART II. OTHER INFORMATION ITEM 2. Changes in Securities........................................... 29 ITEM 6. Exhibits and Reports on Form 8-K................................ 29 Signatures............................................................... 30 -3- 4 PART I. FINANCIAL STATEMENTS ITEM 1. Financial Statements GENZYME CORPORATION AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31, - --------------------------------------------------------------------------------- 1997 1996 ---- ---- Revenues: Net product sales ................................. $128,156 $ 92,815 Net service sales ................................. 16,743 14,621 Revenues from research and development contracts .. 1,694 6,061 -------- -------- 146,593 113,497 Operating costs and expenses: Cost of products sold ............................. 46,512 33,324 Cost of services sold ............................. 12,172 10,653 Selling, general and administrative ............... 47,326 37,556 Amortization of intangibles ....................... 3,196 1,016 Research and development (including research and development related to contracts) ........... 20,092 17,690 -------- -------- 129,298 100,239 -------- -------- Operating income .................................... 17,295 13,258 Other income and (expenses): Equity in net loss of unconsolidated subsidiaries (1,659) (937) Investment income ................................. 2,504 4,492 Interest expense .................................. (2,658) (213) -------- -------- (1,813) 3,342 -------- -------- Income before income taxes .......................... 15,482 16,600 Provision for income taxes .......................... (6,115) (6,308) -------- -------- Net income .......................................... $ 9,367 $ 10,292 ======== ========
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)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31 - --------------------------------------------------------------------------------- 1997 1996 ---- ---- ATTRIBUTABLE TO GENZYME GENERAL STOCK: Net income ......................................... $ 16,727 $15,537 Tax benefit allocated from Genzyme Tissue Repair.... 4,511 3,497 -------- ------- Net income attributable to Genzyme General Stock.... $ 21,238 $19,034 ======== ======= Per common and common equivalent share: Net income ........................................ $ 0.27 $ 0.27 ======== ======= Average shares outstanding ........................ 78,237 71,382 ======== ======= Per common share assuming full dilution: Net income ........................................ $ 0.27 $ 0.26 ======== ======= Average fully diluted shares outstanding .......... 78,238 74,192 ======== ======= ATTRIBUTABLE TO GENZYME TISSUE REPAIR STOCK: Net loss attributable to GTR Stock ................. $(11,871) $(8,742) ======== ======= Per common share: Net loss .......................................... $ (0.90) $ (0.71) ======== ======= Average shares outstanding ........................ 13,178 12,246 ======== =======
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)
(IN THOUSANDS) MARCH 31, DECEMBER 31, - ------------------------------------------------------------------------------------------------- 1997 1996 ---- ---- ASSETS Current Assets: Cash and cash equivalents ..................................... $ 107,810 $ 93,132 Short-term investments ........................................ 41,815 56,608 Accounts receivable, less allowance for doubtful accounts ..... 119,697 116,833 Inventories ................................................... 129,586 125,265 Prepaid expenses and other current assets ..................... 15,719 100,287 Deferred tax assets - current ................................. 17,493 17,493 ---------- ---------- Total current assets ........................................ 432,120 509,618 Property, plant and equipment, net .............................. 387,573 393,839 Other Assets: Long-term investments ......................................... 32,381 38,215 Intangibles, net of accumulated amortization .................. 247,412 247,745 Deferred tax assets - noncurrent .............................. 42,221 42,221 Other noncurrent assets ....................................... 41,366 38,870 ---------- ---------- 363,380 367,051 ---------- ---------- $1,183,073 $1,270,508 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable .............................................. $ 17,953 $ 22,271 Accrued expenses .............................................. 65,295 70,124 Income taxes payable .......................................... 22,900 17,926 Deferred revenue .............................................. 2,565 2,693 Current portion of long-term debt and capital lease obligations 1,022 999 ---------- ---------- Total current liabilities ................................... 109,735 114,013 Noncurrent Liabilities: Long-term debt and capital lease obligations .................. 153,353 241,998 Other noncurrent liabilities .................................. 11,408 12,188 ---------- ---------- 164,761 254,186 Stockholders' Equity: Genzyme General Stock, $.01 par value ......................... 758 755 Genzyme Tissue Repair Stock, $.01 par value ................... 132 132 Treasury Stock - at cost ...................................... (901) (890) Additional paid-in capital - Genzyme General .................. 874,007 871,020 Additional paid-in capital - Genzyme Tissue Repair ............ 125,844 122,385 Accumulated deficit ........................................... (80,610) (89,975) Foreign currency translation adjustments ...................... (9,615) (745) Unrealized net losses on investments .......................... (1,038) (373) ---------- ---------- 908,577 902,309 ---------- ---------- $1,183,073 $1,270,508 =========== ==========
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)
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31, - ----------------------------------------------------------------------------------------------- 1997 1996 ---- ---- OPERATING ACTIVITIES: Net income ............................................................ $ 9,366 $10,292 Reconciliation of net income to net cash provided by operating activities Depreciation and amortization ........................................ 9,896 5,669 Non-cash compensation expense ........................................ 197 -- Accrued interest/amortization on bonds ............................... 651 (1,235) Provision for bad debts .............................................. 1,410 2,887 Equity in net loss of unconsolidated subsidiaries .................... 2,241 937 Gain on investment in unconsolidated affiliate ....................... (582) -- Accretion of debt .................................................... 102 -- Other ................................................................ 286 (13) Increase (decrease) in cash from working capital changes: Accounts receivable ................................................ (6,912) (1,102) Inventories ........................................................ (5,244) (6,814) Prepaid expenses and other current assets .......................... (2,732) (631) Accounts payable, accrued expenses and deferred revenue ............ (2,231) 944 -------- -------- Net cash provided by operating activities .......................... 6,448 10,934 INVESTING ACTIVITIES: Purchases of investments ............................................. (25,425) (73,361) Sales and maturities of investments .................................. 44,820 20,566 Acquisitions of property, plant and equipment ........................ (4,317) (20,470) Sale of property, plant & equipment .................................. 202 -- Additional investment in unconsolidated affiliate .................... -- (339) Investment in joint venture .......................................... (1,843) -- Loan to affiliate .................................................... -- (2,804) Other noncurrent assets and other noncurrent liabilities ............. (2,802) (36) -------- -------- Net cash provided (used) by financimg activity ..................... 10,635 (76,444) FINANCING ACTIVITIES: Proceeds from issuance of common stock ............................... 91,942 15,508 Short-term borrowings under bank credit agreement .................... -- 8,000 Proceeds from issuance of debt ....................................... 13,000 -- Payments of long-term debt and capital lease obligations ............. (104,510) (253) -------- -------- Net cash provided (used) by investing activities ................... 432 23,255 Effect of exchange rate changes on cash ................................. (2,837) 329 -------- -------- Increase (decrease) in cash and cash equivalents ........................ 14,678 (41,926) Cash and cash equivalents, beginning of period .......................... 93,132 144,372 -------- -------- Cash and cash equivalents, end of period ................................ $107,810 $102,446 ======== ======== Supplemental disclosures of cash flows: Cash paid during the period for: Interest ............................................................. $ 4,510 $ 603 Income taxes ......................................................... 454 345
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 Annual Report on Form 10-K of Genzyme Corporation ("Genzyme" or the "Company") for the fiscal year ended December 31, 1996 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 1996 financial statements have been reclassified to conform with the 1997 presentation. The financial statements for the three months ended March 31, 1997 and 1996 are unaudited but include, in management'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 for the year ended December 31, 1996 (the "1996 10-K"). The Company has elected to delay the annual distribution of GTR Designated Shares to holders of record of GGD Stock, as described in the 1996 10-K, until June 30, 1997. 3. INVENTORIES (In thousands)
March 31, 1997 December 31, 1996 -------------- ----------------- Raw materials................ $ 33,993 $ 30,379 Work-in process.............. 40,869 38,203 Finished products............ 54,724 56,683 -------- -------- $129,586 $125,265 ======== ========
4. PHARMAGENICS CREDIT FACILITY As previously reported in the 1996 10-K, in January 1997, Genzyme signed a definitive merger agreement providing for the merger of PharmaGenics, Inc. ("PharmaGenics") with and into Genzyme in exchange for 4,000,000 shares of a new Genzyme security to be designated Genzyme Molecular Oncology Common Stock. Under the terms of the merger agreement, Genzyme has made a credit facility (the "Credit Facility") available to PharmaGenics to fund PharmaGenics's documented operating costs. In February, March and May 1997, PharmaGenics borrowed $1.0 million, $0.7 million and $0.8 million, respectively, under the Credit Facility having provided Genzyme with a projected cash disbursements list of operating costs for the months of February, March, April and May. As of March 31, 1997, Genzyme has recorded $1.7 million of these borrowings as an increase to Other noncurrent assets and will record the remaining $0.8 million of borrowings in May 1997. 5. REVOLVING CREDIT FACILITY Genzyme has a revolving credit facility (the "Revolving Credit Facility") with a syndicate of commercial banks administered by Fleet National Bank in the amount of $225.0 million. Amounts drawn under this facility may be allocated to either Genzyme General or Genzyme Tissue Repair. In January 1997, Genzyme General repaid $100.0 million of its outstanding debt under this credit facility and related accrued interest of $2.0 million. As of March 31, 1997, the Company had $118.0 million of debt outstanding under the Revolving Credit Facility, which had been allocated $100.0 million to Genzyme General and $18.0 million to Genzyme Tissue Repair. 6. GENZYME TISSUE REPAIR PRIVATE PLACEMENT On February 28, 1997, Genzyme Tissue Repair raised $13 million through the private placement of a 5% convertible note (the "Note"), to an affiliate of Credit Suisse First Boston due February 27, 2000. The Note is convertible beginning May 29, 1997 into shares of GTR Stock and, beginning August 1997, at a discount to the average of the closing bid prices of the GTR Stock on the Nasdaq National Market for the 25 trading days immediately preceding the conversion date (the "Average GTR Stock Price"). The discount will start at 2% beginning six months from the date the Note was issued and will increase to 11%, at various intervals, at 15 months after the date of issue. Thereafter, the conversion price will be the lesser of 89% of the Average GTR Stock Price preceding the conversion date or the date 15 months after the date of issue. In the first quarter of 1997, Genzyme Tissue Repair recorded $11.5 million of proceeds attributed to the value of the debt and $1.5 million attributed to the value of the conversion feature (recorded as an increase to division equity). The $11.5 million will be accreted to the face value of the debt by a charge to earnings available to common stockholders over the initial 15 month conversion period. -8- 9 7. JOINT VENTURE WITH GENZYME DEVELOPMENT PARTNERS, L.P. ("GDP") Genzyme consolidates 100% of the losses generated by the joint venture (the "Joint Venture") with GDP to manufacture and market a line of products based on hyaluronic acid ("HA") for use in limiting the formation of post-operative adhesions (the "Sepra Products"). For the quarter ended March 31, 1997, the Joint Venture incurred net losses of approximately $0.7 million, due primarily to the costs associated with the U.S. market introduction of the first Sepra Product, Seprafilm [TM]. -9- 10 8. PROVISION FOR INCOME TAXES The tax provision for the quarter ended March 31, 1997 varies from the U.S. statutory tax rate because of the provision for state income taxes, nondeductible intangible amortization, losses of unconsolidated affiliates, benefits from operating loss carryforwards and nondeductible charges in connection with tax-free acquisitions. The effective tax rate was 39.5% for the three months ended March 31, 1997 as compared to 38% for the corresponding period in 1996. The increase in the rate was due to higher nondeductible intangible amortization and to lower benefits from available operating loss carryforwards. 9. NEW ACCOUNTING PRONOUNCEMENT In February 1997, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 establishes a different method of computing net income per share than is currently required under the provisions of the Accounting Principles Board Opinion No. 15 ("APB 15"). Under SFAS No. 128, Genzyme will be required to present both basic net income per share and diluted net income per share attributable to GGD Stock and GTR Stock (the principal difference being that common stock equivalents would not be considered in the computation of basic EPS). Basic net income (loss) per share for Genzyme General for the quarter ended March 31, 1997 and March 31, 1996 would have been $0.28 and $0.30 per share, respectively. Basic loss per share data for Genzyme Tissue Repair for the quarter ended March 31, 1997 and 1996 would have been $(0.90) and $(0.71), respectively, the same as loss per share for each respective period computed under the provisions of APB 15. The impact of SFAS No. 128 on the calculation of diluted net income per share for these quarters is not expected to be material. Genzyme plans to adopt SFAS No. 128 in its fiscal quarter ending December 31, 1997 and at that time all historical net income per share data presented will be restated to conform to the provisions of SFAS No. 128. 10. SUBSEQUENT EVENTS In April 1997, the Genzyme Board voted, subject to approval of the stockholders, to adopt an amendment to the Company's 1990 Employee Stock Purchase Plan (the "Purchase Plan") and an amendment to the Company's 1988 Director Stock Option Plan (the "Director Plan") which would increase (i) the number of shares of GGD Stock available for purchase under the Purchase Plan by 500,000 shares to 2,000,000 shares and (ii) the number of shares of GGD Stock and GTR Stock available for issuance under the Director Plan by 33,600 shares and 30,000 shares, respectively, to 233,600 shares of GGD Stock and 100,000 shares of GTR Stock. On May 5, 1997, the General and Plastic Surgery Devices Panel of the U.S. Food and Drug Administration's (the "FDA") Medical Devices Advisory Committee recommended that Genzyme General not be granted approval to market Sepracoat[TM] coating solution for the reduction of adhesions in abdominal and pelvic surgery. Sepracoat[TM] is a liquid formulation of HA designed to reduce adhesion formation caused by indirect trauma, such as incidental abrasions from tissue handling or tissue drying due to exposure and is currently marketed in Europe by Genzyme. The panel agreed that the product appears to be safe, but indicated that Genzyme had not presented sufficient evidence of clinical effectiveness. The panel's recommendation will be considered in the FDA's final review of Genzyme's premarket approval application for Sepracoat [TM]. The recommendation is not binding on the FDA, but the agency usually follows the advice of its panels. The panel's recommendation does not affect Seprafilm[TM], which received FDA approval in August 1996 and is marketed globally. Genzyme is considering options for further clinical studies of Sepracoat[TM], possibly in combination with Seprafilm[TM]. -10- 11 GENZYME GENERAL CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31, - --------------------------------------------------------------------------------- 1997 1996 ---- ---- Revenues: Net product sales................................ $128,156 $ 92,815 Net service sales................................. 14,756 12,907 Revenues from research and development contracts.. 1,694 6,061 -------- -------- 144,606 111,783 Operating costs and expenses: Cost of products sold............................. 46,512 33,324 Cost of services sold............................. 9,316 8,227 Selling, general and administrative............... 40,872 31,310 Amortization of intangibles....................... 3,196 1,016 Research and development (including research and development related to contracts)............ 17,324 15,336 -------- -------- 117,220 89,213 -------- -------- Operating income.................................... 27,386 22,570 Other income and (expenses): Equity in net loss of unconsolidated subsidiaries (70) (937) Investment income................................. 2,318 3,918 Interest expense.................................. (2,281) (209) -------- -------- (33) 2,772 -------- -------- Income before income taxes.......................... 27,353 25,342 Provision for income taxes.......................... (10,626) (9,805) -------- -------- Net income.......................................... 16,727 15,537 Tax benefit allocated from Genzyme Tissue Repair.... 4,511 3,497 -------- -------- Net income attributable to Genzyme General Stock.... $ 21,238 $ 19,034 ======== ========
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -11- 12 GENZYME GENERAL CONDENSED COMBINED STATEMENTS OF OPERATIONS (CONTINUED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31, - ------------------------------------------------------------------------------------------ 1997 1996 ---- ---- Net income attributable to Genzyme General Stock .............. $21,238 $19,034 ======= ======= Income per Genzyme General common and common equivalent share: Net income .................................................. $ 0.27 $ 0.27 ======= ======= Average shares outstanding .................................. 78,237 71,382 ======= ======= Income per Genzyme General common share assuming full dilution: Net income .................................................. $ 0.27 $ 0.26 ======= ======= Average fully diluted shares outstanding .................... 78,238 74,192 ======= =======
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -12- 13 GENZYME GENERAL CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS) MARCH 31, DECEMBER 31, - -------------------------------------------------------------------------------------------- 1997 1996 ---- ---- ASSETS Current Assets: Cash and cash equivalents ..................................... $ 88,245 $ 77,220 Short-term investments ........................................ 41,815 56,290 Accounts receivable, less allowance for doubtful accounts ..... 118,061 115,156 Inventories ................................................... 127,803 123,442 Prepaid expenses and other current assets ..................... 15,490 99,953 Due from Genzyme Tissue Repair ................................ 1,492 1,604 Deferred tax assets - current ................................. 17,493 17,493 ---------- ---------- Total current assets ........................................ 410,399 491,158 Property, plant and equipment, net .............................. 366,207 371,610 Other Assets: Long-term investments ......................................... 32,381 38,215 Intangibles, net of accumulated amortization .................. 247,412 247,745 Deferred tax assets - noncurrent .............................. 42,221 42,221 Other noncurrent assets ....................................... 40,236 38,570 ---------- ---------- 362,250 366,751 ---------- ---------- $1,138,856 $1,229,519 ========== ========== LIABILITIES AND DIVISION EQUITY Current Liabilities: Accounts payable .............................................. $ 16,687 $ 20,522 Accrued expenses .............................................. 62,257 67,645 Income taxes payable .......................................... 22,900 17,926 Deferred revenue .............................................. 2,565 2,693 Current portion of long-term debt and capital lease obligations 1,022 999 ---------- ---------- Total current liabilities ................................... 105,431 109,785 Noncurrent Liabilities: Long-term debt and capital lease obligations .................. 123,751 223,998 Other noncurrent liabilities .................................. 10,768 11,511 ---------- ---------- 134,519 235,509 Division equity ................................................. 898,906 884,225 ---------- ---------- $1,138,856 $1,229,519 ========== ==========
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -13- 14 GENZYME GENERAL CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31, - ----------------------------------------------------------------------------------------- 1997 1996 ---- ---- OPERATING ACTIVITIES: Net income ..................................................... $ 16,727 $ 15,537 Reconciliation of net income to net cash provided by operating activities: Depreciation and amortization ................................. 9,324 5,645 Non-cash compensation expense ................................. 159 -- Accrued interest/amortization on bonds ........................ 651 (1,145) Provision for bad debts ....................................... 1,368 2,501 Equity in net loss of unconsolidated subsidiaries.............. 652 937 Gain on investment in unconsolidated affiliate ................ (582) -- Other ......................................................... 286 (13) Increase (decrease) in cash from working capital changes: Accounts receivable ......................................... (6,913) (704) Inventories ................................................. (5,284) (6,144) Prepaid expenses and other current assets ................... (2,837) (382) Accounts payable, accrued expenses and income taxes payable . 1,983 5,357 Due from Genzyme Tissue Repair .............................. 112 1,044 --------- --------- Net cash provided by operating activities ................... 15,646 22,628 INVESTING ACTIVITIES: Purchases of investments ....................................... (25,425) (70,354) Sales and maturities of investments ............................ 44,502 17,556 Acquisition of property, plant and equipment ................... (4,184) (10,554) Additional investment in unconsolidated affiliate .............. -- (339) Loans to affiliate ............................................. -- (2,804) Other noncurrent assets and other non current liabilities ...... (2,189) (322) --------- --------- Net cash provided (used) by investing activities ............ 12,704 (66,817) FINANCING ACTIVITIES: Proceeds from issuance of common stock ......................... 91,824 14,659 Payments of debt and capital lease obligations ................. (104,510) (176) Net cash allocated to Genzyme Tissue Repair .................... (1,802) -- --------- --------- Net cash provided (used) by financing activities ............ (14,488) 14,483 Effect of exchange rate changes on cash .......................... (2,837) 329 --------- --------- Increase (decrease) in cash and cash equivalents ................. 11,025 (29,377) Cash and cash equivalents, beginning of period ................... 77,220 103,631 --------- --------- Cash and cash equivalents, end of period ......................... $ 88,245 $ 74,254 ========= =========
-14- 15
Supplemental cash flow information: Cash paid during the period for: Interest......................................... $4,510 $599 Income taxes................................ 454 345
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -15- 16 GENZYME GENERAL NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION These unaudited, condensed, combined financial statements should be read in conjunction with the 1996 10-K and the financial statements and footnotes for Genzyme General 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 1996 financial statements have been reclassified to conform with the 1997 presentation. The financial statements for the three months ended March 31, 1997 and 1996 are unaudited but include, in management'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 Genzyme General's financial statements included in the 1996 10-K. The Company has elected to delay the annual distribution of GTR Designated Shares to holders of record of GGD Stock, as described in the 1996 10-K, until June 30, 1997. 3. INVENTORIES (In thousands)
March 31, 1997 December 31, 1996 -------------- ----------------- Raw materials................ $ 33,808 $ 30,243 Work-in-process.............. 39,271 36,516 Finished products............ 54,724 56,683 -------- -------- $127,803 $123,442 ======== ========
4. PHARMAGENICS CREDIT FACILITY As previously reported in the 1996 Genzyme 10-K, in January 1997, Genzyme signed a definitive merger agreement providing for the merger of PharmaGenics, Inc. ("PharmaGenics") with and into Genzyme in exchange for 4,000,000 shares of a new Genzyme security to be designated Genzyme Molecular Oncology Common Stock. Under the terms of the merger agreement, Genzyme had made a credit facility (the "Credit Facility") available to PharmaGenics to fund PharmaGenics's documented operating costs. In February, March and May 1997, PharmaGenics borrowed $1.0 million, $0.7 million and $0.8 million, respectively, under the Credit Facility having provided Genzyme with a projected cash disbursements list of operating costs for the months of February, March, April and May. As of March 31, 1997, Genzyme General has recorded $1.7 million of these borrowings as an increase to Other noncurrent assets and will record the remaining $0.8 million of borrowings in May 1997. 5. REVOLVING CREDIT FACILITY Genzyme's $225.0 million Revolving Credit Facility may be used by either Genzyme General or Genzyme Tissue Repair. In January 1997, Genzyme General repaid $100 million of its outstanding debt under the Revolving Credit Facility and related accrued interest of $2.0 million. As of March 31, 1997, the Company had $118.0 million of debt outstanding under the Revolving Facility, which had been allocated $100.0 million to Genzyme General and $18.0 million to Genzyme Tissue Repair. -16- 17 6. SUBLEASE OF GENZYME TISSUE REPAIR BUILDING TO GENZYME GENERAL -17- 18 In January 1997, Genzyme Tissue Repair leased to Genzyme General certain laboratory and office space in the building located at Genzyme Tissue Repair's Framingham, Massachusetts facility for a 3-year term which commenced January 1, 1997. Genzyme General is leasing approximately half of the facility at a cost of $839,808 per year. Beginning on July 1, 1997, Genzyme Tissue Repair has the option of requiring Genzyme General to assume responsibility for an additional 20% of the facility at GTR's cost of $424,056 per year. 7. JOINT VENTURE Genzyme consolidates 100% of the losses generated by the Joint Venture with GDP. For the quarter ended March 31, 1997, the Joint Venture incurred net losses of approximately $0.7 million, due primarily to the costs associated with the U.S. market introduction of Seprafilm[TM]. 8. PROVISION FOR INCOME TAXES The tax provision for the quarter ended March 31, 1997 varies from the U.S. statutory tax rate because of the provision for state income taxes, Genzyme General's share of losses of subsidiaries which generate no current tax benefit, tax credits and taxes on foreign earnings. The effective tax rate was 38.8% for the three months ended March 31, 1997, a slight increase over the corresponding period in 1996. The allocated tax benefit generated by GTR of $4.5 million and $3.5 million, respectively, reduced Genzyme General's tax rate for the three months ended March 31, 1997 and 1996 to 22.4% and 24.9%, respectively. 9. NEW ACCOUNTING PRONOUNCEMENT In February 1997, The Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share". SFAS No. 128 establishes a different method of computing net income per share than is currently required under the provisions of the Accounting Principles Board Opinion No. 15 ("APB 15"). Under SFAS No. 128, Genzyme will be required to present both basic net income per share and diluted net income per share attributable to GGD Stock and GTR Stock (the principal difference being that Common Stock equivalents would not be considered in computation of basic EPS). Basic net income (loss) per share for Genzyme General for the quarter ended March 31, 1997 and March 31, 1996 would have been $0.28 and $0.30 per share, respectively. The impact of SFAS No. 128 on the calculation of diluted net income per share for these quarters is not expected to be material. Genzyme plans to adopt SFAS No. 128 in its fiscal quarter ending December 31, 1997 and at that time all historical net income per share data presented will be restated to conform to the provisions of SFAS No. 128. 10. SUBSEQUENT EVENTS In April 1997, the Genzyme Board voted, subject to approval of the stockholders, to adopt an amendment to the Company's 1990 Employee Stock Purchase Plan and an amendment to the Director Plan which would increase (i) the number of shares of GGD Stock, available for purchase under the Purchase Plan by 500,000 shares to 2,000,000 shares and (ii) the number of shares of GGD Stock and GTR Stock available for issuance under the Director Plan by 33,600 shares and 30,000 shares, respectively, to 233,600 shares of GGD Stock and 100,000 shares of GTR Stock. On May 5, 1997, the General and Plastic Surgery Devices Panel of the FDA's Medical Devices Advisory Committee recommended that Genzyme not be granted approval to market Sepracoat[TM] coating solution for the reduction of adhesions in abdominal and pelvic surgery. Sepracoat[TM] is a liquid formulation of HA designed to reduce adhesion formation caused by indirect trauma, such as incidental abrasions from tissue handling or tissue drying due to exposure and is currently marketed in Europe by Genzyme. The panel agreed that the product appears to be safe but indicated that Genzyme had not presented sufficient evidence of clinical effectiveness. The panel's recommendation will be considered in the FDA's final review of Genzyme General's premarket approval application for Sepracoat[TM]. The recommednation is not binding on the FDA, but the agency usually follows the advice of its panels. The panel's recommendation does not affect the first Sepra Product, Seprafilm[TM], which received FDA approval in August 1996 and is marketed globally. Genzyme is considering options for further clinical studies of Sepracoat[TM], possibly in combination with Seprafilm[TM]. -18- 19 GENZYME TISSUE REPAIR CONDENSED COMBINED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) THREE MONTHS ENDED MARCH 31, - ------------------------------------------------------------------------------ 1997 1996 ---- ---- Revenues: Net service sales ............................. $ 1,987 $ 1,714 Operating costs and expenses: Cost of services sold ......................... 2,856 2,426 Selling, general and administrative ........... 6,454 6,246 Research and development ...................... 2,768 2,354 -------- -------- 12,078 11,026 -------- -------- Operating loss .................................. (10,091) (9,312) Other income and (expenses): Equity in net loss of joint venture ........... (1,589) -- Investment income ............................. 186 574 Interest expense .............................. (377) (4) -------- -------- (1,780) 570 -------- -------- Net loss ........................................ $(11,871) $ (8,742) ======== ======== Per Genzyme Tissue Repair Common share: Net loss ...................................... $ (0.90) $ (0.71) ======== ======== Average shares outstanding .................... 13,178 12,246 ======== ========
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -19- 20 GENZYME TISSUE REPAIR CONDENSED COMBINED BALANCE SHEETS (UNAUDITED)
(IN THOUSANDS) MARCH 31, DECEMBER 31, - --------------------------------------------------------------------------------------- 1997 1996 ---- ---- ASSETS Current Assets: Cash and cash equivalents ............................... $19,565 $15,912 Short-term investments .................................. -- 318 Accounts receivable, less allowance for doubtful accounts .............................................. 1,636 1,677 Inventories ............................................. 1,783 1,823 Prepaid expenses and other current assets ............... 229 334 ------- ------- Total current assets ................................... 23,213 20,064 Property, plant and equipment, net ........................ 21,366 22,229 Other Assets: Investment in joint venture ............................. 439 185 Other noncurrent assets ................................. 691 115 ------- ------- 1,130 300 ------- ------- $45,709 $42,593 ======= ======= LIABILITIES AND DIVISION EQUITY Current Liabilities: Accounts payable ........................................ $ 1,266 $ 1,749 Accrued expenses ........................................ 3,038 2,479 Payable to Genzyme General .............................. 1,492 1,604 ------- ------- Total current liabilities .............................. 5,796 5,832 Noncurrent Liabilities: Long-term debt .......................................... 29,602 18,000 Other noncurrent liabilities ............................ 640 677 ------- ------- 30,242 18,677 Division equity ........................................... 9,671 18,084 ------- ------- $45,709 $42,593 ======= =======
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -20- 21 GENZYME TISSUE REPAIR CONDENSED COMBINED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS) THREE MONTHS ENDED MARCH 31, - ----------------------------------------------------------------------------------------------- 1997 1996 ---- ---- OPERATING ACTIVITIES: Net loss ........................................................... (11,872) $ (8,742) Reconciliation of net loss to net cash used by operating activities: Depreciation and amortization ..................................... 572 24 Non-cash compensation expense ..................................... 38 -- Accrued interest/amortization on bonds ............................ -- (90) Provision for bad debts ........................................... 42 61 Equity in net loss of joint venture ............................... 1,589 -- Accretion of debt ................................................. 102 -- Increase (decrease) in cash from working capital: Accounts receivable ............................................. (1) (73) Inventories ..................................................... 42 (670) Prepaid expenses and other current assets ....................... 105 (248) Accounts payable, accrued expenses and other current liabilities ................................................... 297 (982) Payable to Genzyme General ...................................... (112) (1,044) -------- -------- Net cash used by operating activities ........................... (9,198) (11,764) INVESTING ACTIVITIES: Purchases of investments ........................................... -- (3,006) Sales and maturities of investments ................................ 318 3,010 Acquisition of property, plant and equipment ....................... (133) (9,916) Sale of property, plant and equipment .............................. 202 -- Investment in joint venture ........................................ (1,843) -- Other noncurrent assets and noncurrent liabilities ................. (613) 278 -------- -------- Net cash used by investing activities ........................... (2,069) (9,634) FINANCING ACTIVITIES: Proceeds from issuance of common stock ............................. 118 849 Proceeds from issuance of debt ..................................... 13,000 -- Short-term borrowings under bank credit agreement .................. -- 8,000 Net cash allocated from Genzyme General............................. 1,802 -- -------- -------- Net cash provided by financing activities ....................... 14,920 8,849 -------- -------- Increase (decrease) in cash and cash equivalents ..................... 3,653 (12,549) Cash and cash equivalents, beginning of period ....................... 15,912 40,741 -------- -------- Cash and cash equivalents, end of period ............................. $ 19,565 $ 28,192 ======== ========
The accompanying notes are an integral part of these unaudited, condensed, combined financial statements. -21- 22 GENZYME TISSUE REPAIR NOTES TO UNAUDITED CONDENSED COMBINED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION These unaudited, condensed, combined financial statements should be read in conjunction with the 1996 10-K and the financial statements and footnotes for Genzyme Tissue Repair ("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 months ended March 31, 1997 and 1996 are unaudited but include, in management'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 1996 Genzyme 10-K. The Company has elected to delay the distribution of GTR Designated Shares to holders of record of GGD Stock, as described in the 1996 10-K, until June 30, 1997. 3. INVENTORIES (In thousands)
March 31, 1997 December 31, 1996 -------------- ----------------- Raw materials.................... $ 185 $ 136 Work-in-process.................. 1,598 1,687 ------ ------ $1,783 $1,823 ====== ======
4. REVOLVING CREDIT FACILITY Genzyme's $225.0 million Revolving Credit Facility may be used by either Genzyme General or Genzyme Tissue Repair. As of March 31, 1997, the Company had $118 million of debt outstanding under the Revolving Credit Facility, which had been allocated $100.0 million to Genzyme General and $18.0 million to Genzyme Tissue Repair. 5. GENZYME TISSUE REPAIR PRIVATE PLACEMENT On February 28, 1997, Genzyme Tissue Repair raised $13 million through the private placement of a 5% convertible note (the "Note"), to an affiliate of Credit Suisse First Boston due February 27, 2000. The Note is convertible beginning May 29, 1997 into shares of GTR Stock and beginning August 1997 at a discount to the average of the closing bid prices of the GTR Stock on the Nasdaq National Market for the 25 trading days immediately preceding the conversion date (the "Average GTR Stock Price"). The discount will start at 2% beginning six months from the date the note was issued and will increase to 11%, at various intervals, at 15 months after the date of issue. Thereafter, the conversion price will be the lesser of 89% of the Average GTR Stock Price preceding the conversion date or the date 15 months after the date of issue. In the first quarter of 1997, GTR recorded $11.5 million of proceeds attributable to the value of the debt and $1.5 million attributed to the value of the conversion feature (recorded as an increase to division equity). The $11.5 million will be accreted to the face value of the debt by a charge to earnings available to common stockholders over the initial 15 month conversion period. 6. SUBLEASE OF GENZYME TISSUE REPAIR BUILDING TO GENZYME GENERAL In January 1997, Genzyme Tissue Repair leased to Genzyme General certain laboratory and office space in the building located at Genzyme Tissue Repair's Framingham, Massachusetts facility for a 3-year term which commenced January 1, 1997. Genzyme General is leasing approximately half of the facility at a cost of $839,808 per year. Beginning on July 1, 1997, Genzyme Tissue Repair has the option of requiring Genzyme General to assume responsibility for an additional 20% of the facility at GTR's cost of $424,056 per year. 7. NEW ACCOUNTING PRONOUNCEMENT In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 establishes a different method of computing net income per share than is currently required under the provision of the Accounting Principles Board Opinion No. 15 ("APB 15"). Under SFAS No. 128, Genzyme will be required to present both basic net income (loss) per share and diluted net income (loss) per share attributable to GCD Stock and GTR Stock (the principal difference being that common stock equivalents would not be considered in the computation of basic EPS). Basic loss per share data for GTR Stock for the quarter ended March 31, 1997 and 1996 would have been $(0.90) and $(0.71), respectively, the same as loss per share for each respective period computed under the provisions of APB 15. Genzyme plans to adopt SFAS No. 128 in its fiscal quarter ending December 31, 1997 and at that time all historical net income per share data presented will be restated to conform to the provisions of SFAS No. 128 8. SUBSEQUENT EVENT In April 1997, the Genzyme Board voted, subject to approval of the stockholders, to adopt an amendment to the Director Plan which would increase the number of shares of GGD Stock, and GTR Stock, available for issuance under the Director Plan by 33,600 shares and 30,000 shares, respectively, to 233,600 shares. -22- 23 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 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. RESULTS OF OPERATIONS GENZYME CORPORATION AND SUBSIDIARIES Since the operating results of Genzyme and its subsidiaries reflect the combined operations of Genzyme General Division ("Genzyme General") and Genzyme Tissue Repair Division ("Genzyme Tissue Repair"), this discussion summarizes the key factors management considers necessary in reviewing Genzyme's consolidated results of operations. Detailed discussion and analysis of each Division's results of operations are provided below under separate headings. REVENUES. Total revenues for the three months ended March 31, 1997 were $146.6 million, an increase of 29% over the corresponding period in 1996. Product revenues for the three months ended March 31, 1997 consist of product sales by Genzyme General and increased 38% to $128.2 million from $92.8 million for the corresponding period in 1996. The increase was due primarily to the addition of sales through the acquisition of Deknatel Snowden Pencer, Inc. ("DSP"), which was acquired in July 1996, and to increased sales of Ceredase[R] enzyme and Cerezyme[R] enzyme. Service revenues consist of sales of genetic testing services by Genzyme Genetics and sales of Genzyme Tissue Repair's CARTICEL[R] and Epicel [SM] Services. Service revenues for the three months ended March 31, 1997 and 1996 were $16.7 million and $14.6 million, respectively, an increase of 15%. The increase was due to higher unit volumes attributable to the acquisition of Genetrix, Inc. ("Genetrix"), which was added to Genzyme Genetics's operations from May 1996 forward, and to changes in service pricing and was offset by the loss of revenues from Genzyme Genetics's identity testing services laboratory, Genetic Design, Inc. ("GDI"), which was sold in November 1996. Revenues from research and development contracts for the three months ended March 31, 1997 were attributable entirely to Genzyme General and decreased 72% to $1.7 million, as compared to $6.1 million, for the corresponding period in 1996. The decrease resulted primarily from the loss of revenue from Neozyme II Corporation ("Neozyme II"), which was acquired by Genzyme in the fourth quarter of 1996 and which provided $5.4 million for the first quarter of 1996. MARGINS AND OPERATING EXPENSES. Gross margins increased to 60% from 59% for the quarters ended March 31, 1997 and 1996, respectively. Product margins were 64% for the quarter ended March 31, 1997, level with the first quarter of 1996. Service margins were 27% for the quarter ended March 31, 1997, level with the first quarter of 1996. Selling, general and administrative ("SG&A") expenses for the three months ended March 31, 1997 were $47.3 million, an increase of 26% over the same period in 1996. The increase resulted primarily from the acquisitions of Genetrix and DSP and increased staffing in support of the growth in several product lines, most notably in support of the North American introduction of Seprafilm[TM] and increased surgeon training costs related to Carticel[R]. Research and development expenses for the three months ended March 31, 1997 were $20.1 million, an increase of 14% over the same period in 1996 due to Genzyme General's commitment to fund development costs of the antithrombin III ("AT III") program being conducted by Genzyme Transgenics Corporation ("GTC"). OTHER INCOME AND EXPENSES. Other income and expenses decreased substantially due to the combined effect of a 44% decrease in investment income to $2.5 million and increases in interest expense and Genzyme's equity in the net losses of GTC and Diacrin/Genzyme LLC. Interest expense for the quarter ended March 31, 1997 was $2.7 million, as compared to $0.2 million for the same period of 1996. The increase resulted from interest on funds borrowed in 1996 to finance portions of the acquisitions of DSP and Neozyme II. The tax provision for the quarter ended March 31, 1997 varies from the U.S. statutory tax rate because of the provision for state income taxes, nondeductible intangible amortization, losses of unconsolidated affiliates, benefits from operating loss carryforwards and nondeductible charges in connection with tax-free acquisitions. The effective tax rate was 39.5% for the three months ended March 31, 1997 as compared to 38% for the corresponding period in 1996. The increase in the rate was due to higher nondeductible intangible amortization and to lower benefits from available operating loss carryforwards. -23- 24 GENZYME GENERAL REVENUES. Total revenues for the three months ended March 31, 1997 were $144.6 million, an increase of 29% over the corresponding period in 1996. Product and service revenues were $142.9 million, an increase of 35% over the same period in 1996. Product revenues for the three months ending March 31, 1997 increased 38% to $128.2 million from $92.8 million for the corresponding period in 1996, due primarily to the addition of sales through the acquisition of DSP and to increased sales of Ceredase[R] enzyme and Cerezyme[R] enzyme. Sales of Specialty Therapeutics in the three months ended March 31, 1997 consisted entirely of sales of Ceredase[R] enzyme and Cerezyme[R] enzyme and increased 30% due to increased shipments resulting from successful market penetration efforts in Japan and continued growth in new patient accruals in existing markets. Genzyme General's results of operations are highly dependent on these products which, with combined sales for the three months ended March 31, 1997 and 1996 of $76.4 million and $58.8 million, respectively, represented 60% and 63%, respectively, of consolidated product sales. Product sales for the Surgical Products business unit during the first three months of 1997, were $26.9 million and consisted primarily of sales by DSP. DSP's product sales for the first quarter of 1996, which are not included in the results for Genzyme General, were $27.7 million. Product sales during the first quarter of 1997 by the Diagnostic Products business unit increased by 5% over the same period in 1996 as a result of growth in most product lines, most notably sales of the Direct LDL[TM] test and immunobiologicals. Total Pharmaceutical product sales declined 55% in the first quarter of 1997 as compared to 1996 as a result of a significant decline in sales of Melatonin, despite a 48% increase in sales of pharmaceutical grade HA powder and other pharmaceutical products. Melatonin sales began to decline materially in the second half of 1996 due to reduced market demand, and Genzyme General does not expect that Melatonin sales will return to the levels experienced during the first half of 1996. Revenues for Genzyme Genetics increased 14% in the first quarter of 1997 as compared to the first quarter of 1996. The increase was due to higher unit volumes attributable to the acquisition of Genetrix and to changes in service pricing and was offset by the loss of revenue from GDI, which was sold in November 1996. GDI contributed $3.5 million in revenues in the first quarter of 1996. Genetrix service revenues for the first quarter of 1996, which are not included in the results of Genzyme General, were $5.4 million. -24- 25 International sales for the three months ended March 31, 1997 declined to 33% from 37% for the first quarter of 1996, as the addition of domestic sales by DSP offset a 41% increase in the combined international sales of Ceredase[R] and Cerezyme[R] enzymes. Revenues from research and development contracts for the three months ended March 31, 1997 were $1.7 million, as compared to $6.1 million for the corresponding period in 1996, a decrease of 72%, due primarily to the absence of revenue from Neozyme II, which was acquired by Genzyme in the fourth quarter of 1996 and which provided $5.4 million for the first quarter of 1996. Excluding the effect of the acquisition of Neozyme II, research and development revenue increased by 162% in the first quarter of 1997 as compared to the same period of 1996, due primarily to an increase in research and development efforts related to the AT III program performed by Genzyme General on behalf of GTC. MARGINS AND OPERATING EXPENSES. Gross margins were 61% for the quarter ended March 31, 1997, level with the first quarter of 1996. Genzyme General 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 were 64% for the quarter ended March 31, 1997, level with the first quarter of 1996. Service margins increased to 37% for the three months ended March 31, 1997 from 36% for the corresponding period in 1996 due to completion of the consolidation of Genzyme Genetics with Genetrix, the sale of GDI, and the resulting elimination of redundant facilities and staffing. Genzyme General expects service margins to continue to improve in 1997 due to the continued realization of economies of scale from the consolidation of testing laboratories. SG&A expenses for the three months ended March 31, 1997 were $40.1 million, an increase of 31% over the same period in 1996. The increase was due primarily to the acquisition of Genetrix and DSP and increased staffing in support of the growth in several product lines, most notably in support of the North American introduction of Seprafilm[TM]. DSP added $7.4 million in SG&A expenses for the first quarter of 1997. For the first quarter of 1996, DSP incurred SG&A expenses of $8.7 million which are not included in the results of Genzyme General. Charges for the amortization of intangibles increased to $3.2 million in the first quarter of 1997, as compared to the same period of 1996 due to the addition of acquired patents and tradenames and goodwill recorded as a result of the acquisitions of Genetrix and DSP. Research and development expenses for the three months ended March 31, 1997 were $17.3 million, an increase of 13% over the same period in 1996 due to Genzyme General's funding of the development costs of the AT III program being conducted by GTC and increased spending on internal programs, most notably Thyrogen[R]. OTHER INCOME AND EXPENSES. Other income and expense decreased substantially due to the combined effect of a decrease in investment income and an increase in interest expense related to funds borrowed under the Company's revolving credit facility. Investment income for the quarter ended March 31, 1997 decreased to $2.3 million from $3.9 million for the same period in 1996, due primarily to lower average cash and investment balances. Interest expense for the quarter ended March 31, 1997 was $2.3 million, as compared to $0.2 million, for the same period of 1996. The increase resulted from interest on funds borrowed in 1996 to finance portions of the acquisitions of DSP and Neozyme II. Genzyme General consolidates 100% of the losses generated by the Joint Venture with GDP. For the quarter ended March 31, 1997, the Joint Venture incurred net losses of approximately $0.7 million, due primarily to the costs associated with the U.S. market introduction of Seprafilm[TM]. The tax provision for the quarter ended March 31, 1997 varies from the U.S. statutory tax rate because of the provision for state income taxes, Genzyme General's share of losses of subsidiaries which generate no current tax benefit, tax credits and taxes on foreign earnings. The effective tax rate was 38.8% for the three months ended March 31, 1997, a slight increase over the corresponding period in 1996. The allocated tax benefit generated by GTR of $4.5 million and $3.5 million, respectively, reduced Genzyme General's tax rate for the three months ended March 31, 1997 and 1996 to 22.4% and 24.9%, respectively. -25- 26 GENZYME TISSUE REPAIR REVENUES. Service revenues for the three months ended March 31, 1997 and 1996 were $2.0 million and $1.7 million, respectively, an increase of 16%. Sales of the Carticel[R] Service were $1.1 million for the three months ended March 31, 1997 as compared to $0.5 million for the comparable period in 1996. The growth in Carticel[R] sales is primarily attributable to a continued increase in the number of surgeons trained in the procedure utilizing the Service. Sales of Epicel[SM] Service declined 31% to $0.9 million in the three months ended March 31, 1997 from $1.2 million in the same period of 1996 due to a decrease in the number of burn incidents requiring the service. MARGINS AND OPERATING EXPENSES. Genzyme Tissue Repair's cost of services sold exceeded revenue for the first quarter of 1997 and 1996, by 44% and 42%, respectively, due to increased spending for the expansion of manufacturing capacity. SG&A expenses were $6.5 million for the three months ended March 31, 1997, an increase of 5% over the same period in 1996. The increase resulted from staffing and expenses to support revenue growth and increased surgeon training costs related to the Carticel[R] Service. Genzyme Tissue Repair incurs direct SG&A charges as well as an SG&A charge, based on actual amounts incurred, from Genzyme General for SG&A work performed by Genzyme General on behalf of Genzyme Tissue Repair. In the first quarter of 1997, $2.4 million of SG&A services were provided by Genzyme General as compared to $3.6 million in the first quarter of 1996. The 33% reduction in SG&A services provided by Genzyme General was offset by a 58% increase in direct SG&A expenses incurred by GTR. Research and development expenses were $2.8 million and $2.4 million for the three months ended March 31, 1997 and 1996, respectively, an increase of 17%. Increased spending associated with the TGF(beta)2 program was offset by a decline in costs related to the Vianain[R] program. In the first quarter of 1997, $1.9 million of research and development services were provided to Genzyme Tissue Repair by Genzyme General, compared to $1.7 million in the first quarter of 1996. OTHER INCOME AND EXPENSES Investment income declined to $0.2 million in the first quarter of 1997 from $0.6 million in the same period of 1996, due primarily to lower average cash balances. Interest expense for the first quarter of 1997 increased to $377,000 from $4,000 in the first quarter of 1996, as a result of a 20% increase in borrowings under the Company's revolving credit facility and the addition of $11.5 million of debt from the private placement of GTR's 5% convertible notes in February 1997 (see "Liquidity and Capital Resources"). In the first quarter of 1997, Genzyme Tissue Repair provided $1.8 million of funding to, and realized a net loss of $1.6 million from, Diacrin/Genzyme LLC, the joint venture established between Genzyme Tissue Repair and Diacrin, Inc. to develop and commercialize products and processes using porcine fetal cells for the treatment of Parkinson's disease and Huntington's disease in humans. -26- 27 LIQUIDITY AND CAPITAL RESOURCES GENZYME CORPORATION AND SUBSIDIARIES As of March 31, 1997, Genzyme had cash, cash equivalents and marketable securities of $182.0 million, a decline of $5.9 million from December 31, 1996, primarily due to payment of $104.5 million of debt and capital lease obligations in the first quarter, of which $100.0 million represents a reduction in Genzyme's outstanding debt under the Company's $225.0 million revolving credit facility. At March 31, 1997, $118.0 million was outstanding under the revolving credit facility, of which $100.0 million was allocated to Genzyme General and $18.0 million was allocated to Genzyme Tissue Repair. Genzyme generated $6.4 million of cash from operations. Investing activities generated $10.6 million of cash in the first quarter of 1997. Turnover of the investment portfolio provided $19.4 million of cash, of which $4.3 million was used to finance manufacturing capacity expansion, $1.8 million was allocated to Genzyme Tissue Repair to fund its investment in Diacrin/Genzyme LLC, $1.7 million of funds were distributed to PharmaGenics pursuant to the terms of a pre-acquisition credit facility provided to PharmaGenics by Genzyme and $1.0 million was used to fund other noncurrent assets. Proceeds from the exercise of stock options, warrants and stock issued through the employee stock purchase plan were $91.9 million for the first quarter of 1997 and included $87.0 million of cash related to certain warrants exercised immediately prior to December 31, 1996 and classified as Other current assets in Genzyme's balance sheet as of December 31, 1996. As of March 31, 1997, Genzyme had accounts receivable of $119.7 million, net of an allowance for doubtful accounts, an increase of $2.9 million from December 31, 1996 due to the growth in each of Genzyme's businesses. Genzyme had inventories of $129.6 million, an increase of $4.3 million over December 31, 1996. The increase was due primarily to support of increased business operations, most notably in the Specialty Therapeutics business unit inventories as a result of increased production of Cerezyme[R] and in the Surgical Products business unit in support of the introduction of Seprafilm[TM] in the North American marketplace. GENZYME GENERAL As of March 31, 1997, Genzyme General had cash, cash equivalents and marketable securities of $162.4 million, a decline of $9.3 million from December 31, 1996, primarily due to payment of $104.5 million of debt and capital lease obligations in the first quarter, of which $100.0 million represents a reduction in Genzyme General's outstanding debt under the Company's revolving credit facility. Genzyme General generated $15.6 million of cash from operations. Investing activities generated $12.7 million of cash in the first quarter of 1997. Turnover of the investment portfolio provided $19.1 million of cash, of which $4.2 million was used to finance manufacturing capacity expansion and $1.7 million of funds were distributed to PharmaGenics pursuant to the terms of a pre-acquisition credit facility provided to PharmaGenics by Genzyme and $0.5 million was used to fund other noncurrent assets. Proceeds from the exercise of stock options, warrants and stock issued through the employee stock purchase plan were $91.8 million for the first quarter of 1997 and included $87.0 million of cash related to certain warrants exercised immediately prior to December 31, 1996 which were classified as Other current assets in Genzyme General's balance sheet as of December 31, 1996. In the first quarter of 1997, $1.8 million of Genzyme General's cash was allocated to Genzyme Tissue Repair to fund its investment in Diacrin/Genzyme LLC. As of March 31, 1997, Genzyme General had accounts receivable of $118.1 million, net of an allowance for doubtful accounts, and increase of $2.9 million from December 31, 1996 due to the growth in each of Genzyme General's businesses. Genzyme General had inventories of $127.8 million, an increase of $4.4 million over December 31, 1996. The increase was due primarily to support of increased business operations, most notably in the Specialty Therapeutics business unit inventories as a result of increased production of Cerezyme[R] and in the Surgical Products business unit in support of the introduction of Seprafilm[TM] in the North American marketplace. Genzyme General 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 foreseeable future. Although Genzyme General currently has substantial cash resources, it has committed to utilize a portion of its resources for certain purposes, such as completing the market introduction of the Sepra Products in the United States and Europe and making certain payments to third parties in connection with strategic collaborations. Genzyme General's cash resources also will be diminished upon repayment of amounts borrowed, plus accrued interest, under the revolving facility and if its option to acquire the partnership interests in GDP is exercised using cash to pay some or all the exercise price. In addition, the liabilities or contingencies of Genzyme Tissue Repair affect Genzyme's resources or financial condition and could affect the financial condition or results of operations of Genzyme General. As a result, Genzyme may have to obtain additional financing. There can be no assurance that such financing will be available on terms reasonably acceptable to Genzyme. -27- 28 GENZYME TISSUE REPAIR In the first quarter of 1997, Genzyme Tissue Repair used $9.2 million of cash for operations. These expenditures were financed by the issuance of common stock through exercises of stock options and warrants, through the issuance of the 5% convertible note and the allocation of $1.8 million from Genzyme General as funding for Genzyme Tissue Repair's investment in Diacrin/Gemzyme LLC. As of March 31, 1997, $18 million of funds borrowed by Genzyme Tissue Repair in December 1996 under the revolving credit facility remained outstanding. In February 1997, Genzyme Tissue Repair raised $13 million through the private placement of a 5% convertible note to an affiliate of Credit Suisse First Boston due February 27, 2000. The note is convertible beginning May 29, 1997 into shares of GTR stock, and beginning in August 1997, at a discount to the average of the closing bid prices of the GTR Stock on the Nasdaq National Market for the 25 trading days immediately preceding the conversion date (the "Average GTR Stock Price"). The discount will start at 2% beginning six months from the date the note was issued and will increase to 11%, at various intervals, at 15 months after the date of issue. Thereafter, the conversion price will be the lesser of 89% of the Average GTR Stock Price preceding the conversion date or the date 15 months after the date of issue. In the first quarter of 1997, Genzyme Tissue Repair recorded $11.5 million of proceeds attributable to the value of the debt and $1.5 million attributable to the value of the conversion feature (recorded as an increase to division equity). The $11.5 million will be accreted to the face value of the debt by a charge to earnings available to common stockholders over the term of the initial 15 month conversion period. Genzyme Tissue Repair does not expect its available cash and investments will be sufficient to finance planned operations and capital requirements through the end of 1997 and must raise significant additional capital in order to continue operations at current levels. Genzyme Tissue Repair's plans to raise additional capital include consideration of the sale of additional equity securities, strategic alliances with third parties to fund further development and marketing of the Carticel[R] Service and other business transactions that would generate capital resources to assure continuation of Genzyme Tissue Repair's operations and research programs. If these initiatives are not successful, Genzyme Tissue Repair may be required to delay, scale back or eliminate certain of its programs or to license third parties to commercialize technologies or products that the division would otherwise undertake itself. SUBSEQUENT EVENTS In April 1997, the Genzyme Board voted, subject to approval of the stockholders, to adopt an amendment to the Director Plan which would increase the number of shares of GGD Stock and GTR Stock available for issuance under the Director Plan by 33,600 shares and 30,000 shares, respectively, to 233,600 shares of GGD Stock and 100,000 shares of GTR Stock. On May 5, 1997, the General and Plastic Surgery Devices Panel of the FDA's Medical Devices Advisory Committee recommended that Genzyme not be granted approval to market Sepracoat[TM] coating solution for the reduction of adhesions in abdominal and pelvic surgery. Sepracoat[TM] is a liquid formulation of HA designed to reduce adhesion formation caused by indirect trauma, such as incidental abrasions from tissue handling or tissue drying due to exposure and is currently marketed in Europe by Genzyme. The panel agreed that the product appears to be safe but indicated that Genzyme had not presented sufficient evidence of clinical effectiveness. The panel's recommendation will be considered in the FDA's final review of Genzyme's premarket approval application for Sepracoat[TM]. The recommendation is not binding on the FDA, but the agency usually follows the advice of its panels. The panel's recommendation does not affect Seprafilm[TM], which received FDA approval in August 1996 and is marketed globally. Genzyme is considering options for further clinical studies of Sepracoat[TM], possibly in combination with Seprafilm[TM]. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. -28- 29 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, MARCH 31, 1997 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES On February 28, 1997, Genzyme Tissue Repair raised $13 million through the private placement of a 5% convertible note (the "Note"), to an affiliate of Credit Suisse First Boston due February 27, 2000. Genzyme believes that the sale of the Note to a single purchaser without general solicitation qualifies as a transaction by an issuer not involving a public offering within the meaning of Section 4(2) of the Securities Act of 1933. The Note is convertible beginning May 29, 1997 into shares of GTR stock and, beginning in August 1997, at a discount to the average of the closing bid prices of the GTR Stock on the Nasdaq National Market for the 25 trading days immediately preceding the conversion date (the "Average GTR Stock Price"). The discount will start at 2% beginning six months from the date of the Note was issued and will increase to 11% at 15 months after the date of issue. Thereafter, the conversion price will be the lesser of 89% of the Average GTR Stock Price preceding the conversion date or the date 15 months after the date of issue. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 3.1 Restated Articles of Organization of Genzyme, as amended. Filed herewith. 10.1 Amended and Restated Joint Venture Agreement between Genzyme and GDP. Filed as Exhibit 10.1 to GDP's report on Form 10-Q for the quarter ended March 31, 1997 (File No. 0-18554) and incorporated herein by reference. 10.2 Tax Indemnification Agreement. Filed as Exhibit 10.2 to GDP's report on Form 10-Q for the quarter ended March 31, 1997 (File No. 0-18554) and incorporated herein by reference. 10.3 Marketing and Distribution Agreement. Filed as Exhibit 10.3 to GDP's report on Form 10-Q for the quarter ended March 31, 1997 (File No. 0-18554) and incorporated herein by reference. 11 Computation of weighted average shares used in computing earnings per share amounts. Filed herewith 27 Financials Data Schedule for Genzyme Corporation (for EDGAR filing purposes only). Filed herewith. (b) Reports on Form 8-K On February 4, 1997, the Company filed a current report on form 8-K to provide certain pro forma financial information as of September 30, 1996 for Genzyme and Genzyme General and historical financial statements for Neozyme II. -29- 30 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, MARCH 31, 1997 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: May 15, 1997 By: /s/ David J. McLachlan ---------------------------------- David J. McLachlan Duly Authorized Officer and Executive Vice President, Finance; Chief Financial Officer -30- 31 GENZYME CORPORATION AND SUBSIDIARIES FORM 10-Q, MARCH 31, 1997 EXHIBIT INDEX Exhibit No. Description Page No. - ------ ----------- ------- 3.1 Restated Articles of Organization, as amended. Filed herewith. 32 10.1 Amended and Restated Joint Venture Agreement between Genzyme and GDP. Filed as Exhibit 10.1 to GDP's report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference. 10.2 Tax Indemnification Agreement. Filed as Exhibit 10.2 to GDP's report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference. 10.3 Marketing and Distribution Agreement. Filed as Exhibit 10.3 to GDP's report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference. 11 Computation of weighted average shares used in computing earnings per share amounts. Filed herewith 59 27 Financials Data Schedule for Genzyme Corporation (for EDGAR filing purposes only). Filed herewith. 61 -31- EX-3.1 2 ARTICLES OF INCORPORATION 1 EXHIBIT 3.1 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. 26 THE COMMONWEALTH OF MASSACHUSETTS OFFICE OF THE MASSACHUSETTS SECRETARY OF STATE MICHAEL JOSEPH CONNOLLY, SECRETARY ONE ASHBURTON PLACE, BOSTON, MASS. 02108 FEDERAL IDENTIFICATION NO. 06-1047163 CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING A SERIES OF A CLASS OF STOCK General Laws, Chapter 156B, Section 26 ------------------ We, Henri A. Termeer, President and Peter Wirth, Clerk of Genzyme Corporation located at One Kendall Square, Cambridge, MA 02139 do hereby certify that at a meeting of the directors of the corporation held on January 30, 1997, the following vote establishing and designating a series of a class of stock and determining the relative rights and preferences thereof was duly adopted: To approve, pursuant to paragraph IV(c)(1) of the Company's Articles of Organization an increase in the number of shares of Preferred Stock of the Company designated as Series A Junior Participating Preferred Stock in paragraph IV(c)(2)1. of the Company's Articles of Organization from 1,000,000 shares to 2,000,000 shares and to authorize the appropriate officers of the Company to execute and file an appropriate form reflecting such increase with the Secretary of the Commonwealth of Massachusetts. IN WITNESS WHEREOF AND UNDER THE PENALTIES OF PERJURY, we have hereto signed our names this 14th day of February in the year of 1997. /s/Henri A. Termeer , President - -------------------------- Henri A. Termeer /s/Peter Wirth , Clerk - -------------------------- Peter Wirth 27 THE COMMONWEALTH OF MASSACHUSETTS CERTIFICATE OF VOTE OF DIRECTORS ESTABLISHING A SERIES OF A CLASS OF STOCK (General Laws, Chapter 156B, Section 26) I hereby approve the within certificate and, the filing fee in the amount of $100.00 having been paid, said certificate is hereby filed this 14th day of February, 1997. MICHAEL JOSEPH CONNOLLY Secretary of State TO BE FILLED IN BY CORPORATION Photocopy of Certificate to be sent TO: Elizabeth A. Claffey Palmer & Dodge LLP One Beacon Street Boston, MA 02108 Telephone: (617) 573-0517 EX-11.1 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 2 GENZYME CORPORATION AND SUBSIDIARIES EXHIBIT 11 - COMPUTATION OF WEIGHTED AVERAGE SHARES USED IN COMPUTING INCOME PER SHARE AMOUNTS (Unaudited, in thousands)
THREE MONTHS ENDED ------------------------------------------- MARCH 31, 1997 MARCH 31, 1996 -------------------- -------------------- COMMON COMMON AND COMMON ASSUMING AND COMMON ASSUMING EQUIVALENT FULL EQUIVALENT FULL SHARES DILUTION SHARES DILUTION ---------- -------- ---------- -------- GENZYME GENERAL STOCK: Common stock outstanding, beginning of period ........... 75,537 75,537 62,372 62,372 Weighted average common stock issued during the period .. 111 111 1,662 1,662 Weighted average common stock assuming exercise of options .................................. 2,578 2,577 4,238 4,243 Weighted average common stock assuming exercise of warrants ................................. 11 11 3,109 3,237 Weighted average common stock assuming conversion of 6 3/4% Convertible Subordinated Notes ................ -- -- (A) 2,678 ------ ------ ------ ------ Weighted average number of shares outstanding ........... 78,238 78,237 71,381 74,192 ====== ====== ====== ====== GENZYME TISSUE REPAIR STOCK: Common stock outstanding, beginning of period ........... 13,162 12,113 Weighted average common stock issued during the period .. 16 133 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) ------ ------ Weighted average number of shares outstanding ........... 13,178 12,246 ====== ======
(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
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR GENZYME CORPORATION FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND AS OF MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AS INCLUDED IN THE FORM 10-Q FOR GENZYME CORPORATION DATED MARCH 31, 1997. 1,000 U.S. DOLLARS 3-MOS DEC-31-1997 JAN-01-1997 MAR-31-1997 1 107,810 74,196 137,615 17,918 129,586 432,120 394,735 7,162 1,183,073 109,735 0 0 0 890 907,687 1,183,073 144,899 146,593 58,684 69,614 1,813 1,410 2,658 15,482 6,115 9,367 0 0 0 9,367 0.27 0.27 Genzyme Corporation has two classes of common stock - Genzyme General Division Common Stock ("GGD Stock") and Genzyme Tissue Repair Division Common Stock ("GTR Stock"). Earnings (loss) per share is reported separately for each class of tracking stock. Consolidated EPS is not presented for Genzyme. For the 3 months ended March 31, 1997, Primary EPS for GGD Stock was $0.27 and fully diluted EPS was $0.27. For GTR Stock, loss per share for the quarter was $(0.90).
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