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Stockholder Advisory for Exchanged Holders of GelTex Common Stock On December 14, 2000, Genzyme Corporation completed the acquisition of GelTex Pharmaceuticals, Inc. In the acquisition, most GelTex stockholders received a combination of cash and Genzyme Division common stock in exchange for their GelTex common stock. The following information is provided to assist stockholders in determining what their tax basis in Genzyme General stock should be following the exchange. This information is a general summary. Your own federal income tax consequences will depend on your individual tax situation and may differ from those described here. For example, special rules may apply to you if you acquired your GelTex shares at different times for different prices or upon exercise of an employee stock option. This summary does not address state or local tax consequences. In connection with the acquisition, GelTex stockholders made elections as to the form of merger consideration they wished to receive in exchange for their shares of GelTex common stock. The election choices were either 0.7272 of a share of Genzyme General common stock or $47.50 in cash. However, not more than 50 percent of the GelTex common stock could be exchanged for either the cash consideration or the stock consideration. Because valid elections for the common stock consideration were made for more than 95 percent of the GelTex common stock, GelTex stockholders who elected the common stock consideration received a prorated merger consideration consisting of a combination of $22.59 in cash and 0.3813 of a share of Genzyme General common stock for each share of GelTex common stock. Cash was paid in lieu of a fractional share of Genzyme General common stock, based on the closing price of Genzyme General common stock on the day before the effective time of the merger, which was $95.5625. Determining your Tax Basis. To determine the tax basis for the Genzyme General shares you received in the merger, you will need to know your tax basis in your GelTex common stock. This figure may be obtained from bank or brokerage statements, inheritance or gift records, or your own personal records. Your aggregate tax basis for your Genzyme General shares (including fractional shares) will equal your aggregate tax basis in your GelTex common stock, minus the cash portion of your merger consideration (excluding any cash you received in lieu of a fractional share), plus the amount of gain that you recognized on the exchange. The amount of gain you recognized on the exchange is equal to the lesser of (i) the cash portion of your merger consideration or (ii) the result obtained by subtracting your tax basis in your GelTex common stock from the combined value on the date of the merger of your cash and stock merger consideration. Based on the average of the high and the low trading price for Genzyme General common stock on December 14, 2000, the value of a share of Genzyme General common stock on the date of the merger was $96.75. Treatment of Fractional Shares. The cash that you received in lieu of a fractional share of Genzyme General common stock is treated for federal income tax purposes as paid in redemption of the fractional share. Provided the fractional share is treated as a capital asset, you realized gain or loss on this deemed redemption measured by the difference between the cash received for the fractional share and your tax basis for the fractional share. Examples. The examples below illustrate the way in which you would calculate your tax basis in your Genzyme General common stock in the following two situations: (1) if you recognized a gain on the exchange in an amount less than the cash merger consideration you received, and (2) if you recognized a gain on the exchange in an amount equal to the cash portion of the merger consideration you received. Example 1 - Gain recognized on the Exchange in an Amount Less Than the Cash Merger Consideration. Suppose that you owned 500 shares of GelTex common stock which you purchased for $45.00 per share, and you made a common stock election for all of those shares. I. Your tax basis in your GelTex shares would be $22,500.00, and those shares would be converted in the merger into the following merger consideration:
II. You would recognize gain on the exchange, calculated as follows:
III. Consequently, your tax basis per share for the whole shares of Genzyme General common stock that you received and your gain or loss on the cash you received in lieu of a fractional share of Genzyme General common stock would be as follows:
Example 2- Gain recognized on the Exchange in an Amount Equal to the Cash Merger Consideration. Suppose that you owned 500 shares of GelTex common stock which you purchased for $25.00 per share, and you made a common stock election for all of those shares. I. Your tax basis in your GelTex shares would be $12,500.00, and those shares would be converted in the merger into the following merger consideration:
II. You would recognize gain on the exchange, calculated as follows:
III. Consequently, your tax basis per share for the whole shares of Genzyme General common stock that you received and your gain or loss on the cash you received in lieu of a fractional share of Genzyme General common stock would be as follows:
Because the tax consequences of the merger may vary depending upon your particular circumstances, we urge you to consult your own tax advisors about the federal, state, local or foreign tax consequences this transaction will have on you. |
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