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Exhibit 99.5
MANAGEMENT AND ACCOUNTING POLICIES GOVERNING
THE RELATIONSHIP OF GENZYME DIVISIONS
The board of directors of Genzyme Corporation (the "Genzyme Board" or "our
board") has adopted the following policies to govern the management of Genzyme
Surgical Products, Genzyme General, Genzyme Molecular Oncology and Genzyme
Tissue Repair, and the relationships between each division. Except as otherwise
provided in the policies, our board may modify or rescind the policies, or adopt
additional policies, in its sole discretion without approval of the
stockholders, subject only to our board's fiduciary duty to our stockholders.
1. PURPOSE OF GENZYME SURGICAL PRODUCTS, GENZYME GENERAL, GENZYME
MOLECULAR ONCOLOGY AND GENZYME TISSUE REPAIR. The purpose of Genzyme Surgical
Products is to create a business with a comprehensive approach to and portfolio
of devices, biomaterials, biotherapeutics and other products for the field of
biosurgery. The purpose of Genzyme General is to develop and market therapeutic
products and diagnostic services and products. The purpose of Genzyme Molecular
Oncology is to create a focused, integrated oncology business that will develop
and commercialize novel therapeutic and diagnostic products and services based
upon molecular tools and genomic information. The purpose of Genzyme Tissue
Repair is to create a business with a comprehensive approach to the field of
tissue repair by developing and commercializing a portfolio of novel products
for the treatment and prevention of serious tissue injury (excluding products
developed on behalf of GDP). In addition to the programs initially assigned to
each of Genzyme Surgical Products, Genzyme Molecular Oncology and Genzyme Tissue
Repair, it is expected that the product and service portfolio of each division
will expand through the addition of complementary programs, products and
services developed either within or outside of the division, including acquiring
or in-licensing programs, products and services from outside of Genzyme. Each of
Genzyme Surgical Products, Genzyme Molecular Oncology and Genzyme Tissue Repair
will be operated and managed similarly to Genzyme General except as provided
herein.
2. REVENUE ALLOCATION. Revenues from the sale or licensing of a
division's products and services to entities external to Genzyme Corporation
shall be credited to that division. Products and services normally sold by a
division to entities external to Genzyme Corporation that are used by other
divisions within Genzyme Corporation shall be recorded as interdivisional
revenues and interdivisional purchases subject to the policy regarding Other
Interdivisional Transactions.
3. EXPENSE ALLOCATION. Direct Expenses shall be charged to the division
for whose benefit the Direct Expenses have been incurred. Expenses other than
Direct Expenses shall be subject to the policy regarding Other Interdivisional
Transactions.
4. ASSET ALLOCATION. Assets that are exclusively dedicated to the
production of goods and services of a division shall be allocated to that
division. Production assets that are utilized by more than one division shall be
subject to the policy regarding Other Interdivisional Transactions.
5. TAX ALLOCATIONS. Income taxes shall be allocated to each division
based upon the financial statement income, taxable income, credits and other
amounts properly allocable to such division under generally accepted accounting
principles as if each division were a separate taxpayer; provided, however, that
as of the end of any fiscal quarter of Genzyme, any projected annual tax benefit
attributable to any division that cannot be
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utilized by such division to offset or reduce its current or deferred income tax
expense may be allocated to the other divisions in proportion to their taxable
income without any compensating payment or allocation
6. ACQUISITIONS OF PROGRAMS, PRODUCTS OR ASSETS. Upon the acquisition by
Genzyme from a third party of any programs, products or assets (whether by
acquisitions of assets or stock, merger, consolidation or otherwise), the
aggregate cost of the acquisition and the programs, products or assets acquired
shall be allocated among the divisions of Genzyme. In the case of material
acquisitions, such allocation shall be made in a manner determined by the
Genzyme Board to be fair and reasonable to each division and to the holders of
the common stock representing each division, taking into account such matters as
the Genzyme Board and its financial advisors, if any, deem relevant. Any such
determination will be final and binding on the holders of common stock.
7. DISPOSITION OF PROGRAMS, PRODUCTS OR ASSETS. Upon the sale, transfer,
assignment or other disposition by Genzyme of any program, product or asset not
consisting of all or substantially all of the assets of the division, all
proceeds from such disposition shall be allocated to the division to which the
program, product or asset had been allocated among such divisions based on their
respective interests in such program, product or asset. Such allocations shall
be made in a manner determined by the Genzyme Board to be fair and reasonable to
such divisions and to holders of the common stock representing such divisions,
taking into account such matters as the Genzyme Board and its financial
advisors, if any, deem relevant. Any such determination by the Genzyme Board
will be final and binding on the holders of common stock.
8. INTERDIVISIONAL ASSET TRANSFERS. The Genzyme Board may at any time and
from time to time reallocate any program, product or other asset from one
division to any other division. All such reallocations shall be done at fair
market value, determined by the Genzyme Board, taking into account, in the case
of a program under development, the commercial potential of such program, the
phase of clinical development of such program, the expenses associated with
realizing any income from such program, the likelihood and timing of any such
realization and other matters that the Genzyme Board and its financial advisors,
if any, deem relevant. The consideration for such reallocation may be paid by
one division to another in cash or other consideration with a value equal to the
fair market value of the assets being reallocated or, in the case of a
reallocation of assets from Genzyme General to Genzyme Surgical Products,
Genzyme Molecular Oncology or Genzyme Tissue Repair, the Genzyme Board may elect
to account for such reallocation as an increase in the Designated Shares
representing the division to which such assets are reallocated in accordance
with the provisions of Genzyme's articles of organization.
Notwithstanding the foregoing, no Key GMO Program or Key GTR Program, as
defined below, may be transferred out of Genzyme Molecular Oncology or Genzyme
Tissue Repair, respectively, without a class vote of the holders of the common
stock representing the division from which such Key GMO Program or Key GTR
Program is to be removed unless the Genzyme Board determines that (i) in the
case of a Key GMO Program, such Key GMO Program has application outside of the
field of oncology (in which case it may be transferred out only for the
non-oncology applications; provided, however that the SAGE Service (as herein
defined) may not be transferred out of Genzyme Molecular Oncology for any
application without the approval of the holders of the GZMO Stock voting as a
separate class) and (ii) in the case of a Key GTR Program, such Key GTR Program
has application outside of the field of tissue repair (in which case it may be
transferred out only for the non-tissue repair applications).
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A "Key GMO Program" is any of the following: (i) use of the Serial Analysis
of Gene Expression ("SAGE(TM)") technology licensed from The Johns Hopkins
University School of Medicine for third parties ("SAGE Service"); (ii) the
clinical program developing adenovirus vectors containing the tumor antigens
Ad-MART 1 or Ad-gp100 for the treatment of melanoma; (iii) the "suicide" gene
therapy research program developing adenovirus and lipid vectors containing
genes to enhance chemotherapy for oncology indications; (iv) the research
program developing adenovirus and lipid vectors containing tumor suppressor
genes for oncology indications; (v) the research program developing adenovirus
and lipid vectors containing genes to regulate the immune system for oncology
indications, including heat shock proteins; (vi) the research program developing
antibody-based gene therapy for the treatment of tumors; and (vii) any
additional program, product or service being developed from time to time in
Genzyme Molecular Oncology which (a) constituted 20% or more of the research and
development budget of Genzyme Molecular Oncology in any one of the three most
recently completed fiscal years or (b) has had a cumulative investment of $8
million or more in research and development expenses by Genzyme Molecular
Oncology.
A "Key GTR Program" is any of the following: (i) Vianain(R) for debridement
of necrotic or damaged tissue; (ii) TGF-SS(2) for all indications licensed from
Celtrix as of December 16, 1994; (iii) Epicel(TM) cultured epithelial cell
autografts for tissue replacement or repair; (iv) Acticel(TM) cultured
epithelial cell allografts for tissue replacement or repair; (v) Carticel(R)
Autologous Cultured Chondrocyte Service; and (vi) any additional tissue repair
program or product being developed from time to time in Genzyme Tissue Repair
which (a) constituted 20% or more of the research and development budget of
Genzyme Tissue Repair in any one of the three most recently completed fiscal
years or (b) has had a cumulative investment of $8 million or more in research
and development expenses by Genzyme Tissue Repair.
The foregoing policies regarding transfers of assets between divisions will
not be changed by the Genzyme Board without the approval of the holders of the
GZSP Stock, the GZMO Stock and the GZTR Stock, each voting as a separate class;
provided, however, that if a policy change affects one or more, but not all of,
Genzyme Surgical Products, Genzyme Molecular Oncology and/or Genzyme Tissue
Repair, only holders of shares representing the affected division(s) will be
entitled to vote on such matter.
9. OTHER INTERDIVISIONAL TRANSACTIONS. This policy shall cover
interdivisional transactions other than asset transfers, which shall be subject
to the policy regarding Interdivisional Asset Transfers. From time to time, a
division may engage in transactions directly with one or more other divisions or
jointly with one or more other divisions and one or more third parties. Such
transactions may include agreements by one division to provide products and
services for use by another division and joint venture or other collaborative
arrangements involving more than one division to develop new products and
services jointly and with third parties. Such transactions shall be subject to
the following conditions:
(a) Research and development (including clinical and regulatory support),
distribution, sales, marketing, and general and administrative services
(including allocated space) performed by one division for the benefit of another
division will be charged to the division for which work is performed on a cost
basis. Direct costs shall be allocated in a manner described above under
"Expense Allocation" and such division performing the work will not recognize
revenue as a result of performing such work. Direct labor and indirect costs
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shall be allocated in a reasonable and consistent manner based on the
utilization by the division of the services to which such costs relate.
(b) Manufacturing of goods and performance of services by one division
exclusively for the benefit of another division and not for external sale shall
be charged to the division for which the work is performed on a cost basis.
Manufacturing costs shall include an interest charge on the gross fixed assets
employed in such manufacturing process. Gross fixed assets in this case shall be
determined at the beginning of each fiscal year for the facility used. The
interest rate in this case shall be the short term borrowing rate of Genzyme
Corporation at the beginning of each fiscal year. Direct labor and indirect
costs shall be allocated in a reasonable and consistent manner based on the
receipt of benefit by the division of the goods and services to which such costs
relate. The division performing such work will not recognize revenue as a result
of performing such work.
(c) Other than Research and development (including clinical and regulatory
support), manufacturing, distribution, sales, marketing, general and
administrative services (including allocated space), interdivisional
transactions shall be on terms and conditions that would be obtainable in
transactions negotiated at arm's length with unaffiliated third parties. The
division performing such work will not recognize revenue as a result of
performing such work.
(d) Any interdivisional transaction (i) to be performed on terms and
conditions that deviate from the policies set forth in subparagraphs (a), (b) or
(c) above and (ii) that is material to one or more of the participating
divisions will require approval by the Genzyme Board, which approval shall
include a determination by the Genzyme Board that the transaction is fair and
reasonable to each participating division and to the holders of the common stock
representing each such division.
(e) Loans may be made from time to time between divisions. Any such loan of
$1 million or less will mature within 18 months and interest will accrue at the
best borrowing rate available to Genzyme for a loan of like type and duration.
Amounts borrowed in excess of $1 million will require approval of the Genzyme
Board, which approval shall include a determination by the Genzyme Board that
the material terms of such loan, including the interest rate and maturity date,
are fair and reasonable to each participating division and to holders of the
common stock representing such division.
(f) All material interdivisional transactions shall be reduced to service
contracts and signed by an authorized member of the management team of affected
divisions.
10. ACCESS TO TECHNOLOGY AND KNOW-HOW. Each division of Genzyme
Corporation shall have unrestricted access to all technology and know-how of the
Corporation that may be made useful to such division's business, subject to any
obligations or limitations applicable to Genzyme and its divisions.
11. DISPOSITION OF GZSP, GZMO AND GZTR DESIGNATED SHARES.
(a) The GZSP Designated Shares, the GZMO Designated Shares and the GZTR
Designated Shares may be (i) issued upon the exercise or conversion of
outstanding stock options, warrants or convertible securities allocated to
Genzyme General, (ii) subject to the restrictions set forth in Paragraph 13,
sold for any valid business purpose, or
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(iii) distributed as a dividend to the holders of shares of GENZ Stock, all as
determined from time to time by the Genzyme Board in its sole discretion.
(b) If, as of June 30 of each year starting on June 30, 2000 the number of
GZSP Designated Shares on such date exceeds the sum of (i) ten percent (10%) of
the number of shares of GZSP Stock then issued and outstanding and (ii) the
number of shares of GZSP Stock issuable on such date with respect to stock
options, stock purchase rights, warrants or other securities convertible into or
exercisable for shares of GZSP Stock outstanding on such date, substantially all
GZSP Designated Shares will be distributed to holders of record of GENZ Stock,
subject to reservation of a number of such shares equal to the sum of (x) the
number of GZSP Designated Shares reserved for issuance with respect to stock
options, stock purchase rights, warrants or other securities convertible into or
exercisable for shares of GENZ Stock outstanding on such date ("GENZ Convertible
Securities") as a result of anti-dilution adjustments required by the terms of
such instruments or approved by the Genzyme Board and (y) the number of GZSP
Designated Shares reserved by the Genzyme Board as of such date for sale not
later than six months after such date, the proceeds of which sale will be
allocated to Genzyme General.
(c) If, as of November 30 of each year, the number of GZMO Designated
Shares on such date exceeds the sum of (i) ten percent (10%) of the number of
shares of GZMO Stock then issued and outstanding and (ii) the number of shares
of GZMO Stock issuable on such date with respect to stock options, stock
purchase rights, warrants or other securities convertible into or exercisable
for shares of GZMO Stock outstanding on such date, substantially all GZMO
Designated Shares will be distributed to holders of record of GENZ Stock,
subject to reservation of a number of such shares equal to the sum of (x) the
number of GZMO Designated Shares reserved for issuance upon the exercise or
conversion of GENZ Convertible Securities as a result of anti-dilution
adjustments required by the terms of such instruments or approved by the Genzyme
Board and (y) the number of GZMO Designated Shares reserved by the Genzyme Board
as of such date for sale not later than six months after such date, the proceeds
of which sale will be allocated to Genzyme General.
(d) If, as of May 31 of each year, the number of GZTR Designated Shares on
such date exceeds the sum of (i) ten percent (10%) of the number of shares of
GZTR Stock then issued and outstanding and (ii) the number of shares of GZTR
Stock issuable on such date with respect to stock options, stock purchase
rights, warrants or other securities convertible into or exercisable for shares
of GZTR Stock outstanding on such date, substantially all GZTR Designated Shares
will be distributed to holders of record of GENZ Stock (a "Distribution"),
subject to reservation of a number of such shares equal to the sum of (x) the
number of GZTR Designated Shares reserved for issuance upon the exercise or
conversion of GENZ Convertible Securities as a result of anti-dilution
adjustments required by the terms of such instruments or approved by the Genzyme
Board and (y) the number of GZTR Designated Shares reserved by the Genzyme Board
as of such date for sale not later than six months after such date, the proceeds
of which sale will be allocated to Genzyme General.
12. ISSUANCE AND SALE OF ADDITIONAL SHARES OF COMMON STOCK. When
additional shares of common stock are issued and sold by Genzyme, Genzyme will
identify (i) the number of such shares issued and sold for the account of the
division to which they relate, the proceeds of which will be allocated to and
reflected in the financial statements of such division and (ii) the number of
such shares issued and sold that shall reduce the number of Designated Shares of
such division. Notwithstanding the foregoing, Genzyme will not
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sell any GZSP Designated Shares, GZMO Designated Shares or GZTR Designated
Shares (except upon exercise or conversion of options, warrants or convertible
securities issued by Genzyme General that were adjusted as a result of a
dividend of GZSP, GZMO or GZTR Stock paid to holders of GENZ Stock) unless (i)
the Genzyme Board determines that Genzyme Surgical Products, Genzyme Molecular
Oncology or Genzyme Tissue Repair, as the case may be, has cash sufficient to
fund its operations for at least the next 12 months or (ii) shares of GZSP
Stock, GZMO Stock or GZTR Stock, as the case may be, are concurrently being sold
for the account of Genzyme Surgical Products, Genzyme Molecular Oncology or
Genzyme Tissue Repair, respectively, in an amount that will produce proceeds
sufficient to fund such division's cash needs for the next 12 months.
13. OPEN MARKET PURCHASES OF SHARES OF COMMON STOCK. Genzyme may make
open market purchases of its common stock in accordance with applicable
securities law requirements; provided, however, that in no event shall any such
purchases be made if as an immediate result thereof the number of Designated
Shares representing a division will exceed 60% of the number of shares of such
division outstanding plus such number of Designated Shares. Notwithstanding the
foregoing, within 90 days of any open market purchase of the common stock
representing any division, Genzyme may not exercise the right provided under its
articles of organization to exchange shares representing such division for cash
and/or shares of GENZ Stock.
14. CLASS VOTING. In addition to any stockholder approval required by
Massachusetts law, whenever the approval of the holders of the common stock
representing a division is required to take any action pursuant to these
policies or Genzyme's articles of organization, such requirement shall be
satisfied if a meeting of the holders of the common stock representing such
division is held at which a quorum is present and the votes cast in favor of the
proposed action exceed the votes cast against.
15. NON-COMPETE. Genzyme Surgical Products, Genzyme General, Genzyme
Molecular Oncology and Genzyme Tissue Repair shall not engage to any material
extent in each other's principal businesses other than through joint ventures or
other collaborative arrangements involving more than one division to develop new
products and services jointly and with third parties, which transactions shall
be subject to the conditions set forth in Paragraph 8. The divisions may compete
in a business which is not a principal business of another division. The Genzyme
Board may determine in its good faith business judgment whether any particular
activities of one division involve a material engagement in the principle
businesses of another division.
16. CORPORATE OPPORTUNITIES. The Genzyme Board will review any matter
which involves the allocation of a corporate opportunity to any of the
divisions, or in part to one division and in part to another division. In
accordance with Massachusetts law, the Genzyme Board will make its determination
with regard to the allocation of any such opportunity and the benefit of any
such opportunity in accordance with its good faith business judgment of the best
interests of Genzyme and all of its stockholders as a whole. Among the factors
that the Genzyme Board may consider in making this allocation are (i) whether a
particular corporate opportunity is principally related to the business of
Genzyme Surgical Products, Genzyme General, Genzyme Molecular Oncology or
Genzyme Tissue Repair; (ii) whether one division, because of its managerial or
operational expertise, will be better positioned to undertake the corporate
opportunity; (iii) whether one division, because of its financial resources,
will be better positioned to undertake the corporate opportunity; and (iv)
existing contractual agreements and restrictions.
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