10-Q

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

ý
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2002

or

o 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 (State or other jurisdiction of incorporation or organization)	06-1047163 (I.R.S. Employer Identification No.)
One Kendall Square, Cambridge, Massachusetts (Address of principal executive offices)	02139 (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 ý    No o

        The number of shares outstanding of each of the issuer's series of common stock as of October 31, 2002:

Genzyme General Division Common Stock	214,564,954
Genzyme Biosurgery Division Common Stock	40,483,756
Genzyme Molecular Oncology Division Common Stock	16,898,820

NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This Form 10-Q contains forward-looking statements, including statements regarding our:

•

projected timetables for the preclinical and clinical development of, regulatory submissions and approvals for, and market introduction of, our products and services;



•

estimates of the potential markets for our products and services, including the anticipated drivers for future growth;



•

sales and marketing plans;



•

assessments of competitors and potential competitors;



•

manufacturing plans and expectations concerning certain manufacturing expenditures;



•

estimates of the capacity of manufacturing and other facilities to support our products and services;



•

expected future revenues, expenses, margins, operations and expenditures;



•

allocations of revenues, expenses, liabilities and income tax benefits;



•

maintenance of financial covenants contained in our credit facility;



•

cash reserves and ability to fund operations;



•

estimates of sufficiency of inventory to support demand for our products;



•

potential milestone payments to the former stockholders of Novazyme Pharmaceuticals, Inc.;



•

beliefs concerning the application of federal antitrust laws to our acquisition of Novazyme; and



•

projected cash needs.

        These statements are subject to risks and uncertainties, and our actual results may differ significantly from those that are described in this report. These risks and uncertainties include:

•

our ability to successfully complete preclinical and clinical development of our products and services;



•

our ability to manufacture sufficient amounts of our products for development and commercialization activities and to do so in a timely and cost-effective manner;



•

our ability to obtain and maintain adequate patent and other proprietary rights protection of our products and services and successfully enforce our proprietary rights;



•

the scope, validity and enforceability of patents and other proprietary rights held by third parties and their impact on our ability to commercialize our products and services;



•

the accuracy of our estimates of the size and characteristics of the markets to be addressed by our products and services, including growth projections;



•

market acceptance of our products and services;



•

our ability to identify new patients for our products and services;



•

the accuracy of our information regarding the products and resources of our competitors and potential competitors;



•

the content and timing of submissions to and decisions made by the U.S. Department of Health and Human Services Food and Drug Administration, commonly referred to as the FDA, other regulatory agencies and institutional review boards at clinical trial sites;



•

the impact of the May 2001 expiration of orphan drug status for Cerezyme® and Ceredase® enzymes on our revenues from these products;

•

the outcome of our ongoing discussions with the FDA in connection with our Biologics License Application, commonly referred to as a BLA, submission for Fabrazyme® enzyme;



•

the ability of Genzyme Biosurgery and Genzyme Molecular Oncology to secure additional funding to continue operations;



•

the outcome of the U.S. Federal Trade Commission's investigation concerning the application of federal antitrust laws to our acquisition of Novazyme;



•

our ability to obtain reimbursement for our products and services from third-party payors, the extent of such coverage and the impact of proposed Center for Medicare and Medicaid Services regulations related to reimbursement;



•

our ability to expand manufacturing capacity for Renagel® phosphate binder and our Pompe disease product candidate;



•

our ability to optimize dosing and improve patient compliance with Renagel phosphate binder;



•

our ability to effectively manage wholesaler inventories of Renagel phosphate binder and to successfully implement inventory management programs;



•

our ability to establish and maintain strategic license, collaboration and distribution arrangements;



•

the continued funding of our joint ventures by our partners;



•

our ability to successfully increase market penetration for Synvisc® viscosupplementation product as a treatment for osteoarthritis of the knee and to expand its use in other joints;



•

our ability to increase market penetration in Europe for our Fabrazyme enzyme, Thyrogen® hormone and Renagel phosphate binder;



•

the outcome of the FDA's review of our BLA submission for Aldurazyme™ enzyme;



•

our ability to obtain U.S. marketing approval for our cardiovascular diagnostic products;



•

our ability to obtain European marketing approval for Cholestagel® (colesevelam hydrochloride);



•

our ability to obtain U.S. marketing approval by specified dates for therapies for lysosomal storage disorders using certain technology we acquired from Novazyme;



•

our ability to complete the manufacturing capacity expansion for hyaluronan at our Framingham, Massachusetts manufacturing facility and to do so in a timely and cost-effective manner; and



•

the possible disruption of our operations due to terrorist activities and armed conflict, including as a result of the disruption of operations of our subsidiaries and our customers, suppliers, distributors, couriers, collaborative partners, licensees and clinical trial sites.

        For a further description of these risks and other uncertainties, we encourage you to carefully read Exhibit 99.2, "Factors Affecting Future Operating Results," to our Annual Report on Form 10-K for the fiscal year ended December 31, 2001, as amended (our "2001 Form 10-K"). We caution investors not to place undue reliance on the forward-looking statements contained in this report. These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated) and we undertake no obligation to update or revise the statements.

NOTE REGARDING REFERENCES TO GENZYME DIVISIONS AND SERIES OF STOCK

        Throughout this Form 10-Q, the words "we," "us," "our" and "Genzyme" refer to Genzyme Corporation and all of its operating divisions taken as a whole, and "our board of directors" refers to the board of directors of Genzyme Corporation. In addition, we refer to our three operating divisions as follows:

•

Genzyme General Division = "Genzyme General;"



•

Genzyme Biosurgery Division = "Genzyme Biosurgery;" and



•

Genzyme Molecular Oncology Division = "Genzyme Molecular Oncology."

        We currently have three designated series of common stock. Each of these series is intended to reflect the value and track the performance of one of our divisions. We refer to each series of common stock as follows:

•

Genzyme General Division Common Stock = "Genzyme General Stock;"



•

Genzyme Biosurgery Division Common Stock = "Biosurgery Stock;" and



•

Genzyme Molecular Oncology Division Common Stock = "Molecular Oncology Stock."

        Holders of Genzyme General Stock, Biosurgery Stock and Molecular Oncology Stock are stockholders of Genzyme Corporation and are subject to all of the risks and uncertainties of Genzyme Corporation described in Exhibit 99.2 to our 2001 Form 10-K.

NOTE REGARDING INCORPORATION BY REFERENCE

        The Securities and Exchange Commission allows us to disclose important information to you by referring you to other documents we have filed with the SEC. The information that we refer you to is "incorporated by reference" into this Form 10-Q. Please read that information.

NOTE REGARDING TRADEMARKS

        Genzyme®, Cerezyme®, Ceredase®, Thyrogen®, Fabrazyme®, Seprafilm®, Carticel® and Epicel® are registered trademarks of Genzyme. SAGE™ and Sepra™ are trademarks of Genzyme. Renagel® and Cholestagel® are registered trademarks of GelTex Pharmaceuticals, Inc. Synvisc® and Hylaform® are registered trademarks of Genzyme Biosurgery Corporation. Focal® and FocalSeal® are registered trademarks of Focal, Inc. Snowden-Pencer® is a registered trademark of Snowden-Pencer, Inc. Aldurazyme™ is a trademark of BioMarin/Genzyme LLC. WelChol™ is a trademark of Sankyo Pharma, Inc. NeuroCell™ is a trademark of Diacrin, Inc. Zavesca™ is a trademark of Oxford GlycoSciences plc. EZETROL™ and ZETIA™ are trademarks of MSP Marketing Services© LLC. All rights reserved.

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 2002
TABLE OF CONTENTS

		PAGE NO.
PART I.    FINANCIAL INFORMATION		1
ITEM 1.    Financial Statements		1
GENZYME CORPORATION AND SUBSIDIARIES
	Unaudited, Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	1
	Consolidated Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001	3
	Unaudited, Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	4
	Notes to Unaudited, Consolidated Financial Statements	5
GENZYME GENERAL
	Unaudited, Combined Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	27
	Combined Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001	28
	Unaudited, Combined Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	29
	Notes to Unaudited, Combined Financial Statements	30
GENZYME BIOSURGERY
	Unaudited, Combined Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	41
	Combined Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001	42
	Unaudited, Combined Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	43
	Notes to Unaudited, Combined Financial Statements	44
GENZYME MOLECULAR ONCOLOGY
	Unaudited, Combined Statements of Operations for the Three and Nine Months Ended September 30, 2002 and 2001	52
	Combined Balance Sheets as of September 30, 2002 (unaudited) and December 31, 2001	53
	Unaudited, Combined Statements of Cash Flows for the Nine Months Ended September 30, 2002 and 2001	54
	Notes to Unaudited, Combined Financial Statements	55
ITEM 2.    Management's Discussion and Analysis of Financial Condition and Results of Operations		57
ITEM 3.    Quantitative and Qualitative Disclosures About Market Risk		128
ITEM 4.    Controls and Procedures		128
PART II.    OTHER INFORMATION		129
ITEM 2.    Changes in Securities and Use of Proceeds		129
ITEM 6.    Exhibits and Reports on Form 8-K		129
Signatures		130

i

PART 1.    Financial Information

ITEM 1. Financial Statements

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Operations

(Unaudited, amounts in thousands)

				Three Months Ended September 30,						Nine Months Ended September 30,
				2002			2001			2002			2001
Revenues:
	Net product sales			$	308,190		$	291,959		$	874,796		$	816,262
	Net service sales				28,871			23,988			83,578			71,983
	Revenues from research and development contracts:
		Related parties			649			1,043			2,045			2,726
		Other			2,456			2,505			9,879			7,426
			Total revenues		340,166			319,495			970,298			898,397
Operating costs and expenses:
	Cost of products sold				76,299			75,462			224,975			231,594
	Cost of services sold				17,342			14,041			48,799			40,890
	Selling, general and administrative				115,514			122,030			329,354			316,810
	Research and development (including research and development related to contracts)				74,698			69,127			232,773			188,651
	Amortization of intangibles				17,583			30,950			52,766			90,115
	Purchase of in-process research and development				1,879			86,800			1,879			95,568
	Charge for impaired assets				8,958			—			8,958			—
			Total operating costs and expenses		312,273			398,410			899,504			963,628
Operating income (loss)					27,893			(78,915	)		70,794			(65,231	)
Other income (expenses):
	Equity in net loss of unconsolidated affiliates				(2,387	)		(8,110	)		(10,429	)		(28,921	)
	Gain (loss) on investments in equity securities				29			(24,464	)		538			(25,996	)
	Minority interest in net loss of subsidiary				—			260			—			2,259
	Other				(234	)		(980	)		729			(4,823	)
	Investment income				12,956			13,718			39,017			36,359
	Interest expense				(6,602	)		(8,739	)		(20,467	)		(30,875	)
			Total other income (expenses)		3,762			(28,315	)		9,388			(51,997	)
Income (loss) before income taxes					31,655			(107,230	)		80,182			(117,228	)
(Provision for) benefit from income taxes					(6,600	)		4,554			(20,031	)		7,288
Net income (loss) before cumulative effect of change in accounting for goodwill and derivative financial instruments					25,055			(102,676	)		60,151			(109,940	)
Cumulative effect of change in accounting for goodwill					—			—			(98,270	)		—
Cumulative effect of change in accounting for derivative financial instruments, net of tax					—			—			—			4,167
Net income (loss)				$	25,055		$	(102,676	)	$	(38,119	)	$	(105,773	)
Comprehensive income (loss), net of tax:
	Net income (loss)			$	25,055		$	(102,676	)	$	(38,119	)	$	(105,773	)
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments			2,311			17,267			41,110			(577	)
		Unrealized losses on interest rate swap contracts, net of tax			(585	)		(1,444	)		(748	)		(1,733	)
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period, net		162			(8,675	)		(26,547	)		(9,661	)
			Reclassification adjustment for (gains) losses included in net income (loss)		(18	)		15,535			63			16,507
	Other comprehensive income				1,870			22,683			13,878			4,536
Comprehensive income (loss)				$	26,925		$	(79,993	)	$	(24,241	)	$	(101,237	)

The accompanying notes are an integral part of these unaudited, consolidated financial statements.

1

				Three Months Ended September 30,						Nine Months Ended September 30,
				2002			2001			2002			2001
Net income (loss) per share:
	Allocated to Genzyme General Stock:
		Genzyme General net income (loss) before cumulative effect of change in accounting for derivative financial instruments		$	44,518		$	(81,706	)	$	113,238		$	(34,843	)
		Cumulative effect of change in accounting for derivative financial instruments, net of tax			—			—			—			4,167
		Genzyme General division net income (loss)			44,518			(81,706	)		113,238			(30,676	)
		Tax benefit allocated from Genzyme Biosurgery			6,325			2,918			13,618			20,661
		Tax benefit allocated from Genzyme Molecular Oncology			2,573			2,687			6,938			9,367
		Net income (loss) allocated to Genzyme General Stock		$	53,416		$	(76,101	)	$	133,794		$	(648	)
Net income (loss) per share of Genzyme General Stock:
	Basic:
		Net income (loss) per share before cumulative effect of change in accounting for derivative financial instruments		$	0.25		$	(0.37	)	$	0.63		$	(0.02	)
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax			—			—			—			0.02
		Net income (loss) per share allocated to Genzyme General Stock		$	0.25		$	(0.37	)	$	0.63		$	0.00
	Diluted:
		Net income (loss) per share before cumulative effect of change in accounting for derivative financial instruments		$	0.25		$	(0.37	)	$	0.61		$	(0.02	)
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax			—			—			—			0.02
		Net income (loss) per share allocated to Genzyme General Stock		$	0.25		$	(0.37	)	$	0.61		$	0.00
	Weighted average shares outstanding:
		Basic			214,303			208,350			213,851			198,841
		Diluted			217,541			208,350			219,413			198,841
	Allocated to Biosurgery Stock:
		Genzyme Biosurgery net loss before cumulative effect of change in accounting for goodwill		$	(24,464	)	$	(21,525	)	$	(62,368	)	$	(94,460	)
		Cumulative effect of change in accounting for goodwill			—			—			(98,270	)		—
		Genzyme Biosurgery division net loss			(24,464	)		(21,525	)		(160,638	)		(94,460	)
		Allocated tax benefit			2,408			2,444			7,298			11,434
		Net loss allocated to Biosurgery Stock		$	(22,056	)	$	(19,081	)	$	(153,340	)	$	(83,026	)
		Net loss per share of Biosurgery Stock—basic and diluted:
			Net loss per share before cumulative effect of change in accounting for goodwill	$	(0.55	)	$	(0.48	)	$	(1.38	)	$	(2.22	)
			Per share cumulative effect of change in accounting for goodwill		—			—			(2.47	)		—
		Net loss per share of Biosurgery Stock—basic and diluted		$	(0.55	)	$	(0.48	)	$	(3.85	)	$	(2.22	)
		Weighted average shares outstanding			40,179			39,376			39,793			37,479
	Allocated to Molecular Oncology Stock:
		Net loss allocated to Molecular Oncology Stock		$	(6,305	)	$	(7,494	)	$	(18,573	)	$	(22,099	)
		Net loss per share of Molecular Oncology Stock—basic and diluted		$	(0.37	)	$	(0.45	)	$	(1.11	)	$	(1.36	)
		Weighted average shares outstanding			16,847			16,679			16,804			16,225

The accompanying notes are an integral part of these unaudited, consolidated financial statements.

2

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(Amounts in thousands)

			September 30, 2002			December 31, 2001
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	373,250		$	247,011
	Short-term investments			67,538			66,481
	Accounts receivable, net			280,306			259,283
	Inventories			202,781			171,409
	Prepaid expenses and other current assets			35,635			35,408
	Deferred tax assets—current			70,260			70,196
		Total current assets		1,029,770			849,788
Property, plant and equipment, net				757,375			635,314
Long-term investments				722,234			807,766
Notes receivable—related parties				10,370			—
Goodwill, net				605,100			697,422
Other intangible assets, net				752,006			809,224
Investments in equity securities				47,422			88,686
Other noncurrent assets				30,061			47,545
		Total assets	$	3,954,338		$	3,935,745
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
	Accounts payable		$	39,791		$	47,860
	Accrued expenses			168,022			144,740
	Income taxes payable			94,058			75,944
	Deferred revenue			8,861			6,700
	Current portion of long-term debt, convertible notes and capital lease obligations			12,430			7,746
		Total current liabilities		323,162			282,990
Long-term debt and capital lease obligations				294,219			259,809
Convertible notes and debentures				575,000			585,000
Deferred tax liabilities				123,170			173,126
Other noncurrent liabilities				19,432			25,631
		Total liabilities		1,334,983			1,326,556
Contingencies (Note 14)
Stockholders' equity:
	Preferred stock, $0.01 par value			—			—
	Common stock:
		Genzyme General Stock, $0.01 par value		2,144			2,132
		Biosurgery Stock, $0.01 par value		403			395
		Molecular Oncology Stock, $0.01 par value		169			168
	Treasury Stock—Genzyme General-at cost			(901	)		(901	)
	Additional paid-in capital—Genzyme General Stock			1,809,974			1,749,097
	Additional paid-in capital—Biosurgery Stock			815,680			843,544
	Additional paid-in capital—Molecular Oncology Stock			148,752			148,481
	Deferred compensation			(1,121	)		(2,377	)
	Notes receivable from stockholders			(13,399	)		(13,245	)
	Accumulated deficit			(156,013	)		(117,894	)
	Accumulated other comprehensive income (loss)			13,667			(211	)
		Total stockholders' equity		2,619,355			2,609,189
		Total liabilities and stockholders' equity	$	3,954,338		$	3,935,745

The accompanying notes are an integral part of these unaudited, consolidated financial statements.

3

GENZYME CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(Unaudited, amounts in thousands)

					Nine Months Ended September 30,
					2002			2001
Cash Flows from Operating Activities:
	Net loss				$	(38,119	)	$	(105,773	)
	Reconciliation of net loss to net cash provided by operating activities:
		Depreciation and amortization				98,768			125,203
		Non-cash compensation expense				1,086			7,375
		Provision for bad debts				7,756			2,246
		Write-off of note received from a collaborator				—			10,159
		Charges for purchase of in-process research and development				1,879			95,568
		Charge for impaired assets				8,958			—
		Equity in net loss of unconsolidated affiliates				10,429			28,921
		(Gain) loss on investments in equity securities				(538	)		25,996
		Minority interest in net loss of subsidiary				—			(2,259	)
		Deferred income tax benefit				(10,962	)		(17,165	)
		Other				4,959			(2,776	)
		Cumulative effect of change in accounting for goodwill				98,270			—
		Cumulative effect of change in accounting for derivative financial instruments				—			(4,167	)
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			(19,050	)		(36,104	)
			Inventories			(18,152	)		10,551
			Prepaid expenses and other current assets			(5,347	)		(1,800	)
			Accounts payable, accrued expenses and deferred revenue			(16,681	)		(8,118	)
			Income taxes payable and tax benefits from stock options			37,088			38,571
				Cash flows from operating activities		160,344			166,428
Cash Flows from Investing Activities:
	Purchases of investments					(340,923	)		(750,075	)
	Sales and maturities of investments					432,437			314,233
	Purchases of equity securities					(2,975	)		(8,318	)
	Proceeds from the sales of equity securities					4,773			36
	Purchases of property, plant and equipment					(164,777	)		(123,229	)
	Sales of property, plant and equipment					2,436			—
	Purchase of technology rights					(255	)		—
	Acquisitions, net of acquired cash					—			(78,379	)
	Investments in unconsolidated affiliates					(24,750	)		(31,298	)
	Note received from a collaborator					(5,500	)		—
	Other					2,076			9,846
				Cash flows from investing activities		(97,458	)		(667,184	)
Cash Flows from Financing Activities:
	Proceeds from issuance of common stock					26,863			74,488
	Proceeds from draw on credit facility					35,000			—
	Proceeds from issuance of debt					—			562,062
	Payments of debt and capital lease obligations					(5,880	)		(155,128	)
	Bank overdraft					(1,575	)		2,111
	Payments of notes receivable from stockholders					182			2,896
	Other					(2,414	)		3,237
				Cash flows from financing activities		52,176			489,666
Effect of exchange rate changes on cash						11,177			(1,703	)
Increase (decrease) in cash and cash equivalents						126,239			(12,793	)
Cash and cash equivalents at beginning of period						247,011			236,213
Cash and cash equivalents at end of period					$	373,250		$	223,420

The accompanying notes are an integral part of these unaudited, consolidated financial statements

4

GENZYME CORPORATION AND SUBSIDIARIES

Notes To Unaudited, Consolidated Financial Statements

1.    Basis of Presentation

        Our unaudited, consolidated financial statements for each period include the statements of operations, balance sheets and statements of cash flows of each of our divisions and corporate operations taken as a whole. We eliminate all significant interdivisional and intercompany items and transactions in consolidation. We prepared our unaudited, consolidated financial statements following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by accounting principles generally accepted in the U.S. We have reclassified certain 2001 data to conform to our 2002 presentation.

        These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of our financial position and operating results. Since these are interim financial statements, you should also read the financial statements and notes included in our 2001 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

2.    New Accounting Pronouncements

        In August 2001, the Financial Accounting Standards Board, commonly referred to as the FASB, issued Statement of Financial Accounting Standards, or SFAS, No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 will be effective for our fiscal year ending December 31, 2003. We are in the process of assessing the effect of adopting SFAS No. 143 on our consolidated and combined financial statements.

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and amends Accounting Principles Board Opinion No. 30 (APB No. 30), "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and was adopted by us, as required, on January 1, 2002. The adoption of SFAS No. 144 did not have a material impact on our financial position or results of operations.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes Emerging Issues Task Force, or EITF, Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost as defined in EITF Issue 94-3 was recognized at the date of an entity's commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. We will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 as required by the standard.

3.    Acquisitions

        In September 2001, we acquired Novazyme, a privately-held developer of biotherapies for the treatment of lysosomal storage disorders, or LSDs, and in June 2001, we acquired Wyntek

5

Diagnostics, Inc., a privately-held provider of point of care rapid diagnostic tests for pregnancy and infectious diseases. We accounted for the acquisitions as purchases and allocated both to Genzyme General. Also, in June 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock not previously acquired. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery.

        The following unaudited pro forma financial summary is presented as if the acquisitions of Novazyme, Focal and Wyntek were completed as of January 1, 2001. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated on those dates, or of the future operations of the combined entities. Material nonrecurring charges related to these acquisitions, such as acquired in-process research and development, or IPR&D, charges of $86.8 million resulting from the acquisition of Novazyme and $8.8 million resulting from the acquisition of Wyntek, are not reflected in the following pro forma financial summary.

Unaudited Pro Forma Financial Summary:

			Three Months Ended September 30, 2001			Nine Months Ended September 30, 2001
			(Amounts in thousands, except per share amounts)
Total revenues			$	319,496		$	906,957
Loss before extraordinary items and cumulative effect of change in accounting for derivative financial instruments			$	(17,659	)	$	(37,932	)
Cumulative effect of change in accounting for derivative financial instruments, net of tax				—			4,167
Net loss			$	(17,659	)	$	(33,765	)
Net income allocated to Genzyme General Stock:
	Net income allocated to Genzyme General Stock before cumulative effect of change in accounting for derivative financial instruments		$	8,916		$	74,671
	Cumulative effect of change in accounting for derivative financial instruments, net of tax			—			4,167
	Net income allocated to Genzyme General Stock		$	8,916		$	78,838
Net income per share allocated to Genzyme General Stock:
	Basic:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.04		$	0.37
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			0.02
		Net income per share allocated to Genzyme General Stock	$	0.04		$	0.39
	Diluted:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.04		$	0.37
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			0.02
		Net income per share allocated to Genzyme General Stock	$	0.04		$	0.39
Weighted average shares outstanding:
		Basic		208,350			201,403
		Diluted		216,080			201,654
Net loss allocated to Biosurgery Stock			$	(19,081	)	$	(90,504	)
Net loss per share allocated to Biosurgery Stock—basic and diluted			$	(0.48	)	$	(2.29	)
Weighted average shares outstanding				39,376			39,566

6

        The staff of the U.S. Federal Trade Commission, which is known as the FTC, is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there are costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses.

4.    Inventories (amounts in thousands)

		September 30, 2002		December 31, 2001
		(Unaudited)
Raw materials		$	42,366	$	52,586
Work-in-process			84,246		64,925
Finished products			76,169		53,898
	Total	$	202,781	$	171,409

        At September 30, 2002, our total inventories include approximately $6.9 million of inventory for products that have not yet been approved for sale.

5.    Goodwill and Other Intangible Assets

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus has been adopted by us effective at the beginning of fiscal year 2002.

Goodwill

        Effective January 1, 2002, in accordance with the provisions of SFAS No. 142, we ceased amortizing goodwill. At January 1, 2002, our gross goodwill totaled $799.5 million, including $4.3 million of acquired workforce intangible assets previously classified as other intangible assets at December 31, 2001, net of related deferred tax liabilities, of which $1.6 million was allocated to our Therapeutics reporting segment, $0.8 million was allocated to our Diagnostic Products reporting segment and $1.8 million was allocated to Genzyme Biosurgery.

        In November 2001, we sold our Snowden-Pencer® line of surgical instruments, a component of Genzyme Biosurgery, and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of Genzyme Biosurgery's cardiothoracic reporting unit, under SFAS No. 121, "Accounting for the Impairment of Long-Lived

7

Assets and Long-Lived Assets to be Disposed Of," did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, in the three months ended March 31, 2002, upon adoption of SFAS No. 142, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations for Genzyme Biosurgery for the three months ended March 31, 2002.

        We completed the transitional and annual impairment tests for the $605.1 million of net goodwill related to our other reporting units in the nine months ended September 30, 2002, as provided by SFAS No. 142, and determined that no additional impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstance suggest that the carrying value of an asset may not be recoverable.

        The following table contains the changes in our net goodwill during the nine months ended September 30, 2002 (amounts in thousands):

							(Unaudited)
				As of December 31, 2001			Adjustments			Impairment			As of September 30, 2002
Goodwill:
	Genzyme General:
		Therapeutics (1)		$	387,213		$	2,446		$	—		$	389,659
		Renal (2)			82,508			1,927			—			84,435
		Diagnostic Products (3)			32,427			786			—			33,213
		Other			56,462			99			—			56,561
			Total		558,610			5,258			—			563,868
	Genzyme Biosurgery (4,5)				236,621			1,841			(113,859	)		124,603
	Genzyme Molecular Oncology				—			—			—			—
			Total		795,231			7,099			(113,859	)		688,471
Accumulated amortization					(97,809	)		(1,151	)		15,589			(83,371	)
Goodwill, net				$	697,422		$	5,948		$	(98,270	)	$	605,100

(1)

Adjustments for our Therapeutics reporting segment include:

•

$1.6 million of workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of GelTex Pharmaceuticals, Inc. reclassified as required by SFAS No. 142; and

•

$0.8 million to adjust goodwill resulting from increased integration and exit activity costs related to our acquisition of Novazyme.

8

(2)

During the quarter ended September 30, 2002, we created our Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel® phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, goodwill amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of our Therapeutics reporting segment. We have reclassified our 2001 goodwill disclosures by segment to conform to our 2002 presentation.

Adjustments for our Renal reporting segment resulted from a reclassification related to our acquisition of GelTex.

(3)

Adjustments for our Diagnostic Products reporting segment represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of Wyntek, reclassified as required by SFAS No. 142.

(4)

Adjustments for Genzyme Biosurgery represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisitions of Focal and Biomatrix Inc., reclassified as required by SFAS No. 142.

(5)

Impairment for Genzyme Biosurgery represents the impairment charge we recorded in the three months ended March 31, 2002, in accordance with the transitional provisions of SFAS No. 142, related to the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit.

Other Intangible Assets

        The following table contains information on our other intangible assets for the periods presented (amounts in thousands):

		As of September 30, 2002 (Unaudited)							As of December 31, 2001
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology		$	551,771	$	(77,217	)	$	474,554	$	551,743	$	(44,253	)	$	507,490
Patents			196,997		(33,221	)		163,776		196,968		(21,804	)		175,164
Trademarks			91,754		(14,449	)		77,305		91,754		(9,960	)		81,794
License fees			26,612		(6,785	)		19,827		25,460		(5,371	)		20,089
Distribution agreements			13,950		(3,115	)		10,835		13,950		(1,807	)		12,143
Customer lists			8,324		(3,823	)		4,501		8,324		(3,199	)		5,125
Other			12,242		(11,034	)		1,208		18,123		(10,704	)		7,419
	Total	$	901,650	$	(149,644	)	$	752,006	$	906,322	$	(97,098	)	$	809,224

        All of our other intangible assets are amortized over their estimated useful lives. Total amortization expense for our other intangible assets was:

•

$17.9 million for the three months ended September 30, 2002;



•

$17.9 million for the three months ended September 30, 2001;



•

$53.7 million for the nine months ended September 30, 2002; and



•

$51.8 million for the nine months ended September 30, 2001.

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Amortization expense for each quarter presented includes $0.3 million related to the amortization of a non-compete agreement which is charged to cost of products sold. Amortization expense for both the three and nine months ended September 30, 2001 excludes the expense related to the amortization of goodwill.

        The estimated future amortization expense for other intangible assets as of September 30, 2002 for the remainder of fiscal year 2002 and the five succeeding fiscal years is as follows (unaudited, amounts in thousands):

Year ended December 31,	Estimated Amortization Expense
2002 (remaining three months)	$	17,815
2003		70,036
2004		69,662
2005		69,156
2006		66,655
2007		66,594

Adjusted Net Income (Loss)

        The following table presents the impact SFAS No. 142 would have had on our amortization of intangibles expense, net income (loss) and net income (loss) per share had the standard been in effect for the three and nine months ended September 30, 2001 (unaudited, amounts in thousands, except per share amounts):

	Three Months Ended September 30, 2001									Nine Months Ended September 30, 2001
	As Reported			Goodwill Amortization Adjustment			As Adjusted			As Reported			Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	30,950		$	(13,351	)	$	17,599		$	90,115		$	(39,219	)	$	50,896
Net income (loss) before cumulative effect of change in accounting for derivative financial instruments	$	(102,676	)	$	13,351		$	(89,325	)	$	(109,940	)	$	39,219		$	(70,721	)
Cumulative effect of change in accounting for derivative financial instruments, net of tax		—			—			—			4,167			—			4,167
Net income (loss)	$	(102,676	)	$	13,351		$	(89,325	)	$	(105,773	)	$	39,219		$	(66,554	)

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Net income (loss) allocated to Genzyme General Stock:
	Net income (loss) allocated to Genzyme General Stock before cumulative effect of change in accounting for derivative financial instruments			$	(76,101	)	$	9,503	$	(66,598	)	$	(4,815	)	$	27,515	$	22,700
	Cumulative effect of change in accounting for derivative financial instruments, net of tax				—			—		—			4,167			—		4,167
	Net income (loss) allocated to Genzyme General Stock			$	(76,101	)	$	9,503	$	(66,598	)	$	(648	)	$	27,515	$	26,867
	Net income (loss) per share allocated to Genzyme General Stock:
		Basic:
			Net income (loss) per share before cumulative effect of change in accounting for derivative financial instruments	$	(0.37	)	$	0.05	$	(0.32	)	$	(0.02	)	$	0.13	$	0.11
			Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			—		—			0.02			—		0.02
			Net income (loss) per share allocated to Genzyme General Stock	$	(0.37	)	$	0.05	$	(0.32	)	$	0.00		$	0.13	$	0.13
		Diluted:
			Net income (loss) per share before cumulative effect of change in accounting for derivative financial instruments	$	(0.37	)	$	0.05	$	(0.32	)	$	(0.02	)	$	0.13	$	0.11
			Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		—			—		—			0.02			—		0.02
			Net income (loss) per share allocated to Genzyme General Stock	$	(0.37	)	$	0.05	$	(0.32	)	$	0.00		$	0.13	$	0.13
Net income (loss) allocated to Biosurgery Stock				$	(19,081	)	$	3,848	$	(15,233	)	$	(83,026	)	$	11,704	$	(71,322	)
Net income (loss) per share allocated to Biosurgery Stock—basic and diluted				$	(0.48	)	$	0.09	$	(0.39	)	$	(2.22	)	$	0.32	$	(1.90	)

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        The following tables present the impact SFAS No. 142 would have had on our amortization of intangibles expense and net income (loss) had the standard been in effect for the years ended December 31, 2001, 2000 and 1999 (amounts in thousands, except per share amounts):

				Year Ended December 31, 2001									Year Ended December 31, 2000
				As Reported			Goodwill Amortization Adjustment			As Adjusted			As Reported			Goodwill Amortization Adjustment			As Adjusted
							(Unaudited)									(Unaudited)
Amortization of intangibles				$	121,124		$	(52,541	)	$	68,583		$	22,974		$	(12,259	)	$	10,715
Net income (loss) before extraordinary items and cumulative effect of change in accounting for derivative financial instruments				$	(116,323	)	$	52,541		$	(63,782	)	$	(62,940	)	$	12,259		$	(50,681	)
Cumulative effect of change in accounting for derivative financial instruments, net of tax					4,167			—			4,167			—			—			—
Net income (loss)				$	(112,156	)	$	52,541		$	(59,615	)	$	(62,940	)	$	12,259		$	(50,681	)
Net income allocated to Genzyme General Stock:
	Net income allocated to Genzyme General Stock before cumulative effect of change in accounting for derivative financial instruments			$	40,376		$	37,020		$	77,396		$	121,455		$	6,608		$	128,063
	Cumulative effect of change in accounting for derivative financial instruments, net of tax				4,167			—			4,167			—			—			—
	Net income allocated to Genzyme General Stock			$	44,543		$	37,020		$	81,563		$	121,455		$	6,608		$	128,063
	Net income per share allocated to Genzyme General Stock
		Basic:
			Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.20		$	0.18		$	0.38		$	0.71		$	0.03		$	0.74
			Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		0.02			—			0.02			—			—			—
			Net income per share allocated to Genzyme General Stock	$	0.22		$	0.18		$	0.40		$	0.71		$	0.03		$	0.74

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	Diluted:
		Net income per share before cumulative effect of change in accounting for derivative financial instruments	$	0.19		$	0.18	$	0.37		$	0.68		$	0.03	$	0.71
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax		0.02			—		0.02			—			—		—
		Net income per share allocated to Genzyme General Stock	$	0.21		$	0.18	$	0.39		$	0.68		$	0.03	$	0.71
Net income (loss) allocated to Biosurgery Stock			$	(126,981	)	$	15,521	$	(111,460	)	$	(87,188	)	$	555	$	(86,633	)
Net income (loss) per share allocated to Biosurgery Stock—basic and diluted			$	(3.34	)	$	0.41	$	(2.93	)	$	(2.40	)	$	0.02	$	(2.38	)
Net income (loss) allocated to Molecular Oncology Stock			$	(29,718	)	$	—	$	(29,718	)	$	(23,096	)	$	2,227	$	(20,869	)
Net income (loss) per share of Molecular Oncology Stock—basic and diluted			$	(1.82	)	$	—	$	(1.82	)	$	(1.60	)	$	0.16	$	(1.44	)
Net income (loss) allocated to Surgical Products Stock											$	(54,748	)	$	3,339	$	(51,409	)
Net income (loss) per share of Surgical Products Stock—basic and diluted											$	(3.67	)	$	0.22	$	(3.45	)
Net loss allocated to Tissue Repair Stock											$	(19,833	)	$	—	$	(19,833	)
Net loss per share of Tissue Repair Stock—basic and diluted											$	(0.69	)	$	—	$	(0.69	)

13

		Year Ended December 31, 1999
		As Reported			Goodwill Amortization Adjustment			As Adjusted
					(Unaudited)
Amortization of intangibles		$	24,674		$	(12,375	)	$	12,299
Net income		$	70,981		$	12,375		$	83,356
Net income allocated to Genzyme General Stock		$	149,360		$	5,261		$	154,621
Net income per share allocated to Genzyme General Stock
	Basic	$	0.90		$	0.03		$	0.93
	Diluted	$	0.85		$	0.03		$	0.88
Net income (loss) allocated to Molecular Oncology Stock		$	(28,832	)	$	4,858		$	(23,974	)
Net income (loss) per share of Molecular Oncology Stock—basic and diluted		$	(2.25	)	$	0.38		$	(1.87	)
Net income (loss) allocated to Surgical Products Stock		$	(20,514	)	$	3,263		$	(17,251	)
Net income (loss) per share of Surgical Products Stock—basic and diluted		$	(1.38	)	$	0.22		$	(1.16	)
Net loss allocated to Tissue Repair Stock		$	(30,040	)	$	—		$	(30,040	)
Net loss per share of Tissue Repair Stock—basic and diluted		$	(1.26	)	$	—		$	(1.26	)

6.    Biologics License Application for Aldurazyme™ Enzyme

        In July 2002, together with BioMarin Pharmaceutical, Inc., we submitted the final portion of the "rolling" BLA for Aldurazyme enzyme to the FDA. As part of the BLA submission, we formally requested and were granted Priority Review, which is an FDA procedure generally reserved for products that address an unmet medical need. We expect an action by the FDA regarding our application to market Aldurazyme enzyme by the end of January 2003. Pursuant to the terms of our joint venture agreement with BioMarin for the development and commercialization of Aldurazyme enzyme, we are obligated to pay BioMarin a $12.1 million milestone payment upon receipt of FDA approval of the Aldurazyme enzyme BLA.

7.    Note Receivable from Dyax Corporation

        In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88. As a result, our option to acquire a 50% interest in DX-88 for hereditary angioedema, or HAE, and other potential indications will be exercisable after the first phase 2 clinical trial of DX-88 for use in HAE has concluded and we have had an opportunity to review the data. The restructured agreement also provides Dyax with an option to acquire our interest in the potential

14

application of DX-88 for the reduction of blood loss and other effects of systemic inflammatory responses in surgery. This option expires in March 2003.

        Under the revised collaboration agreement, the line of credit we extended to Dyax was increased from $3.0 million to $7.0 million. In connection with the increase, Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate plus 2%, which was 6.8% at September 30, 2002, and are due, together with any accrued but unpaid interest, in May 2005. As of September 30, 2002, Dyax had drawn $5.5 million under the note, which we have recorded as a note receivable-related party in our unaudited, consolidated balance sheet and the unaudited, combined balance sheet of Genzyme General. Dyax is considered a related party because the chairman and chief executive officer of Dyax is a member of our board of directors. Pursuant to the terms of the note, we are not obligated to make advances in excess of $1.5 million during any calendar quarter.

8.    Sale of GTC Common Stock

        On April 4, 2002, GTC Biotherapeutics, Inc., formerly known as Genzyme Transgenics Corporation and which we refer to as GTC, purchased approximately 2.8 million shares of GTC common stock held by us and allocated to Genzyme General for an aggregate consideration of approximately $9.6 million. We received approximately $4.8 million in cash and a promissory note for the remaining amount of approximately $4.8 million. The shares of GTC common stock sold were valued at $3.385 per share in this transaction, using the simple average of the high and low transaction prices quoted on the Nasdaq National Market on April 1, 2002. We have committed to a 24-month lock-up provision on the remaining 4.9 million shares of GTC common stock held by us and allocated to Genzyme General, which is approximately 18% of the shares of GTC common stock outstanding as of September 30, 2002. We accounted for our investment in GTC under the equity method of accounting until May 2002, at which point we ceased to have significant influence over GTC. We began accounting for our investment in GTC under the cost method of accounting in June 2002.

        Because of the 24-month lock-up provision, the remaining 4.9 million shares of GTC common stock held by us do not qualify as marketable securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As a result, we carry the investment on our consolidated balance sheet and the combined balance sheet of Genzyme General at cost, subject to review for impairment. Based on the market price of GTC common stock at September 30, 2002, our remaining investment would have an unrealized loss of $8.2 million. Because we have assessed the decline in the market price of GTC common stock to be temporary, we have not recorded an associated impairment charge.

9.    Investments in Equity Securities

        Excluding our investment in GTC common stock, at September 30, 2002, our stockholders' equity includes unrealized losses of approximately $20.8 million, related to the other investments in equity securities allocated to Genzyme General, that we believe are temporary. We will record impairment charges related to these investments if the stocks do not recover within the next three to six months, all of which will be allocated to Genzyme General.

15

10.    Collaboration with Myosix S.A.

        In July 2002, we entered into a collaboration with Myosix S.A., a privately-held French biotechnology company, for the development and commercialization of a certain autologous cell culture technology, which we refer to as the Myosix Technology. The Myosix Technology was developed by the founders of Myosix with funding from the Assistance Publique Hopitaux de Paris (Public Welfare Hospitals of Paris), which we refer to as the AP-HP and which owns and exclusively licenses the Myosix Technology and related patents to Myosix. In connection with the collaboration, we entered into several agreements with Myosix, including an equity purchase agreement, all effective July 29, 2002. Pursuant to the terms of the equity purchase agreement, we acquired 49% of the common stock of Myosix in exchange for 625,977 shares of Biosurgery Stock. The entire initial acquisition cost of $1.9 million, of which $1.6 million represents the fair market value of the shares of Biosurgery Stock exchanged and $0.3 million represents acquisition costs, was allocated to IPR&D and charged to expense in the three months ended September 30, 2002. We allocated this charge and our ownership interest in Myosix to Genzyme Biosurgery.

        The sublicense that we obtained from Myosix grants us use of the Myosix Technology for the treatment of congestive heart failure, although other applications may be pursued from this cell culture process. As of July 29, 2002, the date of acquisition, phase 1 clinical testing had been completed with funding from the AP-HP. Phase 2 clinical trials are scheduled to commence in the fourth quarter of 2002, and FDA approval for cardiac cell therapy is projected for 2009. As of September 30, 2002, the Myosix Technology has not achieved technological feasibility for any application and will require significant future development before an application can be completed.

        Pursuant to the terms of our various collaboration agreements with Myosix, we have sole responsibility for the cost, management, control and conduct of product development and commercialization. Myosix will act as a sub-contractor. We currently have the right to designate all of the members of Myosix's Board of Directors and, so long as we own at least 34% of Myosix, its Chief Executive Officer. We can acquire the remaining shares of Myosix common stock upon achievement of certain milestones during the development and commercialization of products based on the Myosix Technology. Effective July 29, 2002, because of our ownership interest in and level of control of Myosix, we consolidate the results of Myosix.

11.    Charge for Impaired Assets

        In 1997, we temporarily suspended bulk production of hyaluronan, which we refer to as HA, at our bulk HA manufacturing facility in Haverhill, England, because we determined that we had sufficient quantities of HA on hand to meet the demand for our Sepra™ products for the near term. In the first quarter of 2002, we began a capital expansion program to build HA manufacturing capacity at one of our existing manufacturing facilities in Framingham, Massachusetts. During the third quarter of 2002, we determined that we have sufficient inventory levels to meet demand until the Framingham facility is completed and validated, which is estimated to be within one year. In connection with this assessment, at September 30, 2002, we concluded that we no longer require the manufacturing capacity at the HA plant in England and recorded an impairment charge of approximately $9.0 million in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended September 30, 2002 to write down the assets at the England facility to fair value.

16

12.    Derivative Financial Instruments

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in our consolidated balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge relationship and, if it is, the type of hedge relationship.

        In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative effect adjustment of $4.2 million, net of tax, in our unaudited, consolidated statements of operations and in the unaudited, combined statements of operations of Genzyme General for the three months ended March 31, 2001, to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts allocated to Genzyme General were not significant. For the three months ended September 30, 2002, we recorded a gain of $0.04 million in other income in our unaudited, consolidated statements of operations and in the unaudited, combined statements of operations of Genzyme General to reflect the change in value of our warrants to purchase shares of GTC common stock from July 1, 2002 to September 30, 2002 as compared to a charge of $1.2 million in other expense for the same period of 2001. For the nine months ended September 30, 2002, we recorded a charge of $2.0 million in other expense in our unaudited, consolidated statements of operations and in the unaudited, combined statements of operations of Genzyme General to reflect the change in value of our warrants to purchase shares of GTC common stock from January 1, 2002 to September 30, 2002, as compared to a charge of $5.0 million for the same period a year ago. We also recorded a charge of $0.7 million ($1.2 million pre-tax) in other comprehensive income (loss) in stockholders' equity in our unaudited, consolidated balance sheets and in division equity in the unaudited, combined balance sheets of Genzyme General to reflect the change in value of our interest rate swaps during the nine month period ended September 30, 2002. At September 30, 2002, our interest rate swaps had a fair market value of $(4.0) million.

13.    Revolving Credit Facility

        We have access to a $350.0 million revolving credit facility, all of which matures in December 2003. During the first quarter of 2002, we drew down $35.0 million from this facility and allocated the borrowings to Genzyme Biosurgery. At September 30, 2002, $269.0 million had been drawn down and remained outstanding under the $350.0 million facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin, which was 2.8% at September 30, 2002. The terms of the revolving credit facility include various covenants, including financial covenants, which require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants and do not anticipate falling out of compliance.

14.    Contingencies

        We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims against us as of September 30, 2002,

17

which, if adversely decided, would have a material adverse effect on our results of operations, financial condition or liquidity.

        At September 30, 2002, our property, plant and equipment includes approximately $16.0 million of architectural and design costs related to the development of a manufacturing site adjacent to our existing facilities in Framingham, Massachusetts, which is allocated to Genzyme General. In the fourth quarter of 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium and allocated to Genzyme General. We are considering alternative uses for the Framingham site and we believe that the architectural and design costs incurred to-date for the Framingham site will be utilized in the future construction at the site.

15.    Tax (Provision) Benefit

	Three Months Ended September 30,								Nine Months Ended September 30,
							Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
	2002			2001					2002			2001
	(Unaudited, amounts in thousands, except percentage data)
(Provision for) benefit from income taxes	$	(6,600	)	$	4,554		(245	)%	$	(20,031	)	$	7,288		(375	)%
Effective tax rate		21	%		4	%				25	%		6	%

        Our tax rates for all periods vary from the U.S. statutory tax rate as a result of our:

•

provision for state income taxes;



•

use of a foreign sales corporation; and



•

use of tax credits.

        Our effective tax rate for both the three and nine months ended September 30, 2001 also varied from the U.S. statutory rate due to nondeductible goodwill amortization expense. We stopped recording nondeductible goodwill amortization expense upon the adoption of SFAS No. 142 in fiscal year 2002.

16.    Net Income (Loss) Per Share

        We calculate earnings per share for each series of stock using the two-class method. To calculate basic earnings per share for each series of stock, we divide the earnings allocated to each series of stock by the weighted average number of outstanding shares of that series of stock during the applicable period. When we calculate diluted earnings per share, we also include in the denominator all potentially dilutive securities outstanding during the applicable period. We allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to Genzyme General Stock, as defined in our charter, is equal to the net income or loss of Genzyme General determined in accordance with accounting principles generally accepted in the U.S. and as adjusted for tax benefits allocated to or from Genzyme General in accordance with our management and accounting policies. Earnings attributable to Biosurgery Stock and Molecular Oncology Stock are defined similarly and, as such, are based on the net income or loss of the corresponding division as adjusted for the allocation of tax benefits.

18

        We calculate the income tax provision of each division as if such division were a separate taxpayer, which includes assessing realizability of deferred tax assets at the division level. Our management and accounting policies provide that if, as of the end of any fiscal quarter, a division cannot use any projected annual tax benefit attributable to it to offset or reduce its current or deferred income tax expense, we may allocate the tax benefit to other divisions in proportion to their taxable income without compensating payment or allocation to the division generating the benefit. The tax benefits allocated to Genzyme General, which are included in earnings attributable to Genzyme General Stock, were:

			Three Months Ended September 30,				Nine Months Ended September 30,
			2002		2001		2002		2001
			(Unaudited, amounts in thousands)
Tax benefits allocated from:
	Genzyme Biosurgery		$	6,325	$	2,918	$	13,618	$	20,661
	Genzyme Molecular Oncology			2,573		2,687		6,938		9,367
		Total	$	8,898	$	5,605	$	20,556	$	30,028

        In future periods, Genzyme Biosurgery and Genzyme Molecular Oncology may recognize deferred tax assets in the calculation of their respective tax provisions determined on a separate division basis in accordance with accounting principles generally accepted in the U.S. However, to the extent the benefit of those deferred tax assets has been previously allocated to Genzyme General in accordance with our management and accounting policies, the benefit will be reflected as a reduction of net income in determining net income (loss) attributable to Biosurgery Stock or Molecular Oncology Stock. As of September 30, 2002, the total tax benefits previously allocated to Genzyme General from Genzyme Biosurgery and Genzyme Molecular Oncology were (unaudited, amounts in thousands):

Genzyme Biosurgery	$	206,930
Genzyme Molecular Oncology		43,366

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Genzyme General Stock:

        The following table sets forth our computation of basic and diluted net income (loss) per share allocated to Genzyme General Stock:

				Three Months Ended September 30,					Nine Months Ended September 30,
				2002		2001			2002		2001
				(Unaudited, amounts in thousands, except per share amounts)
Genzyme General net income (loss) before cumulative effect of change in accounting for derivative financial instruments				$	44,518	$	(81,706	)	$	113,238	$	(34,843	)
Cumulative effect of change in accounting for derivative financial instruments, net of tax					—		—			—		4,167
Genzyme General division net income (loss)					44,518		(81,706	)		113,238		(30,676	)
Tax benefit allocated from Genzyme Biosurgery					6,325		2,918			13,618		20,661
Tax benefit allocated from Genzyme Molecular Oncology					2,573		2,687			6,938		9,367
Net income (loss) allocated to Genzyme General Stock—basic and diluted				$	53,416	$	(76,101	)	$	133,794	$	(648	)
Shares used in computing net income (loss) per common share—basic					214,303		208,350			213,851		198,841
	Effect of dilutive securities:
		Stock options (1)			3,235		—			5,551		—
		Warrants and stock purchase rights			3		—			11		—
			Dilutive potential common shares		3,238		—			5,562		—
Shares used in computing net income (loss) per share—diluted (1,2)					217,541		208,350			219,413		198,841
Net income (loss) per share of Genzyme General Stock:
	Basic:
		Net income (loss) per share before cumulative effect of change in accounting for derivative financial instruments		$	0.25	$	(0.37	)	$	0.63	$	(0.02	)
		Per share cumulative effect of change in accounting for derivative financial instruments, net of tax (3)			—		—			—		0.02
		Net income (loss) per share allocated to Genzyme General Stock		$	0.25	$	(0.37	)	$	0.63	$	0.00

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Genzyme General Stock (Continued):

		Three Months Ended September 30,					Nine Months Ended September 30,
		2002		2001			2002		2001
		(Unaudited, amounts in thousands, except per share amounts)
Diluted (1,2):
	Net income (loss) per share before cumulative effect of change in accounting for derivative financial instruments	$	0.25	$	(0.37	)	$	0.61	$	(0.02	)
	Per share cumulative effect of change in accounting for derivative financial instruments, net of tax (3)		—		—			—		0.02
	Net income (loss) per share allocated to Genzyme General Stock	$	0.25	$	(0.37	)	$	0.61	$	0.00

(1)

We did not include the securities described in the following table in the computation of Genzyme General's diluted earnings per share for each period because these securities had an exercise price greater than the average market price of Genzyme General Stock:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2002	2001	2002	2001
	(Unaudited, amounts in thousands)
Shares of Genzyme General Stock issuable for options	20,974	5,161	12,044	3,671

(2)

We did not include the potentially dilutive effect of the assumed conversion of the $575.0 million in principal of 3% convertible subordinated debentures allocated to Genzyme General in the computation of Genzyme General's dilutive earnings per share for the three and nine months ended September 30, 2002, because the conditions for conversion had not been met. The debentures are contingently convertible into approximately 8.2 million shares of Genzyme General Stock at an initial conversion price of $70.30 per share.

(3)

On January 1, 2001, we adopted SFAS No. 133, as amended by SFAS No. 137 and SFAS No. 138. In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative effect adjustment of $4.2 million, net of tax, in our unaudited, consolidated statements of operations and in the unaudited, combined statements of operations of Genzyme General for the three months ended March 31, 2001, to record the fair value of our warrants to purchase shares of GTC common stock held on January 1, 2001.

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Biosurgery Stock:

        For all periods presented, basic and diluted net loss per share of Biosurgery Stock are the same. We did not include the securities described in the following table in the computation of Biosurgery Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Biosurgery Stock.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2002	2001	2002	2001
	(Unaudited, amounts in thousands)
Shares of Biosurgery Stock issuable for options	8,549	4,103	7,347	5,130
Warrants to purchase shares of Biosurgery Stock	8	8	8	8
Shares issuable upon conversion of 6.9% convertible subordinated notes allocated to Genzyme Biosurgery	358	358	358	358
Biosurgery designated shares (1)	3,117	3,104	3,117	3,104
Biosurgery designated shares reserved for options (1)	78	95	78	95
Total shares excluded from the calculation of diluted net loss per share of Biosurgery Stock	12,110	7,668	10,908	8,695

(1)

Biosurgery designated shares are shares of Biosurgery Stock that are not issued and outstanding, but which our board of directors may issue, sell or distribute without allocating the proceeds to Genzyme Biosurgery. As of September 30, 2002 there were approximately 3.2 million Biosurgery designated shares.

Molecular Oncology Stock:

        For all periods presented, basic and diluted net loss per share of Molecular Oncology Stock are the same. We did not include the securities described in the following table in the computation of Molecular Oncology Stock diluted net loss per share for each period because these securities would have an anti-dilutive effect due to the net loss allocated to Molecular Oncology Stock.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2002	2001	2002	2001
	(Unaudited, amounts in thousands)
Shares of Molecular Oncology Stock issuable for options	3,590	1,639	2,643	1,306
Molecular Oncology designated shares (1)	1,651	1,651	1,651	1,651
Total shares excluded from the calculation of diluted net loss per share of Molecular Oncology Stock	5,241	3,290	4,294	2,957

(1)

Molecular Oncology designated shares are authorized shares of Molecular Oncology Stock that are not issued and outstanding, but which our board of directors may issue, sell, or distribute without allocating the proceeds to Genzyme Molecular Oncology. As of September 30, 2002, there were approximately 1.7 million Molecular Oncology designated shares.

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17.    Segment Information

        In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information in a manner consistent with the method we use to report this information to our management. Applying SFAS No. 131, we have five reportable segments:

•

Therapeutics, which develops, manufactures and distributes human therapeutic products with an expanding focus on products that treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and other specialty therapeutics. The segment derives substantially all of its revenue from sales of Cerezyme® enzyme;



•

Renal, which develops products that treat patients suffering from renal diseases, including chronic renal failure. The segment manufactures and sells, and derives all of its revenue from sales of, Renagel phosphate binder;



•

Diagnostic Products, which provides diagnostic products to niche markets focusing on in vitro diagnostics;



•

Genzyme Biosurgery, which develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedics and cardiothoracic markets; and



•

Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

        We have provided information concerning the operations of these reportable segments in the following table:

				Three Months Ended September 30,				Nine Months Ended September 30,
				2002		2001		2002			2001
				(Unaudited, amounts in thousands)
Revenues:
	Genzyme General:
		Therapeutics (1)		$	182,359	$	152,989	$	517,599		$	449,316
		Renal (2)			36,954		52,356		106,029			121,359
		Diagnostic Products (3)			20,656		20,572		61,024			54,786
		Other (4)			32,157		28,126		95,248			88,590
		Eliminations/Adjustments (5)			697		1,009		2,238			2,692
			Total Genzyme General		272,823		255,052		782,138			716,743
	Genzyme Biosurgery (6)				65,061		63,219		181,295			177,739
	Genzyme Molecular Oncology				2,282		1,224		7,050			3,915
	Eliminations/Adjustments (7)				—		—		(185	)		—
			Total	$	340,166	$	319,495	$	970,298		$	898,397

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Net income (loss):
	Genzyme General:
		Therapeutics (1)			$	47,500		$	(39,320	)	$	122,283		$	36,193
		Renal (2)				(5,397	)		8,783			(14,619	)		5,302
		Diagnostic Products (3)				431			832			(333	)		(3,263	)
		Other (4)				443			975			3,658			5,847
		Eliminations/Adjustments (5)				1,541			(52,976	)		2,249			(78,922	)
			Net income (loss) for Genzyme General before cumulative effect of change in accounting for derivative financial instruments			44,518			(81,706	)		113,238			(34,843	)
			Cumulative effect of change in accounting for derivative financial instruments, net of tax (8)			—			—			—			4,167
		Net income (loss) for Genzyme General				44,518			(81,706	)		113,238			(30,676	)
	Genzyme Biosurgery (6):
		Net loss for Genzyme Biosurgery before cumulative effect of change in accounting for goodwill				(24,464	)		(21,525	)		(62,368	)		(94,460	)
		Cumulative effect of change in accounting for goodwill (9)				—			—			(98,270	)		—
		Net loss for Genzyme Biosurgery				(24,464	)		(21,525	)		(160,638	)		(94,460	)
	Genzyme Molecular Oncology					(6,305	)		(7,494	)		(18,573	)		(22,099	)
	Eliminations/Adjustments (10)					11,306			8,049			27,854			41,462
				Total	$	25,055		$	(102,676	)	$	(38,119	)	$	(105,773	)

(1)

In September 2001, we acquired Novazyme and allocated the acquisition to Genzyme General. The results of operations of Novazyme are included in our Therapeutics reporting segment beginning on September 26, 2001, the date of acquisition.

(2)

During the quarter ended September 30, 2002, we created our Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of our Therapeutics reporting segment and amounts attributable to our renal research and development programs had been included in Eliminations/Adjustments for Genzyme General. We have reclassified our 2001 segment disclosures to conform to our 2002 presentation.

(3)

In June 2001, we acquired Wyntek and allocated the acquisition to Genzyme General. The results of operations of Wyntek are included in our Diagnostic Products reporting segment beginning on June 1, 2001, the date of acquisition.

(4)

Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General.

(5)

Eliminations/Adjustments consists primarily of amounts related to Genzyme General's research and development and administrative activities, including investment income and interest expense, that we do not specifically allocate to a particular segment of Genzyme General.

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(6)

In June 2001, we acquired Focal and allocated the acquisition to Genzyme Biosurgery. The results of operations of Focal are included in the results of Genzyme Biosurgery beginning on June 30, 2001, the date of acquisition.

(7)

Represents the elimination of interdivisional revenue.

(8)

In connection with the adoption of SFAS No. 133 on January 1, 2001, we recorded a cumulative effect adjustment of $4.2 million, net of tax, in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme General for the three months ended March 31, 2001, to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General.

(9)

In connection with the adoption of SFAS No. 142 on January 1, 2002, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit for impairment and, as a result, reduced goodwill by recording a cumulative effect impairment charge of $98.3 million in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended March 31, 2002.

(10)

Includes income tax benefits allocated from Genzyme Biosurgery and Genzyme Molecular Oncology to Genzyme General.

Segment Assets:

        We provide information concerning the assets of our reportable segments in the following table (amounts in thousands):

				September 30, 2002			December 31, 2001
				(Unaudited)
Segment Assets:
	Genzyme General (1):
		Therapeutics		$	1,136,460		$	1,076,129
		Renal (2)			449,852			408,258
		Diagnostic Products			86,745			105,354
		Other (3)			97,562			89,526
		Eliminations/Adjustments (4)			1,647,680			1,545,987
			Total Genzyme General		3,418,299			3,225,254
	Genzyme Biosurgery (5)				562,770			704,671
	Genzyme Molecular Oncology				18,460			42,419
	Eliminations/Adjustments (6)				(45,191	)		(36,599	)
			Total	$	3,954,338		$	3,935,745

(1)

Segment assets for Genzyme General include primarily cash and investments, accounts receivable, inventory and certain fixed and intangible assets.

(2)

During the quarter ended September 30, 2002, we created our Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included

25

as a component of our Therapeutics reporting segment and amounts attributable to our renal research and development programs had been included in Eliminations/Adjustments for Genzyme General. We have reclassified our 2001 segment disclosures to conform to our 2002 presentation.

(3)

Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General.

(4)

Eliminations/Adjustments for Genzyme General consists primarily of cash, cash equivalents, short and long-term investments, equity investments, net property, plant and equipment and deferred tax assets that we do not allocate to a particular segment of Genzyme General.

(5)

In connection with the adoption of SFAS No. 142 on January 1, 2002, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit for impairment and, as a result, reduced goodwill by recording a cumulative effect impairment charge of $98.3 million in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended March 31, 2002

(6)

Eliminations/Adjustments represents the elimination of interdivisional balances.

26

GENZYME GENERAL

A Division of Genzyme Corporation

Combined Statements of Operations

(Unaudited, amounts in thousands)

				Three Months Ended September 30,						Nine Months Ended September 30,
				2002			2001			2002			2001
Revenues:
	Net product sales			$	249,464		$	234,875		$	710,683		$	656,121
	Net service sales				22,537			17,853			66,132			54,390
	Revenues from research and development contracts:
		Related parties			649			1,043			2,045			2,726
		Other			173			1,281			3,278			3,506
			Total revenues		272,823			255,052			782,138			716,743
Operating costs and expenses:
	Cost of products sold				51,818			48,334			150,182			143,697
	Cost of services sold				13,679			10,893			38,399			31,794
	Selling, general and administrative				86,221			92,386			243,130			217,475
	Research and development (including research and development related to contracts)				54,407			49,726			174,720			132,317
	Amortization of intangibles				9,814			19,221			29,255			55,073
	Purchase of in-process research and development				—			86,800			—			95,568
			Total operating costs and expenses		215,939			307,360			635,686			675,924
Operating income (loss)					56,884			(52,308	)		146,452			40,819
Other income (expenses):
	Equity in net loss of unconsolidated affiliates				(2,387	)		(8,110	)		(10,429	)		(27,605	)
	Gain (loss) on investments in equity securities				29			(24,464	)		538			(25,996	)
	Minority interest in net loss of subsidiary				—			260			—			2,259
	Other				(274	)		(1,015	)		578			(4,903	)
	Investment income				12,430			13,125			37,461			34,136
	Interest expense				(4,258	)		(5,699	)		(13,477	)		(19,379	)
			Total other income (expenses)		5,540			(25,903	)		14,671			(41,488	)
Income (loss) before income taxes					62,424			(78,211	)		161,123			(669	)
Provision for income taxes					(17,906	)		(3,495	)		(47,885	)		(34,174	)
Division net income (loss) before cumulative effect of change in accounting for derivative financial instruments					44,518			(81,706	)		113,238			(34,843	)
Cumulative effect of change in accounting for derivative financial instruments, net of tax					—			—			—			4,167
Division net income (loss)				$	44,518		$	(81,706	)	$	113,238		$	(30,676	)
Comprehensive income (loss), net of tax:
	Division net income (loss)			$	44,518		$	(81,706	)	$	113,238		$	(30,676	)
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments			932			18,201			43,072			554
		Unrealized losses on interest rate swap contracts, net of tax			(585	)		(1,444	)		(748	)		(1,733	)
		Unrealized gains (losses) on securities:
			Unrealized gains (losses) arising during the period		59			(8,675	)		(26,729	)		(9,758	)
			Reclassification adjustment for (gains) losses included in division net income (loss)		(18	)		15,535			63			16,507
		Unrealized gains (losses) on securities, net			41			6,860			(26,666	)		6,749
	Other comprehensive income				388			23,617			15,658			5,570
Comprehensive income (loss)				$	44,906		$	(58,089	)	$	128,896		$	(25,106	)

The accompanying notes are an integral part of these unaudited, combined financial statements.

27

GENZYME GENERAL

A Division of Genzyme Corporation

Combined Balance Sheets

(Amounts in thousands)

			September 30, 2002		December 31, 2001
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	346,568	$	167,253
	Short-term investments			52,220		66,481
	Accounts receivable, net			243,403		220,527
	Inventories			161,410		127,864
	Prepaid expenses and other current assets			32,754		31,972
	Due from Genzyme Biosurgery			39,552		29,513
	Due from Genzyme Molecular Oncology			5,639		7,086
	Deferred tax assets—current			70,260		70,196
		Total current assets		951,806		720,892
Property, plant and equipment, net				704,579		581,401
Long-term investments				722,234		807,766
Notes receivable—related parties				10,370		—
Goodwill, net				492,392		487,826
Other intangible assets, net				461,659		493,642
Investments in equity securities				47,422		88,686
Other noncurrent assets				27,837		45,041
		Total assets	$	3,418,299	$	3,225,254
LIABILITIES AND DIVISION EQUITY
Current liabilities:
	Accounts payable		$	29,352	$	40,025
	Accrued expenses			141,182		119,511
	Income taxes payable			92,864		74,631
	Deferred revenue			5,853		1,693
	Current portion of long-term debt and capital lease obligations			1,682		6,841
		Total current liabilities		270,933		242,701
Long-term debt and capital lease obligations				25,040		25,085
Convertible notes and debentures				575,000		575,000
Deferred tax liabilities				38,626		80,696
Other noncurrent liabilities				16,808		21,420
		Total liabilities		926,407		944,902
Contingencies (Note 12)
Division equity				2,491,892		2,280,352
		Total liabilities and division equity	$	3,418,299	$	3,225,254

The accompanying notes are an integral part of these unaudited, combined financial statements.

28

GENZYME GENERAL

A Division of Genzyme Corporation

Combined Statements of Cash Flows

(Unaudited, amounts in thousands)

					Nine Months Ended September 30,
					2002			2001
Cash Flows from Operating Activities:
	Division net income (loss)				$	113,238		$	(30,676	)
	Reconciliation of division net income (loss) to net cash provided by operating activities:
		Depreciation and amortization				70,043			77,828
		Non-cash compensation expense				1,086			7,375
		Provision for bad debts				6,792			1,784
		Write-off of notes received from a collaborator				—			10,159
		Charge for purchase of in-process research and development				—			95,568
		Equity in net loss of unconsolidated affiliates				10,429			27,605
		(Gain) loss on investments in equity securities				(538	)		25,996
		Minority interest in net loss of subsidiary				—			(2,259	)
		Deferred income tax benefit				(10,962	)		(17,165	)
		Other				5,243			(3,453	)
		Cumulative effect of change in accounting for derivative financial instruments				—			(4,167	)
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			(20,622	)		(30,106	)
			Inventories			(21,024	)		1,029
			Prepaid expenses and other current assets			(5,938	)		(891	)
			Due from Genzyme Biosurgery			(911	)		(31,852	)
			Due from Genzyme Molecular Oncology			1,447			(749	)
			Accounts payable, accrued expenses and deferred revenue			19,225			39,160
			Income taxes payable and tax benefits from stock options			37,096			37,285
				Cash flows from operating activities		204,604			202,471
Cash Flows from Investing Activities:
	Purchases of investments					(315,385	)		(750,075	)
	Sales and maturities of investments					421,961			306,441
	Purchases of equity securities					(2,975	)		(3,318	)
	Proceeds from sales of equity securities					4,773			36
	Purchases of property, plant and equipment					(160,785	)		(113,078	)
	Sales of property, plant and equipment					2,436			—
	Acquisitions, net of cash acquired					—			(54,832	)
	Investments in unconsolidated affiliates					(24,750	)		(31,298	)
	Note received from a collaborator					(5,500	)		—
	Other					1,762			10,129
				Cash flows from investing activities		(78,463	)		(635,995	)
Cash Flows from Financing Activities:
	Allocated proceeds from issuance of Genzyme General Stock					25,840			72,584
	Allocated proceeds from issuance of debt					—			562,062
	Payments of debt and capital lease obligations					(5,178	)		(154,625	)
	Receipt of NeuroCell™ joint venture refund from Genzyme Biosurgery					27,063			—
	Net cash allocated to Genzyme Biosurgery					—			(11,993	)
	Net cash allocated to Genzyme Molecular Oncology					—			(4,040	)
	Bank overdraft					(133	)		1,434
	Other					(4,714	)		3,974
				Cash flows from financing activities		42,878			469,396
Effect of exchange rate changes on cash						10,296			(1,003	)
Increase in cash and cash equivalents						179,315			34,869
Cash and cash equivalents at beginning of period						167,253			135,841
Cash and cash equivalents at end of period					$	346,568		$	170,710

The accompanying notes are an integral part of these unaudited, combined financial statements

29

GENZYME GENERAL

A Division of Genzyme Corporation

Notes To Unaudited, Combined Financial Statements

1.    Basis of Presentation

        The unaudited, combined financial statements of Genzyme General for each period include the statements of operations, balance sheets and statements of cash flows of the businesses we allocate to Genzyme General. We also allocate a portion of our corporate operations to Genzyme General using methods described in our allocation policy included in Note A., "Summary of Significant Accounting Policies—Allocation Policy," to Genzyme General's combined financial statements included in Exhibit 13.2 to our 2001 Form 10-K. These unaudited, combined financial statements are prepared using amounts included in our unaudited, consolidated financial statements included in this Form 10-Q. We prepared these unaudited, combined financial statements for Genzyme General following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by accounting principles generally accepted in the U.S. We have reclassified certain 2001 data to conform to our 2002 presentation.

        These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of Genzyme General's financial position and operating results. Since these are interim financial statements, you should also read the financial statements and notes for Genzyme General included in our 2001 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

2.    New Accounting Pronouncements

        We have included the impact that recently issued accounting standards will have on our financial statements in Note 2, "New Accounting Pronouncements," to our unaudited, consolidated financial statements, which we incorporate by reference into this note.

3.    Acquisitions

        In September 2001, we acquired Novazyme, a privately-held developer of biotherapies for the treatment of LSDs, and in June 2001, we acquired Wyntek, a privately-held provider of point of care rapid diagnostic tests for pregnancy and infectious diseases. We accounted for the acquisitions as purchases and allocated both to Genzyme General.

        The following unaudited pro forma financial summary is presented as if the acquisitions of Novazyme and Wyntek were completed as of January 1, 2001. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisitions been consummated on those dates, or of the future operations of the combined entities. Material nonrecurring charges related to these acquisitions, such as acquired IPR&D charges of $86.8 million resulting from the acquisition of Novazyme and $8.8 million resulting from the acquisition of Wyntek, are not reflected in the following pro forma financial summary.

30

Unaudited Pro Forma Financial Summary:

	Three Months Ended September 30, 2001		Nine Months Ended September 30, 2001
	(Amounts in thousands)
Total revenues	$	255,053	$	725,156
Income before extraordinary items and cumulative effect of change in accounting for derivative financial instruments		3,311		41,912
Division net income		3,311		46,079

        The staff of the FTC is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there are costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses.

4.    Inventories (amounts in thousands)

		September 30, 2002		December 31, 2001
		(Unaudited)
Raw materials		$	29,848	$	39,285
Work-in-process			76,044		53,408
Finished products			55,518		35,171
	Total	$	161,410	$	127,864

        At September 30, 2002, Genzyme General's total inventories include approximately $6.9 million of inventory for products that have not yet been approved for sale.

5.    Goodwill and Other Intangible Assets

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus has been adopted by Genzyme General effective at the beginning of fiscal year 2002.

Goodwill

        Effective January 1, 2002 in accordance with the provisions of SFAS No. 142, Genzyme General ceased amortizing goodwill. At January 1, 2002, gross goodwill allocated to Genzyme General totaled

31

$561.0 million, including $2.4 million of acquired workforce intangible assets previously classified as other intangible assets at December 31, 2001, net of related deferred tax liabilities, of which $1.6 million was allocated to its Therapeutics reporting segment and $0.8 million was allocated to its Diagnostic Products reporting segment.

        We completed the transitional and annual impairment tests for the $492.4 million of net goodwill related to Genzyme General's reporting units in the nine months ended September 30, 2002, as provided by SFAS No. 142, and determined that no impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable.

        The following table contains the changes in net goodwill attributable to Genzyme General's reporting segments during the nine months ended September 30, 2002 (amounts in thousands):

						(Unaudited)
			As of December 31, 2001			Adjustments			As of September 30, 2002
Goodwill:
	Therapeutics (1)		$	387,213		$	2,446		$	389,659
	Renal (2)			82,508			1,927			84,435
	Diagnostic Products (3)			32,427			786			33,213
	Other			56,462			99			56,561
		Total		558,610			5,258			563,868
Accumulated amortization				(70,784	)		(692	)		(71,476	)
Goodwill, net			$	487,826		$	4,566		$	492,392

(1)

Adjustments for the Therapeutics reporting segment include:

•

$1.6 million of workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of GelTex reclassified as required by SFAS No. 142; and

•

$0.8 million to adjust goodwill resulting from increased integration and exit activity costs related to our acquisition of Novazyme.

(2)

During the quarter ended September 30, 2002, we created the Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, goodwill amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of the Therapeutics reporting segment. We have reclassified our 2001 goodwill disclosures by segment to conform to our 2002 presentation.

Adjustments for the Renal reporting segment resulted from a reclassification related to our acquisition of GelTex.

32

(3)

Adjustments for the Diagnostic Products reporting segment represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisition of Wyntek, reclassified as required by SFAS No. 142.

Other Intangible Assets

        The following table contains information on other intangible assets allocated to Genzyme General for the periods presented (amounts in thousands):

		As of September 30, 2002 (Unaudited)							As of December 31, 2001
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology		$	378,392	$	(49,241	)	$	329,151	$	378,364	$	(28,130	)	$	350,234
Patents			117,574		(14,906	)		102,668		117,545		(9,035	)		108,510
Trademarks			6,526		(782	)		5,744		6,526		(456	)		6,070
License fees			25,972		(6,677	)		19,295		25,075		(5,326	)		19,749
Customer lists			8,324		(3,823	)		4,501		8,324		(3,199	)		5,125
Other			10,045		(9,745	)		300		13,497		(9,543	)		3,954
	Total	$	546,833	$	(85,174	)	$	461,659	$	549,331	$	(55,689	)	$	493,642

        All of Genzyme General's other intangible assets are amortized over their estimated useful lives. Total amortization expense for Genzyme General's other intangible assets was:

•

$10.1 million for the three months ended September 30, 2002;



•

$10.0 million for the three months ended September 30, 2001;



•

$30.2 million for the nine months ended September 30, 2002; and



•

$28.5 million for the nine months ended September 30, 2001.

Amortization expense for each quarter presented includes $0.3 million related to the amortization of a non-compete agreement which is charged to cost of products sold. Amortization expense for both the three and nine months ended September 30, 2001 excludes the expense related to the amortization of goodwill.

33

        The estimated future amortization expense for other intangible assets allocated to Genzyme General as of September 30, 2002 for the remainder of fiscal year 2002 and the five succeeding fiscal years is as follows (unaudited, amounts in thousands):

Year ended December 31,	Estimated Amortization Expense
2002 (remaining three months)	$	10,044
2003		38,950
2004		38,924
2005		38,845
2006		36,481
2007		36,478

Adjusted Net Income (Loss)

        The following table presents the impact SFAS No. 142 would have had on Genzyme General's amortization of intangibles expense and division net income (loss) had the standard been in effect for the three and nine months ended September 30, 2001 (unaudited, amounts in thousands):

	Three Months Ended September 30, 2001									Nine Months Ended September 30, 2001
	As Reported			Goodwill Amortization Adjustment			As Adjusted			As Reported			Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	19,221		$	(9,503	)	$	9,718		$	55,073		$	(27,515	)	$	27,558
Genzyme General's net income (loss) before cumulative effect of change in accounting for derivative financial instruments		(81,706	)		9,503			(72,203	)		(34,843	)		27,515			(7,328	)
Division net income (loss)		(81,706	)		9,503			(72,203	)		(30,676	)		27,515			(3,161	)

34

        The following tables present the impact SFAS No. 142 would have had on Genzyme General's amortization of intangibles expense and division net income had the standard been in effect for the years ended December 31, 2001, 2000 and 1999 (amounts in thousands):

	Year Ended December 31, 2001
	As Reported		Goodwill Amortization Adjustment			As Adjusted
			(Unaudited)
Amortization of intangibles	$	74,296	$	(37,020	)	$	37,276
Genzyme General's net income before cumulative effect of change in accounting for derivative financial instruments, net of tax		3,879		37,020			40,899
Division net income		8,046		37,020			45,066

	Year Ended December 31, 2000							Year Ended December 31, 1999
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
			(Unaudited)							(Unaudited)
Amortization of intangibles	$	10,928	$	(6,608	)	$	4,320	$	8,106	$	(5,261	)	$	2,845
Division net income		85,956		6,608			92,564		142,077		5,261			147,338

6.    Biologics License Application for Aldurazyme Enzyme

        In July 2002, together with BioMarin, we submitted the final portion of the "rolling" BLA for Aldurazyme enzyme to the FDA. As part of the BLA submission, we formally requested and were granted Priority Review, which is an FDA procedure generally reserved for products that address an unmet medical need. We expect an action by the FDA regarding our application to market Aldurazyme enzyme by the end of January 2003. Pursuant to the terms of our joint venture agreement with BioMarin for the development and commercialization of Aldurazyme enzyme, we are obligated to pay BioMarin a $12.1 million milestone payment upon receipt of FDA approval of the Aldurazyme enzyme BLA.

7.    Note Receivable from Dyax Corporation

        In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88. As a result, our option to acquire a 50% interest in DX-88 for hereditary angioedema, or HAE, and other potential indications will be exercisable after the first phase 2 clinical trial of DX-88 for use in HAE has concluded and we have had an opportunity to review the data. The restructured agreement also provides Dyax with an option to acquire our interest in the potential application of DX-88 for the reduction of blood loss and other effects of systemic inflammatory responses in surgery. This option expires in March 2003.

        Under the revised collaboration agreement, the line of credit we extended to Dyax was increased from $3.0 million to $7.0 million. In connection with the increase, Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note

35

bear interest at the prime rate plus 2%, which was 6.8% at September 30, 2002, and are due, together with any accrued but unpaid interest, in May 2005. As of September 30, 2002, Dyax had drawn $5.5 million under the note, which we have recorded as a note receivable-related party in our unaudited, consolidated balance sheet and the unaudited, combined balance sheet of Genzyme General. Dyax is considered a related party because the chairman and chief executive officer of Dyax is a member of our board of directors. Pursuant to the terms of the note, we are not obligated to make advances in excess of $1.5 million during any calendar quarter.

8.    Sale of GTC Common Stock

        On April 4, 2002, GTC purchased approximately 2.8 million shares of GTC common stock held by us and allocated to Genzyme General for an aggregate consideration of approximately $9.6 million. We received approximately $4.8 million in cash and a promissory note for the remaining amount of approximately $4.8 million. The shares of GTC common stock sold were valued at $3.385 per share in this transaction, using the simple average of the high and low transaction prices quoted on the Nasdaq National Market on April 1, 2002. We have committed to a 24-month lock-up provision on the remaining 4.9 million shares of GTC common stock held by us and allocated to Genzyme General, which is approximately 18% of the shares of GTC common stock outstanding as of September 30, 2002. We accounted for our investment in GTC under the equity method of accounting until May 2002, at which point we ceased to have significant influence over GTC. We began accounting for our investment in GTC under the cost method of accounting in June 2002.

        Because of the 24-month lock-up provision, the remaining 4.9 million shares of GTC common stock held by us do not qualify as marketable securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities." As a result, Genzyme General carries the investment on its combined balance sheet at cost, subject to review for impairment. Based on the market price of GTC common stock at September 30, 2002, our remaining investment would have an unrealized loss of $8.2 million. Because we have assessed the decline in the market price of GTC common stock to be temporary, we have not recorded an associated impairment charge.

9.    Investments in Equity Securities

        Excluding our investment in GTC common stock, at September 30, 2002, Genzyme General's division equity includes unrealized losses of approximately $20.8 million related to the other investments in equity securities allocated to Genzyme General that we believe are temporary. Genzyme General will record impairment charges related to these investments if the stocks do not recover within the next three to six months, all of which will be allocated to Genzyme General.

10.    NeuroCell Joint Venture Refund

        In February 2002, Genzyme Biosurgery paid $27.1 million to Genzyme General, representing $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC, plus accrued interest of 13.5% per annum. The refund arose because Diacrin/Genzyme LLC, our joint venture with Diacrin, failed to initiate a phase 3 trial of NeuroCell-PD for Parkinson's disease by June 30, 2001.

36

11.    Derivative Financial Instruments

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in our combined balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in current earnings or other comprehensive income, depending on whether a derivative instrument is designated as part of a hedge relationship and, if it is, the type of hedge relationship.

        In accordance with the transition provisions of SFAS No. 133, Genzyme General recorded a cumulative effect adjustment of $4.2 million, net of tax, in its unaudited, combined statement of operations for the three months ended March 31, 2001 to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts allocated to Genzyme General were not significant. For the three months ended September 30, 2002, Genzyme General recorded a gain of $0.04 million in other income in its unaudited, combined statements of operations to reflect the change in value of its warrants to purchase shares of GTC common stock from July 1, 2002 to September 30, 2002 as compared to a charge of $1.2 million in other expense for the same period of 2001. For the nine months ended September 30, 2002, Genzyme General recorded a charge of $2.0 million in other expense in its unaudited, combined statements of operations to reflect the change in value of its warrants to purchase shares of GTC common stock from January 1, 2002 to September 30, 2002 as compared to a charge of $5.0 million for the same period a year ago. Genzyme General also recorded a charge of $0.7 million ($1.2 million pre-tax) in other comprehensive income (loss) in division equity in its unaudited, combined balance sheets to reflect the change in value of its interest rate swaps during the nine month period ended September 30, 2002. At September 30, 2002, Genzyme General's interest rate swaps had a fair market value of $(4.0) million.

12.    Contingencies

        We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims against us as of September 30, 2002, which, if adversely decided, would have a material adverse effect on Genzyme General's results of operations, financial condition or liquidity.

        At September 30, 2002, Genzyme General's property, plant and equipment includes approximately $16.0 million of architectural and design costs related to the development of a manufacturing site adjacent to our existing facilities in Framingham, Massachusetts, which is allocated to Genzyme General. In the fourth quarter of 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming in Geel, Belgium and allocated to Genzyme General. We are considering alternative uses for the Framingham site and we believe that the architectural and design costs incurred by Genzyme General to-date for the Framingham site will be utilized in the future construction at the site.

37

13.    Tax Provision

	Three Months Ended September 30,								Nine Months Ended September 30,
							Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
	2002			2001					2002			2001
	(Unaudited, amounts in thousands, except percentage data)
Provision for income taxes	$	(17,906	)	$	(3,495	)	412	%	$	(47,885	)	$	(34,174	)	40	%
Effective tax rate		29	%		(4	)%				30	%		(5,108	)%

        Genzyme General's tax rates for all periods vary from the U.S. statutory tax rate as a result of its:

•

provision for state income taxes;



•

use of a foreign sales corporation; and



•

use of tax credits.

        Genzyme General's effective tax rate for both the three and nine months ended September 30, 2001 also varied from the U.S. statutory rate due to nondeductible goodwill amortization expense. Genzyme General stopped recording nondeductible goodwill amortization expense upon the adoption of SFAS No. 142 in fiscal year 2002.

14.    Segment Information

        In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", we present segment information for Genzyme General in a manner consistent with the method we use to report this information to our management. Applying SFAS No. 131, Genzyme General has three reportable segments:

•

Therapeutics, which develops, manufactures and distributes human therapeutic products with an expanding focus on products that treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, and other specialty therapeutics. The segment derives substantially all of its revenue from sales of Cerezyme enzyme;



•

Renal, which develops products that treat patients suffering from renal diseases, including chronic renal failure. The segment manufactures and sells, and derives all of its revenue from sales of, Renagel phosphate binder; and



•

Diagnostic Products, which provides diagnostic products to niche markets focusing on in vitro diagnostics.

38

        We have provided information concerning the operations in these reportable segments in the following table:

			Three Months Ended September 30,						Nine Months Ended September 30,
			2002			2001			2002			2001
			(Unaudited, amounts in thousands)
Revenues:
	Therapeutics (1)		$	182,359		$	152,989		$	517,599		$	449,316
	Renal (2)			36,954			52,356			106,029			121,359
	Diagnostic Products (3)			20,656			20,572			61,024			54,786
	Other (4)			32,157			28,126			95,248			88,590
	Eliminations/Adjustments (5)			697			1,009			2,238			2,692
		Total	$	272,823		$	255,052		$	782,138		$	716,743
Division net income (loss):
	Therapeutics (1)		$	47,500		$	(39,320	)	$	122,283		$	36,193
	Renal (2)			(5,397	)		8,783			(14,619	)		5,302
	Diagnostic Products (3)			431			832			(333	)		(3,263	)
	Other (4)			443			975			3,658			5,847
	Eliminations/Adjustments (5)			1,541			(52,976	)		2,249			(78,922	)
	Division net income (loss) before cumulative effect of change in accounting for derivative financial instruments			44,518			(81,706	)		113,238			(34,843	)
	Cumulative effect of change in accounting for derivative financial instruments, net of tax (6)			—			—			—			4,167
	Division net income (loss)		$	44,518		$	(81,706	)	$	113,238		$	(30,676	)

(1)

In September 2001, we acquired Novazyme and allocated the acquisition to Genzyme General. The results of operations of Novazyme are included in the Therapeutics reporting segment beginning on September 26, 2001, the date of acquisition.

(2)

During the quarter ended September 30, 2002, we created the Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel phosphate binder and amounts attributable to our research and development programs focused on renal diseases. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of the Therapeutics reporting segment and amounts attributable to our renal research and development programs had been included in Eliminations/Adjustments. We have reclassified Genzyme General's 2001 segment disclosures to conform to its 2002 presentation.

(3)

In June 2001, we acquired Wyntek and allocated the acquisition to Genzyme General. The results of operations of Wyntek are included in the Diagnostic Products reporting segment beginning on June 1, 2001, the date of acquisition.

39

(4)

Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General.

(5)

Eliminations/Adjustments consists primarily of amounts related to Genzyme General's research and development and administrative activities, including investment income and interest expense, that we do not specifically allocate to a particular segment of Genzyme General.

(6)

In connection with the adoption of SFAS No. 133, on January 1, 2001, Genzyme General recorded a cumulative effect adjustment of $4.2 million, net of tax, in its unaudited, combined statement of operations for the three months ended March 31, 2001, to recognize the fair value of warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General.

Segment Assets:

        We provide information concerning the assets of Genzyme General's reportable segments in the following table (amounts in thousands):

			September 30, 2002		December 31, 2001
			(Unaudited)
Segment Assets (1):
	Therapeutics		$	1,136,460	$	1,076,129
	Renal (2)			449,852		408,258
	Diagnostic Products			86,745		105,354
	Other (3)			97,562		89,526
	Eliminations/Adjustments (4)			1,647,680		1,545,987
		Total	$	3,418,299	$	3,225,254

(1)

Segment assets include primarily cash and investments, accounts receivable, inventory and certain fixed and intangible assets.

(2)

During the quarter ended September 30, 2002, we created the Renal reporting segment consisting of amounts attributable to the manufacture and sale of Renagel phosphate binder and amounts attributable to Genzyme General's research and development programs focused on renal diseases. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of Genzyme General's Therapeutics reporting segment and amounts attributable to our renal research and development programs had been included in Eliminations/Adjustments. We have reclassified Genzyme General's 2001 segment disclosures to conform to its 2002 presentation.

(3)

Other includes amounts attributable to our genetic testing and pharmaceutical businesses, both of which operate within Genzyme General.

(4)

Eliminations/Adjustments consists primarily of cash, cash equivalents, short- and long-term investments, equity investments, net property, plant and equipment and deferred tax assets that we do not allocate to a particular segment of Genzyme General.

40

GENZYME BIOSURGERY

A Division of Genzyme Corporation

Combined Statements of Operations

(Unaudited, amounts in thousands)

			Three Months Ended September 30,						Nine Months Ended September 30,
			2002			2001			2002			2001
Revenues:
	Net product sales		$	58,726		$	57,084		$	164,113		$	160,141
	Net service sales			6,334			6,135			17,146			17,593
	Revenues from research and development contracts			1			—			36			5
		Total revenues		65,061			63,219			181,295			177,739
Operating costs and expenses:
	Cost of products sold			24,481			27,128			74,793			87,897
	Cost of services sold			3,663			3,148			10,281			9,096
	Selling, general and administrative			27,547			27,827			80,285			93,816
	Research and development			13,264			12,352			38,120			35,027
	Amortization of intangibles			7,769			11,729			23,511			35,042
	Purchase of in-process research and development			1,879			—			1,879			—
	Charge for impaired assets			8,958			—			8,958			—
		Total operating costs and expenses		87,561			82,184			237,827			260,878
Operating loss				(22,500	)		(18,965	)		(56,532	)		(83,139	)
Other income (expenses):
	Equity in net loss of unconsolidated affiliate			—			—			—			(1,316	)
	Other			40			35			151			80
	Investment income			320			431			943			1,370
	Interest expense			(2,324	)		(3,026	)		(6,930	)		(11,455	)
		Total other income (expenses)		(1,964	)		(2,560	)		(5,836	)		(11,321	)
Division net loss before cumulative effect of change in accounting for goodwill				(24,464	)		(21,525	)		(62,368	)		(94,460	)
Cumulative effect of change in accounting for goodwill				—			—			(98,270	)		—
Division net loss			$	(24,464	)	$	(21,525	)	$	(160,638	)	$	(94,460	)
Comprehensive loss, net of tax:
	Division net loss		$	(24,464	)	$	(21,525	)	$	(160,638	)	$	(94,460	)
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments		1,379			(934	)		(1,961	)		(1,131	)
		Unrealized gains on securities, net		—			—			—			97
	Other comprehensive income (loss)			1,379			(934	)		(1,961	)		(1,034	)
Comprehensive loss			$	(23,085	)	$	(22,459	)	$	(162,599	)	$	(95,494	)

The accompanying notes are an integral part of these unaudited, combined financial statements.

41

GENZYME BIOSURGERY

A Division of Genzyme Corporation

Combined Balance Sheets

(Amounts in thousands)

			September 30, 2002		December 31, 2001
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	23,979	$	38,623
	Accounts receivable, net			36,890		38,293
	Inventories			41,371		43,545
	Prepaid expenses and other current assets			2,493		2,734
		Total current assets		104,733		123,195
Property, plant and equipment, net				52,758		53,794
Goodwill, net				112,708		209,596
Other intangible assets, net				290,347		315,582
Other noncurrent assets				2,224		2,504
		Total assets	$	562,770	$	704,671
LIABILITIES AND DIVISION EQUITY
Current liabilities:
	Accounts payable		$	10,439	$	7,835
	Accrued expenses			27,105		25,142
	Due to Genzyme General			39,552		29,513
	Current portion of long-term debt, convertible notes and capital lease obligations			10,748		905
		Total current liabilities		87,844		63,395
Long-term debt and capital lease obligations				269,179		234,724
Convertible notes				—		10,000
Other noncurrent liabilities				2,433		2,098
		Total liabilities		359,456		310,217
Division equity				203,314		394,454
		Total liabilities and division equity	$	562,770	$	704,671

The accompanying notes are an integral part of these unaudited, combined financial statements.

42

GENZYME BIOSURGERY

A Division of Genzyme Corporation

Combined Statements of Cash Flows

(Unaudited, amounts in thousands)

					Nine Months Ended September 30,
					2002			2001
Cash Flows from Operating Activities:
	Division net loss				$	(160,638	)	$	(94,460	)
	Reconciliation of division net loss to net cash used in operating activities:
		Depreciation and amortization				28,644			47,281
		Provision for bad debts				999			462
		Charge for purchase of in-process research and development				1,879			—
		Charge for impaired assets				8,958			—
		Equity in net loss of unconsolidated affiliate				—			1,316
		Other				(214	)		524
		Cumulative effect of change in accounting for goodwill				98,270			—
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			1,087			(5,939	)
			Inventories			2,872			9,522
			Prepaid expenses and other current assets			277			(527	)
			Accounts payable and accrued expenses			(3,668	)		(2,505	)
			Due to Genzyme General			911			31,852
				Cash flows from operating activities		(20,623	)		(12,474	)
Cash Flows from Investing Activities:
	Purchase of equity securities					—			(5,000	)
	Purchases of property, plant and equipment					(3,992	)		(10,151	)
	Purchase of technology rights					(255	)		—
	Acquisitions, net of acquired cash					—			(23,547	)
	Other					314			(283	)
				Cash flows from investing activities		(3,933	)		(38,981	)
Cash Flows from Financing Activities:
	Allocated proceeds from issuance of Biosurgery Stock					754			1,219
	Proceeds from draw on credit facility					35,000			—
	Payments of debt and capital lease obligations					(702	)		(503	)
	Payment of NeuroCell joint venture refund to Genzyme General					(27,063	)		—
	Net cash allocated from Genzyme General					—			11,993
	Bank overdraft					(1,442	)		677
	Payments received for notes receivable from stockholders					182			2,896
	Other					2,300			(737	)
				Cash flows from financing activities		9,029			15,545
Effect of exchange rate changes on cash						883			(700	)
Decrease in cash and cash equivalents						(14,644	)		(36,610	)
Cash and cash equivalents at beginning of period						38,623			78,163
Cash and cash equivalents at end of period					$	23,979		$	41,553

The accompanying notes are an integral part of these unaudited, combined financial statements.

43

GENZYME BIOSURGERY

A Division of Genzyme Corporation

Notes to Unaudited, Combined Financial Statements

1.    Basis of Presentation

        The unaudited, combined financial statements of Genzyme Biosurgery for each period include the statements of operations, balance sheets and statements of cash flows of the businesses we allocate to Genzyme Biosurgery. We also allocate a portion of our corporate operations to Genzyme Biosurgery using methods described in our allocation policy included in Note A., "Summary of Significant Accounting Policies—Allocation Policy," to Genzyme Biosurgery's combined financial statements included in Exhibit 13.3 to our 2001 Form 10-K. These unaudited, combined financial statements are prepared using amounts included in our unaudited, consolidated financial statements included in this Form 10-Q. We prepared these unaudited, combined financial statements for Genzyme Biosurgery following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by accounting principles generally accepted in the U.S.

        These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of Genzyme Biosurgery's financial position and operating results. Since these are interim financial statements, you should also read the financial statements and notes for Genzyme Biosurgery included in our 2001 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

2.    New Accounting Pronouncements

        We have included the impact that recently issued accounting standards will have on our financial statements in Note 2, "New Accounting Pronouncements," to our unaudited, consolidated financial statements, which we incorporate by reference into this note.

3.    Acquisitions

        In June 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock not previously acquired. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery.

        The following unaudited pro forma financial summary is presented as if the acquisition of Focal was completed as of January 1, 2001. The unaudited pro forma combined results are not necessarily indicative of the actual results that would have occurred had the acquisition been consummated on that date, or of the future operations of the combined entities.

Unaudited Pro Forma Financial Summary:

	Three Months Ended September 30, 2001			Nine Months Ended September 30, 2001
	(Amounts in thousands)
Total revenues	$	63,219		$	177,886
Division net loss		(21,525	)		(101,938	)

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4.    Inventories (amounts in thousands)

		September 30, 2002		December 31, 2001
		(Unaudited)
Raw materials		$	12,518	$	13,301
Work-in-process			8,202		11,517
Finished products			20,651		18,727
	Total	$	41,371	$	43,545

5.    Goodwill and Other Intangible Assets

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus has been adopted by Genzyme Biosurgery effective at the beginning of fiscal year 2002.

Goodwill

        Effective January 1, 2002 in accordance with the provisions of SFAS No. 142, Genzyme Biosurgery ceased amortizing goodwill. At January 1, 2002, gross goodwill allocated to Genzyme Biosurgery totaled $238.5 million, including $1.8 million of acquired workforce intangible assets previously classified as purchased intangible assets at December 31, 2001, net of related deferred tax liabilities, of which $1.4 million was allocated to its Orthopaedics reporting segment and $0.4 million was allocated to its Cardiothoracic reporting segment.

        In November 2001, we sold the Snowden-Pencer line of surgical instruments, a component of Genzyme Biosurgery's Biosurgical Specialties reporting segment, and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of Genzyme Biosurgery's cardiothoracic reporting unit, under SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of", did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, in the three months ended March 31, 2002, upon adoption of SFAS No. 142, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in the unaudited, combined statements of operations for Genzyme Biosurgery for the three months ended March 31, 2002.

45

        We completed the transitional and annual impairment tests for the $112.7 million of net goodwill related to Genzyme Biosurgery's other reporting units in the nine months ended September 30, 2002, as provided by SFAS No. 142, and determined that no additional impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstance suggest that the carrying value of an asset may not be recoverable.

        The following table contains the changes in net goodwill attributable to Genzyme Biosurgery's reporting segments during the nine months ended September 30, 2002 (amounts in thousands):

						(Unaudited)
			As of December 31, 2001			Adjustments			Impairment			As of September 30, 2002
Goodwill:
	Orthopaedics (1)		$	114,760		$	1,429		$	—		$	116,189
	Biosurgical Specialties			8,414			—			—			8,414
	Cardiothoracic (1,2)			113,447			412			(113,859	)		—
		Total		236,621			1,841			(113,859	)		124,603
Accumulated Amortization				(27,025	)		(459	)		15,589			(11,895	)
Goodwill, net			$	209,596		$	1,382		$	(98,270	)	$	112,708

(1)

Adjustments for the Orthopaedics and Cardiothoracic reporting segments represent workforce intangible assets previously classified as other intangible assets, net of related deferred tax benefits, resulting from our acquisitions of Focal and Biomatrix, reclassified as required by SFAS No. 142.

(2)

Impairment for the Cardiothoracic reporting segment represents the impairment charge recorded by Genzyme Biosurgery in the three months ended March 31, 2002, in accordance with the transitional provisions of SFAS No. 142, related to the goodwill allocated to its cardiothoracic reporting unit.

46

Other Intangible Assets

        The following table contains information on other intangible assets allocated to Genzyme Biosurgery for the periods presented (amounts in thousands):

		As of September 30, 2002 (Unaudited)							As of December 31, 2001
		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets		Gross Other Intangible Assets		Accumulated Amortization			Net Other Intangible Assets
Technology		$	173,379	$	(27,976	)	$	145,403	$	173,379	$	(16,123	)	$	157,256
Patents			79,423		(18,315	)		61,108		79,423		(12,769	)		66,654
Trademarks			85,228		(13,667	)		71,561		85,228		(9,504	)		75,724
License fees			640		(108	)		532		385		(45	)		340
Distribution agreements			13,950		(3,115	)		10,835		13,950		(1,807	)		12,143
Other			2,197		(1,289	)		908		4,626		(1,161	)		3,465
	Total	$	354,817	$	(64,470	)	$	290,347	$	356,991	$	(41,409	)	$	315,582

        All of Genzyme Biosurgery's other intangible assets are amortized over their estimated useful lives. Total amortization expense for Genzyme Biosurgery's other intangible assets was:

•

$7.8 million for the three months ended September 30, 2002;



•

$7.9 million for the three months ended September 30, 2001;



•

$23.5 million for the nine months ended September 30, 2002; and



•

$23.3 million for the nine months ended September 30, 2001.

Amortization expense for both the three and nine months ended September 30, 2001 excludes the expense related to the amortization of goodwill.

        The estimated future amortization expense for other intangible assets allocated to Genzyme Biosurgery as of September 30, 2002 for the remainder of fiscal year 2002 and the five succeeding fiscal years is as follows (unaudited, amounts in thousands):

Year ended December 31,	Estimated Amortization Expense
2002 (remaining three months)	$	7,771
2003		31,086
2004		30,738
2005		30,311
2006		30,174
2007		30,116

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Adjusted Net Income (Loss)

        The following table presents the impact SFAS No. 142 would have had on Genzyme Biosurgery's amortization of intangibles expense and division net income (loss) had the standard been in effect for the three and nine months ended September 30, 2001 (unaudited, amounts in thousands):

	Three Months Ended September 30, 2001									Nine Months Ended September 30, 2001
	As Reported			Goodwill Amortization Adjustment			As Adjusted			As Reported			Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	11,729		$	(3,848	)	$	7,881		$	35,042		$	(11,704	)	$	23,338
Division net income (loss)		(21,525	)		3,848			(17,677	)		(94,460	)		11,704			(82,756	)

        The following tables present the impact SFAS No. 142 would have had on Genzyme Biosurgery's amortization of intangibles expense and division net income (loss) had the standard been in effect for the years ended December 31, 2001, 2000 and 1999 (amounts in thousands):

	Year Ended December 31, 2001									Year Ended December 31, 2000
	As Reported			Goodwill Amortization Adjustment			As Adjusted			As Reported			Goodwill Amortization Adjustment			As Adjusted
				(Unaudited)									(Unaudited)
Amortization of intangibles	$	46,828		$	(15,521	)	$	31,307		$	7,096		$	(3,894	)	$	3,202
Division net income (loss)		(145,170	)		15,521			(129,649	)		(162,217	)		3,894			(158,323	)

	Year Ended December 31, 1999
	As Reported			Goodwill Amortization Adjustment			As Adjusted
				(Unaudited)
Amortization of intangibles	$	5,750		$	(3,263	)	$	2,487
Division net income (loss)		(78,077	)		3,263			(74,814	)

6.    NeuroCell Joint Venture Refund

        In February 2002, Genzyme Biosurgery paid $27.1 million to Genzyme General, representing $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC, plus accrued interest of 13.5% per annum. The refund arose because Diacrin/Genzyme LLC, our joint venture with Diacrin failed to initiate the phase 3 trial of NeuroCell-PD for Parkinson's disease by June 30, 2001.

48

7.    Revolving Credit Facility

        During the first quarter of 2002, we drew down $35.0 million under our $350.0 million revolving credit facility, all of which matures in December 2003, and allocated the borrowings to Genzyme Biosurgery. At September 30, 2002, $269.0 million had been drawn down and remained outstanding under the $350.0 million facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin, which was 2.8% at September 30, 2002.

8.    Contingencies

        We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims against us as of September 30, 2002 which, if adversely decided, would have a material adverse effect on Genzyme Biosurgery's results of operations, financial condition or liquidity.

9.    Collaboration with Myosix

        In July 2002, we entered into a collaboration with Myosix, a privately-held French biotechnology company, for the development and commercialization of a certain autologous cell culture technology, which we refer to as the Myosix Technology. The Myosix Technology was developed by the founders of Myosix with funding from the AP-HP, which owns and exclusively licenses the Myosix Technology and related patents to Myosix. In connection with the collaboration, we entered into several agreements with Myosix, including an equity purchase agreement, all effective July 29, 2002. Pursuant to the terms of the equity purchase agreement, we acquired 49% of the common stock of Myosix in exchange for 625,977 shares of Biosurgery Stock. The entire initial acquisition cost of $1.9 million, of which $1.6 million represents the fair market value of the shares of Biosurgery Stock exchanged and $0.3 million represents acquisition costs, was allocated to IPR&D and charged to expense in the three months ended September 30, 2002. We allocated this charge and our ownership interest in Myosix to Genzyme Biosurgery.

        The sublicense that we obtained from Myosix grants us use of the Myosix Technology for the treatment of congestive heart failure, although other applications may be pursued from this cell culture process. As of July 29, 2002, the date of acquisition, phase 1 clinical testing had been completed with funding from the AP-HP. Phase 2 clinical trials are scheduled to commence in the fourth quarter of 2002, and FDA approval for cardiac cell therapy is projected for 2009. As of September 30, 2002, the Myosix Technology has not achieved technological feasibility for any application and will require significant future development before an application can be completed.

        Pursuant to the terms of our various collaboration agreements with Myosix, we have sole responsibility for the cost, management, control and conduct of product development and commercialization. Myosix will act as a sub-contractor. We currently have the right to designate all of the members of Myosix's Board of Directors and, so long as we own at least 34% of Myosix, its Chief Executive Officer. We can acquire the remaining shares of Myosix common stock upon achievement of certain milestones during the development and commercialization of products based on the Myosix Technology. Effective July 29, 2002, because of our ownership interest in and level of control of Myosix, we consolidate the results of Myosix.

49

10.    Charge for Impaired Assets

        In 1997, we temporarily suspended bulk production of HA at our bulk HA manufacturing facility in Haverhill, England, because we determined that we had sufficient quantities of HA on hand to meet the demand for our Sepra products for the near term. In the first quarter of 2002, we began a capital expansion program to build HA manufacturing capacity at one of our existing manufacturing facilities in Framingham, Massachusetts. During the third quarter of 2002, we determined that we have sufficient inventory levels to meet demand until the Framingham facility is completed and validated, which is estimated to be within one year. In connection with this assessment, at September 30, 2002, we concluded that we no longer require the manufacturing capacity at the HA plant in England and recorded an impairment charge of approximately $9.0 million in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended September 30, 2002 to write down the assets at the England facility to fair value. This charge resulted in an increase of $9.0 million in the amount due from Genzyme Biosurgery to Genzyme General at September 30, 2002.

11.    Segment Information

        In accordance with SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information," we present segment information for Genzyme Biosurgery in a manner consistent with the method we use to report this information to our management. Applying SFAS No. 131, Genzyme Biosurgery has three reportable segments:

•

Orthodpaedics, which includes Synvisc® viscosupplementation product and Carticel® chondrocytes;



•

Biosurgical Specialties, which includes biomaterial products for the general, plastic and cardiovascular surgery markets, including the Sepra™ products and Epicel® skin grafts; and



•

Cardiothoracic, which includes chest drainage systems, lung sealants, and instruments and closures used in coronary artery bypass, valve replacement, lung and other cardiothoracic surgeries.

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        We have provided information concerning the operations of these reportable segments in the following table:

			Three Months Ended September 30,				Nine Months Ended September 30,
			2002		2001		2002		2001
			(Unaudited, amounts in thousands)
Revenues:
	Orthopaedics		$	31,700	$	29,656	$	86,370	$	76,561
	Biosurgical Specialties			16,519		17,177		43,995		49,131
	Cardiothoracic (1)			16,841		16,386		50,894		52,042
	Other (2)			1		—		36		5
		Total	$	65,061	$	63,219	$	181,295	$	177,739
Gross Profit:
	Orthopaedics		$	24,084	$	20,981	$	61,078	$	53,927
	Biosurgical Specialties			8,570		7,025		20,799		9,423
	Cardiothoracic (1)			4,262		4,937		14,308		17,391
	Other (2)			1		—		36		5
		Total	$	36,917	$	32,943	$	96,221	$	80,746

(1)

In June 2001, we acquired Focal and allocated the acquisition to the Cardiothoracic reporting segment. The results of operations of Focal are included in the results of Genzyme Biosurgery beginning June 30, 2001, the date of acquisition.

(2)

The Other category includes revenue from Genzyme Biosurgery's research and development contracts which we do not allocate to a particular reporting segment of Genzyme Biosurgery.

Segment Assets:

        Except for intangible assets, we do not allocate assets within Genzyme Biosurgery for purposes of reporting segment information.

        In connection with the adoption of SFAS No. 142 on January 1, 2002, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit for impairment and, as a result, reduced goodwill by recording a cumulative effect impairment charge of $98.3 million in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended March 31, 2002.

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GENZYME MOLECULAR ONCOLOGY

A Division of Genzyme Corporation

Combined Statements of Operations

(Unaudited, amounts in thousands)

			Three Months Ended September 30,						Nine Months Ended September 30,
			2002			2001			2002			2001
Revenues:
	Service revenue		$	—		$	—		$	485		$	—
	Revenue from research and development contracts			1,468			704			4,406			2,110
	Licensing revenue			806			484			2,132			1,696
	Royalty revenue			8			36			27			109
		Total revenues		2,282			1,224			7,050			3,915
Operating costs and expenses:
	Cost of services sold			—			—			287			—
	Cost of revenue from research and development contracts and licensing revenue			1,151			668			3,453			1,697
	Selling, general and administrative			1,746			1,817			5,939			5,519
	Research and development			5,876			6,381			16,497			19,610
		Total operating costs and expenses		8,773			8,866			26,176			26,826
Operating loss				(6,491	)		(7,642	)		(19,126	)		(22,911	)
Other income (expenses):
	Investment income			206			162			613			853
	Interest expense			(20	)		(14	)		(60	)		(41	)
		Total other income (expenses)		186			148			553			812
Division net loss			$	(6,305	)	$	(7,494	)	$	(18,573	)	$	(22,099	)
Comprehensive loss, net of tax:
	Division net loss		$	(6,305	)	$	(7,494	)	$	(18,573	)	$	(22,099	)
	Other comprehensive income (loss), net of tax:
		Foreign currency translation adjustments		—			—			(1	)		—
		Unrealized gains (losses) on securities, net		103			—			182			—
	Other comprehensive income			103			—			181			—
Comprehensive loss			$	(6,202	)	$	(7,494	)	$	(18,392	)	$	(22,099	)

The accompanying notes are an integral part of these unaudited, combined financial statements.

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GENZYME MOLECULAR ONCOLOGY

A Division of Genzyme Corporation

Combined Balance Sheets

(Amounts in thousands)

			September 30, 2002		December 31, 2001
			(Unaudited)
ASSETS
Current assets:
	Cash and cash equivalents		$	2,703	$	41,135
	Short-term investments			15,318		—
	Accounts receivable, net			13		463
	Prepaid expenses and other current assets			388		702
		Total current assets		18,422		42,300
Equipment, net				38		119
		Total assets	$	18,460	$	42,419
LIABILITIES AND DIVISION EQUITY
Current liabilities:
	Accrued expenses		$	929	$	1,400
	Due to Genzyme General			5,639		7,086
	Deferred revenue—current portion			3,008		5,007
		Total current liabilities		9,576		13,493
Deferred revenue—long term portion				191		2,113
		Total liabilities		9,767		15,606
Contingencies (Note 4)
Division equity				8,693		26,813
		Total liabilities and division equity	$	18,460	$	42,419

The accompanying notes are an integral part of these unaudited, combined financial statements.

53

GENZYME MOLECULAR ONCOLOGY

A Division of Genzyme Corporation

Combined Statements of Cash Flows

(Unaudited, amounts in thousands)

					Nine Months Ended September 30,
					2002			2001
Cash Flows from Operating Activities:
	Division net loss				$	(18,573	)	$	(22,099	)
	Reconciliation of division net loss to net cash used in operating activities:
		Depreciation				81			94
		Provision for bad debts				(35	)		—
		Other				(70	)		153
		Increase (decrease) in cash from working capital changes:
			Accounts receivable			485			(59	)
			Prepaid expenses and other current assets			314			(382	)
			Accrued expenses and deferred revenue			(4,392	)		(2,025	)
			Due to Genzyme General			(1,447	)		749
				Cash flows from operating activities		(23,637	)		(23,569	)
Cash Flows from Investing Activities:
	Purchases of investments					(25,538	)		—
	Sales and maturities of investments					10,476			7,792
				Cash flows from investing activities		(15,062	)		7,792
Cash Flows from Financing Activities:
	Allocated proceeds from issuance of Molecular Oncology Stock					269			685
	Net cash allocated from Genzyme General					—			4,040
				Cash flows from financing activities		269			4,725
Effect of exchange rate changes on cash						(2	)		—
Decrease in cash and cash equivalents						(38,432	)		(11,052	)
Cash and cash equivalents at beginning of period						41,135			22,209
Cash and cash equivalents at end of period					$	2,703		$	11,157

The accompanying notes are an integral part of these unaudited, combined financial statements.

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GENZYME MOLECULAR ONCOLOGY

A Division of Genzyme Corporation

Notes To Unaudited, Combined Financial Statements

1.    Basis of Presentation

        The unaudited, combined financial statements of Genzyme Molecular Oncology for each period include the statements of operations, balance sheets and statements of cash flows of the businesses we allocate to Genzyme Molecular Oncology. We also allocate a portion of our corporate operations to Genzyme Molecular Oncology using methods described in our allocation policy included in Note A., "Summary of Significant Accounting Policies—Allocation Policy," to Genzyme Molecular Oncology's combined financial statements included in Exhibit 13.4 to our 2001 Form 10-K. These unaudited, combined financial statements are prepared using amounts included in our unaudited, consolidated financial statements included in this Form 10-Q. We prepared these unaudited, combined financial statements for Genzyme Molecular Oncology following the requirements of the SEC for interim reporting. As permitted under these rules, we condense or omit certain footnotes and other financial information that are normally required by accounting principles generally accepted in the U.S.

        These financial statements include all normal and recurring adjustments that we consider necessary for the fair presentation of Genzyme Molecular Oncology's financial position and operating results. Since these are interim financial statements, you should also read the financial statements and notes for Genzyme Molecular Oncology included in our 2001 Form 10-K. Revenues, expenses, assets and liabilities can vary from quarter to quarter. Therefore, the results and trends in these interim financial statements may not be indicative of results for future periods.

2.    New Accounting Pronouncements

        We have included the impact that recently issued accounting standards will have on our financial statements in Note 2, "New Accounting Pronouncements," to our unaudited, consolidated financial statements, which we incorporate by reference into this note.

3.    Goodwill and Other Intangible Assets

        In July 2001, the FASB issued SFAS No. 142, "Goodwill and Other Intangible Assets." SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. SFAS No. 142 is effective for fiscal years beginning after December 15, 2001, and thus has been adopted by Genzyme Molecular Oncology effective at the beginning of fiscal year 2002. As of January 1, 2002, Genzyme Molecular Oncology had no goodwill or other intangible assets, therefore, adoption of the standard had no effect on Genzyme Molecular Oncology's unaudited, combined financial statements for the three and nine months ended September 30, 2002.

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Adjusted Net Loss

        The following table presents the impact SFAS No. 142 would have had on Genzyme Molecular Oncology's amortization of intangibles expense and division net loss had the standard been in effect for the years ended December 31, 2000 and 1999 (amounts in thousands):

	Year Ended December 31, 2000									Year Ended December 31, 1999
	As Reported			Goodwill Amortization Adjustments			As Adjusted			As Reported			Goodwill Amortization Adjustments			As Adjusted
				(Unaudited)									(Unaudited)
Amortization of intangibles	$	5,420		$	(2,227	)	$	3,193		$	11,825		$	(4,858	)	$	6,967
Division net income (loss)		(23,096	)		2,227			(20,869	)		(28,832	)		4,858			(23,974	)

4.    Contingencies

        We periodically become subject to legal proceedings and claims arising in connection with our business. We do not believe that there were any asserted claims against us as of September 30, 2002, which, if adversely decided, would have a material adverse effect on Genzyme Molecular Oncology's results of operations, financial condition or liquidity.

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ITEM 2.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

        When reviewing the discussion below, you should keep in mind the substantial risks and uncertainties that characterize our business. In particular, we encourage you to review the risks and uncertainties described under "Factors Affecting Future Operating Results" in Exhibit 99.2 to our 2001 Form 10-K. These risks and uncertainties could cause our actual results to differ materially from those forecast in forward-looking statements or implied by past results and trends. Forward-looking statements are statements that attempt to project or anticipate future developments in our business; we encourage you to review the examples of forward-looking statements under "Note Regarding Forward-Looking Statements." These statements, like all statements in this report, speak only as of the date of this report (unless another date is indicated), and we undertake no obligation to update or revise the statements in light of future developments.

INTRODUCTION

        We are a biotechnology company that develops innovative products and services for significant unmet medical needs. We have three operating divisions:

•

Genzyme General, which develops and markets:



•

therapeutic products, with an expanding focus on products to treat patients suffering from genetic diseases and other chronic debilitating diseases, including a family of diseases known as lysosomal storage disorders, or LSDs, and other specialty therapeutics;



•

renal products, with a focus on products that treat patients suffering from renal diseases, including chronic renal failure;



•

diagnostic products, with a focus on in vitro diagnostics; and



•

other products and services, such as genetic testing services and pharmaceutical materials.




•

Genzyme Biosurgery, which develops and markets implantable biotherapeutic products, biomaterials and medical devices to improve or replace surgery, with an emphasis on the orthopaedic and cardiothoracic markets; and



•

Genzyme Molecular Oncology, which is developing a new generation of cancer products focused on cancer vaccines and angiogenesis inhibitors through the integration of its genomics, gene and cell therapy, small molecule drug discovery and protein therapeutic capabilities.

        We have three series of common stock—Genzyme General Division common stock, which we refer to as "Genzyme General Stock," Genzyme Biosurgery Division common stock, which we refer to as "Biosurgery Stock," and Genzyme Molecular Oncology Division common stock, which we refer to as "Molecular Oncology Stock." We also refer to our series of stock as "tracking stock." Unlike typical common stock, each of our tracking stocks is designed to track the financial performance of a specific subset of our business operations and its allocated assets, rather than the operations and assets of our entire company. The chief mechanisms intended to cause each tracking stock to "track" the financial performance of each division are provisions in our charter governing dividends and distributions. Under these provisions, our charter:

•

factors the assets and liabilities and income or losses attributable to a division into the determination of the amount available to pay dividends on the associated tracking stock; and



•

requires us to exchange, redeem or distribute a dividend to the holders of Biosurgery Stock or Molecular Oncology Stock if all or substantially all of the assets allocated to those corresponding divisions are sold to a third party. A dividend or redemption payment must equal in value the net after-tax proceeds from the sale. An exchange must be for Genzyme General Stock at a 10%

57

premium to the average market price of the exchanged stock calculated over a ten day period beginning on the first business day following the announcement of the sale.

        Shares of Biosurgery Stock and Molecular Oncology Stock are subject to certain exchange and redemption provisions as set forth in our charter. One of the exchange provisions allows our board of directors to exchange, at any time, shares of Biosurgery Stock and/or Molecular Oncology Stock for cash, shares of Genzyme General Stock, or a combination of both, valued at a 30% premium to the fair market value (as defined in our charter) of the series of stock being exchanged. We encourage you to read our charter for a more complete discussion of the mandatory and optional exchange and redemption provisions of our common stock.

        To determine earnings per share, we allocate our earnings to each series of our common stock based on the earnings attributable to that series of stock. The earnings attributable to each series of stock is defined in our charter as the net income or loss of the corresponding division determined in accordance with accounting principles generally accepted in the U.S. and as adjusted for tax benefits allocated to or from that division in accordance with our management and accounting policies. Our charter also requires that all of our income and expenses be allocated among our divisions in a reasonable and consistent manner. Our board of directors, however, retains considerable discretion in interpreting and changing the methods of allocating earnings to each series of common stock without shareholder approval. As market or competitive conditions warrant, we may create a new series of tracking stock, eliminate an existing series of tracking stock, or change our earnings allocation methodology. Because the earnings allocated to each series of stock are based on the income or losses attributable to each corresponding division, we provide financial statements and management's discussion and analysis for the corporation and each of our divisions to aid investors in evaluating our performance and the performance of each of our divisions.

        While each tracking stock is designed to reflect a division's performance, it is common stock of Genzyme Corporation and not of a division. Our divisions are not separate companies or legal entities, and therefore do not and cannot issue stock. Holders of tracking stock have no specific rights to assets allocated to the corresponding division. We continue to hold title to all of the assets allocated to the corresponding division and are responsible for all of its liabilities, regardless of what we deem for financial statement presentation purposes as allocated to any division. Holders of each tracking stock, as common stockholders are, therefore, subject to the risks of investing in the businesses, assets and liabilities of Genzyme as a whole. For instance, the assets allocated to each division are subject to company-wide claims of creditors, product liability plaintiffs and stockholder litigation. Also, in the event of a Genzyme liquidation, insolvency or similar event, holders of each tracking stock would only have the rights of common stockholders in the combined assets of Genzyme in the proportions set forth in our charter.

DISPOSITION

        In November 2001, we sold our Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery, for $15.9 million in net cash. The purchaser acquired all of the assets directly associated with the Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a net carrying value of approximately $41.0 million at the time of the sale. We recorded a loss of $25.0 million in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery in connection with this sale. We also recorded a related tax benefit of $4.7 million in our consolidated financial statements.

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ACQUISITIONS

        In September 2001, we acquired all of the outstanding capital stock of Novazyme Pharmaceuticals, Inc., a privately-held developer of biotherapies for the treatment of LSDs, for an initial payment of approximately 2.6 million shares of Genzyme General Stock, valued at $110.6 million. Novazyme shareholders received 0.5714 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to make two additional payments totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products for the treatment of LSDs that employ certain of Novazyme's technologies. In connection with the merger, we also assumed all of the outstanding options, warrants and rights to purchase Novazyme common stock on an as-converted basis. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Novazyme are included in our consolidated financial statements and the combined financial statements of Genzyme General from September 26, 2001, the date of acquisition.

        The staff of the FTC is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there are costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses.

        In January 2001, Focal, Inc. exercised its option to require us to purchase $5.0 million in Focal common stock. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. In June 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock that we had not previously acquired. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as consideration, valued at approximately $9.5 million. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery. Accordingly, the results of operations of Focal are included in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery from June 30, 2001, the date of acquisition.

        In June 2001, we acquired all of the outstanding capital stock of privately-held Wyntek Diagnostics, Inc. for $65.0 million in cash. Wyntek is a provider of point of care rapid diagnostic tests for pregnancy and infectious diseases. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Wyntek are included in our consolidated financial statements and in the combined financial statements of Genzyme General from June 1, 2001, the date of acquisition.

        In January 2001, we acquired the outstanding Class A limited partnership interests in Genzyme Development Partners, L.P., which we refer to as GDP, a limited partnership engaged in developing, producing and commercializing Sepra products, for an aggregate of $25.7 million in cash plus royalties on sales of certain Sepra products for ten years. In August 2001, we purchased the remaining outstanding GDP limited partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus additional royalties on sales of certain Sepra products for ten years. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, the results of operations of GDP are included in our consolidated financial statements and the combined financial

59

statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of the Class A interests.

CRITICAL ACCOUNTING POLICIES

        Our critical accounting policies are set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Critical Accounting Policies" in Exhibit 13.1 to our 2001 Form 10-K. Except for our policy regarding asset impairments, as described below, there have been no changes to these policies since December 31, 2001.

Asset Impairments

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and amends APB No. 30, "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and thus, has been adopted by us effective at the beginning of fiscal year 2002.

        We periodically evaluate long-lived assets for potential impairment under SFAS No. 144. We perform these evaluations whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•

a significant change in the manner in which an asset is used;



•

a significant decrease in the market value of an asset;



•

a significant adverse change in its business or its industry; and



•

a current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

        If we believe an indicator of potential impairment exists, we test to determine whether the impairment recognition criteria in SFAS No. 144 have been met. In evaluating long-lived assets for potential impairment, we make several significant estimates and judgments, including:

•

determining the appropriate grouping of assets at the lowest level for which cash flows are available;



•

estimating future cash flows associated with the asset or group of assets; and



•

determining an appropriate discount rate to use in the analysis.

Use of different estimates and judgments could yield significantly different results in this analysis and could result in materially different asset impairment charges.

        Effective January 1, 2002, we adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. Unlike SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," goodwill impairment tests performed under SFAS No. 142 do not involve an initial test comparing the projected undiscounted cash flows to the carrying amount of goodwill. Instead, SFAS No. 142 requires that goodwill be tested using a two-step process. The first step compares the fair value of the reporting unit with the unit's carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed to

60

measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value. Effective January 1, 2002, we reclassified $4.3 million of acquired workforce intangible assets, previously classified as other intangible assets, net of related deferred tax liabilities, to goodwill as required by SFAS No. 142.

        In November 2001, we sold our Snowden-Pencer line of surgical instruments, a component of Genzyme Biosurgery, and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of Genzyme Biosurgery's cardiothoracic reporting unit, under SFAS No. 121, did not indicate an impairment based on the undiscounted cash flows of the business. However, the impairment analysis indicated that the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, in the three months ended March 31, 2002, upon adoption of SFAS No. 142, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations for Genzyme Biosurgery for the three months ended March 31, 2002.

        We completed the transitional and annual impairment tests for the $605.1 million of net goodwill related to our other reporting units in the nine months ended September 30, 2002, as provided by SFAS No. 142, and determined that no additional impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. For all of our acquisitions, various analyses, assumptions and estimates were made at the time of each acquisition specifically regarding product development, market conditions and cash flows that were used to determine the valuation of goodwill and intangibles. The possibility exists that those estimates could prove to be inaccurate, which could result in an impairment of goodwill.

A.    RESULTS OF OPERATIONS

        The following discussion summarizes the key factors our management believes are necessary for an understanding of our consolidated financial statements.

GENZYME CORPORATION

REVENUES

        The components of our total revenues are described in the following table:

		Three Months Ended September 30,						Nine Months Ended September 30,
						Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
		2002		2001				2002		2001
		(Unaudited, amounts in thousands, except percentage data)
Product revenue		$	308,190	$	291,959	6	%	$	874,796	$	816,262	7	%
Service revenue			28,871		23,988	20	%		83,578		71,983	16	%
	Total product and service revenue		337,061		315,947	7	%		958,374		888,245	8	%
Research and development revenue			3,105		3,548	(12	)%		11,924		10,152	17	%
	Total revenues	$	340,166	$	319,495	6	%	$	970,298	$	898,397	8	%

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Product Revenue

        We derive product revenue from sales by Genzyme General of therapeutic products, including Cerezyme enzyme, Renagel phosphate binder, diagnostic products and other products, and sales by Genzyme Biosurgery of orthopaedic products, including Synvisc viscosupplementation product, biosurgical specialties products, including Seprafilm™ bioresorbable membrane and cardiothoracic products, including fluid management (chest drainage) systems.

        The following table sets forth our product revenue on a segment basis:

				Three Months Ended September 30,						Nine Months Ended September 30,
								Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
				2002		2001				2002		2001
				(Unaudited, amounts in thousands, except percentage data)
Genzyme General:
	Therapeutics:
		Cerezyme enzyme		$	157,471	$	143,048	10	%	$	460,254	$	423,991	9	%
		Other therapeutic products			24,763		8,631	187	%		54,291		21,810	149	%
			Total Therapeutics		182,234		151,679	20	%		514,545		445,801	15	%
	Renal				36,954		52,356	(29	)%		106,029		121,359	(13	)%
	Diagnostic Products				20,656		20,572	—			61,024		54,786	11	%
	Other				9,620		10,268	(6	)%		29,085		34,175	(15	)%
			Total product revenue—Genzyme General		249,464		234,875	6	%		710,683		656,121	8	%
Genzyme Biosurgery:
	Orthopaedics				27,233		25,492	7	%		72,998		63,269	15	%
	Biosurgical Specialties				14,652		15,206	(4	)%		40,221		44,830	(10	)%
	Cardiothoracic				16,841		16,386	3	%		50,894		52,042	(2	)%
			Total product revenue—Genzyme Biosurgery		58,726		57,084	3	%		164,113		160,141	2	%
			Total product revenues	$	308,190	$	291,959	6	%	$	874,796	$	816,262	7	%

Genzyme General—Therapeutics

        The increase in Therapeutics product revenue for both the three and nine months ended September 30, 2002 as compared to the same periods a year ago, was primarily due to continued growth in sales of Cerezyme enzyme for the treatment of Type 1 Gaucher disease and increased sales of other therapeutic products. Other therapeutic products revenue consists primarily of sales of Thyrogen® hormone, which is an adjunctive diagnostic tool for well-differentiated thyroid cancer, sales of Fabrazyme® enzyme, which is a recombinant form of the human enzyme alpha-galactosidase used for the treatment of Fabry disease, and bulk sales of and royalties earned on sales of WelChol™ bile acid binder, which is an adjunctive therapy for the reduction of elevated LDL cholesterol in patients with primary hypercholesterolemia.

        The growth in sales of Cerezyme enzyme in both the three and nine months ended September 30, 2002 was attributable to our continued identification of new Gaucher disease patients worldwide, particularly in Europe, resulting from significant investment in our global sales and marketing infrastructure. The growth in European sales of Cerezyme enzyme for both periods was positively impacted by the weakened U.S. Dollar against the Euro. During the three months ended September 30, 2002, as compared to the same period a year ago, the U.S. Dollar weakened against the Euro on average by approximately 10%, which positively impacted sales of Cerezyme enzyme by $5.0 million.

62

During the nine months ended September 30, 2002, as compared to the same period a year ago, the U.S. Dollar weakened against the Euro on average by approximately 3%, which positively impacted sales of Cerezyme enzyme by $5.1 million.

        Our results of operations are highly dependent on sales of Cerezyme enzyme and a reduction in revenue from sales of this product would adversely affect our results of operations. Revenue from Cerezyme enzyme would be impacted negatively if competitors developed alternative treatments for Gaucher disease and the alternative products gained commercial acceptance. Although orphan drug status for Cerezyme enzyme, which provided us with exclusive marketing rights for Cerezyme enzyme in the U.S., expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme enzyme until 2010 and the composition of Cerezyme enzyme as made by that process until 2013. The expiration of market exclusivity and orphan drug status will likely subject Cerezyme enzyme to increased competition, which may decrease the amount of revenue we receive from this product or the growth of that revenue.

        We are aware of companies that have initiated efforts to develop competitive products. Oxford Glycosciences plc, which we refer to as OGS, for example, is developing Zavesca™ (OGT 918), a small molecule drug candidate for the treatment of Type 1 Gaucher disease. OGT 918 has been granted orphan drug status in the U.S. for treatment of Type 1 Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Type 1 Gaucher disease. In 2001, OGS submitted a Marketing Authorisation Application (MAA) to the European Agency for the Evaluation of Medicinal Products (EMEA), as well as a New Drug Application (NDA) to the FDA for OGT 918 for the oral treatment of Type 1 Gaucher disease. In June 2002, the FDA issued a complete response letter on the NDA for OGT 918. In the letter the FDA stated that, in its opinion, the product is not approvable due to OGS' failure to provide sufficient support for the safety and efficacy of OGT 918. In July 2002, the Committee for Proprietary Medicinal Products (CPMP) of the EMEA issued a positive opinion recommending marketing approval of OGT 918 for the treatment of Type 1 Gaucher disease. The CPMP's decision states that the product is indicated only for mild-to-moderate forms of Type 1 Gaucher disease, and may be used only for the treatment of patients for whom enzyme replacement therapy is unsuitable. The CPMP requested OGS provide follow-up safety data. To date, virtually all Gaucher disease patients who have received enzyme replacement therapy have experienced strong clinical benefit with few side effects.

        The following table provides information regarding the change in sales of Cerezyme enzyme as a percentage of total product revenue during the periods presented:

	Three Months Ended September 30,								Nine Months Ended September 30,
							Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
	2002			2001					2002			2001
	(Unaudited, amounts in thousands, except percentage data)
Sales of Cerezyme enzyme	$	157,471		$	143,048		10	%	$	460,254		$	423,991		9	%
% of total product revenue		51	%		49	%				53	%		52	%

        Other therapeutic products revenue consists primarily of sales of Thyrogen hormone, Fabrazyme enzyme and bulk sales of and royalties earned on sales of WelChol bile acid binder. The increase in other therapeutic products revenue for the three months ended September 30, 2002 as compared to the same period a year ago is attributable to:

•

a 54% increase in sales of Thyrogen hormone to $7.3 million primarily due to increased market penetration. Thyrogen hormone was launched in Europe during the fourth quarter of 2001 as a result of a positive opinion rendered in September 2001 by the CPMP of the EMEA, which was necessary for commercial introduction of the product;

63

•

a 273% increase in sales of Fabrazyme enzyme in Europe to $7.3 million primarily due to the introduction to several new markets in Europe and our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme. Fabrazyme enzyme was launched in Europe in August 2001; and



•

a 433% increase in bulk sales of and royalties earned on sales of WelChol bile acid binder to $9.9 million primarily due to increased market penetration. WelChol bile acid binder is marketed in the U.S. by Sankyo Pharma, Inc. In October 2002, Merck/Schering-Plough Pharmaceuticals, a joint venture between Merck & Co., Inc. and Schering-Plough Corporation, received marketing approval in Germany and FDA approval in the U.S. for its competitive product, ezetimibe, for use alone and with all marketed statins for the treatment of elevated cholesterol levels. Ezetimibe will be marketed under the tradename EZETROL™ (ezetimibe) in Germany and under the tradename ZETIA™ (ezetimibe) in the U.S. The introduction of these products may adversely affect the future growth of bulk sales of and royalties earned on sales of our Welchol bile acid binder.

        The increase in other therapeutic products revenue for the nine months ended September 30, 2002 as compared to the same period a year ago is attributable to:

•

a 51% increase in sales of Thyrogen hormone to $20.2 million primarily due to increased market penetration;



•

a 398% increase in sales of Fabrazyme enzyme in Europe to $17.2 million primarily due to the introduction to several new markets in Europe and our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme; and



•

a 318% increase in bulk sales of and royalties earned on sales of WelChol bile acid binder to $16.4 million primarily due to increased market penetration.

Genzyme General—Renal

        During the quarter ended September 30, 2002, we created the Renal reporting segment consisting primarily of amounts attributable to the manufacture and sale of Renagel phosphate binder. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of our Therapeutics reporting segment. We have reclassified our 2001 disclosures to conform to our 2002 presentation. We expect sales of Renagel phosphate binder to increase, driven primarily by the continued adoption of the product by nephrologists worldwide. The increase in sales of Renagel phosphate binder will be dependent on several factors, including:

•

acceptance by the medical community of Renagel phosphate binder as the preferred treatment for elevated serum phosphorus levels in end-stage dialysis patients;



•

our ability to effectively manage wholesaler inventories and the effectiveness of the inventory management programs we plan to implement with our wholesalers;



•

our ability to optimize dosing and improve patient compliance with dosing of Renagel phosphate binder;



•

our ability to expand manufacturing capacity;



•

our ability to obtain reimbursement from third party payors; and



•

our ability to manufacture sufficient quantities to meet demand.

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        The following table provides information regarding the change in sales of Renagel phosphate binder during the periods presented:

	Three Months Ended September 30,								Nine Months Ended September 30,
							Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
	2002			2001					2002			2001
	(Unaudited, amounts in thousands, except percentage data)
Sales of Renagel phosphate binder	$	36,954		$	52,356		(29	)%	$	106,029		$	121,359		(13	)%
% of total product revenue		12	%		18	%				12	%		15	%

        Sales for the three months ended September 30, 2002 declined compared to the same period in 2001 primarily due to a reduction in domestic wholesaler inventory levels, based on management's estimates of end user demand, of approximately $7.0 million, as well as an increase in the Renagel phosphate binder rebate reserve of $4.0 million in the third quarter of 2002 to adjust our estimates of payor mix and rebate rates. Sales for the nine months ended September 30, 2002 declined as compared to the same period in 2001 primarily due to a reduction in domestic wholesaler inventory levels, based on management's estimates of end user demand, of approximately $30.0 million, as well as the $4.0 million increase in the rebate reserve in the third quarter of 2002.

Genzyme General—Diagnostic Products

        Diagnostic Products product revenue increased $0.1 million to $20.7 million for the three month period ended September 30, 2002 as compared to the same period a year ago. The increase was primarily attributable to a 5% increase in the combined sales of infectious disease testing products, HDL and LDL cholesterol testing products and royalties on product sales by Techne Corporation's biotechnology group to $15.5 million. The increase was offset by a 10% decrease in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases to $5.2 million.

        Diagnostic Products product revenue increased 11% to $61.0 million for the nine months ended September 30, 2002 as compared to the same period a year ago. The increase was primarily attributable to:

•

a 3% increase in the combined sales of infectious disease testing products, HDL and LDL cholesterol testing products and royalties on product sales by Techne Corporation's biotechnology group to $45.6 million; and



•

a 45% increase in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases to $15.4 million, including additional tests we obtained through our acquisition of Wyntek in June 2001.

Genzyme General—Other Product Revenue

        The 6% decrease in other product revenue to $9.6 million for the three months ended September 30, 2002 as compared to the same period a year ago is primarily due to a 1% decrease in the combined sales of liquid crystals and amino acid derivatives, both of which are pharmaceutical materials, to $6.6 million and a 16% decrease in sales of hyaluronan-based products to $3.0 million.

        The 15% decrease in other product revenue to $29.1 million for the nine months ended September 30, 2002 as compared to the same period a year ago is primarily due to a 14% decrease in the combined sales of liquid crystals and amino acid derivatives, both of which are pharmaceutical materials, to $20.1 million and an 18% decrease in sales of hyaluronan-based products to $8.7 million.

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Genzyme Biosurgery—Orthopaedics

        Orthopaedics product revenue increased 7% to $27.2 million for the three months ended September 30, 2002 and 15% to $73.0 million for the nine months ended September 30, 2002, as compared to the same periods a year ago, due to an increase in sales of Synvisc viscosupplementation product. Synvisc viscosupplementation product sales increased primarily due to increased utilization of the product within the existing customer base as well as new accounts. We believe that a potentially significant competitor is currently seeking FDA approval for a viscosupplementation product for possible U.S. launch during the first half of 2003.

Genzyme Biosurgery—Biosurgical Specialties

        Biosurgical Specialties product revenue decreased 4% to $14.7 million for the three months ended September 30, 2002, as compared to the same period a year ago. The decrease is due to a 95% decrease in sales of surgical instruments to $0.2 million resulting from the sale of our Snowden-Pencer line of surgical instruments during the fourth quarter of 2001, partially offset by a 57% increase in sales of Sepra products to $11.0 million primarily due to increased market penetration.

        Biosurgical Specialties product revenue decreased 10% to $40.2 million for the nine months ended September 30, 2002, as compared to the same period a year ago. The decrease is due to a 94% decrease in sales of surgical instruments to $0.8 million resulting from the sale of our Snowden-Pencer line of surgical instruments during the fourth quarter of 2001, partially offset by a 37% increase in sales of Sepra products to $28.8 million primarily due to increased market penetration.

Genzyme Biosurgery—Cardiothoracic

        Cardiothoracic product revenue increased 3% to $16.8 million for the three months ended September 30, 2002, as compared to the same period a year ago, primarily due to an 11% increase in the combined sales of FocalSeal®-L surgical sealant and instruments for minimally-invasive and off-pump cardiac surgery to $4.0 million, which was offset in part by a decrease in sales of instruments for cardiac surgery. Sales of these instruments decreased primarily due to the sale of our Snowden-Pencer line of surgical instruments in the fourth quarter of 2001.

        Cardiothoracic product revenue decreased 2% to $50.9 million for the nine months ended September 30, 2002 as compared to the same period a year ago, primarily due to a 9% decline in revenue from sales of surgical closures to $12.9 million resulting from our withdrawal of certain commodity suture lines in Europe during the first half of 2001 and a 7% decline in the combined revenues from sales of fluid management systems and instruments for cardiac surgery to $25.2 million due to increased competitive pressures on product pricing and the sale of our Snowden-Pencer line of surgical instruments in the fourth quarter of 2001. These decreases were partially offset by an 18% increase in the combined sales of FocalSeal-L surgical sealant and instruments for minimally-invasive and off-pump cardiac surgery to $12.7 million.

Service Revenue

        We derive service revenues from four principal sources:

•

genetic testing services performed by Genzyme General;



•

Genzyme Biosurgery's Carticel chondrocytes for the treatment of cartilage damage, which is included in its Orthopaedics reporting segment;



•

Genzyme Biosurgery's Epicel skin grafts for the treatment of severe burns, which is included in its Biosurgical Specialties reporting segment; and

66

•

Genzyme Molecular Oncology's provision of services of the SAGE™ genomics technology.

        The following table sets forth our service revenues on a segment basis:

			Three Months Ended September 30,						Nine Months Ended September 30,
							Increase/ (Decrease) % Change							Increase/ (Decrease) % Change
			2002		2001				2002			2001
			(Unaudited, amounts in thousands, except percentage data)
Genzyme General—Other			$	22,537	$	17,853	26	%	$	66,132		$	54,390	22	%
Genzyme Biosurgery:
	Orthopaedics			4,467		4,164	7	%		13,372			13,292	1	%
	Biosurgical Specialties			1,867		1,971	(5	)%		3,774			4,301	(12	)%
		Total service revenue—Genzyme Biosurgery		6,334		6,135	3	%		17,146			17,593	(3	)%
Genzyme Molecular Oncology				—		—	N/A			485			—	N/A
Elimination (1)				—		—	N/A			(185	)		—	N/A
	Total service revenue		$	28,871	$	23,988	20	%	$	83,578		$	71,983	16	%

(1)

Represents the elimination of interdivisional revenue.

        The 26% increase in Genzyme General's other service revenue to $22.5 million for the three months ended September 30, 2002 as compared to the same period a year ago is due to increased sales of genetic testing services. This increase was primarily attributable to expanded presence in the prenatal screening market. The 22% increase in Genzyme General's other service revenue to $66.1 million for the nine months ended September 30, 2002 as compared to the same period a year ago is due to increased sales of genetic testing services. This increase was primarily attributable to expanded presence in the prenatal screening market.

        Orthopaedics service revenue did not change significantly during the three and nine months ended September 30, 2002 as compared to the same periods a year ago. Increased sales of Carticel chondrocyte services in the U.S. for both the three and nine months ended September 30, 2002 were offset by decreased European sales of the service in each period because we have not been actively seeking new partners or marketing Carticel chondrocytes in Europe since the second quarter of 2001. The decrease in Biosurgical Specialties service revenue for both the three and nine months ended September 30, 2002 as compared to the same periods a year ago, is attributable to decreased sales of Epicel skin grafts services in each period. Sales of Epicel skin grafts, which are used to treat victims of severe burns, are variable based upon the occurence of fire-related accidents.

        Genzyme Molecular Oncology's service revenue for the nine months ended September 30, 2002 consists of revenues from the provision of services related to the SAGE genomics technology. Genzyme Molecular Oncology provides these services sporadically as customers request them. The focus of its SAGE business remains directed to the grant of licenses to the technology. No such revenues were recorded for the three and nine months ended September 30, 2001.

Research and Development Revenue

        We derive research and development revenue primarily from:

•

research initiatives related to Genzyme General's Therapeutics programs;



•

research and development services Genzyme General performed on behalf of GTC; and



•

license fees and funded research related to Genzyme Molecular Oncology's programs.

67

        The following table sets forth our research and development revenues on a segment basis:

			Three Months Ended September 30,						Nine Months Ended September 30,
							Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
			2002		2001				2002		2001
			(Unaudited, amounts in thousands, except percentage data)
Genzyme General:
	Therapeutics		$	125	$	1,310	(90	)%	$	3,054	$	3,515	(13	)%
	Other			—		5	(100	)%		31		25	24	%
	Eliminations/Adjustments			697		1,009	(31	)%		2,238		2,692	(17	)%
		Total research and development revenue—Genzyme General		822		2,324	(65	)%		5,323		6,232	(15	)%
Genzyme Biosurgery—Other				1		—	N/A			36		5	620	%
Genzyme Molecular Oncology				2,282		1,224	86	%		6,565		3,915	68	%
		Total research and development revenue	$	3,105	$	3,548	(12	)%	$	11,924	$	10,152	17	%

        Research and development revenue allocated to Genzyme General is related primarily to research initiatives for its Therapeutics reporting segment. Eliminations/Adjustments includes research and development efforts we conducted on behalf of GTC and amounts related to Genzyme General's research and development activities that we do not specifically allocate to a particular segment of Genzyme General.

        Research and development revenue allocated to Genzyme Molecular Oncology is derived from the following sources:

•

technology access fees received from Purdue Pharma, L.P. and Kirin Brewery Company, Ltd., which are recognized over the course of associated research programs;



•

research performed by Genzyme Molecular Oncology on behalf of Purdue and Kirin; and



•

revenue associated with in vitro cancer diagnostic assets.

        The increase in research and development revenue allocated to Genzyme Molecular Oncology for the three and nine months ended September 30, 2002 is the result of the initiation of the collaboration agreement with Kirin in November 2001 and a planned increase in the amount of research performed on behalf of Purdue, offset in part by a reduction in revenues associated with the cancer diagnostic assets that were transferred to Genzyme General in December 2001. As a result of the transfer, Genzyme Molecular Oncology will no longer be allocated revenue arising from the licensing of rights to those assets.

International Product and Service Revenue

        A substantial portion of our revenue is generated outside of the U.S. Most of our international revenue is attributable to sales of Cerezyme enzyme, Renagel phosphate binder and Fabrazyme enzyme.

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The following table provides information regarding the change in international product and service revenue during the periods presented:

	Three Months Ended September 30,								Nine Months Ended September 30,
							Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
	2002			2001					2002			2001
	(Unaudited, amounts in thousands, except percentage data)
International product and service revenue	$	133,570		$	111,672		20	%	$	381,965		$	331,326		15	%
% of total product and service revenue		40	%		35	%				40	%		37	%

        International sales of Cerezyme enzyme increased 14% to $84.2 million for the three months ended September 30, 2002 as compared to $73.8 million in the same period a year ago. International sales of Cerezyme enzyme increased 9% to $243.1 million for the nine months ended September 30, 2002 as compared to $223.0 million in the same period a year ago.

        The increase in international sales of Cerezyme enzyme for the three months ended September 30, 2002 as compared to the same period a year ago is primarily due to:

•

a 7% increase in international unit sales of Cerezyme enzyme; and



•

an approximate 10% increase in the average exchange rate of the Euro, which positively impacted sales of Cerezyme enzyme by $5.0 million.

        The increase in international sales of Cerezyme enzyme for the nine months ended September 30, 2002 as compared to the same period a year ago is primarily due to:

•

a 7% increase in international unit sales of Cerezyme enzyme; and



•

an approximate 3% increase in the average exchange rate of the Euro, which positively impacted sales of Cerezyme enzyme by $5.1 million.

        International sales of Renagel phosphate binder increased 107% to $11.0 million for the three months ended September 30, 2002 as compared to $5.3 million for the same period a year ago. International sales of Renagel phosphate binder increased 132% to $29.9 million for the nine months ended September 30, 2002 as compared to $12.9 million for the same period a year ago.

        The increase in international sales of Renagel phosphate binder for the three and nine months ended September 30, 2002 as compared to the same periods a year ago is primarily due to:

•

the on-going launch of Renagel phosphate binder tablets in Europe in 2002; and



•

the expansion of the European Renagel phosphate binder sales force.

        International sales of Fabrazyme enzyme increased 273% to $7.3 million for the three months ended September 30, 2002 as compared to $1.9 million for the same period a year ago. International sales of Fabrazyme enzyme increased 398% to $17.2 million for the nine months ended September 30, 2002 as compared to $3.5 million for the same period a year ago.

        The increase in international sales of Fabrazyme enzyme for the three and nine months ended September 30, 2002 as compared to the same period a year ago is primarily due to:

•

the introduction of Fabrazyme enzyme into several new markets in Europe in 2002; and



•

our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme.

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MARGINS

			Three Months Ended September 30,						Nine Months Ended September 30,
							Increase/ (Decrease) % Change							Increase/ (Decrease) % Change
			2002		2001				2002			2001
			(Unaudited, amounts in thousands, except percentage data)
Product margin:
	Genzyme General		$	197,646	$	186,541	6	%	$	560,501		$	512,424	9	%
	Genzyme Biosurgery			34,245		29,956	14	%		89,320			72,244	24	%
		Total product margin	$	231,891	$	216,497	7	%	$	649,821		$	584,668	11	%
Service margin:
	Genzyme General		$	8,858	$	6,960	27	%	$	27,733		$	22,596	23	%
	Genzyme Biosurgery			2,671		2,987	(11	)%		6,865			8,497	(19	)%
	Genzyme Molecular Oncology			—		—	N/A			198			—	N/A
	Elimination			—		—	N/A			(17	)		—	N/A
		Total service margin	$	11,529	$	9,947	16	%	$	34,779		$	31,093	12	%
Total product and service gross margin:
	Genzyme General		$	206,504	$	193,501	7	%	$	588,234		$	535,020	10	%
	Genzyme Biosurgery			36,916		32,943	12	%		96,185			80,741	19	%
	Genzyme Molecular Oncology			—		—	N/A			198			—	N/A
	Elimination			—		—	N/A			(17	)		—	N/A
		Total gross margin	$	243,420	$	226,444	7	%	$	684,600		$	615,761	11	%

        We provide a broad range of healthcare products and services. As a result, our gross margin may vary significantly based on the category of product or service. Sales of therapeutic products, including Cerezyme enzyme, result in higher margins than from sales of diagnostic or surgical products.

Product Margin

        Our total product margin increased 7% for the three months ended September 30, 2002 as compared to the same period a year ago, primarily due to a 6% increase in total product revenue partially offset by a 1% increase in the total cost of products sold. Total product margin increased 11% for the nine months ended September 30, 2002 as compared to the same period a year ago, primarily due to a 7% increase in total product revenue partially offset by a 3% increase in the total cost of products sold.

        The 6% increase in product margin for products allocated to Genzyme General for the three months ended September 30, 2002 as compared to the same period a year ago was primarily attributable to a 6% increase in product revenue offset in part by a 7% increase in the cost of products sold. The improved product margin was primarily attributable to an increase in sales of higher margin Therapeutics products such as Cerezyme enzyme, Thyrogen hormone and Fabrazyme enzyme. Driven by the increase in sales in Therapeutics products, product margin for Therapeutics products increased 19% for the three months ended September 30, 2002.

        Product margin for Renagel phosphate binder decreased 29% for the three months ended September 30, 2002 as compared to the same period a year ago primarily due to decreased sales of Renagel phosphate binder resulting from slower than expected end-user growth and the continuation of our program to reduce wholesaler inventories. Product margin for Renagel phosphate binder for the three months ended September 30, 2002 as compared to the same period a year ago includes a reduction in wholesaler inventory levels, based on management's estimates of end user demand, of

70

approximately $7.0 million, as well as an increase in the Renagel phosphate binder rebate reserve of $4.0 million in the third quarter of 2002 to adjust our estimates of payor mix and rebate rates, which was partially offset by $1.5 million in sales attributable to a pricing increase.

        Product margin for Diagnostic Products decreased 3% for the three months ended September 30, 2002 as compared to the same period a year ago resulting from the increase in the cost of Diagnostic Products sold for the three months ended September 30, 2002 as compared to the same period a year ago.

        For products allocated to Genzyme Biosurgery, the 14% increase in product margin and the increase in product margin as a percentage of product revenue for the three months ended September 30, 2002 as compared to the same period a year ago was primarily attributable to a modest increase in revenue and a favorable 10% decrease in cost of products sold. The decrease in the cost of products sold was primarily related to increased sales of higher margin products, specifically Synvisc viscosupplementation product.

        The 9% increase in product margin for products allocated to Genzyme General for the nine months ended September 30, 2002 as compared to the same period a year ago was primarily attributable to an 8% increase in product revenue offset in part by a 5% increase in the cost of products sold. The improved product margin was primarily attributable to an increase in sales of higher margin Therapeutics products such as Cerezyme enzyme, Thyrogen hormone and Fabrazyme enzyme. Driven by the increase in sales in Therapeutics products, product margin for Therapeutics products increased 15% for the nine months ended September 30, 2002.

        Product margin for Renagel phosphate binder increased 4% for the nine months ended September 30, 2002 as compared to the same period a year ago despite decreased sales of Renagel phosphate binder primarily due to a decrease in the cost of Renagel phosphate binder sold attributable to a volume discount achieved on production costs. Also contributing to the decrease in cost of Renagel phosphate binder for the nine months ended September 30, 2002 as compared to the same period a year ago were charges of $8.2 million for the six months ended June 30, 2001 relating to the increased basis of the inventory obtained in connection with our acquisition of GelTex in December 2000, for which there are no comparable amounts in the nine months ended September 30, 2002. Product margin for Renagel phosphate binder for the nine months ended September 30, 2002 as compared to the same period a year ago includes a reduction in wholesaler inventory levels, based on management's estimates of end user demand, of approximately $30.0 million, as well as the $4.0 million increase to the rebate reserve in the third quarter of 2002, which was offset by $4.5 million in sales attributable to a pricing increase.

        Product margin for Diagnostic Products decreased 5% for the nine months ended September 30, 2002 as compared to the same period a year ago resulting from the increase in the cost of Diagnostic Products sold for the nine months ended September 30, 2002 as compared to the same period a year ago. The increase in cost of Diagnostic Products sold was partially attributable to a charge of $2.8 million recorded in the three months ended March 31, 2002 for the planned closure of a Diagnostic Products manufacturing facility in San Carlos, CA.

        We expect that in the future Genzyme General's product margin as a percentage of product revenue will trend slightly lower, primarily due to lower margins normally attributable to Renagel phosphate binder and a product mix shift as sales of Diagnostic Products continue to increase.

        The 24% increase in product margin for products allocated to Genzyme Biosurgery and the increase in product margin as a percentage of product revenue for the nine months ended September 30, 2002 as compared to the same period a year ago was primarily attributable to a slight increase in revenue and a favorable 15% decrease in cost of products sold. The decrease in the cost of products sold was primarily related to our December 18, 2000 acquisition of Biomatrix, which was

71

allocated to Genzyme Biosurgery. As part of the acquisition, we adjusted the acquired inventory to fair value, resulting in an increase of $11.3 million. This amount was fully amortized to cost of products sold as the acquired inventory was sold in the first half of 2001. Excluding this adjustment, Genzyme Biosurgery's product margin for the nine months ended September 30, 2001 would have been 52%. Excluding the adjustments described above, product margin for products allocated to Genzyme Biosurgery increased in the nine months ended September 30, 2002 as compared to the same period in 2001, as a result of an increase in sales of Synvisc viscosupplementation product, a higher margin product.

Service Margin

        Our total service margin increased 16% for the three months ended September 30, 2002 as compared to the same period a year ago primarily due to a 20% increase in total service revenue, which was partially offset by a 24% increase in total cost of services sold. Service margin increased 12% for the nine months ended September 30, 2002 as compared to the same period a year ago primarily due to a 16% increase in service revenue, which was partially offset by a 19% increase in total cost of services sold.

        Service margin for services allocated to Genzyme General increased 27% for the three months ended September 30, 2002 and 23% for the nine months ended September 30, 2002 as compared to the same periods a year ago primarily due to increased sales of genetic testing services attributable to our expanded presence in the prenatal screening market.

        Service margin for services allocated to Genzyme Biosurgery decreased 11% for the three months ended September 30, 2002 and 19% for the nine months ended September 30, 2002 as compared to the same periods a year ago primarily due to decreased sales of Epicel skin grafts and an increase in overall cost of services during both periods.

OPERATING EXPENSES

Selling, General and Administrative Expenses

        Selling, general and administrative expenses decreased 5% to $115.5 million for the three months ended September 30, 2002 as compared to same period a year ago. The decrease was primarily due to $29.9 million of expenses that were included in selling, general and administrative expense for the three months ended September 30, 2001 for which there are no comparable amounts in the same period of 2002. Selling, general and administrative expenses for the three months ended September 30, 2001 includes:

•

charges of $27.0 million resulting from Pharming Group N.V.'s August 2001 decision to file for and operate under a court supervised receivership which consisted of the write-off of the $10.2 million in principal and accrued interest due to us under the 7% senior convertible note issued to us by Pharming Group and a charge of $16.8 million representing our commitment to fund the operations of our joint venture with Pharming Group for Pompe disease therapies, which in turn is legally obligated to supply human transgenic alpha-glucosidase until the patients currently enrolled in the clinical trial of the product can be transitioned to a product derived from Chinese hamster ovary, or CHO, cells which we refer to as a CHO-cell product; and



•

$2.9 million of costs attributable to the sale of our former Snowden-Pencer line of surgical instruments.

        Excluding the $27.0 million of charges related to Pharming Group and $2.9 million of costs attributable to the sale of our former Snowden-Pencer line of surgical instruments in the three months

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ended September 30, 2001, selling, general and administrative expenses increased 25% for the three months ended September 30, 2002 as compared to same period a year ago primarily due to:

•

a $10.1 million increase in selling and marketing costs for Renagel phosphate binder;



•

a $3.9 million increase in expenditures related to increased market penetration for Fabrazyme enzyme in Europe;



•

a $2.5 million charge recorded in September 2002, to write down accounts receivable for Cerezyme enzyme in Argentina;



•

a $1.9 million increase in expenditures to support increased sales of Cerezyme enzyme;



•

the addition of expenses resulting from our acquisition of Novazyme;



•

the increase in legal costs related to on-going regulatory matters and intellectual property disputes; and



•

a $2.6 million charge for severance costs relating to Genzyme Biosurgery's cardiothoracic business for which there were no comparable amounts in the same period a year ago.

        Selling, general and administrative expenses increased 4% to $329.4 million for the nine months ended September 30, 2002 as compared to same period a year ago despite the inclusion of $43.1 million of expenses during the nine months ended September 30, 2001 for which there are no comparable amounts in the same period of 2002. Selling, general and administrative expenses for the nine months ended September 30, 2001 includes:

•

charges of $27.0 million resulting from Pharming Group's August 2001 decision to file for and operate under a court supervised receivership;



•

$10.6 million of costs attributable to the sale of our former Snowden-Pencer line of surgical instruments; and



•

$5.5 million of costs associated with the consolidation of Genzyme Biosurgery's European operations.

        Excluding the $43.1 million of charges related to Pharming Group N.V., the sale of our former Snowden-Pencer line of surgical instruments and Genzyme Biosurgery's consolidation of European operations in the nine months ended September 30, 2001, selling, general and administrative expenses increased 20% for the nine months ended September 30, 2002 as compared to same period a year ago primarily due to:

•

a $32.3 million increase in selling and marketing costs for Renagel phosphate binder;



•

a $9.5 million increase in expenditures related to increased market penetration for Fabrazyme enzyme in Europe;



•

a $4.7 million increase in expenditures to support increased sales of Cerezyme enzyme;



•

a $2.5 million charge to write down accounts receivable for Cerezyme enzyme in Argentina;



•

the addition of expenses resulting from our acquisitions of Novazyme and Wyntek;



•

the increase in legal costs related to on-going regulatory matters and intellectual property disputes; and



•

a $2.6 million charge for severance costs relating to Genzyme Biosurgery's cardiothoracic business for which there were no comparable amounts in the same period a year ago.

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Research and Development Expenses

        Research and development expenses increased 8% to $74.7 million for the three months ended September 30, 2002 as compared to the same period a year ago primarily due to:

•

a $3.1 million increase in spending related to our Pompe development program as described below;



•

a $1.9 million increase in spending on Genzyme General's program to further develop Fabrazyme enzyme for the treatment of Fabry disease;



•

a $1.3 million increase in the cost of post-marketing clinical development efforts for Renagel phosphate binder;



•

the addition of spending as a result of our acquisitions of Novazyme and Wyntek;



•

additional spending on the continued development of the C. difficile colitis, oral iron chelator, oral mucositis and anti-obesity programs; and



•

a $1.1 million increase in spending on the orthopaedics development programs, particularly other indications for Synvisc viscosupplementation product.

        Research and development expenses increased 23% to $232.8 million for the nine months ended September 30, 2002 as compared to the same period a year ago primarily due to:

•

a $34.3 million increase in spending related to our Pompe development program as described below;



•

a $1.2 million increase in spending on Genzyme General's program to further develop Fabrazyme enzyme for the treatment of Fabry disease;



•

a $4.3 million increase in the cost of post-marketing clinical development efforts for Renagel phosphate binder;



•

the addition of spending as a result of our acquisitions of Novazyme and Wyntek;



•

additional spending on the continued development of the C. difficile colitis, oral iron chelator, oral mucositis, and anti-obesity programs;



•

a $1.9 million increase in spending on the orthopaedics development programs, particularly other indications for Synvisc viscosupplementation product; and



•

a $1.1 million increase in spending on the cardiothoracic development programs, particularly cell therapy.

        Included in research and development expenses for the nine months ended September 30, 2002 are expenses associated with a comparison study of our enzyme programs for the treatment of Pompe disease that we concluded during the first quarter of 2002. The enzyme programs included:

•

the transgenic enzyme developed by our Pharming/Genzyme LLC joint venture with Pharming Group;



•

the internally produced enzyme derived from a CHO-cell line;



•

the CHO enzyme licensed from Synpac (North Carolina), Inc. in 2000; and



•

an enzyme produced using technology we obtained in the Novazyme acquisition in 2001.

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        The analysis of the data from that study indicated that our internally developed CHO-cell product offers the clearest and most efficient pathway to commercialization based on both clinical and manufacturing considerations. As a result of this analysis we:

•

have cancelled our manufacturing contract for the clinical development of the CHO therapy licensed from Synpac while recording a charge of $8.8 million to research and development in the first quarter of 2002 to reflect bulk product purchases and contract cancellation charges;



•

will continue to supply the CHO therapy licensed from Synpac to patients participating in the extensions of clinical trials, as we have with patients receiving the transgenic enzyme developed in a joint venture with Pharming Group until they can be transitioned to a CHO-cell product; and



•

will proceed with the pre-clinical development of an enzyme product using technology we obtained through our acquisition of Novazyme as a potential next-generation therapy for Pompe disease and utilize Novazyme's engineering technologies to develop improved second-generation versions of our marketed products and optimal products for the treatment of other LSDs.

        Research and development expenses for the nine months ended September 30, 2002 include a charge of $2.0 million we recorded in the first quarter of 2002 representing the restructuring of Genzyme General's facilities in New Jersey and Oklahoma that were acquired in connection with our acquisition of Novazyme.

Amortization of Intangibles

        Amortization of intangibles expense decreased 43% to $17.6 million for the three months ended September 30, 2002 and 41% to $52.8 million for the nine months ended September 30, 2002 as compared to the same periods in 2001 due to our adoption of SFAS No. 142 in January 2002. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. In accordance with the provisions of SFAS No. 142, we ceased amortizing goodwill as of January 1, 2002. Had SFAS No. 142 been in effect for the three and nine months ended September 30, 2001, our amortization of intangibles expense would have been as follows (unaudited, amounts in thousands):

	Three Months Ended September 30, 2001							Nine Months Ended September 30, 2001
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	30,950	$	(13,351	)	$	17,599	$	90,115	$	(39,219	)	$	50,896

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        The following tables present the impact SFAS No. 142 would have had on our amortization of intangibles expense had the standard been in effect for the years ended December 31, 2001, 2000 and 1999 (amounts in thousands):

	Year Ended December 31, 2001							Year Ended December 31, 2000
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
			(Unaudited)							(Unaudited)
Amortization of intangibles	$	121,124	$	(52,541	)	$	68,583	$	22,974	$	(12,259	)	$	10,715

	Year Ended December 31, 1999
	As Reported		Goodwill Amortization Adjustment			As Adjusted
			(Unaudited)
Amortization of intangibles	$	24,674	$	(12,375	)	$	12,299

Purchase of In-Process Research and Development

Myosix

        In July 2002, we entered into a collaboration with Myosix, a privately-held French biotechnology company, for the development and commercialization of a certain autologous cell culture technology, which we refer to as the Myosix Technology. The Myosix Technology was developed by the founders of Myosix with funding from the AP-HP, which owns and exclusively licenses the Myosix Technology and related patents to Myosix. In connection with the collaboration, we entered into several agreements with Myosix, including an equity purchase agreement, all effective July 29, 2002. Pursuant to the terms of the equity purchase agreement, we acquired 49% of the common stock of Myosix in exchange for 625,977 shares of Biosurgery Stock. The entire initial acquisition cost of $1.9 million, of which $1.6 million represents the fair market value of the shares of Biosurgery Stock exchanged and $0.3 million represents acquisition costs, was allocated to IPR&D and charged to expense in the three months ended September 30, 2002. We allocated this charge and our ownership interest in Myosix to Genzyme Biosurgery.

        The sublicense that we obtained from Myosix grants us use of the Myosix Technology for the treatment of congestive heart failure, although other applications may be pursued from this cell culture process. As of July 29, 2002, the date of acquisition, phase 1 clinical testing had been completed with funding from the AP-HP. Phase 2 clinical trials are scheduled to commence in the fourth quarter of 2002, and FDA approval for cardiac cell therapy is projected for 2009. As of September 30, 2002, the Myosix Technology has not achieved technological feasibility for any application and will require significant future development before an application can be completed.

Novazyme

        In September 2001, in connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly, we allocated to IPR&D and charged to expense $86.8 million, representing the portion of the purchase price attributable to the technology platform. We recorded this amount as a charge to expense in our unaudited, consolidated statements of operations and in Genzyme General's unaudited, combined statements of operations for the quarter ended September 30, 2001.

        The platform technology is specific to LSDs and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the treatment of

76

LSDs. As of September 30, 2002, we estimate that it will take approximately four to six years and an investment of approximately $75 million to $100 million to complete the development of, obtain approval for and commercialize the first product based on this technology platform.

Wyntek

        In June 2001, in connection with our acquisition of Wyntek, we allocated approximately $8.8 million of the purchase price to IPR&D. We recorded this amount as a charge to expense in our unaudited, consolidated statements of operations and in Genzyme General's unaudited, combined statements of operations for the quarter ended June 30, 2001.

        Wyntek currently is developing a cardiovascular product to rapidly measure the quantitative levels of cardiac marker proteins. These are the leading markers for the diagnosis of acute myocardial infarction. The product consists of a mobile, stand-alone, quantitative diagnostic device and a reaction strip that detects disease specific marker proteins. The intended use of the device is to read reaction strips at the patient's bedside or in an emergency room setting. In September 2002, we filed a 510(k) submission with the FDA for Wyntek's cardiovascular product. If we receive the necessary regulatory approvals, we intend to begin selling the product.

GelTex

        In December 2000, in connection with the acquisition of GelTex, we allocated approximately $118.0 million of the purchase price to IPR&D, which we recorded as a charge to expense in our consolidated statement of operations and in Genzyme General's combined statements of operations for the year ended December 31, 2000. As of September 30, 2002, the technological feasibility of the projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

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        Below is a brief description of the GelTex IPR&D projects, including an estimation of when our management believes Genzyme General may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication		Development Status at September 30, 2002	Value at Acquisition Date		Estimated Cost to Complete at September 30, 2002		Year of Expected Product Launch
				(Amounts in millions)
Renagel | phosphate binder	Next stage non-absorbed polymer phosphate binder for the treatment of hyperphospatemia	•	Clinical studies scheduled for completion in 2002, 2003, and 2004	$	19.7	$	7.6	2004
GT160-246	C. difficile colitis	•	Phase 2 trial ongoing		37.4		30.5	2006
GT56-252 Oral Iron Chelator	Iron overload disease	• •	Filed an IND in Q4 2001 Approval to commence Phase 1 trials in Europe obtained in 2001		15.7		22.5	2007
GT316-235 Fat absorption inhibitor	Anti-Obesity	•	Expected to file an IND in the first half of 2003		17.8		37.6	2010
Polymer	Oral Mucositis	•	IND expected to be filed in the first half of 2003		17.8		30.0	2008
DENSPM	Psoriasis	•	Program cancelled during 2001; no further development planned		3.4		N/A	N/A
GT102-279	Second generation lipid-lowering compound	•	Program cancelled during 2001; no further development planned		6.2		N/A	N/A
				$	118.0	$	128.2

Biomatrix

        In connection with our acquisition of Biomatrix, we allocated approximately $82.1 million to IPR&D, which we recorded as a charge to expense in our consolidated statements of operations and in Genzyme Biosurgery's combined statement of operations for the year ended December 31, 2000. As of September 30, 2002, the technological feasibility of the Biomatrix IPR&D projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

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        Below is a brief description of the Biomatrix IPR&D projects, including an estimation of when management believes we may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication		Development Status at September 30, 2002	Value at Acquisition Date (in millions)		Estimated Cost to Complete at September 30, 2002	Year of Expected Product Launch
Viscosupplementation	Use of elastoviscous solutions and viscoelastic gels in disease conditions to supplement tissues and body fluids, alleviating pain and restoring normal function.	• • • •	Preclinical for hip indication in U.S. Preclinical for knee indication Preclinical for other joints Product for hip indication launched in Europe in September 2002	$	33.8	(1)	2002 to 2008
Visco-augmentation and Visco-separation (Adhesion prevention)	Use of viscoelastic gels to provide scaffolding for tissue regeneration and to separate tissues and decrease formation of adhesions and excessive scars after surgery.	• • •	Preclinical—gynecological and pelvic indications Clinical trials—pivotal safety and efficacy study on-going in U.S. for Hylaform® Phase 2—spine indications; program cancelled during 2002; no further development planned		48.3	(1) N/A	2003 to 2006 N/A
				$	82.1

(1)

Costs to complete are not estimable due to the early stage of these programs.

        Except for our viscosupplementation product for the hip launched in Europe in 2002, substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once developed each product will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

Charge for Impaired Assets

        In 1997, we temporarily suspended bulk production of HA at our bulk HA manufacturing facility in Haverhill, England, because we determined that we had sufficient quantities of HA on hand to meet the demand for our Sepra products for the near term. In the first quarter of 2002, we began a capital expansion program to build HA manufacturing capacity at one of our existing manufacturing facilities in Framingham, Massachusetts. During the third quarter of 2002, we determined that we have sufficient inventory levels to meet demand until the Framingham facility is completed and validated, which is estimated to be within one year. In connection with this assessment, at September 30, 2002, we concluded that we no longer require the manufacturing capacity at the HA plant in England and recorded an impairment charge of approximately $9.0 million in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended September 30, 2002 to write down the assets at the England facility to fair value.

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OTHER INCOME AND EXPENSES

		Three Months Ended September 30,								Nine Months Ended September 30,
								Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
		2002			2001					2002			2001
		(Unaudited, amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliates		$	(2,387	)	$	(8,110	)	(71	)%	$	(10,429	)	$	(28,921	)	(64	)%
Gain (loss) on investments in equity securities			29			(24,464	)	(100	)%		538			(25,996	)	(102	)%
Minority interest in net loss of subsidiary			—			260		(100	)%		—			2,259		(100	)%
Other			(234	)		(980	)	(76	)%		729			(4,823	)	(115	)%
Investment income			12,956			13,718		(6	)%		39,017			36,359		7	%
Interest expense			(6,602	)		(8,739	)	(24	)%		(20,467	)		(30,875	)	(34	)%
	Total other income (expenses)	$	3,762		$	(28,315	)	(113	)%	$	9,388		$	(51,997	)	(118	)%

Equity in Net Loss of Unconsolidated Affiliates

        We record the results of the following joint ventures in equity in net loss of unconsolidated affiliates:

Joint Venture	Partner	Effective Date	Product/Indication	Genzyme Division
BioMarin/ Genzyme LLC	BioMarin Pharmaceutical Inc.	September 1998	Aldurazyme enzyme for the treatment of mucopolysaccharidosis-I	Genzyme General
Pharming/ Genzyme LLC	Pharming Group, N.V.	October 1998	Human alpha-glucosidase for the treatment of Pompe disease (transgenic product)	Genzyme General
Genzyme/Pharming Alliance LLC(1)	Pharming Group, N.V.	June 2000	Human alpha-glucosidase for the treatment of Pompe disease (produced using CHO cells)	Genzyme General
Diacrin/ Genzyme LLC	Diacrin, Inc.	October 1996	Products using porcine fetal cells for the treatment of Parkinson's and Huntington's diseases	Genzyme Biosurgery (until May 1999); Genzyme General (after May 1999)

(1)

In August 2001, we terminated our strategic alliance with Pharming Group N.V. and certain of its subsidiaries for the development of a CHO-cell product for Pompe disease and assumed full operational and financial responsibility for the development of the CHO-cell product.

        Through May 31, 2002, our equity in net loss of unconsolidated affiliates included our portion of the losses of GTC.

        Our equity in net loss of unconsolidated affiliates decreased 71% to $2.4 million for the three months ended September 30, 2002, as compared to the same period a year ago, primarily as the result of the August 2001 termination of our strategic alliance with Pharming for the development of a CHO-cell derived product for the treatment of Pompe disease. In addition, in August 2001, we became responsible for funding all of the operations of Pharming/Genzyme LLC, which in turn is legally obligated to supply transgenically-derived alpha-glucosidase until the patients currently enrolled in the clinical trial of the product can be transitioned to a CHO-cell product. Our share of losses for both of

80

our joint ventures with Pharming was $2.6 million for the three months ended September 30, 2001 for which there are no comparable amounts in the same period of 2002.

        The decrease in equity in net loss of unconsolidated affiliates for the three months ended September 30, 2002 as compared to the same period a year ago was also attributable to:

•

a $2.5 million decrease in net losses from our joint venture with BioMarin;



•

a $0.3 million decrease in net losses from our joint venture with Diacrin; and



•

a $0.3 million decrease in net losses in our equity position in GTC.

        Our equity in net loss of unconsolidated affiliates decreased 64% to $10.4 million for the nine months ended September 30, 2002, as compared to the same period a year ago, primarily as the result of the August 2001 termination of our strategic alliance with Pharming. Our share of losses for both of our joint ventures with Pharming was $9.4 million for the nine months ended September 30, 2001 for which there are no comparable amounts in the same period of 2002.

        The decrease in equity in net loss of unconsolidated affiliates for the nine months ended September 30, 2002 as compared to the same period a year ago was also attributable to:

•

a $5.3 million decrease in net losses from our joint venture with BioMarin;



•

a $1.7 million decrease in net losses from our joint venture with Diacrin; and



•

a $0.9 million decrease in net losses in our equity position in GTC.

        On April 4, 2002, GTC purchased approximately 2.8 million shares of GTC common stock held by us and allocated to Genzyme General for an aggregate consideration of approximately $9.6 million. We received approximately $4.8 million in cash and a promissory note for the remaining amount of approximately $4.8 million. The shares of GTC common stock were valued at $3.385 per share in this transaction, using the simple average of the high and low transaction prices quoted on the Nasdaq National Market on April 1, 2002. We have committed to a 24-month lock-up provision on the remaining 4.9 million shares of GTC common stock held by us and allocated to Genzyme General, which is approximately 18% of the shares of GTC common stock outstanding as of September 30, 2002. We accounted for our investment in GTC under the equity method of accounting until May 2002, at which point we ceased to have significant influence over GTC. We began accounting for our investment in GTC under the cost method of accounting in June 2002.

        Because of the 24-month lock-up provision, the remaining 4.9 million shares of GTC common stock held by us do not qualify as marketable securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As a result, we carry the investment on our consolidated balance sheet and the combined balance sheet of Genzyme General at cost, subject to review for impairment. Based on the market price of GTC common stock at September 30, 2002, our remaining investment would have an unrealized loss of $8.2 million. Because we have assessed the decline in the market price of GTC common stock to be temporary, we have not recorded an associated impairment charge.

        In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We recorded in equity in net loss of unconsolidated affiliates our portion of the results of Focal. On June 30, 2001, we acquired the remaining 78% of the outstanding shares in an exchange of shares of Biosurgery Stock for shares of Focal common stock. Our equity in net loss of unconsolidated affiliate decreased in the nine months ended September 30, 2002 when compared to the same period in 2001 because we began accounting for Focal as a wholly-owned subsidiary when the remaining outstanding shares were purchased.

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Gain (Loss) on Investment in Equity Securities

        We review the carrying value of each of our investments in equity securities on a quarterly basis for impairment. Because we have assessed the decline in the market price of each of our investments in equity securities to be temporary, we have not recorded any associated impairment charges for the three and nine months ended September 30, 2002. We will be required to record a charge to earnings if we conclude, in any future quarter, that it is unclear over what period the recovery of the stock price for each of these investments will take place and, accordingly, that any evidence suggesting that these investments will recover to at least our purchase price is not sufficient to overcome the presumption that the current market price is the best indicator of the value of each of these investments. Excluding our investment in GTC common stock, at September 30, 2002, our stockholders' equity includes unrealized losses of approximately $20.8 million, related to the other investments in equity securities allocated to Genzyme General, that we believe are temporary. We will record impairment charges related to these investments if the stocks do not recover within the next three to six months, all of which will be allocated to Genzyme General.

        In September 2001, we recorded charges of $11.8 million in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group and $4.5 million in connection with our investment in the common stock of Targeted Genetics, because we considered the decline in value of these investments to be other than temporary. Given the significance and duration of the declines as of the end of the quarter, we concluded that it was unclear over what period the recovery of the stock price for each of these investments would take place and, accordingly, that any evidence suggesting that the investments would recover to at least our purchase price was not sufficient to overcome the presumption that the current market price was the best indicator of the value of each of these investments.

        In September 2001, we recorded a charge of $8.5 million, representing an at-cost write-off of our investment in Pharming common stock. In August 2001, Pharming Group announced that it would file for receivership in order to seek protection from its creditors.

        In April 2001, we recorded a $1.2 million charge to reflect the fair market value of our investment in Aronex at June 30, 2001. In April 2001, Antigenics announced that it had entered into a definitive merger agreement with Aronex. The merger was completed in July 2001. Under the terms of the merger agreement, we received 0.0594 of a share of Antigenics common stock for each share of Aronex common stock that we held.

Minority Interest in Net Loss of Subsidiary

        As a result of our combined direct (until July 2001) and indirect interest in ATIII LLC, we had consolidated the results of ATIII LLC, recording GTC's portion of the losses of that joint venture as minority interest. ATIII LLC was a joint venture we formed with GTC for the development and commercialization of transgenically-derived antithrombin III. In July 2001, we transferred our 50% ownership interest in ATIII LLC to GTC and stopped recording minority interest.

Investment Income

        Our investment income decreased 6% for the three months ended September 30, 2002 and increased 7% for the nine months ended September 30, 2002 as compared to the same periods a year ago. The decrease in investment income for the three months ended September 30, 2002 as compared to the same period a year ago was primarily due to a decrease in interest rates. The increase in investment income for the nine months ended September 30, 2002 as compared to the same period a year ago was primarily due to higher average cash balances. The higher cash balances resulted primarily from our May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. Net proceeds from the offering were approximately $562.1 million. We

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allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General.

Interest Expense

        Our interest expense decreased 24% for the three months ended September 30, 2002, as compared to the same period a year ago, primarily due to a decrease in interest rates used to calculate interest on borrowings from our revolving credit facility. Interest expense decreased 34% for the nine months ended September 30, 2002 as compared to the same period a year ago primarily due to the June 2001 redemption of our $250.0 million in principal of 5¹/4% convertible subordinated notes due 2005, which was partially offset by the May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. Also in May 2001, Genzyme General used a portion of the $562.1 million in net proceeds from the private placement of the 3% convertible subordinated debentures due May 2021 to repay the $150.0 million we had drawn under our revolving credit facility in December 2000.

Tax (Provision) Benefit

	Three Months Ended September 30,								Nine Months Ended September 30,
							Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
	2002			2001					2002			2001
	(Unaudited, amounts in thousands, except percentage data)
(Provision for) benefit from income taxes	$	(6,600	)	$	4,554		(245	)%	$	(20,031	)	$	7,288		(375	)%
Effective tax rate		21	%		4	%				25	%		6	%

        Our tax rates for all periods vary from the U.S. statutory tax rate as a result of our:

•

provision for state income taxes;



•

use of a foreign sales corporation; and



•

use of tax credits.

        Our effective tax rate for both the three and nine months ended September 30, 2001 also varied from the U.S. statutory rate due to nondeductible goodwill amortization expense. We stopped recording nondeductible goodwill amortization expense upon the adoption of SFAS No. 142 in fiscal year 2002.

Cumulative Effects of Changes in Accounting for Goodwill and Derivative Financial Instruments

        On January 1, 2002, we adopted SFAS No. 142, which requires that ratable amortization of goodwill be replaced with periodic impairment testing of goodwill. Accordingly, we ceased amortizing goodwill effective January 1, 2002.

        In accordance with the transitional provisions of SFAS No. 142, we tested the impairment of the goodwill for Genzyme Biosurgery's cardiothoracic reporting unit and recorded an impairment charge of $98.3 million in our unaudited, consolidated statements of operations and in the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended March 31, 2002, which we recorded as the cumulative effect of a change in accounting for goodwill.

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in our consolidated balance sheet and measure those

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instruments at fair value. Subsequent changes in fair value are reflected in income, unless the derivative is part of a qualified hedging relationship.

        In accordance with the transition provisions of SFAS No. 133, we recorded a cumulative effect adjustment of $4.2 million, net of tax, in our unaudited, consolidated statement of operations and in the unaudited, combined statement of operations of Genzyme General for the three months ended March 31, 2001, to recognize the fair value of our warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts allocated to Genzyme General were not significant. For the three months ended September 30, 2002, we recorded a gain of $0.04 million in other income in our unaudited, consolidated statements of operations and in the unaudited, combined statement of operations of Genzyme General to reflect the change in value of our warrants to purchase shares of GTC common stock from July 1, 2002 to September 30, 2002, as compared to a charge of $1.2 million in other expense for the same period of 2001. For the nine months ended September 30, 2002, we recorded a charge of $2.0 million in other expense in our unaudited, consolidated statements of operations and in the unaudited, combined statements of operations of Genzyme General to reflect the change in fair value of our warrants to purchase shares of GTC common stock from January 1, 2002 to September 30, 2002 as compared to a charge of $5.0 million for the same period a year ago. We also recorded a charge of $0.7 million ($1.2 million pre-tax) in other comprehensive income (loss) in stockholders' equity in our unaudited, consolidated balance sheets and in division equity in the unaudited, combined balance sheet of Genzyme General to reflect the change in value of our interest rate swaps during the nine months ended September 30, 2002. At September 30, 2002, our interest rate swaps had a fair market value of $(4.0) million.

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GENZYME GENERAL
A Division of Genzyme Corporation

        The following discussion summarizes the key factors our management believes necessary for an understanding of Genzyme General's financial statements.

ACQUISITIONS

        In September 2001, we acquired all of the outstanding capital stock of Novazyme for an initial payment of approximately 2.6 million shares of Genzyme General Stock valued at $110.6 million. Novazyme shareholders received 0.5714 of a share of Genzyme General Stock for each share of Novazyme common stock they held. We will be obligated to make two additional payments totaling $87.5 million, payable in shares of Genzyme General Stock, if we receive U.S. marketing approval for two products for the treatment of LSDs that employ certain of Novazyme's technologies by specified dates. In connection with the merger, we also assumed all of the outstanding options, warrants and rights to purchase Novazyme common stock on an as-converted basis. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Novazyme are included in our consolidated financial statements and the combined financial statements of Genzyme General from September 26, 2001, the date of acquisition.

        The staff of the FTC is investigating our acquisition of Novazyme. The FTC is one of the agencies responsible for enforcing federal antitrust laws, and, in this investigation, it is evaluating whether there are anti-competitive aspects of the Novazyme transaction that the government should seek to negate. While we do not believe that the acquisition should be deemed to contravene antitrust laws, we have been cooperating in the FTC investigation. At this stage, we cannot predict with precision the likely outcome of the investigation or how that outcome will impact our business. As with any litigation or investigation, there are costs associated with responding to the investigation, both in terms of management time and out-of-pocket expenses.

        In June 2001, we acquired all of the outstanding capital stock of privately-held Wyntek for $65.0 million in cash. Wyntek is a provider of point of care rapid diagnostic tests for pregnancy and infectious diseases. We allocated the acquisition to Genzyme General and accounted for the acquisition as a purchase. Accordingly, the results of operations of Wyntek are included in our consolidated financial statements and in the combined financial statements of Genzyme General from June 1, 2001, the date of acquisition.

CRITICAL ACCOUNTING POLICIES

        The critical accounting policies for Genzyme General are set forth under the heading "Management's Discussion and Analysis of Genzyme General's Financial Condition and Results of Operations—Critical Accounting Policies" in Exhibit 13.2 to our 2001 Form 10-K. Except for Genzyme General's policy regarding asset impairments, as described below, there have been no changes to these policies since December 31, 2001.

Asset Impairments

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of", and amends APB No. 30, "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and thus, has been adopted by Genzyme General, effective at the beginning of fiscal year 2002.

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        Genzyme General periodically evaluates long-lived assets for potential impairment under SFAS No. 144. Genzyme General performs these evaluations whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•

a significant change in the manner in which an asset is used;



•

a significant decrease in the market value of an asset;



•

a significant adverse change in its business or its industry; and



•

a current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

        If Genzyme General believes an indicator of potential impairment exists, it tests to determine whether the impairment recognition criteria in SFAS No. 144 have been met. In evaluating long-lived assets for potential impairment, Genzyme General makes several significant estimates and judgments, including:

•

determining the appropriate grouping of assets at the lowest level for which cash flows are available;



•

estimating future cash flows associated with the asset or group of assets; and



•

determining an appropriate discount rate to use in the analysis.

Use of different estimates and judgments could yield significantly different results in this analysis and could result in materially different asset impairment charges.

        Effective January 1, 2002, Genzyme General adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. Unlike SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," goodwill impairment tests performed under SFAS No. 142 do not involve an initial test comparing the projected undiscounted cash flows to the carrying amount of goodwill. Instead, SFAS No. 142 requires that goodwill be tested using a two-step process. The first step compares the fair value of the reporting unit with the unit's carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value. Effective January 1, 2002, Genzyme General reclassified $2.4 million of workforce intangible assets previously classified as other intangible assets, net of related deferred tax liabilities, to goodwill as required by SFAS No. 142.

        We completed transitional and annual impairment tests for the $492.4 million of net goodwill related to Genzyme General's reporting units in the nine months ended September 30, 2002, as provided by SFAS No. 142 and determined that no impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. For all of our acquisitions, various analyses, assumptions and estimates were made at the time of each acquisition specifically regarding product development, market conditions and cash flows that were used to determine the valuation of goodwill and intangibles. The possibility exists that those estimates could prove to be inaccurate, which could result in an impairment of goodwill.

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REVENUES

        The components of Genzyme General's total revenues are described in the following table:

		Three Months Ended September 30,						Nine Months Ended September 30,
						Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
		2002		2001				2002		2001
		(Unaudited, amounts in thousands, except percentage data)
Product revenue		$	249,464	$	234,875	6	%	$	710,683	$	656,121	8	%
Service revenue			22,537		17,853	26	%		66,132		54,390	22	%
	Total product and service revenue		272,001		252,728	8	%		776,815		710,511	9	%
Research and development revenue			822		2,324	(65	)%		5,323		6,232	(15	)%
	Total revenues	$	272,823	$	255,052	7	%	$	782,138	$	716,743	9	%

Product and Service Revenue

        The following table sets forth Genzyme General's product and service revenues on a segment basis:

				Three Months Ended September 30,						Nine Months Ended September 30,
								Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
				2002		2001				2002		2001
				(Unaudited, amounts in thousands, except percentage data)
Product Revenue:
	Therapeutics:
		Cerezyme enzyme		$	157,471	$	143,048	10	%	$	460,254	$	423,991	9	%
		Other therapeutic products			24,763		8,631	187	%		54,291		21,810	149	%
			Total Therapeutics		182,234		151,679	20	%		514,545		445,801	15	%
	Renal				36,954		52,356	(29	)%		106,029		121,359	(13	)%
	Diagnostic Products				20,656		20,572	—			61,024		54,786	11	%
	Other				9,620		10,268	(6	)%		29,085		34,175	(15	)%
			Total product revenue		249,464		234,875	6	%		710,683		656,121	8	%
Service Revenue:
	Other				22,537		17,853	26	%		66,132		54,390	22	%
			Total product and service revenue	$	272,001	$	252,728	8	%	$	776,815	$	710,511	9	%

Therapeutics

        The increase in Therapeutics product revenue for both the three and nine months ended September 30, 2002 as compared to the same periods a year ago, was primarily due to continued growth in sales of Cerezyme enzyme for the treatment of Type 1 Gaucher disease and increased sales of other therapeutic products. Other therapeutic products revenue consists primarily of sales of Thyrogen hormone, which is an adjunctive diagnostic tool for well-differentiated thyroid cancer, sales of Fabrazyme enzyme, which is a recombinant form of the human enzyme alpha-galactosidase used for the treatment of Fabry disease, and bulk sales of and royalties earned on sales of WelChol bile acid binder, which is an adjunctive therapy for the reduction of elevated LDL cholesterol in patients with primary hypercholesterolemia.

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        The growth in sales of Cerezyme enzyme in both the three and nine months ended September 30, 2002 was attributable to Genzyme General's continued identification of new Gaucher disease patients worldwide, particularly in Europe, resulting from significant investment in our global sales and marketing infrastructure. The growth in European sales of Cerezyme enzyme for both periods was positively impacted by the weakened U.S. Dollar against the Euro. During the three months ended September 30, 2002 as compared to the same period a year ago the U.S. Dollar weakened against the Euro on average by approximately 10%, which positively impacted sales of Cerezyme enzyme by $5.0 million. During the nine months ended September 30, 2002 as compared to the same period a year ago the U.S. Dollar weakened against the Euro on average by approximately 3%, which positively impacted sales of Cerezyme enzyme by $5.1 million.

        Genzyme General's results of operations are highly dependent on sales of Cerezyme enzyme and a reduction in revenue from sales of this product would adversely affect its results of operations. Revenue from Cerezyme enzyme would be impacted negatively if competitors developed alternative treatments for Gaucher disease and the alternative products gained commercial acceptance. Although orphan drug status for Cerezyme enzyme, which provided us with exclusive marketing rights for Cerezyme enzyme in the U.S., expired in May 2001, we continue to have patents protecting our method of manufacturing Cerezyme enzyme until 2010 and the composition of Cerezyme enzyme as made by that process until 2013. The expiration of market exclusivity and orphan drug status will likely subject Cerezyme enzyme to increased competition, which may decrease the amount of revenue we receive from this product or the growth of that revenue.

        Genzyme General is aware of companies that have initiated efforts to develop competitive products. OGS, for example, is developing Zavesca (OGT 918), a small molecule drug candidate for the treatment of Type 1 Gaucher disease. OGT 918 has been granted orphan drug status in the U.S. for treatment of Type 1 Gaucher and Fabry diseases, and has been designated as an orphan medicinal product in the European Union for the treatment of Type 1 Gaucher disease. In 2001, OGS submitted an MAA to the EMEA, as well as an NDA to the FDA for OGT 918 for the oral treatment of Type 1 Gaucher disease. In June 2002, the FDA issued a complete response letter on the NDA for OGT 918. In the letter the FDA stated that, in its opinion, the product is not approvable due to OGS' failure to provide sufficient support for the safety and efficacy of OGT 918. In July 2002, the CPMP of the EMEA issued a positive opinion recommending marketing approval of OGT 918 for the treatment of Type 1 Gaucher disease. The CPMP's decision states that the product is indicated only for mild-to-moderate forms of Type 1 Gaucher disease, and may be used only for the treatment of patients for whom enzyme replacement therapy is unsuitable. The CPMP requested OGS provide follow-up safety data. To date, virtually all Gaucher disease patients who have received enzyme replacement therapy have experienced strong clinical benefit with few side effects.

        The following table provides information regarding the change in sales of Cerezyme enzyme as a percentage of Genzyme General's total product revenue during the periods presented:

	Three Months Ended September 30,								Nine Months Ended September 30,
							Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
	2002			2001					2002			2001
	(Unaudited, amounts in thousands, except percentage data)
Sales of Cerezyme enzyme	$	157,471		$	143,048		10	%	$	460,254		$	423,991		9	%
% of Genzyme General's total product revenue		63	%		61	%				65	%		65	%

        Other therapeutic products revenue consists primarily of sales of Thyrogen hormone, Fabrazyme enzyme and bulk sales of and royalties earned on sales of WelChol bile acid binder. The increase in

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other therapeutic products revenue for the three months ended September 30, 2002 as compared to the same period a year ago is attributable to:

•

a 54% increase in sales of Thyrogen hormone to $7.3 million primarily due to increased market penetration. Thyrogen hormone was launched in Europe during the fourth quarter of 2001 as a result of a positive opinion rendered in September 2001 by the CPMP of the EMEA, which was necessary for commercial introduction of the product;



•

a 273% increase in sales of Fabrazyme enzyme in Europe to $7.3 million primarily due to the introduction to several new markets in Europe and our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme. Fabrazyme enzyme was launched in Europe in August 2001; and



•

a 433% increase in bulk sales of and royalties earned on sales of WelChol bile acid binder to $9.9 million primarily due to increased market penetration. WelChol bile acid binder is marketed in the U.S. by Sankyo Pharma, Inc. In October 2002, Merck/Schering-Plough Pharmaceuticals received marketing approval in Germany and FDA approval in the U.S. for its competitive product, ezetimibe, for use alone and with marketed statins for the treatment of elevated cholesterol levels. Ezetimibe will be marketed under the tradename EZETROL (ezetimibe) in Germany and under the tradename ZETIA (ezetimibe) in the U.S. The introduction of these products may adversely affect the future growth of bulk sales of and royalties earned on sales of our Welchol bile acid binder.

        The increase in other therapeutic products revenue for the nine months ended September 30, 2002 as compared to the same period a year ago is attributable to:

•

a 51% increase in sales of Thyrogen hormone to $20.2 million primarily due to increased market penetration;



•

a 398% increase in sales of Fabrazyme enzyme in Europe to $17.2 million primarily due to its introduction to several new markets in Europe and our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme; and



•

a 318% increase in bulk sales of and royalties earned on sales of WelChol bile acid binder to $16.4 million primarily due to increased market penetration.

Renal

        During the quarter ended September 30, 2002, we created the Renal reporting segment consisting primarily of amounts attributable to the manufacture and sale of Renagel phosphate binder. Previously, amounts attributable to the manufacture and sale of Renagel phosphate binder had been included as a component of Genzyme General's Therapeutics reporting segment. We have reclassified Genzyme General's 2001 disclosures to conform to Genzyme General's 2002 presentation. Genzyme General expects sales of Renagel phosphate binder to increase, driven primarily by the continued adoption of the product by nephrologists worldwide. The increase in sales of Renagel phosphate binder will be dependent on several factors, including:

•

acceptance by the medical community of Renagel phosphate binder as the preferred treatment for elevated serum phosphorus levels in end-stage dialysis patients;



•

our ability to effectively manage wholesaler inventories and the effectiveness of the inventory management programs we plan to implement with our wholesalers;



•

our ability to optimize dosing and improve patient compliance with dosing of Renagel phosphate binder;



•

our ability to expand manufacturing capacity;

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•

our ability to obtain reimbursement from third party payors; and



•

our ability to manufacture sufficient quantities to meet demand.

        The following table provides information regarding the change in sales of Renagel phosphate binder during the periods presented:

	Three Months Ended September 30,								Nine Months Ended September 30,
							Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
	2002			2001					2002			2001
	(Unaudited, amounts in thousands, except percentage data)
Sales of Renagel phosphate binder	$	36,954		$	52,356		(29	)%	$	106,029		$	121,359		(13	)%
% of Genzyme General's product revenue		15	%		22	%				15	%		18	%

        Sales for the three months ended September 30, 2002 declined compared to the same period in 2001 primarily due to a reduction in domestic wholesaler inventory levels, based on management's estimates of end user demand, of approximately $7.0 million, as well as an increase in the Renagel phosphate binder rebate reserve of $4.0 million in the third quarter of 2002 to adjust our estimates of payor mix and rebate rates. Sales for the nine months ended September 30, 2002 declined as compared to the same period in 2001 primarily due to a reduction in domestic wholesaler inventory levels, based on management's estimates of end user demand, of approximately $30.0 million, as well as the $4.0 million increase in the rebate reserve in the third quarter of 2002.

Diagnostic Products

        Diagnostic Products product revenue increased $0.1 million to $20.7 million for the three month period ended September 30, 2002 as compared to the same period a year ago. The increase was primarily attributable to a 5% increase in the combined sales of infectious disease testing products, HDL and LDL cholesterol testing products and royalties on product sales by Techne Corporation's biotechnology group to $15.5 million. The increase was offset by a 10% decrease in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases to $5.2 million.

        Diagnostic Products product revenue increased 11% to $61.0 million for the nine months ended September 30, 2002 as compared to the same period a year ago. The increase was primarily attributable to:

•

a 3% increase in the combined sales of infectious disease testing products, HDL and LDL cholesterol testing products and royalties on product sales by Techne Corporation's biotechnology group to $45.6 million; and



•

a 45% increase in sales of point of care rapid diagnostic tests for pregnancy and infectious diseases to $15.4 million, including additional tests we obtained through our acquisition of Wyntek in June 2001.

Other Product and Service Revenue

        The 6% decrease in other product revenue to $9.6 million for the three months ended September 30, 2002 as compared to the same period a year ago is primarily due to a 1% decrease in the combined sales of liquid crystals and amino acid derivatives, both of which are pharmaceutical materials, to $6.6 million and a 16% decrease in sales of hyaluronan-based products to $3.0 million. The 26% increase in other service revenue to $22.5 million for the three months ended September 30, 2002 as compared to the same period a year ago is due to increased sales of genetic testing services. This increase was primarily attributable to expanded presence in the prenatal screening market.

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        The 15% decrease in other product revenue to $29.1 million for the nine months ended September 30, 2002 as compared to the same period a year ago is primarily due to a 14% decrease in the combined sales of liquid crystals and amino acid derivatives, both of which are pharmaceutical materials, to $20.1 million and an 18% decrease in sales of hyaluronan-based products to $8.7 million. The 22% increase in other service revenue to $66.1 million for the nine months ended September 30, 2002 as compared to the same period a year ago is due to increased sales of genetic testing services. This increase was primarily attributable to expanded presence in the prenatal screening market.

Research and Development Revenue

        The following table sets forth our research and development revenue on a segment basis:

			Three Months Ended September 30,						Nine Months Ended September 30,
							Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
			2002		2001				2002		2001
			(Unaudited, amounts in thousands, except percentage data)
Research and development revenue:
	Therapeutics		$	125	$	1,310	(90	)%	$	3,054	$	3,515	(13	)%
	Other			—		5	(100	)%		31		25	24	%
	Eliminations/Adjustments			697		1,009	(31	)%		2,238		2,692	(17	)%
		Total research and development revenue	$	822	$	2,324	(65	)%	$	5,323	$	6,232	(15	)%

        Research and development revenue allocated to Genzyme General is related primarily to research initiatives for its Therapeutics reporting segment. Eliminations/Adjustments includes research and development efforts Genzyme General conducted on behalf of GTC and amounts related to Genzyme General's research and development activities that we do not specifically allocate to a particular segment of Genzyme General.

International Product and Service Revenue

        A substantial portion of Genzyme General's revenue is generated outside of the U.S. Most of the international revenue is attributable to sales of Cerezyme enzyme, Renagel phosphate binder and Fabrazyme enzyme. The following table provides information regarding the change in international product and service revenue during the periods presented:

	Three Months Ended September 30,								Nine Months Ended September 30,
							Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
	2002			2001					2002			2001
	(Unaudited, amounts in thousands, except percentage data)
International product and service revenue	$	116,415		$	94,555		23	%	$	331,332		$	280,022		18	%
% of Genzyme General's total product and service revenue		43	%		37	%				43	%		39	%

        International sales of Cerezyme enzyme increased 14% to $84.2 million for the three months ended September 30, 2002 as compared to $73.8 million in the same period a year ago. International sales of Cerezyme enzyme increased 9% to $243.1 million for the nine months ended September 30, 2002 as compared to $223.0 million in the same period a year ago.

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        The increase in international sales of Cerezyme enzyme for the three months ended September 30, 2002 as compared to the same period a year ago is primarily due to:

•

a 7% increase in international unit sales of Cerezyme enzyme; and



•

an approximate 10% increase in the average exchange rate of the Euro, which positively impacted sales of Cerezyme enzyme by $5.0 million.

        The increase in international sales of Cerezyme enzyme for the nine months ended September 30, 2002 as compared to the same period a year ago is primarily due to:

•

a 7% increase in international unit sales of Cerezyme enzyme; and



•

an approximate 3% increase in the average exchange rate of the Euro, which positively impacted sales of Cerezyme enzyme by $5.1 million.

        International sales of Renagel phosphate binder increased 107% to $11.0 million for the three months ended September 30, 2002 as compared to $5.3 million for the same period a year ago. International sales of Renagel phosphate binder increased 132% to $29.9 million for the nine months ended September 30, 2002 as compared to $12.9 million for the same period a year ago.

        The increase in international sales of Renagel phosphate binder for the three and nine months ended September 30, 2002 as compared to the same periods a year ago is primarily due to:

•

the on-going launch of Renagel phosphate binder tablets in Europe in 2002; and



•

the expansion of the European Renagel phosphate binder sales force.

        International sales of Fabrazyme enzyme increased 273% to $7.3 million for the three months ended September 30, 2002 as compared to $1.9 million for the same period a year ago. International sales of Fabrazyme enzyme increased 398% to $17.2 million for the nine months ended September 30, 2002 as compared to $3.5 million for the same period a year ago.

        The increase in international sales of Fabrazyme enzyme for the three and nine months ended September 30, 2002 as compared to the same period a year ago is primarily due to:

•

the introduction of Fabrazyme enzyme into several new markets in Europe in 2002; and



•

our continued program to educate European physicians about Fabry disease and Fabrazyme enzyme.

MARGINS

	Three Months Ended September 30,					Nine Months Ended September 30,
					Increase/ (Decrease) % Change					Increase/ (Decrease) % Change
	2002		2001			2002		2001
	(Unaudited, amounts in thousands, except percentage data)
Product margin	$	197,646	$	186,541	6%	$	560,501	$	512,424	9%
% of product revenue		79%		79%			79%		78%
Service margin		8,858		6,960	27%		27,733		22,596	23%
% of service revenue		39%		39%			42%		42%
Total product and service gross margin	$	206,504	$	193,501	7%	$	588,234	$	535,020	10%
% of total product and service revenue		76%		77%			76%		75%

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        Genzyme General provides a broad range of healthcare products and services. As a result, Genzyme General's gross margin may vary significantly based on the category of product or service. Sales of therapeutic products, including Cerezyme enzyme, result in higher margins than sales of diagnostic products.

Product Margin

        The 6% increase in product margin for the three months ended September 30, 2002 as compared to the same period a year ago was primarily attributable to a 6% increase in product revenue offset in part by a 7% increase in the cost of products sold. The improved product margin was primarily attributable to an increase in sales of higher margin Therapeutics products such as Cerezyme enzyme, Thyrogen hormone and Fabrazyme enzyme. Driven by the increase in sales in Therapeutics products, product margin for Therapeutics products increased 19% for the three months ended September 30, 2002.

        Product margin for Renagel phosphate binder decreased 29% for the three months ended September 30, 2002 as compared to the same period a year ago primarily due to decreased sales of Renagel phosphate binder resulting from slower than expected end-user growth and the continuation of our program to reduce wholesaler inventories. Product margin for Renagel phosphate binder for the three months ended September 30, 2002 as compared to the same period a year ago includes a reduction in wholesaler inventory levels, based on management's estimates of end user demand, of approximately $7.0 million, as well as an increase to the Renagel phosphate binder rebate reserve of $4.0 million in the third quarter of 2002 to adjust our estimates of payor mix and rebate rates, which was partially offset by $1.5 million in sales attributable to a pricing increase.

        Product margin for Diagnostic Products decreased 3% for the three months ended September 30, 2002 as compared to the same period a year ago resulting from the increase in the cost of Diagnostic Products sold for the three months ended September 30, 2002 as compared to the same period a year ago.

        The 9% increase in product margin for the nine months ended September 30, 2002 as compared to the same period a year ago was primarily attributable to an 8% increase in product revenue offset in part by a 5% increase in the cost of products sold. The improved product margin was primarily attributable to an increase in sales of higher margin Therapeutics products such as Cerezyme enzyme, Thyrogen hormone and Fabrazyme enzyme. Driven by the increase in sales in Therapeutics products, product margin for Therapeutics products increased 15% for the nine months ended September 30, 2002.

        Product margin for Renagel phosphate binder increased 4% for the nine months ended September 30, 2002 as compared to the same period a year ago despite decreased sales of Renagel phosphate binder primarily due to a decrease in the cost of Renagel phosphate binder sold attributable to a volume discount achieved on production costs. Also contributing to the decrease in cost of Renagel phosphate binder for the nine months ended September 30, 2002 as compared to the same period a year ago were charges of $8.2 million for the six months ended June 30, 2001 relating to the increased basis of the inventory obtained in connection with our acquisition of GelTex in December 2000, for which there are no comparable amounts in the nine months ended September 30, 2002. Product margin for Renagel phosphate binder for the nine months ended September 30, 2002 as compared to the same period a year ago includes a reduction in wholesaler inventory levels, based on management's estimates of end user demand, of approximately $30.0 million, as well as the $4.0 million increase to the rebate reserve in the third quarter of 2002, which was offset by $4.5 million in sales attributable to a pricing increase.

        Product margin for Diagnostic Products decreased 5% for the nine months ended September 30, 2002 as compared to the same period a year ago resulting from the increase in the cost of Diagnostic

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Products sold for the nine months ended September 30, 2002 as compared to the same period a year ago. The increase in cost of Diagnostic Products sold was partially attributable to a charge of $2.8 million recorded in the three months ended March 31, 2002 for the planned closure of a Diagnostic Products manufacturing facility in San Carlos, CA.

        We expect that in the future Genzyme General's product margin as a percentage of product revenue will trend slightly lower, primarily due to lower margins normally attributable to Renagel phosphate binder and a product mix shift as sales of Diagnostic Products continue to increase.

Service Margin

        Service margin increased 27% for the three months ended September 30, 2002 and 23% for the nine months ended September 30, 2002 as compared to the same periods a year ago primarily due to increased sales of genetic testing services attributable to our expanded presence in the prenatal screening market.

OPERATING EXPENSES

Selling, General and Administrative Expenses

        Selling, general and administrative expenses decreased 7% to $86.2 million for the three months ended September 30, 2002 as compared to the same period a year ago primarily due to $27.0 million of additional charges that were included in selling, general and administrative expense for the three months ended September 30, 2001 resulting from Pharming Group N.V.'s August 2001 decision to file for and operate under a court supervised receivership. Included was the write-off of the $10.2 million in principal and accrued interest due to us under the 7% senior convertible note issued to us by Pharming Group and a charge of $16.8 million representing our commitment to fund the operations of our joint venture with Pharming Group for Pompe disease therapies, which in turn is legally obligated to supply human transgenic alpha-glucosidase until the patients currently enrolled in the clinical trial of the product can be transitioned to a CHO-cell product.

        Excluding the $27.0 million of charges related to Pharming Group in the three months ended September 30, 2001, selling, general and administrative expenses increased 32% for the three months ended September 30, 2002 as compared to same period a year ago primarily due to:

•

a $10.1 million increase in selling and marketing costs for Renagel phosphate binder;



•

a $3.9 million increase in expenditures related to increased market penetration for Fabrazyme enzyme in Europe;



•

a $2.5 million charge recorded in September 2002, to write down accounts receivable for Cerezyme enzyme in Argentina;



•

a $1.9 million increase in expenditures to support increased sales of Cerezyme enzyme;



•

the addition of expenses resulting from our acquisition of Novazyme; and



•

the increase in legal costs related to on-going regulatory matters and intellectual property disputes.

        Selling, general and administrative expenses increased 12% to $243.1 million for the nine months ended September 30, 2002 as compared to the same period a year ago despite the inclusion of the $27.0 million of charges related to Pharming Group during the nine months ended September 30, 2001 for which there are no comparable amounts in the same period of 2002. The increase in selling, general

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and administrative expenses for the nine months ended September 30, 2002, as compared to same period a year ago, was primarily due to:

•

a $32.3 million increase in selling and marketing costs for Renagel phosphate binder;



•

a $9.5 million increase in expenditures related to increased market penetration for Fabrazyme enzyme in Europe;



•

a $4.7 million increase in expenditures to support increased sales of Cerezyme enzyme;



•

a $2.5 million charge to write down accounts receivable for Cerezyme enzyme in Argentina;



•

the addition of expenses resulting from our acquisitions of Novazyme and Wyntek; and



•

the increase in legal costs related to on-going regulatory matters and intellectual property disputes.

Research and Development Expenses

        Research and development expenses increased 9% to $54.4 million for the three months ended September 30, 2002 as compared to the same period a year ago primarily due to:

•

a $3.1 million increase in spending related to our Pompe development program as described below;



•

a $1.9 million increase in spending on Genzyme General's program to further develop Fabrazyme enzyme for the treatment of Fabry disease;



•

a $1.3 million increase in the cost of post-marketing clinical development efforts for Renagel phosphate binder;



•

the addition of spending as a result of our acquisitions of Novazyme and Wyntek; and



•

additional spending on the continued development of the C. difficile colitis, oral iron chelator, oral mucositis and anti-obesity programs.

        Research and development expenses increased 32% to $174.7 million for the nine months ended September 30, 2002 as compared to the same period a year ago primarily due to:

•

a $34.3 million increase in spending related to our Pompe development program as described below;



•

a $1.2 million increase in spending on Genzyme General's program to further develop Fabrazyme enzyme for the treatment of Fabry disease;



•

a $4.3 million increase in the cost of post-marketing clinical development efforts for Renagel phosphate binder;



•

the addition of spending as a result of our acquisitions of Novazyme and Wyntek; and



•

additional spending on the continued development of the C. difficile colitis, oral iron chelator, oral mucositis, and anti-obesity programs.

        Included in research and development expenses for the nine months ended September 30, 2002 are expenses associated with a comparison study of our enzyme programs for treatment of Pompe disease that we concluded during the first quarter of 2002. The enzyme programs included:

•

the transgenic enzyme developed by our Pharming/Genzyme LLC joint venture with Pharming Group;



•

the internally produced enzyme derived from a CHO-cell line;

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•

the CHO enzyme licensed from Synpac (North Carolina) in 2000; and



•

an enzyme produced using technology we obtained in the Novazyme acquisition in 2001.

        The analysis of the data from that study indicated that our internally developed CHO-cell product offers the clearest and most efficient pathway to commercialization based on both clinical and manufacturing considerations. As a result of this analysis we:

•

have cancelled our manufacturing contract for the clinical development of the CHO therapy licensed from Synpac while recording a charge of $8.8 million to research and development in the first quarter of 2002 to reflect bulk product purchases and contract cancellation charges;



•

will continue to supply the CHO therapy licensed from Synpac to patients participating in the extensions of clinical trials, as we have with patients receiving the transgenic enzyme developed in a joint venture with Pharming Group until they can be transitioned to a CHO-cell product; and



•

will proceed with the pre-clinical development of an enzyme produced using technology we obtained through the acquisition of Novazyme as a potential next-generation therapy for Pompe disease and utilize Novazyme's engineering technologies to develop improved second-generation versions of our marketed products and optimal products for the treatment of other LSDs.

        Research and development expenses for the nine months ended September 30, 2002 include a charge of $2.0 million we recorded in the first quarter of 2002 representing the restructuring of Genzyme General's facilities in New Jersey and Oklahoma that were acquired in connection with our acquisition of Novazyme.

Amortization of Intangibles

        Amortization of intangibles expense decreased 49% to $9.8 million for the three months ended September 30, 2002 and 47% to $29.3 million for the nine months ended September 30, 2002 as compared to the same periods in 2001 primarily due to Genzyme General's adoption of SFAS No. 142 in January 2002. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. In accordance with the provisions of SFAS No. 142, Genzyme General ceased amortizing goodwill as of January 1, 2002. Had SFAS No. 142 been in effect for the three and nine months ended September 30, 2001, Genzyme General's amortization of intangibles expense would have been as follows (unaudited, amounts in thousands):

	Three Months Ended September 30, 2001							Nine Months Ended September 30, 2001
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	19,221	$	(9,503	)	$	9,718	$	55,073	$	(27,515	)	$	27,558

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        The following tables present the impact SFAS No. 142 would have had on Genzyme General's amortization of intangibles expense had the standard been in effect for the years ended December 31, 2001, 2000 and 1999 (amounts in thousands):

	Year Ended December 31, 2001							Year Ended December 31, 2000
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Adjustment Amortization			As Adjusted
			(Unaudited)							(Unaudited)
Amortization of intangibles	$	74,296	$	(37,020	)	$	37,276	$	10,928	$	(6,608	)	$	4,320

	Year Ended December 31, 1999
	As Reported		Goodwill Amortization Adjustment			As Adjusted
			(Unaudited)
Amortization of intangibles	$	8,106	$	(5,261	)	$	2,845

Purchase of In-Process Research and Development

Novazyme

        In September 2001, in connection with our acquisition of Novazyme, we acquired a technology platform that we believe can be leveraged in the development of treatments for various LSDs. As of the acquisition date, the technology platform had not achieved technological feasibility and would require significant further development to complete. Accordingly, we allocated to IPR&D and charged to expense $86.8 million, representing the portion of the purchase price attributable to the technology platform. Genzyme General recorded this amount as a charge to expense in its unaudited, combined statements of operations for the quarter ended September 30, 2001.

        The platform technology is specific to LSDs and there is currently no alternative use for the technology in the event that it fails as a platform for enzyme replacement therapy for the treatment of LSDs. As of September 30, 2002, we estimate that it will take approximately four to six years and an investment of approximately $75 million to $100 million to complete the development of, obtain approval for and commercialize the first product based on this technology platform.

Wyntek

        In June 2001, in connection with our acquisition of Wyntek, we allocated approximately $8.8 million of the purchase price to IPR&D. Genzyme General recorded this amount as a charge to expense in its unaudited, combined statement of operations for the quarter ended June 30, 2001.

        Wyntek currently is developing a cardiovascular product to rapidly measure the quantitative levels of cardiac marker proteins. These are the leading markers for the diagnosis of acute myocardial infarction. The product consists of a mobile, stand-alone, quantitative diagnostic device and a reaction strip that detects disease specific marker proteins. The intended use of the device is to read reaction strips at the patient's bedside or in an emergency room setting. In September 2002, we filed a 510(k) submission with the FDA for Wyntek's cardiovascular product. If we receive the necessary regulatory approvals, we intend to begin selling the product.

GelTex

        In December 2000, in connection with the acquisition of GelTex, we allocated approximately $118.0 million of the purchase price to IPR&D, which Genzyme General recorded as a charge to expense in its combined statements of operations for the year ended December 31, 2000. As of

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September 30, 2002, the technological feasibility of the projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

        Below is a brief description of the GelTex IPR&D projects, including an estimation of when our management believes Genzyme General may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication		Development Status at September 30, 2002	Value at Acquisition Date		Estimated Cost to Complete at September 30, 2002		Year of Expected Product Launch
				(Amounts in millions)
Renagel phosphate binder	Next stage non-absorbed polymer phosphate binder for the treatment of hyperphospatemia	•	Clinical studies scheduled for completion in 2002, 2003, and 2004	$	19.7	$	7.6	2004
GT160-246	C. difficile colitis	•	Phase 2 trial ongoing		37.4		30.5	2006
GT56-252 Oral Iron Chelator	Iron overload disease	• •	Filed an IND in Q4 2001 Approval to commence Phase 1 trials in Europe obtained in 2001		15.7		22.5	2007
GT316-235 Fat absorption inhibitor	Anti-Obesity	•	Expected to file an IND in the first half of 2003		17.8		37.6	2010
Polymer	Oral Mucositis	•	IND expected to be filed in the first half of 2003		17.8		30.0	2008
DENSPM	Psoriasis	•	Program cancelled during 2001; no further development planned		3.4		N/A	N/A
GT102-279	Second generation lipid-lowering compound	•	Program cancelled during 2001; no further development planned		6.2		N/A	N/A
				$	118.0	$	128.2

        Substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once developed each product will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

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OTHER INCOME AND EXPENSES

		Three Months Ended September 30,								Nine Months Ended September 30,
								Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
		2002			2001					2002			2001
		(Unaudited, amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliates		$	(2,387	)	$	(8,110	)	(71	)%	$	(10,429	)	$	(27,605	)	(62	)%
Gain (loss) on investments in equity securities			29			(24,464	)	(100	)%		538			(25,996	)	(102	)%
Minority interest in net loss of subsidiary			—			260		(100	)%		—			2,259		(100	)%
Other			(274	)		(1,015	)	(73	)%		578			(4,903	)	(112	)%
Investment income			12,430			13,125		(5	)%		37,461			34,136		10	%
Interest expense			(4,258	)		(5,699	)	(25	)%		(13,477	)		(19,379	)	(30	)%
	Total other income (expenses)	$	5,540		$	(25,903	)	(121	)%	$	14,671		$	(41,488	)	(135	)%

Equity in Net Loss of Unconsolidated Affiliates

        Genzyme General records in equity in net loss of unconsolidated affiliates its portion of the results of our joint ventures with BioMarin, Pharming Group and Diacrin and through May 31, 2002, our portion of the results of GTC.

        Genzyme General's equity in net loss of unconsolidated affiliates decreased 71% to $2.4 million for the three months ended September 30, 2002, as compared to the same period a year ago, primarily as the result of the August 2001 termination of our strategic alliance with Pharming for the development of a CHO-cell derived product for the treatment of Pompe disease. In addition, in August 2001, we became responsible for funding all of the operations of Pharming/Genzyme LLC, which in turn is legally obligated to supply transgenically-derived alpha-glucosidase until the patients currently enrolled in the clinical trial of the product can be transitioned to a CHO-cell product. Genzyme General's share of losses for both of our joint ventures with Pharming was $2.6 million for the three months ended September 30, 2001 for which there are no comparable amounts in the same period of 2002.

        The decrease in equity in net loss of unconsolidated affiliates for the three months ended September 30, 2002 as compared to the same period a year ago was also attributable to:

•

a $2.5 million decrease in net losses from our joint venture with BioMarin;



•

a $0.3 million decrease in net losses from our joint venture with Diacrin; and



•

a $0.3 million decrease in net losses in our equity position in GTC.

        Genzyme General's equity in net loss of unconsolidated affiliates decreased 62% to $10.4 million for the nine months ended September 30, 2002, as compared to the same period a year ago, primarily as the result of the August 2001 termination of our strategic alliance with Pharming. Genzyme General's share of losses for both of our joint ventures with Pharming was $9.4 million for the nine months ended September 30, 2001 for which there are no comparable amounts in the same period of 2002.

        The decrease in equity in net loss of unconsolidated affiliates for the nine months ended September 30, 2002 as compared to the same period a year ago was also attributable to:

•

a $5.3 million decrease in net losses from our joint venture with BioMarin;

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•

a $1.7 million decrease in net losses from our joint venture with Diacrin; and



•

a $0.9 million decrease in net losses in our equity position in GTC.

        On April 4, 2002, GTC purchased approximately 2.8 million shares of GTC common stock held by us and allocated to Genzyme General for an aggregate consideration of approximately $9.6 million. We received approximately $4.8 million in cash and a promissory note for the remaining amount of approximately $4.8 million. The shares of GTC common stock were valued at $3.385 per share in this transaction, using the simple average of the high and low transaction prices quoted on the Nasdaq National Market on April 1, 2002. We have committed to a 24-month lock-up provision on the remaining 4.9 million shares of GTC common stock held by us and allocated to Genzyme General, which is approximately 18% of the shares of GTC common stock outstanding as of September 30, 2002. We accounted for our investment in GTC under the equity method of accounting until May 2002, at which point we ceased to have significant influence over GTC. We began accounting for our investment in GTC under the cost method of accounting in June 2002.

        Because of the 24-month lock-up provision, the remaining 4.9 million shares of GTC common stock held by us do not qualify as marketable securities under SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". As a result, we carry the investment on our combined balance sheet at cost, subject to review for impairment. Based on the market price of GTC common stock at September 30, 2002, our remaining investment would have an unrealized loss of $8.2 million. Because we have assessed the decline in the market price of GTC common stock to be temporary, we have not recorded an associated impairment charge.

Gain (Loss) on Investment in Equity Securities

        We review the carrying value of each of our investments in equity securities on a quarterly basis for impairment. Because we have assessed the decline in the market price of each of the investments in equity securities allocated to Genzyme General to be temporary, Genzyme General has not recorded any associated impairment charges for the three and nine months ended September 30, 2002. Genzyme General will be required to record a charge to earnings if we conclude, in any future quarter, that it is unclear over what period the recovery of the stock price for each of these investments will take place and, accordingly, that any evidence suggesting that these investments will recover to at least our purchase price is not sufficient to overcome the presumption that the current market price is the best indicator of the value of each of these investments. Excluding our investment in GTC common stock, at September 30, 2002, Genzyme General's division equity includes unrealized losses of approximately $20.8 million, related to the other investments in equity securities allocated to Genzyme General, that we believe are temporary. Genzyme General will record impairment charges related to these investments if the stocks do not recover within the next three to six months.

        In September 2001, Genzyme General recorded charges of $11.8 million in connection with our investment in the ordinary shares of Cambridge Antibody Technology Group and $4.5 million in connection with our investment in the common stock of Targeted Genetics, because we considered the decline in value of these investments to be other than temporary. Given the significance and duration of the declines as of the end of the quarter, we concluded that it was unclear over what period the recovery of the stock price for each of these investments would take place and, accordingly, that any evidence suggesting that the investments would recover to at least our purchase price was not sufficient to overcome the presumption that the current market price was the best indicator of the value of each of these investments.

        In September 2001, Genzyme General recorded a charge of $8.5 million, representing an at-cost write-off of our investment in Pharming common stock. In August 2001, Pharming Group announced that it would file for receivership in order to seek protection from its creditors.

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        In April 2001, Genzyme General recorded a $1.2 million charge to reflect the fair market value of our investment in Aronex at June 30, 2001. In April 2001, Antigenics announced that it had entered into a definitive merger agreement with Aronex. The merger was completed in July 2001. Under the terms of the merger agreement, we received 0.0594 of a share of Antigenics common stock for each share of Aronex common stock that we held.

Minority Interest in Net Loss of Subsidiary

        As a result of our combined direct (until July 2001) and indirect interest in ATIII LLC, Genzyme General had consolidated the results of ATIII LLC, recording GTC's portion of the losses of that joint venture as minority interest. In July 2001, we transferred our 50% ownership interest in ATIII LLC to GTC and stopped recording minority interest.

Investment Income

        Genzyme General's investment income decreased 5% for the three months ended September 30, 2002 and increased 10% for the nine months ended September 30, 2002 as compared to the same periods a year ago. The decrease in investment income for the three months ended September 30, 2002 as compared to the same period a year ago was primarily due to a decrease in interest rates. The increase in investment income for the nine months ended September 30, 2002 as compared to the same period a year ago was primarily due to higher average cash balances. The higher cash balances resulted primarily from our May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. Net proceeds from the offering were approximately $562.1 million. We allocated the principal balance of the debentures and the net proceeds from the offering to Genzyme General.

Interest Expense

        Genzyme General's interest expense decreased 25% for the three months ended September 30, 2002, as compared to the same period a year ago, primarily due to a decrease in the interest rates used to calculate commitment fees allocated to Genzyme General related to our revolving credit facility. Genzyme General's interest expense decreased 30% for the nine months ended September 30, 2002 as compared to the same period a year ago primarily due to the June 2001 redemption of our $250.0 million in principal 5¹/4% convertible subordinated notes due 2005, which was partially offset by the May 2001 private placement of $575.0 million in principal of 3% convertible subordinated debentures due May 2021. Also in May 2001, Genzyme General used a portion of the $562.1 million in proceeds from the private placement of the 3% convertible subordinated debentures due May 2021 to repay the $150.0 million we had drawn under our revolving credit facility in December 2000.

Tax Provision

	Three Months Ended September 30,								Nine Months Ended September 30,
							Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
	2002			2001					2002			2001
	(Unaudited, amounts in thousands, except percentage data)
Provision for income taxes	$	(17,906	)	$	(3,495	)	412	%	$	(47,885	)	$	(34,174	)	40	%
Effective tax rate		29	%		(4	)%				30	%		(5,108	)%

        Genzyme General's tax rates for all periods vary from the U.S. statutory tax rate as a result of its:

•

provision for state income taxes;



•

use of a foreign sales corporation; and



•

use of tax credits.

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        Genzyme General's effective tax rate for both the three and nine months ended September 30, 2001 also varied from the U.S. statutory rate due to nondeductible goodwill amortization expense. Genzyme General stopped recording nondeductible goodwill amortization expense upon the adoption of SFAS No. 142 in fiscal year 2002.

Cumulative Effect of Change in Accounting for Derivative Financial Instruments

        On January 1, 2001, we adopted SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended by SFAS No. 137 and SFAS No. 138. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. It requires that we recognize all derivative instruments as either assets or liabilities in Genzyme General's combined balance sheet and measure those instruments at fair value. Subsequent changes in fair value are reflected in income, unless the derivative is part of a qualified hedging relationship.

        In accordance with the transition provisions of SFAS No. 133, Genzyme General recorded a cumulative effect adjustment of $4.2 million, net of tax, in its unaudited, combined statements of operations for the three months ended March 31, 2001 to recognize the fair value of our warrants to purchase shares of GTC common stock held on January 1, 2001 and allocated to Genzyme General. Transition adjustments pertaining to interest rate swaps designated as cash-flow hedges and foreign currency forward contracts allocated to Genzyme General were not significant. For the three months ended September 30, 2002, Genzyme General recorded a gain of $0.04 million in other income in its unaudited, combined statement of operations to reflect the change in value of its warrants to purchase shares of GTC common stock from July 1, 2002 to September 30, 2002 as compared to a charge of $1.2 million in other expense for the same period of 2001. For the nine months ended September 30, 2002, Genzyme General recorded a charge of $2.0 million in other expense in its unaudited, combined statements of operations to reflect the change in fair value of its warrants to purchase shares of GTC common stock from January 1, 2002 to September 30, 2002, as compared to a charge of $5.0 million for the same period a year ago. Genzyme General also recorded a charge of $0.7 million ($1.2 million pre-tax) in other comprehensive income (loss) in division equity in its unaudited, combined balance sheets to reflect the change in value of its interest rate swaps during the nine month period ended September 30, 2002. At September 30, 2002, Genzyme General's interest rate swaps had a fair-market value of $(4.0) million.

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GENZYME BIOSURGERY
A Division of Genzyme Corporation

        The following discussion summarizes the key factors our management believes necessary for an understanding of Genzyme Biosurgery's financial statements.

DISPOSITION

        In November 2001, we sold our Snowden-Pencer line of surgical instruments, consisting of reusable surgical instruments for open and endoscopic surgery, including general, plastic, gynecological and open cardiovascular surgery, for $15.9 million in net cash. The purchaser acquired all of the assets directly associated with the Snowden-Pencer products, and is subleasing from us a manufacturing facility that we lease in Tucker, Georgia. The assets sold had a net carrying value of approximately $41.0 million at the time of the sale. We recorded a loss of $25.0 million in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery in connection with this sale.

ACQUISITIONS

        In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. In June 2001, we acquired the remaining 78% of the outstanding shares of Focal common stock not previously acquired. Focal shareholders received 0.1545 of a share of Biosurgery Stock for each share of Focal common stock they held. We issued approximately 2.1 million shares of Biosurgery Stock as consideration, valued at approximately $9.5 million. We also assumed all of the outstanding options to purchase Focal common stock and exchanged them for options to purchase Biosurgery Stock on an as-converted basis. We accounted for the acquisition as a purchase and allocated it to Genzyme Biosurgery. Accordingly, the results of operations of Focal are included in our consolidated financial statements and in the combined financial statements of Genzyme Biosurgery from June 30, 2001, the date of acquisition.

        In January 2001, we acquired the outstanding Class A limited partnership interests in GDP, a limited partnership engaged in developing, producing and commercializing Sepra products, for an aggregate of $25.7 million in cash plus royalties on sales of certain Sepra products for ten years. In August 2001, we purchased the remaining outstanding GDP limited partnership interests, consisting of two Class B interests, for an aggregate of $180,000 plus additional royalties on sales of certain Sepra products for ten years. We accounted for the acquisitions as purchases and allocated them to Genzyme Biosurgery. Accordingly, the results of operations of GDP are included in our consolidated financial statements and the combined financial statements of Genzyme Biosurgery from January 9, 2001, the date of acquisition of the Class A interests.

CRITICAL ACCOUNTING POLICIES

        The critical accounting policies for Genzyme Biosurgery are set forth under the heading "Management's Discussion and Analysis of Genzyme Biosurgery's Financial Condition and Results of Operations—Critical Accounting Policies" in Exhibit 13.3 to our 2001 Form 10-K. Except for Genzyme Biosurgery's policy regarding asset impairments, as described below, there have been no changes to these policies since December 31, 2001.

Asset Impairments

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets and for Long-Lived assets to Be Disposed Of", and

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amends APB No. 30, "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and thus, has been adopted by Genzyme Biosurgery, effective at the beginning of fiscal year 2002.

        Genzyme Biosurgery periodically evaluates long-lived assets for potential impairment under SFAS No. 144. Genzyme Biosurgery performs these evaluations whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•

a significant change in the manner in which an asset is used;



•

a significant decrease in the market value of an asset;



•

a significant adverse change in its business or its industry; and



•

a current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

        If Genzyme Biosurgery believes an indicator of potential impairment exists, it tests to determine whether the impairment recognition criteria in SFAS No. 144 have been met. In evaluating long-lived assets for potential impairment, Genzyme Biosurgery makes several significant estimates and judgements, including:

•

determining the appropriate grouping of assets at the lowest level for which cash flows are available;



•

estimating future cash flows associated with the asset or group of assets; and



•

determining an appropriate discount rate to use in the analysis.

Use of different estimates and judgments could yield significantly different results in this analysis and could result in materially different asset impairment charges.

        Effective January 1, 2002, Genzyme Biosurgery adopted SFAS No. 142, "Goodwill and Other Intangible Assets," which requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. Unlike SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of," goodwill impairment tests performed under SFAS No. 142 do not involve an initial test comparing the projected undiscounted cash flows to the carrying amount of goodwill. Instead, SFAS No. 142 requires that goodwill be tested using a two-step process. The first step compares the fair value of the reporting unit with the unit's carrying value, including goodwill. When the carrying value of the reporting unit is greater than fair value, the unit's goodwill may be impaired, and the second step must be completed to measure the amount of the goodwill impairment charge, if any. In the second step, the implied fair value of the reporting unit's goodwill is compared with the carrying amount of the unit's goodwill. If the carrying amount is greater than the implied fair value, the carrying value of the goodwill must be written down to its implied fair value. Effective January 1, 2002, we reclassified $1.8 million of acquired workforce intangible assets previously classified as other intangible assets, net of related deferred tax liabilities, to goodwill as required by SFAS No. 142.

        In November 2001, we sold our Snowden-Pencer line of surgical instruments, a component of Genzyme Biosurgery's Biosurgical Specialties reporting segment, and recorded a loss of $25.0 million, which we allocated to Genzyme Biosurgery. Our subsequent test of the remaining long-lived assets related to the remaining products of our surgical instruments and medical devices business line, which make up the majority of Genzyme Biosurgery's cardiothoracic reporting unit, under SFAS No. 121, did not indicate an impairment based on the undiscounted cash flows of the business. However, the

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impairment analysis indicated that the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit would be impaired if the analysis was done using discounted cash flows, as required by SFAS No. 142. Therefore, in the three months ended March 31, 2002, upon adoption of SFAS No. 142, we tested the goodwill of Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of that standard, using the present value of expected future cash flows to estimate the fair value of this reporting unit. We recorded an impairment charge of $98.3 million, which we reflected as a cumulative effect of a change in accounting for goodwill in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations for Genzyme Biosurgery for the three months ended March 31, 2002.

        We completed the transitional and annual impairment tests for the $112.7 million of net goodwill related to Genzyme Biosurgery's other reporting units in the nine months ended September 30, 2002 as provided by SFAS No. 142, and determined that no additional impairment charges were required. We are required to perform impairment tests under SFAS No. 142 annually and whenever events or changes in circumstances suggest that the carrying value of an asset may not be recoverable. For all of our acquisitions, various analyses, assumptions and estimates were made at the time of each acquisition specifically regarding product development, market conditions and cash flows that were used to determine the valuation of goodwill and intangibles. The possibility exists that those estimates could prove to be inaccurate, which could result in an impairment of goodwill.

REVENUES

        The components of Genzyme Biosurgery's total revenues are described in the following table:

			Three Months Ended September 30,						Nine Months Ended September 30,
							Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
			2002		2001				2002		2001
			(Unaudited, amounts in thousands, except percentage data)
Product revenue:
	Orthopaedics		$	27,233	$	25,492	7	%	$	72,998	$	63,269	15	%
	Biosurgical Specialties			14,652		15,206	(4	)%		40,221		44,830	(10	)%
	Cardiothoracic			16,841		16,386	3	%		50,894		52,042	(2	)%
		Total product revenue		58,726		57,084	3	%		164,113		160,141	2	%
Service revenue:
	Orthopaedics			4,467		4,164	7	%		13,372		13,292	1	%
	Biosurgical Specialties			1,867		1,971	(5	)%		3,774		4,301	(12	)%
		Total service revenue		6,334		6,135	3	%		17,146		17,593	(3	)%
Research and development revenue:
	Other			1		—	N/A			36		5	620	%
		Total revenues	$	65,061	$	63,219	3	%	$	181,295	$	177,739	2	%

Product Revenue

        Orthopaedics product revenue increased 7% to $27.2 million for the three months ended September 30, 2002 and 15% to $73.0 million for the nine months ended September 30, 2002, as compared to the same periods a year ago, due to an increase in sales of Synvisc viscosupplementation product. Synvisc viscosupplementation product sales increased primarily due to increased utilization of the product within the existing customer base as well as new accounts. We believe that a potentially significant competitor is currently seeking FDA approval for a viscosupplementation product for possible U.S. launch during the first half of 2003.

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        Biosurgical Specialties product revenue decreased 4% to $14.7 million for the three months ended September 30, 2002, as compared to the same period a year ago. The decrease is due to a 95% decrease in sales of surgical instruments to $0.2 million resulting from the sale of our Snowden-Pencer line of surgical instruments during the fourth quarter of 2001, partially offset by a 57% increase in sales of Sepra products to $11.0 million primarily due to increased market penetration.

        Biosurgical Specialties product revenue decreased 10% to $40.2 million for the nine months ended September 30, 2002, as compared to the same period a year ago. The decrease is due to a 94% decrease in sales of surgical instruments to $0.8 million resulting from the sale of our Snowden-Pencer line of surgical instruments during the fourth quarter of 2001, partially offset by a 37% increase in sales of Sepra products to $28.8 million primarily due to increased market penetration.

        Cardiothoracic product revenue increased 3% to $16.8 million in the three months ended September 30, 2002, as compared to the same period a year ago, primarily due to an 11% increase in the combined sales of FocalSeal-L surgical sealant and instruments for minimally-invasive and off-pump cardiac surgery to $4.0 million, which was offset in part by a decrease in sales of instruments for cardiac surgery. Sales of these instruments decreased primarily due to the sale of our Snowden-Pencer line of surgical instruments in the fourth quarter of 2001.

        Cardiothoracic product revenue decreased 2% to $50.9 million for the nine months ended September 30, 2002 as compared to the same period a year ago, primarily due to a 9% decline in revenue from sales of surgical closures to $12.9 million resulting from our withdrawal of certain commodity suture lines in Europe during the first half of 2001 and a 7% decline in the combined revenues from sales of fluid management systems and instruments for cardiac surgery to $25.2 million due to increased competitive pressures on product pricing and the sale of our Snowden-Pencer line of surgical instruments in the fourth quarter of 2001. These decreases were partially offset by an 18% increase in the combined sales of FocalSeal-L surgical sealant and instruments for minimally-invasive and off-pump cardiac surgery to $12.7 million.

Service Revenue

        Orthopaedics service revenue did not change significantly during the three and nine months ended September 30, 2002 as compared to the same periods a year ago. Increased sales of Carticel chondrocyte services in the U.S. for both the three and nine months ended September 30, 2002 were offset by decreased European sales of the service in each period because we have not been actively seeking new partners or marketing Carticel chondrocytes in Europe since the second quarter of 2001. The decrease in Biosurgical Specialties service revenue for both the three and nine months ended September 30, 2002 as compared to the same periods a year ago, is attributable to decreased sales of Epicel skin grafts services in each period. Sales of Epicel skin grafts, which are used to treat victims of severe burns, are variable based upon the occurence of fire-related accidents.

International Revenue

        International revenue as a percentage of total sales for the three months ended September 30, 2002 was 26% as compared to 27% in the same period of 2001. International revenue as a percentage of total sales for the nine months ended September 30, 2002 was 28% as compared to 29% in the same period of 2001. The decrease in each period was primarily due to increased sales of Synvisc viscosupplementation product in the U.S.

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MARGINS

		Three Months Ended September 30,						Nine Months Ended September 30,
						Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
		2002		2001				2002		2001
		(Unaudited, amounts in thousands, except percentage data)
Product margin		$	34,245	$	29,956	14	%	$	89,320	$	72,244	24	%
	% of product revenue		58%		52%				54%		45%
Service margin		$	2,671	$	2,987	(11	)%	$	6,865	$	8,497	(19	)%
	% of service revenue		42%		49%				40%		48%
Total product and service gross margin		$	36,916	$	32,943	12	%	$	96,185	$	80,741	19	%
	% of total product and service revenue		57%		52%				53%		45%

        Genzyme Biosurgery provides a broad range of healthcare products and services. As a result, Genzyme Biosurgery's gross margin may vary significantly depending on the market conditions of each product or service.

Product Margin

        The 14% increase in product margin and the increase in product margin as a percentage of product revenue for the three months ended September 30, 2002 as compared to the same period a year ago was primarily attributable to a modest increase in revenue and a favorable 10% decrease in cost of products sold. The decrease in the cost of products sold was primarily related to increased sales of higher margin products, specifically Synvisc viscosupplementation product.

        The 24% increase in product margin and the increase in product margin as a percentage of product revenue for the nine months ended September 30, 2002 as compared to the same period a year ago was primarily attributable to a slight increase in revenue and a favorable 15% decrease in cost of products sold. The decrease in the cost of products sold was primarily related to our December 18, 2000 acquisition of Biomatrix which was allocated to Genzyme Biosurgery. As part of the acquisition, we adjusted the acquired inventory to fair value, resulting in an increase of $11.3 million. This amount was fully amortized to cost of products sold as the acquired inventory was sold in the first half of 2001. Excluding this adjustment, Genzyme Biosurgery's product margin for the nine months ended September 30, 2001 would have been 52%. Excluding the adjustments described above, product margin increased in the nine months ended September 30, 2002 as compared to the same period in 2001, as a result of an increase in sales of Synvisc viscosupplementation product, a higher margin product.

Service Margin

        Service margin decreased 11% for the three months ended September 30, 2002 and 19% for the nine months ended September 30, 2002 as compared to the same periods a year ago, primarily due to decreased sales of Epicel skin grafts and an increase in cost of services during both periods.

OPERATING EXPENSES

Selling, General and Administrative Expenses

        Selling, general and administrative expenses decreased 1% for the three months ended September 30, 2002 as compared to the same period in 2001. The decrease is primarily due to $2.9 million of costs attributable to the sale of our former Snowden-Pencer line of surgical instruments in the three months ended September 30, 2001 for which there are no comparable amounts in the same period of 2002 and to efforts within Genzyme Biosurgery to streamline and consolidate selling efforts in the three months ended September 30, 2002. This decrease was partially offset by a $2.6 million

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charge for severance costs relating to Genzyme Biosurgery's cardiothoracic business for which there were no comparable amounts in the same period a year ago.

        Selling, general and administrative expenses decreased 14% for the nine months ended September 30, 2002 as compared to the same period in 2001. The decrease is primarily due to $10.6 million of costs attributable to the sale of our former Snowden-Pencer line of surgical instruments in the nine months ended September 30, 2001 for which there are no comparable amounts in the same period of 2002 and to efforts within Genzyme Biosurgery to streamline and consolidate selling efforts in the nine months ended September 30, 2002. In addition, there were $5.5 million of costs in the nine months ended September 30, 2001 associated with the consolidation of European operations for which there are no comparable amounts in the same period of 2002. These decreases were partially offset by a $2.6 million charge for severance costs relating to Genzyme Biosurgery's cardiothoracic business for which there were no comparable amounts in the same period a year ago.

Research and Development Expenses

        Research and development expenses increased 7% during the three months ended September 30, 2002 as compared to the same period in 2001. The increase was primarily due to a $1.1 million increase in spending on the orthopaedics development programs, particularly other indications for Synvisc viscosupplementation product.

        Research and development expenses increased 9% during the nine months ended September 30, 2002 as compared to the same period in 2001. The increase was primarily due to a $1.1 million increase in spending on the cardiothoracic development programs, particularly cell therapy and a $1.9 million increase in spending on the orthopaedics development programs, particularly other indications for Synvisc viscosupplementation product.

Amortization of Intangibles

        Amortization of intangibles expense decreased 34% to $7.8 million for the three months ended September 30, 2002 and 33% to $23.5 million for the nine months ended September 30, 2002 as compared to the same periods in 2001 due to Genzyme Biosurgery's adoption of SFAS No. 142 in January 2002. SFAS No. 142 requires that ratable amortization of goodwill and certain intangible assets be replaced with periodic tests of the goodwill's impairment and that other intangible assets be amortized over their useful lives unless these lives are determined to be indefinite. In accordance with the provisions of SFAS No. 142, Genzyme Biosurgery ceased amortizing goodwill as of January 1, 2002. Had SFAS No. 142 been in effect for the three and nine months ended September 30, 2002, Genzyme Biosurgery's amortization of intangible expense would have been as follows (unaudited, amounts in thousands):

	Three Months Ended September 30, 2001							Nine Months Ended September 30, 2001
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
Amortization of intangibles	$	11,729	$	(3,848	)	$	7,881	$	35,042	$	(11,704	)	$	23,338

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        The following table presents the impact SFAS No. 142 would have had on Genzyme Biosurgery's amortization of intangibles expense had the standard been in effect for the years ended December 31, 2001, 2000 and 1999 (amounts in thousands):

	Year Ended December 31, 2001							Year Ended December 31, 2000							Year Ended December 31, 1999
	As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted		As Reported		Goodwill Amortization Adjustment			As Adjusted
			(Unaudited)							(Unaudited)							(Unaudited)
Amortization of intangibles	$	46,828	$	(15,521	)	$	31,307	$	7,096	$	(3,894	)	$	3,202	$	5,750	$	(3,263	)	$	2,487

Purchase of In-Process Research and Development

Myosix

        In July 2002, we entered into a collaboration with Myosix, a privately-held French biotechnology company, for the development and commercialization of a certain autologous cell culture technology, which we refer to as the Myosix Technology. The Myosix Technology was developed by the founders of Myosix with funding from the AP-HP, which owns and exclusively licenses the Myosix Technology and related patents to Myosix. In connection with the collaboration, we entered into several agreements with Myosix, including an equity purchase agreement, all effective July 29, 2002. Pursuant to the terms of the equity purchase agreement, we acquired 49% of the common stock of Myosix in exchange for 625,977 shares of Biosurgery Stock. The entire initial acquisition cost of $1.9 million, of which $1.6 million represents the fair market value of the shares of Biosurgery Stock exchanged and $0.3 million represents acquisition costs, was allocated to IPR&D and charged to expense in the three months ended September 30, 2002. We allocated this charge and our ownership interest in Myosix to Genzyme Biosurgery.

        The sublicense that we obtained from Myosix grants us use of the Myosix Technology for the treatment of congestive heart failure, although other applications may be pursued from this cell culture process. As of July 29, 2002, the date of acquisition, phase 1 clinical testing had been completed with funding from the AP-HP. Phase 2 clinical trials are scheduled to commence in the fourth quarter of 2002, and FDA approval for cardiac cell therapy is projected for 2009. As of September 30, 2002, the Myosix Technology has not achieved technological feasibility for any application and will require significant future development before an application can be completed.

Biomatrix

        In connection with our acquisition of Biomatrix, we allocated approximately $82.1 million to IPR&D, which Genzyme Biosurgery recorded as a charge to expense in its combined statement of operations for the year ended December 31, 2000. As of September 30, 2002, the technological feasibility of the Biomatrix IPR&D projects had not yet been reached and no significant departures from the assumptions included in the valuation analysis had occurred.

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        Below is a brief description of the Biomatrix IPR&D projects, including an estimation of when our management believes we may realize revenues from the sales of these products in the respective application:

Program	Program Description or Indication		Development Status at September 30, 2002	Value at Acquisition Date (in millions)		Estimated Cost to Complete at September 30, 2002	Year of Expected Product Launch
Viscosupplementation	Use of elastoviscous solutions and viscoelastic gels in disease conditions to supplement tissues and body fluids, alleviating pain and restoring normal function.	• • • •	Preclinical for hip indication in U.S. Preclinical for knee indication Preclinical for other joints Product launched for hip indication in Europe in September 2002	$	33.8	(1)	2002 to 2008
Visco-augmentation and Visco-separation (Adhesion prevention)	Use of viscoelastic gels to provide scaffolding for tissue regeneration and to separate tissues and decrease formation of adhesions and excessive scars after surgery.	• • •	Preclinical—gynecological and pelvic indications Clinical trials—pivotal safety and efficacy study on-going in U.S. for Hylaform Phase 2—spine indications; program cancelled during 2002; no further development planned		48.3	(1) N/A	2003 to 2006 N/A
				$	82.1

(1)

Costs to complete are not estimable due to the early stage of these programs.

        Except for our viscosupplementation product for the hip launched in Europe in 2002, substantial additional research and development will be required prior to any of our acquired IPR&D programs and technology platforms reaching technological feasibility. In addition, once developed, each product will need to complete a series of clinical trials and receive FDA or other regulatory approvals prior to commercialization. Our current estimates of the time and investment required to develop these products and technologies may change depending on the different applications that we may choose to pursue. We cannot give assurances that these programs will ever reach feasibility or develop into products that can be marketed profitably. In addition, we cannot guarantee that we will be able to develop and commercialize products before our competitors develop and commercialize products for the same indications. If products based on our acquired IPR&D programs and technology platforms do not become commercially viable, our results of operations could be materially affected.

Charge for Impaired Assets

        In 1997, we temporarily suspended bulk production of HA at our bulk HA manufacturing facility in Haverhill, England because we determined that we had sufficient quantities of HA on hand to meet the demand for our Sepra products for the near term. In the first quarter of 2002, we began a capital expansion program to build HA manufacturing capacity at one of our existing manufacturing facilities in Framingham, Massachusetts. During the third quarter of 2002, we determined that we have sufficient inventory levels to meet demand until the Framingham facility is completed and validated, which is estimated to be within one year. In connection with this assessment, at September 30, 2002, we concluded that we no longer require the manufacturing capacity at the HA Plant in England and we recorded an impairment charge of approximately $9.0 million in our unaudited, consolidated statements of operations and the unaudited, combined statements of operations of Genzyme Biosurgery for the three months ended September 30, 2002 to write down the assets at the England facility to fair value. This charge resulted in an increase of $9.0 million in the amount due from Genzyme Biosurgery to Genzyme General at September 30, 2002.

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OTHER INCOME AND EXPENSES

		Three Months Ended September 30,								Nine Months Ended September 30,
								Increase/ (Decrease) % Change								Increase/ (Decrease) % Change
		2002			2001					2002			2001
		(Unaudited, amounts in thousands, except percentage data)
Equity in net loss of unconsolidated affiliate		$	—		$	—		—	%	$	—		$	(1,316	)	(100	)%
Other			40			35		14	%		151			80		89	%
Investment income			320			431		(26	)%		943			1,370		(31	)%
Interest expense			(2,324	)		(3,026	)	(23	)%		(6,930	)		(11,455	)	(40	)%
	Total other income (expenses)	$	(1,964	)	$	(2,560	)	(23	)%	$	(5,836	)	$	(11,321	)	(48	)%

Equity in Net Loss of Unconsolidated Affiliate

        In January 2001, Focal exercised its option to require us to purchase $5.0 million in Focal common stock at a price of $2.06 per share. After that purchase we held approximately 22% of the outstanding shares of Focal common stock and began accounting for our investment under the equity method of accounting. We allocated our investment in Focal to Genzyme Biosurgery. Genzyme Biosurgery recorded in equity in net loss of unconsolidated affiliate its portion of the results of Focal. On June 30, 2001, we acquired the remaining 78% of the outstanding shares in an exchange of shares of Biosurgery Stock for shares of Focal common stock. Genzyme Biosurgery's equity in net loss of unconsolidated affiliate decreased in the nine months ended September 30, 2002 when compared to the same period in 2001 because Genzyme Biosurgery began accounting for Focal as a wholly-owned subsidiary when the remaining outstanding shares were purchased.

Investment Income

        Investment income decreased 26% in the three months ended September 30, 2002 and 31% in the nine months ended September 30, 2002 as compared to the same periods in 2001 as a result of a decline in interest rates and average cash balances.

Interest Expense

        Interest expense decreased 23% in the three months ended September 30, 2002 and 40% in the nine months ended September 30, 2002 as compared to the same periods in 2001 primarily as a result of a decrease in interest rates used to calculate interest on borrowings from our revolving credit facility.

Cumulative Effect of Change in Accounting for Goodwill

        On January 1, 2002, we adopted SFAS No. 142 which requires that ratable amortization of goodwill be replaced with periodic impairment testing of goodwill. Accordingly, Genzyme Biosurgery ceased amortizing goodwill effective January 1, 2002.

        In accordance with the transitional provisions of SFAS No. 142, Genzyme Biosurgery tested the impairment of the goodwill for its cardiothoracic reporting unit and recorded an impairment charge of $98.3 million in its unaudited, combined statement of operations for the three months ended March 31, 2002, which it reported as the cumulative effect of change in accounting for goodwill.

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GENZYME MOLECULAR ONCOLOGY
A Division of Genzyme Corporation

        The following discussion summarizes the key factors our management believes necessary for an understanding of Genzyme Molecular Oncology's financial statements.

CRITICAL ACCOUNTING POLICIES

        The critical accounting policies for Genzyme Molecular Oncology are set forth under the heading "Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations—Critical Accounting Policies" in Exhibit 13.4 to our 2001 Form 10-K. Except for Genzyme Molecular Oncology's policy regarding asset impairment, as described below, there have been no changes to these policies since December 31, 2001.

Asset Impairments

        In October 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS No. 144 supersedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and amends APB No. 30, "Reporting Results of Operations—Reporting the Effects of Disposal of a Segment of a Business." SFAS No. 144 is effective for financial statements issued for fiscal years beginning after December 15, 2001, and thus, has been adopted by Genzyme Molecular Oncology effective at the beginning of fiscal year 2002.

        Genzyme Molecular Oncology periodically evaluates long-lived assets for potential impairment under SFAS No. 144. Genzyme Molecular Oncology performs these evaluations whenever events or changes in circumstances suggest that the carrying value of an asset or group of assets is not recoverable. Indicators of potential impairment include:

•

a significant change in the manner in which an asset is used;



•

a significant decrease in the market value of an asset;



•

a significant adverse change in its business or its industry; and



•

a current period operating cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the asset.

        If Genzyme Molecular Oncology believes an indicator of potential impairment exists, it tests to determine whether the impairment recognition criteria in SFAS No. 144 have been met. In evaluating long-lived assets for potential impairment, Genzyme Molecular Oncology makes several significant estimates and judgments, including:

•

determining the appropriate grouping of assets at the lowest level for which cash flows are available;



•

estimating future cash flows associated with the asset or group of assets; and



•

determining an appropriate discount rate to use in the analysis.

Use of different estimates and judgments could yield significantly different results in this analysis and could result in materially different asset impairment charges.

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REVENUES

        The components of Genzyme Molecular Oncology's total revenues are described in the following table:

		Three Months Ended September 30,						Nine Months Ended September 30,
						Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
		2002		2001				2002		2001
		(Unaudited, amounts in thousands, except percentage data)
Service revenue		$	—	$	—	N/A		$	485	$	—	N/A
Research and development revenue			1,468		704	109	%		4,406		2,110	109	%
Licensing revenue			806		484	67	%		2,132		1,696	26	%
Royalty revenue			8		36	(78	)%		27		109	(75	)%
	Total revenues	$	2,282	$	1,224	86	%	$	7,050	$	3,915	80	%

        Service revenue for the nine months ended September 30, 2002 consists of revenues from the provision of services related to the SAGE genomics technology. Genzyme Molecular Oncology provides these services sporadically as customers request them. The focus of its SAGE business remains directed to the grant of licenses to the technology. No such revenues were recorded for the three and nine months ended September 30, 2001.

        Research and development revenue for the three months ended September 30, 2002 consists of $1.5 million of revenue for research performed on behalf of:

•

Purdue under the cancer antigen discovery agreement that was initiated in October 2000; and



•

Kirin under a collaboration agreement related to the tumor endothelial marker (TEM) program that was initiated in November 2001.

        Research and development revenue for the three months ended September 30, 2001 is solely attributable to research performed under the agreement with Purdue. Research and development revenue increased in the nine months ended September 30, 2002 as compared to the same period in 2001 due to the initiation of work under the Kirin collaboration, combined with an increase in resources applied to the Purdue collaboration.

        Licensing revenue for the three and nine months ended September 30, 2002 consisted primarily of technology access fees Genzyme Molecular Oncology received from Purdue and Kirin resulting from those collaborations. Genzyme Molecular Oncology is amortizing these fees over the course of the associated research programs. For the three months ended September 30, 2002, Genzyme Molecular Oncology recognized $0.8 million of the technology access fees it received from Purdue and Kirin. For the nine months ended September 30, 2002, Genzyme Molecular Oncology recognized $2.1 million of these fees. Genzyme Molecular Oncology also recognizes licensing revenue from licenses of rights to the SAGE technology and, prior to the transfer of its non-core in vitro cancer diagnostic assets to Genzyme General in December 2001, licenses associated with these assets. Those licensing revenues decreased $0.08 million in the three months ended September 30, 2002 as compared to the same period of 2001 and $0.5 million in the nine months ended September 30, 2002 as compared to the same period of 2001 primarily due to the transfer of the diagnostic assets to Genzyme General. As a result of the asset transfer, Genzyme Molecular Oncology will no longer be receiving license revenue under this diagnostic patent estate.

        Royalty revenue consists of royalties received under licenses to the SAGE technology and, through December 2001, under Genzyme Molecular Oncology's diagnostic assets. Because Genzyme Molecular Oncology transferred its in vitro cancer diagnostic assets to Genzyme General in December 2001, it will not receive royalty revenue generated by those assets in the future.

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COST OF REVENUES

		Three Months Ended September 30,						Nine Months Ended September 30,
						Increase/ (Decrease) % Change						Increase/ (Decrease) % Change
		2002		2001				2002		2001
		(Unaudited, amounts in thousands, except percentage data)
Cost of services sold		$	—	$	—	N/A		$	287	$	—	N/A
Cost of research and development contracts and licensing revenue			1,151		668	72	%		3,453		1,697	103	%
	Total cost of revenues	$	1,151	$	668	72	%	$	3,740	$	1,697	120	%

        Genzyme Molecular Oncology's cost of services sold for the nine months ended September 30, 2002 includes $0.3 million of costs associated with the performance of services using the SAGE technology.

        Genzyme Molecular Oncology's cost of research and development contracts and licensing revenue for the three and nine months ended September 30, 2002 and 2001 includes:

•

costs associated with work performed under funded research and development agreements, including those with Purdue and, for the three and nine months ended September 30, 2002, Kirin; and



•

royalties payable to third parties, most notably The Johns Hopkins University, for technology that Genzyme Molecular Oncology has licensed from them.

        Cost of research and development contracts and licensing revenue increased for both the three and nine months ended September 30, 2002 as compared to the same periods in 2001 primarily due to the initiation of work under the Kirin collaboration, combined with an increase in resources applied to the Purdue collaboration.

OPERATING EXPENSES

Selling, General and Administrative Expenses

        Genzyme Molecular Oncology's selling, general and administrative expenses decreased 4% to $1.7 million for the three months ended September 30, 2002 as compared to the same period of 2001, due to normal business fluctuations. Genzyme Molecular Oncology's selling, general and administrative expenses increased 8% to $5.9 million for the nine months ended September 30, 2002 as compared to the same period of 2001 as a result of enhanced business development efforts and increased expenses related to information technology, legal, accounting and general management services.

Research and Development Expenses

        Genzyme Molecular Oncology's research and development expenses decreased 8% to $5.9 million for the three months ended September 30, 2002 and 16% to $16.5 million for the nine months ended September 30, 2002 as compared to the same periods of 2001 primarily due to a planned increase in the amount of research and development funded by collaborators. These collaborator-funded research expenses are included in Genzyme Molecular Oncology's cost of research and development contracts and licensing revenues rather than as a research and development expense. Total research and development expenses, including collaborator-funded expenses remained constant at $7.0 million for the three months ended September 30, 2002, and decreased 6% to $20.0 million for the nine months ended September 30, 2002 as compared to the same periods of 2001. The decrease in the nine month period is primarily attributable to some non-recurring expenses incurred in the patient-specific vaccine program during the second quarter of 2001. In addition, during the three month period ended September 30, 2002, Genzyme Molecular Oncology initiated efforts to conserve available cash by reducing research and development expenses, principally by delaying the start of a planned clinical trial of a patient-specific cancer vaccine.

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OTHER INCOME AND EXPENSES

        Genzyme Molecular Oncology's other income increased 26% to $0.2 million for the three months ended September 30, 2002 compared to the same period of 2001 primarily due to an increase in investment income. Other income decreased 32% to $0.6 million for the nine months ended September 30, 2002 as compared to the same period in 2001 primarily due to a decrease in interest income. Investment income increased 27% for the three months ended September 30, 2002 as compared to the same period of 2001, despite a decline in interest rates, as a result of higher average cash balances. Investment income decreased 28% for the nine months ended September 30, 2002 as compared to the same periods of 2001, as a result of a decline in interest rates despite higher average cash balances.

B.    LIQUIDITY AND CAPITAL RESOURCES

GENZYME CORPORATION

        At September 30, 2002 and December 31, 2001, we had cash, cash equivalents, and short- and long-term investments of $1.2 billion an increase of $41.8 million from December 31, 2001.

        Our operating activities generated $160.3 million of cash for the nine months ended September 30, 2002. Net cash provided by operating activities was impacted by our net loss of $38.1 million and $22.1 million attributable to the net decrease in working capital, offset by:

•

$98.8 million of depreciation and amortization, of which $45.1 million resulted from the depreciation of property, plant and equipment and $53.7 million resulted from the amortization of intangible assets;

•

a $9.0 million impairment charge related to manufacturing capacity no longer required at our HA plant in England;

•

$10.4 million attributable to our equity in the net losses of unconsolidated affiliates; and

•

$98.3 million for the cumulative effect of a change in accounting for the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of SFAS No. 142.

        Our investing activities used $97.5 million of cash for the nine months ended September 30, 2002. Net cash used in investing activities was primarily the result of:

•

$164.8 million of cash used to fund purchases of property, plant and equipment, of which $98.6 million resulted primarily from our manufacturing capacity expansions in the Republic of Ireland, the United Kingdom and Belgium, $19.8 million resulted from our manufacturing capacity expansion in the U.S. and $46.4 million representing an aggregate of other domestic manufacturing, research and development and administrative capital expenditures;

•

$24.8 million of cash to fund our investments in unconsolidated affiliates; and

•

$5.5 million of cash drawn on a senior secured promissory note with a collaborator.

Net cash utilized by investing activities was offset by $93.3 million of cash provided from net of purchases, sales and maturities of investments and investments in equity securities.

        At September 30, 2002, our property, plant and equipment includes approximately $16.0 million of architectural and design costs related to the development of a manufacturing site adjacent to our existing facilities in Framingham, Massachusetts, which is allocated to Genzyme General. In the fourth quarter of 2001, we suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium and allocated to Genzyme General. We are considering alternative uses for the Framingham site and we believe that the architectural and design

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costs incurred by Genzyme General to-date for the Framingham site will be utilized in the future construction at the site.

        In connection with the acquisition of Biomatrix, we assumed a 6.9% convertible subordinated note due May 2003, in favor of UBS Warburg LLC. The $10.0 million principal amount of this note remains outstanding and was included in current portion of long-term debt, convertible notes and capital lease obligations in our unaudited, consolidated balance sheet and the unaudited, combined balance sheet of Genzyme Biosurgery as of September 30, 2002.

        In July 2002, together with BioMarin, we submitted the final portion of the "rolling" BLA for Aldurazyme enzyme to the FDA. As part of the BLA submission, we formally requested and were granted Priority Review, which is an FDA procedure generally reserved for products that address an unmet medical need. We expect an action by the FDA regarding our application to market Aldurazyme enzyme by the end of January 2003. Pursuant to the terms of our joint venture agreement with BioMarin for the development and commercialization of Aldurazyme enzyme, we are obligated to pay BioMarin a $12.1 million milestone payment upon receipt of FDA approval of the Aldurazyme enzyme BLA.

        In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88 and increased the line of credit we extended to Dyax from $3.0 million to $7.0 million. In connection with the increase, Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than $250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate plus 2%, which was 6.8% at September 30, 2002, and are due, together with any accrued but unpaid interest, in May 2005. As of September 30, 2002, Dyax had drawn $5.5 million under the note, which we recorded as a note receivable-related party in our unaudited, consolidated balance sheet and the unaudited, combined balance sheet of Genzyme General. Dyax is considered a related party because the chairman and chief executive officer of Dyax is a member of our board of directors. Pursuant to the terms of the note, we are not obligated to make advances in excess of $1.5 million during any calendar quarter.

        Our financing activities provided $52.2 million of cash for the nine months ended September 30, 2002. Net cash provided by financing activities was primarily the result of:

•

$26.9 million of proceeds from the issuance of common stock in connection with the exercise of options to purchase shares of common stock under our stock plans; and

•

$35.0 million of proceeds drawn under our credit facility and allocated to Genzyme Biosurgery.

Our financing activities also used $5.9 million to repay the current portions of our long-term debt and long-term capital leases, of which $5.1 million represents payment of the outstanding principal balance due under the notes payable we assumed in connection with our acquisition of GelTex in December 2000 and allocated to Genzyme General.

        We have access to a $350.0 million revolving credit facility, all of which matures in December 2003. During the first quarter of 2002, we drew down $35.0 million under this facility and allocated the borrowings to Genzyme Biosurgery. At September 30, 2002, $269.0 million had been drawn down and remained outstanding under the $350.0 million facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin, which was 2.8% at September 30, 2002. The terms of the revolving credit facility include various covenants, including financial covenants, which require us to meet minimum liquidity and interest coverage ratios and to meet maximum leverage ratios. We currently are in compliance with these covenants and do not anticipate falling out of compliance.

        We believe that our available cash, investments and cash flow from operations will be sufficient to fund our planned operations and capital requirements for the foreseeable future. Although we have

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substantial cash resources and positive cash flow, we intend to use substantial portions of our available cash for:

•

product development and marketing;

•

expanding facilities and staff;

•

working capital; and

•

strategic business initiatives.

        Our cash reserves will be further reduced to pay interest on the $575.0 million in principal under our 3% convertible subordinated debentures due May 2021, which may be convertible into shares of Genzyme General Stock upon certain conditions. If we use cash to pay or redeem any of this debt, including principal and interest due on it, our cash reserves will be diminished. To satisfy these and other commitments, we may have to obtain additional financing. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on favorable terms.

        The disclosure of payments we have committed to make under contractual obligations is set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Liquidity and Capital Resources" in Exhibit 13.1 to our 2001 Form 10-K. Except for our commitments under our revolving credit facility, as described above, and operating leases, as described below, there have been no material changes to our contractual obligations since December 31, 2001.

        In May 2002, we entered into an agreement to lease an 85,808 square foot building and related parking area in Westborough, Massachusetts for Genzyme General's genetic testing business. The term of the lease is ten years with rent payable in advance commencing August 1, 2002. Fixed rent payments during the term of the lease are as follows (amounts in thousands):

August–December 2002	$	261
2003		627
2004		714
2005		930
2006		1,060
Thereafter		7,097
Total	$	10,689

        Pursuant to the terms of the net lease agreement, we are obligated to pay, in addition to yearly fixed rent, the taxes, betterment assessments, insurance costs, utility charges, base operating costs and certain other expenses related to the property under lease. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms and a one-time option, exercisable during the first five years of the lease, to purchase the land and building under lease.

        To satisfy these and other commitments, we may have to obtain additional financing. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on favorable terms.

        In July 2002, we entered into an agreement to lease 61,101 square feet of additional office space in Cambridge, Massachusetts. Genzyme Biosurgery will occupy this space initially. The term of the lease is

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seven years with rent payable in advance commencing on October 1, 2002. Fixed rent payments during the term of the lease are as follows (amounts in thousands):

October–December 2002	$	391
2003		2,032
2004		2,090
2005		2,151
2006		2,197
Thereafter		6,043
Total	$	14,904

        Pursuant to the terms of the lease agreement, we are obligated to pay, in addition to yearly fixed rent, our pro rata share of the landlord's operating costs and the real estate taxes for the property in excess of the landlord's operating costs and real estate taxes for 2002. In addition, the landlord will charge us for direct use of electricity at cost. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms with rent equal to the greater of the current base rent or 95% of fair market value. The lease also provides three options to lease a total of 45,577 square feet of additional space at the property. In addition, the lease provides us with first offer options on additional space that becomes available in the building.

New Accounting Pronouncements

        In August 2001, the FASB issued SFAS, No. 143, "Accounting for Asset Retirement Obligations." SFAS No. 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated retirement costs. SFAS No. 143 will be effective for our fiscal year ending December 31, 2003. We are in the process of assessing the effect of adopting SFAS No. 143 on our consolidated and combined financial statements.

        In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which addresses financial accounting and reporting for costs associated with exit or disposal activities and supersedes EITF Issue 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under EITF Issue 94-3, a liability for an exit cost as defined in EITF Issue 94-3 was recognized at the date of an entity's commitment to an exit plan.

        SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. We will adopt the provisions of SFAS No. 146 for exit or disposal activities that are initiated after December 31, 2002 as required by the standard.

Subsequent Events

Fabrazyme Enzyme BLA

        Our BLA for Fabrazyme enzyme for the treatment of Fabry disease is currently scheduled to be reviewed by the FDA's Endocrinologic and Metabolic Drugs Advisory Committee on January 13, 2003. This meeting was originally scheduled for September 26, 2002, but was postponed by the FDA for administrative reasons. The BLA for Transkaryotic Therapies Inc.'s product for Fabry disease is scheduled to be reviewed by the advisory committee on January 14, 2003.

Aldurazyme Enzyme BLA

        The BLA we submitted with BioMarin to the FDA for approval to market Aldurazyme enzyme for MPS-I disease is scheduled to be reviewed by the FDA's Endocrinologic and Metabolic Drugs Advisory Committee on January 15, 2003.

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Cholestagel® Bile Acid Binder MAA

        In August 2002, we filed an MAA with the EMEA for approval to market Cholestagel bile acid binder, a novel, non-absorbed cholesterol-lowering agent for the treatment of primary hypercholesterolemia (elevated cholesterol). The MAA requests the approval of Cholestagel bile acid binder both as a monotherapy and in combination with HMG-CoA reductase inhibitors, or statins. The EMEA has accepted the MAA and validated that it is complete and ready for scientific review. The EMEA's CPMP will now evaluate the application to determine whether to approve Cholestagel bile acid binder in all 15 member states of the European Union. The final commission decision is expected by the end of 2003. Colesevelam hydrochloride has been marketed in the U.S. under the brand-name WelChol for two years by our U.S. marketing partner for the product, Sankyo Pharma, Inc.

119

GENZYME GENERAL
A Division of Genzyme Corporation

        At September 30, 2002, Genzyme General had cash, cash equivalents, and short- and long-term investments of $1.1 billion, an increase of $79.5 million from December 31, 2001.

        Genzyme General's operating activities generated $204.6 million of cash for the nine months ended September 30, 2002. Net cash provided by operating activities was primarily the result of Genzyme General's net income of $113.2 million and:

•

$70.0 million of depreciation and amortization, of which $39.9 million resulted from the depreciation of property, plant and equipment and $30.1 million resulted from the amortization of intangible assets;



•

$10.4 million attributable to Genzyme General's equity in net losses of unconsolidated affiliates; and



•

$9.3 million attributable to the net change in working capital.

        Genzyme General's investing activities utilized $78.5 million in cash for the nine months ended September 30, 2002. Net cash utilized in investing activities consisted primarily of:

•

$160.8 million in cash used to fund purchases of plant, property and equipment, of which, $98.6 million resulted primarily from our manufacturing capacity expansions in the Republic of Ireland, the United Kingdom and Belgium, $15.8 million resulted from our manufacturing capacity expansion in the U.S. and $46.4 million representing an aggregate of other domestic manufacturing, research and development and administrative capital expenditures;



•

$24.8 million of cash to fund Genzyme General's investments in unconsolidated affiliates; and



•

$5.5 million of cash drawn on a senior secured promissory note with a collaborator.

Net cash utilized by investing activities was offset by $108.4 million of cash provided from Genzyme General's net purchases, sales and maturities of investments and investments in equity securities.

        At September 30, 2002, Genzyme General's property, plant and equipment includes approximately $16.0 million of architectural and design costs related to the development of a manufacturing site adjacent to our existing facilities in Framingham, Massachusetts, which is allocated to Genzyme General. In the fourth quarter of 2001, Genzyme General suspended development of this site in favor of developing the manufacturing site we acquired from Pharming N.V. in Geel, Belgium and allocated to Genzyme General. We are considering alternative uses for the Framingham site and we believe that the architectural and design costs incurred by Genzyme General to-date for the Framingham site will be utilized in the future construction at this site.

        In July 2002, together with BioMarin, we submitted the final portion of the "rolling" BLA for Aldurazyme enzyme to the FDA. As part of the BLA submission, we formally requested and were granted Priority Review, which is an FDA procedure generally reserved for products that address an unmet medical need. We expect an action by the FDA regarding our application to market Aldurazyme enzyme by the end of January 2003. Pursuant to the terms of our joint venture agreement with BioMarin for the development and commercialization of Aldurazyme enzyme, we are obligated to pay BioMarin a $12.1 million milestone payment upon receipt of FDA approval of the Aldurazyme enzyme BLA.

        In May 2002, we restructured our collaboration agreement with Dyax for the development of the kallikrein inhibitor DX-88 and increased the line of credit we extended to Dyax from $3.0 million to $7.0 million. In connection with the increase, Dyax issued a senior secured promissory note in the principal amount of $7.0 million to us under which it can request periodic advances of not less than

120

$250,000 in principal, subject to certain conditions. Advances under this note bear interest at the prime rate plus 2%, which was 6.8% at September 30, 2002, and are due, together with any accrued but unpaid interest, in May 2005. As of September 30, 2002, Dyax had drawn $5.5 million under the note, which we recorded as a note receivable-related party in our unaudited, consolidated balance sheet and the unaudited, combined balance sheet of Genzyme General. Dyax is considered a related party because the chairman and chief executive officer of Dyax is a member of our board of directors. Pursuant to the terms of the note, we are not obligated to make advances in excess of $1.5 million during any calendar quarter.

        Genzyme General's financing activities provided $42.9 million of cash for the nine months ended September 30, 2002. Cash provided from financing activities was primarily the result of:

•

$25.8 million of allocated proceeds from the issuance of Genzyme General Stock attributable to the exercise of options to purchase shares of Genzyme General Stock under our stock plans; and



•

$27.1 million of cash refunded from Genzyme Biosurgery representing $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC, plus accrued interest of 13.5% per annum.

Genzyme General's financing activities also used $5.2 million to repay the current portions of long-term debt and long-term capital leases allocated to Genzyme General, of which $5.1 million represents payment of the outstanding principal balance due under the notes payable we assumed in connection with our acquisition of GelTex in December 2000.

        Genzyme General has access to our $350.0 million revolving credit facility, all of which matures in December 2003. At September 30, 2002, $269.0 million had been drawn down and remained outstanding under the $350.0 million facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin, which was 2.8% at September 30, 2002.

        Our board of directors has made $25.0 million of Genzyme General's cash available to Genzyme Biosurgery. Under this arrangement, Genzyme Biosurgery is able to draw down funds as needed in exchange for Biosurgery designated shares based on the fair market value (as defined in our charter) of Biosurgery Stock at the time of the draw. At September 30, 2002, $3.0 million remained available to Genzyme Biosurgery under this arrangement. Our board of directors has made $30.0 million of Genzyme General's cash available to Genzyme Molecular Oncology. Under this arrangement, Genzyme Molecular Oncology is able to draw down funds as needed in exchange for Molecular Oncology designated shares based on the fair market value (as defined in our charter) of Molecular Oncology Stock at the time of the draw. At September 30, 2002, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

        We believe that Genzyme General's available cash, investments and cash flow from operations will be sufficient to fund its planned operations and capital requirements for the foreseeable future. Although Genzyme General currently has substantial cash resources and positive cash flow, it intends to use substantial portions of its available cash for:

•

product development and marketing;



•

expanding facilities and staff;



•

working capital; and



•

strategic business initiatives.

        Genzyme General's cash reserves will be further reduced to pay interest on the $575.0 million in principal under our 3% convertible subordinated debentures due May 2021, which may be convertible

121

into shares of Genzyme General Stock. If Genzyme General uses cash to pay or redeem any of this debt, including principal and interest due on it, its cash reserves will be diminished. In addition, Genzyme General's cash resources will be reduced to the extent that we are required to use cash allocated to Genzyme General to settle the liabilities of Genzyme Biosurgery or Genzyme Molecular Oncology.

        The disclosure of payments we have committed to make under contractual obligations using cash allocated to Genzyme General is set forth under the heading "Management's Discussion and Analysis of Genzyme General's Financial Condition and Results of Operations—Liquidity and Capital Resources" in Exhibit 13.2 to our 2001 Form 10-K. Except for our commitments under operating leases allocated to Genzyme General, as described below, there have been no material changes to the contractual obligations allocated to Genzyme General since December 31, 2001.

        In May 2002, we entered into an agreement to lease an 85,808 square foot building and related parking area in Westborough, Massachusetts for Genzyme General's genetic testing business. The term of the lease is ten years with rent payable in advance commencing August 1, 2002. Fixed rent payments during the term of the lease are as follows (amounts in thousands):

August–December 2002	$	261
2003		627
2004		714
2005		930
2006		1,060
Thereafter		7,097
Total	$	10,689

        Pursuant to the terms of the net lease agreement, we are obligated to pay, in addition to yearly fixed rent, the taxes, betterment assessments, insurance costs, utility charges, base operating costs and certain other expenses related to the property under lease. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms and a one-time option, exercisable during the first five years of the lease, to purchase the land and building under lease.

        To satisfy these and other commitments, we may have to obtain additional financing for Genzyme General. We cannot guarantee that we will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on favorable terms.

Subsequent Events

Fabrazyme Enzyme BLA

        Our BLA for Fabrazyme enzyme for the treatment of Fabry disease is currently scheduled to be reviewed by the FDA's Endocrinologic and Metabolic Drugs Advisory Committee on January 13, 2003. This meeting was originally scheduled for September 26, 2002, but was postponed by the FDA for administrative reasons. The BLA for Transkaryotic Therapies Inc.'s product for Fabry disease is scheduled to be reviewed by the advisory committee on January 14, 2003.

Aldurazyme Enzyme BLA

        The BLA we submitted with BioMarin to the FDA for approval to market Aldurazyme enzyme for MPS-I disease is scheduled to be reviewed by the FDA's Endocrinologic and Metabolic Drugs Advisory Committee on January 15, 2003.

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Cholestagel Bile Acid Binder MAA

        In August 2002, we filed an MAA with the EMEA for approval to market Cholestagel bile acid binder, a novel, non-absorbed cholesterol-lowering agent for the treatment of primary hypercholesterolemia (elevated cholesterol). The MAA requests the approval of Cholestagel bile acid binder both as a monotherapy and in combination with HMG-CoA reductase inhibitors, or statins. The EMEA has accepted the MAA and validated that it is complete and ready for scientific review. The EMEA's CPMP will now evaluate the application to determine whether to approve Cholestagel bile acid binder in all 15 member states of the European Union. The final commission decision is expected by the end of 2003. Colesevelam hydrochloride has been marketed in the U.S. under the brand-name WelChol for two years by our U.S. marketing partner for the product, Sankyo Pharma, Inc.

123

GENZYME BIOSURGERY
A Division of Genzyme Corporation

        At September 30, 2002, Genzyme Biosurgery had cash and cash equivalents of $24.0 million, a decrease of approximately $14.6 million from December 31, 2001.

        Genzyme Biosurgery's operating activities used $20.6 million of cash for the nine months ended September 30, 2002. Operating activities were impacted by Genzyme Biosurgery's division net loss of $160.6 million offset by:

•

$28.6 million of depreciation and amortization, of which $5.1 million resulted from the depreciation of property, plant and equipment and $23.5 million resulted from the amortization of intangible assets, including intangible assets acquired in connection with our acquisitions of Biomatrix and Focal;



•

a $1.9 million non-cash charge for in-process research and development due to the collaboration with Myosix;



•

a $9.0 million impairment charge related to manufacturing capacity no longer required at our HA plant in England;



•

$98.3 million for the cumulative effect of a change in accounting for the goodwill allocated to Genzyme Biosurgery's cardiothoracic reporting unit in accordance with the transitional provisions of SFAS No. 142; and



•

$1.5 million of cash provided from net changes in working capital.

        Genzyme Biosurgery's investing activities used $3.9 million of cash for the nine months ended September 30, 2002, primarily to fund capital expenditures.

        Genzyme Biosurgery's financing activities provided $9.0 million of cash for the nine months ended September 30, 2002. Net cash provided from financing activities was primarily a result of the $35.0 million draw under the revolving credit facility allocated to Genzyme Biosurgery. This was partially offset by a $27.1 million payment to Genzyme General, representing a refund of $20.0 million of the $25.0 million Genzyme Biosurgery received from Genzyme General in connection with the transfer to Genzyme General of Genzyme Biosurgery's interest in Diacrin/Genzyme LLC, plus accrued interest of 13.5% per annum.

        In connection with the acquisition of Biomatrix, we assumed a 6.9% convertible subordinated note due May 2003, in favor of UBS Warburg LLC. The $10.0 million principal amount of this note remains outstanding and was included in current portion of long-term debt, convertible notes and capital lease obligations in Genzyme Biosurgery's unaudited, combined balance sheet at September 30, 2002.

        During the first quarter of 2002, we drew down $35.0 million under our $350.0 million revolving credit facility all of which matures in December 2003, and allocated the proceeds to Genzyme Biosurgery. At September 30, 2002, $269.0 million had been drawn down and remained outstanding under our revolving credit facility, all of which was allocated to Genzyme Biosurgery. Borrowings under this facility bear interest at LIBOR plus an applicable margin, which was 2.8% at September 30, 2002.

        Our board of directors has made $25.0 million of Genzyme General's cash available to Genzyme Biosurgery. Under this arrangement, Genzyme Biosurgery is able to draw down funds as needed in exchange for Biosurgery designated shares based on the fair market value (as defined in our charter) of Biosurgery Stock at the time of the draw. At September 30, 2002, $3.0 million remained available to Genzyme Biosurgery under this arrangement.

124

        We anticipate that Genzyme Biosurgery's cash resources, together with amounts available from the following sources, will be sufficient to finance its planned operations and capital requirements through the first half of 2003:

•

revenues generated from its products and distribution agreements; and



•

the $3.0 million remaining under the interdivisional financing arrangement with Genzyme General.

        Genzyme Biosurgery intends to use substantial portions of its available cash for:

•

research and development;



•

product development and marketing, including for Synvisc viscosupplementation product;



•

improving manufacturing efficiency;



•

enforcing patent and other intellectual property rights;



•

transactional activity related to acquiring and disposing of assets;



•

consolidating facilities and related relocation activities; and



•

working capital.

        Genzyme Biosurgery's cash needs may differ from those planned as a result of many factors, including the:

•

results of research and development efforts;



•

ability to establish and maintain strategic alliances;



•

ability to enter into and maintain licensing arrangements and additional distribution arrangements;



•

ability to share costs of product development with research and marketing partners;



•

costs involved in enforcing patent claims and other intellectual property rights;



•

costs involved in defending or setting post-closing retained liabilities in connection with our sale of the Snowden-Pencer line of surgical instruments;



•

market acceptance of novel approaches and therapies;



•

success of its initiatives to reduce expenses and streamline its operations;



•

development of competitive products; and



•

ability to satisfy regulatory requirements of the FDA and other governmental authorities.

        The disclosure of payments we have committed to make under contractual obligations using cash allocated to Genzyme Biosurgery is set forth under the heading "Management's Discussion and Analysis of Genzyme Biosurgery's Financial Condition and Result of Operations—Liquidity and Capital Resources" in Exhibit 13.3 to our 2001 Form 10-K. Except for the $27.1 million refund paid by Genzyme Biosurgery to Genzyme General in February 2002 and commitments under our revolving credit facility that are allocated to Genzyme Biosurgery, as described above, and commitments under operating leases allocated to Genzyme Biosurgery, as described below, there have been no material changes to the contractual obligations allocated to Genzyme Biosurgery since December 31, 2001.

        In July 2002, we entered into an agreement to lease 61,101 square feet of additional office space in Cambridge, Massachusetts. Genzyme Biosurgery will occupy this space initially. The term of the lease is

125

seven years with rent payable in advance commencing on October 1, 2002. Fixed rent payments during the term of the lease are as follows (amounts in thousands):

October-December 2002	$	391
2003		2,032
2004		2,090
2005		2,151
2006		2,197
Thereafter		6,043
Total	$	14,904

        Pursuant to the terms of the lease agreement, we are obligated to pay, in addition to yearly fixed rent, our pro rata share of the landlord's operating costs and the real estate taxes for the property in excess of the landlord's operating costs and real estate taxes for 2002. In addition, the landlord will charge us for direct use of electricity at cost. Subject to certain conditions, the lease provides us with an option to extend the lease for two additional five-year terms with rent equal to the greater of the current base rent or 95% of fair market value. The lease also provides three options to lease a total of 45,577 square feet of additional space at the property. In addition, the lease provides us with first offer options on additional space that becomes available in the building.

        Genzyme Biosurgery will require significant additional financing to continue operations at anticipated levels. We cannot guarantee that Genzyme Biosurgery will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on terms that we consider favorable. If Genzyme Biosurgery has insufficient funds or is unable to raise additional funds, it may delay, scale back or eliminate certain of its programs. Genzyme Biosurgery may also have to give third parties rights to commercialize technologies or products that it would otherwise have sought to commercialize itself.

126

GENZYME MOLECULAR ONCOLOGY
A Division of Genzyme Corporation

        At September 30, 2002, Genzyme Molecular Oncology had cash, cash equivalents and short-term investments of $18.0 million, a decrease of $23.1 million from cash and cash equivalents of $41.1 million at December 31, 2001.

        Genzyme Molecular Oncology's operating activities used $23.6 million of cash for the nine months ended September 30, 2002. Operating activities were impacted by Genzyme Molecular Oncology's division net loss of $18.6 million for the nine months ended September 30, 2002 and $5.0 million attributable to the net decrease in working capital.

        Genzyme Molecular Oncology's investing activities used $15.1 million of cash for the nine months ended September 30, 2002 for the net purchases, sales and maturities of investments.

        Genzyme Molecular Oncology's financing activities for the nine months ended September 30, 2002 provided $0.3 million of allocated proceeds from the issuance of Molecular Oncology Stock under our stock purchase plan.

        Our board of directors has made $30.0 million of Genzyme General's cash available to Genzyme Molecular Oncology. Under this arrangement, Genzyme Molecular Oncology is able to draw down funds as needed in exchange for Molecular Oncology designated shares based on the fair market value (as defined in our charter) of Molecular Oncology Stock at the time of the draw. At September 30, 2002, $11.0 million remained available to Genzyme Molecular Oncology under this arrangement.

        We anticipate that Genzyme Molecular Oncology's current cash resources, together with amounts available from the following sources, will be sufficient to fund its anticipated operations (taking into consideration a planned reduction in research and development expense) through the end of 2003:

•

committed and anticipated research funding and licensing income from collaborators; and



•

the $11.0 million remaining under the interdivisional financing arrangement with Genzyme General.

        Genzyme Molecular Oncology plans to spend substantial amounts of funds on, among other things:

•

research and development;



•

preclinical and clinical testing;



•

pursuing regulatory approvals; and



•

working capital.

        Genzyme Molecular Oncology's cash needs may differ from those planned as a result of many factors, including the:

•

results of research and development and clinical testing;



•

achievement of milestones under existing licensing arrangements;



•

ability to establish and maintain additional strategic collaborations and licensing arrangements;



•

costs involved in enforcing patent claims and other intellectual property rights;



•

market acceptance of novel approaches and therapies;



•

development of competing products and services; and



•

ability to satisfy regulatory requirements of the FDA and other government authorities.

127

        The disclosure of payments we have committed to make under contractual obligations using cash allocated to Genzyme Molecular Oncology is set forth under the heading "Management's Discussion and Analysis of Genzyme Molecular Oncology's Financial Condition and Results of Operations—Liquidity and Capital Resources" in Exhibit 13.4 to our 2001 Form 10-K. There have been no material changes to the contractual obligations allocated to Genzyme Molecular Oncology since December 31, 2001.

        Genzyme Molecular Oncology will require significant additional financing to continue operations at anticipated levels. We cannot guarantee that Genzyme Molecular Oncology will be able to obtain any additional financing, extend any existing financing arrangement, or obtain either on terms that we consider favorable. To this end, management is managing closely its cash reserves by decreasing its anticipated research and development expense in the fourth quarter of 2002. Much of this decrease will be obtained by delaying the start of one of its two planned clinical trials of a patient-specific cancer vaccine. If Genzyme Molecular Oncology has insufficient funds or is unable to raise additional funds, it may delay, reduce or eliminate more of its programs. Genzyme Molecular Oncology may also have to sell or give to third parties rights to commercialize technologies or products that it would otherwise have sought to commercialize itself.

ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK

        We are exposed to potential loss from financial market risks that may occur as a result of changes in interest rates, equity prices and foreign exchange rates. Our exposure to these risks has not materially changed since December 31, 2001.

        We incorporate by reference our disclosure related to market risk which is set forth under the heading "Management's Discussion and Analysis of Genzyme Corporation and Subsidiaries' Financial Condition and Results of Operations—Market Risk," "—Interest Rate Risk," "—Foreign Exchange Risk;" and "—Equity Price Risk" in Exhibit 13.1 to our 2001 Form 10-K.

ITEM 4. CONTROLS AND PROCEDURES

        Our chief executive officer and our chief financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13(a)-14(c) and 15(d)-14(c) under the Securities Exchange Act of 1934) as of a date (the "Evaluation Date") within 90 days before the filing date of this quarterly report. Based upon that evaluation, our chief executive officer and our chief financial officer have concluded that, as of the Evaluation Date, our disclosure controls and procedures were effective in ensuring that they timely received the information that we and our consolidated subsidiaries are required to disclose in the reports filed or submitted by us under the Securities Exchange Act of 1934. There were no significant changes in our internal controls or in other factors that could significantly affect our disclosure controls and procedures subsequent to the Evaluation Date.

128

PART II. OTHER INFORMATION

ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS

        On July 29, 2002, we acquired 49% of the common stock of Myosix, a privately-held French biotechnology company, from the common stockholders of Myosix in exchange for 625,977 shares of Biosurgery Stock pursuant to the terms of an equity purchase agreement among us and the common stockholders of Myosix. Under the terms of the equity purchase agreement, we may acquire up to the remaining 51% of the common stock of Myosix from the common stockholders of Myosix for cash or shares of Biosurgery Stock if certain milestones described in the equity purchase agreement are achieved. The shares of Biosurgery Stock were issued to the five common stockholders of Myosix in a private placement under Section 4(2) of the Securities Act of 1933.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)

Exhibits

See the Exhibit Index immediately following the signature page to this report on Form 10-Q.

(b)

Reports on Form 8-K

We filed a Current Report on Form 8-K dated August 14, 2002 on August 14, 2002 to include the sworn statements of our Principal Executive Officer, Henri A. Termeer, and our Principal Financial Officer, Michael S. Wyzga, submitted to the SEC pursuant to SEC Order No. 4-460.

129

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 2002

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: November 14, 2002	By:	/S/ MICHAEL S. WYZGA Michael S. Wyzga Senior Vice President, Finance, Chief Financial Officer, and Chief Accounting Officer

130

CERTIFICATION

I, Henri A. Termeer, certify that:

        1.    I have reviewed this quarterly report on Form 10-Q of Genzyme Corporation (the "Registrant");

        2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

        3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

        4.    The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

        a)    designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

        b)    evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

        c)    presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

        5.    The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function):

        a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and

        b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and

        6.    The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002
/S/ HENRI A. TERMEER Henri A. Termeer
Chief Executive Officer

131

CERTIFICATION

I, Michael S. Wyzga, certify that:

        1.    I have reviewed this quarterly report on Form 10-Q of Genzyme Corporation (the "Registrant");

        2.    Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;

        3.    Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this quarterly report;

        4.    The Registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and we have:

        a)    designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared;

        b)    evaluated the effectiveness of the Registrant's disclosure controls and procedures as of a date within 90 days prior to the filing date of this quarterly report (the "Evaluation Date"); and

        c)    presented in this quarterly report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

        5.    The Registrant's other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant's auditors and the audit committee of Registrant's board of directors (or persons performing the equivalent function):

        a)    all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant's ability to record, process, summarize and report financial data and have identified for the Registrant's auditors any material weaknesses in internal controls; and

        b)    any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls; and

        6.    The Registrant's other certifying officer and I have indicated in this quarterly report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: November 14, 2002
/s/  MICHAEL S. WYZGA Michael S. Wyzga
Chief Financial Officer

132

GENZYME CORPORATION AND SUBSIDIARIES
FORM 10-Q, SEPTEMBER 30, 2002

EXHIBIT INDEX

Exhibit No.	Description
*3.1	Restated Articles of Organization of Genzyme, as amended. Filed as Exhibit 3 to Genzyme's Form 8-K filed on June 6, 2001.
*3.2	By-laws of Genzyme, as amended. Filed as Exhibit 3.2 to Genzyme's Form 10-Q for the quarter ended September 30, 1999.
10	Lease dated July 26, 2002, for 55 Cambridge Parkway, Cambridge, Massachusetts between Genzyme and CC&F Cambridge Parkway Trust. Filed herewith.
99.1	Written Statement of the Chief Executive Officer. Filed herewith.
99.2	Written Statement of the Chief Financial Officer. Filed herewith.

*

Indicates an exhibit previously filed with the Securities and Exchange Commission and incorporated herein by reference. Exhibits filed with Forms 8-K and 10-Q of Genzyme Corporation were filed under Commission File No. 0-14680.

QuickLinks

TABLE OF CONTENTS
TABLE OF CONTENTS

PART 1. Financial Information
ITEM 1. Financial Statements

GENZYME CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (Unaudited, amounts in thousands)
GENZYME CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (Amounts in thousands)
GENZYME CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (Unaudited, amounts in thousands)
GENZYME CORPORATION AND SUBSIDIARIES Notes To Unaudited, Consolidated Financial Statements
GENZYME GENERAL A Division of Genzyme Corporation Combined Statements of Operations (Unaudited, amounts in thousands)
GENZYME GENERAL A Division of Genzyme Corporation Combined Balance Sheets (Amounts in thousands)
GENZYME GENERAL A Division of Genzyme Corporation Combined Statements of Cash Flows (Unaudited, amounts in thousands)
GENZYME GENERAL A Division of Genzyme Corporation Notes To Unaudited, Combined Financial Statements
GENZYME BIOSURGERY A Division of Genzyme Corporation Combined Statements of Operations (Unaudited, amounts in thousands)
GENZYME BIOSURGERY A Division of Genzyme Corporation Combined Balance Sheets (Amounts in thousands)
GENZYME BIOSURGERY A Division of Genzyme Corporation Combined Statements of Cash Flows (Unaudited, amounts in thousands)
GENZYME BIOSURGERY A Division of Genzyme Corporation Notes to Unaudited, Combined Financial Statements
GENZYME MOLECULAR ONCOLOGY A Division of Genzyme Corporation Combined Statements of Operations (Unaudited, amounts in thousands)
GENZYME MOLECULAR ONCOLOGY A Division of Genzyme Corporation Combined Balance Sheets (Amounts in thousands)
GENZYME MOLECULAR ONCOLOGY A Division of Genzyme Corporation Combined Statements of Cash Flows (Unaudited, amounts in thousands)
GENZYME MOLECULAR ONCOLOGY A Division of Genzyme Corporation Notes To Unaudited, Combined Financial Statements
GENZYME MOLECULAR ONCOLOGY A Division of Genzyme Corporation
GENZYME GENERAL A Division of Genzyme Corporation
GENZYME BIOSURGERY A Division of Genzyme Corporation

ITEM 3. QUANTITATIVE AND QUALITATIVE ANALYSIS OF MARKET RISK

PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

SIGNATURES
CERTIFICATION
CERTIFICATION
EXHIBIT INDEX

EX-10

                                                                      EXHIBIT 10

                     DATE OF LEASE EXECUTION: July 26, 2002

                                    ARTICLE I

                                 REFERENCE DATA

1.1     SUBJECTS REFERRED TO:

Each reference in this Lease to any of the following subjects shall be construed
to incorporate the data stated for that subject in this Section 1.1:

LANDLORD:       John A. Pirovano, as Trustee of the CC&F Cambridge Parkway Trust
                under Declaration of Trust dated May 26, 1982, recorded with the
                Middlesex South Registry of Deeds in Book 14637, Page 527, and
                not individually

MANAGER:        Finard & Company LLC, or such other manager appointed by
                Landlord from time to time

LANDLORD'S & MANAGER'S ADDRESS:

                John A. Pirovano, as Trustee of the CC&F Cambridge Parkway Trust
                c/o Cabot, Cabot & Forbes
                125 Summer Street
                Boston, MA 02110
                Facsimile Number: 617-603-4033
                Attention: Mr. Peter Sullivan

                Finard & Company LLC
                One Burlington Woods Drive
                Burlington, MA 01803
                Facsimile Number: 781-272-8408
                Attention: Mr. Robert Hayes

                with a copy to:

                Hale and Dorr LLP
                60 State Street
                Boston, MA 02109
                Facsimile Number: 617-526-5000
                Attention: William R. O'Reilly, Jr., Esq.

LANDLORD'S CONSTRUCTION REPRESENTATIVE:   Mr. Robert Hayes

TENANT:         Genzyme Corporation



TENANT'S ADDRESS:

                Genzyme Corporation
                One Mountain Road
                P.O. Box 9322
                Framingham, MA 01701-9322
                Facsimile Number: 508-872-9080
                Attention: Evan Lebson

                With a copy to:

                Thomas G. Schnorr, Esq.
                Palmer & Dodge LLP
                111 Huntington Avenue at the Prudential
                Boston, Massachusetts 02199
                Facsimile Number: 617-227-4420

                and a copy to:

                Genzyme Corporation
                One Kendall Square
                Cambridge, Massachusetts 02139
                Facsimile Number: 617-252-7553
                Attention: Bob Hesslein and Jodie Vasily-Cioffi

TENANT'S CONSTRUCTION REPRESENTATIVE:

                Lou Cicchese
                Senior Project Manager
                Genzyme Corporation
                11 Pleasant Street Connector
                Framingham, Massachusetts 01701
                Facsimile Number:  508-661-1673

LOT:            The land known and numbered as 55 Cambridge Parkway, Cambridge,
                MA, more particularly described on Exhibit A.

BUILDING:       The building known and numbered as 55 Cambridge Parkway,
                Cambridge, MA located on the Lot.

PREMISES:       The space located on the third, fourth, fifth and sixth floors
                (west) of the Building as shown on Exhibit A-1.

RENTABLE FLOOR
AREA OF THE PREMISES:

                                      - 2 -


                61,101 square feet, which the parties agree shall be conclusive
                for all purposes hereunder

TOTAL RENTABLE  275,968 square feet, which the parties agree shall be conclusive
FLOOR AREA OF   for all purposes hereunder.
THE BUILDING:

TENANT ACCESS DATE: The Date of Lease Execution

TERM COMMENCEMENT DATE:

                The earlier of (x) October 1, 2002 or (y) the date Tenant
                occupies any portion of the Premises for the conduct of business
                (provided that installation of Initial Tenant Improvements
                (hereafter defined), installation of furniture, fixtures,
                equipment and phone lines, and testing of computers and other
                equipment shall not constitute the conduct of business for the
                purposes of this Lease.)

LEASE YEAR:     The first Lease Year shall consist of any partial calendar month
                following the Term Commencement Date and the successive twelve
                (12) calendar months. Each successive Lease Year shall consist
                of each successive twelve (12) full calendar month period
                thereafter.

TERM:           That period commencing on the Term Commencement Date and
                expiring on the 84th full calendar month thereafter, subject to
                extension as provided in Section 2.2.

ANNUAL BASE     Lease Years 1 and 2: $2,074,990 per annum; subject to the
RENT:                                reduction during the Reduced Rent Period
                                     pursuant to Section 4.1 hereof (i.e.,
                                     $33.96 per square foot of Rentable Floor
                                     Area of the Premises per year).

                Lease Year 3:        $2,136,091 per annum (i.e., $34.96 per
                                     square foot of Rentable Floor Area of the
                                     Premises per year).

                Lease Years 4, 5, 6  $2,197,192 per annum (i.e., $35.96 per
                and 7:               square foot of Rentable Floor Area of the
                                     Premises per year).

OPERATING COST BASE:                 All Landlord's Operating Costs for calendar
                                     year 2002, calculated in the manner
                                     provided for in Section 4.2.1, including
                                     without limitation the penultimate sentence
                                     thereof.

REAL ESTATE TAX BASE:                All Real Estate Taxes attributable to
                                     calendar year 2002, calculated in the
                                     manner provided for in Section 4.2.2,
                                     including without limitation the final
                                     sentence thereof.

                                      - 3 -


TENANT'S PRO RATA SHARE:             The percentage equivalent of a fraction,
                                     the numerator of which is the Rentable
                                     Floor Area of the Premises and the
                                     denominator of which is the Rentable Floor
                                     Area of the Building. As of the Term
                                     Commencement Date, Tenant's Pro Rata Share
                                     is 22.14%.

TENANT IMPROVEMENT                   $2,138,535
ALLOWANCE:

PERMITTED USE:                       Office use and the following accessory uses
                                     to office use: (i) computer room, (ii)
                                     kitchenette and vending machine room, and
                                     (iii) any other lawful uses accessory to
                                     office use which are consistent with the
                                     use and operation of the Building and
                                     approved by Landlord in writing, such
                                     approval not to be unreasonably withheld or
                                     delayed.

COMMERCIAL GENERAL LIABILITY INSURANCE:

        $3,000,000 combined single limit per occurrence; $3,000,000 annual
        aggregate.

BROKERS:        Meredith & Grew, Inc. and Trammell Crow Company

                                      - 4 -


1.2     EXHIBITS.

The exhibits listed below in this section are incorporated in this Lease by
reference and are to be construed as part of this Lease:

         EXHIBIT A      Description of Lot

         EXHIBIT A-1    Plan showing Premises

         EXHIBIT A-2    Plan showing First Floor East Expansion Space and Plan
                        showing Third Floor East Expansion Space

         EXHIBIT A-3    Plan showing Eighth Floor East Expansion Space

         EXHIBIT B      Landlord's Common Area Work

         EXHIBIT C      Rules and Regulations.

         EXHIBIT D      Form of Notice of Commencement Date

         EXHIBIT E      Form of Tenant Estoppel Certificate

         EXHIBIT F      Preliminary description of Initial Tenant Improvements

         EXHIBIT G      Construction Rules and Regulations

         EXHIBIT H      Minimum Tenant Improvement Standards

         EXHIBIT I      Cleaning Specifications

         EXHIBIT J      Stacking Plan

         EXHIBIT K      Form of SNDA

         EXHIBIT L      Intentionally Omitted

         EXHIBIT M      List of Initially Approved Contractors

                                      - 5 -


1.3     TABLE OF CONTENTS



                                                                                                           PAGE
                                                                                                          
Article I      REFERENCE DATA.................................................................................1
        1.1     SUBJECTS REFERRED TO..........................................................................1
        1.2     EXHIBITS......................................................................................5
        1.3     TABLE OF CONTENTS.............................................................................6
Article II     PREMISES AND TERM..............................................................................8
        2.1     DESCRIPTION OF PREMISES.......................................................................8
        2.2     TERM..........................................................................................9
        2.3     EXTENSION OPTIONS.............................................................................9
        2.4     THIRD FLOOR EAST EXPANSION OPTION............................................................13
        2.5     EIGHTH FLOOR EAST EXPANSION OPTION...........................................................16
        2.6     RIGHT OF FIRST OFFER.........................................................................18
Article III    CONSTRUCTION..................................................................................23
        3.1     DELIVERY OF PREMISES.........................................................................23
        3.2     PREPARATION OF PREMISES BY TENANT............................................................23
        3.3     GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION................................................24
        3.4     CONSTRUCTION REPRESENTATIVES.................................................................25
        3.5     ALTERATIONS AND ADDITIONS....................................................................25
Article IV     RENT..........................................................................................29
        4.1     RENT.........................................................................................29
        4.2     OPERATING COSTS AND REAL ESTATE TAXES........................................................29
                4.2.1  Landlord's Operating Costs............................................................29
                4.2.2  Real Estate Taxes.....................................................................31
                4.2.3  Tenant's Pro Rata Share of Operating Costs and Real Estate Taxes......................32
                4.2.4  Landlord's Estimates at End of Term...................................................32
                4.2.5  Tenant's Audit Rights.................................................................32
        4.3     ESTIMATED PREMISES EXPENSE PAYMENTS..........................................................33
        4.4     ELECTRICITY..................................................................................33
        4.5     CHANGE OF FISCAL YEAR........................................................................34
        4.6     PAYMENTS.....................................................................................34
Article V      LANDLORD'S COVENANTS..........................................................................34
        5.1     LANDLORD'S COVENANTS DURING THE TERM.........................................................34
                5.1.1  Building Services.....................................................................34
                5.1.2  Additional Building Services..........................................................35
                5.1.3  Repairs...............................................................................35
                5.1.4  Tenant Directory and Exterior Signage.................................................35
                5.1.5  Quiet Enjoyment.......................................................................36
        5.2     INTERRUPTIONS................................................................................37
Article VI     TENANT'S COVENANTS............................................................................38
        6.1     TENANT'S COVENANTS DURING THE TERM...........................................................38
                6.1.1  Tenant's Payments.....................................................................38
                6.1.2  Repairs and Yielding Up...............................................................38
                6.1.3  Occupancy and Use.....................................................................38
                6.1.4  Rules and Regulations.................................................................39
                6.1.5  Safety Appliances.....................................................................39
                6.1.6  Assignment and Subletting.............................................................40


                                      - 6 -


                                                                                                          
                6.1.7  Indemnity.............................................................................43
                6.1.8  Tenant's Insurance....................................................................43
                6.1.9  Tenant's Worker's Compensation Insurance..............................................44
                6.1.10 Landlord's Right of Entry.............................................................44
                6.1.11 Loading...............................................................................44
                6.1.12 Landlord's Costs......................................................................45
                6.1.13 Tenant's Property.....................................................................45
                6.1.14 Labor or Materialmen's Liens..........................................................45
                6.1.15 Changes or Additions..................................................................45
                6.1.16 Holdover..............................................................................45
                6.1.17 Security..............................................................................46
                6.1.18 Financial Statements..................................................................46
Article VII    CASUALTY AND TAKING...........................................................................46
        7.1     CASUALTY AND TAKING..........................................................................46
        7.2     RESERVATION OF AWARD.........................................................................48
Article VIII   RIGHTS OF MORTGAGEE AND GROUND LESSOR.........................................................48
        8.1     PRIORITY OF LEASE............................................................................48
        8.2     Rights of Mortgagee and Ground Lessor to Cure................................................49
Article IX     DEFAULT.......................................................................................49
        9.1     EVENTS OF DEFAULT............................................................................49
        9.2     TENANT'S OBLIGATIONS AFTER TERMINATION.......................................................50
Article X      MISCELLANEOUS.................................................................................51
        10.1    NOTICE OF LEASE..............................................................................51
        10.2    NOTICES FROM ONE PARTY TO THE OTHER..........................................................51
        10.3    BIND AND INURE...............................................................................52
        10.4    LIMITATION ON LIABILITY......................................................................52
                10.4.1 ......................................................................................52
                10.4.2 ......................................................................................52
                10.4.3 ......................................................................................52
                10.4.4 ......................................................................................52
                10.4.5 ......................................................................................52
                10.4.6 ......................................................................................52
        10.5    NO SURRENDER.................................................................................52
        10.6    NO WAIVER, ETC...............................................................................53
        10.7    NO ACCORD AND SATISFACTION...................................................................53
        10.8    CUMULATIVE REMEDIES..........................................................................53
        10.9    LANDLORD'S RIGHT TO CURE.....................................................................54
        10.10   ESTOPPEL CERTIFICATE.........................................................................54
        10.11   ACTS OF GOD..................................................................................54
        10.12   BROKERAGE....................................................................................55
        10.13   SUBMISSION NOT AN OFFER......................................................................55
        10.14   APPLICABLE LAW AND CONSTRUCTION..............................................................55
        10.15   AUTHORITY OF TENANT..........................................................................56
        10.16   CONFIDENTIALITY..............................................................................57
        10.17   LANDLORD'S FEES; ENFORCEMENT COSTS...........................................................57
        10.18   WAIVER OF SUBROGATION........................................................................57



                                      - 7 -


                                   ARTICLE II

                                PREMISES AND TERM

2.1     DESCRIPTION OF PREMISES.

Subject to and with the benefit of the provisions of this Lease, Landlord hereby
leases to Tenant, and Tenant leases from Landlord, the Premises, excluding
common facilities and building service fixtures and equipment located therein
and serving the Premises exclusively or in common other parts of the Building.

Throughout the Term, Tenant shall have, as appurtenant to the Premises, the
right to use in common with others entitled thereto: (a) the common facilities
included in the Building or on or appurtenant to the Lot, including, without
limitation, the right to use the existing emergency stairs for routine daily
floor-to-floor access between floors 3-6 west, (b) the right to continuously use
86 underground parking spaces on a nonexclusive basis within the parking
facilities provided by Landlord for the Building ("Parking Spaces"), and Tenant
shall pay for each such space, throughout the Term as additional rent the
Monthly Parking Charge (hereafter defined), such amount to be paid at the same
time and in the same manner as Annual Base Rent, and (c) the building service
fixtures and equipment serving the Premises. Tenant shall not assign its rights
to the Parking Spaces or any interest therein, or sublease or otherwise allow
the use of all or any part of the Parking Spaces to or by any other person
(other than together with a Transfer in compliance with the provisions of
Section 6.1.6), except with Landlord's prior written consent, which may be
withheld or conditioned in Landlord's sole discretion.

The Monthly Parking Charge shall be the fair market rate from time to time for
structured parking spaces in Class A office buildings the vicinity of the
Building, as reasonably determined in good faith by Landlord, which the parties
agree shall be $200 per month for calendar year 2002. The Monthly Parking Charge
may be altered from time to time but in no event more than once a year, by
written notice given to Tenant at least fifteen days prior to the beginning of
any calendar month.

Landlord reserves the right from time to time, without unreasonable interference
with Tenant's use, and with reasonable, prior written notice to Tenant (except
that in the case of emergency such notice requirement will be deemed satisfied
if Landlord uses commercially reasonable efforts in light of the nature of the
emergency to place a telephone call to the following telephone numbers:
617-562-4555 and 617-560-6834 prior to such entry (and speak with or leave a
message for Tenant)) (i) to install, repair, replace, use, maintain and relocate
for service to the Premises and to other parts of the Building, or either,
building service fixtures and equipment wherever located in the Building or on
the Lot (provided that to the extent practicable any such fixture and equipment
shall be placed above the finished ceiling, within columns, inside demising
walls, beneath the floor slab or otherwise not visible within the Premises), and
(ii) to alter or relocate any common facilities (provided that any altered or
relocated common facilities shall be of substantially the same quality and
convenience as the facilities being altered or relocated). Without limiting the
foregoing, Parking Spaces may be temporarily relocated from time to time by
Landlord with reasonable, prior written notice to Tenant (except that no prior

                                      - 8 -


notice is required in the case of emergency) to a location within reasonable
walking distance of the Building in the event of emergencies or (after
reasonable notice) in the event of required repairs or maintenance work.
Landlord also reserves the right at all reasonable times upon reasonable advance
notice (except that in the case of emergency such notice requirement will be
deemed satisfied if Landlord uses commercially reasonable efforts in light of
the nature of the emergency to place a telephone call to the following telephone
numbers: 617-562-4555 and 617-560-6834 prior to such entry and speak with or
leave a message for Tenant) to enter upon the Premises, inspect the same and in
Landlord's discretion to make repairs, alterations or substitutions for the
protection and maintenance of the Building. Landlord further reserves the right
upon at least one (1) business day's prior notice to show the Premises to
others. In exercising any of its rights under this Section, Landlord shall not
unreasonably obstruct Tenant's access to or egress from the Premises, Landlord
shall use reasonable efforts to perform or cause such work to be performed in
such manner as to minimize any disruption to Tenant's use and occupancy of the
Premises and to minimize any disruption to Tenant's business (provided the
forgoing shall not be interpreted so as to require Landlord to incur overtime or
similar costs).

2.2     TERM.

To have and to hold for a period (the "Term") commencing on the Term
Commencement Date (as defined in Section 1.1 hereof) and continuing for the
Term, unless sooner terminated as provided herein. Notwithstanding the fact that
the Term shall not commence until the Term Commencement Date, from and after the
Tenant Access Date, Tenant shall have access to the Premises for the purposes of
constructing the Initial Tenant Improvements and installing furniture, fixtures
and equipment, and Tenant shall comply with all of the terms, provisions and
conditions of this Lease, other than the obligation to pay Annual Base Rent and
Rent on account of Landlord's Operating Costs and Real Estate Taxes (as defined
in Article IV).

Upon Landlord's written request, Tenant will execute a certificate acknowledging
the Term Commencement Date and the obligation of Tenant to pay Rent hereunder,
promptly upon the occurrence of the Term Commencement Date, and in no event
later than ten (10) business days following receipt of Landlord's proper request
for such certificate.

2.3     EXTENSION OPTIONS.

                (a)     Tenant shall have the option to extend the Term for two
 (2) additional periods of five (5) years (each an "Extension Term") commencing
 upon the expiration of the original Term referred to in Section 2.2 (the
 "Original Term") or the preceding Extension Term, as applicable, provided that
 Tenant shall give Landlord written notice of Tenant's irrevocable exercise of
 such option at least three hundred sixty-five (365) days prior to the
 expiration of the then existing Term, and provided further that at both the
 time of the giving such notice and at the time of the commencement of the
 applicable Extension Term: (a) the Lease is in full force and effect, (b)
 Tenant is not in default beyond any applicable grace or cure period in the
 performance or observance of any of the terms and provisions of this Lease on
 the part of the Tenant to be performed or observed, and (c) Tenant has neither
 assigned the Lease nor sublet more than 25% of the rentable square feet of the
 Premises (other than a Permitted Transfer (as defined below) and subleases
 which have expired or terminated as of the date Tenant exercises its extension
 option) (the foregoing clauses (a) - (b) being collectively referred to as the
 "Article

                                      - 9 -


II Conditions"). Prior to the exercise by Tenant of such an option, the
expression "Term" shall mean the Original Term, and after the exercise by Tenant
of each option, the expression "Term" shall mean the Original Term as it has
been extended by the Extension Term. All the terms, covenants, conditions,
provisions and agreements in the Lease contained shall be applicable to each
Extension Term, except that (i) Landlord shall not be obligated to undertake any
Landlord Work or leasehold improvements or otherwise prepare the Premises for
Tenant or provide any tenant improvement allowance to Tenant, (ii) the Annual
Base Rent shall be as set forth below, and (iii) in no event shall Tenant have
the right to extend the Term for more than two (2) Extension Terms. If Tenant
shall give notice of its exercise of an option to extend in the manner and
within the time period provided aforesaid, the Term shall be extended upon the
giving of such notice without the requirement of any further action on the part
of either Landlord or Tenant, except that the Term shall not be so extended if
Tenant timely makes the election set forth in Section 2.3(c)(A) below. If Tenant
shall fail to give timely notice of the exercise of any such option as
aforesaid, Tenant shall have no right to extend the Term of this Lease, time
being of the essence of the foregoing provisions.

                (b)     The Annual Base Rent payable during each Extension Term
shall be the amount which is the greater of (i) the Annual Base Rent in effect
for the Lease Year immediately preceding the commencement of the Extension Term
or (ii) the Fair Market Rent for the Premises, as defined below and as
determined below, as of the commencement of the applicable Extension Term. If
for any reason the Annual Base Rent payable during the applicable Extension Term
has not been determined as of the commencement of the Extension Term, until the
Annual Base Rent for the Extension Term is determined Tenant shall pay Annual
Base Rent at a rate equal to the average of the Fair Market Rent specified by
Landlord's Appraiser pursuant to subparagraph (d) below and the Fair Market Rent
specified by Tenant's Appraiser pursuant to subparagraph (d) below, or at the
rate specified by either of such Appraisers if the other has not so specified a
Fair Market Rent by the date it is required to do so, but in no event less than
Annual Base Rent payable during the immediately preceding Lease Year. Within ten
(10) days after determination of the Annual Base Rent in accordance with the
provisions hereof, an appropriate adjustment, if any, shall be made between
Landlord and Tenant.

For purposes hereof, the "Fair Market Rent" shall mean ninety-five percent (95%)
of the fair market rent for Class A office use of the Premises, free and clear
of this Lease, as of the commencement of the applicable Extension Term under
market conditions then existing, taking into account all relevant factors and
considerations for a market lease transaction, including Tenant's Pro Rata Share
of Operating Costs (as defined in Section 4.2.3 below), Tenant's Pro Rata Share
of Real Estate Taxes (as defined in Section 4.2.3 below), the base year for the
Operating Costs and the Real Estate Taxes (which shall be reset to a base year
of calendar year 2009 for the first Extension Term and a base year of calendar
year 2014 for the second Extension Term), and the then current market rental
rates for leases of comparable space in comparable buildings in the East
Cambridge/Kendall Square area to new tenants. Fair Market Rent shall be
determined pursuant to the following provisions:

                (c)     Landlord shall give Tenant notice of its determination
of the Fair Market Rent for the Premises for the applicable period by the later
of (i) three hundred thirty-five (335) days prior to the commencement of the
Extension Term, or (ii) 60 days after Tenant notifies

                                     - 10 -


Landlord of its election to exercise an extension option. If Tenant disagrees
with Landlord's determination of the Fair Market Rent, Tenant may, in its sole
discretion, elect, by notice given to Landlord within thirty (30) days after
Landlord's notice of the Fair Market Rent is given ("Tenant's Rent Notice"),
either to (A) revoke Tenant's exercise of its option to extend in which case
this Lease shall terminate on the scheduled expiration date of the then current
Term in accordance with the terms hereof, or (B) have the Fair Market Rent
determined by the appraisal process (the "Appraisal Process") set forth in
subparagraph (d) below, in which case Tenant's Rent Notice shall include the
name of Tenant's Appraiser (defined in subparagraph (d) below). The Fair Market
Rent determination pursuant to Section 2.3 shall be binding on both Landlord and
Tenant. If Tenant does not give a Tenant's Rent Notice within such thirty (30)
day period, Tenant shall be deemed to have agreed with Landlord's determination
of the Fair Market Rent for the applicable Extension Term, which determination
shall be binding on both Landlord and Tenant, and to have waived any right to
elect either of the options set forth at clauses (A) and (B) above. If Tenant
gives a Tenant's Rent Notice within such thirty (30) day period but such notice
does not expressly make the election set forth in Section 2.3(c)(A), Tenant
shall have waived any right to revoke its exercise of its option to extend and
the Term shall remain extended for the applicable Extension Term.

                (d)     If Tenant shall timely give a Tenant's Rent Notice
 making the election set forth in Section 2.3(c)(B), the following procedures
 shall apply to such determination of Fair Market Rent:

                        (1)     Within fourteen (14) days of Tenant's Rent
        Notice, Landlord will choose one Appraiser. "Appraiser" shall mean a
        disinterested real estate professional of recognized competence in the
        greater Boston area who has at least ten (10) years experience in the
        leasing or appraising of properties in the Cambridge, MA area. If the
        two Appraisers are appointed by the parties as stated in this Section,
        such Appraisers shall meet promptly and attempt to set the Fair Market
        Rent. If such Appraisers are unable to agree on the Fair Market Rent
        within thirty (30) days after appointment of the second Appraiser, then
        within five (5) days after the expiration of such thirty day period, on
        a date selected by the Appraisers, both of the Appraisers and a
        representative of Landlord and a representative of Tenant shall meet at
        the offices of Landlord in Boston, Massachusetts. At such meeting, each
        of the Appraisers shall set forth his or her determination of the Fair
        Market Rent in a separate writing executed by such Appraiser, and then
        simultaneously Landlord's Appraiser shall deliver its written
        determination to Tenant's representative and Tenant's Appraiser shall
        deliver its determination to Landlord's representative. If the higher of
        the Appraisers' determinations is 105% or less of the amount set forth
        in the lower determination, the average of the two determinations shall
        be the Fair Market Rent. In the event the higher of the two
        determinations is more than 105% of the amount set forth in the lower
        determination, the two Appraisers shall within ten (10) days after the
        expiration of such 30-day period, appoint a third Appraiser satisfying
        the above qualifications. If the two Appraisers cannot agree on a third
        Appraiser, they shall immediately apply to the President of the Greater
        Boston Real Estate Board or, if the same refuses to act, to a court of
        competent jurisdiction, to select a third Appraiser satisfying the above
        qualifications. The third Appraiser, however selected, shall not have
        acted previously in any capacity for either Landlord or Tenant. If
        either Landlord or Tenant fails to appoint an Appraiser within the
        allotted time, and such

                                     - 11 -


        failure continues for ten (10) business days after written notice given
        to the failing party, the single Appraiser who has been appointed shall
        determine the Fair Market Rent for the applicable Extension Period. Each
        party shall bear the costs of its own Appraiser and one-half of the cost
        of the third Appraiser.

                        (2)     The third Appraiser shall conduct his own
        investigation of the Fair Market Rent, shall consider relevant
        information supplied to him by Landlord or Tenant, and shall be
        instructed not to advise either party of his determination of the Fair
        Market Rent except as follows: When the third Appraiser has made his
        determination, which shall occur within thirty (30) days after the
        selection of the third Appraiser, he shall set forth his determination
        in writing and deliver copies to the parties set forth in this Lease to
        receive notices.

                If the value determined by the third Appraiser is the average of
        the values proposed by Landlord's Appraiser and Tenant's Appraiser, the
        third Appraiser's determination of Fair Market Rent shall be the Fair
        Market Rent. If such is not the case, Fair Market Rent shall be the
        average of (a) the Fair Market Rent proposed by the third Appraiser and
        (b) the Fair Market Rent proposed by either Landlord's Appraiser or
        Tenant's Appraiser, whichever is closest to the determination of Fair
        Market Rent by the third Appraiser.

2.4     THIRD FLOOR EAST EXPANSION OPTION

Provided that at the time Tenant exercises its expansion right under this
Section 2.4 the Article II Conditions are satisfied, Tenant shall have the
option (the "Third Floor East Expansion Option") exercisable by written notice
given no later than March 31, 2003 (the "Third Floor East Expansion Option
Notice") to add to the Premises the space located on the third floor (east) of
the Building as shown on Exhibit A-2, which the parties conclusively agree
contains 15,969 square feet of rentable floor area (the "Third Floor East
Expansion Space"). All of the terms and conditions of this Lease shall apply to
such Third Floor East Expansion Space, except as provided in this Section 2.4.
The date on which the Third Floor East Expansion Space shall be added to the
Premises shall be five (5) business days after the effective delivery of the
Third Floor East Expansion Option Notice; provided that Tenant's obligation to
pay Annual Base Rent and Rent on Account of Landlord's Operating Costs and Real
Estate Taxes on account of the Third Floor East Expansion Space shall not
commence until the "Third Floor East Expansion Space Rent Commencement Date" as
defined in the next sentence. The date on which Tenant shall be obligated to pay
Annual Base Rent and Rent on account of Landlord's Operating Costs and Real
Estate Taxes on account of the Third Floor East Expansion Space shall be the
earlier of (x) April 1, 2003 and (y) 90 days after effective delivery of the
Third Floor East Expansion Option Notice (the "Third Floor East Expansion Space
Rent Commencement Date"), on the same terms applicable to the original Premises
described in Section 1.1, with Annual Base Rent at the same per square foot
rates then applicable to the original Premises described in Section 1.1, and as
increased, as applicable, so that at all times the per square foot rate
applicable to the Third Floor East Expansion Space shall be the same as the per
square foot rate then applicable to the remainder of the Premises. By way of
clarification, during Lease Years 1 and 2 the applicable square foot rate for
the Annual Base Rent is $33.96, during Lease Year 3 it is $34.96 and during
Lease Years 4, 5, 6 and 7 it is $35.96, in each case per square foot of rentable
floor

                                     - 12 -


area per year (i.e., $542,307, $558,276 and $574,245 per annum, respectively,
for the Third Floor East Expansion Space), and the Operating Cost Base and Real
Estate Tax Base will likewise remain those set forth in Section 1.1.

Landlord will provide Tenant with an allowance in the amount of $558,915 (the
"Third Floor East Tenant Allowance") to be used for any initial tenant
improvements to be constructed by or for Tenant in the Third Floor East
Expansion Space. Such improvements shall be made in the manner and subject to
the procedure set forth in Section 3.2 for the construction of the Initial
Tenant Improvements and the Third Floor East Tenant Allowance shall be disbursed
in accordance with and subject to the procedure and conditions set forth in
Section 3.2 for the disbursement of the Tenant Improvement Allowance, it being
understood that, (i) as applied to the Third Floor East Expansion Space,
references in Section 3.2 to the Initial Tenant Improvements shall be deemed to
mean references to a general office build out of the Third Floor East Expansion
Space pursuant to and plans specifications approved by Landlord pursuant to
Section 3.5, (ii) references in Section 3.2 to the Premises shall be deemed to
mean references to the Third Floor East Expansion Space, (iii) references in
Section 3.2 to the Tenant Improvement Allowance shall be deemed to mean
references to the Third Floor East Tenant Allowance, and (iv) the full amount of
the Third Floor East Tenant Allowance must be properly requisitioned as
specifically provided for in Section 3.2 within one year of the Third Floor East
Rent Commencement Date.

Landlord hereby represents and warrants that Landlord has not granted and will
not grant a lease, option, right to first offer, right to first refusal or any
other right to occupy the Third Floor East Expansion Space.

Landlord shall deliver the Third Floor East Expansion Space in its "as is,"
"where is" condition, without representation, warranty or guaranty, express or
implied.

As of the Third Floor East Rent Commencement Date, the number of Parking Spaces
shall be increased in number by 22, and the Tenant's Pro Rata Share shall be
recalculated to be a percentage, to the second decimal point, representing the
percentage equivalent of a fraction, the numerator of which is the Rentable
Floor Area of the Premises and the denominator of which is the Rentable Floor
Area of the Building.

Upon the addition of the Third Floor East Expansion Space to the Premises, all
references to the "Premises" in this Lease shall be deemed to mean and include
reference to the Third Floor East Expansion Space and, by way of example, any
Extension Option thereafter arising shall apply to the entire Premises so
defined, and not to any lesser portion thereof.

Landlord's failure to deliver and any delay in delivering the Third Floor East
Expansion Space for any reason beyond Landlord's control shall not give rise to
any liability of Landlord hereunder, and shall not affect the full force and
validity of this Lease

2.4A    FIRST FLOOR EAST EXPANSION OPTION

                                     - 13 -


This Section 2.4A shall be applicable if and only if Tenant timely and validly
exercises the Third Floor East Expansion Option set forth in Section 2.4; in all
other cases, this Section 2.4A shall be null and void and have no force or
effect.

Provided Tenant has timely and validly exercised the Third Floor East Expansion
Option as set forth in Section 2.4, then at least three hundred sixty-five (365)
days prior to the Estimated Delivery Date (as hereinafter defined) for the First
Floor East Expansion Space, Landlord shall provide Tenant with written notice
(the "First Floor East Notice") of the Estimated Delivery Date. The "Estimated
Delivery Date" shall be the date specified as such by Landlord in the First
Floor East Notice, which date shall be no earlier than the first day of the 37th
full calendar month of the Term and no later than the first day of the 61st full
calendar month of the Term, on which Landlord believes it can deliver to Tenant
the First Floor East Expansion Space, which the parties unconditionally agree
consists of 8,986 rentable square feet, shown on the plan attached hereto as
Exhibit A-2. Provided that at the time Tenant exercises its expansion right
under this Section 2.4A the Article II Conditions are satisfied, Tenant has
neither assigned the Lease nor sublet more than 25% of the Premises (other than
a Permitted Transfer and subleases which have expired or terminated as of the
date Tenant exercises its extension option), and Tenant has timely and validly
exercised the Third Floor East Expansion Option, then Tenant shall have the
option (the "First Floor East Expansion Option") exercisable by written notice
given to Landlord within thirty (30) days of the First Floor East Notice (the
"First Floor East Expansion Option Notice") to add to the Premises the First
Floor East Expansion Space. All of the terms and conditions of this Lease shall
apply to such First Floor East Expansion Space, except as provided in this
Section 2.4A. The date on which the First Floor East Expansion Space shall be
added to the Premises and the date on which Tenant shall be obligated to pay
rent on account of the First Floor East Expansion Space shall be the earlier of
(A) the later of (x) the Estimated Delivery Date and (y) the date on which
Landlord delivers the First Floor East Expansion Space free and clear of
occupants or (B) the date Tenant occupies any portion of the First Floor East
Expansion Space for the conduct of its business (the "First Floor East Expansion
Space Commencement Date"). Tenant shall be obligated to pay rent for the First
Floor East Expansion Space on the same terms applicable to the original Premises
described in Section 1.1, with Annual Base Rent at the same per square foot
rates then applicable to the original Premises described in Section 1.1, and as
increased, as applicable, so that at all times the per square foot rate
applicable to the First Floor East Expansion Space shall be the same as the per
square foot rate then applicable to the remainder of the Premises. By way of
clarification, during Lease Years 4, 5 and 6 the applicable square foot rate for
the Annual Base Rent is $35.96 per square foot of rentable floor area per year
(i.e., $323,137 per annum for the First Floor East Expansion Space), and the
Operating Cost Base and Real Estate Tax Base will likewise remain those set
forth in Section 1.1.

Landlord will provide Tenant with an allowance in the amount of the First Floor
East Tenant Improvement Allowance Amount (hereinafter defined) to be used for
any initial tenant improvements constructed by or for Tenant in the First Floor
East Expansion Space. Such improvements shall be made in the manner and subject
to the procedure set forth in Section 3.2 for the construction of the Initial
Tenant Improvements and the allowance shall be disbursed in accordance with and
subject to the procedure and conditions set forth in Section 3.2 for the
disbursement of the Tenant Improvement Allowance, it being understood that (i)
as applied to the First Floor East Expansion Space, references in Section 3.2 to
the Initial Tenant Improvements shall be deemed to mean references to a general
office build out of the First Floor

                                     - 14 -


East Expansion Space pursuant to plans and specifications approved by Landlord
Pursuant to Section 3.5 (ii) references in Section 3.2 to the Premises shall be
deemed to mean references to the First Floor East Expansion Space, (iii)
references in Section 3.2 to the Tenant Improvement Allowance shall be deemed to
mean references to the First Floor East Tenant Improvement Allowance, and (iv)
the full amount of the First Floor East Tenant Improvement Allowance must be
properly requisitioned within one year of the First Floor East Expansion Space
Commence Date as specifically provided for in Section 3.2. The "First Floor East
Tenant Improvement Allowance" shall be an amount equal to the product of (A)
8,986, being the number of rentable square feet of floor area in the First Floor
East Expansion Space, multiplied by (B) a number which is the product of $35
multiplied by a fraction, the numerator of which is the number of months
remaining in the Term at the time of the First Floor East Expansion Space
Commencement Date and the denominator of which is 84.

Landlord hereby represents and warrants that Landlord has not granted and will
not grant a lease, option, right of first offer, right of first refusal or any
other right to occupy the First Floor East Expansion Space which is prior to
Tenant's rights hereunder. It is agreed that Landlord shall have the right to
lease the First Floor East Expansion Space to others for occupancy prior to the
Estimated Delivery Date, provided that the initial term of any such lease
expires before the Estimated Delivery Date and any extension rights are
conditioned on Tenant not exercising its First Floor East Expansion Option.

Landlord shall deliver the First Floor East Expansion Space in its "As Is"
"Where Is" condition, without representation, warranty or guaranty, express or
implied.

As of the First Floor East Commencement Date, the number of parking spaces shall
be increased in number by 12, and the Tenant's Pro Rata Share shall be
recalculated to be a percentage, to the second decimal point, representing the
percentage equivalent of a fraction, the numerator of which is the Rentable
Floor Area of the Premises and the denominator of which is the Rentable Floor
Area of the Building.

Otherwise, upon the addition of the First Floor East Expansion Space to the
Premises, all references in this Lease to the "Premises" shall be deemed to mean
and include references to the First Floor East Expansion Space, and, by way of
example, any Extension Option thereafter arising shall apply to the entire
Premises so defined, and not to any lesser portion thereof.

Landlord's failure to deliver and any delay in delivering the First Floor East
Expansion Space for any reason beyond Landlord's control (including, without
limitation, the continued occupancy of any such space by a prior occupant
thereof or the holding over by any tenant whose lease has expired or been
terminated) shall not give rise to any liability of Landlord hereunder, and
shall not effect the full force and validity of this Lease. Landlord, in the
case of any occupant who holds over for more than thirty (30) days, agrees to
prosecute with due diligence appropriate legal proceedings for the removal of
such occupant, and in all other cases agrees to use reasonable and diligent
efforts to make such space available to Tenant. Notwithstanding the foregoing,
in the event that Tenant has validly and timely exercised the First Floor East
Expansion Option, and Landlord fails to deliver to Tenant the First Floor East
Expansion Space by the Estimated Delivery Date, and such failure continues for
one (1) month, Landlord shall reimburse Tenant for Tenant's actual Third Party
out-of-pocket architectural and engineering

                                     - 15 -


costs directly caused by Landlord's failure to timely deliver the First Floor
East Expansion Space, up to a maximum aggregate reimbursement for the First
Floor East Expansion Space of $26,958 (i.e. $3.00 per square foot of rentable
floor area). Further, in the event that Tenant has validly and timely exercised
the First Floor East Expansion Option, and Landlord fails to deliver to Tenant
the First Floor East Expansion Space by the Estimated Delivery Date, and such
failure continues for one hundred five (105) days, then Tenant shall have the
right, exercisable in its sole discretion, to revoke and rescind its First Floor
East Expansion Option Notice by giving written notice to Landlord within the
first ten (10) business days following the expiration of such period, provided
that such notice shall have no force or effect and the First Floor East
Expansion Option Notice shall not be revoked or rescinded if Landlord delivers
the First Floor East Expansion Space within 30 days followings its receipt of
such notice. The reimbursement and termination rights specifically set forth
herein shall be Tenant's sole and exclusive remedy in the event Landlord fails
to timely deliver the First Floor East Expansion Space.

The parties acknowledge that Landlord has the right to, and intends to,
initially lease the First Floor East Expansion Space to one or more other
tenants for occupancy prior to the period during which Tenant has the option to
occupy the First Floor East Expansion Space pursuant to the foregoing
provisions. If Landlord leases the space to more than one tenant, Landlord shall
use reasonable efforts to have the various leases be coterminous and, in any
event, Landlord shall use reasonable efforts to have the Estimated Delivery Date
occur early during the time period during which the same is permitted to occur
as set forth above; provided, however, that except as expressly set forth herein
otherwise, in no event will Landlord be restricted in the terms or conditions
upon which it is entitled to lease the First Floor East Expansion Space as set
forth in this paragraph, including, without limitation, with respect to the term
thereof. In the event Landlord leases the First Floor East Expansion Space to
more than one tenant and the leases are not coterminous, or Landlord only leases
a portion of the First Floor East Expansion Space, then Landlord may deliver
separate First Floor East Notices for different portions of the First Floor East
Expansion Space, and such notice(s) may set forth different Estimated Delivery
Dates for different portions of the First Floor East Expansion Space. In the
event this occurs, the provisions of this Section 2.4A shall apply separately to
each such portion of the First Floor East Expansion Space and each such
Estimated Delivery Date, with appropriate prorations (including without
limitation with respect to tenant improvement allowances and parking spaces)
made on a square foot basis.

If Tenant fails to timely give a First Floor East Expansion Option Notice within
thirty (30) days following a First Floor East Notice, Tenant shall be deemed to
have waived its option rights hereunder with respect to the space offered in the
First Floor East Notice. If Tenant waives or is deemed to have waived its option
rights with respect to the space offered in a First Floor East Notice, Tenant
shall have no further right or option with respect to such space and the
provisions of this Section 2.4A shall no longer be applicable thereto. Tenant
shall have no right to give a First Floor East Expansion Option Notice with
respect to a portion, but less than all, of the space offered in a First Floor
East Notice.

2.5     EIGHTH FLOOR EAST EXPANSION OPTION

Provided that at the time Tenant exercises its expansion right under this
Section 2.5 the Article II Conditions are satisfied and Tenant has neither
assigned the Lease or sublet more than 25% of

                                     - 16 -


the Premises (other than Permitted Transfer), Tenant shall have the option (the
"Eighth Floor East Expansion Option") exercisable by written notice given no
later than October 1, 2006 (the "Eighth Floor East Expansion Option Notice") to
add to the Premises the space located on the eighth floor (east) of the Building
shown on Exhibit A-3, which the parties conclusively agree contains 20,622
square feet of rentable floor area. All of the terms and conditions of this
Lease shall apply to such Eighth Floor East Expansion Space, except as provided
in this Section 2.5. The date on which the Eighth Floor East Expansion Space
shall be added to the Premises, and the date on which Tenant shall be obligated
to pay Rent on account of the Eighth Floor East Expansion Space shall be the
earlier of (A) the later of (x) July 1, 2007 and (y) the date on which Landlord
delivers the Eighth Floor Expansion Space free and clear of any occupants and
(B) the date Tenant occupies any portion of the Eighth Floor East Expansion
Space for the conduct of its business (the "Eighth Floor East Expansion Space
Commencement Date"). Tenant shall be obligated to pay Rent on account of the
Eighth Floor East Expansion Space on the same terms applicable to the original
Premises described in Section 1.1, with Annual Base Rent at the same per square
foot rates then applicable to the original Premises described in Section 1.1,
and as increased, as applicable, so that at all times the per square foot rate
applicable to the Eighth Floor East Expansion Space shall be the same as the per
square foot rate then applicable to the remainder of the Premises. By way of
clarification, during Lease Years 5, 6 and 7 the applicable square foot rate for
the Annual Base Rent is $35.96 per square foot of rentable floor area per year
(i.e., $741,567 per annum for the Eighth Floor East Expansion Space), and the
Operating Cost Base and Real Estate Tax Base will likewise remain those set
forth in Section 1.1.

Landlord will provide Tenant with an allowance for the Eighth Floor East
Expansion Space in the amount of $231,997 (i.e., $11.25 per square foot of
rentable floor area of the Eighth Floor East Expansion Space) (the "Eighth Floor
East Tenant Improvement Allowance") to be used for any initial tenant
improvements constructed in the Eighth Floor East Expansion Space by or for
Tenant. Such improvements shall be made in the manner and subject to the
procedures set forth in Section 3.2 for the construction of the Initial Tenant
Improvements, and the allowance shall be disbursed in accordance with and
subject to the procedures and conditions set forth in Section 3.2 of the Lease
for the disbursements of the Tenant Improvement Allowance, it being understood
that (i) as applied to the Eighth Floor East Expansion Space, references in
Section 3.2 to the Initial Tenant Improvements shall be deemed to mean
references to the general office build out of the Eighth Floor East Expansion
Space pursuant to plans and specifications approved by Landlord pursuant to
Section 3.5, (ii) references in Section 3.2 to the Premises shall be deemed to
mean references to the Eighth Floor East Expansion Space, (iii) references in
Section 3.2 to the Tenant Improvement Allowance shall be deemed to mean
references to the Eighth Floor East Tenant Improvement Allowance, and (iv) the
full amount of the Eighth Floor East Tenant Improvement Allowance must be
properly requisitioned as specifically provided for in Section 3.2. within one
year of the Eighth Floor East Expansion Space Commencement Date.

Landlord hereby represents and warrants that Landlord has not granted and will
not grant a lease, option, right of first offer, right of first refusal or any
other right to occupy or use the Eighth Floor East Expansion Space which is
prior to Tenant's rights hereunder. It is agreed that Landlord shall have the
right to lease the Eighth Floor East Expansion Space to others for occupancy
prior to the Eighth Floor East Expansion Space Commencement Date, provided that
the initial term of any such lease expires before July 1, 2007 and any extension
rights are conditioned on Tenant not exercising its Eighth Floor East Expansion
Option.

                                     - 17 -


Landlord shall deliver the Eighth Floor East Expansion Space in its "As Is"
"Where Is" condition, without representation, warranty or guaranty, express or
implied.

As of the Eighth Floor East Space Commencement Date, the number of Parking
Spaces shall be increased in number by 29, and the Tenant's Pro Rata Share shall
be recalculated to be a percentage, to the second decimal point, representing
the percentage equivalent of a fraction, the numerator of which is the Rentable
Floor Area of the Premises and the denominator of which is the Rentable Floor
Area of the Building.

Upon the addition of the Eighth Floor East Expansion Space to the Premises, all
references in this Lease to the "Premises" shall be deemed to mean and include
references to the Eighth Floor East Expansion Space, and, by way of example, any
Extension Option thereafter arising shall apply to the entire Premises so
defined, and not to any lesser portion thereof.

Landlord's failure to deliver and any delay in delivering the Eighth Floor East
Expansion Space for any reason beyond Landlord's control (including, without
limitation, the continued occupancy of any such space by a prior occupant
thereof or the holding over of any tenant whose lease has expired or been
terminated) shall not give rise to any liability of Landlord hereunder, and
shall not affect the full force and validity of this Lease. Landlord, in the
case of any occupant who holds over for more than thirty (30) days, agrees to
prosecute with due diligence appropriate legal proceedings for the removal of
such occupant, and in all other cases agrees to use reasonable and diligent
efforts to make such space available to Tenant. Notwithstanding the foregoing,
in the event Tenant has validly and timely exercised the Eighth Floor East
Expansion Option and Landlord fails to deliver to Tenant the Eighth Floor East
Expansion Space by July 1, 2007, and such failure continues for one (1) month,
Landlord shall reimburse Tenant for Tenant's actual Third Party out-of-pocket
architectural and engineering costs directly caused by Landlord's failure to
timely deliver the Eighth Floor East Expansion Space, up to a maximum aggregate
reimbursement for the Eight Floor East Expansion Space of $41,244 (i.e. $2.00
per square foot of rentable floor area). Further, in the event Tenant has
validly and timely exercised the Eighth Floor East Expansion Option and Landlord
fails to deliver to Tenant the Eighth Floor East Expansion Space by July 1,
2007, and such failure continues for one hundred five (105) days, then Tenant
shall have the right, exercisable in its sole discretion, to revoke and rescind
its Eighth Floor East Expansion Option Notice by giving written notice to
Landlord during the first ten (10) business days following the expiration of
such period, provided that such notice shall have no force or effect and the
Eighth Floor East Expansion Option Notice will not be revoked or rescinded if
Landlord delivers the Eighth Floor East Expansion Space within 30 days following
its receipt of such notice. The reimbursement and termination rights
specifically set forth herein shall be Tenant's sole and exclusive remedy in the
event Landlord fails to timely deliver the Eighth Floor East Expansion Space.

2.6     RIGHT OF FIRST OFFER

This Section 2.6 shall apply to those portions of the Building identified as the
"First Offer Space" and the "Special First Offer Space" on Exhibit J
(collectively referred to herein as the "First Offer Space"). Additionally, if
Tenant does not timely and validly exercise the Third Floor East Expansion
Option, First Floor East Expansion Option or Eighth Floor East Expansion Option,
then for each such expansion option not exercised, from and after the date on
which the

                                     - 18 -


applicable expansion option expires or is extinguished in accordance with the
terms of the Lease, the space for which the expansion option has expired or been
extinguished shall be included within the definition of "First Offer Space"
hereunder and shall be individually referred to as "Expansion/Offer Space".
Landlord has entered into leases demising a portion of the First Offer Space
("Existing Leases") and is negotiating leases for or marketing the remainder of
such space. Landlord shall have the right, in its sole and absolute discretion,
to enter into any and all leases or other occupancy arrangements and amendments
thereto (as the same may be amended from time to time, a "New Lease") for those
portions of the First Offer Space not leased under the Existing Leases, and to
enter into amendments to Existing Leases and New Leases, all as it deems
advisable in its sole and absolute discretion, upon such terms as it deems
advisable in its sole and absolute discretion (which terms may include, without
limitation, the grant of any expansion, extension or other options or rights).

For purposes hereof, the "Superior Leases" (each, a "Superior Lease") shall mean
(x) the Existing Leases and (y) for each and every portion of the First Offer
Space not subject to an Existing Lease, the first New Lease Landlord enters into
with a tenant for such space that actually takes possession and commences paying
rent therefor ("First New Lease"), which means that for any Expansion/Offer
Space the "First New Lease" is the first New Lease entered into for such space
after the applicable expansion option has expired or been extinguished for which
the tenant actually takes possession and commences paying rent; provided that if
Landlord leases such space to a tenant for an initial term expiring prior to the
date on which Tenant would have had the right to expand into the space (the
"Delivery Date"), and such tenant validly exercises an extension option under
the lease for an extension term commencing upon or after the Delivery Date, and
remains in possession and continues to pay rent at the commencement of such
extension term, then such lease shall be deemed to be the First New Lease for
such space (it being understood that any such extension option for a term after
the Delivery Date would be conditioned on Tenant not exercising the applicable
expansion option), and (z) any other New Lease of First Offer Space, which is
not a First New Lease with respect to any particular space, entered into by
Landlord after Landlord has first offered such space to Tenant in accordance
with this Section 2.6 ("Subsequent New Leases"). As used in this Lease, the
phrase "tenants under Superior Leases" or "a tenant under a Superior Lease" or
similar such phrases or references shall include the original parties holding
the tenants' interests under the Superior Leases and all such parties'
successors, assigns and sublessees.

Tenant's rights under this Section 2.6 shall be subject to the rights of tenants
under Superior Leases (including without limitation all expansion and extension
options, all rights of first offer and all other options and rights) subject to
the following:

                (a)     if the First New Lease for any First Offer Space
 initially contains an expansion option, such expansion option shall have
 priority over the rights of Tenant hereunder only as long as no other person or
 entity leases the space subject to the expansion option prior to the exercise
 of such expansion option;

                (b)     notwithstanding (a) above, (a) if Landlord enters into a
 lease of space in the Building with Cambridge Energy Research Associates Inc.
 or an affiliate thereof ("CERA") within one (1) year following the date hereof
 for initial premises consisting of all or substantially all of the sixth floor
 (east) of the Building, all or substantially all of the seventh

                                     - 19 -


 floor (east) of the Building and approximately 13,222 square feet of the fifth
 floor (east) of the Building, or space which is materially consistent with the
 foregoing, and (b) Landlord grants to CERA in the initial lease with CERA
 expansion and/or first offer rights with respect to the balance of the space on
 the fifth floor east containing approximately 8,167 rentable square feet and/or
 first offer rights with respect to the entirety of the fourth floor east, as
 shown as Special First Offer Space on the Stacking Plan, which rights may be
 effective continuously after the initial lease up of such space, the rights of
 first offer and/or expansion so granted to the tenant under the CERA lease
 shall have priority over the rights of Tenant under this Section 2.6 even if
 another person or entity leases space subject to such rights prior to the
 exercise of such rights;

                (c)     if Landlord offers space to Tenant in accordance with
 the provisions of this Section 2.6 and such offer includes expansion options,
 and Tenant does not accept such offer in accordance with the provisions of this
 Section 2.6, and Landlord thereafter enters into a Superior Lease containing
 any such expansion options, the expansion options under such Superior Lease
 shall take priority over Tenant's rights hereunder; otherwise, any expansion
 options granted in such a Superior Lease not included in the offer to Tenant
 shall be subject to the rights of Tenant under this Section 2.6;

                (d)     the right of first offer granted to a tenant under an
 Existing Lease, which right of first offer is with respect to 5,997 s.f. on
 eighth floor west as shown on the Stacking Plan, and which right of first offer
 is effective continuously after the initial lease up of such space, shall have
 priority over the rights of Tenant under this Section 2.6;

                (e)     except as set forth in (b) and (d) any first offer
 rights granted to tenants in Superior Leases shall be subject to Tenant's
 rights under this Section 2.6; and

                (f)     if Landlord amends a Superior Lease to grant the tenant
 thereunder an option to renew, extend or expand not originally contained in
 such Superior Lease, the exercise of rights by the tenant thereunder will be
 subject to Tenant's rights under this Section 2.6.

Notwithstanding the foregoing, if Landlord enters into a lease of space which is
not First Offer Space, and in that lease or an amendment thereto grants the
tenant thereunder expansion or first offer rights with respect to First Offer
Space, such rights shall be subject to Tenant's right of first offer in
accordance with the provisions of this Section 2.6.

Each and every time during the term of this Lease, if Landlord intends to market
for lease to third parties the First Offer Space or any portion thereof upon the
expiration or termination of any Superior Lease applicable thereto (provided
that such marketing may occur prior to such expiration or termination), and if
at such time (i) the Lease is in full force and effect, (ii) Tenant is not in
default, beyond applicable grace and cure periods, in the performance or
observance of any of the terms and provisions of this Lease on the part of the
Tenant to be performed or observed, and (iii) Tenant has neither assigned the
Lease nor sublet twenty-five (25) percent or more of the Premises (other than a
Permitted Transfer and excluding subleases which have expired or terminated as
of the date Tenant exercises its first offer right), then Landlord shall first
offer (in writing) to lease such space to Tenant (the "Offer Notice") on such
terms and conditions as are determined by Landlord in its sole discretion;
provided that the rental rate shall be the "Offer Fair Market Rent" (as
hereinafter defined) as determined by Landlord in its sole

                                     - 20 -


discretion (a "First Offer"). The "Offer Fair Market Rent" shall mean one
hundred percent (100%) of the fair market rent for Class A office use of the
subject First Offer Space, free and clear of any lease, as of the commencement
of the term of the First Offer Lease (as defined below) under market conditions
then existing, upon the terms and conditions set forth in the Offer Notice,
taking into account relevant factors and considerations for a market lease
transaction, including the treatment of operating costs and taxes, and the then
current market rental rates for leases of comparable space in comparable
buildings in the East Cambridge/Kendall Square area to new tenants. The
foregoing covenant shall not prohibit Landlord from marketing First Offer Space
at the same time Tenant is considering a First Offer from Landlord, provided
that Landlord shall not enter a lease of space subject to a First Offer until
Tenant rejects or is deemed to have rejected such First Offer. If Tenant has not
accepted such First Offer by written notice to Landlord within thirty (30) days
(or if the First Offer is for more than 30,000 rentable square feet, forty-five
(45) days) after the date the Offer Notice is given to Tenant, the First Offer
shall conclusively be deemed to have been rejected by Tenant. Thereafter,
Landlord shall be free to lease the space subject to the Offer Notice to other
parties on such terms and conditions as are determined by Landlord in its sole
discretion. Notwithstanding the foregoing, Landlord agrees not to enter into a
lease of such space if (i) the gross rent under such lease would be less than
ninety-two and one-half percent (92.5%) of the gross rent in Landlord's offer to
Tenant, (ii) the tenant allowance under such lease would be more than one
hundred seven and one-half (107.5%) percent of the tenant allowance offered to
Tenant, or (iii) the term of such lease would be more than twelve (12) months
longer or shorter than the term offered to Tenant, without first again offering
the subject space to Tenant pursuant to the foregoing procedure, except that
Tenant shall be deemed to have conclusively rejected such new First Offer if it
does not accept the same within ten (10) business days of the date of Landlord's
revised Offer Notice. Additionally, if Landlord has not entered into a lease
within one hundred eighty (180) days following the rejection or deemed rejection
by Tenant of Landlord's First Offer for such offered space, then the provisions
of this Section 2.6 shall apply to Landlord and Tenant with respect to such
previously offered and unleased space as if such unleased space had not been
offered to Tenant.

Notwithstanding any provision herein to the contrary, Landlord (i) shall have no
obligation to make any offer to Tenant under this Section 2.6 if at such time as
an offer would otherwise be required to be made hereunder there are three
hundred sixty-four (364) or fewer days remaining in the Term, as the same may
have been extended at such time and (ii) shall be free to offer to lease space
or grant rights to occupy space to others without first making such offer to
Tenant hereunder so long as the right to occupy the subject space commences
after the expiration of the Term hereof, as the same has been extended.

If Tenant timely accepts a First Offer pursuant to the provisions hereof, Tenant
may elect by written notice to Landlord ("Arbitration Notice") given within five
(5) business days following its acceptance of the First Offer to have the Offer
Fair Market Rent determined pursuant to the arbitration procedures set forth in
Section 2.3(d); provided that (i) references in Section 2.3(d) to Tenant's Rent
Notice shall be deemed references to Tenant's Arbitration Notice, (ii) Tenant
shall include with its Arbitration Notice the name of Tenant's Appraiser, and
(iii) references to Fair Market Rent in Section 2.3(d) shall be deemed
references to Offer Fair Market Rent. Without derogating from the foregoing, it
is expressly agreed that Tenant shall have no right to cancel or withdraw its
acceptance of the First Offer, whether in a manner set forth in Section 2.3(c)
with

                                     - 21 -


respect to Tenant's Rent Notice or otherwise, any acceptance of a First Offer
being irrevocable except as set forth below.

If Tenant timely accepts a First Offer pursuant to the provisions hereof, Tenant
and Landlord shall execute and deliver to each other within forty (40) days
following Tenant's acceptance of the First Offer (or if Offer Fair Market Rent
is arbitrated pursuant to the foregoing paragraph, within ten (10) days
following the determination of the Offer Fair Market Rent), a lease drafted by
Landlord and commented on by and reasonably acceptable to Tenant, substantially
in the form of this Lease, modified to reflect the terms set out in the Offer
Notice (a "First Offer Lease"), provided that it is agreed that Landlord will
not be obligated to undertake any Landlord's Work or leasehold improvements or
otherwise prepare the subject space for Tenant or provide a tenant allowance
therefore, that there will be no free rental period or other period during which
annual base rent or other sums payable by Tenant are not due, there will be no
extension or expansion rights, and that Tenant shall have no additional first
offer rights, under any such First Offer Lease, all except to the extent set
forth in the Offer Notice.

Landlord's failure to deliver and any delay in delivering any First Offer Space
for any reason beyond Landlord's control (including, without limitation, the
continued occupancy of any such space by a prior occupant thereof or the holding
over of any tenant whose lease has expired or been terminated) shall not give
rise to any liability of Landlord hereunder, and shall not affect the full force
and validity of this Lease. Landlord, in the case of any occupant who holds over
for more than 30 days, agrees to prosecute with due diligence appropriate legal
proceedings for the removal of such occupant and in all other cases agrees to
use reasonable and diligent efforts to make such space available to Tenant.
Notwithstanding the foregoing, in the event that Landlord and Tenant have
entered into a First Offer Lease and Landlord fails to deliver to Tenant the
applicable First Offer Space by the scheduled delivery date therefore, and such
failure continues for one (1) month, Landlord shall reimburse Tenant for
Tenant's actual Third Party out-of-pocket architectural and engineering costs
directly caused by Landlord's failure to timely deliver the applicable First
Offer Space, up to a maximum aggregate reimbursement equal to the product of
$1.00 and the number of rentable square feet in the First Offer Space. Further,
in the event that Landlord and Tenant have entered into a First Offer Lease and
Landlord fails to deliver the applicable First Offer Space to Tenant by the
scheduled delivery date therefor, and such failure continues for one hundred
five (105) days, then Tenant shall have the right, exercisable in its sole
discretion, to revoke and rescind its acceptance of the applicable Offer Notice
and to terminate the applicable First Offer Lease by giving notice to Landlord
during the first ten (10) business days immediately following the expiration of
such period, provided that such notice shall be of no force or effect and the
acceptance of the Offer Notice will not be revoked or rescinded and the First
Offer Lease will not be terminated if the applicable space is delivered within
thirty (30) days following the Landlord's receipt of such notice. The
reimbursement and termination rights specifically set forth herein shall be
Tenant's sole and exclusive remedy in the event Landlord fails to timely deliver
the applicable space.

Subject to the foregoing and except as otherwise may be provided in the Offer
Notice, any and all portions of the First Offer Space for which Tenant validly
accepts Landlord's offer and executes a Lease as set forth herein shall be
delivered to Tenant, broom clean, in its then "As Is," "Where Is" condition,
with all faults and without representation, warranty or guaranty of any kind by
Landlord to Tenant. Time is of the essence with respect to the provisions
hereof.

                                     - 22 -


                                   ARTICLE III

                                  CONSTRUCTION

3.1     DELIVERY OF PREMISES.

Tenant acknowledges that Tenant has had an opportunity to inspect the Premises.
Except for Landlord's Common Area Work as expressly set forth hereinafter, the
Premises shall be delivered to Tenant "As Is", "Where Is" with all faults and
without representation, warranty or guaranty of any kind by Landlord to Tenant.
Notwithstanding the foregoing, subject to the following provisions, Landlord, at
Landlord's sole expense, shall complete the work in the Building as set forth in
Exhibit B hereto ("Landlord's Common Area Work"). Landlord agrees to use
diligent efforts to have Landlord's Common Area Work completed no later than the
time set forth in Exhibit B, subject to delays beyond Landlord's reasonable
control and delays caused by Tenant. Landlord shall in no way be liable to
Tenant or any other party, and Tenant's obligations shall not be reduced
hereunder in the event such construction work is not substantially completed by
the applicable time set forth on Exhibit B. Notwithstanding the foregoing,
Landlord represents and warrants that Landlord's Common Area Work shall not be
performed in any manner that would unreasonably interfere with Tenant's use of
or access to the Premises.

Landlord's Common Area Work shall be deemed completed on the date on which the
required Landlord's Common Area Work is substantially completed as certified by
Landlord's architect, with the exception of minor items which would not
interfere with the completion of the Tenant Improvements or Tenant's business
operations (collectively, "Punch List Items"). Landlord agrees to complete all
Punch List Items within sixty (60) days of substantial completion of the
relevant Landlord's Common Area Work.

3.2     PREPARATION OF PREMISES BY TENANT.

Subject to the provisions of this Lease, Tenant shall begin construction on the
initial build out of its Premises promptly following the Tenant Access Date and
shall diligently pursue the same to completion (such initial construction is
referred to as the "Initial Tenant Improvements"). The Initial Tenant
Improvements shall be constructed by Tenant in compliance with the provisions of
the Lease, including without limitation Section 3.5 of the Lease. A preliminary
description of the Initial Tenant Improvements is attached hereto on Exhibit F.
No delay or failure of the Initial Tenant Improvements to be constructed or
completed shall affect the Term Commencement Date or any obligations of Tenant
under this Lease, unless and to the extent such delays are directly caused by
Landlord or its agents, employees or independent contractors and Tenant gives
notice to Landlord within five (5) business days of any alleged delay caused by
Landlord or its agents, employees or independent contractors.

The Initial Tenant Improvements shall be constructed by Tenant at its sole cost
and expense (including without limitation costs for any trash removal services,
utilities, and any costs required to cause the Premises to comply with all laws,
orders and regulations of all governmental authorities and all insurance
requirements); provided that Tenant may be reimbursed out of the Tenant
Improvement Allowance for its actual, third party design,

                                     - 23 -


engineering and construction, wiring, cabling, installation of
telecommunications systems and construction management costs (collectively,
"Costs") for the Initial Tenant Improvements pursuant to the provisions of this
paragraph. Prior to commencing Initial Tenant Improvements, Tenant shall deliver
to Landlord a certificate executed by Tenant's construction manager setting
forth a good faith estimate of the total Costs for all of the Initial Tenant
Improvements.

The Tenant Improvement Allowance shall be disbursed as follows. Tenant shall
submit to Landlord from time to time, and not more frequently than once a month,
a requisition for reimbursement setting forth the actual, third party Costs of
the applicable Initial Tenant Improvements for which reimbursement is sought (a
"Requisition"). Such Requisition for payment shall contain such invoices or
other evidence of the Costs incurred as Landlord may reasonably request,
together with evidence reasonably satisfactory to Landlord that the same have
been paid or are due and payable by Tenant and a certificate by the architect
that the work covered by the application has been completed in compliance with
the plans and specifications approved by Landlord pursuant to Section 3.5.
Provided such information is provided by the third to last business day in a
month, by the thirtieth (30th) calendar day of the next month, Landlord shall
reimburse Tenant (or in the case of Costs which are payable, at its election pay
directly to the vendor), from the applicable Tenant Improvement Allowance in an
amount equal to any actual, third party Costs paid by Tenant for the Initial
Tenant Improvements properly set forth in the Requisition, or if such amount
remains due and payable by Tenant, Landlord shall pay such amount to the party
to which it is owed as indicated on the applicable invoices. In the event the
overall Costs of the Initial Tenant Improvements for the Premises exceed the
Tenant Improvement Allowance, then Tenant shall be solely responsible for any
such Costs in excess of the Tenant Improvement Allowance.

The Tenant Improvement Allowance shall be used for Initial Tenant Improvements.
Notwithstanding the foregoing, if, following completion of the Initial Tenant
Improvements, as certified to Landlord by Tenant's architect, the full amount of
the applicable Tenant Improvement Allowance has not been properly requisitioned
for the Initial Tenant Improvements, Tenant may requisition the same in
accordance with the procedures set forth in this Section 3.2 for any Initial
Tenant Improvements to the other portions of the Premises or any non-cosmetic
alterations or additions to the other portions of the Premises approved by
Landlord pursuant to Section 3.3 below, provided any such alteration or addition
to the other portions of the Premises are completed within one (1) year of the
Term Commencement Date therefor and any requisition therefor is submitted to
Landlord by such date. Otherwise, any Tenant Improvement Allowance not properly
requisitioned by Tenant shall not be available to Tenant. Notwithstanding
anything to the contrary contained herein, Landlord shall have no obligation to
disburse any Tenant Improvement Allowance at any time that Tenant is in default
of any of its obligations under this Lease beyond any applicable grace or cure
period. Landlord shall not be entitled to charge any inspection or supervision
or similar cost or fee in connection with Initial Tenant Improvements or any
initial tenant improvements constructed in connection with Tenant's expansion
rights, extension rights or rights of first offer.

3.3     GENERAL PROVISIONS APPLICABLE TO CONSTRUCTION.

All construction work required or permitted by this Lease, whether by Landlord
or by Tenant, shall be done in a good and workmanlike manner and in compliance
with all applicable laws and

                                     - 24 -


all lawful ordinances, regulations and orders of governmental authority and
insurers of the Building and the Lot. Either party may inspect the work of the
other at reasonable times and promptly shall give notice of observed defects.
Landlord shall provide Tenant reasonable prior notice before inspecting the work
on the Premises (except in case of emergency when no prior notice is required)
and Landlord will allow Tenant to have an agent of Tenant or Tenant's
Construction Representative accompany Landlord in such inspection. Tenant shall
comply at all times with the construction rules and regulations attached hereto
as Exhibit G.

3.4     CONSTRUCTION REPRESENTATIVES.

In connection with the parties' respective rights and obligations under this
Article III, each party authorizes the other to rely upon approvals and other
actions given or made on such party's behalf by any person designated as its
Construction Representative in Section 1.1 hereof. Each party may change its
Construction Representative by notice to the other.

3.5     ALTERATIONS AND ADDITIONS.

This Section 3.5 shall apply before and during the Term. Tenant may make
interior alterations and additions of a decorative or cosmetic nature (as
defined below), the cost of which does not exceed $75,000 in the aggregate in
any twelve (12) month period, without the need of any approval from Landlord,
provided (i) any alteration or addition affecting the Building structure
(including alterations affecting the roof, the structural weight-bearing walls
or columns or any weight-bearing floor slab of the Building), (ii) any
alteration or addition affecting the Building systems (including plumbing,
electrical, mechanical or HVAC systems), (iii) any interior alteration or
addition of a decorative or cosmetic nature, the cost of which is equal to or
exceeds $75,000 in the aggregate in any twelve (12) month period, and (iv) any
other alteration or addition not otherwise described in this paragraph costing
more than $25,000 (in 2002 dollars) in any one instance or in the aggregate in
any twelve (12) month period, (x) shall not be performed without Tenant first
having received Landlord's written consent thereto, (y) shall be conducted under
the supervision of a licensed architect or licensed professional engineer
approved by Landlord and (z) shall be conducted with plans and specifications
submitted to and approved by Landlord, subject in all events to the "Review
Conditions" (described below). Without limiting the foregoing, all plans and
specifications and all alterations and additions (including without limitation
the Initial Tenant Improvements) shall comply with the Minimum Tenant
Improvement Standards attached hereto as Exhibit H (the "Minimum Standards").
Landlord shall not unreasonably withhold its consent to any alterations or
additions proposed by Tenant or to any plans and specifications submitted to
Landlord in connection therewith. Landlord's failure to respond to Tenant's
request for consent to alterations or additions or for approval of plans and
specifications for any alterations or additions consented to by Landlord, or as
to which Landlord's consent is simultaneously being requested, within thirty
(30) days of Landlord's receipt of such request(s) shall constitute Landlord's
disapproval of same. Landlord hereby approves Tenant's construction of a high
density file room on the third floor of the Building in accordance with the
plans to be submitted by Tenant to Landlord prior to August 15, 2002 for
Landlord's approval (such approval not to be unreasonably withheld or delayed so
long as the work shown thereon can reasonably be completed by September 30,
2002); provided that all work in connection therewith that requires access to or
interferes with the use and occupancy of the second floor (west) of the Building
shall be undertaken by Landlord's contractor at Tenant's

                                     - 25 -


sole cost and expense (Landlord hereby agreeing to cause its contractor to
cooperate with Tenant in connection therewith) and shall be completed by
September 30, 2002. Tenant shall have no access to the second floor (west) after
such date, and any access to the second floor (west) prior to such date shall be
exclusively through Landlord's contractor as aforesaid. Landlord also hereby
approves Tenant's installation of a two stage pre-action sprinkler system,
subject to Landlord's review and approval of plans and specifications therefor,
such approval not to be unreasonably withheld or delayed.

Landlord's approval of any plans or specifications shall not be deemed its
opinion that the plans and specifications or the work depicted thereon comply
with any or all applicable laws, ordinances, regulations or orders of
governmental authorities or requirements of insurers of the Building and the
Lot, or with the Minimum Standards, and no waiver from the requirement of the
Minimum Standards shall be deemed to have been granted by such approval unless
such waiver is expressly stated in writing. At Landlord's request, Tenant will
cause its architect to certify that its plans and specifications and the work
depicted thereon comply with such laws, ordinances, regulations and orders of
governmental authorities and with the Minimum Standards. Except in connection
with the Initial Tenant Improvements (including any Initial Tenant Improvement
for the Third Floor East Expansion Space), and except for any alteration or
addition for which Landlord's consent is not required under this Lease, Tenant
shall pay Landlord's actual, reasonable, third-party out of pocket costs of
reviewing or inspecting any proposed non-decorative or non-cosmetic alterations
and/or additions and the plans therefore, such as costs and fees of third party
consultants hired by Landlord. In no event shall any non-decorative or
non-cosmetic alterations and/or additions be considered or approved by Landlord
except in Landlord's sole discretion which (a) involve or might affect any
structural or exterior element of the Building, Building systems, including
mechanical, fire protection or life safety systems, or the common facilities of
the Building, or (b) will require unusual expense to readapt the Premises to
normal office use on Lease termination or increase the cost of construction or
of insurance or taxes on the Building or the Lot (collectively, the "Review
Conditions"). All non-decorative and/or non-cosmetic alterations and additions
shall become a part of the Premises except that at the time Landlord approves
any alterations or additions, Landlord may require that upon yielding up of the
Premises pursuant to Section 6.1.2, Tenant shall remove any items which are not
typical and customary for the Permitted Use hereunder ("Specialty Items"); in
the event Landlord does not affirmatively require Tenant to remove Specialty
Items at the time Landlord approves the same, which it may do in its sole
discretion, Landlord will be deemed to have waived such requirements. Tenant
shall provide Landlord with written notice specifying in reasonable detail any
alterations or additions which Tenant intends to make for which Landlord's
consent is not required prior to commencing the same.

All of Tenant's alterations and additions and installation and delivery of
telephone systems, furnishings, and equipment shall be coordinated in a
reasonable manner with any work being performed by Landlord and other tenants in
the Building (and Landlord shall use reasonable efforts to facilitate such
coordination with other tenants in the Building), and shall be performed in such
manner, and by such persons as shall maintain harmonious labor relations (Tenant
acknowledging that it has been advised that Landlord's contractor and
contractors for other tenants in the Building employ exclusively union labor)
and not cause any damage to the Building or interference with Building
construction or operation, or with other tenants in the Building, and, except
for installation of furnishings, equipment and telephone systems, shall be

                                     - 26 -


performed by contractors approved in writing by Landlord (an "Approved
Contractor"), which approval shall not be unreasonably withheld or delayed. For
purposes of this Lease, an "Approved Contractor" shall mean a contractor or
mechanic identified by Tenant in writing, who has been approved by Landlord
(such approval not to be unreasonably withheld or delayed). Contractors may be
approved in one of two ways. First, Tenant may submit to Landlord in writing
from time to time a list (or revised list) of contractors that Tenant
anticipates using from time to time to make alterations, repairs and
improvements to the Premises. Each of the contractors identified on such list
and approved in writing by Landlord shall be deemed "Approved Contractors".
Second, Tenant may submit to Landlord from time to time requests for Landlord to
approve specific contractors (not already on the list of Approved Contractors)
for work in the Premises. If Landlord approves such contractor in writing, such
contractor shall be an Approved Contractor for the project in question. Landlord
hereby approves the list of contractors attached hereto as Exhibit M as
"Approved Contractors". Landlord shall have the right, upon written notice to
Tenant to withdraw its approval of previously approved contractors at any time
for any cause as determined in Landlord's reasonable judgment. A contractor's
failure to provide or maintain adequate insurance levels shall be a reasonable
basis for Landlord to withhold or withdraw approval unless Tenant notifies
Landlord in writing that such contractor shall be covered by insurance then
being maintained by Tenant and if Tenant provides documentary evidence that said
Contractor is covered and of the amount of coverage.

Landlord may post any notices it considers necessary to protect it from
responsibility or liability for any alteration, addition or other work by
Tenant, its agents, employees, or independent contractors, and Tenant shall give
sufficient notice to Landlord to permit such posting. In the event Tenant sends
its non-decorative and/or non-cosmetic work out for bid, before doing so Tenant
shall provide Landlord with a list of proposed bidders for Landlord's review;
Landlord shall have seven (7) business days to reasonably object to such
bidders; if Landlord does not so object, such bidders shall be presumptively
approved by Landlord. Before commencing any work Tenant shall: secure all
licenses and permits necessary therefor; deliver to Landlord a statement of the
names of all its contractors and major subcontractors (the identity of which
must have been previously approved by Landlord as hereinabove contemplated) and
the estimated cost of all labor and material to be furnished by them (a major
subcontractor being a subcontractor performing work which costs more than
$10,000 in the aggregate); and cause each contractor and subcontractor to carry
(i) workers' compensation insurance in statutory amounts covering all the
contractor's and subcontractor's employees, (ii) commercial general liability
insurance with such limits as Landlord may reasonably require, but in no event
less than a combined single limit of $3,000,000 per occurrence and (iii) other
insurance specified in the Construction Rules and Regulations attached hereto as
EXHIBIT G, (all such insurance to be maintained with a responsible insurance
company, qualified to do business and in good standing in Massachusetts with a
Best's insurance rating of not less than A:X, and insuring Landlord, Manager and
Tenant as well as the contractors), and to deliver to Landlord, certificates of
all such insurance naming Landlord, Manager and Tenant as additional insureds as
their interests may appear with respect to commercial general liability
coverage. Tenant agrees to pay promptly when due, and to defend and indemnify
Landlord from and against, any cost, claim or liability arising from any work
done on the Premises by Tenant, its agents, employees or independent
contractors, except to the extent any cost, claim or liability is due to the
negligent, acts or omissions of Landlord, and not to cause or permit any liens
for labor or materials performed or furnished in connection therewith to attach
to the Building or the Lot and immediately to discharge or bond over any

                                     - 27 -


such liens which may so attach. Tenant shall be solely responsible for the
effect of any alterations, additions or other work on the Building's structure
and systems, whether or not Landlord has consented thereto. Upon completion of
the Tenant Improvements and any other non-cosmetic or non-decorative alteration
or addition, Tenant shall provide Landlord with a complete set of "as built"
plans therefor, which may consist of a mark-up of any plans previously prepared
for such work showing actual construction. Alterations and/or additions shall be
considered "cosmetic" and/or "decorative" if they involve painting, carpeting
and the like, and provided they do not involve and will not or could not affect
any structural or exterior element of the Building, Building systems, including
mechanical, fire protection or life safety systems, or the common facilities of
the Building.

Tenant shall have the right to install in locations on the roof of the Building
designated by Landlord (such area or areas, the "Roof Area"), up to two five-ton
Liebert units (the "Roof Equipment"). Tenant shall have the ancillary right to
connect the Premises to the Roof Area through a reasonably sized conduit or
conduits, installed at Tenant's sole cost and expense, such conduit or conduits
to be in a location designated by Landlord in its reasonable discretion. The
term "Roof Equipment" shall be deemed to include such conduit and any wiring or
other materials contained therein. Roof Equipment shall be installed and
maintained so as (a) not to cause any adverse impact on the structural integrity
of the Building or the roof of the Building and (b) not to void or jeopardize
any roof membrane warranty or other roof warranty, provided a copy of which is
supplied to Tenant. Prior to the installation of any Roof Equipment, Tenant
shall obtain and submit to Landlord, for its approval in its reasonable
discretion, plans and specifications for the proposed Roof Equipment (including
its size, location, height, weight and function), along with copies of all
required permits and licenses required from all applicable governmental
authorities.

Without derogating from the other provisions of the Lease (including those
governing alterations and additions), all of which shall apply to the Roof
Equipment, Tenant specifically agrees to abide by the following terms and
conditions:

                (a)     No Roof Equipment shall be installed except in
 compliance with plans and specifications approved by Landlord as set forth
 above, such work to be performed by contractors reasonably approved by Landlord
 and at Tenant's sole cost and expense, provided that any roof penetration shall
 be by Shea Roofing or such other contractor designated by Landlord in its sole
 discretion. As soon as practicable during the installation or removal of any
 Roof Equipment, Tenant, at its sole cost and expense, will have any roof
 penetrations occurring or remaining by reason of the installation or removal
 process sealed by Shea Roofing or another roofing contractor selected by
 Landlord.

                (b)     Tenant shall at all times during the installation or
 removal process and during any use, maintenance or repair of any Roof
 Equipment, comply with all roof membrane warranties and other roof warranties
 which are supplied to Tenant, building, safety, fire, plumbing, electrical and
 other codes and regulations, and insurance requirements set forth in the Lease.

                (c)     Prior to the commencement of any work related to the
 Roof Equipment, Tenant will coordinate with the building engineer, roof
 material manufacturers and Landlord's

                                     - 28 -


 roofing contractors regarding the scope and schedule of such work. The Building
 engineer, roof material manufacturers and Landlord's roofing contractors will
 have the opportunity to be present during construction to ensure that all work
 is completed in a good and workmanlike manner and is performed in accordance
 with the terms of the Lease.

                (d)     Tenant shall keep the Roof Equipment, and every part
 thereof, in good condition and repair at all times during the Term at Tenant's
 sole cost and expense.

                (e)     Tenant shall yield up the Roof Area and any other areas
 containing the Roof Equipment in the same manner and condition as set forth
 herein for the yield up of the Premises. Notwithstanding the foregoing, by
 notice given at the time Landlord approves the plans and specifications for the
 Roof Equipment, Landlord may require Tenant to remove the Roof Equipment upon
 Tenant's yielding up the Premises and to repair any damage caused thereby in
 compliance with any roof membrane warranty and other roof warranties and
 paragraphs (a), (b) and (c) above.

                                   ARTICLE IV

                                      RENT

4.1     RENT.

Tenant agrees to make rental payments to Landlord, without any offset or
reduction whatsoever, except as expressly set forth in Section 5.2 (but taking
into account the "Reduced Rent Period" following the Term Commencement Date for
the Initial Space described below), in equal monthly installments of 1/12th of
the Annual Base Rent as set forth in Section 1.1, in advance on the first day of
each calendar month included in the Term after the Term Commencement Date;
pro-rated on a daily basis as applicable for any calendar month which includes
the Term Commencement Date, and at the end of the Term.

For the first 120 days following the Term Commencement Date (the "Reduced Rent
Period"), the Rent otherwise due hereunder shall be reduced by $1,420 per day.
The rent reduction provided for herein is a one-time reduction and shall not
apply to the Third Floor East Expansion Space, First Floor East Expansion Space
or Eighth Floor East Expansion Space or any first offer space.

4.2     OPERATING COSTS AND REAL ESTATE TAXES.

        4.2.1   LANDLORD'S OPERATING COSTS. Tenant shall pay to Landlord, as
additional rent, Tenant's Pro Rata Share of Landlord's Operating Costs (as set
forth in Section 4.2.3 below), if any, on or before the thirtieth (30th) day
following receipt by Tenant of Landlord's Statement (as defined below). As soon
as practicable, but in no event more than 120 days after the end of each
calendar year ending during the Term and after Lease termination, Landlord shall
render a statement ("Landlord's Statement") in reasonable detail and according
to Landlord's usual accounting practices, which shall be in accordance with
generally accepted accounting practices, showing for the preceding calendar year
or fraction thereof, as the case may be, "Landlord's Operating Costs" together
with Real Estate Taxes (as defined in Section 4.2.2 hereof).

                                     - 29 -


Landlord's Operating Costs shall EXCLUDE: Real Estate Taxes; the principal,
interest and amortization on mortgages for the Building and the Lot or leasehold
interests therein; or any other financing cost or fee; ground rent; depreciation
on the Building or equipment or systems therein; costs in connection with
leasing, releasing, or subleasing space at the Building (including but not
limited to brokerage commissions); costs incurred in connection with the sale,
financing or refinancing of the Building and/or the Lot; the cost of repairs or
other work to the extent Landlord is reimbursed by insurance or condemnation
proceeds or by any other third party; costs incurred in enforcing leases against
other tenants; the cost of special services rendered to tenants (including
Tenant) for which a special charge is made; any expense to the extent resulting
from the negligent act or omission of Landlord, its agents, contractors or
employees; costs resulting from Landlord's breach of this Lease or any lease for
space in the Building; except to the extent required by a new law, regulation or
code or a new interpretation of an existing law, regulation or code, the cost of
correcting any code or legal violations in the Building; except to the extent
required by a new law, regulation or code or a new interpretation of an existing
law, regulation or code, any costs related to Landlord's Building being in
violation of the American with Disabilities Act ("ADA") (it being understood and
agreed that Tenant shall be solely responsible for causing the Premises to be
compliance with all laws, regulations and codes, including ADA, at all times);
the costs of cleaning any tenant space; and capital expenses not otherwise
included in Landlord's Operating Costs pursuant to the next paragraph.

Landlord's Operating Costs may INCLUDE, without limitation: installments and
interest on assessments for public betterments or public improvements; premiums
for insurance (including, without limitation, all-risks commercial property,
rental value, casualty and liability insurance, and insurance required to be
carried by any mortgage lender), and deductible amounts thereunder; fees payable
to third parties for financial audits of Landlord's Operating Costs;
compensation and all fringe benefits, worker's compensation insurance premiums
and payroll taxes paid by Landlord, and consistent with other Class A buildings
in the East Cambridge/Kendall Square area, for or with respect to all persons
engaged in the operating, maintaining, or cleaning of the Building and the Lot,
including, without limitation, a building manager located at the Building, and a
pro rata portion of one regional manager to the extent available to the
Building; the cost of cleaning and maintaining and the cost of utilities
servicing any space occupied by the manager for a building office; all
electricity charges related to the common areas of the Building and heat pumps
servicing the Building, and all utility charges incurred in the operation and
maintenance of the Premises, the Building and the Lot not billed directly to
tenants by Landlord or by the utility company; all costs of cleaning the common
areas of the Building and all windows on the exterior of the Building; all costs
of maintenance, repairing and operating the Building (including without
limitation, all structural components and common facilities of the Building);
payments under service contracts for cleaning the common areas and windows of
the Building as aforesaid and for operating, managing, maintaining and repairing
the Building and the Lot; management fees not to exceed 4% of annual gross
revenues (Landlord hereby representing that the management fees for the
Operating Cost Base are equal to 4% of annual gross revenues for calendar year
2002); all costs, expenses, payments or fees paid by Landlord for any regional
transportation shuttle (such as that proposed to be operated by the presently
so-called "Charles River Transportation Association") funded or paid for either
partially or wholly by Landlord and owners of other properties in the area of
the Building, whether such expenditures and shuttle are voluntary or
involuntary, public or private; the cost of maintaining and cleaning and the
cost of utilities provided to any cafe available for the use of

                                     - 30 -


Tenant in common with others; personnel, rent and other subsidies for the cafe
(such subsidies not to exceed $20,000 per annum (in 2002 dollars) for the entire
Building); all charges to Landlord reasonably and equitably allocable to the
Building and the Lot for services performed in connection with the Building, the
Lot and any common facilities appurtenant thereto and other buildings and
properties with which they are jointly operated, including, without limitation,
any shared parking facilities or other amenities, and, to the extent Landlord
incurs additional charges applicable to the Building and/or the Lot together
with one or more other buildings or properties, the pro rata share (as
reasonably determined by Landlord) of such charges allocable to the Building and
the Lot; and all other reasonable and necessary expenses paid in connection with
the operating, administering, cleaning, maintaining and repairing of the
Building and the Lot or either, and properly chargeable against income, it being
also agreed that if Landlord installs a new or replacement capital item in order
to comply with a legal requirement or interpretation thereof first arising after
the date of this Lease, or for the purposes of reducing Operating Expenses, or
for the purposes of complying with the terms of this Lease, the cost thereof as
reasonably amortized by Landlord, with interest at the rate of interest charged
to Landlord for borrowing funds to finance such item (or the rate that Landlord
reasonably determines would have been charged if Landlord does not finance such
item), on the unamortized amount, shall be included in Landlord's Operating
Costs. In any calendar year in which the average annual occupancy of the
Building is less than 100%, Landlord's Operating Costs as defined herein shall
also include such additional costs as would reasonably have been incurred by
Landlord with respect to the operation, administration, management, cleaning,
maintenance and repair of the Property with 100% average annual occupancy.
Payments for any services may be to Landlord or affiliates thereof provided the
same are at reasonable rates consistent with the type of occupancy.

        4.2.2   REAL ESTATE TAXES. Tenant shall pay to Landlord, as additional
rent, Tenant's Pro Rata Share of Real Estate Taxes (as set forth in Section
4.2.3 below), if any, on or before the fifteenth (15th) day following receipt by
Tenant of Landlord's Statement. The term "Real Estate Taxes" as used herein
shall mean all taxes, impositions and charges of every kind and nature assessed
by any governmental authority on the Lot, Building and improvements, and the
reasonable expenses incurred by Landlord in connection with any proceedings for
abatement of taxes and assessments with respect to any calendar year or fraction
of a calendar year; together with the Building's allocable share of such taxes,
impositions and charges with respect to other parcels on which any common
facilities serving the Building are located, which Landlord shall become
obligated to pay because of or in connection with the ownership, leasing and
operation of the Lot, Building and improvements, subject to the following: There
shall be excluded from Real Estate Taxes all income taxes, excise taxes,
franchise taxes, and estate, succession, inheritance and transfer taxes,
provided, however, that if at any time during the Term the present system of ad
valorem taxation of real property shall be changed so that in lieu of the whole
or any part of the ad valorem tax on real property, there shall be assessed on
Landlord a capital levy or other tax on the gross rents received with respect to
the Lot, Building and improvements, or both, or a federal, state, county,
municipal, or other local income, franchise, excise or similar tax, assessment,
levy or charge (distinct from any now in effect) measured by or based, in whole
or in part, upon any such gross rents, then any and all of such taxes,
assessments, levies or charges, to the extent so measured or based, shall be
deemed to be included within the term "Real Estate Taxes." If the amount of Real
Estate Taxes for the base year referred to in Section 1.1 hereof shall be
calculated to reflect a fully leased and assessed building.

                                     - 31 -


        4.2.3   TENANT'S PRO RATA SHARE OF OPERATING COSTS AND REAL ESTATE
TAXES. If with respect to any calendar year falling within the Term or for any
fraction of any calendar year falling at the beginning or end of the Term,
Landlord's Operating Costs for a full calendar year exceed the Operating Cost
Base or for any such fraction of a calendar year, exceed the corresponding
fraction of the Operating Cost Base, then Tenant shall pay to Landlord, as
additional rent, an amount (such amount being referred to as "Tenant's Pro Rata
Share of Operating Costs") equal to the product of (i) the amount of such excess
multiplied by (ii) Tenant's Pro Rata Share (which represents a fraction, the
numerator of which is the Rentable Floor Area of the Premises and the
denominator of which is the Total Rentable Floor Area of the Building and which
fraction as of the date hereof is set forth in Section 1.1 hereof).
Notwithstanding the foregoing, if any Operating Costs are incurred for a service
which is not provided to one or more tenants who are not obligated to pay for a
proportionate share of the cost of such service, then Tenant's Pro Rata Share
thereof shall be based upon a fraction, the numerator of which is the Rentable
Floor Area of the Premises and the denominator of which is the Total Rentable
Floor Area of the Building less the rentable floor area of the premises of the
tenant or tenants not receiving and not paying for such service. In addition, if
with respect to any calendar year falling within the Term or for any fraction of
any calendar year falling at the beginning or end of the Term, Real Estate Taxes
for a full calendar year exceed the Real Estate Tax Base, or for any fraction of
a calendar year exceed the corresponding fraction of the Real Estate Tax Base,
then Tenant shall pay to Landlord, as additional rent, an amount (such amount
being referred to as "Tenant's Pro Rata Share of Real Estate Taxes") equal to
the product of (x) the amount of such excess multiplied by (y) Tenant's Pro Rata
Share. (The sum of Tenant's Pro Rata Share of Operating Costs and Tenant's Pro
Rata Share of Real Estate Taxes is referred to herein as "Tenant's Pro Rata
Share of Expenses").

        4.2.4   LANDLORD'S ESTIMATES AT END OF TERM. Notwithstanding any other
provision of this Section 4.2, if the Term expires or is terminated as of a date
other than the last day of a calendar year, then for such fraction of a calendar
year at the end of the Term, Tenant's last payment to Landlord under this
Section 4.2 shall be made on the basis of Landlord's best estimate of the items
otherwise includable in Landlord's Statement and shall be made on or before the
later of (a) thirty (30) days after Landlord delivers such estimate to Tenant or
(b) the last day of the Term, with an appropriate payment or refund to be made
upon submission of Landlord's Statement.

        4.2.5   TENANT'S AUDIT RIGHTS. Landlord agrees to make its books and
records relating to Landlord's Operating Expenses available for examination
during normal business hours at Landlord's principal office or its Manager's
office upon reasonable notice by Tenant and its representatives; provided that
any such examination or audit shall be by an employee of Tenant or an accounting
firm or property management firm, the fees of which are not determined on a
contingent basis, shall be at Tenant's sole cost and expense, and may be
conducted only if a notice is sent by Tenant requesting the same not later than
ninety (90) days following delivery of Landlord's Statement. If Tenant's audit
discloses a discrepancy which the parties agree (or a court of competent
jurisdiction determines in a final non-appealable order) involves an overcharge
of Tenant's Pro Rata Share of Expenses for the period covered by such Landlord's
Statement, Landlord shall provide Tenant with a credit against the next
installment(s) of Tenant's Pro Rata Share of Expenses in the amount of the
overpayment by Tenant. If such discrepancy as so agreed upon or determined
involves an overcharge to Tenant of more than 5% in the

                                     - 32 -


aggregate for such year, Landlord shall be responsible for the reasonable hourly
fees of the accounting firm or auditing firm conducting the audit.

4.3     ESTIMATED PREMISES EXPENSE PAYMENTS.

If, with respect to any calendar year or fraction thereof during the Term,
Landlord estimates that Tenant will be obligated to pay Tenant's Pro Rata share
of Expenses, then Tenant shall pay, as additional rent, on the first day of each
month of such calendar year and each ensuing calendar year thereafter, estimated
monthly payments of Tenant's Pro Rata share of Expenses (hereinafter "Estimated
Monthly Expense Payments") equal to 1/12th of Landlord's estimate of Tenant's
Pro Rata Share of Expenses for the respective calendar year, with an appropriate
additional payment (or credit by Landlord against Tenant's future payments of
Tenant's Pro Rata Share of Expenses) to be made within thirty (30) days after
Landlord's Statement is delivered to Tenant. Landlord agrees it shall base the
amount of Estimated Monthly Expense Payments on the preceding year's actual
Expenses adjusted to reflect Landlord's good faith estimates of increases.
Landlord may adjust such Estimated Monthly Expense Payments from time to time,
but not more than once during each calendar year in general plus one time during
each calendar year for each time during such calendar year space is added to the
Premises, and Tenant shall pay, as additional rent, on the first day of each
month following receipt of Landlord's notice thereof, the adjusted Estimated
Monthly Expense Payment.

4.4     ELECTRICITY.

Electricity to the Premises shall be submetered or check metered to the
Premises. Tenant shall pay for all charges for electric consumption in the
Premises as reasonably determined by Landlord based on readings of such
submeters or check meters, but without mark-up above actual cost, within ten
(10) business days of Landlord's invoice therefor, from time to time, but not
more often than monthly; provided that upon written notice from Landlord, Tenant
shall pay an estimate of such charges, as reasonably determined by Landlord from
time to time, monthly at the same time and in the same manner as payments of
Annual Base Rent, with appropriate payment (or credit against future electric
charges) to be made annually based upon Landlord's revised estimates for the
prior year. If at any time electric charges for the Premises are payable to the
utility therefor, because of the installation of submeters or check meters or
otherwise, Tenant shall pay such charges as they become due, in lieu of such
payments to Landlord as described above. Landlord shall install check meters to
the Premises at Landlord's cost and expense. Landlord shall have the exclusive
right to designate the electric service provider and primary telecommunications
provider to serve the Building. Tenant shall make arrangements for its own
telecommunications service, using the existing cabling to the Building. Subject
to reasonable coordination with Building management, Tenant shall have access to
the basement demarcation point for the telecommunications provider in order to
provide such telecommunication services to the Premises and to maintain such
services.

Tenant covenants and agrees that its use of electric current (exclusive of HVAC)
shall not exceed 8.0 watts per square foot of rentable floor area and that its
total connected lighting load will not exceed the maximum load from time to time
permitted by applicable governmental regulations. In the event Tenant introduces
into the Premises personnel or equipment which overloads the capacity of the
Building system or in any other way interferes with the system's ability to

                                     - 33 -


perform adequately its proper functions, supplementary systems including check
meters may, if and as needed, in Landlord's discretion and at Landlord's option,
be provided by Landlord, at Tenant's expense. Landlord shall not in any way be
liable or responsible to Tenant for any loss or damage or expense which Tenant
may sustain or incur if, during the Term of this Lease, either the quantity or
character of electric current is changed or electric current is no longer
available or suitable for Tenant's requirements due to a factor or cause beyond
Landlord's reasonable control.

4.5     CHANGE OF FISCAL YEAR.

Landlord shall have the right from time to time, but not more frequently than
once every three years, to change the periods of accounting under Section 4.2 to
any annual period other than a calendar year, and upon any such change all items
referred to in this Section 4.5 shall be appropriately apportioned, provided
that any such changes in fiscal year shall not result in any inequitable
shifting of or increase for amounts payable to Landlord by Tenant. In all
Landlord's Statements rendered under this Section 4.5, amounts for periods
partially within and partially without the accounting periods shall be
appropriately apportioned, and any items which are not determinable at the time
of a Landlord's Statement shall be included therein on the basis of Landlord's
estimate, and with respect thereto Landlord shall render promptly after
determination a supplemental Landlord's Statement, and appropriate adjustment
shall be made according thereto. All Landlord's Statements shall be prepared on
a cash basis of accounting.

4.6     PAYMENTS.

All payments, fees, charges or other monetary obligations due from Tenant to
Landlord under this Lease (other than Annual Base Rent) shall constitute
additional rent. All payments of Annual Base Rent and additional rent shall be
made to Manager, or to such other person as Landlord may from time to time
designate in writing. If any installment of Annual Base Rent or additional rent
is not paid on the due date and such failure continues for ten (10) days, Tenant
shall pay to Landlord, as additional rent, a late fee equal to four percent (4%)
of the past due amount. Additionally, if any installment of Annual Base Rent or
additional rent is paid more than ten (10) business days after the due date
thereof, at Landlord's election, it shall bear interest at a rate equal to the
prime rate of lending announced by the Wall Street Journal or another financial
newspaper selected by Landlord, plus four percent (4%), or if less, the maximum
amount permitted by law (the "Default Interest Rate") from such due date, which
interest shall be immediately due and payable as further additional rent.

                                    ARTICLE V

                              LANDLORD'S COVENANTS

5.1     LANDLORD'S COVENANTS DURING THE TERM.

        Landlord covenants during the Term:

        5.1.1   BUILDING SERVICES. To furnish during normal working hours during
the Term heat, air-conditioning, elevator service and hot and chilled domestic
water service, and after normal working hours, to furnish cleaning services to
the common areas and facilities of the Building in

                                     - 34 -


accordance with the cleaning specifications attached as Exhibit I (5 days a
week, except for legal holidays). "Normal working hours" shall mean the hours of
7:00 A.M. through 7:00 P.M. Monday through Friday and the hours of 9:00 A.M.
through 1:00 P.M. on Saturdays, and no hours on legal holidays and Sundays;
provided, however, that Tenant shall have access to the Building 24 hours a day,
365 days a year, by means of a key or other access device to the main lobby of
the Building to be provided to Tenant by Landlord. Landlord shall provide a
security guard in the lobby 24 hours a day, 365 days a year. Tenant shall pay
when due all amounts and charges for such services during hours other than
normal working hours at commercially reasonable rates from time to time
established by Landlord and consistent with other Class A buildings in the East
Cambridge/Kendall Square area and shall indemnify and hold harmless Landlord
from and against any and all claims, liabilities, damages, losses, costs and
expenses (including reasonable attorneys' fees) in connection therewith.
Landlord is not and shall not be required to furnish to Tenant or any other
occupant of the Premises telephone or other communication service.

        Tenant agrees that Landlord shall not provide cleaning service to the
Premises and Tenant agrees to employ a cleaning service to do janitorial work in
the Premises consistent with the standards applicable to a first class office
building in the East Cambridge/Kendall Square area. The identity of Tenant's
cleaning service shall be subject to the approval of Landlord, which approval
shall not be unreasonably withheld, conditioned or delayed. Landlord hereby
approves of Tenant's use of its own employees for janitorial services for the
Premises. Any person employed by Tenant for cleaning services shall, while in
the Building, be subject to and under the control and direction of the Manager
(but not as an agent or servant of the Manager or of Landlord).

        5.1.2   ADDITIONAL BUILDING SERVICES. To furnish, through Landlord's
employees or independent contractors, reasonable additional Building operation
services upon reasonable advance request of Tenant at commercially reasonable
rates from time to time established by Landlord to be paid by Tenant.

        5.1.3   REPAIRS. Except as otherwise provided in Article VII, to make
such repairs to the roof, exterior walls, floor slabs, other structural
components and common facilities of the Building (including base building
systems serving more than one tenant and, after Tenant's initial repair thereof
as part of the Initial Tenant Improvements, any damage to the Premises caused by
the expansion or contraction of the base Building, including damage to the
connections between the windowsills and exterior panels within the Premises) as
may be necessary to keep them in good working order and repair, reasonable wear
and tear excepted, and to keep the Building common areas in compliance with law,
except that Landlord shall not be in default of this provision unless such
noncompliance interferes with Tenant's use and occupancy of the Premises

        5.1.4   TENANT DIRECTORY AND EXTERIOR SIGNAGE. To include Tenant's name
on the Tenant directory maintained by Landlord in the main lobby of the
Building, and to include Tenant's name on standard building directory signage in
the elevator lobby on the floor in the Building where the Premises is located.

                                     - 35 -


        So long as Tenant and its Affiliates (as defined in Section 6.1.6
hereof) are occupying at least 75% in the aggregate of the Premises (excluding
any additional space leased by Tenant under its expansion rights, right of first
offer or otherwise), Tenant, at its expense, may, on a non-exclusive basis,
install a sign appropriate for a first class office building on the exterior of
the Building near the main Building entrance provided that prior to any such
installation (i) Tenant has received Landlord's approval of the design, size
(which in no event shall exceed 33% of the total area of all signage permitted
on the Building by applicable laws, codes, ordinances and regulations),
materials, lettering and location of such sign, which approval shall not be
unreasonably withheld, conditioned or delayed, and (ii) Tenant has obtained and
provided to Landlord any approvals, permits, and licenses required under
applicable laws, codes, ordinances, and regulations. Tenant shall removal any
such sign prior to such time as Tenant vacates more than 25% of the Premises,
and upon such removal Tenant shall restore any portion of the Building damaged
by such removal to good order, repair and condition.

        5.1.5   QUIET ENJOYMENT. That Landlord has the right to make this Lease
and that Tenant on timely paying the rent and performing its obligations
hereunder shall peacefully and quietly have, hold and enjoy the Premises
throughout the Term without any manner of hindrance or molestation from Landlord
or anyone claiming under Landlord, subject however to all the terms and
provisions hereof.

        5.1.6   LANDLORD'S INSURANCE. Landlord shall take out and maintain
throughout the Term of this Lease the following insurance:

                        (i)     Commercial General Liability insurance for the
Building and the common areas, consistent with that being maintained from time
to time by reasonably prudent owners of Class A office buildings in the East
Cambridge/Kendall Square Massachusetts area which are of like kind and quality
to the Building and have office uses, and with the same policy limits or such
higher policy limits as Landlord may reasonably determine; and

                        (ii)    "All Risk," property insurance on a one hundred
percent (100%) replacement cost basis, together with rental loss coverage and,
if the Building is located in a flood zone, flood coverage to the extent the
same is available, insuring the Building and its rental value and the Lot and
the common areas; and

                        (iii)   Insurance against loss or damage from sprinklers
and from leakage or explosions or cracking of boilers, pipes carrying steam or
water, or both, pressure vessels or similar apparatus, in the so-called "broad
form", in such amounts as are customary and commercially reasonable for
buildings in East Cambridge/Kendall Square Massachusetts area which are of like
kind and quality to the Building and have office uses, and insurance against
such other hazards and in such amounts as may from time to time be required by
any bank, insurance company or other lending institution holding a first
mortgage on the Building or the Lot.

All such insurance policies shall (i) be maintained with a responsible insurance
company, qualified to do business and in good standing in Massachusetts with a
Best's insurance rating of not less than A:X, and (ii) contain a waiver of
subrogation rights against Tenant, its agents, employees and representatives
which might arise for any reason with respect to the All Risk

                                     - 36 -


property insurance set forth in subsections (ii) and (iii) above. Landlord shall
provide certificates of the insurance described in this Section 5.1.6 before the
Commencement Date, and shall provide certificates evidencing renewal at least
ten (10) days before the expiration of such policy.

5.2     INTERRUPTIONS.

Landlord shall not be liable to Tenant for any compensation or reduction of rent
by reason of inconvenience or annoyance or for loss of business arising from
power losses or shortages or from the necessity of Landlord's entering the
Premises for any of the purposes in this Lease authorized, or for repairing the
Premises or any portion of the Building, the Lot, or any common facilities
appurtenant thereto. In case Landlord is prevented or delayed from making any
repairs, alterations or improvements, or furnishing any service or performing
any other covenant or duty to be performed on Landlord's part, by reason of any
cause beyond Landlord's reasonable control, Landlord shall not be liable to
Tenant therefor, nor shall Tenant be entitled to any abatement or reduction of
rent by reason thereof, nor shall the same give rise to a claim in Tenant's
favor that such failure constitutes actual or constructive total or partial,
eviction from the Premises.

Landlord reserves the right to stop any service or utility system when Landlord
reasonably deems necessary by reason of accident or emergency or until routine
or other maintenance or repairs have been completed. Except in case of emergency
repairs, Landlord will give Tenant reasonable advance written notice of any
contemplated stoppage and will use reasonable efforts to avoid unnecessary
inconvenience to Tenant by reason thereof.

Landlord also reserves the right to institute such policies, programs and
measures as may be necessary, required or expedient for the conservation or
preservation of energy or energy services or as may be necessary or required to
comply with applicable laws, codes, rules, regulations or standards.

Notwithstanding anything to the contrary contained in this Section 5.2, if the
Premises are not suitable for Tenant's business operations by reason of any
interruption in services required to be provided by Landlord and (a) such
interruption arises in whole or in substantial part from the negligent acts or
omissions of Landlord, its employees, contractors, agents, or representatives
and continues for thirty (30) consecutive days (provided Tenant has given
Landlord notice specifying such interruption within five (5) business days
following the commencement thereof), or (b) such interruption occurs for any
other reason, including for reasons beyond Landlord's reasonable control, and
continues for forty-five (45) consecutive days (provided Tenant has given
Landlord notice specifying such interruption within five (5) business days
following the commencement thereof), then Tenant's rent shall be equitably
abated beginning on the thirty-first (31st) day or forty-sixth (46th) day
following the commencement of such interruption, as applicable, to the extent of
interference with Tenant's use of the Premises, until the service is restored;
provided, however, Tenant shall not be entitled to the aforesaid rent abatement
if the interruption arises in whole or in substantial part from the acts or
omissions of Tenant or Tenant's employees, contractors, agents, representatives,
invitees or guests. The provisions of this paragraph shall not apply to
occurrences governed by Article VII.

                                     - 37 -


                                   ARTICLE VI

                               TENANT'S COVENANTS

6.1     TENANT'S COVENANTS DURING THE TERM.

Tenant covenants during the Term and such further time as Tenant occupies any
part of the Premises:

        6.1.1   TENANT'S PAYMENTS. To pay when due (a) all Annual Base Rent and
additional rent, (b) all taxes which may be imposed on Tenant's personal
property in the Premises (including, without limitation, Tenant's fixtures and
equipment) regardless to whomever assessed, (c) all charges by public utilities
for electricity, telephone (including service inspections therefor) and other
services rendered to the Premises not otherwise required hereunder to be
furnished by Landlord without charge, and (d) all charges to Landlord for
services rendered pursuant to Section 5.1.2 hereof. All charges, fees, monetary
obligations and other amounts payable by Tenant under this Lease other than
Annual Base Rent shall constitute "additional rent" hereunder.

        6.1.2   REPAIRS AND YIELDING UP. Except as otherwise provided in Article
VII and Section 5.1.3, to keep the Premises in good order, repair and condition,
reasonable wear and tear, damage by fire or other casualty or taking and damage
to the extent resulting from any failure of Landlord to perform its obligations
only excepted; and at the expiration or termination of this Lease peaceably to
yield up the Premises and all alterations and additions therein in such order,
repair and condition, first removing all goods and effects of Tenant and, to the
extent required by Section 3.5, any alterations and additions, and repairing all
damage caused by such removal and restoring the Premises and leaving them clean
and neat.

        6.1.3   OCCUPANCY AND USE. To use and occupy the Premises only for the
Permitted Use; not to injure or deface the Building, the Lot or any common
facilities appurtenant thereto; to keep the Premises clean and in a neat and
orderly condition; and not to permit in the Building any use thereof which is
improper, offensive, contrary to law or ordinances, or creates a nuisance or to
invalidate or increase the premiums for any insurance on the Building or its
contents or liable to render necessary any alteration or addition to the
Building; not to dump, flush, or in any way introduce any Hazardous Materials
into the septic, sewage or other waste disposal system serving the Premises, the
Lot or any common facilities appurtenant thereto; not to introduce, generate,
store, use or dispose of Hazardous Materials in, on or about the Premises, the
Lot or any common facilities appurtenant thereto; not to dispose of Hazardous
Materials from the Premises to any other location; to notify Landlord of any
incident which would require the filing of a notice under applicable federal,
state, or local law on the Premises, the Lot or any common facilities
appurtenant thereto; and to comply with all laws, regulations and orders of
governmental authorities, including without limitation those relating to zoning,
building, fire, health and safety, applicable to the Premises, the Lot or any
common facilities appurtenant thereto. As used herein, "Hazardous Materials"
shall mean and include, but shall not be limited to, any petroleum product and
all hazardous or toxic wastes or substances, any substances which because of
their quantitative concentration, chemical, radioactive, flammable, explosive,
infectious or other characteristics, constitute or may reasonably be expected to
constitute or

                                     - 38 -


contribute to a danger or hazard to public health, safety or welfare or to the
environment, including, without limitation, any asbestos (whether or not
friable) and any asbestos-containing materials, waste oils, solvents and
chlorinated oils, polychlorinated biphenyls (PCBs), toxic metals, etchants,
pickling and plating wastes, explosives, reactive metals and compounds,
pesticides, herbicides, radon gas, urea formaldehyde foam insulation and
chemical, biological and radioactive wastes, or any other similar materials or
any hazardous or toxic wastes or substances which are included under or
regulated by any federal, state or local law, rule or regulation (whether now
existing or hereafter enacted or promulgated, as they may be amended from time
to time) pertaining to environmental regulations, contamination, clean-up or
disclosures, and any judicial or administrative interpretation thereof,
including any judicial or administrative orders or judgments including, without
limitation, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, 42 U.S.C. Section 9601 et seq. ("CERCLA"); the Federal Resource
Conservation and Recovery Act, 42 U.S.C. Section 6901 et seq. ("RCRA");
Superfund Amendments and Reauthorization Act of 1986, Public Law No. 99-499
(signed into law October 17, 1986) ("SARA"); Toxic Substances Control Act, 15
U.S.C. Section 2601 et seq. ("TSCA"); Massachusetts Oil and Hazardous Material
Release Prevention and Response Act, M.G.L. c. 21E; Massachusetts Hazardous
Waste Management Act, M.G.L. c. 21C; the Hazardous Materials Transportation Act,
49 U.S.C. Section 1801 et seq.; or any other state superlien or environmental
clean-up or disclosure statutes (all such laws, rules and regulations being
referred to collectively as the "Environmental Laws"). Notwithstanding the
foregoing, Tenant may store and use, in compliance with all applicable legal
requirements, reasonable quantities of materials used in the ordinary course of
general office use such as cleaning detergents and copier supplies.

        6.1.4   RULES AND REGULATIONS. To comply with the Rules and Regulations
set forth in Exhibit C and all other reasonable Rules and Regulations hereafter
made by Landlord, of which Tenant has been given notice, for the care and use of
the Building and the Lot and their facilities and approaches, it being
understood that Landlord shall not be liable to Tenant for the failure of other
tenants of the Building to conform to such Rules and Regulations. All such Rules
and Regulations shall be nondiscriminatory in enforcement. Landlord shall,
however, have the right to change such Rules and Regulations and to waive any
one or more of them in the case of any one or more tenants in such circumstances
as shall not be arbitrary or which would result in unfair applications of the
rules and regulations to other tenants of the Building, and under such
circumstances such waiver as to one tenant shall not constitute a waiver as to
any other tenant.

        6.1.5   SAFETY APPLIANCES. To keep the Premises equipped with all safety
appliances required by law or ordinance or any other regulation of any public
authority and to procure all licenses and permits required because of Tenant's
use, and to do any work so required, it being understood that the foregoing
provisions shall not be construed to broaden in any way Tenant's Permitted Uses.
Tenant shall also comply with the requirements of all laws, orders and
regulations of all governmental authorities, Federal, State or Municipal, having
jurisdiction over the Premises or Building or the operation of Tenant's
business, and Tenant shall comply with any order or request of said authorities
respecting the operation of the Tenant's business or any condition caused
thereby.

                                     - 39 -


        6.1.6   ASSIGNMENT AND SUBLETTING.

                (a)     Tenant shall not assign, mortgage, pledge or otherwise
 transfer this Lease or make any sublease of the Premises, or permit occupancy
 of any part thereof by anyone other than Tenant (any such act being referred to
 herein as a "Transfer" and the other party with whom Tenant undertakes such act
 being referred to herein as a "Transferee") without the prior written consent
 of Landlord which shall not be unreasonably withheld or delayed.
 Notwithstanding the foregoing, Landlord may refuse consent in its sole
 discretion (a) to any Transfer to any governmental or quasi-governmental
 authority or agency, to a personnel or employment agency, to any entity in
 connection with use by or affiliation with a foreign government, to an entity
 that would use the Premises for the provision of social or clinical services,
 and to any existing tenant in the Building who has been in active negotiations
 with Landlord within the last ninety (90) days, (b) to any Transfer which would
 in Landlord's good faith opinion impair or harm the reputation or value of the
 Building, change the character of the Building or interfere or be inconsistent
 with the use and enjoyment of the Building by other tenants or prospective
 tenants, or (c) to any Transfer in connection with a proposed use other than
 the Permitted Use. In all other cases, Landlord agrees that it shall not
 unreasonably withhold its consent to any proposed Transfer of the Premises by
 Tenant, pending Landlord's satisfactory review of the information to be
 supplied by Tenant regarding, among other matters, all material terms of the
 proposed Transfer, the proposed Transferee's creditworthiness and prospects,
 its intended use of the Premises, and the compatibility of such use with the
 other tenants and the character of the Building as a first-class office
 building. Any request by Tenant for such consent shall be in writing and shall
 include the name of the proposed Transferee, the nature of its business and
 proposed use of the Premises, complete information as to its financial
 condition and prospects, and all material terms and conditions of the proposed
 Transfer. Tenant shall supply such additional information about the proposed
 Transfer and Transferee as the Landlord reasonably requests. Tenant shall
 reimburse Landlord for its reasonable legal and other reasonable out-of-pocket
 expenses in connection with any request for consent. If Tenant is a
 corporation, partnership, limited liability company or other business
 organization, the following matters shall constitute a Transfer: (i) the
 transfer of or issuance of ownership interests, whether in one transaction or a
 series, equaling fifty (50%) percent or more of the equity interests in Tenant,
 or (ii) a reduction of Tenant's assets to the point that this Lease constitutes
 a substantial portion of Tenant's assets.

                (b)     Notwithstanding the foregoing, Tenant may assign its
 entire interest under this Lease to a successor to Tenant by merger,
 consolidation or sale of all or substantially all of the assets of Tenant or
 any division of Tenant which is a separate legal entity (any such transaction
 with respect to Tenant or a division of Tenant, being hereinafter referred to
 as a "Merger") without the consent of Landlord, provided that all of the
 following conditions are satisfied and provided an Assumption Document
 (hereafter defined) is executed by Tenant and the assignee and delivered to
 Landlord prior to the effective date thereof: (i) Tenant is not in default
 under this Lease beyond any applicable grace or cure period, (ii) in the case
 of a Merger with respect to Tenant, Tenant's successor shall have a net worth
 which is at least equal to Tenant's net worth as of the date hereof, or in the
 case of a Merger with respect to a division of Tenant, Tenant shall have a net
 worth after such transaction which is at least equal to Tenant's net worth as
 of the date hereof and Tenant shall confirm to Landlord in writing its
 continuing liability hereunder, and (iii) Tenant shall give Landlord written
 notice at least 30 days prior to

                                     - 40 -


 the effective date of the proposed Merger. Tenant's notice to Landlord shall
 include information and documentation showing that each of the above conditions
 has been satisfied. In addition, notwithstanding the foregoing, Tenant may
 sublease all or a portion of the Premises to an Affiliate without Landlord's
 consent for so long as any such subtenant remains an Affiliate of the Tenant,
 provided that all of the following conditions are satisfied and provided an
 Assumption Document (hereafter defined) is executed by Tenant and the subtenant
 and delivered to Landlord prior to the effective date thereof: (i) Tenant is
 not in default under this Lease beyond any applicable grace or cure period, and
 (ii) Tenant shall give Landlord written notice at least 30 days prior to the
 effective date of the proposed subletting. Tenant's notice to Landlord shall
 include information and documentation showing that each of the other conditions
 have been satisfied and that the subtenant is an Affiliate. "Affiliate" shall
 mean an entity which controls, is controlled by, or is under common control
 with, Tenant. Any Transfer described in this paragraph is herein referred to as
 a "Permitted Transfer."

                (c)     Any Transfer shall specifically make applicable to the
 Transferee all of the provisions of this Section so that Landlord shall have
 against the Transferee all rights with respect to any further Transfer which
 are set forth herein. No Transfer (including without limitation a Permitted
 Transfer and any Transfer subsequent to a prior Transfer) shall affect the
 continuing primary liability of Tenant (including without limitation the
 originally named Tenant and any successor by assignment), which continuing
 primary liability shall be joint and several with each Transferee. No consent
 to any Transfer in a specific instance shall operate as a waiver in a
 subsequent instance. No Transfer shall be binding upon Landlord or its
 successors, unless Tenant shall deliver to Landlord a recordable instrument
 satisfactory to Landlord (an "Assumption Document") containing a covenant of
 assumption of all of the obligations of Tenant hereunder by the Transferee
 running to Landlord and all persons claiming by, through or under Landlord,
 provided that Landlord shall be under no obligation to recognize any subtenant
 upon termination of this Lease unless Landlord elects to consent to such
 recognition in Landlord's consent, which election may be made or withheld in
 Landlord's sole discretion. The Transferee's failure to execute such instrument
 shall not, however, release or discharge Transferee from its liability as a
 Transferee hereunder. Tenant shall not enter into any Transfer that provides
 for rental or other payment based on the net income or profits derived from the
 Premises. With respect to any Transfer other than a Permitted Transfer,
 Landlord shall be entitled to receive fifty percent (50%) of any consideration,
 however realized, which is received by Tenant on account of such Transfer in
 excess of the Annual Base Rent and additional rent reserved in this Lease
 applicable to the space being Transferred, after deducting therefrom all
 reasonable and customary expenses (including but not limited to bona fide
 brokerage fees, fit-up expenses, free rent periods, marketing costs and
 attorneys' fees) directly incurred by Tenant attributable to the Transfer
 (other than reimbursement of Landlord's reasonable review fees) ("Transfer
 Profit"). For purposes of calculating Transfer Profit, any bona fide amounts
 paid by the transferee for the transferor's movable personal property or
 intellectual property rights shall not be considered consideration. The
 provisions of this paragraph (c) apply equally to Permitted Transfers and
 Transfers for which Landlord's consent is required; provided, however, Landlord
 shall not be entitled to receive any Transfer Profit with respect to any
 Permitted Transfer.

                (d)     LANDLORD OPTION.

                                     - 41 -


                        (1)     RIGHT TO CANCEL. Notwithstanding any contrary
        provision of this Section 6.1.6 in connection with any proposed Transfer
        other than a Permitted Transfer, Landlord shall have an option
        ("Landlord's Right to Cancel") to cancel and terminate this Lease by
        notice to Tenant ("Cancellation Notice") if the request is to assign the
        Lease or to sublet all of the Premises; or, if the request is to sublet
        more than 30,000 square feet of rentable floor area but less than the
        entire Premises for 30 or more months, taking into account any extension
        options (or if less, the remainder of the Term), to cancel and terminate
        this Lease with respect to such portion. Landlord may exercise
        Landlord's Right to Cancel in a written notice given within twenty-one
        (21) days following the date Tenant gives Tenant's request to assign or
        sublet, and such cancellation or termination shall occur as of the
        commencement date of the proposed sublease or assignment. Landlord shall
        be deemed to have waived Landlord's Right to Cancel with respect to the
        assignment or sublease in question if Landlord has not given written
        notice of such cancellation within such twenty-one (21) day period.

        If Landlord exercises Landlord's Right to Cancel, then within ten (10)
        business days following the date Landlord gives the Cancellation Notice,
        Tenant may give notice to Landlord revoking its request for consent to
        the Transfer and certifying that Tenant will not proceed with the
        proposed Transfer. In the event Tenant timely gives such notice, Tenant
        shall not proceed with the Transfer, Landlord's Cancellation Notice will
        have no force or effect with respect to the Transfer request in question
        and the Lease will continue in full force and effect with respect to the
        premises subject to such request.

                        (2)     CANCELLATION. If Landlord exercises Landlord's
        option to cancel this Lease or any portion thereof as the case may be,
        Tenant shall surrender possession of the Premises, or the portion
        thereof, which is the subject of the option, as the case may be, on the
        date set forth in such notice in accordance with the provisions of this
        Lease relating to surrender of the Premises at the expiration of the
        Term, as if the Term had expired with respect to the Premises or portion
        thereof, as the case may be. If this Lease is cancelled as to a portion
        of the Premises only, (i) Annual Base Rent after the date of
        cancellation shall be abated on a pro rata basis, and (ii) Landlord
        shall have the right at Landlord's cost and expense to construct a
        demising wall between Tenant's remaining Premises and the premises for
        which the Lease was cancelled.

                (e)     Any agreement by which Tenant agrees to enter into or
 execute any Transfer at the direction of any other party without Landlord's
 consent, or assigns its rights in the income arising from any Transfer to any
 other party, shall itself constitute a Transfer hereunder.

                (f)     Any Transfer or attempted Transfer not in compliance
 with all of the terms and conditions set forth above shall be void, and shall
 be a default under this Lease.

                (g)     Notwithstanding any contrary provision of this Lease,
 Tenant shall have no right to assign this Lease or sublet all or any portion of
 the Premises and any such assignment or sublease shall be void unless on both
 (i) the date on which Tenant notifies Landlord of its intent to enter into any
 assignment or sublease and (ii) the date on which such assignment or sublease
 is to take effect, Tenant is not in default of any of its obligations under

                                     - 42 -


 this Lease beyond any applicable grace or cure period; provided, however, that
 Landlord shall retain the right to waive the provisions of this Section
 6.1.6(g).

                (h)     The acceptance by the Landlord of the payment of Annual
 Base Rent, additional rent or other charges following an assignment, subletting
 or other Transfer prohibited by this Section 6.1.6 shall not be deemed to be a
 consent by the Landlord to any such assignment, subletting or other Transfer,
 nor shall the same constitute a waiver of any right or remedy of the Landlord.

        6.1.7   INDEMNITY. To defend, with counsel reasonably approved by
Landlord, all actions against Landlord, Manager, any partner, member, trustee,
stockholder, officer, director, employee or beneficiary of Landlord or Manager,
holders of mortgages secured by the Premises or the Building or Lot and any
other party having an interest in the Premises ("Indemnified Parties") with
respect to, and to pay, protect, indemnify and save harmless, to the extent
permitted by law, all Indemnified Parties from and against, any and all
liabilities, losses, damages, out-of-pocket costs and expenses (including
reasonable attorneys' fees and expenses), causes of action, suits, claims,
demands or judgments of any nature to the extent (a) arising from Tenant's use
and occupancy of the Premises or any activity done or permitted or suffered to
be done by Tenant in, on, or about the Premises, (b) arising from any breach or
default by Tenant of its obligations under this Lease, (c) arising from any act
or omission of Tenant, its agents, employees, invitees or contractors or (d)
arising from the existence, use, generation, storage or disposal of Hazardous
Materials (as defined in Section 6.1.3 hereof) by or for Tenant or any agent,
employee, contractor, licensee, sublessee or invitee of Tenant on, in or about
the Premises, the Lot or any common facilities appurtenant thereto or any
surrounding area, including, without limitation, any and all actual losses,
liabilities, damages, costs, expenses (including reasonable attorneys' fees and
expenses), causes of action, suits, claims, demands or judgments of any nature
arising from or related to removal of or other remediation respecting any and
all Hazardous Materials.

        6.1.8   TENANT'S INSURANCE. To maintain the following insurance
throughout the Term: (i) "All Risk" or Special Form property insurance
including, but not limited to, fire, extended coverage, vandalism and malicious
mischief coverage upon all property owned by Tenant and located in the Building,
in the full replacement cost thereof; (ii) Extra Expense or, if applicable,
Business Income Insurance in an amount sufficient to reimburse Tenant for loss
of use of the Premises attributable to the prevention of access to the Building
or Premises as a result of the perils insured in clause (i) above; (iii)
Commercial General Liability Insurance to include personal injury, bodily
injury, property damage liability (with a broadening endorsement),
premises/operations, blanket contractual liability, in limits not less than Two
Million Dollars ($2,000,000.00) per occurrence, inclusive; the limit can be
satisfied through a combination of a primary general liability policy and an
umbrella liability policy; (iv) Workers' Compensation insurance with limits at
least as required by applicable law and Employers Liability insurance with
limits of at least $1,000,000 each accident, $1,000,000 each employee, and
$1,000,000 policy limit for disease; and (v) Business Interruption Insurance as
presently carried by Tenant or such higher amounts as Landlord may require. The
Landlord shall have the right from time to time to require additional insurance
or coverages or increase such minimum limits consistent with other first class
office buildings in the East Cambridge/Kendall Square area as Landlord may
require, upon notice to the Tenant, but not more than once per year; provided,
however, that

                                     - 43 -


Tenant shall have the right to self insure for any additional coverages if
Tenant has a minimum net worth of at least $75,000,000. Notwithstanding the
foregoing, the initial Tenant named herein shall have the right to self insure
with respect to the coverages set forth in clauses (ii) and (v) above.

        All insurance required to be carried by Tenant pursuant to this Section
6.1.8 may be provided under one or more blanket insurance policies covering
other locations and facilities operated by Tenant, provided that such blanket
policies otherwise comply with the provisions of this section and specifically
reserve to the Premises, Building, Lease and Tenant's obligations hereunder
coverages in the limits required hereunder.

        All policies shall be taken out, in form reasonably satisfactory to
Landlord, with Tenant's current insurance provider or may be taken out with a
responsible insurance company, qualified to do business and in good standing in
Massachusetts with a Best's insurance rating of not less than A:X, and shall (i)
include Landlord, Manager and any mortgagee of Landlord as additional insureds,
as their interests may appear, (ii) contain a waiver of any right of subrogation
against Landlord, its agents, employees, and representatives which might arise
for any reason, (iii) contain a cross-liability endorsement, and (iv) contain a
provision that any coverage afforded thereby shall be primary and
noncontributing with respect to any insurance carried by Landlord, and any
insurance carried by Landlord shall be excess and noncontributing. Tenant shall
provide certificates of insurance in form reasonably satisfactory to Landlord
before the Commencement Date, and shall provide certificates evidencing renewal
at least ten (10) days before the expiration of such policy. All policies shall
contain an endorsement requiring at least thirty (30) days' prior written notice
to Landlord and any mortgagee of Landlord prior to any material change,
reduction, cancellation or other termination.

        Upon termination of this Lease pursuant to any casualty, Tenant shall
immediately pay to Landlord any insurance proceeds received by Tenant relating
to the Landlord's Work and any alterations or improvements to the Premises,
unless Landlord has required their removal.

        6.1.9   INTENTIONALLY OMITTED.

        6.1.10  LANDLORD'S RIGHT OF ENTRY. To permit Landlord and Landlord's
agents entry: to examine the Premises at reasonable times and, upon reasonable
prior notice (except no prior notice is required in case of emergency) and, if
Landlord shall so elect, to make repairs or replacements; to remove, at Tenant's
expense, any changes, additions, signs, curtains, blinds, shades, awnings,
aerials, flagpoles, or the like which required, but for which Tenant never
obtained, Landlord's consent in writing, and which Tenant has not removed within
thirty (30) days after written notice from Landlord; and to show the Premises to
others upon reasonable advance notice. Landlord shall permit Tenant or its agent
to accompany Landlord when it enters the Premises pursuant to this Section and
shall use commercially reasonable efforts to accommodate Tenant's schedule in
light of the confidential materials Tenant intends to maintain at the Premises,
and Landlord shall use best efforts to protect and keep confidential the
confidential materials Tenant maintains at the Premises.

        6.1.11  LOADING. Not to place Tenant's Property, as defined in Section
6.1.13, upon the Premises so as to exceed a rate of eighty (80) pounds of live
load per square foot and not to move

                                     - 44 -


any safe, vault or other heavy equipment in, about or out of the Premises except
in such manner and at such times as Landlord shall in each instance approve.
Landlord agrees that prior to the Term Commencement Date Tenant may reinforce
the area of the Premises described in EXHIBIT F, subject to reasonable
conditions imposed by Landlord after review of all plans and specifications
which shall be prepared by Landlord's structural engineer at Tenant's expense,
and provided Tenant has obtained all required permits and licenses required from
all applicable governmental authorities. Such reinforcement work shall be
subject to the provisions of this Lease, including without limitation Sections
3.3, 3.4 and 3.5 and the provisions of Section 3.5 relating to access to the
second floor (west) of the Building in connection therewith. Tenant's business
machines and mechanical equipment which cause vibration or noise that may be
transmitted to the Building structure or to any other leased space in the
Building shall be placed and maintained by Tenant in settings of cork, rubber,
spring or other types of vibration eliminators sufficient to eliminate such
vibration or noise.

        6.1.12  LANDLORD'S COSTS. In case Landlord or Manager shall be made
party to any litigation commenced by or against Tenant or by or against any
parties in possession of the Premises or any part thereof claiming under Tenant,
Tenant agrees to pay, as additional rent, all actual out-of-pocket costs,
including, without implied limitation, reasonable counsel fees, incurred by or
imposed upon Landlord in connection with such litigation.

        6.1.13  TENANT'S PROPERTY. All the furnishings, fixtures, equipment,
effects and property of every kind, nature and description of Tenant and of all
persons claiming by, through or under Tenant (collectively, "Tenant's Property")
which, during the continuance of this Lease or any occupancy of the Premises by
Tenant or anyone claiming under Tenant, may be on the Premises or elsewhere in
the Building or on the Lot shall be at the sole risk and hazard of Tenant, and
if the whole or any part thereof shall be destroyed or damaged by fire, water or
otherwise, or by the leakage or bursting of water pipes, steam pipes, or other
pipes, by theft, or from any other cause, no part of said loss or damage is to
be charged to or to be borne by Landlord; provided however that the foregoing
shall not apply to any damage or destruction caused solely by the negligent acts
or omissions of Landlord, the Manager or their respective contractors,
employees, agents or invitees, this provision, however, remaining subject to the
waivers of claims by Tenant contained in Section 10.18.

        6.1.14  LABOR OR MATERIALMEN'S LIENS. To pay promptly when due the
entire cost of any work done on the Premises by or for Tenant, its agents,
employees or independent contractors; not to cause or permit any liens for labor
or materials performed or furnished in connection therewith to attach to the
Premises; and immediately to discharge or bond over any such liens which may so
attach.

        6.1.15  INTENTIONALLY DELETED.

        6.1.16  HOLDOVER. To pay to Landlord the greater of one hundred fifty
percent (150%) (such percentage to be 200% for the forty-fifth (45th) and all
subsequent days of holding over if Tenant holds over for more than forty-five
days) of (a) the then fair market monthly rent as reasonably determined by
Landlord or (b) the total monthly payments of Annual Base Rent and additional
rent (and all other sums otherwise due hereunder) applicable at the end of the
Term for each month or portion thereof Tenant shall retain possession of the
Premises or any part thereof

                                     - 45 -


after the termination of this Lease, whether by lapse of time or otherwise, and
also to pay all expenses and damages incurred or sustained by Landlord on
account thereof (such expenses and damages to exclude consequential and
incidental damages if the holding over is less than forty-five (45) days, and to
include consequential and incidental damages if the holding over is for
forty-five (45) days or more); the provisions of this subsection shall not
operate as a waiver by Landlord of the right of re-entry provided in this Lease.

        6.1.17  SECURITY. To indemnify, and save Landlord and Manager harmless
from any claim for injury to person or damage to property asserted by any
personnel, employee, guest, invitee or agent of Tenant which is suffered or
occurs in or about the Premises or in or about the Building or the Lot or the
common facilities appurtenant thereto by reason of the act of any intruder or
any other person in or about the Premises, the Building, the Lot or such common
facilities; except to the extent such injury or damage is caused solely by the
negligent acts or omissions of Landlord, this exception, however, remaining
subject to the waivers of claims by Tenant contained in Section 10.18.

        6.1.18  FINANCIAL STATEMENTS. To furnish to Landlord annually within
ninety (90) days of the end of each calendar year during the Term, Tenant's most
recent audited financial statements (including any notes to them) or, if no such
audited statements have been prepared, such other financial statements (and
notes to them) as may have been most recently prepared by an independent
certified public accountant or, if no such statements have been prepared,
current internally prepared financial statements in form acceptable to Landlord,
certified by Tenant's Chief Financial Officer. Tenant agrees that in the event
Tenant's corporate structure is altered through merger, acquisition or the like,
such that Tenant becomes a parent, division, or subsidiary of another corporate
entity, any and all financial statements delivered by Tenant pursuant to this
Section will contain financial information pertaining only to Tenant's
operations and not to any such parent, division, or subsidiary. The foregoing
shall not be deemed to constitute Landlord's consent to any Transfer or in any
way derogate from the provisions of Section 6.1.6. Tenant represents and
warrants that any financial statements provided by it to Landlord were true,
correct and complete when provided, and that no material adverse change has
occurred since that date which would render them inaccurate or misleading, and
each delivery of financial statements hereunder to Landlord shall be deemed a
representation and warranty that such statements are true, correct and complete
as of the date of delivery to Landlord. Without limitation of any other
obligation under this Lease, the parties agree that this Section 6.1.18 shall
apply to each person or entity which is liable to Landlord under this Lease. The
provisions of this Section 6.1.18 shall be inapplicable for as long as the
shares of Tenant's stock are listed or traded on a national securities exchange
and Tenant is in compliance with the periodic report filings required pursuant
to Section 13 of the Securities Exchange Act of 1934.

                                   ARTICLE VII

                               CASUALTY AND TAKING

7.1     CASUALTY AND TAKING.

In case during the Term all or any substantial part of the Premises, Building,
Lot or common facilities appurtenant thereto, or any one or more of them, are
damaged materially by fire or any

                                     - 46 -


other cause, or by action of the public or other authority in consequence
thereof or are taken by eminent domain or Landlord receives compensable damage
with respect thereto by reason of anything lawfully done in pursuance of public
or other authority (collectively, a "Casualty or Taking"), this Lease shall
terminate at Landlord's election, which may be made, notwithstanding Landlord's
entire interest may have been divested, by notice to Tenant within ninety (90)
days after the occurrence of the event giving rise to the election to terminate,
which notice shall specify the effective date of termination which shall be not
less than thirty (30) nor more than sixty (60) days after the date of notice of
such termination.

In case during the Term (a) all or a substantial portion of the Premises are
damaged or taken by a Casualty or Taking or (b) a sufficient portion of the
common areas are damaged or taken by a Casualty or Taking to preclude practical
access to the Premises, and in the case of either (a) or (b), as a result of
such damage or taking the Premises or a substantial portion thereof are rendered
unusable for the conduct of Tenant's business, and such damage is of a character
as cannot in Landlord's reasonable judgment reasonably be expected to be
repaired within twelve (12) months of the Casualty or Taking, then, so long as
Tenant is not in default of any of its obligations under the Lease beyond any
applicable grace or cure periods, this Lease shall terminate at Tenant's
election, which may be made, notwithstanding Tenant's entire interest may have
been divested, within thirty (30) days after Landlord's delivery to Tenant of
the estimate of the time period for such restoration. Landlord will provide such
estimate to Tenant within ninety (90) days following the Casualty or Taking. Any
such termination shall be effective on the date of the event giving rise to the
election.

If in any such case the Premises are rendered unfit for use and occupation for
the Permitted Uses and the Lease is not terminated, and Tenant is not then in
default of any of its obligations under the Lease beyond applicable grace and
cure periods, Landlord shall use due diligence to put that portion of the
Building containing the Premises, including Initial Tenant Improvements paid for
out of the Tenant Improvement Allowance, or, in case of a taking, what may
remain thereof (excluding any other items installed or paid for by Tenant) into
proper condition for use and occupation to the extent permitted by zoning and
other codes and regulations and by the net award of insurance or damages
available to and actually received by Landlord, plus any applicable deductible,
and a just proportion of the Annual Base Rent and additional rent according to
the nature and extent of the injury shall be abated until such portion of the
Building or such remainder shall have been put by Landlord in such condition;
and in case of a taking which permanently reduces the area of the Premises, a
just proportion of the Annual Base Rent and additional rent shall be abated for
the remainder of the Term and an appropriate adjustment shall be made to the
Annual Estimated Operating Expenses.

If neither party elects to terminate this Lease as provided herein, Tenant
shall, at its own cost and expense, repair and restore the Premises (exclusive
of the Initial Tenant Improvements paid for out of the Tenant Improvement
Allowance) in accordance with the provisions of Sections 3.3, 3.4 and 3.5,
including, but not limited to, the repairing and/or replacement of Tenant's
trade fixtures, furnishings and equipment in a manner and to at least a
condition equal to that prior to its damage or destruction. Tenant agrees to
commence the performance of its work within thirty (30) days after Tenant
receives written notification from Landlord that the work to be performed by
Tenant can, in accordance with good construction practices, then be commenced
and Tenant shall complete such work as promptly thereafter as is practicable.

                                     - 47 -


Notwithstanding any other provision hereof, in the event of any taking of the
Premises or any part thereof for temporary use, this Lease shall be and remain
unaffected thereby and rent shall equitably abate for the period of such taking
to the extent Tenant is unable to use, occupy or access the Premises or any
portion thereof.

7.2     RESERVATION OF AWARD.

Landlord reserves to itself any and all rights to receive awards made for
damages to the Premises, Building, Lot or common facilities appurtenant thereto
and the leasehold hereby created, or any one or more of them, accruing by reason
of exercise of eminent domain or by reason of anything lawfully done in
pursuance of public or other authority. Tenant hereby releases and assigns to
Landlord all Tenant's rights to such awards, and covenants to deliver such
further assignments and assurances thereof as Landlord may from time to time
request. It is agreed and understood, however, that Landlord does not reserve to
itself, and Tenant does not assign to Landlord, any damages payable for (i)
movable trade fixtures installed by Tenant or anybody claiming under Tenant, at
its own expense or (ii) relocation expenses recoverable by Tenant from such
authority in a separate action; provided and only to the extent that, in the
case of both (i) and (ii), such damages payable to Tenant do not reduce the
award otherwise available to Landlord.

                                  ARTICLE VIII

                      RIGHTS OF MORTGAGEE AND GROUND LESSOR

8.1     PRIORITY OF LEASE.

Provided that Landlord delivers to Tenant a Non Disturbance Agreement (hereafter
defined), this Lease shall be subject and subordinate to any mortgage
("Mortgage") or ground lease ("Ground Lease") now or hereinafter placed on or
affecting the Lot, the Building, or both, or any portion or portions thereof or
interest therein, which are separately and together hereinafter in this Article
VIII referred to as the "affected premises," and to each advance made or
hereafter to be made under any Mortgage, and to all renewals, modifications,
consolidations, replacements and extensions thereof and all substitutions of any
Mortgage or Ground Lease.

        In the event that any mortgagee or its successor in title or any ground
lessor shall succeed to the interest of Landlord, then Tenant shall and does
hereby agree to attorn to such mortgagee or successor or ground lessor and to
recognize such mortgagee or successor or ground lessor as its Landlord. Any
claim by Tenant under the Lease against the mortgagee or such successor shall be
satisfied solely out of the mortgagee's or such successor's or ground lessor's
interest in the Premises and Tenant shall not seek recovery against or out of
any other assets of mortgagee or such successor or ground lessor.

        "Non disturbance Agreement" shall mean an agreement substantially in the
form attached hereto as Exhibit K.

        Simultaneously with the execution of this Lease, Landlord shall deliver
a Non Disturbance Agreement from each existing mortgagee and ground lessor.

                                     - 48 -


8.2     RIGHTS OF MORTGAGEE AND GROUND LESSOR TO CURE.

No act or failure to act on the part of Landlord which would entitle Tenant,
under the terms of this Lease or as a matter of law, to be released from
Tenant's obligations hereunder or to terminate this Lease shall result in a
release of such obligations or a termination of this Lease unless Tenant first
gives written notice of and a specific description of Landlord's act or failure
to act to Landlord's mortgagees and ground lessors of whom Tenant has been given
written notice, if any, and such mortgagee and ground lessor fail to cure such
default within thirty (30) days after receipt of such notice. However, if such
cure reasonably requires more than thirty days to effect, such mortgagee and
ground lessor shall have such additional time as is reasonably necessary in the
circumstances, including time to take possession of the Property. This Section
shall not impose any obligation on any such mortgagee or ground lessor. Tenant's
execution of estoppel certificates, nondisturbance agreements or similar
agreements which identify Landlord's mortgagee or ground lessor shall be deemed
to be notice to Tenant hereunder.

                                   ARTICLE IX

                                     DEFAULT

9.1     EVENTS OF DEFAULT.

If Tenant fails to pay any installment of Annual Base Rent when due, and such
default continues for seven (7) business days after notice from Landlord
(provided that Tenant shall be entitled to such notice and seven-day grace
period for only the first two such defaults in any twelve-month period), or if
Tenant fails to pay any installment of additional rent or any other monetary
obligation to Landlord when due, and such default continues for ten (10) days
following notice from Landlord, or if any representation or warranty of Tenant
is not true in all material respects when made, or if Tenant fails to provide an
estoppel certificate to Landlord within the time period provided and otherwise
in accordance with Section 10.9 hereof, and such failure continues for five (5)
business days after a second request to have the certificate provided by Tenant
is given, which to be effective, such second notice must have at the top, in
bold type face and in a font greater than the rest of the notice, the following
statement: "Important Notice: Failure to respond within five (5) business days
may lead to an Event of Default under your Lease for 55 Cambridge Parkway,
Cambridge, MA," and continues for three (3) business days after a third request
to have the certificate provided by Tenant is given, which to be effective, such
third notice must have at the top, in bold type face and in a font greater than
the rest of the notice, the following statement: "Important and Final Notice:
Failure to respond within three (3) business days will constitute an Event of
Default under your Lease for 55 Cambridge Parkway, Cambridge, MA," or if Tenant
fails to timely procure and maintain any insurance as required by any provision
of this Lease, or if Tenant assigns this Lease or subleases any portion of the
Premises in violation of Section 6.1.6, or if any other default under this Lease
continues for more than thirty (30) days after notice, or such longer period as
may be reasonably necessary to cure such default so long as Tenant commences
such cure within such thirty (30) day period and thereafter diligently pursues
such cure to completion (but in no event shall the aggregate cure period exceed
one hundred twenty (120) days); or if Tenant becomes insolvent, fails to pay its
debts as they fall due, files a petition under any chapter of the U.S.
Bankruptcy Code, 11 U.S.C. 101 et seq., as it may be amended (or any similar
petition under any insolvency law of

                                     - 49 -


any jurisdiction), or if such petition is filed against Tenant; or if Tenant
proposes any dissolution, liquidation, composition, financial reorganization or
recapitalization with creditors, makes an assignment or trust mortgage for
benefit of creditors, or if a receiver, trustee, custodian or similar agent is
appointed or takes possession with respect to any property of Tenant; or if the
leasehold hereby created is taken on execution or other process of law in any
action against Tenant or if a default (beyond any applicable notice and cure
period) shall occur under any First Offer Lease (each of the foregoing being
referred to herein as an "Event of Default"); then, and in any such case, or in
the case of any other Event of Default so identified in this Lease, Landlord and
the agents and servants of Landlord may, in addition to and not in derogation of
any remedies for any preceding breach of covenant, immediately or at any time
thereafter while such default continues and remains uncured and without further
notice, at Landlord's election, do any one or more of the following: (1) give
Tenant written notice stating that the Lease is terminated, effective upon the
giving of such notice or upon a date stated in such notice, as Landlord may
elect, in which event the Lease shall be irrevocably extinguished and terminated
as stated in such notice without any further action, and (2) with or without
process of law, enter and repossess the Premises as of Landlord's former estate,
and expel Tenant and those claiming through or under Tenant, and remove its and
their effects, without being guilty of trespass, in which event the Lease shall
be irrevocably extinguished and terminated at the time of such entry, and (3)
pursue any other rights or remedies permitted by law. Any such termination of
the Lease shall be without prejudice to any remedies which might otherwise be
used for arrears of rent or prior breach of covenant, and in the event of such
termination Tenant shall remain liable under this Lease as hereinafter provided.
Tenant hereby waives all statutory rights (including, without limitation, rights
of redemption, if any) to the extent such rights may be lawfully waived, and
Landlord, without notice to Tenant, may store Tenant's effects and those of any
person claiming through or under Tenant at the expense and risk of Tenant and,
if Landlord so elects, may sell such effects at public auction or private sale
and apply the net proceeds to the payment of all sums due to Landlord from
Tenant, if any, and pay over the balance, if any, to Tenant.

9.2     TENANT'S OBLIGATIONS AFTER TERMINATION.

In the event that this Lease is terminated under any of the provisions contained
in Section 9.1 or shall be otherwise terminated for breach of any obligation of
Tenant, Tenant covenants to pay forthwith to Landlord, as compensation, the
excess of the total rent reserved for the residue of the Term over the fair
market rental value of the Premises for said residue of the Term as determined
by Landlord in good faith. In calculating the rent reserved, there shall be
included, in addition to the Annual Base Rent and all additional rent, the value
of all other consideration agreed to be paid or performed by Tenant for said
residue. Tenant further covenants as an additional and cumulative obligation
after any such ending to pay punctually to Landlord all the sums (including
without limitation, Annual Base Rent and additional rent) and perform all the
obligations which Tenant covenants in this Lease to pay and to perform in the
same manner and to the same extent and at the same time as if this Lease had not
been terminated. In calculating the amounts to be paid by Tenant under the
immediately preceding sentence, Tenant shall be credited with any amount paid to
Landlord as compensation as provided in the first sentence of this Section 9.2
and also with the net proceeds of any rents obtained by Landlord by reletting
the Premises, after deducting all Landlord's expenses in connection with such
reletting, including, without implied limitation, all repossession costs,
brokerage commissions, fees for legal services and expenses of preparing the
Premises for such reletting, it being agreed by Tenant that

                                     - 50 -


Landlord may (i) relet the Premises or any part or parts thereof for a term or
terms which may at Landlord's option be equal to or less than or exceed the
period which would otherwise have constituted the balance of the Term and may
grant such concessions and free rent as Landlord in good faith considers
advisable or necessary to relet the same and (ii) make such alterations, repairs
and decorations in the Premises as Landlord in good faith considers advisable or
necessary to relet the same, and no action of Landlord in accordance with the
foregoing or failure to relet or to collect rent under reletting shall operate
or be construed to release or reduce Tenant's liability as aforesaid. Landlord
shall use reasonable efforts to relet the Premises.

In lieu of full recovery by Landlord of all sums payable under the foregoing
provisions of this Section 9.2, Landlord may by written notice to Tenant, at any
time after this Lease is terminated under any of the provisions contained in
Section 9.1, or is otherwise terminated for breach of any obligation of Tenant
and before such full recovery, elect to recover and Tenant shall thereupon pay,
as liquidated damages, an amount equal to the sum of (A) the amount of Annual
Base Rent and additional rent of any kind accrued and unpaid at the time of
termination, plus (B) an amount equal to the product of (x) twelve (12) (or if
less, the number of months which would have otherwise remained in the Term)
multiplied by (y) the aggregate of the Annual Base Rent and additional rent
accrued under Article IV in the month ended next prior to such termination.

Nothing contained in this Lease shall, however, limit or prejudice the right of
Landlord to prove and obtain in proceedings for bankruptcy or insolvency by
reason of the termination of this Lease, an amount equal to the maximum allowed
by any statute or rule of law in effect at the time when, and governing the
proceedings in which, the damages are to be proved, whether or not the amount be
greater, equal to, or less than the amount of the loss or damages referred to
above.

                                    ARTICLE X

                                  MISCELLANEOUS

10.1    NOTICE OF LEASE.

Upon request of either party, both parties shall execute and deliver, after the
Term begins, a statutory notice of this Lease in form appropriate for recording
or registration, and if this Lease is terminated before the Term expires, an
instrument in such form acknowledging the date of termination.

10.2    NOTICES FROM ONE PARTY TO THE OTHER.

All notices required or permitted hereunder shall be in writing and addressed,
if to the Tenant, at Tenant's Address set forth in Section 1.1 or such other
address as Tenant shall have last designated by notice in writing to Landlord
and, if to Landlord, at Landlord's & Manager's Address set forth in Section 1.1
or such other addresses as Landlord shall have last designated by notice in
writing to Tenant. Any notice shall have been deemed duly given if mailed to
such address postage prepaid, registered or certified mail, return receipt
requested, three business days after the same is deposited with the U.S. Postal
Service, or if delivered to such address by hand, when delivery is first
attempted, or if sent by nationally recognized overnight courier service,

                                     - 51 -


fees prepaid, on the first business day after the date deposited with such
courier service, or if transmitted by facsimile with confirmatory original by
one of the other methods of delivery herein described, on the date so
transmitted by facsimile.

10.3    BIND AND INURE.

The obligations of this Lease shall run with the land, and this Lease shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Landlord named herein and each
successive owner of the Premises shall be liable only for the obligations
accruing during the period of its ownership.

10.4    LIMITATION ON LIABILITY.

        10.4.1  The obligations of Landlord do not constitute personal
obligations of the trustees, partners, directors, officers or shareholders of
Landlord, Landlord's beneficiary or any constituent partner of Landlord's
beneficiary, and Tenant shall not seek recourse against the trustees, partners,
directors, officers or shareholders of Landlord, Landlord's beneficiary or any
constituent partner of Landlord's beneficiary or any of their personal assets
for satisfaction of any liability with respect to this Lease or otherwise.

        10.4.2  Tenant's sole and exclusive remedy shall be against the
Landlord's interest in the Building and Lot and the rents and profits therefrom,
including insurance proceeds, eminent domain awards, and the proceeds of any
sale of the Building or Lot.

        10.4.3  Neither Landlord's beneficiary not any constituent partner of
Landlord's beneficiary shall be sued, named as a party in any suit or action, or
served with process therein, and neither Landlord's beneficiary nor any
constituent partner of Landlord's beneficiary shall be required to respond to
any service of process.

        10.4.4  No judgment will be taken against Landlord's beneficiary or any
constituent partner of Landlord's beneficiary, and no writ of execution will be
levied against the assets of Landlord's beneficiary or any such partner; no
personal judgment will be taken against Landlord's trustee, and no writ of
execution will be leveled against the personal assets of Landlord's trustee.

        10.4.5  These covenants and agreements are enforceable both by Landlord
and also by Landlord's trustee and beneficiary, and any constituent partner of
Landlord's beneficiary and shall bind Tenant and its successors and assigns.

        10.4.6  In no event shall either party be liable to the other for any
incidental, indirect, special or consequential damages, except that Tenant shall
be liable for such damages to the extent set forth in Section 6.1.16 with
respect to holding over by Tenant.

10.5    NO SURRENDER.

The delivery of keys to any employee of Landlord or to Manager or any employee
or agent thereof shall not operate as a termination of this Lease or a surrender
of the Premises. No act by

                                     - 52 -


Landlord or Manager or any employee or agent thereof shall be deemed an
acceptance of a surrender of the Premises.

10.6    NO WAIVER, ETC.

The failure of either party to seek redress for violation of, or to insist upon
the strict performance of any covenant or condition of this Lease shall not be
deemed a waiver of such violation nor prevent a subsequent act, which would have
originally constituted a violation, from having all the force and effect of an
original violation, nor shall the failure of Landlord to enforce any of the
Rules and Regulations against any other tenant in the Building be deemed a
waiver of any such Rules or Regulations. The receipt by Landlord of Annual Base
Rent or additional rent with knowledge of the breach of any covenant of this
Lease shall not be deemed a waiver of such breach by Landlord, unless such
waiver be in writing and signed by Landlord. No consent or waiver, express or
implied, by either party to or of any breach of any agreement or duty shall be
construed as a waiver or consent to or of any other breach of the same or any
other agreement or duty.

10.7    NO ACCORD AND SATISFACTION.

No acceptance by Landlord of a lesser sum than the Annual Base Rent and
additional rent then due shall be deemed to be other than on account of the
earliest installment of such rent due, nor shall any endorsement or statement on
any check or any letter accompanying any check or payment as rent be deemed as
accord and satisfaction, and Landlord may accept such check or payment without
prejudice to Landlord's right to recover the balance of such installment or
pursue any other remedy in this Lease provided.

10.8    CUMULATIVE REMEDIES.

The specific remedies to which Landlord may resort under the terms of this Lease
are cumulative and are not intended to be exclusive of any other remedies or
means of redress to which it may be lawfully entitled in case of any breach or
threatened breach by Tenant of any provisions of this Lease. In addition to the
other remedies provided in this Lease, Landlord shall be entitled to the
restraint by injunction of the violation or attempted or threatened violation of
any of the covenants, conditions or provisions of this Lease or to a decree
compelling specific performance of any such covenants, conditions or provisions.

The specific remedies to which Tenant may resort under the terms of this Lease
are cumulative and are not intended to be exclusive of any other remedies or
means of redress to which it may be lawfully entitled in case of any breach or
threatened breach by Landlord of any provisions of this Lease. In addition to
the other remedies provided in this Lease, Tenant shall be entitled to the
restraint by injunction of the violation or attempted or threatened violation of
any of the covenants, conditions or provisions of this Lease or to a decree
compelling specific performance of any such covenants, conditions or provisions.
Notwithstanding the forgoing, this paragraph shall not apply to defaults by
Landlord for which a remedy by Tenant is specified in this Lease to be the sole
or exclusive remedy for such default, and to this paragraph shall not be deemed
to create any remedies or means of redress for Tenant which are otherwise
excluded in this Lease.

                                     - 53 -


10.9    LANDLORD'S RIGHT TO CURE.

If Tenant shall at any time default in the performance of any obligation under
this Lease, then following the applicable "Delay Period" (as set forth below),
if any, Landlord shall have the right, but shall not be obligated, to enter upon
the Premises and to perform such obligation, notwithstanding the fact that no
specific provision for such substituted performance by Landlord is made in this
Lease with respect to such default. In performing such obligation, Landlord may
make any payment of money or perform any other act as Landlord deems advisable.
All sums paid by Landlord (together with interest at the Default Interest Rate)
and all incidental costs and expenses in connection with the performance of any
such act by Landlord (together with interest at the Default Interest Rate),
shall be deemed to be additional rent under this Lease and shall be payable to
Landlord immediately on demand. Landlord may exercise the foregoing rights
without waiving any other of its rights or releasing Tenant from any of its
obligations under this Lease. There shall be no Delay Period in any circumstance
or situation in which Landlord believes in good faith that there is an imminent
threat of injury or damage to the Building (or the systems or structure thereof)
or people or Landlord's interest in the Building and Lot. The Delay Period shall
be five (5) business days after notice to Tenant specifying the subject default
in any circumstance or situation in which Tenant's default directly results in
the annoyance to or interference with any other occupant's use and enjoyment of
the Building. The Delay Period shall be the cure period specified in Section 9.1
for the subject default in all other circumstances and situations.

10.10   ESTOPPEL CERTIFICATE.

Tenant agrees, from time to time, upon not less than ten (10) days' prior
written request by Landlord, to execute, acknowledge and deliver to Landlord a
statement in writing in the form attached hereto as Exhibit E, or in such other
reasonable form as may be requested by Landlord, certifying that this Lease is
unmodified and in full force and effect; that Tenant has no defenses, offsets or
counterclaims against its obligations to pay the Annual Base Rent and additional
rent and to perform its other covenants under this Lease; that there are no
uncured defaults of Landlord or Tenant under this Lease (or, if there have been
modifications, that this Lease is in full force and effect as modified and
stating the modifications, and, if there are any defenses, offsets,
counterclaims, or defaults, setting them forth in reasonable detail); the dates
to which the Annual Base Rent, additional rent and other charges have been paid;
and any other information reasonably requested by Landlord. Any such statement
delivered pursuant to this Section 10.10 shall be in a form reasonably
acceptable to and may be relied upon by Landlord, or any prospective purchaser,
mortgagee or ground lessor of premises which include the Premises or any portion
thereof or any prospective assignee of any such mortgagee or ground lessor.
Reference is hereby made to Section 10.14 with respect to modifications of the
Lease.

10.11   ACTS OF GOD.

In any case where Landlord or Tenant is required to do any act, delays caused by
or resulting from Acts of God, war, civil commotion, fire, flood or other
casualty, labor difficulties, shortages of labor, materials or equipment,
government regulations, unusually severe weather, or other causes beyond such
party's reasonable control shall not be counted in determining the time during
which work shall be completed, whether such time be designated by a fixed date,
a fixed

                                     - 54 -


time or a "reasonable time", and such time shall be deemed to be extended by the
period of such delay. The provisions of this Section 10.11 shall not apply to
monetary obligations of Tenant.

10.12   BROKERAGE.

Tenant and Landlord each represents and warrants to the other that it dealt with
no brokers in connection with this transaction other than the Broker, as
designated in Section 1.1, and agrees to defend, with counsel approved by the
other, indemnify and save the other harmless from and against any and all cost,
expense or liability in the event such representation in false or alleged to be
false.

10.13   SUBMISSION NOT AN OFFER.

The submission of a draft of this Lease or a summary of some or all of its
provisions, or the acceptance of a letter of intent to lease, does not
constitute an offer to lease or demise the Premises or bind the Landlord and
Tenant, it being understood and agreed that neither Landlord nor Tenant shall be
legally bound with respect to the leasing of the Premises unless and until this
Lease in form satisfactory to Landlord and Tenant, each in its sole discretion,
has been executed by both Landlord and Tenant and a fully executed copy has been
delivered to each of them.

10.14   APPLICABLE LAW AND CONSTRUCTION.

This Lease shall be governed by and construed in accordance with the laws of the
Commonwealth of Massachusetts. If any term, covenant, condition or provision of
this Lease or the application thereof to any person or circumstances shall be
declared invalid or unenforceable by the final ruling of a court of competent
jurisdiction having final review, the remaining terms, covenants, conditions and
provisions of this Lease and their application to other persons or circumstances
shall not be affected thereby and shall continue to be enforced and recognized
as valid agreements of the parties, and in the place of such invalid or
unenforceable provision, there shall be substituted a like, but valid and
enforceable provision which comports to the findings of the aforesaid court and
most nearly accomplishes the original intention of the parties.

There are no oral or written agreements between Landlord and Tenant affecting
this Lease. Landlord has made no representation or warranty regarding the
Building, the Premises, the Lot or the subject matter of this Lease except as
may be expressly set forth herein. This Lease may be amended, and the provisions
hereof may be amended or modified, only by a separate written instrument signed
by both Landlord and Tenant, which instrument is titled "Lease Amendment" (or
words of similar import) and recites that such instrument is an amendment to the
Lease. In addition, neither party may waive any of its rights or options under
this Lease unless such waiver is set forth in a separate written instrument
signed by the party so waiving its rights or options, which instrument is titled
"Lease Waiver" (or word of similar import) and also explicitly recites that such
instrument is a waiver. Accordingly, any provision contained in any estoppel
certificate, any consent, approval or similar instrument which has the effect of
amending, modifying or waiving - as opposed to confirming the existence of - any
of Tenant's rights, options or obligations under the Lease shall NOT be
effective and binding on Landlord or Tenant unless such provision is also
contained in a separate written lease amendment or lease waiver that complies
with the foregoing requirements; notwithstanding the foregoing, however, Tenant

                                     - 55 -


acknowledges that Landlord or any current or prospective purchaser, ground
Lessor or mortgagee of the Premises shall be entitled to rely on the accuracy of
any factual statement made by Tenant in any estoppel certificate, consent,
approval or similar instrument, as the case may be; and that any Non-Disturbance
Agreement (defined in Section 8.1) executed by Tenant shall be fully effective
in accordance with its terms (provided further than any Non-Disturbance
Agreement shall not amend or modify the Lease as between Tenant and Landlord,
but shall only be effective and modify or amend the Lease as between Tenant and
Lender, Successor Landlord (as defined in Exhibit K) and their successors and
assigns, and for a lease modification of amendment to be effective as between
Landlord and Tenant, it must be made pursuant to the provisions above).

The titles of the several Articles and Sections contained herein are for
convenience only and shall not be considered in construing this Lease.

Unless repugnant to the context, the words "Landlord" and "Tenant" appearing in
this Lease shall be construed to mean those named above and their respective
heirs, executors, administrators, successors and assigns, and those claiming
through or under them respectively. If there be more than one tenant, the
obligations imposed by this Lease upon Tenant shall be joint and several.

10.15   AUTHORITY

        10.15.1         AUTHORITY OF TENANT

Tenant represents and warrants to Landlord (which representations and warranties
shall survive the delivery of this Lease) that: (a) Tenant (i) is duly
organized, validly existing and in good standing under the laws of its state of
incorporation or creation, (ii) has the corporate or other power and authority
to carry on businesses now being conducted and is qualified to do business in
every jurisdiction where such qualification is necessary, and (iii) has the
corporate or other power to execute and deliver and perform its obligations
under this Lease, and (b) the execution, delivery and performance by Tenant of
its obligations under this Lease have been duly authorized by all requisite
corporate or other action and will not violate any provision of law, any order
of any court or other agency of government, the corporate charter or by-laws or
other governing documents of the Tenant or any indenture, agreement or other
instrument to which it is a party or by which it is bound. Contemporaneously
with Tenant's execution and delivery of this Lease, Tenant shall furnish to
Landlord written evidence of such authorization.

        10.15.2         AUTHORITY OF LANDLORD

Landlord represents and warrants to Tenant (which representations and warranties
shall survive the delivery of this Lease), that: (a) Landlord (i) is duly
organized, validly existing and in good standing under the laws of its state of
incorporation or creation, (ii) has the corporate or other power and authority
to carry on business now being conducted and is qualified to do business in
every jurisdiction where such qualification is necessary, and (iii) has the
corporate or other power to execute and deliver and perform its obligations
under this Lease, and (b) the execution, delivery and performance by Landlord of
its obligations under this Lease have been duly authorized by all requisite
corporate or other action and will not violate any provision of law, any

                                     - 56 -


order of any court or other agency of government, the corporate charter or
by-laws or other governing documents of Landlord or any indenture, agreement or
other instrument to which it is a party or by which it is bound.
Contemporaneously with Landlord's execution and delivery of this Lease, Landlord
shall furnish to Tenant written evidence of such authorization.

10.16   CONFIDENTIALITY.

Tenant acknowledges that the terms and conditions of this Lease are to remain
confidential for the Landlord's benefit, and may not be disclosed by Tenant to
anyone (other than to Tenant's attorneys, accountants and creditors as necessary
for Tenant to conduct its business), by any manner or means, directly or
indirectly, without Landlord's prior written consent. The consent by the
Landlord to any disclosures shall not be deemed to be a waiver on the part of
the Landlord of any prohibition against any future disclosure.

10.17   LANDLORD'S FEES; ENFORCEMENT COSTS.

Whenever Tenant requests Landlord to take any action or give any consent
required or permitted under this Lease, Tenant will reimburse Landlord for
Landlord's reasonable and actual out-of-pocket costs incurred in reviewing the
proposed action or consent, including without limitation reasonable attorneys',
engineers' or architects' fees, upon demand. Tenant will be obligated to make
such reimbursement without regard to whether Landlord consents to any such
proposed action.

If either party institutes a suit against the other for violation of or to
enforce any covenant or condition of this Lease, or if either party intervenes
in any suit in which the other is a party to enforce or protect its interest or
rights, the prevailing party shall be entitled to all of its reasonable costs
and expenses, including without limitation, reasonable attorneys' fees and
expenses in or out of litigation, and, if in litigation, trial or appellate
proceedings expended or incurred in connection therewith, as determined by a
court of competent jurisdiction

10.18   WAIVER OF SUBROGATION

Notwithstanding any provision of this Lease to the contrary, Landlord and Tenant
each hereby waive any and all right of recovery which it may have against the
other party and its agents, employees, licensees and contractors for any loss or
damage to the Building, Premises or anything therein, and for any injury to or
death of persons occurring in, on or about the Building or Premises, from any
hazard which is covered under an "all risk" property insurance policy required
to be carried hereunder by such waiving party (or which would have been covered
had such policy been carried), or, if providing greater coverage, any "all risk"
property insurance policy actually carried by such waiving party; provided the
waiver herein shall not extend to any loss in excess of the coverage limit of
such insurance policies or the deductible under such insurance policies. The
foregoing waiver shall also be in effect with respect to any hazards which
Tenant self-insures against pursuant to the provisions of this Lease. The waiver
set forth herein shall be in effect notwithstanding that any such loss or damage
may result from the negligence or other fault by the party benefiting from the
waiver. In the event that an extra premium is payable by either party as a
result of this provision, the other party shall reimburse the party paying such
premium the amount of such extra premium. If, at the request of one

                                     - 57 -


party, this release and non-subrogation provision is waived, then the obligation
of reimbursement shall cease for a period of time as such waiver shall be
effective. If the release of either party provided above shall contravene any
law with respect to exculpatory agreements, the liability of the party for whose
benefit such release was intended shall remain but shall be secondary to that of
the other party's insurer.

EXECUTED as a sealed instrument in two or more counterparts on the day and year
first above written.

                                  LANDLORD:


                                  /s/ John A. Pirovano
                                  ---------------------------------------
                                  John A. Pirovano, as Trustee of the CC&F
                                  Cambridge Parkway Trust, and not individually


                                  TENANT:

                                  Genzyme Corporation


                                  By:    /s/ Evan Lebson
                                         --------------------------------
                                  Name:  Evan Lebson
                                  Title: Treasurer
                                  Hereunto duly authorized

                                     - 58 -


                                    EXHIBIT A

                               DESCRIPTION OF LOT

        A parcel of land on the northwesterly side of Cambridge Parkway in
Cambridge, Middlesex County, Massachusetts shown as Lot A on a plan entitled
"Plan of Land of Trustees of Real Estate Investment Trust of America, Cambridge,
Ma." dated October 13, 1982, prepared by Raymond C. Pressey, Inc., and recorded
in Middlesex South District Registry of Deeds in Book 15241, Page 351, and
bounded and described according to said plan as follows:

SOUTHEASTERLY          by Cambridge Parkway three hundred eighty-four and fifty
                       hundredths (384.50) feet;

SOUTHWESTERLY          by the other land of Real Estate Investment Trust of
                       America, one hundred seventy-five (175.00) feet;

NORTHWESTERLY          by Commercial Avenue, three hundred eighty-four and
                       fifty hundredths (384.50) feet; and

NORTHEASTERLY          by land now or formerly of the City of Cambridge, as
                       more particularly described in an order of taking
                       recorded in Middlesex South District Registry of Deeds
                       in Book 14159, Page 51, one hundred seventy-five (175.00)
                       feet.

                                     - 59 -


                                   EXHIBIT A-1

                              PLAN SHOWING PREMISES

                               (Follows this Page)

                                     - 60 -


                                    EXHIBIT B

                                 LANDLORD'S WORK

        The following main lobby improvements will be substantially completed by
October 30, 2002 substantially in accordance with design specifications or
renderings therefore previously delivered to Tenant:

        1.   Install new security desk.

        2.   Upgrade general seating area.

        3.   Install new building directory signage identifying Tenant and
             others.

        4.   Replace fabric on panels.

        5.   Install new carpet.

        6.   In first floor Men's Room, lower urinal to comply with ADA.

        In addition, Landlord shall paint and carpet the elevator lobby on each
office floor, substantially in accordance with design specifications or
renderings previously delivered to Tenant. Such work shall be substantially
completed within sixty (60) days after the Term Commencement Date.

        In addition, Landlord will remove the underground storage tank located
under the loading dock within one year following the Term Comment Date in
compliance with applicable law at Landlord's cost and expense.

                                     - 61 -


                                    EXHIBIT C

                              RULES AND REGULATIONS

A. The entrances, lobbies, passages, corridors, elevators, halls, courts,
sidewalks, vestibules, and stairways shall not be encumbered or obstructed by
Tenant, Tenant's agents, servants, employees, licensees or visitors or used by
them for any purposes other than ingress or egress to and from the Premises.

B. The moving in or out of all safes, freight, furniture, or bulky matter of any
description shall take place during the hours which Landlord may reasonably
determine from time to time. Landlord reserves the right to inspect all freight
and bulky matter to be brought into the Building and to exclude from the
Building all freight and bulky matter which violates any of these Rules and
Regulations or the Lease of which these Rules and Regulations are a part.
Landlord reserves the right to have Landlord's structural engineer review
Tenant's floor loads on the Premises at Tenant's expense.

C. Tenant, or the employees, agents, servants, visitors or licensees of Tenant
shall not at any time place, leave or discard any rubbish, paper, articles, or
objects of any kind whatsoever outside the doors of the Premises or in the
corridors or passageways of the Building. No animals or birds shall be brought
or kept in or about the Building. Bicycles shall not be permitted in the
Building.

D. Tenant shall not place objects against glass partitions or doors or windows
or adjacent to any common space which are visible from the Building corridors or
from the exterior of the Building and will promptly remove the same upon notice
from Landlord.

E. Tenant shall not make noise (except that in connection with its initial
tenant improvements Tenant shall perform or cause such work to be performed in
such manner as to minimize any disruption to the other Tenants use and occupancy
of the building and to minimize any disruption to such Tenant's business.),
cause disturbances, create vibrations, odors or noxious fumes or use or operate
any electric or electrical devices or other devices that emit sound waves or are
dangerous to other tenants and occupants of the Building or can be felt, heard
or experienced by other tenants or in common areas or that would interfere with
the operation of any device or equipment or radio or television broadcasting or
reception from or within the Building or elsewhere, or with the operation of
roads or highways in the vicinity of the Building, and shall not place or
install any projections, antennae, aerials, or similar devices inside or outside
of the Premises.

F. Landlord may place reasonable restrictions on any cooking in the Premises.

G. Tenant shall not use the Premises: (a) for lodging, manufacturing or for any
immoral or illegal purposes; (b) to engage in the manufacture or sale of, or
permit the use of spirituous, fermented, intoxicating or alcoholic beverages on
the Premises; (c) to engage in the manufacture or sale of, or permit the use of,
any illegal drugs on the Premises; or (d) for any retail use.

                                     - 62 -


H. No awning or other projections shall be attached to the outside walls or
windows. No curtains, blinds, shades, screens or signs other than those
furnished by Landlord shall be attached to, hung in, or used in connection with
any window or door of the Premises. Existing window treatments shall remain in
place.

I. No signs, advertisement, object, notice or other lettering shall be
exhibited, inscribed, painted or affixed on any part of the outside or inside of
the Premises if visible from outside of the Premises.

J. Tenant shall not use the name of the Building or use pictures or
illustrations of the Building in advertising or other publicity without prior
written consent of Landlord. Landlord shall have the right to prohibit any
advertising by Tenant which, in Landlord's opinion, tends to impair the
reputation of the Building or its desirability for offices, and upon written
notice from Landlord, Tenant will refrain from or discontinue such advertising.

K. Door keys for doors in the Premises will be furnished at the Commencement of
the Lease by Landlord. Tenant shall not affix additional locks on doors and
shall purchase duplicate keys only from Landlord. In the event of the loss of
any keys so furnished by Landlord, Tenant shall pay to Landlord the cost
thereof.

L. Tenant shall cooperate and participate in all security programs affecting the
Building.

M. Tenant assumes full responsibility for protecting its space from theft,
robbery and pilferage, which includes keeping doors locked and other means of
entry to the Premises closed and secured.

N. Tenant shall not make any room-to-room canvas to solicit business from other
tenants in the Building, and shall not exhibit, sell or offer to sell, use, rent
or exchange any item or services in or from the Premises. Canvassing, soliciting
and peddling in the Building are prohibited and Tenant shall cooperate to
prevent the same. Peddlers, solicitors and beggars shall be reported to the
Management Office.

0. Except in connection with approved alterations and additions, Tenant shall
not mark, paint, drill into, or in any way deface any part of the Building or
Premises. No boring, driving of nails, or screws, cutting or stringing of wires
shall be permitted, except with the prior written consent of Landlord, and as
Landlord may direct. Tenant shall not install any resilient tile or similar
floor covering the Premises. The use of cement or other similar adhesive
material is expressly prohibited.

P. Tenant shall not waste electricity or water and agrees to cooperate fully
with Landlord to assure the most effective operation of the Building's heating
and air conditioning. Tenant shall keep corridor doors closed except when being
used for access.

Q. The water and wash closets and other plumbing fixtures shall not be used for
any purposes other than those for which they were constructed, and no sweepings,
rubbish, rags, or other substances shall be thrown therein.

                                     - 63 -


R. No smoking shall be permitted in any portion of the Building (including the
Premises and all common areas within the Building). Landlord may also limit
smoking in exterior areas to such location or locations as Landlord may
designate from time to time. No sale or distribution of tobacco or tobacco
products shall be permitted anywhere in the Building or on the Lot or any other
facilities operated in connection with the Building or the Lot.

S. Building employees shall not be required to perform, and shall not be
requested by any tenant or occupant to perform, any work outside of their
regular duties, unless under specific instructions from the office of the
Manager of the Building.

T. Tenant may request heating and/or air conditioning during other periods in
addition to normal working hours by submitting its request in writing to the
office of the Manager of the Building no later than 12:00 p.m. the preceding
work day (Monday through Friday) on forms available from the office of the
Manager. The request shall clearly state the start and stop hours of the
"off-hour" service. Tenant shall submit to the Building Manager a list of
personnel authorized to make such request. The Tenant shall be charged for such
operation in the form of additional rent; such charges are to be determined by
the Landlord.

U. Tenant covenants and agrees that its use of the Premises shall not cause a
discharge of more than the gallonage per foot of rentable square feet per day of
sanitary (non-industrial) sewage allowed under the sewage discharge permit for
the Building. Discharges in excess of that amount, and any discharge of
industrial sewage, shall only be permitted if Tenant, at its sole expense, shall
have obtained all necessary permits and licenses therefor, including without
limitation permits from state and local authorities having jurisdiction thereof.

V. Landlord may establish reasonable rules and regulations regarding the use of
the roof deck located on the third floor of the Building, and provide for an
orderly and reasonable method for the reservation of such space, which may
include, if Landlord so elects, a reasonable charge therefor.

                                     - 64 -


                                    EXHIBIT D

                        NOTICE OF TERM COMMENCEMENT DATE

To:     John A. Pirovano, as Trustee of the CC&F Cambridge Parkway Trust, and
not individually

Re:     Lease dated __________, 200_ between John A. Pirovano, as Trustee of the
        CC&F Cambridge Parkway Trust, Landlord, and __________________, Tenant,
        concerning the Premises (as defined in the subject Lease) located at 55
        Cambridge Parkway, Cambridge, Massachusetts.

Gentlemen:

        In accordance with the subject Lease, we wish to advise and/or confirm
as follows:

        1.   That the Premises and Landlord's Work have been substantially
completed in accordance with the Lease with the exception of minor items which
can be completed without material interference with Tenant, and the Premises and
Landlord's Work have been accepted by Tenant.

        2.   That the Tenant has possession of the subject Premises and
acknowledges that under the provisions of the subject Lease, the Term
Commencement Date is ________________.

        3.   That in accordance with the subject Lease, the Rentable Floor Area
of the Premises is ___________ rentable square feet, and Tenant's Pro Rata Share
is ___________.

        4.   That in accordance with the subject Lease, Annual Base Rent
commenced to accrue on ____________, in the amount of $______________.

        5.   Rent is due and payable in advance on the first day of each and
every month during the term of said Lease.

"Tenant"

By:
        ---------------------------
        Its:
            ----------------------

                                     - 65 -


                                    EXHIBIT E

                           TENANT ESTOPPEL CERTIFICATE

Ladies and Gentlemen:

This estoppel certificate and agreement ("Agreement") is furnished by __________
("Tenant"), a _______________ organized under the laws of _______________, with
a principal place of business of ____________________. Tenant understands that
_____________________ ("Landlord") and _________________ are relying upon
Tenant's statements and agreements herein in connection with
________________________________.

The Tenant hereby represents and certifies to, and agrees with, Landlord and
__________________ as set forth below:

        1.   A true and complete copy of the Lease between Landlord and Tenant
             of premises at ________________________________________ including,
             if any, all amendments and modifications, is attached hereto as
             EXHIBIT A (the "Lease"). There are no side letters or other
             arrangements relating to the Lease or the Premises (as defined in
             the Lease).

        2.   The Lease has not been assigned, amended or modified in any way,
             nor have the Premises been sublet in whole or in part, EXCEPT FOR
             THE FOLLOWING [if no exceptions are stated, there are
             NONE]:  _____________
             ___________________________________________________________________
             ___________________________________________________________________
             ___________________________________________________________________
             __________________________.

        3.   The Lease is presently in full force and effect according to its
             terms and is the valid and binding obligation of Tenant.  The Lease
             Term commenced on ____________________________. The Lease expires
             on ________________.

        4.   Neither Tenant nor Landlord is in default under the Lease nor does
             any state of facts exist which with the passage of time or the
             giving of notice, or both, would constitute a default under the
             Lease, except for the following [if no exceptions are stated,
             there are
             NONE]:_____________________________________________________________
             _____________________________________________________________.

        5.   All conditions under the Lease to be satisfied by Landlord as of
             the date hereof (including, without limitation, all work, if any,
             to be performed by Landlord in the Premises or the Property) have
             been satisfied, and all contributions, if any, required to be paid
             by Landlord under the Lease to date for improvements to the
             Premises have been paid EXCEPT AS HEREAFTER STATED [if no
             exceptions are stated,

                                     - 66 -


             there are NONE]:
             ___________________________________________________________________
             _____________________________________________________________.

        6.   Tenant is in possession of the Premises and is fully obligated to
             pay and is paying the rent and other charges due under the Lease
             and is fully obligated to perform and is performing all of the
             other obligations of Tenant under the Lease, except as hereafter
             stated [if no exceptions are stated,
             ___________________________________________________________________
             _____________________________________________________________.

        7.   The Lease does not provide for any payments (including, without
             limitation, rent credits) by Landlord to Tenant which are
             presently due and payable, or which are due and payable in the
             future, EXCEPT AS HEREAFTER STATED [if no such payments or
             credits are stated, there are NONE]:
             ___________________________________________________________________
             __________________________.

        8.   On this date, there are no existing defenses, offsets or credits
             which Tenant has against the enforcement of the Lease by Landlord,
             EXCEPT AS HEREAFTER STATED [if no exceptions are stated, there are
             NONE]:
             ___________________________________________________________________
             ___________________________________________________________________
             _____________________________________________________________.

        9.   The Annual Base Rent being paid under the Lease is $_______________
             per month ($_______________ per annum). EXCEPT AS HEREAFTER STATED,
             no rent has been paid more than one (1) month in advance of the due
             date and no security or other advance payments have been deposited
             with the Landlord [if no advance rents or security deposits are
             stated, there are NONE]:
             ___________________________________________________________________
             ___________________________________________________________________
             _____________________________________________________________.

        10.  Tenant has no options, rights of first offer or rights of first
             refusal with respect to extension of the Term, expansion of the
             Premises, purchase of the Building or otherwise, EXCEPT AS
             HEREINAFTER STATED [if no exceptions are stated, there are NONE]:
             ___________________________________________________________________
             ___________________________________________________________________
             _____________________________________________________________.

        11.  There are no actions, whether voluntary or otherwise, pending or
             threatened against the Tenant, or any guarantor of the Tenant's
             obligations under the Lease, pursuant to the bankruptcy or
             insolvency laws of the United States or any similar state laws.
             Tenant does not intend to and is not contemplating filing for

                                     - 67 -


             bankruptcy.

        EXECUTED as an instrument under seal as of ___________________, _____.


                                       TENANT:

                                       By:
                                           ------------------------------------
                                           Name:
                                           Its:
                                           Hereunto Duly Authorized
                                           Date Executed by Tenant:
ATTEST:


- ---------------------------
Secretary/Clerk

                                     - 68 -


                          COMMONWEALTH OF MASSACHUSETTS

__________________, ss.                  ____________________, _____

Then personally appeared before me ___________________________, the
________________________________ of _________________________________, and
acknowledged the foregoing to be such person's free act and deed, as the
________________________ of ____________________________ and the free act and
deed of said ___________________________ and made oath that the facts therein
stated are true, accurate and complete.

                                       ----------------------------------------
                                       Notary Public
                                       My commission expires:

                                     - 69 -


                                    EXHIBIT F

             PRELIMINARY DESCRIPTION OF INITIAL TENANT IMPROVEMENTS

        Work shown on plans dated July 16, 2002 prepared by Burt Hill Kosar
Rittleman Associates.

                                     - 70 -


                                    EXHIBIT G

                       CONSTRUCTION RULES AND REGULATIONS


                              (Follows this page.)

                                     - 71 -


                                    FINARD &
                                     COMPANY


                        CONSTRUCTION RULES AND REGULATION

                                     - 72 -

                                Table of Contents


1.      Tenant Construction Rules and Regulations

2.      Deliveries and Elevator Schedule

3.      Insurance Guidelines

                                     - 73 -


TENANT CONSTRUCTION RULES AND REGULATIONS

A.      GENERAL REQUIREMENTS

1.      Tenant must submit Construction Documents (plans and specifications) to
        the Finard & Company Management Office for approval a minimum of two (2)
        weeks or the time period required under the lease document, whichever is
        longer, prior to commencement of the project.

2.      Subject to the provisions of the Lease, Finard & Company reserves the
        right to approve and restrict any sub-contractor, contractor or employee
        for any trade performing work in the building. Subject to the provisions
        of the Lease, a pre-qualification statement must be submitted to Finard
        & Company for sub-contractors who have not performed work with Finard &
        Company within the last two (2) years or on jobs of comparable size and
        dollar value.

3.      The contractor shall complete work without disruption from labor
        disputes and in harmony with other trades and union affiliations. All
        work to be performed shall be by union trades in accordance with local
        union rules and regulations, unless otherwise authorized in writing by
        Finard & Company.

4.      Record of As-built drawings must be submitted within 30 days of the
        completion of the project.

5.      Tenant must submit to Finard & Company the following items two (2) weeks
        prior to the commencement of the project (provided that items D and E
        shall be submitted one business day prior to commencement of Work
        authorized thereby):

        A.   Name of General Contractor/Construction Management Firm.
        B.   Subcontractor List for approval.
        C.   Certificates of Insurance from general contractor and subcontractor
             in compliance with insurance guidelines. Tenant must be named
             additionally insured.
        D.   Copy of Demolition Permit (if Applicable).
        E.   Copy of Building Permit.
        F.   Copy of Long-Form or Fast-Tract Application to Building Department.
        G.   Construction Schedule.
        H.   Project directory to include: name of firm, address, contact and
             telephone number.

6.      Tenant must submit Certificate of Occupancy at completion of project.

7.      Tenant must schedule a project meeting with the Finard & Company
        construction coordinator two (2) weeks prior to commencement of project.

        Weekly or bi-weekly project meetings are required for major construction
        projects. The Finard & Company construction coordinator may attend
        meetings as deemed necessary. The construction coordinator must receive
        a copy of the minutes on a weekly basis.

                                     - 74 -


8.      Air balancing by contractor is required two (2) weeks before project is
        completed.

9.      Testing of sprinkler system and fire protection devices is required two
        (2) weeks prior to completion of major system upgrades and to obtain
        Certificate of Occupancy. For minor work, Tenant shall obtain approval
        of Building Inspector and deliver hydraulic calculations to Finard &
        Company prior to occupancy.

10.     The Finard & Company design/engineering review team may inspect
        contractor work in progress for compliance with applicable code and
        building standards.

11.     Finard & Company reserves the right to restrict life safety design
        (sprinkler and fire protection) to its approved design engineers.

12.     All contractor work shall be performed in accordance with all applicable
        laws and codes, Cambridge Fire Department and Finard & Company
        Construction Guidelines.

13.     Two hundred pound (200 lb) pressure test of sprinkler system is required
        two (2) weeks prior to completion of project. Sprinkler contractor test
        certificates are due to Finard & Company at that time.

14.     Sprinkler contractor must provide five (5) sets of sprinkler drawings
        for major system upgrades for approval by the insurance company.

15.     All questions should be referred to Finard & Company at, 55 Cambridge
        Parkway, Cambridge, MA 02142.

B.      SPECIFIC REQUIREMENTS

        Normal business hours are 7:00 a.m. to 7:00 p.m. Monday - Friday; 8:00
        a.m. to 1:00 p.m. on Saturdays.

        1.   The following work must be done on overtime, not during normal
             business hours.

    -   Demolition above and below occupied space or which may cause disruption
        to other tenants in the building on other floors.

    -   Coring for electrical/telephone floor outlets above occupied space.

    -   Oil based or "Polymyx" painting on occupied multi-tenant floors (Latex
        paint work allowed).

    -   Any work performed outside of project site.

    -   Gluing of carpet on occupied multi-tenant floors.

    -   Shooting of studs into deck for mechanical fastening devices (allowed
        until 8:30 a.m.) under occupied floors.

    -   Drilling into deck for mechanical fastening devices (allowed until 8:30
        a.m.).

    -   Testing of life safety system and sprinkler tie-ins.

                                     - 75 -


    -   Coordination of deliveries requiring use of loading dock and freight
        elevator exceeding 1/2 hour.

    -   Deliveries via tractor/trailer trucks.

2.      Dollies and carts should be fitted with rubber wheels.

3.      Dragging of ladders, dropping of material is to be avoided over occupied
        floors.

4.      All work performed outside of project site must be coordinated with the
        property manager from the Finard & Company Management Office.

5.      The contractor must submit a "Building Service Request Form" to Finard &
        Company to schedule the services listed below. Three days advance notice
        is required for approval. Emergency service may be provided with 24
        hours notice.

        -    Freight elevator usage after hours.

        -    Sprinkler/life safety shutdown.

        -    HVAC shutdown.

        -    Access to site after normal business hours.

        -    Major deliveries and tenant relocations.

        -    Coordination with BTE or other building staff.

        -    Trash removal operation.

        -    Security detail.

        -    Any work/activity not noted above or performed during non-business
             hours.

6.      There is no contractor parking available at the loading dock. The
        loading dock is to be used for unloading equipment and materials only.
        Tenant shall have the use of ten (10) unreserved parking spaces for
        constructions workers of the management or supervisory level to use
        during construction of Tenant's Initial Tenant Improvements prior to the
        Term Commencement Date.

7.      Tradespersons are not allowed on passenger elevators. The freight
        elevator must be used at all times to access or egress the work area.
        Construction workers should not use the emergency stairwells to access
        other floors unless an emergency situation arises or as approved by
        property management.

8.      Demolition: Contractor must use hard plastic hampers to transport
        demolition debris from work floor to loading dock. Hampers cannot be
        left on the loading dock. Queue on the work floor while transporting
        debris.

9.      Badges: Tradespersons must enter the building through the loading dock
        and obtain a contractor badge. The badge is to be worn daily, be visible
        at all times, and presented to security for access to project site.

                                     - 76 -


10.     Deliveries: Absolutely no deliveries will be allowed through the main
        lobby. Deliveries must be scheduled in advance with the Finard & Company
        Dockmaster to coordinate the use of the loading dock and the freight
        elevators. The delivery of sheet rock, light fixtures and other like
        material must be scheduled during non-business hours unless approved by
        property management.

11.     Cleaning and Rubbish Removal: The contractor is responsible for leaving
        freight elevators and related work areas "broom clean". The contractor
        will incur costs for clean-up if areas are left dirty, including
        servicing of freight elevator for demolition debris not transported
        properly. Rubbish cannot be stored in the work area and must be disposed
        of on a regular basis.

12.     Waiver of Mechanics Lien will be required prior to all payments.

13.     Contractor will post the building permit on a wall of the construction
        site while work is being performed.

14.     Prior to demolition, if carpet is to remain in the suite, it is to be
        protected by a heavy plastic cover or removed, stored, and reinstalled
        upon completion of work.

15.     Public area corridor and carpet is to be protected by plastic runners or
        a series of walk-off mats from the elevator to the suite under
        construction.

16.     Contractor shall provide heavy plastic screening for dust protection
        and/or temporary walls of suitable appearances as required by Property
        Management to screen the construction site.

17.     Walk-off mats are to be provided at entrance doors.

18.     No utilities (electricity, water, gas, plumbing) or services to the
        tenants are to be cut off or interrupted without first having requested,
        in writing, and secured, in writing, the permission of the Property
        Manager.

19.     No electrical services are to be put on the emergency circuit, without
        specific written approval from the Property Manager.

20.     When utility meters are installed, the contractor must provide the
        property manager with a copy of the operating instructions for that
        particular meter.

21.     THE PROPERTY MANAGER WILL BE NOTIFIED OF ALL WORK SCHEDULES OF ALL
        WORKMEN ON THE JOB AND WILL BE NOTIFIED, IN WRITING, OF NAMES OF THOSE
        WHO MAY BE WORKING IN THE BUILDING AFTER "NORMAL" BUSINESS HOURS.

22.     Contractors will be responsible for daily removal of waste foods, milk
        and soft drink containers, etc. to loading dock construction dumpster
        and will not use any building trash receptacles, but trash receptacles
        supplied to them.

                                     - 77 -


23.     Construction personnel are not to eat in the lobby or in front of
        Building nor are they to congregate in the lobby or in front of
        Building.

24.     There will be no radios on the job site.

25.     All workers are required to wear a shirt, shoes, and full length
        trousers.

26.     Protection of hallway carpets, wall coverings, granite and marble, and
        elevators from damage with masonite board, carpet, cardboard, or pads is
        required.

27.     Public spaces, corridors, elevators, bathrooms, lobby, etc. must be
        cleaned immediately after use. Construction debris or materials found in
        public areas will be removed at the offender's cost.

28.     There will be no smoking, eating, or open food containers in the
        elevators, carpeted areas, or public lobbies.

29.     There will be no yelling or boisterous activities.

30.     All construction materials or debris must be stored within the project
        confines or in an approved lock-up.

31.     There will be no alcohol or controlled substances allowed or tolerated.
        Individuals under their influence or in possession of such will be
        prosecuted.

32.     Contractor shall post no signs without Property Manager's express
        approval which may be withheld for any reason.

33.     Any work performed on base building systems (i.e., roofing, HVAC, glass
        curtain wall, etc.) that could impact existing warranties shall be
        coordinated with Property Manager prior to performing said work. If
        Property Manager stipulates that a certain company/subcontractor/vendor
        must be used in order to preserve a warranty, then Contractor shall
        comply.

34.     Contractor shall supply Property Manager with a copy of all permits
        prior to the start of any work.

35.     Contractors shall be permitted to use the janitor's sink for water
        supply on the floor(s) on which the construction occurs, however,
        contractors shall ensure that no drywall, mud, flammables or any other
        substance that could stop up the sanitary sewer system or be potentially
        hazardous, are put therein.

                                     - 78 -


                        DELIVERIES AND ELEVATOR SCHEDULE

DOCKMASTER HOURS

        Monday thru Friday/6:00 a.m. to 4:00 p.m.

        Deliveries that require tractor trailers after the above hours will
        require that a dockmaster be present at current prevailing billable
        rates. A four (4) hour minimum labor charge is required.

NORMAL FREIGHT ELEVATOR HOURS OF OPERATION

        Monday thru Friday/8:00 a.m. to 4:00 p.m.

        During these hours deliveries of furniture, equipment, and construction
        materials that will occupy the elevator so as to preclude others from
        using it for longer than 1/2 hours, is not allowed.

        Deliveries of sheet rock or like materials will not be allowed during
        normal freight elevator operations. (You must make arrangements for
        exclusive use of an elevator for these purposes).

        All incidental deliveries, or minor moves between floors, of furniture
        or other equipment may be scheduled during the above hours of operation,
        on a first come first served basis.

TRASH REMOVAL OPERATION

        Monday thru Friday/5:00 p.m. to 10:00 p.m.

        During these hours the use of the elevators is limited to removal of
        building trash and the movement of service workers and their tools and
        equipment.

HOURS AVAILABLE FOR EXCLUSIVE USE OF FREIGHT ELEVATOR(S)

        Monday thru Friday/11:30 p.m. to 7:00 a.m.
        Saturday & Sunday/24 hours

        During the above hours of operation the freight elevators may be
        reserved for the exclusive use of a tenant or contractor. Reservations
        must be made a minimum of twenty-four hours prior to, but not more than
        two weeks in advance of service request date. Reservations are not
        confirmed until a properly approved "Building Services Request Form" is
        returned to you.

        No construction debris or materials are to be deposited in building
        compactors or open dumpsters not belonging to contractor.

        Major furniture deliveries require a Local 4 Elevator Constructor to
        operate service elevator. Cost for this person is a responsibility of
        the tenant.

                                     - 79 -


        There is a four hour minimum labor charge for the elevator operator when
        after hours exclusive use is requested. Contact the Finard & Company
        Management Office for current rate charges.

                                     - 80 -


                              FINARD & COMPANY LLC
                  VENDOR/SUBCONTRACTOR INSURANCE SPECIFICATIONS

1.      General Liability coverage in the form of a Comprehensive General
        Liability policy or a Commercial Liability policy with the broad form
        CGL endorsement included in the coverage. The insurance company issuing
        said policy must be acceptable to Landlord.

2.      The general liability in Item #1 must be on an OCCURRENCE BASIS with per
        occurrence and aggregate limits of liability of NO LESS than $3,000,000.
        This limit can be provided through a combination of a primary general
        liability policy and an umbrella liability policy or other
        multi-property "blanket" liability coverage. If there are any
        deductibles or self-insured retentions please state this.

3.      Automobile Liability and Worker's Compensation Coverage must be in
        place.

4.      The following MUST be named as additional insured as their interest may
        appear: Finard & Company, LLC, Trustees of CC&F Cambridge Parkway Trust
        and CC&F Riverside Place Limited Partnership.

5.      Should any of the above described policies be canceled, not renewed,
        changed materially in amount of coverage or changed in insuring form,
        the vendor/subcontractor's insurance company will give 30 days prior
        written notice to Finard & Company.

Please note that Finard & Company's minimum requirements, as noted above and
attached, in no way restrict your liability for any claims in excess of your
policy limits.

                                     - 81 -


               INSURANCE SPECIFICATIONS FOR CONSTRUCTION PROJECTS

CERTIFICATE OF INSURANCE

The Contractor and each Sub-Subcontractor shall maintain at all times during the
performance of the Work (with the exception of Completed Operations - Products
Liability insurance which must be provided, to the extent reasonably available,
for a period of two (2) years after Final Completion of the Work), and to pay
for the following kinds of insurance, written for not less than the limits of
liability set forth below or any limits required by law, whichever is greater.



KIND OF INSURANCE                                           AMOUNT
- -----------------                                           ------
                                                         
a.      Workers' Compensation, including an "all states     Statutory
        Endorsement".

b.      Employer's Liability                                $500,000 each accident $500,000
                                                            disease policy limit; $500,000 disease
                                                            each employee

c.      Commercial General Liability including Blanket      $3,000,000 bodily injury and
        Contractual Liability, Employees as Additional      $3,000,000 property damage
        Insureds, Completed Operations Products             combined single limit per occurrence
        Liability and providing coverage for explosion,     and annual aggregate $3,000,000
        collapse and underground property damage            personal injury
        hazards, Premises Medical Payments and
        Incidental Medical Malpractice, Broad Form
        General Liability Endorsement, Personal Injury
        Liability, and Broad Form Property Damage
        Endorsement.

d.      Comprehensive Automobile Liability (covering        $3,000,000 bodily injury each person
        all owned, non-owned or hired vehicles).            and property damage each accident;
                                                            $3,000,000 bodily injury each
                                                            accident.

e.      Umbrella for Subcontractors                         $4,000,000 Required if General Liability,
                                                            bodily injury or combined totals are less
                                                            than $2,000,000.

        Umbrella for General Contractor                     $10,000,000 Required if General
                                                            Liability, bodily injury or combined
                                                            totals are less than $10,000,000.


f.      This insurance shall require provision of no less than thirty (30) days
        prior written notice of cancellation or material change sent by
        registered mail to the Architect, the Owner, the Landlord, and all other
        additional insureds under such insurance. The insurance required herein
        must be issued by responsible companies qualified to do business and in
        good

                                     - 82 -


        standing in Massachusetts with an A.M. Best Company rating of A:XI or
        the highest other rating as may be required of Landlord by any mortgagee
        from time to time, or better.

g.      All such insurance to be written by responsible companies, qualified to
        do business and in good standing in Massachusetts with a Best's
        insurance rating of A:XI or the highest other rating as may be required
        from time to time, or better, providing for notice at least 30 days
        prior to cancellation or renewal and naming as additional insureds:
        Finard & Company LLC, Trustees of CC&F Cambridge Parkway Trust, CC&F
        Riverside Place Limited Partnership, the architect, the tenant and all
        others as may be required.

INDEMNITY AGREEMENT

        The contractor agrees to indemnify and hold harmless Finard & Company,
        LLC, Trustees of CC&F Cambridge Parkway Trust, and CC&F Riverside Place
        Limited Partnership, its officers, employees, servants, and agents from
        and against any and all liability, loss and expense resulting from
        personal injury, sickness or disease, destruction of property, including
        the loss of use thereof, arising in while or in part, by reason of, or
        in any way resulting from operations under this contract, whether such
        operations be by said contractor or by any sub-contractor or any one
        directly or indirectly employed by either of them. Compliance by the
        contractor with the insurance provisions hereof shall not relieve
        contractor from liability under this provision.

LOSS OF DAMAGE TO CONTRACTOR'S PROPERTY

        All property of any kind, owned, hired or supplied by the contractor or
        any subcontractor, their employees, servants or agents not intended to
        be incorporated into or made a part of the work to be performed under
        this contract shall be at the sole risk of the respective contractor,
        subcontractor or their employees, servants, or agents.

SUBCONTRACTORS

        The contractor shall require all of the subcontractors to provide
        minimum insurance coverage as is indicated herein to protect the
        contractor from claims resulting from any and all operations under this
        contract and any deficiency in the coverages or policy limits of said
        subcontractor's insurance shall be the sole responsibility of the
        contractor.

MAJOR CONTRACTORS

        Umbrella coverage is required for limits as indicated herein.

                                     - 83 -


                                    EXHIBIT H

                      MINIMUM TENANT IMPROVEMENT STANDARDS

                               (Follows This Page)

                                     - 84 -


                              55 CAMBRIDGE PARKWAY
                                  CAMBRIDGE, MA


                      MINIMUM TENANT IMPROVEMENT STANDARDS

                                  APRIL 3, 2002

                                     - 85 -


                                Table of Contents

I.      Minimum Tenant Improvement Standards

        A.   Architectural
        B.   Heating, Ventilating, Air Conditioning (HVAC)
        C.   Electrical
        D.   Plumbing and Sprinkler Systems
        E.   Fire Suppression, Detection, and Alarm Systems
        F.   Communication Systems

                                     - 86 -


I.      MINIMUM TENANT IMPROVEMENT STANDARDS
        (To be part of the Tenant Improvement allowance.)

        A.   ARCHITECTURAL

             1.     Partitions
                    a.    Typical interior office partitions shall consist of
                          one layer of 5/8" gypsum board on each side of 2-1/2"
                          steel channel studs at 16" on center with sound
                          insulating material.
                    b.    Office partitions shall be carried to 3" above
                          finished ceiling.
                    c.    Typical demising walls shall be the same as above
                          except that they will be carried to underside of
                          structural slab and must be 1-hr fire rated gypsum
                          wallboard Type X.

             2.     Doors, Frames, Hardware
                    a.    On multi-tenant floor, entrance door will be 3'x8'
                          solid core wood casement door with glass panel.
                    b.    All interior wood doors shall be solid core, flush
                          design, 1-3/4" thick with paint grade birch face
                          veneers. Interior doors shall generally be 3'-0" wide
                          and 7'-0" in height.
                    c.    Frames shall be 18-gauge hollow metal knock-down type
                          with factory applied primer to be field painted.

             3.     Hardware
                    a.    All interior doors shall have heavy duty bronze latch
                          sets with lever type handles.
                    b.    All building corridor doors shall have locksets in
                          matching finish and door closers as required.
                    c.    Lock and latch seats shall be Sargent or equal.
                    d.    Hinges shall be Stanley or equal.

             4.     Ceramic Tile
                    a.    Toilet room walls will be tiled full height on three
                          (3) walls (except below lavatory counters). One (1)
                          accent wall to be detailed with vinyl wallcovering.
                          Toilet room vestibule walls will be painted. Toilet
                          room floors will be tiled.
                    b.    Floor tile will typically be 2" square units unglazed
                          ceramic tiles.
                    c.    Marble saddles will be installed at door openings
                          where ceramic tile abuts resilient flooring.
                    d.    Wall tile will typically be 4-1/4" x 4-1/4" bright
                          glazed cushion-edge units covered at base and bull
                          nosed at exposed edges. All colors will be as
                          selected. All toilet spaces shall be of the same color
                          throughout the building. All tile, wall and floor,
                          will be thinset.

             5.     Floor Covering

                                     - 87 -


                    a.    28-ounce commercial grade carpet altered directly to
                          substrate will be installed through office floor
                          areas. Allow $21.25 per square yard.

             6.     Finished Ceilings
                    a.    Ceilings in office spaces shall be suspended 2'x2'
                          regular edge acoustic lay-in ceiling tiles as
                          manufactured by US Gypsum, color white, pattern Frost.
                          Suspension T-bar 15/16" DX for Shadowline (SL) tile.
                          Ceiling height of office space shall be approximately
                          8'6" above finished floor.

             7.     Wall Finishes and Miscellaneous Painting
                    a.    Masonry, plaster, drywall and similar surfaces in
                          public and tenant areas requiring painting shall
                          receive one base coat and two coats of latex paint.
                    b.    All exposed metal surfaces not factory finished shall
                          receive one coat of enamel undercoat and one coat of
                          semi-gloss alkyd enamel over factory prime coat.
                          Factory primed metal shall receive two coats of
                          semi-gloss alkyd enamel.

             8.     Fireproofing
                    a.    Coating of approved fireproofing material to be
                          applied to specified structural steel members.
                    b.    Firesafe all penetrations with approved fireproofing
                          material.

             9.     Wall Base
                    a.    Base shall be 4-inch vinyl cove base adhered directly
                          to paint GWB.

        B.   HEATING, VENTILATING, AIR CONDITIONING (HVAC)

             1.     HVAC Conditioning Criteria
                    a.    Heating Season
                          -   Occupied Period: Temperature - 72F (+/- 3F at the
                              thermostat) and Humidity: N/A.
                          -   Unoccupied Period: Temperature - 60F (+/-SF at the
                              thermostat) and Humidity: N/A.
                    b.    Cooling Season
                          -   Occupied Period: Temperature - 74F (+/- 3F at the
                              thermostat) and Humidity: 50 - 60% RH
                          -   Unoccupied Period - HVAC system off
                    c.    HVAC "Occupied" Operating Schedule:
                          -   8:00 am to 6:00 pm - Mon - Fri
                          -   8:00 am to 1:00 pm - Saturday
                    d.    HVAC Background Sound Level: 35 (+/-5) N.C.

             2.     HVAC Design Guidelines

                                     - 88 -


                    a.    VAV Box Quantity
                          -   Tenant standard provides one VAV box (zone) per
                              1,000 SF of carpetable floor space (including
                              elevator lobby, bathrooms, and any other air
                              conditioned spaces).
                          -   Interior areas should be equipped with VAV boxes
                              while perimeter areas will be furnished with
                              series-type fan-powered VAV boxes with electric
                              heat.
                    b.    Total VAV Supply Air Quantity
                          1)    Total connected VAV box capacity for the whole
                                tenant fit-up shall not exceed 1.5 CFM/GSF,
                                without explicit approval of building owner. Air
                                supply quantities should be calculated based on
                                55F supply air temperature at the diffuser.
                          2)    The VAV systems in the building operate to
                                maintain a constant 1.0" static pressure in the
                                supply duct at the fan room wall. When designing
                                tenant HVAC systems, the designer should size
                                all system components and ducts to work within
                                this static pressure limitation.
                    c.    Supplemental Cooling
                          1)    Any 24-hour cooling loads or high density loads
                                (computer rooms) installed after April 2002,
                                will be cooled with water cooled units connected
                                to the tenant condenser water system. Tenants
                                shall pipe from their HVAC equipment to the
                                building risers located in the westend of the
                                building
                          2)    Water-cooled units should be selected to use
                                105F EWT with a 1 OF rise with 30% ethylene
                                glycol. Pressure drop at the unit should be kept
                                to a minimum, and in no case should it exceed 10
                                P SIG (including head pressure control valve).
                                The water-cooled condenser shall be equipped
                                with a balancing valve with gauge ports (e.g.
                                circuit setter). Provide 2-way head pressure
                                control valves. In addition, provide pressure
                                gauges at the unit and at the condenser water
                                mains near the shaft.
                          3)    Supplemental AC units installed above ceilings
                                shall incorporate a secondary drain pan with
                                hi-level cutout switch.

             3.     HVAC Construction Standards
                    a.    Ductwork and Air Distribution Equipment
                          1)    Sheet metal Ductwork: Ductwork construction
                                shall conform to SMACNA's standards for
                                low-pressure duct construction. Ductwork between
                                the existing fan rooms and the Variable Air
                                Volume (VAV) boxes shall be constructed to
                                standards acceptable for systems operating at
                                positive static pressure of 4" WC. Ductwork
                                between the VAV boxes and the air diffusers
                                shall be constructed to

                                     - 89 -


                                standards acceptable for systems operating at
                                positive static pressure of 2" WC. Ductwork
                                associated with the inline conference room
                                exhaust fans shall be constructed to standards
                                acceptable for systems operating at positive
                                static pressure of 0.5" WC. Sheet metal ducts
                                shall be constructed of galvanized sheet steel
                                complying with ASTM A 527, lock-forming quality,
                                and with G 90 zinc coating in accordance with
                                ASTM A 525 unless specified otherwise. Refer to
                                applicable SMACNA's Standard for gauge and
                                methods of construction. All new and existing
                                supply air ductwork shall be sealed with 3M's
                                EC-800 sealant (or equal).
                          2)    Flexible Ductwork: Flexible ductwork shall be
                                polyester core with corrosion-resistant helical
                                wire reinforcing, 3/4" fibrous glass insulation
                                with elastomer-coated glass mesh outer covering
                                with aluminum film vapor barrier, and shall meet
                                requirements of NFPA90A and UL-181. Maximum ASTM
                                E-84 fire hazard ratings shall be 25
                                flame-spread, 50 fuel-contributed and 50
                                smoke-developed. Furnish by Wiremold, Clevaflex,
                                or approved equal. Use of flexible ductwork
                                shall be limited to connections to VAV boxes and
                                diffuser inlets. Lengths shall be limited to 4
                                feet, max.
                          3)    Fire Dampers: Provide Type B, spring-loaded,
                                curtain-type, UL-rated automatic fire dampers,
                                installed in accordance with NFPA 90 A, wherever
                                an air duct penetrates a firewall, fire-rated
                                partition or floor. Provide access door for each
                                fire damper.
                          4)    Volume Dampers: Provide manual adjustable volume
                                dampers with indicating and locking quadrants
                                for air balancing system. Provide dampers where
                                shown on Drawings, at take-offs to diffusers,
                                and where requested by the Balancing
                                Subcontractor.
                          5)    Diffusers, Registers and Grilles: Provide
                                supply, return, and exhaust air diffusers,
                                registers, and grilles of size and type
                                indicated on plans. Coordinate finish and frame
                                with ceiling construction. Coordinate color and
                                location with Architect. Supply, return, and
                                exhaust outlets shall be furnished with opposed
                                blade volume dampers operable from the front.
                                Ceiling diffuser shall be equal to Tuttle &
                                Bailey "RC" or equal.
                          6)    Acoustic Duct Lining: Provide 1" thick acoustic
                                duct lining in all ductwork associated with
                                ceiling exhaust fans and as specified above.
                                Lining shall be rated for air velocities up to
                                2,000 FPM by Certain teed, Owens Corning, Knauf
                                or approved equal. Lining shall be flexible
                                fiberglass, black, and mattfaced, having a
                                density of 2

                                     - 90 -


                                pounds per cubic foot. Duct liner shall be
                                installed without interruptions, using 100%
                                coverage of adhesive and mechanical fasteners on
                                12" centers.
                          7)    Duct Insulation: Provide duct insulation on all
                                supply air ductwork from the fan room wall to
                                the beginning of all diffuser flex connections.
                                Insulate supply ducts with 1-1/2" thick
                                fiberglass duct wrap, with foil-kraft flame
                                resistant vapor barrier. Insulation density
                                shall be 3/41b/CF and maximum K-factor shall be
                                0.30 @ 75F.
                          8)    Water Piping: For tenant condenser water
                                systems, provide copper piping, Type L, with
                                95/5 solder rated for 150 psig working pressure.
                                For condensate, provide copper, Type DWV, with
                                soldered joints. Provide dielectric fittings to
                                connect different piping materials.
                          9)    Valves: Provide bronze-body, standard port ball
                                valves for water piping 2" and under. Provide
                                butterfly valves for pipe sizes above 2". All
                                valves shall have a minimum pressure rating of
                                150 psig. Provide "circuit setter" type
                                balancing valves for all hydronic end-devices.
                                Valves shall be bronze body construction with
                                TFE seat rings.
                          10)   Pipe Hangers and Supports: Provide clevis
                                hangers, pipe covering saddles and shields, and
                                pipe clamps, hanger rods, expansion shields,
                                beam clamps, anchors, guides, and all other
                                miscellaneous steel and hardware as required for
                                a complete installation. Hanger rods shall be
                                fully threaded and hot-dipped galvanized.
                          11)   Piping Insulation: For condensate piping,
                                provide 1/2-inch thick fibrous glass insulation
                                with factory-applied, fire-retardant vapor
                                barrier jacket by Owens Corning, Certain-Teed,
                                Manville or approved equal. Maximum ASTM E-84
                                fire hazard ratings shall be 25 flamespread, 50
                                fuel-contributed and 50 smoke-developed.
                          12)   Sleeves and Penetrations: All pipes passing
                                through floors, fire-rated walls and partitions
                                shall have Schedule 40 galvanized steel sleeves
                                packed with heavy density fiberglass and sealed
                                as required to maintain fire rating. Sleeves
                                through non-rated partitions shall be 26
                                gauge-galvanized steel packed with oakum,
                                silicate foam, or mineral fiber with an approved
                                sealant.
                          13)   Variable Volume Boxes: Provide
                                factory-fabricated and tested air terminals as
                                indicated, by Environmental Technologies, Corp.,
                                or Titus Products Div. Maximum total pressure
                                drop across VAV box shall be less than or equal
                                to 0.15" WC at design airflow. VAV boxes shall
                                be installed with a minimum straight run of duct
                                on the inlet side equal to three times the inlet
                                diameter of the VAV box.

                                     - 91 -


                                Install VAV boxes so that there is adequate room
                                on all sides to service the internal mechanisms
                                and the externally mounted controls. Fan-Powered
                                boxes shall be furnished with filter frames and
                                2 filters First filter shall be installed with
                                box at time of construction. HVAC Contractor
                                shall install second filter prior to the start
                                of the Balancing work. Provide VAV box with DDC
                                controller and electric actuator. If VAV box is
                                fan-powered, fan shall be powered by permanent
                                split capacitor motor mounted in vibration
                                isolators. Motor shall operate at 277 volts.
                                Provide fan speed control for adjustment by the
                                Balancing Contractor.
                          14)   Inline Exhaust Fans: Provide inline exhaust fans
                                by Cook, Penn Ventilator Co., Greenheck, or
                                approved equal. Fans shall be designed for
                                concealed inline applications. Housing shall be
                                galvanized steel lined with acoustical
                                insulation. Make final connections between
                                ductwork and exhaust fan unit with flexible
                                connector. Unit shall include motor suitable for
                                operation on 110 Volt, single phase, 60 Hz
                                power. Furnish remote solid-state fan speed
                                control and wall plate capable of controlling
                                fan speed from full speed to off.
                          15)   Testing, Adjusting, & Balancing: Testing,
                                Adjusting, and Balancing (TAB) shall be
                                performed by an independent TAB agency. The TAB
                                agency shall be the single source of
                                responsibility to test, adjust, and balance the
                                building Mechanical systems identified herein.
                                Services shall include checking installations
                                for conformity to design, measurement and
                                establishment of the fluid quantities of the
                                Mechanical systems as required to meet design
                                Specifications, and recording and reporting the
                                results. Test, adjust, and balance the following
                                Mechanical systems: VAV supply air systems,
                                Exhaust air systems, toilet Exhaust system, and
                                Supplemental AC Units.

        C.   ELECTRICAL

             1.     The design of the electrical systems will be based on the
                    following State and Local Codes and Regulations:
                    a.    MEC (1999) - Massachusetts Electrical Code
                    b.    NEC (1999) - The National Electrical Code
                    c.    NFPA 101 (2000) - The Life Safety Code
                    d.    Local Agencies - Cambridge Fire Department, Cambridge
                          Building Department, etc.
                    e.    Massachusetts Energy Code
                    f.    Massachusetts State Building Code - Latest Edition

                                     - 92 -


             2.     Tenant Distribution - Normal Power: Lighting and office
                    power shall not exceed 9 Watts per square foot connected
                    load and shall be taken from the existing GE bus duct riser
                    system via the existing East and West tenant distribution
                    panel system (landlord shall be responsible for upgrading
                    existing tenant distribution panel system and electric rooms
                    to meet Electric Code requirements.) New circuit breakers
                    provided by tenant shall match existing in manufacturer and
                    interrupting rating. All new circuit breaker panels shall be
                    "G.E." bolt on door-in-door construction and shall be of at
                    least 150-Amp, 42-circuit capacity and be provided by
                    tenant. All 3-Phase motors shall be served from circuit
                    breaker type motor control centers. Tenant-provided
                    three-Phase motors, pumps and fans will be rated at
                    480-Volts. All wiring will be in conduit, except lighting
                    and receptacle branch circuits, normal power only, where
                    hospital grade armored clad cable (AC)/MC shall be used.

             3.     Wiring Devices: Provide one (1) duplex receptacle in
                    corridors, 40'-0" on center. Material installed shall be of
                    specification grade and equipped with self grounding yoke,
                    i.e. receptacles, switches and devices, such as:



                                                         Hubbell     Arrowhart
                                                       -------------------------
                                                                 
                           Duplex Receptacle              #5362        #6362
                           Single Pole Switch             #1991        #1891
                           Three Way Switch               #1993        #1893


             4.     Branch Circuit Criteria: General Lighting 120-Volt lighting
                    will be limited to 1500 Watts per 20-Amp Single-Phase
                    circuit. 277-Volt lighting will be limited to 3600 Watts per
                    20-Amp Single-Phase circuit. Switch control will be provided
                    for each room, meeting Energy Code requirements for
                    switching. All dimmer switches, where required, will be
                    rated for 1500-Watts minimum. Receptacles - Convenience
                    receptacles for general use, such as Office Areas, Lounges,
                    Lobbies, etc. will have a maximum of six (6) duplex
                    receptacles per 20-Amp Single-Phase circuit.

             5.     Lighting System
                    a.    Type of Lighting Fixtures (fluorescent as manufactured
                          by Day-Brite): 2x2 9Cell Parabolic Fixtures: Offices,
                          Conference Rooms and Corridors; Lensed Fluorescent
                          Fixtures: 2x2, 2x4, 1x4, Rest Rooms and Maintenance
                          Rooms; Fluorescent Downlight Fixtures (as manufactured
                          by Capri): Lobbies, Entrances and Waiting Rooms;
                          Exterior Lighting: Metal Halide
                    b.    Fluorescent lighting shall be rated for 277-Volts.
                    c.    Lamps shall be T-5 type with energy saving ballasts.
                    d.    Minimum foot-candle levels recommended for tenant
                          spaces are as follows:
                           Corridors              20 F.C.
                           Lobby                  20 F.C.
                           General Office         50 F.C.
                           Toilets                20 F.C.

                                     - 93 -


                           Waiting Area           30 F.C.
                          (For a 6,000 square foot space, this shall equate to
                          eighty (80) light fixtures.)

                    e.    Conduit and Cable: All wiring will be in conduit,
                          except branch circuit wiring (20-Amp, Single-Phase)
                          for lighting and receptacle (normal power only), which
                          could be Hospital Grade armored AC/MC Cable.

             6.     Type of Conduits:
                    a.    Branch Circuits: EMT, AC/MC Cable
                    b.    Feeders: EMT/RG/IMC
                    c.    Low Voltage System:    Conduit Stubs or Conduit System
                    d.    Fire Alarm System:     EMT with red-painted couplings
                                                 and box covers

                    2) Cable:
                    - Feeders:    XHHW, THWN
                    - Branch Circuits:  THHN, XHHW
                    3) All cable shall be 600-Volt, single conductor copper.

             7.     Emergency System: Illuminated exit signs shall be provided
                    at each egress door from leased space as required by Code,
                    and shall be self-contained battery type or powered from
                    tenant supplied central battery system. Additional emergency
                    egress lighting within tenant spaces shall be provided as
                    required by Code and shall be of the battery-type.

             8.     Fire Alarm System: New smoke detectors will be provided in
                    all Corridors (30 feet on centers), Electrical Rooms and
                    Telephone Rooms. New "ADA" strobe audio/visual devices will
                    be installed throughout at one unit per 500 square feet. All
                    fire alarm devices shall match the building fire alarm
                    system, and shall be tested by the Landlord's alarm company
                    of record. Booster panel(s) shall be provided for new
                    audio/visual devices and connected to building Fire Alarm
                    System. Manual pull stations shall be provided at all
                    outdoor egress doors.

        D.   PLUMBING AND SPRINKLER SYSTEMS

             1.     Codes, Rules and Regulations: All work shall comply with all
                    state and local codes and requirements

             2.     Flushing, Testing and Chlorinating: All flushing, testing
                    and chlorinating required by code shall be performed.
                    Licensed plumbers shall perform all such testing. All test
                    wastes shall be disposed of in a manner approved of by the
                    Landlord.

             3.     Materials: All materials shall be new, suitable for the
                    intended use and permitted by code. Code requirements shall
                    be the minimum standard. Where this document requires
                    stricter standards, this document shall prevail.

                                     - 94 -


             4.     Piping, Fittings & Joints
                    a.    Water: Type "L" copper tubing with cast brass or
                          wrought copper fittings. Joints shall be made with
                          lead free, State Board approved solder.
                    b.    Soil, Waste & Vent: May be same as for Water, except
                          urinal wastes, or: No-Hub cast iron soil pipe and
                          fittings. Joints shall be made with CISPI couplings
                          with neoprene gaskets and stainless steel clamps

             5.     Water Valves: Two or three piece, bronze bodied, stainless
                    steel ball, full port, ball valves with threaded ends and
                    solder adaptors. WOG working pressure of 150 psi.

             6.     Fixtures: All fixtures shall be new, suitable for the
                    intended use, energy and water conserving (water closet
                    flush valves at 1.6 gpf, urinal flush valves at 1.0 gpf,
                    shower heads at 3.0 gpm or less and lavatory faucets at 0.25
                    gallons of hot water per cycle).

             7.     Building Systems Tenant Connections
                    a.    Cold Water: Water supply connections are available at
                          the toilet cores on each floor. Valved and capped
                          connections are provided to permit Tenant connections
                          to be easily made. Tenants shall leave full line-size
                          valved and capped connections at the point of
                          connection to Landlord systems for other Tenants
                          future use.
                    b.    Soil/Waste/Vent Connections: Available at the toilet
                          cores on each floor. Capped connections are provided
                          to permit Tenant connections to be easily made.
                          Tenants shall leave full line-size valved and capped
                          connections at the point of connection to Landlord
                          systems for other Tenants future use.
                    c.    Hot Water: Tenant hot water will be provided by the
                          Tenant, by means of electric hot water heaters. Water
                          heaters shall be equipped with "Safe Waste" pans and
                          drain piping. Safe Waste drain piping shall be
                          connected by indirect means into the Sanitary system.

             8.     Tenant Area Wet Pipe Sprinkler Systems:
                    a.    Sprinkler piping systems in tenant areas are to be
                          designed not to exceed the number of sprinkler heads
                          that exist in the space to be renovated.
                    b.    If additional sprinkler heads are required to be
                          connected to existing sprinkler piping the tenant's
                          fire protection contractor shall verify that the
                          existing piping can support demands generated by the
                          additional sprinkler heads.
                    c.    New sprinkler heads are to be concealed type with
                          white cover plates similar to Reliable Model G4A quick
                          response concealed sprinkler.

                                     - 95 -


                    d.    All pipe, fittings, hangers, devices and design are to
                          be in accordance with the requirements of the
                          Massachusetts State Building Code.

        E.   FIRE SUPPRESSION, DETECTION, AND ALARM SYSTEMS

             1.     CODES, RULES AND REGULATIONS: All work shall comply with all
                    state and local codes and requirements. Code requirements
                    shall be the minimum standard. Where this document requires
                    stricter standards, this document shall prevail.

             2.     INSTALLATION:
                    a.    Shutdowns: The Fire Protection Subcontractor shall
                          work with the Owner in maintaining integrity of all
                          fire protection systems in the building including
                          those on floors not under renovation. Coordinate and
                          minimize any and all shutdowns. Shutdowns of existing
                          systems shall be scheduled well in advance with the
                          Owner to occur at the Owner's convenience. In no case
                          shall the fire protection system be shut down during
                          the off hours of the work day without a fire watch.
                          The system shall be returned to its normal operating
                          condition at the end of each work day.
                    b.    Demolition: The Fire Protection Subcontractor shall
                          perform all of the work involved in shutting down the
                          existing system, cutting existing piping,
                          disconnecting existing devices and related equipment,
                          and plugging existing piping for removal from the
                          building. The fire protection contractor shall cut or
                          otherwise disconnect existing piping which is
                          scheduled to be removed.
                    c.    Testing: Sprinkler system shall be tested to a
                          hydrostatic test of 200 psi for two (2) hours in
                          accordance with NFPA as a minimum testing requirement.
                          Existing systems shall be tested to the extent of new
                          work added shall require. All testing of existing
                          systems shall comply with NFPA Standards as the
                          minimum. All electrical alarm devices are to be tested
                          and adjusted in conjunction with the Electrical and/or
                          Fire Alarm Subcontractors. Testing or retesting and
                          adjustment of these devices shall be at no additional
                          cost to the Owner. Testing and adjustment shall be as
                          required until these devices are performing as an
                          integral part of the total alarm system as specified
                          for that part of the work.
                    d.    Filling of Systems: Care shall be exercised in placing
                          the sprinkler system in operation and/or introducing
                          high pressure water into the fire protection piping
                          systems. Open valves slowly and maintain watch for
                          leaks in all systems for minimum of one (1) entire
                          work day. Any leaks developed shall be repaired under
                          this Contract, at no extra cost to the Owner

             3.     Emergency System: Illuminated exit signs shall be provided
                    as required by Code, and shall be self-contained battery
                    type or powered from tenant

                                     - 96 -


                    supplied central battery system. Emergency egress lighting
                    within tenant spaces shall be provided as required by Code
                    and shall be of the battery-type.

             4.     Fire Alarm System: New smoke detectors will be provided in
                    all Corridors (30 feet on centers), Electrical Rooms and
                    Telephone Rooms. New "ADA" strobe audio/visual devices will
                    be installed throughout as required. All fire alarm devices
                    shall match the building fire alarm system, and shall be
                    tested by the Landlord's alarm company of record.

        F.   COMMUNICATION SYSTEMS

             1.     The following is contact information for telecom providers
                    interested in providing service to the building:



                     Company        Representative         Telephone Number
                     -------        --------------         ----------------
                                                     
                     Verizon        Ms. Maggie MacDonald   (781) 939-3584
                     AT&T           Mr. John Lockner       (617) 476-4965
                     MCI Worldcom   Mr. Fred Schuler       (781) 902-6416
                     NEON           Mr. Vin Manoli         (508) 616-7835


             2.     The telephone/data system will consist of pull strings from
                    the outlets to above ceiling space and two-gang
                    telephone/data back box with a single gang faceplate.
             3.     All communications cabling and termination hardware shall be
                    supplied by tenant.
             4.     The tenant is responsible for providing room(s) within
                    tenant space for the location of electronic equipment and
                    the termination of all station and backbone cabling.
             5.     The tenant will provide conduit from base building telephone
                    room to tenant space.
             6.     The building standard will be CAT 5e.
             7.     The base building riser closets shall not be used by tenant
                    for the termination of station cabling or tenant equipment.

                                     - 97 -


                                    EXHIBIT I

                             CLEANING SPECIFICATIONS

A.      Office Area: None

B.      Lavatories: None

C.      Main Lobby, Elevators, Building Exterior and Corridors

        Daily:      (Monday through Friday, inclusive, legal holidays excepted.)

        1.      Sweep and wash all floors.

        2.      Wash all rubber mats.

        3.      Clean elevators, wash or vacuum floors, wipe down walls and
                doors.

        4.      Spot clean any metal work inside lobby.

        5.      Spot clean any metal work surrounding Building entrance doors.

        Monthly:    All resilient tile floors in public areas to be treated
                    equivalent to spray buffing.

D.      Window Cleaning

        Windows of exterior walls will be washed quarterly.

                                     - 98 -


                                    EXHIBIT J

                                  STACKING PLAN

                               (follows this page)

Set forth below is the legend for the Stacking Plan:

        1.    Space designated with the letters "FOS-E" is First Offer Space,
currently subject to an Existing Lease.

        2.    Space designated with the letters "FOS-NE" is First Offer Space,
not currently subject to an Existing Lease.

        3.    Space designated with the letters "FOS-E1" is First Offer Space
comprising the 5,997 s.f. on eighth floor west referred to in Section 2.6 as
space not currently subject to an Existing Lease but subject to a first offer
right granted to an Existing Tenant.

        4.    Space designated with the letters "SPECIAL" is the Special First
Offer Space, comprising approximately 8,167 s.f. on fifth floor east and the
entire fourth floor east referred to in Section 2.6.

        5.    Space designated with the letters NO is not First Offer Space
(subject to the provisions of the first paragraph of Section 2.6 in the case of
space designated NO on the first floor (east), third floor (east) and eighth
floor (east).

                                     - 99 -


                                    EXHIBIT K

                                      SNDA

                               (follows this page)

                                     - 100 -


                                    EXHIBIT L

                              INTENTIONALLY OMITTED

                                     - 101 -


                                    EXHIBIT M

                              APPROVED CONTRACTORS

1. Creative Office Pavilion           Office Furniture
   One Design Center  - Suite 734
   Boston, MA   02210
   Scott Peckham - 617.956.4146

2. H Perron
   448 Waverly St                     Locksmith
   Framingham, MA 01702
   John Perron - 508.875.3744

3. Systematics, Inc
   80 Lyman St                        High Density Filing
   Northborough, MA 01532
   Dan Clifford - 508.393.9100

4. Team AVS
   5 Alexander Road                   Security
   Billerica, MA 01821
   Andrew Abramowicz - 978.663.2222

5. Cranshaw Construction
   2310 Washington St                 Construction Manager
   Newton Lower Falls, MA 02462
   Mark Fitzgerald - 617.965.7300

6. Corporate Communication Services
   12 Park Street Suite 11            Tel / Data Cabling
   Webster, MA 01570
   Tom Sullivan - 1.800.345.2250

                                     - 102 -

EX-99.1

                                                                    EXHIBIT 99.1

                Written Statement of the Chief Executive Officer

     Pursuant to 18 U.S.C. Section 1350, I, the undersigned Chief Executive
Officer of Genzyme Corporation (the "Company"), hereby certify that the
Quarterly Report on Form 10-Q of the Company for the quarter ended September 30,
2002 (the "Report") fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained in
the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.


/s/ Henri A. Termeer
- -------------------------
Henri A. Termeer
Chief Executive Officer
November 14, 2002

EX-99.2

                                                                    EXHIBIT 99.2

                Written Statement of the Chief Financial Officer

     Pursuant to 18 U.S.C. Section 1350, I, the undersigned Chief Financial
Officer of Genzyme Corporation (the "Company"), hereby certify that the
Quarterly Report on Form 10-Q of the Company for the quarter ended September 30,
2002 (the "Report") fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934 and that information contained in
the Report fairly presents, in all material respects, the financial condition
and results of operations of the Company.


/s/ Michael S. Wyzga
- -------------------------
Michael S. Wyzga
Chief Financial Officer
November 14, 2002