<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1997.
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________.
Commission File Number 0-12128
MATRITECH, INC.
(Exact Name of Registrant as Specified in Its Charter)
DELAWARE 04-2985132
(State or Other Jurisdiction of (IRS Employer Identification Number)
Incorporation or Organization)
330 NEVADA STREET 02160
Newton, Massachusetts (ZIP Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (617) 928-0820
Securities registered pursuant to Section 12(b) of the Act:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------ -----------------------------------------
None
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value, as of March 10, 1998, of Common Stock held by non-
affiliates of the registrant: $79,774,393 based on the last reported sale price
on the Nasdaq Stock Market.
Number of shares of Common Stock outstanding on March 10, 1998: 18,573,089.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a Definitive Proxy Statement pursuant to
Regulation 14A within 120 days of the end of the fiscal year ended December 31,
1997. Portions of such Proxy Statement are incorporated by reference in Part
III of this report.
================================================================================
<PAGE>
-2-
PART I
ITEM 1. 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 has developed non-invasive or minimally invasive cancer diagnostic tests
for bladder and colon cancer and is developing additional tests for cervical,
breast and prostate cancer. The Company's objective is to develop tests that
will be more accurate and allow for reduced treatment costs and a higher
standard of patient care than currently available tests.
NMP22/R/ Bladder Cancer Test. The Company's first product based on its NMP
technology, the Matritech NMP22/1/ Test Kit for bladder cancer, was approved for
sale in the United States by the U.S. Food and Drug Administration ("FDA") in
1996 as a prognostic indicator for the recurrence of bladder cancer. The NMP22
Test Kit has been commercially available in Europe since 1995 and is currently
being marketed in Asia (excluding Japan) and in many other countries outside the
United States. The Company has retained worldwide manufacturing rights for the
NMP22 Test Kit as well as certain marketing rights in the United States. The
Company has entered into an exclusive distribution agreement for the NMP22 Test
Kit in Japan and has additional distribution arrangements in selected European
and other countries worldwide. In March 1998, the Company and Curtis Matheson
Scientific, a division of Fisher Scientific Company, L.L.C. ("CMS") entered into
a co-exclusive distribution agreement for the NMP22 Test Kit in the United
States.
NuMA/TM/ Colon Cancer Test. The Company has also developed the NuMA Colon
Cancer Test, a blood-based test utilizing its NMP technology for the management
of colon cancer patients. In October 1997, the Company submitted clinical trial
data for this product to the FDA upon which to base approval for the marketing
and sale of this product in the United States. The Company has retained
worldwide manufacturing and marketing rights for its colon cancer assay.
Cervical, Breast and Prostate Cancer Tests. The Company has also identified
NMPs specific to cervical, breast and prostate cancer and is currently
developing diagnostic tests based on its proprietary NMP technology for these
cancers. Matritech is collaborating with Bayer Corporation ("Bayer") on the
development of an automated diagnostic test for cervical cancer. In December
1997, the Company completed its preclinical evaluation of an antibody which may
lead to the development of more accurate and cost-effective Pap smear products.
The preclinical evaluation has been submitted as the fifth of five milestones in
the development and marketing agreement with Bayer to advance Matritech's
technology toward the commercialization of an automated cervical cancer test.
The Company plans to develop additional assays for lung, liver, pancreatic,
stomach and renal cancers.
- ------------------------
/1/ NMP22/R/ is a registered trademark and NuMA/TM/ and Matritech/TM/ are
trademarks of Matritech, Inc. All other trademarks, service marks or trade
names used in this report are the property of their respective owners.
<PAGE>
-3-
Matritech was incorporated in Delaware in October 1987. The Company's
facilities are located at 330 Nevada Street, Newton, Massachusetts 02160 and its
telephone number is (617) 928-0820.
CANCER DIAGNOSTICS MARKET
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. In
the United States, cancer diagnostic assays have generally been approved by the
FDA for monitoring patients with known disease and only occasionally have been
approved for screening purposes.
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 laboratory-to-
laboratory differences in specimen handling, 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 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.
In 1996, the FDA approved Matritech's NMP22/R/ Test Kit for sale in the United
States as a prognostic indicator for use in the management of bladder cancer
patients. Since 1995, the NMP22 Test Kit has been used in countries outside the
United States for management of bladder cancer and for detection of bladder
cancer in previously undiagnosed individuals.
In the Company's clinical trials, the Company has observed utility in the use
of the NuMA/TM/ Test Kit for management of colon cancer patients and for
detection of colon cancer in previously undiagnosed individuals. In 1997, the
Company began sales of the NuMA Test Kit in countries outside of the United
States.
<PAGE>
-4-
NMP TECHNOLOGY
The Company believes that its NMP technology allows it to develop cost-
effective in vitro assays that are more accurate than others currently
available. The nuclear matrix, a three-dimensional protein framework 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. Independent academic
investigators have also confirmed the Company's findings in papers published in
scientific journals which described NMPs specific to prostate, breast and colon
cancer tissues. Certain of 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 similar 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 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 the Massachusetts Institute
of Technology ("MIT"). Under the current terms of the Company's license from
MIT, the Company's worldwide license is exclusive until the expiration of all
patent rights in 2006. The Company has made additional advances in NMP
technology, has filed its own patent applications for related protection and to
date has been granted three additional United States patents.
MATRITECH'S PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
THE MATRITECH NMP22/R/ TEST KIT FOR BLADDER CANCER
In 1996, Matritech's NMP22 Test Kit for bladder cancer was approved for sale
in the United States by the FDA. The test was approved based upon 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. The Company is currently marketing this product through its
own sales force in the United States and through distributors in the U.S. and
other major markets worldwide, except in Japan where in December 1996 the
Company's exclusive distributor submitted data from its clinical trials in order
to obtain regulatory approval for the product. Sales of the NMP22 Test Kit began
in certain countries in Europe in 1995.
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. If a bladder cancer patient's NMP22
<PAGE>
-5-
value is low (less than or equal to 10 units per milliliter) 10 or more days
after surgery, there is a high probability that there will be no evidence of
disease upon follow-up cystoscopic examination. Consequently, 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.
In March 1998, the Company entered into a distribution agreement with CMS.
Pursuant to this agreement, the Company retained its right to distribute the
NMP22 Test Kit in the United States through its own sales force, but granted CMS
an otherwise exclusive right to distribute the NMP22 Test Kit to hospitals and
commercial laboratories within the United States. The Company has retained
worldwide manufacturing rights for the NMP22 Test Kit. The Company has entered
into distribution arrangements in selected European and other countries
worldwide. See"--Strategic Alliances."
THE NUMA/TM/ TEST KIT FOR COLON CANCER
The Company has also developed the NuMA Test Kit, a blood-based test
utilizing its NMP technology for the management of colon cancer patients. In
October 1997, the Company submitted a 510(k) Premarket Notification to the FDA
for this test.
The Company has identified certain NMPs that are elevated in blood from
patients with colon cancer. The Company has also demonstrated that the types
and amounts of certain other NMPs differ between cancerous colon tissues and
normal colon tissues. The Company used proprietary antibodies to detect one of
these NMPs, NuMA, and has developed an assay for colon cancer based on these
antibodies. In October 1997, the Company submitted clinical trial data to the
FDA upon which to base 510(k) clearance for the marketing and sale of this
product in the United States. The Company introduced the product into certain
countries outside of the United States during 1997.
The Company has retained worldwide manufacturing and marketing rights for its
colon cancer assay. The Company is seeking distributors for its colon cancer
test outside the United States. See "--Strategic Alliances."
CERVICAL CANCER PRODUCT
As part of the Company's collaboration with Bayer to develop a cervical cancer
assay product, Matritech announced in December 1997 the completion of its
preclinical evaluation of an antibody which may lead to the development of more
accurate and cost-effective Pap smear products. Under the terms of the
agreement with Bayer, it is contemplated that this antibody, or another with
similar or improved accuracy, will be used in clinical laboratories, in
conjunction with instruments developed by Bayer, to automate the review and
evaluation of cancerous cervical cells. This system will initially be designed
as a complement to the Pap smear procedure. The Company recorded $140,000 in
milestone revenue in 1997 from Bayer. The preclinical evaluation was submitted
as the fifth of five Matritech milestones in the development and marketing
agreement with Bayer.
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 its worldwide
manufacturing rights to its cervical cancer product. See "--Strategic
Alliances."
<PAGE>
-6-
BREAST CANCER PRODUCT
During 1997, Matritech scientists, using a macromolecular biological
interaction analysis instrument, demonstrated the ability to detect certain
breast cancer NMPs, NMP-66 and NMP-43, in the blood of cancer patients at higher
levels than in normal individuals. These scientists are now evaluating the
antibodies in clinical formats to attempt to select an assay combination
suitable for pre-clinical evaluation in 1998. Following this, the Company
intends to 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 breast cancer blood-based assay more accurate
than products presently available.
The development and marketing of the Company's breast cancer products are
covered by an agreement with Yamanouchi Pharmaceutical Co., Ltd. ("Yamanouchi"),
which gives 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." An agreement with AB Sangtec Medical
("Sangtec"), which had granted Sangtec rights to the breast cancer product in
Europe has lapsed.
PROSTATE CANCER PRODUCT
In collaboration with clinicians at Johns Hopkins University Medical School
("Hopkins"), Matritech scientists have identified a nuclear matrix protein, NMP-
23, present in elevated amounts in the cells of prostate cancer patients and
absent, or present in low amounts, in normal individuals and those with benign
disease. The Company has developed an antibody, PRO4:216, to this protein which
has been tested by the Hopkins scientists using prostate biopsies. Hopkins
scientists have reported that the antibody is clinically useful in
differentiating prostate cancer cells from their normal and benign counterparts.
Matritech scientists have confirmed that this NMP is released into the blood and
are presently evaluating other antibodies to this protein using a macromolecular
biological interaction analysis instrument as a first step in developing a
clinical fluid-based assay for use in the management of prostate cancer
patients.
Matritech has a research agreement with the University of Pittsburgh
("Pittsburgh") to identify specific nuclear matrix proteins for predicting
prostate cancer metastasis. Pittsburgh scientists have identified these types
of proteins and have isolated and obtained partial peptide sequence. Matritech
intends to produce specific monoclonal antibodies to these proteins and develop
a blood and/or tissue-based prostate cancer test. Matritech intends to conduct
preliminary and clinical trials leading toward a submission for FDA approval.
The Company has retained an option to obtain worldwide manufacturing and
marketing rights for any prostate cancer test resulting from the Pittsburgh
NMPs.
OTHER CANCER DIAGNOSTICS PRODUCTS
In addition to the Company's NMP22 and NuMA Test Kits and its cervical, breast
and prostate 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.
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
<PAGE>
-7-
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/R/
Test Kit and all other products in development, except for certain rights that
could be granted to certain of its distributor 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 Corporation ("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 have been completed in
Japan and the results were submitted to Koseisho in December 1996. Konica has
limited manufacturing rights if the Company fails to deliver required quantities
of test kits.
Bayer. In 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 has provided funding to Matritech for the
identification of cervical cancer-specific NMPs and the development of
monoclonal antibodies which recognize malignant and pre-malignant or dysplastic
cervical cancer cells. The agreement contemplates that 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 and would pay Matritech a percentage of
Bayer's net selling price. In the years ended December 31, 1996 and 1997, the
Company completed three milestones and submitted a fourth resulting in billings
of $120,000 and $140,000, respectively.
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.
In 1996, Yamanouchi's rights with respect to the Company's colon cancer test
were terminated. Yamanouchi did not make any payments to the Company in 1997.
The purchase price for any products distributed by Yamanouchi will be based on
Yamanouchi's net selling price.
Sangtec. In 1990, Matritech and Sangtec entered into a development and supply
agreement for the development of breast cancer products. This agreement has
lapsed and Matritech has regained all rights.
MARKETING AND SALES
The Company has retained 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
<PAGE>
-8-
exclusive rights. Matritech is selling its NMP22/R/ Test Kit in the United
States to clinical laboratories using its own direct sales force, and in March
1998 entered into a distribution agreement with CMS granting CMS the right, co-
exclusive with Matritech, to distribute the NMP22 Test Kit to hospitals and
commercial laboratories within the U.S. The Company currently has three full-
time sales representatives and intends to expand this sales force to six full-
time sales representatives by June 1998. In addition, the sales force may be
expanded as sales of the Company's products warrant.
In foreign markets, the Company currently uses distributors and has one part-
time European sales manager. 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."
During the fiscal year ended December 31, 1997 the Company received
approximately 18% and 19% of its revenue from collaborative research and
development fees, license fees and product sales from Wallac ADL and Bayer,
respectively.
During the fiscal years ended December 31, 1995, 1996 and 1997, 26.9%, 24% and
41.9%, respectively, of the Company's total product sales were from the United
States and 73.1%, 76% and 58.1%, respectively, were from foreign countries.
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.
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 a portion of 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, 2000. The annual base rent for
<PAGE>
-9-
each year of the term is $230,625. The Company believes that its current
facilities are adequate to satisfy the Company's needs for the foreseeable
future. Thereafter, if the Company is required to expand its manufacturing
capabilities, it may be required to establish additional 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 Good Manufacturing Practice
("GMP") requirements. See "--Government Regulation."
During 1997, the Company and Phoenix Leasing, Incorporated ("Phoenix") entered
into a loan and security agreement for borrowing against personal property and
fixtures whereby the aggregate principal amount of borrowings shall not exceed
$1,200,000. In October 1997, the Company drew down its first borrowing from
Phoenix totaling $286,379 with the collateral being new equipment purchased for
research.
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 is used for monitoring bladder cancer,
CEA, which is used primarily for monitoring colorectal and breast cancers, PSA
and PSA related markers, which are 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.
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
<PAGE>
-10-
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 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
owned by MIT and expiring in 2006, with corresponding foreign patents granted
and/or patent applications pending in Canada and selected countries in Europe
and the Far East. One of the three United States patents was granted after
being subjected to a reissue proceeding before the United States Patent and
Trademark Office. 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 2006.
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. 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 three United States patents and twelve 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.
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
<PAGE>
-11-
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 premarket approval ("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 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
<PAGE>
-12-
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 a PMA 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 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 1996, the FDA approved Matritech's NMP22/R/ Test Kit for sale in the United
States 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 October 1997, the Company submitted a 510(k) Premarket Notification to the
FDA for its blood-based NuMA/TM/ Test Kit for the management of colon cancer
patients.
<PAGE>
-13-
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. The NMP22 Test Kit may only
be promoted by the Company to aid in the management of bladder cancer patients.
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
<PAGE>
-14-
comparable to the United States PMA is required prior to public sale of
diagnostic products. In Japan, where the Company's distributor for NMP22,
Konica, is responsible for obtaining the necessary approvals from Koseisho to
import and sell the NMP22 product, clinical trials have been completed and in
December 1996 the results were submitted to Koseisho in order to obtain such
approval.
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.
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.
EMPLOYEES
As of March 10, 1998, the Company had 51 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
<PAGE>
-15-
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.
RESEARCH AND DEVELOPMENT
Matritech's future success will depend in large part on its ability to develop
and bring to market new products based on its proprietary NMP technology.
Accordingly, Matritech devotes substantial resources to research and
development. The Company has assembled a scientific staff with a variety of
complementary skills in several advanced research disciplines, including
molecular biology, immunology and protein chemistry. In addition, Matritech
maintains consulting and advisory relationships with a number of prominent
researchers.
In December of 1997, Matritech was awarded a Phase I Small Business Innovation
Research ("SBIR") Grant from the National Cancer Institute to further develop
NMP tests for use in the detection and management of colon cancer patients. As
of December 31, 1997, Matritech had recorded $6,000 in funding related to this
SBIR grant.
During 1995, 1996 and 1997 Matritech spent approximately $3.0 million, $3.9
million and $3.9 million, respectively, on research and development.
Substantially all of these expenditures were related to the development of
diagnostic products.
ITEM 2. PROPERTIES.
Beginning in October 1995, the Company relocated its facilities from
Cambridge, Massachusetts to Newton, Massachusetts, where it leases corporate
headquarters, research and development and manufacturing facilities which occupy
approximately 22,500 square feet. The Company's lease is for a term of five (5)
years and expires on or about December 31, 2000. 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 for the foreseeable future, and has
not made a determination whether it will seek to extend its lease when it
expires in 2000 or seek to lease space elsewhere. There can be no assurance
that the Company will be able to extend its lease or lease other space on
reasonable terms.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently a party to any material pending legal
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of 1997.
<PAGE>
-16-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since August 6, 1997, the Company's Common Stock has been traded on The Nasdaq
National Market tier of The Nasdaq Stock Market ("Nasdaq National Market") under
the symbol: "NMPS." Prior to that date the Company's Common Stock was traded on
The Nasdaq SmallCap Market tier of The Nasdaq Stock Market ("Nasdaq SmallCap
Market") under the symbol: "NMPS" and on the Boston Stock Exchange under the
symbol: "MPS." The following table sets forth the range of quarterly high and
low sales price information for the Common Stock as reported, for the period
prior to August 6, 1997, by the Nasdaq SmallCap Market, and for all subsequent
periods, by the Nasdaq National Market.
<TABLE>
<CAPTION>
High Low
---- ----
Fiscal 1996
- -----------
<S> <C> <C>
First Quarter $11-7/8 $ 3-9/16
Second Quarter 18 9-1/2
Third Quarter 13-1/4 7-1/8
Fourth Quarter 13-5/8 6-7/8
Fiscal 1997
- -----------
First Quarter 10-1/4 4-5/8
Second Quarter 8-3/8 3-11/16
Third Quarter 7 4-7/8
Fourth Quarter 7-3/4 3-9/16
</TABLE>
As of March 10, 1998, there were approximately 336 shareholders of record.
The Company believes that shares of the Company's Common Stock held in bank,
money management, institution and brokerage house "nominee" names may account
for an estimated 7,700 additional beneficial holders.
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.
<PAGE>
-17-
ITEM 6. SELECTED FINANCIAL DATA.
The selected financial data presented below for each year in the five-year
period ended December 31, 1997 have been derived from the Company's financial
statements, which have been audited by Arthur Andersen LLP, independent public
accountants. This data should be read in conjunction with the financial
statements, related notes, "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and other financial information included
elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
STATEMENTS OF OPERATIONS DATA:
Revenues:
<S> <C> <C> <C> <C> <C>
Collaborative research and $ 187,071 $ 1,314,334 $ 1,023,438 $ 1,881,833 $ 747,532
development, license fees and
product sales
Interest and other income 81,218 91,591 216,865 528,583 566,686
----------- ----------- ----------- ----------- -----------
Total revenues 268,289 1,405,925 1,240,303 2,410,416 1,314,218
Expenses:
Research & development 2,728,224 3,470,122 3,014,125 3,909,793 3,943,390
Selling, general & administrative 1,820,798 1,591,525 2,308,773 3,665,298 4,845,915
----------- ----------- ----------- ----------- -----------
Total expenses 4,549,022 5,061,647 5,322,898 7,575,091 8,789,305
----------- ----------- ----------- ----------- -----------
Net Loss $(4,280,733) $(3,655,722) $(4,082,595) $(5,164,675) $(7,475,087)
=========== =========== =========== =========== ===========
Basic net loss per common share(1) $ (.80) $ (.46) $ (.38) $ (.32) $ (.43)
=========== =========== =========== =========== ===========
Weighted average number of 5,319,072 7,951,721 10,733,769 15,900,467 17,512,242
common shares outstanding(1) =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
BALANCE SHEET DATA:
<S> <C> <C> <C> <C> <C>
Cash, cash equivalents and $ 2,656,083 $ 3,974,237 $ 11,009,310 $ 6,770,336 $ 11,067,414
short-term investments
Working capital 2,410,014 3,419,323 10,838,756 7,165,462 10,989,534
Total assets 3,274,708 4,582,194 11,959,203 8,669,861 12,691,773
Accumulated deficit (13,237,413) (16,893,135) (20,975,730) (26,140,405) (33,615,492)
Total stockholders' equity $ 2,855,971 $ 3,878,067 $ 11,351,178 $ 7,783,984 $ 11,688,674
</TABLE>
_____________________
(1) Basic and diluted loss per share are the same for all periods presented.
See Note 1 of Notes to Financial Statements.
<PAGE>
-18-
ITEM 7. 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 several years. For the period from
inception to December 31, 1997, the Company incurred a cumulative net loss of
approximately $33.6 million.
In the United States, the Company sells its NMP22/R/ Test Kit through its
own direct sales force, and in March 1998 entered into a distribution agreement
with CMS granting CMS the right, co-exclusive with Matritech, to distribute the
NMP22 Test Kit to hospitals and commercial laboratories within the U.S. Outside
the United States, the Company sells the NMP22 Test Kit through distributors.
The Company entered into agreements with several new distributors in Europe and
the Far East in the second half of 1996. The Company's 1996 product revenue
includes initial stocking orders of the NMP22 Test Kit from such new
distributors. Accordingly, 1997 product revenue decreased as the Company's
distributors utilized inventory of the NMP22 Test Kit for market launches around
the world. See "Factors that may Affect Results - Fluctuating Operating
Results."
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED WITH YEAR ENDED DECEMBER 31, 1996
- -----------------------------------------------------------------------
Product sales, collaborative research and development revenue and license
fees decreased to $748,000 for the year ended December 31, 1997 from $1,882,000
for the year ended December 31, 1996. Revenue from product sales decreased to
$602,000 for the year ended December 31, 1997 from $1,678,000 for the year ended
December 31, 1996. This decrease primarily reflects initial stocking orders of
the NMP22 Test Kit that were made by new distributors in 1996 which were not
repeated in 1997. Product revenue may fluctuate from quarter to quarter and
from year to year based on the timing of distributors' orders for the NMP22/R/
Test Kits. Matritech's revenue from collaborative research and development for
the year ended December 31, 1997 and 1996 was $140,000 and $120,000,
respectively, consisting of milestone revenue from a funded development
agreement with Bayer. Matritech also received $6,000 in SBIR funding during the
year ended December 31, 1997 for its NuMA Tumor Marker project and $84,000 in
SBIR funding for its cancer therapy development project during the year ended
December 31, 1996.
Interest and other income was $567,000 for the year ended December 31,
1997 and $528,000 for the year ended December 31, 1996. The increase was due to
higher average cash balances available for investment and higher interest rates
in 1997 as compared to 1996.
Research and development expenses increased slightly to $3,943,000 for
the year ended December 31, 1997 from $3,910,000 for 1996. The increase was
primarily due to costs associated with product development personnel,
consultants, reagents and supplies for the Company's colon and cervical cancer
projects.
<PAGE>
-19-
Selling, general and administrative expenses increased to $4,846,000 for
the year ended December 31, 1997 from $3,665,000 for the year ended December 31,
1996. The increase is due to the augmentation of the sales force for the NMP22
Test Kit, increased public relations and media relations consulting fees and
fees associated with the inclusion of the Company on the Nasdaq National Market
system. The increase in selling expenses for the NMP22 Test Kit is primarily
attributable to increased staffing in sales, including recruitment, travel,
administrative supplies and promotional materials for the Company's sales
representatives for NMP22 in the United States, as well as, increased
expenditures on clinical marketing programs and consultants with clinical
expertise. In April 1997, the Company issued a warrant to a public relations
consultant. The Company will expense the value of the warrant, $500,000,
ratably over the one year term of its agreement with such consultant. The
Company expensed $350,000 of the value of this warrant in the year ended
December 31, 1997. During 1996, the Company expensed approximately $209,000 of
costs associated with a proposed public offering which the Company elected not
to complete.
The Company incurred a net loss of $7,475,000 for the year ended December
31, 1997 as compared with a net loss of $5,165,000 for the year ended December
31, 1996. The increased loss resulted primarily from decreased revenues and
increased sales and marketing expenses for the NMP22 Test Kit for bladder
cancer.
YEAR ENDED DECEMBER 31, 1996 COMPARED WITH YEAR ENDED DECEMBER 31, 1995
- -----------------------------------------------------------------------
Product sales, collaborative research and development revenue and license
fees increased to $1,882,000 for the year ended December 31, 1996 from
$1,023,000 for the year ended December 31, 1995. Revenue from product sales
increased to 1,678,000 for the year ended December 31, 1996 as compared to
$343,000 in 1995. This increase was primarily due to worldwide sales of the
Company's NMP22/R/ Test Kit for bladder cancer which was approved for sale in
the United States by the FDA in July 1996. Revenue generated from collaborative
research and development and license fees in the year ended December 31, 1996
consisted of $120,000 in milestone payments from a funded development agreement
with Bayer, and $84,000 in SBIR funding for the Company's cancer therapy
development project. Collaborative research and development revenue 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 and $190,000 in SBIR funding for the Company's prostate,
colon and cancer therapy development projects.
Interest and other income was $528,000 for the year ended December 31,
1996 and $217,000 for the year ended December 31, 1995. The increase was due to
significantly higher average cash balances available for investment throughout
1996 as compared to 1995 resulting from financings during the third and fourth
quarters of 1995.
Research and development expenses increased to $3,910,000 for the year
ended December 31, 1996 from $3,014,000 for the year ended December 31, 1995.
The increase is primarily due to the scale-up of product manufacturing for the
Company's NMP22 Test Kit for bladder cancer, and to a lesser extent, increased
personnel cost in the research department, and costs associated with the initial
stages of clinical trials for the Company's colon cancer test which began in
October of 1996.
Selling, general and administrative expenses increased to $3,665,000 for
the year ended December 31, 1996 from $2,309,000 for the year ended December 31,
1995. During 1996, the Company expensed approximately $209,000 of costs
associated with a proposed public offering which the
<PAGE>
-20-
Company elected not to complete. Excluding these expenses, selling, general and
administrative expenses increased primarily from sales and marketing personnel
costs, the termination of the Company's former distributor in Europe and the
establishment of marketing programs to promote the Company's products worldwide.
The balance of the increase is primarily related to increased salaries,
professional fees and expenses associated with termination of the Company's
former lease for its Cambridge facility.
The Company incurred a net loss of $5,165,000 for the year ended December
31, 1996, as compared to a net loss of $4,083,000 for the year ended December
31, 1995. The increased loss resulted primarily from increased sales, marketing
and manufacturing expenses for the NMP22 Test Kit for bladder cancer, and to a
lesser extent, the expenses associated with increased research and development
and new clinical trial costs and expenses related to the withdrawn public
offering, increased professional fees, and termination costs of the Company's
former European distributor and the lease at its former Cambridge facility.
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. At December 31, 1997, 1996 and 1995 the
Company had cash and cash equivalents of $11,067,000, $6,770,000 and
$11,009,000, respectively, and working capital of $10,990,000, 7,165,000 and
$10,839,000, respectively. The Company's primary cash infusion in 1997 was
from the private sale of common stock which totaled $10,904,000. In 1996, the
Company's primary cash infusion was from the exercise of common stock options
and warrants which totaled $1,514,000, and in 1995, the Company received its
primary cash infusions from the private sale of common stock which totaled
$6,658,000, and the exercise of common stock purchase warrants which totaled
$4,656,000.
The Company's operating activities used cash of approximately $6,486,000,
$5,505,000 and $4,188,000 for the years ended December 31, 1997, 1996 and 1995,
respectively, primarily to fund the Company's operating loss.
The Company's investing activities used cash of approximately $516,000,
$240,000 and $147,000 in the years ended December 31, 1997, 1996 and 1995,
respectively, primarily for purchases of computer systems, office and laboratory
equipment, leasehold improvements and certain intangible assets. The Company
currently estimates that it will acquire approximately $474,000 of capital
equipment during the year ended December 31, 1998, consisting primarily of
manufacturing and research and development laboratory equipment.
Financing activities provided cash of approximately $11,299,000,
$1,506,000 and $11,371,000 in the years ended December 31, 1997, 1996 and 1995,
respectively, primarily from the sale of equity securities, the exercise of
stock options and warrants and proceeds from a capital equipment loan in 1997,
net of payments of capital lease obligations.
In August 1997, the Company entered into an equipment line of credit with
Phoenix under which it can borrow up to $1,200,000 for equipment purchases. The
equipment line of credit converts into a 48 month term note payable. The
equipment line of credit and note bear interest at 11.75% and are secured by the
underlying equipment. At December 31, 1997, the Company had approximately
$914,000 available under the equipment line of credit and converted
approximately $286,000 into a term note payable.
<PAGE>
-21-
The Company expects to incur continued research and development expenses
and other costs, including costs related to clinical studies to commercialize
additional products based upon its NMP technology. The Company expects that
such costs will increase in the fiscal year ending December 31, 1998 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 its research and development programs; progress with
clinical trials for its diagnostic products; the magnitude of product sales; the
time involved in obtaining regulatory approvals; the costs involved in filing,
prosecuting and enforcing patent claims; competing technological and market
developments; and the ability of the Company to establish additional development
and marketing arrangements to provide funding for research and development and
to conduct clinical trials, obtain regulatory approvals, and manufacture and
market certain of the Company's products.
The Company may from time to time consider obtaining additional long-term
funding for its operations from various sources including collaborative
arrangements and additional public or private financings. The Company
anticipates that its existing capital resources including working capital and
interest thereon will satisfy its capital needs at least through 1998. The
foregoing forward-looking statement is subject to uncertainties and there can be
no assurance that the Company's needs may not change. See "Factors that may
Affect Future Results-Access to Capital." The survival of the Company in the
long term, 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, or that in the long
term, the Company will be able to generate sufficient revenue to achieve and
maintain profitability.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future financial and operational results are subject to a
number of material risks and uncertainties that may affect such results or
conditions, including:
History of Operating Losses and Anticipated Future Losses. The Company
has incurred operating losses since its inception and expects to incur
significant operating losses for at least the next several years. The Company
expects to improve operating results in future periods, however, there can be no
assurance that the Company will achieve or maintain profitability or that its
revenue will grow in the future.
Fluctuation in Operating Results. The Company's future operating results
may vary significantly from quarter to quarter or from year to year depending on
a number of factors including: the timing and size of orders from the Company's
customers and distributors; the timing of payments from corporate partners and
research grants; regulatory approvals and the introduction of new products by
the Company; and the market acceptance of the Company's products. The Company's
current planned expense levels are based in part upon expectations as to future
revenue. Consequently, profits may vary significantly from quarter to quarter
or year to year based on the timing of revenue. Revenue or profits in any
period will not necessarily be indicative of results in subsequent periods.
<PAGE>
-22-
Uncertainties Associated with Future Performance. The Company's success
in the market for diagnostic products will depend, in part, on the Company's
ability to: successfully develop, test, produce and market its products; obtain
necessary governmental approvals in a timely manner; attract and maintain key
employees; and successfully respond to technological changes in its marketplace.
The Company's success in markets outside the United States is dependent on the
performance of independent distributors over which the Company has limited
control.
Near-Term Dependence Upon NMP22. The Company anticipates that in the
near-term it will be substantially dependent on the success of the NMP22/R/ Test
Kit, which was approved for sale in the U.S. by the FDA in 1996 and expects to
generate substantially all of its near-term product sales 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 achieve wide market acceptance. The remainder of the Company's
products are awaiting FDA approval or are in development and there can be no
assurance that it will be successful with such regulatory approvals and product
development.
Access to Capital. The Company will consider from time to time various
financing alternatives and may seek to raise additional capital through equity
or debt financing or by entering into corporate partnering arrangements. There
can be no assurance, however, that this funding will be available on terms
acceptable to the Company, if at all.
Year 2000 Compliance. Certain of the Company's internal computer systems
are not Year 2000 compliant. Matritech has examined this problem and expects to
implement successfully the systems and programming changes necessary to address
Year 2000 issues and does not believe the cost of such actions will have a
material effect on the Company's results of operations or financial condition.
There can be no assurances, however, that there will not be a delay in, or
increased costs associated with, the implementation of such changes, and the
Company's inability to implement such changes could have an adverse effect on
future results of operations. In addition, there can be no assurances that the
Company's customers and suppliers will not be adversely affected by their own
Year 2000 issues, which may indirectly adversely and materially affect the
Company.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this item is contained in the financial
statements set forth in Item 14(a) under the caption "Consolidated Financial
Statements" as a part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There have been no changes in or disagreements with accountants on
accounting or financial disclosure matters during the Company's two most recent
fiscal years.
<PAGE>
-23-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Directors
The information concerning directors of the Company required under this
item is incorporated herein by reference to the Company's definitive proxy
statement pursuant to Regulation 14A, to be filed with the Commission not later
than 120 days after the close of the Company's fiscal year ended December 31,
1997 under the headings "Occupations of Directors and Executive Officers" and
"Section 16(a) Beneficial Ownership Reporting Compliance."
EXECUTIVE OFFICERS
The information concerning executive officers of the Company required
under this item is incorporated herein by reference to the Company's definitive
proxy statement pursuant to Regulation 14A, to be filed with the Commission not
later than 120 days after the close of the Company's fiscal year ended December
31, 1997 under the headings "Occupations of Directors and Executive Officers"
and "Section 16(a) Beneficial Ownership Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION.
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1997, under the heading
"Compensation and Other Information Concerning Directors and Officers."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required under this item is incorporated herein by
reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission not later than 120 days after the close of
the Company's fiscal year ended December 31, 1997, under the heading "Securities
Ownership of Management and Principal Stockholders."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information, if any, required under this item is incorporated herein
by reference to the Company's definitive proxy statement pursuant to Regulation
14A, to be filed with the Commission within 120 days after the close of the
Company's fiscal year ended December 31, 1997, under the heading "Certain
Relationships and Related Transactions."
<PAGE>
-24-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Consolidated Financial Statements.
Report of Independent Public Accountants.
Balance Sheets as of December 31, 1996 and 1997.
Statements of Operations for the Years ended December 31, 1995, 1996
and 1997.
Statements of Stockholders' Equity (Deficit) for the years ended
December 31, 1995, 1996 and 1997.
Statements of Cash Flows for the Years ended December 31, 1995, 1996
and 1997.
Notes to Financial Statements.
2. No schedules are submitted because they are not applicable, not
required or because the information is included in the Financial
Statements or Notes to Financial Statements.
3. List of Exhibits.
Exhibit Number Description of Exhibit
-------------- ----------------------
3.1 Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibits 3, 4.1 to
the Company's Registration Statement No. 33-46158
on Form S-1 and incorporated herein by
reference).
3.2 Amended and Restated By-Laws of the Registrant
(filed as Exhibits 3.2, 4.1 to the Company's
Registration Statement No. 33-46158 on Form S-1
and incorporated herein by reference).
3.3 Certificate of Amendment dated June 16, 1994, of
Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibit 3.2 of the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1995 and
incorporated herein by reference).
3.4 Certificate of Amendment dated June 5, 1995, of
Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibit 3.3 of the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1995 and
incorporated herein by reference).
<PAGE>
-25-
4.1 Description of Capital Stock contained in the
Registrant's Amended and Restated Certificate of
Incorporation, filed as Exhibits 3.1, 3.3 and
3.4.
10.1* License Agreement between Matritech and the
Massachusetts Institute of Technology dated
December 14, 1987, as amended March 15, 1988,
December 20, 1989 and March 4, 1992 (filed as
Exhibit 10.1 to the Company's Registration
Statement No. 33-46158 on Form S-1 and
incorporated herein by reference).
10.2* Development and Supply Agreement between
Matritech and Yamanouchi Pharmaceutical Co., Ltd.
dated September 27, 1991 (filed as Exhibit 10.4
to the Company's Registration Statement No. 33-
46158 on Form S-1 and incorporated herein by
reference).
10.3+ 1988 Stock Plan (filed as Exhibit 10.8 to the
Company's Registration Statement No. 33-46158 on
Form S-1 and incorporated herein by reference).
10.4**+ 1992 Stock Plan as amended as of June 13, 1997
10.5+ Amended and Restated 1992 Non-Employee Director
Stock Plan as amended as of June 7, 1996 (filed
as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June
30, 1996 and incorporated herein by reference).
10.6+ 1992 Employee Stock Purchase Plan (filed as
Exhibit 10.11 to the Company's Registration
Statement No. 33-46158 on Form S-1 and
incorporated herein by reference).
10.7 Second Amended and Restated Registration Rights
Agreement dated May 4, 1990, as amended February
26, 1992 (filed as Exhibit 10.13 to the Company's
Registration Statement No. 33-46158 on Form S-1
and incorporated herein by reference).
10.8 Form of Indemnity Agreement with directors (filed
as Exhibit 10.14 to the Company's Registration
Statement No. 33-46158 on Form S-1 and
incorporated herein by reference).
10.9** Fourth Amendment dated March 18, 1993 to License
Agreement between the Company and the
Massachusetts Institute of Technology dated
December 14, 1987, as amended.
<PAGE>
-26-
10.10** Amendment dated November 30, 1992 to Development
and Supply Agreement between the Company and
Yamanouchi Pharmaceutical Co., Ltd. dated
September 27, 1991, as amended.
10.11* License Agreement between the Company and The
Johns Hopkins University dated as of August 4,
1993 (filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 and incorporated herein
by reference).
10.12* Amendment dated June 30, 1993 to Development and
Supply Agreement between the Company and
Yamanouchi Pharmaceutical Co., Ltd dated
September 27, 1991, as amended (filed as Exhibit
10.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993 and
incorporated herein by reference).
10.13 Amendment dated January 25, 1994 to Development
and Supply Agreement between the Company and
Yamanouchi Pharmaceutical Co., Ltd dated
September 27, 1991, as amended (filed as Exhibit
10.22 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
10.14 Fifth Amendment dated April 14, 1994 to License
Agreement between the Company and the
Massachusetts Institute of Technology dated
December 14, 1987 (filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended March
31, 1994 and incorporated herein by reference).
10.15* Exclusive Distribution Agreement between the
Company and Konica Corporation dated as of
November 9, 1994. (Filed as Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.16* License Agreement between the Company and Yale
University dated as of March 21, 1995 (filed as
Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995
and incorporated herein by reference).
<PAGE>
-27-
10.17* Development Agreement between the Company and
Bayer Corporation dated as of June 13, 1995
(filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
June 30, 1995 and incorporated herein by
reference).
10.18 Lease Agreement between the Company and One
Nevada Realty Trust dated October 6, 1995 (filed
as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended
September 30, 1995 and incorporated herein by
reference).
10.19 Sixth Amendment dated March 1, 1996 to License
Agreement between Matritech and the Massachusetts
Institute of Technology dated December 31, 1987,
as amended (filed as Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 and
incorporated herein by reference).
10.20** Senior Loan and Security Agreement No. 0096
between the Company and Phoenix Leasing,
Incorporated dated August 29, 1997 including form
of Senior Secured Promissory Note between the
Company and Phoenix Leasing, Incorporated.
10.21**++ Distributorship Agreement by and between the
Company and Curtis Matheson Scientific, a
division of Fisher Scientific Company, L.L.C.
dated as of March 19, 1998.
23** Consent of Arthur Andersen LLP.
27** Financial Data Schedule
____________________
* Confidential Treatment Granted for portions thereof
** Filed herewith
+ Indicates management contract or compensatory plan or arrangement required
to be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this
report.
++ Confidential Treatment has been requested as to omitted portions pursuant to
Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.
(b) Reports on Form 8-K.
Not Applicable
(c) Exhibits.
The Company hereby files as exhibits to this Form 10-K those exhibits
listed in Item 14(a)(3), above.
(d) Financial Statement Schedules.
The Company hereby files as financial statement schedules to this Form
10-K those financial statement schedules listed in Item 14(a)(2), above.
<PAGE>
MATRITECH, INC.
Index to Financial Statements
PAGE
Report of Independent Public Accountants F-2
Balance Sheets as of December 31, 1996 and 1997 F-3
Statements of Operations for the Years Ended
December 31, 1995, 1996 and 1997 F-4
Statements of Stockholders' Equity for the
Years Ended December 31, 1995, 1996 and 1997 F-5
Statements of Cash Flows for the Years Ended
December 31, 1995, 1996 and 1997 F-6
Notes to Financial Statements F-7
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, 1996 and 1997, and the related statements of
operations, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. 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, 1996 and 1997, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1997, in conformity with
generally accepted accounting principles.
Arthur Andersen LLP
Boston, Massachusetts
January 22, 1998
F-2
<PAGE>
MATRITECH, INC.
Balance Sheets
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 6,770,336 $ 11,067,414
Accounts receivable 814,544 101,941
Inventories 343,058 487,360
Interest receivable and prepaid expenses 123,401 127,156
------------- --------------
Total current assets 8,051,339 11,783,871
------------- --------------
Property and Equipment, at cost:
Laboratory equipment 949,508 1,370,929
Office equipment 186,228 203,214
Laboratory furniture 55,772 62,739
Leasehold improvements 45,871 56,981
------------- --------------
1,237,379 1,693,863
Less--Accumulated depreciation and amortization 701,769 872,706
------------- --------------
535,610 821,157
------------- --------------
Other Assets, net 82,912 86,745
------------- --------------
$ 8,669,861 $ 12,691,773
============= ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current maturities of note payable $ - $ 60,733
Accounts payable 422,559 378,700
Accrued expenses 463,318 354,904
------------- --------------
Total current liabilities 885,877 794,337
------------- --------------
Note Payable, less current maturities - 208,762
------------- --------------
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--16,032,734
shares in 1996 and
18,566,737 shares in 1997 160,327 185,667
Additional paid-in capital 33,764,062 45,118,499
Accumulated deficit (26,140,405) (33,615,492)
------------- --------------
Total stockholders' equity 7,783,984 11,688,674
------------- --------------
$ 8,669,861 $ 12,691,773
============= ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
MATRITECH, INC.
Statements of Operations
<TABLE>
<CAPTION>
-----------Years Ended December 31,-----------
1995 1996 1997
<S> <C> <C> <C>
Revenues:
Collaborative research and development, license $ 1,023,438 $ 1,881,833 $ 747,532
fees and product sales
Interest and other income 216,865 528,583 566,686
------------ ------------ ------------
1,240,303 2,410,416 1,314,218
------------ ------------ ------------
Expenses:
Research and development 3,014,125 3,909,793 3,943,390
Selling, general and administrative 2,308,773 3,665,298 4,845,915
------------ ------------ ------------
5,322,898 7,575,091 8,789,305
------------ ------------ ------------
Net loss $ (4,082,595) $ (5,164,675) $ (7,475,087)
============ ============ ============
Net Loss per Common Share:
Basic $(.38) $(.32) $(.43)
===== ===== =====
Diluted $(.38) $(.32) $(.43)
===== ===== =====
Weighted Average Number of Common Shares
Outstanding:
Basic 10,733,769 15,900,467 17,512,242
========== ========== ==========
Diluted 10,733,769 15,900,467 17,512,242
========== ========== ==========
</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 PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS'
OF SHARES PAR VALUE CAPITAL COMPENSATION DEFICIT EQUITY
<S> <C> <C> <C> <C> <C> <C>
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 2,342,373 23,424 4,632,980 - - 4,656,404
commissions and issuance
costs of $168,884
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 104,294 1,043 181,359 - - 182,402
Exercise of common stock
purchase warrants 728,453 7,284 1,324,790 - - 1,332,074
Issuance of common stock under
employee stock purchase plan 5,860 59 10,196 - - 10,255
Compensation related to
issuance of common stock
options - - 72,750 - - 72,750
Net loss - - - - (5,164,675) (5,164,675)
----------- --------- ------------ ----------- ------------- ------------
Balance, December 31, 1996 16,032,734 160,327 33,764,062 - (26,140,405) 7,783,984
Sale of common stock, net of
commissions and issuance
costs of $92,430 2,457,609 24,576 10,879,492 - - 10,904,068
exercise of common stock
options 12,878 128 27,525 - - 27,653
Exercise of common stock
purchase warrants 55,895 560 70,822 - - 71,382
Issuance of common stock under
employee stock purchase plan 7,621 76 26,598 - - 26,674
Compensation related to
issuance of common stock
warrants - - 350,000 - - 350,000
Net loss - - - - (7,475,087) (7,475,087)
----------- --------- ------------ ----------- ------------- ------------
Balance, December 31, 1997 18,566,737 $ 185,667 $ 45,118,499 $ - $ (33,615,492) $ 11,688,674
=========== ========= ============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
MATRITECH, INC.
Statements of Cash Flows
<TABLE>
<CAPTION>
------------Years Ended December 31,------------
1995 1996 1997
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss $ (4,082,595) $ (5,164,675) $ (7,475,087)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization 112,158 133,952 226,924
Operating expense related to issuance of common
stock warrant - - 350,000
Amortization of deferred compensation 168,329 - -
Compensation related to issuance of common
stock options - 72,750 -
Changes in assets and liabilities
Accounts receivable (110,467) (701,405) 712,603
Inventories (138,552) (150,673) (144,302)
Interest receivable and prepaid expenses (57,626) 8,546 (3,755)
Accounts payable 142,290 81,999 (43,859)
Accrued expenses 23,352 249,140 (108,414)
Deferred revenue (245,100) (34,900) -
-------------- -------------- --------------
Net cash used in operating activities (4,188,211) (5,505,266) (6,485,890)
-------------- -------------- --------------
Cash Flows from Investing Activities:
Purchase of property and equipment (91,792) (285,386) (456,484)
(Increase) decrease in other assets (55,657) 45,334 (59,820)
-------------- -------------- --------------
Net cash used in investing activities (147,449) (240,052) (516,304)
-------------- -------------- --------------
Cash Flows from Financing Activities:
Proceeds from note payable - - 288,376
Proceeds from sale of common stock and warrants 6,658,211 - 10,904,068
Proceeds from the exercise of common stock
purchase warrants 4,656,404 1,332,074 71,382
Proceeds from exercise of common stock options 54,400 182,402 27,653
Proceeds from issuance of common stock under
employee stock purchase plan 18,762 10,255 26,674
Payments on redemption of warrants (400) - -
Payments on note payable (16,644) (18,387) (18,881)
-------------- -------------- --------------
Net cash provided by financing activities 11,370,733 1,506,344 11,299,272
-------------- -------------- --------------
Increase (Decrease) in Cash and Cash Equivalents 7,035,073 (4,238,974) 4,297,078
Cash and Cash Equivalents, beginning of year 3,974,237 11,009,310 6,770,336
-------------- -------------- --------------
Cash and Cash Equivalents, end of year $ 11,009,310 $ 6,770,336 $ 11,067,414
============== ============== ==============
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for interest $ - $ - $ 5,420
=============== =============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
MATRITECH, INC.
Notes to Financial Statements
(1) Operations and Significant Accounting Policies
Matritech, Inc. (the Company) was incorporated on October 29, 1987 to
develop, produce and distribute products for the diagnosis and potential
treatment of cancer based on its proprietary nuclear matrix protein
technology. This technology was licensed to the Company by the
Massachusetts Institute of Technology (MIT).
The Company is devoting substantially all of its efforts toward product
research and development, raising capital and marketing products. 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.
In 1995, the Company began to sell its NMP22(R) Test Kits for bladder
cancer in certain countries in Europe through a distributor. In 1996, the
Company received FDA approval to begin selling the NMP22 Test Kit for
bladder cancer 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) Revenue Recognition
The Company recognizes revenue from product sales upon shipment;
collaborative research and development arrangements as milestones are
achieved; revenue from nonrefundable license agreements upon the
signing of the agreement; and revenue from research grants as earned.
(b) Cash and 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 approximates fair market value, and are classified as held-to-
maturity. These securities include cash and cash equivalents, which
consist of auction market preferred stocks, money market accounts and
repurchase agreements at December 31, 1996 and 1997.
F-7
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(c) Inventories
Inventories are stated at the lower of cost or market and consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
<S> <C> <C>
Raw materials $189,101 $305,241
Work-in-process 2,337 6,634
Finished goods 151,620 175,485
-------- --------
$343,058 $487,360
======== ========
</TABLE>
(d) 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:
ASSET CLASSIFICATION USEFUL LIFE
Laboratory equipment 10 years
Office equipment 5 years
Laboratory furniture 5 years
Leasehold improvements Life of lease
The Company amortizes certain intangible assets, including license fees,
over their estimated useful lives of three to five years.
(e) 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.
(f) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information About Financial Instruments with
Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk, requires disclosure of any significant off-balance-sheet
and credit risk concentrations. Financial instruments that subject
F-8
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
the Company to credit risk consist primarily of cash and cash
equivalents and trade accounts receivable. The Company places its
investments in highly rated financial institutions and investment-grade
securities. The Company has not experienced any losses on its
investments to date.
(g) Disclosure of Fair Value of Financial Instruments
The Company's financial instruments consist mainly of cash and cash
equivalents, accounts receivable, accounts payable and note payable. The
carrying amounts of the Company's financial instruments approximate fair
value.
(h) Research and Development
Research and development expenses in the accompanying statements of
operations are expensed as incurred and include both funded and unfunded
research and development expenses.
(i) Net Loss per Common Share
In March 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings per Share, which established new standards for calculating
and presenting earnings per share. Basic net loss per common share was
computed by dividing net loss by the weighted average number of common
shares outstanding during the year. Diluted loss per share is the same
as basic loss per share as the effects of common stock equivalents are
antidilutive. This accounting change had no effect on the Company's
historical net loss per common share.
(j) 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.
F-9
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
The Company's net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
<S> <C> <C>
Net operating loss carryforwards $ 9,122,000 $ 10,874,000
Capitalized research and development expenses 1,407,000 2,670,000
Tax credits 1,203,000 1,376,000
Temporary differences (59,000) (37,000)
------------ -------------
Net deferred tax asset 11,673,000 14,883,000
Valuation allowance (11,673,000) (14,883,000)
------------ -------------
$ - $ -
============= ==============
</TABLE>
At December 31, 1997, the Company had net operating loss carryforwards for
tax purposes of approximately $27,184,000, which expire through 2011. The
Company also has certain tax credits available to offset future federal and
state income taxes, if any. Net operating loss carryforwards and credits
are subject to review and possible adjustments by the Internal Revenue
Service, and they may be limited in the event of certain cumulative changes
in the ownership interests of significant stockholders over a three-year
period in excess of 50%.
Due to its history of operating losses, the Company has not recorded a
deferred tax asset for the potential future benefit of its deferred tax
assets, as the realization of such asset is uncertain.
(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:
YEAR AMOUNT
1998 $264,000
1999 249,000
2000 242,000
--------
$755,000
========
Rent expense for the years ended December 31, 1995, 1996 and 1997 was
approximately $371,000, $333,000 and $275,000, respectively.
F-10
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(4) Note Payable
In August 1997, the Company entered into an equipment line of credit under
which it can borrow up to $1,200,000 for equipment purchases. The equipment
line of credit converts into a 48 month term note payable. The equipment
line of credit and note bear interest at 11.75% and are secured by the
underlying equipment. At December 31, 1997, the Company had approximately
$914,000 available under the equipment line of credit and converted
approximately $286,000 into a term note payable. Payments under the term
note payable are as follows:
DECEMBER 31, AMOUNT
1998 $60,733
1999 68,271
2000 76,745
2001 63,746
--------
$269,495
========
(5) Common Stock
(a) Sales of Common Stock
In May 1997, the Company completed a private placement of 2,200,000
shares of common stock at $5 per share resulting in proceeds of
approximately $10,904,000, net of commissions and issuance costs. In
connection with the private placement, the Company issued to the
placement agent 257,609 shares of common stock and a warrant to
purchase 245,761 shares of common stock at $5 per share. During 1997,
5,530 of these warrants were exercised for 1,395 shares of common
stock.
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.
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 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.
F-11
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
In connection with the September 1994 private placement, the Company
issued a warrant to purchase 234,637 units at an exercise price equal
to $2.25 per unit to the placement agent (Placement Agent Warrants).
Each Placement Agent Warrant converts into one share of common stock
and one Class B nonredeemable common stock purchase warrant. During
1996, 214,637 of the Placement Agent Warrants and 204,637 of the
underlying Class B non redeemable common stock purchase warrants were
exercised for net proceeds of $756,886, pursuant to which the Company
issued 400,693 shares of common stock. At December 31, 1997, there are
20,000 Placement Agent Warrants and 10,000 Class B nonredeemable
common stock purchase warrants outstanding.
(b) Warrants
In connection with certain of the Company's financings, 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 all of the Company's outstanding warrants (exclusive
of the warrants discussed in Note 5(a)) and their attributes as of
December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE EXPIRATION
GRANT DATE WARRANTS PRICE DATE
<S> <C> <C> <C>
August 1993 10,000 $1.80 August 1998
April 1997 150,000 $6.50 April 2002
</TABLE>
During 1997, 69,560 warrants were exercised, pursuant to which 54,500
shares of common stock were issued for proceeds of $71,382. In 1996,
419,356 warrants were exercised, pursuant to which 327,760 shares were
issued for proceeds of $575,188.
In April 1997, the Company issued a warrant for the purchase of up to
150,000 shares of the Company's common stock for a price of $6.50 per
share to a public relations consultant. In accordance with SFAS No.
123, these warrants were valued at approximately $500,000. The Company
will expense the warrant value ratably over the one-year term of the
agreement. As of December 31, 1997, the Company expensed $350,000 as a
component of selling, general and administrative expenses on the
accompanying statement of operations.
(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.
F-12
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
There are 581,189 common shares available for future grants under existing
option plans at December 31, 1997. The following table summarizes stock
option activity:
<TABLE>
<CAPTION>
NUMBER OPTION PRICE PER
OF OPTIONS SHARE
<S> <C> <C>
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 624,649 3.63- 13.13
Exercised (104,294) .82- 3.38
Terminated (38,701) 1.81- 13.13
--------- --------------
Options outstanding, December 31, 1996 919,778 .82- 13.13
Granted 195,671 4.00- 8.06
Exercised (12,878) 1.37- 4.00
Terminated (55,626) 1.81- 12.00
--------- --------------
Options outstanding, December 31, 1997 1,046,945 $. 82-$ 13.13
========= ==============
Options exercisable, December 31, 1997 483,438 $ .82-$ 13.13
========= ==============
</TABLE>
<TABLE>
<CAPTION>
--------------------------OPTIONS OUTSTANDING--------------------------- OPTIONS EXERCISABLE
WEIGHTED
AVERAGE
REMAINING WEIGHTED WEIGHTED
CONTRACTUAL AVERAGE AVERAGE
RANGE OF EXERCISE NUMBER LIFE (IN EXERCISE NUMBER EXERCISE
PRICE OUTSTANDING YEARS) PRICE EXERCISABLE PRICE
<S> <C> <C> <C> <C> <C>
$ .82 - $ 3.38 279,561 4.91 $ 1.97 266,700 $ 1.98
3.62 - 7.87 651,484 9.05 7.04 138,013 7.26
8.06 - 13.13 115,900 8.94 10.85 78,725 11.50
----------------- --------- ---- ------ -------- ------
Total 1,046,945 7.93 $ 6.11 483,438 $ 5.04
</TABLE>
F-13
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
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. At December 31, 1996 and
1997, the Company has accumulated payroll deductions of $26,674 and
$26,996, respectively, for the issuance of 7,621 shares and 6,352 shares
of common stock, respectively, which are issued in the following year to
employees pursuant to the plan. At December 31, 1997, 196,277 shares are
available under the plan.
In October 1995, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123
requires the measurement of the fair value of stock options, including
stock purchase plans, or warrants granted to employees to be included in
the statement of operations or disclosed in the notes to financial
statements. The Company has determined that it will continue to account
for stock-based compensation for employees under Accounting Principles
Board Opinion No. 25 and elect the disclosure-only alternative under SFAS
No. 123. The Company has computed the pro forma disclosures required
under SFAS No. 123 for options granted in 1996 and 1997 and stock issued
pursuant to the stock purchase plan using the Black-Scholes option
pricing model prescribed by SFAS No. 123. The weighted average
assumptions used for 1996 and 1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
<S> <C> <C>
Risk-free interest rate 5.54%-6.83% 5.83%-6.86%
Expected dividend yield - -
Expected life 7 years 7 years
Expected volatility 80% 65%
</TABLE>
The Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option-pricing
models require the input of highly subjective assumptions including
expected stock price volatility. Because the Company's employee stock
options have characteristics significantly different from those of traded
options, and because changes in the subjective input assumptions can
materially affect the fair value estimate, in management's opinion, the
existing models do not necessarily provide a reliable single measure of
the fair value of its employee stock options.
The total fair value of the options granted during 1995, 1996 and 1997
was computed as approximately $157,000, $4,065,000 and $819,000,
respectively. Of these amounts, approximately $27,000, $196,000 and
$1,130,000 would be charged to operations for the years ended December
31, 1995, 1996 and 1997, respectively. The remaining amount,
approximately $3,688,000, would be amortized over the remaining vesting
period of the underlying options. The resulting pro forma compensation
expense may not be representative of the amount to be expected in future
years as pro forma compensation expense may vary based upon the number of
options granted.
F-14
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
The pro forma net loss and pro forma net loss per common share presented
below have been computed assuming no tax benefit. The effect of a tax
benefit has not been considered since a substantial portion of the stock
options granted are incentive stock options and the Company does not
anticipate a future deduction associated with the exercise of these stock
options.
The pro forma effect of SFAS No. 123 for the years ended December 31,
1995, 1996 and 1997 is as follows:
<TABLE>
<CAPTION>
1995
AS REPORTED PRO FORMA
<S> <C> <C>
Net loss $(4,082,595) $(4,110,014)
=========== ===========
Basic net loss per share $(.38) $(.38)
===== =====
1996
AS REPORTED PRO FORMA
Net loss $(5,164,675) $(5,360,717)
=========== ===========
Basic net loss per share $(.32) $(.34)
===== =====
1997
AS REPORTED PRO FORMA
Basic net loss $(7,475,087) $(8,605,405)
=========== ===========
Basic net loss per share $(.43) $(.49)
===== =====
</TABLE>
(d) Reserved Shares
As of December 31, 1997, the following shares of common stock were
reserved and available for future issuance:
<TABLE>
<S> <C>
1988 and 1992 Stock Option Plans 1,413,134
1992 Employee Stock Purchase Plan 196,277
Exercise of warrants outstanding 450,231
1992 Director Stock Option Plan 215,000
---------
2,274,642
=========
</TABLE>
F-15
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(6) License Agreement
(a) MIT License Agreement
MIT has granted the Company a worldwide exclusive license to certain
technology, which was extended when the Company obtained FDA approval
of its first cancer diagnostic product in 1996, until the expiration
of all patent rights in 2006. Pursuant to the license agreement, the
Company pays royalties on the sales of products incorporating the
licensed technology.
(b) Regents of the University of California License
In April 1997, the Company entered into a worldwide nonexclusive
license for certain biological materials with the Regents of the
University of California. Pursuant to the license agreement, the
Company is required to pay a $50,000 annual license and maintenance
fee.
Additionally, the Company is required to pay royalties on the sale of
products incorporating the licensed technology and is subject to
minimum annual royalties. The Company paid $50,000 in the year ended
December 31, 1997.
(7) 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). BII acted as
the semiexclusive distributor of one of the Company's cancer diagnostic
tests, as well as certain of its research diagnostic products, in Europe.
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.
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.
The Company terminated this agreement in 1996 and in connection with the
termination recorded a charge of approximately $85,000 to selling, general
and administrative expenses.
F-16
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(8) Joint Development and Distribution with Bayer
In 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 has provided funding to Matritech for the
identification of cervical cancer-specific NMPs and the development of
monoclonal antibodies which recognize malignant and pre-malignant or
dysplastic cervical cancer cells. Under the terms of the agreement with
Bayer, it is contemplated that this antibody, or another with similar or
improved accuracy, will be used in clinical laboratories, in conjunction
with instruments developed by Bayer, to automate the review and evaluation
of cancerous cervical cells. 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 and would pay Matritech a percentage of Bayer's net selling
price. In the years ended December 31, 1995, 1996 and 1997, the Company
recorded revenues of $210,000, $120,000 and $140,000, respectively.
(9) Significant Revenue from Third Parties
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>
SIGNIFICANT Percentage of Revenues
CUSTOMERS --------------------Customer--------------------
A B C D E F
<S> <C> <C> <C> <C> <C> <C> <C>
Year ended December
31, 1995 2 - 27% 21% - - -
Year ended December - 11% 13%
31, 1996 4 16% - 21%
Year ended December - 19% - -
31, 1997 2 - 18%
</TABLE>
The Company had accounts receivable balances greater than 10% of total
accounts receivable from the following customers as of December 31, 1996
and 1997:
<TABLE>
<CAPTION>
PERCENTAGE OF TOTAL ACCOUNTS RECEIVABLE
CUSTOMER A CUSTOMER C CUSTOMER D CUSTOMER F
<S> <C> <C> <C> <C>
As of December 31,
1996 14% - 35% 20%
1997 - 53% - -
</TABLE>
F-17
<PAGE>
MATRITECH, INC.
NOTES TO FINANCIAL STATEMENTS
(Continued)
(10) Geographic Information
Product sales by geographic destination as a percentage of total product
sales are as follows:
<TABLE>
<CAPTION>
YEARS ENDED
1995 1996 1997
<S> <C> <C> <C>
Europe 20.1% 41.5% 37.0%
Japan 45.9 31.5 1.4
United States 26.9 24.0 41.9
All other 7.1 3.0 19.7
------ ------ ------
100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
Product sales were $343,000, $1,678,000 and $602,000 in the years ended
December 31, 1995, 1996 and 1997, respectively.
(11) Accrued Expenses
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1996 1997
<S> <C> <C>
Clinical trials costs $239,782 $134,798
Payroll and related costs 82,095 120,371
Professional fees 43,575 52,027
Printing and design costs 26,301 43,600
Other 71,565 4,108
-------- --------
$463,318 $354,904
======== ========
</TABLE>
F-18
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the City of Newton,
Commonwealth of Massachusetts, on the 27th day of March, 1998.
MATRITECH, INC.
By: /s/ Stephen D. Chubb
---------------------------------------
Stephen D. Chubb
Director, Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Stephen D. Chubb Director, Chairman and March 27, 1998
- ------------------------ Chief Executive Officer
Stephen D. Chubb (Principal Executive and
Financial Officer)
/s/ David L. Corbet Director, President and March 27, 1998
- ------------------------- Chief Operating Officer
David L. Corbet
/s/ Leslie R. Teso Vice President, Finance, March 27, 1998
- ------------------------- Secretary and Treasurer
Leslie R. Teso (Principal Accounting Officer)
/s/ J. Robert Buchanan Director March 27, 1998
- -------------------------
J. Robert Buchanan
/s/ Thomas R. Morse Director March 27, 1998
- -------------------------
Thomas R. Morse
/s/ David Rubinfien Director March 27, 1998
- -------------------------
David Rubinfien
/s/ T. Stephen Thompson Director March 27, 1998
- -------------------------
T. Stephen Thompson
/s/ C. William Zadel Director March 27, 1998
- -------------------------
C. William Zadel
<PAGE>
EXHIBIT INDEX
-------------
Exhibit Number Description of Exhibit
-------------- ----------------------
3.1 Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibits 3, 4.1 to
the Company's Registration Statement No. 33-46158
on Form S-1 and incorporated herein by
reference).
3.2 Amended and Restated By-Laws of the Registrant
(filed as Exhibits 3.2, 4.1 to the Company's
Registration Statement No. 33-46158 on Form S-1
and incorporated herein by reference).
3.3 Certificate of Amendment dated June 16, 1994, of
Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibit 3.2 of the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1995 and
incorporated herein by reference).
3.4 Certificate of Amendment dated June 5, 1995, of
Amended and Restated Certificate of Incorporation
of the Registrant (filed as Exhibit 3.3 of the
Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 30, 1995 and
incorporated herein by reference).
4.1 Description of Capital Stock contained in the
Registrant's Amended and Restated Certificate of
Incorporation, filed as Exhibits 3.1, 3.3 and
3.4.
10.1* License Agreement between Matritech and the
Massachusetts Institute of Technology dated
December 14, 1987, as amended March 15, 1988,
December 20, 1989 and March 4, 1992 (filed as
Exhibit 10.1 to the Company's Registration
Statement No. 33-46158 on Form S-1 and
incorporated herein by reference).
10.2* Development and Supply Agreement between
Matritech and Yamanouchi Pharmaceutical Co., Ltd.
dated September 27, 1991 (filed as Exhibit 10.4
to the Company's Registration Statement No. 33-
46158 on Form S-1 and incorporated herein by
reference).
10.3+ 1988 Stock Plan (filed as Exhibit 10.8 to the
Company's Registration Statement No. 33-46158 on
Form S-1 and incorporated herein by reference).
10.4**+ 1992 Stock Plan as amended as of June 13, 1997
<PAGE>
10.5+ Amended and Restated 1992 Non-Employee Director
Stock Plan as amended as of June 7, 1996 (filed
as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended June
30, 1996 and incorporated herein by reference).
10.6+ 1992 Employee Stock Purchase Plan (filed as
Exhibit 10.11 to the Company's Registration
Statement No. 33-46158 on Form S-1 and
incorporated herein by reference).
10.7 Second Amended and Restated Registration Rights
Agreement dated May 4, 1990, as amended February
26, 1992 (filed as Exhibit 10.13 to the Company's
Registration Statement No. 33-46158 on Form S-1
and incorporated herein by reference).
10.8 Form of Indemnity Agreement with directors (filed
as Exhibit 10.14 to the Company's Registration
Statement No. 33-46158 on Form S-1 and
incorporated herein by reference).
10.9** Fourth Amendment dated March 18, 1993 to License
Agreement between the Company and the
Massachusetts Institute of Technology dated
December 14, 1987, as amended.
10.10** Amendment dated November 30, 1992 to Development
and Supply Agreement between the Company and
Yamanouchi Pharmaceutical Co., Ltd. dated
September 27, 1991, as amended.
10.11* License Agreement between the Company and The
Johns Hopkins University dated as of August 4,
1993 (filed as Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the quarter
ended September 30, 1993 and incorporated herein
by reference).
10.12* Amendment dated June 30, 1993 to Development and
Supply Agreement between the Company and
Yamanouchi Pharmaceutical Co., Ltd dated
September 27, 1991, as amended (filed as Exhibit
10.4 to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1993 and
incorporated herein by reference).
10.13 Amendment dated January 25, 1994 to Development
and Supply Agreement between the Company and
Yamanouchi Pharmaceutical Co., Ltd dated
September 27, 1991, as amended (filed as Exhibit
10.22 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 and
incorporated herein by reference).
<PAGE>
10.14 Fifth Amendment dated April 14, 1994 to License
Agreement between the Company and the
Massachusetts Institute of Technology dated
December 14, 1987 (filed as Exhibit 10.1 to the
Company's Form 10-Q for the quarter ended March
31, 1994 and incorporated herein by reference).
10.15* Exclusive Distribution Agreement between the
Company and Konica Corporation dated as of
November 9, 1994. (Filed as Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 and
incorporated herein by reference).
10.16* License Agreement between the Company and Yale
University dated as of March 21, 1995 (filed as
Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1995
and incorporated herein by reference).
10.17* Development Agreement between the Company and
Bayer Corporation dated as of June 13, 1995
(filed as Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended
June 30, 1995 and incorporated herein by
reference).
10.18 Lease Agreement between the Company and One
Nevada Realty Trust dated October 6, 1995 (filed
as Exhibit 10.2 to the Company's Quarterly Report
on Form 10-Q for the fiscal quarter ended
September 30, 1995 and incorporated herein by
reference).
10.19 Sixth Amendment dated March 1, 1996 to License
Agreement between Matritech and the Massachusetts
Institute of Technology dated December 31, 1987,
as amended (filed as Exhibit 10.26 to the
Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995 and
incorporated herein by reference).
10.20** Senior Loan and Security Agreement No. 0096
between the Company and Phoenix Leasing,
Incorporated dated August 29, 1997 including form
of Senior Secured Promissory Note between the
Company and Phoenix Leasing, Incorporated.
10.21**++ Distributorship Agreement by and between the
Company and Curtis Matheson Scientific, a
division of Fisher Scientific Company, L.L.C.
dated as of March 19, 1998.
23** Consent of Arthur Andersen LLP.
27** Financial Data Schedule
____________________
* Confidential Treatment Granted for portions thereof
** Filed herewith
+ Indicates management contract or compensatory plan or arrangement required to
be filed as an exhibit to this Form 10-K pursuant to Item 14(c) of this report.
++ Confidential Treatment has been requested as to omitted portions pursuant to
Rule 24b-2 promulgated under the Securities Exchange Act of 1934, as amended.
<PAGE>
EXHIBIT 10.4
------------
MATRITECH, INC.
1992 STOCK PLAN
---------------
(AS AMENDED JUNE 13, 1997)
1. PURPOSE. This Amended and Restated 1992 Stock Plan (the "Plan") is
-------
intended to provide incentives: (a) to the officers and other employees of
Matritech, Inc. (the "Company"), its parent (if any) and any present or future
subsidiaries of the Company (collectively, "Related Corporations") by providing
them with opportunities to purchase stock in the Company pursuant to options
granted hereunder which qualify as "incentive stock options" under Section
422(b) of the Internal Revenue Code of 1986, as amended (the "Code") ("ISO" or
"ISOs"); (b) to directors, officers, employees and consultants of the Company
and Related Corporations by providing them with opportunities to purchase stock
in the Company pursuant to options granted hereunder which do not qualify as
ISOs ("Non-Qualified Option" or "Non-Qualified Options"); (c) to directors,
officers, employees and consultants of the Company and Related Corporations by
providing them with awards of stock in the Company ("Awards"); and (d) to
directors, officers, employees and consultants of the Company and Related
Corporations by providing them with opportunities to make direct purchases of
stock in the Company ("Purchases"). Both ISOs and Non-Qualified Options are
referred to hereafter individually as an "Option" and collectively as "Options".
Options, Awards and authorizations to make Purchases are referred to hereafter
collectively as "Stock Rights". As used herein, the terms "parent" and
"subsidiary" mean "parent corporation" and "subsidiary corporation",
respectively, as those terms are defined in Section 424 of the Code.
2. ADMINISTRATION OF THE PLAN.
---------------------------
A. BOARD OR COMMITTEE ADMINISTRATION. The Plan shall be administered
---------------------------------
by the Board of Directors of the Company (the "Board") or by a committee
appointed by the Board (the "Committee"), comprised of, to the extent
required by applicable regulations under Section 162(m) of the Code, two or
more outside directors as defined in applicable regulations thereunder and to
the extent required by Rule 16b-3 promulgated under the Securities Exchange
Act of 1934 or any successor provision ("Rule 16b-3"), disinterested
administrators. Hereinafter, all references in this Plan to the "Committee"
shall mean the Board if no Committee has been appointed. Subject to
ratification of the grant or authorization of each Stock Right by the Board
(if so required by applicable state law), and subject to the terms of the
Plan, the Committee shall have the authority to (i) determine the employees
of the Company and Related Corporations (from among the class of employees
eligible under paragraph 3 to receive ISOs) to whom ISOs may be granted, and
to determine (from among the class of individuals and entities eligible
<PAGE>
-2-
under paragraph 3 to receive Non-Qualified Options and Awards and to make
Purchases) to whom Non-Qualified Options, Awards and authorizations to make
Purchases may be granted; (ii) determine the time or times at which Options
or Awards may be granted or Purchases made; (iii) determine the option price
of shares subject to each Option, which price shall not be less than the
minimum price specified in paragraph 6, and the purchase price of shares
subject to each Purchase; (iv) determine whether each Option granted shall be
an ISO or a Non-Qualified Option; (v) determine (subject to paragraph 7) the
time or times when each Option shall become exercisable and the duration of
the exercise period; (vi) determine whether restrictions such as repurchase
options are to be imposed on shares subject to Options, Awards and Purchases
and the nature of such restrictions, if any, and (vii) interpret the Plan and
prescribe and rescind rules and regulations relating to it. If the Committee
determines to issue a Non-Qualified Option, it shall take whatever actions it
deems necessary, under Section 422 of the Code and the regulations
promulgated thereunder, to ensure that such Option is not treated as an ISO.
The interpretation and construction by the Committee of any provisions of the
Plan or of any Stock Right granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. No member of
the Board or the Committee shall be liable for any action or determination
made in good faith with respect to the Plan or any Stock Right granted under
it.
B. COMMITTEE ACTIONS. The Committee may select one of its members as
-----------------
its chairman, and shall hold meetings at such times and places as it may
determine. Acts by a majority of the Committee, or acts reduced to or
approved in writing by a majority of the members of the Committee (if
consistent with applicable state law), shall be the valid acts of the
Committee. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, fill
vacancies however caused, or remove all members of the Committee and
thereafter directly administer the Plan.
C. GRANT OF STOCK RIGHTS TO BOARD MEMBERS. Stock Rights may be granted
--------------------------------------
to members of the Board consistent with the provisions of the first sentence
of paragraph 2(A) above, if applicable. All grants of Stock Rights to
members of the Board shall in all other respects be made in accordance with
the provisions of this Plan applicable to other eligible persons. Consistent
with the provisions of the first sentence of paragraph 2(A) above, members of
the Board who are either (i) eligible for Stock Rights pursuant to the Plan
or (ii) have been granted Stock Rights may vote on any matters affecting the
administration of the Plan or the grant of any Stock Rights pursuant to the
Plan, except that no such member shall act upon the granting to himself of
Stock Rights, but any such member may be counted in determining the existence
of a quorum at any meeting of the Board during which action is taken with
respect to the granting to him of Stock Rights.
<PAGE>
-3-
3. ELIGIBLE EMPLOYEES AND OTHERS. ISOs may be granted to any employee of
-----------------------------
the Company or any Related Corporation. Those officers and directors of the
Company who are not employees may not be granted ISOs under the Plan. Non-
Qualified Options, Awards and authorizations to make Purchases may be granted to
any employee, officer or director (whether or not also an employee) or
consultant of the Company or any Related Corporation. The Committee may take
into consideration a recipient's individual circumstances in determining whether
to grant an ISO, a Non-Qualified Option, an Award or an authorization to make a
Purchase. Granting of any Stock Right to any individual or entity shall neither
entitle that individual or entity to, nor disqualify him from, participation in
any other grant of Stock Rights.
4. STOCK. The stock subject to Options, Awards and Purchases shall be
-----
authorized but unissued shares of Common Stock of the Company, par value $.01
per share (the "Common Stock"), or shares of Common Stock reacquired by the
Company in any manner. The aggregate number of shares which may be issued
pursuant to the Plan is 1,500,000, subject to adjustment as provided in
paragraph 13; provided, however, that such number of shares shall not be subject
-----------------
to adjustment by reason of the 9.1 for one stock split in the form of a stock
dividend declared by the Board of Directors of the Company at a meeting on March
2, 1992. Any such shares may be issued as ISOs, Non-Qualified Options or
Awards, or to persons or entities making Purchases, so long as the number of
shares so issued does not exceed such number, as adjusted. If any Stock Right
granted under the Plan shall expire or terminate for any reason without having
been exercised in full or shall cease for any reason to be exercisable in whole
or in part, the unissued shares subject to such Stock Options shall again be
available for grants of Stock Rights under the Plan. For the purposes of the
foregoing sentence, shares withheld from the Stock Right exercise to pay the
exercise price and/or tax consequences of the exercise shall be deemed to have
been issued.
No employee, officer, director or consultant of the Company or any Related
Corporation may be issued, in the aggregate, more than 500,000 shares of Common
Stock under the Plan. If any Option granted under the Plan shall expire or
terminate for any reason without having been exercised in full or shall cease
for any reason to be exercisable in whole or in part, the unpurchased shares
subject to such Option shall be included in the determination of the aggregate
number of shares of Common Stock deemed to have been granted to such employee
under the Plan.
5. GRANTING OF STOCK RIGHTS. Stock Rights may be granted under the Plan at
------------------------
any time after the effective date of the Company's initial public offering, and
prior to March 2, 2002. The date of grant of a Stock Right under the Plan will
be the date specified by the Committee at the time it grants the Stock Right;
provided, however, that such date shall not be prior to the date on which the
Committee acts to approve the grant. The Committee shall have the right, with
the consent of the optionee, to convert an ISO granted under the Plan to a Non-
Qualified Option pursuant to paragraph 16.
<PAGE>
-4-
6. MINIMUM OPTION PRICE; ISO LIMITATIONS.
-------------------------------------
A. PRICE FOR NON-QUALIFIED OPTIONS, AWARDS AND PURCHASES. The exercise
-----------------------------------------------------
price per share specified in the agreement relating to each Non-Qualified
Option granted, and the purchase price per share of stock granted in any
Award or authorized as a Purchase, under the Plan shall in no event be less
than the minimum legal consideration required therefor under the laws of
Delaware or the laws of any jurisdiction in which the Company or its
successors in interest may be organized.
B. PRICE FOR ISOS. The exercise price per share specified in the
--------------
agreement relating to each ISO granted under the Plan shall not be less than
the fair market value per share of Common Stock on the date of such grant.
In the case of an ISO to be granted to an employee owning stock possessing
more than ten percent (10%) of the total combined voting power of all classes
of stock of the Company or any Related Corporation, the price per share
specified in the agreement relating to such ISO shall not be less than one
hundred ten percent (110%) of the fair market value per share of Common Stock
on the date of grant.
C. $100,000 ANNUAL LIMITATION ON ISOS. Each eligible employee may be
----------------------------------
granted ISOs only to the extent that, in the aggregate under this Plan and
all incentive stock option plans of the Company and any Related Corporation,
such ISOs do not become exercisable for the first time by such employee
during any calendar year in a manner which would entitle the employee to
purchase more than $100,000 in fair market value (determined at the time the
ISOs were granted) of Common Stock in that year. Any options granted to an
employee in excess of such amount will be granted as Non-Qualified Options.
D. DETERMINATION OF FAIR MARKET VALUE. If, at the time an Option is
----------------------------------
granted under the Plan, the Company's Common Stock is publicly traded, "fair
market value" shall be determined as of the last business day for which the
prices or quotes discussed in this sentence are available prior to the date
such Option is granted and shall mean (i) the average (on that date) of the
high and low prices of the Common Stock on the principal national securities
exchange on which the Common Stock is traded, if the Common Stock is then
traded on a national securities exchange; or (ii) the last reported sale
price (on that date) of the Common Stock on the NASDAQ National Market List,
if the Common Stock is not then traded on a national securities exchange; or
(iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Common Stock is not reported on the NASDAQ National Market List.
However, if the Common Stock is not publicly traded at the time an Option is
granted under the Plan, "fair market value" shall be deemed to be the fair
value of the Common Stock as determined by the Committee after taking into
consideration all factors which it deems appropriate, including, without
limitation, recent sale and offer prices of the Common Stock in private
transactions negotiated at arm's length.
<PAGE>
-5-
7. OPTION DURATION. Subject to earlier termination as provided in
---------------
paragraphs 9 and 10, each Option shall expire on the date specified by the
Committee, but not more than (i) ten years and one day from the date of grant in
the case of Non-Qualified Options, (ii) ten years from the date of grant in the
case of ISOs generally, and (iii) five years from the date of grant in the case
of ISOs granted to an employee owning stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or any Related Corporation. Subject to earlier termination as provided in
paragraphs 9 and 10, the term of each ISO shall be the term set forth in the
original instrument granting such ISO, except with respect to any part of such
ISO that is converted into a Non-Qualified Option pursuant to paragraph 16.
8. EXERCISE OF OPTION. Subject to the provisions of paragraphs 9 through
------------------
12, each Option granted under the Plan shall be exercisable as follows:
A. VESTING. The Option shall either be fully exercisable on the date
-------
of grant or shall become exercisable thereafter in such installments as the
Committee may specify.
B. FULL VESTING OF INSTALLMENTS. Once an installment becomes
----------------------------
exercisable it shall remain exercisable until expiration or termination of
the Option, unless otherwise specified by the Committee.
C. PARTIAL EXERCISE. Each Option or installment may be exercised at
----------------
any time or from time to time, in whole or in part, for up to the total
number of shares with respect to which it is then exercisable.
D. ACCELERATION OF VESTING. The Committee shall have the right to
-----------------------
accelerate the date of exercise of any installment of any Option; provided
that the Committee shall not, without the consent of an optionee, accelerate
the exercise date of any installment of any Option granted to any employee as
an ISO (and not previously converted into a Non-Qualified Option pursuant to
paragraph 16) if such acceleration would violate the annual vesting
limitation contained in Section 422(d) of the Code, as described in paragraph
6(C).
9. TERMINATION OF EMPLOYMENT. If an ISO optionee ceases to be employed by
-------------------------
the Company and all Related Corporations other than by reason of death or
disability as defined in paragraph 10, no further installments of his ISOs shall
become exercisable, and his ISOs shall terminate after the passage of ninety
(90) days from the date of termination of his employment, but in no event later
than on their specified expiration dates, except to the extent that such ISOs
(or unexercised installments thereof) have been converted into Non-Qualified
Options pursuant to paragraph 16. Employment shall be considered as continuing
uninterrupted during any bona fide leave of absence (such as those attributable
to illness, military obligations or governmental service) provided that the
period of such leave does not exceed 90 days or, if longer, any period during
which such optionee's right to reemployment is guaranteed by statute. A bona
fide leave of absence with the written
<PAGE>
-6-
approval of the Committee shall not be considered an interruption of employment
under the Plan, provided that such written approval contractually obligates the
Company or any Related Corporation to continue the employment of the optionee
after the approved period of absence. ISOs granted under the Plan shall not be
affected by any change of employment within or among the Company and Related
Corporations, so long as the optionee continues to be an employee of the Company
or any Related Corporation. Nothing in the Plan shall be deemed to give any
grantee of any Stock Right the right to be retained in employment or other
service by the Company or any Related Corporation for any period of time.
10. DEATH; DISABILITY.
-----------------
A. DEATH. If an ISO optionee ceases to be employed by the Company and
-----
all Related Corporations by reason of his death, any ISO of his may be
exercised, to the extent of the number of shares with respect to which he
could have exercised it on the date of his death, by his estate, personal
representative or beneficiary who has acquired the ISO by will or by the laws
of descent and distribution, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
optionee's death.
B. DISABILITY. If an ISO optionee ceases to be employed by the Company
----------
and all Related Corporations by reason of his disability, he shall have the
right to exercise any ISO held by him on the date of termination of
employment, to the extent of the number of shares with respect to which he
could have exercised it on that date, at any time prior to the earlier of the
specified expiration date of the ISO or 180 days from the date of the
termination of the optionee's employment. For the purposes of the Plan, the
term "disability" shall mean "permanent and total disability" as defined in
Section 22(e)(3) of the Code or successor statute.
11. ASSIGNABILITY. No Option shall be assignable or transferable by the
-------------
optionee except by will or by the laws of descent and distribution. During the
lifetime of the optionee each Option shall be exercisable only by him.
12. TERMS AND CONDITIONS OF OPTIONS. Options shall be evidenced by
-------------------------------
instruments (which need not be identical) in such forms as the Committee may
from time to time approve. Such instruments shall conform to the terms and
conditions set forth in paragraphs 6 through 11 hereof and may contain such
other provisions as the Committee deems advisable which are not inconsistent
with the Plan, including restrictions applicable to shares of Common Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Committee may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to ISOs, or to such other termination
and cancellation provisions as the Committee may determine. The Committee may
from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Company to execute and deliver such
instruments. The proper officers of the Company are authorized and directed to
take any
<PAGE>
-7-
and all action necessary or advisable from time to time to carry out the terms
of such instruments.
13. ADJUSTMENTS. Upon the occurrence of any of the following events, an
-----------
optionee's rights with respect to Options granted to him hereunder shall be
adjusted as hereinafter provided, unless otherwise specifically provided in the
written agreement between the optionee and the Company relating to such Option:
A. STOCK DIVIDENDS AND STOCK SPLITS. If the shares of Common Stock
--------------------------------
shall be subdivided or combined into a greater or smaller number of shares or
if the Company shall issue any shares of Common Stock as a stock dividend on
its outstanding Common Stock, the number of shares of Common Stock
deliverable upon the exercise of Options shall be appropriately increased or
decreased proportionately, and appropriate adjustments shall be made in the
purchase price per share to reflect such subdivision, combination or stock
dividend.
B. CONSOLIDATIONS OR MERGERS. If the Company is to be consolidated
-------------------------
with or acquired by another entity in a merger, sale of all or substantially
all of the Company's assets or otherwise (an "Acquisition"), the Committee or
the board of directors of any entity assuming the obligations of the Company
hereunder (the "Successor Board"), shall, as to outstanding Options, either
(i) make appropriate provision for the continuation of such Options by
substituting on an equitable basis for the shares then subject to such
Options the consideration payable with respect to the outstanding shares of
Common Stock in connection with the Acquisition; or (ii) upon written notice
to the optionees, provide that all Options must be exercised, to the extent
then exercisable, within a specified number of days of the date of such
notice, at the end of which period the Options shall terminate; or (iii)
terminate all Options in exchange for a cash payment equal to the excess of
the fair market value of the shares subject to such Options (to the extent
then exercisable) over the exercise price thereof.
C. RECAPITALIZATION OR REORGANIZATION. In the event of a
----------------------------------
recapitalization or reorganization of the Company (other than a transaction
described in subparagraph B above) pursuant to which securities of the
Company or of another corporation are issued with respect to the outstanding
shares of Common Stock, an optionee upon exercising an Option shall be
entitled to receive for the purchase price paid upon such exercise the
securities he would have received if he had exercised his Option prior to
such recapitalization or reorganization.
D. MODIFICATION OF ISOS. Notwithstanding the foregoing, any
--------------------
adjustments made pursuant to subparagraphs A, B or C with respect to ISOs
shall be made only after the Committee, after consulting with counsel for the
Company, determines whether such adjustments would constitute a
"modification" of such ISOs (as that term is defined in Section 424 of the
Code) or would cause any adverse tax consequences for the holders of such
ISOs. If the Committee determines that such
<PAGE>
-8-
adjustments made with respect to ISOs would constitute a modification of such
ISOs, it may refrain from making such adjustments.
E. DISSOLUTION OR LIQUIDATION. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, each Option will terminate
immediately prior to the consummation of such proposed action or at such
other time and subject to such other conditions as shall be determined by the
Committee.
F. ISSUANCES OF SECURITIES. Except as expressly provided herein, no
-----------------------
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares subject to Options. No adjustments shall be made for
dividends paid in cash or in property other than securities of the Company.
G. FRACTIONAL SHARES. No fractional shares shall be issued under the
-----------------
Plan and the optionee shall receive from the Company cash in lieu of such
fractional shares.
H. ADJUSTMENTS. Upon the happening of any of the events described in
-----------
subparagraphs A, B or C above, the class and aggregate number of shares set
forth in paragraph 4 hereof that are subject to Stock Rights which previously
have been or subsequently may be granted under the Plan shall also be
appropriately adjusted to reflect the events described in such subparagraphs.
The Committee or the Successor Board shall determine the specific adjustments
to be made under this paragraph 13 and, subject to paragraph 2, its
determination shall be conclusive.
If any person or entity owning restricted Common Stock obtained by exercise
of a Stock Right made hereunder receives shares or securities or cash in
connection with a corporate transaction described in subparagraphs A, B or C
above as a result of owning such restricted Common Stock, such shares or
securities or cash shall be subject to all of the conditions and restrictions
applicable to the restricted Common Stock with respect to which such shares or
securities or cash were issued, unless otherwise determined by the Committee or
the Successor Board.
14. MEANS OF EXERCISING STOCK RIGHTS. A Stock Right (or any part or
--------------------------------
installment thereof) shall be exercised by giving written notice to the Company
at its principal office address. Such notice shall identify the Stock Right
being exercised and specify the number of shares as to which such Stock Right is
being exercised, accompanied by full payment of the purchase price therefor (a)
in United States dollars in cash or by check, (b) at the discretion of the
Committee, through delivery or withholding from the Stock Right exercise of
shares of Common Stock having a fair market value equal as of the date of the
exercise to the cash exercise price of the Stock Right, (c) at the discretion of
the Committee, by delivery of the grantee's personal recourse note bearing
interest payable not less than annually at no less than 100% of the lowest
applicable Federal rate, as
<PAGE>
-9-
defined in Section 1274(d) of the Code, (d) at the discretion of the Committee
and consistent with applicable law, through the delivery of an assignment to the
Company of a sufficient amount of the proceeds from the sale of the Common Stock
acquired upon exercise of the Stock Right and an authorization to the broker or
selling agent to pay that amount to the Company, which sale shall be at the
participant's direction at the time of exercise, or (e) at the discretion of the
Committee, by any combination of (a), (b), (c) and (d) above. If the Committee
exercises its discretion to permit payment of the exercise price of an ISO by
means of the methods set forth in clauses (b), (c), (d) or (e) of the preceding
sentence, such discretion shall be exercised in writing at the time of the grant
of the ISO in question. The holder of a Stock Right shall not have the rights of
a shareholder with respect to the shares covered by his Stock Right until the
date of issuance of a stock certificate to him for such shares. Except as
expressly provided above in paragraph 13 with respect to changes in
capitalization and stock dividends, no adjustment shall be made for dividends or
similar rights for which the record date is before the date such stock
certificate is issued.
15. TERM AND AMENDMENT OF PLAN. This Plan was adopted by the Board of
--------------------------
Directors and Stockholders of the Company on March 2, 1992. The Plan shall
expire at the end of the day on March 2, 2002 (except as to Options outstanding
on that date). The Board may terminate or amend the Plan in any respect at any
time, except that, without the approval of the stockholders obtained within 12
months before or after the Board adopts a resolution authorizing any of the
following actions: (a) the total number of shares that may be issued under the
Plan may not be increased materially (except by adjustment pursuant to paragraph
13); (b) the benefits accruing to participants under the Plan may not be
materially increased; (c) the requirements as to eligibility for participation
in the Plan may not be materially modified; (d) the provisions of paragraph 3
regarding eligibility for grants of ISOs may not be modified; (e) the provisions
of paragraph 6(B) regarding the exercise price at which shares may be offered
pursuant to ISOs may not be modified (except by adjustment pursuant to paragraph
13); (f) the expiration date of the Plan may not be extended; and (g) the Board
may not take any action which would cause the Plan to fail to comply with Rule
16b-3. Except as otherwise provided in this paragraph 15, in no event may
action of the Board or stockholders alter or impair the rights of a grantee,
without his consent, under any Stock Right previously granted to him.
16. CONVERSION OF ISOS INTO NON-QUALIFIED OPTIONS; TERMINATION OF ISOS.
------------------------------------------------------------------
The Committee, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's ISOs (or any
installments or portions of installments thereof) that have not been exercised
on the date of conversion into Non-Qualified Options at any time prior to the
expiration of such ISOs, regardless of whether the optionee is an employee of
the Company or a Related Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of the appropriate installments of such ISOs. At
the time of such conversion, the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Committee
<PAGE>
-10-
in its discretion may determine, provided that such conditions shall not be
inconsistent with this Plan. Nothing in the Plan shall be deemed to give any
optionee the right to have such optionee's ISOs converted into Non-Qualified
Options, and no such conversion shall occur until and unless the Committee takes
appropriate action. The Committee, with the consent of the optionee, may also
terminate any portion of any ISO that has not been exercised at the time of such
termination.
17. APPLICATION OF FUNDS. The proceeds received by the Company from the sale
--------------------
of shares pursuant to Options granted and Purchases authorized under the Plan
shall be used for general corporate purposes.
18. GOVERNMENTAL REGULATION. The Company's obligation to sell and deliver
-----------------------
shares of the Common Stock under this Plan is subject to the approval of any
governmental authority required in connection with the authorization, issuance
or sale of such shares.
19. WITHHOLDING OF ADDITIONAL INCOME TAXES. Upon the exercise of a Non-
--------------------------------------
Qualified Option, the grant of an Award, the making of a Purchase of Common
Stock for less than its fair market value, the making of a Disqualifying
Disposition (as defined in paragraph 20) or the vesting of restricted Common
Stock acquired on the exercise of a Stock Right hereunder, the Company, in
accordance with Section 3402(a) of the Code, may require the optionee, Award
recipient or purchaser to pay additional withholding taxes in respect of the
amount that is considered compensation includible in such person's gross income.
The Committee in its discretion may condition (i) the exercise of an Option,
(ii) the grant of an Award, (iii) the making of a Purchase of Common Stock for
less than its fair market value, or (iv) the vesting of restricted Common Stock
acquired by exercising a Stock Right, on the grantee's payment of such
additional withholding taxes. Payment of such additional withholding taxes
shall be in United States dollars in cash or by check and/or at the discretion
of the Committee, through the delivery of previously held shares of common stock
or withholding from the Stock Right exercise of shares of Common Stock having a
fair market value equal as of the date of exercise to the amount of such
withholding taxes.
20. NOTICE TO COMPANY OF DISQUALIFYING DISPOSITION. Each employee who
----------------------------------------------
receives an ISO must agree to notify the Company in writing immediately after
the employee makes a Disqualifying Disposition of any Common Stock acquired
pursuant to the exercise of an ISO. A Disqualifying Disposition is any
disposition (including any sale) of such Common Stock before the later of (a)
two years after the date the employee was granted the ISO, or (b) one year after
the date the employee acquired Common Stock by exercising the ISO. If the
employee has died before such stock is sold, these holding period requirements
do not apply and no Disqualifying Disposition can occur thereafter.
21. GOVERNING LAW; CONSTRUCTION. The validity and construction of the Plan
---------------------------
and the instruments evidencing Stock Rights shall be governed by the laws of the
State of Delaware, or the laws of any jurisdiction in which the Company or its
successors in
<PAGE>
-11-
interest may be organized. In construing this Plan, the singular shall include
the plural and the masculine gender shall include the feminine and neuter,
unless the context otherwise requires.
<PAGE>
EXHIBIT 10.9
------------
FOURTH AMENDMENT
----------------
This Amendment with Effective Date of March 19, 1993 is to the License
Agreement between M.I.T. and Matritech, Inc. with the Effective Date of December
14, 1989.
The parties thereto hereby agree that the time specified for completion of
the milestone identified in paragraph 3.2(c) be extended until June 30, 1994.
Agreed to for:
MATRITECH, INC. MASSACHUSETTS INSTITUTE
OF TECHNOLOGY
By /s/Stephen D. Chubb By /s/ John T. Preston
------------------------- ---------------------------------
Title President and CEO Title John Preston, Director/Tech Div.
---------------------- --------------------------------
Date 3/18/93 Date 3/18/93
----------------------- --------------------------------
<PAGE>
EXHIBIT 10.10
-------------
November 30, 1992
FAX: 011-813 3960-2141
Dr. Tadashi Obara
Diagnostic R&D Department
Clinical Development Division
Yamanouchi Pharmaceutical Co., Ltd.
No. 1-6 Azusawa 1-chome Itabashi-ku
Tokyo 174, Japan
Dear Dr. Obara:
In accordance with our Development and Supply Agreement of September 1991,
Paragraph 3.1 as well as our letter agreement of July 27, 1992, Matritech and
Yamanouchi hereby agree to extend the estimated completion time for the 1st
--
antibody pair until June 30, 1993. As before, the Estimated Completion Time for
subsequent milestones will be extended at six month intervals beyond the 1st
--
antibody pair. This includes both those in paragraphs (2) and (3) of Schedule
A, III.
Very sincerely,
Stephen D. Chubb
president & Chief Executive Officer
SDC:bjr(4014)
Agreed /s/ Tadashi Obara
-----------------
Tadashi Obara, Ph.D.
Director, Diagnostic R&D Department
Clinical Development Division
YAMANOUCHI PHARMACEUTICAL CO., LTD.
<PAGE>
Exhibit 10.20
-------------
SENIOR LOAN AND SECURITY AGREEMENT NO.0096
THIS SENIOR LOAN AND SECURITY AGREEMENT NO.0096 (this "Security Agreement") is
dated as of August 29, 1997 between MATRITECH, INC., a Delaware corporation
("Borrower") and PHOENIX LEASING INCORPORATED, a California corporation
("Lender").
RECITALS
A. Borrower desires to borrow from Lender in one or more borrowings an
amount not to exceed $1,200,000 in the aggregate, and Lender desires to loan,
subject to the terms and conditions herein set forth, such amount to Borrower
(each, a "Loan" and collectively, the "Loans"). Such borrowings shall be
evidenced by one or more Senior Secured Promissory Notes (each, a "Note" and
collectively, the "Notes"), in the form attached hereto.
B. As security for Borrower's obligations to Lender under this Security
Agreement, the Notes and any other agreement between Borrower and Lender,
Borrower will grant to Lender hereunder a first perfected security interest in
certain of its equipment, machinery, fixtures, other items and intangibles
including but not limited to a security access card system, computer, laboratory
and test equipment, whether now owned by Borrower or hereafter acquired, and all
substitutions and replacements of and additions, improvements, accessions and
accumulations to said equipment, machinery and fixtures and other items,
together with all rents, issues, income, profits and proceeds therefrom
(collectively, the "Collateral") which is described on the Note attached hereto
or any subsequently-executed Note entered into by Lender and Borrower and which
incorporates this Security Agreement by reference. In addition to the foregoing
Collateral, under certain circumstances Borrower's obligations to Lender may
also be secured by certain "Additional Security" as provided below, in which
case the term "Collateral" shall include such Additional Security.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
SECTION 1. TERM OF AGREEMENT. The term of this Security Agreement begins on the
date set forth above and shall continue thereafter and be in effect so long as
and at any time any Note entered into pursuant to this Security Agreement is in
effect. The 48 month base term and monthly payment amount payable with respect
to each item of Collateral shall be as set forth in and as stated in the
respective Note(s). The terms of each Note hereto are subject to all conditions
and provisions of this Security Agreement as it may at any time be amended. Each
Note shall constitute a separate and independent Loan and contractual obligation
of Borrower and shall incorporate the terms and conditions of this Security
Agreement and any additional provisions contained in such Note. In the event of
a conflict between the terms and conditions of this Security Agreement and any
provisions of such Note, the provisions of such Note shall prevail with respect
to such Note only.
SECTION 2. NON-CANCELABLE LOAN. This Security Agreement and each Note cannot be
canceled or terminated except as expressly provided herein. Borrower agrees that
its obligations to pay all monthly payment amounts and other sums payable
hereunder (and under any Note) and the rights of Lender and any assignee in and
to such rent and other sums, are absolute and unconditional and are not subject
to any abatement, reduction, setoff, defense, counterclaim or recoupment due or
alleged to be due to, or by reason of, any past, present or future claims which
Borrower may have against Lender, any assignee, the manufacturer or seller of
the Collateral, or against any person for any reason whatsoever.
SECTION 3. LENDER COMMITMENT. (a) General Terms. Subject to the terms and
-------------
conditions of this Security Agreement and so long as no Event of Default or
event which with the giving of notice or passage of time, or both, could become
an Event of Default has occurred or is continuing, Lender hereby agrees to make
one or more senior secured Loans to Borrower, subject to the following
conditions: (i) each Loan shall be evidenced by a Note; (ii) the total principal
amount of the Loans shall not exceed $1,200,000 in the aggregate (the
"Commitment") provided
<PAGE>
that no more than $25,000 may be used to finance computers; (iii) at the time of
each Loan, no Event of Default or event which with the giving of notice or
passage of time, or both, could become an Event of Default shall have occurred
and be continuing, as reasonably determined by Lender, and certified by
Borrower; (iv) the amount of each Loan, which shall occur no more than monthly,
shall be at least $35,000 except for a final Loan which may be less than
$35,000; (v) Lender shall not be obligated to make any Loan after December 31,
1997 provided that the funding period may be extended to June 30, 1998 if Lender
has received and approved in its sole discretion Borrower's calendar 1998
monthly financial plan ("1998 Business Plan") and no Events of Default have
occurred; (vi) for each Loan, Borrower shall present to Lender a list of
proposed Collateral for approval by Lender in its sole discretion; (vii) for
each Loan, Borrower shall have provided Lender with each of the closing
documents described in Exhibit A hereto (which documents shall be in form and
substance acceptable to Lender); (viii) at all fundings Borrower is performing
according to its business plan referred to as "Proforma Cash Flow -1997
Operating Plan" fax dated April 28, 1997, two pages, (the "Business Plan"), as
may be amended from time to time in form and substance acceptable to Lender;
(ix) there shall be no material adverse change in Borrower's condition,
financial or otherwise, as reasonably determined by Lender, and Borrower so
certifies, from (yy) the date of the most recent financial statements delivered
by Borrower to Lender to (zz) the date of the proposed Loan; (x) Borrower shall
use the proceeds of all Loans hereunder for working capital; (xi) at the time of
each Loan, Borrower has reimbursed Lender for all UCC filing and search costs
and appraisal fees; (xii) all Collateral has been marked and labeled by Lender
or Lender's agent; and (xiii) Lender has received in form and substance
acceptable to Lender: (a) Borrower's interim financial statements signed by a
financial officer of Borrower, and (b) complete copies of the Borrower's audit
reports for its most recent fiscal year, which shall include at least Borrower's
balance sheet as of the close of such year, and Borrower's statement of income
and retained earnings and of changes in financial position for such year,
prepared on a consolidated basis and certified by independent public
accountants. Such certificate shall not be qualified or limited because of
restricted or limited examination by such accountant of any material portion of
the company's records. Such reports shall be prepared in accordance with
generally accepted accounting principles and practices consistently applied.
Lender acknowledges receipt of satisfactory evidence of the bona fide progress
of Borrower's $10,000,000 equity financing and of Borrower's $6,160,000 cash
position as of February 28, 1997.
(b) The Notes. Each Loan shall be evidenced by a Note which may not be
---------
prepaid in whole or in part. Each Note shall bear interest and be payable at the
times and in the manner provided therein. Following payment of the Indebtedness
related to each Note, Lender shall return such Note, marked "canceled," to
Borrower.
SECTION 4. SECURITY INTERESTS. (a) Borrower hereby grants to Lender a first
security interest in all Collateral; (b) This Security Agreement secures (i) the
payment of the principal of and interest on the Notes and all other sums due
thereunder and under this Security Agreement (the "Indebtedness") and (ii) the
performance by Borrower of all of its other covenants now or hereafter existing
under the Notes, this Security Agreement and any other obligation owed by
Borrower to Lender (the "Obligations").
SECTION 5. BORROWER'S REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants that (a) it is in good standing under the laws of the state of its
formation, duly qualified to do business and will remain duly qualified during
the term of each Loan in each state where necessary to carry on its present
business and operations, including the jurisdiction(s) where the Collateral will
be located as specified on each Exhibit A to each Note; (b) it has full
authority to execute and deliver this Security Agreement and the Notes and
perform the terms hereof and thereof, and this Security Agreement and the Notes
have been duly authorized, executed and delivered and constitute valid and
binding obligations of Borrower enforceable in accordance with their terms; (c)
the execution and delivery of this Security Agreement and the Notes will not
contravene any law, regulation or judgment affecting Borrower or result in any
breach of any agreement or other instrument binding on Borrower; (d) no consent
of Borrower's shareholders or holder of any indebtedness, or filing with, or
approval of, any governmental agency or commission, which has not already been
obtained or performed, as appropriate, is a
2
<PAGE>
condition to the performance of the terms of this Security Agreement or the
Notes; (e) there is no action or proceeding pending or threatened against
Borrower before any court or administrative agency which might have a materially
adverse effect on the business, financial condition or operations of Borrower;
(f) Borrower owns and will keep all of the Collateral free and clear of all
liens, claims and encumbrances, and, except for this Security Agreement, there
is no deed of trust, mortgage, security agreement or other third party interest
against any of the Collateral; (g) Borrower has good and marketable title to the
Collateral; (h) all Collateral has been received, installed and is ready for use
and is satisfactory in all respects for the purposes of this Security Agreement;
(i) the Collateral is, and will remain at all times under applicable law,
removable personal property, which is free and clear of any lien or encumbrance
except in favor of Lender, notwithstanding the manner in which the Collateral
may be attached to any real property; (j) all credit and financial information
submitted to Lender herewith or at any other time is and will at the time given
be true and correct; and (k) provided Lender has filed UCC- 1 financing
statements timely executed by Borrower, the security interest granted to Lender
hereunder is a perfected first priority security interest.
SECTION 6. METHOD AND PLACE OF PAYMENT. Borrower shall pay to Lender, at such
address as Lender specifies in writing, all amounts payable to it under this
Security Agreement and the Notes.
SECTION 7. LOCATION; INSPECTION; LABELS. All of the Collateral shall be located
at the address (the "Collateral Location") shown on Exhibit A to each Note and
shall not be moved without Lender's prior written consent which location shall
in all events be within the United States. All of the records regarding the
Collateral shall be located at 330 Nevada Street, Newton, MA 02160. Lender shall
have the right to inspect Collateral, including records relating thereto, and
Borrower's books and records at any time (upon reasonable notification) during
regular business hours, such books and records to be maintained in accordance
with generally accepted accounting principles. Borrower shall be responsible for
all labor, material and freight charges incurred in connection with any removal
or relocation of Collateral which is requested by Borrower and consented to by
Lender, as well as for any charges due to the installation or moving of the
Collateral. Payments under the Notes and under this Security Agreement shall
continue during any period in which the Collateral is in transit during a
relocation. Lender or its agent shall mark and label Collateral, winch labels
(to be provided by Lender) shall state that such Collateral is subject to a
security interest of Lender, and Borrower shall keep such labels on the
Collateral as so labeled.
SECTION 8. COLLATERAL MAINTENANCE. (a) General. Borrower will reasonably permit
-------
Lender to inspect each item of Collateral and its maintenance records. Borrower
will at its sole expense comply with all applicable laws, rules, regulations,
requirements and orders with respect to the use, maintenance, repair, condition,
storage and operation of each item of Collateral. Except as required herein,
Borrower will not make any addition or improvement to any item of Collateral
that is not readily removable without causing material damage to any item or
impairing its original value or utility. Any addition or improvement that is so
required or cannot be so removed will immediately become Collateral of Lender.
(b) Service and Repair. Borrower will at its sole expense maintain and service
------------------
and repair any damage to each item of Collateral in a manner consistent with
prudent industry practice and Borrower's own practice so that such item of
Collateral is at all times (i) in the same condition as when delivered to
Borrower, except for ordinary wear and tear, and (ii) in good operating order
for the function intended by its manufacturer's warranties and recommendations.
SECTION 9. LOSS OR DAMAGE. Borrower assumes the entire risk of loss to the
Collateral through use, operation or otherwise. Borrower hereby indemnifies and
holds harmless Lender from and against all claims, loss of Loan payments, costs,
damages, and expenses relating to or resulting from any loss, damage or
destruction of the Collateral, any such occurrence being hereinafter called a
"Casualty Occurrence." On the first day payment is due on each Note following
the Casualty Occurrence or, if there is no such payment date, thirty (30) days
after such Casualty Occurrence Borrower shall pay to Lender an amount equal to
the Balance Due (as defined below) for each
3
<PAGE>
lost or damaged item of Collateral. The Balance Due for each such item is the
sum of: (i) all amounts for each item which may be then due or accrued to the
payment date, plus (ii) as of such payment date, an amount equal to the product
of the fraction specified below times the sum of all remaining payments under
the respective Note, including the amount of any mandatory or optional payment
required or permitted to be paid by Borrower to Lender at the maturity of the
Note. The numerator of the fraction shall be the Collateral Value (as set forth
on the applicable Note) of the item and the denominator shall be the aggregate
Collateral Value of all items under the Note. Upon the making of such payments,
Lender shall release such item of Collateral from its lien hereunder.
Notwithstanding the above, within thirty (30) days following a Casualty
Occurrence, Borrower may repair the Collateral or replace any item of Collateral
which has suffered a Casualty Occurrence with Collateral acceptable to Lender in
its complete discretion and, in such event, the provisions of the previous
paragraph shall not apply. Borrower's tender of such Collateral shall constitute
a representation and warranty that it is free of all liens, claims and
encumbrances and otherwise qualifies as Collateral under this Security
Agreement. Following such tender, Lender shall have a first security interest in
such Collateral.
All insurance proceeds from policies required to be maintained hereunder
received by or payable to Lender on account of a Casualty Occurrence shall be
released to the vendor of the replacement item of Collateral upon Borrower's
request if (i) no Event of Default has occurred and is continuing hereunder, and
(ii) Lender has received an invoice from the vendor describing the replacement
item of Collateral.
If Lender has received from Borrower the Balance Due and all other payments due
with respect to the item of Collateral which has suffered a Casualty Occurrence,
all insurance proceeds received by Lender thereafter or payable on account of
the Casualty Occurrence shall be paid to Borrower as it may direct.
SECTION 10. INSURANCE. Borrower at its expense shall keep the Collateral insured
against all risks of physical loss for at least the replacement value of the
Collateral and in no event for less than the amount payable following a Casualty
Occurrence (as provided in Section 9). Such insurance shall provide for a loss
payable endorsement 'to Lender and/or any assignee of Lender. Borrower shall
maintain commercial general liability insurance with respect to loss or damage
for personal injury, death or property damage in an amount not less than
$2,000,000 in the aggregate, naming Lender and/or Lender's assignee as
additional insured. Such insurance shall contain insurer's agreement to give
thirty (30) days' advance written notice to Lender before cancellation or
material change of any policy of insurance. Borrower will provide Lender and any
assignee of Lender with a certificate of insurance from the insurer evidencing
Lender's or such assignee's interest in the policy of insurance. Such insurance
shall cover any Casualty Occurrence to any unit of Collateral. Notwithstanding
anything in Section 9 or this Section 10 to the contrary, this Security
Agreement and Borrower's obligations hereunder shall remain in full force and
effect with respect to any unit of Collateral which is not subject to a Casualty
Occurrence. If Borrower fails to provide or maintain insurance as required
herein, Lender shall have the right, but shall not be obligated, to obtain such
insurance. In that event, Borrower shall pay to Lender the cost thereof.
SECTION 11. MISCELLANEOUS AFFIRMATIVE COVENANTS. So long as any portion of the
Indebtedness is unpaid and as long as any of the Obligations are outstanding
Borrower will: (a) duly pay all governmental taxes and assessments at the time
they become due and payable; (b) comply with all applicable governmental laws,
rules and regulations relating to its business and the Collateral; (c) maintain
Lender's security interest in the Collateral as a first and prior perfected
security interest; (d) furnish Lender with copies of its Forms 10-K and 10-Q
when filed with the Securities and Exchange Commission; and (e) promptly (but in
no event more than five (5) days after the occurrence of such event) notify
Lender of any material adverse change in Borrower's condition during the
commitment period and of the occurrence of any Event of Default.
SECTION 12. INDEMNITIES. Borrower will protect, indemnify and save harmless
Lender and any assignees on an after-tax basis from and against all liabilities,
obligations, claims, damages, penalties, causes of action, costs
4
<PAGE>
and expenses (including reasonable attorneys' fees and expenses), imposed upon
or incurred by or asserted against Lender or any assignee of Lender by Borrower
or any third party by reason of the occurrence or existence (or alleged
occurrence or existence) of any act or event relating to or caused by any
portion of the Collateral, or its purchase, acceptance, possession, use,
maintenance or transportation, including without limitation, consequential or
special damages of any kind, any failure on the part of Borrower to perform or
comply with any of the terms of this Security Agreement or any Note, claims for
latent or other defects, claims for patent, trademark or copyright infringement
and claims for personal injury, death or property damage, including those based
on Lender's negligence or strict liability in tort and excluding only those
based on Lender's gross negligence or willful misconduct. In the event that any
action, suit or proceeding is brought against Lender by reason of any such
occurrence, Borrower, upon Lender's request, will, at Borrower's expense, resist
and defend such action, suit or proceeding or cause the same to be resisted and
defended by counsel approved by Lender, such approval not to be unreasonably
withheld. Borrower's obligations under this Section 12 shall survive the payment
in full of all the Indebtedness and the performance of all Obligations with
respect to acts or events occurring or alleged to have occurred prior to the
payment in full of all the Indebtedness and the performance of all Obligations.
SECTION 13. TAXES. Borrower agrees to reimburse Lender (or pay directly if
instructed by Lender) and any assignee of Lender for, and to indemnify and hold
Lender and any assignee harmless from, all fees (including, but not limited to,
license, documentation, recording and registration fees), and all sales, use,
gross receipts, personal property, occupational, value added or other taxes,
levies, imposts, duties, assessments, charges, or withholdings of any nature
whatsoever, together with any penalties, fines, additions to tax, or interest
thereon (the foregoing collectively "Impositions"), except same as may be
attributable to Lender's income, arising at any time prior to or during the term
of any Notes or of this Security Agreement, or upon termination or early
termination of this Security Agreement and levied or imposed upon Lender
directly or otherwise by any Federal, state or local government in the United
States or by any foreign country or foreign or international taxing authority
upon or with respect to (a) the Collateral, (b) the exportation, importation,
registration, purchase, ownership, delivery, leasing, financing, possession,
use, operation, storage, maintenance, repair, return, sale, transfer of title,
or other disposition thereof, (c) the rentals, receipts, or earnings arising
from the Collateral, or any disposition of the rights to such rentals, receipts,
or earnings, (d) any payment pursuant to this Security Agreement or the Notes,
or (e) this Security Agreement, the Notes or any transaction or any part hereof
or thereof.
SECTION 14. RELEASE OF LIENS. Upon payment of all of the Indebtedness and
performance of all of the Obligations, Lender shall execute UCC termination
statements and such other documents as Borrower shall reasonably request to
evidence the release of Lender's lien relating to the Collateral.
SECTION 15. ASSIGNMENT. WITHOUT LENDER'S PRIOR WRITTEN CONSENT WHICH CONSENT
WILL NOT BE UNREASONABLY WITHHELD, BORROWER SHALL NOT (a) ASSIGN, TRANSFER,
PLEDGE, HYPOTHETICAL OR OTHERWISE DISPOSE OF THIS SECURITY AGREEMENT, ANY NOTE,
ANY COLLATERAL, OR ANY INTEREST THEREIN, (1))LEASE OR LEND COLLATERAL OR PERMIT
IT TO BE USED BY ANYONE OTHER THAN BORROWER OR BORROWER'S EMPLOYEES OR (c)
MERGE INTO, CONSOLIDATE WITH OR CONVEY OR TRANSFER ITS PROPERTIES SUBSTANTIALLY
AS AN ENTIRETY TO ANY OTHER PERSON OR ENTITY. LENDER MAY ASSIGN ANY OF THE
NOTES, THIS SECURITY AGREEMENT OR ITS SECURITY INTEREST IN ANY OR ALL
COLLATERAL, OR ANY OR ALL OF THE ABOVE, IN WHOLE OR IN PART TO ONE OR MORE
ASSIGNEES OR SECURED PARTIES WITHOUT NOTICE TO BORROWER. if Borrower is given
notice of such assignment it agrees to acknowledge receipt thereof in writing
and Borrower shall execute such additional documentation as Lender's assignee
and/or secured party shall reasonably require. Each such assignee and/or secured
party shall have all of the rights, but (except as provided in this Section 15)
none of the obligations, of Lender under this Security Agreement, unless such
assignee or secured party expressly agrees to assume such obligations in
writing. Lender shall retain the obligation to fund each Loan hereunder.
Borrower shall not assert against any assignee and/or secured party any defense,
counterclaim or offset that Borrower may have against Lender. Notwithstanding
any
5
<PAGE>
such assignment, and providing no Event of Default has occurred and is
continuing, Lender, or its assignees, secured parties, or their agents or
assigns, shall not interfere with Borrower's right to quietly enjoy use of
Collateral subject to the terms and conditions of this Security Agreement.
Subject to the foregoing, the Notes and this Security Agreement shall inure to
the benefit O{ and are binding upon, the successors and assignees of the parties
hereto. Borrower acknowledges that any such assignment by Lender will not change
Borrower's duties or obligations under this Security Agreement and the Notes or
increase any burden or risk on Borrower.
SECTION 16. DEFAULT. (a) Events of Default. Any of the following events or
------ -- -------
conditions shall constitute an "Event of Default" hereunder: (i) Borrower's
failure to pay any monies due to Lender hereunder or under any Note beyond the
fifth (5th) day after the same is due; (ii) Borrower's failure to comply with
its obligations under Section 10 or Section 15; (iii) any representation or
warranty of Borrower made in this Security Agreement or the Notes or in any
other agreement, statement or certificate furnished to Lender in connection with
this Security Agreement or the Notes shall prove to have been incorrect in any
material respect when made or given; (iv) Borrower's failure to comply with or
perform any term, covenant or condition of this Security Agreement or any Note
or under any other agreement between Borrower and Lender or under any lease or
mortgage of real property covering the location of the Equipment if such failure
to comply or perform is not cured by Borrower within five (5) days after
Borrower knows of the noncompliance or nonperformance or notice from Lender; (v)
seizure of any of the Collateral under legal process; (vi) the filing by or
against Borrower or any guarantor under any guaranty executed in connection with
this Security Agreement ("Guarantor") of a petition for reorganization or
liquidation under the Bankruptcy Code or any amendment thereto or under any
other insolvency law providing for the relief of debtors; (vii) the voluntary or
involuntary making of an assignment of a substantial portion of its assets by
Borrower or by any Guarantor for the benefit of its creditors, the appointment
of a receiver or trustee for Borrower or any Guarantor or for any of Borrower's
or Guarantor's assets, the institution by or against Borrower or any Guarantor
of any formal or informal proceeding for dissolution, liquidation, settlement of
claims against or winding up of the affairs of Borrower or any Guarantor
provided that in the case of all such involuntary proceedings, same are not
dismissed within sixty (60) days after commencement; (viii) the making by
Borrower or by any Guarantor of a transfer of all or a material portion of
Borrower's or Guarantor's assets or inventory not in the ordinary course of
business; or (ix) any default or breach by any Guarantor of any of the terms of
its guaranty to Lender in connection with this Security Agreement.
(b) Remedies. If any Event of Default has occurred, Lender may in its sole
--------
discretion exercise one or more of the following remedies with respect to any or
all of the Collateral: (i) declare due any or all of the aggregate sum of all
remaining payments under the Notes, including the amount of any mandatory or
optional payment required or permitted to be paid by Borrower to Lender at the
maturity of the Notes ("Remaining Payments"); (ii) proceed by appropriate court
action or actions either at law or in equity to enforce Borrower's performance)
of the applicable covenants of the Notes and this Security Agreement or to
recover all damages and expenses incurred by Lender by reason of an Event of
Default; (iii) without court order or prior demand, enter upon the premises
where the Collateral is located and take immediate possession of and remove it
without liability of Lender to Borrower or any other person or entity; (iv)
terminate this Security Agreement and sell the Collateral at public or private
sale, or otherwise dispose of, hold, use or lease any or all of the Collateral;
or (v) exercise any other right or remedy available to it under applicable law.
If Lender has declared due any or all of the Remaining Payments, Borrower will
pay immediately to Lender (A) the Remaining Payments, (B) all amounts which may
be then due or accrued, and (C) all other amounts due under this Security
Agreement and under the Notes (Lender's Return, as referred to below, means the
amounts described in clauses (A), (B) and (C) above). The net proceeds of any
sale or lease of such Collateral will be credited against Lender's Return. The
net proceeds of a sale of the Collateral pursuant to this Section 16(b) is
defined as the sales price of the Collateral less selling expenses, including,
without limitation, costs of remarketing the Collateral and all refurbishing
costs and commissions paid with respect to such remarketing. The net proceeds of
a lease of the Collateral pursuant to this Section 16(b) is defined as the
amount equal to the monthly payments due under such lease (discounted at a rate
per annum equal to the 3-year Treasury Bill yield as of the date on which Lender
notifies Borrower that this Security Agreement is
6
<PAGE>
terminated (the "Termination Date") (as such yield is reported in the most
recent Federal Reserve Statistical Release H. 15 (519) ("Statistical Release")
(the "Discount Rate")) plus the residual value of the Collateral at the end of
the basic term of such lease, as reasonably determined by Lender, and discounted
at the Discount Rate.
In addition to the foregoing remedies, Lender may apply the security
deposit pledged to Lender pursuant to Section 25, (A) to compensate Lender for
losses or damages sustained as a result of such Event of Default; and/or (B) to
reimburse Lender for costs and expenses, including reasonable attorney's fees,
incurred by Lender in connection with such failure to perform, whether or not
litigation or other judicial proceedings are commenced. Any surplus remaining
thereafter shall be retained by Lender as security hereunder.
Borrower agrees to pay all reasonable out-of-pocket costs of Lender
incurred in enforcement of this Security Agreement, the Notes or any instrument
or agreement required under this Security Agreement, including, but not limited
to attorneys' fees and litigation expenses and fees of collection agencies
("Remedy Expenses"). At Lender's request, Borrower shall assemble the Collateral
and make it available to Lender at such time and location as Lender may
designate. Borrower waives any right it may have to redeem the Collateral.
Declaration that any or all amounts under this Security Agreement and/or
the Notes are immediately due and payable and Lender's taking possession of any
or all Equipment shall not terminate this Security Agreement or any of the Notes
unless Lender so notifies Borrower in writing. None of the above remedies is
intended to be exclusive but each is cumulative and may be enforced separately
or concurrently.
(c) Application of Proceeds. The proceeds of any sale of all or any part of
-----------------------
the Collateral and the proceeds of any remedy afforded to Lender by this
Security Agreement shall be paid to and applied as follows:
First, to the payment of reasonable costs and expenses of suit or
-----
foreclosure, if any, and of the sale, if any, including, without limitation,
refurbishing costs, costs of rernarketing and commissions related to
remarketing, all Remedy Expenses, all expenses, liabilities and advances
incurred or made pursuant to this Security Agreement or any Note by Lender in
connection with foreclosure, suit, sale or enforcement of this Security
Agreement or the Notes, and taxes, assessments or liens superior to Lender's
security interest granted by this Security Agreement;
Second, to the payment of all other amounts not described in item
------
Third below due under this Security Agreement and all Notes;
- -----
Third, to pay lender an amount equal to Lender's Return, to the
-----
extent not previously paid by Borrower; and
Fourth, to the payment of any surplus to Borrower or to whomever may
------
lawfully be entitled to receive it.
(d) Effect of Delay; Waiver; Foreclosure on Collateral. No delay or
--------- ----------------------------------------
omission of Lender, in exercising any right or power arising from any Event of
Default shall prevent Lender from exercising that right or power if the Event of
Default continues. No waiver of an Event of Default, whether full or partial, by
Lender or such holder shall be taken to extend to any subsequent Event of
Default, or to impair the rights of Lender in respect of any damages suffered as
a result of the Event of Default. The giving, taking or enforcement of any other
or additional security, collateral or guaranty for the payment or discharge of
the Indebtedness and performance of the Obligations shall in no way operate to
prejudice, waive or affect the security interest created by this Security
Agreement or any rights, powers or remedies exercised hereunder or thereunder.
Lender shall not be required first to foreclose on the Collateral prior to
bringing an action against Borrower for sums owed to Lender under this Security
Agreement or under any Note.
7
<PAGE>
SECTION 17. LATE PAYMENTS. Borrower shall pay Lender a late charge in an amount
equal to 10% of each monthly payment and other payments, if any, owed Lender by
Borrower which are not paid when due, for every month such payment is not paid
when due, but in no event an amount greater than the highest rate permitted by
applicable law. If such amounts have not been received by Lender at Lender's
place of business or by Lender's designated agent by the date such amounts are
due under this Security Agreement or the Notes, Lender shall bill Borrower for
such charges. Borrower acknowledges that invoices for amounts due hereunder or
under the Notes are sent by Lender for Borrower's convenience only. Borrower's
non-receipt of an invoice will not relieve Borrower of its obligation to make
payments hereunder or under the Notes.
SECTION 18. PAYMENTS BY LENDER. If Borrower shall fail to make any payment or
perform any act required hereunder (including, but not limited to, maintenance
of any insurance required by Section 10, then Lender may, but shall not be
required to, after such notice to Borrower as is reasonable under the
circumstances, make such payment or perform such act with the same effect as if
made or performed by Borrower. Borrower will upon demand reimburse Lender for
all sums paid and all costs and expenses incurred in connection with the
performance of any such act.
SECTION 19. FINANCING STATEMENTS. Borrower will execute all financing statements
pursuant to the Uniform Commercial Code and all such other documents reasonably
requested by Lender to perfect Lender's security interests hereunder. Borrower
authorizes Lender to file financing statements signed only by Lender (where such
authorization is permitted by law) at all places where Lender deems necessary.
SECTION 20. NATURE OF TRANSACTION: Lender makes no representation whatsoever,
express or implied, concerning the legal character of the transaction evidenced
hereby, for tax or any other purpose.
SECTION 21. SUSPENSION OF LENDER'S OBLIGATIONS. The obligations of Lender
hereunder will be suspended to the extent that Lender is hindered or prevented
from complying therewith because of labor disturbances, including but not
limited to strikes and lockouts, acts of God, fires, floods, storms, accidents,
industrial unrest, acts of war, insurrection, riot or civil disorder, any order,
decree, law or governmental regulations or interference, failure of the
manufacturer to deliver any item of Collateral or any cause whatsoever not
within the sole and exclusive control of Lender.
SECTION 22. LENDER'S EXPENSE. Borrower shall pay Lender all costs and expenses
including reasonable attorney's fees and the fees of collection agencies,
incurred by Lender (a) in enforcing any of the terms, conditions or provisions
hereof and related to the exercise of its remedies, and (b) in connection with
any bankruptcy or post-judgment proceeding, whether or not suit is filed and, in
each and every action, suit or proceeding, including any and all appeals and
petitions therefrom.
SECTION 23. ALTERATIONS; ATTACHMENTS. No alterations or attachments shall be
made to the Collateral without Lender's prior written consent, which shall not
be given for changes that will affect the reliability and utility of the
Collateral or which cannot be removed without damage to the Collateral, or which
in any way affect the value of the Collateral for purposes of resale or lease.
All attachments and improvements to the Collateral shall be deemed to be
"Collateral" for purposes of the Security Agreement, and a first priority
security interest therein shall immediately vest in Lessor.
SECTION 24. CHATTEL PAPER. (a) One executed copy of the Security Agreement will
be marked "Original" and all other counterparts will be duplicates. To the
extent, if any, that this Security Agreement constitutes chattel paper (as such
term is defined in the Uniform Commercial Code as in effect in any applicable
jurisdiction) no security interest in the Security Agreement may be created in
any documents other than the "Original." (b) There shall be only one original of
each Note and it shall be marked "Original," and all other counterparts will be
8
<PAGE>
duplicates. To the extent, if any, that any Notes(s) to this Security Agreement
constitutes chattel paper (or as such term is defined in the Uniform Commercial
Code as in effect in any applicable jurisdiction) no security interest in any
Note(s) may be created in any documents other than the "Original."
SECTION 25. ADDITIONAL SECURITY (CASH). For each Note executed by Borrower
hereunder, before Lender's funding of the Note, Borrower shall provide to
Lender, as security for the timely performance and payment by Borrower of its
obligations hereunder, cash in a dollar amount equal to one monthly payment due
under each Note of 2.596% of the Collateral's value as set forth on Exhibit A to
such Note ("Additional Security").
Provided (a) no Event of Default hereunder has occurred or is continuing, (b)
Lender is satisfied that Borrower has theretofore continuously performed
according to its Business Plan and (c) Lender has timely received from Borrower
all monthly note payments, then Lender shall apply the Additional Security
prorata to Borrower's End of Loan Position Requirement and Elections (as defined
in Section 30, Additional Interest Compensation) as follows:
(a) against the 20% payment due with respect to any Note for the security
access card system Collateral and custom equipment Collateral, and
(b) if Election No.1 is chosen with respect t6 any Note for standard
Collateral, against the fair market value payment relative to such Collateral,
or
(c) if Election No.2 is chosen with respect to any Note for standard
Collateral, against the tenth (10th) monthly payment due under any extension for
such standard Collateral.
If an Event of Default by Borrower occurs hereunder, the amount of the
Additional Security for any Note then retained by Lender, together with any
interest thereon, shall be applied against the amount of Borrower's default
obligation. In such event, Lender may apply all or part of the Additional
Security for the following purposes:
(a) to compensate Lender for losses or damages sustained as a result of
such Event of Default; and/or
(b) to reimburse Lender for costs and expenses, including reasonable
attorney's fees, incurred by Lender in connection with such failure to perform,
whether or not litigation or other judicial proceedings are commenced. Any
surplus remaining thereafter shall be retained by Lender as security hereunder.
Provided no Event of Default has occurred and is continuing under this Security
Agreement, upon payment by Borrower of all obligations under the Note, any
Additional Security, if any, held by Lender for such Note shall be returned to
Borrower.
SECTION 26. DUE DILIGENCE/NON-UTILIZATION FEE. Borrower has paid to Lender a fee
("Fee") of $10,000.00. The Fee shall be applied by Lender first to reimburse
Lender for all out-of-pocket UCC and other search costs, inspections and
labeling costs and appraisal fees, if any, incurred by Lender, and then
proportionally to the first monthly payment for each Note hereunder in the
proportion that the Collateral value for such Note bears to Lender's entire
commitment. However, the portion of the Fee which is not applied to such monthly
payments shall be non-refundable except if Lender defaults in its obligation to
fund Loans pursuant to Section 3.
SECTION 27. NOTICES. All notices hereunder shall be in writing, by registered
mail, or reliable messenger or delivery service and shall be directed, as the
case may be, to Lender at 2401 Kerner Boulevard, San Rafael, California 94901,
Attention: Asset Management and to Borrower at 330 Nevada Street, Newton, MA
02160, Attention: Leslie R. Teso.
SECTION 28. MISCELLANEOUS. (a) Borrower shall provide Lender with such corporate
resolutions, financial statements and other documents as Lender shall reasonably
request from time to time. (b) Borrower represents that
9
<PAGE>
the Collateral hereunder is used solely for business purposes. (c) Time is of
the essence with respect to this Security Agreement. (d) Borrower acknowledges
that Borrower has read this Security Agreement and the Notes, understands them
and agrees to be bound by their terms and further agrees that this Security
Agreement and the Notes constitute the entire agreement between Lender and
Borrower with respect to the subject matter hereof and supersede all previous
agreements, promises, or representations. (e) This Security Agreement and the
Notes may not be changed, altered or modified except by an instrument signed by
an officer or authorized representative of Lender and Borrower. (f) Any failure
of Lender to require strict performance by Borrower or any waiver by Lender of
any provision herein or in a Note shall not be construed as a consent or waiver
of any other breach of the same or any other provision. (g) If any provision of
this Security Agreement or any Note is held invalid, such invalidity shall not
affect any other provisions hereof or thereof. (h) The obligations of Borrower
to pay the Indebtedness and perform the Obligations shall survive the expiration
or earlier termination of this Security Agreement and each Note until all
Obligations of Borrower to Lender have been met and all liabilities of Borrower
to Lender and any assignee have been paid in full. (i) Borrower will notify
Lender at least 30 days before changing its name, principal place of business or
chief executive office. (j) Borrower will, at its expense, promptly execute and
deliver to Lender such documents and assurances (including financing statements)
and take such further action as Lender may reasonably request in order to carry
out the intent of this Security Agreement and Lender's rights and remedies. (k)
Borrower hereby appoints Lender (and each of Lender's officers, employees or
agents designated by Lender), with full power of substitution by Lender, as
Borrower's attorney, with power to execute and deliver on Borrower's behalf
financing statements and other documents necessary to perfect and/or give notice
of Lender's security interest in any of the Collateral.
SECTION 29. JURISDICTION AND WAIVER OF JURY TRIAL. This Security Agreement and
the Notes shall be deemed to have been negotiated, entered into and performed in
the State of California and it is understood and agreed that the validity of
this Security Agreement and of any of the terms and provisions, of the Security
Agreement and Notes, as well as the rights and duties of Lender and Borrower,
shall be construed pursuant to and in accordance with the laws of the State of
California, without giving effect to conflicts of law principles. It is agreed
that exclusive jurisdiction and venue for any legal action between the parties
arising out of or relating to this Security Agreement and each Note shall be in
the Superior Court for Marin County, California, or, in cases where federal
diversity jurisdiction is available, in the United States District Court for the
Northern District of California situated in San Francisco. BORROWER, TO THE
EXTENT IT MAY LAWFULLY DO SO, HEREBY WAIVES ITS RIGHT TO TRIAL BY JURY IN ANY
ACTION BROUGHT ON OR WITH RESPECT TO THIS SECURITY AGREEMENT, ANY NOTE, ANY
SECURITY DOCUMENTS, OR ANY OTHER AGREEMENTS EXECUTED IN CONNECTION HEREWITH.
SECTION 30. ADDITIONAL INTEREST COMPENSATION: (a) General. If, and as any Note
-------
provides, Borrower shall be required (I) to make a final payment at the
expiration of the first Note's base term with respect to the Security Access
Card System Collateral and custom equipment Collateral or (2) to elect to make
either a final payment or Note extension election with respect to the first
Note's base term with respect to standard Collateral ("Additional Interest
Compensation"), then that requirement or election shall be Borrower's Additional
Interest Compensation requirement or election for all, but not less than all, of
the Collateral under all respective Notes under the Security Agreement.
Until Borrower makes the required payment with respect to any Note referenced in
(1) above, or notifies Lender of its Additional Interest Compensation election
with respect to any Note referenced in (2) above at least 90 days prior to the
end of the term of the first such Note, all Borrower's Obligations, including
payment of the monthly payment amount, shall continue in full force and effect,
on a month-to-month basis.
10
<PAGE>
(b) End of Loan Position Requirements and Elections.
-----------------------------------------------
(i) For Security Access Card System Collateral and any custom equipment
Collateral Borrower shall make a final payment of 20% of such Collateral's value
as set forth on Exhibit A to the Note.
(ii) For standard equipment Collateral:
a) Election No.1: Make a final payment equal to the Collateral's fair
-------------
market value, in no event less than 10% nor more than 20% of the Collateral's
value as set forth on Exhibit A to the Note. Fair market value shall be
determined by Lender.
b) Election No.2: Extend the Note's base term for an additional 10
-------------
months ("Extended Term") for a monthly rate of 2.596% of the Collateral's value
as set forth on Exhibit A to the Note.
Following Borrower's timely notice to Lender of its election of either
Election No.1 or Election No. 2 above, if Borrower has elected Election No. 1
and fails to timely make the payment required under Election No. 1, Borrower
shall be deemed to have elected Election No.2.
SECTION 31. RATE ADJUSTMENT. For each Note funded after June 30, 1998, Borrower
and Lender agree that the initial loan rate factor of 2.596% ("the Initial Loan
Rate Factor"), will be adjusted based on the Funding Treasury Note Rate, as
defined below. Borrower and Lender agree that if the Funding Treasury Note Rate
is greater than 6.26%, the Initial Loan Rate Factor for the applicable Note
shall, at Lender's option, be adjusted. The adjustment shall be calculated so
that the new stream rate (calculated using the adjusted loan rate factor) minus
the Funding Treasury Note Rate is equal to 5.50%. Lender and Borrower agree that
in no event will the stream rate exceed 15% for any Note.
The term "Funding Treasury Note Rate" shall mean the average of the yields to
maturity of all "Govt. Bonds & Notes" as set forth in the Ask Yld." column of
the Wall Street Journal, Western Edition, "Treasury Bonds, Notes & Bills" report
published on June 1, 1998, having a maturity 48 months from June 1, 1998. If
there is no such government bond/note having such maturity 48 months from June
1, 1998, the Funding Treasury Note Rate shall be the average of such yields to
maturity of any such government bonds/notes so listed in the Wall Street Journal
having a maturity in the succeeding month which is closest to 48 months from
June 1, 1998.
The term "stream rate" shall mean the interest rate implicit with 48 payments of
the Adjusted Loan Rate Factor multiplied by the face amount of the new Note.
SECTION 32. ADJUST-A-LOAN OPTION: (a) General: After the first 12 months of the
-------
term of any Note, Borrower shall have the option to remove such Note's
Collateral ("Removed Collateral") and obtain financing from Lender for new
Collateral ("New Collateral") under a new Note ("New Note") subject to
subsection (d) below. ~) New Note Amount: The principal amount of the New Note
--- -----------
shall be an amount equal to the purchase price for the New Collateral plus a
prepayment figure for the Removed Collateral. The prepayment figure shall be the
original principal amount of the original Note ("Old Note") less: (i) any trade-
in value or resale proceeds received by Lender for the Removed Collateral and
(ii) a credit for Note payments already made (the total Old Note payments
attributable to the removed Collateral multiplied by the "Allowance Factor"
indicated in the table below). In no event shall the principal amount of the New
Note be less than original principal amount of the Old Note.
11
<PAGE>
===============================================================================
Removal Date Allowance Factor
===============================================================================
After 12 Months of Old Note 55%
- -------------------------------------------------------------------------------
After 24 Months of Old Note 60%
- -------------------------------------------------------------------------------
After 36 Months of Old Note 65%
===============================================================================
(c) Old Note: If any item of Collateral remains on the Old Note, the monthly
--------
payment amount for the Old Note will be reduced in proportion to the Removed
Collateral's value. (d) Option Preconditions: Borrower's right to exercise this
--------------------
Adjust-A-Loan Option ("Option") is conditioned upon the following: (i) no Event
of Default under the Security Agreement has theretofore occurred or is
continuing; (ii) the New Collateral and prepayment of the Removed Collateral are
financed by Lender nnder a New Note, subject to Lender's then current loan rates
and documentation acceptable to Lender; (iii) Lender is satisfied with
Borrower's creditworthiness in its sole discretion; (iv) the New Collateral is
acceptable to Lender; and (v) Borrower has given Lender at least 90 days' prior
written notice of its desire to exercise the Option.
IN WITNESS WHEREOF, Borrower and Lender have caused this Security Agreement to
be executed as of the date and year first above written.
PHOENIX LEASING INCORPORATED MATRITECH, INC.
By: ________________________________ ______________________________________
Name: _____________________________ Name (Print): ________________________
Title: _____________________________ Title: _______________________________
HEADQUARTERS LOCATION:
------------ --------
330 Nevada Street
Newton, MA 02160
County of Norfolk
EXHIBITS AND SCHEDULES:
-------- --- ----------
Exhibit A -- Closing Memorandum
12
<PAGE>
NOTE NO.02
TO SENIOR LOAN AND SECURITY AGREEMENT
NO.0096
BETWEEN MATRITECH, INC.
AS BORROWER AND
PHOENIX LEASING INCORPORATED AS LENDER
SENIOR SECURED PROMISSORY NOTE
------ ------- ---------- ----
$286,378.65 October 20, 1997
----------------
FOR VALUE RECEIVED, the undersigned, MATRITECH, INC., a Delaware corporation
("Borrower"), hereby promises to pay to the order of Phoenix Leasing
Incorporated, or its assigns (the "Lender") the principal sum of Two Hundred
Eighty-six Thousand Three Hundred Seventy-eight and 65/100 Dollars
($286,378.65), together with interest on the decreasing balance of this
principal amount until the principal is fully repaid. On the last day of the
forty-eighth (48th) month the entire remaining unpaid principal balance,
together with interest accrued and unpaid, shall be due and payable. Principal
and interest shall be payable in consecutive monthly installments, each of which
shall be equal to the percentage specified below of the principal sum and in the
amounts each month specified below.
Month Payment Amount Percentage
----- -------------- ----------
1-48 $7,434.39 2.596%
The first payment shall be due on the first day of the month immediately
following the date of this Note (unless the date of this Note is the first day
of the month in which case the first payment is due on that day), and each
succeeding payment shall be made on the first day of each succeeding month. An
interim payment will be due on the same dates as the first payment for the
period from the date Lender funds the principal amount of this Note until the
first day of the following month and shall be equal to 1/30 of the monthly loan
payment multiplied by the number of days, if any, between (and including) the
funding date and the first day of the following month provided, however, no
interim payment will be due if the date of this Note is on or after the 20th day
of the month.
As additional interest compensation, on the first day of the forty-ninth (49th)
month Borrower shall either (a) pay to Lender an amount equal to the then Fair
Market Value of all of the Collateral described in Exhibit A to this Note,
provided that the amount of the payment shall be an amount which is not less
than ten percent (10%) or more than twenty percent (20%) of the original
principal amount of this Note, or provided no Event of Default has occurred,
(b)make the first payment of ten (10) additional consecutive monthly payments
each of which shall be in an amount equal to 2.596% of the original principal
amount of this Note. Following Borrower's timely notice to Lender of its
election of either (a) or (b) above, if Borrower has elected (a) and fails to
timely make the payment required under (a) above, Borrower shall be deemed to
have elected (b).
Fair Market Value shall be determined by Lender.
<PAGE>
NOTE NO.02
TO SENIOR LOAN AND SECURITY AGREEMENT
NO.0096
BETWEEN MATRITECH, INC.
AS BORROWER AND
PHOENIX LEASING INCORPORATED AS LENDER
Borrower shall pay to Lender an amount equal to 10% of each monthly payment owed
Lender by Borrower which is not paid when due, for every month such payment is
not paid when due, but in no event an amount greater than the highest rate
permitted by applicable law.
This Note may not be prepaid in whole or in part.
Payments of principal and interest hereunder shall be made in lawful money of
the United States of America at the offices of Lender at 2401 Kerner Boulevard,
San Rafael, California 94901, or such other place as the Lender shall designate
to the Borrower in writing.
This Note is secured by a Senior Loan and Security Agreement, dated as of August
29, 1997 between Borrower and Lender (the "Security Agreement") and is entitled
to the benefits of the Security Agreement which contains, among other things,
provisions for (i) events of default and the Lender's rights and remedies
following an event of default (which include, but are not limited to,
acceleration of this Note), (ii) Collateral which secures the repayment of this
Note and is more particularly described on Exhibit A hereto, and (iii) other
rights and remedies of Lender.
This Note may be declared due prior to its expressed maturity date only in the
events, on the terms and in the manner provided in the Security Agreement.
This Note shall be construed and enforced in accordance with the laws of the
State of California, excluding principles of conflicts of laws.
The Borrower hereby expressly waives presentment for payment, demand for
payment, notice of dishonor, protest, notice of protest, notice of nonpayment,
and all lack of diligence or delays in collection or enforcement of this Note.
BORROWER:
MATRITECH, INC.
By: ____________________________________________
Its: _____________________________________________
<PAGE>
EXHIBIT A to
SENIOR SECURED PROMISSORY NOTE NO. 02
(Insert Exhibit A here)
<PAGE>
Amortization Schedule
<TABLE>
<CAPTION>
Beginning Principal Ending
Balance Interest Payment Reduction Balance
---------- -------- -------- --------- -----------
<S> <C> <C> <C> <C> <C>
1 286,378.65 7,434.39 7,434.39 278,944.26
2 278,944.26 2,732.79 7,434.39 4,701.60 274,242.66
3 274,242.66 2,686.73 7,434.39 4,747.66 269,495.00
4 269,495.00 2,640.21 7,434.39 4,794.18 264,700.82
5 264,700.82 2,593.25 7,434.39 4,841.14 259,859.68
6 259,859.68 2,545.82 7,434.39 4,888.57 254,971.11
7 254,971.11 2,497.93 7,434.39 4,936.46 250,034.64
8 250,034.64 2,449.56 7,434.39 4,984.83 245,049.81
9 245,049.81 2,400.73 7,434.39 5,033.66 240,016.15
10 240,016.15 2,351.41 7,434.39 5,082.98 234,933.18
11 234,933.18 2,301.62 7,434.39 5,132.77 229,800.40
12 229,800.40 2,251.33 7,434.39 5,183.06 224,617.34
13 224,617.34 2,200.55 7,434.39 5,233.84 219,383.51
14 219,383.51 2,149.28 7,434.39 5,285.11 214,098.39
15 214,098.39 2,097.50 7,434.39 5,336.89 208,761.50
16 208,761.50 2,045.21 7,434.39 5,389.18 203,372.33
17 203,372.33 1,992.42 7,434.39 5,441.97 197,930.36
18 197,930.36 1,939.10 7,434.39 5,495.29 192,435.07
19 192,435.07 1,885.27 7,434.39 5,549.12 186,885.95
20 186,885.95 1,830.90 7,434.39 5,603.49 181,282.46
21 181,282.46 1,776.01 7,434.39 5,658.38 175,624.07
22 175,624.07 1,720.57 7,434.39 5,713.82 169,910.26
23 169,910.26 1,664.59 7,434.39 5,769.80 164,140.46
24 164,140.46 1,608.07 7,434.39 5,826.32 158,314.14
25 158,314.14 1,550.99 7,434.39 5,883.40 152,430.73
26 152,430.73 1,493.35 7,434.39 5,941.04 146,489.69
27 146,489.69 1,435.14 7,434.39 5,999.25 140,490.45
28 140,490.45 1,376.37 7,434.39 6,058.02 134,432.43
29 134,432.43 1,317.02 7,434.39 6,117.37 128,315.06
30 128,315.06 1,257.09 7,434.39 6,177.30 122,137.76
31 122,137.76 1,196.57 7,434.39 6,237.82 115,899.94
32 115,899.94 1,135.46 7,434.39 6,298.93 109,601.01
33 109,601.01 1,073.75 7,434.39 6,360.64 103,240.37
34 103,240.37 1,011.44 7,434.39 6,422.95 96,817.41
35 96,817.41 948.51 7,434.39 6,485.88 90,331.53
36 90,331.53 884.97 7,434.39 6,549.42 83,782.11
37 83,782.11 820.80 7,434.39 6,613.59 77,168.53
38 77,168.53 756.01 7,434.39 6,678.38 70,490.15
39 70,490.15 690.58 7,434.39 6,743.81 63,746.34
40 63,746.34 624.52 7,434.39 6,809.87 56,936.47
41 56,936.47 557.80 7,434.39 6,876.59 50,059.88
42 50,059.88 490.43 7,434.39 6,943.96 43,115.92
43 43,115.92 422.40 7,434.39 7,011.99 36,103.93
44 36,103.93 353.71 7,434.39 7,080.68 29,023.25
45 29,023.25 284.34 7,434.39 7,150.05 21,873.20
46 21,873.20 214.29 7,434.39 7,220.10 14,653.10
47 14,653.10 143.55 7,434.39 7,290.84 7,362.26
48 7,362.26 72.13 7,434.39 7,362.26 (0.00)
</TABLE>
Excludes Additional Interest as Specified in Senior Secured Promissory Note
<PAGE>
OFFICER'S CERTIFICATE
--------- -----------
The undersigned, _______________________________, hereby certifies that:
(i) I am the _____________________ of MATRITECH, INC., a Delaware corporation
(the "Borrower");
(ii) as such officer, I am familiar with the terms and conditions of that
certain Senior Loan and Security Agreement (the "Security Agreement")
dated as of August 29, 1997 between Borrower and PHOENIX LEASING
INCORPORATED ("Lender");
(iii) the equipment, machinery, furniture, fixtures and other items on the
attached list are free and clear of any and all liens, charges, security
interests or other encumbrances that may affect Lender's right, title or
interest in and to the equipment and other items, and no UCC- 1 financing
statements or other grants of security interests have been or are in the
process of being filed against any of such equipment or other items;
(iv) Borrower is performing according to Borrower's business plan described in
Section 3 of the Security Agreement, a true copy of which business plan
has been delivered to Lender;
(v) there has been no material adverse change in the financial condition of
Borrower from the date of its most recent financial statements, true
copies of which have been delivered to Lender;
(vi) as of the date hereof, no Event of Default (as defined in the Security
Agreement) or event which with the giving of notice or passage of time, or
both, could become an Event of Default has occurred and is continuing; and
(vii) the representations and warranties in Section 5 of the Security Agreement
are true and correct as if made on the date of the Loan.
IN WITNESS WHEREOF, I hereby execute this certificate on this ____ day
of____________ 19__.
<PAGE>
Phoenix Leasing Incorporated
Funding Request
Exhibit A
BORROWER: MATRITECH, INC.
------------------------
330 NEVADA STREET
NEWTON, MA 02160
MASTER LOAN: 0096 NOTE: 01
------------------------ ----------------------
<TABLE>
<CAPTION>
L IVOICED AMT
VENDOR NAME INVOICE BRIEF DESCRIPTION EQP SERIAL O NET OF
(ABBREVIATION OK) NO. OF ITEM COD NUMBER C SALES TAX
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ciphergen Bio 0000235-IN seldi mass spectrometer 2 NA 1 90,500.00
- ---------------------------------------------------------------------------------------------------
Biacore 40132780 2000 processing unit 2 33-9180-2327 1 195,878.65
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
<CAPTION>
NO ENTRY REQUIRED
------------------------
TAX PD
VENDOR NAME AMT PAID VENDOR? CHECK TRANSACT NET $ AMT. NET $ AMT.
(ABBREVIATION OK) BY BORROWER Y/N NO. DATE DUE BORROWER DUE VENDOR
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ciphergen Bio 90,500.00 N 7422 8/22/97 $ 90,500.00 $ 0.00
- --------------------------------------------------------------------------------------------
Biacore 195,878.65 N 6598 5/30/97 $195,878.65 $ 0.00
- --------------------------------------------------------------------------------------------
TOTAL AMOUNT DU TO BORROWER $286,378.65
- --------------------------------------------------------------------------------------------
TOTAL AMOUNT DUE TO VENDOR $ 0.00
------------------------------------
TOTAL DRAW $286,378.65
------------------------------------
</TABLE>
BORROWER SIGNATURE: DATE:
------------------------------ -----------------
<PAGE>
EXHIBIT 10.21
DISTRIBUTORSHIP AGREEMENT
This Agreement, made and entered into to be effective as of the 19th day of
March, 1998 by and between:
MATRITECH, INC.
330 Nevada Street
Newton, MA 02160
a corporation organized under the laws of the state of Delaware, hereinafter
referred to as SUPPLIER; and
CURTIS MATHESON SCIENTIFIC, A DIVISION OF
FISHER SCIENTIFIC COMPANY L.L.C.
2000 Park Lane
Pittsburgh, PA 15275
a company organized under the laws of the state of Delaware, hereinafter
referred to as DISTRIBUTOR.
WITNESSETH
WHEREAS, SUPPLIER desires to sell and/or market its products through the
use of a distributor, and
WHEREAS, DISTRIBUTOR desires to purchase the SUPPLIER's products for resale
to customers; and
WHEREAS, the parties desire to enter into a distributorship agreement
governing their relationship;
NOW, THEREFORE, in consideration of the mutual terms and conditions set
forth herein, and intending to be legally bound hereby, the parties hereto agree
as follows:
1. PRODUCT
1.1 Products: The Products covered by this Agreement are those products set
--------
forth and attached hereto in Exhibit A ("Products"), manufactured by or for
SUPPLIER, together with accessories, parts and components necessary for their
maintenance and repair. Exhibit A may be amended from time to time by mutual
consent of the parties.
1.2 Improved or Updated Products: SUPPLIER shall offer to DISTRIBUTOR in
----------------------------
writing the right to distribute any improved or updated Products developed by
SUPPLIER during the term of this Agreement on the same terms as set forth
herein. For any period during which the arrangement between the parties for
distribution of any Products is exclusive, DISTRIBUTOR shall accept distribution
rights with respect to improved or updated Products, if at all, in writing,
within
<PAGE>
-2-
sixty (60) days after SUPPLIER advises DISTRIBUTOR of the availability of
such improved or updated Products. In the event DISTRIBUTOR elects not to
exercise such right as to all or any of the products so offered by SUPPLIER
within such period, SUPPLIER may distribute any such rejected improved or
updated products to any third party on terms no more advantageous than those
offered to DISTRIBUTOR.
1.3 Shelf Life: SUPPLIER represents and warrants that all Products with a
----------
limited shelf life have been so indicated on Exhibit A with the useful life
of each Product stated in months from the date of manufacture.
1.4 MSDS: SUPPLIER shall provide required Material Safety Data Sheets for
----
any Product containing hazardous chemicals as required by Federal, state or
local law.
2. GRANT OF RIGHTS
2.1 DISTRIBUTOR's Distribution Rights: SUPPLIER hereby appoints DISTRIBUTOR
---------------------------------
and DISTRIBUTOR accepts the appointment as the exclusive distributor of the
Products in the Territory (as defined below) during the term and pursuant to the
provisions of this Agreement. The rights granted herein shall not be construed
to confer any license rights upon DISTRIBUTOR, by implication, estoppel or
otherwise, to use or practice any of SUPPLIER's patents or other intellectual
property. If and to the extent that DISTRIBUTOR performs its rights and
obligations under this Agreement through an affiliate, DISTRIBUTOR shall cause
such affiliate to be bound by all the terms and conditions of this Agreement.
2.2 SUPPLIER's Distribution Rights: SUPPLIER reserves the right to sell the
------------------------------
Products in the Territory, and may sell components of the Products in
different formats to other parties within the Territory.
2.3 Territory: The territory in which the DISTRIBUTOR has the exclusive
---------
right to sell and distribute the Products shall be all hospitals and commercial
laboratories in the United States. DISTRIBUTOR shall not sell or otherwise
distribute any Products to any person or entity in the Territory if DISTRIBUTOR
has reason to believe that such person or entity intends to resell or
redistribute the Products outside of the Territory.
2.4 Competitive Product: Except as otherwise set forth in this Section 2.4,
-------------------
DISTRIBUTOR shall not market, advertise, distribute or sell any products in the
Territory that are directly competitive with the Products. Notwithstanding the
foregoing, DISTRIBUTOR shall have the right to distribute and sell any products
of a third party competitive with the Products listed on Exhibit A in the event
SUPPLIER is more than sixty (60) days delinquent in its shipping obligation for
the Products. Nothing contained herein shall in any way restrict DISTRIBUTOR's
activities outside the Territory. Additionally, the sale of a product licensed
by SUPPLIER to a supplier of DISTRIBUTOR in a different format shall not
constitute a breach of this Agreement by SUPPLIER.
2.5 Best Efforts: DISTRIBUTOR shall use reasonable efforts to sell and
------------
promote the sale of Products within the Territory during the term of this
Agreement.
<PAGE>
-3-
3. ORDERS; VOLUME
3.1 Orders: DISTRIBUTOR shall make purchases by submitting firm purchase
------
orders to SUPPLIER. The minimum Product order by DISTRIBUTOR is [CONFIDENTIAL
TREATMENT REQUESTED*] kits. Concurrent with the execution of this Agreement by
both parties, DISTRIBUTOR agrees to place an initial order for [CONFIDENTIAL
TREATMENT REQUESTED*] kits of the Product.
3.2 Minimum Annual Purchase Targets: DISTRIBUTOR's estimated minimum annual
-------------------------------
purchase targets are set forth on Exhibit B. SUPPLIER acknowledges that this is
a non-binding estimate only, and not a commitment to purchase.
4. SHIPPING AND DELIVERY
4.1 Shipping: SUPPLIER shall ship all Products F.O.B. Shipping Point to
--------
the location designated by DISTRIBUTOR, freight prepaid and absorbed by
SUPPLIER. SUPPLIER shall ship Products to DISTRIBUTOR, via a carrier
selected by SUPPLIER.
4.2 Purchase Forecast: On or before the first day of each calendar quarter,
-----------------
DISTRIBUTOR is obligated to provide SUPPLIER with a twelve (12) month rolling
unit purchase forecast covering the following twelve (12) months. Such forecast
is not a purchase order and is nonbinding.
4.3 Obsolete Inventory: Any Products owned by DISTRIBUTOR and rendered
------------------
unsalable, in DISTRIBUTOR's reasonable opinion, due to: (i) a material change in
any Product specification, (ii) discontinuation or elimination by SUPPLIER of
any Product from its product offering, or (iii) release by SUPPLIER of any
improved or updated version of any Product without providing DISTRIBUTOR at
least ninety (90) days written notice prior to release of the improved or
updated version of the Product shall be repurchased from DISTRIBUTOR by SUPPLIER
within thirty (30) days following DISTRIBUTOR's request in writing therefor at
the price paid for such Product(s) by DISTRIBUTOR. SUPPLIER shall additionally
pay for return freight and related transportation and insurance charges for all
such Products.
4.4 Shelf Life: SUPPLIER shall ship Products so that [CONFIDENTIAL TREATMENT
-----------
REQUESTED*] of the shelf life described in Exhibit A will be remaining at the
time of shipping to DISTRIBUTOR's warehouse but in no event less than
[CONFIDENTIAL TREATMENT REQUESTED*] of shelf life must be remaining. SUPPLIER
agrees to take back for full invoice credit plus shipping charges any dated
Products shipped contrary to this provision.
4.5 Delivery: Provided SUPPLIER's firm purchase order agrees within twenty-
--------
five percent (25%) with the preceding quarters rolling unit forecast, then
SUPPLIER shall ship all Products for which it has received a firm purchase order
within [CONFIDENTIAL TREATMENT REQUESTED*] of order receipt. SUPPLIER agrees
that time is of the essence regarding its delivery of Products.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH MATERIAL HAS
BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
-4-
5. SALES AND MARKETING SUPPORT
5.1 Training: SUPPLIER shall provide to DISTRIBUTOR's sales personnel, at
--------
a location as the parties may agree, such training in the demonstration and
use of the Products as may be reasonably requested by DISTRIBUTOR, and for
such training purposes shall make available, at SUPPLIER's expense, the
necessary instructors, training material and Products for demonstration.
DISTRIBUTOR shall provide transportation and lodging expenses for
DISTRIBUTOR personnel for the training of DISTRIBUTOR representatives by
SUPPLIER.
5.2 Technical Support: SUPPLIER shall provide technical support to
-----------------
DISTRIBUTOR's sales personnel and customers, and promptly provide to DISTRIBUTOR
such additional technical information developed or acquired by SUPPLIER from
time to time as may reasonably be expected to be of assistance to DISTRIBUTOR in
fulfilling its obligations hereunder. SUPPLIER shall provide at its own expense
a toll free long distance telephone service for sales and customer support.
5.3 Literature: SUPPLIER shall provide, at its expense, reasonable
-----------
quantities of such instruction manuals and point of sale literature as may, from
time to time, be requested by DISTRIBUTOR for use in connection with the
marketing, sale and distribution of the Products. Subject to DISTRIBUTOR's prior
written approval, DISTRIBUTOR's name may be incorporated in SUPPLIER's
advertising literature intended for distribution by DISTRIBUTOR's sales
representatives. If requested to do so by DISTRIBUTOR, SUPPLIER shall furnish
DISTRIBUTOR with suitable copy and photographs for use by DISTRIBUTOR in
cataloging the Products.
5.4 Sales Reports: At SUPPLIER's request, DISTRIBUTOR shall submit to
-------------
SUPPLIER such reports as are customarily provided to suppliers similarly
situated with SUPPLIER including, but not limited to, [CONFIDENTIAL TREATMENT
REQUESTED*].
6. PRICE AND PAYMENT TERMS
6.1 Price: SUPPLIER shall supply and ship Product at the prices or at the
-----
discount(s) shown in Exhibit A through [CONFIDENTIAL TREATMENT REQUESTED*]
("Firm Price Period").
6.2 Price Increases: After the expiration of the Firm Price Period, prices
---------------
may be increased [CONFIDENTIAL TREATMENT REQUESTED*] to be effective January 1
of the next following calendar year. SUPPLIER shall give at least ninety (90)
days prior written notice to the DISTRIBUTOR of any price increase. Such price
increases shall be [CONFIDENTIAL TREATMENT REQUESTED*]. Shipments shall be
billed at the price in effect at time of order placement.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH MATERIAL HAS
BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
-5-
Notice of price changes shall be sent to,
PRICING DEPARTMENT
Fisher Scientific Company L.L.C.
2000 Park Lane
Pittsburgh, PA 15275
With a copy to:
CENTRAL PURCHASING
Fisher Scientific Company L.L.C.
2000 Park Lane
Pittsburgh, PA 15275
6.3 Payment Terms: Payment terms shall be [CONFIDENTIAL TREATMENT
REQUESTED*] from the date of receipt of an accurate invoice. DISTRIBUTOR shall
not be in breach of this Agreement unless payment from the DISTRIBUTOR is more
than [CONFIDENTIAL TREATMENT REQUESTED*] overdue. All undisputed invoice amounts
shall be paid within [CONFIDENTIAL TREATMENT REQUESTED*].
6.4 Resale: DISTRIBUTOR shall be entitled to resell Products on such terms
-------
as it may, in its sole discretion, determine, including without limitation,
price, returns, credit and discounts.
6.5 Special Pricing: SUPPLIER and DISTRIBUTOR agree that the pricing
----------------
contained in Exhibit A, Section B is [CONFIDENTIAL TREATMENT REQUESTED*].
6.6 Performance Incentives: Commencing with the effective date of this
----------------------
Agreement, all Product(s) kits purchased by DISTRIBUTOR in a given year
which are in excess of the Minimum Annual Purchase Targets set forth in
Exhibit B shall result in a [CONFIDENTIAL TREATMENT REQUESTED*] rebate per
kit payable by SUPPLIER to DISTRIBUTOR. Any such rebate due DISTRIBUTOR
shall be paid by SUPPLIER within thirty (30) days after the end of the
applicable year.
7. PACKAGING
7.1 Packaging: SUPPLIER shall supply Products in sizes and packaging
---------
configurations corresponding to those set forth in Exhibit A, as it may be
amended from time to time. SUPPLIER may, at its sole option, prepare and mark
all outer packaging purchased by DISTRIBUTOR with DISTRIBUTOR's catalog numbers.
7.2 Lot Numbers and Expiration Date: SUPPLIER shall print lot numbers and
-------------------------------
expiration date, if any, conspicuously on both outer shipping cartons and on
inner shelf packs.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH MATERIAL HAS
BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
-6-
8. TERM AND TERMINATION
8.1 Term: The initial term of this Agreement shall be from the effective
----
date first set forth above through [CONFIDENTIAL TREATMENT REQUESTED*]. After
the expiration of the initial term, the Agreement shall renew for additional
terms of one (1) year with annual mutual written agreement.
8.2 Termination: Notwithstanding the foregoing, this Agreement may be
-----------
terminated for cause at any time as follows:
(i) In the event of default or material breach of the terms of this
Agreement by either party (except the confidentiality provisions), written
notice thereof may be given to the defaulting party. Thereafter, the defaulting
party shall have thirty (30) days to cure said breach. In the event that said
breach has not been cured within said thirty (30) day period, the non-defaulting
party may terminate this Agreement on or within a reasonable period after the
expiration of the cure period.
(ii) Either party may terminate this Agreement immediately upon notice
to the other party in the event of a breach of the confidentiality provisions or
in the event of nationalization, expropriation, liquidation or bankruptcy of, or
an assignment for the benefit of creditors or insolvency of either party,
(iii) SUPPLIER may terminate this Agreement on [CONFIDENTIAL TREATMENT
REQUESTED*] and each subsequent annual anniversary date in the event DISTRIBUTOR
fails to achieve Minimum Annual Purchase Targets set forth in Exhibit B, but
must provide at least thirty (30) days prior written notice of such termination.
9. PROCEDURES ON TERMINATION
9.1 Procedures: On the termination of this Agreement, except for cause
----------
pursuant to Section 8.2 (ii), SUPPLIER shall continue to honor DISTRIBUTOR's
orders for Products up to the effective date of termination and for a period of
sixty (60) days thereafter, provided such orders are not greater than ten
percent (10%) above the quantities established during the sixty (60) days prior
to the date of the notice of termination, and DISTRIBUTOR shall pay for all such
Products in advance of shipping.
9.2 Survival: The rights and duties of each party under this Agreement and
--------
the Exhibits hereto in respect of performance prior to termination shall survive
and be enforceable in accordance with the terms of this Agreement.
9.3 Existing Inventory: In the event this Agreement is terminated by
------------------
DISTRIBUTOR due to a breach by SUPPLIER, SUPPLIER shall repurchase from
DISTRIBUTOR, at DISTRIBUTOR's request and at DISTRIBUTOR's current cost
therefor, such Products as are then owned by DISTRIBUTOR. Delivery of Products
repurchased from DISTRIBUTOR hereunder shall be F.O.B. origin, freight collect.
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH MATERIAL HAS
BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
-7-
10. WARRANTIES, INDEMNITY, RECALL AND INSURANCE
10.1 Warranties: In addition to the warranties of SUPPLIER set forth in
----------
this Agreement in the Continuing Guaranty which is attached hereto as Exhibit C,
SUPPLIER warrants that the Products will conform to the specifications set forth
in SUPPLIER's product literature and Exhibit A; and that they will comply and be
manufactured, packaged, sterilized (if applicable), labeled and shipped by
SUPPLIER in compliance with all applicable federal, state and local laws,
orders, regulations and standards.
10.2 Remedy: Should any Product fail to conform to the express limited
------
warranties set forth in Section 10.1, SUPPLIER shall replace such product at no
additional charge. Such warranties shall not apply to Products that have been
damaged due to accident or disaster or have been modified without the written
consent of SUPPLIER.
THE WARRANTIES STATED HEREIN ARE EXPRESSLY IN LIEU OF ALL OTHER
WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, ANY EXPRESS OR
IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
NOTWITHSTANDING ANY OTHER PROVISION HEREOF, SUPPLIER SHALL NOT BE LIABLE FOR ANY
LOST PROFITS, LOSS OF GOODWILL OR OTHER ECONOMIC LOSS, OR FOR ANY COLLATERAL,
INCIDENTAL, CONSEQUENTIAL, SPECIAL, MULTIPLE OR PUNITIVE DAMAGES (WHETHER IN
TORT, CONTRACT OR OTHERWISE) OF ANY KIND WITH RESPECT TO SUPPLIER'S SALE OF THE
PRODUCTS DELIVERED TO DISTRIBUTOR BY SUPPLIER PURSUANT TO THIS AGREEMENT, EVEN
IF ADVISED OF THE POSSIBILITY OF THE SAME, OR WHICH MAY ARISE FROM THE SALE OR
USE OF THE PRODUCTS. UNLESS THE PRODUCTS ARE USED IN ACCORDANCE WITH THE
DIRECTIONS PROVIDED, ANY WARRANTIES MADE HEREIN ARE VOID AND OF NO EFFECT. THE
FOREGOING LIMITATION SHALL SURVIVE ANY TERMINATION OF THIS AGREEMENT.
10.3 Continuing Guaranty: SUPPLIER shall execute and abide by the terms of
-------------------
DISTRIBUTOR's Continuing Guaranty, a copy of which is attached hereto as Exhibit
C and incorporated herein by reference. The terms and provisions of the
Continuing Guaranty shall survive the termination of this Agreement. With
respect to SUPPLIER's indemnification set forth in clause (i) of paragraph E of
the Continuing Guaranty, SUPPLIER shall have the sole and exclusive right to
evaluate any suit, claim or proceeding brought against DISTRIBUTOR alleging that
a Product purchased by DISTRIBUTOR from SUPPLIER and sold pursuant to this
Agreement infringes any intellectual property rights of others and to take any
and all legal action SUPPLIER shall deem appropriate with respect thereto.
DISTRIBUTOR shall have the right to participate and be represented in any such
suit by its own counsel at its own expense, but DISTRIBUTOR shall not agree to,
and SUPPLIER shall have no liability for, any settlement, compromise or
dismissal of such suit, or the costs incurred in connection therewith, without
SUPPLIER's consent. Should the use of any Product by DISTRIBUTOR or its
customers be enjoined, or if SUPPLIER believes that the use or sale of the
Products may infringe the intellectual property rights of others, SUPPLIER may,
at its option, require the DISTRIBUTOR to discontinue sales of the allegedly
infringing Product and shall either (i) substitute an equivalent non-infringing
<PAGE>
-8-
Product, (ii) modify the Product so that it no longer infringes but remains
equivalent or (iii) obtain for DISTRIBUTOR, at SUPPLIER's own expense, the right
to continue use of such item. The foregoing states the entire liability of
SUPPLIER for such actual or claimed infringements of third-party intellectual
property rights. SUPPLIER shall have no liability for any suit, claim or
proceeding brought against DISTRIBUTOR or SUPPLIER in which and to the extent
the alleged infringement arises from the combination of SUPPLIER's Products
purchased pursuant to this Agreement with products supplied by the DISTRIBUTOR
or others.
10.4 Insurance: On or prior to execution of this Agreement, SUPPLIER shall
---------
provide DISTRIBUTOR with a Certificate of Insurance which meets the
requirements of paragraph D of the Continuing Guaranty. SUPPLIER shall provide
DISTRIBUTOR with renewal insurance certificates during the term of this
Agreement, without demand therefor by DISTRIBUTOR. Further, SUPPLIER agrees to
maintain such insurance coverage for two (2) years beyond the termination or
expiration of this Agreement, howsoever occurring. This obligation shall survive
the termination or expiration of this Agreement.
10.5 DISTRIBUTOR Responsibilities for Record Keeping, Regulatory Actions
-------------------------------------------------------------------
and Complaint Handling
----------------------
(i) The DISTRIBUTOR shall maintain records of all Product shipments,
including the name and address of the party to whom the device was shipped, the
number of units shipped to each recipient, and the lot number(s) included in
each shipment. Records must be retained for a period of two (2) years from the
date of shipment.
(ii) In the event of any regulatory action requested by SUPPLIER or
required by the FDA, the SUPPLIER shall be responsible for providing notice to
all recipients of the Product which may be required by applicable law, rule,
statute, regulation, guideline or otherwise. The DISTRIBUTOR agrees to cooperate
with SUPPLIER in order that SUPPLIER can comply with any notice obligations. In
addition,
(a) Upon notification of the regulatory action and if requested by
SUPPLIER or required by the FDA, the DISTRIBUTOR must quarantine the Product
until the SUPPLIER authorizes the DISTRIBUTOR to resume release and shipment.
(b) In the event of a regulatory action and upon request by SUPPLIER
or the FDA, the DISTRIBUTOR must provide complete records of shipment, including
the name and address of each recipient the number of units shipped, and the lot
number(s).
(c) If the DISTRIBUTOR is visited by FDA in connection with a
regulatory action related to the Product, notice of the FDA contact must be
provided and any FDA form 483 reports and/or Establishment Inspection Reports
(EIRs) must be forwarded to the SUPPLIER within twenty-four (24) hours.
(iii) The DISTRIBUTOR must promptly (but in any event within any time
period required by applicable law, rule or regulation) notify SUPPLIER of
any complaints received related to the Product and provide the name, address
and telephone number of the party
<PAGE>
-9-
submitting the complaint. All complaints should be referred to the SUPPLIER's
technical service representative.
11. TRADEMARKS
11.1 Trademarks and Trade Names: SUPPLIER recognizes that DISTRIBUTOR is
--------------------------
the owner of the trademarks and trade names connoting DISTRIBUTOR or DISTRIBUTOR
products which it may elect to use in distribution and sale of the Products, and
that SUPPLIER has no right or interest in such trademarks and trade names.
11.2 Trademark License: SUPPLIER hereby grants to DISTRIBUTOR the royalty-
-----------------
free right to use SUPPLIER's trademarks on SUPPLIER's Products during the term
of this Agreement, it being expressly understood that if DISTRIBUTOR elects to
use SUPPLIER's trademarks during the term of the Agreement, DISTRIBUTOR shall
properly do so and shall discontinue the use of such trademarks in any new
published material following the termination hereof. Following the termination
of this Agreement, SUPPLIER grants DISTRIBUTOR the right to continue to use its
trademarks in connection with sale or service of Products purchased by
DISTRIBUTOR during the term of this Agreement. DISTRIBUTOR disclaims any rights
to SUPPLIER's trademarks other than the said license.
12. CONFIDENTIALITY
The parties expressly agree to hold as confidential ("Confidential
Information") the existence and terms of this Agreement as well as any
information which is designated in writing by the disclosing party as
confidential, provided such information is clearly marked as confidential,
and the disclosing party obtains a signed receipt or agreement from the
receiving party acknowledging that such information is confidential. In the
event Confidential Information is exchanged according to these guidelines,
such information will be retained by the other party in confidence for a
period of two (2) years following the termination of this Agreement. The
transmittal of such information is and shall be upon the express condition
that the information is to be used solely to effectuate this Agreement; and
the receiving party shall not use, publish, or disclose said information, in
whole or in part, for any purpose other than that stated herein. SUPPLIER
expressly acknowledges and agrees that DISTRIBUTOR's customer names, address
and key contacts are and shall be the Confidential Information of
DISTRIBUTOR. Notwithstanding the foregoing, the above restrictions on
disclosure and use shall not apply to any information which the party can
show by written evidence, was known to it at the time of receipt, or which
may be obtained from third parties who are not bound by a confidentiality
agreement, or which is in the public domain.
13. MISCELLANEOUS
13.1 Force Majeure: The obligations of either party to perform under this
-------------
Agreement shall be excused during each period of delay if such delay arises from
any cause or causes which are reasonable beyond the control of the party
obligated to perform, including, but not limited to, the following: acts of God,
acts or omissions of any government, or any rules, regulations or orders of any
governmental authority or any officer, department, agency or instrumentality
thereof;
<PAGE>
-10-
fire, storm, flood, earthquake, insurrection, riot, invasion or strikes. The
affected party shall use its best efforts to remedy the effects of such force
majeure. Any force majeure shall not excuse performance by the party, but shall
postpone performance, unless such force majeure continues for a period in excess
of ninety (90) days. In such event, the party seeking performance may cancel its
obligations hereunder.
13.2 Assignment: Neither this Agreement nor any right or obligation
----------
hereunder is assignable or transferable by either party, in whole or in part,
without the prior written consent of the other party except to a third party who
or which acquires all or substantially all of the business of the assigning
party by merger, sale of assets or otherwise.
13.3 Notices: Any notice required by this Agreement shall be in writing and
-------
shall be deemed sufficient if given personally or by registered or certified
mail, postage prepaid, or by any nationally recognized overnight delivery
service, addressed to the party to be notified at the address set forth in the
initial paragraph of this Agreement. Either party may, by notice to the other,
change its address for receiving such notices.
13.4 Entire Agreement: This Agreement, including exhibits, constitutes the
----------------
entire agreement between the parties relating to the subject matter hereof and
cancels and supersedes all prior agreements and understandings, whether written
or oral, between the parties with respect to such subject matter.
13.5 Existing Obligations: SUPPLIER warrants that the terms of this
--------------------
agreement do not violate any existing obligations or contracts of SUPPLIER.
SUPPLIER shall protect, defend, indemnify, and hold harmless DISTRIBUTOR from
and against any claims, demands, liabilities or actions which are hereafter made
or brought against DISTRIBUTOR and which allege any such violation.
13.6 Modifications, Waiver: No amendment, modification or claimed waiver of
---------------------
the terms of this Agreement shall be binding on either party unless reduced to
writing and signed by an authorized officer of the party to be bound. In
ordering and delivery of the Products, the parties may employ their standard
forms, but nothing in those forms shall be construed to modify or amend the term
of this Agreement.
13.7 Relationship of the Parties: This Agreement does not constitute either
---------------------------
party as the agent or legal representative of the other for any purpose
whatsoever. DISTRIBUTOR covenants and warrants that it will not act or represent
itself directly or by implication as agent for SUPPLIER and will not attempt to
create any obligation, or make any unauthorized representation, on behalf of or
in the name of SUPPLIER.
13.8 Public Announcements: Except as may be required by law, SUPPLIER shall
--------------------
not issue or cause to be issued any press release or public announcement or
otherwise disclose the existence of this Agreement or the transactions
contemplated hereby except as and to the extent that DISTRIBUTOR and its parent
jointly agree, in writing.
13.9 Governing Laws: This Agreement shall be governed by and construed in
--------------
accordance with the laws of the Commonwealth of Pennsylvania.
<PAGE>
-11-
IN WITNESS WHEREOF, the parties have executed this Agreement by their duly
authorized representatives.
MATRITECH, INC.
By: /s/ David Corbet
--------------------
Title: President & COO
---------------------
Date:
---------------------
CURTIS MATHESON SCIENTIFIC, A DIVISION OF
FISHER SCIENTIFIC COMPANY, L.L.C.
By: /s/ J.M. Daniels
-----------------------
Title: V.P. Marketing
--------------------
Date:
--------------------
<PAGE>
EXHIBIT A
A. DEFINITIONS
1. Existing Accounts means those accounts which have purchased or are
purchasing Product(s) from SUPPLIER as of the date of this Agreement. The
following customers shall be deemed to be Existing Accounts:
2. Imminent Accounts means accounts which have been contacted by SUPPLIER
and have not ordered Products from SUPPLIER as of the effective date of
this Agreement but which do, in fact, order Products from DISTRIBUTOR or
SUPPLIER within ninety (90) days with from the effective date of this
Agreement. SUPPLIER agrees to provide DISTRIBUTOR a list of all such
accounts within ten (10) days from the date of this Agreement.
Additionally, on or before the 100th day after the effective date of this
Agreement, SUPPLIER agrees to provide DISTRIBUTOR a revised list
indicating which of the potential customers actually ordered Products
from SUPPLIER or DISTRIBUTOR within the ninety (90) day period from the
effective date of this Agreement.
3. Product(s) means the Matritech NMP22 Test Kit, a 96 Well Microplate Elisa
test kit for the quantitative determination of NMP22 in urine.
B. PRICING
Customers Price to DISTRIBUTOR
--------- ---------------------
Existing and Imminent Accounts The price charged or quoted the
account less [CONFIDENTIAL TREATMENT
REQUESTED*] for the term of this
Agreement. Revenues derived from price
increases from such customers after
expiration of the customer committed
period in force on the effective date
of this Agreement shall remain with
DISTRIBUTOR.
All other accounts (except [CONFIDENTIAL TREATMENT
Existing or Imminent Accounts) REQUESTED*] per kit
C. SHELF LIFE
The Product has a shelf life of [CONFIDENTIAL TREATMENT REQUESTED*].
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH MATERIAL HAS
BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
EXHIBIT B
MINIMUM ANNUAL PURCHASE TARGETS
YEAR AMOUNT
---- ------
[CONFIDENTIAL TREATMENT REQUESTED*] [CONFIDENTIAL TREATMENT REQUESTED*]
[CONFIDENTIAL TREATMENT REQUESTED*] [CONFIDENTIAL TREATMENT REQUESTED*]
[CONFIDENTIAL TREATMENT REQUESTED*] [CONFIDENTIAL TREATMENT REQUESTED*]
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH MATERIAL HAS
BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
EXHIBIT C
CONTINUING GUARANTY
A. Matritech, Inc. (hereinafter referred to as "Seller"), having its principal
office and place of business at 330 Nevada St., Newton, MA 02160, hereby
guarantees that all Products (including their packaging, labeling and
shipping) comprising each shipment or other delivery hereinafter made by
Seller (hereinafter referred to as "Products") to or on the order of Fisher
Scientific Company L.L.C., a Delaware limited liability company, having its
principal place of business at 2000 Park Lane, Pittsburgh, Pennsylvania
15275, or to any of its branches, divisions, subsidiaries, affiliates, or any
of their customers (hereinafter collectively referred to as "Fisher"), are,
as of the date of such shipment or delivery, in compliance with applicable
federal, state and local laws, and any regulations, rules, declarations,
interpretations and orders issued thereunder, including, without limitation,
the Federal Food, Drug and Cosmetic Act, as amended, and conform to
representations and warranties made by Seller in its advertising, product
labeling and literature.
B. Further, with respect to any Product that is privately labeled for Fisher,
Seller agrees to make no change in such Products or the Fisher artwork on the
labeling or packaging relating thereto without first obtaining the written
consent of Fisher. Seller recognizes that Fisher is the owner of the
trademarks and trade names connoting Fisher which it may elect to use in the
promotion and sale of such private label Products and that Seller has no
right or interest in such trademarks or trade names. Seller shall
periodically analyze and review packaging and labeling for any Products which
are private labeled for Fisher to ensure conformity with the provisions of
paragraph A hereof and the adequacy of Product warnings and Instructions.
C. Seller hereby agrees that it will reimburse Fisher for all reasonable out-of-
pocket costs and expenses incurred in connection with any product corrective
action or recall relating to the Products which is requested by Seller or
required by any governmental entity.
D. Seller agrees to procure and maintain product liability insurance with
respect to the Products and contractual liability coverage relating to this
Guaranty, with insurer(s) having Best's rating(s) of A- or better, naming
Fisher as an additional insured (Broad Form Vendors Endorsement), with
minimum limits in each case of [CONFIDENTIAL TREATMENT REQUESTED*]. Seller
shall promptly furnish to Fisher a certificate of insurance and renewal
certificates of insurance evidencing the foregoing coverages and limits. The
insurance shall not be canceled, reduced or otherwise changed without
providing Fisher with at least ten (10) days prior written notice.
E. Seller agrees to and shall protect, defend, indemnify and hold harmless
Fisher (and with respect to Subparagraph E. (i) below, Fisher's customers)
from any and all claims, actions, costs, expenses and damages, including
attorney's fees and expenses arising out of: (i) any actual or alleged
patent, trademark or copyright infringement in the design, composition, use,
sale, advertising or packaging of the Products;
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH MATERIAL HAS
BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
(ii) any breach of the representations or warranties set forth in this
Guaranty; (iii) the sale or use of the Products where such liability results
from the act or omission of Seller (whether for breach of warranty, strict
liability in tort, negligence or otherwise). Likewise, Fisher shall indemnify
and hold harmless Seller from any and all claims, actions, costs, expenses
and damages, including attorney's fees and expenses in connection with the
promotion and sale of the Products by Fisher arising out of the negligence or
other wrongful acts or omissions of Fisher.
F. Seller agrees to and shall provide to Fisher Material Safety Data Sheets and
other Information concerning any Product as required by then applicable
federal, state or local law.
G. Seller agrees to and shall accept, at its facility, all of Fisher's unsold or
expired Products containing hazardous chemicals, materials or substances for
disposal, recycling or use. Fisher shall be responsible for packing and
transportation costs to Seller. Seller shall be responsible for all other
costs, including, without limitation, any costs associated with Seller's
disposal, recycling or use.
H. If the Products to be furnished by Seller are to be used in the performance
of a U.S. government contract or subcontract, those clauses of the
applicable U.S. Government procurement regulation which are mandatorily
required by Federal Statute to be included in U.S. Government subcontracts
shall be Incorporated herein by reference including, without limitation, the
Fair Labor Standards Act of 1938, as amended.
I. The representations and obligations set forth herein shall be continuing and
shall be binding upon the Seller and his or its heirs, executors,
administrators, successors and/or assigns, whichever the case may be, and
shall inure to the benefit of Fisher, its successors and assigns and to the
benefit of its officers, directors, agents and employees and their heirs,
executors, administrators, and assigns.
J. The agreements and obligations of Seller set forth in this Guaranty are in
consideration of purchases made by Fisher from Seller and said obligations
are in addition to (and supersede to the extent of any conflict) any
obligations of Seller to Fisher or Fisher to Seller. This Guaranty shall be
effective upon the first sale to Fisher of any Product by Seller, and the
obligations of Seller under this Guaranty shall survive and be enforceable in
accordance with its terms.
SELLER
MATRITECH, INC.
- --------------------------------------------------------------------------------
Name Under Which Seller's Business Is Conducted
/s/ David Corbet
- --------------------------------------------------------------------------------
Signature of Authorized Representative
President & COO
- --------------------------------------------------------------------------------
Title Date
DISTRIBUTOR
/s/ J.M. Daniels
- --------------------------------------------------------------------------------
Signature of Authorized Representative
V.P. Marketing
- --------------------------------------------------------------------------------
Title Date
<PAGE>
ADDENDUM TO EXHIBIT A
EXISTING ACCOUNTS STATE IMMINENT ACCOUNTS STATE
- ----------------- ----- ----------------- -----
[CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL [CONFIDENTIAL
TREATMENT TREATMENT TREATMENT TREATMENT
REQUESTED*] REQUESTED*] REQUESTED*] REQUESTED*]
*[CONFIDENTIAL TREATMENT REQUESTED] INDICATES MATERIAL WHICH HAS BEEN OMITTED
AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN REQUESTED. ALL SUCH MATERIAL HAS
BEEN FILED WITH THE COMMISSION PURSUANT TO RULE 24b-2 PROMULGATED UNDER THE
SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report included in this Form 10-K, into the Company's
previously filed Registration Statement File Nos. 33-99724, 33-87432, 33-50244,
33-93198, 333-11913 and 333-30179.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 27, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
DECEMBER 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 11,067,414
<SECURITIES> 0
<RECEIVABLES> 101,941
<ALLOWANCES> 0
<INVENTORY> 487,360
<CURRENT-ASSETS> 11,783,871
<PP&E> 1,693,863
<DEPRECIATION> 872,706
<TOTAL-ASSETS> 12,691,773
<CURRENT-LIABILITIES> 794,337
<BONDS> 0
0
0
<COMMON> 185,667
<OTHER-SE> 45,118,499
<TOTAL-LIABILITY-AND-EQUITY> 12,691,773
<SALES> 747,532
<TOTAL-REVENUES> 1,314,218
<CGS> 0
<TOTAL-COSTS> 8,789,305
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,475,087)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,475,087)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,475,087)
<EPS-PRIMARY> (.43)
<EPS-DILUTED> (.43)
</TABLE>
