<PAGE>
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 June 30, 1996
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: 1-12128
MATRITECH, INC.
---------------
(Exact name of registrant as specified in its charter)
DELAWARE 04-2985132
-------- ----------
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
330 NEVADA STREET, NEWTON, MASSACHUSETTS 02160
----------------------------------------------
(Address of principal executive offices) (Zip Code)
(617) 928-0820
--------------
(Registrant's telephone number, including area code)
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
- --
As of July 18, 1996 there were 15,978,009 shares of Common Stock
outstanding.
Page 1 of 35
The Exhibit Index is located on Page 15
<PAGE>
MATRITECH, INC.
INDEX
PART I FINANCIAL INFORMATION
Page
----
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of December 31, 1995
and June 30, 1996 3
Statements of Operations for the three and six months
ended June 30, 1995 and 1996 5
Statements of Cash Flows for the six months ended
June 30, 1995 and 1996 6
Notes to Financial Statements 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 9
PART II OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
Page 2 of 35
<PAGE>
PART I. - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MATRITECH, INC.
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
---- ----
(UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $11,009,310 $ 7,493,990
Marketable securities - 2,000,000
Accounts receivable 113,139 388,289
Interest receivable - 7,708
Inventories 192,385 246,828
Prepaid expenses 131,947 128,176
----------- -----------
Total current assets 11,446,781 10,264,991
----------- -----------
PROPERTY AND EQUIPMENT, at cost:
Laboratory equipment 729,935 812,255
Office equipment 137,876 170,038
Laboratory furniture 44,511 55,772
Leasehold improvements 39,671 39,671
----------- -----------
951,993 1,077,736
Less-Accumulated depreciation
and amortization 596,721 644,777
----------- -----------
355,272 432,959
----------- -----------
OTHER ASSETS, net 157,150 142,698
----------- -----------
$11,959,203 $10,840,648
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 3 of 35
<PAGE>
MATRITECH, INC.
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1995 1996
---- ----
(UNAUDITED)
CURRENT LIABILITIES:
<S> <C> <C>
Current portion of note payable $ 18,387 $ 9,422
Accounts payable 340,560 457,824
Accrued expenses 214,178 395,596
Deferred revenue 34,900 -
----------- ----------
Total current liabilities 608,025 862,842
---------- ----------
STOCKHOLDERS' EQUITY:
Preferred stock, $1.00 par
value -
Authorized - 4,000,000 - -
shares
Issued and outstanding -none
Common stock, $.01 par value -
Authorized -- 40,000,000
shares
Issued and outstanding --
15,194,127 shares at
December 31, 1995, and
15,978,009 shares at
June 30, 1996 151,941 159,780
Additional paid-in capital 32,174,967 33,625,419
Deficit accumulated in the
development stage (20,975,730) (23,807,393)
----------- -----------
Total stockholders' equity 11,351,178 9,977,806
----------- -----------
$ 11,959,203 $ 10,840,648
============ ============
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 4 of 35
<PAGE>
MATRITECH, INC.
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
<S> <C> <C> <C> <C>
1996 1995 1996 1995
---- ---- ---- ----
REVENUES:
Collaborative research
and development, license
fees and product sales $ 502,099 $ 300,016 $ 680,792 $ 374,440
Interest and other income 132,742 35,065 286,335 88,444
---------- --------- ---------- ---------
634,841 335,081 967,127 462,884
---------- --------- ---------- ---------
EXPENSES:
Research and
development 928,294 780,395 1,861,435 1,565,668
Selling, general and
administrative 1,131,385 533,813 1,937,355 1,040,146
---------- --------- ---------- ---------
2,059,679 1,314,208 3,798,790 2,605,814
---------- --------- ----------- ----------
Net Loss $(1,424,838) $ (979,127) $(2,831,663) $(2,142,930)
=========== ========== =========== ===========
NET LOSS PER SHARE $(.09) $(.10) $(.18) $(.22)
=========== ========= ========= =========
WEIGHTED AVERAGE
NUMBER OF
COMMON
SHARES
OUTSTANDING 15,954,031 9,787,402 15,809,538 9,786,848
========== ========= ========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 5 of 35
<PAGE>
MATRITECH, INC.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
<S> <C> <C>
1996 1995
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $(2,831,663) $(2,142,930)
Adjustments to reconcile net loss
to net cash used in operating
activities -
Depreciation and amortization 62,508 53,994
Amortization of deferred 30,000 11,478
compensation, net of forfeitures
Changes in assets and
liabilities -
Accounts receivable (282,858) (51,203)
Inventories (54,443) (70,335)
Prepaid expenses 3771 (41,243)
Accounts payable 117,264 58,210
Accrued expenses 181,418 16,282
Deferred revenue (34,900) 17,450
----------- -----------
Net cash used in operating
activities (2,808,903) (2,148,297)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and
equipment (125,743) (22,405)
Purchase of marketable
securities (2,000,000) -
----------- -----------
Net cash used in investing
activities (2,125,743) (22,405)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock
options and warrants 1,428,291 (37,224)
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 6 of 35
<PAGE>
MATRITECH, INC.
STATEMENTS OF CASH FLOWS (CONTINUED)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
<S> <C> <C>
1996 1995
---- ----
Payments on note payable $ (8,965) $ (8,115)
---------- ----------
Net cash provided by (used in)
financing activities 1,419,326 (45,339)
---------- ----------
NET DECREASE IN CASH AND
CASH EQUIVALENTS (3,515,320) (2,216,041)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 11,009,310 3,974,237
__________ __________
CASH AND CASH EQUIVALENTS, END OF
PERIOD $ 7,493,990 $ 1,758,196
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
Page 7 of 35
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
1. Operations and Basis of Presentation
- - ---------------------------------------
Matritech, Inc. ("Matritech" or the "Company") was incorporated on
October 29, 1987 to develop, produce and distribute products for the diagnosis
and potential treatment of cancer. The Company's products are based on
technology licensed to the Company by the Massachusetts Institute of Technology
("MIT").
The Company is devoting substantially all of its efforts toward product
research and development, raising capital and marketing existing products and
products under development. The Company is subject to risks common to companies
in similar stages of development, including dependence on key individuals,
competition from substitute products and larger companies, the development of
commercially usable products and the need to obtain adequate additional
financing necessary to fund the development of its future products.
The financial statements included herein have been prepared by the
Company, without audit, pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC") and include, in the opinion of management, all
adjustments, consisting of normal, recurring adjustments, necessary for a fair
presentation of interim period results. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations. The results for the interim periods
presented are not necessarily indicative of results to be expected for any
future period. It is suggested that these condensed financial statements be
read in conjunction with the audited financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1995 filed with the SEC (File No. 1-12128).
2. Cash, Cash Equivalents and Marketable Securities
- - ----------------------------------------------------
The Company applies Statement of Financial Accounting Standards (SFAS)
No. 115, Accounting for Certain Investments in Debt and Equity Securities. The
Company's cash equivalents and marketable securities are classified as held-to-
maturity. Cash equivalents are short-term, highly liquid investments with
original maturities of less than three months. Marketable securities are
investments with original maturities of greater than three months. Cash
equivalents are carried at cost which approximates fair market value and consist
of auction market equity securities, money market funds, repurchase agreements
and United States Government treasury notes. Marketable securities are recorded
at amortized cost which approximates market value and consist of an auction
market equity security with a maturity of six months.
3. Net Loss Per Share
- - ---------------------
Net loss per common share is based on the weighted average number of
common shares outstanding. Common stock equivalents have not been included for
any loss period as the amounts would be antidilutive.
Page 8 of 35
<PAGE>
MATRITECH, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Company was incorporated in 1987 to develop, manufacture and market
innovative cancer diagnostic products based on its proprietary NMP technology.
Matritech has been unprofitable since inception and expects to incur significant
operating losses over the next few years. For the period from inception to June
30, 1996, the Company incurred a cumulative net loss of approximately $23.8
million.
RESULTS OF OPERATIONS
- - ---------------------
THREE MONTHS ENDED JUNE 30, 1996 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1995
- - -------------------------------------------------------------------------------
Collaborative research and development, license fees and product sales
increased to $502,000 for the quarter ended June 30, 1996 from $300,000 for the
quarter ended June 30, 1995. The Company recorded $60,000 in milestone revenue
and a $150,000 initial payment in collaborative research and development
revenues relating to a funded development agreement with Bayer Corporation
("Bayer") during the second quarter of 1996 and 1995, respectively. The Company
received $36,000 in SBIR funding for its drug screening assay project during the
quarter ended June 30, 1996 compared with $57,000 in the same quarter last year
for prostate and colon cancer research projects. Revenue from product sales
increased to $406,000 for the quarter ended June 30, 1996 as compared to $93,000
in the second quarter of 1995 due to initial orders from two new distributors in
Europe to replace the former distributor of the Company's NMP22(R) Test Kit for
bladder cancer.
Interest and other income was $133,000 for the quarter ended June 30,
1996 and $35,000 for the quarter ended June 30, 1995. The increase was due to
significantly higher cash balances available for investment resulting from
financings during the fourth quarter of 1995.
Research and development expenses increased 19% to $928,000 for the
quarter ended June 30, 1996 from $780,000 for the quarter ended June 30, 1995.
The increase is primarily related to the scale-up of product manufacturing for
the Company's NMP22(R) Test Kit for bladder cancer which received FDA approval
for sale in the United States in July 1996.
Selling, general and administrative expenses increased 112% to $1,131,000
for the quarter ended June 30, 1996 from $534,000 for the quarter ended June 30,
1995. During the second quarter of 1996, the Company expensed approximately
$184,000 of costs associated with a proposed public offering which the Company
elected not to complete. Excluding these expenses, selling, general and
administrative expenses increased 77% resulting primarily from increased
staffing in the sales and marketing department, termination of the Company's
former distributor in Europe and the marketing programs established to promote
the Company's products worldwide, and to a lesser extent, increased salaries and
office supplies.
The Company incurred a net loss of $1,425,000 for the quarter ended June
30, 1996, as compared to a net loss of $979,000 for the quarter ended June 30,
1995. The increased loss was primarily the result of increased sales, marketing
and manufacturing expenses for the NMP22(R) Test Kit and expenses related to the
withdrawn public offering.
SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995
---------------------------------------------------------------------------
Collaborative research and development, license fees and product sales
increased to $681,000 for the six months ended June 30, 1996 from $374,000 for
the first six months of last year. Matritech's revenue from collaborative
research and development for the six months ended June 30, 1996 and 1995
consisted of $60,000 in milestone revenue and a $150,000 initial payment,
respectively, in revenues from a funded development agreement with Bayer.
Page 9 of 35
<PAGE>
Matritech also received $84,000 in SBIR funding for its drug screening assay
project during the six months ended June 30, 1996 compared with $92,000 in the
same period last year for prostate and colon cancer research projects. Revenue
from product sales totaled $537,000 for the six months ended June 30, 1996 and
$132,000 for the six months ended June 30, 1995. The increase was primarily due
to initial orders from two new distributors in Europe to replace the former
distributor of the Company's NMP22(R) Test Kit for bladder cancer and increased
sales of certain research products.
Interest and other income was $286,000 for the first six months of 1996
compared with $88,000 for the same period last year. The increase was due to
significantly higher cash balances available for investment resulting from
financings during the fourth quarter of 1995.
Research and development expenses increased 19% to $1,861,000 for the six
months ended June 30, 1996 from $1,566,000 for the six months ended June 30,
1995. The increase is primarily attributable to the scale-up of product
manufacturing for the Company's NMP22(R) Test Kit for bladder cancer, and to a
lesser extent, increased personnel costs in the research department.
Selling, general and administrative expenses increased 86% to $1,937,000
for the six months ended June 30, 1996 from $1,040,000 for the six months ended
June 30, 1995. During the second quarter of 1996, the Company expensed
approximately $184,000 of costs associated with a proposed public offering which
the Company elected not to complete. Excluding these expenses, selling, general
and administrative expenses increased 69%, primarily from increased staffing in
the sales and marketing department, termination of the Company's former
distributor in Europe and the marketing programs established to promote the
Company's products worldwide. The balance of the increase is primarily related
to increased salaries, office supplies and professional fees.
The Company incurred a net loss of $2,832,000 for the six months ended
June 30, 1996, as compared with a net loss of $2,143,000 for the six months
ended June 30, 1995. The increased loss resulted primarily from increased sales
and marketing expenses and the scale-up of product manufacturing for the
NMP22(R) Test Kit for bladder cancer, and to a lesser extent the expenses
associated with the withdrawn public offering and termination costs of the
Company's former European distributor.
LIQUIDITY AND CAPITAL RESOURCES
- - -------------------------------
Since its inception, the Company has financed its operations primarily
through private and public offerings of its securities and through funded
development and marketing agreements. In September 1995, the Company received
net proceeds of approximately $6,658,000 from the private sale of common stock.
In December 1995, the Company received net proceeds of approximately $4,656,000
from the exercise of certain common stock warrants which the Company had called
for redemption. In June 1995, the Company signed a product development and
marketing option agreement with Bayer and received a $150,000 initial payment.
Under this agreement Matritech is eligible to receive further milestone and
option payments upon the completion of specific product development milestones.
Matritech received $60,000 in milestone payments in the year ended December 31,
1995 and an additional $60,000 in milestone revenues in the second quarter of
1996 under this agreement. At June 30, 1996 the Company had cash, cash
equivalents, and marketable securities of $9,494,000 and working capital of
$9,402,000.
The Company's operating activities used cash of approximately $2,148,000
and $2,809,000 for the six-month periods ended June 30, 1995 and 1996,
respectively, primarily to fund the Company's operating loss.
The Company's investing activities used cash of approximately $22,000 and
$2,126,000 in the six-month periods ended June 30, 1995 and 1996, respectively,
for the purchase of computer systems, office and laboratory equipment as well as
the purchase of marketable securities in the six month period ended June 30,
1996.
Page 10 of 35
<PAGE>
Financing activities provided cash of approximately $1,419,000 in the
six-month period ended June 30, 1996, primarily from the exercise of stock
options and warrants, net of payments of capital lease obligations. Financing
activities used cash of approximately $45,000 in the six-month period ended June
30, 1995, primarily from payments of capital lease obligations and costs
relating to the sale of securities in December 1994.
Capital expenditures totaled approximately $126,000 during the six months
ended June 30, 1996, which amount was expended primarily for the purchase of
computer systems, office and laboratory equipment. The Company currently
estimates that it will acquire approximately $205,000 of capital equipment
during the remainder of the year ended December 31, 1996, consisting primarily
of computer systems, laboratory equipment and office equipment.
The Company may from time to time consider obtaining additional long-term
funding for its operations from various sources including collaborative
arrangements and additional public or private financings. The Company
anticipates that its existing capital resources including working capital and
interest thereon will satisfy its capital needs at least through September 30,
1997. The foregoing forward-looking statement is subject to uncertainties and
there can be no assurance that the Company's needs may not change. See "Factors
that may Affect Future Results-Access to Capital." The survival of the Company
in the long term is dependent on its ability to generate revenue from sales of
its products and to obtain financing. There can be no assurance that such
additional funding will be available on terms acceptable to the Company, if at
all.
The Company expects to incur continued research and development expenses
and other costs, including costs related to future clinical studies to
commercialize additional products based upon its NMP technology. The Company
expects that such costs will continue in the fiscal year ending December 31,
1996 and will result in continued losses from operations. The Company may
require substantial additional funds to complete new product development,
conduct clinical trials and manufacture and market its products.
The Company's future capital requirements will depend on many factors,
including: continued scientific progress in its research and development
programs and the magnitude of these programs; progress with clinical trials for
its diagnostic products; the time involved in obtaining regulatory approvals;
the costs involved in filing, prosecuting and enforcing patent claims; competing
technological and market developments; the ability of the Company to establish
additional development and marketing arrangements to provide funding for
research and development and to conduct clinical trials; obtain regulatory
approvals, and manufacture and market certain of the Company's products. Should
the Company pursue potential therapeutic applications of its technology beyond
initial feasibility studies, substantial additional financing would also be
required.
FACTORS THAT MAY AFFECT FUTURE RESULTS.
The Company's future financial and operational results are subject to a
number of material risks and uncertainties that may affect such results or
conditions, including:
History of Operating Losses and Anticipated Future Losses. The Company
has incurred operating losses since its inception and expects to incur
significant operating losses over the next few years. The Company expects to
improve operating results in future periods, however, there can be no assurance
that the Company will achieve or maintain profitability or that its revenue
growth can be sustained in the future.
Page 11 of 35
<PAGE>
Uncertainties Associated with Future Performance. The Company's success
in the market for diagnostic products will depend, in part, on the Company's
ability to: successfully develop, test, produce and market its products; obtain
necessary governmental approvals in a timely manner; attract and maintain key
employees; and successfully respond to technological changes in its marketplace.
The Company's success in markets outside the United States is dependent on the
performance of independent distributors over which the Company has limited
control.
Access to Capital. The Company will consider from time to time various
financing alternatives and may seek to raise additional capital through equity
or debt financing or by entering into corporate partnering arrangements. There
can be no assurance, however, that this funding will be available on terms
acceptable to the Company, if at all.
Fluctuation in Operating Results. The Company's future operating results
may vary significantly from quarter to quarter or from year to year depending on
a number of factors including: the timing of payments from corporate partners
and research grants; regulatory approvals and the introduction of new products
by the Company; the timing and size of orders from the Company's customers; and
the market acceptance of the Company's products. The Company's current planned
expense levels are based in part upon expectations as to future revenue.
Consequently, profits may vary significantly from quarter to quarter or year to
year based on the timing of revenue. Revenue or profits in any period will not
necessarily be indicative of results in subsequent periods.
Page 12 of 35
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
---------------------------------------------------
a) The annual meeting (the "Annual Meeting") of stockholders of
Matritech was held on June 7, 1996.
b) The following directors were elected at the Annual Meeting:
<TABLE>
<CAPTION>
Election of Directors: For Withheld
--- --------
<S> <C> <C>
Stephen D. Chubb 13,332,086 6500
David L. Corbet 13,332,086 6500
Thomas R. Morse 13,332,086 6500
David Rubinfien 13,332,086 6500
T. Stephen Thompson 13,332,086 6500
C. William Zadel 13,332,086 6500
</TABLE>
c) The following other matters were proposed and voted upon as
indicated:
1. To approve an amendment to the Company's 1992 Stock Plan
(the "1992 Plan") to increase the number of shares of the
Company's Common Stock authorized for issuance pursuant to the
1992 Plan from 625,000 shares to 1,000,000 shares. With
12,967,903 shares voting for, 241,975 shares voting against and
128,608 abstaining, the proposal passed.
2. To approve amendments to the Company's 1992 Non-Employee
Director Stock Option Plan (the "Director Plan") to: (i)
increase the Initial Option, as defined in the Director Plan, to
10,000 shares of Common Stock; (ii) change the calculation of
the Annual Option, as defined in the Director Plan, from the
current formula calculation to a fixed number of shares of
Common Stock equal to 10,000 shares per year; and (iii) provide
that any new director shall receive, in addition to the Initial
Option, a proportionate fraction of the Annual Option. With
12,804,517 shares voting for, 319,422 shares voting against, and
148,993 abstaining, the proposal passed.
3. To ratify the selection of the firm of Arthur Andersen LLP as
auditors for the fiscal year ending December 31, 1996. With
13,103,032 shares voting for, 71,700 shares voting against, and
98,200 abstaining, the proposal passed.
(d) No information provided due to inapplicability of item.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits:
--------
10.1 1992 Stock Plan as amended as of June 7, 1996
10.2 Amended and Restated 1992 Non-Employee Director Stock Plan
as amended as of June 7, 1996.
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the quarter ended June
30, 1996.
Page 13 of 35
<PAGE>
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.
MATRITECH, INC.
Date: August 9, 1996 By: /s/Stephen D. Chubb
-------------------
Stephen D. Chubb
Chairman and Chief
Executive Officer
(principal executive
and financial officer)
Date: August 9, 1996 By: /s/Leslie R. Teso
-----------------
Leslie R. Teso
Vice President, Finance,
Secretary and Treasurer
(principal accounting officer)
Page 14 of 35
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- - ------- ----------- ----
<S> <C> <C>
10.1 1992 Stock Plan as amended as of June 7, 1996. 16
10.2 Amended and Restated 1992 Non-Employee Director Stock 27
Plan as amended as of June 7, 1996.
27 Financial Data Schedule. 35
</TABLE>
Page 15 of 35
<PAGE>
MATRITECH, INC.
1992 STOCK PLAN
---------------
(AS AMENDED JUNE 7, 1996)
1. PURPOSE. This Amended and Restated 1992 Stock Plan (the "Plan") is
-------
intended to provide incentives: (a) to the officers and other employees of
Matritech, Inc. (the "Company"), its parent (if any) and any present or future
subsidiaries of the Company (collectively, "Related Corporations") by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which qualify as "incentive stock options" under Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or
"ISOs"); (b) to directors, officers, employees and consultants of the Company
and Related Corporations by providing them with opportunities to purchase stock
in the Company pursuant to options granted hereunder which do not qualify as
ISOs ("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with awards of stock in the Company ("Awards"); and (d) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct purchases of
stock in the Company ("Purchases"). Both ISOs and Non-Qualified Options are
referred to hereafter individually as an "Option" and collectively as "Options".
Options, Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
---------------------------
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered
---------------------------------
by the Board of Directors of the Company (the "Board") or by a committee
appointed by the Board (the "Committee"), comprised of, to the extent
required by applicable regulations under Section 162(m) of the Code, two or
more outside directors as defined in applicable regulations thereunder and to
the extent required by Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 or any successor provision ("Rule 16b-3"), disinterested
administrators. Hereinafter, all references in this Plan to the "Committee"
shall mean the Board if no Committee has been appointed. Subject to
ratification of the grant or authorization of each Stock Right by the Board
(if so required by applicable state law), and subject to the terms of the
Plan, the Committee shall have the authority to (i) determine the employees
of the Company and Related Corporations (from among the class of employees
eligible under paragraph 3 to receive ISOs) to whom ISOs may be granted, and
to determine (from among the class of individuals and entities eligible
1
<PAGE>
under paragraph 3 to receive Non-Qualified Options and Awards and to make
Purchases) to whom Non-Qualified Options, Awards and authorizations to make
Purchases may be granted; (ii) determine the time or times at which Options
or Awards may be granted or Purchases made; (iii) determine the option price
of shares subject to each Option, which price shall not be less than the
minimum price specified in paragraph 6, and the purchase price of shares
subject to each Purchase; (iv) determine whether each Option granted shall be
an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the
time or times when each Option shall become exercisable and the duration of
the exercise period; (vi) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Options, Awards and Purchases
and the nature of such restrictions, if any, and (vii) interpret the Plan and
prescribe and rescind rules and regulations relating to it. If the Committee
determines to issue a Non-Qualified Option, it shall take whatever actions it
deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO.
The interpretation and construction by the Committee of any provisions of the
Plan or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. No member of
the Board or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Stock Right granted under
it.
B. COMMITTEE ACTIONS. The Committee may select one of its members as
-----------------
its chairman, and shall hold meetings at such times and places as it may
determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee (if
consistent with applicable state law), shall be the valid acts of the
Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may be granted
--------------------------------------
to members of the Board consistent with the provisions of the first sentence
of paragraph 2(A) above, if applicable. All grants of Stock Rights to
members of the Board shall in all other respects be made in accordance with
the provisions of this Plan applicable to other eligible persons. Consistent
with the provisions of the first sentence of paragraph 2(A) above, members of
the Board who are either (i) eligible for Stock Rights pursuant to the Plan
or (ii) have been granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights pursuant to the
Plan, except that no such member shall act upon the granting to himself of
Stock Rights, but any such member may be counted in determining the existence
of a quorum at any meeting of the Board during which action is taken with
respect to the granting to him of Stock Rights.
2
<PAGE>
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee of
-----------------------------
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan. Non-
Qualified Options, Awards and authorizations to make Purchases may be granted to
any employee, officer or director (whether or not also an employee) or
consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him from, participation in
any other grant of Stock Rights.
4. STOCK. The stock subject to Options, Awards and Purchases shall be
-----
authorized but unissued shares of Common Stock of the Company, par value $.01
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 1,000,000 625,000, subject to adjustment as
provided in paragraph 13; provided, however, that such number of shares shall
-----------------
not be subject to adjustment by reason of the 9.1 for one stock split in the
form of a stock dividend declared by the Board of Directors of the Company at a
meeting on March 2, 1992. Any such shares may be issued as ISOs, Non-Qualified
Options or Awards, or to persons or entities making Purchases, so long as the
number of shares so issued does not exceed such number, as adjusted. If any
Stock Right granted under the Plan shall expire or terminate for any reason
without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unissued shares subject to such Stock
Options shall again be available for grants of Stock Rights under the Plan. For
the purposes of the foregoing sentence, shares withheld from the Stock Right
exercise to pay the exercise price and/or tax consequences of the exercise shall
be deemed to have been issued.
No employee of the Company or any Related Corporation may be granted Options
to acquire, in the aggregate, more than 300,000 shares of Common Stock under the
Plan. If any Option granted under the Plan shall expire or terminate for any
reason without having been exercised in full or shall cease for any reason to be
exercisable in whole or in part, the unpurchased shares subject to such Option
shall be included in the determination of the aggregate number of shares of
Common Stock deemed to have been granted to such employee under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan at
------------------------
any time after the effective date of the Company's initial public offering, and
prior to March 2, 2002. The date of grant of a Stock Right under the Plan will
be the date specified by the Committee at the time it grants the Stock Right;
provided, however, that such date shall not be prior to the date on which the
Committee acts to approve the grant. The Committee shall have the right, with
the consent of the optionee, to convert an ISO granted under the Plan to a Non-
Qualified Option pursuant to paragraph 16.
3
<PAGE>
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
-------------------------------------
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND PURCHASES. The exercise
-----------------------------------------------------
price per share specified in the agreement relating to each Non-Qualified
Option granted, and the purchase price per share of stock granted in any
Award or authorized as a Purchase, under the Plan shall in no event be less
than the minimum legal consideration required therefor under the laws of
Delaware or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
B. PRICE FOR ISOS. The exercise price per share specified in the
--------------
agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant.
In the case of an ISO to be granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power of all classes
of stock of the Company or any Related Corporation, the price per share
specified in the agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share of Common Stock
on the date of grant.
C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee may be
----------------------------------
granted ISOs only to the extent that, in the aggregate under this Plan and
all incentive stock option plans of the Company and any Related Corporation,
such ISOs do not become exercisable for the first time by such employee
during any calendar year in a manner which would entitle the employee to
purchase more than $100,000 in fair market value (determined at the time the
ISOs were granted) of Common Stock in that year. Any options granted to an
employee in excess of such amount will be granted as Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
----------------------------------
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available prior to the date
such Option is granted and shall mean (i) the average (on that date) of the
high and low prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or (ii) the last reported sale
price (on that date) of the Common Stock on the NASDAQ National Market List,
if the Common Stock is not then traded on a national securities exchange; or
(iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Common Stock is not reported on the NASDAQ National Market List.
However, if the Common Stock is not publicly traded at the time an Option is
granted under the Plan, "fair market value" shall be deemed to be the fair
value of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
4
<PAGE>
7. OPTION DURATION. Subject to earlier termination as provided in
---------------
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
------------------
12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the date
-------
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
----------------------------
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at
----------------
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
-----------------------
accelerate the date of exercise of any installment of any Option; provided
that the Committee shall not, without the consent of an optionee, accelerate
the exercise date of any installment of any Option granted to any employee as
an ISO (and not previously converted into a Non-Qualified Option pursuant to
paragraph 16) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in paragraph
6(C).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by
-------------------------
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written
5
<PAGE>
approval of the Committee shall not be considered an interruption of employment
under the Plan, provided that such written approval contractually obligates the
Company or any Related Corporation to continue the employment of the optionee
after the approved period of absence. ISOs granted under the Plan shall not be
affected by any change of employment within or among the Company and Related
Corporations, so long as the optionee continues to be an employee of the Company
or any Related Corporation. Nothing in the Plan shall be deemed to give any
grantee of any Stock Right the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY.
-----------------
A. DEATH. If an ISO optionee ceases to be employed by the Company and
-----
all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws
of descent and distribution, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the Company
----------
and all Related Corporations by reason of his disability, he shall have the
right to exercise any ISO held by him on the date of termination of
employment, to the extent of the number of shares with respect to which he
could have exercised it on that date, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
termination of the optionee's employment. For the purposes of the Plan, the
term "disability" shall mean "permanent and total disability" as defined in
Section 22(e)(3) of the Code or successor statute.
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
-------------
optionee except by will or by the laws of descent and distribution. During the
lifetime of the optionee each Option shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any
6
<PAGE>
and all action necessary or advisable from time to time to carry out the terms
of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or
if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of Options shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
-------------------------
with or acquired by another entity in a merger, sale of all or substantially
all of the Company's assets or otherwise (an "Acquisition"), the Committee or
the board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either
(i) make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the shares then subject to such
Options the consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition; or (ii) upon written notice
to the optionees, provide that all Options must be exercised, to the extent
then exercisable, within a specified number of days of the date of such
notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of
the fair market value of the shares subject to such Options (to the extent
then exercisable) over the exercise price thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect to the outstanding
shares of Common Stock, an optionee upon exercising an Option shall be
entitled to receive for the purchase price paid upon such exercise the
securities he would have received if he had exercised his Option prior to
such recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
--------------------
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such
7
<PAGE>
adjustments made with respect to ISOs would constitute a modification of such
ISOs, it may refrain from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by the
Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under the
-----------------
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described in
-----------
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments
to be made under this paragraph 13 and, subject to paragraph 2, its
determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise
of a Stock Right made hereunder receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs A, B or C
above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
--------------------------------
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor (a)
in United States dollars in cash or by check, (b) at the discretion of the
Committee, through delivery or withholding from the Stock Right exercise of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Stock Right, (c) at the discretion of
the Committee, by delivery of the grantee's personal recourse note bearing
interest payable not less than annually at no less than 100% of the lowest
applicable Federal rate, as
8
<PAGE>
defined in Section 1274(d) of the Code, (d) at the discretion of the Committee
and consistent with applicable law, through the delivery of an assignment to the
Company of a sufficient amount of the proceeds from the sale of the Common Stock
acquired upon exercise of the Stock Right and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be at the
participant's direction at the time of exercise, or (e) at the discretion of the
Committee, by any combination of (a), (b), (c) and (d) above. If the Committee
exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b), (c), (d) or (e) of the preceding
sentence, such discretion shall be exercised in writing at the time of the grant
of the ISO in question. The holder of a Stock Right shall not have the rights of
a shareholder with respect to the shares covered by his Stock Right until the
date of issuance of a stock certificate to him for such shares. Except as
expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board of
--------------------------
Directors and Stockholders of the Company on March 2, 1992. The Plan shall
expire at the end of the day on March 2, 2002 (except as to Options outstanding
on that date). The Board may terminate or amend the Plan in any respect at any
time, except that, without the approval of the stockholders obtained within 12
months before or after the Board adopts a resolution authorizing any of the
following actions: (a) the total number of shares that may be issued under the
Plan may not be increased materially (except by adjustment pursuant to paragraph
13); (b) the benefits accruing to participants under the Plan may not be
materially increased; (c) the requirements as to eligibility for participation
in the Plan may not be materially modified; (d) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (e) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); (f) the expiration date of the Plan may not be extended; and (g) the Board
may not take any action which would cause the Plan to fail to comply with Rule
16b-3. Except as otherwise provided in this paragraph 15, in no event may action
of the Board or stockholders alter or impair the rights of a grantee, without
his consent, under any Stock Right previously granted to him.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS.
------------------------------------------------------------------
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such ISOs. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee
9
<PAGE>
in its discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's ISOs converted into Non-Qualified
Options, and no such conversion shall occur until and unless the Committee takes
appropriate action. The Committee, with the consent of the optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such
termination.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the sale
--------------------
of shares pursuant to Options granted and Purchases authorized under the Plan
shall be used for general corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a Non-
--------------------------------------
Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes. Payment of such additional withholding taxes
shall be in United States dollars in cash or by check and/or at the discretion
of the Committee, through the delivery of previously held shares of common stock
or withholding from the Stock Right exercise of shares of Common Stock having a
fair market value equal as of the date of exercise to the amount of such
withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
----------------------------------------------
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the Plan
---------------------------
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in
10
<PAGE>
interest may be organized. In construing this Plan, the singular shall include
the plural and the masculine gender shall include the feminine and neuter,
unless the context otherwise requires.
11
<PAGE>
MATRITECH, INC.
AMENDED AND RESTATED
1992 NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(as amended June 7, 1996)
1. Purpose. This Non-Qualified Stock Option Plan, to be known as the
-------
1992 Non-Employee Director Stock Option Plan (hereinafter, this "Plan") is
intended to promote the interests of Matritech, Inc. (hereinafter, the
"Company") by providing an inducement to obtain and retain the services of
qualified persons who are not employees or officers of the Company to serve as
members of its Board of Directors (the "Board").
2. Available Shares. The total number of shares of Common Stock, par value
----------------
$.01 per share, of the Company (the "Common Stock"), for which options may be
granted under this Plan shall not exceed 215,000 shares, subject to adjustment
in accordance with paragraph 10 of this Plan; provided, however, that such
number of shares shall not be subject to adjustment by reason of the 9.1 for one
stock split in the form of a stock dividend declared by the Board of Directors
of the Company at a meeting on March 2, 1992. Shares subject to this Plan are
authorized but unissued shares or shares that were once issued and subsequently
reacquired by the Company. If any options granted under this Plan are
surrendered before exercise or lapse without exercise (and without being used to
pay the exercise price or tax withholding), in whole or in part, the shares
reserved therefor shall continue to be available under this Plan.
3. Administration. This Plan shall be administered by the Board or by a
--------------
committee appointed by the Board (the "Committee"). In the event the Board
fails to appoint or refrains from appointing a Committee, the Board shall have
all power and authority to administer this Plan. In such event, the word
"Committee" wherever used herein shall be deemed to mean the Board. The
Committee shall, subject to the provisions of the Plan, have the power to
construe this Plan, to determine all questions hereunder, and to adopt and amend
such rules and regulations for the administration of this Plan as it may deem
desirable. No member of the Board or the Committee shall be liable for any
action or determination made in good faith with respect to this Plan or any
option granted under it.
4. Automatic Grant of Options. Subject to the availability of shares under
--------------------------
this Plan, (a) each person who is first elected as a member of the Board after
the closing of the Company's initial public offering and during the term of this
Plan and who is not an employee or officer of the Company on the date of such
election shall be automatically granted an option (an "Initial Option") to
purchase 10,000 shares of the Common Stock; (b) starting with the 1996 Annual
Meeting of Stockholders, each person who is elected or re-elected as a member of
the Board at the Company's Annual Meeting of Stockholders in a given year (the
"Annual Meeting") and who is not an employee or officer of the Company shall be
automatically granted as of the date of such Annual Meeting, an option (an
"Annual Option") to purchase 10,000 shares of Common Stock; and (c)any
individual who is first elected to the Board after the Annual Meeting of
Stockholders and who is not an employee or officer of the Company on the date of
such election shall automatically receive, in addition to the Initial Option, a
fraction of the Annual Option
1
<PAGE>
(rounded to the nearest whole share) equal to (x) divided by twelve (12), where
(x) equals the number of complete months remaining until the first anniversary
of the preceding Annual Meeting of Stockholders. The options to be granted under
this paragraph 4 shall be the only options ever to be granted at any time to
such member under this Plan. Except for the specific options referred to above,
no other options shall be granted under this Plan.
5. Option Price and Fair Market Value. The purchase price of the stock
----------------------------------
covered by an option granted pursuant to this Plan shall be 100% of the fair
market value of such shares on the day the option is granted. The option price
will be subject to adjustment in accordance with the provisions of paragraph 10
of this Plan. For purposes of this Plan, if, at the time an option is granted
under the Plan, the Company's Common Stock is publicly traded, "fair market
value" shall be determined as of the last business day for which the prices or
quotes discussed in this sentence are available prior to the date such option is
granted and shall mean (i) the average (on that date) of the high and low prices
of the Common Stock on the principal national securities exchange on which the
Common Stock is traded, if the Common Stock is then traded on a national
securities exchange; or (ii) the last reported sale price (on that date) of the
Common Stock on the Nasdaq National Market, if the Common Stock is not then
traded on a national securities exchange; or (iii) the closing bid price (or
average of bid prices) last quoted (on that date) by an established quotation
service for over-the-counter securities, if the Common Stock is not reported on
the Nasdaq National Market.
6. Period of Option. Unless sooner terminated in accordance with the
----------------
provisions of paragraph 8 of this Plan, an option granted hereunder shall expire
on the date which is ten (10) years after the date of grant of the option.
7. Vesting of Shares and Non-Transferability of Options.
-----------------------------------------------------
(a) Vesting. Options granted under this Plan shall not be exercisable
-------
until they become vested.
(i) Initial Options granted under Paragraph 4(a) of this Plan shall
vest in the optionee, and thus become exercisable, in accordance with the
following schedule so that 100% of each Initial Option shall become
exercisable four years from the date of grant, provided that the optionee
has continuously served as a member of the Board through such vesting date:
2
<PAGE>
Percentage of Option Which
Will Become Exercisable Date of Vesting
------------------------------ ---------------
0 Less than one year from the date of grant
25% One year from the date of grant
25% Two years from the date of grant
25% Three years from the date of grant
25% Four years from the date of grant
(ii) Annual Options granted under Paragraph 4(b) of this Plan shall
vest in the optionee, and thus become exercisable, in accordance with the
following schedule so that 100% of each Annual Grant shall become exercisable on
the first anniversary of the Annual Meeting for which they were granted,
provided that the optionee has continuously served as a member of the Board
through such vesting date:
<TABLE>
<CAPTION>
Number of Option Shares Which
Will Become Exercisable Date of Vesting
----------------------------- ---------------
<S> <C>
Less than three months from the date of
0 the Annual Meeting for which they were
granted
2,500 Three months from the date of the Annual
Meeting for which they were granted
2,500 Six months from the date of the Annual
Meeting for which they were granted
2,500 Nine months from the date of the Annual
Meeting for which they were granted
2,500 Twelve months from the date of the Annual
Meeting for which they were granted
</TABLE>
(iii) Annual Options granted pursuant to Paragraph 4(c) shall
vest on the same dates as Annual Options granted pursuant to Paragraph 4(b), but
only to the extent that such dates are after the date of election to the Board
of Directors. The number of shares which will vest on each such date will be
2,500, except that the number of shares which will vest at the first vesting
date following the date of election may be less than 2,500 and shall equal only
the balance of such Annual Options granted which will not vest on later
dates. Annual Options
3
<PAGE>
granted pursuant to Paragraph 4(c) shall vest only if the optionee has
continuously served the Board through such vesting date. By way of example, if a
director is elected on a date that is more than ten, but less than eleven months
prior to the first anniversary of the preceding Annual Meeting, such director
shall receive an Annual Option pursuant to Paragraph 4(c) equal to 8,333 shares
[10,000 x (10/12)] that shall become exercisable: 833 shares three months after
the date of the prior Annual Meeting, 2,500 shares six months after the date of
the prior Annual Meeting, 2,500 shares nine months after the date of the prior
Annual Meeting, and 2,500 shares twelve months after the date of the prior
Annual Meeting.
(iv) The number of shares as to which options may be exercised shall
be cumulative, so that once the option shall become exercisable as to any shares
it shall continue to be exercisable as to said shares, until expiration or
termination of the option as provided in this Plan.
(b) Legend on Certificates. The certificates representing such shares
----------------------
shall carry such appropriate legend, and such written instructions shall be
given to the Company's transfer agent, as may be deemed necessary or advisable
by counsel to the Company in order to comply with the requirements of the
Securities Act of 1933 or any state securities laws.
(c) Non-transferability. Any option granted pursuant to this Plan shall
-------------------
not be assignable or transferable other than by will or the laws of descent and
distribution and shall be exercisable during the optionee's lifetime only by him
or her.
8. Termination of Option Rights.
----------------------------
(a) In the event an optionee ceases to be a member of the Board for any
reason other than death or permanent disability, any then unexercised portion of
options granted to such optionee shall, to the extent not then vested,
immediately terminate and become void; any portion of an option which is then
vested but has not been exercised at the time the optionee so ceases to be a
member of the Board may be exercised, to the extent it is then vested, by the
optionee within 90 days of the date the optionee ceased to be a member of the
Board; and all options shall terminate after such 90 days have expired.
(b) In the event that an optionee ceases to be a member of the Board by
reason of his or her death or permanent disability, any option granted to such
optionee shall be immediately and automatically accelerated and become fully
vested and all unexercised options shall be exercisable by the optionee (or by
the optionee's personal representative, heir or legatee, in the event of death)
until the scheduled expiration date of the option.
9. Exercise of Option and Resale Restrictions.
------------------------------------------
(a) Exercise of Options. Subject to the terms and conditions of this
--------------------
Plan and the option agreements, an option granted hereunder shall, to the extent
then exercisable, be exercisable in whole or in part by giving written notice to
the Company by mail or in person addressed to Matritech, Inc., 330 Nevada
Street, Newton, Massachusetts 02160, at its principal
4
<PAGE>
executive offices, stating the number of shares with respect to which the option
is being exercised, accompanied by payment in full for such shares, which
payment may be (a) in whole or in part in shares of the Common Stock of the
Company already owned by the person or persons exercising the option or shares
subject to the option being exercised (subject to such restrictions and
guidelines as the Board may adopt from time to time), valued at fair market
value determined in accordance with the provisions of paragraph 5 or (b) at the
discretion of the Committee, and consistent with applicable law, through the
delivery of an assignment to the Company of a sufficient amount of the proceeds
from the sale of the Common Stock acquired upon exercise of the option and an
authorization to the broker or selling agent to pay that amount to the Company,
which sale shall be at the participant's direction at the time of exercise;
provided, however, that there shall be no such exercise at any one time as to
fewer than one hundred (100) shares or all of the remaining shares then
purchasable by the person or persons exercising the option, if fewer than one
hundred (100) shares. The Company's transfer agent shall, on behalf of the
Company, prepare a certificate or certificates representing such shares acquired
pursuant to exercise of the option, shall register the optionee as the owner of
such shares on the books of the Company and shall cause the fully executed
certificate(s) representing such shares to be delivered to the optionee as soon
as practicable after payment of the option price in full. The holder of an
option shall not have any rights of a stockholder with respect to the shares
covered by the option, except to the extent that one or more certificates for
such shares shall be delivered to him or her upon the due exercise of the
option.
(b) Resale Restrictions. Under no circumstances may shares acquired
--------------------
pursuant to the exercise of options hereunder be disposed of on or prior to the
date that is six months after the date such options were granted.
10. Adjustments Upon Changes in Capitalization and Other Matters. Upon the
------------------------------------------------------------
occurrence of any of the following events, an optionee's rights with respect to
options granted to him or her hereunder shall be adjusted as hereinafter
provided:
(a) Stock Dividends and Stock Splits. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or if
the Company shall issue any shares of Common Stock as a stock dividend on its
outstanding Common Stock, the number of shares of Common Stock deliverable upon
the exercise of options shall be appropriately increased or decreased
proportionately, and appropriate adjustments shall be made in the purchase price
per share to reflect such subdivision, combination or stock dividend.
(b) Issuances of Securities. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
subject to options. No adjustments shall be made for dividends paid in cash or
in property other than securities of the Company.
(c) Adjustments. Upon the happening of any of the foregoing events, the
-----------
class and aggregate number of shares set forth in paragraph 2 of this Plan that
are subject to options which previously have been or subsequently may be granted
under this Plan shall also be appropriately
5
<PAGE>
adjusted to reflect such events. The Board shall determine the specific
adjustments to be made under this paragraph 10 and its determination shall be
conclusive.
11. Restrictions on Issuance of Shares. Notwithstanding the provisions of
----------------------------------
paragraphs 4 and 9 of this Plan, the Company shall have no obligation to deliver
any certificate or certificates upon exercise of an option until one of the
following conditions shall be satisfied:
(a) The shares with respect to which the option has been exercised are
at the time of the issue of such shares effectively registered under applicable
Federal and state securities laws as now in force or hereafter amended; or
(b) Counsel for the Company shall have given an opinion that such shares
are exempt from registration under Federal and state securities laws as now in
force or hereafter amended; and the Company has complied with all applicable
laws and regulations with respect thereto, including without limitation all
regulations required by any stock exchange upon which the Company's outstanding
Common Stock is then listed.
12. Representation of Optionee. If requested by the Company, the optionee
--------------------------
shall deliver to the Company written representations and warranties upon
exercise of the option that are necessary to show compliance with Federal and
state securities laws, including representations and warranties to the effect
that a purchase of shares under the option is made for investment and not with a
view to their distribution (as that term is used in the Securities Act of 1933).
13. Option Agreement. Each option granted under the provisions of this Plan
----------------
shall be evidenced by an option agreement, which agreement shall be duly
executed and delivered on behalf of the Company and by the optionee to whom such
option is granted. The option agreement shall contain such terms, provisions
and conditions not inconsistent with this Plan as may be determined by the
officer executing it.
14. Termination and Amendment of Plan. Options may no longer be granted
---------------------------------
under this Plan after March 2, 2002, and this Plan shall terminate when all
options granted or to be granted hereunder are no longer outstanding. The Board
may at any time terminate this Plan or make such modification or amendment
thereof as it deems advisable; provided, however, that the Board may not,
without approval by the affirmative vote of the holders of a majority of the
shares of Common Stock present in person or by proxy and entitled to vote at the
meeting, (a) increase the maximum number of shares for which options may be
granted under this Plan or the number of shares for which an option may be
granted to any participating director hereunder, (b) change the provisions of
this Plan regarding the termination of the options or the times when they may be
exercised, (c) change the period during which any options may be granted or
remain outstanding or the date on which this Plan shall terminate, (d) change
the designation of the class of persons eligible to receive options, or
otherwise change paragraph 4, (e) materially increase benefits accruing to
option holders under this Plan, or (f) amend this Plan in any manner which would
cause Rule 16b-3 to become inapplicable to this Plan; and provided further that
the provisions of this Plan specified in Rule 16b-3(c)(2)(ii)(A) may not be
amended more than once every six months, other than to comport with changes in
the Internal Revenue Code, the
6
<PAGE>
Employee Retirement Income Security Act, or the rules thereunder. Termination or
any modification or amendment of this Plan shall not, without consent of a
participant, affect his or her rights under an option previously granted to him
or her.
15. By accepting options under the Plan, each optionee acknowledges that the
Company may be required to withhold taxes in connection with the exercise of
such options in respect of amounts considered to be compensation includible in
the optionee's gross income.
16. Governing Law. The validity and construction of this Plan and the
-------------
instruments evidencing options shall be governed by the laws of the State of
Delaware, without giving effect to the principles of conflicts of law thereof.
7
<PAGE>
<TABLE>
<CAPTION>
Register of Amendments:
<S> <C> <C> <C>
Date of
Date of Board Shareholder
Approval Approval
-----------------------------------
1. Annual Option grants introduced March 31, 1995 June 2, 1995
2. * Initial Option grants increased to April 5, 1996 June 7, 1996
10,000 shares;
* Annual Option grants amended
to 10,000 shares per year; and
* Partial Annual Option grants
adopted for new directors.
* Update Company Address
</TABLE>
8
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10q
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> APR-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 7,494
<SECURITIES> 2,000
<RECEIVABLES> 396
<ALLOWANCES> 0
<INVENTORY> 247
<CURRENT-ASSETS> 10,265
<PP&E> 1,078
<DEPRECIATION> 645
<TOTAL-ASSETS> 10,841
<CURRENT-LIABILITIES> 863
<BONDS> 0
0
0
<COMMON> 160
<OTHER-SE> 33,625
<TOTAL-LIABILITY-AND-EQUITY> 10,841
<SALES> 502
<TOTAL-REVENUES> 635
<CGS> 0
<TOTAL-COSTS> 2,060
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,425)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,425)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
