UNITED STATES - A\C.T COURT

SOUTHERN D T OF NEW YORK

--------------- -----------------------------RORY RI and JOHN LEWIS,

Plaintifs.

-against-

HENRI A. TERMEER, GENZYME CORPORATTON,

CONSTANTINE E. ANNAGNOSTOPOU.OS,

DOUGLAS BERTHIAUME, HENRY BLAIR,ROBERT CARPENTER, CHARLES COONEY,VICTOR DZAU, CONNIE MACK III, andMICHAEL S. WYZG-A.

Case No. 03 Civ. )

JURY TRIAL DEMANDED

Defendants.

COMPLAINT

Rory Riggs and John Lewis ("Plaintiffs"), by their undersigned counsel, Buies, Schiller &

Flexner LLP, for their Complaint allege, upon personal knowledge of their own acts and acts

taking place in their presence, and upon information and belief as to all other matters, as follows:

I. NATURE OF THE ACTION

1. This action arises out of materially false and misleading representations and

Omissions in connection with (a) the merger and acquisition by Genzym.e Corporation

(`-Genzyme") of Biomatrix Inc. ("Biornatrix"), which led to the creation of the Genzyme

Biosurgery Division ("Biosurgery"), (b) the manipulation of the share price of Biosurgeryt, and

(c) the impending forced sale and exchange on June 30, 2003, of all outstanding shares of the

Biosurgery tracking stock for Genzyme General Division ("Gcnzyme General") stock at a small

fraction of I3iosurgery's true market value.

03 CV ., 40I4

2. Biosurgery is the leading biomateriais business with a dominant market position

through its Synvisc and Seprafilm products in each of the two most important sectors of

biomaterials, osteoarthritis and surgical adhesion products. For 2003, Biosurgery is projected to

earn revenues in these two sectors alone of nearly $200 million, at a growth rate of about 30%

over 2002, and with gross margins in excess of 70%. Based upon a conservative enterprise

valuation, the value of Biosurgery - which Genzyme General intends to take from Biosurgery

shareholders through the forced share exchange - is at least $1.5-2 billion. Genzyme's Board

approved that taking for just $72 million worth of Genzyme General stock --- a purported 30%

premium over Gen7yme's "valuation" ofBiosurgery at just $55 million (less than 5% of fair

market value). If the share exchange occurs, Genzyme General will acquire a business that even

Defendants acknowledge could be worth $20/share for just $1.77/share.

3. Although Genzynie Corporation has a single Board of Directors, Genzyme is

composed of three, separately-operated businesses: Genzyme General Division, Genzyme

Biosurgery Division., and Genzytne Molecular Oncology Division ("Molecular Oncology").

Each Genzyme Division is associated with a separate series of Genzyme common stock

("tracking stock") that (enzyme represents is designed. to "track" the performance and value of

that Division, by contrast to the performance and value of Genzyme Corporation as a whole.

Gen zyme' s S EC filings further represent that Genzyme operates under Management and

Accounting Policies that (a) mandate an appropriate division-specific recognition and allocation

of revenues, assets, expenses, liabilities, and research and development costs, and (b) are

intended to ensure that the holders of each Division's tracking stock will realize the value of the

performance of that Division. -

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4, The tracking stock structure was critical to the formation of Genzyme Biosurgery.

Biosurgery was created through the merger, on December 19, 2000, of an independently held

company, Biomatrix, Inc., with two Genzyme entities, the Genzyme Surgical Products Division

and the Genzyme Tissue Repair Division. Prior to the merger, Biomatrix was a profitable

company with a blockbuster product, Synvisc, and a highly valuable pipeline of products in

research and development. Genzyme had four separate Divisions, Genayme General, Molecular

Oncology, the Surgical Products Division ("Surgical Products"), and the Tissue Repair Division('

Tissue Repair"), each with their own tracking stock. The merger was structured through (a) a

share exchange in which Biomnatrix shares were exchanged on a one-for-one basis for newly

issued Genzyme Biosurgery shares or for cash at $37.00 per Biomatrix share, with the cash-out

part of the merger involving a payment of about $245 million for 28.38% of the Biomatrix shares

outstanding, and (b) a simultaneous exchange of all outstanding Surgical Products and Tissue

Repair shares for Biosurgery shares.

5. A precondition to the agreement of Biomatrix and its shareholders to the merger

was that the converted equity interests of Biomatrix shareholders in the newly created Genzyme

Biosurgery would closely track the value of Biosurgery and the Biomatrix assets, including

Synvisc, transferred to Biusurgery. In each of the Registration Statement, Proxy, and Prospectus

for the merger, Genzyme reaffirmed that: "Unlike typical common stock, each of Genzyme's

tracking stocks is designed to track the financial performance of a specified subset of its business

isoperations and its allocated assets, rather than operations and assets of the entire company."

6. Dr. Endre Balazs and Rory Riggs, as, respectively, the Chief Executive

OffceriC. hief Scientific Officer and President of Biomatrix, personally negotiated the terms of

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the merger with Genzyme Corporation. To induce Biornatrix to agree to the merger, in February

2000, each of Genzyme's Executive Vice President Earl ("Duke' Collier, and its in-house

counsel Bob IIesslein, met with Riggs and specifically represented to Riggs that, consistent with

the mandates of corporate law, the Genzyme Board would owe distinct fiduciary duties to the

new shareholders of Genzyme Biosurgery, and that no forced share exchange would occur unless

based upon a 30% premium over the fair market value of the Biosurgery Division. Collier and

Hess] ein each further represented to Riggs that the elimination of the tracking stock structure

through the utilization of the option for the forced share exchange would not occur unless the

Genzyme Corporation was obligated to modify the structure to satisfy legal mandates such as

SEC or regulatory requirements . The merger would not have occurred without these specific

assurances . As recently as May 28, 2002, Collier specifically confirmed to Lewis that Genzyme

could not simply force the exchange of Biosurgery shares for Genzyme General shares without

prior announcement to the public markets, and that for Genzyme to do so without such notice

would be "wrong and unfair."

Termier and Collier further represented to Balazs and Riggs on multiple occasions

from late 1.999 through the completion of the merger in December 2000, that, if the merger

occurred, Cienzyrne would operate the new Biosurgery company to accelerate development and

regulatory approval of products in the Biomatrix pipeline, and to maximize the growth and

profitability of the new entity to the benefit oftthe holders of its tracking stock. In addition, to

induce Biomatrix to agree to the merger, Collier represented on January 24, 2000, in Genzyme's

written bid to Biomatrix to conclude the merger, that "[W]e believe Genzyme can bring its

significant resources to bear in leveraging Biomatrix's proprietary technology to expand the

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portfolio of products offered by both companies." Collier also represented, in bid letters to

Biomatrix dated February 7 and 28, 2000, that "the combination wri11 allow the combined

enterprise to better leverage its manufacturing capabilities, its established supplier, distribution,

and marketing relationships, and its financial relationships across product offerings." In the

Amended Agreement and Plan of Merger ("Merger Agreement"), Genzyme represented the

following : "SELF-SUSTAINING PROGRAM.... Genzyme believes that combining .Biomatrix'

positive cash flow from product sales with the financial resources of the two Genzyme divisions

has the potential to create in Biosurgery a self-sustaining business capable of supporting a full

product research and development program." In May 2000, Collier confirmed to Lewis that

Genzyme would operate Biosurgery as a profitable, stand-alone business, expand the Synvisc

franchise, and develop and commercialize the other Bio.tnatrix products, and that the Biosurgery

tracking stock would reflect the actual value of the Biosurgery assets.

8. Genzyme promised that Biomatrix shareholders would have, on the one hand, the

benefits of synergy with Genzyme marketing, sales, regulatory, and clinical trial operations, and.,

on the other, equity returns that specifically "tracked" the value and profitability of the Biornatrix

products and other assets of the new, "self-sustaining" Genzyme Biosurgery entity. 4i

9. Contrary to Genzyme's representations, Geuzyme never intended to operate

Biosurgery as a profitable, growth enterprise. Henri Termeer, Genzyme's Chief Executive `..' .,

Officer, President, and Chairman of the Board, in fact intended to acquu'e the assets of Bionmatrix

at a fraction. of their fair market value through a fraudulently induced merger, stock manipulation

and misuse of Genzyme's own tracking stock structure, and, ultimately, a forced share exchange

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that would squeeze out the former Biomatrix shareholders from their interests in the performance

and value of Synvisc and the other assets of the new Biosurgery entity.

10. Genzyme's principal, but undisclosed, objectives in the merger were twofold.

First, Genzyme intended to mismanage Biosurgery and reduce its near-term profitability in order

to drive down its tracking stock price and enable a forced share exchange through creating and

maximizing disparities between Biosurgery's share price and its fair market value. Genzyme

intended by this means to acquire Synvisc and other Biomatrix assets at a fraction of the cost of

an outright acquisition . The Genzyme share exchange provision operates on the basis of a 20-

day trading period that commences thirty days before an announcement of a forced exchange,

allowing the Genzyme Board to select a past trading period on the basis of perfect information as

to the historical trading prices of Biosurgery and the actual fair market value of Biosurgery. By

engaging in stock manipulation and in mismanagement of the operations of Biosurgery,

Genzyme could depress the Biosurgery share price below fair market value to ensure that

Biosurgery shareholders would be squeezed out at the lowest exchange ratio possible. 4'ermeer

and Genzyme in fact did take advantage of these devices to reach the currently planned forced

exchange that values Biosurgery on the basis of past average closing prices for the period from

March 26 to April 23 ("March-April trading period") -- a time period selected by Defendants

Termeer, Michael Wyzga, the Chief Financial Officer of Genzyme, and Genzyme's Board, that

exactly coincides with the lowest share prices in Biosurgery 's history - at just $1.36/share.

11. Second, Genzyme and Termeer intended to operate Biosuigery to enable

Genzyme to engage in earnings management for its core Genzyme General Division. Contrary to

Collier' s representations , Genzynie and Termeer never intended to use Genryme General assets

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to increase the leverage or profitability of Biosurgery; the promised "synergy" was in fact a one-

way street. Instead, Termeer and Genzyme intended to, and in fact did, transfer Biosurgery assets

to Genzyrne General with the goal of ensuring that Genzyme General would consistently hit

earning projections, by, among other means, (a) creating and transferring tax losses from

Riosurgery to Genzyme General to increase Genzyme General profitability, and (b) causing

Biosurgery to subsidize Genzyme General research and development expenses and gene therapy

clinical trials. The effect of this earnings management was intended to, and did, increase the

share price of Genzyme General and drive down the effective buy-out price for Biosurgery.

12. After the merger, in a complete lapse of corporate governance at every level,

Genzyme operated Biosurgery to realize these objectives and benefits for Genzyme General

shareholders to the detriment of both Biosurgery shareholders and the interests of Genzyme

Corporation as a whole. Genzyme Corporation has been injured because the operational

mismanagement of Biosurgery and the inter-divisional transfers have not only depressed the

profitability of Biosurgery but also reduced the assets and revenues of Genzyme Corporation as a

whole. By contrast, if Genzyme had managed Biosurgery consistent with fiduciary duties to the

Biosurgery shareholders, Biosurgery would have experienced sharply increased profitability,

market acceptance of the tracking stock structure, an aggregate increase in the total assets and

income of Cenzyme Corporation, greater financial resources and access to the capital markets,

and expanded synergies between the Biosurgery Division and the rest of the Genzyme

Corporation in research and development, marketing, sales, regulatory approval processes,

development of physician and patient goodwill and acceptance of biotech products, all to the

benefit of Genzymc Corporation as a whole.

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13. Despite its blockbuster products, Biosurgery has never had a profitable quarter. It

has paid nearly $125 million in Genzyme research and development costs, including subsidizing

the Genzyme General gene therapy clinical trials, without realizing a single dollar of benefit for

I3iosurgery shareholders. Development, clinical trials, and regulatory approvals of new Synvisc

applications and other products in the Biosurgery pipeline have been deferred or delayed so that

no additional income would be realized by Biosurgery before the Biosurgery assets could be

acquired at a huge discount by Genzyme General.

14. Although a fundamental purpose of tracking stock is to increase the transparency

to the market of the business that the stock is designed to track, thereby reducing any asymmetry

of information between investors and the corporation, Genzymc has made analyst coverage

unattractive and virtually impossible. No analyst currently covers Biosurgery and few analysts

ever covered Biosurgery for more than one quarter. Termeer caused and allowed Biosurgery

President Collier consistently to miss projections as to earnings, further dampening demand for

Biosurgery stock. Despite Collier's resulting lack of credibility to the market, Termeer, who

functioned as the CEO of Biosurgery as well as of Genzyme Corporation, never addressed

investors or analysts in Biosurgery conference calls from the day after the merger was concluded

until the day that Genzyme announced its plan to eliminate the tracking stock structure.

15. Genzyme, Termeer, and Collier deliberately withheld and delayed disclosing to

the market information material to the value of Biosurgery in order to ensure that the Biosurgery

trading price used in the forced exchange would not reflect the fair market value of Bic surgery.

Genzyme did not disclose until April 16, near the end of the March-April trading period, that

Synvisc sales for the first quarter of 2003 were up over 30% compared to the first quarter of

2002, doubling prior estimates of growth. Genzyme did not disclose until the same date that

Genzyme expected to obtain FDA approval this year for U.S. clinical trials of Synvisc in hip

applications, or until May 8 that Genzyme further expected Synvisc to be the "best product ...

best trial ever done in this product category" and to show "the utility of this product [Synvisc] in

all joints going forward." Genzyme withheld until May 8 that Biosu.rgery's huge investments in

research and development were likely to result in new formulations and applications of its

flagship Synvisc and Seprafilm products, including a "pretty substantial third generation" of the

already unique Synvise product. Prior to May 8, the market had no ability to place a meaningful

value on the research and development programs funded by l3iosurgery. Genz,yme withheld until

May 8 that ongoing investments in the unprofitable cardiothoracic device business would cease,

resulting in substantial annual savings of millions of do]Iars, and that the business would be sold,

resulting in additional revenues. Termeer never represented unti 1 May 16, 2003, that the Synvisc

product will be the leader in a market presenting opportunities of more than $4 billion in annual

end-market sales for knee treatment alone. Cienzyme did not disclose until the May 29, 2003,

shareholders' meeting that the third generation Synvisc product would likely exhibit "more

enduring pain relief" with a reduced injection schedule because it would "actually modify the

disease" of osteoarthritis itself. Genzme further did not disclose until May 29, 2003, that

Genzyme expected the end-market for Synvisc to nearly double after the approval of the product

in Japan in 2004. If Genzyme had disclosed these facts when the facts became known to the

corporation, the disclosures would have materially affected the Biosurgery share price during the

March-April trading period. In fact, taken together, the announcements made plain that

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F3iosurgery would be the fastest growing and most profitable biomaterials business in the

country.

16. The Genzyme Board of Directors , Termeer, and Genzynie's President of

Biosurgety, Collier, all own substantial holdings of Genzyme General stock that materially

affected their decisions regarding the management of Biosurgery and the forced share exchange.

Termeer owns over $109 million of Genzyme General stock and approximately $1.5 million of

Biosurgery stock. Genzyme Directors other than Termeer own about $25 million of Genzyme

Genera] stock and about $500 thousand of Biosurgery stock. Neither Termeer nor any Genzyme

Director, including all Directors on the "Special Committee" that recommended the elimination

of the tracking stock structure, owns stock in Biosurgery that is worth more than 2% of the value

of his interest in Genzyme General. Genyzme had no disinterested Director to evaluate the

fairness of the substance and timing of the forced exchange. Top Biosurgery management,

including Biosurgery President Collier, were compensated primarily in stock options for

Genzyme General, not Biosurgery, to ensure that the economic interests of Biosurgery

management would be aligned with the interests of Termeer and Genzyme General, rather than

with the Biosurgery shareholders.

IT On May 8, 2003, after a run-up in the share price of Biosurgery to $2.51 /share due

to Genzyme's positive disclosures on April 16, Termeer announced that Genzyme's Board had

decided to require the forced exchange of all outstanding Biosurgery shares for Genzyme General

shares at a ratio based upon a valuation of Biosurgery at $1.36/share. That corresponds to a

value of Biosurgery's entire business at about $55 million. Genzyme's valuation of Biosurgery

for purposes of the share exchange is. (a) based upon an average of past trading prices that is the

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lowest in Biosurgery's entire history; (b) about one-fifteenth of what Genzyme Chairman of the

Audit Committee acknowledged may be a fair market valuation; (e) less than Genzyane's

guidance for Biosurgery's research and development expenses in 2003 alone; (d) less than the

amount of profit that Biosurgery anticipated to realize from sales of.just one of its products,

Synvisc, which is growing at, about 30%, in 2003 alone; (e) only 20% of Biosurgery's projected

2003 revenues, where acquisitions of growing biotech companies are typically made at a multiple

of 5 times revenues or more - not one-fifth of revenues; and (f) equivalent to the value that

Cienyzmc placed internally on Biosurgery's cardiothoracic business alone - the least significant

of its operations - which Gcnzyme announced it will sell after the share exchange is concluded.

18. Termeer also stated that Genzyme Molecular Oncology shares would be

exchanged for Genzyme General shares. The net effect of the share exchanges would be to leave

Gcnzymc with a single class of common stock for the corporation as a whole, thus eliminating

the tracking stock structure. Tcrmccr confirmed that the acquisition of Biosurgery and Molecular

Oncology into Genzvmc General would have no impact at all on the prior earnings guidance for

Genzyme General. Because the Molecular Oncology business is expected to continue incurring

operating losses, the only reason that Genzyme General earnings guidance will not be negatively

impacted is that the Biosurgery operations - after reporting losses every quarter under Genzymeis

mismanagement - are expected to earn sufficiently high current profits to cover both the ongoing

Molecular Oncology losses and the dilution from the exchange of Molecular Oncology shares.

19. The cumulative effect of Genzyme's mismanagement and nondisclosures of

material information to the market has been severely depressed Biosurgery performance and

inflated valuations of Genzyme General, leading, as intended by Termeer, to share prices for

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Biosurgery and Genzyme General that do not accurately reflect either the underlying or the

relative values of the two businesses. The scheduled exchange based upon the average closing

price of Biosurgery shares (at $1.36) plus 30% (yielding $1.77) and Genzyme General shares (at.

$35.98 ) for the March-April trading period will not reflect a premium over Biosurgery's fair

market value, as required by Genzyme's corporate charter, but instead will reflect a massive

discount. In the absence of Genzyme's deliberate mismanagement of Biosurgery, its

discouragement of analyst coverage, and its manipulation of Biosurgery share prices, the closing

prices for Biosurgery stock during the March-April trading period would have been at least

$201share and likely much higher.

20. Indeed, on or about May 14, the Chairman of Genzyme's Audit Committee,

Defendant Berthiaume, acknowledged to Whit Gardner, a principal of Gardner Lewis Asset

Management and partner of Plaintiff Lewis, that Biosurgery shares could be valued at $241share.

Genzyme CEO Tcrmeer admitted to Gardner on the same day that Biosurgery stock is worth far

more than the share price that Genzyme General will pay in the exchange.

23.. If the tracking stock structure is eliminated, Termeer, every member ofthe

Genzyme Board of Directors, and all Genzyme General shareholders will stand to reap an

extraordinary and unjustifiable windfall at the direct expense of Biosurgery shareholders.

Tkuough the forced share exchange, Genzyme General shareholders will acquire a business worth

at least $1.5-2 billion for $72 million of stock. In anticipation of this conversion of the rights of

the Biosurgery shareholders and the below-market acquisition, the market capitalization of

Genzyme General has already increased by over $1 billion since the May 8 announcement, and

the Cenzyme General shares held by Termeer and the Director Defendants are up $27.9 million.

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II. JURISDICTION AND VENUE

22. This action arises under Sections U. 12(a)(2), and 15 of the Securities Act of

1933 (the "Securities Act"), 15 U.S.C. §§ 77k, 771(a)(2), and 77(o), Sections 10(b), 14(a), 18,

and 20 (a) of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b),

78n(a) , 78r, and 77t(a), and Rules I Ob-5 and 14a-9 thereunder, 17 C.F.R. § § 240. l Ob-5, 240.14a-

9, and common law.

23. This Court has subject matter jurisdiction over this action pursuant to Section

22(a) of the Securities Act, 15 U.S.C. § 77v( a), Section 27 of the Exchange Act, 15 U.S.C.

§ 78aa, and 28 U.S.C. §§ 1331 and 1332. The amount in controversy exceeds the sum or value

of $75,004 for each of the Plaintiffs , exclusive of interest and costs . The Court has supplemental

jurisdiction over the state claims pursuant to 28 U.S.C. § 1367.

24. Venue is proper in this district pursuant to Section 22(a) of the Securities Act, 15

U.S.C. § 77v(a), Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28 U.S.C. § 1391. Many

of the transactions, acts, practices and courses of business alleged herein took place within the

Southern District of New York, including, but not limited to, use of the mails and other interstate

facilities to communicate with and disseminate false and misleading statements to investors. The

shares of Genzyme Corporation, including the tracking stock of Genzyme Biosurgery, are

publicly traded in Manhattan on the National Association of Securities Dealers Automated

Quotation System (NASDAQ) stock market. The Defendants have carried out the acts described

herein by the means and instrumentalities of interstate commerce, including, but not limited to,

use of United States mails , interstate telephone conununications, and the facilities of national

securities exchanges. In addition, Plaintiff Rory Riggs resides in this district.

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III. THE PARTIES

25. Plaintiff Rory Riggs ("Riggs"), former President of Biomatrix, has owned

approximately 748,000 shares of Biosi-u-gery tracking stock at all times relevant to the matters

pleaded herein. Riggs resides in this district.

26. Plaintiff John Lewis ("Lewis"), President of Gardner Lewis Asset Management,

owns approximately 1,100,000 shares of Biosurgery tracking stock and has owned at least

100,000 shares at all times relevant to the matters pleaded herein . Gardner Lewis Asset

Management holds an additional 4.5 million shares of Biosurgcry tracking stock for its clients.

Lewis resides in Pennsylvania.

27. Defendant Henri A. Termeer ("Termeer") is the Chief Executive Officer,

President, and Chairman of the Board of Genzyrne Corporation, and, in that role, Chief

Executive Officer of Bios urgery with fiduciary responsibilities to the Biosurgery shareholders.

1'enneer signed the registration statement for the merger of Genzymc Corporation and l3iomalrix

Inc., dated October 27, 2000 ("Registration Statement"), which includes the joint proxy

statement and prospectus for the merger ("Proxy-Prospectus"). On May 8, 2003, Termeer held

approximately 2,795,933 shares of Genzyme General stock worth over $109 million and 668,433

shares of Biosurgery tracking stock with a trading price of about $1.68 million. Termeer resides

in Massachusetts.

28. Defendant Genzyme Corporation is a biotechnology corporation organized under

the laws of Massachusetts and headquartered in Cambridge, Massachusetts. Genzyme

Corporation is composed of three separately-operated divisions represented by three separate

series of Gcnzyme common stock that, according to Genzyme, are designed to "track" the

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financial performance of each division and reflect its value to its shareholders. Genzyme's

tracking stock includes Genzyme Biosurgery stock, Genzyme General stock, and Genzymc

Molecular Oncology stock. There is a single Board of Directors of Genzyme Corporation

common to all operating divisions.

29. Defendants Constantine E. Anagnostopoulos ("Anagnostopoulos"), Douglas

Berthiaume ("Berthiaume"), Henry Blair (`Blair"), Robert Carpenter ("Carpenter"), Charles

Cooney ("Cooney"), Victor Dzau ("Dzau"), and Connie Mack 11I ("Mack") are memhers of the

Board of Directors of Genzyme Corporation ("Director Defendants"), and together constitute the

special committee of the Board that recommended the eliminination of Gen.zyme's tracking stock

structure and the exchange of all Genz}, ne Biosurgery Division common stock for Genzymc

General Division common stock at an historically low valuation of Biosurgery stock. Each of the

Director Defendants, except for Dzau and !Flack, signed the Registration Statement and Proxy-

Prospectus, and each ofthe Director Defendants, except for Mack, was a director when the

Registration Statement went effective and when the merger between Genzyme and Biomatrix

was completed on December 19, 2000. Anagnostopoulos resides in Missouri; Berthiaume, Blair,

Carpenter, Cooney, and Dzau reside in Massachusetts; and Mack resides in Florida.

30. Defendant Michael S. Wyzga ("Wyzga") is the Chief Financial Officer and a

Senior Vice President of Genzyme Corporation. \Vyzga signed the Registration Statement and

Proxy-Prospectus, the Post-Effective Amendment No. 1 to the Registration Statement, dated

November 9; 2000, and the Form &-K, dated May 8, 2003, reporting Genzyme's decision to

exchange all outstanding shares of its Genzyme Biosurgery Division common stock and its

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Genzyme Molecular Oncology Division common stock for shares of its Genzyme General

Division common stock. Wyzga resides in Massachusetts.

31. As of May 8, 2003, the Director Defendants held shares in Genzyme General and

Biosurgery in approximately the following amounts: Carpenter, 279,372 shares, or $10.9

million, of Genzyme General stock, and 38,901 shares of Biosurgery stock trading at $97,641;

13crthiaume, 110,200 shares, or over $4.3 million, of Genzyme General stock, and 47,069 shares

of Biosurgery stock trading at $118 , 143; Anagnostopoulos , 77,100 shares , or over $3 million, of

Genzyme General stock, and 33,218 shares of Biosurgery stock trading at $83,377; Blair, 72,700

shares, or over $2.8 million, of Genzyrne General stock and 27.594 shares of.Biosurgery stock

trading at $69,260; Cooney, 47,736 shares, o r over $ 1.8 million, of Genzymne General stock and

37,359 shares of Biasurgery stock trading at $93,771; Mack, 20,000 shares, or $782,600, of

(ienzyme General stock and 10,000 shares of Biosurgery stock trading at $25,100; and Dzau,

18,000 shares, or $704,340, of Genzyme General stock and 10,000 shares of Biosurgery stock

trading at $25,1 00. Collectively, based on May 8 trading prices, the Director Defendants owned

approximately $24.28 million of Genzyme General stock and no more than $0.51 million of

Biosurgery stock.

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A. Biomatrix's Development of Synvisc

32. Prior to merging with Genzyme Corporation on December 19, 2000, Biomatrix

developed, manufactured, marketed, and sold a series of proprietary viscoelastic products made

of biological polymers called hylans. Hylans are chemically modified forms of the naturally

occurring hyaluronan, also known as hyaluronie acid or sodium hyaluronate, which is found in

the body and present in all tissues, particularly in joint tissues and synovial fluid. Hylans recreate

the role of hyaluronan in the body to protect, augment, supplement, separate, regulate, and

control the environment of cells. Biomatrix engineered and optimized the physical properties of

hylaris, such as molecular size, viscosity, elasticity, pseudoplasticity, and solidity, to create fluids,

gels, and solids for use in therapeutic medical applications and skin care. The Biomatrix hylans

have significantly enhanced physical properties compared to naturally occurring hyaluronan.

33. Biomatrix's leading product was Synvisc (Hylan G-F 20), a viscosupplementation

treatment for relieving knee pain caused by osteoarthritis that cannot be adequately treated with

painkillers or physical therapy. Synvisc is made of hylan A and hylan B biological polymers

manufactured from hyaluronan that is sourced from chicken combs. Synvisc is injected into

osteoarthritic knees to replace diseased synovial fluid, which may have low elasticity and

viscosity. Due to its greater molecular weight, Synvisc has superior shock-absorbing and

lubricating properties, and remains in the joint longer, than hyaluronan.

34. Synvisc was researched and developed by Dr. Balazs and Biornatrix over a period

of nearly 20 years, at an estimated cost of close to $100 million. The Synvisc hylan Alhylan B

molecule was developed in 1985. and went through further years of rigorous clinical trials and

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testing before it was brought to market. In 1997, the FDA first approved the labeling of Synvisc

as a synovial fluid supplement for applications involving the knee, and sales of Synvisc in the

United States began thereafter. Biomatrix distributed Synvisc in the United States and Germany

through a marketing relationship with Wycth-Aherst Pharmaceuticals , and worldwide through a

network of relationships with major pharmaceutical manufacturers, including Rhone-Poulenc

Rorer, Bochringer Ingelheim , Bayer AG, Novartis Pharma AG, and Hoffman-La Roche. The

Biomatrix contracts required both up-front payments and milestone payments as sales of Syn visc

increased. Synvisc was manufactured by Biomatrix in its state-of-the-art plant in New Jersey,

which was ISO 9001 certified in 1998 and FDA certified in 1999, and in Quebec, Canada.

35. Synvisc is the only viscosupplcmentation product with physical properties

comparable to those of the healthy synovial fluid found in 18-27 year old humans. There are no

directly substitutable products for Synvisc. Synvisc has an average molecular weight several

times that of any competing hyaluronate product, which leads to greater longetivity (and reduced

need for injections) for treatments with Synvisc. Because of this, Synvisc, unlike all other

viscosupplementation products, has been approved and certified with a unique reimbursement

code (J7320) for Medicare insurance purposes. further, by contrast to general anti-

inflanunatories such as Vioxx and Celebrex, Synvisc actually addresses the source of the pain,

diseased synovial fluid, associated with osteoarthritis of the knee. It is widely recognized that the

development of the entire class of second-generation viscoelastic products like Synvisc is due to

the work of Balazs and the company he founded, Biomatrix. On the March 6, 2000, investor call

that announced the proposed merger between Gcnzyme and Biomatrix, Collier, who is now

President of Genzyme Biosurgery, acknowledged that "Every leading product in the field [of

18

.viscosupp[ementation products] ... all came from the mind, imagination , and creativity of Dr.

Balazs"

36. While Synvisc was approved by the FDA solely for applications involving

treatment of the knee joint, the product is expected to have broad uses in other joints as well.

Early clinical trials indicated that Synvisc would prove effective in hip applications as well as

other joints, and Biomatrix obtained Wyeth's approval in 1999 to launch U.S. clinical trials on

hip applications. Biomatrix had developed other hylan products of substantial value, including

Hylaferm, a tissue augmentation product that had been approved for marketing in many countries

including Israel, Canada, and Australia, and that had been approved for clinical trials in the

United States, and a series of anti-adhesion products, such as Hylasine, all of which were

expected to be successful in their intended applications.

37. Prior to the merger with (3en:zyme and the creation of the new Genzyme

Biosurgery entity and tracking stock, Biomatrix had recorded four consecutive years of

profitability. k3iomatrix reported net income of $18.6 million for 1999, with gross margins in

excess of 70%, and a cash balance, as of September 30, 1999 , of $27.7 million. Biomatrix was

recognized in that year by Fortune Magazine as one of America's 100 Fastest-Growing

Companies. By the time of the merger in 2000, Synvisc had become the fifth- largest prescription

product for the treatment of arthritis in the United States.

B. Genzyme's Merger with Biomatrix and Issuance of Biosurgery Tracking Stuck

38. Notwithstanding the successes and growth of the company as a stand-alone entity,

Biomatrix management believed that a merger with a larger corporation would allow Biomatrix

to accelerate both its growth and profitability, allowing increased investments and economies of

19

scale in marketing, research and development, and the regulatory processes of obtaining FDA

and worldwide approvals for new hylan products and for Synvisc in new applications. For these

reasons, Biomatrix management, including Balazs and Riggs, was prepared to consider a

combination with a larger biotechnology company if a structure could be created that would

allow the Biomatrix shareholders to retain and realize the value of the Biomatrix research and

development and, in particular, the value of the Symvisc product.

39. After hiring an investment bank, Lehman Brothers, to explore various options,

Plaintiff Riggs, President of Biiomatrix, entered into discussions in late 1999 with Genzyme

Executive Vice President, Duke Collier, about a. combination. of Riomatrix with the Genzyme

Surgical Products Division. Based on these discussions, Riggs believed Genzyme Surgical

Products could be a. suitable merger partner into a new company because the (]enzyme Surgical

biotechnology products, such as Seprafilm, were complementary to Biomatrix products, and the

objective of increased growth and profits through synergistic operations, including access to

Genzyme marketing and regulatory approval support, appeared unbeatable, such that the merger

would create the dominant player in the fast-growing biomaterials sector.

40. Collier and Termeer told Balazs and Riggs, on multiple occasions from November

1999, through the merger, that Gen7ym.e could offer a solution that would, on the one hand,

provide Biorn.atrix shareholders with the growth opportunities possible through affiliation with a

large biotechnology corporation, but, on the other, ensure that the Biomatrix shareholders would

retain a direct interest in the performance of Synvisc and other Biomatrix products and research.

41. Gen yme's proposal was a merger between Biomatrix and two existing divisions

of Genzyme, the Genzyme Surgical Products Division ("Surgical Products") and the Cienzyme

20

Tissue Rcpair Division ("Tissue Repair"), into a new Biosurgery Division that would in

fundamental respects operate as a stand-alone entity with its own tracking stock designed to

reflect the value of the Biosurgery Division assets, and not the value of Gcnzyme Corporation as

a whole. Genzyme committed that it would allocate resources to the marketing, research,

development, and FDA approval process of the new Biosurgery Division products, so that the

Biomatrix shareholders would be able to realize the synergistic benefits of affiliation with the

larger Genzyme Corporation. For example, Collier specifically committed Riggs that Geniyme

would increase marketing and accelerate regulatory approvals in Japan, promptly pursue U.S. hip

joint studies and new FDA labeling for Synvisc, accelerate the marketing and clinical trials of

Hylaform, and continue the research and development of Biomatrix's anti-adhesion products.

42. In Genzyme's letters presenting bids to Biomatrix to conclude the merger, dated

January 24, February 7, and February 28, 2000, Collier represented the following: (1) that

Genzyme intended to "bring its significant resources to bear in leveraging Biomatrix's

proprietary technology to expand the portfolio of products offered by both companies"; (2) that

"the combination will allow the combined enterprise to better leverage its manufacturing

capabilities, its established supplier, distribution, and marketing relationships, and its financial

products across product offerings"; (3) that "Genzyme will hire all [Biomatrix] employees at

closing' ... "on at least the same basis (with respect to salaries, wages, and benefits) as they are

employed by Biomatrix." Each of these representations was material to Biomatrix's ultimate

decision to merge with Genzyme. Gena_yme's promises to commit significant resources to

develop Biomatrix's technology and exploit synergies between the companies were critical to the

Biomatrix objective of accelerating growth and profitability. Genzyme's promise to retain all

21

Biomatrix employees was material not only because of the commitment of Biomatrix

management to their employees but because Biomatrix believed, among other things, that its

research and development team was indispensable to developing and commercializing the

extensive pipeline of Biomatrix products.

43. Riggs and Balazs negotiated a merger agreement with Genzyme and submitted the

proposed agreement to the Board of Biomatrix for approval. The fundamental basis of the

merger, from the perspective of Biomatrix and Plaintiffs, and according to the representations of

Genzyme, including Collier and Termeer, to Riggs and Balazs, was to create a new company

with its own tracking stock that would focus on growth and synergy, with Genzyme resources

committed to expanding the Synvisc franchise and developing the biological polymers and other

products under development at Biomatrix. The merger agreement was announced on March 6,

2000, and Biomatrix merged with Genzyme into the newly created Biosurgery Division on

December 19, 2000. The merger would not have occurred without Riggs' express agreement.

44. At the time of the merger agreement in March 2000, the proposed Biosurgery

Division had an initial market value of about $1.3 billion based upon the price of Biomatrix stock

and the tracking stock of Gcnzymc Surgical Products and Tissue Repair Divisions, and taking

into account the liabilities that Biosurgery -would assume in cashing out 28.83% of the Biomatrix

shareholders. Genzyme and Collier represented to Riggs and others that the assets and expected

performance of Surgical Products and Tissue Repair adequately supported their market

valuations. Genzyme and Collier also represented that certain contingent liabilities of these

Divisions, such as the potential $20 million liability of Tissue Repair to Genzyme General in

connection with the Diacrin product, were not likely to materialize . Those representations were

22

critical to the goal of ensuring that the new merged entity, Genzyme Biosurgery, would, after

combining the operations of Biomatrix, Surgical Products, and Tissue Repair together, have a

per-share value approximately equal to the pre-merger per-share value of Biomatrix.

45. In the Amended Agreement and Plan of Merger Among Genzyme Corporation,

Seagull Merger Corporation, and Biomatrix, Inc. ("Merger Agreement"), dated March 6, 2000,

and amended as of October 25, 2000, and incorporated in the Registration Statement and Proxy-

Prospectus as Annex A, Genzyme specifically represented that the new series of Genzyme

Biosurgery ("GBS") Division tracking stock was being issued "to reflect the value and track the

performance of the GBS Division." Genzyme also agreed, in Article 3.2, to adopt revised

Management and Accounting Policies Governing the Relationship of Genzyme Divisions

("Management and Accounting Policies"). Biontatrix insisted that Genzyme adopt the new

Management and Accounting Policies to ensure, as Genzyme had promised to induce Biomatrix

to agree to the merger, that Genzyme would operate and grow the Bio surgery Division as a

distinct company with its own assets, income, expenses, and research and development costs.

46. The revised Genzyme Management and Accounting Policies are incorporated in

(ien.zyme ' s Registration Statement and Proxy-Prospectus as Annex E . In adopting the revised

Management and Accounting Policies, Genzyme represented that: "The purpose of Genzyme

Biosurgery is to create a business with a comprehensive approach to the field of biosurgery by

developing and commercializing a portfolio of products for the treatment and prevention of

serious tissue injury ... and a portfolio of devices, bioniaterials, biotherapeutics and other

products for the field of biosurgery; these products and services include ... the products and

services offered or under development by Biomatrix as of.. . 2000 and inciuded in the

23

Descriptive Memorandum furnished by it to (]enzyme." The Biomatrix products in the

Descriptive Memorandum, which Genzyme had committed to develop and commercialize,

include, among others: Synvisc, Hylafurm, the Hyla.Shield. Hylafllm, and Hylagel products,

H%S, Gelvisc Vet, Hylasine, Artelan, GmniVise, and hylan solids for matrix and tissue

engineering to yield new reconstructive surgery products. Genzyme further agreed in the Policies

that revenues, expenses, and assets would be properly allocated to Biosurgery, consistent with its

operating status as a new company with a distinct value to be tracked by the newly issued stock.

C. Genzvme' s Deliberate Mismanagement of Biosurgery and Earnings Management of

Genzyme General

47. Contrary to the representations made to induce Plaintiffs to agree to the merger,

Genz}ane never intended to run Biosurgery as a profitable enterprise. Instead, Genzyme sought

to accomplish two primary objectives through the merger, neither of which was disclosed by

Genzyme in its Registration, Proxy-Prospectus, or other SEC filings and public statements.

48. First, Genzyme intended to mismanage Biosurgery to drive down the Biosurgery

share price and enable a forced share exchange that would yield maximum profits for Genzyme

management and directors, and Genzyme General shareholders, at the expense of Plaintiffs, other

former l3iomatrix shareholders, and Biomatrix employees. In particular, Genzyme intended to

dissolve the tracking stock structure, regardless of the ongoing viability of Genzyme Biosurgery,

and to acquire Synvise and its other assets at the point of greatest disparity between the

Biosurgery stock price and its fair market value. This plan was designed to give Genzyme the

long-term benefits of acquiring the profitable Biomatrix company at a fraction of the cost of an

outright acquisition.

24

49. Second, Genzyme intended to operate Biosurgery to engage in earnings

management for its core Genzyme General Division, using the resources of Biosurgery to

increase Genzyme General net income when earnings at Genzyme General. fell short of

management projections. Genzyme intended to accomplish this in at least two principal ways:

(a) by deliberately creating and timing tax losses and write-downs for Biosurgery that could be

transferred to Genzyme General to reduce taxable earnings and thus increase Genzyme General

net income ; and (b) by using Biosurgery assets to fund research and development costs for the

benefit of Genzyme General in order to decrease Genzymc General's reported expenses,

including causing Biosurgery to subsidize the Genzyme General gene therapy program.

50. Genzyme and Terineer knew that Synvisc was a blockbuster product that would

return substantial profits if it were marketed and developed as Gcnzyme had promised at the time

of the merger. In early 2002, for example, (]enzyme Biosurgery President Duke Collier

represented to investors and analysts that, with regard to Synvisc. "We're sitting on a gold mine

here, and any investor who is patient will be well rewarded."

51. Although Collier had personally represented to both Balazs and Riggs, both

before and after the merger, that Genzyme would invest substantial resources in the marketing,

research, product development, and FDA applications for the Biomatrix assets transferred to

Biosurgery in the merger, Genzyme did not intend to, and in fact did not, invest such resources in

its Biosurgery Division. Instead, consistent. with Termeer's plan, and in derogation of the merger

agreement, revised Management and Accounting Policies, and representations made to induce

Plaintiffs and Biomatrix to agree to the merger. Genzyme systematically mismanaged Biosurgery

25

witi, the overall objective of extracting from Biosurgery shareholders the maximum benefit for

Genzyme management and directors and the Genzyme General shareholders.

52. Genzyme mismanaged 13iosurgery to the detriment of Biosurgery shareholders

and Genzyme Corporation as a whole in at least the following ways. Fundamentally, Genzyme

has deliberately failed to operate Biosurgery to increase profits and growth, systematically failing

to make the allocation of research, development, marketing, and regulatory resources that

Genzyme had promised at the time of the merger. To the contrary, despite the debt carried by

.Biosurgcry as a consequence of the merger, Genzyme used Biosurgery as a cash resource to fund

programs sponsored by Genzyme General. By 2003, Gcnzyme was causing Biosurgery to incur

annual research and development expenses of about $65 million, or about 25% of total

Biosurgery revenues, for programs largely designed to advantage Genzyme General despite the

fact that Biosurgcry was operating at a loss.

53. Genzyme and Termeer deliberately deferred investments in any programs that

might contribute to the near-term income and profitability of Biosurgery in order to ensure that

the Biosurgery share price would decline. This strategic approach, while reducing the overall

value of (ienzyme Corporation, had two primary advantages for Termeer and Geuzyme General.

First, by depressing the k3iosurgery share price below fair market value, it enabled Genzyme to

force a share exchange that would allow Genzyme General to acquire the Biosurgery assets at

minimal cost. Second, by causing 13iosurgcry to subsidize Genzyme General research and

development and gene therapy trials, and otherwise to incur operating losses, rather than realize

profits, Gcnzyme could transfer assets and tax benefits to Genzyme General to increase the

reported net income of Genzymc General.

26

.54. In furtherance of this strategy, Genzy ine deliberately impaired the ability of

Biosurgeryto operate as a profitable, high-growth, "self-sustaining" entity. Genzynie

deliberately delayed any U.S. clinical trials of Synvise for applications in joints other than the

knee, or to secure FDA approval for such applications, although (a) trials conducted in other

countries had already demonstrated the effectiveness of Synvisc in relieving pain in the hip, and

(b) the market opportunity for Synvisc in other applications in the U.S. alone exceeds several

billion dollars. Genzyme failed to seek timely regulatory approval in Japan for use of Synvisc,

despite its commitment to do so within a year after the merger was concluded. Genzyme not

only failed to accelerate the research and development of the Biomatrix anti-adhesion products,

as Collier had specifically committed to do, but in fact gutted existing research and development

programs on those products. Genzyme failed to conduct timely clinical trials for the Biocnatrix

Hylaform products, although Collier had acknowledged the high potential for profitability of

those products and specifically represented to Riggs that such clinical trials would be conducted.

Genzyme instead caused Biosurgery to fund long term research projects that would advance

Genzyme General products at the expense of Biosurgery operating income, including subsidizing

the Genzyme General research into gene therapy. Genzyme did not in fact "develop and

commercialize" any of the Hylaform, HylaShield, Hylatilm, Hylagel, HsS, Gelvisc Vet, Hylasine,

Artelan, OmniVise, or hylan solid products, as Genzyrne had represented to Biomatrix to induce

l iomatrix to agree to the merger. Contrary to the representations made by Collier in Genzyme's

Genzyme also fired nearly all of the Biomatrix research and developmentpre merger bid letters.

team shortly after the merger, substantially impairing the ability of Genzyme and Biosurgery to

develop and commercialize the Biomat.rix products.

27

55. On information and belief, Gencyme, Collier, and Termeer also refused to

consider purchase offers from other corporations, including the Stryker Corporation, for one of

Biosurgery's products, Sy°nvise, that substantially exceeded the current valuation placed by

Genzyme on the entire Biosurgery division. As Genzyme knew, if a purchase offer for Synvise

had been accepted, Genzyme would have been obligated to allocate 100% of the proceeds of the

sale solely to the benefit of the holders of the Biosurgery tracking stock, not to the Genzyme

General shareholders.

56. Further, Genzyme failed adequately to disclose the value of the assets and

earnings of.Biosurgery to the market. Far from cultivating analyst coverage of Biosurgery, as

Genzymc did for Genzyme General, Genzyme made an analyst following effectively impossible.

Gencyme routinely failed to meet management earnings projections at Biosurgeiy. For example,

Collier and Biosurgery Executive Vice President Ann Merrifield represented to the market in

early 2002 that.Biosurgcry would be profitable for at least one quarter in 2002, but Biosurgery

incurred losses for every quarter of 2002, as it has throughout its existence. Far from disciplining

Riosurgery management or ensuring that the value of Biosurgery was adequately disclosed to the

market and to analysts, the Genzyme Board instead approved grants of Genzyme General stock

options to Collier that were both substantial and far in excess of the amount of Riosurgery stock

options granted to Collier. Collier had represented to Lewis in May 2000 that his total

compensation as President of Siosurgery would be 90% linked to Biosurgery. But at the very

time that Genzyme was monitoring when to force the share exchange. Collier was paid stock

options in 2002 that were valued, on the assumption of 5-. 10% stock appreciation during the

option term, at $3.8-9.5 million in Genzyme General and just $0.2-0.5 million in Biosurgcry.

28

57. Genzyme also managed Biosurgery in order to generate tax losses that could be

transferred to Cienzyme General in quarters where Genzyme General was likely to miss its own

earnings projections, consistent with its objective of managing Genzyme General earnings. For

example, when Genzyme General expected to fall two cents shorts of projected EPS in the third

quarter of 2002 - a quarter that Biosurgery President Collier had told the market would be

profitable for Biosurgery - Terrneer and Michael Wyzga, Genzyme CFO, caused Biosurgery to

write down its Haverhill, England, factory to create an additional $9 million of tax losses that

were transferred to increase Genzyme General EPS by exactly the two cent shortfall.

58. Neither the Board of Directors of Genzynne nor Genzyme management acted to

protect the interests of the Biosurgery shareholders in the face of this ongoing course of

misconduct. There is no corporate governance structure at Genzymc to prevent the Genrym.e

Board or management from acting in their own interests at the expense of the holders of the

minority series of Biosurgery tracking stock.

59. The direct effect of the Genzyme mismanagement of the Biosurgery Division was

a decline in share price to an average of $1.36/share during the trading period selected by the

Genzyme Board to value Biosurgery for the forced exchange of.Biosurgcry shares for Genzyme

General shares. Unlike Bionzatrix, which had four consecutive years of profitability prior to the

merger, Genzynie Biosurgery has never had even a single profitable quarter.

60- The fact that Genzyme's mismanagement of Biosurgery was part of a deliberate

strategy to suppress the Biosurgery share price did not become apparent to Plaintiffs until

Genzyme's extraordinary announcement on May 8, 2003 -timed to take advantage of the period

29

of the lowest closing prices in the history of the Biosurgery tracking stock-that the tracking

stock structure would be eliminated.

D. Geni me's Planned Forced Exchange of Biosurgery Stock for General Stock

61. As alleged above, the fundamental purpose of the merger was to create a new

division within Genzyme that would closely track the value of Synvisc and other Biosurgery

products while obtaining the marketing, regulatory approval, and product development

capabilities associated with being part of a larger corporation. These advantages would have

been lost if the Biomatrix assets had simply been acquired by, or merged into, Genzyme. In

particular, the ability of the Biornatrix shareholders to capture the market value of Synvisc and

other Biomatrix products would have been compromised if the tracking stock structure, which

was a. precondition to Plaintiffs' agreement to the merger, had not been adopted. Biumatrix

would not have agreed to a merger -based upon an exchange of IMomatrix shares for Genzyme

General shares or based upon an exchange of Biomatrix shares for interests in Genzyme

Corporation as a whole, because the interests of the Biomatrix shareholders in the value of the

"gold mine" Synvisc would have been too diluted.

62. The Restated Articles of Organization of Genzyme Corporation states that the

Gen7yme Board of Directors may declare that each outstanding share of Genzyine Biosurgery

can he exchanged. on a date to be determined by the Board, for Genzyme General shares or cash,

at a 30% premium of the fair market value of the Biosurgery shares. Based upon the assumption

that share prices will reflect €'air market value, the Articles define fair Market Value as the

average of the daily closing prices for the '20 consecutive business days commencing on the 30th

business day prior to the date of public announcement of the exchange; "in the event such

30

closing Prices are unavailable," Fair Market Value is to be determined by the Board consistent

with their fiduciary duties to Biosurgery shareholders. The clause, on its face, is designed to

ensure that, in the event of an exchange, the Biosurgery shareholders will receive a premium of

30% over the fair market value of the Biosurgery shares. A 30% premium over fair market value

is common for acquisitions.

63. Both prior to and after the merger, including in February 2000, Genzyme, through

Collier and Hesslein, expressly represented to Biomatrix and Plaintiff Riggs that the exchange

provision was intended to be operative solely in the event that regulatory action required the

elimination of the tracking stock structure. Consistent with the purpose of the merger, Collier

and Hesslein expressly represented that no exchange would be made except in the limited event

that the tracking stock structure was no longer feasible for legal reasons, and then only upon

terms that would be recognized as fair based upon an independent assessment of the value of the

Biosurgery Division. Plaintiffs relied on these representations in agreeing to the merger and the

exchange of Bioni.atrix shares for Biosurgery shares, and would not have agreed to the merger or

share exchange otherwise. Collier specifically confirmed to Lewis after the merger, on May 28,

2002, that Genzyme could not simply require the forced exchange without advance notice to

Biosurgery shareholders, and that for Genzyme to do so without such notice would he "wrong

and unfair.,:

64. Each of Termeer and the Director Defendants owns eery substantial equity in

Genzyme General and disproportionately low equity in Biosurgery. Terrneer owns in excess of

$ 109 million of Genryme General stock and about $1 . 5 million of Biosurgery stock . Director

Defendants Anagnostopoulos, Bcrthiaume , Blair , Carpenter, Cooney, Dzau, and Mack each own

31

..rY^

holding s of Genzyme General that are worth about 50 or more times the value of their holdings

in Biosurgery. The fact that no Genzyme Director owns an interest in Biosurgery that is worth

more than about 2% of the value of the Director's Genzyrne General interests creates a clear

conflict between the personal interests of the Genzyme Board and the fiduciary duties owed by

the Board to Biosurgery shareholders.

65. On May 8, 2003, Genzyme's CEO Termeer announced that Genzyme's Board of

Directors had approved the elimination of the tracking stock structure of Genzyme through a

transaction in which all outstanding shares of Genzyme Biosu.rgery stock and all outstanding

shares of Genzyme Molecular Oncology stock would be exchanged for shares of Genzyme

General stock, Under the terms of the proposed forced exchange, Genzyme Biosurgery

shareholders would receive 0.04914 of a share of Genzyme General stock in exchange for each

Biosurgery share, and Genzyme Molecular Oncology shareholders would receive 0.05653 of a

share of Genzyme General stock in exchange for each Molecular Oncology share. The exchange

ratios were calculated based upon a 3 d percent premium to the trading price of Genzyme

Biosurgcry and Gcnzymc Molecular Oncology shares, relative to the trading price of Genzyme

General shares, for a 20-day trading period. selected by Genzyme of March 26 through April 23,

2003. Genzyme Biosurgery shareholders will receive no benefit, other than through diluted

interests in the entire Genzy me Corporation, to the over $125 million invested by Biosurgery in.

research and development costs since the date of the merger.

66. After monitoring Biosurgery share prices for a year, Geuzyme deliberately

selected a period for the exchange that would maximize the value of the exchange to Genzyme's

Directors and the General Division shareholders at the direct expense of the Biosurgery

32

shareholders. The Biosurgery shares traded at the lowest prices in Biosurgery's history during

the March-April trading period, with an average closing price of $1.36 that represents a decline

of over 87% from the initial valuation of Biosurgery shares after the merger ($11.00). The

exchange value determined by Genzyme for the Biosurgery shares is $1.77, less than 5% of the

$37 per-share value that Genzynie placed on Biosurgery at the time of the merger agreement

between Genzyme and Biomatrix and the one-for-one exchange between Biomatrix and

Biosurgery shares.

67. To put these numbers in further perspective, Genzyme and its Board have

effectively set a value on Biosurgery' s entire business of about $55 million, less than 25% of the

amount paid in 2000 to purchase 28.38% of Biomatrix (which did not include Sepra, the third-

generation Synvisc, the cardiothoracic business, and other Biosurgery assets). Genzynie's

valuation of Blosurgery is significantly less than 10% of the amount that the Chairman of

Genzyme's Audit Committee, Berthiaume, recently acknowledged that Biosurgery may in fact be

worth. Tt is less than the guidance Genzyme gave - at a time that Genzyme was already secretly

monitoring whether and when to require a forced share exchange - for just the 2003 research and

development expenses for Biosurgery. It is about eight months profit from just one of

Biosurgery's leading products, Synvisc, or about six months profit from Synvisc and Sepra

together. Far from constituting a multiple of Biosurgery revenues, it is only 20% of

Riosurgery's projected 2003 revenues for just 2003, even though Biosurgery's core franchise of

osteoarthritis and anti-adhesion products has a growth rate greater than that of Gen.zyme General

(which trades well in excess of five times revenues). It is roughly equivalent to the amount that

Genzyme will obtain from selling Biosurgery-s unprofitable cardiothoracic business - which

33

places a value close to zero on Synvise, Sepra, Hylaform, and Biosurgery's research and

development, including the third generation Synvisc and new Sepra products.

68. If Genzymc had a proper corporate governance structure in place to protect the

interests of all shareholders of Genzyme corporation, the Board could never have approved the

forced exchange on. these terms. The Wall Street Journal reported on May 12, 2003, that

Genzyme's planned elimination of its tracking stock structure is "making one wonder if a

recidivist corporate-governance malefactor can ever truly change its stripes."

69. Genzyme deliberately withheld and delayed disclosing material information about

the Biosurgery Division and Synvisc until near the end o f, and after, the March-April trading

period selected to value Riosurgery in order to manipulate the Biosurgery stock price and ensure

that the average price used to calculate the ratio in the forced exchange would not reflect the.fair

market value of Biosurgery. First, Genzyme did not disclose until April 16, in the last five

business days of the March-April trading period, that Synvisc sales for the first quarter of 2003

were up over 30% compared to the first quarter of 2002, doubling prior estimates of growth.

Second, Genzyme did not disclose until the same date the material fact that Genzyme expected to

obtain FDA approval this year for U.S. clinical trials of Synvisc in hip applications, or until May

8 that Genzyme further expected Synvi.se to be the "best product ... best trial ever done in this

product category" and to show "the utility of this product [Synviscl in all joints going forward."

Those disclosures alone suggest that profits and cash flow attributable to Synvisc may increase

by several hundred percent. Third, Genzymc withheld until May 8 the material fact that

Biosurgery-'s huge investments in research and development were likely to result. in new

formulations and applications of its flagship Synvisc and Seprafilm products, including a "pretty

34

substantial third generation" of the already unique Synvisc product. Prior to May 8, the market

had no ability to place a meaningful value on the research and development programs funded by

Biosurgery. Fourth, Genzyme withheld until May 8 the material fact that ongoing investments in

the unprofitable cardiothoracic device business would cease, resulting in substantial annual

savings of millions of dollars, and that the business would be sold, resulting in one-time revenues

likely to approach another $50 million. Fifth, (;enzyme did not disclose until May 16, 2003, that

the Synvise product will be the leader in a market presenting opportunities of more than $4

billion in annual end-market sales for knee treatment alone. Prior to May 16, Genzyme had

never disclosed the potential size of the end-user market for the Synvisc product for any

application. Sixth, Genzyme did not disclose until the May 29, 2003, shareholders' meeting that

the third generation Synvisc product would likely exhibit increased longetivity, or "'more

enduring pain relief.", with a reduced injection schedule, because it would "actually modify the

disease" of osteoarthritis itself. Seventh., Genzme did not disclose until May 29, 2003, that

Genzyme expected the end-market for Synvisc to nearly double after the approval of the product

in Japan in 2004. All these facts were known to (]enzyme and Termeer prior to the March-April

trading period but deliberately withheld from the market to ensure that the Biosurgery share price

would remain depressed. If Genzyme had disclosed these facts prior to the March-April trading

period, the disclosures would have materially affected the Biosurgery share price, resulting in a

valuation significantly greater than either Genzyme's purported valuation of $1.361share or the

exchange price , after a 30% "premium ," of $1.77/share.

70. On the May 8 investor call and at the May 29 shareholders' meeting, Genzwe

CFO Termeer falsely asserted that the elimination of the tracking stock structure and the forced

35

r- N

°'eschange of Bic surgery shares at $1.77/share is justified because it is "very difficult to finance"

Biosurgery through its tracking stock . In fact, Genzyme has never sought capital financing for

Biosurgery. Biosurgery does not have significant financing difficulties, and, in any event, would

not have any such difficulties. were it not for Genzyme's stock manipulation, mismanagement,

misrepresentations, material nondisclosures to the market, and subsidization of Genzyme General

research and development programs with Biosurgery assets. Notwithstanding these handicaps,

Genzyme still would reach significant profitability this year as a stand-alone enterprise on the

strength of sales of the Biornatrix product Synvisc. The "financing difficulty" excuse advanced

by Termeer, in short, is a red herring: it is incorrect and has nothing to do with the actual reasons

for the forced exchange of Biosurgery shares for GenzyIne General shares.

71. Although the Biosurgery Division reported losses for every year of its operation,

Gen.zyme reported that the elimination of the tracking stock structure will not affect the prior

guidance for Genzyme General of $1,2541.35 EPS. To put it differently, Genzyrne decided to

dissolve the Biosurgery tracking stock in the first quarter that. it became apparent to Genzyme

insiders that, despite Genzyme's ongoing mismanagement, Biosurgery would become profitable

and its share price would rise. Even prior to the disclosures made by Gcnzyme after the March-

April trading period as to the high value of Synvise, the market was already becoming aware of

the increased value of the Biosurgery business. Closing prices for Biosurgery shares had risen

from $1.18, on the first day of the March-April trading period selected by Genzyme's Board, to

52.51 on May 8, the day of the Genzyme amouncement of the forced exchange at a take-down

price of 51.77 per Biosurgery share.

36

72. On the May 8 investor conference call at which Termeer first disclosed the

planned discount acquisition , Wilbur Forbes, a Prudential Securities analyst, stated: "[W}hen

you look at the timing of this, it gets highly suspicious when you look at the 30 day period that is

the lowest 30 day period that it [Biosurgery] has traded at in the last three or four years.... And

when you look at those things in combination, it looks like you're living to manipulate the price

down so that you're paying 70 odd m[illion] for two-thirds of something that you paid 400

m[illion] for one third of when it was a lesser company." Similarly, Robert Moore, a CMJ

Partners analyst, stated on the May 8 call: "I also think that the selected 30 day pricing period for

Biosurgery stock substantially undervalues that company. It seems to me it would be fair to have

an outside independent valuation here because the market is so thin in that stock, and, as we

mentioned, there is no Wall Street coverage."

73. The Biosurgery assets, which Genzyme General will acquire for approximately

$72 million in Genzyme General stock if the forced exchange proceeds, are worth, on a

conservative enterprise valuation , at least $1.5-2 billion. The components of that value include at

least: (a) Synvisc, with projected revenues for the second half of 2003 at about $64-66 million, or

annual sales of over $130 million, on 80% gross margins, 70% operating margins, over 30%

growth in 2003 over 2002, about 70% market share, and an expected near-doubling of the end-

user Synvisc market upon approval of the product in Japan; (h) Seprafilm, with annual revenues

of approximately $45 million on slightly lower margins and comparable growth; (c) the value of

the former Biomatrix Hylaform products, now in clinical trials; (d) the value of the former

Biomatrix anti-adhesion products, which are in certain respects superior to Seprafilm; (e) the

value of the cardiothoracic business, with annual revenues of approximately $70 million, that

37

Genzyme intends to sell after the forced exchange is concluded; (f) the value of the research and

other Biosurgery products, including those in pre-clinical and clinical trials, developed through

the over $125 million research and development expenditures incurred by Biosurgery at the

direction of Genzyme.

74. As Biosurgery President Collier acknowledged in a telephone conversation with

plaintiff Lewis on May 28, 2002: "Synvisc and Sepratilm are worth 8-9 times their operating

cash flow. We could all dance to the bank. The margins in Synvisc are awesome." Collier's

representation confirms that the Synvisc/Sepia franchise should be valued based upon a revenue

multiple at least equivalent to Genzyme General. The Synvisc and Seprafilm franchise alone is

worth at least $1 . 2 billion; Hylaform is worth at least $200 million, as evidenced by the recent

purchase by Medecis for $185 million of just the U.S. marketing rights to the comparable product

Restalane; the cardiothoracic business is worth at least S50 million; and the current value of the

third generation Synvise and new Sepia products, now under clinical trials and final

development, as well as other ongoing research and development investments by Biosurgery

(which Genzyme has never disclosed to the market), is, on information and belief, at least $500

million. Taking into account the liabilities assumed by Biosurgery from the merger and

acquisition of Biomatrix, there is no scenario under which the Board's $72 million acquisition

cost can be regarded as made at a premium of 30% over the $1.5-2 billion fair market value of

Bic surgery. Since the May 8 announcement, and in anticipation of the acquisition by Genzyme

General of Biosurgery at a 95% or greater discount off the fair market value of the company, the

market capitalization of Genzyme General has already increased by over $1 billion.

38

V. THE FORCED EXCHANGE WILL RESULT IN IRREPARABLE HARM

TO THE BIOSURGERY SHAREHOLDERS

7z. Unless the Court grants injunctive relief, Genzyme's forced share exchange will

proceed on June 30, 2003, in violation of the federal securities laws and to the irreparable harm

of Plaintiffs. Defendants' deliberate mismanagement of Biosurgery to drive down Biosurgery

near-term operating income and to transfer benefits to Genzyme General has both depressed the

market price for Biosurgery stock, as intended by Defendants, resulting in a per-share price that

is less than 5% of the per-share fair market value of Biosurgery, and inflated the relative value of

the Geuzyme General shares. If the forced exchange of Biosurgery stock is allowed to proceed,

Biosurgery shareholders will suffer a massive dilution in the value of their interests to the sole

benefit of Genryme General and the management and directors of Genzyme.

76. The radical unfairness of the exchange has been publicly documented . As the

May 12, 2003, Wall Street Journal reported: The terms are clearly unfair to the shareholders of

Biosurgery." This is the final act of Genzyme and lermeer's fraudulent plan to acquire the assets

of Biomatrix at a mere fraction of fair market value, to the irreparable harm of current Biosurgery

shareholders. Unless the Biosurgery assets remain separate from the other divisions of Genzyme

until all material facts regarding the value of Bin surgery are properly disclosed to the market - so

that the price of the tracking stock will actually track the fair market value of Biosurgery - it will

be difficult if not impossible to determine the exact amount of the losses that will be sustained by

Plaintiffs in the forced share exchange and elimination of the tracking stock structure.

39

CLAIMS

COUNT Iaa

(Section 11 of the Securities Act)

(Against Genzyme, Termeer, Wyzga, Anagnostopoulos,

Berthiaume, Blair, Carpenter, Cooney , and Dzua)

77. Plaintiffs repeat and reallege each and every allegation above as if fully set forth

herein.

78, Count I is brought pursuant to Section I I of the Securities Act, 15 U.S.C. § 77k,

against Defendants Ge rme Corporation, Termeer, Wyzga, and each of the Director

Defendants, except Mack.

79. In December 2000, Plaintiffs both purchased securities from Genzyme in a public

offering by exchanging shares of Biomatrix common. stock for shares of the Biosurgery tracking

stock. Lewis purchased additional shares of the Biosurgery tracking stock in the aftermarket..

Genzyme issued each of the Biosurgery shares that the Plaintiffs purchased pursuant to the

Registration Statement, which became effective on or about October 27, 2000.

80. The Registration Statement filed by Defendant Genzymc and signed by

Defendants Ter eer, Wy'ga, and each of the Director Defendants, except Dzua and Mack,

contained.false and misleading statements and omissions of material fact, and omitted to state

material facts .Necessary to make the statements therein not misleading, including:

(a) failing to disclose that Genzyme's plan, at the time of the merger, was to

mismanage Biosurgery and drive down Biosurgery earnings in order (i) to create

disparities between Biosurgery's fair market value and its share price, and thereby

(ii) to facilitate a forced exchange of Biosurgery tracking stock for Genzyme

General stock at a discount substantially below Piosurgery's fair market value;

(b) failing to disclose that Genzyme ' s plan, at the time of the merger, was to use

Biosurgery assets to manage the earnings of Genryme General by subsidizing

zs40

Genzyme General research and development expenses , including costs of gene

therapy trials , and creating and transferring tax losses and write-downs from

Biosurgery to Genzyme General in quarters where (]enzyme General was

otherwise likely to miss management earnings projections;

(c) falsely representing that the Biosurgery tracking stock was to reflect the value of

Synvisc and other Biosurgery assets, and to track the performance and value of

Biosurgery;

(d) falsely representing that Genzyme would operate the Biosurgery Division to

maximize growth and profitability for Biasurgery shareholders, including through

the proper allocation of assets, revenues, income, expenses, liabilities, and

research and development costs to Biosurgery; and

(e) falsely representing that Genzyme would develop and commercialize Ilylaform,

the HylaShield, llylafilm, and Hylagel products, HsS, Gelvisc Vet, Hylasine,

Artelan. OmniVisc, and hylan solids for matrix and tissue engineering to yield

new reconstructive surgery products.

81. Each of these misrepresentations and omissions was material in that any similarly

situated reasonable investor would have considered them important in deciding whether to

exchange his or her Bionmatrix shares for, or to purchase, shares of the Bio surgery tracking stock.

Each of these misrepresentations and omissions relates to matters that bear directly on the

fundamental reason for the merger between Riomatrix and Geruymc and on the value of the

Biosurgery tracking stock, and they have negatively affected the share pricing of the Biosurgery

stock during the March-April trading period selected by the Genzyme Board for the forced

exchange.

82. Plaintiffs each received, reviewed, and relied on the Registration Statement.

Plaintiffs agreed to the merger, Biomatrix authorized the merger offer, and Plaintiffs exchanged

Biomatrix shares for and purchased Genzyme Biosurgery tracking stock in reliance on each of

the misrepresentations in the Registration Statement, including the omission of any disclosures

41

regarding the material facts alleged above. Plaintiffs would not have exchanged their shares, and

the merger would not have been concluded , absent the material misrepresentations and omissions

in the Registration Statement.

83. Neither of the Plaintiffs knew the truth of any of the misrepresentations or

omissions of material fact in the Registration Statement at the time they exchanged their

Biomatrix stock for shares of the Biosurgery tracking stock or otherwise purchased Biosurgery

tracking stock in the open market. Each of Defendants Genzyme, Termeer, Wyzga,

Anagnostopoulos, Berthiaume, Blair, Carpenter. Cooney, and Dzua knew the statements and

omissions were false or misleading at the time that they were made.

84. The misrepresentations and omissions in the Registration Statement caused the

average price of the Biosurgery stock to drop more than 87% from the date the merger closed to

the March-April trading period selected by Genzyme's Board for the forced exchange. As a

result, each of the Plaintiffs has suffered harm to the value of their interests in Biosurgery and

continues to suffer harm to such interests. If the June 30, 2003, share exchange is allowed to

proceed, Plaintiffs will be irreparably harmed from the further massive dilution in the value of

their shares and the elimination of Genzyne's tracking stock structure.

42

i. ,

COUN t II

(Section 12(a)(2) of the Seiuiities Act)

t Genzyme, Termeer, Wyzga, Agagnostopoulos,

Berthiaume, Blair, Carpenter, and Cooney)

85. Plaintiffs repeat and reallege each and every allegation above as if fully set forth

herein.

86. Count 11 is brought pursuant to Section 12(a)(2) of the Securities Act, 15 U.S.C.

§ 771(a)(2), against Genzyme Corporation, Termeer, Wyzga, and each of the Director Defendants

except Dzau and Mack.

87. In December 2000, Plaintiffs each purchased securities from Genzynre in a public

offering by exchanging shares of Biomatrix common stock for shares ofthe Biosurgery tracking

stock. Genzyme offered and sold each of the Biosurgery shares purchased by the Plaintiffs in

December 2000 by means of the Proxy-Prospectus. Term.eer, Wyzga, Agaganostopoulos_

Bcrthiaume, Blair, Carpenter, and Cooney - acting to further their own financial interests and

Genzyme's financial interest - were each "sellers" of the Biosurgery shares pursuant to Section

12(a)(2). Tcrmecr solicited the sale of Biosurgery shares by participating in and controlling the

merger negotiations and by controlling the content of and signing the Proxy-Prospectus. Wyzga,

Agaganostopoulos, Berthiaume, Blair, Carpenter, and Cooney each solicited the sale of

Biosurgcry shares by controlling the content of and signing the Proxy-Prospectus.

88. The Proxy-Prospectus filed by Genzyame contained false and misleading

statements and omissions of material fact, including:

(a) failing to disclose that Genzyme's plan, at the time of the merger, was to

mismanage Biosurgery and drive down Biosurgery earnings in order (i) to create

disparities between Biosurgery's fair market value and its share price, and thereby

43

(ii) to facilitate a forced exchange of Biosurgery tracking stock for Genzyzne

General stock at a discount substantially below Biosurgery's fair market value;

(b) failing to disclose that Genzyme's plan, at the time of the merger, was to use

Biosurgery assets to manage the earnings of Genzyme General by subsidizing

Genzyme General research and development expenses, including costs of gene

therapy trials, and creating and transferring tax losses and write-downs from

Biosurgery to Genzyme General in quarters where Gcnzyme General was

otherwise likely to miss management earnings projections;

(c) falsely representing that the Biosurgery tracking stock was to reflect the value of

Synvise and other Biosurgery assets, and to track the performance and value of

Biosurgery;

(d) falsely representing that Genzyme would operate the Biosurgery Division to

maximize growth and profitability for Biosurgery shareholders, including through

the proper allocation of assets, revenues, income, expenses, liabilities, and

research and development costs to Biosurgery; and

(e) falsely representing that Genzyme would develop and commercialize Hylaform,

the HylaShield, Hylafilm, and Hylagel products, FIBS, Gelvisc. Vet, 1-4yiasine,

Arlelan, OrrmiV ise, and hylan solids for matrix and tissue engineering to yield

new reconstructive surgery products.

99. In connection with the distribution of the Proxy-Prospectus and the offer and sale

of Biosurgery stock, and in order to induce the Plaintiffs to agree to the merger and to exchange

their Biomatrix shares for Biosurgery shares, Defendants Termeer and Genzyme, through

statements made by Collier and Hesslein, made additional oral misrepresentations and omissions

of material fact to Plaintiffs including:

(a) Collier's and Hesslein's false statements to Riggs in February 2000 that the

exchange provision would not be exercised unless Genzyrne was obligated to

modify the tracking stock structure to satisfy legal mandates such as SEC or

regulatory requirements, and then only at a 30% premium over fair market value;

(b) Termecer and Collier's multiple false statements to Riggs and Balazs in

November 1999, February 2000, and through the completion of the merger, and

Collier's false statement to Lewis in or about May 2000 that Genzyme's objective

in merging with Biomatrix was to operate the Biosurgcry Division as a profitable,

stand-alone company;

rll

44

Termeer and Collier's multiple false statements to Riggs and L'alazs in November1999, February 2000, and through the completion of the merger, and Collier'sfalse statement to Lewis in or about May 2000 that the Biosurgery tracking stockwould reflect the value of the Biosurgery Division assets;

(d) Termeer and Collier's multiple false statements to Riggs and Balazs in November1999, February 2000, and through the completion of the merger, and Collier'sfalse statements to Lewis in or about May 2000 that Genzyme was committed toexpanding the Synvisc franchise and developing the other products underdevelopment at Biornatrix;

(e) Termeer and Collier's multiple false statement-, to Balazs and Riggs in November1999, February 2000, and through the completion of the merger, and Collier's sfalse statements to Lewis in or about May 2000 that Genzyme would commitsufficient resources to allow Biomatrix shareholders to realize the synergisticbenefits of affiliation with the larger Genzyme corporation;

(f) Collier's false and misleading representation in Genzyme's written bid toBiomatrix on January 24, 2000 that Genzyme would "bring its significantresources to bear in leveraging Biomatrix's proprietary technology to expand theportfolio of products offered by both companies"; and

(g) The false and misleading misrepresentation. in the Merger Agreement that"Genzyme believes that combining Biomatrix's positive cash flow from productand sales with the financial resources of the two Genzyme divisions has thepotential to create in Biosurgery a self-sustaining business capable of supporting afull product research and development program."

90. Each of the misrepresentations and omissions in the Proxy-Prospectus and made

by Collier and Hesslein was material in the sense that any similarly situated reasonable investor

would have considered them important in deciding whether to exchange his or her Biomatrix

shares for the Biosurgery tracking stock. Each of these misrepresentations and omissions in the

Proxy-Prospectus and made by Collier, and Hesslein relates to matters that bear directly on the

fundamental reason for the merger between Biomatrix and Genzvme and on the value of the

Biosurgery tracking stock, and they have negatively affected the share pricing of the Biosurgery

45

stock during the March-April trading period selected by the Genzyme Board for the forced

exchange.

91. Plaintiffs each received, reviewed, and relied on the Proxy-Prospectus. Plaintiffs

agreed to the merger, Bioniatrix authorized the merger offer, and Plaintiffs exchanged Biomatrix

shares for Genzyme Biosurgery tracking stock, in reliance on each of the misrepresentations in

the Proxy-Prospectus and each of the oral misrepresentations made by Collier and Hesslein,

including the omission of any disclosures regarding the material facts alleged above. Plaintiffs

would not have exchanged their shares, and the merger would not have been concluded, absent

the material misrepresentations and omissions in the Proxy-Prospectus or absent the oral

misrepresentations made by Collier and Iiesslein.

92. Neither of the Plaintiffs knew the truth of any of the misrepresentations or about

the omissions of material fact in the Proxy-Prospectus, or the truth of any of the oral

misrepresentations made by Collier and Hesslein at the time they exchanged their Biomatrix

stock for shares of the Biosurgery tracking stock. Each of Defendants Genzyme, 'l crmecr,

Wyzga, Anagnostopoulos, Berthiaume, Blair, Carpenter, and Cooney knew the statements and

omissions were false or misleading at the time that they were made-

93. The misrepresentations and omissions in the Proxy-Prospectus and other written

materials and made by Collier and IIesslein caused the average price of the Biosurgery stock to

drop more than 87% from the date of the merger to the March-April trading period selected by

Gen me's Board for the forced exchange . As a result, each of the Plaintiffs has suffered harm

to the value of their interests in Hiosurgery and continues to suffer harm to such interests. If the

June 30, 2003, share exchange is allowed to proceed, Plaintiffs will be irreparably harmed from

46

the further massive dilution in the value of their shares and the elimination of Genzyme's

tracking stock structure.

COUNT III

(Section 15 of the Securities Act)

(Against Termer, Wyzga, Anagnostopoulos,

Berthiaume, Blair, Carpenter, Cooney, and Dzua)

94. Plaintiffs repeat and reallege each and every allegation above as if fully set forth

herein.

95. Count III is brought pursuant to Section 15 of the Securities Act, 15 U.S.C.

§ 77(o), against Defendants Ternneer, Wyzga, and each of the Director Defendants, except Mack.

96. Termeer is a control person of Genzyme within the meaning of Section 15 of the

Securities Act. Through his position as Chief Executive Officer, President, and Chairman of the

Board of Genzyme, his large ownership block of Genzyme General stock, and his participation in

and awareness of Genzyme's operations. Termeer had the power and ability to control and

influence, and did control and influence, directly and indirectly, the general day-to-day

operations, policies, and decisions of Genzyme. Termeer also possessed the power and ability to

control and influence, and in fact played a meaningful role in, the specific transactions and

conduct giving rise to Genzyme's violations of Section 11 and 12(a)(2) of the Securities Act

alleged herein, which included signing the Registration Statement and Proxy-Prospectus, causing

false statements to be made to Riggs in the negotiation of the merger agreement between

Genzyme and Biomatrix, and participating in the mismanagement of the Biosurgery Division in

order to depress the Biosurgery share price below fair market value.

47

Wyzga is a control person of Genzyme within the meaning of Section 15 of the

Securities Act. Through his position as Chief Financial Officer and Senior Vice President, and

his participation in and awareness of Genzyme's operations, Wyzga had the power and ability to

control and influence, and did control and influence, directly and indirectly, the general day-to-

day operations, policies, and decisions of Genzyme. Wyzga also possessed the power and ability

to control and influence, and in fact played a meaningful role in, the specific transactions and

conduct giving rise to Genzyme's violations of Section 11 and 12(a)(2) of the Securities Act

alleged herein, which included signing the Registration Statement and, as Genzyme's Chief

Financial Officer, supervising and overseeing Genzyme's misuse of the Biosurgery Division to

manage the earnings of the Genzyme General Division.

88. Anagnostopoulos, Berthiaume, Blair, Carpenter, Cooney, and Dzua are all control

persons of Genzyme within the meaning of Section 15 of the Securities Act. Through their

positions as Directors of Genzyme Corporation, their large ownership blocks of Genzyme

General stock, and their individual participation in and awareness of Genzymc's operations,

Anagnostopoulos, Berthiaume, Blair, Carpenter, Cooney, and Dzua each had the power and

ability to control and influence, and did control and influence, directly and.indirectly, the general

day-to-day operations, policies, and decisions of Gen7yme. In addition, Anagnostopoulos,

Berthiaume, Blair, Carpenter, Cooney, and Dzua each possessed the power and ability to control

and influence, and in fact played a meaningful role in, the specific transactions and conduct

giving rise to Genzyme's violations of Section 11 and 12(a)(2) of the Securities Act alleged

herein, which included signing the Registration Statement and serving on the "Special

48

ittee" that recommended and approved the forced exchange of Biosurgery stock for

Genzyme General stock.

98. Accordingly, each of Termeer, Wyzga, Anagnostopoulos , Berthiaume . Blair,

Carpenter, Cooney, and Dzua is liable under Section 15 for Genzyrne's violations of Sections 11

and 12(a)(2) of the Securities Act.

99. As a result of Gcnzyrne's violations of Sections 11 and 12(a)(2) of the Securities

Act, each of the Plaintiffs has suffered harm to the value of their interests in Biosurgery and

continues to suffer harm to such interests. If the June 30, 2003, share exchange is allowed to

proceed, Plaintiffs will be irreparably harmed from the further massive dilution in the value of

their shares and the elimination of Genzyme's tracking stock structure.

COUNT IV

(Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder)

(Against Genzyme and Termeer)

100. Plaintiffs repeal and reallege each and every allegation above as if fully set forth

herein.

101. Count IV is brought pursuant to Section 10(b) of the Exchange Act, 15 U.S.C.

§ 78j(b) and Rule lOb- 5 thereunder , 17 C.F.R. § 240.lOb-5, against Defendants Genzyme and

Termeer.

102. In connection with the purchase and sale of Biosurgery shares, Genzyme and

Termeer sent or caused the Registration Statement and Proxy-Prospectus to be disseminated to

investors. The Registration Statement and Proxy-Prospectus contained false and misleading

49

and omissions of material fact, and omitted to state material facts necessary to make

the statements therein not misleading, including:

(a) failing to disclose that Genzyme's plan, at the time of the merger, was to

mismanage Biosurgcry and drive down 13iosurgcry earnings in order (i) to create

disparities between,Biosurgery's fair market value and its share price, and thereby

(ii) to facilitate a forced exchange of Biosurgery tracking stock for Genzyme

General stock at a discount substantially below Biosurgery's fair market value;

(b) failing to disclose that Genzyme's plan, at the time of the merger, was to use

Biosurgery assets to manage the earnings of Genzyme General by subsidizing

Genzyme General research and development expenses, including costs of gene

therapy trials, and creati ng and transferring tax losses and write-downs from

Biosurgery to Genzyme General in quarters where Genzyme General was

otherwise likely to miss management earnings projections;

(c) falsely representing that the Biosurgery tracking stock was to reflect the value of

Synvisc and other Biosurg.ery assets, and to track the performance and value of

Biosurgery;

(d) falsely representing that Genzyine would. operate the Biosurgery Division to

maximize growth and profitability for Biosurgery shareholders, including through

the proper allocation of assets, revenues, income, expenses, liabilities, and

research and development costs to Biosurgery; and

(e) falsely representing that Genzyme would develop and commercialize Hylaform,the HylaShield, Hylafilm, and Hylagel products, HsS, Gelvisc Vet, Hylasine,

Artelan, OmniVise, and hylan solids for matrix and tissue engineering to yieldnew reconstructive surgery products.

103. In connection with the purchase and sale of Biosurgery shares, Defendants

Termeer and Genzyme -- through statements made by Collier and Hesslein - made additional oral

and written misrepresentations and omissions of material fact to the Plaintiffs, which included:

(a) Collier's and Hesslein's false statements to Riggs in February 2000 that theexchange provision would not be exercised unless Gen. yme was obligated to

modify the tracking stock structure to satisfy legal mandates such as SEC or

regulatory requirements, and then only at a 30% premium over fair market value;

(b) Termeeer and Collier's multiple false statements to Riggs and Balazs in

November 1999, February 2000, and through the completion of the merger, and

50

Collier' s false statement to Lewis in or about May 2000 that Genzyme's objective

in merging with Biomatrix was to operate the Biosurgery Division as a profitable,

stand-alone company;

(c) Terzneer and Collier's multiple false statements to Riggs and Balazs in November

1999, February 2000, and through the completion of the merger, and Collier's

false statement to Lewis in or about May 2000 that the Biosurgery tracking stock

would reflect the value of the Biosurgery Division assets;

(d) 'I ermcer and Collier ' s multiple false statements to Riggs and Balazs in November

1999, February 2000, and through the completion of the merger, and Collier'sfalse statements to Lewis in or about May 2000 that Gen yme was committed toexpanding the Synvisc franchise and developing the other products under

development at Biomatrix;

(c) Termeer and Collier's multiple false statements to Balazs and Riggs in November1999, February 2000, and through the completion of the merger, and Collier'sfalse statements to Lewis in or about May 2000 that C;erizynie would commit

sufficient resources to allow Bioinatrix shareholders to realize the synergisticbenefits of affiliation with the larger Gen?vmc corporation;

(1] Collier's false and misleading representation in Genrynte's written bid to

Biomatrix on January 24, 2000 that Genzyme would "bring its significantresources to bear in leveraging Biomatrix's proprietary technology to expand the

portfolio of products offered by both companies; and

(g) The false and misleading misrepresentation in the Merger Agreement that"Genzyme believes that combining Biomatrix's positive cash flow from productand sales with the financial resources of the two Genzyme divisions has thepotential to create in Biosurgery a self-sustaining business capable of supporting afull product research and development program."

104, Each of these misrepresentations and omissions was material in the sense that any

similarly situated reasonable investor would have considered them important in deciding whether

to exchange his or her Biomatrix shares for the Biosurgery tracking stock. Each of these

misrepresentations and omissions relates to matters that bear directly on the fiuidamental reason

for the merger between Bioinatrix and Genzyme and on the value of the Hiosurgery tracking

stock, and they have negatively affected the share pricing of the Biosurgery stock during the

51

IV--

arch-April trading period selected by the Genzyme Board for the forced exchange.

105. Plaintiffs each received, reviewed, and relied on the Registration Statement.

Plaintiffs agreed to the merger, Bioniatrix authorized the merger offer; and Plaintiffs, exchanged

their Biomatrix shares for and purchased Genzyme Biosurgery tracking stock, in reliance on each

of the misrepresentations in the Registration Statement and Proxy-Prospectus, inc luding the

omission of any disclosures regarding the material facts alleged above. Plaintiffs would not have

exchanged their shares, and the merger would not have been concluded, absent the material

misrepresentations and omissions in the Registration Statement.

106. Plaintiffs each relied on the oral misrepresentations made to them by Collier and

Hesslein, and Riggs relied on the misrepresentations made in the Merger Agreement and in

Genzyme's January 24, February 7, and February 28 bid letters. Riggs agreed to the merger.

Bionzatrix authorized the merger offer, and Plaintiffs exchanged Biomatrix shares for [}enzyme

Biosurgery tracking stock, in reliance on each of these oral and written misrepresentations,

including the omission of any disclosures regarding the material facts alleged above. Plaintiffs

would not have exchanged their shares or purchased the Biosurgery tracking stock, and the

merger would not have been concluded, absent these material written and oral misrepresentations

and omissions.

107. Genzymc and Termeer had both motive and opportunity to commit fraud by

engaging in the acts alleged herein to acquire the value of the Biomatrix assets and enterprise at a

fraction of the cost of a fair market value acquisition, to the benefit of Genzyme General

shareholders and l'ermeer, each of which stood to reap an extraordinary windfall tturough the

fraud. Genzyme and Termeer intended to mismanage Biosurgery and reduce its profitability to

52

ve down its tracking stock price and enable a forced share exchange through creating and

maximizing disparities between Biosurgery's share price and its fair market value. The Genzyme

share exchange provision allowed the Genzywe Board to select a past trading period on the basis

of perfect information as to the historical trading prices of Biosurgery and the actual fair market

value of Biosurgezy. By engaging in stock manipulation and in mismanagement of the

operations of Biosurgery, Genzyrne could depress the Biosurgery share price below fair market

value to ensure that, after the Biomatrix assets were transferred to Biosurgery through the

merger, the Biosurgery shareholders could be squeezed out at the lowest exchange ratio possible.

In fact, Genzyme took advantage of these devices to yield the currently planned forced exchange

that values Biosurgery at a mere $1.36./share, at least a 95% discount off fair market value.

108. As the Chief Executive Officer, President , and Chairman of the Board. Termeer's

opportunity to cause Genzyrne, including Collier, to issue the false and misleading statements

made in connection with the Genzyme Biomatrix merger falls within the function of his

authority. Termeer was directly responsible for the terms of the merger and designed the

fraudulent plan. Ternieer also controlled the contents of the Registration Statement. Proxy-

Prospectus, and other written and oral statements made to Biomatrix, the Plaintiffs, and other

investors. Termeer also had direct involvement in and control over the management of Genzyme

and the mismanagement of Biosurgery, and the nature, validity, and frequency of disclosures to

the market regarding the value of Biosurgery. Termeer directly controlled and participated in the

process that Genzyme used to drive down the publicly traded of the Biosurgery tracking stock.

Iermecr knew of the acts implemented by Genzyme in furtherance of the fraudulent plan.

Because i'ermeer not only designed the fraudulent plan but had access to and received

53

and documents contradicting the contents of the Registration Statement, Proxy-

Prospectus, and other written and oral statements made to Biomatrix, 1'lai.ntiffs, and to other

investors, Termeer also intentionally or recklessly disregarded the falsity of each of the

misrepresentations or omissions alleged above.

109. Termeer had a motive to commit fraud because of the huge personal financial

windfall that he will receive if the forced exchange goes forward. Termeer owns over $109

million of Genzyme General stock, and his Gen.zyme option holdings are primarily, if not

exclusively, linked to the Gcnzyme General division.

110. Genzyme's nondisclosures and delay of disclosures until near the end of the

March-April trading period or thereafter, which had the intended effect of depressing the

Biosurgery share price, create a strong inference of both Genzyrne's and Termeer's fraudulent

intent. As alleged above, Genzyme delayed disclosure of a series of very positive material facts

regarding the sales, market, FDA approval, and potential applications to other joints of Synvisc,

the development of third generation Synvisc and second generation Seprarlm products, and the

sale of the unprofitable cardiothoracic business. All these facts were known to Genzyme and

Termeer prior to the March-April trading period but deliberately withheld from the market to

ensure that the Biosurgcry share price would remain depressed. Each of these facts is material to

a reasonable investor in Biosurgery, and, taken together, the disclosures present a dramatically

more favorable picture of the value of Biosurgeiy than Genzyrne had previously disclosed to the

market. If Genzyme had disclosed these facts prior to the March-April trading period, the

disclosures would have substantially increased the closing price of Biosurgery shares during that

trading period.

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The misrepresentations and omissions in the Registration Statement, Proxy-

Prospectusm, and other written materials and made by Collier and Hesslein caused the average

price of the Biosurgery stock to drop more than 87°/o from the date of the merger to the March-

April trading period selected by Genzyme's Board for the forced exchange. As a result, each of

the Plaintiffs has suffered harm to the value of their interests in l3iosutger'y and continues to

suffer harm to such interests. If the June 30, 2003, share exchange is allowed to proceed,

I'lainti Ffs wi i I be irreparably harmed from the furl-her massive dilution in the value of their shares

and the elimination of (irenzyme's tracking stock structure.

COUNT V

(Section 14(a) of the Exchange Act and Rule 14a-9 Thereunder)

(Against Ceniyme and Termeer)

112. Plaintiffs repeat and real Iege each and every allegation above as if fully set forth

herein.

113. Count V is brought pursuant to Section 14(a) of the Exchange Act, 15 U.S.C.

§ 78n(a), and Rule 14a-9 thereunder, 17 C.F.R. § 240.14a-9, against Defendants Gen yme and

Termeer.

11.4. In December 2000, Plaintiffs both purchased securities from Genzyme in a public

offering by exchanging shares of Riomatrix common stock for shares of the Riosurgery tracking

stock. Genzyme offered and sold each of the Biosurgery shares purchased by the Plaintiffs in

December 2000 by means of the Proxy-Prospectus.

115. The Proxy-Prospectus filed by Defendant Genzyme and signed by Defendant

Termeer contained false and misleading statements and omissions of material fact, and omitted to

state material facts necessary to make the statements therein not misleading, including:

55

failing to disclose that Genzyme's plan, at the time of the merger, was to

mismanage Biosurgery and drive down Biosurgery earnings in order (i) to create

disparities between Blosurgery's fair market value and its share price, and thereby

(ii) to facilitate a forced exchange of Biosurgery tracking stock for Genzyme

General stock at a discount substantially below Biosurgery's fair market value;

(b) failing to disclose that Gen7yme's plan, at the time of the merger, was to use

Blosurgery assets to manage the earnings of Genzyme General by subsidizing

Genzyme General research and development expenses, including costs of gene

therapy trials, and creating and transferring tax losses and write-downs from

Biosurgery to Genzyme General in quarters where Genzyme General was

otherwise likely to miss management earnings projections;

(c) falsely representing that the Biosurgery tracking stock was to reflect the value of

Synvisc and other Biosurgery assets, and to track the performance and value of

Riosurgery;

(d) falsely representing that Genzyrne would operate the Biosurgery Division to

maximize growth and profitability for Biosurgery shareholders, including through

the proper allocation of assets, revenues, income, expenses, liabilities, and

research and development costs to Biosurgery; and

(e) falsely representing that Genzyme would develop and commercialize Hylafonn,

the HylaShield, Hylafihn, and Hylagel products, lisS, Gelvise Vet, Hylasine,

Artelan, OmniVise, and hylan solids for matrix and tissue engineering to yield

new reconstructive surgery products.

116. Each of the misrepresentations and omissions in the Proxy-Prospectus was

material in the sense that any similarly situated reasonable investor would have considered them

important in deciding whether to exchange his or her Biomatrix shares for the Biosurgery

tracking stock.. Each of the misrepresentations and omissions in the Proxy-Prospectus relates to

matters that bear directly on the fundamental reason for the merger between Biomatrix and

Genzyme and on the value of the Biosuxgery tracking stock, and they have negatively affected the

share pricing of the Biosurgery stock during the March-April trading period selected by the

Genzyme Board for the forced exchange.

56

Plaintiffs each received, reviewed, and relied on the Proxy-Prospectus. Riggs

agreed to the merger, Biomatrix authorized the merger otier, and Plaintiffs exchanged Biomatrix

shares for Gencyme Biosurgery tracking stock, in reliance on each of the misrepresentations in

the Proxy-Prospectus, including the omission of any disclosures regarding the material facts

alleged above. Each of the Plaintiffs would not have exchanged his shares, and the merger

would not have been concluded, absent the material misrepresentations and omissions in the

Proxy-Prospectus.

118. None of the Plaintiffs knew the truth of any of the misrepresentations or

omissions of material fact in the Proxy-Prospectus at the time they exchanged their 13iomatrix

stock for shares of the Biosurgery tracking stock. Each of Defendants Genzyzne and Termeer

knew the statements and omissions were false or misleading at the time that they were made.

119. The misrepresentations and omissions in the Proxy-Prospectus have caused the

average price of the Biosurgery stock to drop more than 87% from the date of the merger to the

March-April trading period selected by Genayrne's Board for the forced exchange. As a result,

each of the Plaintiffs has suffered harm to the value of their interests in Biosurgery and continues

to suffer harm to such interests. If the June 30, 2003, share exchange is allowed to proceed,

Plaintiffs will be irreparably harmed from the further massive dilution in the value of their shares

and the elimination of Genzvme's tracking stock structure.

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COUNT VI

(Section 18 of the Exchange Act)

(Against Genzyme, Termeer, Wyzga, Anagnostopoulos,Berthiaume, Blair, Carpenter, and Cooney)

120. Plaintiffs repeat and reallege each and every allegation above as if fully set forth

herein.

121. Count VI is brought pursuant to Section 1 S of the Securities Act, 15 U.S.C. § 78r,

against Genzyme, Termeer, Wyzga, and each of the Director Defendants, except Dzau and Mack.

122. In December 2000, Plaintiffs both purchased securities from Gcnzyme by

exchanging shares of Biomatrix common stock for shares of the Biosurgery tracking stock, and

Lewis thereafter purchased additional shares of the Biosurgery tracking stock in the open market.

The Proxy-Prospectus, which both Plaintiffs relied on in deciding to purchase Biosurgery

tracking stock, was filed by Gcnzyme pursuant to its obligations under the Exchange Act.

123. The Proxy-Prospectus filed by Gcnzyme contained false and misleading

statements and omissions of material fact, including:

(a) failing to disclose that Genzyme's plan, at the time of the merger, was tomismanage Biosurgery and drive down Biosurgery earnings in order (i) to createdisparities between Biosurgery's fair .market value and its share price, and thereby(ii) to facilitate a forced exchange of Biosurgery tracking stock for GenzymeGeneral stock at a discount substantially below Biosurgery's fair market value;

(b) failing to disclose that Genzyme's plan, at the time of the merger, eras to useBiosurgery assets to manage the earnings of Cenzyme General by subsidizingGenzyrne General research and development expenses, including costs of genetherapy trials, and creating and transferring tax losses and write-downs fromBiosurgery to Genzyme General in quarters where Genzyme General wasotherwise likely to miss management earnings projections;

(c) falsely representing that the Biosurgery tracking stock was to reflect the value ofSynvisc and other Biosurgery assets, and to track the performance and value ofBiosurgery;

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falsely representing that Genzyme would operate the Biosurgery Division to

maximize growth and profitability for Biosurgery shareholders, including throughthe proper allocation of assets, revenues, income, expenses, liabilities, andresearch and development costs to Biosurgery; and

(e) falsely representing that Genzyme would develop and commercialize Hylaform,the HylaShield, Hylaf im, and Hylagel products, HsS, Gelvisc Vet, Hylasine,Artelan, OmniVisc, and hylan solids for matrix and tissue engineering to yieldnew reconstructive surgery products.

124. Each of the misrepresentations and omissions in the Proxy-Prospectus was

material in the sense that any similarly situated reasonable investor would have considered them

important in deciding whether to purchase or exchange his or her Bioma€rix shares for the

Biosurgery tracking stock. Each of these misrepresentations and omissions in the Proxy-

Prospectus relates to matters that bear directly on the fundamental reason for the merger between

B io.rnatrix and Genzyme and on the value of the Biosurgery tracking stock, and they have

negatively affected the share pricing of the Biosurgery stock during the March-April trading

period selected by the Gcnzyrne Board for the forced exchange.

125. Plaintiffs each received, reviewed, and relied on the Proxy-Prospectus. Plaintiffs

agreed to the merger, Biomatrix authorized the merger offer, and Plaintiffs exchanged Biomatrix

shares For and purchased Genzyme Biosurgery tracking stock, in reliance on each of the

misrepresentations in the Proxy-Prospectus , including the omission of any disclosures regarding

the material facts alleged above. Plaintiffs would not have exchanged their shares or purchased

Biosurgery tracking stock, and the merger would not have been concluded, absent the material

misrepresentations and omissions in the Proxy-Prospectus.

59

Neither of the Plaintiffs knew the truth of any of the misrepresentations or about

the omissions of material fact in the Proxy-Prospectus at the time they exchanged their Biomatrix

stock for shares of the Biosurgery tracking stock. Each of Defendants Genzyme, Termeer,

Wyzga, Anagnostopoulos, Berthiaume , Blair, Carpenter, and Cooney knew the statements and

omissions were false or misleading at the time that they were made.

127. The misrepresentations and omissions in the Proxy-Prospectus caused the average

price of the Biosurgery stock to drop more than 87% from the date of the merger to the March-

April trading period selected by Cenzyme's Board for the forced exchange. As a result, each of

the Plaintiffs has suffered harm to the value of their interests in Biosurgery and continues to

suffer harm to such interests. If the June 30, 2003, share exchange is allowed to proceed,

Plaintiffs will be irreparably harmed from the further massive dilution in the value of their shares

and the elimination. of Genzyme's tracking stock structure.

COUNT VII

(Section 20(a) of the Exchange Act)

(Against Termeer, Wyzga, Anagnostopoulos,

Berthiaume, Blair, Carpenter, Cooney, Dzua, and Mack)

128. Plaintiffs repeat and reallege each and every allegation above as if fully set forth

herein.

129. Count VII is brought pursuant to Section 20(a) of the Exchange Act, 15 U.S.C.

§ 77t(a), against Defendants Termeer, Wyzga, and each of the Director Defendants.

130. Termeer is a control person of Genzyme within the meaning of Section 20 of the

Exchange Act. Through his position as Chief Executive Officer, President, and Chairman of the

60

of Genzyme, his large ownership block of Genzyme General stock, and his participation in

and awareness of Genzyme's operations, Termeer had the power and ability to control and

influence, and did control and influence, directly and indirectly, the general day-to-day

operations, policies, and decisions of Genzyme. Termeer also possessed the power and ability to

control and influence, and in fact played a meaningful role in, the specific transactions and

conduct giving rise to Genzyme's violations of Sections 10(b), 14(a) , and 18 and Rules I Ob-5

and 14a-9 alleged herein, which included signing the Registration Statement and Proxy-

Prospectus, causing false statements to be made to Balazs and Riggs in the negotiation of the

merger agreement between Genzyme and Biomatrix, and participating in the mismanagement of

the Biosurgery Division in order to depress the Biosurgery share price below fair market value.

131. Wyzga is a control person of Genzymc within the meaning of Section 20 of the

Exchange Act. Through his position as Chief Financial Officer and Senior Vice President, and

his participation in and awareness of Genzyme's operations, Wyzga had the power and ability to

control and influence and did control and influence, directly and indirectly, the general day-to-

day operations, policies, and decisions of Genzyme. Wyzga also possessed the power and ability

to control and influence, and in fact played a meaningful role in, the specific transactions and

conduct giving rise to Genzyme's violations of Sections 10(h), 14(a), and 18 and Rules 1 Oh-5

and 14a-9 alleged herein, which included signing the Registration Statement and, as Genzyine's

Chief Financial Officer, supervising and overseeing Genzyme's misuse of the Biosurgery

Division to manage the earnings of the Genzyme General Division.

88. Anagnostopoulos, Berthiaume, Blair, Carpenter, Cooney, and Dzuua are each a

control person of Genzyme within the meaning of Section 20 of the Exchange Act. Through

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each of their positions as a Director of the Genzyme Corporation, each of the their large

ownership blocks of Genzyme General stock, and their individual participation in and awareness

of Gen.zyme's operations, Anagnostopoulos, Berthiaume, Blair, Carpenter, Cooney, and Dzua

each had the power and ability to control and influence and did control and influence, directly

and indirectly, the general day-to-day operations, policies, and decisions of Gencyme. In

addition, Anagnostopoulos, Bertl-iiaume, Blair, Carpenter, Cooney, and Dzua each possessed the

power and ability to control and influence, and in fact played a meaningful role in, the specific

transactions and conduct giving rise to [enzyme's violations of Sections ld(b), 14(a), and 18 and

Rules I Ob-5 and 14a-9 alleged herein, which included signing the Registration Statement and

serving on the "Special Committee" that recommended and approved the forced exchange of

Biosurgery stock for Genzvme General stock.

132. Mack is a control person of [enzyme within the meaning of Section 20 of the

Exchange Act. Through his positions as a Director of the Genzyme Corporation and his

individual participation in and awareness of Genzyme's operations, Mack had the power and

ability to control and influence, and did control and influence, directly and indirectly, the general

day-to-day operations, policies, and decisions of Genzyme. In addition, Mack possessed the

power and ability to control and influence, and in fact played a meaningful role in, the specific

transactions and conduct giving rise to Genzyme's violation of Sections 10(b) and Rules IOb-5

alleged herein, which included signing the Registration Statement and serving on the "Special

Committee" that recommended and approved the forced exchange of Biosurgery stock for

Genzyme General stock while Genzyme was in possession of material, nonpublic information.

62

[ugly, 'Termeer, Wyzga, Anagnostopoulos, Berthiaume, Blair, Carpenter,

Cooney, and 1)zua are each liable under Section 20(a) for Genz) c's violation of Sections

IOb(b), 14(a) and 18 of the Exchange Act and Rules I Ob-5 and 14a-9 thereunder , and Mack is

liable under Section 20(a) for Genzyme's violation of Sections I Ob(b) of the Exchange Act and

Rules IOb-5 thereunder.

134. As a result of Genzyxn.e's violations of Sections l 0(h), 14(a), and 18 of the

Exchange Act and Rules 1 Ob-5 and 14a-9 thereunder, each of the Plaintiffs has suffered harm to

the value of their interests in Biosurgery and continues to suffer harm to such interests. If the

June 30, 2003, share exchange is allowed to proceed, Plaintiffs will be irreparably harmed from

the further massive dilution in the value of their shares and the elimination o f Genzyme's

tracking stock structure.

COUNT VIII

(Breach of Fiduciary Duties of Loyalty and of Care)

(Against Termeer and the Director Defendants)

135. Plaintiffs repeat and reallege each and every allegation above as if fully set forth

herein.

136. Count Vill is brought pursuant to Massachusetts General Law 1561 § 65 and

common law against all Genzymc directors, including Termeer and the Director Defendants.

137. The Genzyme Board of Directors owes fiduciary duties of loyalty, due care, and

good faith to all shareholders of Genzyme, including the holders of the Biosurgery tracking

stock. The Genzyme Directors have breached those duties and acted to further their personal

economic interests as disproportionately large shareholders of Cienzyme General at the expense

of Biosurgery shareholders, by, among other things: (a) sanctioning and approving the deliberate

63

mismanagement of the operations of Biosurgery to depress its share price and maximize

disparities between Biosurgery's share price and fair market value, in order to implement a

forced exchange of Biosurgery shares for Genzyme General shares at an enormous discount off

the fair market value of Biosurgcry; (b) pursing their personal economic interests as

disproportionately large shareholders of Gcnzyme General at the expense of Biosurgery

shareholders; and (c) coercively forcing the Blosurgery shareholders to exchange their

Biosurgery shares for $72 million worth of Genzyme General stock even though Biosurgery is

worth in the range of $1.5-2 billion.

138. Defendants' breaches of fiduciary duty have already caused the average price of

the Biosurgery stock to drop more than 87% from the date of the merger to the March-April

trading period selected by Genzyme' s Board for the forced exchange. As a result , each of the

Plaintiffs has suffered harm to the value of their interests in Biosurgery and continues to suffer

harm to such interests. If the June 30, 2003, share exchange is allowed to proceed, Plaintiffs will

be irreparably harmed from the further massive dilution. in the value of their shares and the

elimination of Genzyme's tracking stock structure.

COUNT IX

(Common Law Fraud)

(Against Genzyme and Termeer)

139. Plaintiffs repeat and reallege each and every allegation above as if fully set forth

herein.

1410. To induce the Plaintiffs to exchange their Biomatrix stock for shares of the

Blosurgery tracking stock, Genzyme and Ternieer sent and/or caused the Registration Statement

and Proxy-Prospectus to be disseminated to investors. The Registration Statement and Proxy-

64

Prospectus contained false and misleading statements and omissions of material fact, and omitted

to state material facts necessary to make the statements therein not misleading, including:

(a) failing to disclose that Gcnzyme's plan, at the time of the merger, was to

mismanage Biosurgery and drive down Blosurgery earnings in order (i) to create

disparities between Biosurgery's fair market value and its share price, and thereby

(ii) to facilitate a forced exchange of Biosurgery tracking stock for Genzyme

General stock at a discount substantially below Biosurgery's fair market value;

(b) failing to disclose that Genzyme's plan, at the time of the merger, was to use

Biosurgery assets to manage the earnings of Genzyme General by subsidizing

Genzyrne General research and development expenses, including costs of gene

therapy trials, and creating and transferring tax losses and write-downs from

Biosurgery to Genzyme General in quarters where Genzyme General was

otherwise likely to miss management earnings projections;

(c) falsely representing that the Biosurgery tracking stock was to reflect the value of

Synvisc and other Biosurgery assets, and to track the performance and value of

Biosurgcry;

(d) falsely representing that Genzyrne would operate the Biosurgery Division to

maximize growth and profitability for Biosurgery shareholders, including through

the proper allocation of assets, revenues, income, expenses, liabilities, and

research and development costs to I3iosurgery; and

(e) falsely representing that Genzyme would develop and commercialize I-Iylaform,

the HylaShicld, Hylafilm, and Hylagel products, HsS, Gelvisc Vet, Hylasine,

Artelan, GmniVise, and hylan solids for matrix and tissue engineering to yield

new reconstructive surgery products.

141. In connection with the purchase and sale of Biosurgery, Defendants Termeer and

Genzyme, through statements made by Collier, and Hesslcin , made additional oral and written

misrepresentations and omissions of material fact to the Plaintiffs, which included:

(a) Collier's and Hesslein's false statements to Riggs in February 2000 that the

exchange provision would not be exercised unless Genzyme was obligated to

modify the tracking stock structure to satisfy legal mandates such as SEC or

regulatory requirements, and then only at a 30°%o premium over fair market value;

(b) Termeeer and Collier's multiple false statements to Riggs and Balazs in

November 1999, February 2000, and through the completion of the merger, and

65

Collier's false statement to Lewis in or about May 2000 that Genzyme's objectivein merging with Biomatrix was to operate the BiosurgeryCaivision as a profitable,

stand-alone company;

(c) Termeer and Collier's multiple false statements to Riggs and Balazs in November

1999, February 2000, and through the completion of the merger, and Colliersfalse statement to Lewis in or about May 2000 that the Biosurgery tracking stockwould reflect the value of the Biosurgcry Division assets;

(d) Termeer and Collier's multiple false statements to Riggs and Balazs in November1999, February 2000, and through the completion of the merger, and Collier'sfalse statements to Lewis in or about May 2010 that Genzym e was committed toexpanding the Synvise franchise and developing the other products underdevelopment at Biomatrix;

(e) Termeer and Collier's multiple false statements to Balazs and Riggs in November.1999, February 2000, and through the completion of the merger, and. Collier's

false statements to Lewis in or about May 2000 that Genzyme would commitsufficient resources to allow Biomatrix shareholders to realize the synergistic

benefits of affiliation with the larger Genzyme corporation;

(f) Collier's ia]se and misleading representation in (,enzyme's written bid toBiomatrix on January 24, 2000 that Genzyme would "bring its significantresources to bear in leveraging Bioma.trix's proprietary technology to expand theportfolio of products offered by both companies; and

(g} The false and misleading misrepresentation in the Merger Agreement that"(;enzyme believes that combining Biomatrix's positive cash flow from productand sales with the financial resources of the two Genzyme divisions has thepotential to create in Riosurgery a. self-sustaining business capable of supporting afull product research and development program."

142. Each of these misrepresentations and omissions was material in the sense that any

similarly situated reasonable investor would have considered them important in deciding whether

to exchange his or her Biomatrix shares for the Biosurgery tracking stock. Each of these

misrepresentations and omissions relates to matters that bear directly on the fundamental reason

for the merger between Biomatrix and Genzyme and on the value of the Biosurgery tracking

66

stock, and they have negatively affected the share pricing of the Biosurgery stock during the

March-April trading period selected by the Gcnzyme Board for the forced exchange.

143. Plaintiffs each received, reviewed, and relied on the Registration Statement.

Riggs agreed to the merger, Biomatrix authorized the merger offer, and Plaintiffs exchanged their

Biomatrix shares for and purchased Genzyme Biosurgery tracking stock, in reliance on each of

the misrepresentations in the Registration Statement and Proxy-Prospectus, including the

omission of any disclosures regarding the material facts alleged above. In addition, Plaintiffs

each relied on the oral misrepresentations made to them by Collier and Hesslein, and Riggs relied

on the misrepresentations made in the Merger Agreement and in Genzyme's January 24,

February 7, and February 28 bid letters. Plaintiffs agreed to the merger, Biomatrix authorized the

merger offer, and Plaintiffs exchangedBioirratrix shares for Genzyme Biosurgery tracking stock,

in reliance on each of these oral and written misrepresentations, including the omission of any

disclosures regarding the material facts alleged above. Plaintiffs would not have exchanged their

shares or purchased the Biosurgery cracking stock, and the merger would not have been

concluded, absent these material written and oral misrepresentations and omissions.

144. The misrepresentations and omissions in the Registration Statement, Proxy-

Prospectusm, and other written materials and made by Collier and Hesslein have already caused

the average price of the Biosurgery stock to drop more than 87% from the date of the merger to

the March-April trading period selected by Genzyine's Board for the forced exchange. Each of

the Plaintiffs has suffered ham to the value of their interests in Biosurgery and continues to

suffer harm to such interests. If the June 30, 2003, share exchange is allowed to ,proceed,

67

Plaintiffs will be irreparably harmed from the further massive dilution in the value of their shares

and the elimination of Genzyme's tracking stock structure.

CUNT X.

(Breach and Anticipatory Breach of Merger Agreement)(Against Genzyme)

145. Plaintiffs repeat and reallege each and every allegation above as if fully set forth

herein.

146. Genzyme has materially breached and intends to breach the Amended Agreement

and Plan of Merger with T3iomatrix _ In paragraph 6(A)(1)(a) of Exhibit A-2 to the Merger

Agreement, Terms of the GBS Division [Biosurgery] Common Stock, Genzyme agreed that, in

the event of a forced exchange of Biosurgery shares, the exchange ratio shall be set so that

Biosurgery shareholders will receive, for each Biosurgery share, 130% of the fair market value of

each share. Fair Market Value is defined as follows: "[A]s to the shares of any series of stock of

the Corporation as of any date, the average of the daily Closing Prices for the 20 consecutive

Business Days commencing on the 30th Business Day prior to such date, except that, in the event

such Closing Prices are unavailable, Fair Market Value shall be determined by the Board of

Directors." The Terms of the GSB Division Common Stock are part of Genzyme's Articles of

Incorporation.

147. The exchange provision is designed to ensure that the Biosurgery shareholders

receive a premium of 30% over fair market value in the event of any elimination of the tracking

stock. Based upon the assumption that share prices will fairly reflect market value, "Fair Market

Value" is defined on the basis of closing share prices; otherwise, Fair Market Value is to be

68

determined by the Genzyme Board. In either case, the Genzyme Board can require a forced share

exchange only consistent with fiduciary responsibilities to the Biosurgery shareholders.

148. Genzyme has breached and intends to breach paragraph 6(A)(1)(a) of Exhibit A-2

by (a) manipulating and depressing the price ofBiosurgery stock, in violation of the securities

laws and otherwise, so that the price of Biosurgery stock does not in fact reflect the fair market

value of Biosurgery, and (b) declaring a forced share exchange that values Biosurgery based upon

the price of Biosurgery stock, with the purpose and. intended effect of (c) squeezing Biosurgery

shareholders out of their interests in the tracking stock at a discount of 95% or more, not at a

30% premium.

149. The Merger Agreement expressly contemplates that Closing Prices of Biosurgery

stock may not be available as an adequate surrogate for an independent assessment of the fair

market value of Biosurgery, in which event the Board is obligated to cause such an assessment to

he made. Cienzyme cannot at the same time cause the Biosurgery share prices to deviate

materially from the fair market value of Biosurgery, mismanage Biosurgery to prevent near-term

profitability, withhold material positive information from the market, and avoid its obligation to

determine fair market value in the event of a forced share exchange.

150. Gcnzyme's acts have fundamental ly frustrated and undermined the Merger

Agreement's basic contractual protection for the minority Biosurgery shareholders. that no

squeeze-out will occur without the payment of 130% of the fair market value of the Biosurgery

enterprise. As alleged above, Genzynie has (a) engaged in stock manipulation to alter the market

valuation of the Biosurgery shares, (b) deliberately mismanaged Biosurgery to drive down near-

terra operating performance to depress the Biosurgery share price, (c) withheld or delayed

69

disclosures to the market that were and are necessary for investors and analysts to value

Biosurgery correctly, such that there is no material asymmetry of information between Genzyme

and the market and no material discrepancy between Genzyme's inside valuation of 13iosurgery

and the share price, and (d) selected a trading period for the exchange that is the lowest in

Riosurgery's history to maximize the disparity between fair market value and share price, such

that Genzyme's valuation for purposes of the share exchange is in fact 5% or less of the fair

market value of [3iosurgery. Genzyme took all these acts with the objective of ensuring that the

Biosurgery business could be acquired by Germ ,me General at a discount of 95% or greater

rather than at the 3D% premium required by the Merger Agreement.

151. In addition, Genzyme breached paragraph 5.19 of the Merger Agreement, in

which Genzyme expressly represented and warranted that:

"None of the information supplied or to be supplied by Genzyme for inclusion in the

Registration Statement will, at the tune the Registration Statement is filed with the SEC,at any time it is amended or supplemented or at the time it becomes effective under the

Securities Act, contain any untrue statement of a material fact or omit to state any

material fact required to be stated therein or necessary to make the statements therein not

misleading."

Genzy7ne further expressly represented and warranted in paragraph 5.19 that:

"None of the information supplied or to he supplied by Genzyme for inclusion or

incorporation by reference in the Proxy StatementiProspectus will, at the date it is first

mailed to holders of Biomatrix Common Stock or holders of any series of Genzyme

Common Stock or at the time of the Biornatrix Stockholders Meeting or Gen.zyme

Stockholders Meeting, contain any untrue statement of a material fact. or Omit to state any

material fact required to be staled therein or necessary to make the statements therein not

misleading."

152. As alleged above, including in Counts 1, TT, and VI, Genzyme in fact made

material misrepresentations and omitted to state material facts in each of the Registration

70

Statement, Proxy Statement, and Prospectus, each of which were misleading to the Biomatrix

management and shareholders, including Plaintiffs.

153. Plaintiffs have sustained harm to the value of their Biosurgery shares in an amount

to be proven at trial. In addition, if the June 30, 2003, share exchange is allowed to proceed,

Plaintiffs will be irreparably harmed from the further massive dilution in the value of their shares

and the elimination of Genzyme's tracking stock structure .

COUNT XI.

(Breach of Implied Covenant of Good Faith and Fair Dealing)

(Against Geuzy,me)

154. Plaintiffs repeat and reallege each and every allegation above as if fully set forth

herein.

155. In the alternative, Genw,vme has violated the implied covenant of good faith and

fair dealing incorporated in the Merger Agreement, the Terns of the GBS Division Common

Stock, and the Genzyme Artic les of Incorporation , by acting in a manner designed to defeat the

intended purpose of paragraph G(A)(1)(a) of the Terms of the GBS Division Common Stock. In

particular, Genzyme has sought to eviscerate the contractual protection of a 30% premium to

Biosurgery shareholders, in the event of elimination of the tracking stock, by (a) engaging in

stock manipulation to depress the market valuation of the Biosurgery shares, (b) deliberately

mismanaging Biosurgery to drive down operating income and increase tosses, (c) failing to make

disclosures to the market that are necessary for investors arid analysts to be able to assess the true

fair market value of Biosurgery, and (d) defining an exchange period that maximizes the disparity

between Genzyme's internal valuation of Biosurgery and the market valuation of Biosurgery as

reflected in closing stock prices. Genzme deliberately selected a trading period that it knew,

71

based on its internal valuations with the benefit of perfect information, exhibited a discrepancy of

95% or more between the fair market value of Biosurgery and the average closing price ofjust

$1.36/share. Through As deliberate acts to depress the trading price of Biosurgery shares, and its

intentional selection of a share trading period that it knew did not reflect the fair market value of

the Biosurgery stock, Genzme undermined and frustrated the intended purpose of the agreement,

violating its obligation of good faith and fair dealing to Plaintiffs.

156. Each of Plaintiffs has sustained harm to the value of their Biosurgery shares in an

amount to be proven at trial. In addition, if the June 30, 2003, share exchange is allowed to

proceed, Plaintiffs will be irreparably harmed from the further massive dilution in the value of

their shares and the elimination of Gcnzyme' s tracking stock structure.

BASIS OF ALLEGATIONS

157. Plaintiffs allege the foregoing based. upon the investigation of their counsel, which

investigation has included a review of Genzyme SEC filings, correspondence and memoranda

reflecting pre-merger discussions between Genzyme directors and officers and the directors and

officers of Biomatrix, memoranda reflecting post- merger representations by Gen yme and

Biosurgery directors and officers as to the operation of Genzyme and Biosurgery, Genzyme

documents provided to Plaintiffs, transcripts of Genzyme and Biosurgery conference calls with

investors, securities analyst reports, press releases issued by Genzyme, media reports about

Genzyme and Biosurgery, Biolnatrix SEC filings, memoranda, and other documents, merger

documents, Biosurgery launch presentations, public information about the biotechnology industry

and markets, and other documents.

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PRAYER FOR RELIEF

WHEREFORE, Plaintiffs demand judgment that:

a) The Court declare that Genzywe Corporation and the Director Defendants

have violated the Securities and Exchange Acts, violated their fiduciary

duties to Plaintiffs, and breached the Agreement and Plan of Merger

between Genzyme Corporation and Biomatrix Inc.;

b) The Court preliminarily and permanently enjoin Genzyme Corporation

from eliminating its tracking stock structure and from exchanging shares

of its Geuzyme .l3iosurgery and Genzyme Molecular Oncology tracking

stock for shares of Genzyme General stock;

e) The Court rescind the merger between Genzyme Corporation and

Biomatrix Inc., or order Cicnzymc Corporation to spin off the Genzyme

Biosurgery Division to its shareholders;

d) The Court, in the alternative , require an adjustment of the exchange ratio

based upon an independent assessment of the fair market value of the

Biosurgery shares;

e) The Court award Plaintiffs compensatory damages in an amount to be

proven at trial, together with interest thereon;

t) The Court award Plaintiffs their reasonable attorneys' fees, expenses, and

costs incurred in connection with the institution and prosecution of this

civil action; and

g) The Court award P]aintiffs such other and further relief as j ustice may

require.

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JURY TRIAL DEMANDED

Plaintiffs hereby demand a trial by jury.

June 2, 2003

Respectful sub) itted,

BOIES. SCHILLER & FLEXNER LLP

Jonathan Sherman (JS 6633)

t- Kevin R. Anthony

Paul B . Kunz

Darn C. Bums

Alanna Rutherford

5301 Wisconsin Ave., N.W.

Suite 800Washington , D.C. 2001

(20 27

ER & F T .EX'NER LLP

Philippe Z . Selendy (PS 6972)Frank C. Moore, Iff (FM 5770)

570 Lexington Avenue

16th Floor

New York, NY 10022

(212) 446-2300

Counselfor Plaintiffs