-----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, NjbzmqwlSvHGhSnT99EvpmaWn3KdFmnFEaYHhWleGVZcFUkWYGtKL/vIXMSwQ+KV O0KTeq9PgqzS/jmKBBnH1w== 0000933745-00-000001.txt : 20000331 0000933745-00-000001.hdr.sgml : 20000331 ACCESSION NUMBER: 0000933745-00-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIRAVANT MEDICAL TECHNOLOGIES CENTRAL INDEX KEY: 0000933745 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 770222872 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-25544 FILM NUMBER: 586037 BUSINESS ADDRESS: STREET 1: 336 BOLLAY DRIVE CITY: SANTA BARBARA STATE: CA ZIP: 93117 BUSINESS PHONE: 8056859880 MAIL ADDRESS: STREET 1: 336 BOLLAY DRIVE CITY: SANTA BARBARA STATE: CA ZIP: 93117 FORMER COMPANY: FORMER CONFORMED NAME: PDT INC /DE/ DATE OF NAME CHANGE: 19941214 10-K 1 ANNUAL REPORT ON FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K FOR ANNUAL AND SPECIAL REPORTS PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File Number: 0-25544 --------------- Miravant Medical Technologies (Exact name of Registrant as specified in its charter) Delaware 77-0222872 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 336 Bollay Drive, Santa Barbara, California 93117 (Address of principal executive offices, including zip code) (805) 685-9880 (Registrant's telephone number, including area code) Securities Registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.01 Par Value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check 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. [ ] The approximate aggregate market value of voting stock held by non-affiliates as of March 10, 2000 based upon the last sale price of the Common Stock reported on the Nasdaq National Market was approximately $316,762,249. For purposes of this calculation only, the registrant has assumed that its directors and executive officers, and any person, who has filed a Schedule 13D or 13G, is an affiliate. The number of shares of Common Stock outstanding as of March 10, 2000 was 18,182,761. ITEM 1. BUSINESS General Miravant Medical Technologies, formerly PDT, Inc., is engaged in the integrated development of drugs and medical device products for use in PhotoPoint(TM), our proprietary technologies for photodynamic therapy. PhotoPoint is a medical procedure which integrates the use of proprietary light-activated drugs, proprietary light producing devices and light delivery devices to achieve selective photochemical destruction of diseased cells. We believe that PhotoPoint has the potential to be a safe, cost-effective, minimally invasive primary or adjunctive treatment for indications in a broad number of disease areas, including ophthalmology, oncology, cardiovascular disease and dermatology. We are currently conducting clinical trials in ophthalmology and oncology testing our leading drug candidate, SnET2 (tin ethyl etiopurpurin). We are developing products in collaboration with our corporate partners, including certain subsidiaries of Pharmacia & Upjohn, Inc., collectively, with Pharmacia & Upjohn, Inc., referred to as Pharmacia & Upjohn in this report. Effective September 15, 1997, we changed our name from PDT, Inc. to Miravant Medical Technologies. See "--Risk Factors" for a discussion of certain risks, including those relating to our operating losses, our early stage of the development and our products, strategic collaborations and forward-looking statements. Background Photodynamic therapy is generally a minimally invasive medical procedure that uses photoselective, or light-activated, drugs to treat or diagnose disease. The technology involves three components: photoselective drugs, light producing devices and light delivery devices. Photoselective drugs transform light energy into chemical energy in a manner similar to the action of chlorophyll in green plants. Certain photoselective drugs accumulate and are retained in fast-growing (hyperproliferating) cells. Hyperproliferation is a characteristic of cells associated with a variety of diseases such as cancer, certain vascular disorders and skin diseases such as psoriasis. A photoselective drug is typically administered by intravenous injection. The drug is inactive until exposed to light of a specific wavelength, which can vary depending on the drug's molecular structure. Exposing the target cells to the appropriate light wavelength permits selective activation of the retained drug and initiates a chemical reaction that generates a highly reactive form of oxygen. High concentrations of this form of oxygen lead to destruction of the cellular membrane and, ultimately, cell death. The response of the target cells depends on, among other factors, the drug dose, the amount of light energy delivered, the physiology of the cell and the vasculature in the diseased areas. Neither the drug nor the light on its own can cause the desired effect. The drug is a catalyst which transfers energy. The chemical reaction stops when the light is turned off. The result of this process is that diseased cells are destroyed with minimal damage to surrounding normal tissues, offering the potential for a more selective method of treating disease than surgery, chemotherapy or radiation and thermal laser therapy, which can damage both normal and abnormal tissues. Low-power, non-thermal light can be used to activate photoselective drugs. As a result, there is little or no risk of thermal damage to surrounding tissue, as with traditional thermal lasers. The light is typically generated by lasers or for certain applications, non-coherent light sources, which have been specifically modified for use in photodynamic therapy. The light is often delivered from the light source to the patient via specially designed fiber optics. These fiber optic light delivery devices produce patterns of light for different disease applications and can be channeled into the body for internal applications. While light of a specific wavelength is used to cause a photoselective drug to produce chemical reactions leading to cell death, light of a different wavelength can be used to cause the same drug to fluoresce (glow). The fluorescent property of photodynamic drugs offers the potential for their use in diagnostic applications. Industry As early as 1900, scientists observed that certain compounds localized in tissues would elicit a response to light. Since the mid-1970s, various aspects of photodynamic therapy have been studied and established in humans. Photodynamic therapy is currently being studied by a variety of companies, physicians and researchers around the world for the treatment of a broad range of disease applications. We believe that industry development has been hindered by various drawbacks including inconsistent drug purity and performance, costly difficult-to-maintain lasers and non-integrated drug and device development. We are addressing these issues as part of our business strategy and in our development programs. Business Strategy Our objective is to apply PhotoPoint -- our photodynamic therapy systems, which integrate synthetic photoselective drugs, light producing devices and light delivery devices -- as a primary therapy in targeted disease areas and as an adjunct to lower cost surgery or other therapies in these same or other disease areas. Although the potential applications for our PhotoPoint systems are numerous, our focus targets large potential market opportunities or diseases with significant unmet medical needs. With this strategy, we believe we may be able to accelerate regulatory processes where appropriate and facilitate commercial success. In addition, to facilitate development, regulatory approval, manufacturing, marketing and distribution of our products, we have or seek to form strategic collaborations with partners who are leaders in our targeted disease areas. Technology and Products We are developing synthetic photoselective drugs together with software-controlled desktop light producing devices and fiber optic light delivery and measurement devices for the application of PhotoPoint to a broad range of disease indications. We believe that by being an expert in both PhotoPoint drugs and devices, and by integrating the development of these technologies, we can produce easy-to-use PhotoPoint systems which offer the potential for predictable and consistent results. Drug Technology. We hold exclusive license rights under certain U.S. and foreign patents to several classes of synthetic, photoselective compounds, subject to certain governmental rights. From our classes of compounds, we have selected SnET2 as our leading drug candidate and have used SnET2 in each of our clinical trials to date. We have granted to Pharmacia & Upjohn an exclusive, worldwide license to use SnET2 in the field of photodynamic therapy for disease indications in the fields of ophthalmology, oncology and urology. We are developing other potential photoselective drugs for additional disease applications and future partnering opportunities. We believe that our synthetic photoselective drugs may provide the following benefits: o Predictable. The synthetic nature of our photoselective compounds permits us to design drugs with a single molecular structure. We believe that this characteristic may facilitate consistency in clinical treatment settings, as well as predictability in manufacturing and quality control. o Side effects. Treatments to date have been generally well-tolerated, with the primary side effect being a mild, transient skin photosensitivity in some patients. o Versatile. We can select drugs with specific characteristics, such as activation by a particular wavelength of light. This versatility provides us with the potential to customize our drugs for particular uses and to take advantage of semiconductor light technology. Light Producing Devices. Because our photoselective drugs are synthetic, we have been able to synthesize and select our drugs to be activated by light produced by readily available, reliable and relatively inexpensive light sources. Our light technologies include software-controlled microchip diodes, light emitting diode, or LED, arrays and non-thermal lasers. We are collaborating with Iridex Corporation, or Iridex, on the development of light producing devices for PhotoPoint in the field of ophthalmology and have co-developed a portable, solid state diode light device which is currently being used in clinical trials. We believe that our diode and LED array devices offer advantages over laser technology historically used in photodynamic therapy. For example, our software-controlled designs offer reliability and built-in control and measuring features. In addition, our diode systems, which are roughly the size of a desktop computer, are smaller and more portable than traditional laser systems. We believe that our diode systems have the potential to offer light producing devices that will be more affordable and convenient than surgical laser systems historically used in photodynamic therapy. Light Delivery and Measurement Devices. We are developing and manufacturing light delivery and measurement devices, including a wide variety of fiber optic light delivery devices with specialized tips for use in PhotoPoint. These devices must be highly flexible and appropriate for endoscopic use and must be able to deliver unique patterns of uniform, diffuse light for different disease applications. Our products include microlenses that produce a tiny flashlight beam for discrete surface lesions, the Flex(R) cylinder diffuser which delivers light in a radial pattern along a flexible tip for sites such as the esophagus and spherical diffusers which emit a diffuse ball of light for sites such as the bladder or nasopharynx. Certain of our light delivery devices have been used in our clinical trials. We have also developed light measurement devices for PhotoPoint including devices that detect wavelength and fluorescence to facilitate the measurement of light or drug dose. Targeted Diseases and Clinical Trials We believe that PhotoPoint has potential in a wide range of applications. We have selected, based upon regulatory, clinical and market considerations, a number of disease applications, discussed below, on which to focus. Of these applications, age-related macular degeneration, or AMD, currently represents our highest priority, and represents the largest collaborative effort with our corporate partner Pharmacia & Upjohn. Our current clinical trials use SnET2 together with light producing devices and light delivery devices either developed on our own or in collaboration with our partners. Our decision to proceed to clinical trials in any application depends upon such factors as preclinical results, governmental regulatory communications, competitive factors, corporate partner commitment and resources, economic considerations and our overall business strategy. Ophthalmology We believe that PhotoPoint has the potential to treat a variety of ophthalmic disorders, including conditions caused by neovascularization, such as AMD, as well as other ophthalmic conditions. Neovascularization is a condition in which new blood vessels grow abnormally under the surface of the retina or other parts of the eye. These fragile vessels can hemorrhage, causing scarring and damage to the nerve tissue and lead to loss of vision. AMD is the leading cause of blindness in Americans over age 50. We are conducting clinical trials for the treatment of choroidal neovascularization associated with AMD. We targeted this area because of the large potential market size as well as the potential for expedited review by governmental regulatory bodies. In June 1998, SnET2 received fast track designation from the U.S. Food and Drug Administration, or FDA, for the treatment of choroidal neovascularization associated with AMD. Under the FDA Modernization Act of 1997, the FDA gives fast track designation to drugs and devices that treat serious or life-threatening conditions that represent unmet medical needs. The designation means that we can submit data during the clinical trial process based on clinical or surrogate endpoints that are likely to predict clinical benefit, and the FDA can expedite its regulatory review. We began Phase III clinical trials for AMD in the United States in the fourth quarter of 1998. In November 1999, we announced that we exceeded our enrollment goal, and clinical trial enrollment was subsequently closed in December 1999. We are collaborating with Pharmacia & Upjohn on the co-development of SnET2 in the field of ophthalmology and are collaborating with Iridex, through its subsidiary company, Iris Medical Instruments, Inc., on the co-development of light devices in this field. In addition, we have conducted preclinical studies for the treatment of other ophthalmic diseases such as corneal neovascularization, glaucoma and diabetic retinopathy. Cardiovascular Disease We are investigating the use of PhotoPoint for the treatment of cardiovascular disease. Early preclinical studies with PhotoPoint indicate that certain photoselective drugs may be preferentially retained in the hyperproliferating and lipid-rich components of arterial plaques, as they are in cancer cells. We are conducting preclinical studies for the prevention of restenosis, the renarrowing of arterial vessels following angioplasty. We believe that PhotoPoint may provide a means of preventing restenosis, and may even allow treatment of diffuse atherosclerosis. Dermatology A number of non-cancerous dermatological disorders have shown potential for being treated with PhotoPoint. One of these is psoriasis, a chronic and potentially debilitating skin disorder. We are currently evaluating topical formulations of SnET2 and other compounds for psoriasis and other dermatological diseases. We are continuing to evaluate psoriasis as a possible dermatology indication and may advance to a clinical trial based on the progress of the development of a topical formulation, preclinical studies, communications with governmental regulatory agencies and other factors. Preparations include development of light sources and delivery systems for use in dermatology applications and protocol development for possible clinical trials. Oncology Cancer is a large group of diseases characterized by uncontrolled growth and spread of hyperproliferating cells. We targeted this area for our initial products both because of the large potential market size as well as the potential for certain cancer treatments to receive expedited review by governmental regulatory bodies. Prostate Cancer. Prostate cancer is the most common malignancy in American men, and mortality from it is second only to lung cancer. Prostate cancer generally progresses slowly, and 58% of all prostate cancers are discovered while still localized (cancer has not spread beyond the prostate gland). We are conducting a Phase I clinical trial using SnET2 for the treatment of localized prostate cancer. The decision whether or not to pursue additional clinical trials in this area will be based in part on resulting data from this clinical trial. Other Cancers. In 1998, we announced that we would no longer pursue the commercialization of cutaneous metastatic breast cancer, or CMBC. This decision was made because of business considerations such as the need for increased internal resources for the small market size, increased costs of meeting regulatory approval requirements and a lack of a committed marketing partner for this disease indication. We discontinued trials in AIDS-related Kaposi's sarcoma for similar reasons, including our renewed focus on large market opportunities and those with significant unmet medical need. The information we obtained from these clinical trials has provided an invaluable amount of information on our PhotoPoint treatment in cancer and has enabled us to advance in preclinical studies for the treatment of a variety of other cancers. We have an existing oncology Investigational New Drug application, or IND, under which we may choose to submit protocols for clinical trials in oncology indications. In addition, we continue to conduct research in oncology. Other Disease Areas We are investigating the use of PhotoPoint in additional disease areas. Our decision to proceed to clinical trials depends upon such factors as preclinical results, FDA communications, competitive factors, corporate partner commitment and the availability of financial and internal resources, economic considerations and our overall business strategy. This will allow us to focus our activities and resources on disease applications which represent large markets and significant unmet medical needs. Strategic Collaborations We are pursuing a strategy of establishing license agreements and collaborative arrangements for the purpose of securing exclusive access to drug and device technologies, funding development activities and providing market access for our products. We seek to obtain from our collaborative partners exclusivity in the field of photodynamic therapy and to retain certain manufacturing and co-development rights. We intend to continue to pursue this strategy where appropriate in order to enhance in-house research programs, facilitate clinical testing and gain access to distribution channels and additional technology. Definitive Collaborative Agreements Pharmacia & Upjohn We have had a collaborative relationship with Pharmacia & Upjohn relating to the development and commercialization of SnET2 since 1994. Our current relationship is critical to our ophthalmology program. Our original SnET2 license agreements with Pharmacia & Upjohn entered into in 1994 and 1995 provided for: o The co-development of, and exclusive marketing rights to, SnET2 in the fields of oncology, urology and dermatology; o A $13.0 million equity investment in Miravant; and o Formulation of the SnET2 drug product. In 1996, these agreements were amended to include the field of ophthalmology. In June 1998, significant amendments, referred to as the 1998 Amendments, were made, resulting in: o Additional financial commitment by Pharmacia & Upjohn to oncology; o Additional flexibility in Miravant's oncology and urology programs; o Increased reimbursement commitment by Pharmacia & Upjohn to the ophthalmology program; o The development and marketing rights for SnET2 in dermatology reverting back to Miravant; and o Transfer of the formulation of SnET2 drug product to Fresenius AG. In February 1999, the agreements were again amended and supplemented, collectively referred to as the 1999 Amendments, as follows: o Pharmacia & Upjohn increased its participation in ophthalmology by assuming operational control of the clinical and regulatory aspects of the joint ophthalmic programs, including AMD; o Pharmacia & Upjohn made an additional $19.0 million equity investment in Miravant, referred to as the Equity Investment Agreement, and extended a line of credit to Miravant of $22.5 million, referred to as the Credit Agreement; o Eliminated future AMD milestone payments and future oncology and urology clinical reimbursements; and o Added a right of first negotiation by Pharmacia & Upjohn for SnET2 marketing rights in the cardiovascular field, subject to certain limitations. License Agreements. Under the original 1995 development and license agreement and the 1996, 1998 and 1999 amendments, described above, collectively referred to as the License Agreements, we granted to Pharmacia & Upjohn an exclusive, worldwide license to use, distribute and sell SnET2 for use in PhotoPoint in the fields of ophthalmology, oncology, urology, and right of first negotiation in cardiovascular diseases. Under the License Agreements: o Pharmacia & Upjohn is responsible for conducting certain aspects of clinical trials involving SnET2 and to fund other current and future preclinical studies and clinical trials conducted by us involving SnET2; o We are entitled to receive royalties on the sale of SnET2, payments for certain contemplated indications upon the achievement of certain milestones and reimbursement for certain expenses; o Pharmacia & Upjohn has agreed to promote, market and sell SnET2 in certain fields, subject to certain limitations, to refrain from developing or selling other photodynamic therapy drugs in the fields covered by the License Agreements during the agreement term; and o Pharmacia & Upjohn has a right of first negotiation with respect to the marketing rights to any new photodynamic therapy drug developed by Miravant in the fields covered by the License Agreements, as well as right of first negotiation for SnET2 for cardiovascular indications. With respect to ophthalmology, the License Agreements remain in force for the duration of the patents related to SnET2 or for a period of ten years from the first commercial sale of SnET2 on a country-by-country basis, whichever is longer. After those periods have expired, Pharmacia & Upjohn will have an irrevocable, royalty-free, non-exclusive license to SnET2. With respect to oncology and urology, the License Agreement remains in force for so long as Pharmacia & Upjohn is required to pay royalties, and, under certain provisions, may terminate the agreement as early as July 1, 2000. Equity Investment Agreement. In connection with the 1999 Amendments, we entered into the Equity Investment Agreement, under which Pharmacia & Upjohn purchased from Miravant 1,136,533 shares of our Common Stock for an aggregate purchase price of $19.0 million. This agreement is in addition to the 1995 and 1994 stock purchase agreements, under which Pharmacia & Upjohn purchased a total of 725,001 shares of Common Stock from us for a total of $13.0 million. Credit Agreement. In connection with the 1999 Amendments, we entered into the Credit Agreement under which Pharmacia & Upjohn will lend us up to $22.5 million in the form of quarterly term loans to be used to support Miravant's ophthalmology, oncology and other development programs, as well as for general corporate purposes, subject to certain affirmative, negative and financial covenants and requirements. In connection with the Credit Agreement, Pharmacia & Upjohn may also receive a total of up to 360,000 warrants to purchase our Common Stock, of which 240,000 warrants have been issued as of December 31, 1999. Drug Supply Agreement. Under a Drug Supply Agreement we agreed to manufacture, or have manufactured, and supply to Pharmacia & Upjohn, upon specified payment terms, Pharmacia & Upjohn's requirements of SnET2 in finished pharmaceutical form for clinical and commercial purposes in the area of photodynamic therapy in the fields of oncology and ophthalmology. The Drug Supply Agreement remains in force for the term of the License Agreements, subject to termination under certain limited circumstances. Upon termination, we have agreed to continue to provide SnET2 to Pharmacia & Upjohn on terms to be negotiated by the parties. Device Supply Agreement. Under a Device Supply Agreement, we appointed Pharmacia & Upjohn as a non-exclusive worldwide distributor of certain instruments developed, manufactured or licensed by Miravant that produce, deliver or measure light, collectively known as light devices, for use with SnET2 in photodynamic therapy in the fields contained in the License Agreements. The Device Supply Agreement provides for the sale by Miravant to Pharmacia & Upjohn of such light devices at specified rates and we are responsible for the development and regulatory approval of the light devices. During the term of the Device Supply Agreement, Pharmacia & Upjohn is prohibited from developing, manufacturing or purchasing from third parties such light devices or distributing or selling them for use with any photodynamic drug other than SnET2. If, however, we decide not to or are unable to manufacture or supply a particular light device, Pharmacia & Upjohn is entitled to manufacture that device. The Device Supply Agreement remains in force for the term of the License Agreements, subject to earlier termination under limited circumstances. Iridex Corporation In May 1996, we entered into a co-development and distribution agreement with Iridex, a leading provider of semiconductor-based laser systems to treat eye diseases. The agreement generally provides: o Miravant with the exclusive right to co-develop with Iridex light producing devices for use in photodynamic therapy in the field of ophthalmology; o We will conduct clinical trials and make regulatory submissions with respect to all co-developed devices and Iridex will manufacture all devices for such trials, with costs shared as set forth in the agreement; and o Iridex will have an exclusive, worldwide license to make, distribute and sell all co-developed devices, on which it will pay us royalties. The agreement remains in effect, subject to earlier termination in certain circumstances, until ten (10) years after the date of the first FDA approval of any co-developed device for commercial sale, subject to certain renewal rights. The light producing device used in AMD clinical trials was co-developed with Iris Medical Instruments Inc., a subsidiary of Iridex, under this agreement, and its commercialization is governed in part by this agreement. The University of Toledo, The Medical College of Ohio and St. Vincent Medical Center In July 1989, we entered into a License Agreement with the University of Toledo, the Medical College of Ohio and St. Vincent Medical Center, of Toledo, Ohio, collectively referred to as Toledo. This agreement provides us with, among other items, exclusive, worldwide rights: o To make, use, sell, license or sublicense certain photoselective compounds (including SnET2) covered by certain Toledo patents and patent applications, or not covered by Toledo patents or patent applications but owned or licensed to Toledo (and which Toledo has the right to sublicense); o To make, use, sell, license or sublicense certain of the compounds for which we have provided Toledo with financial support; and o To make, use or sell any invention claimed in Toledo patents or applications and any composition, method or device related to compounds conceived or developed by Toledo under research funded by Miravant. The agreement further provides that we pay Toledo royalties on the sales of the compounds. As of December 31, 1999, no royalties had been paid or accrued since no drug or related product had been sold. Under the agreement, we are required to satisfy certain development and commercialization objectives. This agreement terminates upon the expiration or non-renewal of the last patent which may issue under this agreement, currently 2013. By its terms, however, the license extends upon issuance of any new Toledo patents. We do not have contractual indemnification rights against Toledo under the agreement. Some of the research relating to the compounds covered by the License Agreement, including SnET2, has been or is being funded in part by certain governmental grants under which the United States Government has or will have certain rights in the technology developed, including the right under certain circumstances to a non-exclusive license or to require Miravant to grant an exclusive license to a third party. Fresenius AG Formulation Agreement. In August 1994, we entered into a supply contract with Pharmacia & Upjohn to develop an emulsion formulation suitable for intravenous administration of SnET2. Under this agreement, Pharmacia & Upjohn agreed to the following: o They will be our exclusive supplier of such emulsion products; o They will manufacture and supply all of our worldwide requirements of certain emulsion formulations containing SnET2; and o They will not develop or supply formulations or services for use in any photodynamic therapy applications for any other company. This agreement continues indefinitely except that it may be terminated ten (10) years after the first commercial sale of SnET2. Effective November 30, 1998, Pharmacia & Upjohn's rights and obligations under the Formulation Agreement were assigned to Fresenius Kabi LLC, a subsidiary of Fresenius AG, as part of an Asset Transfer Agreement between Pharmacia & Upjohn and Fresenius. Operating terms of the Formulation Agreement were not changed as part of the assignment. Ramus Medical Technologies In December 1996, our wholly owned subsidiary, Miravant Cardiovascular, Inc., entered into a co-development agreement with Ramus, an innovator in the development of autologous tissue stent-grafts for vascular bypass surgeries. Generally the agreement provides us with the exclusive rights to co-develop our photodynamic therapy technology with Ramus' proprietary technology in the development of autologous vascular grafts for coronary arteries and other vessels. Ramus shall provide, at no cost to us, products for use in preclinical studies and clinical trials with all other preclinical and clinical costs to be paid by us. The agreement remains in effect until the later of ten (10) years after the date of the first FDA approval of any co-developed device for commercial sale, or the life of any patent issued on a co-developed device, subject to certain renewal rights. In conjunction with the co-development agreement, we purchased a 33% equity interest in Ramus for $2.0 million, and obtained an option to acquire the remaining shares of Ramus. We have declined to exercise this option and the option period has now expired. Further, we have first refusal rights and pre-emptive rights for any issuance of new securities, whether debt or equity, made by Ramus and Ramus must maintain certain financial and other covenants. Additionally, we entered into a revolving credit agreement with Ramus which provided Ramus with the ability to borrow up to $2.0 million, which has been fully utilized. The revolving credit agreement, which was due in full in March 2000, has been subsequently extended to a period in the future, for which the terms of the extension are currently being negotiated. Xillix Technologies Corp. In June 1998, Miravant purchased a 9% equity interest in Xillix Technologies Corp. for $5.0 million. In conjunction with the investment, we also entered into an exclusive strategic alliance agreement with Xillix to co-develop proprietary systems incorporating PhotoPoint and Xillix's fluorescence imaging technology for diagnosing and treating early stage cancer and pre-malignant tissues. The agreement provides that both companies will own co-developed products and will share the research and development costs associated with the development program. Xillix will receive drug royalty payments from us based on the sale of our drugs used in conjunction with the co-developed technology. Laserscope In April 1992, we entered into a seven (7) year License and Distribution Agreement with Laserscope of San Jose, California, a leader in the surgical laser industry. Under this agreement, among other terms: o We granted to Laserscope rights to manufacture and sell a dye laser module developed by us; o We retained the right to manufacture and sell this system for use with our own photoselective drugs; and o Laserscope agreed to pay to us a license fee and royalties on Laserscope's sales. We had developed this light producing device prior to the development of our current diode light systems. This agreement terminated in April 1999; Laserscope now holds a fully paid-up, non-exclusive license to use the technology. Letter Agreements Miravant has also entered into the following Letter Agreements. There is no assurance that definitive agreements will evolve from these collaborations. Boston Scientific Corporation In December 1993, we executed a strategic development letter agreement with Boston Scientific Corporation, a leading developer, manufacturer and marketer of catheter-based medical technology, for the joint development of catheter-based light delivery devices for photodynamic therapy in the fields of urology, pulmonology and gastroenterology. The letter agreement is intended to provide the framework for a more definitive agreement, relating to, among other things, the distribution, manufacturing and licensing of developed products, and continues until the parties enter into such an agreement. Chiron Diagnostics In November 1997, we executed a letter of intent with Chiron Diagnostics, a subsidiary of Bayer Corporation and an international leader in in vitro diagnostics, to collaborate on studies directed towards the early detection and treatment of lung cancer. The alliance is designed to give us a potentially more sensitive, less invasive and less costly way to identify patients in early stages of cancer who are eligible for participation in PhotoPoint clinical trials. In addition to assisting us in these clinical trials, Chiron has agreed to work exclusively with us in the field of photodynamic therapy for certain oncology indications. Cordis Corporation In December 1993, we executed a strategic development letter agreement with Cordis Corporation, a Johnson & Johnson company and a leader in coronary catheter devices, for the joint development of catheter-based light delivery devices for photodynamic therapy in the cardiovascular field. The letter agreement under which the parties are collaborating is intended to provide the framework for a more definitive agreement, relating to, among other things, the distribution, manufacturing and licensing of developed products, and continues until the parties enter into a definitive agreement. Medicis Pharmaceutical Corporation In October 1997, we executed a letter of intent with Medicis Pharmaceutical Corporation, the leading independent dermatology company in the United States, to develop and commercialize certain PhotoPoint procedures for dermatology applications. The letter agreement is intended to facilitate the clinical development of PhotoPoint in dermatology and provide the framework for a more definitive agreement, which would grant Medicis an exclusive license to distribute and sell certain PhotoPoint products in the United States. Research and Development Programs Our research and development programs are devoted to the discovery and development of drugs and devices for PhotoPoint. These research activities are conducted in-house in our pharmaceutical and engineering laboratories or elsewhere in collaboration with medical or other research institutions or with other companies. We have expended, and expect to continue to spend, substantial funds on our research and development programs. Our pharmaceutical research program is focused on the ongoing evaluation of our proprietary compounds for different disease applications. Among our outside or extramural research, we are conducting preclinical studies at various academic and medical research institutions in the United States. We are also active in the research and development of devices for PhotoPoint. These programs include development of fiber optic light delivery devices and measurement devices for accuracy in dosimetry. Device research and development is presently conducted either in-house or in collaboration with partners. We have pursued and been awarded various government grants and contracts, such as grants sponsored by the National Institutes of Health and the Small Business Innovative Research Administration, which complement our research efforts and facilitate new development. Manufacturing Our strategy is generally to retain manufacturing rights and maintain pilot manufacturing capabilities and, where appropriate due to financial and production constraints, to partner with leading pharmaceutical and medical device companies for certain elements of our manufacturing processes. We are licensed by the State of California to manufacture bulk drug substance at our Santa Barbara, California facility for clinical trial use. We currently manufacture SnET2 drug substance, light producing devices and light delivery devices, and conduct other production and testing activities, at this location. However, we have limited capabilities and experience in the manufacture of drug, light producing and light delivery products and utilize outside suppliers, contracted or otherwise, for certain materials and services related to our manufacturing activities. Although most of our materials and components are available from various sources, we are dependent on certain suppliers for key materials or services used in our drug and light producing and light delivery device development and production operations. One such supplier is Fresenius, which processes SnET2 into a sterile injectable formulation and packages it in vials for distribution by Miravant. We expect to continue to develop new formulations which may or may not have similar dependencies on suppliers. In addition, regulatory approval will be necessary before we can manufacture drug substance for commercial use. In February 1997, we received registration to ISO 9001 and EN 46001 signifying compliance to the International Standards Organization quality systems requirements for design, manufacture and distribution of medical devices. We chose to discontinue ISO 9001 as part of a cost savings program, as it was unlikely to be used in the near future. Marketing, Sales and Distribution Our strategy is to partner with leading pharmaceutical and medical device companies for the marketing, sales and distribution of our products. We have granted to Pharmacia & Upjohn the exclusive, worldwide license to market and sell our leading drug candidate SnET2 in certain disease fields. We have granted to Iridex the worldwide license to market and sell all co-developed light producing devices for use in PhotoPoint in the field of ophthalmology, subject to certain provisions with Pharmacia & Upjohn. We have a limited letter agreement with Medicis that provides for a worldwide license to market and sell certain drugs for use in PhotoPoint in the field of dermatology. Also, under the terms of our co-development arrangements with Boston Scientific and Cordis, these companies have the option of negotiating to enter into long-term agreements with Miravant, under which they will have a license to market and sell the co-developed medical catheters - Boston Scientific in the fields of urology, pulmonology and gastroenterology and Cordis in the field of cardiovascular disease - on a worldwide basis. At this time, we have not entered into such long-term agreements. Where appropriate, we intend to seek additional arrangements with collaborative partners, selected for experience in disease applications or markets, to act as our marketing and sales arm and to establish distribution channels for our drugs and devices. We may also distribute our products directly or through independent distributors. Patents and Proprietary Technology We pursue a policy of seeking patent protection for our technology both in the United States and in selected countries abroad. We plan to prosecute, assert and defend our patent rights when appropriate. We also rely upon trade secrets, know-how, continuing technological innovations and licensing opportunities to develop and maintain our competitive position. We are currently the record owner of thirty (30) United States patents, expiring during the time frame 2010 through 2018, a substantial number of which relate to certain light delivery and measurement devices and methods. We are also the record owner of six (6) foreign patents expiring during the time frame from 2012 to 2014. We have a number of United States (and related foreign) patent applications filed and pending. In addition, we have exclusive license rights under sixteen (16) issued United States patents, which expire during the time frame from 2006 through 2013, and four (4) issued foreign patents expiring in 2006, and under several pending United States and foreign patent applications, relating to certain photoselective compounds, as well as rights to four (4) method-of-use patents and one (1) co-owned formulation patent. We obtained the majority of our photoselective compound patent rights, including rights to SnET2, through an exclusive License Agreement with Toledo. This agreement is the basis for our core drug technology. Certain of the foregoing patents and applications are subject to certain governmental rights described below. It is our policy to require our employees, consultants, outside scientific collaborators and sponsored researchers and other advisors to execute confidentiality agreements upon the commencement of employment or consulting relationships with us. These agreements provide that all confidential information developed or made known to the individual during the course of our relationship are to be kept confidential and not disclosed to third parties except in specific limited circumstances. We also require signed confidentiality or material transfer agreements from any company that is to receive confidential data or proprietary compounds. In the case of employees and consultants, the agreements generally provide that all inventions conceived by the individual while rendering services to us, which relate to our business or anticipated business, shall be assigned to us as our exclusive property. Certain of our research, including research relating to certain pharmaceutical compounds covered by the License Agreement with Toledo, including SnET2, has been or is being funded in part by Small Business Innovation Research Administration or National Institutes of Health grants. As a result, the United States Government has or will have certain rights in the inventions developed with the funding. These rights include a non-exclusive, paid-up, worldwide license under such inventions for any governmental purpose. In addition, the government has the right to require us to grant an exclusive license under any of such inventions to a third party if the government determines that: o Adequate steps have not been taken to commercialize such inventions; o Such action is necessary to meet public health or safety needs; or o Such action is necessary to meet requirements for public use under federal regulations. Federal law requires that any exclusive licensor of an invention that was partially funded by federal grants (which is the case with the subject matter of certain patents issued in our name or licensed from Toledo) agree that it will not grant exclusive rights to use or sell the invention in the United States unless the grantee agrees that any products embodying the invention will be manufactured substantially in the United States, although such requirement is subject to a discretionary waiver by the government. It is not expected that the government will exercise any such rights or that such exercise would have a material impact on us. Government Regulation The research, development, manufacture, marketing and distribution of our products are subject to regulation for safety and efficacy by numerous governmental authorities in the United States and other countries. In the United States, pharmaceutical products and medical devices are regulated by the FDA through the Food, Drug and Cosmetic Act, known as the FDC Act. The FDC Act and various other federal and state statutes control and otherwise affect the development, approval, manufacture, testing, storage, records and distribution of drugs and medical devices. We are subject to regulatory requirements governing both drugs and devices. Drug Products. The FDA generally requires the following steps before a new drug product may be marketed in the United States: o Preclinical studies (laboratory and animal tests); o The submission to the FDA of an application for an IND exemption, which must become effective before human clinical trials may commence; o Adequate and well-conducted clinical trials to establish safety and efficacy of the drug for its intended use; o The submission to the FDA of a New Drug Application, or NDA; and review and approval of the NDA by the FDA before any commercial sale or shipment of the drug. In addition to obtaining FDA approval for each new drug product, each drug manufacturing establishment must be registered with the FDA. Manufacturing establishments, both domestic and foreign, are subject to inspections by or under the authority of the FDA and by other federal, state or local agencies and must comply with the FDA's current Good Manufacturing Practices, or GMP, regulations. The FDA will not approve an NDA until a preapproval inspection of the manufacturing facilities confirms that the drug is produced in accordance with current drug GMPs. In addition, drug manufacturing establishments in California must also be licensed by the State of California and must comply with manufacturing, environmental and other regulations promulgated and enforced by the California Department of Health Services. Preclinical studies include laboratory evaluation of product chemistry, conducted under Good Laboratory Practices, or GLP, regulations, and animal studies to assess the potential safety and efficacy of the drug and its formulation. The results of the preclinical studies are submitted to the FDA as part of the IND. Unless the FDA objects to the IND, the IND becomes effective thirty (30) days following its receipt by the FDA. Clinical trials involve the administration of the investigational drug to human subjects under FDA regulations and other guidance commonly known as Good Clinical Practice, or GCP, requirements under the supervision of a qualified physician. Clinical trials are conducted in accordance with protocols that detail the objectives of the study, the parameters to be used to monitor safety and the efficacy criteria to be evaluated. Each protocol is submitted to the FDA as a part of the IND. Each clinical study must be conducted under the auspices of an independent Institutional Review Board, or IRB. The IRB considers, among other things, ethical factors, the safety of human subjects and the possible liability of the testing institution. Clinical trials are typically conducted in three sequential phases, although the phases may overlap. o Phase I represents the initial introduction of the drug to a small group of humans to test for safety (adverse effects), dosage tolerance, absorption, distribution, metabolism, excretion and clinical pharmacology and, if possible, to gain early evidence of effectiveness; o Phase II involves studies in a limited sample of the intended patient population to assess the efficacy of the drug for a specific indication, to determine dose tolerance and optimal dose range and to identify possible adverse effects and safety risks; and o Once a compound is found to have some efficacy and to have an acceptable safety profile in Phase II evaluations, Phase III clinical trials are initiated for definitive clinical safety and efficacy studies in a broader sample of the patient population at multiple study sites. The results of the preclinical studies and clinical trials are submitted to the FDA in the form of an NDA for marketing approval. Completing clinical trials and obtaining FDA approval for a new drug product is likely to take several years and require expenditure of substantial resources. If an NDA application is submitted, there can be no assurance that the FDA will approve the NDA. Even if initial FDA approval is obtained, further studies may be required to gain approval for the use of a product as a treatment for clinical indications other than those for which the product was initially approved. Also, the FDA requires post-market surveillance programs to monitor and report the drug's side effects. For certain drugs, the FDA may also, concurrent with marketing approval, seek agreement from the sponsor to conduct post-marketing ("Phase IV") studies to obtain further information about the drug's risks, benefits and optimal use. Results of such monitoring and of Phase IV post-marketing studies may affect the further marketing of the product. Where appropriate, we may seek to obtain accelerated review and/or approval of products and to use expanded access programs that may provide broader accessibility and, if approved by the FDA, payment for an investigational drug product. For instance, we requested and received fast track designation from the FDA for the treatment of choroidal neovascularization associated with AMD. Under the FDA Modernization Act of 1997, the FDA gives fast track designation to drugs and devices that treat serious or life-threatening conditions that represent unmet medical needs. The designation means that we can submit data during the clinical trial process based on clinical or surrogate endpoints that are likely to predict clinical benefit, and the FDA can expedite its regulatory review. Other examples of such activities include pursuing programs such as treatment IND or parallel track IND classifications which allow expanded availability of an investigational treatment to patients not in the ongoing clinical trials, and seeking physician or cross-referenced INDs which allow individual physicians to use an investigational drug before marketing approval and for an indication not covered by the ongoing clinical trials. However, there can be no assurance that we will seek such avenues at any time, or that such activities will be successful or result in accelerated review or approval of any of our products. Medical Device Products. Our medical device products are subject to government regulation in the United States and foreign countries. In the United States, we are subject to the rules and regulations established by the FDA requiring that our medical device products are safe and efficacious and are designed, tested, developed, manufactured and distributed in accordance with FDA regulations. Under the FDC Act, medical devices are classified into one of three classes (i.e., class I, II, or III) on the basis of the controls necessary to reasonably ensure their safety and effectiveness. Safety and effectiveness can reasonably be assured for class I devices through general controls (e.g., labeling, premarket notification and adherence to GMPs) and for class II devices through the use of general and special controls (e.g., performance standards, postmarket surveillance, patient registries and FDA guidelines). Generally, class III devices are those which must receive premarket approval by the FDA to ensure their safety and effectiveness (e.g., life-sustaining, life-supporting and implantable devices, or new devices which have been found not to be substantially equivalent to legally marketed devices). Before a new device can be introduced to the market, the manufacturer generally must obtain FDA clearance through either a 510(k) premarket notification or a premarket approval application, or PMA. A PMA requires the completion of extensive clinical trials comparable to those required of new drugs and typically requires several years before FDA approval, if any, is obtained. A 510(k) clearance will be granted if the submitted data establish that the proposed device is "substantially equivalent" to a legally marketed class I or class II medical device, or to a class III medical device for which the FDA has not called for PMAs. Currently, devices indicated for use in photodynamic therapy, such as our devices, regardless of classification, must be evaluated in conjunction with an IND as a combination drug-device product. Combination Drug-Device Products. Medical products containing a combination of drugs, devices or biological products may be regulated as "combination products." A combination product is generally defined as a product comprised of components from two or more regulatory categories (drug/device, device/biologic, drug/biologic, etc.) and in which the various components are required to achieve the intended effect and are labeled accordingly. Each component of a combination product is subject to the rules and regulations established by the FDA for that component category, whether drug, biologic or device. Primary responsibility for the regulation of a combination product depends on the FDA's determination of the "primary mode of action" of the combination product, whether drug, biologic or device. In order to facilitate premarket review of combination products, the FDA designates one of its centers to have primary jurisdiction for the premarket review and regulation of both components, in most cases eliminating the need to receive approvals from more than one center. The determination whether a product is a combination product or two separate products is made by the FDA on a case-by-case basis. Market approval authority for combination photodynamic therapy drug/device products is vested in the FDA Center for Drug Evaluation and Research, or CDER, which is required to consult with the FDA Center for Devices and Radiological Health. As the lead agency, the CDER administers and enforces the premarket requirements for both the drug and device components of the combination product. The FDA has reserved the decision on whether to require separate submissions for each component until the product is ready for premarket approval. Although, to date, photodynamic therapy products have been categorized by the FDA as combination drug-device products, the FDA may change that categorization in the future, resulting in different submission and/or approval requirements. If separate applications for approval are required in the future for PhotoPoint devices, it may be necessary for us to submit a PMA or a 510(k) to the FDA for our PhotoPoint devices. Submission of a PMA would include the same clinical studies submitted under the IND to show the safety and efficacy of the device for its intended use in the combination product. A 510(k) notification would include information and data to show that our device is substantially equivalent to previously marketed devices. There can be no assurance as to the exact form of the premarket approval submission required by the FDA or post-marketing controls for our PhotoPoint devices. Post-Approval Compliance. Once a product is approved for marketing, we must continue to comply with various FDA, and in some cases Federal Trade Commission, requirements for design, safety, advertising, labeling, record keeping and reporting of adverse experiences associated with the use of a product. The FDA actively enforces regulations prohibiting marketing of products for non-approved uses. Failure to comply with applicable regulatory requirements can result in, among other things, fines, injunctions, civil penalties, failure of the government to grant premarket clearance, premarket approval or export certificates for devices or drugs, delays or suspensions or withdrawals of approvals, seizures or recalls of products, operating restrictions and criminal prosecutions. Changes in existing requirements or adoption of new requirements could have a material adverse effect on our business, financial condition and results of operations. International. We are also subject to foreign regulatory requirements governing testing, development, marketing, licensing, pricing and/or distribution of drugs and devices in other countries. These regulations vary from country to country. Beginning in 1995, a new regulatory system to approve drug market registration applications was implemented in the European Union, or EU. The system provides for new centralized, decentralized and national (member state by member state) registration procedures through which a company may obtain drug marketing registrations. The centralized procedure allows for expedited review and approval of biotechnology and high technology/innovative product marketing applications by a central Committee for Proprietary Medicinal Products that is binding on all member states in the EU. The decentralized procedure allows a company to petition individual EU member states to review and recognize a market application previously approved in one member state by the national route. Our devices must also meet the new Medical Device Directive effective in Europe in 1998. The Directive requires that our manufacturing quality assurance systems and compliance with technical essential requirements be certified with a CE Mark authorized by a registered notified body of an EU member state prior to free sale in the EU. Registration and approval of a photodynamic therapy product in other countries, such as Japan, may include additional procedures and requirements, nonclinical and clinical studies, and may require the assistance of native corporate partners. Competition The pharmaceutical and medical device industries are characterized by extensive worldwide research and development efforts and rapid technological change. Competition from other domestic and foreign pharmaceutical or medical device companies and research and academic institutions in the areas of product development, product and technology acquisition, manufacturing and marketing is intense and is expected to increase. These competitors may succeed in obtaining approval from the FDA or other regulatory agencies for their products more rapidly than Miravant. Competitors have also developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products. We believe that a primary competitive issue will be the performance characteristics of photoselective drugs, including product efficacy and safety, as well as availability, price and patent position, among other issues. As the photodynamic therapy industry evolves, we believe that new and more sophisticated devices will be required and that the ability of any group to develop advanced devices will be important to market position. We believe that, after approval, competition will be based on product reliability, clinical utility, patient outcomes, marketing and distribution partner capabilities, availability, price and patent position. We are aware of various competitors involved in the photodynamic therapy arena. We understand that these companies are conducting preclinical studies and/or clinical trials in various countries and for a variety of disease indications. One such company is QLT PhotoTherapeutics or QLT. We understand that QLT's drug Photofrin(R) has received marketing approval in the United States and certain other countries for various specific disease indications. QLT has also received an "approvable" letter from the FDA for their drug Visudyne(R) for the treatment of AMD, and therefore may be first to market in this disease area. Employees As of March 10, 2000, we employed 147 individuals, approximately 80 of which were engaged in research and development, 22 were engaged in manufacturing and clinical activities and 45 in general and administrative activities. We believe that our relationship with our employees is good and none of the employees are represented by a labor union. RISK FACTORS This Annual Report on Form 10-K contains forward-looking statements, which involve known and unknown risks and uncertainties. These statements relate to our future plans, objectives, expectations and intentions. These statements may be identified by the use of words such as "may," "will," "should," "potential," "expects," "anticipates," "intends," "plans" and similar expressions. These statements are based on our current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties. Our actual results could differ materially from those discussed in these statements. The factors listed below are not intended to represent a complete list of the general or specific risks that may affect us. It should be recognized that other risks may be significant, presently or in the future, and the risks set forth below may affect us to a greater extent than indicated. RISKS RELATED TO OUR BUSINESS Our products are in an early stage of development and may never be successfully commercialized. Our products are at an early stage of development and our ability to successfully commercialize these products is dependent upon: o Successfully completing our research or product development efforts or those of our collaborative partners; o Successfully transforming our drugs or devices currently under development into marketable products; o Obtaining the required regulatory approvals; o Manufacturing our products at an acceptable cost and with appropriate quality; o Favorable acceptance of any products marketed; and o Successful marketing and sales efforts of our corporate partner(s). We may not be successful in achieving any of the above, and if we are not successful, our business, financial condition and operating results would be adversely affected. The time frame necessary to achieve these goals for any individual product is long and uncertain. Most of our products currently under development will require significant additional research and development and preclinical studies and clinical trials, and all will require regulatory approval prior to commercialization. The likelihood of our success must be considered in light of these and other problems, expenses, difficulties, complications and delays. Our products may not successfully complete the clinical trials process and we may be unable to prove that our products are safe and efficacious. All of our drug and device products currently under development will require extensive preclinical studies and clinical trials prior to regulatory approval for commercial use, which is a lengthy and expensive process. None of our products have completed testing for efficacy or safety in humans. Some of the risks and uncertainties related to safety and efficacy testing and the completion of preclinical studies and clinical trials include: o Our ability to demonstrate to the FDA that SnET2 or any other of our products is safe and efficacious; o Our ability to successfully complete the testing for any of our compounds within any specified time period, if at all; o Clinical data reported may change as a result of the continuing evaluation of patients; o Data obtained from preclinical studies and clinical trials are subject to varying interpretations which can delay, limit or prevent approval by the FDA or other regulatory authorities; o Problems in research and development, preclinical studies or clinical trials that will cause us to delay, suspend or cancel clinical trials; and o As a result of changing economic considerations, competitive or new technological developments, market approvals or changes, clinical or regulatory conditions, or clinical trial results, our focus may shift to other indications, or we may determine not to further pursue one or more of the indications currently being pursued. To date, we have limited experience in conducting clinical trials. We will either need to rely on third parties, including our collaborative partners, to design and conduct any required clinical trials or expend resources to hire additional personnel or engage outside consultants or contract research organizations to administer the clinical trials. We may not be able to find appropriate third parties to design and conduct clinical trials or we may not have the resources to administer clinical trials in-house. Our ability to complete clinical trials is dependent upon the rate of patient enrollment. Patient enrollment is a function of many factors including: o The nature of our clinical trial protocols; o Existence of competing protocols or treatments; o Size and longevity of the target patient population; o Proximity of patients to clinical sites; and o Eligibility criteria for the trials. There can be no assurance that we will obtain adequate levels of patient enrollment in current or future clinical trials. Delays in planned patient enrollment may result in increased costs, delays or termination of clinical trials, which could have material adverse effects. In addition, the FDA may suspend clinical trials at any time if, among other reasons, it concludes that patients participating in such trials are being exposed to unacceptable health risks. Data already obtained from preclinical studies and clinical trials of our products under development do not necessarily predict the results that will be obtained from future preclinical studies and clinical trials. A number of companies in the pharmaceutical industry, including biotechnology companies like us, have suffered significant setbacks in advanced clinical trials, even after promising results in earlier trials. The failure to adequately demonstrate the safety and effectiveness of a product under development could delay or prevent regulatory clearance of the potential product and would materially harm our business. Our clinical trials may not demonstrate the sufficient levels of safety and efficacy necessary to obtain the requisite regulatory approval or may not result in marketable products. Our collaborative partners may control aspects of our clinical trials and regulatory submission. Our collaborative partners have certain rights to control aspects of our product and device development and clinical programs. As a result, we may not be able to conduct these programs in the manner we currently contemplate. Pharmacia & Upjohn In accordance with the 1999 Amendments, we transitioned the majority of the operations of the Phase III clinical trials in AMD to Pharmacia & Upjohn. Pharmacia & Upjohn will now be responsible for directly funding the majority of the Phase III AMD clinical trial costs. We will continue to be responsible for the majority of the preclinical studies and part of the drug and device development and manufacturing necessary for the NDA submission in AMD and will be reimbursed for those costs in accordance with the 1999 Amendments. Iridex In May 1996, we entered into a co-development and distribution agreement with Iridex, a leading provider of semiconductor-based laser systems to treat eye diseases. The agreement generally provides Miravant with the exclusive right to co-develop with Iridex light producing devices for use in photodynamic therapy in the field of ophthalmology. We will conduct clinical trials and make regulatory submissions with respect to all co-developed devices and Iridex will manufacture all devices for such trials, with costs shared as set forth in the agreement. Acceptance of our products in the marketplace is uncertain, and failure to achieve market acceptance will harm our business. Even if approved for marketing, our products may not achieve market acceptance. The degree of market acceptance will depend upon a number of factors, including: o The establishment and demonstration in the medical community of the safety and clinical efficacy of our products and their potential advantages over existing therapeutic products and diagnostic and/or imaging techniques; o Pricing and reimbursement policies of government and third-party payors such as insurance companies, health maintenance organizations and other plan administrators; and o The possibility that physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend any of our products. We will need additional funds to continue our operations in the future. We will need substantial additional resources to develop our products. The timing and magnitude of our future capital requirements will depend on many factors, including: o The pace of scientific progress in our research and development programs; o The magnitude of our research and development programs; o The scope and results of preclinical studies and clinical trials; o The time and costs involved in obtaining regulatory approvals; o The costs involved in preparing, filing, prosecuting, maintaining and o The costs involved in any potential litigation; o Competing technological and market developments; o Our ability to establish additional collaborations; o Changes in existing collaborations; o Our dependence on others for development and commercialization of our potential products; o The cost of manufacturing, marketing and distribution; and o The effectiveness of our commercialization activities. We believe that our cash and anticipated sources of funding, the net proceeds of future offerings and debt or equity financings will be adequate to satisfy our anticipated capital needs through the second quarter of 2001. We intend to seek any additional capital needed to fund our operations through new collaborations, the extension of our existing collaboration or through public or private equity or debt financings. However, additional financing may not be available on acceptable terms or at all. Any inability to obtain additional financing would adversely affect our business. We have a history of significant operating losses and expect to continue to have losses in the future, which may fluctuate significantly. We have incurred significant operating losses since our inception in 1989 and, as of December 31, 1999, had an accumulated deficit of approximately $131.2 million. We expect to continue to incur significant, and possibly increasing, operating losses over the next few years as we continue to incur increasing costs for research and development, preclinical studies, clinical trials, manufacturing and general corporate activities. Our ability to achieve profitability depends upon our ability, alone or with others, to successfully complete the development of our proposed products, obtain the required regulatory clearances and manufacture and market our proposed products. No revenues have been generated from sales of our drugs and only limited revenues have been generated from sales of our devices. We do not expect to achieve significant levels of revenues for the next few years. Our revenues to date have consisted, and for the foreseeable future are expected to consist, principally of clinical reimbursements, grants awarded, license fees, royalties, milestone payments, payments for our devices, and interest income. We may not be able to successfully maintain and establish collaborative and licensing arrangements. We have entered into collaborative relationships with certain corporations and academic institutions for the research and development, preclinical studies and clinical trials, licensing, manufacturing, sales and distribution of our products. These collaborative relationships include: o The License Agreements under which we granted to Pharmacia & Upjohn an exclusive worldwide license to use, distribute and sell SnET2 for therapeutic or diagnostic applications in photodynamic therapy for ophthalmology, oncology and urology; o Letter agreement with Boston Scientific and Cordis for the co-development of catheters for use in photodynamic therapy; o Letter agreement with Medicis for the clinical development of PhotoPoint in dermatology; o Letter agreement with Chiron for the early detection and treatment of lung cancer; o Definitive agreements with Iridex, Ramus and Xillix for the development of devices for use in photodynamic therapy in the fields of ophthalmology, cardiovascular disease and oncology, respectively; and o Definitive agreement with Fresenius for final drug formulation and drug product supply. The amount of royalty revenues and other payments, if any, ultimately paid by Pharmacia & Upjohn globally to Miravant for sales of SnET2 is dependent, in part, on the amount and timing of resources Pharmacia & Upjohn commits to research and development, clinical testing and regulatory and marketing and sales activities, which are entirely within the control of Pharmacia & Upjohn. Pharmacia & Upjohn may not pursue the development and commercialization of SnET2 and/or may not perform its obligations as expected. Additionally, in March 2000, Pharmacia & Upjohn announced that their merger plans entered into with Monsanto Company are expected to be completed on or before April 1, 2000, pending shareholder approval. We do not know what impact, if any, this consummation of proposed merger will have on our relationship with Pharmacia & Upjohn. We have not yet entered into any definitive collaborative agreements with Boston Scientific, Cordis, Medicis or Chiron. These collaborations may not culminate in definitive collaborative agreements or marketable products. Additionally, Iridex, Ramus and Xillix may not continue the development of devices for use in photodynamic therapy, or such development may not result in marketable products. We are currently at various stages of discussions with other companies regarding the establishment of collaborations. Our current and future collaborations are important to us because they allow us greater access to funds, to research, development or testing resources and to manufacturing, sales or distribution resources that we would otherwise not have. We intend to continue to rely on such collaborative arrangements. Some of the risks and uncertainties related to the reliance on collaborations include: o Our ability to negotiate acceptable collaborative arrangements, including those based upon existing letter agreements; o Future or existing collaborative arrangements may not be successful or may not result in products that are marketed or sold; o Such collaborative relationships may limit or restrict us; o Collaborative partners are free to pursue alternative technologies or products either on their own or with others, including our competitors, for the diseases targeted by our programs and products; o Our partners may fail to fulfil their contractual obligations or terminate the relationships described above, and we may be required to seek other partners, or expend substantial resources to pursue these activities independently. These efforts may not be successful; and o Our ability to manage, interact and coordinate our timelines and objectives with our strategic partners may not be successful. Our ability to establish and maintain agreements with outside suppliers may not be successful and our failure to do so could adversely affect our business. We depend on outside suppliers for certain raw materials and components for our products. Such raw materials or components may not continue to be available to our standards or on acceptable terms, if at all, and alternative suppliers may not be available to us on acceptable terms, if at all. Further, we may not be able to adequately produce needed materials or components in-house. We are currently dependent on single, contracted sources for a couple of key materials or services used by us in our drug development, light producing and light delivery device development and production operations. Although most of our raw materials and components are available from various sources, we are currently developing qualified backup suppliers for each of these resources. We have or will enter into agreements with these suppliers, which may or may not be successful or which may encounter delays or other problems, which may materially adversely affect our business. We may not have adequate protection against product liability or recall. The testing, manufacture, marketing and sale of human pharmaceutical products entail significant inherent, industry-wide risks of allegations of product liability. The use of our products in clinical trials and the sale of our products may expose us to liability claims. These claims could be made directly by patients or consumers, or by companies, institutions or others using or selling our products. The following are some of the risks related to liability and recall: o We are subject to the inherent risk that a governmental authority or third party may require the recall of one or more of our products; o We have not obtained liability insurance that would cover a claim relating to the clinical or commercial use or recall of our products; o In the absence of liability insurance, claims made against us or a product recall could have a material adverse effect on us; o If we obtain insurance coverage in the future, this coverage may not be available at a reasonable cost and in amounts sufficient to protect us against claims that could have a material adverse effect on our financial condition and prospects; and o Liability claims relating to our products or a product recall could negatively effect our ability to obtain or maintain regulatory approval for our products. We have agreed to indemnify certain of our collaborative partners against certain potential liabilities relating to the manufacture and sale of SnET2 and PhotoPoint light devices. A successful product liability claim could materially adversely affect our business, financial condition or results of operations. We have limited manufacturing and marketing capability and experience and thus rely heavily upon third parties. To be successful, our products must be manufactured in commercial quantities under current GMP, prescribed by the FDA and at acceptable costs. Although we intend to manufacture drugs and devices, we have not yet manufactured any products in commercial quantities under GMP and have no experience in such commercial manufacturing. We currently have the capacity, in conjunction with our manufacturing partners Fresenius and Iridex, to manufacture products at certain commercial levels and will be able to do so upon FDA approval. If we receive an FDA or other regulatory approval we may need to expand our manufacturing capabilities and/or depend on our collaborators, licensees or contract manufacturers for the expanded commercial manufacture of our products. If we expand our manufacturing capabilities, we will need to expend substantial funds, hire and retain significant additional personnel and comply with extensive regulations. We may not be able to expand successfully or we may be unable to manufacture products in increased commercial quantities for sale at competitive prices. Further, we may not be able to enter into future manufacturing arrangements with collaborators, licensees, or contract manufacturers on acceptable terms or at all. If we are not able to expand our manufacturing capabilities or enter into additional commercial manufacturing agreements, our business growth could be limited and could be materially and adversely affected. We have no direct experience in marketing, distributing and selling pharmaceutical or medical device products. We will need to develop a sales force or rely on our collaborators or licensees or make arrangements with others to provide for the marketing, distribution and sale of our products. We currently intend to rely on Pharmacia & Upjohn and Iridex for these needs for the AMD project. Our marketing, distribution and sales capabilities or current or future arrangements with third parties for such activities may not be adequate for the successful commercialization of our products. We may fail to adequately protect or enforce our intellectual property rights, our patents and our proprietary technology. Our success will depend, in part, on our and our licensors' ability to obtain, assert and defend our patents, protect trade secrets and operate without infringing the proprietary rights of others. The exclusive license relating to various drug compounds, including our leading drug candidate SnET2, may become non-exclusive if we fail to satisfy certain development and commercialization objectives. The termination or restriction of our rights under this or other licenses for any reason would likely have a material adverse impact on our business and financial condition. Although we believe we should be able to achieve such objectives, we may not be successful. The patent position of pharmaceutical and medical device firms generally is highly uncertain. Some of the risks and uncertainties include: o The patent applications owned by or licensed to us may not result in issued patents; o Our issued patents may not provide us with proprietary protection or competitive advantages; o Our issued patents may be infringed upon or designed around by others; o Our issued patents may be challenged by others and held to be invalid or unenforceable; o The patents of others may have a material adverse effect on us; and o Significant time and funds may be necessary to defend our patents. We are aware that our competitors and others have been issued patents relating to photodynamic therapy. In addition, our competitors and others may have been issued patents or filed patent applications relating to other potentially competitive products of which we are not aware. Further, our competitors and others may in the future file applications for, or otherwise obtain proprietary rights to, such products. These existing or future patents, applications or rights may conflict with our or our licensors' patents or applications. Such conflicts could result in a rejection of our or our licensors' applications or the invalidation of the patents. This could have a material adverse effect on our competitive position. If such conflicts occur, or if we believe that such products may infringe on our proprietary rights, we may pursue litigation or other proceedings, or may be required to defend against such litigation. Such proceedings may materially adversely affect our competitive position, and we may not be successful in any such proceeding. Litigation and other proceedings can be expensive and time consuming, regardless of whether we prevail. This can result in the diversion of substantial financial, managerial and other resources from other activities. An adverse outcome could subject us to significant liabilities to third parties or require us to cease any related research and development activities or product sales. Some of the risks and uncertainties include: o We do not have contractual indemnification rights against the licensors of the various drug patents; o We may be required to obtain licenses under dominating or conflicting patents or other proprietary rights of others; o Such licenses may not be made available on terms acceptable to us, if at all; and o If we do not obtain such licenses, we could encounter delays or could find that the development, manufacture or sale of products requiring such licenses is foreclosed. We also seek to protect our proprietary technology and processes in part by confidentiality agreements with our collaborative partners, employees and consultants. These agreements could be breached and we may not have adequate remedies for any breach. Also, our trade secrets may become known or be independently discovered by competitors. Certain research activities relating to the development of certain patents owned by or licensed to us were funded, in part, by agencies of the United States Government. When the United States Government participates in research activities, it retains certain rights that include the right to use the resulting patents for government purposes under a royalty-free license. We also rely upon unpatented trade secrets, and no assurance can be given that others will not independently develop substantially equivalent proprietary information and techniques, or otherwise gain access to our trade secrets or disclose such technology, or that we can meaningfully protect its rights to its unpatented trade secrets and know-how. We may not be able to attract and retain key personnel and consultants. Our success will depend in large part on our ability to attract and retain highly qualified scientific, management and other personnel and to develop and maintain relationships with leading research institutions and consultants. We are highly dependent upon principal members of our management, key employees, scientific staff and consultants which we may retain from time to time. Competition for such personnel and relationships is intense, and we may not be able to continue to attract and retain such personnel. Our consultants may be affiliated with or employed by others, and some have consulting or other advisory arrangements with other entities that may conflict or compete with their obligations to us. Inventions or processes discovered by such persons will not necessarily become our property and may remain the property of such persons or others. The price of our Common Stock has been and may continue to be volatile. The market prices for our Common Stock, and the securities of emerging pharmaceutical and medical device companies, have historically been highly volatile and subject to extreme price fluctuations, which may have a material adverse effect on the market price of the Common Stock. Extreme price fluctuations could be the result of the following: o Future announcements concerning Miravant or our collaborators, competitors or industry; o The results of our testing, technological innovations or new commercial products; o The results of preclinical studies and clinical trials by us or our competitors; o Technological innovations or new therapeutic products; o Litigation; o Public concern as to the safety, efficacy or marketability of products developed by us or others; o Comments by securities analysts; o The achievement of or failure to achieve certain milestones; and o Governmental regulations, rules and orders, or developments concerning safety of our products. In addition, the stock market has experienced extreme price and volume fluctuations. This volatility has significantly affected the market prices of securities of many emerging pharmaceutical and medical device companies for reasons frequently unrelated or disproportionate to the performance of the specific companies. These broad market fluctuations may materially adversely affect the market price of the Common Stock. Our charter and bylaws contain provisions that may prevent transactions that could be beneficial to stockholders. Our charter and bylaws restrict certain actions by our stockholders. For example: o Our stockholders can act at a duly called annual or special meeting but they may not act by written consent; o Special meetings can only be called by our chief executive officer, president, or secretary at the written request of a majority of our Board of Directors; and o Stockholders also must give advance notice to the secretary of any nominations for director or other business to be brought by stockholders at any stockholders' meeting. Some of these restrictions can only be amended by a super-majority vote of members of the Board and/or the stockholders. These and other provisions of our charter and bylaws, as well as certain provisions of Delaware law, could prevent changes in our management and discourage, delay or prevent a merger, tender offer or proxy contest, even if the events could be beneficial to our stockholders. These provisions could also limit the price that investors might be willing to pay for our stock. At this time we do not have a Shareholder Rights Plan in place. In the future we may consider implementing a Shareholder Rights Plan, however, even if implemented, there is no assurance that it will be approved. In addition, our charter authorizes our Board of Directors to issue shares of undesignated preferred stock without stockholder approval on terms that the Board may determine. The issuance of preferred stock could decrease the amount of earnings and assets available for distribution to our other stockholders or otherwise adversely affect their rights and powers, including voting rights. Moreover, the issuance of preferred stock may make it more difficult for another party to acquire, or may discourage another party from acquiring, voting control of us. RISKS RELATED TO OUR INDUSTRY We are subject to uncertainties regarding health care reimbursement and reform. Our products may not be covered by the various health care providers and third party payors. If they are not covered, our products may or may not be purchased or sold as expected. Our ability to commercialize our products successfully may depend, in part, on the extent to which reimbursement for these products and related treatment will be available from collaborative partners, government health administration authorities, private health insurers, managed care entities and other organizations. These payers are increasingly challenging the price of medical products and services and establishing protocols and formularies, which effectively limit physicians' ability to select products and procedures. Uncertainty exists as to the reimbursement status of health care products (especially innovative technologies). Additionally, reimbursement coverage, if available, may not be adequate to enable us to achieve market acceptance of our products or to maintain price levels sufficient for realization of an appropriate return on our products. The efforts of governments and third-party payors to contain or reduce the cost of healthcare will continue to affect our business and financial condition as a biotechnology company. In foreign markets, pricing or profitability of medical products and services may be subject to government control. In the United States, we expect that there will continue to be federal and state proposals for government control of pricing and profitability. In addition, increasing emphasis on managed healthcare has increased pressure on pricing of medical products and will continue to do so. These cost controls may have a material adverse effect on our revenues and profitability and may affect our ability to raise additional capital. In addition, cost control initiatives could adversely affect our business in a number of ways, including: o Decreasing the price we, or any of our partners or licensees, receive for any of our products; o Preventing the recovery of development costs, which could be substantial; and o Minimizing profit margins. Further, our commercialization strategy depends on our collaborators. As a result, our ability to commercialize our products and realize royalties may be hindered if cost control initiatives adversely affect our collaborators. Failure to obtain product approvals or comply with ongoing governmental regulations could adversely affect our business. The production and marketing of our products and our ongoing research and development, preclinical studies and clinical trial activities are subject to extensive regulation and review by numerous governmental authorities in the United States, including the FDA, and in other countries. All drugs and most medical devices we develop must undergo rigorous preclinical studies and clinical trials and an extensive regulatory approval process administered by the FDA under the FDC Act, and comparable foreign authorities, before they can be marketed. These processes involve substantial cost and can often take many years. We have limited experience in, and limited resources available for regulatory activities and we rely on our collaborators and outside consultants. Failure to comply with the applicable regulatory requirements can, among other things, result in non-approval, suspensions of regulatory approvals, fines, product seizures and recalls, operating restrictions, injunctions and criminal prosecution. To date, none of our product candidates being developed have been submitted for approval or have been approved by the FDA or any other regulatory authority for marketing. Some of the risks and uncertainties relating to United States Government regulation include: o Delays in obtaining approval or rejections due to regulatory review of each submitted new drug, device or combination drug/device application or product license application, as well as changes in regulatory policy during the period of product development; o If regulatory approval of a product is granted, such approval may entail limitations on the uses for which the product may be marketed; o If regulatory approval is obtained, the product, our manufacturer and the manufacturing facilities are subject to continual review and periodic inspections; o If regulatory approval is obtained, such approval may be conditional on the satisfaction of the completion of clinical trials or require additional clinical trials; o Later discovery of previously unknown problems with a product, manufacturer or facility may result in restrictions on such product or manufacturer, including withdrawal of the product from the market and litigation; and o Photodynamic therapy products have been categorized by the FDA as combination drug-device products. If current or future drug/device products do not continue to be categorized for regulatory purposes as combination products, then: - The FDA may require separate drug and device submissions; and - The FDA may require separate approval by regulatory authorities. Some of the risks and uncertainties of international governmental regulation include: o Foreign regulatory requirements governing testing, development, marketing, licensing, pricing and/or distribution of drugs and devices in other countries; o Our drug products may not qualify for the centralized review procedure or we may not be able to obtain a national market application that will be accepted by other EU member states; o Our devices must also meet the new Medical Device Directive effective in Europe in 1998. The Directive requires that our manufacturing quality assurance systems and compliance with technical essential requirements be certified with a CE Mark authorized by a registered notified body of an EU member state prior to free sale in the EU; and o Registration and approval of a photodynamic therapy product in other countries, such as Japan, may include additional procedures and requirements, nonclinical and clinical studies, and may require the assistance of native corporate partners. We face intense competition and technological uncertainty. Many of our competitors have substantially greater financial, technical and human resources than we do, and may also have substantially greater experience in developing products, conducting preclinical studies or clinical trials, obtaining regulatory approvals and manufacturing and marketing. Further, our competitive position could be materially adversely affected by the establishment of patent protection by our competitors. The existing competitors or other companies may succeed in developing technologies and products that are more safe, effective or affordable than those being developed by us or that would render our technology and products less competitive or obsolete. We are aware of various competitors involved in the photodynamic therapy arena. We understand that these companies are conducting preclinical studies and/or clinical trials in various countries and for a variety of disease indications. One such company is QLT PhotoTherapeutics or QLT. We understand that QLT's drug Photofrin(R) has received marketing approval in the United States and certain other countries for various specific disease indications. QLT has also received an "approvable" letter from the FDA for their drug Visudyne(R) for the treatment of AMD, and therefore may be first to market in this disease area. The pharmaceutical industry is subject to rapid and substantial technological change. Developments by others may render our products under development or technologies noncompetitive or obsolete, or we may be unable to keep pace with technological developments or other market factors. Technological competition in the industry from pharmaceutical and biotechnology companies, universities, governmental entities and others diversifying into the field is intense and is expected to increase. These entities represent significant competition for us. Acquisitions of, or investments in, competing pharmaceutical or biotechnology companies by large corporations could increase such competitors' financial, marketing, manufacturing and other resources. We are a relatively new enterprise and are engaged in the development of novel therapeutic technologies, specifically photodynamic therapy. As a result, our resources are limited and we may experience technical challenges inherent in such novel technologies. Competitors have developed or are in the process of developing technologies that are, or in the future may be, the basis for competitive products. Some of these products may have an entirely different approach or means of accomplishing similar therapeutic, diagnostic and imaging effects than our products. We are aware that one of our competitors in the market for photodynamic therapy drugs has received marketing approval of a product for certain uses in the United States and other countries. Our competitors may develop products that are safer, more effective or less costly than our products and, therefore, present a serious competitive threat to our product offerings. The widespread acceptance of therapies that are alternatives to ours may limit market acceptance of our products even if commercialized. The diseases for which we are developing our therapeutic products can also be treated, in the case of cancer, by surgery, radiation and chemotherapy, and in the case of atherosclerosis, by surgery, angioplasty, drug therapy and the use of devices to maintain and open blood vessels. These treatments are widely accepted in the medical community and have a long history of use. The established use of these competitive products may limit the potential for our products to receive widespread acceptance if commercialized. Our products are subject to other state and federal laws, future legislation and regulations. In addition to the regulations for drug or device approvals, we are subject to regulation under state, federal or other law, including regulations for worker occupational safety, laboratory practices, environmental protection and hazardous substance control. We continue to make capital and operational expenditures for protection of the environment in amounts which are not material. Some of the risks and uncertainties related to laws and future legislation or regulations include: o Our future capital and operational expenditures related to these matters may increase and become material; o We may also be subject to other present and possible future local, state, federal and foreign regulation; o Heightened public awareness and concerns regarding the growth in overall health care expenditures in the United States, combined with the continuing efforts of governmental authorities to contain or reduce costs of health care, may result in the enactment of national health care reform or other legislation or regulations that impose limits on the number and type of medical procedures which may be performed or which have the effect of restricting a physician's ability to select specific products for use in certain procedures; o Such new legislation or regulations may materially adversely affect the demand for our products. In the United States, there have been, and we expect that there will continue to be, a number of federal and state legislative proposals and regulations to implement greater governmental control in the health care industry; o The announcement of such proposals may materially adversely affect our ability to raise capital or to form collaborations; and o Legislation or regulations that impose restrictions on the price that may be charged for health care products or medical devices may adversely affect our results of operations. We are unable to predict the likelihood of adverse effects which might arise from future legislative or administrative action, either in the United States or abroad. Our business involves environmental risks. We are subject to federal, state, county and local laws and regulations relating to the protection of the environment. In the course of our business, we are involved in the handling, storage and disposal of materials that are classified as hazardous. Our safety procedures for the handling, storage and disposal of such materials are designed to comply with applicable laws and regulations. However, we may be involved in contamination or injury from these materials. If this occurs, we could be held liable for any damages that result, and any such liability could materially and adversely affect us. Further, the cost of complying with these laws and regulations may increase materially in the future. ITEM 2. PROPERTIES We have entered into four leases for approximately 101,100 square feet of office, laboratory and potential manufacturing space in Santa Barbara, California. The first lease for approximately 18,900 square feet of space was entered into in 1992 and the base rent, which is adjusted annually based on increases in the consumer price index, is approximately $24,400 per month. This lease was extended in August 1999 and expires in December 2003. The facility is equipped and licensed to allow certain laboratory testing and manufacturing. We manufacture and distribute our active SnET2 drug substance from this facility. In the second half of 1996, we entered into two additional leases for approximately 54,800 square feet of office, laboratory and manufacturing space. Each lease provides for rent to be adjusted annually based on increases in the consumer price index and the base rent for both leases is approximately $56,900 per month. These leases were extended in March 1999 and expire in August 2002. Each leased property is located in a business park and is subject to a master lease agreement. We manufacture our light producing and light delivery devices and perform research and development of drugs, light delivery and light producing devices from these facilities. In July 1998, we entered into a fourth lease agreement for approximately 27,400 square feet of primarily office space. The base rent for this lease is approximately $34,300 per month. The lease expires in October 2003 and provides for rent to be adjusted annually based on increases in the consumer price index. The lease also allows us the ability to sublet the property, which we did in December 1999. The sublease agreements expire in October 2003, with rent based upon the percentage of square footage occupied. Rental income, which is approximately $32,900 per month, is also subject to increases based upon the consumer price index. The leased property is located in a business park and is subject to a master lease agreement. For each of the four facilities noted above, we may continue to incur additional costs for the construction of the manufacturing, laboratory and office space associated with these facilities. During 1997, we entered into a letter of intent with a local developer to have a facility constructed to house our operations for the foreseeable future. We continue to work with the developer with the expected completion date approximately late 2001 or early 2002. Depending on our future needs and financial capabilities we may or may not continue this project. In July 1997, the Company began to sublease approximately 3,900 square feet of one of its buildings to Ramus Medical Technologies. The sublease agreement was for two years with rent based upon the percentage of square footage occupied. The sublease was extended in September 1999 to March 2000 and thereafter will revert to a month to month basis. Rental income from Ramus, which is approximately $4,100 per month, is also subject to increases based upon the consumer price index. ITEM 3. LEGAL PROCEEDINGS We are not currently party to any material litigation or proceeding and are not aware of any material litigation or proceeding threatened against us. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 1999. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS Our Common Stock is traded on The Nasdaq National Market under the symbol MRVT. From August 30, 1995 to September 12, 1997, our Common Stock was traded on The Nasdaq National Market under the symbol PDTI. Effective September 15, 1997, we changed our name to Miravant Medical Technologies and our ticker symbol to MRVT. The following table sets forth high and low sales prices per share of Common Stock as reported on The Nasdaq National Market based on published financial sources. High Low ---- --- 1999: Fourth quarter.....................................$ 14.50 $ 9.00 Third quarter...................................... 11.88 7.00 Second quarter..................................... 10.13 6.31 First quarter...................................... 16.25 6.81 1998: Fourth quarter.....................................$ 17.69 $ 6.13 Third quarter...................................... 28.75 4.69 Second quarter..................................... 36.00 21.88 First quarter...................................... 39.00 28.56 As of March 10, 2000, there were approximately 317 stockholders of record of the Common Stock, which does not include "street accounts" of securities brokers. Based on the number of proxies requested by brokers in connection with our annual meeting of stockholders, we estimate that the total number of stockholders of the Common Stock exceeds 5,500. Except for the three for two split of the Common Stock declared for stockholders of record at July 24, 1995, we have never paid dividends, cash or otherwise, on our capital stock and do not anticipate paying any dividends in the foreseeable future. We currently intend to retain future earnings, if any, to finance the growth and development of our business. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and such other factors as the Board of Directors deems relevant. Our credit agreement with Pharmacia & Upjohn prohibits the payment of dividends on the Common Stock. ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA In the table below, we provide you with summary historical financial data of Miravant Medical Technologies. We have prepared this information using the consolidated financial statements of Miravant for the five years ended December 31, 1999. The consolidated financial statements for the five fiscal years ended December 31, 1999 have been audited by Ernst & Young LLP, independent auditors. When you read this summary of historical financial data, it is important that you read along with it the historical financial statements and related notes in our annual and quarterly reports filed with the SEC, as well as the section of our annual and quarterly reports titled "Management's Discussion and Analysis of Financial Condition and Results of Operations".
Year Ended December 31, ---------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 --------------- --------------- --------------- --------------- --------------- (in thousands, except share and per share data) Statement of Operations Data: Revenues ....................... $ 14,577 $ 10,179 $ 2,278 $ 3,598 $ 521 Costs and expenses.............. 37,639 41,788 35,065 22,113 12,416 --------------- --------------- --------------- --------------- --------------- Loss from operations............ (23,062) (31,609) (32,787) (18,515) (11,895) Net interest and other income... 806 3,545 2,578 2,373 185 --------------- --------------- --------------- --------------- --------------- Net loss........................ $ (22,256) $ (28,064) $ (30,209) $ (16,142) $ (11,710) =============== =============== =============== =============== =============== Net loss per share (1) ......... $ (1.25) $ (1.94) $ (2.36) $ (1.37) $ (1.19) =============== =============== =============== =============== =============== Shares used in computing net loss per share (1) .......... 17,768,670 14,464,044 12,791,044 11,786,429 9,861,212 =============== =============== =============== =============== =============== December 31, ---------------------------------------------------------------------------------- 1999 1998 1997 1996 1995 ------------ ------------ ----------- ------------ ------------ Balance Sheet Data: Cash and marketable securities (2) $ 22,789 $ 11,284 $ 83,462 $ 52,098 $ 8,886 Working capital................. 24,933 11,134 80,734 51,519 6,403 Total assets.................... 34,952 23,810 93,031 59,886 11,259 Long-term obligations .......... 15,506 -- -- 21 203 Accumulated deficit............. (131,174) (108,918) (80,854) (50,645) (34,503) Total shareholders' equity...... 14,726 19,686 87,698 56,717 8,167 - ----------- (1) See Note 1 of Notes to Consolidated Financial Statements for information concerning the computation of net loss per share. (2) See Notes 2 and 3 of Notes to Consolidated Financial Statements for information concerning the changes in cash and marketable securities.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion should be read in conjunction with the Consolidated Financial Statements and Notes thereto. General Since our inception, we have been principally engaged in the research and development of drugs and medical device products for use in PhotoPoint(TM), our proprietary technologies for photodynamic therapy. We have been unprofitable since our founding and have incurred a cumulative net loss of approximately $131.2 million as of December 31, 1999. We expect to continue to incur substantial, and possibly increasing, operating losses for the next few years due to continued and increased spending on research and development programs, the funding of preclinical studies, clinical trials and regulatory activities and the costs of manufacturing and administrative activities. Our revenues primarily reflect income earned from licensing agreements, grants and royalties from device product sales. To date, we have received no revenue from the sale of drug products and we are not permitted to engage in commercial sales of drugs or devices until such time, if ever, as we receive requisite regulatory approvals. As a result, we do not expect to record significant product sales until such approvals are received. Until we commercialize our product(s), we expect revenues to continue to be attributable to licensing agreements and grants. We anticipate that future revenues and results of operations may continue to fluctuate significantly depending on, among other factors, the timing and outcome of applications for regulatory approvals, our or our collaborative partners ability to successfully manufacture, market and distribute our drug and device products, the level of participation of our collaborative partners in our preclinical studies and clinical trials and/or the restructuring or establishment of collaborative arrangements for the development, manufacturing, marketing and distribution of some of our products. We anticipate our operating activities will result in substantial, and possibly increasing, operating losses for the next few years. Under the 1998 Amendments of the License Agreements with Pharmacia & Upjohn, we were to conduct all preclinical studies and U.S. clinical trials in AMD and would be reimbursed by Pharmacia & Upjohn for all out-of-pocket expenses incurred. Pharmacia & Upjohn was to conduct all international clinical trials for AMD. The 1998 Amendments also returned to us the rights for SnET2 in dermatology, and provided for the quarterly funding of $2.5 million for eight quarters for use in our oncology and urology programs. In January 1999, we entered into the Equity Investment Agreement, whereby Pharmacia & Upjohn purchased 1,136,533 shares of our Common Stock for an aggregate purchase price of $19.0 million, or $16.71 per share. Also, in February 1999, under a separate Credit Agreement, Pharmacia & Upjohn extended to us up to $22.5 million in credit, which is subject to certain limitations and requirements, including interest at a variable rate, in the form of up to six quarterly loans or new loans of $3.75 million each to be used to support our ophthalmology, oncology and other development programs, as well as for general corporate purposes. To date we have utilized $15.0 million of the line of credit and we expect to utilize the remaining $7.5 million available during 2000. Under the terms of the Credit Agreement and in connection with each draw-down, we are obligated to issue Pharmacia & Upjohn a certain number of warrants based on the amount borrowed. The exercise price of each warrant will be equal to 140% of the average of the closing bid prices of the Common Stock for the ten trading days immediately preceding the borrowing request for the related loan. In connection with the first four quarterly loans received, we issued warrants to purchase 240,000 shares of Common Stock at an exercise price of $11.87 per warrant share for 120,000 shares and $14.83 for the remaining 120,000 shares. During the third quarter of 1998 and in connection with the 1998 Amendments, we implemented a cost restructuring program designed to focus our resources on our core development programs, which emphasize large potential market opportunities and unmet medical needs. Additionally, the program was designed to utilize the cost reimbursement components of the 1998 Amendments as well as streamline administrative activities, reduce overhead costs and eliminate positions that were not central to our core development programs. In February 1999, in connection with the 1999 Amendments, we refined the use of our resources to correspond with the change in cost reimbursement and assistance from Pharmacia & Upjohn while maintaining our core development programs. We will continue to evaluate the use of our resources in connection with our funding provisions, external resource assistance and as opportunities present themselves. In December 1999, we transitioned the majority of the operations of the Phase III clinical trials in AMD to Pharmacia & Upjohn in accordance with the 1999 Amendments. Pharmacia & Upjohn will now be responsible for directly funding the majority of the Phase III AMD clinical trial costs. We will continue to be responsible for the majority of the preclinical studies and part of the drug and device development and manufacturing necessary for the NDA submission for AMD and will be reimbursed for those costs in accordance with the 1999 Amendments. As a result, we anticipate our license income related to the reimbursement of out-of-pocket or direct costs, as well as our related expenses, will decrease. We are currently conducting clinical trials in oncology and ophthalmology. In dermatology, we are investigating the development of topical formulations of our photoselective drugs. Based upon the outcome of these studies and various economic and development factors, including cost, reimbursement and the available alternative therapies, we may or may not elect to further develop PhotoPoint procedures in oncology, ophthalmology, dermatology or in any other indications. Results of Operations The following table provides a summary of our revenues for the years ended December 31, 1999, 1998 and 1997:
--------------------------------------------------------------------------------------------------------------------------- Consolidated Revenues 1999 1998 1997 --------------------------------------------------------------------------------------------------------------------------- License - contract research & development..................... $ 13,996,000 $ 9,314,000 $ 1,896,000 Royalties..................................................... 143,000 191,000 236,000 Grants........................................................ 438,000 674,000 146,000 --------------------------------------------------------------------------------------------------------------------------- Total revenues................................................ $ 14,577,000 $10,179,000 $ 2,278,000 ---------------------------------------------------------------------------------------------------------------------------
Revenues. Our revenues increased from $2.3 million in 1997 to $10.2 million in 1998 and to $14.6 million in 1999. The fluctuations in license income are due to the following: o During 1999, we recorded revenues of $14.0 million for the specific reimbursement of out-of-pocket or direct costs incurred in preclinical studies and Phase III clinical trials in AMD. These reimbursements were recorded in accordance with the 1999 Amendments. The future revenues recorded for ophthalmology cost reimbursement are expected to decrease as we have transitioned the majority of the operations of the Phase III clinical trials in AMD to Pharmacia & Upjohn. As a result of this transition, we anticipate our license income related to the reimbursement of out-of-pocket or direct costs incurred will decrease, as well as our expenses related to Phase III clinical trials in AMD. o During 1998, we recorded revenues of $3.1 million for the specific reimbursement from Pharmacia & Upjohn for out-of-pocket or direct costs incurred in preclinical studies and clinical trials in AMD from the continuation of Phase I/II clinical trials in the first half of 1998 and the commencement of our Phase III clinical trials in the second half of 1998. During 1997, we recorded revenues of $724,000 for expenditures related to preclinical studies and Phase I/II clinical trials in AMD. o During 1998, we recorded revenues for oncology expenditures of $1.2 million under the 1995 Pharmacia & Upjohn license agreement and $5.0 million under the 1998 Amendments. In 1997 revenues of $1.2 million were recorded for the specific reimbursement of oncology clinical program costs in metastatic breast cancer, basal cell carcinoma, Kaposi's sarcoma and prostate cancer. These fluctuations in revenues are based on the timing of reimbursable costs incurred in preclinical studies and clinical trials, as well as the structure of the payments received under the different oncology agreements. In the last two quarters of 1998, under the 1998 Amendments, we received two quarterly payments of $2.5 million each which were designed to cover both the direct and indirect costs of these programs. In 1997 and the first two quarters of 1998, we were reimbursed for only the out-of-pocket or direct costs incurred in these programs. The fluctuations in grant income are due to the following: o We were awarded a two year grant of $1.5 million in 1997. Since the grant period began October 1 of 1997, we recorded three, twelve and nine months worth of grant revenue in 1997, 1998 and 1999, respectively. In 1999, 1998 and 1997, grant revenue amounted to $438,000, $674,000 and $146,000, respectively. Grant income will continue to fluctuate depending on the grant amount received, if any, and the term of the grant award. We have not yet received any further significant grants during 1999, but we will continue to pursue obtaining these grants as a means of funding research and development programs. There can be no assurance that we will be successful in obtaining such grants. The fluctuations in royalty income are due to the following: o We earned royalty income from a 1992 license agreement with Laserscope, which provided royalties on the sale of our previously designed device products. The fluctuations in revenues recorded are a function of the number of device products sold by Laserscope in each of the respective periods. No further royalty income is expected to be received, as the Laserscope license agreement terminated in April 1999. In accordance with the 1999 Amendments, we will only be reimbursed for the specific costs for preclinical studies and clinical trials in ophthalmology and we will no longer be reimbursed for any oncology and urology program costs or any milestone payments for AMD. In connection with the Equity Investment Agreement and the Credit Agreement, in February 1999 we entered into the 1999 Amendments to the License Agreements which included the elimination of the remaining future cost reimbursements for oncology and urology and any future milestone payments in AMD. Research and Development. Our research and development expenses of $29.7 million in 1999 were consistent with the $29.2 million in 1998 and have increased from the $20.2 million recorded in 1997. Our research and development expenses, net of license reimbursement and grant research and development reimbursements, were $15.3 million, $19.2 million and $18.2 million in 1999, 1998 and 1997, respectively. Research and development expenses incurred in 1999 related primarily to: o The costs associated with drug and device manufacturing and the screening, treatment and monitoring of qualified individuals participating in Phase III clinical trials for AMD and Phase I clinical trials for prostate cancer; o The ongoing preparation of the documentation and the collection of data for the Phase III clinical trials for AMD and regulatory filings; and o The preclinical studies and development work associated with the development of existing and new drug compounds, formulations and clinical programs. For the year ended December 31, 1999 as compared to the year ended December 31, 1998, we incurred substantial increases in our preclinical studies and clinical trial costs related to the Phase III program in AMD. These increases in 1999 were offset by decreases in salary expense, consultants, drug formulation costs for SnET2 and laser purchases. Research and development expenses increased from 1997 to 1998 due to increased costs in our Phase I/II AMD clinical trials as well as increased costs associated with the preparation of the documentation and patient follow up in our CMBC clinical trials. The increase was also related to increased costs incurred in developing new and existing drug compounds and increased amortization expense related to our construction of new laboratory space. Future research and development expenses may fluctuate depending on the level of Pharmacia & Upjohn's involvement in our Phase III AMD clinical trials, continued expenses incurred in our preclinical studies and clinical trials in our ophthalmology, oncology and other programs, costs associated with the purchase of raw materials and supplies for the production of devices and drug for use in preclinical studies and clinical trials, the pharmaceutical manufacturing scale-up to expand drug production to commercial levels and the expansion of our research and development programs, which includes the increased hiring of personnel, the continued expansion of preclinical studies and clinical trials and the development of new drug compounds and formulations. Selling, General and Administrative. Our selling, general and administrative expenses decreased to $7.5 million in 1999 from $9.6 million in 1998 and $13.7 million in 1997. The decrease in selling, general and administrative expenses from 1997 to 1998 is primarily due to a $5.5 million decrease in advertising expenses. The decrease from 1998 to 1999 is due primarily to a decrease in costs associated with professional services received from financial consultants, attorneys and public and media relations and a decrease in compensation expense associated with options and warrants issued to consultants and expense recorded for the executive option loans. Future selling, general and administrative expenses are expected to remain relatively consistent due to our September 1998 cost restructuring program. Conditions which may influence these expenses are the level of support required for research and development activities, continuing corporate development and professional services, compensation expense associated with stock options and warrants and financial consultants and general corporate matters. Loss in Investment in Affiliate. In connection with the $2.0 million line of credit we have provided to our affiliate, Ramus Medical Technologies or Ramus, we have recorded a reserve for the entire $2.0 million outstanding credit line balance plus accrued interest as of December 31, 1999. The $417,000 expense recorded in 1999 represents a reserve for the final amount of borrowings under the credit line plus accrued interest. The $2.9 million expense recorded in 1998 represents a $1.8 million reserve for funds provided to Ramus in 1998 under the revolving credit agreement, as well as a reduction, based on 100% of Ramus' losses for the respective period, of $895,000 related to our equity investment made in Ramus in 1996. Interest and Other Income. Interest and other income decreased to $1.2 million in 1999 from $3.5 million in 1998 and $2.6 million in 1997. The decrease is directly related to the decrease in the levels of cash and marketable securities earning interest. The level of future interest and other income will primarily be subject to the level of cash balances we maintain from period to period. Interest Expense. Interest expense increased to $434,000 in 1999 from $1,000 in 1998 and $6,000 in 1997. The increase is directly related to the amount of borrowings under the February 1999 Credit Agreement with Pharmacia & Upjohn and the value of the warrants issued in connection with the borrowings. Interest expense will continue to increase in the future based on the level of borrowings under the Credit Agreement and the value of the warrants issued in connection with the borrowings. As of December 31, 1999, we had approximately $139.3 million of net operating loss carryforwards for federal income tax purposes, which expire at various dates from the years 2002 through 2020. In addition, we had approximately $6.7 million of research and development and alternative minimum tax credit carryforwards available for federal and state tax purposes. We also had a state net operating loss tax carryforward of $24.1 million, which expires at various dates from the years 2000 to 2004. Under Section 382 of the Internal Revenue Code, utilization of the net operating loss carryforwards may be limited based on our changes in the percentage of ownership. Our ability to utilize the net operating loss carryforwards, without limitation, is uncertain. We do not believe that inflation has had a material impact on our results of operations. Liquidity and Capital Resources Since inception through December 31, 1999, we have accumulated a deficit of approximately $131.2 million and expect to continue to incur substantial, and possibly increasing, operating losses for the next few years. We have financed our operations primarily through private placements of Common Stock and Preferred Stock, private placements of convertible notes and short-term notes, our initial public offering, Pharmacia & Upjohn's purchases of Common Stock, a secondary public offering and credit arrangements. As of December 31, 1999, we have received proceeds from the sale of equity securities, convertible notes and credit arrangements of approximately $215.5 million. In September and October 1997, we entered into a private placement offering, which was subsequently amended with respect to certain purchasers, which provided net proceeds to Miravant of approximately $68.2 million. During 1998, under the price protection and repurchase provisions of these agreements, we issued an additional 2,444,380 shares of Common Stock, repurchased 337,500 shares of Common Stock for $16.9 million and paid $8.6 million. During the first quarter of 1999, we completed our price protection obligations through the payment of $4.2 million and the issuance of 688,996 shares Common Stock and the issuance of 450,000 warrants to purchase Common Stock at an exercise price of $35.00 per share. As such, we have no further obligation to these purchasers under the price protection or repurchase provisions of the Securities Purchase Agreements and the amendments thereto. In December 1997, the Board of Directors authorized a Common Stock repurchase program allowing for the repurchase of up to 750,000 shares of Common Stock. This 750,000 share repurchase authorization was in addition to and superseded the repurchase program authorized in July 1996, which allowed for the repurchase of up to 600,000 shares of Common Stock. We had no stock repurchases in 1999. In 1998 we repurchased stock under the Board authorized repurchase program which amounted to 725,000 shares at a cost of $17.9 million and in 1997 we repurchased 301,000 shares at a cost of $10.0 million. All shares repurchased were retired. The 750,000 repurchase plan has been fully utilized and no further repurchase programs have been authorized. In January 1999, under the Equity Investment Agreement, Pharmacia & Upjohn purchased 1,136,533 shares of our Common Stock for an aggregate purchase price of $19.0 million. In February 1999, in accordance with the Credit Agreement, Pharmacia & Upjohn also extended to us up to $22.5 million in credit over two years to be used to support our ophthalmology, oncology and other development programs, as well as for general corporate purposes. We are able to issue promissory notes for the quarterly interest amounts due on the amounts borrowed until December 2000 when the issuance of such promissory notes for the quarterly interest due will be subject to certain restrictions. The promissory notes mature in June 2004 and, at our option, can be repaid in the form of our Common Stock, subject to certain limitations and restrictions as defined by the Credit Agreement. The promissory notes accrue interest at the prime rate, which was 8.50% at December 31, 1999. To date, in accordance with the Credit Agreement, we have received four quarterly loans for a total of $15.0 million of the available $22.5 million. We expect to utilize the remaining $7.5 million available under the Credit Agreement during 2000. In accordance with the Credit Agreement, we have issued promissory notes to Pharmacia & Upjohn for the loan amounts received and issued additional promissory notes for a total of $379,000 for the related interest due on each of the quarterly due dates. In addition, under the terms of the Credit Agreement and in connection with the first four quarterly loans received, we issued warrants to purchase 240,000 shares of Common Stock at an exercise price of $11.87 per warrant share for 120,000 shares and $14.83 for the remaining 120,000 shares. In June 1998, we purchased a $5.0 million, 9% equity interest in Xillix. We received 2,691,904 shares of Xillix common stock in exchange for $3.0 million in cash and 58,909 shares of Miravant Common Stock at the market value on the date of the agreement of $25.06 per share, or $1.5 million. As of June 1999, the shares received are no longer restricted and can be sold at anytime by the Company. In addition, we entered into a strategic alliance agreement with Xillix to co-develop proprietary systems incorporating the technology of each company and to share the research and development costs. To date, we have not incurred any costs under this agreement. In April 1998, we entered into a $2.0 million revolving credit agreement with our affiliate, Ramus. As of December 31, 1999, we have provided the entire loan of $2.0 million to Ramus. The revolving credit line, which was due in full in March 2000, has been subsequently extended to a period in the future, for which the terms of the extension are currently being negotiated. In addition, in accordance with the 1996 equity investment in Ramus, we had an exclusive option to purchase the remaining shares of Ramus for a specified amount under certain terms and conditions. We elected not to exercise the option, which expired March 3, 1999. In February 1998, we agreed to guaranty a term loan in the amount of $7.6 million from a bank to a director of ours at the time. In June 1998, the director did not stand for re-election on the Board of Directors. The loan was due and payable on July 31, 1999 and was subsequently extended to October 31, 2000. In conjunction with the extension, we increased our security interest to include substantially all of the personal assets of the former director. Additionally, with the extension of the guaranty of this loan, the former director paid to Miravant a transaction fee of $152,000. In connection with the extension agreement, as of March 9, 2000, the former director has reduced the outstanding balance of the loan, and our guaranty, to $3.3 million. Under the loan agreement and the guaranty, the individual and Miravant are subject to the maintenance of specified financial and other covenants. In addition to receiving funds through private and public stock offerings, we have also received funding through the exercise of warrants and stock options. Based on the exercise prices, expiration dates and call features contained in certain warrants, and depending on the market value of our Common Stock, we may receive substantial additional funding through the exercise of these outstanding warrants and stock options in the future. For 1999, 1998 and 1997, we required cash for operations of $18.4 million, $21.7 million and $23.8 million, respectively. The decrease in cash required for operations from 1998 to 1999 was due to an increase in reimbursable research and development costs incurred which was offset by a decrease in non-cash charges for deferred compensation, stock awards and the reserve taken on the remaining Ramus line of credit. The decrease in cash required for operations from 1997 to 1998 was primarily due to the increased funding provided by Pharmacia & Upjohn under the June 1998 agreements for the oncology and urology program costs, as well as increases in non-cash expenses such as depreciation, deferred compensation, a reserve recorded on the Ramus line of credit and the reduction of accounts payable. For 1999 net cash used in investing activities was $4.4 million, for 1998 net cash provided by investing activities was $19.8 million and for 1997 net cash used in investing activities was $11.2 million. From 1997 to 1999 the fluctuations in investing activities were primarily due to the purchases and sales of investments which were used to fund operations and were based on the levels of cash available for investment. These fluctuations were further affected by our investment in Xillix and the line of credit provided to Ramus in 1998 and significant capital expenditures in 1997 and 1998, which were primarily related to laboratory construction costs. For 1999 net cash provided by financing activities was $30.6 million, in 1998 net cash used in financing activities was $42.5 million and in 1997 net cash provided by financing activities was $59.1 million. Cash provided by financing activities in 1999 was primarily attributed to Pharmacia & Upjohn's $19.0 million equity investment and $15.0 million provided under the Pharmacia & Upjohn Credit Agreement. The significant use of cash for financing activities in 1998 was related to purchases of our Common Stock under the Board authorized repurchase program as well as purchases of our Common Stock and the payment of cash under the price protection provisions of the Amended Securities Purchase Agreement. Cash provided in 1997 was directly related to the private placement offerings, which was offset by repurchases of our Common Stock under the Board authorized repurchase program. We invested a total of $9.1 million in property and equipment from 1996 through 1999. During 1998, we entered into a new lease agreement for an additional facility, for which we have completely subleased in December 1999. We expect to continue to purchase property and equipment in the future as we continue to expand our preclinical, clinical and research and development activities as well as the buildout and expansion of laboratories and office space. Our future capital funding requirements will depend on numerous factors including: o The progress and magnitude of our research and development programs, preclinical studies and clinical trials; o The time involved in obtaining regulatory approvals; o The cost involved in filing and maintaining patent claims; o Competitor and market conditions; o Investment opportunities; o Our ability to establish and maintain collaborative arrangements; o The level of Pharmacia & Upjohn's involvement in our Phase III AMD clinical trials; o The cost of manufacturing scale-up and the cost and effectiveness of commercialization activities and arrangements; and o Our ability to obtain grants to finance research and development projects. Our ability to generate substantial funding to continue our research and development activities, preclinical studies and clinical trials and manufacturing, scale-up, administrative activities and additional investment opportunities is subject to a number of risks and uncertainties and will depend on numerous factors including: o Our ability to raise funds in the future through public or private financings, collaborative arrangements or from other sources; o Our requirement to allocate 50% of the net proceeds from public or private financings towards the repayment of the funds received under the Credit Agreement; o The potential for equity investments, collaborative arrangements, license agreements or development or other funding programs with us in exchange for manufacturing, marketing, distribution or other rights to products developed by us; o The amount of funds received from outstanding warrant and stock option exercises; o Our ability to maintain our existing collaborative arrangements; o Our ability to liquidate our equity investments in Ramus, Xillix or other assets; o Our requirement to allocate 100% of the net proceeds from the liquidation of an existing asset towards the repayment of the funds received under the Credit Agreement; and o Our ability to collect the loan provided to Ramus under the credit agreement when due. We can not guarantee that additional funding will be available to us when needed. If it is not, we will be required to scale back our research and development programs, preclinical studies and clinical trials and administrative activities and our business and financial results and condition would be materially adversely affected. The impact of Year 2000. In prior years, we discussed the nature and progress of our plans to become Year 2000 compliant. In late 1999, we completed our remediation and testing of systems. As a result of those planning and implementation efforts, we experienced no significant disruptions in mission critical information technology and non-information technology systems and we believe those systems successfully responded to the Year 2000 date change. We are not aware of any material problems resulting from Year 2000 issues, either with our products, our internal systems, or the products and services of third parties. The costs incurred to assess, remediate and test the IT and Non-IT systems through 1999 were primarily fixed labor costs and were not significant. In addition, as we have not yet encountered any significant Year 2000 disruptions in 2000, future Year 2000 costs are also not expected to be significant. We will continue to monitor our critical computer applications and those of our suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. Except for the historical information herein, the matters discussed in this report are deemed forward-looking statements under federal securities laws that involve risks and uncertainties. Actual results may differ materially from those in the forward-looking statements depending on a number of factors including, among other things, the risks, uncertainties and other factors detailed in Item 1, "Business - Risk Factors." ITEM 7A.QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK The following discussion about our market risk disclosures involves forward-looking statements. Actual results could differ materially from those projected in the forward-looking statements. We are exposed to market risk related to changes in interest rates. The risks related to foreign currency exchange rates are immaterial and we do not use derivative financial instruments. From time to time, we maintain a portfolio of highly liquid cash equivalents maturing in three months or less as of the date of purchase. Given the short-term nature of these investments and that our borrowings outstanding are under variable interest rates, we are not subject to significant interest rate risk. ITEM 8.FINANCIAL STATEMENT AND SUPPLEMENTARY DATA The Report of Independent Accountants and the Consolidated Financial Statements and Notes to the Consolidated Financial Statements of Miravant that are filed as part of this Report are listed under Item 14, "Exhibits, Financial Statement Schedules, and Reports on Form 8-K" and are set forth on pages 42 through 58 immediately following the signature page of this Report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT This information is incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year. ITEM 11. EXECUTIVE COMPENSATION This information is incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT This information is incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS This information is incorporated by reference to the Company's definitive proxy statement to be filed pursuant to Regulation 14A not later than 120 days after the end of the Company's fiscal year. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a)(1) Index to Consolidated Financial Statements: Page ------------------------------------------- ---- Report of Independent Auditors 42 Consolidated Balance Sheets as of December 31, 1999 and 1998 43 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 44 Consolidated Statements of Shareholders' Equity for the years ended December 31, 1999, 1998 and 1997 45 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 46 Notes to Consolidated Financial Statements 47 (a)(2) Index to Consolidated Financial Statement Schedules: --------------------------------------------------- All schedules are omitted because the required information is not present or is not present in amounts sufficient to require submission of the schedule or because the information required is given in the consolidated financial statements or notes thereto. (a)(3) Index to Exhibits: ----------------- See Index to Exhibits on pages 59 to 60 (b) Reports on Form 8-K: ------------------- None 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. Miravant Medical Technologies /S/ Gary S. Kledzik --- --------------- Gary S. Kledzik, Ph.D. Chief Executive Officer and Chairman of the Board Dated: March 29, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date /S/ Gary S. Kledzik Chairman of the Board, Director, March 29, 2000 - ------------------------------------ and Chief Executive Officer, Gary S. Kledzik, Ph.D. (Principal Executive Officer) /S/ David E. Mai Director and President March 29, 2000 - ------------------------------------ David E. Mai /S/ John M. Philpott Chief Financial Officer and Controller March 29, 2000 - ------------------------------------ (Principal Financial Officer and John M. Philpott Principal Accounting Officer) /S/ Larry S. Barels Director March 29, 2000 - ------------------------------------ Larry S. Barels /S/ William P. Foley II Director March 29, 2000 - ------------------------------------ William P. Foley II /S/ Charles T. Foscue Director March 29, 2000 - ------------------------------------ Charles T. Foscue /S/ Jonah Shacknai Director March 29, 2000 - ------------------------------------ Jonah Shacknai
REPORT OF INDEPENDENT AUDITORS The Board of Directors and Shareholders Miravant Medical Technologies We have audited the accompanying consolidated balance sheets of Miravant Medical Technologies as of December 31, 1999 and 1998, and the related consolidated statements of operations, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted in the United States. 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 consolidated financial position of Miravant Medical Technologies at December 31, 1999 and 1998 and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /S/ ERNST & YOUNG LLP --------------------- ERNST & YOUNG LLP Woodland Hills, California March 7, 2000 CONSOLIDATED BALANCE SHEETS
December 31, 1999 1998 ------------------ ------------------- Assets Current assets: Cash and cash equivalents............................................... $ 19,168,000 $ 11,284,000 Investments in short-term marketable securities......................... 3,621,000 -- Accounts receivable..................................................... 5,717,000 3,038,000 Prepaid expenses and other current assets............................... 1,147,000 936,000 ------------------ ------------------- Total current assets....................................................... 29,653,000 15,258,000 Property, plant and equipment: Vehicles................................................................ 28,000 28,000 Furniture and fixtures.................................................. 1,639,000 1,720,000 Equipment............................................................... 5,495,000 5,180,000 Leasehold improvements.................................................. 4,488,000 4,232,000 Capital lease equipment................................................. 184,000 184,000 ------------------ ------------------- 11,834,000 11,344,000 Accumulated depreciation................................................ (8,112,000) (5,514,000) ------------------ ------------------- 3,722,000 5,830,000 Investments in affiliates.................................................. 752,000 1,512,000 Loan to affiliate, net of reserve of $2.2 million and $1.8 million at December 31, 1999 and 1998, respectively............................ -- -- Patents and other assets................................................... 825,000 1,210,000 ------------------ ------------------- Total assets............................................................... $ 34,952,000 $ 23,810,000 ================== =================== Liabilities and shareholders' equity Current liabilities: Accounts payable........................................................ $ 4,070,000 $ 3,541,000 Accrued payroll and expenses............................................ 650,000 583,000 ------------------ ------------------- Total current liabilities.................................................. 4,720,000 4,124,000 Long-term liabilities: Long-term debt.......................................................... 15,379,000 -- Sublease security deposits.............................................. 127,000 -- ------------------ ------------------- Total long-term liabilities................................................ 15,506,000 -- Shareholders' equity: Common stock, 50,000,000 shares authorized; 18,038,270 and 16,080,054 shares issued and outstanding at December 31, 1999 and 1998, respectively.................................................... 152,731,000 135,989,000 Notes receivable from officers.......................................... (460,000) (1,525,000) Deferred compensation and interest...................................... (2,647,000) (2,896,000) Accumulated other comprehensive loss.................................... (3,724,000) (2,964,000) Accumulated deficit..................................................... (131,174,000) (108,918,000) ------------------ ------------------- Total shareholders' equity................................................. 14,726,000 19,686,000 ------------------ ------------------- Total liabilities and shareholders' equity................................. $ 34,952,000 $ 23,810,000 ================== =================== See accompanying notes.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended December 31, 1999 1998 1997 ------------------- ------------------- ------------------ Revenues: License - contract research and development....... $ 13,996,000 $ 9,314,000 $ 1,896,000 Royalties......................................... 143,000 191,000 236,000 Grants............................................ 438,000 674,000 146,000 ------------------- ------------------- ------------------ Total revenues....................................... 14,577,000 10,179,000 2,278,000 Costs and expenses: Research and development.......................... 29,749,000 29,233,000 20,244,000 Selling, general and administrative............... 7,473,000 9,626,000 13,716,000 Loss in affiliate................................. 417,000 2,929,000 1,105,000 ------------------- ------------------- ------------------ Total costs and expenses............................. 37,639,000 41,788,000 35,065,000 Loss from operations................................. (23,062,000) (31,609,000) (32,787,000) Interest and other income (expense): Interest and other income......................... 1,240,000 3,546,000 2,584,000 Interest expense.................................. (434,000) (1,000) (6,000) ------------------- ------------------- ------------------ Total net interest and other income.................. 806,000 3,545,000 2,578,000 ------------------- ------------------- ------------------ Net loss............................................. $ (22,256,000) $ (28,064,000) $ (30,209,000) =================== =================== ================== Net loss per share - basic and diluted............... $ (1.25) $ (1.94) $ (2.36) =================== =================== ================== Shares used in computing net loss per share.......... 17,768,670 14,464,044 12,791,044 =================== =================== ================== See accompanying notes.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Notes Accumulated Receivable Deferred Other Common Stock from Compensation Comprehensive Accumulated Shares Amount Officers and Interest Loss Deficit Total ----------- ------------- ------------ --------------- ------------- --------------- ------------- Balance at January 1, 1997....... 12,337,876 $ 108,974,000 $ -- $ (1,612,000) $ -- $ (50,645,000) $ 56,717,000 Net loss......................... -- -- -- -- -- (30,209,000) (30,209,000) share (net of approximately $2,627,000 of offering costs).. 1,416,000 68,173,000 -- -- -- -- 68,173,000 warrants....................... 485,799 1,080,000 -- -- -- -- 1,080,000 Issuance of stock awards......... 14,172 456,000 -- -- -- -- 456,000 Repurchases of stock............. (301,000) (10,041,000) -- -- -- -- (10,041,000) to warrants granted, net of cancellations.................. -- 1,809,000 -- (1,809,000) -- -- -- Amortization of deferred compensation................... -- -- -- 1,522,000 -- -- 1,522,000 ------------ -------------- ----------- --------------- ------------- --------------- ------------ Balance at December 31, 1997...... 13,952,847 $170,451,000 $ -- $ (1,899,000) $ -- $ (80,854,000) $87,698,000 Comprehensive loss: Net loss....................... -- -- -- -- -- (28,064,000) (28,064,000) Unrealized loss in investment in Xillix........ 58,909 1,476,000 -- -- (2,964,000) -- (1,488,000) ------------- Total comprehensive loss......... (29,552,000) ------------- Exercise of stock options and warrants....................... 551,566 2,330,000 -- -- -- -- 2,330,000 Notes receivable from officers... 83,731 179,000 (1,525,000) -- -- -- (1,346,000) Issuance of stock awards......... 51,121 1,579,000 -- -- -- -- 1,579,000 Repurchases of stock............. (725,000) (17,911,000) -- -- -- -- (17,911,000) under the Securities Purchase Agreement and related amendments 2,106,880 (25,521,000) -- -- -- -- (25,521,000) Deferred compensation related to warrants granted and notes from officers.................. -- 3,406,000 -- (3,406,000) -- -- -- Amortization of deferred compensation................... -- -- -- 2,409,000 -- -- 2,409,000 ----------- ------------- ------------- --------------- ------------- ------------ ------------- Balance at December 31, 1998...... 16,080,054 $ 135,989,000 $(1,525,000) $(2,896,000) $(2,964,000) $(108,918,000) $19,686,000 Comprehensive loss: Net loss...................... -- -- -- -- -- (22,256,000)(22,256,000) Unrealized loss in investment in Xillix........ -- -- -- -- (760,000) -- (760,000) ------------- Total comprehensive loss......... (23,016,000) Issuance of stock at $16.71 per ------------- share (net of approximately $324,000 of offering costs).... 1,136,533 18,676,000 -- -- -- -- 18,676,000 Exercise of stock options and warrants....................... 36,202 95,000 -- -- -- -- 95,000 Notes receivable from officers... -- -- 1,065,000 -- -- -- 1,065,000 Issuance of stock awards......... 96,485 972,000 -- -- -- -- 972,000 Fulfillment of obligations under the Securities Purchase Agreement and related amendments...................... 688,996 (4,204,000) -- -- -- -- (4,204,000) Deferred compensation, deferred interest related to warrants granted and officer notes....... -- 1,203,000 -- (1,203,000) -- -- -- Amortization of deferred compensation and interest....... -- -- -- 1,452,000 -- -- 1,452,000 ------------ --------------- ------------- ------------ ------------- ------------ ------------- Balance at December 31, 1999.......18,038,270 $152,731,000 $ (460,000) $(2,647,000) $(3,724,000) $(131,174,000)$ 14,726,000 ============ =============== ============= ============ ============== ============ ============= See accompanying notes.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, Operating activities: 1999 1998 1997 ---------------- ---------------- --------------- Net loss............................................... $ (22,256,000) $ (28,064,000) $ (30,209,000) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization....................... 2,690,000 2,736,000 1,099,000 Amortization of deferred compensation and interest.. 1,452,000 2,409,000 1,522,000 Loss on sale of property, plant and equipment....... 25,000 -- -- Reserve for loan receivable from affiliate.......... 250,000 1,808,000 -- Stock awards........................................ 972,000 1,579,000 456,000 Non-cash interest on long-term debt................. 379,000 -- -- Write-off of investment in affiliate................ -- 895,000 1,105,000 Reserve for patents................................. 412,000 -- -- Changes in operating assets and liabilities: Accounts receivable ............................. (2,679,000) (1,349,000) 346,000 Prepaid expenses and other assets................ (235,000) (528,000) (372,000) Accounts payable and accrued payroll............. 596,000 (1,188,000) 2,244,000 ------------------ ------------------ ------------------ Net cash used in operating activities.................. (18,394,000) (21,702,000) (23,809,000) Investing activities: Purchases of marketable securities..................... (17,014,000) (230,660,000) (44,696,000) Sales of marketable securities......................... 13,393,000 258,456,000 37,500,000 Investments in affiliates.............................. -- (3,000,000) -- Loan to affiliate...................................... (250,000) (1,808,000) -- Purchases of property, plant and equipment............. (551,000) (2,731,000) (3,942,000) Sublease security deposits............................. 127,000 -- -- Purchases of patents................................... (59,000) (468,000) (17,000) ------------------ ------------------ ------------------ Net cash (used in) provided by investing activities.... (4,354,000) 19,789,000 (11,155,000) Financing activities: Proceeds from issuance of Common Stock, less issuance costs...................................... 18,771,000 2,509,000 69,253,000 Proceeds from long-term debt........................... 15,000,000 -- -- Purchases of Common Stock............................. -- (17,911,000) (10,041,000) Repayments (advances) of notes to officers............. 1,065,000 (1,525,000) -- Payments of capital lease obligations.................. -- (21,000) (38,000) Payments of long-term obligations...................... -- -- (42,000) Purchases of Common Stock under the Amended Securities Agreement................................ -- (16,875,000) -- Payments for price protection obligations under the Amended Securities Agreement........................ (4,204,000) (8,646,000) -- ------------------ ------------------ ------------------ Net cash provided by (used in) financing activities.... 30,632,000 (42,469,000) 59,132,000 Net increase (decrease) in cash and cash equivalents... 7,884,000 (44,382,000) 24,168,000 Cash and cash equivalents at beginning of period....... 11,284,000 55,666,000 31,498,000 ------------------ ------------------ ------------------ Cash and cash equivalents at end of period............. $ 19,168,000 $ 11,284,000 $ 55,666,000 ================== ================== ================== Supplemental disclosures: State taxes paid....................................... $ 100,000 $ 113,000 $ 104,000 ================== ================== ================== Interest paid.......................................... $ -- $ 1,000 $ 7,000 ================== ================== ================== See accompanying notes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Accounting Policies Description of Business and Basis of Presentation Miravant Medical Technologies, or the Company, is engaged in the research and development of drugs and medical device products for use in PhotoPoint(TM), the Company's proprietary technologies for photodynamic therapy. Effective September 15, 1997, the Company changed its name from PDT, Inc. to Miravant Medical Technologies. The Company is located in Santa Barbara, California. As of December 31, 1999, the Company had an accumulated deficit of $131.2 million and expects to continue to incur substantial, and possibly increasing, operating losses for the next few years. The Company is continuing its efforts in research and development and the preclinical studies and clinical trials of its products. These efforts, and obtaining requisite regulatory approval, prior to commercialization, will require substantial expenditures. While management of the Company believes that it has sufficient resources to fund the required expenditures for the next eighteen months and that additional funding will be available when required, there is no assurance that this will be the case. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and the accompanying notes. Actual results may differ from those estimates and such differences may be material to the financial statements. Principles of Consolidation The consolidated financial statements include the accounts of Miravant Medical Technologies and its wholly owned subsidiaries, Miravant Systems, Inc., Miravant Pharmaceuticals, Inc. and Miravant Cardiovascular, Inc. All significant intercompany balances and transactions have been eliminated in consolidation. Certain reclassifications of prior year amounts have been made for purposes of presentation. Cash Equivalents The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Marketable Securities Marketable securities consist of short-term, interest-bearing corporate bonds, U.S. Government obligations and municipal obligations. As of December 31, 1999, marketable securities of $3.6 million consisted of short-term, interest-bearing municipal bonds. As of December 31, 1998, the Company held no marketable securities. The Company has established investing guidelines relative to concentration, maturities and credit ratings that maintain safety and liquidity. In accordance with Statement of Financial Accounting Standards or SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company determines the appropriate classification of debt and equity securities at the time of purchase and re-evaluates such designation as of each balance sheet date. As of December 31, 1999 and 1998, all marketable securities and certain investments in affiliates were classified as "available-for-sale." Available-for-sale securities and investments are carried at fair value with unrealized gains and losses reported as a separate component of shareholders' equity. Realized gains and losses on investment transactions are recognized when realized based on settlement dates and recorded as interest income. Interest and dividends on securities are recognized when earned. Investments in Affiliates Investments in affiliates owned more than 20% but not in excess of 50%, where the Company is not deemed to be able to exercise controlling influence, are recorded under the equity method. Investments in affiliates, owned less than 20%, where the Company is not deemed to be able to exercise controlling influence, are recorded under the cost method. Under the equity method, investments are carried at acquisition cost and adjusted for the proportionate share of the affiliates' earnings or losses. Under the cost method, investments are recorded at acquisition cost and adjusted to fair value based on the investment classification. In December 1996, the Company purchased a 33% equity interest in Ramus Medical Technologies or Ramus for $2.0 million. The investment was accounted for under the equity method. As the Company is the main source of financing for Ramus, the Company has conservatively recorded 100% of Ramus' loss to the extent of the investment made by the Company, resulting in losses from affiliates of $1.1 million and $895,000 for the years ended December 31, 1997 and 1998, respectively and zero for the year ended December 31, 1999. The investment in Ramus has been fully reserved for as of December 31, 1999. In June 1998, the Company purchased a $5.0 million, 9% equity interest in Xillix Technologies Corp. or Xillix. The Company received 2,691,904 shares of Xillix common stock, in exchange for $3.0 million in cash and the remainder in Miravant Common Stock at the market value on the date of the agreement, which represented 58,909 shares of Common Stock at $25.06 per share, or $1.5 million. The investment has been accounted for under the cost method and classified as available-for-sale. At December 31, 1999, in accordance with the accounting for available-for-sale securities, the investment was adjusted to the current market value of Xillix common stock, with the resulting unrealized loss recorded as a separate component of shareholders' equity. Equipment and Leasehold Improvements Equipment is stated at cost with depreciation provided over the estimated useful lives of the respective assets on the straight-line basis. Leasehold improvements are stated at cost with amortization provided on the straight-line basis. The estimated useful lives of the assets are as follows: Furniture and fixtures 5 years Equipment 3 - 5 years Leasehold improvements 5 years or the remaining life of the lease term, whichever is shorter Patents and Other Assets Costs of acquiring patents are capitalized and amortized on the straight-line basis over the estimated useful life of the patents, seventeen years. Accumulated amortization was $231,000 and $175,000 at December 31, 1999 and 1998, respectively. The costs of servicing the Company's patents are expensed as incurred. Also included in this caption are deposits and other miscellaneous non-current assets. Long-Lived Assets The Company reviews for the impairment of long-lived assets and certain identifiable intangibles whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. No such significant impairment losses have been identified by the Company. An impairment loss would be recognized when the estimated future cash flows expected to result from the use of the asset and its eventual disposition is less than its carrying amount. Stock-Based Compensation SFAS No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation cost for stock-based employee compensation plans at fair value. The Company has chosen to continue to account for stock-based compensation using the intrinsic value method prescribed by Accounting Principles Board Opinion or APB Opinion No. 25 and related interpretations in accounting for its stock option plans. The Company also has granted and continues to grant warrants and options to various consultants of the Company. These warrants and options are generally in lieu of cash compensation and, as such, deferred compensation is recorded related to these grants. Deferred compensation for warrants and options granted to non-employees has been determined in accordance with SFAS No. 123 and Emerging Issues Task Force or EITF 96-18 as the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measured. Deferred compensation is amortized over the consulting or vesting period. Revenue Recognition The Company recognizes revenues from product sales at the time of shipment to the customer. Grant, royalty and licensing income is recognized based on the terms of the related agreements and license income includes the reimbursement of certain preclinical and clinical costs. Research and Development Expenses Research and development costs are expensed as incurred. The acquisition of technology rights for research and development projects and the value of equipment for specific research and development projects are also included in research and development expenses. Advertising Costs incurred for producing and communicating advertising are generally expensed when incurred. In September 1997, the Company commenced a name change awareness and product-branding program pursuant to which advertising costs were incurred. Advertising expense was not material for the years ended December 31, 1999 and 1998 and was $5.5 million for the year ended December 31, 1997. The amounts incurred in 1997 were primarily associated with the name change awareness and product-branding program. Segment Reporting Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information." SFAS No. 131 established standards for the way that public business enterprises report information about operating segments in the annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS No. 131 also established standards for related disclosures about products and services, geographic areas and major customers. The adoption of SFAS No. 131 did not affect the reported results of operations or financial position of the Company. In addition, the adoption of the new statements did not affect disclosures of segment information as the Company is engaged principally in one aggregated line of business, the research and development of drugs and medical device products for the use in the Company's proprietary technologies for photodynamic therapy. Comprehensive Income Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes new rules for the reporting and display of comprehensive income and its components; however, the adoption of SFAS No. 130 had no impact on the Company's net loss or shareholders' equity. Under SFAS No. 130, the Company has elected to report other comprehensive income, which includes unrealized gains or losses on available-for-sale securities, in the consolidated statements of shareholders' equity. Net Loss Per Share The Company calculates earnings per shares in accordance with SFAS No. 128, "Earnings per Share." Basic earnings per share excludes any dilutive effects of options, warrants and convertible securities. Diluted earnings per share reflects the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. Common stock equivalent shares from all stock options and warrants for all years presented have been excluded from this computation as their effect is anti-dilutive. Basic loss per common share is computed by dividing the net loss by the weighted average shares outstanding during the period in accordance with SFAS No. 128. Since the effect of the assumed exercise of common stock options and other convertible securities was anti-dilutive, basic and diluted loss per share as presented on the consolidated statements of operations are the same. 2. Credit Arrangements Pharmacia & Upjohn In February 1999, the Company and Pharmacia & Upjohn entered into a Credit Agreement which will extend to the Company up to $22.5 million in credit, which is subject to certain limitations and restrictions, to be used to support the Company's ophthalmology, oncology and other development programs, as well as for general corporate purposes. The Company issues promissory notes for each quarterly loan received and for the quarterly interest amounts due on the amounts borrowed until December 2000 when the issuance of such promissory notes for the quarterly interest due will be subject to certain restrictions. The promissory notes mature in June 2004 and, at the Company's option, can be repaid in the form of Miravant Common Stock, subject to certain limitations and restrictions as defined by the Credit Agreement. The promissory notes accrue interest at the prime rate, which was 8.50% at December 31, 1999. In connection with this credit, Pharmacia & Upjohn will receive a total of up to 360,000 warrants to purchase shares of Miravant Common Stock. The exercise price of each warrant will be equal to 140% of the average of the closing bid prices of the Common Stock for the ten trading days immediately preceding the borrowing request for the related loan. Under the Credit Agreement, the Company will be required to meet certain affirmative, negative and financial covenants until the loan is fully repaid. During 1999, in accordance with the Credit Agreement, the Company received the first four quarterly loans for a total of $15.0 million, of the available $22.5 million, and issued 240,000 warrants to purchase Miravant Common Stock at an exercise price of $11.87 per warrant share for 120,000 shares and $14.83 per warrant share for the remaining 120,000 shares. Accordingly, the Company issued promissory notes to Pharmacia & Upjohn for the total loan amounts received of $15.0 million and issued additional promissory notes for a total of $379,000 for the related interest due on each of the quarterly due dates. The Company expects to utilize the remaining $7.5 million available under the Credit Agreement during 2000. The warrants granted have been valued using a Black-Scholes Model and this deferred interest amount of $926,400 is being amortized to interest expense over the life of the warrants. Ramus In April 1998, the Company entered into a revolving credit agreement with its affiliate, Ramus. Under this agreement, Ramus has borrowed $1.8 million and $2.0 million as of December 31, 1998 and 1999, respectively. The unpaid principal amount of the loans, which was used to fund Ramus' clinical trials and operating costs, accrues interest at a variable rate (8.50% as of December 31, 1999) based on the Company's bank rate. The loan matures in March 2000 and has been subsequently extended to a period in the future, for which the terms of the extension are currently being negotiated. The Company has established a reserve for the entire outstanding balance of the loan receivable at December 31, 1999 and 1998, which is included in loss in affiliate in the consolidated statements of operations. 3. Shareholders' Equity Collaboration with Pharmacia & Upjohn In January 1999, the Company and Pharmacia & Upjohn, Inc., and certain other wholly owned subsidiaries, which collectively and individually are referred to as Pharmacia & Upjohn in this report, entered into an Equity Investment Agreement pursuant to which Pharmacia & Upjohn purchased from the Company 1,136,533 shares of the Company's Common Stock for an aggregate purchase price of $19.0 million, or $16.71 per share. This price includes a premium of approximately 20% over the ten-day average per share closing price of the Common Stock through January 14, 1999. Additionally, in connection with the Equity Investment Agreement and the Credit Agreement, in February 1999 the Company and Pharmacia & Upjohn amended the 1998 Amendments of the License Agreements to eliminate the remaining future cost reimbursements for oncology and urology and any future milestone payments in age-related macular degeneration or AMD. Private Placements In September and October 1997, the Company completed three private equity placements totaling $70.8 million, which provided net proceeds to the Company of $68.2 million. The private placements included the issuance of 1,416,000 shares of Common Stock at $50.00 per share, as well as one detachable Common Stock warrant for each share of Common Stock purchased. With respect to the warrants issued in connection with these placements, 50% were exercisable at $55.00 per share and 50% were exercisable at $60.00 per share. Additionally, the Securities Purchase Agreements provided price protection provisions that if on the first anniversary of the closing of the purchase, the thirty (30) day average closing bid price of the Common Stock for the period ending on the trading day prior to the anniversary date is less than the closing price paid by the purchasers, then the Company shall pay each purchaser additional cash or stock, or a combination of both, as determined by the Company at its sole option. In October 1998, for the purchasers of 516,000 shares, the Company satisfied its price protection obligation by issuing an additional 2,444,380 shares of Common Stock. Effective June 30, 1998, the Company entered into an Amended Securities Purchase Agreement or Amendment Agreement with the purchasers of 900,000 shares under the Securities Purchase Agreement. Included among the provisions of the Amendment Agreement is a change in the price protection provisions. Under the Amendment Agreement, the Company's obligation under the price protection provision was now spread out over an eight month period beginning August 1, 1998 and ending March 1, 1999, and was determined by the difference between the original purchase price and the thirty (30) day average closing bid price of the Common Stock on the first day of each month beginning August 1st and ending March 1st (each a "measurement date"). Additionally, the Amendment Agreement included repurchase provisions which provided that the Company also had the option to repurchase all or a part of the purchasers' shares at the original closing price of $50.00 per share and thus eliminate all of the purchasers' rights under the price protection provisions of the Amendment Agreement and the Securities Purchase Agreement. Under the Amendment Agreement, the exercise price of the original warrants issued to certain of the purchasers under the Securities Purchase Agreement was reduced to $35.00 and, under certain limited circumstances, the Company has the right to redeem the warrants. Furthermore, the Lock-Up Agreement was amended to provide that, if the Company does not repurchase the Common Stock, 1/8th of the shares and original warrant shares were released from the lock-up on each measurement date. In addition, if the Company did not repurchase all of the purchasers' original 900,000 shares within sixty (60) days of the closing of the Amendment Agreement, the Company agreed to issue an additional 450,000 warrants to the purchasers at an exercise price of $35.00 per share within five business days of March 1, 1999 or the early termination of the Lock-Up Agreement. The Company issued the 450,000 warrants in March 1999 and all lock-up agreements have expired. In accordance with the Amendment Agreement, the Company repurchased 337,500 shares subject to the repurchase provisions of the Amendment Agreement at a cost of $16.9 million. This repurchase eliminated the Company's obligation to issue additional shares or pay cash under the amended price protection provisions for the August 1, September 1 and October 1, 1998 measurement dates. For the November 1 and December 1, 1998 measurement dates, the Company fulfilled its price protection obligation by electing to pay the purchasers cash, which amounted to $4.6 million and $4.0 million, respectively. In addition, the Company fulfilled its price protection obligations for the January 1, February 1, and March 1, 1999 measurement dates by electing to pay the purchasers cash and Common Stock, with the cash portion amounting to $1.2 million, $1.3 million and $1.7 million, respectively and the Common Stock portion amounting to 199,746 shares, 207,072 shares and 282,178 shares, respectively. The Company has now satisfied all of its price protection obligations under the Amendment Agreement and, as such, the Company has no further price protection obligations under this agreement to any of these parties. Additionally, for the purchasers of 500,000 shares under the October 1997 private placements, the Company amended their warrant agreements by changing the warrant exercise price to $20.00 per share, reducing the number of warrant shares issued from 500,000 warrants to 450,000 warrants and adding a call provision to the warrant agreement allowing the Company to require the exercise of the warrants according to the terms of the amended warrant agreements. All of the warrants issued related to these private equity placements are exercisable and expire in December 2001. As of December 31, 1999, no warrants have been exercised. Common Stock Repurchase Plan In December 1997, the Board of Directors authorized a Common Stock repurchase program allowing for the repurchase of up to 750,000 shares of Common Stock. This 750,000 share repurchase authorization was in addition to and superseded the repurchase program authorized in July 1996, which allowed for the repurchase of up to 600,000 shares of Common Stock. The Company had no stock repurchases in 1999. In 1998, the Company repurchased stock under the Board authorized repurchase program, which amounted to 725,000 shares at a cost of $17.9 million. In 1997 the Company repurchased 301,000 shares at a cost of $10.0 million. All shares repurchased were retired. The 750,000 repurchase plan has been fully utilized and no further repurchase programs have been authorized. Notes Receivable from Officers In December 1997, the Compensation Committee of the Board of Directors recommended, and subsequently approved, non-recourse equity loans in varying amounts for the Company's Chief Executive Officer, President and Chief Financial Officer. The notes, which accrue interest at a fixed rate of 5.8% and are payable in five years, were awarded specifically for the purpose of exercising options to acquire the Company's Common Stock and for paying the related option exercise price and payroll taxes. The notes are collateralized by the underlying shares acquired upon exercise. In January 1999, the Company adjusted the loan balances to reflect a change in the amount of payroll taxes due. Payroll taxes of $961,000 originally withheld in 1998 were refunded to the Company by the applicable taxing agencies during 1999. As of December 31, 1999 the executive loan balances have been reduced accordingly and are classified as a reduction of shareholders' equity. Stock Option Plans The Company has five stock-based compensation plans which are described below - the 1989 Plan, the 1992 Plan, the 1994 Plan or, as a group, the Prior Plans, the Miravant Medical Technologies 1996 Stock Compensation Plan or the 1996 Plan and the Non-Employee Directors Stock Option Plan or the Directors' Plan. As disclosed in Note 1, the Company applies APB Opinion No. 25 and related interpretations in accounting for its stock option plans. The Prior Plans provided for the grant of both incentive stock options and non-statutory stock options. Stock options were granted under these plans to certain employees and corporate officers. The purchase price of incentive stock options must equal or exceed the fair market value of the Common Stock at the grant date and the purchase price of non-statutory stock options may be less than fair market value of the Common Stock at grant date. Effective July 21, 1996, the Prior Plans were superseded with the adoption of the 1996 Plan except to the extent of options outstanding in the Prior Plans. The Company has allocated 300,000 shares, 750,000 shares and 600,000 shares for the 1989 Plan, the 1992 Plan and the 1994 Plan, respectively. The outstanding shares granted under the Prior Plans vest in equal annual installments over four years beginning one year from the grant date and expire ten years from the original grant date. The 1996 Plan provides for awards which include incentive stock options, non-qualified stock options, restricted shares, stock appreciation rights, performance shares, stock payments and dividend equivalent rights. Included in the 1996 Plan is an employee stock purchase program which has not yet been implemented. Also included in the 1996 Plan is a Non-Employee Directors' Stock Option award program which provides for an automatic fully vested annual grant on the first day of the fourth quarter of each year to each non-employee director of a non-qualified stock option for the purchase of 7,500 shares of Common Stock at fair market value and occasional discretionary grants. Officers, key employees, directors and independent contractors or agents of the Company may be eligible to participate in the 1996 Plan, except that incentive stock options may only be granted to employees of the Company. The 1996 Plan supersedes and replaces the Prior Plans and the Directors' Plan, except to the extent of options outstanding under those plans. The purchase price for awards granted from the 1996 Plan may not be less than the fair market value at the date of grant. The maximum amount of shares that could be awarded under the 1996 Plan over its term is 4,000,000 shares. Awards granted under the 1996 Plan expire on the date determined by the Plan Administrators as evidenced by the award agreement, but shall not expire later than ten years from the date the award is granted except for grants of restricted shares which expire at the end of a specified period if the specified service or performance conditions have not been met. Other Stock Options In connection with employment agreements the Company has with its executives and certain key employees, non-qualified stock options have been granted to purchase shares of Common Stock. The options generally become exercisable in equal installments over four years beginning one year from the grant date and expire ten years from the original grant date. The following table summarizes all stock option activity:
Weighted Average Exercise price Exercise Stock per share Price Options - --------------------------------------------------------------------------------------------- Outstanding at January 1, 1997.......... $ 0.33 - 52.25 $ 12.76 2,258,430 Granted.............................. 28.00 - 55.50 35.05 446,000 Exercised............................ 0.33 - 29.00 5.06 (262,002) Canceled............................. 6.00 - 46.75 25.52 (200,645) - --------------------------------------------------------------------------------------------- Outstanding at December 31, 1997........ 0.33 - 55.50 16.80 2,241,783 Granted.............................. 8.50 - 39.00 21.21 1,117,250 Exercised............................ 0.33 - 28.00 2.43 (483,423) Canceled............................. 4.00 - 55.50 32.82 (376,754) - --------------------------------------------------------------------------------------------- Outstanding at December 31, 1998........ 0.67 - 55.50 19.14 2,498,856 Granted.............................. 7.00 - 13.31 10.98 855,875 Exercised............................ 4.00 - 8.00 5.49 (29,528) Canceled............................. 6.00 - 40.00 20.90 (171,146) - --------------------------------------------------------------------------------------------- Outstanding at December 31, 1999........ $ 0.67 - 55.50 $ 16.91 3,154,057 - --------------------------------------------------------------------------------------------- Options Outstanding by Price Range at December 31, 1999.................... $ 0.67 - 9.31 $ 5.73 1,171,907 $ 10.13 - 15.00 $13.24 909,250 $ 15.13 - 34.75 $31.37 995,400 $ 39.00 - 55.50 $43.44 77,500 Exercisable at: December 31, 1997....................... $ 0.33 - 55.50 $11.55 1,629,942 December 31, 1998....................... $ 0.67 - 55.50 $15.45 1,227,651 December 31, 1999....................... $ 0.67 - 55.50 $17.01 1,499,069
In accordance with APB Opinion No. 25 and in connection with accounting for the Company's stock-based compensation plans, the Company recorded total stock compensation expense of $15,200, $31,000 and $56,000 for the years ended December 31, 1999, 1998 and 1997, respectively, with respect to the variable stock options and options granted at less than fair value. Additionally, in January 1998, the Company issued loans to the Chief Executive Officer, President and Chief Financial Officer for the purpose of exercising stock options. In accordance with the accounting guidance for these types of loans, the Company recorded deferred compensation of $2.7 million related to these loans. For the years ended December 31, 1999 and 1998 the Company recorded $540,000 and $540,000 of compensation expense related to these loans. If the Company had elected to recognize stock compensation expense based on the fair value of the options granted at grant date for its stock-based compensation plans consistent with the method of SFAS No. 123, the Company's net loss and loss per share would have been reduced to the pro forma amounts indicated below:
1999 1998 1997 ----------------------------------------- --- ----------------- -- --------------------- ---- -------------------- Net loss As reported...................... $ (22,256,000) $ (28,064,000) $ (30,209,000) Pro forma........................ $ (28,511,000) $ (34,371,000) $ (34,332,000) Loss per share - basic and diluted As reported...................... $ (1.25) $ (1.94) $ (2.36) Pro forma........................ $ (1.61) $ (2.38) $ (2.68) ----------------------------------------- --- ----------------- -- --------------------- ---- -------------------- The fair value of each option grant was estimated using the Black-Scholes option pricing model using the Multiple Option approach whereby a separate fair value is computed for each vesting increment of an option. The following assumptions were used: 1999 1998 1997 ----------------------------------------- --- ----------------- --- -------------------- ---- -------------------- Expected dividend yield............. 0% 0% 0% Expected stock price volatility..... 50% 50% 50% Risk-free interest rate............. 6.17% - 6.77% 4.62% - 4.83% 5.71% - 5.81% Expected life of options............ 2 - 4 years 2 - 4 years 2 - 4 years ----------------------------------------- --- ----------------- --- -------------------- ---- --------------------
The above assumptions are highly subjective, in particular the expected stock price volatility of the underlying stock. Because changes in these subjective input assumptions can materially affect the fair value estimate, in management's opinion, the existing models do not provide a reliable single measure of the fair value of its stock options. The weighted average remaining contractual life of options outstanding at December 31, 1999, 1998 and 1997 was 7.1 years, 7.2 years and 6.6 years, respectively. Warrants In connection with a private placement offering which commenced in 1993 and continued through 1994, the Company issued one detachable Common Stock warrant for every two shares of Common Stock purchased. Each half warrant was allocated $0.67 of the overall $8.00 per share purchase price. In 1994 and 1993, the Company issued detachable stock warrants in connection with the private placement offering of 287,294 shares and 242,247 shares, respectively. Each detachable stock warrant provides for the purchase of one share of Common Stock at $8.00 per share with the warrants expiring on December 31, 2000. Warrants to purchase 1,563 shares, 136,688 shares and 136,783 shares of Common Stock were exercised during 1999, 1998 and 1997, respectively. During 1994 and 1993, the Company issued warrants to private placement selling agents and a corporate partner to purchase 7,216 shares and 148,449 shares of Common Stock, respectively. Each warrant provides for the purchase of one share of Common Stock at $8.00 per share with the warrants expiring December 31, 2000. Warrants to purchase 312 shares and 125,000 shares of Common Stock were exercised during 1998 and 1997, respectively, and no warrants were exercised in 1999. In January 1995, the Company, in connection with a loan received from a principal of its designated selling agent, issued warrants to purchase 15,000 shares of the Company's Common Stock at $10.67 per share. The warrants expire December 31, 2000. As of December 31, 1999, no warrants have been exercised. In April 1995, the Company, in connection with consulting agreements, issued warrants to purchase 750,000 shares of Common Stock at $10.67 per share to various consultants. In November 1995, in connection with consulting agreements, the Company issued warrants to purchase 55,000 shares of Common Stock at $34.75 per share to different consultants. During 1997 and 1998, in connection with consulting agreements, the Company issued warrants to purchase 128,000 shares and 240,000 shares, respectively, of Common Stock to various consultants. These warrants were priced at the fair market value on the date of grant and the prices ranged from $7.00 to $32.13 per share. All of these warrants vest equally over the term of the agreements, generally between one and four years. In September 1998 and June 1999, the Company issued warrants to purchase 150,000 shares and 87,500 shares, respectively, of Common Stock at $7.00 per share to a consultant of the Company. These shares are exercisable as of the date of grant and expire September 1, 2003. The consulting agreements can be terminated by the Company at any time with only those warrants vested as of the date of termination exercisable. The warrants expire five years after the date of issuance. As of December 31, 1999, no warrants have been exercised. The Company recorded deferred compensation associated with the value of these warrants of $276,000, $717,000 and $1.9 million in 1999, 1998 and 1997 respectively. The Company recorded compensation expense of $843,000, $1.8 million and $1.5 million for the years ended December 31, 1999, 1998 and 1997, respectively. In September and October 1997, the Company, in connection with three private equity placements, issued warrants to purchase 1,416,000 shares of Common Stock with 50% of the warrants exercisable at $55.00 per share and 50% exercisable at $60.00 per share. In addition, in connection with these private equity placements, the Company also issued warrants to purchase 250,000 shares of Common Stock to various selling agents. In accordance with the Amendment Agreement, for the purchasers of 900,000 shares, the warrant price was amended to be $35.00 per share and an additional 450,000 warrants at $35.00 per shares were issued in accordance with the Amendment Agreement. Additionally, for the purchasers of 500,000 shares under the October 1997 private placements, the Company amended their warrant agreements by changing the warrant exercise price to $20.00 per share, reducing the number of warrant shares issued from 500,000 warrants to 450,000 warrants and adding a call provision to the warrant agreement allowing the Company to require the exercise of the warrants according to the terms of the amended warrant agreements. All the warrants issued related to the private equity placements are exercisable and expire in December 2001. As of December 31, 1999, no warrants have been exercised. As of December 31, 1999, the Company has reserved a total of 3,855,678 shares of its Common Stock, which may be issued upon the exercise of the outstanding warrants, as described above and elsewhere in the notes to the financial statements. 4. Convertible Notes Payable In December 1994, the holders of $2.4 million in principal amount of convertible notes exchanged their notes for shares of Common Stock at $8.00 per share for 294,624 shares of Common Stock. The conversion also provided the noteholders with one warrant for every two shares of Common Stock converted for total warrants covering 147,312 shares of Common Stock. The warrants provide for the purchase of one share of Common Stock at $8.00 per share and expire December 31, 2000. During 1995, noteholders converted an additional $550,000 in principal amount of convertible notes for 68,748 shares of Common Stock at $8.00 per share. During 1996, holders of the remaining $93,000 in principal amount of convertible notes exchanged their notes for 11,562 shares of Common Stock at $8.00 per share. For the years ended December 31, 1999, 1998 and 1997 warrants to purchase 4,687 shares, 17,186 shares and 23,435 shares, respectively, of Common Stock were exercised. 5. Employee Benefit Plans The Company has available a retirement savings plan for all eligible employees who have completed three months and 500 hours of service and who are at least 21 years of age. The plan has received Internal Revenue Service approval under Section 401(a) of the Internal Revenue Code. Participating employees are 100% vested upon entering the plan and no matching contribution is made by the Company. On December 9, 1996, the Board of Directors approved the Miravant Medical Technologies 401(k) - Employee Stock Ownership Plan or the ESOP which provides substantially all employees with the opportunity for long-term benefits. The ESOP was implemented by management on July 1, 1998 and operates on a calendar year basis. In conjunction with the ESOP, the Company registered with the Securities and Exchange Commission 300,000 shares of the Company's Common Stock for purchase by the ESOP. The ESOP provides for eligible employees to allocate pre-tax deductions from payroll which are used to purchase the Company's Common Stock at fair market market value on a bi-weekly basis. The ESOP also provides for a discretionary contribution made by the Company based on the amounts contributed by the participants. The amount to be contributed by the Company is determined by the Board of Directors prior to the start of each plan year. Company contributions, which the Board of Directors determined to be 50% for the 1999 and 1998 plan years, are made on a quarterly basis and vest equally over a five year period. Total Company matching contributions for 1999, 1998 and 1997 were not significant. 6. Provision for Income Taxes Deferred income taxes reflect the net tax effects of net operating loss carryforwards, credits and temporary differences between the financial statements and tax basis of assets and liabilities. Significant components of the Company's deferred tax assets and liabilities as of December 31 are as follows:
1999 1998 ----------------------------------------------------------- Current Non-current Current Non-current ----------------------------------------------------------- Deferred tax assets: Other accruals and reserves........... $ 126,000 $ -- $ 118,000 $ -- Capitalized research and development.. -- 778,000 -- 3,315,000 Net operating losses and tax credits.. -- 52,504,000 -- 47,529,000 ----------------------------------------------------------- Total deferred tax assets............... 126,000 53,282,000 118,000 50,844,000 Deferred tax liabilities: Amortization and depreciation expense. -- 397,000 -- 234,000 Federal benefit for state income taxes 26,000 5,232,000 8,000 2,261,000 ----------------------------------------------------------- Total deferred tax liabilities.......... 26,000 5,629,000 8,000 2,495,000 ----------------------------------------------------------- Net deferred tax assets................. 100,000 47,653,000 110,000 48,349,000 Less valuation reserve.................. 100,000 47,653,000 110,000 48,349,000 ----------------------------------------------------------- $ -- $ -- $ -- $ -- -----------------------------------------------------------
The Company has net operating loss carryforwards for federal tax purposes of $139.3 million which expire in the years 2002 to 2020. Research and alternative minimum tax credit carryforwards aggregating $6.7 million are available for federal and state tax purposes and expire in the years 2002 to 2014. The Company also has a state net operating loss carryforward of $24.1 million which expires in the years 2000 to 2004. Under Section 382 of the Internal Revenue Code, the utilization of the Company's tax net operating losses may be limited based on changes in the percentage of ownership in the Company. 7. Commitments and Contingencies The Company has entered into agreements with various parties to perform research and development and conduct clinical trials on behalf of the Company. For the research and development agreements, the Company has the right to use and license, patent and commercialize any products resulting from these agreements. The Company does not have any financial commitments with respect to these agreements and records these expenses as the services and costs are incurred. The Company has also entered into licensing and OEM agreements to develop, manufacture and market drugs and devices for photodynamic therapy and other related uses. The agreements provide for the Company to receive or pay royalties at various rates. The Company has recorded royalty income received from device sales of $143,000, $191,000 and $234,000 for the years ended December 31, 1999, 1998 and 1997, respectively. In 1994, the Company entered into a development and commercial supply agreement with Pharmacia & Upjohn to receive formulation and packaging services for one of the Company's drugs at specified prices. For the years ended December 31, 1999, 1998 and 1997, the Company paid $1.3 million, $2.6 million and $3.3 million, respectively, and recorded as expense $881,000, $2.9 million and $2.9 million, respectively, primarily for the cost of drug formulation development. In 1998, the rights and obligations under this agreement were transferred to Fresenius Kabi LLC with operating terms remaining the same. Under the prior and current License Agreements, Pharmacia and Upjohn has provided the Company with funding and development for the right to sell and market the funded products once approved. The Company will receive royalty income based on the future drug product sales. For the years ended December 31, 1999, 1998 and 1997, the Company recorded license revenues of $14.0 million, $9.3 million and $1.9 million, respectively, related to the billing for the reimbursement of preclinical and clinical costs and no royalties from drug product sales. Certain of the Company's research has been or is being funded in part by Small Business Innovation Research or National Institutes of Health grants. As a result of such funding, the United States Government has or will have certain rights in the technology developed which includes a non-exclusive, worldwide license under such inventions of any governmental purpose and the right to require the Company to grant an exclusive license under any of such intentions to a third party based on certain criteria. For the years ended December 31, 1999, 1998 and 1997, the Company has recorded income from grants of $438,000, $674,000 and $146,000, respectively. In February 1998, the Company agreed to guaranty a term loan in the amount of $7.6 million from a bank to a director of the Company at the time. In June 1998, the director did not stand for re-election on the Board of Directors. The loan was due and payable on July 31, 1999, and was subsequently extended to October 31, 2000. In conjunction with the extension, the Company increased its security interest to include substantially all of the personal assets of the former director. Additionally, with the extension of the guaranty of this loan, the former director paid to the Company a transaction fee of $152,000. In connection with the extension agreement, as of March 9, 2000, the former director has reduced the outstanding balance of the loan, and the Company's guaranty, to $3.3 million. Under the loan agreement and the guaranty, the individual and Miravant are subject to the maintenance of specified financial and other covenants. The Company is involved in certain claims and inquiries that are routine to its business. Legal proceedings tend to be unpredictable and costly. Based on currently available information, management believes that the resolution of pending claims, regulatory inquiries, and legal proceedings will not have a material adverse effect on the Company's operating results, financial position or liquidity position. 8. Leases The Company leases four buildings for a total monthly rental expense of $116,000. Three of the leases were renewed in 1999 and all four expire between August 2002 and December 2003. The leases provide for annual rental increases based upon a consumer price index. In July 1997, the Company began to sublease a portion of one of its buildings to Ramus, an affiliate. The sublease agreement was for two years with rent based upon the percentage of square footage occupied and was extended during 1999 to March 2000. Sublease rental income from Ramus is approximately $4,100 per month. Additionally, in December 1999, the Company sublet one of its buildings to two separate parties. Both of the sublease agreements expire in 2003 and provide for annual rent increases based of the consumer price index. Sublease rental income from these parties is $33,000 per month. Sublease rental income is netted against the Company's rent expense. Beginning in 1993, the Company entered into capital lease agreements for various research equipment. The leases were from one to five years and required equal monthly payments of principal and interest, with interest ranging from 10% to 14%. Amortization expense related to this capitalized leased equipment is included as depreciation expense. Accumulated amortization was $176,000 and $158,000 at December 31, 1999 and 1998, respectively. As of December 31, 1999, the Company had no remaining capital lease obligations. Future minimum operating lease payments, net of sublease rental income, as of December 31, 1999 are as follows:
Lease Amount Minimum Payable Sublease Revenues Net ------------------ -------------------- ------------------ 2000.......................................... $ 1,387,000 $ 333,000 $ 1,054,000 2001.......................................... 1,387,000 395,000 992,000 2002.......................................... 1,160,000 395,000 765,000 2003.......................................... 652,000 329,000 323,000 ------------------ -------------------- ------------------ Total minimum lease payments.................. $ 4,586,000 $ 1,452,000 $ 3,134,000 ------------------ -------------------- ------------------
Rent expense was $1.3 million, $1.1 million and $866,000 for the years ended December 31, 1999, 1998 and 1997, respectively, net of sublease income of $47,000, $45,000 and $20,000, respectively. 9. Related Party Transactions An outside director of the Company is an officer of a consulting firm, which provides corporate financial consulting services in the areas of mergers and acquisitions, public and private financings, strategic planning and financial analysis. Both the consulting firm and the outside director have been advisors to the Company since 1991 and have been involved in the Company's private and public financings from 1991 to the present. The consulting firm was paid $222,000 in connection with the Company's private equity placements in 1997. In connection with ongoing services provided by the consulting firm, the Company recorded as expense $2,000, $373,000 and $178,000 for the years ended December 31, 1999, 1998 and 1997, respectively. In July 1996, a partner in a law firm used by the Company for outside legal counsel was elected by the Board of Directors to serve as Secretary of the Company. The Company paid $57,000 in connection with legal services for the Company's private equity placements in 1997 and $86,000 related to the Pharmacia & Upjohn Equity Investment in 1999. In connection with general legal services provided by the law firm, the Company recorded as expense $46,000, $246,000 and $155,000 for the years ended December 31, 1999, 1998 and 1997, respectively. 10. Fair Value of Financial Instruments The following is information concerning the fair value of each class of financial instrument as of December 31, 1999 and 1998: Cash, cash equivalents, accounts receivable and marketable securities The carrying amounts of cash, cash equivalents, accounts receivable and marketable equity securities approximate their fair values. Fair values of cash equivalents and marketable securities are based on quoted market prices. Long-Term Obligations The carrying amount of long-term obligations approximate their fair values due to variable interest rates on these obligations. INDEX TO EXHIBITS
Incorporating Exhibit Reference Number Description (if applicable) - ------ ----------- --------------- 3.1 Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant filed with the Delaware Secretary of State on September 12, 1998. [D][3.1] 3.2 Certificate of Amendment of the Restated Certificate of Incorporation of the Registrant [C][3.11] filed with the Delaware Secretary of State on July 24, 1995. 3.3 Restated Certificate of Incorporation of the Registrant filed with the Delaware Secretary [B][3.1] of State on December 14, 1994. 3.4 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.2] the Delaware Secretary of State on March 17, 1994. 3.5 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.3] the Delaware Secretary of State on October 7, 1992. 3.6 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.4] the Delaware Secretary of State on November 21, 1991. 3.7 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.5] the Delaware Secretary of State on September 27, 1991. 3.8 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.6] the Delaware Secretary of State on December 20, 1989. 3.9 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.7] the Delaware Secretary of State on August 11, 1989. 3.10 Certificate of Amendment of the Certificate of Incorporation of the Registrant filed with [A][3.8] the Delaware Secretary of State on July 13, 1989. 3.11 Certificate of Incorporation of the Registrant filed with the Delaware Secretary of State [A][3.9] on June 16, 1989. 3.12 Amended and Restated Bylaws of the Registrant. [D][3.12] 4.1 Specimen Certificate of Common Stock. [B][4.1] 4.2 Form of Convertible Promissory Note. [A][4.3] 4.3 Form of Indenture. [A][4.4] 4.4 Special Registration Rights Undertaking. [A][4.5] 4.5 Undertaking Agreement dated August 31, 1994. [A][4.6] 4.6 Letter Agreement dated March 10, 1994. [A][4.7] 4.7 Form of $10,000,000 Common Stock and Warrants Offering Investment Agreement. [A][4.8] 4.8 Form of $55 Common Stock Purchase Warrant. [E][4.1] 4.9 Form of $60 Common Stock Purchase Warrant. [E][4.2] 4.10 Form of $35 Amended and Restated Common Stock Purchase Warrant. [F][4.1] 4.11 Form of Additional $35 Common Stock Purchase Warrant. [F][4.2] 4.12 Warrant to Purchase 10,000 Shares of Common Stock between the Registrant and Charles S. [G][4.12] Love.* 4.13 Form of $20 Private Placement Warrant Agreement Amendment No. 1 10.1 Amendment No. 7 dated as of January 1, 1999 to Employment Agreement between the [H][10.1] Registrant and Gary S. Kledzik.** 10.2 Amendment No. 12 dated as of January 1, 1999 to Employment Agreement between the [H][10.2] Registrant and David E. Mai.** 10.3 Amendment No. 4 dated as of January 1, 1999 to Employment Agreement between the [H][10.3] Registrant and John M. Philpott.** 10.4 Equity Investment Agreement dated January 15, 1999 between the Registrant and Pharmacia & [I][10.1] Upjohn, Inc., and Pharmacia & Upjohn, S.p.A. 10.5 Credit Agreement between the Registrant and the Lender. [I][10.2] 10.6 Warrant Agreement between the Registrant and Pharmacia & Upjohn, Inc. [I][10.3] 10.7 Security Agreement between the Registrant and the Secured Party. [I][10.4] 10.8 Registration Rights Agreement between the Registrant and Pharmacia & Upjohn, Inc. [I][10.5] 10.9 Amended and Restated Ophthalmology Development & License Agreement between the Registrant [I][10.6] and Pharmacia & Upjohn AB. 10.10 Cardiovascular Right of First Negotiation between the Registrant and Pharmacia & Upjohn, [I][10.7] Inc. 10.11 Guaranty Letter Agreement dated August 4, 1999 between the Registrant, Michael D. Farney and Sanwa Bank.* 10.12 Third Amendment to Term Loan Agreement dated October 31, 1999 between the Registrant, Michael D. Farney and Sanwa Bank. 10.13 Stock Pledge Agreement dated October 27, 1999 between the Registrant, Michael D. Farney and Sanwa Bank.* 10.14 Account Control Agreement dated October 27, 1999 between the Registrant, Michael D. Farney and Salomon Smith Barney Inc.* 21.1 Subsidiaries of the Registrant. 23.1 Consent of Independent Auditors. 27.1 Financial Data Schedule. - -------------------------------------------
[A] Incorporated by reference from the exhibit referred to in brackets contained in the Registrant's Registration Statement on Form S-1 (File No. 33-87138). [B] Incorporated by reference from the exhibit referred to in brackets contained in Amendment No. 2 to the Registrant's Registration Statement on Form S-1 (File No. 33-87138). [C] Incorporated by reference from the exhibit referred to in brackets contained in the Registrant's Form 10-Q for the quarter ended June 30, 1995, as amended on Form 10-Q/A dated December 6, 1995 (File No. 0-25544). [D] Incorporated by reference from the exhibit referred to in brackets contained in the Registrant's Form 10-Q for the quarter ended September 30, 1998 (File No. 0-25544). [E] Incorporated by reference from the exhibit referred to in brackets contained in the Registrant's Registration Statement on Form S-3 (File No. 333-39905). [F] Incorporated by reference from the exhibit referred to in brackets contained in the Registrant's Form 8-K dated June 30, 1998 (File No. 0-25544). [G] Incorporated by reference from the exhibit referred to in brackets contained in the Registrant's Form 10-Q for the quarter ended March 31, 1998 (File No. 0-25544). [H] Incorporated by reference from the exhibit referred to in brackets contained in the Registrant's Form 10-Q for the quarter ended March 31, 1999 (File No. 0-25544). [I] Incorporated by reference from the exhibit referred to in brackets contained in the Registrant's Form 8-K dated January 15, 1999 (File No. 0-25544). ** Management contract or compensatory plan or arrangement. * Confidential portions of this exhibit have been deleted and filed separately with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. EX-21 2 EX- 21.1 - SUBSIDIARIES OF REGISTRANT Exhibit 21.1 Subsidiaries of the Registrant Miravant Pharmaceuticals, Inc. Miravant Systems, Inc. Miravant Cardiovascular, Inc. EX-23 3 EX- 23.1 CONSENT OF INDEPENDENT AUDITORS Exhibit 23.1 Consent of Ernst & Young LLP, Independent Auditors We consent to the incorporation by reference in the Registration Statements (Form S-8 No. 333-29413) pertaining to the Miravant Medical Technologies 401(k) - - Employee Stock Ownership Plan and (Form S-8 No. 333-34953 and Form S-8 No. 333-93385) pertaining to the Miravant Medical Technologies 1989 Stock Option Plan, the Miravant Medical Technologies 1992 Stock Option Plan, the Miravant Medical Technologies 1994 Stock Option Plan, the Miravant Medical Technologies Non-Employee Directors' Stock Option Plan and the Miravant Medical Technologies 1996 Stock Compensation Plan and to the incorporation by reference in the Registration Statements (Form S-3/A2 No. 333-60251 and Form S-3 No. 333-84003) and in the related Prospectuses of our report dated March 7, 2000, with respect to the consolidated financial statements of Miravant Medical Technologies included in its Annual Report (Form 10-K) for the year ended December 31, 1999. /S/ ERNST & YOUNG LLP --------------------- ERNST & YOUNG LLP March 27, 2000 Woodland Hills, California EX-27.1 4 FDS --
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND IN THE COMPANY'S FORM 10-K FOR THE PERIOD ENDED DECEMBER 31, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.) 1,000 YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 19,168 3,621 5,717 0 0 29,653 11,834 (8,112) 34,952 4,720 0 0 0 152,731 (138,005) 34,952 0 14,577 0 37,639 0 0 434 (22,256) 0 (22,256) 0 0 0 (22,256) (1.25) (1.25)
EX-4 5 EX-4.13 FORM OF AMENDMENT NO.1 WARRANT AGREEMENT AMENDMENT NO. 1 MIRAVANT MEDICAL TECHNOLOGIES PRIVATE PLACEMENT WARRANT AGREEMENT WHEREAS: The undersigned, hereinafter called the "Holder" and Miravant Medical Technologies (Formerly PDT, Inc.), a Delaware corporation, hereinafter called the "Company" are parties to a Miravant Medical Technologies Warrant Agreement number _____ and _____, originally issued October 3, 1997, hereinafter collectively called the "Warrant", which grants the Holder the right to purchase up to a total of _______ shares of Miravant Medical Technologies Common Stock at a price of $55.00 per share for ________ shares and $60.00 per share for _________ shares, respectively; and WHEREAS: The Holder and the Company wish to amend the Warrant to reduce the Exercise Price of the Warrant to $20.00 in consideration of the Holder agreeing to the following: (i) to forfeit and cancel ______ shares, which represents 10% of the Shares subject to the Warrant; (ii) to add a Call feature to the Warrant; (iii) to eliminate the right to Cashless Exercise by the Holder; (iv) to eliminate the Limitation on Exercise, and (v) to modify the right of assignment of the Warrant by the Holder. WHEREAS: The Holder and the Company wish to consolidate Warrant numbers ____ and ____ into Warrant number _____ and to hereby cancel and terminate Warrant number _____. NOW, THEREFORE, the Warrant is hereby amended as follows 1. First paragraph of the Warrant is hereby amended to read in its entirety: Miravant Medical Technologies, a Delaware corporation (the "Company"), hereby certifies that HOLDER, its permitted transferees, designees, successors and assigns (collectively, the "Holder"), for value received, is entitled to purchase from the Company at any time commencing on October 3, 1997, and terminated on December 25, 2001 ("Termination Date"), which may be extended from time to time by the Company at the Company's sole discretion, up to ________ (#) shares (each a "Share" and collectively the "Shares") of the Company's common stock par value $.01 per Share (the "Common Stock"), at an exercise price of Twenty Dollars ($20.00) per Share (the "Exercise Price"). The number of Shares purchasable under this Warrant, number ___, represent the consolidation of warrant numbers ___ and ____ and the termination of Warrant number ___. The number of Shares purchasable hereunder and the Exercise Price are subject to adjustment as provided in Section 4 hereof. 2. A New Section, Section 1 (c), is hereby added to the Warrant and shall read as follows: Section 1 (c) Mandatory Exercise. (1) If and only if the average of the closing prices (as reported by NASDAQ) of the Common Stock for 10 consecutive Trading Days immediately preceding a particular date (the "Trigger Date") is equal to or exceeds $28.00 per share representing one or more Warrants, the Company shall be entitled, at its option, to cause the Holder of such Warrant Agreement to exercise all, or a portion of thereof, of the related Warrants (the "Called Warrants") as provided herein. (2) If the Company elects to cause the Holder to exercise the Called Warrants, it shall furnish to the Holder, at any time following the Trigger Date, a written notice thereof, (the "Call Notice"), specifying the identifying number of the Warrant Agreement evidencing the Called Warrants and the Trigger Date. (3) Not later than thirty (30) Days following Call Notice, the Holder of the Called Warrants shall deliver to the Company the agreement representing the Called Warrants and a check for the product of (i) the Exercise Price, multiplied by (ii) the number of Called Warrants. (4) Not later than thirty (30) Days following the receipt of payment provided in Section 1 (c) 3 above, the Company will deliver to the Holder a stock certificate for the shares purchased hereunder. 3. Section 1.(b) Cashless Exercise of the Warrant is hereby cancelled and terminated. 4. Section 16. Limitation on Exercise of the Warrant is hereby cancelled and terminated. 5. Section 18. Assignment is amended to read as follows: 18. Assignment. This Warrant may not be assigned or transferred without the prior written consent of the Company. Upon the request by the Holder, the Company will not unreasonably withhold such consent. 6. In all other respects, the Miravant Medical Technologies Warrant Agreement is ratified as issued by the Company and accepted by the Holder. 7. The Effective Date of this Amendment is November 16, 1999. IN WITNESS WHEREOF, the parties hereto have executed this Amendment to be effective on the date written above. Miravant Medical Technologies The "Holder": a Delaware Corporation By: _____________________________ By: ___________________________ Holder EX-10.11 6 EX - 10.11 - GUARANTY LETTER AGREEMENT MIRAVANT MEDICAL TECHNOLOGIES 336 Bollay Drive Santa Barbara, CA 93117 August 4, 1999 Via Facsimile ***** and Federal Express Mr. Michael D. Farney ***** Re: Miravant Medical Technologies ("Miravant") Dear Mike: This letter agreement (the "Letter Agreement") will reflect our mutual agreement regarding Miravant's guaranty of your Sanwa Bank ("Sanwa") loan. 1. You agree that the properties listed below (the "Properties") will be immediately put up for sale at their appraised values based on an MAI appraisal or other appraisal acceptable to Miravant, and you will provide Miravant with copies of the appraisals on the Properties as well as copies of the Listing Agreements. All proceeds from the sale of any of the Properties will be used to pay down the Sanwa Loan. If the Properties have not been sold within one hundred twenty (120) days from the date of this Letter Agreement, you will immediately reduce the selling prices to prices which, in the opinion of the listing broker, will lead to a sale but not less than a reduction of ten percent (10%) following each additional ninety (90) days, and reoccurring each ninety (90) days thereafter that the Properties remain unsold, either by the owner or the broker, or you have made the ***** pay-down by another means. You will pay-down the Sanwa Loan by ***** through the refinancing of the Properties or by other means. If you do secure such refinancing, then you need not sell the Properties. 2. You will grant Miravant a Second Trust Deed on each of the following Properties, and in the case of the vacant lot, a First Trust Deed. Miravant has terminated the request for a Trust Deed on your ***** residence subject to this matter being resolved immediately. You represent that the status of these Properties are as follows: ***** Confidential Treatment Requested Debt Cost Acquisition Date ***** (collectively, the "Properties"). 3. You will grant Miravant a security interest in the ***** Promissory Note. Any proceeds from that asset will be immediately applied to the Sanwa Loan. You will also sign a Form UCC-1 regarding the White Plains Promissory Note. 4. You hereby consent to the transfer by Sanwa of Miravant shares for payment to Miravant of its original Credit Enhancement Fee of 4,343 shares of Miravant stock in accordance with the Indemnification Agreement dated February 27, 1998 (the "Indemnification Agreement"). 5. ***** 6. ***** 7. For the foregoing accommodations, you will pay to Miravant, in Miravant shares held by Sanwa, an Extension Fee of Two Percent (2%) of the balance of the Sanwa Loan, payable in cash, or shares of Miravant stock, valued as of the last sale on the trading day prior to the execution of this Letter Agreement, which is payable upon the execution of this Letter Agreement. 8. Miravant will ask Sanwa to continue its forbearance and extend the Sanwa Loan, and would also agree to continue to guaranty your obligations to Sanwa for a period of one year from July 31, 1999, subject to your timely performance of all obligations to Sanwa or to Miravant. 9. Time is of the essence in this matter since it cannot be resolved overnight, and we need your immediate agreement so that you can secure appraisals on the real estate and we can take steps necessary to implement this transaction, including securing the approval of Pharmacia & Upjohn to this transaction as well as Miravant's Board of Directors. 10. You ratify and confirm the Indemnification Agreement including, without limitation, the General Release contained in Paragraph 13 thereof, which will now apply to all matters through the date of this Letter Agreement. 11. You will either pay Miravant, or authorize Sanwa to pay Miravant, shares in an amount equal to Miravant's legal fees and costs which are estimated to be not more than $5,000. 12. You hereby authorize Miravant to view credit reports on you, obtained by Sanwa. Please indicate your agreement to the foregoing by signing in the space set forth below. ***** Confidential Treatment Requested Very truly yours, MIRAVANT MEDICAL TECHNOLOGIES By: /s/ Gary S. Kledzik ------------------------- Gary S. Kledzik, Chairman We agree to the foregoing. Date: August 5, 1999 /s/ Michael D. Farney --------------------- MICHAEL D. FARNEY Date: August 5, 1999 /s/ Sally Farney --------------------- SALLY FARNEY ***** Confidential Treatment Requested EX-10.12 7 EX - 10.12 THIRD AMENDMENT TO TERM LOAN THIRD AMENDMENT TO TERM LOAN AGREEMENT This Third Amendment to Term Loan Agreement (the "Amendment") is made and entered into as of October 31, 1999 by and among SANWA BANK CALIFORNIA (the "Bank") on the one hand and MICHAEL D. FARNEY (the "Borrower") and MIRAVANT MEDICAL TECHNOLOGIES (the "Guarantor") on the other hand with respect to the following: RECITALS A. This Amendment shall be deemed to be a part of and subject to that certain Term Loan Agreement between Bank and Borrower dated as of February 17, 1998 as it may have been or may be amended from time to time (collectively the "Agreement"). Unless otherwise defined herein, all terms used in this Amendment shall have the same meanings as in the Agreement. To the extent that any of the terms or provisions of this Amendment conflict with those contained in the Agreement, the terms and provisions contained herein shall control. B. The Agreement has a maturity date of October 31, 1999. The Borrower and the Guarantor have requested that the Bank extend the maturity date of the Agreement, which the Bank is willing to consent and agree to subject to the terms and conditions of this Amendment. NOW, THEREFORE, for valuable consideration, the Borrower, the Guarantor and the Bank agree as follows: AGREEMENT 1. Incorporation of Recitals. The foregoing recitals are incorporated herein by this reference, and the parties agree that each of such recitals is true and correct in all material respects. 2. Acknowledgment of Indebtedness. As of the date of execution of this Amendment, Borrower and Guarantor acknowledge and agree that the outstanding principal amount of Obligations under the Agreement is $7,593,027.50, together with any accrued and unpaid interest. Borrower and Guarantor acknowledge and agree that each of them has no valid defense, setoff or counterclaim which would in any way alter, reduce or extinguish its respective obligation to Bank to repay the Obligations. 3. Payment of Interest. Interest shall continue to accrue on the outstanding principal balance of the Term Loan at a rate equal to the Bank's Reference Rate as it may change from time to time minus .50% per annum. The Borrower hereby promises and agrees to pay to the Bank interest quarterly on the first day of each quarter, in other words on February 1, 2000, on May 1, 2000, and on August 1, 2000 and on the maturity date of October 31, 2000. 4. Maturity Date. The date of "October 31, 1999" is hereby deleted in Section 2.02 D of the Agreement. The date of "October 31, 2000" is hereby substituted in its place as the maturity date of the Term Loan, on which date the aggregate unpaid principal balance then outstanding, together with all accrued and unpaid interest thereon, is due and payable unless sooner due in accordance with the terms of the Agreement. 5. Release of Security Interest. Bank is presently holding as collateral for the payment and performance of Borrower's Obligations 405,000 shares of the common stock of Guarantor, formerly known as PDT, Inc., in the name of Borrower as record holder. The security interest in such shares of stock is hereby terminated and released, and Section III "Collateral" of the Agreement is deleted in its entirety. All references to "Collateral" in the Agreement are hereby deleted, including without limitation, Sections 6.01, 6.03, 6.07, 7.08, 8.04, 8.05 and 9.02 in their entirety The Special Power of Attorney executed by Borrower in favor of Bank shall be of no further force and effect. Pursuant to Borrower's agreement with Guarantor and with the consent of Guarantor, Borrower hereby authorizes and directs Bank to deliver the foregoing shares of stock to Salomon Smith Barney, Inc. Nothing contained herein is intended to, or should it be construed as, amending, invalidating, impairing or otherwise affecting in any manner the security interest granted by Guarantor in favor of Bank pursuant to its Security Agreement to secure payment and performance under its Guaranty of Borrower. 6. Conditions Precedent. The obligations of Bank in connection with this Amendment are subject to the conditions precedent that: (a) This Amendment has been executed by Borrower and Guarantor; (b) Concurrently with the execution of this Amendment, payment to Bank in immediately available funds of an extension fee of $37,965.00, which amount is equal to 0.5% of the outstanding principal balance of the Term Loan. Such fee shall be deemed fully earned upon payment and shall not be refunded in the event Borrower repays its Obligations to Bank before the maturity date of the Agreement; (c) Concurrently with the execution of this Amendment, payment to Bank in immediately available funds of all accrued and unpaid interest on the Term Loan through and including October 31, 1999; and (d) Delivery to Bank of an opinion of counsel in form and content satisfactory to Bank from Nida & Maloney, counsel to Guarantor, as to such matters as are required by Bank. 7. Release. (a) FOR GOOD AND VALUABLE CONSIDERATION, Borrower and Guarantor do each hereby forever relieve, release, and discharge Bank and its present or former employees, officers, directors, agents, representatives, attorneys, and each of them, from any and all claims, debts, liabilities, demands, obligations, promises, acts, agreements, costs and expenses, actions and causes of action, of every type, kind, nature, description or character whatsoever, whether known or unknown, suspected or unsuspected, absolute or contingent, arising out of or in any manner whatsoever connected with or related to facts, circumstances, issues, controversies or claims existing or arising from the beginning of time through and including the date of execution of this Amendment (collectively "Released Claims"). Without limiting the foregoing, the Released Claims shall include any and all liabilities or claims arising out of or in any manner whatsoever connected with or related to (i) the Agreement, (ii) the Guaranty, (iii) any instruments, agreements or documents executed in connection with any of the foregoing or (iv) the origination, negotiation, administration, servicing and/or enforcement of any of the foregoing. (b) In furtherance of this release, Borrower and Guarantor expressly acknowledge and waive any and all rights under Section 1542 of the California Civil Code, which provides as follows: "A general release does not extend to claims which the creditor does not know or expect to exist in his favor at the time of executing the release, which if known by him must have materially affected his settlement with the debtor." (c) By entering into this release, Borrower and Guarantor recognize that no facts or representations are ever absolutely certain and it may hereafter discover facts in addition to or different from those which it presently knows or believes to be true, but that it is the intention hereby to fully, finally and forever settle and release all matters, disputes and differences, known or unknown, suspected or unsuspected; accordingly, if any party should subsequently discover that any fact that it relied upon in entering into this release was untrue, or that any understanding of the facts was incorrect, Borrower and Guarantor shall not be entitled to set aside this release by reason thereof, regardless of any claim of mistake of fact or law or any other circumstances whatsoever. (d) This release may be pleaded as a full and complete defense and/or as a cross-complaint or counterclaim against any action, suit, or other proceeding that may be instituted, prosecuted or attempted in breach of this release. Borrower and Guarantor acknowledge that the release contained herein constitutes a material inducement to Bank to enter into this Amendment and that Bank would not have done so but for Bank's expectation that such release is valid and enforceable in all events. 8. Integration. This Amendment constitutes the complete agreement of the parties with respect to the subject matters referred to herein and supersedes all prior or contemporaneous negotiations, conversations or writings of every kind or nature whatsoever with respect thereto, all of which have become merged and finally integrated into this Amendment and, to the extent not included herein, are hereby released, waived and relinquished. 9. Incorporation into Agreement. On and after the effective date of this Amendment, each reference in the Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like import referring to the Agreement shall mean and be referenced to the Agreement as amended by this Amendment. This Amendment may be modified or amended only by written agreement duly executed by all of the parties. 10. No Waiver. The execution, delivery and performance of this Amendment shall not, except as expressly provided herein, constitute a waiver of any provision of, or operate as a waiver of any right, power or remedy of the Bank under the Agreement. 11. Confirmation of Other Terms and Conditions of Agreement. Except as specifically provided in this Amendment, all other terms, conditions and covenants of the Agreement which are unaffected by this Amendment shall remain unchanged and shall continue in full force and effect. The Agreement as amended is a legal, valid and binding obligation of the Borrower, and the Borrower hereby covenants and agrees to perform and observe all terms, covenants and agreements provided for in the Agreement, as hereby amended. 12. Reaffirmation of Guaranty and Security Agreement. Guarantor hereby acknowledges and agrees that its Guaranty together with the Addendum thereto and its Security Agreement continue in full force and effect and are valid, legally binding obligations of and enforceable against Guarantor in accordance with their terms. Guarantor hereby restates and reaffirms as of the date of this Amendment each and every agreement, representation, warranty and waiver set forth in such Guaranty, Addendum and Security Agreement. 13. Construction. The titles of the sections herein appear as a matter of convenience and reference only and shall not affect the construction hereof. This Amendment constitutes the product of the negotiation of the parties hereto, and in the enforcement thereof shall be interpreted in a neutral manner and not more strongly for or against any party based upon the source of the draftsmanship hereof. 14. Execution in Counterpart. This Amendment may be executed by facsimile signature and in any number of counterparts, each of which, when so executed and delivered, shall be an original, and all of which together shall constitute one and the same agreement. This Amendment shall not be binding on any party until all parties have executed it. // // // // // // // INTENTIONALLY LEFT BLANK // // // // // // // // // 15. ACKNOWLEDGEMENTS. EACH PARTY EXECUTING THIS AMENDMENT HEREBY ACKNOWLEDGES THAT (A) SUCH PARTY HAS RECEIVED OR HAS HAD THE OPPORTUNITY TO RECEIVE INDEPENDENT LEGAL ADVICE FROM ATTORNEYS OF ITS CHOICE WITH RESPECT TO THE NEGOTIATION AND EXECUTION OF THIS AMENDMENT; (B) SUCH PARTY FULLY UNDERSTANDS THE SIGNIFICANCE AND CONSEQUENCE OF EACH AND EVERY TERM AND CONDITION OF THIS AMENDMENT AND HAS MADE AN INDEPENDENT AND VOLUNTARY DECISION TO ENTER INTO THIS AMENDMENT; (C) AND IN THE EVENT LEGAL COUNSEL HAS NOT BEEN CONSULTED, SUCH PARTY HAS KNOWINGLY AND VOLUNTARILY WAIVED THE RIGHT TO CONSULT WITH INDEPENDENT LEGAL COUNSEL. IN WITNESS WHEREOF, this Amendment has been executed by the parties hereto as of the date first hereinabove written. SANWA BANK CALIFORNIA ("Bank") By: /s/ David G. Kronen /s/ Michael D. Farney ------------------- --------------------------- David G. Kronen, VP & Business MICHAEL D. FARNEY ("Borrower") Banking Officer MIRAVANT MEDICAL TECHNOLOGIES ("Guarantor") By: /s/ Gary S. Kledzik ------------------------ Gary S. Kledzik, Chief Executive Officer EX-10.13 8 EX - 10.13 - STOCK PLEDGE AGREEMENT FARNEY STOCK PLEDGE AGREEMENT THIS FARNEY STOCK PLEDGE AGREEMENT (the "Agreement") is entered into at Santa Barbara, California on the date hereinafter set forth by and between MICHAEL D. FARNEY and SALLY FARNEY, jointly and severally (collectively referred to herein as the "Debtor") and MIRAVANT MEDICAL TECHNOLOGIES (the "Secured Party"). WHEREAS: A. The Debtor is the owner of Four Hundred Five Thousand (405,000) shares (the "Shares") of the Common Stock of the Secured Party; B. The Secured Party has previously granted the obligations of the Debtor to SANWA BANK ("Sanwa"), Obligation Number ***** (the "Sanwa Loan"), and the Sanwa Loan has been extended and will mature as of October 31, 1999; C. Sanwa has agreed to extend the Sanwa Loan for a one (1) year period through October 31, 2000 on the condition that the Secured Party becomes the holder of the Shares, as a pledge holder and the security interest therein, and to provide for the liquidation of the Shares as hereinafter provided; D. The Secured Party is prepared to extend its granting of the Sanwa Loan on the condition that the Secured Party receives a security interest in and becomes the pledge holder of the Shares; E. The Debtor has provided certain other collateral to the Secured Party and this Agreement and the collateral created herein is in addition to any other collateral provided hereby; and F. The Debtor has agreed to pledge all of the Shares to the Secured Party to secure the Debtor's obligations to the Secured Party. NOW, THEREFORE, for value received, the receipt and sufficiency of which is hereby acknowledged, the Debtor hereby conveys, assigns, transfers and delivers and grants to the Secured Party as pledge holder and creates a security interest in and to the Shares (herein called the "Collateral") in favor of the Secured Party. 1. COLLATERAL. The Collateral hereunder shall be comprised of the following: (a) The Shares; (b) Stock Powers executed in blank with respect to the Shares (the "Stock Powers"); and (c) The proceeds, products, additions, substitutions and accessions of and to any and all of the foregoing. To have and to hold the Collateral, together with all rights, titles, interests, liens, privileges, claims, demands and equities existing and to exist in connection therewith as security therefor unto the Secured Party, its successors and assigns. 2. OBLIGATIONS SECURED. This Agreement is granted to the Secured Party to secure the Sanwa Loan and the repayment of the Sanwa Loan by the Debtor, in full, and the indemnification of the Secured Party in accordance with the terms of that certain agreement dated February 27, 1998 and as amended on August 4, 1999 (herein collectively referred to as the "Obligations") including: (a) The reimbursement when due of all amounts which might be advanced by the Secured Party to satisfy amounts required to be paid by the Debtor under this Agreement, or under any other instrument at any time executed in connection with, or as security for, the amount of any part of the Obligations or any amount secured hereby or to pay any taxes, insurance premiums, liens, claims and charges against any or all of the Collateral, or any properties covered by any instrument executed, or to be executed, by the Debtor to secure any part of the Obligations or any amount secured hereby, together with interest thereon to the extent provided; ***** Confidential Treatment Requested (b) The reimbursement and payment by the Debtor of all advances, charges, costs and expenses (including attorneys' fees and legal expenses) incurred by the Secured Party in connection with the Obligations or any amount secured hereby and in exercising any right, power or remedy conferred by this Agreement or by law (including, but not limited to, attorneys' fees and legal expenses incurred by the Secured Party in the collection of instruments deposited with or purchased by the Secured Party and amounts incurred in connection with the operation, maintenance or foreclosure of the Collateral); and (c) The performance and payment by the Debtor of all their Obligations under this Agreement, or any other document or agreement now or hereafter executed in connection with, or as security for, any part of the Obligations, or any amount secured hereby. 3. VOTING AND OTHER RIGHTS. Until an Event of Non-Cured Default (as hereinafter defined), the Debtor will retain (i) all voting rights to which the Debtor may be entitled with respect to the Collateral and (ii) the right to receive any notices, proxies, or other materials, and cash dividends (other than such dividends in connection with the liquidation or winding-up of any issuer) provided to shareholders by the issuer of the Shares. Commencing on the date of an Event of Default (as hereinafter defined), and at any time thereafter until the Obligations has been paid in full, the Secured Party shall have, with respect to the Shares, the option, at its discretion, to exercise all voting rights as to all of the Shares and all other corporate rights and powers attendant thereto. This Agreement shall constitute an irrevocable proxy (being coupled with an interest) empowering the Secured Party to exercise all voting and other rights with respect to the Collateral upon the occurrence of an Event of Default (as hereinafter defined) without further notice to the Debtor. If the Event of Default is cured by the Debtor, within the applicable cure period, then its rights set forth above shall be reinstated. 4. POSSESSION OF COLLATERAL. Simultaneously upon execution of this Agreement, the Debtor shall direct Sanwa to deliver to the Secured Party, in pledge, the certificate representing the Shares and the Stock Powers duly executed by the Debtor. 5. LIQUIDATION OF COLLATERAL. The Debtor authorizes the Secured Party to liquidate the Collateral in accordance with the terms of the Account Control Agreement attached hereto as Exhibit A. All proceeds from the liquidation of the Collateral will be applied to the Sanwa Loan. 6. FURTHER ASSURANCES. The Debtor will sign, execute, deliver and file, alone or with the Secured Party, any financing statement, security agreements or other documents, or procure any document as may be requested by the Secured Party, from time to time, to confirm, perfect and preserve the security interest created hereby and, in addition, the Debtor hereby authorizes the Secured Party to execute and deliver on behalf of the Debtor and to file such financing statements, security agreements and other documents without the signature of the Debtor. The Debtor shall do all such additional and further acts, things, deeds, give such assurances and execute such instruments as the Secured Party requires to vest more completely in and assure to the Secured Party its rights under this Agreement. 7. EXPENSES. The Debtor agrees to pay to the Secured Party, at the Secured Party's offices, as specified in Paragraph 23 below, all advances, charges, costs and expenses (including attorneys' fees and legal expenses) incurred by the Secured Party in connection with protecting the Secured Party against the claims or interests of any third person against the Collateral, and in exercising any right, power or remedy conferred by pledge agreement or by law (including, but not limited to, attorneys' fees and legal expenses incurred by the Secured Party in the collection of instruments deposited with or purchased by the Secured Party and amounts incurred in connection with the operation, maintenance or foreclosure of any or all of the Collateral). The amount of all such advances, charges, costs and expenses shall be due and payable by the Debtor to the Secured Party upon demand, together with interest thereon from the date of demand at the maximum rate of nonusurious interest allowed by law. 8. RIGHTS AND REMEDIES WITH RESPECT TO COLLATERAL. The Secured Party is hereby fully authorized and empowered (without the necessity of any further consent or authorization from the Debtor) and the right is expressly granted to the Secured Party, and the Debtor hereby constitutes, appoints and makes the Secured Party as the Debtor's true and lawful Attorney and Agent-in-Fact for the Debtor, and in the Debtor's name, place and stead with full power of substitution, in the Secured Party's name or the Debtor's name or otherwise, for the Secured Party's sole use and benefit, but at the Debtor's cost and expense, to exercise, without notice, all or any of the following powers at any time following the occurrence of an Event of Default, with respect to all or any of the Collateral: transfer to or register in the name of the Secured Party or any nominee of the Secured Party or any purchaser of any of the Collateral, and whether or not so transferred or registered, to receive the income and dividends thereon, including cash and stock dividends, stock splits and rights to subscribe, and to hold the same as part of the Collateral and/or apply the same as hereinafter provided; to exchange any of the Collateral for other property upon reorganization, recapitalization or other readjustment and in connection therewith to deposit any of the Collateral with any committee or depository upon such terms as the Secured Party may determine; after the occurrence of an Event of Default hereunder, to exercise voting and all other rights as to any of the Collateral, all without notice and without liability except to account for property actually received by the Secured Party, provided, however, the Secured Party shall be under no obligation or duty to exercise any of the powers hereby conferred upon it and shall be without liability for any act or failure to act in connection with the collection of, or the preservation of any rights under, any Collateral. 9. EVENT OF DEFAULT. The occurrence of any of the following, whatever the reason therefor, shall constitute an Event of Default: 9.1 Non-payment. The Debtor fails to pay any amount owing to the Secured Party under the Obligations, or after notice to the Debtor by the Secured Party, and such failure continues for a period of thirty (30) days after the due date; 9.2 Non-performance. The Debtor fails to perform or observe any other terms, covenant or agreement contained under the Obligations, and such failure continues uncured for a period of thirty (30) days following the Secured Party's delivery of written notice of such failure to the Debtor, provided, however, if said default be such that it cannot be corrected within such period, it shall not constitute an Event of Default if corrective action is instituted by the Debtor, as the case may be, within such period and diligently pursued until the default is cured; 9.3 Bankruptcy. The Debtor files or is subject to any proceeding under the Federal Bankruptcy Code, any assignment for the benefit of creditors or any other similar remedy or proceeding under state or federal law, unless such proceeding is involuntary and is dismissed within seventy-five (75) days of its institution; or 9.4 Levy. Any material portion of the Collateral is attached or levied upon, or a receiver or keeper is appointed for the Debtor, and such attachment, levy or receiver or keeper is not removed within sixty (60) days. 10. DEFAULT REMEDIES. If all or any part of the Obligations shall become due and payable, as specified in Paragraph 9 hereof, the Secured Party may then, or at any time thereafter, apply, set-off, collect, sell in one or more sales, lease, or otherwise dispose of, any or all of the Collateral, in its then condition or following any commercially reasonable preparation or processing, in such order as the Secured Party may elect, and any such sale may be made either at public or private sale at its place of business or elsewhere, or at any brokers' board or securities exchange, either for cash or upon credit or for future delivery, at such price as the Secured Party may deem fair, and the Secured Party may be the purchaser of any or all Collateral so sold and may hold the same thereafter in its own right free from any claim of the Debtor or right of redemption. No such purchase or holding by the Secured Party shall be deemed a retention by the Secured Party in satisfaction of the Obligations. All advertisements, and the presentment of property at sale, are hereby waived. If, notwithstanding the foregoing provisions, any applicable provision of the Uniform Commercial Code or other law requires the Secured Party to give reasonable notice of any such sale or disposition or other action, five (5) days' prior written notice shall constitute reasonable notice. The Secured Party may require the Debtor to assemble any Collateral not in the Secured Party's possession and make it available to the Secured Party at a place designated by the Secured Party which is convenient to the Secured Party. Any sale hereunder may be conducted by an auctioneer or any officer or agent of the Secured Party. In addition to any and all remedies provided herein, or in any of the documents or instruments executed in favor of the Secured Party, the Secured Party shall have and possess all of the rights and remedies of a secured party under the Uniform Commercial Code as in effect in the State of California. 11. PRIVATE SALE. The Debtor recognizes that the Secured Party may be unable to effect a public sale of all or a part of the Shares and may be compelled to resort to one or more private sales to a restricted group of purchasers who will be obligated to agree, among other things, to acquire the Shares for their own account, for investment and not with a view to the distribution or resale thereof. The Debtor acknowledges that any such private sales may be at prices and on terms less favorable to the Secured Party than those of public sales and that substantial brokers' and/or finders' fees may be incurred in connection therewith, and agrees that such private sales and fees shall be deemed to have been made and incurred in a commercially reasonable manner and that the Secured Party has no obligation to delay sale of any of the Shares to permit the issuer thereof to register it for public sale under the applicable laws. 12. PROCEEDS OF SALE. After all or any part of the Obligations becomes due and payable as specified in Paragraph 9 hereof, the proceeds of any sale or other disposition of the Collateral, and all sums received or collected by the Secured Party from or on account of the Collateral, shall be first applied by the Secured Party to the Sanwa Loan and then for reimbursement of Secured Party's expenses, costs and advances. 13. DEFICIENCY. The Debtor shall remain liable to the Secured Party for the Obligations, advances, costs, charges and expenses, together with interest thereon at the maximum rate of nonusurious interest allowed by law, on all amounts remaining unpaid and shall pay the same immediately to the Secured Party at the Secured Party's offices. 14. SECURED PARTY'S DUTIES. The Secured Party shall be under no duty whatsoever to make or give any presentment, demand for performance, notice of nonperformance, protest, notice of protest, notice of dishonor, or other notice or demand in connection with any Collateral or the Obligations, or to take any steps necessary to preserve any rights against prior parties. The Secured Party shall not be liable for failure to collect or realize upon the Obligations or Collateral, or for any delay in so doing, nor shall the Secured Party be under any duty to take any action whatsoever with regard thereto. The Secured Party shall use reasonable care in the custody and preservation of any Collateral in its possession, but need not take any steps to keep the Collateral identifiable. The Secured Party shall have no duty to comply with any recording, filing, or other legal requirements necessary to establish or maintain the validity, priority or enforceability of, or the Secured Party's rights in or to, any of the Collateral. 15. SECURED PARTY'S ACTIONS. The Debtor waives any right to require the Secured Party to proceed against any person, exhaust any collateral or pursue any other remedy in the Secured Party's power, whether under this Agreement or otherwise; waives any and all notice of acceptance of this Agreement or of creation, modification, renewal or extension for any period of the Obligations from time to time; and waives, to the fullest extent permitted by applicable law, any defense arising by reason of any disability or other defense of any debtor, or by reason of the cessation from any cause whatsoever of the liability of any debtor. Until the Obligations shall have been paid in full, the Debtor shall have no right to subrogation, and the Debtor waives any right to enforce any remedy which the Secured Party now has or may hereafter have against any other person or entity and waives any benefit of and any right to participate in any Collateral or security whatsoever now or hereafter held by the Secured Party. The Debtor authorizes the Secured Party, without notice or demand and without any further reservation of rights against the Debtor, and without affecting the Debtor's liability hereunder or on the Obligations, from time to time, to (a) take and hold any other property as collateral, other than the Collateral, for the payment of the Obligations, and exchange, enforce, waive and release any or all of the Collateral or such other property; (b) apply the Collateral or such other property and direct the order or manner of sale thereof as the Secured Party, in its discretion, may determine; (c) renew, extend for any period, accelerate, modify, compromise, settle or release the obligations of any other person or entity with respect to the Obligations or Collateral; or (d) release or substitute the Debtor or any other persons or entity liable on the Obligations. 16. TRANSFER OF OBLIGATIONS AND COLLATERAL. The Secured Party may transfer the Obligations and, upon any such transfer, the Secured Party may transfer any or all of the Collateral and shall be fully discharged thereafter from all liability with respect to the Collateral so transferred, and the transferee shall be vested with all rights, powers and remedies of the Secured Party hereunder with respect to Collateral so transferred; but with respect to any Collateral not so transferred, the Secured Party shall retain all rights, powers and remedies hereby given. The Secured Party may at any time deliver any or all of the Collateral to the Debtor, whose receipt shall be a complete and full acquittance for the Collateral so delivered, and the Secured Party shall thereafter be discharged from any liability therefor. 17. CUMULATIVE SECURITY. The execution and delivery of this Agreement in no manner shall impair or affect any other security (by endorsement or otherwise) for the payment of the Obligations. No security taken hereafter as security for payment of the Obligations shall impair in any manner or affect this Agreement. Such present and future additional security is to be considered as cumulative security. 18. CONTINUING AGREEMENT. This is a continuing agreement and the conveyance hereunder shall remain in full force and effect and all the rights, powers and remedies of the Secured Party hereunder shall continue to exist until the Obligations is paid in full as the same becomes due and payable; until all of the Obligations under this Agreement have been paid in full, and until the Secured Party, upon request of the Debtor, has executed a written termination statement, reassigned to the Debtor, without recourse, the Collateral and all rights and liens conveyed hereby and returned possession of the Collateral to the Debtor. Otherwise this Agreement shall continue notwithstanding the death or incapacity of the Debtor or the Secured Party, or any other event or proceeding affecting the Debtor and/or the maker and/or obligor under this Agreement. 19. CUMULATIVE RIGHTS. The rights, powers and remedies of the Secured Party hereunder shall be in addition to all rights, powers and remedies given by statute or rule of law and are cumulative. The exercise of any one or more of the rights, powers and remedies provided herein shall not be construed as a waiver of any other rights, powers and remedies of the Secured Party. Furthermore, regardless of whether or not the Uniform Commercial Code is in effect in the jurisdiction where such rights, powers and remedies are asserted, the Secured Party shall have the rights, powers and remedies of a secured party under the State of California Uniform Commercial Code, as amended. 20. EXERCISE OF RIGHTS. Time shall be of the essence for the performance of any act under this Agreement or for payment of the Obligations by the Debtor, but neither the Secured Party's acceptance of partial or delinquent payments nor any forbearance, failure or delay by the Secured Party in exercising any right, power or remedy shall be deemed a waiver of any Obligations of the Debtor or of any right, power or remedy of the Secured Party or preclude any other or further exercise thereof; and no single or partial exercise of any right, power or remedy shall preclude any other or further exercise thereof, or the exercise of any other right, power or remedy. 21. REMEDY AND WAIVER. The Secured Party may remedy any default without waiving the default remedies or waiving any prior or subsequent default. 22. PRESERVATION OF LIABILITY. Neither this Agreement, nor the exercise by the Secured Party of (or the failure to so exercise) any right, power or remedy conferred herein, or by law, shall be construed as relieving any person liable under this Agreement or on the Obligations from full liability under such instruments or on the Obligations and for any deficiency thereon. 23. NOTICES. Any notice or demand to the Debtor under this Agreement, or in connection with the Collateral, may be given and shall conclusively be deemed and considered to have been given and received upon the deposit thereof, postage prepaid, addressed to the Debtor at the address of the Debtor appearing on the records of the Secured Party, but actual notice, however given or received, shall always be effective. For the purposes hereof, the addresses of the Debtor and the Secured Party (until notice of a change thereof is given as provided in this Paragraph 23), shall be as follows: If to Secured Party: MIRAVANT MEDICAL TECHNOLOGIES 336 Bollay Drive Santa Barbara, CA 93117 Facsimile #805-685-7981 If to the Debtor: MICHAEL D. and SALLY FARNEY ***** 24. CONSTRUCTION. This Agreement has been made in and the conveyance, assignment, transfer and delivery has been made in, and the security interest granted hereby is granted in, and each shall be governed by the laws of the State of California in all respects, including matters of construction, validity, enforcement and performance. 25. AMENDMENT AND WAIVER. This Agreement may not be amended (nor may any of its terms be waived), except in writing duly signed by the Secured Party and the Debtor. ***** Confidential Treatment Requested 26. TERMS DEFINED IN UNIFORM COMMERCIAL CODE. Except as the context may otherwise require, any term used herein that is defined in the California Uniform Commercial Code shall have the meaning given therein. 27. INVALIDITY. If any provision of this Agreement is rendered or declared illegal, invalid or unenforceable by reason of any existing or subsequently enacted legislation or by a judicial decision which has become final, the Debtor and the Secured Party shall promptly meet and negotiate substitute provisions for those rendered illegal, invalid or unenforceable, but all of the remaining provisions shall remain in full force and effect. 28. REVERSIONARY PAYMENT. The Secured Party agrees that if the Secured Party exercises its rights and obtains title to the Shares, free and clear of any claims of the Debtor or third parties, and within six (6) months after an Event of Default completes the sale and transfer of the Shares in an amount sufficient to pay all sums or Obligations described in this Agreement, the Secured Party shall pay any amounts received by the Secured Party in excess of such sums to the Debtor. 29. SUCCESSORS AND ASSIGNS. The covenants, representations, warranties and agreements herein set forth shall be binding upon the Debtor and shall inure to the benefit of the Secured Party, its successors and assigns. 30. CONFLICTING PROVISIONS. To the extent that any of the terms or provisions contained in this Agreement are inconsistent with those contained in any other document, instrument or agreement executed pursuant hereto, the terms and provisions contained herein shall control. Otherwise, such provisions shall be considered cumulative. 31. JURISDICTION. This Agreement, any notes issued hereunder, the rights of the parties hereunder to and concerning the Collateral, and any documents, instruments or agreements mentioned or referred to herein shall be governed by and construed according to the laws of the State of California, to the jurisdiction of whose courts the parties hereby submit. 32. RELIANCE. Each warranty, representation, covenant and agreement contained in this Agreement shall be conclusively presumed to have been relied upon by the Secured Party, regardless of any investigation made or information possessed by the Secured Party and shall be cumulative and in addition to any other warranties, representations, covenants or agreements which the Debtor shall now or hereafter give, or cause to be given, to the Secured Party. 33. WAIVER OF JURY TRIAL. The Debtor and the Secured Party hereby expressly and voluntarily waive any and all rights, whether arising under the California constitution, any rules of the California Code of Civil Procedure, common law or otherwise, to demand a trial by jury in any action, matter, claim or cause of action whatsoever arising out of or in any way related to this Agreement or any other agreement, document or transaction contemplated hereby. 34. RESTRUCTURING AND LITIGATION EXPENSES. In the event the Secured Party and the Debtor negotiate for, or enter into, any restructuring, modification or refinancing of the Sanwa Loan for the purposes of remedying an Event of Default, the Secured Party may require the Debtor to reimburse all of the Secured Party's costs and expenses incurred in connection therewith, including, but not limited to, reasonable attorneys' fees and costs of any audit or appraisals required by the Secured Party to be performed in connection with such restructuring, modification or refinancing. In the event of any suit, mediation, arbitration or other action in relation to this Agreement or any document, instrument or agreement executed with respect to, evidencing or securing the Sanwa Loan, the prevailing party, in addition to all other sums to which it may be entitled, shall be entitled to reasonable attorneys' fees. 35. INDEPENDENT COUNSEL. NIDA & MALONEY, LLP has acted as counsel to the Secured Party in this matter, and they have advised the Debtor to seek independent counsel prior to executing this Agreement. [Signatures on next page] IN WITNESS WHEREOF, the parties have executed this Agreement in one or more counterparts which, taken together, shall constitute one and the same Agreement, and shall be dated as of October 27, 1999. DEBTOR: /s/ Michael D. Farney --------------------------------------- MICHAEL D. FARNEY /s/ Sally Farney --------------------------------------- SALLY FARNEY SECURED PARTY: MIRAVANT MEDICAL TECHNOLOGIES By: /s/ Gary S. Kledzik ------------------------ Name: Gary S. Kledzik Title: CEO EX-10.14 9 EX - 10.14 ACCOUNT CONTROL AGREEMENT EXHIBIT A TO FARNEY STOCK PLEDGE AGREEMENT ACCOUNT CONTROL AGREEMENT ACCOUNT CONTROL AGREEMENT Salomon Smith Barney Inc. Account Number Note: This Account Control Agreement (the "Agreement") is subject to the review and acceptance by Salomon Smith Barney, Inc. To: Salomon Smith Barney Inc. ("Salomon Smith Barney"), Security Intermediary Date: October 27, 1999 Gentlemen: The undersigned, MICHAEL D. FARNEY and SALLY FARNEY (hereinafter collectively, the "Pledgor"), and MIRAVANT MEDICAL TECHNOLOGIES (hereinafter, the "Pledgee"), entered into a Stock Pledge Agreement dated October 27, 1999 (the "Security Agreement") as amended pursuant to which a security interest in all present and future assets (as hereinafter defined) in the Account (as hereinafter defined) of the Pledgor are granted by the Pledgor to the Pledgee (the "Pledge"). In connection therewith, the Pledgor hereby instructs you to: 1. establish a cash securities account, which is to be known as "MIRAVANT MEDICAL TECHNOLOGIES Secured Party, f/b/o MICHAEL D. FARNEY and SALLY FARNEY" (the "Account"); 2. place the assets, including all financial assets, securities, entitlements and all other assets now or hereinafter received in such Account (together, the "Assets") including, without limitation, those assets listed in Exhibit A attached hereto and made a part hereof, into the Account. The Assets are pledged according to the terms of the Security Agreement. As long as the Assets are pledged to the Pledgee, Salomon Smith Barney will not invade the Assets to cover margin debits or calls in any other accounts of the Pledgor; Salomon Smith Barney agrees that, except for liens resulting from commissions, fees or charges based upon transactions in the Account pursuant to its Client Agreement with the Pledgor, it subordinates in favor of the Pledgee any security interest, lien or right of setoff that Salomon Smith Barney may have, acknowledges that neither it, its subsidiaries or its affiliates has or will assert a lien on the Assets, and acknowledges that it has not received notice of any other security interest in such Assets. In the event any such notice is received, Salomon Smith Barney will promptly notify the Pledgee. The Pledgor herein represents that the Assets are free and clear of any lien or encumbrances, and agrees that, with the exception of the security interest granted herein, no further or additional liens or encumbrances will be placed on the Assets without the express written consent of both the Pledgee and Salomon Smith Barney; 3. maintain the Assets pledged as described in Exhibit A attached hereto, or the proceeds from the sale of such Assets, together with any income derived therefrom, except that the Pledgee and the Pledgor acknowledge and agree that Salomon Smith Barney shall not be held responsible for any market decline in the market value of the Assets, or to notify the Pledgee or the Pledgor of any such decline in the market value of the Assets, or to take any action with regard to such Assets, except upon the specific written directions stated herein; 4. provide to the Pledgee, so long as this Agreement remains in effect, with a duplicate copy to the Pledgor, a monthly statement of Assets and a confirmation statement of each transaction effected in the Account after such transaction is effected. The Pledgor directs Salomon Smith Barney to sell the Assets, as described in Exhibit B hereto (the "Pledgor's Instructions"). The Pledgor shall not instruct Salomon Smith Barney to deliver and, except as may be required by law or by Court Order, Salomon Smith Barney shall not deliver cash and/or securities, or proceeds from the sale of, or distributions on, such securities out of the Account to the Pledgor or to any other person or entity except to the Pledgee. Salomon Smith Barney shall comply with the Pledgor's Instructions, and no other instructions of the Pledgor, without the consent of the Pledgee or any other person (it being understood and agreed that Salomon Smith Barney shall have no duty or obligation whatsoever of any kind or character to have knowledge of the terms of the Security Agreement or to determine whether or not an event of default exists). The Pledgor hereby agrees to indemnify and hold harmless Salomon Smith Barney, its affiliates, officers and employees from and against any and all claims, causes of action, liabilities, lawsuits, demands and/or damages, including, without limitation, any and all court costs and reasonable attorneys' fees, that may result by reason of Salomon Smith Barney complying with such instructions of the Pledgor. In the event that Salomon Smith Barney is sued or becomes involved in litigation as a result of complying with the Pledgor's Instructions, the Pledgor and the Pledgee agree that Salomon Smith Barney shall be entitled to charge all the costs and fees it incurs in connection with such litigation to the Assets in the Account and to withdraw such sums as the costs and charges accrue. The Pledgee shall have no liabilities, of any kind or nature, in connection with the execution of the Pledgor's Instructions. The Pledgee shall only indemnify Salomon Smith Barney from any claims, suits, liabilities or damages which may result from Salomon Smith Barney complying with any instructions of the Pledgee, which the Pledgee shall subsequently deliver in writing to Salomon Smith Barney. Except with respect to the obligations and duties as set forth herein, this Agreement shall not impose or create any obligations or duties upon Salomon Smith Barney greater than or in addition to the customary and usual obligations and duties of Salomon Smith Barney to the Pledgor. This Agreement shall be binding upon and inure to the benefit of the heirs, successors and assigns of the respective parties hereto and shall be construed in accordance with the laws of the State of New York without regard to its conflict of law principles and the rights and remedies of the parties shall be determined in accordance with such laws. Salomon Smith Barney will treat all property at any time held by Salomon Smith Barney in the Account as financial Assets. Salomon Smith Barney acknowledges that this Agreement constitutes written notification to Salomon Smith Barney, pursuant to Articles 8 and 9 of the Uniform Commercial Code of the State of New York, and any applicable federal regulations for the Federal Reserve Book Entry System, of the Pledgee's security interest in the Assets. The Pledgor, the Pledgee and Salomon Smith Barney also are entering into this Agreement to perfect and confirm the first and exclusive priority of the Pledgee's security interest in the Assets. Salomon Smith Barney agrees to promptly make and thereafter maintain all necessary entries or notations in its books and records to reflect the Pledgee's security interest in the Assets. If any term or provision of this Agreement is determined to be invalid or unenforceable, the remainder of this Agreement shall be construed in all respects as if the invalid or unenforceable term or provision were omitted. This Agreement may not be altered or amended in any manner without the express written consent of the Pledgor, the Pledgee and Salomon Smith Barney. This Agreement may be executed in any number of counterparts, all of which shall constitute one original agreement. This Agreement may be terminated by Salomon Smith Barney upon thirty (30) days' written notice to the Pledgor and the Pledgee. Upon expiration of such thirty (30) day period, Salomon Smith Barney shall be under no further obligation except to hold the pledged Assets in accordance with the terms of this Agreement, pending receipt of written instructions from the Pledgor and the Pledgee, jointly regarding the further disposition of the pledged Assets. The Pledgor and the Pledgee acknowledge that this Agreement supplements the Pledgor's existing Client Agreement(s) with Salomon Smith Barney and, except as expressly provided herein, in no way is this Agreement intended to abridge any rights that Salomon Smith Barney might otherwise have. IN WITNESS WHEREOF, the Pledgor and the Pledgee have caused this Agreement to be executed by their duly authorized officers all as of the day first above written. Date: 11/2/99 PLEDGOR: /s/ Michael D. Farney --------------------- MICHAEL D. FARNEY /s/ Sally Farney ---------------- SALLY FARNEY Date: 12/20/99 PLEDGEE: MIRAVANT MEDICAL TECHNOLOGIES By: /s/ Gary S. Kledzik ---------------------------- Name: Gary S. Kledzik Title: CEO SALOMON SMITH BARNEY Date: 12/8/99 By: /s/ Lee Beattie --------------- Name: Lee Beattie Title: Regional Vice President Date: 12/19/99 By: /s/ Gregory Laetsch --------------- Name: Gregory Laetsch Title: Regional Director EXHIBIT A TO ACCOUNT CONTROL AGREEMENT PLEDGED COLLATERAL ACCOUNT NUMBER: ASSETS 405,000 shares of the Common Stock of Miravant Medical Technologies EXHIBIT B TO ACCOUNT CONTROL AGREEMENT PLEDGOR'S INSTRUCTIONS The Pledgor irrevocably and unconditionally directs Salomon Smith Barney, with respect to the Assets, as follows: 1. ***** 2. ***** 3. ***** 4. ***** 5. ***** ***** Confidential Treatment Requested -----END PRIVACY-ENHANCED MESSAGE-----