-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Bcjwa/XdvVBnuEz6CBgbO5nGipZoPJxiycf1YKPyRgolTSwbeSW0cL5vaocC51KA rvZd7WqhvuosLsHQ3609kQ== 0000927016-98-001208.txt : 19980330 0000927016-98-001208.hdr.sgml : 19980330 ACCESSION NUMBER: 0000927016-98-001208 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980327 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: MATRITECH INC/DE/ CENTRAL INDEX KEY: 0000884847 STANDARD INDUSTRIAL CLASSIFICATION: IN VITRO & IN VIVO DIAGNOSTIC SUBSTANCES [2835] IRS NUMBER: 042985132 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-12128 FILM NUMBER: 98576630 BUSINESS ADDRESS: STREET 1: 330 NEVADA ST CITY: NEWTON STATE: MA ZIP: 02160 BUSINESS PHONE: 6176616660 MAIL ADDRESS: STREET 1: 330 NEVADA STREET CITY: NEWTON STATE: MA ZIP: 02160-1458 10-K405 1 FORM 10-K405 ================================================================================ 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. ================================================================================ -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. -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. -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 -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." -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 -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 -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 -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 -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 -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 -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. -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 -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 -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. -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.
High Low ---- ---- Fiscal 1996 - ----------- 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
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. -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.
1993 1994 1995 1996 1997 ----------- ----------- ----------- ----------- ----------- STATEMENTS OF OPERATIONS DATA: Revenues: 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) =========== =========== =========== =========== ===========
1993 1994 1995 1996 1997 ----------- ----------- ----------- ----------- ----------- BALANCE SHEET DATA: 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
_____________________ (1) Basic and diluted loss per share are the same for all periods presented. See Note 1 of Notes to Financial Statements. -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. -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 -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. -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. -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. -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." -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). -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. -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). -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. 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 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 MATRITECH, INC. Balance Sheets ASSETS
DECEMBER 31, 1996 1997 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 ============= ==============
The accompanying notes are an integral part of these financial statements. F-3 MATRITECH, INC. Statements of Operations
-----------Years Ended December 31,----------- 1995 1996 1997 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 ========== ========== ==========
The accompanying notes are an integral part of these financial statements. F-4 MATRITECH, INC. STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK ADDITIONAL TOTAL NUMBER PAID-IN DEFERRED ACCUMULATED STOCKHOLDERS' OF SHARES PAR VALUE CAPITAL COMPENSATION DEFICIT EQUITY 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 =========== ========= ============ =========== ============ ============
The accompanying notes are an integral part of these financial statements. F-5 MATRITECH, INC. Statements of Cash Flows
------------Years Ended December 31,------------ 1995 1996 1997 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 =============== =============== ==============
The accompanying notes are an integral part of these financial statements. F-6 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 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (Continued) (c) Inventories Inventories are stated at the lower of cost or market and consist of the following:
DECEMBER 31, 1996 1997 Raw materials $189,101 $305,241 Work-in-process 2,337 6,634 Finished goods 151,620 175,485 -------- -------- $343,058 $487,360 ======== ========
(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 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 MATRITECH, INC. NOTES TO FINANCIAL STATEMENTS (Continued) The Company's net deferred tax asset consists of the following:
DECEMBER 31, 1996 1997 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) ------------ ------------- $ - $ - ============= ==============
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 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 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:
NUMBER OF EXERCISE EXPIRATION GRANT DATE WARRANTS PRICE DATE August 1993 10,000 $1.80 August 1998 April 1997 150,000 $6.50 April 2002
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 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:
NUMBER OPTION PRICE PER OF OPTIONS SHARE 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 ========= ==============
--------------------------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 $ .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
F-13 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:
1996 1997 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%
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 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:
1995 AS REPORTED PRO FORMA 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) ===== =====
(d) Reserved Shares As of December 31, 1997, the following shares of common stock were reserved and available for future issuance: 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 =========
F-15 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 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:
SIGNIFICANT Percentage of Revenues CUSTOMERS --------------------Customer-------------------- A B C D E F 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%
The Company had accounts receivable balances greater than 10% of total accounts receivable from the following customers as of December 31, 1996 and 1997:
PERCENTAGE OF TOTAL ACCOUNTS RECEIVABLE CUSTOMER A CUSTOMER C CUSTOMER D CUSTOMER F As of December 31, 1996 14% - 35% 20% 1997 - 53% - -
F-17 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:
YEARS ENDED 1995 1996 1997 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% ====== ====== ======
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:
DECEMBER 31, 1996 1997 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 ======== ========
F-18 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 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 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). 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. EX-10.4 2 1992 STOCK PLAN 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 -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. -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. -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. -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 -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 -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 -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 -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 -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 -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. EX-10.9 3 FOURTH AMENDMENT DATED MARCH 18, 1993 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 ----------------------- -------------------------------- EX-10.10 4 AMENDMENT DATED NOVEMBER 30, 1992 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. EX-10.20 5 SENIOR LOAN AND SECURITY AGREEMENT 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 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 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 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 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 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 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 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 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 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 (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 =============================================================================== 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 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. 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: _____________________________________________ EXHIBIT A to SENIOR SECURED PROMISSORY NOTE NO. 02 (Insert Exhibit A here) Amortization Schedule
Beginning Principal Ending Balance Interest Payment Reduction Balance ---------- -------- -------- --------- ----------- 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)
Excludes Additional Interest as Specified in Senior Secured Promissory Note 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__. Phoenix Leasing Incorporated Funding Request Exhibit A BORROWER: MATRITECH, INC. ------------------------ 330 NEVADA STREET NEWTON, MA 02160 MASTER LOAN: 0096 NOTE: 01 ------------------------ ----------------------
L IVOICED AMT VENDOR NAME INVOICE BRIEF DESCRIPTION EQP SERIAL O NET OF (ABBREVIATION OK) NO. OF ITEM COD NUMBER C SALES TAX - ---------------------------------------------------------------------------------------------------- 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 - --------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------- 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 - ------------------------------------------------------------------------------------------- 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 ------------------------------------
BORROWER SIGNATURE: DATE: ------------------------------ ----------------- EX-10.21 6 DISTRIBUTORSHIP AGREEMENT BY AND BETWEEN THE CO. 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 -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. -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. -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. -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. -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. -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 -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 -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; -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. -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: -------------------- 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. 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. 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. (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 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. EX-23 7 CONSENT OF ARTHUR ANDERSON 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 EX-27 8 FINANCIAL DATA SCHEDULE
5 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. 12-MOS DEC-31-1997 JAN-01-1997 DEC-31-1997 11,067,414 0 101,941 0 487,360 11,783,871 1,693,863 872,706 12,691,773 794,337 0 0 0 185,667 45,118,499 12,691,773 747,532 1,314,218 0 8,789,305 0 0 0 (7,475,087) 0 (7,475,087) 0 0 0 (7,475,087) (.43) (.43)
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