<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
COMMISSION FILE NUMBER 1-9898
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ORGANOGENESIS INC.
(Exact name of registrant as specified in its charter)
DELAWARE 04-2871690
----------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification number)
150 DAN ROAD, CANTON, MA 02021
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 575-0775
______________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes ( X ) No ( )
The number of shares outstanding of registrant's Common Stock, par value $.01
per share, at May 5, 1997 was 17,980,631 shares.
1
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ORGANOGENESIS INC.
INDEX
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Page
PART I - FINANCIAL INFORMATION Number
- - ------------------------------ ------
Item 1 - Financial Statements
Consolidated Balance Sheets
at March 31, 1997 and December 31, 1996................. 3
Consolidated Statements of Operations
for the three months ended March 31, 1997 and 1996...... 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 1997 and 1996...... 5
Notes to Consolidated Financial Statements..................... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations................. 8
PART II - OTHER INFORMATION
- - ---------------------------
Item 1 - Legal Proceedings............................................. *
Item 2 - Changes in Securities......................................... *
Item 3 - Defaults upon Senior Securities............................... *
Item 4 - Submission of Matters to a Vote of Security Holders........... *
Item 5 - Other Information............................................. *
Item 6 - Exhibits and Reports on Form 8-K.............................. 11
Signatures............................................................. 12
* No information provided due to inapplicability of item
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
ORGANOGENESIS INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
March 31, 1997 December 31,
(unaudited) 1996
-------------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalentss $ 168 $ 399
Investments 9,768 14,041
Other current assets 691 703
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10,627 15,143
Property and equipment, net 7,468 7,204
Other assets 90 89
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$18,185 $22,436
======= =======
LIABILITIES
Current liabilities:
Accounts payable $ 672 $ 1,220
Accrued expenses 1,742 2,667
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2,414 3,887
Deferred rent payable 61 71
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00; authorized 1,000,000 shares:
Series A Convertible Preferred;
designated 250,000 shares;
all have been issued and converted - -
Series B Junior Participating;
designated 50,000 shares;
no shares issued and outstanding - -
Common stock, par value $.01; authorized 40,000,000 shares:
issued and outstanding 17,961,381 and 17,865,431
shares as of March 31, 1997 and
December 31, 1996, respectively 180 179
Additional paid-in capital 86,402 85,478
Accumulated deficit (70,872) (67,179)
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Total stockholders' equity 15,710 18,478
------- -------
$18,185 $22,436
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
3
<PAGE>
ORGANOGENESIS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
For the
Three Months
Ended March 31,
---------------
1997 1996
-------------------------
<S> <C> <C>
Revenues:
Research and development support from related party $ - $ 1,813
Product sales to related party, royalties and other income 94 21
Interest income 167 252
----------- -----------
Total revenues 261 2,086
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Costs and Expenses:
Research and development 3,024 2,788
General and administrative 929 1,057
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Total costs and expenses 3,953 3,845
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Net loss $ (3,692) $ (1,759)
=========== ===========
Net loss per common share $ (.21) $ (.10)
=========== ===========
Weighted average number of
common shares outstanding 17,901,811 17,405,608
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
4
<PAGE>
ORGANOGENESIS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
<TABLE>
<CAPTION>
For the
Three Months
Ended March 31
------------------
1997 1996
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<S> <C> <C>
Cash flows from operating activities:
Net loss $(3,692) $(1,759)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation 312 249
Issuance of stock options 37 -
Changes in assets and liabilities:
Other current assets 12 (131)
Other assets (1) (1)
Accounts payable (548) 256
Accrued expenses (925) (321)
Deferred revenue - 2,187
Deferred rent payable (10) (11)
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Cash provided by (used in) operating activities (4,815) 469
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Cash flows from investing activities:
Capital expenditures (576) (85)
Purchases of investments - (8,750)
Sales/maturities of investments 4,273 2,012
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Cash provided by (used in) investing activities 3,697 (6,823)
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Cash flows from financing activities:
Proceeds from sale of common stock - 5,000
Proceeds from exercise of warrants 139 -
Proceeds from exercise of stock options 748 192
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Cash provided by financing activities 887 5,192
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Decrease in cash and cash equivalents (231) (1,162)
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Cash and cash equivalents, beginning of period 399 2,569
------- -------
Cash and cash equivalents, end of period $ 168 $ 1,407
======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
5
<PAGE>
ORGANOGENESIS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
This Form 10-Q and other public filings or statements made by the Company from
time to time which concern the Company's business outlook; future financial
performance; anticipated profitability, revenues, expenses or capital
expenditures; future funding under collaborative agreement; and statements
concerning expectations as to any future events, as well as other statements
which are not historical fact, are forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995 and involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in these forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed under the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section in this report and included in publicly available filings
with the Securities and Exchange Commission, such as the Company's Annual Report
on Form 10-K for the year ended December 31,1996.
1. Basis of Presentation:
----------------------
The accompanying unaudited consolidated financial statements of Organogenesis
Inc. (the "Company"), have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of management, the accompanying consolidated financial statements
include all adjustments, consisting of normal recurring adjustments, necessary
for a fair presentation of the financial position, results of operations and
changes in cash flows for the periods presented. The results of operations for
the three months ended March 31, 1997 are not necessarily indicative of the
results to be expected for the year ending December 31, 1997.
These financial statements should be read in conjunction with the audited
consolidated financial statements and notes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996 as filed with
the Securities and Exchange Commission.
2. New Accounting Pronouncement:
-----------------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 establishes standards for computing and presenting earnings per
share and applies to entities with publicly held common stock or potential
common stock. SFAS 128 is effective for fiscal years ending after December 15,
1997, including interim periods. Earlier application is not permitted. When
adopted, SFAS 128 requires restatement of prior years' earnings per share data
presented after the effective date. The Company plans to adopt SFAS 128 for its
fiscal year ended December 31, 1997 and does not expect the effect of its
adoption to be material.
6
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3. Collaborative Agreement:
------------------------
In January 1996, the Company and Novartis AG ("Novartis" or "related party"),
entered into an agreement granting Novartis exclusive global marketing rights to
the Company's lead product, Apligraf/TM/. Under the agreement, Novartis is
responsible for Apligraf/TM/ sales and marketing costs worldwide, as well as all
clinical trials, registrations and patent costs outside the U.S. The Company
will supply Novartis' global requirements for Apligraf/TM/ and will receive both
a per unit manufacturing payment and royalty revenues on product sales. Novartis
has agreed to provide the Company up to $37,500,000 in equity investment,
research support and milestone payments, of which $11,500,000 was received in
1996. No payments were due in the first quarter of 1997 under this agreement.
The remaining payments will be received based upon achievement of specified
events or dates.
4. Stockholders' Equity:
---------------------
During the first quarter of 1997, the Company received proceeds of $139,125
related to the exercise of warrants to purchase Common Stock which were issued
as part of a public offering in July 1995. Each warrant allows for the purchase
of one share of Common Stock at an exercise price of $12.72 per share. At March
31, 1997, there were 348,438 warrants outstanding.
5. Subsequent Event:
-----------------
On April 14, 1997, the Board of Directors declared a 25% stock dividend for
stockholders of record on April 25, 1997. The stock dividend was payable on May
2, 1997 and resulted in the issuance of approximately 3,596,000 additional
shares of Common Stock. All related data in the consolidated financial
statements and notes reflect the stock dividend for all periods presented.
On May 5, 1997, the Board of Directors voted to extend the term of an option to
purchase 468,750 shares of Common Stock at an exercise price of $4.80 granted to
an officer of the Company in 1987. The extention of this option requires a new
measurement date for valuing the option, resulting in a non-cash compensation
charge of approximately $5,500,000 to be recorded for the second quarter of
1997. The shares have been reserved for issuance and are fully vested and
exercisable.
7
<PAGE>
ORGANOGENESIS INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview:
- - ---------
Organogenesis Inc. (the "Company") designs, develops and manufactures medical
therapeutics containing living cells and/or natural connective tissue
components. The Company's products are designed to promote the establishment
and growth of new tissues to restore, maintain or improve biological function.
The Company is subject to risks common to entities in the biotechnology
industry, including, but not limited to, development by the Company's
competitors of new technologies or products that are more effective than the
Company's, risks of failure of clinical trials, dependence on and retention of
key personnel, protection of proprietary technology, compliance with U.S. Food
and Drug Administration ("FDA") regulations and similar foreign regulatory
bodies, continued availability of raw material for the Company's products,
availability of product liability insurance upon commercialization of the
Company's products, ability to transition from pilot-scale manufacturing to
full-scale commercial production of products, ability to recover the investment
in property and equipment, uncertainty as to the availability of additional
capital on acceptable terms, if at all, and the demand for the Company's
products, if and when approved.
In April 1997, the Company's lead product, Apligraf/TM/ manufactured human skin
equivalent, was approved for marketing in Canada. The launch date will be
established by Novartis, which has begun premarketing educational activities.
The Apligraf/TM/ premarket approval application (PMA) for venous ulcers is
currently pending at the FDA, with Novartis pursuing additional international
registrations.
Results of Operations may vary significantly from quarter to quarter depending
on, among other factors, the progress of the Company's research and development
efforts, the receipt of milestone and research and development support payments,
if any, from Novartis, product sales, the timing of certain expenses and the
establishment of additional collaborative agreements, if any.
Results of Operations:
- - ---------------------
Revenues
Total revenues for the three months ended March 31, 1997 were $261,000, compared
to $2,086,000, for the same period in 1996. Revenues for the first quarter of
1996 included recognition of $1,813,000 for research and development support
received under the collaborative agreement with Novartis (See "Notes to
Consolidated Financial Statements"). No research and development support
payments were due in the first quarter of 1997 under this agreement. In
addition, the 1997 revenues consisted of $94,000 in product sales, royalties and
other income, and $167,000 in interest income, as compared to $21,000 and
$252,000, respectively, in 1996. The decrease in interest income was primarily
due to less cash being available for investing.
8
<PAGE>
Costs and Expenses
Research and development expenses increased to $3,024,000 for the three months
ended March 31, 1997 from $2,788,000 for the same period in 1996. The increase
was primarily due to personnel additions and activities supporting the Company's
lead product, Apligraf/TM/, research collaborations with leading academic
institutions and/or their faculty to further strengthen the product portfolio,
and increased occupancy costs and depreciation expense due to expansion of the
facilities, partially offset by a reduction of clinical costs related to
completion of the venous ulcer pivotal trial last year.
General and administrative expenses decreased to $929,000 for the three months
ended March 31, 1997 from $1,057,000 for the same period in 1996. The decrease
was primarily due to a reduction in the use of outside services and cost
containment, including legal, consulting, corporate insurance and other
corporate costs. This decrease was partially offset by an increase in personnel
costs, mostly due to new employees to support the Company's programs.
The Company's net loss for the first quarter of 1997 was $3,692,000, or $.21 per
share, an increase from the $1,759,000, or $.10 per share, net loss for the
comparable 1996 period.
Liquidity and Capital Resources:
- - -------------------------------
From inception, the Company has financed its operations substantially through
private and public placements of equity securities, as well as receipt of
research support and contract revenues, interest income from investments and, to
a lesser extent, sale of products and receipt of royalties. Novartis has agreed
to provide the Company up to $37,500,000 in equity investments, research support
and milestone payments (See "Collaborative Agreement" under the Notes to
Consolidated Financial Statements), of which $11,500,000 was received in 1996.
The remaining payments will be received based upon achievement of specified
events or dates. In addition, Novartis and the Company are engaged in good-faith
discussions regarding Novartis providing Organogenesis with a revolving line of
credit to finance Organogenesis' Apligraf/TM/-related expenditures through draw-
downs of funds, in the event such draw-downs are necessary.
The sale of equity securities and the exercise of warrants and stock options
provided cash of approximately $887,000 and $5,192,000 in the three months ended
March 31, 1997 and 1996, respectively. The 1996 amount includes a $5,000,000
equity investment received under the collaborative agreement with Novartis (See
"Notes to Consolidated Financial Statements").
At March 31, 1997, the Company had cash, cash equivalents and investments in the
aggregate amount of $9,936,000 and working capital of $8,213,000, compared to
$14,440,000 and $11,256,000, respectively, at December 31, 1996. The primary use
of cash during the three months ended March 31, 1997 related to financing the
Company's operating activities of $4,815,000 and investing in plant expansion.
Capital expenditures increased to $576,000 for the three months ended March 31,
1997, from $85,000 for the same period in 1996, primarily due to the build-out
of the current facilities to support Apligraf/TM/ manufacturing and the
acquisition of laboratory equipment for expanded research and development
programs. The Company expects to continue to utilize funds at an increasing rate
during 1997 related to the continued expansion of Apligraf/TM/ operations and to
the advancement of the Company's product pipeline. The Company is also exploring
the options available for an additional facility for commercial production of
products in the future, as well as a European distribution and/or manufacturing
plant.
9
<PAGE>
These activities will require substantial additional financial resources before
the Company can expect to realize a net profit from product sales. Based upon
its current plans, the Company believes that future funds from Novartis,
together with existing working capital, will be sufficient to finance its
operations for at least the next 12 months. However, the Company's funding
requirements may change depending upon numerous factors, including progress of
the Company's research and development programs; time required to obtain
regulatory approvals in different countries; resources the Company devotes to
self-funded projects, proprietary manufacturing methods and advanced
technologies; and marketing approval in different countries of the Company's
products and, if approved, whether the products will be commercially successful.
There can be no assurances that additional funds will be available when required
on terms acceptable to the Company. If adequate funds are not available, there
could be a material adverse effect on the Company's financial condition and
results of operations.
10
<PAGE>
ORGANOGENESIS INC.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10 Severance Benefits Plan
27 Financial Data Schedule (filed with electronic submission only)
(b) No current reports on Form 8-K were filed during the quarter ended March 31,
1997.
11
<PAGE>
ORGANOGENESIS INC.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ORGANOGENESIS INC.
(Registrant)
Date: May 14, 1997 /S/ Herbert M. Stein
------------ --------------------
Herbert M. Stein, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date: May 14, 1997 /S/ Donna L. Abelli
------------ -------------------
Donna L. Abelli, Vice President Finance and
Administration, Chief Financial Officer,
Treasurer and Secretary
(Principal Financial and Accounting Officer)
12
<PAGE>
ORGANOGENESIS INC.
EXHIBIT INDEX
Exhibit No. Description of Exhibit
- - ----------- ----------------------
10 Severance Benefits Plan
<PAGE>
EXHIBIT 10
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ORGANOGENESIS INC. SEVERANCE BENEFITS PLAN
------------------------------------------
The purpose of this Plan is to provide severance benefits to certain key
executives of ORGANOGENESIS INC. ("the Company") and its subsidiaries in the
event of termination of employment following a Change in Control of the Company
(as defined below). The effective date of this Plan is November 13, 1996. This
Plan shall be administered by the Corporate Compensation Committee of the
Company's Board of Directors or such other committee as the Board of Directors
may designate (the "Plan Committee").
SECTION 1. DEFINITIONS
As used in this Plan, the following terms have the meanings set forth
below .
1.1 "Cause" -- a Participant's (a) continued failure to perform the
Participant's duties with the Company (other than such failure occurring
within 90 days after a Constructive Discharge Event) after written notice
specifying such failure in reasonable detail is delivered to the
Participant by the Company, (b) willful misconduct that is materially
injurious to the Company, monetarily or otherwise, or (c) conviction of any
crime involving an act of dishonesty or breach of trust. For purposes of
determining whether Cause exists, no action or omission by a Participant
shall be considered willful unless the Participant acted in bad faith or
without reasonable belief that the action or omission was consistent with
the best interests of the Company.
1.2 "Change in Control" -- A "Change in Control" shall occur or be deemed to
have occurred only if any of the following events occur:
(a) any "person," as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") (other than the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned directly or indirectly by the
stockholders of the Company in substantially the same proportion as
their ownership of stock of the Company) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 30% or more of
the combined voting power of the Company's then outstanding
securities;
(b) individuals who, as of the date this Plan is adopted,
constitute the Board of Directors of the Company (as of the date
thereof, the "Incumbent Board") cease for any reason to constitute at
least a majority of the Board, provided that any person becoming a
director subsequent to the date thereof whose election, or nomination
for election by the Company's stockholders, was approved by a vote of
at least a majority of the directors then comprising the Incumbent
Board (other than an election or nomination of an individual whose
initial assumption of office is in connection with an actual or
threatened election contest relating to the election of the directors
of the Company, as such terms are used in Rule 14a-11 of Regulation
14A under the Exchange Act) shall be, for purposes of this Plan,
considered as though such person were a member of the Incumbent Board;
<PAGE>
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than
(A) a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) more than
50% of the combined voting power of the voting securities of the
Company or such surviving entity outstanding immediately after such
merger or consolidation or (B) a merger or consolidation effected to
implement a recapitalization of the Company (or similar transaction)
in which no "person" (as hereinabove defined) acquires more than 30%
of the combined voting power of the Company's then outstanding
securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets.
1.3 "Code" -- the Internal Revenue Code of 1986, as amended. Reference to any
provision of the Code shall be deemed to include such provision as
renumbered or any replacing or similar provision of any amended or
successor statute.
1.4 "Constructive Discharge Event" -- with respect to each Participant, the
occurrence within 24 months following a Change in Control of any of the
following without the Participant's written consent:
(a) the termination or reduction of, or failure to provide,
compensation, bonus opportunities or benefits at least equal to those
provided pursuant to any retirement, benefit, or compensation plan or
arrangement in which the Participant was participating immediately
prior to the Change in Control (except when such action is offset by a
concurrent increase in the Participant's annual base salary in an
amount equal to the annual compensation, bonus opportunity or benefit
lost by the Participant);
(b) a material change, including a material reduction, in the
Participant's title, job authorities, or responsibilities existing
immediately prior to the Change in Control; or
(c) a material reduction in any significant perquisites provided
to the Participant immediately prior to the Change in Control; or
(d) a relocation of the Participant's assigned work location of
more than 50 miles from his or her principal work location immediately
prior to the Change in Control, unless the new work location is closer
to the Participant's principal residence.
1.5 "Deemed Annual Compensation" -- with respect to a Participant, the sum of
(i) the annual rate of base salary in effect as of the last payroll period
ending prior to the Change in Control or prior to a Qualifying Termination,
whichever is greater, and (ii) the maximum annual bonus, incentive or
similar award for which the Participant is eligible immediately prior to
the Change in Control or the Qualifying Termination, whichever is higher.
1.6 "Participant" -- each executive of the Company listed on Appendix A is a
Participant in the Plan. Additional Participants may be designated by the
Plan Committee and such additional Participants, and the compensation and
benefit continuation period applicable to each such additional Participant,
shall be identified in records of the Plan Committee and/or by a supplement
to Appendix A hereto.
<PAGE>
1.7 "Qualifying Termination" -- any termination of employment (a) of a
Participant by the Company (or its successor) without Cause within 24
months following a Change in Control, other than by reason of disability or
death or (b) by a Participant during the period commencing on the
occurrence of a Constructive Discharge Event and ending 90 days following
the Participant's receipt of written notice thereof under Section 3.1. A
termination of employment by a Participant following a Constructive
Discharge Event under clause (b) of the preceding sentence will constitute
a Qualifying Termination notwithstanding that the Participant may have
other reasons for terminating employment, including a desire to accept
other employment.
1.8 "Severance Benefit Legislation" -- shall have the meaning set forth in
Section 4.
SECTION 2. BENEFITS PAYABLE TO PARTICIPANTS TERMINATED FOLLOWING A CHANGE IN
CONTROL
The Company shall provide, at the times and in the manner set forth in Section
3.3, the following benefits to each Participant who experiences a Qualifying
Termination (subject to the provisions of Section 4 if the Participant is also
entitled to any benefits under Severance Benefit Legislation):
2.1 Cash Payment -- a series of cash payments which in the aggregate equal the
------------
Participant's Deemed Annual Compensation, multiplied by the number of years
set forth opposite the Participant's name on Appendix A;
2.2 Insurance Coverage -- continued participation in all life, medical, health,
------------------
accident, or other insurance plans, programs, or arrangements of the
Company in which the Participant was participating immediately prior to the
Change in Control, for a number of years set forth opposite the
Participant's name on Appendix A; participation in each such plan, program
or arrangement will be on substantially the same terms and conditions as
those that apply to active executive officers of the Company who are
participating in such plan, program or arrangement; and
2.3 Additional "Gross-up Payment" in the Event of "Excess Parachute Payments" -
-------------------------------------------------------------------------
- in the event the Company determines, based upon the opinion of the
Company's independent accounting advisors ("Accounting Firm") serving as
such immediately prior to a Change in Control, that payment to any
Participant of any amounts pursuant to Section 2.1 and 2.2, together with
any other amounts received by the Participant from the Company that must be
included in such determination (other than the Gross-up Payment made
pursuant to this Section 2.3), would result in the payment of an "excess
parachute payment," as defined in Section 280G(b) of the Code, then the
Company shall pay the Participant the Gross-up Payment. The intent of the
Gross-up payment is to put the Participant in approximately the same after-
tax position the Participant would have been in the absence of imposition
of the excise tax imposed on recipients of "excess parachute payments"
under Section 4999 of the Code.
(a) The Gross-up Payment shall be an amount which, after
deductions for additional income taxes and the additional excise tax
under Section 4999 of the Code resulting from the Gross-up Payment,
will equal the excise tax under Section 4999 of the Code payable by
the Participant on the payments (other than the Gross-up Payment)
described in the preceding paragraph.
(b) For purposes of Section 2.3(a), it shall be conclusively
presumed that income taxes will be imposed on the Gross-up Payment at
a combined federal and state rate of to 40%.
<PAGE>
2.4 In the event that the Company is unable to provide the insurance coverages
called for in Section 2.2 because coverage under one or more of such
benefit or insurance plans, programs or arrangements is available only to
active employees of the Company, or the Company is otherwise prevented from
providing such coverage by the insurance company or other carrier issuing
such coverage, the Company will instead pay to the Participant the amount
that the Company would have paid as premiums on behalf of the Participant
for such coverage had it been available. In addition, the Company will
cooperate in any reasonable way to assist the Participant to obtain
replacement coverage, but the Company shall not be obligated to expend any
amounts in addition to the payment provided for in the preceding sentence.
SECTION 3. PROCEDURES FOR OPERATION OF THE PLAN
3.1 Notice of Change in Control or Constructive Discharge Event. The Company
-----------------------------------------------------------
shall cause written notice of the occurrence of a Change in Control to be
sent to each Participant within 30 days thereof. The Company shall cause
written notice of a Constructive Discharge Event to be sent to the affected
Participant within 30 days thereof.
3.2 Notice of Reasons for Termination.
---------------------------------
(a) If the Company terminates the employment of a Participant for
Cause within 24 months following a Change in Control, the Company
shall notify the Participant in writing within three days of such
termination of the specific reason(s) for such termination.
(b) If a Qualifying Termination occurs following a Constructive
Discharge Event under Section 1.7(b), the Participant shall within 15
days after the termination notify the Company in writing of the
effective date of such termination.
(c) The written notices required by this section (and any other
notices under this Plan) may be delivered to the Participant at his or
her home address on the personnel records of the Company, and to the
Company, c/o Director-Human Resources Department, Organogenesis Inc.,
150 Dan Road, Canton, MA 02021, in each case by hand, by receipted
delivery or messenger service, or by first-class mail postmarked
within the applicable notice period.
3.3 Payment of Benefits. The Company shall, in the event of a Qualifying
-------------------
Termination, make cash payments required by Section 2 to the Participant in
equal monthly installments over the number of years set forth opposite the
Participant's name on Appendix A, with the first monthly installment to be
due within 30 days after the Qualifying Termination; provided, however,
that the Company in its sole discretion may elect to prepay any such
installments or pay all amounts due in a lump-sum.
3.4 Claims and Claims Review Procedures. The Plan Committee shall establish
-----------------------------------
appropriate procedures for the presentation and review of claims by
Participants for benefits under this Plan.
<PAGE>
SECTION 4. EFFECT OF SEVERANCE BENEFIT LEGISLATION
Benefits under the Plan are intended to coordinate with payments by the Company
to the Participant and/or coverage under any Company benefit plan afforded to
the Participant under any applicable federal and state legislation in effect
from time to time and providing for monetary payments and/or benefit plan
coverage to an employee of the Company in the event of termination of employment
(following a change-in-control or otherwise) ("Severance Benefit Legislation").
If for any particular termination, the benefits that a Participant would receive
under Severance Benefit Legislation equal or exceed the benefits that the
Participant would be entitled to receive under the Plan, the provisions of the
Severance Benefit Legislation shall govern and no benefits shall be paid or
provided under this Plan. If the benefits that a Participant would receive under
this Plan exceed the benefits that the Participant would be entitled to receive
under Severance Benefit Legislation, the benefits under this Plan shall be paid
to the Participant, but shall be offset by the benefits provided to the
Participant under the Severance Benefit Legislation.
SECTION 5. MISCELLANEOUS
5.1 Amendment and Termination. This Plan may be amended or terminated by the
-------------------------
Board of Directors of the Company at any time; provided, however, that any
--------
such amendment or termination shall not operate to materially adversely
affect the rights under this Plan of any person who is then a Participant
without the consent of such Participant.
5.2 No Contract of Employment. This Plan does not constitute a contract of
-------------------------
employment, and nothing herein shall affect the Company's ability to
terminate a Participant's employment at any time, with or without cause,
nor shall this Plan be construed as establishing a policy for, or providing
a right to require the Company to provide, any benefits prior to a Change
in Control.
5.3 Rights of Participants.
----------------------
(a) Participants shall not be required to mitigate damages or the
amount of any payments under this Plan, nor shall the amount of any
such payment be reduced by any compensation earned by the Participant
as a result of his or her employment after termination of employment
with the Company.
(b) No rights of any Participant under this Plan may be released,
modified, waived, or discharged by a Participant except in a writing
signed by the Participant. No failure or delay by any Participant in
exercising any right under this Plan shall operate as a waiver
thereof. This Plan shall not supersede or in any way limit the rights,
duties, or obligations the Participant may have under any other
written agreement with the Company.
(c) After a Change in Control, the Company shall pay all
reasonable legal fees, costs, and other expenses incurred by any
Participant in enforcing his or her rights under this Plan.
(d) This Plan shall inure to the benefit of and be enforceable by
each Participant's heirs and personal or legal representatives. Upon
the death of a Participant, any amount that would be payable if he or
she had continued to live shall be paid in accordance with the terms
of this Plan to his or her designated beneficiary or, if none has been
designated, to his or her estate. To the extent permitted by law, the
rights of a Participant under this Plan may not be sold, assigned,
pledged, or otherwise transferred and shall not be subject to
attachment, garnishment, levy, or execution.
<PAGE>
5.4 Relationship to Other Employee Benefits: Funding.
------------------------------------------------
(a) Subject to Section 4, all benefits provided under this Plan
shall be in addition to any pension, disability, worker's
compensation, other benefit plan distribution, unpaid vacation, or
other unpaid compensation plan rights that the Participant has at the
date of his or her termination of employment by the Company.
(b) Subject to Section 4, nothing in this Plan shall be deemed to
limit the type or amount of benefits that may be provided to any
Participant or any other employee of the Company under other plans or
arrangements, whether or not in connection with a Change in Control.
(c) The Company may elect to fund its obligations under this Plan
but shall not be required to do so. In any event, this Plan shall not
be construed to grant to any Participant any right or interest in any
property of the Company.
5.5 Successors. Subject to Section 5.1, the obligations of the Company under
----------
this Plan shall be binding upon the Company and any successor thereto or
any successor to all or substantially all of its business or assets by
purchase, merger, consolidation, or otherwise. The Company shall, in
connection with any Change in Control and thereafter, require any successor
to all or substantially all of its business or assets to expressly assume
and agree to perform the obligations of the Company under this Plan,
whether the succession is direct or indirect, by purchase, merger,
consolidation, or otherwise.
5.6 Governing Law. This Plan shall be governed by the laws of Massachusetts.
-------------
5.7 Severability. If a provision of this Plan shall be held illegal or invalid,
------------
the illegality or invalidity shall not affect the other provisions hereof,
and this Plan shall be construed and enforced as if the illegal or invalid
provision had not been included.
5.8 Headings. The section headings herein are for convenience only and shall
--------
not affect the interpretation of this Plan.
5.9 Withholding. All amounts payable under this Plan shall be subject to any
-----------
required tax withholding by the Company.
5.10 ERISA Matters. This Plan is intended to be an unfunded deferred
-------------
compensation plan for a select group of management or highly compensated
employees within the meaning of ERISA. This Plan shall be administered and
interpreted accordingly. The Plan Committee is the named fiduciary of this
Plan and has the authority to control and manage the operation and
administration of the Plan.
Executed on 11/13/96
--------
ORGANOGENESIS, INC.
By:/S/ Herbert M. Stein
--------------------
<PAGE>
Appendix A
----------
Continuation Compensation and Benefit
Name of Participant Title Period under Sections 2.1 and 2.2
- - ------------------- ----- ---------------------------------
Stein, H.M. Chairman of the Board 3 years
and Chief Executive Officer
Rovee, D.T. President and Chief 2 years
Operating Officer
Parenteau, N.L. Senior Vice President 1 year
and Chief Scientific Officer
Sabolinski, M.L. Senior Vice President, 1 year
Corporate Development and
Medical Affairs
Abelli, D.L. Vice President. Finance and 1 year
Administration, Chief Financial
Officer, Treasurer and Secretary
Kemp, P.D. Vice President, Connective 1 year
Tissue Science
Cademartori, J.T. Vice President, Regulatory 1 year
Affairs, Quality Assurance
and Quality Control
Buehler, R.J. Vice President, Operations 1 year
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<PAGE>
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<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
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0
0
<COMMON> 180
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<TOTAL-LIABILITY-AND-EQUITY> 18,185
<SALES> 0
<TOTAL-REVENUES> 261
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,953
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
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<INCOME-TAX> 0
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