<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, 1998
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
------
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
------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (781) 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 4, 1998 was 29,132,335 shares.
<PAGE>
ORGANOGENESIS INC.
INDEX
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<TABLE>
<CAPTION> PAGE
PART I - FINANCIAL INFORMATION NUMBER
- ------------------------------ ------
<S> <C>
Item 1 - Financial Statements
Consolidated Balance Sheets
at March 31, 1998 and December 31, 1997......................... 3
Consolidated Statements of Operations and of Comprehensive
Operations for the three months ended March 31, 1998 and 1997... 4
Consolidated Statements of Cash Flows
for the three months ended March 31, 1998 and 1997.............. 5
Notes to Consolidated Financial Statements.......................... 6
Item 2 - Management's Discussion and Analysis of
Financial Condition and Results of Operations....................... 9
PART II - OTHER INFORMATION
- ---------------------------
Item 1 - Legal Proceedings................................................... *
Item 2 - Changes in Securities.............................................. 12
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................................... 12
Signatures.................................................................. 13
</TABLE>
* 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, 1998 December 31,
(unaudited) 1997
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 22,578 $ 333
Investments 1,450 5,812
Other current assets 2,141 927
-------- --------
26,169 7,072
Property and equipment -
Less accumulated depreciation of $8,211 and $7,865 6,445 6,615
Other assets 93 93
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$ 32,707 $ 13,780
======== ========
LIABILITIES
Current liabilities:
Accounts payable $ 323 $ 643
Accrued expenses 1,538 1,586
-------- --------
1,861 2,229
Deferred rent payable 18 28
STOCKHOLDERS' EQUITY
Preferred stock, par value $1.00; authorized 1,000,000
shares:
Series C Convertible Preferred; designated 200 shares;
all issued and outstanding - -
Common stock, par value $.01; authorized 40,000,000 shares:
issued and outstanding 29,100,598 and 28,950,400
shares as of March 31, 1998 and
December 31, 1997, respectively 291 290
Additional paid-in capital 120,390 98,219
Accumulated deficit (89,853) (86,986)
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Total stockholders' equity 30,828 11,523
-------- --------
$ 32,707 $ 13,780
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
3
<PAGE>
ORGANOGENESIS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND
OF COMPREHENSIVE OPERATIONS
(Unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
For the
Three Months
Ended March 31,
--------------------------
1998 1997
------------ ------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues:
Research and development support from related party $ 2,000 $ -
Product sales to related party, royalties and other income 194 94
Interest income 72 167
----------- -----------
Total revenues 2,266 261
----------- -----------
Costs and Expenses:
Research and development 3,912 2,990
General and administrative 1,221 963
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Total costs and expenses 5,133 3,953
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Net loss $ (2,867) $ (3,692)
=========== ===========
Net loss per common share basic and diluted $(.10) $(.13)
=========== ===========
Weighted average number of common shares
outstanding basic and diluted 28,957,114 27,971,578
=========== ===========
CONSOLIDATED STATEMENTS OF COMPREHENSIVE OPERATIONS
Net loss $(2,867) $(3,692)
Other comprehensive income (loss) - -
------- -------
Comprehensive net loss $(2,867) $(3,692)
======= =======
</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,
--------------------
1998 1997
--------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(2,867) $(3,692)
Adjustments to reconcile net loss to
cash used in operating activities:
Depreciation 346 312
Issuance of stock options - 37
Changes in assets and liabilities:
Other current assets (1,214) 12
Other assets - (1)
Accounts payable (320) (548)
Accrued expenses (48) (925)
Deferred rent payable (10) (10)
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Cash used in operating activities (4,113) (4,815)
------- -------
Cash flows from investing activities:
Capital expenditures (176) (576)
Sales/maturities of investments 4,362 4,273
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Cash provided by investing activities 4,186 3,697
------- -------
Cash flows from financing activities:
Proceeds from sale of preferred stock, net 19,117 -
Proceeds from sale of common stock 3,000 -
Proceeds from exercise of warrants - 139
Proceeds from exercise of stock options 55 748
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Cash provided by financing activities 22,172 887
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Increase (decrease) in cash and cash equivalents 22,245 (231)
Cash and cash equivalents, beginning of period 333 399
------- -------
Cash and cash equivalents, end of period $22,578 $ 168
======= =======
</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 agreements; 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 31,1997.
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, 1998 are not necessarily indicative of the
results to be expected for the year ending December 31, 1998.
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, 1997 as filed with
the Securities and Exchange Commission.
Certain reclassifications have been made to the prior period financial
statements to conform to the current presentation.
All data in the consolidated financial statements and notes reflect a 25% stock
dividend distributed on April 29, 1998. Refer to the caption "Subsequent Event"
in the following notes.
2. New Accounting Pronouncement:
-----------------------------
In June 1997, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130"). SFAS 130 requires that changes in comprehensive income be shown
in a financial statement that is displayed with the same prominence as other
financial statements. This Statement also requires that an entity classify items
of other comprehensive income by their nature. For example, other comprehensive
income may include, but are not limited to, foreign currency translation
adjustments, minimum pension liability adjustments, and unrealized gains and
losses on marketable securities classified as available-for-sale. SFAS 130 is
effective for fiscal years beginning after December 15, 1997 and, accordingly,
was adopted during the first quarter of 1998. The disclosure provisions of SFAS
130 are not material to the Company's current consolidated financial
presentation, however, SFAS 130 may materially affect future financial statement
presentations.
6
<PAGE>
3. Collaborative Agreements:
-------------------------
In January 1996, the Company and Novartis Pharma AG ("Novartis" or "related
party") entered into an agreement granting Novartis exclusive global marketing
rights to 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 supplies
Novartis' global requirements for Apligraf/TM/ and receives both a per unit
manufacturing payment and royalty revenues on product sales. Novartis has agreed
to provide the Company up to $40,000,000 in equity investments, research support
and milestone payments, an increase of $2,500,000 from prior year due to the
addition of a research and development support milestone. In March 1998, the
Company recorded $5,000,000 from Novartis. Of this amount, $2,000,000 represents
research and development support and $3,000,000 represents a milestone equity
investment. To date, Novartis has funded $19,000,000 of the $40,000,000 under
the agreement. The remaining payments will be received based upon achievement of
specified events.
4. Sale of Preferred Stock:
------------------------
In March, 1998, the Company completed a placement of 200 shares of Series C
Convertible Preferred Stock ("Series C Preferred Stock") and warrant financing
with two institutional investors at a price of $100,000 per share. Proceeds
from the offering, net of placement agent fees and expenses, were approximately
$19,117,000. The Series C Preferred Stock pay no dividends, have no voting
rights and are convertible into Common Stock on a scheduled basis over the next
two years based on market price at time of conversion (up to $28.80 per share).
The Company may call for conversion under certain conditions based on continued
improvement in the price of the Company's Common Stock. Conversions by the
investors are subject to certain limits; no limits exist for conversions on
redemption or upon a major transaction. Mandatory conversion is March 26, 2000,
at which time the Company has the option to redeem any outstanding Series C
Preferred Stock in cash or by issuing Common Stock. In addition, the investors
received three year warrants to purchase an aggregate of 200,000 shares of
Common Stock at $31.20 per share. The warrants may be exercised at any time
prior to April, 2001. The investors also have the right to receive, under
certain conditions based on the Common Stock market price declining below
certain levels, additional warrants to purchase an aggregate of up to 200,000
shares of Common Stock.
In April, 1998, the Company filed a registration statement for 1,800,000 shares
of Common Stock, which is the maximum number of shares that may be acquired
relating to this transaction. All shares have been reserved for issuance.
5. Stockholders' Equity:
---------------------
In March 1998, the Company received $3,000,000 from Novartis, which represents a
milestone equity investment for 140,620 shares of Common Stock. As a result of
this equity investment and a prior equity investment made in January 1996,
Novartis holds approximately 2.0% of the outstanding shares of the Company as of
March 1998.
6. Other Current Assets:
---------------------
Included in other current assets is a receivable of approximately $1,250,000 due
from Novartis which represents a recent research and development support
milestone.
7
<PAGE>
7. Revenue Recognition:
--------------------
Research and development support revenue under the collaborative agreement with
Novartis is recognized as related expenses are incurred or contractual
obligations are met. Revenue from Apligraf/TM/ sales is recognized upon shipment
or, in certain cases, after fulfillment of firm purchase orders in accordance
with the Manufacturing and Supply Agreement between the Company and Novartis.
Any related royalty revenue is recognized when net sales are reported to the
Company by Novartis, which generally occurs in the quarter after shipment of
product. Other product revenues are recognized upon shipment. Other royalty
revenue is recorded as earned. Deferred revenue arises from the difference
between cash received and revenue recognized in accordance with these policies.
8. Subsequent Event:
-----------------
On April 15, 1998, the Board of Directors declared a 25% stock dividend for
stockholders of record on April 22, 1998. The stock dividend was payable on
April 29, 1998 and resulted in the issuance of approximately 5,826,000
additional shares of Common Stock. All related data in the consolidated
financial statements and notes reflect the stock dividend for all periods
presented.
8
<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 was formed to advance and apply tissue engineering to
major medical needs.
The Premarket Approval Application ("PMA") for the Company's lead product,
Apligraf/TM/, is pending at the U.S. Food and Drug Administration ("FDA") for
the treatment of venous leg ulcers. On January 29, 1998, the General and Plastic
Surgery Devices advisory panel to the FDA recommended unconditional approval of
this PMA. Novartis has global Apligraf/TM/ marketing rights and is pursuing
international marketing authorizations for the product. In August 1997,
Apligraf/TM/ was commercially launched in Canada by Novartis Pharmaceuticals
Canada, Inc., an affiliate of Novartis. A pivotal trial to assess the efficacy
and safety of Apligraf/TM/ is underway for the treatment of diabetic ulcers and
one is planned for the treatment of pressure sores. Trials have been completed
in skin surgery wounds (dermatological surgery and donor site wounds) and data
published; additional studies are in the process of being implemented. A
clinical trial has also been completed in burn wounds, and the data from this
trial were presented at a scientific conference in September.
Commercial launch of Apligraf/TM/ in Canada occurred during the middle of the
third quarter of 1997. Since the Canadian launch, Novartis has implemented an
education and training program to build physician awareness and experience as
the first steps in establishing a long-term business base. Additionally,
premarketing educational activities are underway in the U.S. and Europe. The
Company expects production costs to exceed product sales for the near term due
to start-up expenses and the high costs associated with low volume production.
There can be no assurance that the Company will realize sufficient production
volume or otherwise reduce its production costs to significantly improve gross
margins.
The Company is dependent on Novartis for the successful marketing of
Apligraf/TM/. There can be no assurance that Novartis will succeed with
registrations and marketing of Apligraf/TM/ or that the Company will be able to
meet the production demand of worldwide product commercialization.
In August, 1997, the Company's surgical repair product, GRAFTPATCH/TM/, was
cleared for marketing in the U.S. under the FDA's Section 510(k) notification
process. Marketing clearance has been granted for use in general surgical
procedures for reinforcement of soft tissue (e.g., hernia repair). The Company's
plan is to market GRAFTPATCH/TM/ through a partner. Organogenesis is meeting
with appropriate companies. No assurance can be given that Organogenesis will be
able to identify and/or reach agreement with a partner.
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 FDA
regulations and similar foreign regulatory bodies, continued availability of raw
material for the Company's products, availability of sufficient product
liability insurance, ability to transition from small-scale manufacturing to
full-scale 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.
9
<PAGE>
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 revenues, manufacturing costs, 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, 1998 were $2,266,000
compared to $261,000, for the same period in 1997. Revenues for the first
quarter of 1998 include recognition of $2,000,000 for research and development
support under the collaborative agreement with Novartis (See "Notes to
Consolidated Financial Statements"). No research and development support
payments were earned in the first quarter of 1997 under this agreement. Other
revenues of $194,000 in 1998 represent product sales to related party,
royalties, and other revenues. The increase over 1997 other revenues of $94,000
is due to supply of product to Novartis and increased sales of other products.
Interest income decreased to $72,000 for 1998, compared to $167,000 in 1997.
The decrease was primarily due to the difference in funds available for
investment.
Costs and Expenses
Research and development expenses were $3,912,000 for the three months ended
March 31, 1998, compared to $2,990,000, for the same period in 1997. The
increase was primarily due to: personnel additions, mainly in operations, and
other costs related to Apligraf/TM/ expansion; the Apligraf/TM/ diabetic ulcer
pivotal trial; and other activities supporting the Company's research and
development programs, including the fibrillar tissue filler and liver assist
device research programs. The Company expects to continue to expand Apligraf/TM/
operations and to advance the Company's product pipeline during 1998.
General and administrative expenses increased to $1,221,000 for the three months
ended March 31, 1998, compared to $963,000 for the same period in 1997. The
increase was due to increased professional fees and travel, primarily related to
investor and public relations programs.
As a result of the net effect described above, the Company incurred a net loss
of $2,867,000, or $.10 per share (basic and diluted), for the three months ended
March 31, 1998, a decrease from the net loss of $3,692,000, or $.13 per share
(basic and diluted), for the comparable 1997 period. The Company expects to
incur additional losses as its expenditures increase due to continued expansion
of its operations and research programs.
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. During the first
quarter of 1998, financing activities provided additional cash and working
capital to the Company from: the sale of 200 shares of Series C convertible
preferred stock that generated net proceeds of approximately $19,117,000; an
equity investment of $3,000,000 from Novartis; and the exercise of stock options
of $55,000. Financing activities provided cash of approximately $887,000 for
the first quarter of 1997, from the exercise of stock options and warrants.
10
<PAGE>
At March 31, 1998, the Company had cash, cash equivalents and investments in the
aggregate amount of $24,028,000 and working capital of $24,308,000, compared to
$6,145,000 and $4,843,000, respectively, at March 31, 1997. Cash used in
operating activities during the three months ended March 31, 1998 was
$4,178,000, compared to $4,815,000 for the three months ended March 31, 1997,
primarily due to financing the Company's research, development and manufacturing
operations. Capital expenditures were $176,000 and $576,000 during the three
months ended March 31, 1998 and 1997, respectively, primarily related to further
build-out of the current facilities to support Apligraf manufacturing and the
acquisition of laboratory equipment for expanded research and development
programs. The Company expects to continue to utilize funds during 1998 for the
expansion of Apligraf operations and for the advancement of the Company's
product pipeline. The Company is also exploring adding manufacturing capacity
to support the production of the Company's current and future products.
However, no assurances can be given that additional funds will be available when
required on terms acceptable to the Company to support planned production or
expanded operations during 1998 and beyond as discussed in the preceding
forward-looking statements.
Novartis has agreed to provide the Company up to $40,000,000 in equity
investments, research support and milestone payments (See "Collaborative
Agreement" under the Notes to Consolidated Financial Statements), of which
$5,000,000 was recorded during the first quarter of 1998, $2,500,000 was
received in 1997 and $11,500,000 was received in 1996. The remaining payments
will be received based upon achievement of specified events.
The Company's operations and research programs will require 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 existing working
capital together with future funds from Novartis, including product revenue,
will be sufficient to finance its operations into 1999. However, this is a
forward-looking statement and no assurance can be given that there will be no
changes that would significantly decrease available cash before such time.
Factors that may change the Company's cash requirements include: time required
to obtain regulatory approvals of the Company's products in different countries,
if needed, and subsequent timing of product launches; commercial acceptance when
product launches occur; progress of the Company's research and development
programs; resources the Company devotes to self-funded projects, proprietary
manufacturing methods and advanced technologies; and resources the Company
devotes to outside research collaborations or projects. 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, the Company may
need to delay, scale back or eliminate certain of its research and development
programs or license to third parties certain products or technologies that the
Company would otherwise undertake itself, and there could be a material adverse
effect on the Company's financial condition and results of operations.
11
<PAGE>
ORGANOGENESIS INC.
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
Refer to the captions "Sale of Preferred Stock" and "Stockholders' Equity" under
the Notes to Consolidated Financial Statements, included in Part I, Item 1.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Amendment 3 to Indenture of Lease between Canton Commerce Center
Limited Partnership and the Company, dated as of July 10, 1989
10.2 Addendum to the The License and Supply Agreement between the
Company and Novartis Pharma Ltd., dated as of January 17, 1996. **
27 Financial Data Schedule
**Confidential Treatment requested.
(b) No current reports on Form 8-K were filed during the quarter ended March 31,
1998.
12
<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 13, 1998 /s/ Herbert M. Stein
------------ ----------------------------------
Herbert M. Stein, Chairman
and Chief Executive Officer
(Principal Executive Officer)
Date: May 13, 1998 /s/ Donna L. Abelli
------------ ----------------------------------
Donna L. Abelli, Vice President
Finance and Administration, Chief
Financial Officer, Treasurer and
Secretary (Principal Financial and
Accounting Officer)
13
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ORGANOGENESIS INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibit
----------- ----------------------
<C> <S>
10.1 Amendment 3 to Indenture of Lease between Canton Commerce Center
Limited Partnership and the Company, dated as of July 10, 1989
10.2 Addendum to the The License and Supply Agreement between the
Company and Novartis Pharma Ltd., dated as of January 17, 1996. **
27 Financial Data Schedule
**Confidential Treatment requested.
</TABLE>
14
<PAGE>
EXHIBIT 10.1
THIRD AMENDMENT TO LEASE AGREEMENT
----------------------------------
THIS THIRD AMENDMENT TO LEASE AGREEMENT ("Third
Amendment"), dated March 4, 1998, between 150 CANTON OFFICE ASSOCIATES,
LIMITED PARTNERSHIP ("Landlord"), Successor as Landlord to Canton Commerce
Center Limited Partnership and 150 Dan Road Limited Partnership, and
ORGANOGENESIS, INC. ("Tenant").
RECITALS
A. Canton Commerce Center Limited Partnership and Tenant have entered
into a certain Lease Agreement, dated July 27, 1989, as amended by a First
Amendment of Lease, dated May 1, 1994, by and between 150 Dan Road Limited
Partnership and Tenant, and as amended by a Second Amendment of Lease, dated
December 18, 1996, by and between Landlord and Tenant (collectively the
"Lease"), for approximately 59,045 square feet of rentable floor area (the
"Premises"), located in a certain building known as Canton Commerce Center (the
"Building") and located at 150 Dan Road, Canton, Massachusetts.
B. Landlord and Tenant wish to amend the Lease to, among other things,
extend the lease term through September 30, 2004 and to give Tenant an expansion
option with respect to no less than the balance of the rentable floor area in
the Building consisting of 20,520 rentable square feet ("Expansion Option").
NOW, THEREFORE, in consideration of the mutual promises, covenants and
conditions contained herein, Landlord and Tenant, intending to be legally bound,
agree as follows:
1. Effective upon the execution hereof, the Term of the Lease shall be extended
for an additional five (5) year period from October 1, 1999 through September
30, 2004, ("Extended Term").
2. Annual Fixed Rent Rate for the Extended Term shall be in accordance with the
following schedule:
<TABLE>
<CAPTION>
Lease Period Annual Rent Rate Per Rentable Square Foot Leased
- ------------ ------------------------------------------------
<S> <C>
October 1, 1999 - September 30, 2000 $9.50
October 1, 2000 - September 30, 2001 $9.75
October 1, 2001 - September 30, 2002 $10.00
October 1, 2002 - September 30, 2003 $10.25
October 1, 2003 - September 30, 2004 $10.50
</TABLE>
3. Tenant shall be granted a one time Expansion Option with respect to no less
than the entire balance of the rentable floor area in the Building consisting of
20,520 rentable square feet ("Phase III Expansion Premises"), subject to the
termination of the lease and vacating of the premises by Intronics, the existing
tenant occupying that suite. Intronics' lease expires on October 31, 1999 and
contains no option to extend the term thereof beyond October 31, 1999. Landlord
will not attempt to induce Intronics to terminate its lease prior to its
expiration on October 31, 1999. In order for Tenant to effectively
<PAGE>
exercise its Expansion Option, Tenant must 1.) provide Landlord not later than
November 1, 1998 with written notice of its intent to lease all of the Phase III
Expansion Premises and 2.) accept occupancy of the Phase III Expansion Premises
no later than November 1, 1999 or the date on which Intronics vacates the Phase
III Expansion Premises if such date occurs after November 1, 1999 It is
expressly acknowledged that time is of the essence with regard to Tenant's
notice of its intent to lease the Phase III Expansion Premises, and if notice is
not delivered to Landlord in accordance with the Lease, as amended herein,
Tenant's Expansion Option shall be null and void. Landlord shall incur no
liability to Tenant as a result of Intronics' failure to surrender the Phase III
Expansion Premises on a timely basis or as a result of Landlord's failure to
commence legal proceedings to effect Intronics removal from the Phase III
Expansion Premises. However, in the event Intronics fails to vacate the Phase
III Expansion Premises prior to January 1, 2000, Tenant shall have the option to
rescind its offer to lease the Phase III Expansion Premises, in which case
Landlord and Tenant shall have no further obligations with respect thereto,
except that in the event Intronics fails to vacate the Phase III Expansion
Premises prior to January 1, 2000, and Landlord has already filed an eviction
action against Intronics and diligently pursues said action, Tenant shall not
have the right to rescind its offer to lease the Phase III Expansion Premises
until March 1, 2000 if Intronics has failed to vacate the Phase III Expansion
Premises prior to March 1, 2000. Tenant shall not be obligated to pay rent for
the Phase III Expansion Premises until Intronics vacates said premises and
Landlord delivers possession of said premises to Tenant in the condition
discussed below in Section 6A. Notwithstanding the above, Landlord shall use its
reasonable best efforts to cause Intronics to surrender the Phase III Expansion
Premises on October 31, 1999 if Tenant effectively exercises its Expansion
Option.
In the event Intronics shall vacate the Phase III Expansion Premises and its
lease for said premises shall be terminated, for any reason, (except if Landlord
has induced Intronics to terminate its lease), prior to October 31, 1999,
Landlord shall advise Tenant, in writing, of such early termination and Tenant
shall have a period of thirty (30) days from its receipt of such notice to
exercise its option to Lease the Phase III Expansion Premises effective not
later than three (3) months after such exercise, provided the Phase III
Expansion Premises have been vacated by Intronics prior to the end of such three
(3) month period. In the event the Phase III Expansion Premises have not been
vacated by Intronics within such three (3) month period, the effective date of
Tenant's lease of the Phase III Expansion Premises shall be thirty (30) days
from the date of Intronics vacancy thereof. The option granted in the event of
an early termination of the Intronics lease shall constitute the one time
Expansion Option granted to Tenant hereunder. The one time Expansion Option
granted to Tenant hereunder shall be null and void in the event Tenant fails to
notify Landlord that it intends to exercise its option early, as provided for
herein.
4. The Annual Fixed Rent Rate for the Phase III Expansion Premises shall be at
the same rate per square foot as in the Lease, as amended herein, and Term of
the lease of the Phase III Expansion Premises shall be coterminous with the Term
of the Lease, as amended herein. Additionally, upon occupancy of the Phase III
Expansion Premises, Tenant shall be responsible for 100% of its share of
Additional Rent attributable to the Phase III Expansion Premises, to be paid in
accordance with the Lease.
4A. Notwithstanding any other provision of this Lease as amended, the management
fee component of Tenant's Additional Rent obligations shall not exceed 4% of the
gross collected rental payments made by the tenants of the Building.
2
<PAGE>
5. Provided Tenant effectively exercises its Expansion Option, Landlord will
provide Tenant with a leasing incentive payment of $61,560.00 upon the date
Landlord delivers the Phase III Expansion Premises to Tenant. This leasing
incentive payment may be used at the Tenant's sole discretion.
6. Provided Tenant effectively exercises its Expansion Option, Tenant shall be
granted a one-time rent credit of 75% of the first month's base rent payment
attributable to the Phase III Expansion Premises.
6A. Tenant agrees to accept possession of the Phase III Expansion Premises in
as-is condition', provided however that Landlord shall be responsible for
turning over the Phase III Expansion Premises to Tenant in broom-clean condition
with all of Intronics' trade fixtures and personal property removed therefrom.
7. Tenant shall be granted three (3) options to extend the Term of the Lease.
Each option to extend the Term shall be for all of the premises then leased by
Tenant and shall be for a period of five years from the then current lease
expiration date. The Annual Fixed Rent Rate for each extension term shall be 95%
of fair market rent for comparable space with comparable use in a comparable
building in a comparable suburb of the greater Boston, Massachusetts market. All
of the provisions of Section 2.3 of the Lease, "TENANT'S ELECTION TO EXTEND
TERM" shall govern in the determination of Extension Market Rent in the event of
any disagreement of such Extension Market Rent. Notwithstanding the above, in
order for Tenant to effectively exercise an option to extend the Term of the
Lease or any extension term, Tenant must deliver to Landlord written notice of
its intent to extend at least twelve (12) months prior to the then current
expiration of the Term or extension term of the Lease, as the case may be. It is
expressly acknowledged that time is of the essence with regard to Tenant's
notice of its intent to exercise an option, and if notice is not delivered to
Landlord on a timely basis in accordance with the Lease as amended herein, all
of Tenant's as yet unexercised options to extend the Term of the Lease shall be
null and void.
8. Tenant shall have the right to sublease all or a portion of the Leased
Premises upon the prior written approval by Landlord, which approval shall not
be unreasonably withheld, conditioned or delayed. Landlord shall have a
reasonable amount of time to review the financial condition, operating
experience and other qualifications of any proposed subtenant before granting
its approval to a sublease. Tenant shall provide all material reasonably
requested by Landlord to complete its review. Tenant shall split any net profits
from such subleasing, (less any expenses incurred to procure the subtenant,
including without limitation reasonable attorney fees and brokerage
commissions), 50/50 with Landlord.
9. The Lease is hereby modified to add the following additional notice address
for the Landlord:
150 Canton Office Associates, L.P.
BGK Equities, Inc.
330 Garfield Street, #200
Santa Fe, New Mexico 87501
3
<PAGE>
10. Tenant shall have the use of 240 parking spaces pursuant to the Lease. In
the event Tenant expands into the Phase III Expansion Premises, Tenant shall
have exclusive use of 100% of all of the parking spaces (estimated to consist of
318 parking spaces) which currently serve the Building. Tenant shall not have
the right to sublease any of the parking spaces without prior written consent of
Landlord, which consent shall not be unreasonably withheld, conditioned or
delayed. The division by Landlord and Tenant of any proceeds generated by such
sublease of parking spaces shall be negotiated at the time of Tenant's request
for consent.
11. All capitalized terms in this Third Amendment not otherwise defined herein
shall have the same meaning as in the Lease.
12. All other terms and conditions of the Lease not expressly modified by this
Third Amendment shall remain in full force and effect.
IN WITNESS WHEREOF, the parties to this Third Amendment have executed the same
on the day and year first written above.
WITNESSES: LANDLORD:
150 CANTON OFFICE
ASSOCIATES, LIMITED PARTNERSHIP
By: BGK Equities, Inc.
_____________________________ General Partner
By:____________________________
Cheryl S. Willoughby
Senior Vice President
WITNESSESS: TENANT
ORGANOGENESIS, INC.
_____________________________ By:____________________________
Print Name______________________
Its:____________________________
4
<PAGE>
EXHIBIT 10.2
ADDENDUM TO THE LICENSE AND SUPPLY AGREEMENT
DATED JANUARY 17,1996
between
ORGANOGENESIS INC., a company organized under the laws of the State of Delaware,
of 150, Dan Road, Canton, MA 0202 1, USA (hereinafter "Organogenesis"),
and
NOVARTIS PHARMA AG, a corporation organized under the laws of Switzerland, of
Lichtstrasse 35, 4056 Basel, Switzerland (hereinafter "Novartis").
WHEREAS, Organogenesis and Novartis entered into an agreement dated as of
January 17, 1996, (the "Agreement') which provided a License and Supply
Agreement;
WHEREAS, because the FDA * * * on or before * * *, the condition of the Second
Contingent Investment required by the Stock Purchase Agreement dated as of
January 17, 1996, between Organogenesis Inc. and the former Sandoz Pharma Ltd.,
now Novartis Pharma AG, * * *; and
WHEREAS, the parties desire to enter into an Amendment Agreement of the Stock
Purchase Agreement so as to provide for a renewed and revised Second Contingent
Investment on different terms than had been agreed upon in the Stock Purchase
Agreement;
NOW, THEREFORE, in consideration of the mutual promises and agreements contained
herein and for other good and valuable consideration, the sufficiency and
receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1.Novartis agrees to amend Section 1.3 of the Stock Purchase Agreement as
described in the Amendment of the Stock Purchase Agreement.
2.In return, Organogenesis commits itself to use this Second Contingent
Investment for the following activities:
* * *
* * *Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
<PAGE>
3. Organogenesis, except as required by law, will not disclose any terms of this
Addendum nor any terms of the Amendment of the Stock Purchase Agreement without
the prior written approval of Novartis.
All of the other terms and conditions of the Agreement shall remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Addendum Agreement as
of the date first hereunder.
Basle, March 23, 1998 Canton,
NOVARTIS PHARMA AG ORGANOGENESIS INC.
A. L. Eha V. Laanio H. Stein
Senior Legal Counsel Head of Strategy Chairman and
and Public Affairs Chief Executive Officer
2
<PAGE>
AMENDMENT AGREEMENT (the "Amendment Agreement") dated
as of March 23, 1998, between ORGANOGENESIS INC., a Delaware
corporation (the "Corporation") and NOVARTIS PHARMA AG, a
Switzerland corporation (the "Investor")
WHEREAS, the Corporation and the Investor entered into an Agreement,
dated as of January 17, 1996 (the "Agreement") which provided for the sale and
issuance by the Corporation and the purchase by the Investor of shares of Common
Stock of the Corporation (the "Shares") upon various occurrences, described in
the Agreement as the "Initial Investment," the "First Contingent Investment,"
and the "Second Contingent Investment;"
WHEREAS, because the FDA * * * on or before * * *, a condition of the
Second Contingent Investment required by Section 1.3 of the Agreement * * *; and
WHEREAS, the parties desire to enter into this Amendment Agreement so
as to provide for a renewed and Revised Second Contingent Investment on
different terms than had been agreed upon in the Agreement;
NOW, THEREFORE, in consideration of the mutual promises and agreements
contained herein and for other good and valuable consideration, the sufficiency
and receipt of which are hereby acknowledged, the parties hereto hereby agree as
follows:
1. SECOND CONTINGENT INVESTMENT. Section 1.3 of the Agreement is revised as
follows:
(a) Upon execution of this Amendment Agreement, (i) the Investor shall pay to
the Corporation a milestone payment of $750,000 and (ii) the Corporation
shall sell and issue to the Investor, and the Investor shall purchase and
receive from the Corporation, Shares for a purchase price of $3,000,000.
The number of Shares which the Corporation shall issue and sell to the
Investor pursuant to this Section l (a) (ii) shall equal $3,000,000 divided
by the "Share Price." The "Share Price" shall mean the average closing of
the Corporation's Common Stock,
* * *Confidential treatment requested as to certain portions, which portions
are omitted and filed separately with the Commission.
3
<PAGE>
as quoted in The Wall Street Journal for the 30-day period immediately
-----------------------
prior to the date upon which this Amendment Agreement is executed.
(b) If the FDA * * * (as defined in Section * * * of the License and
Supply Agreement, dated January 17, 1996 between the Corporation and the
Investor) in the * * * for the * * *:
(1) * * *, then at the Second Contingent Closing (as hereinafter
defined) (i) the Investor shall pay to the Corporation a milestone
payment of * * * and (ii) the Corporation shall sell and issue to the
Investor, and the Investor shall purchase and receive from the
Corporation, Shares for a purchase price of * * *. The number of
Shares which the Corporation shall issue and sell to the Investor
pursuant to this Section l (b) (1) (ii) shall equal * * * divided by
the Share Price as defined in Section l (a) (ii) hereof, except that
the 30-day period shall be the thirty days immediately prior to the
earlier of (x) * * * and (y) * * *;
(2) * * *, then at the Second Contingent Closing (i) the Investor
shall pay to the Corporation a milestone payment of * * * and (ii) the
Corporation shall sell and issue to the Investor, and the Investor
shall purchase and receive from the Corporation Shares for a purchase
price (the "Purchase Price") equal to * * *. The number of Shares
which the Corporation shall issue and sell to the Investor pursuant to
this Section 1 (b) (2) (ii) shall equal the Purchase Price divided by
the Share Price as defined in Section l (b)(1) (ii) hereof; and
* * *Confidential treatment requested as to certain portions, which portions are
omitted and filed separately with the Commission.
4
<PAGE>
(3) * * *, the Investor shall * * * pursuant to this Amendment
Agreement * * * from the Corporation.
(c) All references to Section 1.3 in the Agreement shall hereafter refer
to Section 1.3 as revised by this Section 1 of the Amendment Agreement.
2. SECOND CONTINGENT CLOSING.
(a) In lieu of Section 2.3 of the Agreement, the parties agree that the
closing of the Second Contingent Investment (the `Second Contingent
Closing") shall take place within 45 days after the * * *, on a date agreed
to by the Corporation and the Investor, or on such later date as is
mutually agreeable to the Corporation and the Investor.
(b) All of the other provisions of Section 2 of the Agreement shall
remain in full force and effect except that in Section 2.5 of the Agreement
the term "* * * in the case of the Second Contingent Investment," shall be
replaced by the term "and in the case of the Second Contingent Investment a
* * * milestone payment and * * * for Shares * * * as provided by Section
l (b) (2) (ii) of the Amendment Agreement, dated as of March 23, 1998."
3. ALL OTHER PROVISIONS OF THE AGREEMENT. All of the other terms and
conditions of the Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment Agreement as
of the date first above written.
Corporation; Investor;
ORGANOGENESIS INC. NOVARTIS PHARMA AG,
By: By:
Chairman and Chief Executive Officer By:
* * * Confidential treatment requested as to certain portions, which portions
are omitted and filed separately with the Commission.
5
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<PERIOD-START> JAN-01-1998
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