<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 13, 1996
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------
MATRITECH, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 04-2985132
(STATE OR OTHER (I.R.S. EMPLOYER
JURISDICTION IDENTIFICATION NUMBER)
OF INCORPORATION OR
ORGANIZATION)
----------------
330 NEVADA STREET
NEWTON, MA 02160
(617) 928-0820
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
STEPHEN D. CHUBB
CHAIRMAN AND CHIEF EXECUTIVE OFFICER
330 NEVADA STREET
NEWTON, MA 02160
(617) 928-0820
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES TO:
RUFUS C. KING, ESQ. TESTA, HURWITZ & MARK G. BORDEN, ESQ. HALE AND DORR 60
THIBEAULT, LLP HIGH STREET TOWER; 125 STATE STREET BOSTON, MA 02109 (617)
HIGH STREET BOSTON, MA 02110 (617) 526-6000
248-7000
----------------
Approximate date of commencement of proposed sale to the public. AS SOON AS
PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the
following box. [_]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or
interest re-investment plans, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_] 333-
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] 333-
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF
SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED (1) OFFERING PRICE PER SHARE (2) AGGREGATE OFFERING PRICE (2) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par
value 2,300,000 $13.00 $29,900,000 $10,310.35
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(1) Includes 300,000 shares subject to an over-allotment option granted by the
Company to the Underwriters.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(c) under the Securities Act of 1933, as amended, based upon
the average of the high and low prices of such Common Stock as reported by
the Nasdaq Stock Market on June 6, 1996.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 13, 1996
2,000,000 SHARES
[LOGO]
COMMON STOCK
Of the 2,000,000 shares of Common Stock, $.01 par value (the "Common Stock"),
offered hereby, 1,800,000 are being sold by Matritech, Inc. ("Matritech" or the
"Company") and 200,000 shares are being sold by a stockholder of the Company
(the "Selling Stockholder"). The Company will not receive any proceeds from the
sale of shares by the Selling Stockholder. See "Principal and Selling
Stockholders."
The Common Stock is currently traded on the Nasdaq Small Capitalization
Market under the symbol "NMPS." On June 12, 1996, the last reported sale price
of the Common Stock on the Nasdaq Small Capitalization Market was $13.375 per
share. See "Price Range of Common Stock." Application has been made for
quotation of the Common Stock on the Nasdaq National Market under the symbol
"NMPS."
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS" BEGINNING
ON PAGE 6 OF THIS PROSPECTUS FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS BEFORE PURCHASING THE SHARES OF COMMON
STOCK OFFERED HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Price
to Underwriting Proceeds to Proceeds to
Public Discount (1) Company (2) Selling Stockholder (2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $400,000.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to 300,000 additional shares of Common Stock solely to cover over-
allotments, if any. If the Underwriters exercise this option in full, the
Price to Public will total $ , the Underwriting Discount will total
$ and the Proceeds to Company will total $ . See
"Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to prior sale when, as and if delivered to and accepted by the
Underwriters, and subject to their right to reject orders in whole or in part.
It is expected that delivery of the certificates representing such shares will
be made against payment therefor at the offices of Montgomery Securities on or
about , 1996.
-----------
Montgomery Securities Genesis Merchant Group
Securities
, 1996
<PAGE>
[Shown above the caption is a picture of Matritech's NMP22 Test Kit and its
components, consisting of a box, cup, five small jars and a tray containing test
samples.]
Shown above is Matritech's NMP22 Test Kit, a urine-based assay for the
prognosis of recurrence of bladder cancer. Matritech began sales of the NMP22
Test Kit in certain countries in Europe in 1995 and is awaiting approval from
the United States Food and Drug Administration to begin sales in the United
States. There can be no assurance that such approval will be obtained. See
"Risk Factors--Risks Associated with Extensive Governmental Regulation."
NMP22(R) is a registered trademark and Matritech(TM) and PC-1(TM) are
trademarks of the Company. Other trademarks and trade names used in this
Prospectus are the property of their respective owners.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR THE
BOSTON STOCK EXCHANGE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT
ANY TIME.
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS (IF ANY) MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE
COMMON STOCK OF THE COMPANY ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH
RULE 10B-6A UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto included or incorporated
by reference in this Prospectus. Unless the context indicates otherwise, all
information in this Prospectus assumes no exercise of the Underwriters' over-
allotment option. See "Underwriting." Investors should carefully consider the
information set forth under the heading "Risk Factors."
THE COMPANY
Matritech develops, manufactures and markets innovative cancer diagnostic
products based on its proprietary nuclear matrix protein ("NMP") technology.
The nuclear matrix, a three dimensional protein framework within the nucleus of
cells, plays a fundamental role in determining cell type by physically
organizing the contents of the nucleus, including DNA. The Company has
demonstrated that there are differences in the types and amounts of NMPs found
in cancerous and normal tissue and believes the detection of such differences
in NMPs provides important diagnostic information about cellular abnormalities,
including cancer. Using its proprietary NMP technology and expertise, the
Company is developing a series of non-invasive or minimally invasive cancer
diagnostic tests for bladder, colorectal, prostate, cervical and breast cancer,
among others, which the Company believes will be more accurate and allow for
reduced treatment costs and a higher standard of patient care than currently
available tests.
NMP22 Bladder Cancer Test. The Company's first product based on its NMP
technology, the Matritech NMP22 Test Kit for bladder cancer, is currently
awaiting U.S. Food and Drug Administration ("FDA") approval to be marketed in
the United States as a prognostic indicator for the recurrence of bladder
cancer. In January 1996, the Company received notification from the FDA stating
that the NMP22 Test Kit was approvable subject to certain conditions relating
to the demographic composition of the subject population of Matritech's
clinical trial. In response, the Company submitted data from additional
subjects to the FDA in February 1996. Subject to FDA approval, the Company
expects to begin marketing the NMP22 Test Kit in the United States during 1996.
The NMP22 Test Kit is already commercially available in Europe, Asia (excluding
Japan) and several other countries outside the United States.
The Company believes the market opportunity for the NMP22 Test Kit is
significant. There are over 560,000 people in the United States alive today who
have been diagnosed with bladder cancer and there will be approximately 53,000
new cases diagnosed in 1996. In addition, the Company estimates that at least
approximately 70,000 new cases of bladder cancer are diagnosed in Europe and
Japan each year. More than 90% of patients diagnosed with bladder cancer are
treated with surgery and generally are monitored quarterly for recurrence with
cystoscopy and urine cytology. Cystoscopy is an invasive procedure in which a
fiber optic scope is inserted through the urethra to view the inside of the
bladder. The current reimbursement rates for cystoscopy range from
approximately $120 to approximately $590 depending upon the facility in which
the procedure is performed. The Company has retained worldwide manufacturing
rights for the NMP22 Test Kit as well as marketing rights in the United States.
The Company has entered into exclusive distribution agreements for the NMP22
Test Kit in Japan and China and has agreements in principle for additional
exclusive distribution arrangements in Germany and Italy.
Colorectal Cancer Test. The Company also is developing a blood-based test
utilizing its NMP technology for use in the management of colorectal cancer
patients. In the United States, there are nearly 1.3 million people alive today
who have been diagnosed with colorectal cancer and there will be approximately
133,000 new cases diagnosed in 1996. Furthermore, the Company estimates that at
least a combined 200,000 new cases of colorectal cancer are diagnosed in Europe
and Japan each year. Treatment for colorectal cancer generally involves
surgical removal of the malignant portion of the colon or rectum, followed by
biannual colonoscopic examination and quarterly testing of carcinoembryonic
antigen ("CEA") levels. The cost of a colonoscopy procedure is over
3
<PAGE>
$500. The Company estimates that worldwide sales of CEA tests exceed $100
million annually. Matritech recently completed a preliminary study involving
over 150 subjects which showed the clinical sensitivity of CEA in identifying
subjects with colon cancer was 42% compared to 67% clinical sensitivity for the
Company's NMP-based test. Based upon the higher sensitivity of the Company's
test demonstrated in the preliminary study, the Company plans to begin a
multicenter clinical trial involving an improved version of the test in the
second half of 1996. The Company has retained worldwide manufacturing rights
for its colorectal cancer assay as well as worldwide marketing rights outside
of Japan and Taiwan.
Prostate, Cervical and Breast Cancer Tests. The Company has also identified
NMPs specific to prostate, cervical and breast cancer and is currently
developing diagnostic tests for these cancers based on its proprietary NMP
technology. Matritech is collaborating with Bayer Corporation ("Bayer") on the
development of an automated diagnostic test for its cervical cancer assay. The
Company anticipates beginning preliminary clinical trials for its prostate and
cervical cancer diagnostic tests during the second half of 1997. The Company
plans to develop additional assays for lung, liver, pancreatic, stomach and
renal cancers.
Matritech was incorporated in Delaware in 1987. The Company's facilities are
located at 330 Nevada Street, Newton, Massachusetts 02160. The Company's
telephone number is (617) 928-0820.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company.......... 1,800,000 shares
Common Stock offered by the Selling
Stockholder................................. 200,000 shares
Common Stock to be outstanding after the
offering.................................... 17,778,009 shares (1)
Use of proceeds.............................. To accelerate the development and expand
the production, clinical testing and
marketing of diagnostic products and for
general corporate purposes. See "Use of
Proceeds."
Nasdaq National Market symbol (2)............ NMPS
</TABLE>
- --------
(1) Excludes an aggregate of (i) 488,831 shares of Common Stock issuable
pursuant to options outstanding on June 12, 1996 at a weighted-average
exercise price of $4.02 per share, (ii) 138,430 shares of Common Stock,
issuable upon exercise of the warrants outstanding on June 12, 1996 at a
weighted-average exercise price of $2.32 per share and (iii) 902,342 shares
reserved for future grants under the Company's stock plans. See
"Description of Capital Stock--Warrants."
(2) The Common Stock is currently traded on the Nasdaq Small Capitalization
Market. Application has been made for quotation of the Common Stock on the
Nasdaq National Market.
4
<PAGE>
SUMMARY FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Revenues:
Collaborative research and
development, license fees and
product sales................... $ 187 $ 1,314 $ 1,023 $ 74 $ 179
Interest and other income........ 81 92 217 53 153
------- ------- ------- ------- -------
Total revenues................. 268 1,406 1,240 127 332
Expenses:
Research and development......... 2,728 3,470 3,014 785 933
Selling, general and
administrative.................. 1,821 1,592 2,309 506 806
------- ------- ------- ------- -------
Total expenses................. 4,549 5,062 5,323 1,291 1,739
------- ------- ------- ------- -------
Net loss.......................... $(4,281) $(3,656) $(4,083) $(1,164) $(1,407)
======= ======= ======= ======= =======
Net loss per common share (1)..... $ (0.80) $ (0.46) $ (0.38) $ (0.12) $ (0.09)
======= ======= ======= ======= =======
Weighted average number of common
shares outstanding (1)........... 5,319 7,952 10,734 9,786 15,665
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1996
------------------------
ACTUAL AS ADJUSTED (2)
------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $10,976 $33,207
Working capital........................................ 10,693 32,924
Total assets........................................... 12,007 34,238
Accumulated deficit.................................... (22,382) (22,382)
Stockholders' equity................................... 11,243 33,474
</TABLE>
- --------
(1) See Note 1(h) of Notes to Financial Statements.
(2) Adjusted to reflect the sale by the Company of the 1,800,000 shares of
Common Stock offered hereby, at an assumed offering price per share equal
to $13.375 (the last reported sale price on June 12, 1996) and the
application of the estimated net proceeds thereof. See "Use of Proceeds."
5
<PAGE>
RISK FACTORS
An investment in the Common Stock offered hereby involves a high degree of
risk. In addition to the other information contained in this Prospectus,
prospective investors should carefully consider the following risk factors
before purchasing the Common Stock offered hereby. This Prospectus contains
forward-looking statements which involve risks and uncertainties. The
Company's actual results could differ materially from those anticipated in
these forward-looking statements as a result of certain factors, including
those set forth in the following risk factors and elsewhere in this
Prospectus.
EARLY STAGE OF PRODUCT DEVELOPMENT AND COMMERCIALIZATION
Matritech is at an early stage of product development and commercialization.
The Company's current products under development, other than the NMP22 Test
Kit, are not expected to be commercially available in the United States for at
least two years, if at all. The majority of the Company's products under
development will require significant additional research and development,
laboratory testing, clinical testing and regulatory approval prior to
commercialization. To achieve and maintain profitable operations, the Company,
alone or with others, must successfully develop, introduce and market its
products. In addition, the Company's NMP technology is novel and the role of
NMPs in determining cell type and cell function is not yet fully understood,
which may impede acceptance of the Company's products in the medical community
and by government health authorities, private health insurers and other third-
party payors. No assurance can be given that the Company's existing products
will achieve market acceptance or that its product development efforts will be
successfully completed, that required regulatory approvals will be obtained,
or that any future products, if and when introduced, will be successfully
commercialized, produced and marketed or achieve customer acceptance.
HISTORY OF OPERATING LOSSES AND ANTICIPATION OF FUTURE LOSSES
The Company has incurred operating losses since its inception in 1987. Such
losses have resulted principally from costs incurred in research and
development and from selling, general and administrative costs associated with
the Company's development. These costs have exceeded the Company's revenues,
which to date have been generated primarily from development agreements and
interest income. The Company expects to incur significant continuing operating
losses in the near-term as its research and development activities expand and
it continues product development and initiates clinical trials. The Company's
ability to achieve profitability depends in part on its ability to develop
commercially successful products, obtain regulatory approval for products,
enter into agreements for product development and distribution, and develop
the capacity to produce and market its products. There can be no assurance
that the Company will obtain required regulatory approvals, successfully
develop, commercialize, produce and market its products or achieve or maintain
profitability.
NEAR-TERM DEPENDENCE UPON NMP22
The Company anticipates that for the foreseeable future it will be
substantially dependent on the successful commercialization of the NMP22 Test
Kit. Although in January 1996, the Company received a letter from the U.S.
Food and Drug Administration (the "FDA") stating that the NMP22 Test Kit was
approvable with conditions, the Company has not yet received FDA approval to
market the NMP22 Test Kit in the United States and there can be no assurance
that the Company will receive such approval. If FDA approval is obtained, the
Company expects to generate substantially all of its product sales in the
near-term from the sale of NMP22 Test Kits. The Company would experience a
material adverse effect on its business, financial condition and results of
operations if the NMP22 Test Kit does not receive, or experiences a
significant delay in receiving, regulatory approval or if the NMP22 Test Kit
is not successfully commercialized. The remainder of the Company's products
are in the early stages of development and although the Company is currently
seeking to develop additional products, there can be no assurance that it will
be successful with such development. See "--Risks Associated with Extensive
Government Regulation."
RISKS ASSOCIATED WITH EXTENSIVE GOVERNMENT REGULATION
The medical devices to be marketed and manufactured by the Company are
subject to extensive regulation by the FDA, and, in some instances, by foreign
governments. Pursuant to the Federal Food, Drug, and Cosmetic
6
<PAGE>
Act, as amended, and the regulations promulgated thereunder (the "FDC Act"),
the FDA regulates the clinical testing, manufacture, labeling, distribution
and promotion of medical devices. Noncompliance with applicable requirements
including Good Manufacturing Practices ("GMP") can result in, among other
things, fines, injunctions, civil penalties, recall or seizure of products,
total or partial suspension of production, failure of the government to grant
premarket clearance or premarket approval for devices, withdrawal of marketing
approvals, and criminal prosecution. The FDA also has the authority to request
repair, replacement or refund of the cost of any device manufactured or
distributed by the Company.
In November 1994, the Company submitted a pre-market approval ("PMA")
application for its Matritech NMP22 Test Kit as a prognostic indicator for
bladder cancer (i.e., as a predictor of bladder cancer recurrence following
therapy, such as surgical excision of cancerous tissue). In January 1996, the
Company received a letter from the FDA stating that the NMP22 Test Kit was
approvable subject to certain conditions requiring the Company to submit
additional data to broaden the demographic makeup of the subject population on
whom the Matritech NMP22 Test Kit had been studied. In response to this
"approvable letter," the Company submitted data from additional subjects to
the FDA in February 1996. There can be no assurance that the additional
subject data submitted by the Company will satisfy the conditions set forth in
the FDA's approvable letter or that the FDA will not require the submission of
even more clinical trial data. There can be no assurance that data and
information submitted by the Company in the original PMA application or in
response to the FDA's approvable letter, will adequately demonstrate the
safety and effectiveness of the Matritech NMP22 Test Kit to obtain approval of
the PMA application from the FDA.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including recordkeeping requirements and reporting of adverse
experiences with the use of the device. Device manufacturers are required to
register their establishments and list their devices with the FDA, and are
subject to periodic inspections by the FDA and certain state agencies. The FDC
Act requires devices to be manufactured in accordance with GMP regulations
which impose certain procedural and documentation requirements upon the
Company with respect to manufacturing and quality assurance activities.
Labeling and promotional activities are subject to scrutiny by the FDA and,
in certain instances, by the Federal Trade Commission. If approved, the NMP22
Test Kit may only be promoted by the Company as a prognostic indicator. The
FDA actively enforces regulations prohibiting the promotion of devices for
unapproved uses and the promotion of devices for which premarket clearance or
approval has not been obtained. Consequently, the Company cannot promote the
NMP22 Test Kit for cancer screening or for any other unapproved use. Failure
to comply with these requirements can result in regulatory enforcement action
by the FDA that would adversely affect the Company's ability to conduct
testing necessary to obtain market clearance for these products and,
consequently, could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company and its products are also subject to a variety of state laws and
regulations in those states or localities where its products are or will be
marketed. Any applicable state or local regulations may hinder the Company's
ability to market its products in those states or localities. Manufacturers
are also subject to numerous federal, state and local laws relating to such
matters as safe working conditions, manufacturing practices, environmental
protection, fire hazard control, and disposal of hazardous or potentially
hazardous substances. There can be no assurance that the Company will not be
required to incur significant costs to comply with such laws and regulations
now or in the future or that such laws or regulations will not have a material
adverse effect upon the Company's ability to do business.
The development of any therapeutic products by the Company will be subject
to regulation by the FDA as either a new drug or biologic. Product development
and approval within these regulatory frameworks takes a number of years,
involves the expenditure of substantial resources and is uncertain. Many drug
and biologic products that initially appear promising ultimately do not reach
the market because they are not found to be safe or effective or cannot meet
other stringent FDA regulatory requirements. In addition, there can be no
assurance that the current regulatory frameworks for approval of new drugs and
biologics will not change or that additional
7
<PAGE>
regulations will not arise at any stage of the Company's product development
of such products that may affect approval, delay the submission or review of
an application or license or require additional expenditures by the Company.
See "Business--Government Regulation."
DEPENDENCE ON PARTNERS
A substantial portion of the Company's total revenue to date has been
derived from funded development and marketing agreements with certain
corporate partners. There can be no assurance that the Company's corporate
partners will not terminate their agreements for reasons beyond the Company's
control. These agreements generally provide the Company's partners with
rights, in most cases exclusive, to market the developed products in specified
territories. Revenues from sales of such products will depend to varying
degrees on the efforts and abilities of such partners to obtain regulatory
approvals and successfully market such products. The amount and timing of
resources devoted to promoting and selling the products in these instances
will be controlled by the partners rather than Matritech, and certain partners
may develop, acquire or market products competitive with those developed by
the Company. Each of the Company's current funded development and marketing
agreements may be terminated if the Company fails to meet certain milestones.
There is no assurance that the Company will meet such milestones and failure
to do so may result in termination of the applicable agreement, which could
have a material adverse effect on the Company. To date, the Company has been
dependent in part on its corporate partners for the funding of product
development and the Company expects that this partial dependence will
continue. Matritech may enter into additional funded development and marketing
agreements, but there can be no assurance that Matritech will enter into
additional agreements or that it could replace any agreements if they were to
be terminated.
In addition, the Company will rely in part on corporate partners (including
distributors) for international sales of its NMP22 Test Kit and future
products, if any. The ability of the Company to commercialize its products
internationally will depend to a significant extent on the marketing and sales
efforts of its corporate partners, over which the Company has minimal control.
There can be no assurance that such partners will devote resources to the
Company's products sufficient to achieve successful market penetration and
acceptance, that the Company will generate significant revenues from sales by
corporate partners, or that such revenues will be sufficient to offset the
Company's significant investment in research and development and other costs
associated with its products. Although the Company has the ability in certain
instances under its corporate partner agreements to terminate the corporate
partner's rights if certain performance standards are not met, the failure or
delay by a corporate partner in marketing the Company's products could
materially adversely affect the Company's business, financial condition and
results of operations and the Company may need to locate additional
distributors. In June 1996, the Company and its then exclusive distributor in
Europe terminated their distribution agreement for the NMP22 Test Kit. The
Company has recently reached agreements in principle with two new distributors
to be the exclusive distributors in Germany and Italy of Matritech-labeled
NMP22 Test Kits in those countries. The Company continues to seek additional
distributors in Europe. In addition, the Company submitted the results of the
preliminary trials of its colorectal cancer assay to a corporate partner in
Japan in accordance with the terms of the Company's agreement with that
partner. Based on its evaluation of the data, the partner did not elect to
proceed with the development and clinical testing of the Company's colorectal
cancer product in Japan within the required time period (including a 30-day
extension granted by the Company). Consequently, the Company has the option to
terminate that partner's rights with respect to that product. If the Company
should terminate such partner's rights, the Company may need to seek a
distributor for this product in Japan. See "Business--Strategic Alliances."
There can be no assurance that definitive agreements can be entered into with
prospective distributors with which the Company has agreements in principle or
that additional distribution relationships can be entered into on terms
favorable to the Company, if at all.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the Company's Common Stock has been, and may continue to
be, highly volatile. The stock market has from time to time experienced
extreme price and volume fluctuations, particularly in the biotechnology
sector, which have often been unrelated to the operating performance of
particular companies. In
8
<PAGE>
addition, factors such as announcements of technological innovations or new
products by the Company or its competitors or third parties, as well as market
conditions in the Company's industry, may have a significant impact on the
market price of the Company's Common Stock.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company relies on a combination of patent, trade secret and trademark
laws, nondisclosure and other contractual provisions and technical measures to
protect the proprietary rights in its current and planned products. There can
be no assurance that these protections will be adequate or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. Patent law relating to the
scope of claims in the biotechnology field is still evolving and, therefore,
the degree of future protection for the Company's proprietary rights is
uncertain. In addition, the laws of certain countries in which the Company's
products are or may be licensed or sold do not protect the Company's products
and intellectual property rights to the same extent as the laws of the United
States. Matritech believes that the use of the patents for NMP technology
licensed to the Company and the use of Matritech's trademarks and other
proprietary rights do not infringe upon the proprietary rights of third
parties. However, there can be no assurance that the Company will prevail in
any challenge of third-party intellectual property rights, that third parties
will not successfully assert infringement claims against the Company in the
future or that the Company will be able to acquire licenses to any such
proprietary rights of third parties on reasonable terms, if at all.
The Company's core NMP technology is licensed from Massachusetts Institute
of Technology ("MIT"). Under the current terms of the Company's license from
MIT, the Company's worldwide license is exclusive through 1999, which
exclusivity will be extended until the expiration of all patent rights in 2006
provided the Company obtains FDA approval for its first product based on the
licensed patents by the end of 1997. There can be no assurance that the
Company will obtain such approval. See "--Risks Associated with Extensive
Government Regulation." In addition, certain of the Company's other license
agreements have minimum payment and other performance requirements for the
Company to maintain its exclusive rights thereunder. If any of the Company's
licensors should grant additional licenses to the licensed technology after
the expiration or termination of the Company's exclusivity period, the Company
could encounter increased competition for its NMP-based products, which could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business--Patents, Licenses and Trade
Secrets."
UNCERTAINTY ASSOCIATED WITH PRELIMINARY STUDIES AND CLINICAL TRIALS
Before obtaining regulatory approvals for the commercial sale of any of its
products under development, the Company must undertake extensive and costly
preliminary studies and clinical trials to demonstrate that such products are
effective. The results from preliminary studies and early clinical trials are
not necessarily predictive of results that will be obtained in later stages of
testing or development, and there can be no assurance that the Company's
clinical trials will demonstrate the effectiveness of any products or will
result in products capable of being produced in commercial quantities at
reasonable cost or in a marketable form.
UNCERTAINTY OF HEALTH CARE REFORM MEASURES AND THIRD-PARTY REIMBURSEMENT
The Company's ability to successfully commercialize its planned products
will depend in part on the extent to which reimbursement for the cost of such
products will be available from government health administration authorities,
private health insurers and other third-party payors. In the case of private
insurers, the reimbursement of any medical device, either approved, for
investigational use only or for research use, is at the sole discretion of the
patient's individual carrier. Even if a procedure has been approved for
reimbursement, there can be no assurance that the insurance carrier will
continue to reimburse the procedure. Health care reform is an area of
continuing national attention and a priority of many governmental officials.
Certain reform proposals, if adopted, could impose limitations on the prices
the Company will be able to charge in the United States for its products or
the amount of reimbursement available for the Company's products from
governmental agencies or third-party payors. While the Company cannot predict
whether any such legislative or regulatory proposals will be adopted or the
effect such proposals may have on its business, the announcement or adoption
of such proposals could have a material adverse effect on the Company's
business, financial condition or results of operations.
9
<PAGE>
COMPETITION AND TECHNOLOGICAL CHANGE
Although Matritech is not aware of any other company using NMP technology to
develop diagnostic or therapeutic products, many other companies, both
domestic and foreign, are already marketing cancer diagnostic and therapeutic
products based on a number of technologies and are developing additional
products. Many of these companies have substantially greater capital resources
and larger research and development and marketing staffs and facilities and
have greater experience in conducting clinical trials and obtaining regulatory
approval than the Company. Furthermore, the field in which the Company
operates is subject to significant and rapid technological change. In
particular, even if the Company's products can be successfully introduced,
there can be no assurance that the Company's technologies will not be replaced
by new diagnostic or therapeutic technologies or that products of the Company
will not be rendered obsolete or non-competitive as a result thereof. See
"Business--Competition."
UNCERTAINTY OF FUTURE PRODUCT EFFICACY OR COMMERCIAL VIABILITY
Many of Matritech's diagnostic products are still under development. Such
products will require significant additional development and testing. Any
therapeutic products, in particular, generally require several years of
development and clinical testing prior to commercialization. The development
of the Company's products involves the use of advanced technical methods that
require both a high degree of skill and judgment in their application.
Unexpected technical difficulties may arise in the course of the development
process that the Company may be able to overcome only with the expenditure of
additional funds and time, if at all. No assurance can be given that
additional diagnostic or any therapeutic products will be successfully
developed. Even if they are shown to be effective, there can be no assurance
that any of the Company's diagnostic or therapeutic products will achieve
commercial acceptance.
ADDITIONAL FINANCING REQUIREMENTS
Matritech has expended, and will continue to expend in the future,
substantial funds to complete the research and development of its products,
and may need additional financing to conduct clinical trials and to
manufacture and market its products as currently contemplated. There can be no
assurance that such additional funding will be available on terms acceptable
to the Company, if at all. The Company may seek additional funding through
public or private sales of its securities, including equity securities. If
adequate funds are not available, the Company may be required to seek to
obtain funds through arrangements with collaborative partners or others that
may require the Company to relinquish manufacturing or marketing rights to
certain of its technologies, product candidates or products which the Company
would otherwise pursue on its own. The Company has no established bank
financing arrangements. There can be no assurance that the Company will be
able to arrange bank or other financing on terms acceptable to it or to enter
into funded development or other agreements to obtain such additional funds.
LIMITED MARKETING AND SALES CAPABILITY
The Company intends to market its cancer diagnostic test kits in the United
States with its own sales force. The Company has limited internal marketing
and sales resources and personnel. In order to successfully market its current
and future products in the United States and other territories in which the
Company does not, or does not intend to, use third-party distributors, the
Company will need to develop a larger marketing and sales force with
appropriate technical expertise and distribution capability. There can be no
assurance that the Company will be able to establish such marketing and sales
capabilities or that the Company will be successful in gaining market
acceptance for any of its products.
LIMITED MANUFACTURING EXPERIENCE
The Company has been manufacturing and assembling its NMP22 Test Kit for
limited commercial sales since 1995, but has yet to manufacture the large
product volumes necessary for the Company to achieve profitability. The
Company intends to expand its manufacturing capabilities, and if the Company
encounters difficulties in scaling up production of new products, including
problems involving production yields, quality control and assurance, component
supply and shortages of qualified personnel, such problems could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be
10
<PAGE>
no assurance that reliable, high-volume manufacturing can be achieved at a
commercially reasonable cost. In addition, the Company is subject to extensive
government regulation of its manufacturing operations. See "--Risks Associated
with Extensive Government Regulation" and "Business--Manufacturing and
Facilities."
RELIANCE ON SOLE OR LIMITED SOURCES OF SUPPLY
The Company currently relies on sole suppliers for certain key components
for its NMP22 Test Kit. In the event that the components from such suppliers
should become unavailable for any reason, the Company would seek alternative
sources of supply, which the Company would have to show to be equivalent in
order to maintain the FDA validation of its manufacturing process. Although
the Company attempts to maintain an adequate level of inventory to provide for
these and other contingencies, should its manufacturing process be disrupted
as a result of a shortage of key components or a revalidation of new
components, there can be no assurance that the Company would be able to meet
its commitments to customers. The failure of the Company to meet its
commitments could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Manufacturing
and Facilities."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends, in large part, upon its ability to attract
and retain highly qualified scientific and management personnel. The Company
has no employment contracts with any of its key personnel. The loss of key
personnel or the failure to recruit necessary additional personnel might
impede the achievement of developmental objectives. The Company faces
competition for such personnel from other companies, research and academic
institutions, government entities and other organizations. There can be no
assurance that the Company will be successful in hiring or retaining qualified
scientific or management personnel on acceptable terms, given the competition
among numerous pharmaceutical and biotechnology companies, government entities
and research and academic institutions for such personnel.
POTENTIAL PRODUCT LIABILITY
The testing, marketing and sale of human health care products entail an
inherent exposure to product liability, and there can be no assurance that
product liability claims will not be successfully asserted against the
Company. The Company currently has insurance covering its products. There can
be no assurance that adequate insurance coverage will continue to be available
in the future at acceptable costs, if at all, or that a product liability
claim will not be asserted against the Company in excess of the insurance
coverage the Company has purchased. Significant product liability claims could
adversely affect the Company.
RISKS OF HAZARDOUS MATERIAL CONTAMINATION
The Company's research and development activities involve the controlled use
of hazardous materials, including radioactive compounds. Although the Company
believes that its safety procedures for handling and disposing of such
materials comply with the standards prescribed by federal, state and local
laws and regulations, the risk of accidental contamination or injury from
these materials cannot be completely eliminated. In the event of such an
accident, the Company could be held liable for damages that result, and any
such liability could have an adverse effect on the Company's business,
financial condition and results of operations.
DILUTION
Upon completion of this offering, purchasers of Common Stock in this
offering will incur immediate dilution of $11.49 in the per share net tangible
book value of their Common Stock from the assumed public offering price. See
"Dilution."
11
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the 1,800,000 shares of Common Stock
offered by the Company at an assumed public offering price of $13.375 per
share (the last reported sale price on June 12, 1996) hereby are estimated to
be approximately $22,230,500 ($26,002,250 if the Underwriters' overallotment
option is exercised in full) after deducting the estimated underwriting
discount and offering expenses payable by the Company.
The Company currently anticipates that the net proceeds of this offering
will be used to accelerate the development and expand the production, clinical
testing and marketing of the diagnostic products described in this Prospectus
and for general corporate purposes. The amount and timing of these
expenditures could vary significantly depending on the progress of the
Company's commercialization efforts, research and development programs,
regulatory approvals, technological advances, determinations as to commercial
potential, the terms of any collaborative arrangements entered into by the
Company and the status of competitive products. Pending such uses, the Company
intends to invest the net proceeds from the offering in short-term, interest-
bearing, investment-grade instruments.
The Company believes that its existing capital resources, the net proceeds
of this offering and interest thereon will enable it to maintain its current
and planned operations at least through 1998. See "Risk Factors--Additional
Financing Requirements," "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources" and
"Business."
The Company will not receive any proceeds from the sale of Common Stock by
the Selling Stockholder. See "Principal and Selling Stockholders."
12
<PAGE>
PRICE RANGE OF COMMON STOCK
The Company's Common Stock is currently traded on the Nasdaq Small
Capitalization Market under the symbol "NMPS" and on the Boston Stock Exchange
under the Symbol "MPS." Application has been made for quotation of the Common
Stock on the Nasdaq National Market. The following table sets forth the range
of quarterly high and low bid information for the Common Stock as reported by
Nasdaq Small Capitalization Market for the periods indicated. Such bid
information reflects interdealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions:
<TABLE>
<CAPTION>
HIGH LOW
--------- --------
<S> <C> <C>
FISCAL 1994
First Quarter............................................... $ 3 5/16 $ 2 9/16
Second Quarter.............................................. 2 15/16 2 3/8
Third Quarter............................................... 2 1/2 1 11/16
Fourth Quarter.............................................. 2 1/2 1 1/4
FISCAL 1995
First Quarter............................................... $ 2 1/8 $ 1 1/2
Second Quarter.............................................. 2 5/8 1 7/8
Third Quarter............................................... 3 7/8 2 3/8
Fourth Quarter.............................................. 4 5/16 2 7/8
FISCAL 1996
First Quarter............................................... $ 11 7/8 $ 3 9/16
Second Quarter (through June 12, 1996)...................... 17 7/8 9 1/2
</TABLE>
As of June 12, 1996, there were approximately 255 record holders of the
Company's Common Stock, and the Company believes that the number of additional
beneficial holders exceeds 3,500.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock. The Company
currently intends to retain any earnings to finance future growth and
therefore does not anticipate paying any cash dividends in the foreseeable
future.
13
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1996 and as adjusted to give effect to the sale by the Company of the
1,800,000 shares of Common Stock offered hereby, at an assumed public offering
price of $13.375 per share (the last reported price on June 12, 1996) and the
receipt of the estimated net proceeds therefrom. See "Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1996
------------------
AS
ACTUAL ADJUSTED
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Preferred Stock, $1.00 par value, 4,000,000 shares
authorized; no shares issued and outstanding, actual and
as adjusted ............................................. $ -- $ --
Common Stock, $.01 par value, 40,000,000 shares
authorized; 15,921,346 shares issued and outstanding,
actual; 17,721,346 shares issued and outstanding, as
adjusted (1)............................................. 159 177
Additional paid-in capital................................. 33,466 55,679
Accumulated deficit........................................ (22,382) (22,382)
-------- --------
Total stockholders' equity................................ 11,243 33,474
-------- --------
Total capitalization..................................... $ 11,243 $ 33,474
======== ========
</TABLE>
- --------
(1) Excludes an aggregate of (i) 56,663 shares issued pursuant to the exercise
of options and warrants from April 1, 1996 through June 12, 1996, (ii)
488,831 shares of Common Stock issuable pursuant to options outstanding on
June 12, 1996 at a weighted-average exercise price of $4.02 per share,
(iii) 138,430 shares of Common Stock, issuable upon exercise of the
warrants outstanding on June 12, 1996 at a weighted-average exercise price
of $2.32 per share and (iv) 902,342 shares reserved for future grants
under the Company's stock plans. See "Description of Capital Stock--
Warrants."
14
<PAGE>
DILUTION
The net tangible book value of the Company's Common Stock at March 31, 1996
was $11,195,650 or $0.70 per share. Net tangible book value per common share
represents the Company's total tangible assets less its total liabilities,
divided by the number of shares of Common Stock outstanding. After giving
effect to the sale of the shares of Common Stock offered hereby at an assumed
public offering price of $13.375 per share (the reported last sale price on
June 12, 1996), after deducting the estimated underwriting discounts and
offering expenses payable by the Company, the net tangible book value at March
31, 1996 would have been $33,426,150 or $1.89 per share. This represents an
immediate increase in net tangible book value of $1.19 per share to existing
stockholders and an immediate dilution in net tangible book value of $11.49
per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed public offering price per share (1).................. $13.38
Net tangible book value per share of Common Stock at March
31, 1996.................................................... $ 0.70
Increase in net tangible book value per share attributable
to new investors............................................ $ 1.19
------
Net tangible book value per share after the offering......... $ 1.89
------
Dilution per share to new investors.......................... $11.49
======
</TABLE>
- --------
(1) Before deduction of the estimated underwriting discounts and offering
expenses to be paid by the Company.
The foregoing table excludes an aggregate of (i) 56,663 shares issued
pursuant to the exercise of options and warrants from April 1, 1996 through
June 12, 1996, (ii) 488,831 shares of Common Stock issuable pursuant to
options outstanding on June 12, 1996 at a weighted-average exercise price of
$4.02 per share, (iii) 138,430 shares of Common Stock, issuable upon exercise
of the warrants outstanding on June 12, 1996 at a weighted-average exercise
price of $2.32 per share and (iv) 902,342 shares reserved for future grants
under the Company's stock plans. See "Description of Capital Stock--Warrants."
15
<PAGE>
SELECTED FINANCIAL DATA
The following table sets forth selected financial data of the Company. The
selected financial data as of December 31, 1994 and 1995 and for the three
years in the period ended December 31, 1995 are derived from the Company's
financial statements, which have been audited by Arthur Andersen LLP,
independent public accountants and together with their report thereon are
included elsewhere in this Prospectus. The selected financial data as of
December 31, 1991, 1992 and 1993 and for the two years in the period ended
December 31, 1992 are derived from the Company's financial statements which
have been audited by Arthur Andersen LLP, and together with their report
thereon, are not included in this Prospectus. The selected financial data as
of March 31, 1996 and the three months ended March 31, 1995 and 1996 are
derived from the Company's unaudited financial statements included elsewhere
in this Prospectus. In the opinion of management, the unaudited financial
statements of the Company have been prepared on the same basis as the audited
financial statements and include all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial
position and the results of operations for these periods. Results for the
three months ended March 31, 1996 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1996. The
selected financial data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements and notes thereto included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS
DATA:
Revenues:
Collaborative research
and development,
license fees and
product sales......... $ 1,152 $ 91 $ 187 $ 1,314 $ 1,023 $ 74 $ 179
Interest and other
income................ 58 73 81 92 217 53 153
------- ------- ------- ------- ------- ------- -------
Total revenues.......... 1,210 164 268 1,406 1,240 127 332
Expenses:
Research and
development........... 1,776 2,177 2,728 3,470 3,014 785 933
Selling, general and
administrative........ 862 1,021 1,821 1,592 2,309 506 806
------- ------- ------- ------- ------- ------- -------
Total expenses.......... 2,638 3,198 4,549 5,062 5,323 1,291 1,739
------- ------- ------- ------- ------- ------- -------
Net loss................ $(1,428) $(3,034) $(4,281) $(3,656) $(4,083) $(1,164) $(1,407)
======= ======= ======= ======= ======= ======= =======
Net loss per common
share (1).............. $ (0.51) $ (0.86) $ (0.80) $ (0.46) $ (0.38) $ (0.12) $ (0.09)
======= ======= ======= ======= ======= ======= =======
Weighted average number
of
common shares
outstanding (1)........ 2,808 3,545 5,319 7,952 10,734 9,786 15,665
</TABLE>
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1996
----------------------------------------- ---------
1991 1992 1993 1994 1995
------ ------ ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents
and marketable
securities ............. $ 460 $3,512 $ 2,656 $ 3,974 $11,009 $10,976
Working capital.......... 311 3,405 2,410 3,419 10,839 10,693
Total assets............. 809 4,076 3,275 4,582 11,959 12,007
Redeemable convertible
preferred stock (2)..... 6,469 -- -- -- -- --
Accumulated deficit...... (5,922) (8,957) (13,237) (16,893) (20,976) (22,382)
Stockholders' equity
(deficit)............... (5,840) 3,784 2,856 3,878 11,351 11,243
</TABLE>
- --------
(1) See Note 1(h) of Notes to Financial Statements.
(2) Converted into Common Stock in connection with the Company's initial
public offering in July 1992.
16
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
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 for at least the next two years. The Company was
considered a development-stage company until the fourth quarter of 1995. For
the period from inception to March 31, 1996, the Company incurred a cumulative
net loss of approximately $22.4 million.
In 1995, the Company began to sell its NMP22 Test Kits in certain countries
in Europe through a distributor. See "Business--Matritech's Products and
Products Under Development--The Matritech NMP22 Test Kit for Bladder Cancer."
The Company is currently awaiting FDA approval to begin selling the NMP22 Test
Kit in the United States. See "Risk Factors--Risks Associated with Extensive
Government Regulation." If approved by the FDA, the Company will begin to sell
and distribute its NMP22 Test Kits throughout the United States. The proceeds
from this public offering will allow the Company to accelerate the schedule of
research and development and clinical trials of subsequent products. As a
result, the Company expects that its research and development expenses will
increase.
RESULTS OF OPERATIONS
Three Months Ended March 31, 1996 Compared with Three Months Ended March 31,
1995
Collaborative research and development, license fees and product sales
increased to $179,000 for the quarter ended March 31, 1996 from $74,000 for
the quarter ended March 31, 1995. Revenue generated from collaborative
research and development and license fees in the quarter ended March 31, 1996
consisted of $47,000 in Small Business Innovation Research ("SBIR") funding
for the Company's drug screening assay project as compared to $34,000 in SBIR
funding for the Company's prostate cancer project in the first quarter of
1995. Revenue from product sales increased 230% to $132,000 for the quarter
ended March 31, 1996 as compared to $40,000 in the first quarter of 1995. This
increase was primarily due to expanded sales of the Company's NMP22 Test Kit
for bladder cancer and certain research products. Product sales in Europe for
the quarter ended March 31, 1996 were minimal due to a shift in the business
focus of the Company's former exclusive distributor in Europe. In June 1996,
the Company and its then exclusive distributor in Europe terminated their
distribution agreement for the NMP22 Test Kit. The Company has recently
reached agreements in principle with two new distributors to be the exclusive
distributors in Germany and Italy of Matritech-labeled NMP22 Test Kits in
those countries. The Company will continue to seek additional distributors in
Europe. See "Business--Matritech's Products and Products Under Development--
The Matritech NMP22 Test Kit for Bladder Cancer."
Interest and other income was $153,000 for the quarter ended March 31, 1996
and $53,000 for the quarter ended March 31, 1995. The increase of 189%
resulted from significantly higher cash balances available for investment
during the first quarter of 1996 as compared to 1995 resulting from financings
during the fourth quarter of 1995.
Research and development expenses increased 19% to $933,000 for the quarter
ended March 31, 1996 from $785,000 for the quarter ended March 31, 1995. The
increase was primarily related to the scale-up of product manufacturing for
the Company's NMP22 Test Kit for bladder cancer, for which the Company is
currently awaiting approval by the FDA.
Selling, general and administrative expenses increased 59% to $806,000 for
the quarter ended March 31, 1996 from $506,000 for the quarter ended March 31,
1995. Approximately half of the increase resulted primarily from increased
staffing in the sales and marketing department and the marketing programs
established to promote the Company's products worldwide. The balance of the
increase primarily related to increased salaries and professional fees and to
a lesser extent expenses incurred in the first quarter of 1996 in connection
with the Company's move from Cambridge to Newton, Massachusetts.
The Company incurred a net loss of $1,407,000 for the quarter ended March
31, 1996, as compared to a net loss of $1,164,000 for the quarter ended March
31, 1995. The increased loss was primarily the result of increased expenses in
product manufacturing, sales and marketing for the Company's NMP22 Test Kit
for bladder cancer.
17
<PAGE>
Year Ended December 31, 1995 Compared with Year Ended December 31, 1994
Collaborative research and development revenue, license fees and product
sales decreased to $1,023,000 for the year ended December 31, 1995 from
$1,314,000 for the year ended December 31, 1994. Revenue generated from
collaborative research and development and license fees in the year ended
December 31, 1995 consisted of $280,000 in license fees from a marketing
agreement, which was terminated in June 1996, with Boehringer Ingelheim
International GmbH ("BII"), $210,000 from a funded development agreement with
Bayer Corporation, and $190,000 in SBIR grants for the Company's prostate,
colon and drug screening assay projects. Collaborative research and
development revenue and license fees in the year ended December 31, 1994
consisted of $720,000 in license fees from a marketing agreement with BII,
$325,000 in license fees from a marketing agreement with Konica Corporation
("Konica"), $100,000 in milestone revenues from Hybritech Incorporated
("Hybritech") relating to a funded development and marketing agreement, which
has been terminated, and $68,000 in SBIR funding for the Company's prostate
cancer research project. Revenue from product sales increased 240% to $343,000
for the year ended December 31, 1995 as compared to $101,000 in 1994. This
increase was primarily due to expanded sales of the Company's NMP22 Test Kit
in Europe and Japan. Product sales in Europe during 1995 were minimal due to
product introduction in the second quarter and a shift in the business focus
of BII, the Company's former exclusive distributor in Europe. See "Business--
Matritech's Products and Products Under Development--The Matritech NMP22 Test
Kit for Bladder Cancer."
Interest and other income was $217,000 for the year ended December 31, 1995
and $92,000 for the year ended December 31, 1994, an increase of 136%
resulting from a combination of higher interest rates and significantly higher
average cash balances available for investment throughout 1995 as compared to
1994 resulting from financings during 1995.
Research and development expenses decreased 13% to $3,014,000 for the year
ended December 31, 1995 from $3,470,000 for the year ended December 31, 1994.
The decrease was due to reductions in both product development expenses and
clinical trial costs associated with the Company's bladder cancer diagnostic
product which was submitted to the FDA in November 1994.
Selling, general and administrative expenses increased 45% to $2,309,000 for
the year ended December 31, 1995 from $1,592,000 for the year ended December
31, 1994. The increase primarily related to increased professional fees for
the Company's patent protection applications and consulting fees as well as
the establishment in February 1995 of an internal sales and marketing function
and the expenses related to the launch of the Company's NMP22 Test Kit in
certain countries in Europe in 1995 and the anticipated launch in the United
States in 1996. The balance of the increase was attributable to expenses
incurred for the relocation of the Company to larger facilities in Newton,
Massachusetts during the latter part of 1995.
The Company incurred a net loss of $4,083,000 for the year ended December
31, 1995, as compared to a net loss of $3,656,000 for the year ended December
31, 1994. The increased loss for the year ended December 31, 1995 was
primarily a result of decreased revenues from license fees and increased
selling, general and administrative expenses which were partially offset by a
reduction in research and development expenses.
Year Ended December 31, 1994 Compared with Year Ended December 31, 1993
Collaborative research and development revenue, license fees and product
sales increased to $1,314,000 for the year ended December 31, 1994 from
$187,000 for the year ended December 31, 1993. Revenue generated from
collaborative research and development and license fees in the year ended
December 31, 1994 consisted of $720,000 in license fees from a marketing
agreement with BII, $325,000 in license fees from a marketing agreement with
Konica, $100,000 in milestone revenues from Hybritech relating to a funded
development and marketing agreement and $68,000 in SBIR funding for the
Company's prostate cancer research project. Matritech's revenue from
collaborative research and development for the year ended December 31, 1993
18
<PAGE>
consisted of $150,000 in milestone payments from Hybritech related to the same
funded development and marketing agreement. Revenue from product sales
increased 173% to $101,000 for the year ended December 31, 1994 as compared to
$37,000 in 1993. This increase was primarily due to sales of the Company's
NMP22 Test Kit in Japan to Konica.
Interest and other income was $92,000 for the year ended December 31, 1994
and $81,000 for the year ended December 31, 1993, an increase of 14% resulting
from a combination of higher interest rates and slightly higher average cash
balances available for investment throughout 1994 as compared to 1993.
Research and development expenses increased 27% to $3,470,000 for the year
ended December 31, 1994 from $2,728,000 for the year ended December 31, 1993.
Approximately 44% of the increase related to the transfer of personnel and
related expenses to research and development to support product manufacturing.
Approximately 35% of the increase was due to clinical trials for the Company's
bladder cancer diagnostic product. The balance of the increase was primarily
due to increased personnel costs, increased purchases of reagents and
laboratory supplies and the increased rent and utilities expense resulting
from the Company's expansion into larger facilities.
Selling, general and administrative expenses decreased 13% to $1,592,000 for
the year ended December 31, 1994 from $1,821,000 for the year ended December
31, 1993. In 1993, the Company expensed $59,000 of cost associated with an
unsuccessful private placement. Excluding this item, general and
administrative expenses decreased 10% which was primarily due to a transfer of
personnel to research and development to support product manufacturing and
decreased staffing in the marketing department in 1994.
The Company incurred a net loss of $3,656,000 for the year ended December
31, 1994, as compared to a net loss of $4,281,000 for the year ended December
31, 1993. The decreased loss for the year ended December 31, 1994 was
primarily a result of increased revenues from license fees, product sales, and
SBIR funding. Increased expenses in research and development were partially
offset by decreased expenses in operations and marketing.
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. During the quarter ended March 31, 1996,
the Company received net proceeds of approximately $1,240,000 from the
exercise of Common Stock warrants. 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. In the year ended December 31, 1995, Matritech
received $60,000 in milestone payments under this agreement. At March 31,
1996, the Company had cash and cash equivalents of $10,976,000 and working
capital of $10,693,000.
The Company's operating activities used cash of approximately $1,260,000,
$4,188,000, $3,231,000 and $4,034,000 for the three months ended March 31,
1996 and the years ended December 31, 1995, 1994 and 1993, respectively,
primarily to fund the Company's operating loss.
The Company's investing activities used cash of approximately $67,000,
$147,000 and $99,000 in the three months ended March 31, 1996 and the years
ended December 31, 1995 and 1994, respectively, primarily for purchases of
equipment, leasehold improvements and certain intangible assets. The Company's
investing activities provided cash of approximately $770,000 in the year ended
December 31, 1993 from the sale of marketable securities partially offset by
the purchases of equipment and leasehold improvements and certain intangible
assets.
19
<PAGE>
Financing activities provided cash of approximately $1,294,000, $11,371,000,
$4,648,000, and $3,397,000 in the three months ended March 31, 1996 and the
years ended December 31, 1995, 1994 and 1993, respectively, primarily from the
sale of equity securities and the exercise of stock options and warrants, net
of payments of capital lease obligations.
Capital expenditures totaled approximately $67,000 and $92,000 during the
three months ended March 31, 1996 and the year ended December 31, 1995,
respectively, which consisted primarily of computer systems, laboratory
equipment and leasehold improvements to the Company's facilities in Newton,
Massachusetts. The Company currently estimates that it will acquire
approximately $270,000 of capital equipment during the remainder of the year
ending 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,
interest thereon, and the proceeds from this offering will satisfy its capital
needs at least through 1998. The survival of the Company in the long term,
however, is dependent on its ability to generate revenue from sales of its
products. 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 clinical studies to commercialize
additional products based on its NMP technology. The Company expects that such
costs will increase 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, 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 funding 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.
20
<PAGE>
BUSINESS
OVERVIEW
Matritech develops, manufactures and markets innovative cancer diagnostic
products based on its proprietary nuclear matrix protein ("NMP") technology.
The nuclear matrix, a three dimensional protein framework within the nucleus
of cells, plays a fundamental role in determining cell type by physically
organizing the contents of the nucleus, including DNA. The Company has
demonstrated that there are differences in the types and amounts of NMPs found
in cancerous and normal tissue and believes the detection of such differences
in NMPs provides important diagnostic information about cellular
abnormalities, including cancer. Using its proprietary NMP technology and
expertise, the Company is developing a series of non-invasive or minimally
invasive cancer diagnostic tests for bladder, colorectal, prostate, cervical
and breast cancer, among others, which the Company believes will be more
accurate and allow for reduced treatment costs and a higher standard of
patient care than currently available tests.
NMP22 Bladder Cancer Test. The Company's first product based on its NMP
technology, the Matritech NMP22 Test Kit for bladder cancer, is currently
awaiting U.S. Food and Drug Administration ("FDA") approval to be marketed in
the United States as a prognostic indicator for the recurrence of bladder
cancer. In January 1996, the Company received notification from the FDA
stating that the NMP22 Test Kit was approvable subject to certain conditions
relating to the demographic composition of the subject population of
Matritech's clinical trial. In response, the Company submitted data from
additional subjects to the FDA in February 1996. Subject to FDA approval, the
Company expects to begin marketing the NMP22 Test Kit in the United States
during 1996. The NMP22 Test Kit is already commercially available in Europe,
Asia (excluding Japan) and several other countries outside the United States.
The Company believes the market opportunity for the NMP22 Test Kit is
significant. There are over 560,000 people in the United States alive today
who have been diagnosed with bladder cancer and there will be approximately
53,000 new cases diagnosed in 1996. In addition, the Company estimates that at
least approximately 70,000 new cases of bladder cancer are diagnosed in Europe
and Japan each year. More than 90% of patients diagnosed with bladder cancer
are treated with surgery and generally are monitored quarterly for recurrence
with cystoscopy. The current reimbursement rates for cystoscopy range from
approximately $120 to approximately $590 depending upon the facility in which
the procedure is performed. The Company has retained worldwide manufacturing
rights for the NMP22 Test Kit as well as marketing rights in the United
States. The Company has entered into exclusive distribution agreements for the
NMP22 Test Kit in Japan and China and has agreements in principle for
additional exclusive distribution arrangements in Germany and Italy.
Colorectal Cancer Test. The Company is developing a blood-based test
utilizing its NMP technology for the use in the management of colorectal
cancer patients. In the United States, there are nearly 1.3 million people
alive today who have been diagnosed with colorectal cancer and there will be
approximately 133,000 new cases diagnosed in 1996. Furthermore, the Company
estimates that at least a combined 200,000 new cases of colorectal cancer are
diagnosed in Europe and Japan each year. Treatment for colorectal cancer
generally involves surgical removal of the malignant portion of the colon or
rectum, followed by biannual colonoscopic examination and quarterly testing of
carcinoembryonic antigen ("CEA") levels. The cost of a colonoscopy procedure
is over $500. The Company estimates that worldwide sales of CEA tests exceed
$100 million annually. Matritech recently completed a preliminary study
involving over 150 subjects which showed the clinical sensitivity of CEA in
identifying subjects with colon cancer was 42% compared to 67% clinical
sensitivity for the Company's NMP-based test. Based upon the higher
sensitivity of the Company's test demonstrated in the preliminary study, the
Company plans to begin a multicenter clinical trial involving an improved
version of the test in the second half of 1996. The Company has retained
worldwide manufacturing rights for its colorectal cancer assay as well as
worldwide marketing rights outside of Japan and Taiwan.
Prostate, Cervical and Breast Cancer Tests. The Company has also identified
NMPs specific to prostate, cervical and breast cancer and is currently
developing diagnostic tests based on its proprietary NMP technology
21
<PAGE>
for these cancers. Matritech is collaborating with Bayer Corporation ("Bayer")
on the development of an automated diagnostic test for cervical cancer. The
Company anticipates beginning preliminary clinical trials for its prostate and
cervical cancer diagnostic tests during the second half of 1997. The Company
plans to develop additional assays for lung, liver, pancreatic, stomach and
renal cancers.
CANCER DIAGNOSTICS MARKET
Over eight million people in the United States have been diagnosed with
cancer and more than 1.2 million new cases are diagnosed annually. Among the
most common cancers diagnosed each year (excluding skin cancers) are prostate,
lung, breast, colorectal and bladder cancers. Cancer is a leading cause of
death, accounting for one in four deaths in the United States. Current cancer
treatments typically include surgery, radiation, chemotherapy or
immunotherapy, or some combination thereof, and on-going patient monitoring
for remission or recurrence of the disease. It is estimated that in the United
States $35 billion is spent on diagnosing and treating cancer. Given the
increasing costs associated with treating the disease as it progresses,
accurate diagnostic tools for disease prognosis and monitoring are essential
to cost-effective disease management.
The cancer diagnostics market is comprised of several overlapping
categories, each corresponding to a stage in the identification and management
of the disease. The categories are screening, diagnosing, monitoring and
evaluating prognosis. Screening tests and procedures, such as mammograms and
Pap smears, are performed regularly on individuals who may have no evidence of
ill health because the tests are effective in revealing hidden, asymptomatic
disease. Screening tests do not yield a final diagnosis. An actual diagnosis
of cancer is usually made after microscopic examination of a tissue biopsy.
Following diagnosis, additional tests can be used to monitor the course of the
disease and the patient's response to treatment. These monitoring tests may be
repeated at regular intervals, often every three months, and may be continued
for the life of an individual in order to detect the recurrence of cancer. In
addition, diagnostic tests are also used to evaluate a patient's prognosis and
to select appropriate therapy. Patients identified as having a high risk of
recurrence will be monitored more closely and may receive more aggressive
treatment. Generally, cancer diagnostic assays are not intended for screening
or for diagnosis, but are intended to monitor patients with known disease or
to make a prognosis related to the recurrence of cancer in previously treated
patients. For example, prostate specific antigen ("PSA") was originally
approved by the FDA in 1986 for monitoring prostate cancer and was not
approved for screening asymptomatic individuals until 1995.
Ideally, a cancer diagnostic assay for use in a clinical laboratory should
be both sensitive and specific. Clinical sensitivity refers to the percentage
of cases in which the assay correctly identifies the presence of disease.
Clinical specificity refers to the percentage of cases in which the assay
correctly identifies the absence of disease. Clinical sensitivity and
specificity percentages reported from studies and trials of cancer diagnostic
products may not be directly comparable, as results may be affected by the
number of subjects studied, variability in the stages of disease present in
the subject population and the demographic composition of the subject
population, among other factors.
Effective in vitro diagnostic assays can reduce the need for more invasive
or expensive procedures for diagnosing cancer, such as surgery, biopsy, bone
scans and in vivo imaging. There are only a limited number of FDA-approved in
vitro cancer diagnostic tests currently available and the relatively low
clinical sensitivity and specificity of these tests have limited their
clinical utility. The Company believes that these tests suffer from inherent
inaccuracies because they detect substances that are only indirectly
correlated with the underlying cancer cells. As a consequence of low clinical
sensitivity, these tests yield false negatives and many patients with cancer
are not diagnosed early enough to receive effective treatment, resulting in
additional costs and morbidity. Conversely, low clinical specificity yields
false positives resulting in unnecessary, expensive and painful treatment of
patients without malignant disease.
NMP TECHNOLOGY
The Company believes that its NMP technology will allow it to develop cost-
effective in vitro assays that are more accurate than those currently
available. The nuclear matrix, a three-dimensional protein framework
22
<PAGE>
within the nucleus of cells, helps organize active genes ("DNA") in the
nucleus. In this way, the nuclear matrix plays a fundamental role in
determining cell type and cell function. Although the specific mechanisms of
action are not yet fully understood, Matritech and independent scientists have
demonstrated that there are differences in the types and amounts of NMPs found
in cancerous and normal tissues and also among different types of normal cells.
For example, during 1993 and 1994, three NMP-related scientific papers were
published, two in Cancer Research and one in the Proceedings of the National
Academy of Sciences, which described NMPs specific to prostate, breast and
colon cancer tissues. These NMPs were shown to be present in 100% of the cancer
tissue specimens examined, but were absent in all of the normal tissue
specimens. Subsequent to these papers, the Company has examined numerous
additional cancer tissue specimens with the same results. Matritech also has
demonstrated that cell death, including cell death related to early tumor
development, results in the release of NMPs into bodily fluids. As a result,
elevated levels of NMPs may be found in the bodily fluids of cancer patients.
The Company is not aware of any other cancer marker or class of markers which
exhibit this level of clinical specificity and sensitivity.
The Company uses its proprietary technology and expertise to identify,
isolate and extract NMPs from cancerous and normal tissues. Following
extraction, the Company's scientists characterize and sequence these cancer-
specific NMPs, which generally are absent, or present at low levels, in the
urine, blood and cells of healthy individuals. The Company then develops
proprietary antibodies to these NMPs and incorporates the antibodies into
industry-standard diagnostic formats, such as blood-based immunoassays.
The Company's core NMP technology is licensed from Massachusetts Institute of
Technology ("MIT"). Under the current terms of the Company's license from MIT,
the Company's worldwide license is exclusive until December 31, 1999 (subject
to extension), and non-exclusive thereafter, provided that the period of
exclusivity will be extended until 2006, provided the Company obtains FDA
approval for its first product based on the licensed patents by the end of
1997. The Company has made additional advances in NMP technology and has filed
its own patent applications for related protection.
MATRITECH'S PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
The following table provides a summary of the status of Matritech's current
and planned diagnostic products:
<TABLE>
<CAPTION>
NUCLEAR ESTIMATED
MATRIX CANCER PREVALENCE IN THE
PROTEIN TYPE UNITED STATES* STATUS
----------- ---------- ----------------- -----------------------------------------
<S> <C> <C> <C>
NuMA Bladder 560,000 NMP22 Test Kit commercially available
in Europe; awaiting FDA approval in U.S.
NuMA Colorectal 1,280,000 Begin clinical trials in 1996
PC-1, D, AM Prostate 560,000 Prostate cancer specific NMPs identified;
antibodies in development
CvC 2,3,5 Cervical 190,000 Cervical cancer specific NMPs identified;
NMPs being characterized and sequenced
BC 2,6,8 Breast 1,760,000 Breast cancer specific NMPs identified;
NMPs being characterized and sequenced
</TABLE>
--------
* Source: National Cancer Institute Fact Book (1992).
The Matritech NMP22 Test Kit for Bladder Cancer
The Company has developed and is marketing in Europe the NMP22 Test Kit as a
prognostic indicator for recurrence of bladder cancer following treatment. In
November 1994, the Company submitted a PMA application
23
<PAGE>
for the NMP22 Test Kit. In January 1996, the Company received a letter from
the FDA stating that the NMP22 Test Kit was approvable subject to certain
conditions requiring the Company to submit additional data to broaden the
demographic makeup of the subject population on whom the Matritech NMP22 Test
Kit had been studied. In response to this approvable letter, the Company
submitted data from additional subjects to the FDA in February 1996. There can
be no assurance that the additional subject data submitted by the Company will
satisfy the conditions set forth in the FDA's approvable letter or that the
FDA will not require the submission of even more clinical trial data. If no
regulatory delays are encountered, and if the FDA approves the product, the
Company expects sales of its first FDA approved diagnostic product in the
United States in 1996. Sales of the NMP22 Test Kit began in certain countries
in Europe in 1995.
There are over 560,000 people in the United States alive today who have been
diagnosed with bladder cancer, and there will be approximately 53,000 new
cases diagnosed in 1996. The Company estimates that an aggregate of at least
70,000 new cases of the disease are diagnosed annually in Europe and Japan.
More than 90% of patients diagnosed with bladder cancer are treated with
surgery, either alone or in combination with localized chemotherapy,
immunotherapy or radiation treatment. Following surgery, patients generally
are monitored quarterly for recurrence by cystoscopy and urine cytology. The
probability of recurrence of bladder cancer within five years after initial
treatment is between 50% and 70%, with the majority recurring within the first
year.
Typically performed under anesthesia, cystoscopy is an invasive procedure in
which a fiberoptic scope is inserted through the urethra into the bladder so
that the urologist can view the inside of the bladder to search for protruding
tumors or other unusual-looking growths that may be cancerous. The current
reimbursement rates for cystoscopy range from approximately $120 to
approximately $590 depending on the facility in which the procedure is
performed. Cytoscopy is more effective in identifying protruding cancers than
in detecting and monitoring flat cancers. Cystoscopy also cannot visualize
certain surfaces of the bladder and urinary tract that may be affected by the
most common bladder cancer, transitional cell carcinoma. In addition,
cystoscopy involves risk of infection.
Urine cytology is the microscopic analysis of cells collected from urine and
is often used in conjunction with cystoscopy. Urine cytology can detect
cancerous cells from tumors located beyond the field of view of a cystoscope,
and from flat cancers that may be more difficult to identify by cystoscopy.
However, the interpretation of urine cytology is subject to human error and
its overall clinical sensitivity for all stages and grades of bladder cancer
has been estimated at less than 40%. Moreover, it is far less effective in
detecting the least aggressive forms of the disease, which represent the
largest group of bladder cancer patients.
Recently, the FDA approved the BTA diagnostic test as an aid in the
management of bladder cancer patients. BTA is a qualitative urine-based
diagnostic test. While more sensitive than urine cytology, a published study
in the Journal of Urology indicates that the BTA test has a sensitivity of
approximately 40%.
Matritech has developed the NMP22 Test Kit, a quantitative, non-invasive
urine test for bladder cancer which the Company believes may provide a cost-
effective and more accurate alternative for the management of bladder cancer
patients. The NMP recognized by this assay is the nuclear mitotic apparatus
("NuMA"), which is present in elevated amounts in certain cancer cells. The
NMP22 Test Kit is intended to identify bladder cancer patients at risk of
recurrence following surgery for transitional cell carcinoma. The NMP22 Test
Kit requires the collection of urine samples from a patient, and then detects
NMPs in the urine by immunoassay.
The Company conducted an extensive clinical trial of the NMP22 Test Kit
involving more than 1,000 subjects at 13 sites, including bladder cancer
patients, patients with other cancers, patients with non-cancerous urinary
conditions (such as urinary tract infections) and healthy subjects. In this
trial, the NMP22 Test Kit exhibited clinical sensitivity of 70% and clinical
specificity of 79%. Statistical analysis of the data from this trial revealed
that a negative NMP22 test result for urine specimens obtained from a bladder
cancer patient approximately 10 days after transurethral resection of his or
her tumor was over 85% predictive of the absence of bladder cancer in that
patient three to six months after treatment. The Company intends to conduct
additional clinical trials to generate data for submission to the FDA of a
monitoring claim for the NMP22 Test Kit, as well as a claim for screening
certain high risk individuals.
24
<PAGE>
The Company believes that the use of the NMP22 Test Kit will enable
urologists to manage bladder cancer patients with less invasive and less
frequent procedures, thereby potentially reducing treatment costs while
maintaining a high standard of patient care. The following diagram illustrates
Matritech's clinical claim, which is the basis for its submission for FDA
approval. If a bladder cancer patient's NMP22 value is low (less than or equal
to 10 units per milliliter) 10 or more days after surgery, there is a high
probability that the follow-up cystoscopic examination will not indicate a
recurrence of disease. Using this information, the urologist may decide to
postpone this exam in order to reduce the cost, anxiety and risk to the
patient. Similarly, an NMP22 value greater than 10 units per milliliter
indicates a higher risk that the follow-up cystoscopic examination will
indicate a recurrence of disease, enabling the urologist to make more
aggressive treatment decisions.
[Shown is a flow chart illustrating the Company's clinical claim for its NMP22
Test Kit, which consists of four squares and two circles containing text, each
connected by arrows indicating the logical relationship between them.]
The Company has retained worldwide manufacturing rights for the NMP22 Test
Kit, as well as all marketing rights in the United States, except that the
Company has granted UroCor, Inc. ("UroCor") the right to be the Company's
exclusive national reference laboratory customer for the NMP22 Test Kit until
September 30, 1996. UroCor has an option to extend the period of exclusivity
through December 30, 1996 upon the purchase of additional minimum quantities of
NMP22 Test Kits. In June 1996, the Company and its then exclusive distributor
in Europe terminated their distribution agreement for the NMP22 Test Kit. The
Company has recently reached agreements in principle with two new distributors
to be the exclusive distributors in Germany and Italy of Matritech-labeled
NMP22 Test Kits in those countries. The Company will continue to seek
additional distributors in Europe. The Company has also entered into exclusive
distribution arrangements for the NMP22 Test Kit in China and with Konica
Corporation ("Konica") in Japan. See "--Strategic Alliances."
Colorectal Cancer Product
Matritech is developing a blood-based test for use in the management of
colorectal cancer patients and has recently completed a preliminary study in
over 150 subjects, including both normal healthy volunteers and colon cancer
patients. Based upon the assay's performance in this preliminary study, the
Company expects to begin clinical trials in the second half of 1996.
In the United States, there are nearly 1.3 million people alive today who
have been diagnosed with colorectal cancer and there will be approximately
133,000 new cases of colorectal cancer diagnosed in 1996. The Company estimates
that an aggregate of at least 200,000 additional cases of colorectal cancer are
diagnosed annually in Europe and Japan. Treatment for colorectal cancer
generally involves removal of the malignant portion of the colon or rectum. In
some cases patients also undergo a six- or twelve-month course of chemotherapy.
Monitoring colorectal cancer patients for recurrence generally involves
biannual colonoscopic examination and quarterly testing of carcinoembryonic
antigen ("CEA") levels.
25
<PAGE>
Colonoscopy allows the physician to visually inspect the entire colon and
rectum for local recurrence, and to remove polyps or other tissue for biopsy.
This procedure, however, is expensive, invasive and entails significant risks
of complications including intestinal wall perforation. The cost of a
colonoscopy procedure (including physician and facilities fees) is over $500
per procedure.
CEA is a blood-based in vitro diagnostic test which has been approved by the
FDA for use in the management of colorectal cancer patients, and is also
commonly used in the management of breast cancer patients. However, CEA is
elevated in less than half of patients with active colorectal cancer, and is
seldom elevated when the disease is early stage or locally recurrent. By the
time CEA is above normal levels, metastatic disease is frequently present. CEA
also exhibits limited clinical specificity and may be elevated in persons
without cancer, particularly those with certain liver and colon abnormalities
and in smokers. Additionally, an estimated 25% of colorectal cancer patients
cannot be monitored effectively with CEA due to false negatives associated
with standard chemotherapy treatments. Despite its limitations, worldwide
sales of CEA are estimated by the Company to exceed $100 million annually.
If diagnosed at an early stage, the five-year survival rate for colorectal
cancer patients is 90%, but drops to 63% once the cancer has spread to the
lymph nodes and to 7% once it has metastasized to other organs. Consequently,
the Company believes that an in vitro test that can accurately detect the
early recurrence of colorectal cancer could contribute to a significant
reduction in mortality.
The Company has identified certain NMPs that are elevated in blood from
patients with colorectal cancer. The Company has also demonstrated that the
types and amounts of certain NMPs differ between colorectal cancer and normal
colorectal tissues. The Company is using proprietary antibodies to detect one
of these proteins, NuMA, and is developing an assay for colorectal cancer
based on these antibodies.
The Company has conducted a preliminary clinical study of its colorectal
cancer assay, the data from which were presented at the Annual Meeting of the
American Association for Cancer Research in April 1996. These data compared
the detection of NuMA in the blood of colon cancer patients and healthy
individuals to the levels of CEA in the same subjects. In this study, which
involved 52 cancer patients and 96 normal individuals, the clinical
sensitivity of CEA in identifying subjects with colon cancer was 42% compared
to 67% clinical sensitivity for the NMP-based test. Following this study, the
Company made certain technical modifications to this test resulting in
improved sensitivity. Matritech plans to begin a multicenter clinical trial
for this test in the second half of 1996. The results of this trial will be
submitted to the FDA in order to seek approval to sell the product in the
United States. Following manufacturing scale-up and FDA approval for export,
the Company intends to begin selling the product in certain countries outside
of the United States during the second half of 1996.
The Company has retained worldwide manufacturing rights for its colorectal
cancer assay, as well as all marketing rights in the United States. Yamanouchi
Pharmaceutical Co., Ltd. ("Yamanouchi") currently has the option to obtain
exclusive rights to the Company's colorectal cancer assay in Japan and Taiwan.
The Company submitted the results of the preliminary trials of its colorectal
cancer assay to Yamanouchi in accordance with the terms of the Company's
agreement with Yamanouchi. Based on its evaluation of the data, Yamanouchi did
not elect to proceed with the development and clinical testing of the
Company's colorectal cancer product in Japan within the required time period
(including a 30-day extension granted by the Company). Consequently, the
Company has the option to terminate Yamanouchi's rights with respect to that
product. If the Company should terminate such rights, the Company may need to
seek a distributor for this product in Japan.
Prostate Cancer Product
Matritech is currently developing a blood-based test for prostate cancer and
expects to begin in 1997 a clinical trial leading toward a submission for FDA
approval. Prostate cancer is the most commonly diagnosed cancer in the United
States (excluding non-melanoma skin cancer) and the second leading cause of
cancer-related death in men. It is estimated that there are over one half
million men alive today who have been diagnosed with
26
<PAGE>
prostate cancer in the United States and there will be approximately 317,000
new cases of prostate cancer diagnosed in 1996. The Company estimates that
there are at least 160,000 and 5,000 new cases diagnosed in Europe and Japan,
respectively, per year. Incidence rates have increased rapidly in recent
years, and consequently, the prevalence of this disease may be much higher now
than is reflected in the most currently available data.
Treatment for prostate cancer depends on the stage of the disease at
diagnosis including whether metastasis has occurred. Treatment includes total
or partial removal of the prostate gland, radiation therapy or chemotherapy,
surgical or chemical castration and hormone therapy. In cases involving less
aggressive forms of the disease, patients may be monitored for disease
progression in lieu of undergoing treatment. Monitoring for recurrence
involves measuring PSA levels, usually quarterly, frequent physical exams, and
in some cases imaging of the prostate, usually by transrectal ultrasound. If
metastatic disease is suspected, other imaging procedures, such as a bone
scan, may be performed.
Increases in PSA levels can be a good indication of recurrence of this
disease, especially in patients who have undergone total prostatectomy and
should have no detectable PSA. PSA levels, however, are depressed in patients
undergoing hormonal therapy and therefore PSA cannot be used to monitor these
patients for recurrence. Hormonal therapy is becoming more common, especially
in older men diagnosed with very early stage disease. Imaging procedures are
expensive and not very sensitive for localized disease or specific, showing
lesions that may be scar tissue or other non-malignant structures.
Consequently, the Company believes that an alternative in vitro diagnostic
test, that is not subject to the limitations of PSA, would be useful in the
management of prostate cancer.
In 1995, Hybritech obtained approval from the FDA to market PSA in the
United States for screening asymptomatic individuals. The manufacturers of PSA
tests have designated a range of PSA levels which indicates an intermediate
weak-positive result, and individuals with such weak-positive results are
routinely biopsied. Reports in the clinical literature indicate that
approximately 75% of such individuals do not have cancer but must undergo the
expensive and invasive biopsy procedure. Despite this limitation, a large
market for PSA has developed and one industry source has estimated that the
annual worldwide sales of PSA currently exceed $200 million, with sales in the
United States accounting for approximately one-half of that amount.
The Company began a collaboration in 1992 with investigators from The Johns
Hopkins University School of Medicine ("Hopkins") to produce antibodies to a
prostate cancer specific NMP ("PC-1") for use in an immunoassay product for
prostate cancer, as well as for research purposes. In August 1993, the Company
obtained an exclusive, worldwide, royalty-bearing license from Hopkins to
patent rights covering certain NMPs that have potential clinical utility in
managing prostate cancer. In published research, investigators at Hopkins
reported that the level of one of these NMPs, PC-1, was elevated in all of the
limited number of prostate cancer specimens that were examined but in none of
the benign or normal specimens.
In an effort to complement the work done at Hopkins, the Company began
sponsoring the research of scientists at the University of Pittsburgh
("Pittsburgh") in March 1996 regarding additional prostate cancer specific
NMPs. As a result of this financial support, the Company obtained a right of
first refusal to an exclusive royalty-bearing license to inventions and/or
discoveries arising out of this research. Certain of these NMPs were shown by
the Pittsburgh scientists to be related to the metastatic potential of
prostate cancer cells in rats. The Pittsburgh scientists have demonstrated
that antibodies raised against these metastatic-related NMPs reacted with
malignant human prostate tissues. Furthermore, the Pittsburgh scientists
believe that these NMPs may be useful in clinically differentiating metastatic
from non-invasive tumors.
Matritech intends to develop a blood and/or tissue-based prostate cancer
test using the NMPs identified either by Hopkins or Pittsburgh and to conduct
preliminary and clinical trials leading toward a submission for FDA approval.
The Company has retained worldwide manufacturing and marketing rights for its
prostate cancer assay.
Cervical Cancer Product
Matritech is developing a test for cervical cancer screening in
collaboration with Bayer, one of its corporate partners. Bayer provided
funding to Matritech for the identification of cervical cancer specific NMPs
and is
27
<PAGE>
continuing to fund development of monoclonal antibodies which recognize
malignant and pre-malignant or dysplastic cervical cancer cells. These
antibodies will be used in clinical laboratories, in conjunction with
instruments developed by Bayer, to automate the review and evaluation of
cervical cells. This system will initially be designed as a complement to the
Pap smear procedure.
The Company estimates that more than 50 million Pap smears are performed
annually in the United States at a laboratory cost estimated by the Company to
be in excess of $600 million. The Company estimates that at least an
additional 59 million tests are performed annually in the rest of the world.
The Pap smear test relies on the judgment of cytotechnologists and
cytopathologists and has deficiencies which can result in false negative rates
as high as 20%. Cytotechnologists use a microscope to examine cells obtained
in Pap smears for evidence of abnormality. Slides containing suspicious cells
are referred to a cytopathologist for further evaluation. If the
cytopathologist confirms the presence of abnormal cells, then a gynecologist
will collect a tissue biopsy to be used for a final diagnosis.
Cytotechnologists may examine up to 50,000 cells per slide on 100 slides per
day. Consequently, fatigue is a known contributor to error rates. The Company
believes that a significant component of the error rate relates to the
inability of cytotechnologists to visually identify malignant cells. The
Company also believes that the accuracy of cytology could be improved and that
the test could become more automated with the use of antibodies specific to
NMPs present in malignant and premalignant cervical cells and absent from the
cells of normal cervical tissue. Using its proprietary technology, the Company
has identified cervical cancer specific NMPs which it intends to use as the
targets for its cervical cancer product.
Under the terms of the Company's agreement with Bayer, Bayer has the option,
upon payment to Matritech, to acquire exclusive worldwide rights to distribute
the cervical cancer assay for automated systems and non-exclusive worldwide
rights for a manual assay product. Matritech has maintained worldwide
manufacturing rights to its cervical cancer product. See "--Strategic
Alliances."
Breast Cancer Product
Matritech has identified breast cancer specific NMPs and is developing a
blood-based test for breast cancer. In the United States, it is estimated that
one in eight women will develop breast cancer in her lifetime and that there
are nearly 1.8 million women alive who have been diagnosed with the disease.
An estimated 186,000 new cases are diagnosed in the United States every year
and approximately 190,000 additional cases are diagnosed annually in Europe
and Japan. Breast cancer is the second leading cause of cancer-related death
among women, causing approximately 45,000 deaths each year.
Treatment for breast cancer depends on the extent and biological
characteristics of the disease. Under the typical treatment protocol, the
malignant tissue in the breast is removed, either by lumpectomy or mastectomy,
and axillary lymph nodes are dissected for pathological examination.
Chemotherapy or hormonal therapy is generally recommended regardless of the
extent of disease at diagnosis. Women are monitored for recurrence with
frequent mammographic examinations of any remaining breast tissue and physical
examinations for local recurrence at the incision site. If metastatic disease
is suspected, other imaging procedures, such as bone scans, are performed.
Current methods for monitoring breast cancer are expensive, provide limited
prognostic information and do not detect metastic disease early enough to
permit effective treatment. A mammographic examination will generally detect
localized malignant disease, but is unable to detect early metastatic disease,
when it may be treated effectively with chemotherapy.
In March 1996, the FDA approved a blood-based test for recurrence of breast
cancer. This test, TRUQUANT BR RIA, is the first test for detecting a tumor
marker indicating the presence of breast cancer that the FDA has approved for
sale. The manufacturer of the test asserts that the test can detect the
recurrence of breast cancer in women previously treated for tumors that have
spread to the lymph nodes. The Company believes that, based on other non-
approved tests using the same marker, the clinical sensitivity of this test is
less than 60%. Consequently, the Company believes that a more sensitive test
for breast cancer would be useful in managing breast cancer patients.
28
<PAGE>
The Company has identified certain NMPs present in breast cancer tissue and
absent in normal tissue. Matritech will develop antibodies reactive with these
NMPs and evaluate these antibodies on patient blood samples. The Company
intends to select antibodies to be used in assays and conduct clinical trials
to generate data required to apply for FDA approval of such assays. Matritech
believes that the distinctive NMP patterns found in breast cancer cells and
the Company's ability to detect these NMPs in blood may enable it to develop a
more accurate breast cancer blood assay intended to improve patient
management.
The development and marketing of the Company's breast cancer products are
covered by agreements with AB Sangtec Medical ("Sangtec") and Yamanouchi,
which give Sangtec exclusive rights to market the Company's breast cancer
product in Europe and Yamanouchi exclusive rights to market the Company's
breast cancer product in Japan and Taiwan. The Company has retained worldwide
manufacturing rights for its breast cancer assay, as well as all marketing
rights in the United States. See "--Strategic Alliances."
Other Cancer Diagnostics Products
In addition to the Company's NMP22 Test Kit and its colorectal, prostate,
cervical and breast cancer products under development, the Company also
intends to develop diagnostic assays based on its proprietary NMP technology
for lung, liver, pancreatic, stomach and renal cancers.
Potential Therapeutic Products
In the ongoing development of its cancer diagnostic products, Matritech has
gained expertise in isolating and characterizing NMPs and has demonstrated the
ability to determine unique DNA and protein sequences associated with certain
NMPs. Matritech believes this expertise provides unique opportunities to
further understand how NMPs help control cell identity, behavior and growth.
The Company also believes that an increased understanding of the role NMPs
play in these processes may allow for the development of NMP-based cancer
therapeutics.
Although Matritech has not yet expended significant resources on therapeutic
applications of its NMP technology, the Company is pursuing several programs
intended to establish the feasibility of NMP-based cancer therapeutic
products. These include programs to determine the DNA sequences of cancer-
related NMPs, a project demonstrating the ability to arrest the growth of
cancer cells using DNA "anti-sense" technology and a project designed to
confirm the feasibility of blocking the function of a target-regulatory NMP.
STRATEGIC ALLIANCES
To accelerate the early research and development of its products, the
Company has pursued a strategy of entering into strategic alliances to fund
research and development programs for selected cancer assays. These agreements
typically involve up-front and milestone payments in exchange for the right to
obtain exclusive distribution rights in selected geographical markets. In
order to retain control of its core NMP technology, the Company has not
licensed or sublicensed any of its technology to third-parties. The Company
has retained manufacturing rights for its NMP22 Test Kit and all other product
candidates, except for certain rights that could be granted to certain of its
corporate partners if the Company fails to deliver required quantities of
product. Under the terms of these funded development arrangements and other
distribution arrangements discussed below, the Company's partners purchase
finished products or components from Matritech at prices based on Matritech's
list price, local reimbursement rates or the partners' net selling price.
Konica. In 1994, the Company entered into a distribution agreement with
Konica. The Konica agreement grants exclusive distribution rights in Japan for
the NMP22 Test Kit in exchange for $325,000 in licensing fees. Under the terms
of its agreement with Konica, Matritech will sell NMP22 Test Kits to Konica
for resale in Japan at prices based on Japanese reimbursement rates. Konica is
responsible for obtaining the necessary approvals from the Japanese Ministry
of Health and Welfare ("Koseisho") to import and sell the NMP22 Test Kit.
Clinical trials must be conducted in Japan and the results submitted to
Koseisho prior to obtaining such approvals. Konica has limited manufacturing
rights if the Company fails to deliver required quantities.
29
<PAGE>
Bayer. In June 1995, Matritech signed a joint development and distribution
agreement with Bayer and received an initial payment of $150,000. Under the
terms of the agreement, Bayer provided funding to Matritech for the
identification of cervical cancer-specific NMPs and is currently funding the
development of monoclonal antibodies which recognize malignant and pre-
malignant or dysplastic cervical cancer cells. These antibodies will be used
in clinical laboratories, in conjunction with instruments developed by Bayer,
to automate the review and evaluation of cells obtained from cervical smears.
Under the terms of the Company's agreement with Bayer, Bayer has the option,
upon payment to Matritech, to acquire exclusive worldwide rights to distribute
the cervical cancer assay for automated systems and non-exclusive worldwide
rights for a manual assay product. If Bayer exercises its option, it would
purchase components from Matritech (unless Matritech fails to meet Bayer's
product delivery requirements) and would pay Matritech a percentage of Bayer's
net selling price. In the year ended December 31, 1995, the Company received
$60,000 in milestone payments under this agreement.
Yamanouchi. In 1991, Matritech and Yamanouchi entered into a development and
supply agreement for the development of seven serum assays (breast,
colorectal, lung, liver, pancreatic, stomach and renal cancers) for exclusive
sale by Yamanouchi in Japan and Taiwan. The agreement provides for development
payments to the Company by Yamanouchi to be paid upon the accomplishment of
certain milestones. Matritech has received $1 million in milestone payments to
date. Yamanouchi did not make any payments to the Company in 1995. In January
1996, the Company submitted the results of the preliminary trials of its
colorectal cancer assay to Yamanouchi in accordance with the terms of the
agreement. Based on its evaluation of the data, Yamanouchi did not elect to
proceed with the development and clinical testing of the Company's colorectal
cancer product in Japan within the required time period (including a 30-day
extension granted by the Company). Consequently, the Company has the option to
terminate Yamanouchi's rights with respect to that product. The purchase price
for any products distributed by Yamanouchi will be based on Yamanouchi's net
selling price.
Sangtec. In 1990, Matritech and Sangtec, a Swedish company, entered into a
development and supply agreement which provides for the payment by Sangtec to
Matritech of up to $700,000 for the development of breast cancer products, of
which $60,000 has been paid to Matritech as of December 31, 1995. The
development payments are to be made over time, upon the successful achievement
of certain technical milestones by Matritech and Sangtec. Sangtec has the
exclusive right to market in Europe any breast cancer serum assay developed
under the agreement. The purchase price to be paid to the Company for any
products distributed by Sangtec will be based on Sangtec's net selling price.
Sangtec has limited manufacturing rights if the Company fails to meet
Sangtec's product delivery requirements.
MARKETING AND SALES
The Company has retained all rights to sell all of its products in the
United States, except for products for the automated detection of cervical
cancer, for which Bayer has an option to acquire exclusive rights. Matritech
intends to sell its NMP22 Test Kit in the United States to clinical
laboratories using its own direct sales force. The Company has two sales
representatives who are in training in anticipation of FDA approval of the
NMP22 Test Kit. The Company intends to expand this sales force as sales of the
NMP22 Test Kit may warrant or if new products are added. The Company may use
one or more distributors for sales to low-volume customers.
In foreign markets, the Company initially plans to use distributors, but may
establish its own sales offices when international sales warrant such a direct
presence. Matritech currently has funded development and marketing agreements
pursuant to which the Company has granted co-exclusive or exclusive rights to
distribute the resulting products in exchange for product development funding.
See "--Strategic Alliances."
THIRD-PARTY REIMBURSEMENT
The Company's ability to successfully commercialize its potential products
will depend in part on the extent to which reimbursement for the cost of such
products will be available from government health administration authorities,
private health insurers and other third-party payors. The Company believes
that FDA approval of a diagnostic product facilitates third-party
reimbursement, but there can be no assurance that reimbursement will be
available for such products or, if available, that it will be adequate.
30
<PAGE>
In the case of private insurance, the reimbursement of any medical device,
whether approved, or for investigational use only or for research use, is at
the sole discretion of the patient's individual carrier. The decision to
reimburse can be made on a case-by-case basis (as is done for research
therapies) or on a system-wide basis (such as screening mammography).
Historically, the decision to reimburse for a new medical procedure is made by
the carrier's medical director or review committee. This group will base their
reimbursement decision on published clinical data and information by the
treating physicians. Even if a procedure has been approved for reimbursement,
there are no assurances that the insurance carrier will continue to reimburse
the procedure.
Health care reform is an area of continuing national attention and a
priority of many governmental officials. Certain reform proposals, if adopted,
could impose limitations on the prices the Company will be able to charge in
the United States for its products or the amount of reimbursement available
for the Company's products from governmental agencies or third-party payors.
MANUFACTURING AND FACILITIES
The Company currently assembles its test kits in its 22,500 square-foot
facility in Newton, Massachusetts and relies on subcontractors for certain
components and processes. The Company's lease is for a term of five years and
expires on December 31, 2001. The annual base rent for each year of the term
is $230,625. The Company believes that its current facilities are adequate to
satisfy the Company's needs as it expands its manufacturing capabilities for
at least the next two years, including the initial phases of commercial
production. Thereafter, the Company may be required to establish additional
manufacturing facilities elsewhere. There can be no assurance that the Company
will be able to extend its lease or lease other space on reasonable terms. The
Company has retained all manufacturing rights, except for certain rights that
could be granted to certain of its corporate partners if the Company fails to
perform under its agreements with those corporate partners. See "--Strategic
Alliances."
The Company currently relies on sole suppliers for certain key components
for its NMP22 Test Kit. In the event that the components from such suppliers
should become unavailable for any reason, the Company would seek alternative
sources of supply, which may entail making regulatory submissions and
obtaining regulatory approvals from the FDA or such alternative suppliers.
Although the Company attempts to maintain an adequate level of inventory to
provide for these and other contingencies, should its manufacturing process be
disrupted as a result of a shortage of key components or a revalidation of new
components, there can be no assurance that the Company would be able to meet
its commitments to customers. The Company is also subject to the FDA's GMP
requirements. See "--Government Regulation."
COMPETITION
Matritech is not aware of any other company using NMP technology to develop
diagnostic or therapeutic products. However, competition in the development
and marketing of cancer diagnostics and therapeutics, using a variety of
technologies, is intense.
There are many pharmaceutical companies, biotechnology companies, public and
private universities and research organizations actively engaged in the
research and development of clinical cancer diagnostic products. Many of these
organizations have financial, manufacturing, marketing and human resources
greater than those of the Company. Matritech expects that its diagnostic
products will compete largely on the basis of clinical utility, accuracy
(sensitivity and specificity), ease of use and other performance
characteristics, price, and patent position, as well as on the capabilities of
the Company and its marketing partners.
The Company expects that certain of its assays will compete with existing
FDA-approved assays, including BTA, which was recently approved for monitoring
bladder cancer, CEA, which is used primarily for monitoring colorectal and
breast cancers, PSA, which is used primarily for monitoring and screening
prostate cancer, and TRUQUANT BR RIA, which is used for monitoring breast
cancer. Matritech is also aware of a number of companies exploring the
application of oncogene technology to cancer diagnostics.
31
<PAGE>
A number of companies are attempting to develop automated instruments for
Pap smear analysis that would compete with the cervical cancer product that
the Company is developing with Bayer. These companies are computerizing image
analysis techniques to automate much of the work currently done by
cytotechnologists. To date, two of these instruments have been approved by the
FDA for rescreening Pap smear slides previously identified by a
cytotechnologist as normal. It is not known if or when such instruments will
be approved for initial screening.
The Company's diagnostic products will also compete with more invasive or
expensive procedures such as surgery, bone scans, magnetic resonance imaging
("MRI") and other in vivo imaging techniques. Matritech believes that its
products, if successfully commercialized, will contribute to improved patient
management and lower overall costs, by providing accurate information and, in
some cases, by providing an alternative to these invasive or costly
procedures.
Should the Company decide to develop and seek to market therapeutic
products, competition will be based, among other things, on product efficacy,
safety, reliability, price and patent position as well as the state of the
industry and capabilities of the Company, future marketing partners and
competitors.
In addition, there can be no assurance that competing diagnostic and
therapeutic products based on other technologies will not be introduced by
other companies and adversely affect the competitive position of the Company.
PATENTS, LICENSES AND TRADE SECRETS
Matritech's diagnostic technology is protected by three United States
patents expiring in 2006, with corresponding foreign patents granted and/or
patent applications pending in Canada and selected countries in Europe and the
Far East. The NMP technology owned by MIT, is licensed to Matritech worldwide
in exchange for royalties payable until the expiration of underlying patent
rights. MIT has licensed its patent rights to Matritech on an exclusive basis
through 1999, which exclusivity will be extended until the expiration of all
patent rights in 2006 provided the Company obtains FDA approval for its first
product based on the licensed patents by the end of 1997.
The protection offered by these patents extends to the detection and
measurement of NMPs, or associated nucleic acids, using antibody or gene probe
formats, as well as to certain assay methods exploiting NMPs. MIT has
voluntarily applied for the reissue of one of its patents which seeks to
strengthen its protection of NMP technology. Matritech has filed additional
United States patent applications on related NMP advances and corresponding
applications under the Patent Cooperation Treaty designating Canada, Australia
and selected countries in Europe and the Far East. The Company currently has
11 applications on file in the United States on these disclosures. The Company
intends to file additional patent applications in the future. The Company
believes that any patents that may issue from its applications will provide
competitive protection for its products after expiration of its license from
MIT. The Company also intends to rely on its unpatented proprietary
information to maintain and develop its commercial position.
In 1993, the Company obtained an exclusive, worldwide, royalty-bearing
license from The Johns Hopkins University to patent rights covering certain
NMPs that scientists at Hopkins have reported to be specific to prostate
cancer.
In March 1995, the Company obtained an exclusive, worldwide, royalty-bearing
license from Yale University to patent rights covering Yale University's
discovery of a new group of proteins which interact with structural components
of the nuclear matrix. Beginning in 1997, Matritech is required to make
minimum royalty payments to Yale University under this agreement.
32
<PAGE>
GOVERNMENT REGULATION
Diagnostic Products
The medical devices to be marketed and manufactured by the Company are
subject to extensive regulation by the FDA, and, in some instances, by foreign
governments. Pursuant to the Federal Food, Drug and Cosmetic Act of 1976, as
amended, and the regulations promulgated thereunder (the "FDC Act"), the FDA
regulates the clinical testing, manufacture, labeling, distribution, and
promotion of medical devices. Noncompliance with applicable requirements can
result in, among other things, fines, injunctions, civil penalties, recall or
seizure of products, total or partial suspension of production, failure of the
government to grant premarket clearance or premarket approval for devices,
withdrawal of marketing approvals, and criminal prosecution. The FDA also has
the authority to request repair, replacement or refund of the cost of any
device manufactured or distributed by the Company.
In the United States, medical devices and diagnostics are classified into
one of three classes (class I, II, or III) on the basis of the controls deemed
necessary by the FDA to reasonably assure their safety and effectiveness.
Under FDA regulations, class I devices are subject to general controls (for
example, labeling, premarket notification and adherence to GMPs) and class II
devices are subject to general and special controls (for example, performance
standards, postmarket surveillance, patient registries, and FDA guidelines).
Generally, class III devices are those which must receive PMA by the FDA to
ensure their safety and effectiveness (for example, life-sustaining, life-
supporting and implantable devices, or new devices which have not been found
substantially equivalent to legally marketed devices).
Before a new device can be introduced into the market, the manufacturer must
generally obtain marketing clearance through the filing of either a 510(k)
notification or a PMA. A 510(k) clearance will be granted if the submitted
information establishes that the proposed device is "substantially equivalent"
to a legally marketed class I or II medical device, or to a class III medical
device for which the FDA has not called for a PMA. The FDA may determine that
a proposed device is not substantially equivalent to a legally marketed
device, or that additional information or data are needed before a substantial
equivalence determination can be made. A request for additional data may
require that clinical studies of the safety and efficacy of the device be
performed.
Commercial distribution of a device for which a 510(k) notification is
required can begin only after the FDA issues an order finding the device to be
"substantially equivalent" to a predicate device. It generally takes from four
to twelve months from submission to obtain a 510(k) clearance, but may take
longer. The FDA may determine that a proposed device is not substantially
equivalent to a legally marketed device, or that additional information is
needed before a substantial equivalence determination can be made.
A PMA application must be filed if a proposed device is not substantially
equivalent to a legally marketed class I or class II device, or if it is a
class III device for which the FDA has called for PMAs. A PMA application must
be supported by valid scientific evidence which typically includes clinical
trial data to demonstrate safety and the effectiveness of the device. The PMA
application must also contain the results of all relevant bench tests,
laboratory and animal studies, a complete description of the device and its
components, and a detailed description of the methods, facilities and controls
used to manufacture the device, as well as proposed labeling.
Upon receipt of a PMA application, the FDA makes a threshold determination
as to whether the application is sufficiently complete to permit a substantive
review. If the FDA determines that the PMA application is sufficiently
complete to permit a substantive review, the FDA will accept the application
for filing. Once the submission is accepted for filing, the FDA begins an in-
depth review of the PMA. An FDA review of a PMA application generally takes
one to two years from the date the PMA application is accepted for filing, but
may take significantly longer. The review time is often significantly extended
as a result of the FDA requiring more information or clarification of
information already provided in the submission. During the review period, an
advisory committee, typically a panel of clinicians and/or other appropriate
experts in the relevant fields, will
33
<PAGE>
likely be convened to review and evaluate the application and provide
recommendations to the FDA as to whether the device should be approved. The
FDA is not bound by the recommendations of the advisory committee but
generally follows them. Toward the end of the PMA review process, the FDA
generally will conduct an inspection of the manufacturer's facilities to
ensure that the facilities are in compliance with applicable GMP requirements.
If the FDA's evaluations of both the PMA application and the manufacturing
facilities are favorable, the FDA will either issue an approval letter or an
approvable letter, which usually contains a number of conditions which must be
met in order to secure final approval for sale of the device. When and if
those conditions have been fulfilled to the satisfaction of the FDA, the
agency will issue a PMA approval letter, authorizing commercial marketing of
the device for certain indications. If the FDA's evaluations of the PMA
application or manufacturing facilities are not favorable, the FDA will deny
approval of the PMA application or issue a "not approvable letter." The FDA
may also determine that additional clinical trials are necessary, in which
case PMA approval may be substantially delayed while additional clinical
trials are conducted and submitted in an amendment to the PMA. The PMA process
can be expensive, uncertain and lengthy and a number of devices for which FDA
approval has been sought by other companies have never been approved for
marketing.
Once a device has successfully completed the PMA approval process,
modifications to the device, its labeling, or manufacturing process may
require approval by the FDA of PMA supplements or new PMAs. Supplements to a
PMA often require the submission of the same type of information required for
an initial PMA, except that the supplement is generally limited to that
information needed to support the proposed change from the product covered by
the original PMA.
Although clinical investigations of most devices are subject to the
investigational device exemption ("IDE") requirements, clinical investigations
of in vitro diagnostic ("IVDs") tests are exempt from the IDE requirements,
including FDA approval of investigations, provided the testing is non-
invasive, does not require an invasive sampling procedure that presents
significant risk, does not introduce energy into a subject, and the tests are
not used as a diagnostic procedure without confirmation of the diagnosis by
another medically established diagnostic product or procedure. IVD
manufacturers must also establish distribution controls to assure that IVDs
distributed for the purposes of conducting clinical investigations are used
only for that purpose. Pursuant to current FDA policy, manufacturers of IVDs
labeled for investigational use only ("IUO") or research use only ("RUO") are
encouraged by the FDA to establish a certification program under which
investigational IVDs are distributed to or utilized only by individuals,
laboratories, or health care facilities that have provided the manufacturer
with a written certification of compliance indicating that (1) the device will
be used for investigational or research purposes only, and (2) results will
not be used for diagnostic purposes without confirmation of the diagnosis
under another medically established diagnostic device or procedure. In
addition, the certification program requirements for IUO products should
include assurances that all investigations or studies will be conducted with
approval from an institutional review board ("IRB"), using an IRB-approved
study protocol and patient informed consent and that the device will be
labeled in accordance with the applicable labeling regulations. Sponsors of
clinical trials are permitted to sell those devices distributed in the course
of the study provided such compensation does not exceed recovery of the costs
of manufacture, research, development and handling.
In November 1994, the Company submitted a PMA application for its Matritech
NMP22 Test Kit as a prognostic indicator for bladder cancer (i.e., as a
predictor of bladder cancer recurrence following therapy, such as surgical
excision of cancerous tissue). In January 1996, the Company received a letter
from the FDA stating that the NMP22 Test Kit was approvable subject to certain
conditions requiring the Company to submit additional data to broaden the
demographic makeup of the subject population on whom the Matritech NMP22 Test
Kit had been studied. In response to this approvable letter, the Company
submitted data from additional subjects to the FDA in February 1996. There can
be no assurance that the additional subject data submitted by the Company will
satisfy the conditions set forth in the FDA's approvable letter or that the
FDA will not require
34
<PAGE>
the submission of even more clinical trial data. There can be no assurance
that data and information submitted by the Company in the original PMA
application or in response to the FDA's approvable letter, will adequately
demonstrate the safety and effectiveness of the Matritech NMP22 Test Kit to
obtain approval of the PMA application from the FDA.
Any products manufactured or distributed by the Company pursuant to FDA
clearances or approvals are subject to pervasive and continuing regulation by
the FDA, including recordkeeping requirements and reporting of adverse
experiences with the use of the device. Device manufactures are required to
register their establishments and list their devices with the FDA, and are
subject to periodic inspections by the FDA and certain state agencies. The FDC
Act requires devices to be manufactured in accordance with GMP regulations
which impose certain procedural and documentation requirements upon the
Company with respect to manufacturing and quality assurance activities.
Labeling and promotional activities are subject to scrutiny by the FDA and,
in certain instances, by the Federal Trade Commission. If approved, the NMP22
Test Kit may only be promoted by the Company as a prognostic indicator. The
FDA actively enforces regulations prohibiting the promotion of devices for
unapproved uses and the promotion of devices for which premarket clearance or
approval has not been obtained. Consequently, the Company cannot promote the
NMP22 Test Kit for cancer screening or for any other unapproved use. Failure
to comply with these requirements can result in regulatory enforcement action
by the FDA that would adversely affect the Company's ability to conduct
testing necessary to obtain market clearance for these products and,
consequently, could have a material adverse effect on the Company's business,
financial condition and results of operations.
The Company and its products are also subject to a variety of state laws and
regulations in those states or localities where its products are or will be
marketed. Any applicable state or local regulations may hinder the Company's
ability to market its products in those states or localities. Manufacturers
are also subject to numerous federal, state and local laws relating to such
matters as safe working conditions, manufacturing practices, environmental
protection, fire hazard control, and disposal of hazardous or potentially
hazardous substances. There can be no assurance that the Company will not be
required to incur significant costs to comply with such laws and regulations
now or in the future or that such laws or regulations will not have a material
adverse effect upon the Company's ability to do business.
Foreign Sales
Export of unapproved products subject to the PMA requirements must be
approved in advance by the FDA for export unless they are approved for use by
the regulatory authorities in any member community of the European Community,
and certain other countries in which case they may be exported to any country
without FDA approval. To obtain FDA export approval, when it is required,
certain requirements must be met and information must be provided to the FDA,
including, with some exceptions, documentation demonstrating that the product
is approved for import into a country to which it is to be exported and safety
data from animal or human studies. There can be no assurance that FDA will
grant export approval when such approval is necessary, or that the countries
to which the devices are to be exported will approve the devices for import.
Failure on the part of the Company to obtain export approvals, when required,
could significantly delay and impair the Company's ability to continue exports
of its devices and could have a material adverse effect on the Company's
business, financial condition or results of operations.
The introduction of the Company's developmental-stage test products in
foreign markets will also subject the Company to foreign regulatory clearances
which may impose additional substantial costs and burdens. International sales
of medical devices are subject to the regulatory requirements of each country.
The regulatory review process varies from country to country. Many countries
also impose product standards, packaging requirements, labeling requirements
and import restrictions on devices. In addition, each country has its own
tariff regulations, duties and tax requirements. In Germany, where the Company
began selling its NMP22 Test Kit for bladder cancer in 1995, no regulatory
approval comparable to the U.S. PMA is required prior to public sale of
diagnostic products. In Japan, where the Company's distributor for NMP22,
Konica, is responsible for
35
<PAGE>
obtaining the necessary approvals from Koseisho to import and sell the NMP22
product, clinical trials must be conducted and the results submitted to
Koseisho prior to obtaining such approvals. The process of obtaining Koseisho
approval in Japan may require as much time as to obtain a PMA in the U.S.
The approval by the FDA and foreign government authorities is unpredictable
and uncertain and no assurance can be given that the necessary approvals or
clearances will be granted on a timely basis or at all. Delays in receipt of,
or a failure to receive, such approvals or clearances, or the loss of any
previously received approvals or clearances, could have a material adverse
effect on the business, financial condition and results of operations of the
Company.
Changes in existing requirements or adoption of new requirements or policies
could adversely affect the ability of the Company to comply with regulatory
requirements. Failure to comply with regulatory requirements could have a
material adverse effect on the Company's business, financial condition and
results of operations. There can be no assurance that the Company will not be
required to incur significant costs to comply with laws and regulations in the
future or that laws or regulations will not have a material adverse effect
upon the Company's business, financial condition or results of operations. See
"Risk Factors--Risks Associated with Extensive Government Regulation."
CLIA
Pursuant to the Clinical Laboratory Improvement Amendments ("CLIA"), the FDA
will assign a complexity category to each new in vitro diagnostic test. This
category will determine the rigor of quality control that must be followed by
purchasers and users of the device and, thus, can affect purchasing decisions
of laboratories and hospitals. In addition, as part of the premarket review
process, manufacturers must establish that the device's quality control
instructions are commensurate with CLIA quality control requirements for that
device. The review period for in vitro diagnostic tests may be extended due to
these new CLIA requirements.
Therapeutic Products
To obtain FDA approval for a new (non-biological) drug or biological drug, a
company must first conduct pre-clinical studies in the laboratory and in
animal models to gain preliminary information about a product's safety. This
pre-clinical stage can take several years to complete and there can be no
assurance that such pre-clinical studies will be supportive of a product
submission to the FDA. Following pre-clinical testing, clinical trials are
conducted, typically in three sequential phases, although the phases may
overlap. The process of completing clinical testing can take a number of years
and require the expenditure of substantial resources. Additionally, the length
of time it takes for the FDA to evaluate an application for marketing approval
varies considerably as does the amount of pre-clinical and clinical data
required to demonstrate the safety and efficacy of a specific product.
Generally, biological drugs are regulated more rigorously than are other
drugs.
The process currently required by the FDA before a new human non-biologic
drug or biological drug product may be marketed in the United States includes
(i) successful conclusion of pre-clinical laboratory and animal tests, (ii)
filing with the FDA of an Investigational New Drug ("IND") application to
conduct human trials for drugs or biologic products, which must become
effective before human trials for drugs or biologic products, which must
become effective before human clinical trials may commence, (iii) successful
completion of adequate and well-controlled human clinical investigations to
establish the safety and efficacy of the drug or, in the case of a biologic,
to establish that it is safe, pure, potent and effective for its recommended
conditions of use and (iv) filing by the Company and approval by the FDA of a
New Drug Application ("NDA") for a non-biologic drug product, or a Product
License Application ("PLA") and an Establishment License Application ("ELA")
for a biological drug product. In addition to obtaining FDA approval for each
product, each manufacturing establishment must receive a satisfactory
inspection by the FDA. The prospective manufacturer's
36
<PAGE>
quality control and manufacturing procedures must conform to the FDA's drug
GMP regulations, which must be followed at all times. Biologics are subject to
separate GMP requirements in addition to drug GMPs, and also usually are
subject to lot-by-lot release requirements. In complying with standards set
forth in these GMP regulations, manufacturers must continue to expend time,
money and effort in the area of production and quality control to ensure full
technical compliance.
Any therapeutic products that the Company may develop would likely be
subject to regulation by the FDA as either a new drug or biologic. Development
and approval of new drugs or biologics within these regulatory frameworks
takes a number of years, involves the expenditure of substantial resources and
is uncertain. Many drug and biologic products that initially appear promising
ultimately do not reach the market because they are not found to be safe or
effective or cannot meet other stringent FDA regulatory requirements. In
addition, there can be no assurance that the current regulatory framework for
approval of new drugs and biologics will not change or that additional
regulations will not arise at any stage of the Company's product development
of such products that may affect approval, delay the submission or review of
an application or license or require additional expenditures by the Company.
Further, in order to hold Product and Establishment Licenses for a biologic,
Matritech would have had to participate in the manufacturing process for that
product to a significant degree. The FDA recently has changed its regulations
in regard to manufacturing. The Company believes that these regulations would
not permit it to hold PLA/ELA without performing significant manufacturing
operations. Historically, the FDA has taken three to five years to review drug
and biologic product applications. Additionally, after review of the initial
application, the FDA may request additional data requiring new non-clinical
and clinical studies. Also, the FDA will require postmarket reporting and may
require surveillance programs to monitor the side effects of the drug or
biologic product.
Pursuant to the Prescription Drug User Fee Act of 1992, drug manufacturers
will be required to pay three types of user fees: (1) a one-time application
fee for approval of a prescription NDA or PLA; (2) an annual product fee
imposed on prescription drug products after FDA approval; and (3) an annual
establishment fee imposed on facilities used to manufacture prescription
drugs. There are exemptions for certain products, and deferrals of payment and
significant discounts for small business. It also is possible that as part of
health care reform, these user fees will be increased and/or extended to other
products, including devices.
Therapeutic products that may be developed by the Company and sold outside
the United States will be subject to regulation by the country where sales are
being made and may, in some cases, require FDA approval for export from the
United States. The time required to obtain foreign regulatory approvals will
vary from country to country and may be longer or shorter than that required
for FDA approval.
Other
In order for the Company to conduct preliminary studies or clinical trials
at a hospital or other health care facility, the Company's research
collaborators must first obtain approval from the IRB of the hospital or
health care facility. In each case, a written protocol must be submitted to
the IRB describing the study or trial, which is reviewed by the IRB with a
view to protecting the safety and privacy of the institution's patients.
In addition to the regulatory framework for clinical trials and product
approvals, the Company is subject to regulation under federal, state and local
law, including requirements regarding occupational safety, laboratory
practices, environmental protection and hazardous substance control, and may
be subject to other present and possible future local, state, federal and
foreign regulation.
37
<PAGE>
EMPLOYEES
As of June 11, 1996, the Company had 45 full-time employees, 23 of whom were
engaged in research and development. The Company's future success depends in
part on its ability to recruit and retain talented and trained scientific,
technical, marketing and business personnel. The Company has been successful
to date in hiring and retaining such personnel, but there can be no assurance
that such success will continue. None of the Company's employees is
represented by a labor union, and the Company considers its relations with its
employees to be excellent.
LEGAL PROCEEDINGS
The Company is not currently a party to any litigation.
38
<PAGE>
MANAGEMENT
The following table sets forth the directors and the executive officers of
the Company, their ages as of June 12, 1996, and the positions currently held
by such person with the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stephen D. Chubb......... 52 Chairman, Director and Chief Executive Officer
David L. Corbet.......... 43 Director, President and Chief Operating Officer
Leslie R. Teso........... 37 Vice President, Finance, Treasurer and Secretary
Ying-Jye Wu, Ph.D........ 47 Vice President, Research and Development
J. Robert Buchanan,
M.D..................... 68 Director
Thomas R. Morse (1)...... 44 Director
David Rubinfien (1)...... 74 Director
T. Stephen Thompson
(1)(2).................. 49 Director
C. William Zadel (2)..... 53 Director
</TABLE>
- --------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
Mr. Chubb, a founder of Matritech, has been Chairman since October 1993 and
a director and Matritech's Chief Executive Officer since the Company's
inception in 1987. From 1984 to 1986, Mr. Chubb served as President and Chief
Executive Officer of T Cell Sciences, Inc., a publicly traded biotechnology
company. Prior to 1984, Mr. Chubb was President and Chief Executive Officer of
Cytogen Company, also a publicly traded biotechnology company. He currently
serves as a director of Charles River Laboratories, a Division of Bausch and
Lomb, a publicly traded company, and as a director of several private
companies.
Mr. Corbet has been Matritech's President, Chief Operating Officer, and a
director since October 1993, and joined the Company in April 1993 as Executive
Vice President. Prior to joining Matritech and since 1991, Mr. Corbet had
served as President and Chief Operating Officer of T Cell Diagnostics, Inc., a
subsidiary of T Cell Sciences, Inc., a publicly traded biotechnology company,
and served in various other executive and managerial offices there since 1985.
Ms. Teso has been Matritech's Vice President, Finance, Treasurer and
Secretary since March 1992. From January 1989 to March 1992, Ms. Teso was the
Company's Controller. From 1985 to 1989, Ms. Teso was Controller of Thackray
USA Inc., a subsidiary of a U.K.-based medical device manufacturer of
orthopedic implants and surgical instruments.
Dr. Wu has been Matritech's Vice President, Research and Development since
March 1995. From December 1992 to March 1995, Dr. Wu was Matritech's Vice
President, Research. From June 1990 to December 1992, Dr. Wu was Director of
Cell Biology at CytoMed, Inc., a biotechnology company. From 1987 to 1990, Dr.
Wu was a manager of research and development at Pharmacia ENI Diagnostics,
Inc., a biotechnology company.
Dr. Buchanan has served as a director of Matritech since June 1996. Dr.
Buchanan is Chairman of WorldCare Holdings N.V., a privately held telemedicine
company, a position he has held since April 1996. From 1982 until his
retirement in 1994, Dr. Buchanan served as General Director of Massachusetts
General Hospital and from 1977 to 1982, he served as President of the Michael
Reese Medical Center and Associate Dean of Pritzker School of Medicine at the
University of Chicago. Dr. Buchanan currently serves as a director of
Hybridon, Inc., a publicly traded biotechnology company, i-STAT Corporation, a
publicly traded medical equipment company, Charles River Laboratories, a
division of Bausch and Lomb, a publicly traded company, and Strategic
Management Information, Inc., a privately held software company.
Mr. Morse has served as a director of Matritech since March 1988. Since
1983, Mr. Morse has served as a Managing Director of Philadelphia Ventures
Management, Inc., a venture capital company and an investor in the Company. He
currently serves as a director of Philadelphia Ventures Liberty Fund, L.P., a
publicly traded business development company, and several private companies.
39
<PAGE>
Mr. Rubinfien has served as a director of Matritech since May 1988. Mr.
Rubinfien was Chairman and President of Systemix Inc., a biotechnology
company, from 1989 through 1990 and President and Chief Executive Officer of
Microgenics Company, a medical diagnostics company, from 1985 through 1987.
Mr. Rubinfien currently serves as a director of Molecular Biosystems, Inc., a
publicly traded biomedical company, ChemTrak, Inc., a publicly traded
biochemical company, Biocircuits, Inc., a publicly traded biomedical company,
and several private companies.
Mr. Thompson has served as a director of Matritech since May 1994. Mr.
Thompson is President, Chief Executive Officer and a director of Immtech
International, Inc., a privately held biotechnology company, which positions
he has held since 1992. From 1986 to 1992, Mr. Thompson held a number of
management positions, most recently as President and Chief Executive Officer,
at Amersham Corporation, a subsidiary of Amersham International plc. which is
a publicly traded biotechnology and health care company.
Mr. Zadel has served as a director of Matritech since December 1995. Mr.
Zadel is President and Chief Executive Officer of Millipore Corporation, a
publicly traded equipment company, which positions he has held since February
1996. From 1986 through 1995, Mr. Zadel served as President and Chief
Executive Officer of Ciba Corning Diagnostic Corporation, a biotechnology
company. Mr. Zadel currently serves, and has served since 1989, as a director
of Kulicke & Soffa Industries, Inc., a publicly traded semiconductor assembly
equipment company.
40
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth, as of June 12, 1996, certain information
regarding the ownership of shares of the Company's Common Stock and as
adjusted to reflect the sale of the Common Stock offered by this Prospectus
by: (i) each person who, to the knowledge of the Company, owned beneficially
more than 5% of the shares of Common Stock of the Company outstanding at such
date, including the Selling Stockholder, (ii) each director and executive
officer of the Company, and (iii) all directors and executive officers as a
group:
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY OWNED BENEFICIALLY OWNED
PRIOR TO OFFERING NUMBER AFTER OFFERING
NAME (1)(2) OF (1)(2)(3)
- ---- ---------------------- SHARES ----------------------
NUMBER PERCENT OFFERED NUMBER PERCENT
------------ --------- ------- ------------ ---------
<S> <C> <C> <C> <C> <C>
Stephen D. Chubb (4)..... 372,802 2.3% -- 372,802 2.1%
David L. Corbet (5)...... 92,816 * -- 92,816 *
J. Robert Buchanan,
M.D..................... -- -- -- -- --
Thomas R. Morse (6)...... 685,440 4.3% 200,000 485,440 2.7%
David Rubinfien (7)...... 27,849 * -- 27,849 *
T. Stephen Thompson (8).. 19,649 * -- 19,649 *
C. William Zadel (9)..... 2,150 * -- 2,150 *
Leslie R. Teso (10)...... 16,435 * -- 16,435 *
Ying-Jye Wu, Ph.D. (11).. 36,550 * -- 36,550 *
All executive directors
and executive officers,
as a group
(9 persons) (12)........ 1,253,691 7.7% 200,000 1,053,691 5.9%
SELLING STOCKHOLDER
Century IV Partners
(13).................... 390,190 2.4% 200,000 190,190 1.1%
</TABLE>
- --------
* Indicates less than 1%
(1) Except as indicated in footnotes to this table, the persons named in this
table have sole voting and investment power with respect to all shares of
Common Stock owned based upon information provided to the Company by the
directors, officers and principal stockholders.
(2) The number of shares of Common Stock deemed outstanding for this
calculation includes (i) 15,978,009 shares of Common Stock outstanding on
June 12, 1996 and 17,778,009 shares of Common Stock outstanding after this
offering and (ii) all Common Stock underlying options or warrants which
are currently exercisable or will become exercisable within 60 days of
June 12, 1996 by the person or group in question.
(3) Assumes no exercise of the Underwriters' over-allotment option.
(4) Mr. Chubb's beneficial ownership includes currently exercisable bridge
loan warrants to purchase 4,688 shares of Common Stock which are
exercisable on June 12, 1996 or within 60 days thereafter.
(5) Mr. Corbet's beneficial ownership includes 89,750 shares issuable upon
exercise of outstanding stock options exercisable on June 12, 1996 or
within 60 days thereafter. Mr. Corbet holds all of his issued shares
jointly with his wife.
(6) Mr. Morse's beneficial ownership includes 629,497 shares of Common Stock
and 36,626 warrants to purchase Common Stock, held by Century IV Partners,
Commonwealth Venture Partners I, L.P., Pennsylvania Venture Partners, L.P.
and Philadelphia Ventures--Japan I, L.P. (collectively, the "Philadelphia
Venture Funds") and 8,649 shares issuable to Mr. Morse upon exercise of
outstanding stock options exercisable on June 12, 1996 or within 60 days
thereafter. Mr. Morse is a Managing Director of Philadelphia Ventures,
Inc., which serves as a general partner or investment manager to each of
the Philadelphia Ventures Funds, and may be deemed to share voting and
investment power with respect to such shares of Common Stock. Mr. Chubb,
Chairman, CEO, and a director of the Company is a limited partner of
Pennsylvania Venture Partners and an advisor to the Philadelphia Venture
Funds. Mr. Morse disclaims beneficial ownership of the shares beneficially
owned by the Philadelphia Venture Funds. Ownership stated above is
according to information submitted to the Company as of June 12, 1996.
Century IV Partners intends to sell 200,000 shares in this offering.
41
<PAGE>
(7) Mr. Rubinfien's beneficial ownership includes 27,849 shares issuable upon
exercise of outstanding stock options exercisable on June 12, 1996 or
within 60 days thereafter.
(8) Mr. Thompson's beneficial ownership includes 9,149 shares issuable upon
exercise of outstanding stock options exercisable on June 12, 1996 or
within 60 days thereafter.
(9) Mr. Zadel's beneficial ownership includes 2,150 shares issuable upon
exercise of outstanding stock options exercisable on June 12, 1996 or
within 60 days thereafter.
(10) Ms. Teso's beneficial ownership includes 9,610 shares issuable upon
exercise of outstanding stock options exercisable on June 12, 1996 or
within 60 days thereafter.
(11) Dr. Wu's beneficial ownership includes 31,250 shares issuable upon
exercise of outstanding stock options exercisable on June 12, 1996 or
within 60 days thereafter.
(12) Includes 178,407 shares issuable upon exercise of outstanding stock
options and 41,314 shares issuable pursuant to warrants exercisable on
June 12, 1996 or within 60 days thereafter. Does not include beneficial
holdings of directors or officers who resigned during 1995.
(13) Century IV Partners' beneficial ownership includes bridge loan warrants
to purchase 19,429 shares of Common Stock which are exercisable on June
12, 1996 or within 60 days thereafter. See "Description of Capital
Stock--Warrants." Mr. Morse is a Managing Director of Philadelphia
Ventures, Inc., which serves as the investment manager to Century IV
Partners.
42
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of Matritech consists of 40,000,000 shares of
Common Stock, $.01 par value per share, of which 15,978,009 were issued and
outstanding as of June 12, 1996, and 4,000,000 shares of Preferred Stock,
$1.00 par value per share, none of which are currently issued and outstanding.
COMMON STOCK
After giving effect to the sale of the shares offered hereby there will be
approximately 17,778,009 shares of Common Stock outstanding (assuming no
exercise of the Underwriters' over-allotment option). Holders of Common Stock
are entitled to one vote per share on matters to be voted upon by the
stockholders. Holders of Common Stock are entitled to receive dividends when
and if declared by the board of directors and to share ratably in the assets
of the Company legally available for distribution to stockholders upon
liquidation of the Company. Holders of Common Stock have no preemptive,
subscription, redemption or conversion rights. All outstanding shares of
Common Stock are, and the shares to be sold in the offering made hereby, upon
issuance and payment therefor, will be validly issued, fully paid and
nonassessable.
PREFERRED STOCK
The board of directors is authorized to issue Preferred Stock in different
series and classes and to fix the dividend rights, dividend rate, conversion
rights, voting rights, rights and terms of redemption (including sinking fund
provision), liquidation preferences and other rights and preferences of the
Preferred stock not in conflict with Matritech's Amended and Restated
Certificate of Incorporation. There are currently no shares of Preferred Stock
outstanding. The board of directors, without stockholder approval, can issue
Preferred Stock with voting and conversion rights that could adversely affect
the voting power of holders of Common Stock. The issuance of Preferred Stock
may have the effect of delaying, deferring or preventing a change in control
of the Company. The Company has no present plans to issue any shares of
Preferred Stock.
WARRANTS
In connection with the Company's initial public offering in 1992, the
Company issued Hanifen, Imhoff Inc., the representative of the underwriters in
the initial public offering, for nominal consideration, warrants (the "Hanifen
Warrants") currently for a remaining 4,333 shares of Common Stock at an
exercise price of $3.09 per share, as adjusted. The Hanifen Warrants are
exercisable for four years beginning July 9, 1993. The Hanifen Warrants
contain provisions providing for adjustment of the exercise price and the
number and type of securities issuable upon the occurrence of certain events,
including the issuance of Common Stock or other securities convertible into or
exercisable for Common Stock at a price per share less than the exercise
price, or in the event of any recapitalization, reclassification, stock
dividend, stock split, stock combination or similar transaction. The Hanifen
Warrants contain net issuance provisions permitting the holder thereof to
elect to exercise the Hanifen Warrants in whole or in part and instruct the
Company to withhold from the shares of Common Stock issuable upon exercise a
number of shares, valued at the current fair market value on the date of
exercise, to pay the exercise price. The Hanifen Warrants grant to the holder
thereof certain registration rights.
Upon the closing of the Company's initial public offering of Common Stock,
parties making certain bridge loans received, pro rata based on funds advanced
to the Company, warrants (the "Initial Bridge Warrants") currently exercisable
for a remaining 19,026 shares of Common Stock at an exercise price of $3.09
per share, as adjusted. The Initial Bridge Warrants are exercisable for a term
of five years beginning July 16, 1993. The Initial Bridge Warrants are
substantially in the form of the Hanifen Warrants. Certain parties making
further bridge loans received, pro rata based on funds advanced to the
Company, warrants (the "Second Bridge Warrants") currently exercisable for a
remaining 25,071 shares of Common Stock at an exercise price of $2.82 per
share. The Second Bridge Warrants have a term of five years and will be
exercisable beginning July 16, 1993. The Second Bridge Warrants have
substantially the same terms as the Hanifen Warrants.
43
<PAGE>
In connection with the Company's second public offering in 1993, the Company
issued Thomas James Associates, Inc., the representative of the underwriters
in the second public offering, for nominal consideration, warrants (the
"Thomas James Warrants") currently exercisable for a remaining 40,000 shares
of Common Stock at an exercise price of $1.80 per share. The Thomas James
Warrants are exercisable for four years beginning August 13, 1994. The Thomas
James Warrants have substantially the same terms as the Hanifen Warrants. The
Thomas James Warrants grant to the holder thereof certain registration rights.
In connection with the Company's equity financing in 1994, the Company
issued to Jesup & Lamont Securities Corporation, as Selling Agent, for nominal
consideration, warrants (the "Selling Agent Warrants") currently exercisable
for a remaining 20,000 units consisting of Common Stock and Class B Common
Stock Purchase Warrants ("Class B Warrants"), which are currently held by H.J.
Meyers (formerly Thomas James Associates, Inc.) at an exercise price of $2.25
per unit. The Selling Agent Warrants are exercisable until September 2, 1999
and contain net issuance provisions permitting the holder thereof to elect to
exercise such warrants in whole or in part and instruct the Company to
withhold from the shares of Common Stock issuable upon exercise a number of
shares, valued at the current fair market value on the date of exercise, to
pay the exercise price. The Selling Agent Warrants also contain provisions
providing for adjustment of the exercise price issuable upon the occurrence of
certain events. There are 10,000 Class B Warrants which are currently
outstanding, and 20,000 Class B Warrants which may be issued upon the exercise
of outstanding Selling Agent Warrants. Class B Warrants are exercisable at a
price of $2.06 per share until September 2, 1999, and contain net issuance
provisions and adjustment provisions similar to those contained in the Selling
Agent Warrants. Pursuant the terms of the Selling Agent Warrant, the shares
underlying the Selling Agent Warrants and the Class B Warrants, have been
registered for resale.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent, warrant agent and registrar for its Common
Stock is Boston EquiServe Limited Partnership.
44
<PAGE>
UNDERWRITING
The Underwriters named below, represented by Montgomery Securities and
Genesis Merchant Group Securities (the "Representatives"), have severally
agreed, subject to the terms and conditions set forth in the Underwriting
Agreement, to purchase from the Company and the Selling Stockholder the number
of shares of Common Stock set forth opposite their respective names in the
table below. The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, and that the
Underwriters are committed to purchase all of the shares if they purchase any
of the shares.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Montgomery Securities...........................................
Genesis Merchant Group Securities...............................
---------
Total........................................................ 2,000,000
=========
</TABLE>
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters propose initially to offer the Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow to selected dealers a concession of not more than
$ per share, and the Underwriters may allow, and such dealers may
reallow, a concession of not more than $ per share to certain other
dealers. After the public offering, the offering price and other selling terms
may be changed by the Representatives. The Common Stock is offered subject to
receipt and acceptance by the Underwriters and to certain other conditions,
including the right to reject orders in whole or in part.
In connection with this offering, the Underwriters may engage in passive
market making transactions in the Common Stock on the Nasdaq National Market,
in accordance with Rule 10b-6A under the Exchange Act. Passive market making
consists of displaying bids on the Nasdaq National Market that are limited by
the bid prices of independent market makers and completing purchases in
response to order flow at prices limited by such bids. Net purchases by a
passive market maker on each day are limited to a specified percentage of the
passive market maker's average daily trading volume in the Common Stock during
a specified prior period. Purchases by the passive market maker must be
discontinued when such limit is reached. Passive market making may stabilize
the market price of the Common Stock at a level above that which might
otherwise prevail and, if commenced, may be discontinued at any time.
The Company has granted an option to the Underwriters, exercisable during
the 30-day period after the date of this Prospectus, to purchase up to a
maximum of 300,000 additional shares of Common Stock to cover over-allotments,
if any, at the same price per share as the initial 2,000,000 shares to be
purchased by the Underwriters. To the extent that the Underwriters exercise
the option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this offering.
The Underwriting Agreement provides that the Company and the Selling
Stockholder will indemnify the Underwriters against certain liabilities,
including civil liabilities under the Securities Act, or will contribute to
payments the Underwriters may be required to make in respect thereof.
The closing of this offering is subject to certain conditions, including
receipt by the Representatives of certain certificates, legal opinions,
comfort letters from the Company's independent public accountants and other
information, all as more specifically described in the Underwriting Agreement.
This offering may be commenced in anticipation of satisfying these conditions,
but there can be no assurance that all of the conditions to closing will be
satisfied and failure to satisfy such conditions may result in termination of
this offering.
Certain of the Company's current stockholders, including directors and
officers of the Company and the Selling Stockholder, have agreed that for a
period of 90 days after the date of this Prospectus they will not,
45
<PAGE>
without the prior written consent of Montgomery Securities, directly or
indirectly offer to sell, sell or contract to sell otherwise dispose of any
shares of Common Stock or any securities convertible into or exchangeable for
any shares of Common Stock. In addition, the Company has agreed that for a
period of 90 days after the date of this Prospectus it will not, without the
prior written consent of Montgomery Securities, issue, offer, sell, grant
options to purchase or otherwise dispose of any of its equity securities or
any other securities convertible into or exchangeable with its Common Stock or
other equity security except for (i) the sale of shares of Common Stock
offered hereby (ii) the issuance of shares of Common Stock pursuant to the
exercise of outstanding warrants disclosed in this Prospectus, (iii) the
issuance of shares of Common Stock pursuant to the exercise of outstanding
options disclosed in this Prospectus, or (iv) the grant of options granted
under the Company's stock plans disclosed in this Prospectus upon terms and in
amounts consistent with past practice.
LEGAL MATTERS
Legal matters in connection with the validity of the issuance of the
securities offered hereby will be passed upon for the Company by Testa,
Hurwitz & Thibeault, LLP, Boston, Massachusetts. A partner at Testa, Hurwitz &
Thibeault, LLP beneficially owns 1,000 shares of the Company's Common Stock.
Certain legal matters related to government regulation will be passed upon by
Hogan & Hartson, L.L.P., Washington, D.C. Certain legal matters will be passed
upon for the Underwriters by Hale and Dorr, Boston, Massachusetts.
EXPERTS
The financial statements as of December 31, 1994 and 1995 and for the three
years in the period ended December 31, 1995 included in this Prospectus and
elsewhere in the Registration Statement have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of
said firm as experts in giving said reports.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith, files reports, proxy and information statements and other
information with the Securities and Exchange Commission (the "Commission").
Reports, proxy and information statements filed by the Company with the
Commission pursuant to the informational requirements of the Exchange Act may
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Regional Offices at 7 World Trade Center,
13th Floor, New York, New York 10048 and Northwestern Atrium Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
material can also be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549 at prescribed rates. In addition, reports, proxy statements and
other information concerning the Company (symbol: NMPS) can be inspected and
copied at the Nasdaq Stock Market, 1735 K Street, N.W., Washington, DC 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement," which term shall include all amendments,
exhibits, annexes and schedules thereto), under the Securities Act of 1933, as
amended (the "Securities Act"), with respect to the Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto, certain
parts of which are omitted in accordance with the rules and regulations of the
Commission. Copies of the Registration Statement, including all exhibits
thereto, may be obtained from the Commission's principal office in Washington
D.C. upon payment of the fees prescribed by the Commission or may be examined
without charge at the offices of the Commission as described above.
46
<PAGE>
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-12128) are incorporated in this Prospectus by reference, except as
superseded or modified herein:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as amended, filed pursuant to the Exchange Act.
2. The Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
March 31, 1996, as amended, filed pursuant to the Exchange Act.
3. The Company's Proxy Statement for its Annual Meeting of Stockholders
held on June 7, 1996, filed pursuant to the Exchange Act.
4. The description of the Company's Common Stock, $.01 par value per share,
contained in the Company's Registration Statement on Form 8-A, dated
March 10, 1992, filed pursuant to the Exchange Act.
Each document filed by the Company subsequent to the date of this Prospectus
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus but prior to the termination of the offering made
hereby, shall be deemed to be incorporated by reference in this Prospectus and
shall be a part hereof from the date of filing of such document. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be modified or superseded, for purposes of this Prospectus, to
the extent that a statement contained herein or in any subsequently filed
document which is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom this
Prospectus is delivered, upon the written or oral request of any such person,
a copy of any or all of the documents incorporated by reference herein (other
than exhibits to such documents unless such exhibits are specifically
incorporated by reference into such documents). Requests for such copies
should be directed to Vice President, Finance, at the principal executive
offices of the Company, 330 Nevada Street, Newton, Massachusetts 02160,
telephone (617) 928-0820.
47
<PAGE>
MATRITECH, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Public Accountants.................................. F-2
Balance Sheets as of December 31, 1994 and 1995 and March 31, 1996
(Unaudited).............................................................. F-3
Statements of Operations for the Years Ended December 31, 1993, 1994 and
1995 and for the three Months Ended March 31, 1995 and 1996 (Unaudited).. F-4
Statements of Stockholders' Equity for the Years Ended December 31, 1993,
1994 and 1995 and for the Three Months Ended March 31, 1996 (Unaudited).. F-5
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and
1995 and for the Three Months Ended March 31, 1995 and 1996 (Unaudited).. F-6
Notes to Financial Statements............................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Matritech, Inc.:
We have audited the accompanying balance sheets of Matritech, Inc. (a
Delaware corporation) as of December 31, 1994 and 1995, and the related
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended December 31, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Matritech, Inc. as of
December 31, 1994 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
February 7, 1996
F-2
<PAGE>
MATRITECH, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------- MARCH 31,
1994 1995 1996
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents..... $3,974,237 $11,009,310 $10,975,658
Accounts receivable........... 2,672 113,139 111,648
Inventories................... 53,833 192,385 236,107
Interest receivable and
prepaid expenses............. 74,321 131,947 133,568
---------- ----------- -----------
Total current assets........ 4,105,063 11,446,781 11,456,981
---------- ----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Laboratory equipment.......... 697,975 729,935 782,537
Office equipment.............. 124,176 137,876 143,177
Laboratory furniture.......... 40,534 44,511 54,013
Leasehold improvements........ 4,465 39,671 39,671
---------- ----------- -----------
867,150 951,993 1,019,398
Less--Accumulated depreciation
and amortization............. 520,416 596,721 619,335
---------- ----------- -----------
346,734 355,272 400,063
---------- ----------- -----------
OTHER ASSETS, NET............... 130,397 157,150 149,924
---------- ----------- -----------
$4,582,194 $11,959,203 $12,006,968
========== =========== ===========
</TABLE>
<TABLE>
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of note
payable............... $ 16,644 $ 18,387 $ 13,960
Accounts payable....... 198,270 340,560 440,422
Accrued expenses....... 190,826 214,178 310,002
Deferred revenue....... 280,000 34,900 --
------------ ------------ ------------
Total current
liabilities......... 685,740 608,025 764,384
------------ ------------ ------------
NOTE PAYABLE, NET OF
CURRENT PORTION......... 18,387 -- --
------------ ------------ ------------
COMMITMENTS (Note 3)
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--9,768,370
shares in 1994,
15,194,127 shares in
1995 and 15,921,346
shares in 1996........ 97,684 151,941 159,213
Additional paid-in
capital............... 20,688,840 32,174,967 33,465,927
Less--Deferred
compensation.......... 15,322 -- --
Accumulated deficit.... (16,893,135) (20,975,730) (22,382,556)
------------ ------------ ------------
Total stockholders'
equity.............. 3,878,067 11,351,178 11,242,584
------------ ------------ ------------
$ 4,582,194 $ 11,959,203 $ 12,006,968
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MATRITECH, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUES:
Collaborative research
and development,
license fees and
product sales........ $ 187,071 $ 1,314,334 $ 1,023,438 $ 74,424 $ 178,693
Interest and other
income............... 81,218 91,591 216,865 53,379 153,593
----------- ----------- ----------- ----------- -----------
Total revenues...... 268,289 1,405,925 1,240,303 127,803 332,286
----------- ----------- ----------- ----------- -----------
EXPENSES:
Research and
development.......... 2,728,224 3,470,122 3,014,125 785,273 933,142
Selling, general and
administrative....... 1,820,798 1,591,525 2,308,773 506,333 805,970
----------- ----------- ----------- ----------- -----------
Total expenses...... 4,549,022 5,061,647 5,322,898 1,291,606 1,739,112
----------- ----------- ----------- ----------- -----------
Net loss............ $(4,280,733) $(3,655,722) $(4,082,595) $(1,163,803) $(1,406,826)
=========== =========== =========== =========== ===========
NET LOSS PER COMMON
SHARE.................. $ (0.80) $ (0.46) $ (0.38) $ (0.12) $ (0.09)
=========== =========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF COMMON SHARES
OUTSTANDING............ 5,319,072 7,951,721 10,733,769 9,786,294 15,665,045
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
MATRITECH, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
------------------- ADDITIONAL TOTAL
NUMBER PAR PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
OF SHARES VALUE CAPITAL COMPENSATION DEFICIT EQUITY
---------- -------- ----------- ------------ ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1992................... 4,274,428 $ 42,744 $12,792,240 $(94,367) $ (8,956,680) $ 3,783,937
Sale of common stock,
net of commissions and
issuance costs of
$754,209.............. 2,690,000 26,900 3,253,897 -- -- 3,280,797
Exercise of common
stock options......... 48,513 485 64,720 -- -- 65,205
Issuance of common
stock under employee
stock purchase plan... 1,492 15 6,326 -- -- 6,341
Amortization of
deferred compensation,
net of option
forfeitures........... -- -- (61,917) 62,341 -- 424
Net loss............... -- -- -- -- (4,280,733) (4,280,733)
---------- -------- ----------- -------- ------------ -----------
BALANCE, DECEMBER 31,
1993................... 7,014,433 70,144 16,055,266 (32,026) (13,237,413) 2,855,971
Sale of common stock,
net of commissions and
issuance costs of
$748,797.............. 2,746,358 27,464 4,623,118 -- -- 4,650,582
Exercise of common
stock options......... 4,550 46 3,685 -- -- 3,731
Issuance of common
stock under employee
stock purchase plan... 3,029 30 8,981 -- -- 9,011
Amortization of
deferred compensation,
net of option
forfeitures........... -- -- (2,210) 16,704 -- 14,494
Net loss............... -- -- -- -- (3,655,722) (3,655,722)
---------- -------- ----------- -------- ------------ -----------
BALANCE, DECEMBER 31,
1994................... 9,768,370 97,684 20,688,840 (15,322) (16,893,135) 3,878,067
Sale of common stock,
net of commissions and
issuance costs of
$241,789.............. 3,000,000 30,000 6,628,211 -- -- 6,658,211
Exercise of common
stock purchase
warrants, net of
commissions and
issuance costs of
$168,884.............. 2,342,373 23,424 4,632,980 -- -- 4,656,404
Exercise of common
stock options......... 72,663 726 53,674 -- -- 54,400
Issuance of common
stock under employee
stock purchase plan... 10,721 107 18,655 -- -- 18,762
Redemption of common
stock purchase
warrants.............. -- -- (400) -- -- (400)
Amortization of
deferred compensation,
net of option
forfeitures........... -- -- 153,007 15,322 -- 168,329
Net loss............... -- -- -- -- (4,082,595) (4,082,595)
---------- -------- ----------- -------- ------------ -----------
BALANCE, DECEMBER 31,
1995................... 15,194,127 151,941 32,174,967 -- (20,975,730) 11,351,178
Exercise of common
stock options
(unaudited)........... 28,605 286 47,531 -- -- 47,817
Exercise of common
stock purchase
warrants (unaudited).. 692,754 6,927 1,233,233 -- -- 1,240,160
Issuance of common
stock under employee
stock purchase plan
(unaudited)........... 5,860 59 10,196 -- -- 10,255
Net loss (unaudited)... -- -- -- -- (1,406,826) (1,406,826)
---------- -------- ----------- -------- ------------ -----------
BALANCE, MARCH 31, 1996
(UNAUDITED)............ 15,921,346 $159,213 $33,465,927 $ -- $(22,382,556) $11,242,584
========== ======== =========== ======== ============ ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MATRITECH, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
------------------------------------- ------------------------
1993 1994 1995 1995 1996
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss................ $(4,280,733) $(3,655,722) $(4,082,595) $(1,163,803) $(1,406,826)
Adjustments to reconcile
net loss to net cash
used in operating
activities--
Depreciation and
amortization........... 109,513 103,064 112,158 27,013 29,840
Amortization of
deferred
compensation........... 424 14,494 168,329 9,415 --
Changes in assets and
liabilities--
Accounts receivable.... 52,581 8,098 (110,467) (20,414) 1,491
Inventories............ (52,629) (1,204) (138,552) (18,714) (43,722)
Interest receivable
and prepaid
expenses.............. (2,483) 83 (57,626) (8,427) (1,621)
Accounts payable....... 105,728 (22,977) 142,290 25,277 99,862
Accrued expenses....... 34,086 43,433 23,352 31,027 95,824
Deferred revenue....... -- 280,000 (245,100) -- (34,900)
----------- ----------- ----------- ----------- -----------
Net cash used in
operating
activities........... (4,033,513) (3,230,731) (4,188,211) (1,118,626) (1,260,052)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment.............. (176,963) (30,520) (91,792) (17,090) (67,405)
Increase in other
assets................. (42,856) (68,853) (55,657) -- --
Decrease in marketable
securities............. 990,213 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in)
investing activities.. 770,394 (99,373) (147,449) (17,090) (67,405)
----------- ----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from sale of
common stock and
warrants............... 3,280,797 4,650,582 6,658,211 -- --
Proceeds from the
exercise of common
stock
purchase warrants...... -- -- 4,656,404 (43,527) 1,240,160
Proceeds from exercise
of common stock
options................ 65,205 3,731 54,400 -- 47,817
Proceeds from issuance
of common stock under
employee stock purchase
plan................... 6,341 9,011 18,762 18,762 10,255
Payments on redemption
of warrants............ -- -- (400) -- --
Payments on note
payable................ (13,644) (15,066) (16,644) (4,008) (4,427)
Decrease in deferred
offering costs......... 58,418 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net cash provided by
(used in)
financing activities.. 3,397,117 4,648,258 11,370,733 (28,773) 1,293,805
----------- ----------- ----------- ----------- -----------
INCREASE (DECREASE) IN
CASH AND
CASH EQUIVALENTS........ 133,998 1,318,154 7,035,073 (1,164,489) (33,652)
CASH AND CASH
EQUIVALENTS, BEGINNING
OF PERIOD............... 2,522,085 2,656,083 3,974,237 3,974,237 11,009,310
----------- ----------- ----------- ----------- -----------
CASH AND CASH
EQUIVALENTS, END OF
PERIOD.................. $ 2,656,083 $ 3,974,237 $11,009,310 $ 2,809,748 $10,975,658
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
Matritech, Inc. (the Company), incorporated on October 29, 1987, develops,
manufactures and markets innovative cancer diagnostic products based on its
proprietary nuclear matrix protein technology. This technology was licensed to
the Company by the Massachusetts Institute of Technology (MIT). The Company
was considered a development stage company until the fourth quarter of 1995,
when the Company significantly increased its product revenue.
The Company is devoting substantially all of its efforts toward product
research and development, raising capital, and marketing 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. See "Risk Factors" on pages 6
to 11 of this Registration Statement.
In 1995, the Company began to sell its NMP22 Test Kits through its then
exclusive distributor in Europe. The Company is currently awaiting FDA
approval to begin selling the NMP22 Test Kit in the United States.
The accompanying financial statements reflect the application of certain
accounting policies as described in this note and elsewhere in the
accompanying financial statements and notes.
(a) Interim Financial Statements
The accompanying balance sheet as of March 31, 1996, the statements of
operations and cash flows for the three months ended March 31, 1995 and 1996
and the statement of stockholders' equity for the three months ended March 31,
1996 are unaudited, but in the opinion of management, include all adjustments,
consisting only of normal recurring adjustments necessary for a fair
presentation of the financial position and results of operations for these
periods. Results for the three months ended March 31, 1996 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1996.
(b) Cash Equivalents
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. The Company applies Statement
of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain
Investments in Debt and Equity Securities. Under SFAS No. 115, securities that
the Company has the positive intent and ability to hold to maturity are
reported at amortized cost, which approximated market value for all periods
presented, and are classified as held-to-maturity. These securities include
cash and cash equivalents, which consist of auction market preferred stocks at
December 31, 1994 and 1995 and auction market preferred stocks and United
States Government Treasury Notes at March 31, 1996.
(c) Depreciation and Amortization
The Company provides for depreciation and amortization using accelerated and
straight-line methods by charges to operations in amounts that allocate the
cost of property and equipment over their estimated useful lives as follows:
<TABLE>
<CAPTION>
ASSET CLASSIFICATION USEFUL LIFE
-------------------- -------------
<S> <C>
Laboratory equipment.......................................... 10 Years
Office equipment.............................................. 5 Years
Laboratory furniture.......................................... 5 Years
Leasehold improvements........................................ Life of lease
</TABLE>
F-7
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(c) Depreciation and Amortization (Continued)
The Company amortizes certain intangible assets, including license fees,
over their estimated useful lives of three to five years.
(d) Uses of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(e) Inventories
Inventories are stated at the lower of cost (weighted average) or market and
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1994 1995 1996
------- -------- ---------
<S> <C> <C> <C>
Raw materials..................................... $39,410 $ 80,472 $112,782
Work-in-process................................... 1,192 2,977 4,510
Finished goods.................................... 13,231 108,936 118,815
------- -------- --------
$53,833 $192,385 $236,107
======= ======== ========
</TABLE>
(f) Revenue Recognition
The Company recognizes revenue from collaborative research and development
arrangements as milestones are achieved; revenue from nonrefundable license
agreements upon the signing of the agreement; and revenue from products sales
upon shipment.
(g) Research and Development
Research and development expenses are expensed as incurred and include both
funded and unfunded research and development expenses.
(h) Net Loss per Common Share
Net loss per common share was computed using the weighted average number of
common shares outstanding during the period. Common stock equivalents have not
been included, as their impact would be antidilutive.
(i) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit
Risk, requires disclosure of any significant off-balance-sheet and credit risk
concentrations. The Company has no significant off-balance-sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains its cash and cash
equivalents with two financial institutions. The Company has not written off
any of its accounts receivable to date.
F-8
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
(i) Concentration of Credit Risk (Continued)
The Company received revenue of greater than 10% of total collaborative
research and development, license fees and product sales from the following
number of customers during the following periods:
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
--------------------------------
CUSTOMER
SIGNIFICANT --------------------------------
CUSTOMERS A B C D E F G H
----------- ---- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1993.... 1 100% -- -- -- -- -- -- --
Year ended December 31, 1994.... 2 -- 55% 29% -- -- -- -- --
Year ended December 31, 1995.... 2 -- 27% -- 21% -- -- -- --
Three months ended March 31,
1995........................... 3 -- -- 33% -- 47% 17% -- --
Three months ended March 31,
1996........................... 4 -- -- -- -- 26% 15% 31% 20%
</TABLE>
(j) Financial Instruments
The estimated fair value of the Company's financial instruments, which
include cash equivalents and accounts receivable approximate their carrying
value.
(k) Postretirement Benefits
The Company has no obligations for postretirement benefits.
(2) INCOME TAXES
The Company follows the provisions of SFAS No. 109, Accounting for Income
Taxes. Under the provisions of SFAS No. 109, the Company recognizes a current
tax liability or asset for current taxes payable or refundable and a deferred
tax liability or asset for the estimated future tax effects of temporary
differences between the carrying value of assets and liabilities for financial
reporting and their tax basis and carryforwards to the extent they are
realizable.
At December 31, 1995, the Company had available net operating loss
carryforwards of approximately $21,160,000 for income tax purposes, which may
be used to offset future taxable income, if any. The carryforwards expire
through 2010 and are subject to review and possible adjustment by the Internal
Revenue Service. The net operating loss carryforwards available to be used in
any given year may be limited in the event of a significant change in
ownership. The Company's net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1994 1995
----------- -----------
<S> <C> <C>
Net operating loss carryforwards................... $ 6,800,000 $ 8,464,000
Depreciation....................................... (32,000) (26,000)
Tax credits........................................ 138,000 173,000
----------- -----------
Net deferred tax asset........................... 6,906,000 8,611,000
Valuation allowance................................ (6,906,000) (8,611,000)
----------- -----------
$ -- $ --
=========== ===========
</TABLE>
Due to its history of operating losses, the Company has not recorded a
deferred tax asset for the potential future benefit of its net operating loss
carryforwards, as the realization of such asset is uncertain.
F-9
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(3) LEASE COMMITMENTS
The Company leases office and laboratory facilities and certain equipment
under operating leases that expire through 2000. Annual commitments under
these operating leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ ----------
<S> <C>
1996.......................... $ 260,000
1997.......................... 243,000
1998.......................... 235,000
1999.......................... 234,000
2000.......................... 231,000
----------
$1,203,000
==========
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 and the
three months ended March 31, 1995 and 1996 was approximately $262,000,
$344,000, $371,000, $88,000 and $96,000, respectively.
(4) NOTE PAYABLE
The Company has an obligation under an equipment note payable, which is due
in monthly installments through December 1996.
(5) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1994 1995 1996
-------- -------- ---------
<S> <C> <C> <C>
Payroll and related costs........................ $ 42,820 $ 45,976 $105,116
Professional fees................................ 44,689 52,467 54,367
Printing and design costs........................ 35,000 34,973 36,248
Clinical trials costs............................ 63,281 60,525 48,150
Royalties........................................ -- -- 45,914
Other............................................ 5,036 20,237 20,207
-------- -------- --------
$190,826 $214,178 $310,002
======== ======== ========
</TABLE>
(6) LICENSE AGREEMENT
MIT has granted the Company a worldwide exclusive license to certain
technology, which expires no sooner than December 1999, which will be extended
if the Company obtains FDA approval of its first cancer diagnostic product in
1996 until the expiration of all patent rights in 2006. Upon termination of
the exclusivity provision, the Company may continue to develop and market
products under nonexclusive terms. Pursuant to the license agreement, the
Company pays royalties on the sales of products incorporating the licensed
technology.
(7) COMMON STOCK
(a) Sales of Common Stock
On September 2, 1994, the Company completed a private placement of 2,346,373
units (the Units) for $1.875 per Unit. Each Unit consisted of one share of the
Company's common stock and one Class A redeemable common stock purchase
warrant, having an exercise price equal to $2.06 per share and a term of five
years. The
F-10
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) COMMON STOCK--(CONTINUED)
(a) Sales of Common Stock (Continued)
Company received net proceeds of approximately $3.6 million after commissions
and estimated expenses of the offering. During 1995, 2,342,373 of these
warrants were exercised at $2.06 per share. Net proceeds from the exercise
after commissions totaled $4,656,404. The Company redeemed the remaining 4,000
warrants for $.10 per warrant.
In addition, the Company issued a warrant to purchase 234,637 additional
Units at an exercise price equal to $2.25 per Unit to the placement agent
(Placement Agent Warrants). During the three months ended March 31, 1996,
214,637 of the Placement Agent Warrants were exercised, pursuant to which the
Company issued 400,693 shares of common stock and warrants to purchase 30,000
shares of common stock at $2.06 per share through September 1999.
In September 1995, the Company completed a private placement of 3,000,000
shares of common stock for $2.30 per share. Net proceeds from the private
placement totaled $6,658,211 after commissions and offering expenses.
(b) Warrants
In connection with the Company's bridge financings and public offerings, the
Company issued warrants to purchase common stock. The exercise price and
number of shares issuable pursuant to certain warrants are subject to further
adjustment for dilutive events, as defined. The following table summarizes the
warrants (exclusive of the warrants discussed in Note 7(a)) and their
attributes as of December 31, 1995:
<TABLE>
<CAPTION>
NUMBER EXERCISE
GRANT DATE OF WARRANTS PRICE EXPIRATION DATE
---------- ----------- -------- ---------------
<S> <C> <C> <C>
February and March 1992................. 56,640 $3.09 July 1998
May 1992................................ 74,628 $2.82 July 1998
July 1992............................... 167,648 $3.09 July and
August 1997
July 1993............................... 200,000 $1.80 July 1998
</TABLE>
During the three months ended March 31, 1996, 383,249 of these warrants were
exercised and resulted in the net issuance of 292,061 shares of common stock.
(c) Stock Option and Purchase Plans
The Company has granted incentive and nonqualified options under its 1988
and 1992 option plans and the 1992 Directors' Plan. All option grants, prices
and vesting periods are determined by the Board of Directors. Incentive stock
options must be granted at a price not less than the fair market value on the
date of grant, as determined by the Board of Directors. The Company is
accounting for option grants in accordance with Accounting Principles Board
Opinion No. 25.
On June 7, 1996, the Stockholders of the Company approved an increase in the
numbers of authorized shares pursuant to the 1992 Stock Plan from 625,000 to
1,000,000.
F-11
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(7) COMMON STOCK--(CONTINUED)
(c) Stock Options and Purchase Plans--(Continued)
There are 698,444 common shares available for future grants under existing
option plans. The following table summarizes stock option activity:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE
OF OPTIONS PER SHARE
---------- ------------
<S> <C> <C>
Options outstanding, December 31, 1992............... 303,700 $ .82-$5.00
Granted............................................ 179,600 1.63- 3.38
Exercised.......................................... (48,513) .82- 1.76
Terminated......................................... (54,274) 1.37- 5.00
------- -----------
Options outstanding, December 31, 1993............... 380,513 .82- 5.00
Granted............................................ 18,806 2.00- 3.31
Exercised.......................................... (4,550) .82
Terminated......................................... (17,655) .82- 5.00
------- -----------
Options outstanding, December 31, 1994............... 377,114 .82- 5.00
Granted............................................ 162,762 .83- 3.63
Exercised.......................................... (91,652) .83- 2.00
Terminated......................................... (10,100) 1.76- 3.38
------- -----------
Options outstanding, December 31, 1995............... 438,124 .82- 5.00
Granted............................................ 40,736 4.00
Exercised.......................................... (28,605) .82- 3.38
Terminated......................................... (18,298) 2.31- 2.38
------- -----------
Options outstanding, March 31, 1996.................. 431,957 $ .82-$5.00
======= ===========
Options exercisable, March 31, 1996.................. 223,036 $ .82-$5.00
======= ===========
</TABLE>
The Company has reserved and may issue up to an aggregate of 225,000 shares
of common stock under the Employee Stock Purchase Plan. Stock is sold at 85%
of fair market value, as defined. For the years ended December 31, 1994 and
1995, the Company issued 10,721 shares and 5,860 shares of common stock,
respectively, pursuant to the Employee Stock Purchase Plan. At March 31, 1996,
203,898 shares are available under the plan.
(d) Reserved Shares
The following shares of common stock are reserved for future issuance:
<TABLE>
<S> <C>
1988 and 1992 Stock Option Plans................................... 972,275
1992 Employee Stock Purchase Plan.................................. 203,898
Exercise of warrants outstanding................................... 138,430
1992 Nonemployee Director Stock Option Plan........................ 215,000
---------
1,529,603
=========
</TABLE>
F-12
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS)
(8) DISTRIBUTION AND EQUITY PURCHASE AGREEMENTS WITH BOEHRINGER INGELHEIM
INTERNATIONAL
During 1994, the Company entered into a distribution and equity purchase
agreement with Boehringer Ingelheim International, GmbH (BII) under which BII
had acted as the exclusive distributor in Europe of the NMP22 Test Kit as well
as certain of its research diagnostic products. In August 1994, BII purchased
400,000 shares of the Company's common stock at $2.50 per share. In addition,
in September 1994, BII paid $1 million for the exclusive distribution rights
described above. The agreement had an initial term ending on December 31, 1999
but was automatically renewable for two successive two-year terms if not
terminated by either party. The agreement required BII to make certain minimum
product purchases, as defined, to maintain its exclusive distribution rights.
Under certain circumstances, BII had the right to obtain 160,000 additional
shares of common stock from the Company at no additional cost. Accordingly,
the Company deferred $280,000 of the $1 million license fee, which represented
the fair value of the potential additional 160,000 shares. During 1995, the
circumstances under which BII had the right to obtain the 160,000 additional
shares expired, and the Company recognized the $280,000 deferred license fee.
In June 1996, the Company terminated the exclusive distribution agreement in
Europe with BII for the NMP22 Test Kit. The Company did not incur any
significant liabilities in connection with this termination.
(9) KONICA
In 1994, the Company received a $325,000 nonrefundable license fee from
Konica for exclusive rights to distribute the NMP22 Test Kit in Japan.
F-13
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, sales representative or any other person has been authorized to
give any information or to make any representations in connection with this
offering other than those contained in this Prospectus, and, if given or made,
such information or representations must not be relied upon as having been
authorized by the Company or by any of the Underwriters. This Prospectus does
not constitute an offer to sell or a solicitation of any offer to buy any
securities other than the shares of Common Stock to which it relates or an
offer to, or a solicitation of, any person in any jurisdiction where such
offer or solicitation would be unlawful. Neither the delivery of this
Prospectus nor any sale made hereunder shall, under any circumstances, create
any implication that there has been no change in the affairs of the Company or
that the information contained herein is correct as of any time subsequent to
the date hereof.
---------------------
TABLE OF CONTENTS
---------------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 6
Use of Proceeds.......................................................... 12
Price Range of Common Stock.............................................. 13
Dividend Policy.......................................................... 13
Capitalization........................................................... 14
Dilution................................................................. 15
Selected Financial Data.................................................. 16
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 17
Business................................................................. 21
Management............................................................... 39
Principal and Selling Stockholders....................................... 41
Description of Capital Stock............................................. 43
Underwriting............................................................. 45
Legal Matters............................................................ 46
Experts.................................................................. 46
Available Information.................................................... 46
Documents Incorporated by Reference...................................... 47
Index to Financial Statements............................................ F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
[LOGO]
COMMON STOCK
-----------------
PROSPECTUS
-----------------
Montgomery Securities
Genesis Merchant Group
Securities
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Estimated expenses in connection with the offering are as follows:
<TABLE>
<S> <C>
SEC registration fee.................................................. $ 10,310
Nasdaq additional listing fee......................................... 50,000
NASD filing fee....................................................... 3,490
Printing and engraving expenses....................................... 85,000
Legal fees and expenses............................................... 150,000
Accounting fees and expenses.......................................... 45,000
Blue Sky fees and expenses (including legal fees)..................... 20,000
Transfer Agent and Registrar fees and expenses........................ 5,000
Miscellaneous......................................................... 31,200
--------
Total............................................................... $400,000
</TABLE>
- --------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to the provisions of Section 145 of the Delaware General
Corporation Law ("DGCL") the Company has the power to indemnify certain
persons, including its officers and directors, under stated circumstances and
subject to certain limitations, for liabilities incurred in connection with
services performed in good faith for the Company or for other organizations at
the request of the Company.
Article Seventh of the Company's Amended and Restated Certificate of
Incorporation provides that no director of the Registrant shall be liable for
monetary damages for breach of fiduciary duty, except to the extent that the
DGCL prohibits the elimination of liability of directors for breach of
fiduciary duty.
Article Twelfth of the Company's Amended and Restated Certificate of
Incorporation provides that a director or officer of the Company (a) shall be
indemnified by the Company against all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement incurred in connection with
any litigation or other legal proceeding (other than an action by or in the
right of the Company) brought against him by virtue of his position as a
director or officer of the Company if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful and (b) shall be
indemnified by the Company against all expenses (including attorneys' fees)
and amounts paid in settlement incurred in connection with any action by or in
the right of the Company brought against him by virtue of his position as a
director or officer of the Company if he acted in good faith and in a manner
he reasonably believed to be in, or not opposed to, the best interests of the
Company, except that no indemnification shall be made with respect to any
matter as to which such person shall have been adjudged to be liable to the
Company, unless a court determines that despite such adjudication but in view
of all of the circumstances, he is entitled to indemnification of such
expenses.
Notwithstanding the foregoing, to the extent that a director or officer has
been successful, on the merits or otherwise, including, without limitation,
the dismissal of an action without prejudice, he is required to be indemnified
by the Company against all expenses (including attorneys' fees) incurred in
connection therewith. Expenses shall be advanced to a director or officer at
his request, provided that he undertakes to repay the amount advanced if it is
ultimately determined that he is not entitled to indemnification for such
expenses.
Article Twelfth of the Company's Amended and Restated Certificate of
Incorporation further provides that the indemnification provided therein is
not exclusive and provides that in the event that the DGCL is amended to
expand or limit the indemnification permitted to directors or officers, the
Company must indemnify those persons to the fullest extent permitted by such
law, as so amended.
II-1
<PAGE>
In addition to the indemnification provided by Section 145 of the DGCL, the
Company has entered into an Indemnity Agreement with each of its directors
pursuant to which the Company agrees to indemnify that director for (1) all
expenses, liabilities, judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with any legal action, suit or
proceeding against the director by reason of the fact that he was an agent of
the Company if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Company, and with respect
to any criminal proceedings had no reasonable cause to believe his conduct was
unlawful, and (2) all expenses incurred in connection with the investigation,
defense, settlement or appeal of any legal action or proceeding brought
against the director by or in the right of the Company by reason of any action
taken or not taken by him in his capacity as a director of the Company if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the Company. The Company is not obligated
under the terms of the Indemnity Agreements to indemnify its directors (a) for
expenses or liabilities paid directly to the directors by directors' and
officers' insurance, (b) on account of any claims against the directors for an
accounting of profits made from the purchase or sale by directors of
securities of the Company pursuant to Section 16(b) of the Exchange Act, as
amended, (c) if indemnification would not be lawful.
ITEM 16. EXHIBITS.
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
4.1 Specimen Certificate for shares of Registrant's Common Stock
(filed as Exhibit 4.2 to the Registrant's Registration Statement on Form S-1,
No. 33-46158 and incorporated herein by reference)
4.2 Description of Common Stock (contained in the Registrant's
Registration Statement on Form 8-A dated March 10, 1992
and incorporated herein by reference)
5.1 Legal Opinion of Testa, Hurwitz & Thibeault, LLP
23.1 Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit 5.1)
23.2 Consent of Arthur Andersen LLP
24 Power of Attorney (contained in the signature page to this Registration Statement)
27 Financial Data Schedule
</TABLE>
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act of 1933 and will be governed by the final
adjudication of such issue.
II-2
<PAGE>
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing on Form S-3, and has duly caused this
registration statement to be signed on its behalf by the undersigned thereunto
duly authorized, in the City of Newton, Commonwealth of Massachusetts, on June
13, 1996.
Matritech, Inc.
/s/ Stephen D. Chubb
By: _________________________________
Stephen D. Chubb
Director, Chairman and Chief
Executive Officer
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Matritech, Inc., hereby
severally constitute and appoint Stephen D. Chubb, David L. Corbet and Leslie
R. Teso, and each of them singly, our true and lawful attorneys, with full
power to them and each of them singly, to sign for us in our names in the
capacities indicated below, all pre-effective and post-effective amendments to
this registration statement and any related subsequent registration statement
pursuant to Rule 462(b) promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), and generally to do all things in our names
and on our behalf in such capacities to enable Matritech, Inc. to comply with
the provisions of the Securities Act, and all requirements of the Securities
and Exchange Commission.
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on
the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Stephen D. Chubb Director, Chairman and June 13, 1996
- --------------------------------------- Chief Executive Officer,
STEPHEN D. CHUBB (Principal Executive and
Financial Officer)
/s/ David L. Corbet Director, President and June 13, 1996
- --------------------------------------- Chief Operating Officer
DAVID L. CORBET
/s/ Leslie R. Teso Vice President, Finance, June 13, 1996
- --------------------------------------- Secretary and Treasurer
LESLIE R. TESO (Principal Accounting
Officer)
/s/ Thomas R. Morse Director June 13, 1996
- ---------------------------------------
THOMAS R. MORSE
/s/ David Rubinfien Director June 13, 1996
- ---------------------------------------
DAVID RUBINFIEN
/s/ T. Stephen Thompson Director June 13, 1996
- ---------------------------------------
T. STEPHEN THOMPSON
/s/ C. William Zadel Director June 13, 1996
- ---------------------------------------
C. WILLIAM ZADEL
/s/ J. Robert Buchanan Director June 13, 1996
- ---------------------------------------
J. ROBERT BUCHANAN
</TABLE>
II-4
<PAGE>
EXHIBIT LIST
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION OF EXHIBIT PAGE NO.
- ----------- ---------------------- --------
<S> <C> <C>
1.1 Form of Underwriting Agreement
4.1 Specimen Certificate for shares of Registrant's Common Stock
(filed as Exhibit 4.2 to the Registrant's Registration Statement on
Form S-1,
No. 33-46158 and incorporated herein by reference)
4.2 Description of Common Stock (contained in the Registrant's
Registration Statement on Form 8-A dated March 10, 1992
and incorporated herein by reference)
5.1 Legal Opinion of Testa, Hurwitz & Thibeault, LLP
23.1 Consent of Testa, Hurwitz & Thibeault, LLP (contained in Exhibit
5.1)
23.2 Consent of Arthur Andersen LLP
24 Power of Attorney (contained in the signature page to this
Registration Statement)
27 Financial Data Schedule
</TABLE>
<PAGE>
EXHIBIT 1.1
2,000,000 Shares
MATRITECH, INC.
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1996
MONTGOMERY SECURITIES
GENESIS MERCHANT GROUP SECURITIES
As Representatives of the several Underwriters
c/o MONTGOMERY SECURITIES
600 Montgomery Street
San Francisco, California 94111
Dear Sirs:
SECTION 1. Introductory. Matritech, Inc., a Delaware corporation (the
------------
"Company"), proposes to issue and sell 1,800,000 shares of its authorized but
unissued Common Stock (the "Common Stock") and the stockholder of the Company
named in Schedule B annexed hereto (the "Selling Stockholder") proposes to sell
200,000 shares of the Company's issued and outstanding Common Stock to the
several underwriters named in Schedule A annexed hereto (the "Underwriters"),
for whom you are acting as Representatives. Said aggregate of 2,000,000 shares
are herein called the "Firm Common Shares." In addition, the Company proposes
to grant to the Underwriters an option to purchase up to 300,000 additional
shares of Common Stock (the "Optional Common Shares"), as provided in Section 5
hereof. The Firm Common Shares and, to the extent such option is exercised, the
Optional Common Shares are hereinafter collectively referred to as the "Common
Shares."
You have advised the Company and the Selling Stockholder that the
Underwriters propose to make a public offering of their respective portions of
the Common Shares on the effective date of the registration statement
hereinafter referred to, or as soon thereafter as in your judgment is advisable.
The Company and the Selling Stockholder hereby confirm their respective
agreements with respect to the purchase of the Common Shares by the Underwriters
as follows:
<PAGE>
SECTION 2. Representations and Warranties of the Company and the Selling
-------------------------------------------------------------
Stockholder. The Company and the Selling Stockholder represent and warrant to
- -----------
the several Underwriters that:
(a) A registration statement on Form S-3 (File No. 333-______) with
respect to the Common Shares has been prepared by the Company in conformity with
the requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (the "Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") thereunder, and has been filed with the
Commission pursuant to the Commission's Electronic Data Gathering Analysis and
Retrieval ("EDGAR") System. The Company has prepared and has filed or proposes
to file prior to the effective date of such registration statement an amendment
or amendments to such registration statement, which amendment or amendments have
been or will be similarly prepared. There have been delivered to you two signed
copies of such registration statement and amendments, together with two copies
of each exhibit filed therewith. Conformed copies of such registration
statement and amendments (but without exhibits) and of the related preliminary
prospectus have been delivered to you in such reasonable quantities as you have
requested for each of the Underwriters. The Company will next file with the
Commission one of the following: (i) prior to effectiveness of such
registration statement, a further amendment thereto, including the form of final
prospectus, or (ii) a final prospectus in accordance with Rules 430A and 424(b)
of the Rules and Regulations, or (iii) a term sheet (the "Term Sheet") as
described in and in accordance with Rules 434 and 424(b) of the Rules and
Regulations. As filed, the final prospectus, if one is used, or the Term Sheet
and Preliminary Prospectus, if a final prospectus not used, shall include (i)
all Rule 430A Information and, except to the extent that you shall agree in
writing to a modification, shall be in all substantive respects in the form
furnished to you prior to the date and time that this Agreement was executed and
delivered by the parties hereto, or, to the extent not completed at such date
and time, shall contain only such specific additional information and other
changes (beyond that contained in the latest Preliminary Prospectus) as the
Company shall have previously advised you in writing would be included or made
therein.
The term "Registration Statement" as used in this Agreement shall mean such
registration statement at the time such registration statement becomes effective
and, in the event any post-effective amendment thereto becomes effective prior
to the First Closing Date (as hereinafter defined),
-2-
<PAGE>
shall also mean such registration statement as so amended; provided, however,
that such term shall also include (i) all Rule 430A Information deemed to be
included in such registration statement at the time such registration statement
becomes effective as provided by Rule 430A of the Rules and Regulations and (ii)
any registration statement filed pursuant to Rule 462(b) of the Rules and
Regulations relating to the Common Shares. The term "Preliminary Prospectus"
shall mean any preliminary prospectus referred to in the preceding paragraph and
any preliminary prospectus included in the Registration Statement at the time it
becomes effective that omits Rule 430A Information. The term "Prospectus" as
used in this Agreement shall mean either (i) the prospectus relating to the
Common Shares in the form in which it is first filed with the Commission
pursuant to Rule 424(b) of the Rules and Regulations or, (ii) if a Term Sheet is
not used and no filing pursuant to Rule 424(b) of the Rules and Regulations is
required, shall mean the form of final prospectus included in the Registration
Statement at the time such registration statement becomes effective or (iii) if
a Term Sheet is used, the Term Sheet in the form in which it is first filed with
the Commission pursuant to Rule 424(b) of the Rules and Regulations, together
with the Preliminary Prospectus included in the Registration Statement at the
time it becomes effective. The term "Rule 430A Information" means information
with respect to the Common Shares and the offering thereof permitted to be
omitted from the Registration Statement when it becomes effective pursuant to
Rule 430A of the Rules and Regulations. Any reference herein to any Preliminary
Prospectus or the Prospectus shall be deemed to refer to and include the
documents incorporated by reference therein pursuant to Form S-3 under the Act,
as of the date of such Preliminary Prospectus or Prospectus, as the case may be.
(b) The Commission has not issued any order preventing or suspending the
use of any Preliminary Prospectus, and each Preliminary Prospectus has conformed
in all material respects to the requirements of the Act and the Rules and
Regulations and, as of its date, has not included any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and at the time the Registration Statement becomes
effective, and at all times subsequent thereto up to and including each Closing
Date hereinafter mentioned, the Registration Statement and the Prospectus, and
any amendments or supplements thereto, will contain all material statements and
information required to be included therein by the Act and
-3-
<PAGE>
the Rules and Regulations and will in all material respects conform to the
requirements of the Act and the Rules and Regulations, and neither the
Registration Statement nor the Prospectus, nor any amendment or supplement
thereto, will include any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; provided, however, no representation or warranty
contained in this subparagraph 2(b) shall be applicable to information contained
in or omitted from any Preliminary Prospectus, the Registration Statement, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
any Underwriter, directly or through the Representatives, specifically for use
in the preparation thereof. The documents incorporated by reference in the
Prospectus, when they were filed with the Commission, conformed in all material
respects to the requirements of the Exchange Act and the rules and regulations
of the Commission thereunder, and none of such documents contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
(c) The Company does not own or control, directly or indirectly, any
corporation, association or other entity. The Company has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the State of Delaware, with full power and authority (corporate and
other) to own and lease its properties and conduct its business as described in
the Prospectus; the Company is in possession of and operating in compliance with
all authorizations, licenses, permits, consents, certificates and orders
material to the conduct of its business, all of which are valid and in full
force and effect; the Company is duly qualified to do business and in good
standing as a foreign corporation in Massachusetts which is the only
jurisdiction in which the ownership or leasing of properties or the conduct of
its business requires such qualification, except for jurisdictions in which the
failure to so qualify would not have a material adverse effect upon the Company;
and no proceeding has been instituted in any such jurisdiction, revoking,
limiting or curtailing, or seeking to revoke, limit or curtail, such power and
authority or qualification.
(d) The Company has an authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus; the issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
-4-
<PAGE>
are fully paid and nonassessable, are authorized for quotation on the Nasdaq
Stock Market and are duly listed on the Boston Stock Exchange, have been issued
in compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase securities, and conform to the description thereof contained in
the Prospectus. Except as disclosed in or contemplated by the Prospectus and
the financial statements of the Company, and the related notes thereto, included
in the Prospectus, the Company has no outstanding any options to purchase, or
any preemptive rights or other rights to subscribe for or to purchase, any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options, rights,
convertible securities or obligations. The description of the Company's stock
option, stock bonus and other stock plans or arrangements, and the options or
other rights granted and exercised thereunder, set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to such plans, arrangements, options and rights.
(e) The Common Shares to be sold by the Company have been duly authorized
and, when issued, delivered and paid for in the manner set forth in this
Agreement, will be duly authorized, validly issued, fully paid and
nonassessable, and will conform to the description thereof contained in the
Prospectus. No preemptive rights or other rights to subscribe for or purchase
exist with respect to the issuance and sale of the Common Shares by the Company
pursuant to this Agreement. No stockholder of the Company has any right which
has not been waived to require the Company to register the sale of any shares
owned by such stockholder under the Act in the public offering contemplated by
this Agreement. No further approval or authority of the stockholder or the
Board of Directors of the Company will be required for the transfer and sale of
the Common Shares to be sold by the Selling Stockholder or the issuance and sale
of the Common Shares to be sold by the Company as contemplated herein.
(f) The Company has full legal right, power and authority to enter into
this Agreement and perform the transactions contemplated hereby. This Agreement
has been duly authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company in accordance with its terms. The
making and performance of this Agreement by the Company and the consummation of
the transactions herein contemplated will not violate any provisions of the
Certificate of Incorporation or By-Laws of
-5-
<PAGE>
the Company, and will not conflict with, result in the breach or violation of,
or constitute, either by itself or upon notice or the passage of time or both, a
default under any agreement, mortgage, deed of trust, lease, franchise, license,
indenture, permit or other instrument to which the Company is a party or by
which the Company or any of its properties may be bound or affected, any statute
or any authorization, judgment, decree, order, rule or regulation of any court
or any regulatory body, administrative agency or other governmental body
applicable to the Company or any of its properties. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body is required for the execution and delivery of
this Agreement or the consummation of the transactions contemplated by this
Agreement, except for compliance with the Act, the Blue Sky laws applicable to
the public offering of the Common Shares by the several Underwriters and the
clearance of such offering with the National Association of Securities Dealers,
Inc. (the "NASD").
(g) Arthur Andersen LLP, who have expressed their opinion with respect to
the financial statements filed with the Commission as a part of the Registration
Statement and included in the Prospectus and in the Registration Statement, are
independent accountants as required by the Act and the Rules and Regulations.
(h) The financial statements of the Company, and the related notes thereto,
included in the Registration Statement and the Prospectus present fairly the
financial position of the Company as of the respective dates of such financial
statements, and the results of operations, cash flows and changes in
stockholder' equity of the Company for the respective periods covered thereby.
Such statements and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis as
certified by the independent accountants named in subparagraph 2(g). No other
financial statements or schedules are required to be included in the
Registration Statement. The selected financial data set forth in the Prospectus
under the captions "Capitalization" and "Selected Financial Data" fairly present
the information set forth therein on the basis stated in the Registration
Statement.
(i) Except as disclosed in the Prospectus, and except as to defaults which
individually or in the aggregate would not be material to the Company, the
Company is not in violation or default of any provision of its Certificate of
-6-
<PAGE>
Incorporation or By-Laws, or other organizational documents, or is in breach of
or default with respect to any provision of any agreement, judgment, decree,
order, mortgage, deed of trust, lease, franchise, license, indenture, permit or
other instrument to which it is a party or by which it or any of its properties
are bound; and there does not exist any state of facts which constitutes an
event of default on the part of the Company or any such subsidiary as defined in
such documents or which, with notice or lapse of time or both, would constitute
such an event of default which breach or default could have a material adverse
effect on the condition (financial or otherwise), business, properties, results
of operations or prospects of the Company (a "Material Adverse Effect").
(j) There are no contracts or other documents required to be described in
the Registration Statement or to be filed as exhibits to the Registration
Statement by the Act or by the Rules and Regulations which have not been
described or filed as required. The contracts so described in the Prospectus
are in full force and effect on the date hereof; and neither the Company, nor to
the best of the Company's knowledge, any other party is in breach of or default
under any of such contracts.
(k) There are no legal or governmental actions, suits or proceedings
pending or, to the best of the Company's knowledge, threatened to which the
Company or any of its subsidiaries is or may be a party or of which property
owned or leased by the Company is or may be the subject, or related to
environmental or discrimination matters, which actions, suits or proceedings
might, individually or in the aggregate, prevent or adversely affect the
transactions contemplated by this Agreement or have a Material Adverse Effect;
and no labor disturbance by the employees of the Company exists or is imminent
which might be expected to affect adversely the condition (financial or
otherwise), properties, business, results of operations or prospects of the
Company. The Company is not a party or subject to the provisions of any
material injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(l) The Company has good and marketable title to all the properties and
assets reflected as owned in the financial statements hereinabove described (or
elsewhere in the Prospectus), subject to no lien, mortgage, pledge, charge or
encumbrance of any kind except (i) those, if any, reflected in such financial
statements (or elsewhere in the
-7-
<PAGE>
Prospectus), or (ii) those which are not material in amount and do not adversely
affect the use made and proposed to be made of such property by the Company. The
Company holds its leased properties under valid and binding leases, with such
exceptions as are not significant in relation to the business of the Company.
Except as disclosed in the Prospectus, the Company owns or leases all such
properties as are necessary to its operations as now conducted or as proposed to
be conducted.
(m) Since the respective dates as of which information is given in the
Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company has not incurred
any material liabilities or obligations, indirect, direct or contingent, or
entered into any material verbal or written agreement or other transaction which
is not in the ordinary course of business or which could result in a material
reduction in the future earnings of the Company; (ii) the Company has not
sustained any material loss or interference with their respective businesses or
properties from fire, flood, windstorm, accident or other calamity, whether or
not covered by insurance; (iii) the Company has not paid or declared any
dividends or other distributions with respect to its capital stock and the
Company is not in default in the payment of principal or interest on any
outstanding debt obligations; (iv) there has not been any change in the capital
stock (other than upon the sale of the Common Shares hereunder) or indebtedness
material to the Company and its subsidiaries (other than in the ordinary course
of business); and (v) there has not been any material adverse change in the
condition (financial or otherwise), business, properties, results of operations
or prospects of the Company and its subsidiaries.
(n) Except as disclosed in or specifically contemplated by the Prospectus,
the Company has sufficient trademarks, trade names, patent rights, mask works,
copyrights, licenses, approvals and governmental authorizations to conduct their
businesses as now conducted; and the Company has no knowledge of any material
infringement by it of trademark, trade name rights, patent rights, mask works,
copyrights, licenses, trade secret or other similar rights of others, and there
is no claim being made against the Company regarding trademark, trade name,
patent, mask work, copyright, license, trade secret or other infringement which
could have a Material Adverse Effect.
-8-
<PAGE>
(o) The Company has not been advised, and has no reason to believe, that it
is not conducting business in compliance with all applicable laws, rules and
regulations of the jurisdictions in which it is conducting business, including,
without limitation, all applicable local, state and federal environmental laws
and regulations, except where failure to be so in compliance would not
materially adversely affect the condition (financial or otherwise), business,
properties, results of operations or prospects of the Company.
(p) The Company has filed all necessary federal, state and foreign income
and franchise tax returns and have paid all taxes shown as due thereon; and the
Company has no knowledge of any tax deficiency which has been or might be
asserted or threatened against the Company which could materially and adversely
affect the condition (financial or otherwise), business, properties, results of
operations or prospects of the Company.
(q) The Company is not an "investment company" within the meaning of the
Investment Company Act of 1940, as amended.
(r) The Company has not distributed and will not distribute prior to the
First Closing Date any offering material in connection with the offering and
sale of the Common Shares other than the Prospectus, the Registration Statement
and the other materials permitted by the Act.
(s) The Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
(t) The Company has at any time during the last five years (i) made any
unlawful contribution to any candidate for foreign office, or failed to disclose
fully any contribution in violation of law, or (ii) made any payment to any
federal or state governmental officer or official, or other person charged with
similar public or quasi-public duties, other than payments required or permitted
by the laws of the United States or any jurisdiction thereof.
-9-
<PAGE>
(u) The Company has not taken and will not take, directly or indirectly,
any action designed to or that might be reasonably expected to cause or result
in stabilization or manipulation of the price of the Common Stock to facilitate
the sale or resale of the Common Shares.
(v) The Company has filed an application to authorize the Common Stock for
quotation on the Nasdaq National Market, and has received notification that such
authorization has been approved, subject to notice of issuance and sale of the
Firm Common Shares.
SECTION 3. Representations, Warranties and Covenants of the Selling
--------------------------------------------------------
Stockholder.
- -----------
(a) The Selling Stockholder represents and warrants to, and agrees with,
the several Underwriters that:
(i) Such Selling Stockholder has, and on the First Closing Date
hereinafter mentioned will have, good and marketable title to the Common Shares
proposed to be sold by such Selling Stockholder hereunder on such Closing Date
and full right, power and authority to enter into this Agreement and to sell,
assign, transfer and deliver such Common Shares hereunder, free and clear of all
voting trust arrangements, liens, encumbrances, equities, security interests,
restrictions and claims whatsoever; and upon delivery of and payment for such
Common Shares hereunder, the Underwriters will acquire good and marketable title
thereto, free and clear of all liens, encumbrances, equities, claims,
restrictions, security interests, voting trusts or other defects of title
whatsoever.
(ii) Such Selling Stockholder has executed and delivered an
Irrevocable Power of Attorney and caused to be executed and delivered on his
behalf a Custody Agreement (hereinafter collectively referred to as the
"Stockholder Agreement") and in connection herewith such Selling Stockholder
further represents, warrants and agrees that such Selling Stockholder has
deposited in custody, under the Stockholder Agreement, with the agent named
therein (the "Agent") as custodian, certificates in negotiable form for the
Common Shares to be sold hereunder by such Selling Stockholder, for the purpose
of further delivery pursuant to this Agreement. Such Selling Stockholder agrees
that the Common Shares to be sold by such Selling Stockholder on deposit with
the Agent are subject to the interests of the Company and
-10-
<PAGE>
the Underwriters, that the arrangements made for such custody are to that extent
irrevocable, and that the obligations of such Selling Stockholder hereunder
shall not be terminated, except as provided in this Agreement or in the
Stockholder Agreement, by any act of such Selling Stockholder, by operation of
law, by the death or incapacity of such Selling Stockholder or by the occurrence
of any other event. If the Selling Stockholder should die or become
incapacitated, or if any other event should occur, before the delivery of the
Common Shares hereunder, the documents evidencing Common Shares then on deposit
with the Agent shall be delivered by the Agent in accordance with the terms and
conditions of this Agreement as if such death, incapacity or other event had not
occurred, regardless of whether or not the Agent shall have received notice
thereof. This Agreement and the Stockholder Agreement have been duly executed
and delivered by or on behalf of such Selling Stockholder and the form of such
Stockholder Agreement has been delivered to you.
(iii) The performance of this Agreement and the Stockholder Agreement
and the consummation of the transactions contemplated hereby and by the
Stockholder Agreement will not result in a breach or violation by such Selling
Stockholder of any of the terms or provisions of, or constitute a default by
such Selling Stockholder under, any indenture, mortgage, deed of trust, trust
(constructive or other), loan agreement, lease, franchise, license or other
agreement or instrument to which such Selling Stockholder is a party or by which
such Selling Stockholder or any of its properties is bound, any statute, or any
judgment, decree, order, rule or regulation of any court or governmental agency
or body applicable to such Selling Stockholder or any of its properties. No
approval, authorization, order or consent of any court, regulatory body,
administrative agency or other governmental body is required for the execution
and delivery of the Agreement and the Stockholder Agreement, or the consummation
by such Selling Stockholder of the transactions contemplated by this Agreement
and the Stockholder Agreement, except such as have been obtained and are in full
force and effect under the Act and such as may be required under the rules of
the NASD and applicable Blue Sky laws.
(iv) Such Selling Stockholder has not taken and will not take,
directly or indirectly, any action
-11-
<PAGE>
designed to or which has constituted or which might reasonably be expected to
cause or result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Common Shares.
(v) Each Preliminary Prospectus and the Prospectus, insofar as it has
related to such Selling Stockholder, has conformed in all material respects to
the requirements of the Act and the Rules and Regulations and has not included
any untrue statement of a material fact or omitted to state a material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; and neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, as it relates to such
Selling Stockholder, will include any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading.
(vi) Without having undertaken to determine independently the accuracy
or completeness of the representations and warranties of the Company contained
herein, such Selling Stockholder is not aware that any of the representations
and warranties set forth in Section 2 above is untrue or inaccurate in any
material respect.
(b) The Selling Stockholder agrees with the Company and the
Underwriters not to offer to sell, sell or contract to sell or otherwise dispose
of any shares of Common Stock or securities convertible into or exchangeable for
any shares of Common Stock, for a period of 90 days after the first date that
any of the Common Shares are released by you for sale to the public, without the
prior written consent of Montgomery Securities, which consent may be withheld at
the sole discretion of Montgomery Securities.
SECTION 4. Representations and Warranties of the
- -------------------------------------------------
Underwriters. The Representatives, on behalf of the several Underwriters,
- ------------
represent and warrant to the Company and to the Selling Stockholder that the
information set forth (i) on the cover page of the Prospectus with respect to
price, underwriting discounts and commissions and terms of offering and (ii)
under "Underwriting" in the Prospectus was furnished to the Company by and on
behalf of the Underwriters for use in connection with the preparation of the
Registration Statement and the Prospectus and is correct in all material
respects. The Representatives
-12-
<PAGE>
represent and warrant that they have been authorized by each of the other
Underwriters as the Representatives to enter into this Agreement on its behalf
and to act for it in the manner herein provided.
SECTION 5. Purchase, Sale and Delivery of Common Shares. On the
--------------------------------------------
basis of the representations, warranties and agreements herein contained, but
subject to the terms and conditions herein set forth, (i) the Company agrees to
issue and sell to the Underwriters 1,800,000 of the Firm Common Shares, and (ii)
the Selling Stockholder agrees to sell to the Underwriters 200,000 of the Firm
Common Shares. The Underwriters agree, severally and not jointly, to purchase
from the Company and the Selling Stockholder, respectively, the number of Firm
Common Shares described below. The purchase price per share to be paid by the
several Underwriters to the Company and to the Selling Stockholder,
respectively, shall be $_____ per share.
The obligation of each Underwriter to the Company shall be to purchase from the
Company that number of full shares which (as nearly as practicable, as
determined by you) bears to 1,800,000 the same proportion as the number of
shares set forth opposite the name of such Underwriter in Schedule A hereto
bears to the total number of Firm Common Shares. The obligation of each
Underwriter to the Selling Stockholder shall be to purchase from the Selling
Stockholder that number of full shares which (as nearly as practicable, as
determined by you) bears to 200,000 the same proportion as the number of shares
set forth opposite the name of such Underwriter in Schedule A hereto bears to
the total number of Firm Common Shares.
Delivery of certificates for the Firm Common Shares to be purchased by
the Underwriters and payment therefor shall be made at the offices of Montgomery
Securities, 600 Montgomery Street, San Francisco, California (or such other
place as may be agreed upon by the Company and the Representatives) at such time
and date, not later than the third (or, if the Firm Common Shares are priced, as
contemplated by Rule 15c6-1(c) under the Securities Exchange Act of 1934, after
4:30 p.m. Washington D.C. time, the fourth) full business day following the
first date that any of the Common Shares are released by you for sale to the
public, as you shall designate by at least 48 hours prior notice to the Company
(the "First Closing Date"); provided, however, that if the Prospectus is at any
time prior to the First Closing Date recirculated to the public, the First
Closing Date shall occur upon the later of the third or fourth, as the case may
be, full business day following the first date that any of the Common Shares are
released by you for sale to the public or the date that is 48 hours after the
date that the Prospectus has been so recirculated.
-13-
<PAGE>
Delivery of certificates for the Firm Common Shares shall be made by
or on behalf of the Company and the Selling Stockholder to you, for the
respective accounts of the Underwriters with respect to the Firm Common Shares
to be sold by the Company and by the Selling Stockholder against payment by you,
for the accounts of the several Underwriters, of the purchase price therefor by
certified or official bank checks payable in next day funds to the order of the
Company and of the Agent in proportion to the number of Firm Common Shares to be
sold by the Company and the Selling Stockholder, respectively. The certificates
for the Firm Common Shares shall be registered in such names and denominations
as you shall have requested at least two full business days prior to the First
Closing Date, and shall be made available for checking and packaging on the
business day preceding the First Closing Date at a location in New York, New
York, as may be designated by you. Time shall be of the essence, and delivery at
the time and place specified in this Agreement is a further condition to the
obligations of the Underwriters.
In addition, on the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company hereby grants an option to the several Underwriters to
purchase, severally and not jointly, up to an aggregate of 300,000 Optional
Common Shares at the purchase price per share to be paid for the Firm Common
Shares, for use solely in covering any over-allotments made by you for the
account of the Underwriters in the sale and distribution of the Firm Common
Shares. The option granted hereunder may be exercised at any time (but not more
than once) within 30 days after the first date that any of the Common Shares are
released by you for sale to the public, upon notice by you to the Company
setting forth the aggregate number of Optional Common Shares as to which the
Underwriters are exercising the option, the names and denominations in which the
certificates for such shares are to be registered and the time and place at
which such certificates will be delivered. Such time of delivery (which may not
be earlier than the First Closing Date), being herein referred to as the "Second
Closing Date," shall be determined by you, but if at any time other than the
First Closing Date shall not be earlier than three nor later than five full
business days after delivery of such notice of exercise. The number of Optional
Common Shares to be purchased by each Underwriter shall be determined by
multiplying the number of Optional Common Shares to be sold by the Company
pursuant to such notice of exercise by a fraction, the numerator of which is the
number of Firm Common Shares to be purchased by such Underwriter as set forth
opposite its name in
-14-
<PAGE>
Schedule A and the denominator of which is 2,000,000 (subject to such
adjustments to eliminate any fractional share purchases as you in your
discretion may make). Certificates for the Optional Common Shares will be made
available for checking and packaging on the business day preceding the Second
Closing Date at a location in New York, New York, as may be designated by you.
The manner of payment for and delivery of the Optional Common Shares shall be
the same as for the Firm Common Shares purchased from the Company as specified
in the two preceding paragraphs. At any time before lapse of the option, you may
cancel such option by giving written notice of such cancellation to the Company.
If the option is cancelled or expires unexercised in whole or in part, the
Company will deregister under the Act the number of Optional Common Shares as to
which the option has not been exercised.
You have advised the Company and the Selling Stockholder that each
Underwriter has authorized you to accept delivery of its Common Shares, to make
payment and to receipt therefor. You, individually and not as the
Representatives of the Underwriters, may (but shall not be obligated to) make
payment for any Common Shares to be purchased by any Underwriter whose funds
shall not have been received by you by the First Closing Date or the Second
Closing Date, as the case may be, for the account of such Underwriter, but any
such payment shall not relieve such Underwriter from any of its obligations
under this Agreement.
Subject to the terms and conditions hereof, the Underwriters propose
to make a public offering of their respective portions of the Common Shares as
soon after the effective date of the Registration Statement as in the judgment
of the Representatives is advisable and at the public offering price set forth
on the cover page of and on the terms set forth in the final prospectus, if one
is used, or on the first page of the Term Sheet, if one is used.
SECTION 6. Covenants of the Company. The Company covenants and
------------------------
agrees that:
(a) The Company will use its best efforts to cause the Registration
Statement and any amendment thereof, if not effective at the time and date that
this Agreement is executed and delivered by the parties hereto, to become
effective. If the Registration Statement has become or becomes effective
pursuant to Rule 430A of the Rules and Regulations, or the filing of the
Prospectus is otherwise required under Rule 424(b) of the Rules and Regulations,
the Company will file the Prospectus, properly completed, pursuant to the
applicable paragraph of Rule 424(b) of the Rules and Regulations within the time
period prescribed and
-15-
<PAGE>
will provide evidence satisfactory to you of such timely filing. The Company
will promptly advise you in writing (i) of the receipt of any comments of the
Commission, (ii) of any request of the Commission for amendment of or supplement
to the Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus or for additional information, (iii)
when the Registration Statement shall have become effective and (iv) of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement or of the institution of any proceedings for that
purpose. If the Commission shall enter any such stop order at any time, the
Company will use its best efforts to obtain the lifting of such order at the
earliest possible moment. The Company will not file any amendment or supplement
to the Registration Statement (either before or after it becomes effective), any
Preliminary Prospectus or the Prospectus of which you have not been furnished
with a copy a reasonable time prior to such filing or to which you reasonably
object or which is not in compliance with the Act and the Rules and Regulations.
(b) The Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or the Prospectus which in your judgment may be necessary or advisable to enable
the several Underwriters to continue the distribution of the Common Shares and
will use its best efforts to cause the same to become effective as promptly as
possible. The Company will fully and completely comply with the provisions of
Rule 430A of the Rules and Regulations with respect to information omitted from
the Registration Statement in reliance upon such Rule.
(c) If at any time within the nine-month period referred to in
Section 10(a)(3) of the Act during which a prospectus relating to the Common
Shares is required to be delivered under the Act any event occurs, as a result
of which the Prospectus, including any amendments or supplements, would include
an untrue statement of a material fact, or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading, or if it is necessary at any time to amend the Prospectus, including
any amendments or supplements, to comply with the Act or the Rules and
Regulations, the Company will promptly advise you thereof and will promptly
prepare and file with the Commission, at its own expense, an amendment or
supplement which will correct such statement or omission or an amendment or
supplement which will effect such compliance and will use its best efforts to
cause the same to
-16-
<PAGE>
become effective as soon as possible; and, in case any Underwriter is required
to deliver a prospectus after such nine-month period, the Company upon request,
but at the expense of such Underwriter, will promptly prepare such amendment or
amendments to the Registration Statement and such Prospectus or Prospectuses as
may be necessary to permit compliance with the requirements of Section 10(a)(3)
of the Act.
(d) As soon as practicable, but not later than 45 days after the end
of the first quarter ending after one year following the "effective date of the
Registration Statement" (as defined in Rule 158(c) of the Rules and
Regulations), the Company will make generally available to its security holders
an earnings statement (which need not be audited) covering a period of 12
consecutive months beginning after the effective date of the Registration
Statement which will satisfy the provisions of the last paragraph of Section
11(a) of the Act.
(e) During such period as a prospectus is required by law to be
delivered in connection with sales by an Underwriter or dealer, the Company, at
its expense, but only for the nine-month period referred to in Section 10(a)(3)
of the Act, will furnish to you and the Selling Stockholder or mail to your
order copies of the Registration Statement, the Prospectus, the Preliminary
Prospectus and all amendments and supplements to any such documents in each case
as soon as available and in such quantities as you and the Selling Stockholder
may request, for the purposes contemplated by the Act.
(f) The Company shall cooperate with you and your counsel in order to
qualify or register the Common Shares for sale under (or obtain exemptions from
the application of) the Blue Sky laws of such jurisdictions as you designate and
Canadian securities laws, will comply with such laws and will continue such
qualifications, registrations and exemptions in effect so long as reasonably
required for the distribution of the Common Shares. The Company shall not be
required to qualify as a foreign corporation or to file a general consent to
service of process in any such jurisdiction where it is not presently qualified
or where it would be subject to taxation as a foreign corporation. The Company
will advise you promptly of the suspension of the qualification or registration
of (or any such exemption relating to) the Common Shares for offering, sale or
trading in any jurisdiction or any initiation or threat of any proceeding for
any such purpose, and in the event of the issuance of any order suspending such
qualification, registration or
-17-
<PAGE>
exemption, the Company, with your cooperation, will use its best efforts to
obtain the withdrawal thereof.
(g) During the period of five years hereafter, the Company will
furnish to the Representatives and, upon request of the Representatives, to each
of the other Underwriters: (i) as soon as practicable after the end of each
fiscal year, copies of the Annual Report of the Company containing the balance
sheet of the Company as of the close of such fiscal year and statements of
income, stockholders' equity and cash flows for the year then ended and the
opinion thereon of the Company's independent public accountants; (ii) as soon as
practicable after the filing thereof, copies of each proxy statement, Annual
Report on Form 10-K, Quarterly Report on Form 10-Q, Report on Form 8-K or other
report filed by the Company with the Commission, the NASD or any securities
exchange; and (iii) as soon as available, copies of any report or communication
of the Company mailed generally to holders of its Common Stock.
(h) During the period of 90 days after the first date that any of the
Common Shares are released by you for sale to the public, without the prior
written consent of Montgomery Securities (which consent may be withheld at the
sole discretion of Montgomery Securities), the Company will not issue, offer,
sell, grant options to purchase or otherwise dispose of any of the Company's
equity securities or any other securities convertible into or exchangeable with
its Common Stock or other equity security; provided that the Company may (i)
issue shares of its Common Stock pursuant to outstanding warrants disclosed in
the Prospectus, (ii) issue shares of its Common Stock upon the exercise of
options granted under its employee or director stock plans disclosed in the
Prospectus and (iii) grant options under its employee or director stock plans
disclosed in the Prospectus upon terms and in amounts consistent with past
practice.
(i) The Company will apply the net proceeds of the sale of the Common
Shares sold by it substantially in accordance with its statements under the
caption "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to qualify or register its
Common Stock for sale in non-issuer transactions under (or obtain exemptions
from the application of) the Blue Sky laws of the State of California (and
thereby permit market making transactions and secondary trading in the Company's
Common Stock in California), will comply with such Blue Sky laws and will
continue such qualifications,
-18-
<PAGE>
registrations and exemptions in effect for a period of five years after the date
hereof.
(k) The Company will use its best efforts to designate the Common
Stock for quotation as a national market system security on the Nasdaq National
Market.
You, on behalf of the Underwriters, may, in your sole discretion,
waive in writing the performance by the Company of any one or more of the
foregoing covenants or extend the time for their performance.
SECTION 7. Payment of Expenses. Whether or not the transactions
-------------------
contemplated hereunder are consummated or this Agreement becomes effective or is
terminated, the Company and, unless otherwise paid by the Company, the Selling
Stockholder agree to pay in such proportions as they may agree upon among
themselves all costs, fees and expenses incurred in connection with the
performance of their obligations hereunder and in connection with the
transactions contemplated hereby, including without limiting the generality of
the foregoing, (i) all expenses incident to the issuance and delivery of the
Common Shares (including all printing and engraving costs), (ii) all fees and
expenses of the registrar and transfer agent of the Common Stock, (iii) all
necessary issue, transfer and other stamp taxes in connection with the issuance
and sale of the Common Shares to the Underwriters, (iv) all fees and expenses of
the Company's counsel, the Company's independent accountants and the Agent, (v)
all costs and expenses incurred in connection with the preparation, printing or
copying, filing, shipping and distribution of the Registration Statement, each
Preliminary Prospectus and the Prospectus (including all exhibits and financial
statements) and all amendments and supplements provided for herein, this
Agreement, the Agreement Among Underwriters, the Selected Dealers Agreement, the
Underwriters' Questionnaire, the Underwriters' Power of Attorney and the Blue
Sky memorandum, (vi) all filing fees, attorneys' fees and expenses incurred by
the Company or the Underwriters in connection with qualifying or registering (or
obtaining exemptions from the qualification or registration of) all or any part
of the Common Shares for offer and sale under the Blue Sky laws, (vii) the
filing fee of the National Association of Securities Dealers, Inc., and (viii)
all other fees, costs and expenses referred to in Item 14 of the Registration
Statement. The Underwriters may deem the Company to be the primary obligor with
respect to all costs, fees and expenses to be paid by the Company and by the
Selling Stockholder. Except as provided in this Section 7, Section 9 and Section
11 hereof, the Underwriters shall pay all of their own expenses, including the
fees and disbursements of their counsel (excluding those relating to
-19-
<PAGE>
qualification, registration or exemption under the Blue Sky laws and the
Blue Sky memorandum referred to above). This Section 7 shall not affect any
agreements relating to the payment of expenses between the Company and the
Selling Stockholder.
The Selling Stockholder will pay (directly or by reimbursement) all
fees and expenses incident to the performance of its obligations under this
Agreement which are not otherwise specifically provided for herein, including
but not limited to (i) any fees and expenses of counsel for such Selling
Stockholder; (ii) any fees and expenses of the Agent; and (iii) all expenses and
taxes incident to the sale and delivery of the Common Shares to be sold by such
Selling Stockholder to the Underwriters hereunder.
SECTION 8. Conditions of the Obligations of the Underwriters. The
-------------------------------------------------
obligations of the several Underwriters to purchase and pay for the Firm Common
Shares on the First Closing Date and the Optional Common Shares on the Second
Closing Date shall be subject to the accuracy of the representations and
warranties on the part of the Company and the Selling Stockholder herein set
forth as of the date hereof and as of the First Closing Date or the Second
Closing Date, as the case may be, to the accuracy of the statements of Company
officers and the Selling Stockholder made pursuant to the provisions hereof, to
the performance by the Company and the Selling Stockholder of their respective
obligations hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M. (or, in the case of a registration statement filed pursuant to
Rule 462(b) of the Rules and Regulations relating to the Common Shares, not
later than 10:00 P.M.), Washington, D.C. Time, on the date of this Agreement, or
at such later time as shall have been consented to by you; if the filing of the
Prospectus, or any supplement thereto, is required pursuant to Rule 424(b) of
the Rules and Regulations, the Prospectus shall have been filed in the manner
and within the time period required by Rule 424(b) of the Rules and Regulations;
and prior to such Closing Date, no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or, to the knowledge of
the Company, the Selling Stockholder or you, shall be contemplated by the
Commission; and any request of the Commission for inclusion of additional
information in the Registration Statement, or otherwise, shall have been
complied with to your satisfaction.
-20-
<PAGE>
(b) You shall be satisfied that since the respective dates as of which
information is given in the Registration Statement and Prospectus, (i) there
shall not have been any change in the capital stock (other than as contemplated
by subparagraph 6(h) above) of the Company or any of its subsidiaries or any
material change in the indebtedness (other than in the ordinary course of
business) of the Company or any of its subsidiaries, (ii) except as set forth in
or contemplated by the Registration Statement or the Prospectus, no material
verbal or written agreement or other transaction shall have been entered into by
the Company or any of its subsidiaries, which is not in the ordinary course of
business or which could result in a material reduction in the future earnings of
the Company and its subsidiaries, (iii) no loss or damage (whether or not
insured) to the property of the Company or any of its subsidiaries shall have
been sustained which materially and adversely affects the condition (financial
or otherwise), business, results of operations or prospects of the Company and
its subsidiaries, (iv) no legal or governmental action, suit or proceeding
affecting the Company or any of its subsidiaries which is material to the
Company and its subsidiaries or which affects or may affect the transactions
contemplated by this Agreement shall have been instituted or threatened and (v)
there shall not have been any material change in the condition (financial or
otherwise), business, management, results of operations or prospects of the
Company and its subsidiaries which makes it impractical or inadvisable in the
judgment of the Representatives to proceed with the public offering or purchase
the Common Shares as contemplated hereby.
(c) There shall have been furnished to you, as Representatives of the
Underwriters, on each Closing Date, in form and substance satisfactory to you,
except as otherwise expressly provided below:
(i) An opinion of Testa, Hurwitz & Thibeault, LLP, counsel for the
Company and the Selling Stockholder, addressed to the Underwriters and dated the
First Closing Date, or the Second Closing Date (in the latter case with respect
to the Company only), as the case may be, to the effect that:
(1) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its jurisdiction of
incorporation, is duly qualified to do business as a foreign corporation and is
in good standing in the Commonwealth of Massachusetts, and has full
-21-
<PAGE>
corporate power and authority to own its properties and conduct its business as
described in the Registration Statement;
(2) The authorized, issued and outstanding capital stock of the Company is as
set forth under the caption "Capitalization" in the Prospectus; all necessary
and proper corporate proceedings have been taken in order to validly authorize
such authorized capital stock; all outstanding shares of capital stock
(including the Firm Common Shares and any Optional Common Shares) have been duly
and validly issued, are fully paid and nonassessable, were not issued in
violation of or subject to any preemptive rights or other rights to subscribe
for or purchase any securities known to such counsel which have not been waived
and conform to the description thereof contained in the Prospectus; without
limiting the foregoing, there are no preemptive or other rights to subscribe for
or purchase any of the Common Shares to be sold by the Company hereunder;
(3) The certificates evidencing the Common Shares in the form filed with the
Commission are in due and proper form under Delaware law, and when duly
countersigned by the Company's transfer agent and registrar, and delivered to
you or upon your order against payment of the agreed consideration therefor in
accordance with the provisions of this Agreement, the Common Shares represented
thereby will be duly authorized and validly issued, fully paid and
nonassessable, will not have been issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities and
will conform in all respects to the description thereof contained in the
Prospectus;
(4) Except as disclosed in or specifically contemplated by the Prospectus, to
the best of such counsel's knowledge, there are no outstanding options, warrants
or other rights calling for the issuance of, and no commitments, plans or
arrangements to issue, any shares of capital stock of the Company or any
security convertible into or exchangeable for capital stock of the Company;
(5)(a) The Registration Statement has become
effective under the Act, and, to the best of such counsel's knowledge, no stop
order suspending the
-22-
<PAGE>
effectiveness of the Registration Statement or preventing the use of the
Prospectus has been issued and no proceedings for that purpose have been
instituted or are pending or contemplated by the Commission; any required filing
of the Prospectus and any supplement thereto pursuant to Rule 424(b) of the
Rules and Regulations has been made in the manner and within the time period
required by such Rule 424(b);
(b) The Registration Statement, the Prospectus and each amendment or
supplement thereto (except for the financial statements and schedules included
therein or any other financial data set forth therein as to which such counsel
need express no opinion) comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations.
(c) To the best of such counsel's knowledge, there are no franchises,
leases, contracts, agreements or documents of a character required to be
disclosed in the Registration Statement or Prospectus or to be filed as exhibits
to the Registration Statement which are not disclosed or filed, as required;
(d) To the best of such counsel's knowledge, there are no legal or
governmental actions, suits or proceedings pending or threatened against the
Company which are required to be described in the Prospectus which are not
described as required; and
(e) The documents incorporated by reference in the Prospectus (except
for any financial statements and schedules included in such documents or any
other financial data set forth therein as to which such counsel need express no
opinion), when they were filed with the Commission, complied as to form in all
material respects with the requirements of the Exchange Act and the rules and
regulations of the Commission thereunder.
(6) The statements under the captions "Management" and
"Description of Capital Stock" in the Prospectus, insofar as such statements
constitute a summary of documents referred to therein or of matters of law, are
accurate summaries and fairly and correctly present, in all
-23-
<PAGE>
material respects, the information called for with respect to such documents and
matters of law; provided, however, that such counsel may rely on representations
of the Company with respect to the factual matters contained in such statements
(so long as such counsel shall state that nothing has come to their attention
which leads them to believe that such representations are not true and correct
in all material respects);
(7) The Company has full right, power and authority to enter into this
Agreement and to sell and deliver the Common Shares to be sold by it to the
several Underwriters; this Agreement has been duly and validly authorized by all
necessary corporate action by the Company, has been duly and validly executed
and delivered by and on behalf of the Company; and no approval, authorization,
order, consent, registration, filing, qualification, license or permit of or
with any court, regulatory, administrative or other governmental body is
required for the execution and delivery of this Agreement by the Company or the
consummation of the transactions contemplated by this Agreement, except such as
have been obtained and are in full force and effect under the Act and such as
may be required under applicable Blue Sky laws in connection with the purchase
and distribution of the Common Shares by the Underwriters and the clearance of
such offering with the NASD;
(8) The execution and performance of this Agreement and the
consummation of the transactions herein contemplated will not conflict with,
result in the breach of, or constitute, either by itself or upon notice or the
passage of time or both, a default under, any agreement, mortgage, deed of
trust, lease, franchise, license, indenture, permit or other instrument known to
such counsel to which the Company is a party or by which the Company or any of
its property may be bound or affected which is material to the Company, or
violate any of the provisions of the Certificate of Incorporation or By-Laws of
the Company or, so far as is known to such counsel, violate any statute,
judgment, decree, order, rule or regulation of any court or governmental body
having jurisdiction over the Company or any of its property;
-24-
<PAGE>
(9) To the best of such counsel's knowledge, no holders of securities
of the Company have rights which have not been waived to the registration under
the Act of shares of Common Stock or other securities, because of the filing of
the Registration Statement by the Company or the offering contemplated hereby;
(10) This Agreement and the Stockholder Agreement have been duly
authorized, executed and delivered by or on behalf of the Selling Stockholder;
the Agent has been duly and validly authorized to act as the custodian of the
Common Shares to be sold by the Selling Stockholder; and to the best of such
counsel's knowledge, the performance of this Agreement and the Stockholder
Agreement and the consummation of the transactions herein contemplated by the
Selling Stockholder will not result in a breach of, or constitute a default
under, any indenture, mortgage, deed of trust, trust (constructive or other),
loan agreement, lease, franchise, license or other agreement or instrument to
which the Selling Stockholder is a party or by which the Selling Stockholder or
any of its properties may be bound, or violate any judgment, decree or order
known to such counsel of any court or governmental body having jurisdiction over
the Selling Stockholder or any of its properties, or any statute, rule or
regulation applicable to the Selling Stockholder; and no approval,
authorization, order or consent of any court, regulatory body, administrative
agency or other governmental body is required for the execution and delivery of
this Agreement or the Stockholder Agreement or the consummation by the Selling
Stockholder of the transactions contemplated by this Agreement, except such as
have been obtained and are in full force and effect under the Act and such as
may be required under the rules of the NASD and applicable Blue Sky laws;
(11) To the best of such counsel's knowledge, the Selling
Stockholder has full right, power and authority to enter into this Agreement and
the Stockholder Agreement and to sell, transfer and deliver the Common Shares to
be sold on such Closing Date by such Selling Stockholder hereunder; and good and
marketable title to such Common Shares
-25-
<PAGE>
so sold, free and clear of all liens, encumbrances, equities, claims,
restrictions, security interests, voting trusts, or other defects of title
whatsoever, has been transferred to the Underwriters (whom counsel may assume to
be bona fide purchasers) who have purchased such Common Shares hereunder;
(12) To the best of such counsel's knowledge, the Stockholder
Agreement is a valid and binding agreement of the Selling Stockholder in
accordance with its terms except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium or
other laws affecting creditors' rights generally;
(13) No transfer taxes are required to be paid in connection with the
sale and delivery of the Common Shares to the Underwriters hereunder;
(14) The statements of law or regulation relating to patent matters
contained under the captions "Risk Factors -- Dependence on Proprietary
Technology" and "Business -- Patents, Licenses and Trade Secrets" and other
statements of law or regulations as to patent matters contained elsewhere in the
Registration Statement and the Prospectus, and any amendment or supplement
thereto, are, in all material respects, correct and accurate summaries of the
matters set forth therein, subject to the qualifications set forth therein;
(15) To the best of such counsel's knowledge, the Company has not
received any notice challenging the validity or enforceability of any of the
United States patents owned by, or licensed to, the Company or its subsidiaries;
(16) To the best of such counsel's knowledge, the Company has not
received any notice of infringement or of conflict with the rights or claims of
others with respect to any United States patent which could result in any
material adverse effect upon the Company or any of its subsidiaries; and
-26-
<PAGE>
(17) To the best of such counsel's knowledge, there are no material
legal or governmental proceedings pending or threatened with respect to any
patents of the Company.
In rendering such opinion, such counsel may rely as to matters of
local law, on opinions of local counsel, and as to matters of fact, on
certificates of the Selling Stockholder and of officers of the Company and of
governmental officials, in which case their opinion is to state that they are so
doing and that the Underwriters are justified in relying on such opinions or
certificates and copies of said opinions or certificates are to be attached to
the opinion. Such counsel shall also include a statement to the effect that
nothing has come to such counsel's attention that would lead such counsel to
believe that (i) either at the effective date of the Registration Statement or
at the applicable Closing Date the Registration Statement, including any post-
effective amendment thereto, and giving effect to any modifications incorporated
therein pursuant to Rule 430A under the Act, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; (ii) the Prospectus,
or any supplement thereto, on the date it was filed pursuant to the Commission's
Rules under the Act and as of the applicable Closing Date contained an untrue
statement of a material fact or omitted to state a material fact necessary in
order to make the statements, in the light of the circumstances under which they
are made, not misleading; or that any of the documents or reports listed under
"Documents Incorporated by Reference" in the Prospectus when they were so filed
contained an untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements, in the light of the
circumstances under which they are made when such documents were so filed, not
misleading (except that, in each case, such counsel need express no view as to
financial statements, schedules or any other financial data therein).
(ii) Such opinion or opinions of Hale and Dorr, counsel for the
Underwriters, dated the First Closing Date or the Second Closing Date, as the
case may be, with respect to the incorporation of the Company, the sufficiency
of all corporate proceedings and other legal matters relating to this Agreement,
the validity of the
-27-
<PAGE>
Common Shares, the Registration Statement and the Prospectus and other related
matters as you may reasonably require, and the Company and the Selling
Stockholder shall have furnished to such counsel such documents and shall have
exhibited to them such papers and records as they may reasonably request for the
purpose of enabling them to pass upon such matters. In connection with such
opinions, such counsel may rely on representations or certificates of officers
of the Company and governmental officials.
(iii) A certificate of the Company executed by the Chairman of the
Board or President and the chief financial or accounting officer of the Company,
dated the First Closing Date or the Second Closing Date, as the case may be, to
the effect that:
(1) The representations and warranties of the Company set forth in
Section 2 of this Agreement are true and correct as of the date of this
Agreement and as of the First Closing Date or the Second Closing Date, as the
case may be, and the Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied on or prior to such
Closing Date;
(2) The Commission has not issued any order preventing or suspending
the use of the Prospectus or any Preliminary Prospectus filed as a part of the
Registration Statement or any amendment thereto; no stop order suspending the
effectiveness of the Registration Statement has been issued; and to the best of
the knowledge of the respective signers, no proceedings for that purpose have
been instituted or are pending or contemplated under the Act;
(3) Each of the respective signers of the certificate has
carefully examined the Registration Statement and the Prospectus; in his opinion
and to the best of his knowledge, the Registration Statement and the Prospectus
and any amendments or supplements thereto contain all statements required to be
stated therein regarding the Company and its subsidiaries; and neither the
Registration Statement nor the Prospectus nor any amendment or supplement
thereto includes any untrue statement of a material fact or omits to state any
material fact
-28-
<PAGE>
required to be stated therein or necessary to make the statements therein not
misleading;
(4) Since the initial date on which the Registration Statement was
filed, no agreement, written or oral, transaction or event has occurred which
should have been set forth in an amendment to the Registration Statement or in a
supplement to or amendment of any prospectus which has not been disclosed in
such a supplement or amendment;
(5) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, and except as disclosed in or
contemplated by the Prospectus, there has not been any material adverse change
or a development involving a material adverse change in the condition (financial
or otherwise), business, properties, results of operations, management or
prospects of the Company; and no legal or governmental action, suit or
proceeding is pending or threatened against the Company which is material to the
Company, whether or not arising from transactions in the ordinary course of
business, or which may adversely affect the transactions contemplated by this
Agreement; since such dates and except as so disclosed, neither the Company has
not entered into any verbal or written agreement or other transaction which is
not in the ordinary course of business or which could result in a material
reduction in the future earnings of the Company or incurred any material
liability or obligation, direct, contingent or indirect, made any change in its
capital stock, made any material change in its short-term debt or funded debt or
repurchased or otherwise acquired any of the Company's capital stock; and the
Company has not declared or paid any dividend, or made any other distribution,
upon its outstanding capital stock payable to stockholders of record on a date
prior to the First Closing Date or Second Closing Date, as the case may be; and
(6) Since the respective dates as of which information is given
in the Registration Statement and the Prospectus and except as disclosed in or
contemplated by the Prospectus, the Company has not sustained a material loss or
damage by strike,
-29-
<PAGE>
fire, flood, windstorm, accident or other calamity (whether or not insured).
(iv) On the First Closing Date a certificate, dated such Closing Date
and addressed to you, signed by or on behalf of the Selling Stockholder to the
effect that the representations and warranties of such Selling Stockholder in
this Agreement are true and correct, as if made at and as of the First Closing
Date, and such Selling Stockholder has complied with all the agreements and
satisfied all the conditions on his part to be performed or satisfied prior to
the First Closing Date.
(v) On the date before this Agreement is executed and also on the
First Closing Date and the Second Closing Date a letter addressed to you, as
Representatives of the Underwriters, from Arthur Andersen LLP, independent
accountants, the first one to be dated the day before the date of this
Agreement, the second one to be dated the First Closing Date and the third one
(in the event of a Second Closing) to be dated the Second Closing Date, in form
and substance satisfactory to you.
(vi) On or before the First Closing Date, letters from the Selling
Stockholder and each director and officer of the Company, in form and substance
satisfactory to you, confirming that for a period of 90 days after the first
date that any of the Common Shares are released by you for sale to the public,
such person will not directly or indirectly sell or offer to sell or otherwise
dispose of any shares of Common Stock or any right to acquire such shares
without the prior written consent of Montgomery Securities, which consent may be
withheld at the sole discretion of Montgomery Securities.
(vii) An opinion of Hogan & Hartson L.L.P., special regulatory counsel
for the Company, addressed to the Underwriters and dated the First Closing Date,
or the Second Closing Date, as the case may be, to the effect that the
statements in the Prospectus under the captions "Risk Factors--Risks Associated
with Extensive Government Regulation" and "Business--Government Regulation,"
insofar as such statements purport to summarize applicable provisions of the
Federal Food, Drug and Cosmetic Act and the regulations promulgated thereunder,
the Prescription Drug User Fee Act of 1992 and Clinical Laboratory Improvement
Amendment are accurate summaries in all material respects of the provisions
purported to be summarized under such captions in the Prospectus.
-30-
<PAGE>
In addition to the foregoing opinion, such counsel shall state that no
facts have come to their attention which cause them to believe that the
statements in the Prospectus under the captions "Risk Factors--Risks Associated
with Extensive Government Regulation" and "Business--Government Regulation,"
insofar as such statements relate to FDA regulatory matters, at the time the
Registration Statement became effective, contained an untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statement therein not misleading, or as of the First
Closing Date or the Second Closing Date, as the case may be, contains an untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory to you and
to Hale and Dorr, counsel for the Underwriters. The Company shall furnish you
with such manually signed or conformed copies of such opinions, certificates,
letters and documents as you request. Any certificate signed by any officer of
the Company and delivered to the Representatives or to counsel for the
Underwriters shall be deemed to be a representation and warranty by the Company
to the Underwriters as to the statements made therein.
If any condition to the Underwriters' obligations hereunder to be
satisfied prior to or at the First Closing Date is not so satisfied, this
Agreement at your election will terminate upon notification by you as
Representatives to the Company and the Selling Stockholder without liability on
the part of any Underwriter, the Company or the Selling Stockholder except for
the expenses to be paid or reimbursed by the Company and by the Selling
Stockholder pursuant to Sections 7 and 9 hereof and except to the extent
provided in Section 11 hereof.
-31-
<PAGE>
SECTION 9. Reimbursement of Underwriters' Expenses. Notwithstanding
---------------------------------------
any other provisions hereof, if this Agreement shall be terminated by you
pursuant to Section 8, or if the sale to the Underwriters of the Common Shares
on the First Closing Date is not consummated because of any refusal, inability
or failure on the part of the Company or the Selling Stockholder to perform any
agreement herein or to comply with any provision hereof, the Company agrees to
reimburse you and the other Underwriters upon demand for all out-of-pocket
expenses that shall have been reasonably incurred by you and them in connection
with the proposed purchase and the sale of the Common Shares, including but not
limited to fees and disbursements of counsel, printing expenses, travel
expenses, postage, telegraph charges and telephone charges relating directly to
the offering contemplated by the Prospectus. Any such termination shall be
without liability of any party to any other party except that the provisions of
this Section, Section 7 and Section 11 shall at all times be effective and shall
apply.
SECTION 10. Effectiveness of Registration Statement. You, the
---------------------------------------
Company and the Selling Stockholder will use your and their best efforts to
cause the Registration Statement to become effective, to prevent the issuance of
any stop order suspending the effectiveness of the Registration Statement and,
if such stop order be issued, to obtain as soon as possible the lifting thereof.
SECTION 11. Indemnification. (a) The Company and the Selling
---------------
Stockholder, jointly and severally, agree to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter within the
meaning of the Act against any losses, claims, damages, liabilities or expenses,
joint or several, to which such Underwriter or such controlling person may
become subject, under the Act, the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), or other federal or state statutory law or regulation, or
at common law or otherwise (including in settlement of any litigation, if such
settlement is effected with the written consent of the Company), insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof
as contemplated below) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state in any of them a material fact required to be stated therein
or necessary to make the statements in any of them not misleading, or arise out
of or are based in whole or in part on any inaccuracy in the representations and
warranties of the Company or the Selling Stockholder contained
-32-
<PAGE>
herein or any failure of the Company or the Selling Stockholder to perform their
respective obligations hereunder or under law; and will reimburse each
Underwriter and each such controlling person for any legal and other expenses as
such expenses are reasonably incurred by such Underwriter or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; provided,
however, that neither the Company nor the Selling Stockholder will be liable in
any such case to the extent that any such loss, claim, damage, liability or
expense arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto in reliance upon and in conformity with the information furnished to the
Company pursuant to Section 4 hereof; and provided further, that if any untrue
statement or omission or alleged untrue statement or omission made in any
Preliminary Prospectus has been corrected in the Prospectus, the indemnity
agreement contained in this paragraph shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages,
liabilities or expenses purchased the Common Share concerned (or to the benefit
of any person controlling such Underwriter) to the extent that any such loss,
claim, damage, liability or expense of such Underwriter or controlling person
results from the fact that a copy of the Prospectus was not sent or given to
such person at or prior to the written confirmation of sale of such Common
Shares to such person as required by the Acts unless such failure to deliver the
Prospectus was a result of noncompliance by the Company with its obligations
under Section 6(c) hereof; and provided further that in no event shall the
liability of the Selling Stockholder under this Section 11 exceed an amount
equal to the aggregate amount of proceeds received by the Selling Stockholder
from the sale of Common Shares pursuant to this Agreement. The Company and the
Selling Stockholder may agree, as among themselves and without limiting the
rights of the Underwriters under this Agreement, as to their respective amounts
of such liability for which they each shall be responsible. In addition to their
other obligations under this Section 11(a), the Company and the Selling
Stockholder agree that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, or any
inaccuracy in the representations and warranties of the Company or the Selling
Stockholder herein or failure to perform its obligations hereunder, all as
described in this Section 11(a), it will reimburse each Underwriter on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such
-33-
<PAGE>
claim, action, investigation, inquiry or other proceeding, notwithstanding the
absence of a judicial determination as to the propriety and enforceability of
the Company's or the Selling Stockholder's obligation to reimburse each
Underwriter for such expenses and the possibility that such payments might later
be held to have been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held to have
been improper, each Underwriter shall promptly return it to the Company or the
Selling Stockholder, as the case may be, together with interest, compounded
daily, determined on the basis of the prime rate (or other commercial lending
rate for borrowers of the highest credit standing) announced from time to time
by Bank of America NT&SA, San Francisco, California (the "Prime Rate"). Any
such interim reimbursement payments which are not made to an Underwriter within
30 days of a request for reimbursement, shall bear interest at the Prime Rate
from the date of such request. This indemnity agreement will be in addition to
any liability which the Company or the Selling Stockholder may otherwise have.
(b) Each Underwriter will severally indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, the Selling Stockholder and each person, if any, who controls the
Company or the Selling Stockholder within the meaning of the Act, against any
losses, claims, damages, liabilities or expenses to which the Company, or any
such director, officer, Selling Stockholder or controlling person may become
subject, under the Act, the Exchange Act, or other federal or state statutory
law or regulation, or at common law or otherwise (including in settlement of any
litigation, if such settlement is effected with the written consent of such
Underwriter), insofar as such losses, claims, damages, liabilities or expenses
(or actions in respect thereof as contemplated below) arise out of or are based
upon any untrue or alleged untrue statement of any material fact contained in
the Registration Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or alleged
untrue statement or omission or alleged omission was made in the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto, in reliance upon and in conformity with the information
furnished to the Company pursuant to Section 4 hereof; and will reimburse the
Company, or any such director, officer, Selling Stockholder or controlling
-34-
<PAGE>
person for any legal and other expense reasonably incurred by the Company, or
any such director, officer, Selling Stockholder or controlling person in
connection with investigating, defending, settling, compromising or paying any
such loss, claim, damage, liability, expense or action. In addition to its
other obligations under this Section 11(b), each Underwriter severally agrees
that, as an interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding arising out of or based upon any
statement or omission, or any alleged statement or omission, described in this
Section 11(b) which relates to information furnished to the Company pursuant to
Section 4 hereof, it will reimburse the Company (and, to the extent applicable,
each officer, director, controlling person or Selling Stockholder) on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the
Underwriters' obligation to reimburse the Company (and, to the extent
applicable, each officer, director, controlling person or the Selling
Stockholder) for such expenses and the possibility that such payments might
later be held to have been improper by a court of competent jurisdiction. To
the extent that any such interim reimbursement payment is so held to have been
improper, the Company (and, to the extent applicable, each officer, director,
controlling person or the Selling Stockholder shall promptly return it to the
Underwriters together with interest, compounded daily, determined on the basis
of the Prime Rate. Any such interim reimbursement payments which are not made
to the Company within 30 days of a request for reimbursement, shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which such Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party under this
Section, notify the indemnifying party in writing of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party for contribution or
otherwise than under the indemnity agreement contained in this Section or to the
extent it is not prejudiced as a proximate result of such failure. In case any
such action is brought against any indemnified party and such indemnified party
seeks or intends to seek indemnity from an indemnifying party, the indemnifying
party will be entitled to participate in, and, to the extent that it may wish,
jointly with all other indemnifying parties similarly notified, to assume the
defense thereof with counsel reasonably satisfactory to such indemnified party;
provided, however, if the defendants in any such action include
-35-
<PAGE>
both the indemnified party and the indemnifying party and the indemnified party
shall have reasonably concluded that there may be a conflict between the
positions of the indemnifying party and the indemnified party in conducting the
defense of any such action or that there may be legal defenses available to it
and/or other indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties shall have
the right to select separate counsel to assume such legal defenses and to
otherwise participate in the defense of such action on behalf of such
indemnified party or parties. Upon receipt of notice from the indemnifying party
to such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the indemnifying party
will not be liable to such indemnified party under this Section for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
such counsel in connection with the assumption of legal defenses in accordance
with the proviso to the next preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel, and one separate local counsel, approved by the
Representatives in the case of paragraph (a), representing the indemnified
parties who are parties to such action) or (ii) the indemnifying party shall not
have employed counsel reasonably satisfactory to the indemnified party to
represent the indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and expenses of
counsel shall be at the expense of the indemnifying party.
(d) If the indemnification provided for in this Section 11 is required
by its terms but is for any reason held to be unavailable to or otherwise
insufficient to hold harmless an indemnified party under paragraphs (a), (b) or
(c) in respect of any losses, claims, damages, liabilities or expenses referred
to herein, then each applicable indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of any losses,
claims, damages, liabilities or expenses referred to herein (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company, the Selling Stockholder and the Underwriters from the offering of the
Common Shares or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the Company, the Selling Stockholder and the Underwriters in connection
with the statements or omissions or inaccuracies in the representations and
warranties herein which resulted in such losses, claims, damages, liabilities or
expenses, as well as any other relevant
-36-
<PAGE>
equitable considerations. The respective relative benefits received by the
Company, the Selling Stockholder and the Underwriters shall be deemed to be in
the same proportion, in the case of the Company and the Selling Stockholder as
the total price paid to the Company and to the Selling Stockholder,
respectively, for the Common Shares sold by them to the Underwriters (net of
underwriting commissions but before deducting expenses) bears to the total price
to the public set forth on the cover of the Prospectus, and in the case of the
Underwriters as the underwriting commissions received by them bears to the total
price to the public set forth on the cover of the Prospectus. The relative fault
of the Company, the Selling Stockholder and the Underwriters shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact or the inaccurate or the alleged inaccurate representation and/or
warranty relates to information supplied by the Company, the Selling Stockholder
or the Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in subparagraph (c) of this Section 11, any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth in
subparagraph (c) of this Section 11 with respect to notice of commencement of
any action shall apply if a claim for contribution is to be made under this
subparagraph (d); provided, however, that no additional notice shall be required
with respect to any action for which notice has been given under subparagraph
(c) for purposes of indemnification. The Company, the Selling Stockholder and
the Underwriters agree that it would not be just and equitable if contribution
pursuant to this Section 11 were determined solely by pro rata allocation (even
if the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this paragraph. Notwithstanding the provisions of this Section
11, no Underwriter shall be required to contribute any amount in excess of the
amount of the total underwriting discounts or commissions received by such
Underwriter in connection with the Common Shares underwritten by it and
distributed to the public. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations to contribute pursuant to this
Section 11 are several in proportion to their respective underwriting
commitments and not joint.
-37-
<PAGE>
(e) It is agreed that any controversy arising out of the operation of
the interim reimbursement arrangements set forth in Sections 11(a) and 11(b)
hereof, including the amounts of any requested reimbursement payments and the
method of determining such amounts, shall be settled by arbitration conducted
under the provisions of the Constitution and Rules of the Board of Governors of
the New York Stock Exchange, Inc. or pursuant to the Code of Arbitration
Procedure of the NASD. Any such arbitration must be commenced by service of a
written demand for arbitration or written notice of intention to arbitrate,
therein electing the arbitration tribunal. In the event the party demanding
arbitration does not make such designation of an arbitration tribunal in such
demand or notice, then the party responding to said demand or notice is
authorized to do so. Such an arbitration would be limited to the operation of
the interim reimbursement provisions contained in Sections 11(a) and 11(b)
hereof and would not resolve the ultimate propriety or enforceability of the
obligation to reimburse expenses which is created by the provisions of such
Sections 11(a) and 11(b) hereof.
SECTION 12. Default of Underwriters. It shall be a condition to this
-----------------------
Agreement and the obligation of the Company and the Selling Stockholder to sell
and deliver the Common Shares hereunder, and of each Underwriter to purchase the
Common Shares in the manner as described herein, that, except as hereinafter in
this paragraph provided, each of the Underwriters shall purchase and pay for all
the Common Shares agreed to be purchased by such Underwriter hereunder upon
tender to the Representatives of all such shares in accordance with the terms
hereof. If any Underwriter or Underwriters default in their obligations to
purchase Common Shares hereunder on either the First or Second Closing Date and
the aggregate number of Common Shares which such defaulting Underwriter or
Underwriters agreed but failed to purchase on such Closing Date does not exceed
10% of the total number of Common Shares which the Underwriters are obligated to
purchase on such Closing Date, the non-defaulting Underwriters shall be
obligated severally, in proportion to their respective commitments hereunder, to
purchase the Common Shares which such defaulting Underwriters agreed but failed
to purchase on such Closing Date. If any Underwriter or Underwriters so default
and the aggregate number of Common Shares with respect to which such default
occurs is more than the above percentage and arrangements satisfactory to the
Representatives and the Company for the purchase of such Common Shares by other
persons are not made within 48 hours after such default, this Agreement will
terminate without liability on the part of any non-defaulting Underwriter or the
Company or the Selling Stockholder except for the expenses to be paid by the
Company and the Selling Stockholder pursuant to
-38-
<PAGE>
Section 7 hereof and except to the extent provided in Section 11 hereof.
In the event that Common Shares to which a default relates are to be
purchased by the non-defaulting Underwriters or by another party or parties, the
Representatives or the Company shall have the right to postpone the First or
Second Closing Date, as the case may be, for not more than five business days in
order that the necessary changes in the Registration Statement, Prospectus and
any other documents, as well as any other arrangements, may be effected. As
used in this Agreement, the term "Underwriter" includes any person substituted
for an Underwriter under this Section. Nothing herein will relieve a defaulting
Underwriter from liability for its default.
SECTION 13. Effective Date. This Agreement shall become effective
--------------
immediately as to Sections 7, 9, 11, 14 and 16 and, as to all other provisions,
(i) if at the time of execution of this Agreement the Registration Statement has
not become effective, at 2:00 P.M., California time, on the first full business
day following the effectiveness of the Registration Statement, or (ii) if at the
time of execution of this Agreement the Registration Statement has been declared
effective, at 2:00 P.M., California time, on the first full business day
following the date of execution of this Agreement; but this Agreement shall
nevertheless become effective at such earlier time after the Registration
Statement becomes effective as you may determine on and by notice to the Company
or by release of any of the Common Shares for sale to the public. For the
purposes of this Section 13, the Common Shares shall be deemed to have been so
released upon the release for publication of any newspaper advertisement
relating to the Common Shares or upon the release by you of telegrams (i)
advising Underwriters that the Common Shares are released for public offering,
or (ii) offering the Common Shares for sale to securities dealers, whichever may
occur first.
SECTION 14. Termination. Without limiting the right to terminate
-----------
this Agreement pursuant to any other provision hereof:
(a) This Agreement may be terminated by the Company by notice to you
and the Agent or by you by notice to the Company and the Agent at any time prior
to the time this Agreement shall become effective as to all its provisions, and
any such termination shall be without liability on the part of the Company or
the Selling Stockholder to any Underwriter (except for the expenses to be paid
or reimbursed by the Company and the Selling Stockholder pursuant to Sections 7
and 9 hereof and except to the extent provided in
-39-
<PAGE>
Section 11 hereof) or of any Underwriter to the Company or the Selling
Stockholder (except to the extent provided in Section 11 hereof).
(b) This Agreement may also be terminated by you prior to the First
Closing Date by notice to the Company and the Agent (i) if additional material
governmental restrictions, not in force and effect on the date hereof, shall
have been imposed upon trading in securities generally or minimum or maximum
prices shall have been generally established on the New York Stock Exchange or
on the American Stock Exchange or in the over the counter market by the NASD, or
trading in securities generally shall have been suspended on either such
Exchange or in the over the counter market by the NASD, or a general banking
moratorium shall have been established by federal, New York or California
authorities, (ii) if an outbreak of major hostilities or other national or
international calamity or any substantial change in political, financial or
economic conditions shall have occurred or shall have accelerated or escalated
to such an extent, as, in the judgment of the Representatives, to affect
adversely the marketability of the Common Shares, (iii) if any adverse event
shall have occurred or shall exist which makes untrue or incorrect in any
material respect any statement or information contained in the Registration
Statement or Prospectus or which is not reflected in the Registration Statement
or Prospectus but should be reflected therein in order to make the statements or
information contained therein not misleading in any material respect, or (iv) if
there shall be any action, suit or proceeding pending or threatened, or there
shall have been any development or prospective development involving
particularly the business or properties or securities of the Company or any of
its subsidiaries or the transactions contemplated by this Agreement, which, in
the reasonable judgment of the Representatives, may materially and adversely
affect the Company's business or earnings and makes it impracticable or
inadvisable to offer or sell the Common Shares. Any termination pursuant to
this subparagraph (b) shall be without liability on the part of any Underwriter
to the Company or the Selling Stockholder or on the part of the Company or the
Selling Stockholder to any Underwriter (except for expenses to be paid or
reimbursed by the Company and the Selling Stockholder pursuant to Sections 7 and
9 hereof and except to the extent provided in Section 11 hereof).
SECTION 15. Failure of the Selling Stockholder to Sell and Deliver.
------------------------------------------------------
If the Selling Stockholder shall fail to sell and deliver to the Underwriters
the Common Shares to be sold and
-40-
<PAGE>
delivered by such Selling Stockholder at the First Closing Date under the terms
of this Agreement, then the Underwriters may at their option, by written notice
from you to the Company and the Selling Stockholder, either (i) terminate this
Agreement without any liability on the part of any Underwriter or, except as
provided in Sections 7, 9 and 11 hereof, the Company or the Selling Stockholder,
or (ii) purchase the shares which the Company has agreed to sell and deliver in
accordance with the terms hereof. In the event of a failure by the Selling
Stockholder to sell and deliver as referred to in this Section, either you or
the Company shall have the right to postpone the Closing Date for a period not
exceeding seven business days in order that the necessary changes in the
Registration Statement, Prospectus and any other documents, as well as any other
arrangements, may be effected.
SECTION 16. Representations and Indemnities to Survive Delivery. The
---------------------------------------------------
respective indemnities, agreements, representations, warranties and other
statements of the Company, of its officers, of the Selling Stockholder and of
the several Underwriters set forth in or made pursuant to this Agreement will
remain in full force and effect, regardless of any investigation made by or on
behalf of any Underwriter or the Company or any of its or their partners,
officers or directors or any controlling person, or the Selling Stockholder, as
the case may be, and will survive delivery of and payment for the Common Shares
sold hereunder and any termination of this Agreement.
SECTION 17. Notices. All communications hereunder shall be in
-------
writing and, if sent to the Representatives shall be mailed, delivered or
telegraphed and confirmed to you at 600 Montgomery Street, San Francisco,
California 94111, Attention: Michael G. Dovey, with a copy to Hale and Dorr, 60
State Street, Boston, Massachusetts 02109, Attention: Mark G. Borden, Esq.; and
if sent to the Company or the Selling Stockholder shall be mailed, delivered or
telegraphed and confirmed to the Company at Matritech, Inc., 330 Nevada Street,
Newton, Massachusetts 02160, Attention: Chairman and Chief Executive Officer,
with a copy to Testa, Hurwitz & Thibeault, LLP, High Street Tower, 125 High
Street, Boston, Massachusetts 02110, Attention: Rufus C. King, Esq. The
Company, the Selling Stockholder or you may change the address for receipt of
communications hereunder by giving notice to the others.
SECTION 18. Successors. This Agreement will inure to the benefit of
----------
and be binding upon the parties hereto, including any substitute Underwriters
pursuant to Section 12 hereof, and to the benefit of the officers and directors
and controlling persons referred to in Section 11, and in each case their
respective
-41-
<PAGE>
successors, personal representatives and assigns, and no other person will have
any right or obligation hereunder. No such assignment shall relieve any party of
its obligations hereunder. The term "successors" shall not include any purchaser
of the Common Shares as such from any of the Underwriters merely by reason of
such purchase.
SECTION 19. Representation of Underwriters. You will act as
------------------------------
Representatives for the several Underwriters in connection with all dealings
hereunder, and any action under or in respect of this Agreement taken by you
jointly or by Montgomery Securities, as Representatives, will be binding upon
all the Underwriters.
SECTION 20. Partial Unenforceability. The invalidity or
------------------------
unenforceability of any Section, paragraph or provision of this Agreement shall
not affect the validity or enforceability of any other Section, paragraph or
provision hereof. If any Section, paragraph or provision of this Agreement is
for any reason determined to be invalid or unenforceable, there shall be deemed
to be made such minor changes (and only such minor changes) as are necessary to
make it valid and enforceable.
SECTION 21. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
SECTION 22. General. This Agreement constitutes the entire agreement
-------
of the parties to this Agreement and supersedes all prior written or oral and
all contemporaneous oral agreements, understandings and negotiations with
respect to the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company, the Selling Stockholder and you.
Any person executing and delivering this Agreement as Attorney-in-fact
for the Selling Stockholder represents by so doing that he has been duly
appointed as Attorney-in-fact by such Selling Stockholder pursuant to a validly
existing and binding Power of Attorney which authorizes such Attorney-in-fact to
take
-42-
<PAGE>
such action. Any action taken under this Agreement by any of the Attorneys-in-
fact will be binding on the Selling Stockholder.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon it
will become a binding agreement among the Company, the Selling Stockholder and
the several Underwriters including you, all in accordance with its terms.
Very truly yours,
MATRITECH, INC.
By:______________________________
Chairman and Chief Executive
Officer
SELLING STOCKHOLDER SHOWN ON
SCHEDULE B
By:______________________________
Attorney-in-fact
-43-
<PAGE>
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us in San Francisco, California as of
the date first above written.
MONTGOMERY SECURITIES
GENESIS MERCHANT GROUP SECURITIES
Acting as Representatives of the
several Underwriters named in
the attached Schedule A.
By: MONTGOMERY SECURITIES
By:______________________________
Partner
-44-
<PAGE>
SCHEDULE A
Number of Firm
Common Shares
Name of Underwriter to be Purchased
------------------- ---------------
Montgomery Securities..................
Genesis Merchant Group Securities......
TOTAL _________
2,000,000
=========
A-1
<PAGE>
SCHEDULE B
Number of Firm
Common Shares to
be Sold by Selling
Name of Selling Stockholder Stockholder
--------------------------- -----------------
Century IV Partners..................... 200,000
TOTAL 200,000
-------
200,000
=======
B-1
<PAGE>
EXHIBIT 5.1
---------------------
TESTA, HURWITZ & THIBEAULT, LLP
---------------------
ATTORNEYS AT LAW
HIGH STREET TOWER, 125 HIGH STREET
OFFICE (617) 248-7000 BOSTON, MASSACHUSETTS 02110 FAX (617) 248-7100
June 13, 1996
Matritech, Inc.
330 Nevada Street
Newton, Massachusetts 02160
Re: Registration Statement on Form S-3
Relating to 2,300,000 Shares of Common Stock
Dear Sir or Madam:
This opinion relates to an aggregate of 2,300,000 shares of Common Stock,
par value $.01 per share (the "Common Stock"), of Matritech, Inc. (the
"Company"), which are the subject matter of a Registration Statement on Form S-3
initially filed with the Securities and Exchange Commission on June 13, 1996
(the "Registration Statement").
The 2,300,000 shares of Common Stock covered by the Registration Statement
consist of 1,800,000 shares being sold by the Company, 200,000 shares being sold
by a selling stockholder of the Company (the "Selling Stockholder") and an
additional 300,000 shares subject to an over-allotment option granted by the
Company to the underwriters to be named in the prospectus (the "Prospectus")
included in the Registration Statement.
Based upon such investigation as we have deemed necessary, we are of the
opinion that the shares of Common Stock being sold by the Selling Stockholder
have been legally issued and are fully paid and nonassessable and that when the
2,100,000 shares of Common Stock to be sold by the Company pursuant to the
Prospectus have been issued and paid for in accordance with the terms described
in the
<PAGE>
Matritech, Inc
June 13, 1996
Page 2
Prospectus, such shares of Common Stock will be validly issued, fully paid and
nonassessable.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to our firm in the Prospectus under
the caption "Legal Matters."
Very truly yours,
/s/ Testa, Hurwitz & Thibeault, LLP
TESTA, HURWITZ & THIBEAULT, LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
and to all references to our firm included in or made part of this Registration
Statement.
Arthur Andersen LLP
Boston, Massachusetts
June 12, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10Q
MARCH 31, 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> MAR-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 10,976
<SECURITIES> 0
<RECEIVABLES> 112
<ALLOWANCES> 0
<INVENTORY> 236
<CURRENT-ASSETS> 11,457
<PP&E> 1,019
<DEPRECIATION> 619
<TOTAL-ASSETS> 12,007
<CURRENT-LIABILITIES> 764
<BONDS> 0
0
0
<COMMON> 159
<OTHER-SE> 33,466
<TOTAL-LIABILITY-AND-EQUITY> 12,007
<SALES> 179
<TOTAL-REVENUES> 332
<CGS> 0
<TOTAL-COSTS> 1,739
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,407)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,407)
<EPS-PRIMARY> (.09)
<EPS-DILUTED> 0
</TABLE>
