-----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, LjPBnZnZ5CekJPSg5QfV7akXgZM0uqfY0p/VIpYWn6ULhT87jROEgfLhYigjRsh7 TxveisiBO1wzLjSvcYSuCQ== 0000933745-04-000039.txt : 20040813 0000933745-04-000039.hdr.sgml : 20040813 20040812195336 ACCESSION NUMBER: 0000933745-04-000039 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040813 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-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-25544 FILM NUMBER: 04971674 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-Q 1 form10qjune30_2004.txt FORM 10-Q JUNE 30, 2004 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q |X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 OR |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 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) 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 |_| TABLE OF CONTENTS PART I. FINANCIAL INFORMATION
Page Item 1. Condensed Consolidated Financial Statements Condensed consolidated balance sheets as of June 30, 2004 and December 31, 2003.......................................................... 3 Condensed consolidated statements of operations for the three and six months ended June 30, 2004 and 2003..................................... 4 Condensed consolidated statement of stockholders' equity (deficit) for the six months ended June 30, 2004...................................... 5 Condensed consolidated statements of cash flows for the six months ended June 30, 2004 and 2003......................................... 6 Notes to condensed consolidated financial statements......................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 12 Item 3. Qualitative and Quantitative Disclosures About Market Risk................... 39 Item 4. Controls and Procedures...................................................... 39 PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds.................................... 40 Item 4. Submission of Matters to a Vote of Security Holders.......................... 40 Item 6. Exhibits and Reports on Form 8-K............................................. 42 Signatures................................................................... 42
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS MIRAVANT MEDICAL TECHNOLOGIES CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, December 31, Assets 2004 2003 ------------------ ------------------- Current assets: (Unaudited) Cash and cash equivalents............................................... $ 5,390,000 $ 1,030,000 Marketable securities................................................... 2,994,000 -- Prepaid expenses and other current assets............................... 164,000 298,000 ------------------ ------------------- Total current assets....................................................... 8,548,000 1,328,000 Property, plant and equipment: Vehicles................................................................ 28,000 28,000 Furniture and fixtures.................................................. 1,392,000 1,393,000 Equipment............................................................... 4,672,000 5,200,000 Leasehold improvements.................................................. 2,721,000 2,720,000 ------------------ ------------------- 8,813,000 9,341,000 Accumulated depreciation................................................ (8,668,000) (9,125,000) ------------------ ------------------- 145,000 216,000 Patents, net............................................................... 890,000 707,000 Other assets............................................................... 95,000 154,000 ------------------ ------------------- Total assets............................................................... $ 9,678,000 $ 2,405,000 ================== =================== Liabilities and stockholders' equity (deficit) Current liabilities: Accounts payable........................................................ $ 1,110,000 $ 1,456,000 Accrued payroll and expenses............................................ 770,000 536,000 ------------------ ------------------- Total current liabilities.................................................. 1,880,000 1,992,000 Long-term liabilities: Convertible debt: Face value of convertible debt......................................... 11,845,000 12,916,000 Deferred financing costs and beneficial conversion value............... (3,163,000) (5,476,000) ------------------ ------------------- Total long-term liabilities................................................ 8,682,000 7,440,000 Stockholders' equity (deficit): Common stock, 75,000,000 shares authorized; 35,111,810 and 25,564,904 shares issued and outstanding at June 30, 2004 and December 31, 2003, respectively......................................................... 205,822,000 190,586,000 Notes receivable from officers.......................................... (516,000) (603,000) Deferred compensation................................................... -- (16,000) Accumulated deficit..................................................... (206,190,000) (196,994,000) ------------------ ------------------- Total stockholders' equity (deficit)....................................... (884,000) (7,027,000) ------------------ ------------------- Total liabilities and stockholders' equity (deficit)....................... $ 9,678,000 $ 2,405,000 ================== =================== See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three months ended June 30, Six months ended June 30, 2004 2003 2004 2003 ----------------- ----------------- ---------------- ---------------- Revenues................................. $ -- $ -- $ -- $ -- Costs and expenses: Research and development.............. 1,647,000 1,859,000 3,908,000 3,733,000 General and administrative............ 1,587,000 1,578,000 3,311,000 2,951,000 ----------------- ----------------- ---------------- ---------------- Total costs and expenses................. 3,234,000 3,437,000 7,219,000 6,684,000 Loss from operations..................... (3,234,000) (3,437,000) (7,219,000) (6,684,000) Interest and other income (expense): Interest and other income............. 24,000 18,000 44,000 38,000 Interest expense...................... (517,000) (262,000) (2,056,000) (368,000) Gain (loss) on sale of property, plant and equipment....................... 26,000 (42,000) 35,000 (60,000) ----------------- ----------------- ------------- ---------------- Total net interest and other income (expense)............................... (467,000) (286,000) (1,977,000) (390,000) ----------------- ----------------- ---------------- ---------------- Net loss................................. $ (3,701,000) $ (3,723,000) $ (9,196,000) $ (7,074,000) ================== ================= ================ ================ Net loss per share - basic and diluted... $ (0.11) $ (0.15) $ (0.30) $ (0.29) ================== ================= ================ ================ Shares used in computing net loss per share.................................. 33,048,546 24,281,353 30,158,452 24,266,128 ================= ================= ================ ================ See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICT) (Unaudited)
MIRAVANT MEDICAL TECHNOLOGIES CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICT) (Unaudited) Notes Receivable Common Stock from Deferred Accumulated Shares Amount Officers Compensation Deficit Total ------------ --------------- ------------- --------------- -------------- -------------- Balance at January 1, 2004...........25,564,904 $ 190,586,000 $ (603,000) $ (16,000) $(196,994,000) $(7,027,000) Comprehensive loss: Net loss....................... -- -- -- -- (9,196,000) (9,196,000) -------------- Total comprehensive loss.......... (9,196,000) Issuance of shares for restricted shares, stock awards and stock option and warrant exercises...... 331,578 389,000 -- -- -- 389,000 Issuance of stock at $2.25 per share............................ 4,564,000 10,269,000 -- -- -- 10,269,000 Beneficial conversion value....... -- 300,000 -- -- -- 300,000 Issuance of stock related to debt conversions, warrant exercises and interest payments on debt, net of deferred financing costs................... 4,512,578 3,923,000 -- -- -- 3,923,000 Value of warrants and stock awards issued to consultants............. 138,750 355,000 -- (73,000) -- 282,000 Non-cash interest on officer notes.............................. -- -- (30,000) -- -- (30,000) Repayments on officer notes, net of reserve for officer notes.............................. -- -- 117,000 -- -- 117,000 Amortization of deferred compensation....................... -- -- -- 89,000 -- 89,000 ------------ --------------- ------------- --------------- -------------- -------------- Balance at June 30, 2004..............35,111,810 $ 205,822,000 $(516,000) $ -- $ (206,190,000) $ (884,000) ============ =============== ============= =============== ============== ============== See accompanying notes.
MIRAVANT MEDICAL TECHNOLOGIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) Six months ended June 30, Operating activities: 2004 2003 ------------------- ---------------------- Net loss.......................................................... $ (9,196,000) $ (7,074,000) Adjustments to reconcile net loss to net cash used by operating activities: Depreciation and amortization.................................. 144,000 331,000 Amortization of deferred compensation.......................... 89,000 271,000 (Gain) loss on sale of equipment............................... (36,000) 60,000 Reserve for patents............................................ 24,000 257,000 Stock awards, restricted stock grants and ESOP match........... 345,000 30,000 Non-cash interest and amortization of deferred financing costs on long-term debt............................ 2,034,000 349,000 Provision (reduction) for employee and officer loans, net of non-cash interest on related loans........................... 16,000 -- Changes in operating assets and liabilities: Prepaid expenses and other assets.......................... 137,000 451,000 Accounts payable and accrued payroll........................ (110,000) 237,000 ------------------- ---------------------- Net cash used in operating activities............................. (6,553,000) (5,088,000) Investing activities: Purchases of marketable securities................................ (2,994,000) -- Purchases of patents.............................................. (254,000) (48,000) Proceeds from the sale of property, plant and equipment........... 62,000 -- Purchases of property, plant and equipment........................ (51,000) (119,000) ------------------- ---------------------- Net cash used in investing activities............................. (3,237,000) (167,000) Financing activities: Proceeds from sale of Common Stock................................ 10,269,000 -- Proceeds from convertible note arrangements....................... 2,000,000 4,838,000 Proceeds from issuance of common stock and exercise of warrants and stock options................................................. 1,753,000 -- Payment on short-term debt........................................ -- (230,000) Proceeds from repayment of note to officers....................... 128,000 -- ------------------- ---------------------- Net cash provided by financing activities......................... 14,150,000 4,608,000 Net increase (decrease) in cash and cash equivalents.............. 4,360,000 (647,000) Cash and cash equivalents at beginning of period.................. 1,030,000 723,000 ------------------- ---------------------- Cash and cash equivalents at end of period........................ $ 5,390,000 $ 76,000 =================== ====================== Supplemental disclosures: Cash paid for: State taxes..................................................... $ 3,000 $ 3,000 =================== ====================== Interest ....................................................... $ 1,000 $ 250,000 =================== ======================
Supplemental disclosures on non-cash transactions: During the six months ended June 30, 2004, $2.6 million of the 2003 Convertible Debt, net of related deferred financing costs of $1.1 million, converted into 2.6 million shares of Common Stock, and $500,000 of the February 2004 Convertible Debt converted into approximately 250,000 shares of Common Stock. See accompanying notes. MIRAVANT MEDICAL TECHNOLOGIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) 1. Basis of Presentation The information contained herein has been prepared in accordance with Rule 10-01 of Regulation S-X. The information at June 30, 2004 and for the three and six month periods ended June 30, 2004 and 2003, is unaudited. In the opinion of management, the information reflects all adjustments necessary to make the results of operations for the interim periods a fair statement of such operations. All such adjustments are of a normal recurring nature. Interim results are not necessarily indicative of results for a full year. For a presentation including all disclosures required by accounting principles generally accepted in the United States, these consolidated financial statements should be read in conjunction with the audited condensed consolidated financial statements for the year ended December 31, 2003 included in the Miravant Medical Technologies Annual Report on Form 10-K filed with the Securities and Exchange Commission. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern. This basis of accounting contemplates the recovery of the Company's assets and the satisfaction of its liabilities in the normal course of business. The Company's independent auditors, Ernst & Young LLP, have indicated in their report accompanying the December 31, 2003 consolidated financial statements that, based on generally accepted auditing standards, our viability as a going concern is in question. Through June 30, 2004, the Company had an accumulated deficit of $206.2 million and expects to continue to incur substantial, and possibly increasing, operating losses for the next few years due to continued spending on research and development programs, the cost associated with the regulatory review process for the New Drug Application, or an NDA, that we submitted, pre-commercialization expenses for SnET2, the funding of preclinical studies, clinical trials and regulatory activities and the costs of manufacturing and administrative activities. The Company also expects these operating losses to fluctuate due to its ability to fund the research and development programs as well as the operating expenses of the Company. The Company is continuing its scaled-back efforts, which we implemented in 2002, in research and development and the preclinical studies and clinical trials of our products. These efforts, along with the cost of following up on our submitted NDA, obtaining requisite regulatory approval, and commencing pre-commercialization activities prior to receiving regulatory approval, will require substantial expenditures. Once requisite regulatory approval has been obtained, if at all, substantial additional financing will be required for the manufacture, marketing and distribution of our product in order to achieve a level of revenues adequate to support the Company's cost structure. In July 2004, as discussed in Note 9, the Company entered into a Collaboration Agreement and Securities Purchase Agreement with Guidant Corporation, or Guidant, which will invest up to $7.0 million to support the Company's cardiovascular program. In April 2004, as discussed in Note 6, the Company entered into a $10.3 million Securities Purchase Agreement, or the 2004 Equity Agreement, with a group of institutional investors. In February 2004, the Company entered into a $2.0 million Unsecured Convertible Debenture Purchase Agreement, or the February 2004 Debt Agreement, with certain accredited investors, or the February 2004 Lenders, which provided proceeds of $2.0 million. In August 2003, the Company entered into a Convertible Debt and Warrant Purchase Agreement, or the 2003 Debt Agreement, with a group of private accredited investors, or the 2003 Lenders, pursuant to which the Company issued securities to the Lenders in exchange for gross proceeds of $6.0 million. In addition, in December 2002, the Company entered into a $12.0 million Convertible Debt and Warrant Agreement, or 2002 Debt Agreement, with a group of private accredited investors, or the 2002 Lenders. The Company has borrowed $6.3 million under the 2002 Debt Agreement and there are no further borrowings available under the 2002 Debt Agreement. The Company believes it can raise additional funding to support operations through corporate collaborations or partnerships, licensing of SnET2 or new products and additional equity or debt financings prior to December 31, 2004. If additional funding is not available when required, the Company's executive management believes that as long as the Company's debt is not accelerated, then the Company has the ability to conserve cash required for operations through December 31, 2004 and into the first quarter of 2005. If the additional funding is not available or only a portion thereof is available, the Company believes that it will have cash required for operations beyond December 31, 2004 by the delay or reduction in scope of one or more of our research and development programs and adjusting, deferring or reducing salaries of employees and by reducing operating facilities and overhead expenditures. There can be no assurance that the Company will be successful in obtaining additional financing or that financing will be available on favorable terms. Effective April 21, 2004, the Company is authorized to issue up to 75,000,000 shares of Common Stock and up to 30,000,000 shares of Preferred Stock. The Board of Directors has authority to fix the rights, preferences, privileges and restrictions, including voting rights, of these shares of preferred stock without any future vote or action by the shareholders. As of the date of this report, there were 35,111,810 shares of Common Stock issued outstanding; 5,163,741 shares of Common Stock reserved for issuance pursuant to our equity compensation plans; 10,023,750 shares of Common Stock reserved for issuance pursuant to outstanding warrants; 1,112,966 shares of Series A Preferred Stock issued and outstanding; and 75,000 shares of Series B Junior Participating Stock authorized and reserved for issuance. The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and the accompanying notes. Actual results may differ from those estimates and such differences may be material to the condensed consolidated financial statements. 2. Marketable Securities Marketable securities consist of short-term, interest-bearing corporate bonds. There were no marketable security balances as of December 31, 2003. 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 June 30, 2003, 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 stockholders' 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. Declines in value determined to be other-than-temporary on available-for-sale securities are listed separately as a non-cash loss in investment in the consolidated financial statements. 3. Comprehensive Loss For the six months ended June 30, 2004 and 2003, comprehensive loss amounted to approximately $9.2 million and $6.6 million, respectively. There was no difference between net loss and comprehensive loss for the six months ended June 30, 2004. The difference between net loss and comprehensive loss for the six months ended June 30, 2003, related to the change in the unrealized loss or gain the Company recorded for its available-for-sale securities on its investment in its former affiliate, Xillix Technologies Corp. 4. Per Share Data Basic loss per common share is computed by dividing the net loss by the weighted average shares outstanding during the period. Diluted earnings per share reflect the potential dilution that would occur if securities or other contracts to issue common stock were exercised or converted to common stock. 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 condensed consolidated statements of operations are the same. 5. Convertible Debt Agreements In February 2004, the Company entered into an Unsecured Convertible Debenture Purchase Agreement, or the February 2004 Debt Agreement, with certain private accredited investors, or the February 2004 Lenders. Under the February 2004 Debt Agreement, the Company issued $2.0 million worth of convertible debentures maturing on February 5, 2008 with interest accruing at 8% per year, due and payable quarterly, with the first interest payment due on April 1, 2004. At the Company's option, and subject to certain restrictions, the Company may make interest payments in cash or in shares of its Common Stock, or the interest can be added to the outstanding principal of the note. Each convertible debenture issued pursuant to the February 2004 Debt Agreement is convertible at the holder's option into shares of the Company's Common Stock at $2.00 per share. Upon the occurrence of certain events of default, the holders of the convertible debentures may require that they be repaid prior to maturity. These events of default include the Company's failure to pay amounts due under the debentures or to otherwise perform any material covenant in the February 2004 Debt Agreement or other related documents. Additionally, under the Emerging Issues Task Force, or EITF, No. 98-5, the Company was required to determine the beneficial conversion value for the notes related to the February 2004 Debt Agreement, or the February 2004 Notes. The beneficial conversion value represents the difference between the fair value of the Company's February 2004 Notes as of the date of issuance and the intrinsic value, which is the value of the 2004 Notes as converted, as described above. If the intrinsic value of the February 2004 Notes exceeds the fair value of the February 2004 Notes, then a beneficial conversion value is determined to have been received by the securityholders. Any beneficial conversion value determined is recorded as equity and a reduction to the convertible debt outstanding, which is subsequently amortized to interest expense. The beneficial conversion value was calculated as follows:
Fair value of the February 2004 Debt converted to Common Stock on February 5, 2004 at $2.30 per share, a 10% discount from the fair value of the Common Stock on the date of issuance as the underlying shares are unregistered........................................................$ 2,300,000 Less: Intrinsic value of the February 2004 Debt converted to Common Stock at $2.00 per share................................................(2,000,000) -------------- Beneficial conversion value.............. $ 300,000 =============
The beneficial conversion value for the February 2004 Notes was amortized over the period from the date of note issuance to the period of first available note conversion which was March 25, 2004, therefore the $300,000 of beneficial conversion value was amortized during the quarter ended March 31, 2004. Additionally, the beneficial conversion value remaining as of December 31, 2003 from the 2002 Debt Agreement and the 2003 Debt Agreement of $681,000 was amortized during the three months ended March 31, 2004. The amortization on the beneficial conversion value is included in interest expense in the condensed consolidated statement of operations. Additionally, certain of the February 2004 Lenders converted their Notes into shares of the Company's Common Stock. As of June 30, 2004, $500,000 of the $2.0 million face value of the February 2004 Notes outstanding have been converted into 250,000 shares of Common Stock. In connection with the Company's 2003 Debt Agreement, during the six months of 2004, certain of the 2003 Lenders converted their Notes into shares of the Company's Common Stock. As of June 30, 2004, $2.6 million of the $6.0 million face value of the 2003 Notes outstanding have been converted into 2.6 million shares of Common Stock. The $2.6 million was net of $1.1 million of deferred financing costs. In addition, of the warrants to purchase 4.5 million shares of Common Stock related to the 2003 Debt Agreement, 1,425,000 warrants have been exercised, resulting in proceeds to the Company of $1.4 million. In connection with the Company's 2002 Debt Agreement, in May 2004, the Company and the 2002 Lenders agreed to terminate the available borrowing provisions of the 2002 Debt Agreement, which were to expire by June 30, 2004. As of June 30, 2004, the Company has outstanding $6.3 million in convertible promissory notes under the 2002 Debt Agreement. 6. Equity Agreements In April 2004, the Company entered in a Securities Purchase Agreement, or the 2004 Equity Agreement, with a group of institutional investors, whereby the Company sold 4,564,000 shares of Common Stock at $2.25 per share, resulting in proceeds to the Company of $10.3 million. There were no placement fees associated with the offering. 7. Stock-Based Compensation Statement of Financial Accounting Standard, or SFAS, No. 123, "Accounting for Stock-Based Compensation," encourages, but does not require, companies to record compensation expense 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 including Financial Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB Opinion No. 25" in accounting for its stock option plans. 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 increased to the pro forma amounts indicated below:
Three months ended June 30, Six months ended June 30, 2004 2003 2004 2003 ----------------- ----------------- ---------------- ---------------- Net loss as reported $ (3,701,000) $ (3,723,000) $ (9,196,000) $ (7,074,000) Pro forma stock-based employee compensation cost under SFAS No. 123 (219,000) (185,000) (439,000) (444,000) ----------------- ----------------- ---------------- ---------------- Pro forma net loss $ (3,920,000) $ (3,908,000) $ (9,635,000) $ (7,518,000) ================= ================= ================ ================ Loss per share - basic and diluted: ----------------- ----------------- ---------------- ---------------- As reported $ (0.11) $ (0.15) $ (0.30) $ (0.29) ================= ================= ================ ================ Pro forma $ (0.12) $ (0.16) $ (0.32) $ (0.31) ================= ================= ================ ================
8. Reclassifications Certain reclassifications have been made to the 2003 condensed consolidated financial statements to conform to the current period presentation. 9. Subsequent Event In July 2004, the Company entered into a Collaboration Agreement and a Securities Purchase Agreement with Guidant. The Securities Purchase Agreement provides for Guidant to invest up to $7.0 million in non-cumulative convertible Series A Preferred Stock of the Company. The Series A Preferred Stock has voting rights and liquidation preferences of $2.70 per share over the common stockholders. The investments will be made upon the completion of certain milestones through completion of Phase I clinical trials with the first investment of $3.0 million made upon the signing of the agreements. The first Series A Preferred Stock investment is convertible into the Company's Common Stock at $2.70 per share or 1,112,966 shares. The remaining preferred stock investments will be convertible into the Company's Common Stock based on a ten day average price prior to the investment date. The Company is required to provide additional funding of at least $5.0 million over the period of the collaboration and the funds invested by Guidant must be spent on specified cardiovascular programs. The Company also granted Guidant registration rights with respect to the shares of Common Stock into which the Series A Preferred Stock is convertible. The agreements also contain various covenant and termination provisions as defined by the agreements. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section of the Quarterly Report on Form 10-Q 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 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," "believes" and similar expressions. These statements which are based on our current beliefs, expectations and assumptions and are subject to a number of risks and uncertainties, including but not limited to statements regarding: our general beliefs concerning the efficacy and potential benefits of photodynamic therapy; our ability to raise funds to continue operations; the use of SnET2 to treat wet age-related macular degeneration, or AMD; our ability to meet the covenants of the August 2003 Unsecured Convertible Debt and Warrant Purchase Agreement, or the 2003 Debt Agreement; our ability to meet the covenants of the February Unsecured Convertible Debt Purchase Agreement, or the February 2004 Debt Agreement; our ability to resolve any issues or contingencies associated with our New Drug Application, or an NDA, submission with the Food Drug and Administration, or FDA; the assumption that we will continue as a going concern; our ability to regain our listing status on Nasdaq or other national stock market exchanges; our plans to collaborate with other parties and/or license SnET2; our ability to meet the requirements of our July 2004 Collaboration and Securities Purchase Agreement with Guidant Corporation; our ability to continue to retain employees under our current financial circumstances; our ability to use our laser and delivery devices in future clinical trials; our expected research and development expenditures; our patent prosecution strategy; and our expectations concerning the government exercising its rights to use certain of our licensed technology. Our actual results could differ materially from those discussed in these statements due to a number of risks and uncertainties including but not limited to: failure to obtain additional funding in a timely manner, if at all; our failure to comply with the covenants in our 2003 Debt Agreement and/or our February 2004 Debt Agreement, or to the extent we are unable to comply with these covenants, obtain waivers from these covenants, which could lead to a default under those agreements; a failure of our drugs and devices to receive regulatory approval; other parties declining to collaborate with us due to our financial condition or other reasons beyond our control; the failure of our existing laser and delivery technology to prove to be applicable or appropriate for future studies; our failure to obtain the necessary funding to further our research and development activities; and unanticipated changes by the government in its past practices by exercising its rights contrary to our expectations. For a more complete description of the risks that may impact our business, see "Risk Factors", for a discussion of certain risks, including those relating to our ability to obtain additional funding, our ability to establish new strategic collaborations, our operating losses, risks related to our industry and other forward-looking statements. The following discussion should be read in conjunction with the Condensed Consolidated Financial Statements and Notes thereto. General We are a pharmaceutical research and development company specializing in photodynamic therapy, or PDT, a treatment modality based on drugs that respond to light. When activated by light, these drugs induce a photochemical reaction in the presence of oxygen that can be used to locally destroy diseased cells and abnormal blood vessels. We have branded our novel version of PDT technology with the trademark PhotoPoint(R). Our drugs and devices are in various stages of development and require regulatory approval prior to sales, marketing or clinical use. Our most advanced drug, PhotoPoint SnET2, has completed Phase III clinical trials for the treatment of wet age-related macular degeneration, or AMD, and we have submitted a New Drug Application, or an NDA, to the FDA for its marketing approval on March 31, 2004, which was accepted for filing on June 1, 2004. We have been unprofitable since our founding and have incurred a cumulative net loss of approximately $206.2 million as of June 30, 2004. We expect to continue to incur significant, and possibly increasing, operating losses over the next few years, and we believe we will be required to obtain substantial additional debt or equity financing to fund our operations during this time as we seek to achieve a level of revenues sufficient to support our anticipated cost structure. Our independent auditors, Ernst & Young LLP, have indicated in their report accompanying our December 31, 2003 consolidated financial statements that, based on generally accepted auditing standards, our viability as a going concern is in question. Although we continue to incur costs for research and development, preclinical studies, clinical trials and general corporate activities, we have continued to adhere to our cost restructuring program implemented in 2002 which has helped reduce our overall costs. Our ability to achieve and sustain profitability depends upon our ability, alone or with others, to receive regulatory approval on our NDA submission for SnET2 in AMD, 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 commercial sales of SnET2 and only limited revenues have been generated from sales of our devices. Our ability to achieve significant levels of revenues within the next few years is dependent on the timing of receiving regulatory approval, if at all, for SnET2 in AMD and our ability to establish a collaboration, with a corporate partner or other sales organization, to commercialize SnET2 once regulatory approval is received, if at all. Our revenues to date have consisted of license reimbursements, grants awarded, royalties on our devices, sales of SnET2 bulk active pharmaceutical ingredient, or bulk API sales, milestone payments, payments for our devices, and interest income. We do not expect any significant revenues until we have established a collaborative partnering agreement, receive regulatory approval and commence commercial sales. Our significant funding activities over the last eighteen months have consisted of the following: * A Collaboration Agreement and Securities Purchase Agreement with Guidant Corporation, or Guidant, completed July 1, 2004, providing an equity investment of $3.0 million upon signing and up to $4.0 million upon the completion of certain milestones related to our cardiovascular program; * A $10.3 million equity financing completed April 23, 2004; * A $2.0 million convertible debt financing completed February 5, 2004; * Warrant exercises through August 9, 2004 providing proceeds of $1.4 million; * The sale of our investment in an affiliate, Xillix Technologies Corp., or Xillix, in December 2003, providing net cash proceeds of $1.6 million; * A $6.0 million convertible debt financing completed in August 2003; and * Settlement of our $10.0 million debt with Pharmacia AB, a wholly owned subsidiary of Pfizer, Inc., or Pharmacia, that required a cash payment of $1.0 million. We believe we can raise additional funding to support operations through corporate collaborations or partnerships, through licensing of SnET2 or new products and through public or private equity or debt financings prior to December 31, 2004. However, there can be no assurance that the Company will be successful in obtaining additional financing or that financing will be available on favorable terms. If additional funding is not available when required, and if our debt does not go into default and become immediately due, then we believe we have the ability to conserve cash required for operations through December 31, 2004 and into the first quarter of 2005 by the delay or reduction in scope of one or more of its research and development programs, and adjusting, deferring or reducing salaries of employees and by reducing operating facilities and overhead expenditures. Ongoing Operations We have continued our scaled-back efforts, which we implemented in 2002, in research and development and the preclinical studies and clinical trials of our products. Our primary efforts in 2003 and the first half of 2004 have been in preparing a submission of an NDA for marketing approval in AMD for SnET2 and responding to the FDA regarding their review requirements. We expect that over the next year or so, our likely activities and costs will consist of the following: * Continuation of work related to the regulatory review of our NDA; * Pre-commercialization activities such as pre-marketing and possible drug and device manufacturing prior to receiving a decision from the FDA regarding marketing approval; * Increasing development activities for our cardiovascular program; * Preparation of an Investigational New Drug application, or IND, for a clinical trial in AV access disease; and * Review and follow-up of our Phase II dermatology clinical trial. The extent of each of these activities will depend on the available funding and resources. Additionally, once requisite regulatory approval has been obtained for SnET2, if at all, substantial additional funding will be required for the manufacture, marketing and distribution of our product in order to achieve a level of revenues adequate to support our cost structure. In ophthalmology, our primary focus from 2003 through June 30, 2004 was the preparation and filing of our NDA for marketing approval of PhotoPoint SnET2, a new drug for the treatment of AMD and the related responses to requests by the FDA. In January 2002, Pharmacia, after a top-line review of the Phase III AMD clinical data, determined that the clinical data results indicated that SnET2 did not meet the primary efficacy endpoint in the study population, as defined by the clinical trial protocol, and that they would not be preparing an NDA with the FDA. In March 2002, we regained the license rights to SnET2 as well as the related data and assets from the Phase III AMD clinical trials from Pharmacia. Additionally, in March 2002 we terminated our license collaboration with Pharmacia. In January 2003, we announced our plans to move forward with preparing our first NDA submission of SnET2 for the treatment of AMD. Our decision came after we completed our analyses of the Phase III AMD clinical data, which we believed showed positive results in a significant number of PhotoPoint SnET2 treated patients versus placebo control patients, and after holding discussions with regulatory consultants and the ophthalmic division of the FDA. We submitted the NDA on March 31, 2004, seeking marketing approval based on clinical results in the "per protocol" study population. The per protocol population consists of those patients who received the exposure to the SnET2 treatment regimen pre-specified in the clinical study protocol, comprising a smaller number of patients than the total study population. Although there is precedent for FDA approval of drugs based on subgroup populations, including Visudyne(R), the currently approved competitive PDT product for wet AMD, we cannot assure you that the FDA will grant approval for SnET2 based on our per protocol group of patients. The NDA was accepted by the FDA for filing on June 1, 2004 and has received a priority review designation. Besides the possible use of SnET2 alone or in combination with other therapies, we have identified potential next generation drug compounds for use in various eye diseases. These drugs are in the early stage of development and will not likely begin further development until we obtain additional funding and/or a corporate partner or other collaboration in ophthalmology. In our dermatology program, we use a topical gel formulation to deliver MV9411, a proprietary photoreactive drug, directly to the skin. In July 2001, we completed a Phase I dermatology clinical trial and, in January 2002, we commenced a Phase II clinical trial with MV9411 for potential use in the treatment of plaque psoriasis, a chronic dermatological condition for which there is no known cure. Plaque psoriasis is a disease marked by hyperproliferation of the epidermis, resulting in inflamed and scaly skin plaques. The Phase II clinical trial is expected to be closed out in 2004 with an analysis of the clinical trial results to follow. Our continuation of the dermatology development program will depend on the results of the clinical trials and other factors such as available funding and personnel. We have conducted numerous preclinical studies with new photoselective drugs for cardiovascular diseases, in particular for the prevention and treatment of vulnerable plaque and restenosis. Vulnerable plaque, or VP, is an unstable, rupture-prone inflammatory plaque within the artery walls, and restenosis is the renarrowing of an artery that commonly occurs after balloon angioplasty for obstructive artery disease. Based on our collaboration with Guidant, we have begun the process of formulating a new lead drug, MV0633, and, pending the outcome of any additional preclinical studies required and other factors, we expect to prepare an IND in cardiovascular disease for MV0633. The timing of the IND is dependent on numerous factors including preclinical results, available funding and personnel. Synthetic arteriovenous, or AV, grafts are placed in patients with End Stage Renal Disease to provide access for hemodialysis. While these grafts are critical to the health of the patient, their functional lifetime is limited due to stenosis, or narrowing, caused by cell overgrowth in the vein. As a result of our preclinical studies in cardiovascular disease and our discussions with the FDA, we decided to further develop the use of PhotoPoint PDT for the prevention and/or treatment of vascular access disease. Additionally, we are currently pursuing potential strategic partners in this field. We are planning to prepare and file an IND for the commencement of clinical trials in this field, pending financial considerations, corporate collaborations and other factors. In our oncology research program, we have performed various preclinical studies in solid tumors to target tumor cells and tumor neovasculature. The focus of our preclinical research is to evaluate the utility of PhotoPoint PDT as a stand-alone treatment or as a combination therapy with experimental or conventional therapies. Our research efforts have focused on the use of PhotoPoint PDT in treating cancers such as those of the brain, breast, lung and prostate. We have an existing oncology IND for SnET2, under which we may choose to submit protocols for clinical trials in the future. We have also investigated our novel compound MV6401 for solid tumors in oncology applications. Below is a summary of the disease programs and their related stages of development. The information in the column labeled "Estimate of Completion of Phase" is forward-looking in nature and the actual timing of completion of those phases could differ materially from the estimates provided in the table. Additionally, due to the uncertainty of the scientific results of any of these programs as well as the uncertainty regarding our ability to fund these programs, we are unable to provide an accurate estimate as to the costs, capital requirements or the specific timing necessary to complete any of these programs. For a discussion of the risks and uncertainties associated with the timing of completing a product development phase for our company as well as our industry as a whole, see the "Risk Factors" section of "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Estimate of Completion Program Indication (Primary Drug) Phase of Development of Phase --------------------- --------------------------------- ------------------------------ -------------------------- Ophthalmology AMD (SnET2) Results of the FDA review of Q3/Q4 2004 our NDA filing New drug compounds Research studies Completed Dermatology Psoriasis (MV9411) Phase II 2004 Cardiovascular VP and Restenosis (MV0633) Drug formulation and 2004-2005 disease preclinical studies Vascular disease AV Graft (MV2101) IND submission Q4 2004/Q1 2005 Oncology Tumor research (MV 6401) Research studies **
** Based on the early development stage of these programs we cannot reasonably estimate the time at which these programs may move from a research or preclinical development phase to the clinical trial phase. The decision and timing of whether these programs will move to the clinical trial phase will depend on a number of factors including the results of the preclinical studies, the estimated costs of the programs, the availability of alternative therapies and our ability to fund or obtain additional financing or to obtain new collaborative partners to help fund the programs. Based on our ability to successfully obtain additional funding, our ability to obtain new collaborative partners, our ability to license and pursue further development of SnET2 for AMD or other disease indications, our ability to reduce operating costs as needed, our ability to regain our listing status on Nasdaq or other national stock market exchanges and various other economic and development factors, such as the cost of the programs, reimbursement and the available alternative therapies, we may or may not elect or be able to further develop PhotoPoint PDT procedures in ophthalmology, cardiovascular disease, dermatology, oncology or in any other indications. Results of Operations Revenues. We had no revenues for the three and six months ended June 30, 2004 and 2003. Historically, we have recorded limited revenues for the sale of our bulk active pharmaceutical ingredient and license income for the reimbursement of out-of-pocket expenses incurred under license agreements. Any future revenue will likely be related to new collaborative agreements, and royalties or revenues from drug and device sales upon regulatory approval and subsequent commercial sales, if any. Research and Development. Research and development costs are expensed as incurred. Research and development expenses are comprised of direct and indirect costs. Direct costs consist of costs incurred by outside providers and consultants for preclinical studies, clinical trials and related clinical drug and device development and manufacturing costs, drug formulation expenses, NDA preparation services and other research and development expenditures. Indirect costs consist of internally generated costs from salaries and benefits, overhead and facility costs, and other support services. Our research and development expenses for the six months ended June 30, 2003 was $3.7 million compared to $3.9 million for the same period in 2004. Research and development expenses decreased from $1.9 million for the three months ended June 30, 2003 to $1.6 million for the same period in 2004. The slight increase in research and development expenses for the six months ended June 30, 2004 compared to the same period in 2003 is specifically related to the activities associated with the preparation and compilation of the submission of our NDA. The decrease for the three months ended June 30, 2004 related to a decrease in the NDA submission activities and costs due to the NDA submission on March 31, 2004 and a decrease in indirect costs resulting from the downsizing of our facility and a related reduction in overhead costs. Research and development expenses for the three and six months ended June 30, 2003 and 2004 related primarily to payroll, payroll taxes, employee benefits and allocated operating costs. Additionally, the Company incurred research and development expenses for these periods for: * Preparation of our NDA submission for SnET2 in AMD; * Work associated with the development of new devices, delivery systems, drug compounds and formulations for the dermatology and cardiovascular programs; and * Preclinical studies and clinical trial costs for our Phase II dermatology program. As previously disclosed, we have four research and development programs which we have focused our efforts: ophthalmology, dermatology, cardiovascular disease and oncology. Research and development costs are initially identified as direct costs and indirect costs, with only direct costs tracked by specific program. These direct costs consist of clinical, preclinical, drug and formulation development, device development and research costs. We do not track our indirect research and development costs by program. These indirect costs consist of labor, overhead and other indirect costs. The research and development costs for specific programs represent the direct costs incurred. The direct research and development costs by program are as follows:
Three months ended June 30, Six months ended June 30, -------------------------------- -------------------------------------- ------------------------------------ Program 2004 2003 2004 2003 -------------------------------- ---------------- ------------------ --------------- ---------------- Direct costs: Ophthalmology.............. $ 462,000 $ 360,000 $ 1,157,000 $ 556,000 Dermatology................ 5,000 46,000 47,000 202,000 Cardiovascular disease..... 61,000 75,000 96,000 260,000 Oncology................... -- 8,000 -- 15,000 ---------------- ------------------ --------------- ---------------- Total direct costs.............. $ 528,000 $ 489,000 $ 1,300,000 $ 1,033,000 Indirect costs ................. $ 1,119,000 $ 1,370,000 $ 2,608,000 $ 2,700,000 ---------------- ------------------ --------------- ---------------- Total research and development costs........................... $ 1,647,000 $ 1,859,000 $ 3,908,000 $ 3,733,000 ================ ================== =============== ================
Ophthalmology. For the six months ended June 30, 2003, our direct ophthalmology program costs have increased from $556,000 to $1.2 million for the six months ended June 30, 2004. For the three months ended June 30, 2003, our direct ophthalmology program costs have increased from $360,000 to $462,000 for the three months ended June 30, 2004. Costs incurred for the ophthalmology program in 2004 have consisted of costs incurred from consultants and contract research organizations for assistance in the preparation and related follow-up work associated with our NDA filed and the commencement of pre-commercialization activities. The costs incurred for the six month period ended June 30, 2003 are specifically related to the analysis of the clinical trial data for SnET2 in AMD. Dermatology. For the six months ended June 30, 2003, our direct dermatology program costs decreased from $202,000 to $47,000 for the six months ended June 30, 2004. For the three months ended June 30, 2003, our direct dermatology program costs have decreased from $46,000 to $5,000 for the same period in 2004. Costs incurred in the dermatology program include expenses for drug development and drug formulation, internal and external preclinical study costs, and Phase II clinical trial expenses. The decrease for the three and six months ended June 30, 2004 as compared to the same periods in 2003 is related to the decrease in patient treatments in the Phase II clinical trial compared to 2003. Cardiovascular Disease. For the six months ended June 30, 2003, our direct cardiovascular disease program costs decreased from $260,000 to $96,000 for same period in 2004. For the three months ended June 30, 2003, our direct cardiovascular disease program costs have decreased from $75,000 to $61,000 for the same period in 2004. Our cardiovascular disease program costs include expenses for the development of new drug compounds and light delivery devices, drug formulation costs, drug and device manufacturing expenses and internal and external preclinical study costs. The decrease from 2003 to 2004 is related to a decrease in the development and manufacturing activities for drug and devices used in the preclinical studies and a reduction in the preclinical studies performed while corporate financing was completed during the 2004. Based on the Guidant investment and collaboration entered into in July 2004, we expect to incur an increase in development costs for this program in the future. Oncology. For the six months ended June 30, 2003, our direct oncology program costs have decreased from $15,000 to no costs for the same period in 2004. For the three months ended June 30, 2003, our direct oncology program costs have decreased from $8,000 to no costs for the same period in 2004. Our oncology program costs had primarily consisted of costs for internal and external preclinical studies and expenses for the early development of new drug compounds. The decrease in oncology program costs from 2003 to 2004 is related to our decision to temporarily utilize resources toward our preparation of our NDA for ophthalmology rather than for discovery and research programs in oncology. Indirect Costs. For the six months ended June 30, 2003, our indirect costs have slightly decreased from $2.7 million to $2.6 million for the same period in 2004. For the three months ended June 30, 2003, our indirect costs have decreased from $1.4 million to $1.1 million for the same period in 2004. Generally, the decrease from 2003 to 2004 was attributed to a decrease in costs related to the downsizing of facilities and related reduction in overhead costs, which was slightly offset by an increase in employee compensation which were adjusted for the first time since 2001. We expect that future research and development expenses may fluctuate depending on available funds, continued expenses incurred related to our regulatory review process for the NDA, pre-commercialization costs for drug and devices manufacturing, costs for preclinical studies and clinical trials in our ophthalmology, dermatology, cardiovascular, 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, results obtained from our ongoing preclinical studies and clinical trials and the expansion of our research and development programs, which includes the increased hiring of personnel, the continued expansion of existing or the commencement of new preclinical studies and clinical trials and the development of new drug compounds and formulations. General and Administrative. For the six months ended June 30, 2003, our general and administrative expenses have increased from $3.0 million to $3.3 million for the same period in 2004. For the three months ended June 30, 2003 and 2004 general and administrative expenses remained consistent at $1.6 million. Expenses for the three and six months ended June 30, 2003 and 2004 related primarily to payroll related expenses, operating costs such as rent, utilities, professional services and insurance costs and non-cash expenses such as stock compensation and depreciation. For the six months ended June 30 2004, the employee and overhead related expenses increased as compared to the same period in 2003 due to the increase in employee wages which were adjusted for the first time since 2001 and an increase in stock compensation costs. The increase in costs was offset by a decrease in facility related costs due to the reduction in facilities. We expect future general and administrative expenses to remain consistent with the three and six month periods ended June 30, 2004 although they may fluctuate depending on available funds, and the need to perform our own pre-marketing, marketing and sales activities, the support required for research and development activities, the costs associated with potential financing and partnering activities, continuing corporate development and professional services, facility and overhead costs, compensation expense associated with employee stock bonuses and stock options and warrants granted to consultants and expenses for general corporate matters. Interest and Other Income. For the six months ended June 30, 2003, interest and other income increased from $38,000 to $44,000 for the same period in 2004. For the three months ended June 30, 2003, interest and other income increased from $18,000 to $24,000 for the same period in 2004. Interest and other income amounts are derived from interest earned on 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 and the interest rates earned. Interest Expense. Interest expense significantly increased from $368,000 for the six months ended June 30, 2003 to $2.1 million for the six months ended June 30, 2004. For the three months ended June 30, 2003, interest expense increased from $262,000 to $517,000 for the same period in 2004. The increase is primarily related to the continued amortization of the beneficial conversion value from the 2004, 2003 and 2002 Debt Agreements. Under the EITF No. 98-5, we were required to determine the beneficial conversion value for the February 2004 Debt Agreement, the 2003 Debt Agreement and the 2002 Debt Agreement. The beneficial conversion value represents the difference between the fair value of our Common Stock on the date of the first available conversion and the intrinsic value, which is the value of the various notes on as converted assumption and the value of detachable warrant issued. The remaining beneficial conversion value from the 2003 Debt Agreement and 2002 Debt Agreement of $681,000 was amortized during the six months ended June 30, 2004. Additionally, a $300,000 beneficial conversion value associated with the 2004 February Debt Agreement was recorded and amortized during the six months ended June 30, 2004. These amounts were recorded as interest expense. The remaining increase in interest expense for the six months ended June 30, 2004 compared to the same period in 2003 related to an increase in interest expense from borrowings under the 2002 Debt Agreement, 2003 Debt Agreement and the 2004 February Debt Agreement and the related amortization of deferred financing costs associated with those agreements of $1.1 million. Interest expense for the three and six months ended June 30, 2003 consisted primarily of interest expense related to the 2002 Debt Agreement. The level of interest expense in future periods is expected to fluctuate depending on the levels of outstanding debt. Liquidity and Capital Resources Since inception through June 30, 2004, we have accumulated a deficit of approximately $206.2 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, a secondary public offering and credit arrangements. As of June 30, 2004, we have received proceeds from the sale of equity securities, convertible notes and credit arrangements of approximately $251.6 million. We do not anticipate achieving profitability in the next few years, as such we expect to continue to rely on external sources of financing to meet our cash needs for the foreseeable future. As of June 30, 2004, our condensed consolidated financial statements have been prepared assuming we will continue as a going concern. Our independent auditors, Ernst & Young LLP, have indicated in their report accompanying our December 31, 2003 consolidated financial statements that, based on generally accepted auditing standards, our viability as a going concern is in question. In July 2004, we entered into a Collaboration Agreement and Securities Purchase Agreement with Guidant Corporation, issuing $3.0 million of Series A Convertible Preferred Stock upon signing of the agreements and we can receive up to $4.0 million in additional convertible preferred stock investments upon the completion of certain milestones related to our cardiovascular program. The $3.0 million of Preferred Stock sold is convertible into our Common Stock at $2.70 per share and includes registration rights for the underlying Common Stock. In April 2004, we entered in a Securities Purchase Agreement, or the 2004 Equity Agreement, with a group of institutional investors, whereby we sold 4,564,000 shares of Common Stock at $2.25 per share, resulting in proceeds to us of $10.3 million. There were no placement fees associated with the offering and the shares issued were unregistered. On April 29, 2004, we filed a registration statement with the SEC to cover the resale of these shares of Common Stock with the SEC. In February 2004, we entered into an Unsecured Convertible Debenture Purchase Agreement, or the February 2004 Debt Agreement, with certain private accredited investors, or the February 2004 Lenders. Under the February 2004 Debt Agreement we issued $2.0 million worth of convertible debentures maturing on February 5, 2008 with interest accruing at 8% per year, due and payable quarterly, with the first interest payment due on April 1, 2004. At our option and subject to certain restrictions, we may make interest payments in cash or in shares of our Common Stock, or the interest can be added to the outstanding principal of the note. Each convertible debenture issued pursuant to the February 2004 Debt Agreement is convertible at the holder's option into shares of our Common Stock at $2.00 per share. Upon the occurrence of certain events of default, the holders of the convertible debentures may require that they be repaid prior to maturity. These events of default include our failure to pay amounts due under the debentures or to otherwise perform any material covenant in the February 2004 Debt Agreement or other related documents. In connection with our February 2004 Debt Agreement, during the three and six months ended June 30, 2004, certain of the February 2004 Lenders converted their Notes into shares of our Common Stock. As of August 9, 2004, $500,000 of the Notes have been converted into 250,000 shares Common Stock. In August 2003, we entered into a Convertible Debt and Warrant Purchase Agreement, or the 2003 Debt Agreement, with a group of private accredited investors, or the 2003 Lenders, pursuant to which we issued securities to the 2003 Lenders in exchange for gross proceeds of $6.0 million. Under the 2003 Debt Agreement, the debt can be converted, at the 2003 Lender's option after the registration of the underlying stock, at $1.00 per share into our Common Stock. We issued separate convertible promissory notes, which are referred to as the 2003 Notes, to each 2003 Lender and the 2003 Notes earn interest at 8% per annum and are due August 28, 2006, unless converted earlier or paid early under the prepayment or default provisions. The interest on each 2003 Note is due quarterly beginning October 1, 2003 and can be paid in cash or in-kind at our option. Under certain circumstances each 2003 Note can be prepaid by us prior to the maturity date or prior to conversion. The 2003 Notes also have certain default provisions which can cause the 2003 Notes to become accelerated and due immediately upon notice by the 2003 Lenders. If the 2003 Notes are declared to be due prior to their scheduled maturity date, it is unlikely we will be able to repay these notes and it may force us to significantly reduce or cease operations or negotiate unfavorable terms for repayment. In connection with our 2003 Debt Agreement, during the three and six months ended June 30, 2004, certain of the 2003 Lenders converted their Notes into shares of our Common Stock. As of August 9, 2004, $2.6 million of the Notes have been converted into 2.6 million shares Common Stock. In connection with the 2003 Debt Agreement, we also issued to the 2003 Lenders warrants to purchase an aggregate of 4,500,000 shares of our Common Stock. Each Lender received two warrants. The first warrant is for the purchase of one-half (1/2) of a share of our Common Stock for every $1.00 principal amount of debt under the 2003 Debt Agreement. The second warrant is for the purchase of one-quarter (1/4) of a share of our Common Stock for every $1.00 principal amount of debt under the 2003 Debt Agreement. The exercise price of each warrant is $1.00 per share and the warrants will terminate on August 28, 2008, unless previously exercised. We can force the exercise of the one-quarter share warrant under certain circumstances. In accordance with the registration rights related to the 2003 Debt Agreement, in October 2003 we registered, as required, certain shares underlying the convertible promissory notes and the shares underlying the warrants for certain note holders. In addition, of the 4.5 million warrants issued, 1,425,000 warrants have been exercised through August 9, 2004, resulting in proceeds to Miravant of $1.4 million. In December 2002, we entered into a $12.0 million Convertible Debt and Warrant Agreement, or the 2002 Debt Agreement, with a group of private accredited investors, or the 2002 Lenders. This available borrowing provisions of this agreement were terminated in May 2004. As of June 30, 2004, we have borrowed $6.3 million and there will be no further borrowings under this agreement. Additionally, in connection with each borrowing we have issued warrants to purchase a total of 1,575,000 shares of our Common Stock at an exercise price of $1.00 per share. We also issued an origination warrant for the purchase of 250,000 shares at an exercise price of $0.50 per share. All of these warrant issued expire on December 31, 2008. In connection with the execution of the 2003 Debt Agreement, certain of the 2002 Lenders, to whom we issued notes to under our 2002 Debt Agreement, as described above, agreed to subordinate their debt security position to that of the 2003 Lenders. In exchange for the subordinated security position, the 2002 Lenders received additional warrants to purchase an aggregate of 1,575,000 shares of our Common Stock at an exercise price of $1.00 per share, and these additional warrants will terminate on August 28, 2008, unless previously exercised. Additionally, under the anti-dilution provision of the 2002 Debt Agreement, the conversion price of the five notes issued thereunder to the 2002 Lenders during the period February 2003 through July 2003 was reduced to $1.00 and the exercise price of the related warrants issued to the 2002 Lenders during the same period was reduced to $1.00 per share. Statement of Cash Flows For the six months ended June 30, 2003 net cash used in operations was $5.1 million compared to $6.6 million used during the six months ended June 30, 2004. The increase in cash used for operations from 2004 compared to 2003 was due to an increase in operating costs from the preparation and related follow-up on the NDA filed with the FDA and increased employee wages which were adjusted for the first time since 2001. These costs were offset by the use of common stock for payment of interest expense and compensation as well the non-cash cost associated with beneficial conversion amortization. For the six months ended June 30, 2003, net cash used in investing activities was $167,000 compared to $3.2 million for the same period in 2004. The increase in cash used in investing activities from 2004 compared to 2003 was due to purchases of marketable securities and the increase in the purchases of patents and property, plant and equipment. The net cash provided by financing activities for the six months ended June 30, 2003 was $4.6 million compared to $14.1 million for the same period in 2004. The cash provided by financing activities for 2003 primarily related to the net proceeds received from the borrowings under the December 2002 Debt Agreement received during the six months ended June 30, 2003. The cash provided by financing activities for 2004 primarily related to the $10.3 million from the April 2004 Equity Agreement, the $2.0 million from the 2004 Debt Agreement and the $1.8 million received from warrant and stock option exercises. 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: * Our ability to obtain regulatory acceptance of the NDA submission and subsequent approval; * The cost of performing pre-commercialization activities; * Our ability to establish additional collaborations and/or license SnET2 or our other new products; * Our ability to continue our efforts to conserve our use of cash, while continuing to advance programs; * Our ability to meet our obligations under the 2002 Debt Agreement, 2003 Debt Agreement and February 2004 Debt Agreement; * Our ability to receive future equity investments from Guidant by meeting the milestones established under our collaboration agreement; * The viability of SnET2 for future use; * Our ability to raise equity financing or use common stock for employee and consultant compensation; * Our ability to regain our listing status on Nasdaq or other national stock market exchanges; * The pace of scientific progress and the magnitude of our research and development programs; * The scope and results of preclinical studies and clinical trials; * The costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; * The costs involved in any potential litigation; * Competing technological and market developments; and * Our dependence on others for development and commercialization of our potential products. As of June 30, 2004, our condensed consolidated financial statements have been prepared assuming we will continue as a going concern. We are continuing our scaled-back efforts, we implemented in 2002, in research and development and the preclinical studies and clinical trials of our products. These efforts, along with the cost of following up on our submitted NDA, obtaining requisite regulatory approval, and commencing pre-commercialization activities prior to receiving regulatory approval, will require substantial expenditures. Once requisite regulatory approval has been obtained, if at all, substantial additional financing will be required for the manufacture, marketing and distribution of our product in order to achieve a level of revenues adequate to support our cost structure. We believe we can raise additional funding to support operations through corporate collaborations or partnerships, licensing of SnET2 or new products and additional equity or debt financings prior to December 31, 2004. If additional funding is not available when required, we believe that as long as our debt is not accelerated, then we have the ability to conserve cash required for operations through December 31, 2004 and into the first quarter of 2005. If the additional funding is not available or only a portion thereof is available, we believe that we will have cash required for operations beyond December 31, 2004 by the delay or reduction in scope of one or more of our research and development programs and adjusting, deferring or reducing salaries of employees and by reducing operating facilities and overhead expenditures. There can be no assurance that the Company will be successful in obtaining additional financing or that financing will be available on favorable terms. Our ability to raise funds has become more difficult as our stock has been delisted from trading on the Nasdaq National Market. Any inability to obtain additional financing would adversely affect our business and could cause us to significantly reduce or cease operations. Our ability to generate substantial additional funding to continue our research and development activities, preclinical studies and clinical trials and manufacturing, and administrative activities and to pursue any additional investment opportunities is subject to a number of risks and uncertainties and will depend on numerous factors including: * Our ability to receive approval of our NDA submission for SnET2; * The potential future use of SnET2 for ophthalmology or other disease indications; * Our ability to raise funds in the near future through public or private equity or debt financings, or establish collaborative arrangements or raise funds from other sources; * The potential for equity investments, collaborative arrangements, license agreements or development or other funding programs that are at terms acceptable to us, in exchange for manufacturing, marketing, distribution or other rights to products developed by us; * Our ability to meet the milestones and covenants established under our collaboration agreement with Guidant; * The future development and results of our Phase II dermatology clinical trial and our ongoing cardiovascular and oncology preclinical studies; * The amount of funds received from outstanding warrant and stock option exercises, if any; and * Our ability to maintain, renegotiate, or terminate our existing collaborative arrangements. We cannot guarantee that additional funding will be available to us now, when needed, or if at all. If additional funding is not available in the near term, we will be required to scale back our research and development programs, preclinical studies and clinical trials and administrative activities or cease operations. As a result, we would not be able to successfully develop our drug candidates or commercialize our products and we would never achieve profitability. Our independent auditors, Ernst & Young LLP, have indicated in their report accompanying our December 31, 2003 consolidated financial statements that, based on generally accepted auditing standards, our viability as a going concern is in question. RISK FACTORS FACTORS AFFECTING FUTURE OPERATING RESULTS The following section of this report describes material risks and uncertainties relating to Miravant and our business. Our business operations may be impaired by additional risks and uncertainties that we are not aware of or that we currently consider immaterial. Our business, results of operations or cash flows may be adversely affected if any of the following risks actually occur. In such case, the trading price of our Common Stock could decline. RISKS RELATED TO OUR BUSINESS WE HAVE A HISTORY OF SIGNIFICANT OPERATING LOSSES AND EXPECT TO CONTINUE TO HAVE LOSSES IN THE FUTURE, WHICH MAY FLUCTUATE SIGNIFICANTLY AND WE MAY NEVER ACHIEVE PROFITABILITY. We have incurred significant losses since our inception in 1989 and, as of June 30, 2004, had an accumulated deficit of approximately $206.2 million. In each of the last three years, we have increased our borrowings through the sale of various debt instruments in order to sustain our business operations. We expect to continue to incur significant, and possibly increasing, operating losses over the next few years, and we believe we will be required to obtain substantial additional debt or equity financing to fund our operations during this time as we seek to achieve a level of revenues sufficient to support our anticipated cost structure. Our independent auditors, Ernst & Young LLP, have indicated in their report accompanying our December 31, 2003 consolidated financial statements that, based on generally accepted auditing standards, our viability as a going concern is in question. Although we continue to incur costs for research and development, preclinical studies, clinical trials and general corporate activities, we have continued to adhere to our cost restructuring program we implemented in 2002 which has helped reduce our overall costs. Our ability to achieve and sustain profitability depends upon our ability, alone or with others, to receive regulatory approval on our NDA submission for SnET2 in AMD, 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 commercial sales of SnET2 and only limited revenues have been generated from sales of our devices. Our ability to achieve significant levels of revenues within the next few years is dependent on the timing of receiving regulatory approval, if at all, for SnET2 in AMD and our ability to establish a collaboration with a corporate partner or other sales organization to commercialize SnET2 once regulatory approval is received, if at all. Our revenues to date have consisted of license reimbursements, grants awarded, royalties on our devices, SnET2 bulk active pharmaceutical ingredient, or bulk API sales, milestone payments, payments for our devices, and interest income. We do not expect any significant revenues until we have established a collaborative partnering agreement, receive regulatory approval and commence commercial sales. EVEN THOUGH WE RAISED $10.3 MILLION IN APRIL 2004 AND ENTERED INTO A COLLABORATION AND SECURITIES PURCHASE AGREEMENT WHICH MAY PROVIDE UP TO $7.0 MILLION IN EQUITY CAPITAL TO SUPPORT OUR CARDIOVASCULAR PROGRAM, WE WILL LIKELY NEED ADDITIONAL FUNDS IN 2005 TO CONTINUE OUR OPERATIONS, AND IF WE FAIL TO OBTAIN ADDITIONAL FUNDING, WE WOULD BE FORCED TO SIGNIFICANTLY SCALE BACK OR CEASE OPERATIONS. We are continuing our scaled-back efforts, we implemented in 2002, in research and development and the preclinical studies and clinical trials of our products. These efforts, along with the cost of preparing and the follow-up work associated with the NDA submission for SnET2, obtaining requisite regulatory approval, and commencing pre-commercialization and manufacturing activities prior to receiving regulatory approval, has required and will require substantial expenditures. Once requisite regulatory approval has been obtained, if at all, substantial additional financing will likely be required for the manufacture, marketing and distribution of our product in order to achieve a level of revenues adequate to support our cost structure. The timing and magnitude of our future capital requirements will depend on many factors, including: * Our ability to obtain regulatory acceptance of the NDA submission and subsequent approval; * The cost of performing pre-commercialization activities; * Our ability to establish additional collaborations and/or license SnET2 or our other new products; * Our ability to continue our efforts to conserve our use of cash, while continuing to advance programs; * Our ability to meet our obligations under the 2002 Debt Agreement, 2003 Debt Agreement and February 2004 Debt Agreement; * Our ability to receive future equity investments from Guidant by meeting the milestones established under our collaboration agreement; * The viability of SnET2 for future use; * Our ability to raise equity financing or use common stock for employee and consultant compensation; * Our ability to regain our listing status on Nasdaq or other national stock market exchanges; * The pace of scientific progress and the magnitude of our research and development programs; * The scope and results of preclinical studies and clinical trials; * The costs involved in preparing, filing, prosecuting, maintaining and enforcing patent claims; * The costs involved in any potential litigation; * Competing technological and market developments; and * Our dependence on others for development and commercialization of our potential products. Although we can make no assurances, we believe that as a result of our $10.3 million funding in April 2004 and the July 2004 Collaboration and Securities Purchase Agreement with Guidant investing $3.0 million in equity to support our cardiovascular program, we will have sufficient cash to fund operations through December 31, 2004 and into the first quarter of 2005. If we are unable to raise funds when we may need them, we believe we can delay or reduce in scope one or more of our research and development programs and to adjust, defer or reduce salaries of employees and to reduce operating facilities and overhead expenditures. We continue to seek additional capital needed to fund our operations through corporate collaborations or partnerships, through licensing of SnET2 or new products and through public or private equity or debt financings. Our inability to obtain additional financing would adversely affect our business and could cause us to significantly scale back or cease operations. If we are successful in obtaining additional equity or convertible debt financing, including from our existing agreements with Guidant, this is likely to result in significant dilution to our stockholders. In addition, any new securities issued may have rights, preferences or privileges senior to those securities held by our current stockholders. WE ARE HIGHLY LEVERAGED, OUR RECENT DEBT AND EQUITY AGREEMENTS HAVE FURTHER DILUTED OUR EXISTING STOCKHOLDERS AND OUR DEBT SERVICE REQUIREMENTS MAKE US VULNERABLE TO ECONOMIC DOWNTURN AND IMPOSE RESTRICTIONS ON OUR OPERATIONS. The aggregate face amount of our debt outstanding was approximately $11.8 million as of August 9, 2004. There is no certainty that our cash balance and our financing arrangements, will be sufficient to finance our operating requirements, and our indebtedness may restrict our ability to obtain additional financing in the future. The issuance of additional shares of Common Stock in July 2004, April 2004 and warrants to purchase Common Stock in connection with the 2002 and 2003 Debt Agreements and related negotiations with existing debtors has resulted in the issuance of significant amounts of securities which has a dilutive effect on our existing stockholders. Also, we are highly leveraged, which may place us at a competitive disadvantage and makes us more susceptible to downturns in our business in the event our cash balances are not sufficient to cover our debt service requirements. In addition, the July 2004 Collaboration and Securities Purchase Agreement with Guidant, the February 2004 Debt Agreement, the 2003 Debt Agreement and the 2002 Debt Agreement contain certain covenants that impose operating and financial restrictions on us. These covenants may affect our ability to conduct operations to raise additional financing or to engage in other business activities that may be in our interest. In addition, if we cannot achieve the financial results necessary to maintain compliance with these covenants, we could be declared in default. Our future success is highly dependent on regulatory approval and successful commercialization of SnET2. If our submission for SnET2 does not support the approval of the NDA by the FDA for any reason, our business will be substantially harmed. On June 1, 2004, the FDA notified us that they accepted our submission for filing. Even though the FDA accepted our submission for filing, the FDA may not ultimately approve our NDA for SnET2. This approval process may take a significant amount of time and the FDA's approval, if any, may be contingent upon satisfying additional requirements. For instance, the FDA may require follow-up clinical trials or pre-clinical studies prior to final approval, which may be costly and may cause a significant delay in the timing of receiving FDA approval. If the FDA does approve this NDA, the approved label claims could be for a limited market, resulting in smaller than expected markets and revenue. Any delay in receiving FDA approval further limits our ability to begin market commercialization and harms our on-going funding requirements and our business. Additionally, we might be forced to substantially scale down our operations or sell certain of our assets, and it is likely the price of our stock would decline precipitously. EVEN IF WE RECEIVE REGULATORY APPROVAL OF SNET2 FOR THE TREATMENT OF AMD, SNET2 MAY NOT BE COMMERCIALLY SUCCESSFUL. Even if SnET2 receives regulatory approval, patients and physicians may not readily accept it, which would result in lower than projected sales and substantial harm to our business. Acceptance will be a function of SnET2 being clinically useful and demonstrating superior therapeutic effect with an acceptable side-effect profile, as compared to currently existing or future treatments. In addition, even if SnET2 does achieve market acceptance, we may not be able to maintain that market acceptance over time if new products are introduced that are more favorably received than SnET2 or render SnET2 obsolete. WE FACE INTENSE COMPETITION AND OUR FAILURE TO COMPETE EFFECTIVELY, PARTICULARLY AGAINST LARGER, MORE ESTABLISHED PHARMACEUTICAL AND MEDICAL DEVICE COMPANIES, WILL CAUSE OUR BUSINESS TO SUFFER. 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 and distribution. Further, our competitive position could be harmed 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 that other companies are marketing or developing certain products to prevent, diagnose or treat diseases for which we are developing PhotoPoint PDT. These products, as well as others of which we may not be aware, may adversely affect the existing or future market for our products. Competitive products may include, but are not limited to, drugs such as those designed to inhibit angiogenesis or otherwise target new blood vessels, certain medical devices, such as drug-eluting stents and other photodynamic therapy treatments. We are aware of various competitors involved in the photodynamic therapy or AMD sector. We understand that these companies are conducting preclinical studies and/or clinical trials in various countries and for a variety of disease indications. Our direct competitors in our sector include QLT Inc., or QLT, DUSA Pharmaceuticals, or DUSA, Axcan Pharm Inc., or Axcan, Eyetech Pharmacueticals Inc., or Eyetech, Pharmacyclics, Alcon Inc., or Alcon, and Genentech Inc., Genentech. QLT's drug Visudyne(R) has received marketing approval in the United States and certain other countries for the treatment of AMD and has been commercialized by Novartis. Axcan and DUSA have photodynamic therapy drugs, both of which have received marketing approval in the United States - Photofrin(R) (Axcan) for the treatment of certain oncology indications and Levulan(R) (DUSA Pharmaceuticals) for the treatment of actinic keratoses, a dermatological condition. Pharmacyclics has a photodynamic therapy drug that has not received marketing approval, which is being used in certain preclinical studies and/or clinical trials for ophthalmology, oncology and cardiovascular indications. Eyetech is currently completing a Phase III clinical trial in AMD and is expected to submit an NDA before the end of Q3 2004. Alcon and Genentech have ongoing late stage clinical trials in AMD. We are aware of other drugs and devices under development by these and other competitors in additional disease areas for which we are developing PhotoPoint PDT. These competitors as well as others that we are not aware of, may develop superior products or reach the market prior to PhotoPoint PDT and render our products non-competitive or obsolete. AS A RESULT OF OUR SHARES BEING DELISTED FROM TRADING ON NASDAQ, OUR ABILITY TO RAISE ADDITIONAL CAPITAL MAY BE LIMITED OR IMPAIRED. We were delisted by Nasdaq on July 11, 2002 and our Common Stock began trading on the Over-The-Counter Bulletin Board(R), or OTCBB, effective as of the opening of business on July 12, 2002. Our management continues to review our ability to regain our listing status with Nasdaq or other national stock market exchanges, however, we cannot guarantee we will be able to raise the additional capital needed or to increase the current trading price of our Common Stock to allow us to meet the relisting requirements for the Nasdaq National Market or the Nasdaq Small Cap Market or other national stock market exchanges on a timely basis, if at all, and there is no guarantee that any of the stock market exchanges would approve our relisting request even if we met all the listing requirements. Our ability to obtain additional funding, beyond our current funding agreements is impeded by a number of factors including that fact that our Common Stock is currently being traded on the OTCBB and may prevent us from obtaining additional financing as required in the near term on favorable terms or at all. OUR FINANCIAL CONDITION AND COST REDUCTION EFFORTS COULD RESULT IN DECREASED EMPLOYEE MORALE AND LOSS OF EMPLOYEES AND CONSULTANTS WHO ARE CRITICAL TO OUR SUCCESS. Our success in the future 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. We currently have limited cash and capital resources and our ability to raise funds is questionable, causing our business outlook to be uncertain. Additionally, due to our ongoing limited cash balances, we try to utilize stock options and stock awards as a key component of short-term and long-term compensation. However, given the volatility of our stock and the uncertainty of our long-term prospects, our ability to use stock options and stock awards as compensation may be limited. These measures, along with our financial condition, may cause employees to question our long-term viability and increase our turnover. These factors may also result in reduced productivity and a decrease in employee morale causing our business to suffer. We do not have insurance providing us with benefits in the event of the loss of key 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. IF WE ARE NOT ABLE TO MAINTAIN AND SUCCESSFULLY ESTABLISH NEW COLLABORATIVE AND LICENSING ARRANGEMENTS WITH OTHERS, OUR BUSINESS WILL BE HARMED. Our business model is based on establishing collaborative relationships with other parties both to license compounds upon which our products and technologies are based and to manufacture, market and sell our products. As a development company we may need access to compounds and technologies to license for further development. For example, we are party to 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, to license or sublicense certain photoselective compounds, including SnET2. Similarly, we must also establish relationships with suppliers and manufacturers to build our medical devices and to manufacture our compounds. We have partnered with Iridex for the manufacture of certain light sources and have entered into an agreement with Hospira, Inc. (formerly Fresenius) for supply of the final dose formulation of SnET2. Due to the expense of the drug approval process it is beneficial for us to have relationships with established pharmaceutical companies to offset some of our development costs in exchange for a combination of manufacturing, marketing and distribution rights. We formerly had a significant relationship with Pharmacia for the development of SnET2 for the treatment of AMD, which was terminated in March 2002. To commercialize and further develop SnET2 for AMD or other indications we likely need to establish a new collaborative relationship with a corporate partner or a sales organization. We are currently at various stages of discussions with various companies regarding the establishment of new collaborations. If we are not successful in establishing new collaborative partners for the potential development of SnET2 or our other molecules, we may not be able to pursue further development of such drugs and/or may have to reduce or cease our current development programs, which would materially harm our business. Even if we are successful in establishing new collaborations, they are subject to numerous risks and uncertainties including the following: * Our ability to negotiate acceptable collaborative arrangements; * Future or existing collaborative arrangements may not be successful or may not result in products that are marketed or sold; 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; * Our partners may fail to fulfill 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; and * Our ability to manage, interact and coordinate our timelines and objectives with our strategic partners may not be successful. WE HAVE LIMITED MANUFACTURING CAPABILITY AND EXPERIENCE AND THUS RELY HEAVILY UPON THIRD PARTIES. IF WE ARE UNABLE TO MAINTAIN AND DEVELOP OUR PAST MANUFACTURING CAPABILITY, OR IF WE ARE UNABLE TO FIND SUITABLE THIRD PARTY MANUFACTURERS AND OUR OPERATING RESULTS COULD SUFFER. Prior to our being able to supply drugs for commercial use, our manufacturing facilities must comply with Good Manufacturing Practices, or GMPs. In addition, if we elect to outsource manufacturing to third-party manufacturers, these facilities also have to satisfy GMP and FDA manufacturing requirements. To be successful, our products must be manufactured in commercial quantities under current GMPs and must be at acceptable costs. Although we intend to manufacture drugs and devices at clinical manufacturing levels, we have not yet manufactured any products under GMPs which can be released for commercial use, and we have limited experience in manufacturing in commercial quantities. We were licensed by the State of California to manufacture bulk API at one of our Santa Barbara, California facilities for clinical trial and other use. This particular manufacturing facility was closed in 2002 and has been reconstructed in our existing operating facility. Although the manufacturing facility at the new location recently completed production of site qualification and stability batches and is operational, it is still pending required regulatory approvals by the State of California and federal regulatory agencies. In the original manufacturing facility, we have manufactured bulk API, the process up to the final formulation and packaging step for SnET2, which we currently have in inventory. We believe the quantities we have in inventory are enough to support an initial commercial launch of SnET2, though there can be no assurance that SnET2 and our new manufacturing facility will be approved by the FDA or that if such approval is received, the existing commercial bulk API inventory will be approved for commercial use. We also have the ability to manufacture light delivery devices, and conduct other production and testing activities to support current research programs, at this location. However, we have limited capabilities, personnel and experience in the manufacture of finished drug product, and light producing and light delivery devices and need to utilize outside suppliers, contracted or otherwise, for certain materials and services related to our manufacturing activities. We currently have the capacity, in conjunction with our manufacturing suppliers Hospira, Inc, or Hospira, which acquired the manufacturing operations from Fresenius in 2004, and Iridex, to manufacture products at certain commercial levels and we believe we will be able to do so under GMPs with subsequent FDA approval. If we receive 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 may need to expend substantial funds, hire and retain 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 commercial product sales, as well as our overall business growth could be limited, which in turn could prevent us from becoming profitable or viable as a business. We are currently the sole manufacturer of bulk API for SnET2, Hospira is the sole manufacturer of the final dose formulation of SnET2 and Iridex is currently the sole supplier of the light producing devices used in our AMD clinical trials. All currently have commercial quantity capabilities. At this time, we have no readily available back-up manufacturers to produce the bulk API for SnET2, or the final formulation of SnET2 at commercial levels or back-up suppliers of the light producing devices. If Hospira could no longer manufacture for us or Iridex was unable to supply us with devices, we could experience significant delays in production or may be unable to find a suitable replacement, which would reduce our revenues and harm our ability to commercialize our products and become profitable. WE HAVE LIMITED MARKETING CAPABILITY AND EXPERIENCE AND THUS RELY HEAVILY UPON THIRD PARTIES IN THIS REGARD. ADDITIONALLY, DUE TO OUR FINANCIAL CONDITION, WE HAVE PERFORMED LIMITED PRE-MARKETING ACTIVITIES WHICH MAY DELAY THE COMMENCEMENT OF MARKETING OUR PRODUCT, SNET2, IF APPROVED FOR IMMEDIATE COMMERCIALIZATION. We have no direct experience in marketing, distributing and selling our 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 are currently in discussion with several companies to market, distribute and sell SnET2. We currently intend to rely on Iridex for any light device needs for the AMD program. If SnET2 is approved for immediate commercialization, we expect to commence commercializing our drug and device products within six months from the date of FDA marketing approval. However, we have performed limited pre-marketing activities, which may delay the launch of the commercialization of SnET2. Our marketing, distribution and sales capabilities or current or future arrangements with third parties for such activities may not be adequate for the initial commercial launch or the successful commercialization of our products. OUR PRODUCTS MAY EXHIBIT ADVERSE SIDE EFFECTS THAT PREVENT THEIR WIDESPREAD ADOPTION OR THAT NECESSITATE WITHDRAWAL FROM THE MARKET. Our PhotoPoint PDT drug and device products may exhibit undesirable and unintended side effects that may prevent or limit their commercial adoption and use. One such side effect upon the adoption of our PhotoPoint PDT drug and device products as potential therapeutic agents may be a period of photosensitivity for a certain period of time after receiving PhotoPoint PDT. This period of photosensitivity is generally dose dependent and typically declines over time. Even upon receiving approval by the FDA and other regulatory authorities, our products may later exhibit adverse side effects that prevent widespread use or necessitate withdrawal from the market. The manifestation of such side effects could cause our business to suffer. ALL OF OUR PRODUCTS, EXCEPT SNET2 AND MV9411, ARE IN AN EARLY STAGE OF DEVELOPMENT AND ALL OF OUR PRODUCTS, INCLUDING SNET2 AND MV9411, MAY NEVER BE SUCCESSFULLY COMMERCIALIZED. Our products, except SnET2 and MV9411, are at an early stage of development and our ability to successfully commercialize these products, including SnET2 and MV9411, is dependent upon: * Successful completion of our research or product development efforts or those of our collaborative partners; * Successfully transforming our drugs or devices currently under development into marketable products; * Obtaining the required regulatory approvals; * Manufacturing our products at an acceptable cost and with appropriate quality; * Favorable acceptance of any products marketed; and * 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, INCLUDING SNET2 AND MV9411, MAY NOT SUCCESSFULLY COMPLETE THE CLINICAL TRIAL 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/or clinical trials prior to regulatory approval for commercial use, which is a lengthy and expensive process. None of our products, except SnET2, have completed testing for efficacy or safety in humans, and none of our products, including SnET2, have been approved for any purpose by the FDA. Some of the risks and uncertainties related to safety and efficacy testing and the completion of preclinical studies and clinical trials include: * Our ability to demonstrate to the FDA that our products are safe and efficacious; * Our products may not be as efficacious as our competitors' products; * Our ability to successfully complete the testing for any of our compounds within any specified time period, if at all; * Clinical outcomes reported may change as a result of the continuing evaluation of patients; * 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; * Problems in research and development, preclinical studies or clinical trials that will cause us to delay, suspend or cancel clinical trials; and * 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. 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 clinical trials. Moreover, 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. The failure to adequately demonstrate the safety and effectiveness of a product under development could delay or prevent regulatory approval of the potential product and would materially harm our business. THE PRICE OF OUR COMMON STOCK HAS BEEN AND MAY CONTINUE TO BE VOLATILE. From time to time and in particular during the year ended December 31, 2003, the price of our Common Stock has been highly volatile. These fluctuations create a greater risk of capital losses for our stockholders as compared to less volatile stocks. From January 1, 2003 to August 9, 2004, our Common Stock price, per Nasdaq and OTCBB closing prices, has ranged from a high of $4.10 to a low of $0.71. 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 reduce the market price of the Common Stock. Extreme price fluctuations in the future could be the result of any number of factors, including: * The results of the FDA review of our NDA submission and our ability to receive approval from the FDA for commercialization; * Announcements concerning Miravant or our collaborators, competitors or industry; * Our ability to successfully establish new collaborations and/or license SnET2 or our other new products; * The impact of dilution from past or future equity or convertible debt financings; * Our ability to meet the milestones and covenants established under our collaboration agreement with Guidant; * The results of our testing, technological innovations or new commercial products; * The results of preclinical studies and clinical trials by us or our competitors; * Technological innovations or new therapeutic products; * Our ability to regain our listing status on Nasdaq or other national stock market exchanges; * Public concern as to the safety, efficacy or marketability of products developed by us or others; * Comments by securities analysts; * The achievement of or failure to achieve certain milestones; * Litigation, such as from stockholder lawsuits or patent infringement; and * 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. If these broad market fluctuations cause the trading price of our Common Stock to decline further, we may be unable to obtain additional capital that we may need through public or private financing activities and our stock may not be relisted on Nasdaq, further exacerbating our ability to raise funds and limiting our stockholders' ability to sell their shares. Because outside financing is critical to our future success, large fluctuations in our share price that harm our financing activities could cause us to significantly alter our business plans or cease operations altogether. WE MAY RELY ON THIRD PARTIES TO ASSIST US WITH THE REGULATORY REVIEW PROCESS FOR THE NDA, IF NEEDED, AND TO CONDUCT CLINICAL TRIALS ON OUR PRODUCTS, AND IF THESE RESOURCES FAIL, OUR ABILITY TO COMPLETE THE NDA REVIEW PROCESS OR SUCCESSFULLY COMPLETE CLINICAL TRIALS WILL BE ADVERSELY AFFECTED AND OUR BUSINESS WILL SUFFER. To date, we have limited experience in conducting clinical trials. We have relied on Parexel International, a large clinical research organization, or CRO, as well as numerous other consultants, to assist in preparation of our NDA, which we submitted to the FDA on March 31, 2004. Additionally, we relied on Pharmacia, our former corporate partner, and Inveresk, Inc., formerly ClinTrials Research, Inc., a CRO, to complete our Phase III AMD clinical trials and we currently rely on a Parexel International for our Phase II dermatology clinical trials. We may need to rely on Parexel International and other consultants and third parties to complete the review of the NDA by the FDA. 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 current and future 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. The failure to have adequate resources for completing the review process of the NDA, and conducting and managing clinical trials will have a negative impact on our ability to develop marketable products and would harm our business. Other CROs may be available in the event that our current CROs fail; however there is no guarantee that we would be able to engage another organization in a timely manner, if at all. This could cause delays in our clinical trials and our development programs, which could materially harm our business. WE RELY ON PATIENT ENROLLMENT TO CONDUCT CLINICAL TRIALS, AND OUR INABILITY TO CONTINUE TO ATTRACT PATIENTS TO PARTICIPATE WILL HAVE A NEGATIVE IMPACT ON OUR CLINICAL TRIAL RESULTS. Our ability to complete clinical trials is dependent upon the rate of patient enrollment. Patient enrollment is a function of many factors including: * The nature of our clinical trial protocols; * Existence of competing protocols or treatments; * Size and longevity of the target patient population; * Proximity of patients to clinical sites; and * Eligibility criteria for the clinical trials. A specific concern for potential future AMD clinical trials, if any, is that there currently is an approved treatment for AMD and patients enrolled in future AMD clinical trials, if any, may choose to drop out of the trial or pursue alternative treatments. This could result in delays or incomplete clinical trial data. We cannot make assurances that we will obtain or maintain 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 result in slower introduction of our potential products, a reduction in our revenues and may prevent us from becoming profitable. 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. Failure to obtain and keep patients in our clinical trials will delay or completely impede test results, which will negatively impact the development of our products and prevent us from becoming profitable. WE MAY FAIL TO ADEQUATELY PROTECT OR ENFORCE OUR INTELLECTUAL PROPERTY RIGHTS, OUR PATENTS AND OUR PROPRIETARY TECHNOLOGY, WHICH WILL MAKE IT EASIER FOR OTHERS TO MISAPPROPRIATE OUR TECHNOLOGY AND INHIBIT OUR ABILITY TO BE COMPETITIVE. 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 reduce our future income, increase our costs and limit our ability to develop additional products. The patent position of pharmaceutical and medical device firms generally is highly uncertain. Some of the risks and uncertainties include: * The patent applications owned by or licensed to us may not result in issued patents; * Our issued patents may not provide us with proprietary protection or competitive advantages; * Our issued patents may be infringed upon or designed around by others; * Our issued patents may be challenged by others and held to be invalid or unenforceable; * The patents of others may prohibit us from developing our products as planned; and * 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. Further exposure could arise from the following risks and uncertainties: * We do not have contractual indemnification rights against the licensors of the various drug patents; * We may be required to obtain licenses under dominating or conflicting patents or other proprietary rights of others; * Such licenses may not be made available on terms acceptable to us, if at all; and * 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. The occurrence of any of these events described above could harm 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. We may not be successful in any such proceeding. Litigation and other proceedings are 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. 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: * 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. For example, if we are able to eventually obtain approval of our drugs and devices to treat cardiovascular restenosis we will have to demonstrate and gain market acceptance of this as a method of treatment over use of drug coated stents and other restenosis treatment options; * Pricing and reimbursement policies of government and third-party payors such as insurance companies, health maintenance organizations and other plan administrators; and * The possibility that physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend any of our products. If our products are not accepted due to these or other factors our business will not develop as planned and may be harmed. 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. Although most of our raw materials and components are available from various sources, 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 certain key materials or services used by us in our drug development, light producing and light delivery device development and production operations. We are seeking to establish relationships with additional suppliers, however, we may not be successful in doing so and may encounter delays or other problems. If we are unable to produce our potential products in a timely manner, or at all, our sales would decline, our development activities could be delayed or cease and as a result we may never achieve profitability. WE MAY NOT HAVE ADEQUATE PROTECTION AGAINST PRODUCT LIABILITY OR RECALL, WHICH COULD SUBJECT US TO LIABILITY CLAIMS THAT COULD MATERIALLY HARM OUR BUSINESS. The testing, manufacture, marketing and sale of human pharmaceutical products and medical devices 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: * 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; * We have not obtained product liability insurance that would cover a claim relating to the clinical or commercial use or recall of our products; * In the absence of product liability insurance, claims made against us or a product recall could result in our being exposed to large damages and expenses; * If we obtain product liability 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 cause us to pay large amounts in damages; and * Liability claims relating to our products or a product recall could negatively affect our ability to obtain or maintain regulatory approval for our products. We currently do not expect to obtain product liability insurance until we have an approved product and begin distributing the product for commercial use. We plan to obtain product liability insurance to cover our indemnification obligations to Iridex for third party claims relating to any of our potential negligent acts or omissions involving our SnET2 drug technology or PhotoPoint PDT light device technology. A successful product liability claim could result in monetary or other damages that could harm our business, financial condition and additionally cause us to cease operations. OUR BUSINESS COULD SUFFER IF WE ARE UNSUCCESSFUL IN INTEGRATING BUSINESS COMBINATIONS AND STRATEGIC ALLIANCES. We may expand our operations and market presence by entering into business combinations, joint ventures or other strategic alliances with other companies. These transactions create risks, such as: * The difficulty assimilating the operations, technology and personnel of the combined companies; * The disruption of our ongoing business, including loss of management focus on existing businesses and other market developments; * Problems retaining key technical and managerial personnel; expenses associated with the amortization of goodwill and other purchased intangible assets; * Additional operating losses and expenses of acquired businesses; * The impairment of relationships with existing employees, customers and business partners; and * Additional losses from any equity investments we might make. We may not succeed in addressing these risks, and we may not be able to make business combinations and strategic investments on terms that are acceptable to us. In addition, any businesses we may acquire may incur operating losses. WE RELY ON THE AVAILABILITY OF CERTAIN UNPROTECTED INTELLECTUAL PROPERTY RIGHTS, AND IF ACCESS TO SUCH RIGHTS BECOMES UNAVAILABLE, OUR BUSINESS COULD SUFFER. Our trade secrets may become known or be independently discovered by competitors. Furthermore, inventions or processes discovered by our employees will not necessarily become our property and may remain the property of such persons or others. In addition, 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 our rights to our unpatented trade secrets and know-how. In the event that the intellectual property we do or will rely on becomes unavailable, our ability to be competitive will be impeded and our business will suffer. OUR PREFERRED STOCKHOLDER RIGHTS PLAN MAKES EFFECTING A CHANGE OF CONTROL OF MIRAVANT MORE DIFFICULT, WHICH MAY DISCOURAGE OFFERS FOR SHARES OF OUR COMMON STOCK. Our Board of Directors has adopted a Preferred Stockholder Rights Plan, or Rights Plan. The Rights Plan may have the effect of delaying, deterring, or preventing changes in our management or control of Miravant, which may discourage potential acquirers who otherwise might wish to acquire us without the consent of the Board of Directors. Under the Rights Plan, if a person or group acquires 20% or more of our Common Stock, all holders of rights (other than the acquiring stockholder) may, upon payment of the purchase price then in effect, purchase Common Stock having a value of twice the purchase price. In April 2001, the Rights Plan was amended to increase the trigger percentage from 20% to 25% as it applies to Pharmacia and excluded shares acquired by Pharmacia in connection with our 2001 Credit Agreement with Pharmacia, and from the exercise of warrants held by Pharmacia. We also waived the provisions of the Rights Plan with respect to the securities issued to the 2003 Lenders pursuant to the 2003 Debt Agreement, including the shares of Common Stock issuable upon conversion or exercise of such securities and any other securities that may in the future be issued to the 2003 Lenders pursuant to their participation rights under the 2003 Debt Agreement with respect to future financings by Miravant. In the event that we are involved in a merger or other similar transaction where we are not the surviving corporation, all holders of rights (other than the acquiring stockholder) shall be entitled, upon payment of the then in effect purchase price, to purchase Common Stock of the surviving corporation having a value of twice the purchase price. The rights will expire on July 31, 2010, unless previously redeemed. 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: * Our stockholders can act at a duly called annual or special meeting but they may not act by written consent; * Special meetings of stockholders 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 * 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 Common Stock. 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 or may discourage another party from acquiring voting control of us. BUSINESS INTERRUPTIONS COULD ADVERSELY AFFECT OUR BUSINESS. Our operations are vulnerable to interruption in the event of war, terrorism, fire, earthquake, power loss, floods, telecommunications failure and other events beyond our control. We do not have a detailed disaster recovery plan. Our facilities are all located in the State of California and were subject to electricity blackouts in 2002 as a consequence of a shortage of available electrical power. There is no guarantee that this electricity shortage has been permanently resolved, as such, we may again in the future experience unexpected blackouts. Though we do have back-up electrical generation systems in place, they are for use for a limited time and in the event these blackouts continue or increase in severity, they could disrupt the operations of our affected facilities. In addition, we may not carry adequate business interruption insurance to compensate us for losses that may occur and any losses or damages incurred by us could be substantial. 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 not be purchased or sold as expected. Our ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for these products and related treatment will be available from 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 prevent us from selling our potential products profitability, may reduce our revenues 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: * Decreasing the price we, or any of our partners or licensees, receive for any of our products; * Preventing the recovery of development costs, which could be substantial; and * 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 Food, Drug and Cosmetic Act, or 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: * 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; * If regulatory approval of a product is granted, such approval may entail limitations on the uses for which the product may be marketed; * If regulatory approval is obtained, the product, our manufacturer and the manufacturing facilities are subject to continual review and periodic inspections; * If regulatory approval is obtained, such approval may be conditional on the satisfaction of the completion of clinical trials or require additional clinical trials; * 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 * Photodynamic therapy products have been categorized by the FDA as combination drug-device products. If current or future photodynamic therapy 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: * Foreign regulatory requirements governing testing, development, marketing, licensing, pricing and/or distribution of drugs and devices in other countries; * 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 European Union, or EU, member states; * Our devices must also meet the European Medical Device Directive effective 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 * Registration and approval of a photodynamic therapy product in other countries, such as Japan, may include additional procedures and requirements, preclinical and clinical studies, and may require the assistance of native corporate partners. WE MAY NOT BE ABLE TO KEEP UP WITH RAPID CHANGES IN THE BIOTECHNOLOGY AND PHARMACEUTICAL INDUSTRIES THAT COULD MAKE SOME OR ALL OF OUR PRODUCTS NON-COMPETITIVE OR OBSOLETE. COMPETING PRODUCTS AND TECHNOLOGIES MAY MAKE SOME OR ALL OF OUR PROGRAMS OR POTENTIAL PRODUCTS NONCOMPETITIVE OR OBSOLETE. Our industry is subject to rapid, unpredictable and significant technological change. Competition is intense. Well-known pharmaceutical, biotechnology, device and chemical companies are marketing other therapies for the treatment of AMD. Doctors may prefer familiar methods that they are comfortable using rather than try our products. Many companies are also seeking to develop new products and technologies for medical conditions for which we are developing treatments. Our competitors may succeed in developing products that are safer or more effective than ours and in obtaining regulatory marketing approval of future products before we do. We anticipate that we will face increased competition as new companies enter our markets and as the scientific development of PhotoPoint PDT evolves. We expect that our principal methods of competition with other photodynamic therapy companies will be based upon such factors as: * The ease of administration of our photodynamic therapy; * The degree of generalized skin sensitivity to light; * The number of required doses; * The safety and efficacy profile; * The selectivity of our drug for the target lesion or tissue of interest; * The type, cost and price of our light systems; * The cost and price of our drug; and * The amount reimbursed for the drug and device treatment by third-party payors. We cannot give any assurance that new drugs or future developments in photodynamic therapy or in other drug technologies will not harm our business. Increased competition could result in: * Price reductions; * Lower levels of third-party reimbursements; * Failure to achieve market acceptance; and * Loss of market share. Any of the above could have an adverse effect on our business. Further, we cannot give any assurance that developments by our competitors or future competitors will not render our technology obsolete. OUR INDUSTRY IS SUBJECT TO TECHNOLOGICAL UNCERTAINTY, WHICH MAY RENDER OUR PRODUCTS AND DEVELOPMENTS OBSOLETE AND OUR BUSINESS MAY SUFFER. The pharmaceutical industry is subject to rapid and substantial technological change. Developments by others may render our products under development or our 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, biotechnology and device 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 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 compared to our products. We are aware that three of our competitors in the market for photodynamic therapy drugs have received marketing approval of their product for certain uses in the United States or 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 restenosis, 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 understanding of the market opportunities for our PhotoPoint PDT is derived from a variety of sources, and represents our best estimate of the overall market sizes presented in certain disease areas. The actual market size and market share which we may be able to obtain may vary substantially from our estimates, and is dependent upon a number of factors, including: * Competitive treatments or diagnostic tools, either existing or those that may arise in the future; * Performance of our products and subsequent labeling claims; and * Actual patient population at and beyond product launch. OUR PRODUCTS ARE SUBJECT TO OTHER STATE AND FEDERAL LAWS, FUTURE LEGISLATION AND REGULATIONS SUBJECTING US TO COMPLIANCE ISSUES THAT COULD CREATE SIGNIFICANT ADDITIONAL EXPENDITURES AND LIMIT THE PRODUCTION AND DEMAND FOR OUR POTENTIAL PRODUCTS. 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: * Our future capital and operational expenditures related to these matters may increase and become material; * We may also be subject to other present and possible future local, state, federal and foreign regulation; * 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; * Such new legislation or regulations may materially limit the demand and manufacturing of 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; * The announcement of such proposals may hinder our ability to raise capital or to form collaborations; and * 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 IS SUBJECT TO ENVIRONMENTAL PROTECTION LAWS AND REGULATIONS, AND IN THE EVENT OF AN ENVIRONMENTAL LIABILITY CLAIM, WE COULD BE HELD LIABLE FOR DAMAGES AND ADDITIONAL SIGNIFICANT UNEXPECTED COMPLIANCE COSTS, WHICH COULD HARM OUR FINANCIAL CONDITION AND RESULTS OF OPERATIONS. 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 cause us to pay significant amounts of money and harm our business. Further, the cost of complying with these laws and regulations may increase materially in the future. ITEM 3. QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK Our market risk disclosures involve 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, we are not subject to significant interest rate risk. The convertible notes issued under the 2002 and 2003 Debt Agreements have fixed interest rates of 9.4% and 8%, respectively, which is payable quarterly in cash or Common Stock. The principal amounts of the 2002 and 2003 Notes will be due December 31, 2008 and August 28, 2006, respectively, and these notes can be converted to Common Stock at the option of the holder. The Company believes it is not subject to significant interest risk due to its fixed rates on its debt. ITEM 4. CONTROLS AND PROCEDURES Our management evaluated, with the participation of our chief executive officer and our chief financial officer, the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our chief executive officer and our chief financial officer have concluded that our disclosure controls and procedures are effective to ensure that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms. There was no change in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. PART II. OTHER INFORMATION ITEM 2. Changes in Securities and Use of Proceeds In July 2004, we entered into a Collaboration Agreement and a Securities Purchase Agreement with Guidant. The Securities Purchase Agreement provides for Guidant to invest up to $7.0 million in non-cumulative convertible Series A Preferred Stock of the Company. The Series A Preferred Stock has voting rights and liquidation preferences of $2.70 per share over the common stockholders. The investments will be made upon the completion of certain milestones through completion of Phase I clinical trials with the first investment of $3.0 million made upon the signing of the agreements. The first Series A Preferred Stock investment is convertible into our Common Stock at $2.70 per share or 1,112,966 shares. The remaining preferred stock investments will be convertible into our Common Stock based on a ten day average price prior to the investment date. We are required to provide additional funding of at least $5.0 million over the period of the collaboration and the funds invested by Guidant must be spent on specified cardiovascular programs. We also granted Guidant registration rights with respect to the shares of Common Stock into which the Series A Preferred Stock is convertible. The agreements also contain various covenant and termination provisions as defined by the agreements.The shares were issued in reliance on the exemption from registration provided by Rule 506 of Regulation D promulgated under the Securities Act. On July 1 2004, in connection with the Securities Purchase Agreement, we filed a Certificate of Designation with the Secretary of State of Delaware authorizing the Series A Preferred Stock we issued to Guidant. Among the terms of the Series A Preferred Stock, holders of the Series A Preferred Stock will be paid prior and in preference to holders of our Common Stock if certain liquidity events occur. In April 2004, the Company entered in a Securities Purchase Agreement, or the 2004 Equity Agreement, with a group of institutional investors, whereby the Company sold 4,564,000 shares of Common Stock at $2.25 per share, resulting in proceeds to the Company of $10.3 million. There were no placement fees associated with the offering and the shares issued were unregistered. The shares were issued in reliance on the exemption from registration provided by Rule 506 of Regulation D promulgated under the Securities Act. Our Board of Directors and in March 2004, our stockholders, approved and amendment and restatement to our certificate of incorporation to increase the number of shares of common stock and preferred stock we are authorized to issue to 75,000,000 and 30,000,000 shares, respectively. The amended and restated certificate was filed with and accepted by the Secretary of State of Delaware on April 21, 2004. The Board of Directors has authority to fix the rights, preferences, privileges and restrictions, including voting rights, of these shares of preferred stock without any future vote or action by the shareholders. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On June 24, 2004, the Company held its Annual Meeting of Stockholders. The following individuals were elected to the Board of Directors:
Votes Votes For Withheld --------------- -------------- Barry Johnson 21,413,530 101,884 Charles T. Foscue 20,362,075 1,153,339 Gary S. Kledzik, Ph.D. 20,194,928 1,320,486 David E. Mai 20,353,957 1,161,457 In addition, the stockholders also approved the following proposals: Votes Votes Broker For Against Abstained Non-Votes -------------- -------------- --------------- ---------------- 1. Proposal to approve an amendment to the Company's 2000 Stock Compensation Plan to increase the number of shares of Common Stock reserved for issuance thereunder by 2,000,000 shares. 5,130,535 1,392,094 22,810 14,969,975 2. Proposal to ratify the selection of the Company's independent auditors. 21,480,192 27,016 8,206 --
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits Description Exhibit 3.1 Amended and Restated Articles of Incorporation dated April 21, 2004 (incorporated by reference to Exhibit 3.1 of Registrant's Pre-Effective Amendment No. 1 to Registration Statement on Form S-2 filed on April 29, 2004) (SEC File No. 333-114698). Exhibit 3.2 Certificate of Designation relating to Series A Preferred Stock dated July 1, 2004. Exhibit 4.1 Securities Purchase Agreement dated July 1, 2004 between Advanced Cardiovascular Systems, Inc., a wholly owned subsidiary of Guidant Corporation, and the Registrant. Exhibit 4.2 Registration Rights Agreement dated July 1, 2004 between Advanced Cardiovascular Systems, Inc., a wholly owned subsidiary of Guidant Corporation, and the Registrant. Exhibit 10.1 Collaboration Agreement dated July 1, 2004 between Advanced Cardiovascular Systems, Inc., a wholly owned subsidiary of Guidant Corporation, and the Registrant. Exhibit 31.1 Certification Of Chief Executive Officer Pursuant To Section 13(A) Or 15(D) Of The Securities Exchange Act Of 1934As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002. Exhibit 31.2 Certification Of Chief Financial Officer Pursuant To Section 13(A) Or 15(D) Of The Securities Exchange Act Of 1934As Adopted Pursuant To Section 302 Of The Sarbanes-Oxley Act Of 2002. Exhibit 32.1 Certification of the Chief Executive Officer and the Chief Financial Officer Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 Of The Sarbanes-Oxley Act Of 2002. (b) Reports on Form 8-K. On April 1, 2004, we filed a Form 8-K to report that on March 31, 2004 we submitted a New Drug Application (NDA) to the U.S. Food and Drug Administration (FDA) seeking marketing approval of SnET2-PDT as a new treatment for patients with wet age-related macular degeneration (AMD). On April 28, 2004, we filed a Form 8-K to report the sale of 4,564,000 shares of Common Stock at a per share purchase price of $2.25. On June 2, 2004, we filed a Form 8-K to report that our NDA was accepted for filing by the FDA. On July 6, 2004, we filed a Form 8-K to report our Collaboration and Securities Purchase Agreement with Guidant Corporation. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed in its behalf by the undersigned thereunto duly authorized. Miravant Medical Technologies Date: August 12, 2004 By: /s/ John M. Philpott ----------------------- John M. Philpott Chief Financial Officer (on behalf of the Company and as Principal Financial Officer and Principal Accounting Officer) EX-3 2 exhibit3_2.txt EXHIBIT 3.2 EXHIBIT 3.2 CERTIFICATE OF DESIGNATION OF SERIES A-1 PREFERRED STOCK OF MIRAVANT MEDICAL TECHNOLOGIES (pursuant to Section 151 of the Delaware General Corporation Law) DAVID E. MAI and JOSEPH E. NIDA certify that: 1. They are the President and Secretary, respectively, of MIRAVANT MEDICAL TECHNOLOGIES, a Delaware corporation (the "Corporation"). 2. The Corporation is authorized to issue THIRTY MILLION (30,000,000) shares of preferred stock. 3. The following resolutions were duly adopted by the Board of Directors: WHEREAS, the Amended and Restated Certificate of Incorporation (the "Certificate of Incorporation") of the Corporation provides for a class of its authorized stock known as preferred stock, comprising THIRTY MILLION (30,000,000) shares, par value $0.01; WHEREAS, the Board of Directors of the Corporation is authorized to determine the rights, preferences, privileges and restrictions, including the dividend rights, dividend rate, voting rights, conversion rights, rights and terms of redemption and liquidation preferences of any wholly unissued series of preferred stock and the number of shares constituting any series and the designation thereof, of any of them; WHEREAS, the Corporation desires to issue one series of preferred stock, to be known as "Series A-1 Preferred Stock," and contemplates issuing additional series of preferred stock, to be known as "Series A-2 Preferred Stock" and "Series A-3 Preferred Stock" pursuant to the Securities Purchase Agreement, between the Corporation and Advanced Cardiovascular Systems, Inc. ("ACS"), dated July 1, 2004 (the "Series A Purchase Agreement"). The Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series A-3 Preferred Stock are collectively referred to as the "Series A Preferred Stock"; and WHEREAS, it is the desire of the Board of Directors of the Corporation, pursuant to its authority as aforesaid, to determine and fix the rights, preferences, privileges, restrictions and other matters relating to the Series A-1 Preferred Stock. NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby provide for the issuance of the Series A-1 Preferred Stock and does hereby fix and determine the rights, preferences, privileges, restrictions and other matters relating to the Series A-1 Preferred Stock as follows: 1. Designation. The series of preferred stock shall consist of 1,112,966 shares designated and known as "Series A-1 Preferred Stock." 2. Voting. (a) The holders of the Series A Preferred Stock shall be entitled to notice of all stockholder meetings in accordance with the Corporation's bylaws, and except as provided in the Certificate of Incorporation, any Certificate of Designation of the Corporation, or as required by the Delaware General Corporation Law, the holders of the Series A Preferred Stock shall be entitled to vote on all matters submitted to the stockholders for a vote, voting together with the holders of the Common Stock as a single class, with each share of Series A Preferred Stock entitled to one vote for each share of Common Stock into which the Series A Preferred Stock may be converted. This provision for determination of the number of votes to which each holder of Series A Preferred Stock is entitled shall also apply in cases in which the holders of Series A Preferred Stock have the right to vote as a separate class. (b) The Corporation shall not, without the affirmative vote or written consent of the holders of at least two-thirds (2/3) of the then outstanding Series A Preferred Stock, voting together as a separate class: (i) repurchase any shares of capital stock (except for the repurchase of shares of capital stock from directors, employees and consultants pursuant to approval by the Board of Directors); (ii) authorize, create (by reclassification or otherwise) or issue, or obligate itself to issue, any other equity security, including any other security convertible into or exercisable for any equity security, ranking senior to or having a preference over the Series A Preferred Stock or ranking on a parity therewith as to rights, preferences or privileges, including, without limitation, as to voting, dividends or the distribution of assets upon liquidation; (iii) declare or pay dividends on or make any distribution on account of the Corporation's Common Stock or Preferred Stock; (iv) increase or decrease the number of authorized shares of Series A Preferred Stock; (v) alter or amend the rights, privileges, powers, preferences or limitations of the Series A Preferred Stock by amendment of the Corporation's Certificate of Incorporation, merger, consolidation or otherwise; (vi) sell, lease, license or otherwise dispose of all or substantially all of its assets, or consolidate with or merge into any other corporation or entity, or permit any other corporation or entity to consolidate or merge into it, or enter into a plan of exchange with any other corporation or entity, unless following such consolidation, merger or exchange the stockholders of this Corporation immediately prior to such consolidation, merger or exchange own a majority of the equity of the combined entity or such disposition, consolidation, merger or exchange has been approved by at least two-thirds (2/3) of the Board of Directors; (vii) liquidate, dissolve, wind-up the Corporation or seek relief under the provisions of the bankruptcy or any insolvency laws, including without limitation, voluntary dissolution, winding-up of its business, or the making of a creditors arrangement, or the cessation of all or a substantial part of the Corporation's business, unless such action has been approved by at least two-thirds (2/3) of the Board of Directors; or (viii) sell or grant an exclusive license not in the ordinary course of business to, or transfer of, all or substantially all of the material intellectual property of the Corporation or its subsidiaries related to the Corporation's and its subsidiaries' core technology or core products unless such action has been approved by at least two-thirds (2/3) of the Board of Directors. 3. Dividends. In the event that the Corporation declares or pays any dividends upon the Corporation's capital stock (whether payable in cash, securities or other property), the Corporation shall also declare and pay to the holders of the Series A Preferred Stock at the same time that it declares and pays such dividends to the holders of any capital stock of the Corporation, the dividends which would have been declared and paid with respect to the Common Stock based on the number of shares into which a share of Series A Preferred Stock would be convertible on the record date for such dividend, or if no record date is fixed, the date as of which the record holders of the Corporation's capital stock entitled to such dividends shall be determined by the Board. 4. Liquidation, Dissolution or Winding Up. (a) In the event of any: (i) liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary; (ii) acquisition of the Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger, consolidation or similar transaction of the Corporation with or into any other corporation or entity, but excluding any merger effected exclusively for the purpose of changing the domicile of the Corporation); or (iii) sale of all or substantially all of the assets of the Corporation, in any case in which transaction under clause (ii) or (iii) above the Corporation's stockholders immediately prior to such transaction own immediately after such transaction less than 50% of the voting power of the surviving or acquiring entity (each a "Liquidation Event"), all assets and funds of the Corporation legally available for distribution shall be distributed to the holders of the Common Stock and the Series A Preferred Stock in the following order of priority: (i) First, ratably among the holders of the Series A Preferred Stock (as though all shares of Series A Preferred Stock were converted to Common Stock pursuant to the provisions hereof) until each holder of Series A Preferred Stock has received the preferential amount equal to the per share purchase amount of each share of Series A Preferred Stock (each a "Liquidation Preference" and collectively, the "Liquidation Preferences"), plus all accrued and unpaid dividends thereon to the extent earned or declared pursuant to Section 3 above. The per share purchase amount of the Series A-1 Preferred Stock is $2.70; (ii) Second, after payment to the holders of the Series A Preferred Stock of the amounts specified in Section 4(a)(i) above, ratably among the holders of the Common Stock. Shares of Series A Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any distribution (including without limitation a Liquidation Event), or series of distributions, as shares of Common Stock, without first foregoing participation in the distribution, or series of distributions, as shares of Preferred Stock. (b) The dollar amounts specified in Section 4(a) shall be equitably adjusted in the event of any stock splits, stock dividends or similar capital modifications affecting the Common Stock or the Series A Preferred Stock after the filing of this Certificate of Designation. No adjustment to any Conversion Price (as defined hereinafter) pursuant to this Certificate of Designation shall otherwise alter the above Liquidation Preferences. (c) Insofar as any distribution pursuant to Section 4(a) consists of property other than cash, the value thereof shall, for purposes of the provisions of Section 4(a), be the fair value at the time of such distribution, as determined in good faith by the Board of Directors. 5. Conversion. (a) Upon the earliest of (i) twenty-four months from the effective date of the Series A Purchase Agreement, (ii) the initiation of the Phase IIb clinical trial involving PDT for cardiovascular applications (the Corporation will provide each holder of Series A Preferred Stock at least twenty (20) days written notice prior to the initiation of the Phase IIb clinical trial), and (iii) approval of a Liquidation Event by the Board of Directors, each holder of the then outstanding shares of Series A Preferred Stock, may elect, at any time prior to or at the occurrence of and upon compliance with the provisions of Section 5(c) below as to surrender thereof, to convert each share of Series A Preferred Stock into such number of fully paid and non-assessable shares of Common Stock as is determined by dividing the applicable Liquidation Preference by the applicable Conversion Price determined as hereinafter provided, in effect at the time of conversion and then multiplying such quotient by each share of Series A Preferred Stock to be converted. The Conversion Price at which shares of Common Stock shall be deliverable upon conversion of the Series A-1 Preferred Stock without the payment of any additional consideration by the holder thereof shall at the time of the filing of this Certificate initially be $2.70 (the "Series A-1 Conversion Price" together with any future conversion prices for the Series A-2 and Series A-3 Preferred Stock, the "Conversion Prices"). Each initial Conversion Price shall be subject to adjustment, in order to adjust the number of shares of Common Stock into which the applicable series of Series A Preferred Stock is convertible, as hereinafter provided. (b) The Conversion Price in effect at the time shall automatically be adjusted such that each Conversion Price will be divided by two (2) if a written audit provided to the Corporation by an independent accounting firm, paid for by ACS, or the financial statements of the Corporation reflect that the Corporation is not using the proceeds from the sale of the securities of the Corporation pursuant to the Series A Purchase Agreement solely for ongoing working capital needs of Miravant Cardiovascular, Inc. ("MCI") as necessary to complete the projects that are subject to the Collaboration Agreement, dated July 1, 2004 between the Corporation and ACS. The audit rights (i) are available upon ACS providing the Corporation with five (5) days notice prior to the date of an audit that ACS is in good faith contemplating converting shares of Series A Preferred Stock into Common Stock and (ii) may be conducted only two (2) times per year. ACS shall provide the Corporation with the draft audit report for its review. The Conversion Price may be adjusted pursuant to this Section 5(b) only once and will remain the Conversion Price unless otherwise adjusted pursuant to the terms of this Certificate of Designation. (c) To convert any or all of its Series A Preferred Stock into Common Stock, the holder shall surrender the certificate or certificates evidencing such Series A Preferred Stock, duly endorsed or assigned to the Corporation, accompanied by a written notice that the holder elects to convert such Series A Preferred Stock, stating therein the name or names in which the holder wishes the certificate or certificates for shares of Common Stock to be issued. As soon as practicable after the surrender of such certificates and subject to compliance with applicable securities laws, there shall be issued and delivered to such holder, or to the holder's nominee or nominees, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled, together with cash, if any, in lieu of any fraction of a share as provided in Section 5(f) below. Such conversion shall be deemed to have been made as of the date of such surrender of the certificate or certificates for the Series A Preferred Stock to be converted, and on and after such date the person or persons entitled to receive the shares of Common Stock issued upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock. (d) Any Series A Preferred Stock which at any time has been converted shall be restored to the status of authorized but unissued shares of preferred stock and shall in no circumstances be reissued as Series A Preferred Stock, and the Corporation may from time to time take such appropriate action as may be necessary to reduce the authorized Series A Preferred Stock accordingly, including (assuming no shares of Series A Preferred Stock are outstanding) amending the Certificate of Incorporation to eliminate therefrom any statement of rights, preferences, privileges and restrictions relating to the Series A Preferred Stock. (e) The Corporation shall at all times reserve and keep available out of its authorized Common Stock, solely for issuance upon the conversion of Series A Preferred Stock as herein provided, such number of shares of Common Stock as shall from time to time be issuable upon the conversion of all outstanding Series A Preferred Stock. (f) Upon any conversion, at the election of the Corporation, fractional shares shall not be issued but any fractions shall be adjusted by payment in cash by the Corporation on the basis of the market price of the Common Stock at the close of business on the date of conversion. For purposes hereof, market price shall be determined as follows: (i) If the Common Stock is listed on a national securities exchange or admitted to unlisted trading privileges on such an exchange, the market value shall be the last reported sale price of the Common Stock on such exchange on the date of conversion or, if no such sale is made on such day, the arithmetic mean of the highest bid and lowest asked prices for such day on such exchange; or (ii) If the Common Stock is not so listed or admitted to unlisted trading privileges, the market value shall be, in the case of securities which are not designated as "National Market" securities, the arithmetic mean of the highest bid and lowest asked prices, and in the case of securities which are designated as "National Market" securities, the last reported sales price, in each case as quoted on The Nasdaq Stock Market on the date of conversion; or (iii) If the security is not so listed or admitted to unlisted trading privileges and bid and asked prices are not reported, the current market value shall be determined in such reasonable manner as may be prescribed from time to time by the Board of Directors of the Corporation. (g) In case the Corporation shall propose at any time to take any action described in Sections 6(a)-(d) below, then, in each such case, the Corporation shall mail to the holders of record of Series A Preferred Stock at their last known post office addresses as shown by the Corporation's records a statement, signed by an officer of the Corporation, with respect to the proposed action, setting forth such facts with respect thereto as shall be reasonably necessary to inform the holders of Series A Preferred Stock as to the effect of such action upon their conversion rights. Such statement shall be mailed at least fifteen (15) days prior to the date of the taking of such action. 6. Adjustments; Stock Dividends; Reclassification; Reorganization Merger. (a) If the Corporation increases or decreases the number of its issued and outstanding shares of Common Stock, or changes in any way the rights and privileges of such shares, by means of (i) the payment of a stock dividend or the making of any other distribution on such shares payable in its Common Stock, (ii) a subdivision of shares, (iii) a consolidation or combination of shares or (iv) a reclassification or recapitalization involving its Common Stock, then the Conversion Prices in effect at the time of such action and the number of shares of Common Stock into which the applicable series of Series A Preferred Stock is then convertible, along with the voting rights set forth in Section 2(a) above, shall be adjusted to be the same as they would have been if such Series A Preferred Stock had been converted immediately prior to the occurrence of the event at issue and the shares of Common Stock into which the Series A Preferred Stock was convertible immediately prior to the event at issue had been issued and outstanding at the time of such event. (b) If the Corporation declares a dividend payable in money on its Common Stock and at substantially the same time offers to the holders of Common Stock a right to purchase new shares of Common Stock from the proceeds of such dividend or for an amount substantially equal to such dividend, then the holders of Series A Preferred Stock shall have the same subscription rights that such holders would have been entitled to if such holders had converted all of the Series A Preferred Stock into Common Stock immediately prior to such grant, and the Corporation shall notify the holders of Series A Preferred Stock of such right concurrently with notice to the holders of Common Stock of their subscription right. (c) If at any time the Corporation grants to the holders of Common Stock any right to subscribe pro rata for additional securities of the Corporation, whether Common Stock, convertible securities, or other classifications, or for any other securities or interests that a holder of Series A Preferred Stock would have been entitled to subscribe for if, immediately prior to such grant, such holder had converted Series A Preferred Stock into Common Stock, and if such action by the Corporation does not result in a readjustment of the Conversion Prices under any other subsection of this Section 6, then the holders of Series A Preferred Stock shall have the same subscription rights that such holders would have been entitled to if such holders had converted all of the Series A Preferred Stock into Common Stock immediately prior to such grant, and the Corporation shall notify the holders of Series A Preferred Stock of such right concurrently with notice to the holders of Common Stock of their subscription right. (d) In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 6(a) above, then, in each such case for the purpose of this Section 6(d), the holders of Series A Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series A Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. (e) Upon the occurrence of any of the following events, the Corporation shall cause any effective provision to be made so that each holder of Series A Preferred Stock shall have the right thereafter, by converting such Series A Preferred Stock, to acquire the kind and amount of shares of stock and other securities, and property and interests, as would be issued or payable with respect to or in exchange for the number of shares of Common Stock of the Corporation into which the Series A Preferred Stock is then convertible as if such Series A Preferred Stock had been converted into Common Stock immediately prior to such event: (i) the reclassification, capital reorganization or other similar change of outstanding shares of Common Stock of the Corporation, other than as described and provided for in Section 6(a) above; (ii) the merger or consolidation of the Corporation with one or more other corporations or other entities, other than a merger with a subsidiary or affiliate pursuant to which the Corporation is the surviving corporation and the outstanding shares of Common Stock, including the shares of Common Stock into which the Series A Preferred Stock is then convertible pursuant hereto, are not affected, or (iii) the spin-off of assets, a subsidiary, or an affiliated entity, or the sale, lease, or exchange of a significant portion of the Corporation's assets, in a transaction pursuant to which the Corporation's stockholders are to receive securities or other interests in a successor entity. Any such provision made by the Corporation for adjustments with respect to the Series A Preferred Stock shall be as nearly equivalent to the adjustments otherwise provided for herein as is reasonably practicable. (f) If any Liquidation Event is proposed, in addition to the rights of the holders of the Series A Preferred Stock set forth in Section 4 above, the rights set forth herein shall be applicable. The Corporation shall, as a condition precedent to the consummation of any such Liquidation Event, deliver written notice to each holder of Series A Preferred Stock no later than twenty (20) days prior to the earliest of (i) consummation of such Liquidation Event or (ii) the date on which the books of the Corporation shall close or the date on which a stockholder vote to approve such Liquidation Event shall take place or the last date on which stockholders are entitled to exchange their shares of Common Stock for securities or other property deliverable upon such Liquidation Event. If, as a result of such a Liquidation Event, stockholders of the Corporation are to receive securities or other interests of a successor entity, the provisions of Section 6(e) above shall apply. However, if the result of such a Liquidation Event is that stockholders of the Corporation are to receive money or property other than securities or other interest in a successor entity, each holder of Series A Preferred Stock shall be entitled to convert such shares into Common Stock prior to the consummation of such Liquidation Event, and, with respect to any shares of Common Stock so acquired, shall be entitled to all of the rights of the other holders of Common Stock with respect to any distribution by the Corporation in connection with such Liquidation Event. If no successor entity is involved and Section 6(e) does not apply, all conversion rights provided for herein shall terminate at the close of business on the date as of which holders of record of the Common Stock shall be entitled to participate in a distribution of the assets of the Corporation in connection with such Liquidation Event; provided, however, that in no event shall that date be less than ten (10) days after delivery to the holders of Series A Preferred Stock of the written notice described above. If the termination of conversion rights hereunder is to occur as a result of such Liquidation Event, a statement to that effect shall be included in that written notice. Notwithstanding the termination of conversion rights in accordance with the foregoing, upon a Liquidation Event and liquidation of the Corporation, each holder of Series A Preferred Stock shall be entitled to such rights as are provided in Section 4 above. Notwithstanding any foregoing provision, each holder of Series A Preferred Stock shall be entitled to such rights as are provided in Section 5(a) above. (g) The provisions of this Section 6 shall apply to successive events that may occur from time to time but shall only apply to a particular event if it occurs prior to the redemption, exchange or conversion in full of the Series A Preferred Stock either by its terms or by its conversion. (h) Unless the context requires otherwise, whenever reference is made in this Section 6 to the issuance or sale of shares of Common Stock, the term "Common Stock" shall mean (i) the par value $0.01 Common Stock of the Corporation, (ii) any other class of stock ranking on a parity with, and having substantially similar rights and privileges as, the Corporation's par value $0.01 Common Stock and (iii) any security convertible into either (i) or (ii). (i) For purposes of the calculations and adjustments described in this Section 6, shares of Common Stock owned or held at any relevant time by, or for the account of the Corporation, in its treasury or otherwise, shall not be deemed to be outstanding for purposes thereof. 7. Right to Invest; Share Exchange. (a) In the event that the Corporation intends to issue to any third party any equity interest (whether stock or securities convertible into stock or other rights to acquire stock) in MCI, other than the issuance or sale of common stock of MCI (or options therefor) to employees, consultants, officers and directors, pursuant to plans or agreements approved by the Board of Directors of MCI (collectively, the "MCI Shares"), the Corporation shall offer such MCI Shares to ACS in accordance with this Section 7. If the Corporation shall offer any equity interest in another entity (other than the Corporation) that utilizes the technology for cardiovascular applications owned, used or licensed by the Corporation or any of its affiliates, such equity interests shall be considered MCI Shares for this purpose. The Corporation shall deliver a written notice addressed to ACS at the post-office address as shown on the records of the Corporation at least thirty (30) days (or fifteen (15) days if ACS or any of its affiliates already hold any MCI Shares in the same issuing entity) prior to the date of such offer (the "Notice") stating (i) its bona fide intention to offer such MCI Shares, (ii) the number of MCI Shares to be offered, and (iii) the price and terms, if any, upon which it proposes to offer such MCI Shares. ACS shall have the right to purchase or otherwise acquire any portion of the number of MCI Shares in an amount not to exceed the lesser of (i) 50%, of the number of MCI Shares proposed to be sold or issued to all parties, including ACS, or (ii) the number of MCI Shares with an aggregate per share value equal to the aggregate Liquidation Preference, plus all accrued and unpaid dividends thereon to the extent earned pursuant to Section 3 above (such number of MCI Shares as elected by ACS to purchase or acquire shall be referred to as the "ACS Purchased MCI Shares"). The per share value of the MCI Shares shall be the price at which the MCI Shares are being offered, if any (if the MCI Shares are being offered for no consideration, the price shall be deemed to be $0.01 per MCI Share and if the MCI Shares are being issued in an initial public offering, the price shall be the initial offering price per share). If ACS decides not to purchase the MCI Shares within twenty (20) days (or ten (10) days if ACS or any of its affiliates already hold any MCI Shares in the same issuing entity) after receiving the Notice from the Corporation of the offer of MCI Shares, the Corporation may, during the 75-day period following the date the Notice was given, offer the MCI Shares originally offered to ACS to any person or persons at a price not less than, and upon terms no more favorable to the offeree than, those specified in the Notice. If the Corporation does not enter into an agreement for the sale of such MCI Shares within such period, or if such agreement is not consummated within 30 days of the execution thereof, the right of ACS to participate in the offering, including the right to receive notice, provided by this subsection shall be deemed to be revived and such Shares shall not be sold by the Corporation unless first reoffered to ACS in accordance with this subsection. (b) At the time of any offering of MCI Shares pursuant to Section 7(a) above, including the initial public offering of MCI Shares, if ACS elects to purchase any MCI Shares, the Corporation shall offer to exchange the shares of Series A Preferred Stock held by ACS for such ACS Purchased MCI Shares . ACS shall exchange such number of shares of Series A Preferred Stock with an aggregate ACS Per Share Value (as defined below) equal to the aggregate purchase price of the ACS Purchased MCI Shares. For number purposes of this Section 7(b), the "ACS Per Share Value" means the greater of (i) the Liquidation Preference per share of such Series A Preferred Stock, plus all accrued and unpaid dividends thereon to the extent earned pursuant to Section 3 above, for such shares or (ii) an amount equal to the market price (as defined in Section 5(f)) per share of Common Stock then issuable upon conversion of such share of Series A Preferred Stock). (c) On or after the date fixed for any exchange pursuant to Section 7(b) above, ACS shall surrender the certificate or certificates evidencing such shares to the Corporation at the place agreed upon by the Corporation and ACS and ACS shall be entitled to receive the MCI Shares. If less than all of the shares of Series A Preferred Stock represented by any such surrendered certificate or certificates are exchanged, the Corporation shall issue a new certificate for the remaining shares of Series A Preferred Stock. The provisions of this Section 7 shall terminate upon an initial public offering of MCI Shares, provided that the Corporation has complied with Sections 7(a) and 7(b) hereof in connection with such offering. (d) The rights and obligations set forth in this Section 7 may be waived only by the affirmative consent of the holders of at least two-thirds (2/3) of the then outstanding Series A Preferred Stock, voting together as a separate class. RESOLVED, FURTHER, that the Chairman, the president or any vice-president, and the secretary or any assistant secretary, of the Corporation be and they hereby are authorized and directed to prepare and file a Certificate of Designation in accordance with the foregoing resolution and the provisions of Delaware law. [Signatures on next page] We declare, under penalty of perjury under the laws of the State of Delaware, that the matters set forth in this certificate are true and correct of our own knowledge. Date: June 30, 2004 ------------------------------------------ DAVID E. MAI, President ------------------------------------------ JOSEPH E. NIDA, Secretary EX-4 3 exhibit4_1.txt EXHIBIT 4.1 EXHIBIT 4.1 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is entered into as of July 1, 2004, by and between MIRAVANT MEDICAL TECHNOLOGIES, a Delaware corporation (the "Company"), with headquarters located at 336 Bollay Drive, Santa Barbara, California 93117, and ADVANCED CARDIOVASCULAR SYSTEMS, INC., a wholly owned subsidiary of Guidant Corporation ("ACS") with regard to the following: RECITALS A. ACS desires to purchase, upon the terms and conditions stated in this Agreement, shares of the Company's Series A-1 Convertible Preferred Stock, par value $.01 per share ("Series A-1 Preferred Stock"), Series A-2 Convertible Preferred Stock, par value $.01 per share ("Series A-2 Preferred Stock"), and Series A-3 Convertible Preferred Stock, par value $.01 per share ("Series A-3 Preferred Stock" and collectively with the Series A-1 Preferred Stock and Series A-2 Preferred Stock referred to as the "Preferred Stock") as herein provided. The rights, preferences, privileges and restrictions of the Series A-1 Preferred Stock, Series A-2 Preferred Stock and Series A-3 Preferred Stock are set forth in the Certificates of Designation attached hereto as Exhibits A, B and C, respectively. The Preferred Stock, and the common shares to be issued upon the conversion of the Preferred Stock, are collectively referred to herein as the "Securities." B. The Company and ACS are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the provisions of Regulation D ("Regulation D"), as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "Securities Act"). C. Contemporaneously with the execution and delivery of this Agreement, the parties hereto are executing and delivering a (1) Registration Rights Agreement in the form attached hereto as Exhibit D (the "Registration Rights Agreement"), pursuant to which the Company has agreed to provide certain registration rights under the Securities Act, the rules and regulations promulgated thereunder and applicable state securities laws and (2) Collaboration Agreement in the form attached hereto as Exhibit E concerning a collaboration regarding the development of the Company's technology for cardiovascular applications for the treatment of cardiovascular diseases (the "Collaboration Agreement"). AGREEMENTS NOW, THEREFORE, in consideration of their respective promises contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and ACS hereby agree as follows: ARTICLE I PURCHASE AND SALE OF PREFERRED STOCK 1.1 Purchase of Preferred Stock. Subject to the terms and conditions of this Agreement, the closing of the issuance, sale and purchase of each of (a) the Series A-1 Preferred Stock, (b) Series A-2 Preferred Stock and (c) Series A-3 Preferred Stock shall be consummated in a closing (each a "Closing") at 9:00 a.m., on a date to be specified by the parties, which shall be no later than the second business day after satisfaction or waiver (to the extent waivable) of all conditions to the consummation of the respective Closing set forth in Article VI (other than those conditions that by their nature are to be satisfied at the respective Closing, but subject to the satisfaction or waiver of those conditions), at the offices of Sheppard Mullin Richter & Hampton, LLP, 800 Anacapa Street, Santa Barbara, CA 93101, unless another time, date, or place is agreed to by the parties. The date on which each Closing occurs is referred to as a "Closing Date." All actions taken at a Closing shall be deemed to have been taken simultaneously at the time the last of any such actions is taken or completed. 1.2 Initial Investment. (a) Upon the execution of this Agreement and subject to the terms and conditions of this Agreement, the Company shall issue and sell to ACS, and ACS shall purchase from the Company 1,112,966 shares of Series A-1 Preferred Stock at a purchase price of $2.70 per share, for an aggregate purchase price of $3,000,000 (the "Initial Investment"). (b) At the Closing of the Initial Investment, subject to the terms and conditions hereof, (i) the Company shall deliver to ACS a certificate representing the number of shares of Series A-1 Preferred Stock to be purchased by ACS, the documents required to be delivered by the Company pursuant to Section 6.3 hereof, and executed signature pages to the Registration Rights Agreement and the Collaboration Agreement; and (ii) ACS shall pay to the Company in cash, by wire transfer of immediately available funds to an account designated by the Company, the purchase price of the Initial Investment, and executed signature pages to the Registration Rights Agreement and the Collaboration Agreement. 1.3 Interim Investment. (a) Subject to the terms and conditions hereof, within thirty (30) days of the satisfaction of the conditions in Sections 6.4(a) and 6.4(b) hereof, ACS shall purchase that number of shares of Series A-2 Preferred Stock at the Fair Market Value of the Series A-2 Preferred Stock that equals $2,000,000 (the "Interim Investment"). The "Fair Market Value" of the Series A-2 Preferred Stock equals the average price at which the common stock of the Company (the "Common Stock") is being publicly traded on the OTC Bulletin Board securities market (or such other national securities exchange or automated quotation system that the Common Stock may be publicly traded) for the ten (10) trading days ending on the day immediately before the Closing Date of the Interim Investment. (b) At the Closing of the Interim Investment, subject to the terms and conditions hereof, (i) the Company shall deliver to ACS a certificate representing the number of shares of Series A-2 Preferred Stock to be purchased by ACS and the documents required to be delivered by the Company pursuant to Section 6.4 hereof; and (ii) ACS shall pay to the Company in cash, by wire transfer of immediately available funds to an account designated by the Company, and the purchase price of the Interim Investment. 1.4 Final Investment. (a) Subject to the terms and conditions hereof, on a date designated by ACS that is within four (4) months of the satisfaction of the conditions in Sections 6.5(a) and (b) hereof, ACS shall purchase that number of shares of Series A-3 Preferred Stock at the Fair Market Value of the Series A-3 Preferred Stock that equals the aggregate amount of $2,000,000 (the "Final Investment"). The "Fair Market Value of the Series A-3 Preferred Stock" equals the average price at which the Common Stock is being publicly traded on the OTC Bulletin Board securities market for the ten (10) trading days ending on the day immediately before the Closing Date of the Final Investment. (b) At the Closing of the Final Investment, subject to the terms and conditions hereof, (i) the Company shall deliver to ACS a certificate representing the number of shares of Series A-3 Preferred Stock to be purchased by ACS and the documents required to be delivered by the Company pursuant to Section 6.5 hereof; and (ii) ACS shall pay to the Company in cash, by wire transfer of immediately available funds to an account designated by the Company, the purchase price of the Final Investment. 1.5 Limitation on Investment. (a) Notwithstanding anything in this Agreement to the contrary, ACS shall have no obligation to make any purchase (including the Interim Investment and Final Investment) if such purchase would cause it to own 20% or more of either (i) the then-outstanding share capital of the Company or (ii) the then-outstanding share capital of the Company on a fully-diluted as-converted basis, in which case it shall only be required to purchase the maximum number of shares of the Company in either the Interim Investment or Final Investment that it could purchase without its ownership equaling or exceeding 20%. (b) The Company shall have no obligation to sell any shares of capital stock to the extent such sale violates any applicable law, rule or regulation, including but not limited to the listing requirements or other regulation of any national securities exchange. In the event that the Company exercises its right not to sell additional shares to ACS because such sale would violate an applicable law, rule or regulation, the Company will discuss this decision with ACS and, upon ACS's request, the parties agree to discuss and negotiate other possible arrangements in an effort to achieve the parties' intention of providing funding for the transactions contemplated by the Collaboration Agreement. ARTICLE II PURCHASER'S REPRESENTATIONS AND WARRANTIES ACS makes no other representations and warranties, express or implied, to the Company in connection with the transactions contemplated hereby, except for the following: 2.1 Investment Purpose. ACS is purchasing the Preferred Stock for ACS's own account for investment only and not with a view toward or in connection with the public sale or distribution thereof. ACS shall not, directly or indirectly, offer, sell, pledge or otherwise transfer its Securities, or any interest therein, except pursuant to transactions that are exempt from the registration requirements of the Securities Act and/or sales registered under the Securities Act. ACS understands that ACS must bear the economic risk of this investment indefinitely, unless the Securities are registered pursuant to the Securities Act and any applicable state securities laws or an exemption from such registration is available, and that the Company has no present intention of registering any such Securities other than as contemplated by the Registration Rights Agreement. 2.2 Accredited Investor Status. ACS is an "accredited investor" as that term is defined in Rule 501 (a) of Regulation D. 2.3 Reliance on Exemptions. ACS understands that the Securities are being offered and sold to ACS in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and ACS's compliance with, the representations, warranties, agreements, acknowledgments and understandings of ACS set forth herein in order to determine the availability of such exemptions and the eligibility of ACS to acquire the Securities. 2.4 Information. The Company, or its counsel, have made available all reasonable materials relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been specifically requested by ACS, including, without limitation, the Company's Annual Report on Form 10-K for the year ended December 31, 2003, and all other reports, registration statements, and other filings (including amendments to previously filed documents) filed by the Company with the SEC from December 31, 2002 to the date of this Agreement (all such reports, proxy statements, registration statements, and filings are collectively called the "SEC Reports" and each is individually called a "SEC Report"). ACS has been afforded the opportunity to ask questions of the Company and was permitted to meet with the Company's officers and has received what ACS believes to be satisfactory answers to any such questions. Neither such inquiries nor any other due diligence investigation conducted by ACS, or any of its representations, shall modify, amend or affect ACS's right to rely on the Company's representations and warranties contained in Article III hereof. ACS understands that ACS's investment in the Securities involves a high degree of risk, including, without limitation, the risks and uncertainties disclosed in the SEC Reports. 2.5 Governmental Review. ACS understands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. 2.6 Transfer or Resale. ACS understands that (a) except as provided in the Registration Rights Agreement, the Securities have not been and are not being registered under the Securities Act, or any state securities laws, and may not be offered, sold, pledged or otherwise transferred, unless subsequently registered thereunder or an exemption from such registration is available (which exemption the Company expressly agrees may be established as contemplated in clauses (b) and (c) of Section 5.1 hereof); (b) any sale of such Securities made in reliance on Rule 144 under the Securities Act (or a successor rule) ("Rule 144") may be made only in accordance with the terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such Securities without registration under the Securities Act under circumstances in which the seller may be deemed to be an underwriter (as that term is defined in the Securities Act) may require compliance with some other exemption under the Securities Act or the rules and regulations of the SEC thereunder in order for such resale to be allowed, (c) the Company is under no obligation to register such Securities under the Securities Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case, other than pursuant to this Agreement and the Registration Rights Agreement) and (d) the Company has agreed to register the Common Stock issued or issuable upon the conversion of Preferred Stock as provided in the Registration Rights Agreement. 2.7 Legends. ACS understands that, subject to Article V hereof, until such time as the Common Stock underlying the conversion of Preferred Stock has been registered under the Securities Act as contemplated by the Registration Rights Agreement, or otherwise may be sold by ACS pursuant to Rule 144 (subject to and in accordance with the procedures specified in Article V hereof), the certificates for the Securities shall bear a restrictive legend (the "Legend") in the following form: THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE SECURITIES LAWS OR UNLESS OFFERED, SOLD OR TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS. 2.8 Authorization: Enforcement. This Agreement and the Registration Rights Agreement have been duly and validly authorized, executed and delivered on behalf of ACS, and are valid and binding agreements of ACS enforceable in accordance with their respective terms, except (i) to the extent that such validity or enforceability may be subject to or affected by any bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights or remedies of creditors generally, or by other equitable principles of general application and (ii) as rights to indemnity and contribution under the Registration Rights Agreement may be limited by federal or state securities laws. 2.9 Residency. ACS is a resident of the jurisdiction set forth under ACS's name on the signature page hereto executed by ACS. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to ACS, as of the date hereof and as of each Closing, that: 3.1 Organization and Qualification. Each of the Company and its subsidiaries is a corporation duly organized and existing in good standing under the laws of the jurisdiction in which it is incorporated, and has the requisite corporate power to own its properties and to carry on its business as now being conducted. The Company and each of its subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction where the failure so to qualify or be in good standing would have a Material Adverse Effect. "Material Adverse Effect" means any effect which, individually or in the aggregate with all other effects, reasonably would be expected to be materially adverse to (a) the ability of the Company to perform its obligations under this Agreement, the Registration Rights Agreement, the Collaboration Agreement or any other agreement between the Company and ACS or (b) the business, operations, properties, financial condition or operating results of the Company and its subsidiaries, taken as a whole on a consolidated basis or on the transactions contemplated hereby; provided, however, that clause (b) shall not include any change, circumstance or effect resulting from (A) general changes in the industries in which the Company and its subsidiaries operate, as the case may be, except those changes, circumstances or effects that adversely affect the Company and its subsidiaries to a materially greater extent than they affect other entities operating in such industries, or (B) changes in general economic conditions or changes in securities markets in general. 3.2 Authorization; Enforcement. (a) The Company has the requisite corporate power and authority to enter into and perform this Agreement, the Registration Rights Agreement, and the Collaboration Agreement and to issue, sell and perform its obligations with respect to the Preferred Stock in accordance with the terms hereof and thereof and the terms of the Preferred Stock; (b) the execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Collaboration Agreement by the Company and the consummation by it of the transactions contemplated hereby and thereby (including, without limitation, the issuance of the Preferred Stock) have been duly authorized by all necessary corporate action and no further consent or authorization of the Company, its board of directors, or its stockholders or any other person, body or agency is required with respect to any of the transactions contemplated hereby or thereby; (c) this Agreement, the Registration Rights Agreement, the Collaboration Agreement and the certificates for the Preferred Stock have been (or in the case of the certificates for the Series A-2 Preferred Stock and Series A-3 Preferred Stock, shall be at the time of delivery) duly executed and delivered by the Company; and (d) this Agreement, the Registration Rights Agreement, the Collaboration Agreement and the Preferred Stock constitute (or in the case of the certificates for the Series A-2 Preferred Stock and Series A-3 Preferred Stock, shall constitute at the time of delivery) legal, valid and binding obligations of the Company enforceable against the Company in accordance with their respective terms, except (i) to the extent that such validity or enforceability may be subject to or affected by any bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally the enforcement of, creditors' rights or remedies of creditors generally, or by other equitable principles of general application, and (ii) as rights to indemnity and contribution under the Registration Rights Agreement may be limited by Federal or state securities laws. 3.3 Capitalization. The capitalization of the Company as of June 1, 2004, including the authorized capital stock, the number of shares issued and outstanding, the number of shares reserved for issuance pursuant to the Company's stock option plans, the number of shares reserved for issuance pursuant to securities exercisable for, or convertible into or exchangeable for, any shares of capital stock, is set forth on Schedule 3.3 hereof. All of such outstanding shares of capital stock have been, or upon issuance shall be, validly issued, fully paid and nonassessable. No shares of capital stock of the Company (including the Preferred Stock) are subject to preemptive rights or any other similar rights of the stockholders of the Company or any liens or encumbrances imposed or suffered by the Company. Except as disclosed in Schedule 3.3 hereof, as of the date of this Agreement, (i) there are no outstanding options, warrants, scrip, rights to subscribe for, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exercisable or exchangeable for, any shares of capital stock of the Company or any of its subsidiaries, or contracts, commitments, understandings or arrangements by which the Company or any of its subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its subsidiaries, (ii) issuance of the Securities shall not trigger anti-dilution rights for any other outstanding or authorized securities of the Company, and (iii) there are no agreements or arrangements under which the Company or any of its subsidiaries is obligated to register the sale of any of its or their securities under the Securities Act (except the Registration Rights Agreement). The Company has furnished to ACS true and correct copies of the Company's Certificate of Incorporation as in effect on the date hereof ("Certificate of Incorporation"), and the Company's Bylaws as in effect on the date hereof (the "Bylaws"). The Company has set forth on Schedule 3.3 hereof all instruments and agreements (other than the Certificate of Incorporation and Bylaws) governing securities convertible into or exercisable or exchangeable for capital stock of the Company (and the Company shall provide to ACS copies thereof upon the request of ACS). All outstanding securities of the Company have been issued in full compliance with an exemption or exemptions from the registration and prospectus delivery requirements of the Securities Act and from the registration and qualification requirements of all applicable state securities laws. Except as otherwise contemplated by this Agreement, the Company is not a party or subject to any agreement or understanding which affects or relates to the voting or giving of written consents with respect to, or the purchase of, any securities of the Company. 3.4 Issuance of Shares. The Securities are duly authorized and reserved for issuance, and upon issuance shall be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances imposed or suffered by the Company and shall not be subject to preemptive rights or other similar rights of stockholders of the Company. The Common Stock issuable upon conversion of the Preferred Stock has been reserved for issuance based upon the initial conversion ratio and, when issued upon conversion, will be duly authorized and validly issued, fully paid and nonassessable, free from all liens, claims and encumbrances imposed or suffered by the Company and will not be subject to preemptive rights or other similar rights of stockholders of the Company. 3.5 No Conflicts. The execution, delivery and performance of this Agreement, the Registration Rights Agreement and the Collaboration Agreement by the Company, and the consummation by the Company of transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance, as applicable, of the Preferred Stock) do not and shall not (a) result in a violation of the Certificate of Incorporation or Bylaws or (b) conflict with, or constitute a default (or an event which, with notice or lapse of time or both, would become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, or result in a violation of any law, rule, regulation, order, judgment or decree (including U.S. federal and state securities laws) applicable to the Company or any of its subsidiaries, or by which any property or asset of the Company or any of its subsidiaries, is bound or affected (except for such possible conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its subsidiaries is in violation of its Certificate of Incorporation or other organizational documents, and neither the Company nor any of its subsidiaries, is in default (and no event has occurred which has not been waived which, with notice or lapse of time or both, would put the Company or any of its subsidiaries in default) under, nor has there occurred any event giving others (with notice or lapse of time or both) any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its subsidiaries is a party, except for possible violations, defaults or rights as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its subsidiaries are not being conducted, and shall not be conducted, in violation of any law, ordinance or regulation of any governmental entity, except for possible violations the sanctions for which either individually or in the aggregate would not have a Material Adverse Effect. Except as set forth on Schedule 3.5 hereof, or except (A) such as may be required under the Securities Act in connection with the performance of the Company's obligations under the Registration Rights Agreement, (B) filing of a Form D with the SEC, and (C) compliance with the state securities or Blue Sky laws of applicable jurisdictions, and (D) the filing of the respective Certificates of Designation, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under this Agreement, the Registration Rights Agreement or the Collaboration Agreement or to perform its obligations in accordance with the terms hereof or thereof. 3.6 SEC Reports. Except as disclosed in Schedule 3.6 hereof, as of the date of this Agreement, the Company has timely filed the SEC Reports required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Company has made available to ACS true and complete copies of the SEC Reports, except for exhibits, schedules and incorporated documents. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Exchange Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Reports, and none of the SEC Reports, at the time they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Reports which is required to be updated or amended under applicable law has not been so updated or amended. The consolidated financial statements of the Company included in the SEC Reports have been prepared in accordance with U.S. generally accepted accounting principles, consistently applied, and the rules and regulations of the SEC during the periods involved (except (i) as may be otherwise indicated in such consolidated financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they do not include footnotes or are condensed or summary statements) and present accurately and completely in all material respects the consolidated financial position of the Company and its consolidated subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in a manner clearly evident to a sophisticated institutional investor in the consolidated financial statements or the notes thereto of the Company included in the SEC Reports, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business consistent with past practice subsequent to the date of such financial statements and (ii) obligations under contracts and commitments incurred in the ordinary course of business consistent with past practice and not required under generally accepted accounting principles to be reflected in such financial statements. To the extent required by the rules of the SEC applicable thereto, the SEC Reports contain a complete and accurate list of all material undischarged written or oral contracts, agreements, leases or other instruments to which the Company or any subsidiary is a party or by which the Company or any subsidiary is bound or to which any of the properties or assets of the Company or any subsidiary is subject (each a "Contract"). None of the Company, its subsidiaries or, to the best knowledge of the Company, any of the other parties thereto, is in breach or violation of any Contract, which breach or violation would have a Material Adverse Effect. No event, occurrence or condition exists which, with the lapse of time, the giving of notice, or both, would become a default by the Company or its subsidiaries thereunder which would have a Material Adverse Effect. The Company has not provided to ACS any material non-public information or any other information which, according to applicable law, rule or regulation, should have been disclosed publicly by the Company but which has not been so disclosed. 3.7 Absence of Certain Changes. Since December 31, 2003, there has been no material adverse change and no material adverse development in the business, properties, operations, financial condition or results of operations of the Company. The Company has not taken any steps and does not currently expect to take any steps to seek protection pursuant to any bankruptcy or receivership law, nor does the Company have any knowledge or reason to believe that its creditors intend to initiate involuntary bankruptcy proceedings with respect to the Company. 3.8 Absence of Litigation. Except as set forth in the SEC Reports, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, or self-regulatory organization or body pending or, to the knowledge of the Company or any of its subsidiaries, threatened in writing against or affecting the Company, any of its subsidiaries, or any of their respective directors or officers in their capacities as such, which could reasonably be expected to result in an unfavorable decision, ruling or finding which would have a Material Adverse Effect or would adversely affect the transactions contemplated by this Agreement or any of the documents contemplated hereby or which would adversely affect the validity or enforceability of, or the authority or ability of the Company to perform its obligations under, this Agreement or any of such other documents. There are no facts known to the Company which, if known by a potential claimant or governmental authority, could reasonably be expected to give rise to a claim or proceeding which, if asserted or conducted with results unfavorable to the Company or any of its subsidiaries, could reasonably be expected to have a Material Adverse Effect. 3.9 Permits, Licenses; Compliance with Laws; Company Products. Each of the Company and each of its subsidiaries has all licenses, franchises, permits, and other governmental authorizations and approvals necessary to conduct its business as currently conducted and as contemplated, and neither the Company nor any of its subsidiaries is in violation of any such license, franchise, permit, or other governmental authorization or approval, or any law applicable to it or any of its properties, except where the failure to have any such license, franchise, permit, or other governmental authorization or approval, or the existence of any such violation, has not had and would not be reasonably likely to have, individually or in the aggregate, a Material Adverse Effect. No investigation or review by any governmental authority with respect to the Company or any of its subsidiaries is pending or, to the Company's knowledge, threatened. No governmental authority has expressed to the Company an intention to conduct any such investigation or review. 3.10 Disclosure. No information relating to or concerning the Company set forth in this Agreement contains an untrue statement of a material fact. No information relating to or concerning the Company set forth in any of the SEC Reports contains a statement of material fact that was untrue as of the date such SEC Report was filed with the SEC. The Company has not omitted to state a material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. Except for the execution and performance of this Agreement, no material fact (within the meaning of the federal securities laws of the United States and of applicable state securities laws) exists with respect to the Company which has not been publicly disclosed. 3.11 Acknowledgment Regarding ACS's Purchase of the Securities. The Company acknowledges and agrees that ACS is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement or the transactions contemplated hereby, that this Agreement and the transaction contemplated hereby, and the relationship between ACS and the Company, are "arms-length," and that any statement made by ACS (except as set forth in Article II), or any of its representatives or agents, in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation, is merely incidental to ACS's purchase of the Securities and has not been relied upon as such in any way by the Company, its officers or directors. The Company further represents to ACS that the Company's decision to enter into this Agreement and the transactions contemplated hereby has been based solely on an independent evaluation by the Company and its representatives. 3.12 S-2 Registration. The Company is not currently eligible to register the Common Stock underlying the conversion of Preferred Stock on a registration statement on Form S-3 under the Securities Act. However, the Company is eligible to use Form S-1 or S-2 under the Securities Act. 3.13 Securities Laws. Assuming the accuracy of the representations and warranties of ACS contained in Section 2 hereof on the date hereof and at each Closing, the offer, issue, and sale of the Preferred Stock and the offer of the Common Stock issuable upon conversion of the Preferred Stock are exempt from the registration and prospectus delivery requirements of the Securities Act and have been registered or qualified (or are exempt from registration and qualification) under the registration, permit, or qualification requirements of all applicable state securities laws. Neither the Company nor any distributor participating on the Company's behalf in the transactions contemplated hereby (if any) nor any person acting for the Company, or any such distributor, has conducted any "general solicitation," as described in Rule 502(c) under Regulation D, with respect to any of the Securities being offered hereby. 3.14 No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales of any security or solicited any offers to buy any security under circumstances that would prevent the parties hereto from consummating the transactions contemplated hereby pursuant to an exemption from the registration under the Securities Act pursuant to the provisions of Regulation D. The transactions contemplated hereby are exempt from the registration requirements of the Securities Act, assuming the accuracy of the representations and warranties herein contained of ACS. 3.15 No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, finder's fees or similar payments by ACS relating to this Agreement or the transactions contemplated hereby. 3.16 Intellectual Property. (a) Schedule 3.16(a) hereof lists all patents and patent applications owned or used by the Company or any of its subsidiaries that relate to the Therapeutic Field (as defined in the Collaboration Agreement), including the owner and jurisdictions in which each such patent and patent application has been issued or registered or in which any application for such issuance and registration has been filed. To the best of its knowledge, the Company and its subsidiaries are the sole and exclusive owner of, or otherwise have a valid license or right to use, all Proprietary Rights free and clear of any liens, charges, pledges, mortgages, security interests, claims, options, warrants, or encumbrances of any kind or character. "Proprietary Rights" means all material inventions, patents, patent applications, patent disclosures, trademarks, trademark applications, service marks, service mark applications, logos, trade names, domain names, copyrights, trade secrets, and all other intellectual property (whether patentable or unpatentable) (i) associated with the Lead Drug or other PDT Drug or PDT Device as each are defined in the Collaboration Agreement or (ii) that are related to the business of the Company or any of its subsidiaries as presently conducted or as presently proposed to be conducted, and each of the Company or any subsidiary has the right to use all of its Proprietary Rights in all jurisdictions in which the Company or such subsidiary conducts its business. (b) No person has a right to receive a royalty or similar payment from the Company or any subsidiary for their use of any Proprietary Rights pursuant to any contractual arrangements entered into by the Company or any subsidiary as of the date of this Agreement. Except as listed in Schedule 3.16(b), as of the date of this Agreement, neither the Company nor any subsidiary has any licenses granted, sold, or otherwise transferred by or to it (other than standard licenses or rights to use granted to customers in the ordinary course of its business) nor other agreements to which any of them is a party, relating in whole or in part to any of the Proprietary Rights. The Company has exclusive access, free of any obligations of any nature to any other Person (as defined herein), to the Lead Drug (and the final formulated drug product) in the Therapeutic Field used in the Phase I Trial, all as defined in the Collaboration Agreement, and will continue to maintain such exclusive access for at least 48 months from the date hereof. "Person" means any individual, corporation, partnership, limited liability company, association, joint venture, trust, government or governmental instrumentality, agency, division or office or any other entity, organization or group. ACS acknowledges receipt of information from the Company that the Lead Drug and the final formulated drug product will be manufactured by Gilead Sciences, Inc. ("Gilead") using Gilead's proprietary liposomal formulation technology ("Gilead's Technology"). The Company may be required to pay a royalty to Gilead for the use of the Gilead Technology, but such requirement will not prevent the Company's exclusive access to the Lead Drug and the final formulated drug product. (c) Either the Company or a subsidiary exclusively owns or has the exclusive right to use, sell, license, or sublicense each of the Proprietary Rights. As of the date of this Agreement, none of the Proprietary Rights owned by the Company or any subsidiary is involved in any pending or to the Company's knowledge threatened litigation. No third party (i) has any ownership right in or the right to use any such Proprietary Rights, (ii) as of the date of this Agreement has notified the Company or any subsidiary that it claims any ownership of or right to use such Proprietary Rights, or (iii) to the Company's knowledge as of the date of this Agreement, is infringing upon any such Proprietary Rights owned by the Company or any subsidiary in any way. To the Company's knowledge as of the date of this Agreement, the Company's and the subsidiaries' use of the Proprietary Rights in the conduct of their businesses, including the production, marketing, selling, and servicing of their products, is not infringing upon or otherwise violating the rights of any third party, and no proceedings have been instituted against or notices received by the Company and any subsidiary alleging that the Company's or any subsidiary's use of the Proprietary Rights infringes upon or otherwise violates any rights of a third party or that any of the Proprietary Rights are invalid. The Proprietary Rights shall not cease to be valid and in full force and effect by reason of the execution, delivery, and performance of this Agreement or the consummation of the transactions contemplated hereby. (d) To the Company's knowledge, all Proprietary Rights that are used or incorporated into the products of the Company and any subsidiary that are proprietary to the Company and the subsidiaries, including those under development, were developed by current or former employees, consultants, or agents of the Company or one of the subsidiaries and are free of any claims of such employees, consultants, or agents thereto. To the Company's knowledge, none of such employees, consultants, or agents has violated in any material manner any agreements with respect to the use or disclosure of confidential information or Proprietary Rights. 3.17 Key Employees. No Key Employee, to the best of the knowledge of the Company and its subsidiaries, is, or is now expected to be, in violation of any material term of any employment contract, confidentiality, disclosure or proprietary information agreement, non-competition agreement, or any other contract or agreement or any restrictive covenant, and the continued employment of each Key Employee does not subject the Company or any of its subsidiaries to any liability with respect to any of the foregoing matters. No Key Employee has, to the best of the knowledge of the Company and its subsidiaries, any intention to terminate his employment with, or services to, the Company or any of its subsidiaries nor is any such Key Employee subject to any constraints that would cause such Key Employee to be unable to devote his full time attention to the employment or services of the Company or its subsidiaries. "Key Employee" means each of Gary S. Kledzik, Chairman of the Board and Chief Executive Officer, and David E. Mai, President. 3.18 Rights Plan. The Company has in effect a shareholders rights plan (the "Plan"). However, the transactions contemplated herein will not trigger the Plan. 3.19 Insurance. The Company has in force fire, casualty, and other insurance policies, with extended coverage, sufficient in amount to allow it to replace any of its material properties or assets which might be damaged or destroyed or sufficient to cover liabilities to which the Company may reasonably become subject, and such types and amounts of other insurance with respect to its business and properties, on both a per occurrence and an aggregate basis, as are customarily carried by persons engaged in the same or similar business as the Company. No default or event has occurred that could give rise to a default under any such policy. The Company does not carry product liability insurance as of the date of this Agreement, and ACS is not requiring the Company to obtain such product liability insurance coverage. ARTICLE IV COVENANTS 4.1 Best Efforts. The parties hereto shall use their commercially reasonable best efforts to timely satisfy each of the conditions described in Articles VI and VII of this Agreement. 4.2 Securities Laws. The Company agrees to file a Form D with respect to the Securities with the SEC as required under Regulation D and to provide a copy thereof to ACS within fifteen (15) days after the date of the Closing. The Company agrees to file a Form 8-K disclosing this Agreement and the transactions contemplated hereby with the SEC within ten (10) business days following the date of the Closing. The Company shall, on or prior to the date of the Closing, take such action as is necessary to sell the Securities to ACS under applicable securities laws of the states of the United States, and shall provide evidence of any such action so taken to ACS on or prior to the date of the Closing. 4.3 Reporting Status. So long as ACS beneficially owns any of the Securities, the Company shall timely file all reports required to be filed with the SEC pursuant to the Exchange Act, and the Company shall not terminate its status as an issuer required to file reports under the Exchange Act even if the Exchange Act or the rules and regulations thereunder would permit such termination. 4.4 Information. The Company agrees to make available upon request the following reports to ACS until ACS transfers, assigns or sells all of its Securities in transactions in which the transferee is (unless such transferee is an affiliate of the Company) not subject to securities law resale restrictions: (a) its Annual Report on Form 10-K, its Quarterly Reports on Form 10-Q, any proxy statements and any Current Reports on Form 8-K; (b) copies of all press releases issued by the Company or any of its subsidiaries, and (c) any other financial information that ACS may reasonably request; provided, however, that the Company shall not be required to give ACS any material nonpublic information. The Company further agrees to promptly provide to ACS any information with respect to the Company, its properties, or its business or ACS's investment as ACS may reasonably request; provided, however, that the Company shall not be required to give ACS any material nonpublic information. If any information requested by ACS from the Company contains material nonpublic information, the Company shall inform ACS, in writing, that the information requested contains material nonpublic information and shall in no event provide such information to ACS without the express written consent of ACS after being so informed. 4.5 Prospectus Delivery Requirement. ACS understands that the Securities Act may require delivery of a prospectus relating to the Common Stock underlying the conversion of Preferred Stock in connection with any sale thereof pursuant to a registration statement under the Securities Act covering the resale by ACS of the Common Stock being sold, and ACS shall comply with the applicable prospectus delivery requirements of the Securities Act in connection with any such sale. 4.6 Corporate Existence. So long as ACS beneficially owns any Preferred Stock, the Company shall maintain its corporate existence, except in the event of a merger, consolidation or sale of all or substantially all of the Company's assets, as long as the surviving or successor entity in such transaction assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith. 4.7 Hedging Transactions. ACS does not have an existing short position with respect to the Preferred Stock or the Common Stock underlying the conversion of Preferred Stock. ACS agrees not to, directly or indirectly, enter into any short sales with respect to the Preferred Stock or the Common Stock underlying the conversion of Preferred Stock prior to the date on which ACS is entitled to sell, convert, or transfer the number of shares of Preferred Stock or Common Stock as to which ACS proposes to establish a short position. This Section 4.7 shall not prohibit ACS from, at any time, entering into options contracts with respect to the Preferred Stock or the Common Stock underlying the conversion of Preferred Stock, including puts and calls including delivering Preferred Stock or Common Stock in satisfaction of any exercised options. 4.8 Use of Proceeds. The Company shall use the proceeds of the sale of the Securities for working capital for its subsidiary, Miravant Cardiovascular, Inc. ("MCI"), and the initiation of the Pre-clinical Development Program, and Phase I Trial in accordance with the Collaboration Agreement. 4.9 Sole Purchaser. As of the date of each Closing, ACS shall be the sole purchaser and holder of the Preferred Stock. The Company shall not issue any Preferred Stock to any person or entity other than ACS without ACS's written consent. 4.10 Collaboration Agreement. ACS may immediately terminate the Collaboration Agreement pursuant to the terms of Section 12.2(e) of the Collaboration Agreement in the event that the Company fails to meet the conditions that are needed to be satisfied in order to obligate ACS to make either the Interim Investment or Final Investment that are set out in Sections 6.4 and 6.5 herein. ARTICLE V LEGEND REMOVAL, TRANSFER, CERTAIN SALES, ADDITIONAL SHARES 5.1 Removal of Legend. Upon the request of ACS, the Legend shall be removed and the Company shall issue a certificate without such Legend to the holder of any Security upon which it is stamped, and a certificate for a security shall be originally issued without the Legend, if, (a) the sale of such Security is registered under the Securities Act, (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions and reasonably satisfactory to the Company and its counsel (the reasonable cost of which shall be borne by the Company if, after one (1) year, neither an effective registration statement under the Securities Act or Rule 144 is available in connection with such sale) to the effect that a public sale or transfer of such Security may be made without registration under the Securities Act pursuant to an exemption from such registration requirements or (c) such Security can be sold pursuant to Rule 144 and the holder provides the Company with reasonable assurances that the Security can be so sold without restriction or (d) such Security can be sold pursuant to Rule 144(k). ACS agrees to sell all Securities, including those represented by a certificate(s) from which the Legend has been removed, or which were originally issued without the Legend, pursuant to an effective registration statement, in accordance with the manner of distribution described in such registration statement and to deliver a prospectus in connection with such sale, or in compliance with an exemption from the registration requirements of the Securities Act. In the event the Legend is removed from any Security or any Security is issued without the Legend and the Security is to be disposed of other than pursuant to the registration statement or pursuant to Rule 144, then prior to, and as a condition to, such disposition such Security shall be relegended as provided herein in connection with any disposition if the subsequent transfer thereof would be restricted under the Securities Act. Also, in the event the Legend is removed from any Security or any Security is issued without the Legend and thereafter the effectiveness of a registration statement covering the resale of such Security is suspended or the Company determines that a supplement or amendment thereto is required by applicable securities laws, then upon reasonable advance notice to ACS holding such Security, the Company may require that the Legend be placed on any such Security that cannot then be sold pursuant to an effective registration statement or Rule 144 or with respect to which the opinion referred to in clause (b) next above has not been rendered, which Legend shall be removed when such Security may be sold pursuant to an effective registration statement or Rule 144 or such holder provides the opinion with respect thereto described in clause (b) next above. 5.2 Transfer Agent Instructions. The Company shall instruct its transfer agent to issue certificates, registered in the name of ACS or its nominee, for the Preferred Stock in such amounts determined in accordance with the terms of the Preferred Stock. Such certificates shall bear the Legend only to the extent provided by Section 5.1 above. The Company covenants that no instruction other than such instructions referred to in this Article V, or the suspension of trading under a prospectus as set forth in the Registration Rights Agreement, and stop transfer instructions to give effect to Section 2.6 hereof in the case of the Preferred Stock prior to registration of the Common Stock underlying the conversion of Preferred Stock under the Securities Act, shall be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company. Nothing in this Section shall affect in any way ACS's obligations and agreement set forth in Section 5.1 hereof to resell the Securities pursuant to an effective registration statement and to deliver a prospectus in connection with such sale or in compliance with an exemption from the registration requirements of applicable securities laws. If (a) ACS provides the Company with an opinion of counsel, which opinion of counsel shall be in form, substance and scope customary for opinions of counsel in comparable transactions and reasonably satisfactory to the Company and its counsel (the reasonable cost of which shall be borne by the Company if, after one (1) year, neither an effective registration statement under the Securities Act or Rule 144 is available in connection with such sale), to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from registration or (b) ACS transfers Securities to an affiliate which is an accredited investor (within the meaning of Regulation D under the Securities Act) and which delivers to the Company in written form the same representations, warranties and covenants made by ACS hereunder or pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Preferred Stock, promptly instruct its transfer agent to issue one or more certificates in such name and in such denomination as specified by ACS. The Company acknowledges that a breach by it of its obligations hereunder shall cause irreparable harm to ACS by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Article V shall be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Article V, that ACS shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate issuance and transfer, without the necessity of showing economic loss and without any bond or other security being required. ARTICLE VI CONDITIONS 6.1 Conditions to Each Closing for the Sale and Purchase of the Preferred Stock. The obligation of ACS to purchase, and the Company to sell, the Preferred Stock to be purchased at each Closing is subject to the satisfaction of each of the following conditions: (a) No statute, rule, regulation, executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which restricts or prohibits the consummation of any of the transactions contemplated by this Agreement. (b) The Company shall have secured all permits, consents, approvals, resolutions and authorizations that shall be necessary or required lawfully for the Company to consummate the transactions contemplated by this Agreement and to issue the Securities. 6.2 Conditions to the Company's Obligation to Sell the Preferred Stock. The obligation of the Company hereunder to issue and sell the Preferred Shares to ACS at each Closing is subject to the satisfaction, as of the date of such Closing (provided that this condition is for the Company's sole benefit and may be waived by the Company at any time in its sole discretion), the representations and warranties of ACS shall be true and correct in all material respects as of the date when made and as of the Closing as though made at that time (except for representations and warranties that speak as of a specific date), and ACS shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by ACS at or prior to the Closing. 6.3 Conditions to ACS's Obligation to Purchase Series A-1 Preferred Shares. The obligation of ACS hereunder to purchase the Series A-1 Preferred Stock to be purchased by it on the Closing Date of the Initial Investment is subject to the satisfaction of the following conditions, provided that these conditions are for ACS's sole benefit and may be waived by ACS at any time in ACS `s sole discretion: (a) The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing as though made at that time, except for those representations and warranties that are qualified by materiality, which shall be true and correct in all respects, and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing. (b) The Certificate of Designation for the Series A-1 Preferred Stock in the form attached as Exhibit A hereto shall have been filed with the Secretary of State of the State of Delaware and shall continue to be in full force and effect as of the Closing Date of the Initial Investment. (c) The Common Stock issuable upon conversion of the Preferred Stock shall have been duly authorized and reserved for issuance upon such conversion. (d) The Company shall have delivered to ACS a certificate in a form approved by ACS, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated as of the Closing of the Initial Investment to the effect that the conditions specified in subsections (a), (b) and (c) of this Section 6.3 have been satisfied. (e) ACS shall have received from the Company's Secretary, a certificate having attached thereto (i) the Company's Certificate of Incorporation, including the Certificate of Designation for the Series A-1 Preferred Stock as in effect at the time of the Closing of the Initial Investment, (ii) the Company's Bylaws as in effect at the time of the Closing of the Initial Investment, (iii) resolutions approved by the Board of Directors authorizing the transactions contemplated hereby and (iv) good standing certificates (including tax good standing) with respect to the Company from the applicable authority(ies) in Delaware and any other jurisdiction in which the Company is qualified to do business, dated as of a recent date before the Closing of the Initial Investment. 6.4 Conditions to ACS's Obligation to Purchase Series A-2 Preferred Shares. The obligation of ACS hereunder to purchase the Series A-2 Preferred Stock to be purchased by it on the Closing Date of the Interim Investment is subject to the satisfaction of each of the following conditions, provided that these conditions are for ACS's sole benefit and may be waived by ACS at any time in ACS's sole discretion: (a) The Company shall have delivered to ACS the reports listed in Exhibit F evidencing the completion of Good Laboratory Practice animal studies relating to the Lead Drug (as defined in the Collaboration Agreement) prior to the submission to the United States Food and Drug Administration ("FDA") of the INDA (as defined in the Collaboration Agreement) relating to the Lead Drug or other PDT Drug. (b) The Company shall have delivered to ACS proof that the Company has submitted an INDA relating to a Lead Drug or other PDT Drug to the FDA. (c) The Company shall certify that there has been no material adverse change in the financial condition of the Company from the date hereof to the Closing Date of the Interim Investment. In addition, the representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing of the Interim Investment as though made at that time and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing of the Interim Investment. ACS shall have received a certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated as of the Closing of the Interim Investment to the foregoing effect. (d) The Company shall have delivered to ACS the Audited Financial Statements (as defined in Section 7.1(a)) and other financial information evidencing that it has invested no less than $2,000,000 during the period from the date hereof to the date on which the conditions of this Section 6.4 are met (not including the amounts of the purchase price for the Preferred Stock that will be committed for MCI's working capital pursuant to Section 4.8 hereof) for MCI's ongoing working capital needs. * . (e) The Certificate of Designation for the Series A-2 Preferred Stock in the form of Exhibit B attached hereto shall have been filed with the Secretary of State of the State of Delaware and shall continue to be in full force and effect as of the Closing Date of the Interim Investment. (f) ACS shall have received from the Company's Secretary, a certificate having attached thereto (i) the Company's Certificate of Incorporation, including the Certificates of Designation for the Series A-1 Preferred Stock and the Series A-2 Preferred Stock as in effect at the time of the Closing of the Interim Investment, (ii) the Company's Bylaws as in effect at the time of the Closing of the Interim Investment, and (iii) good standing certificates (including tax good standing) with respect to the Company from the applicable authority(ies) in Delaware and any other jurisdiction in which the Company is qualified to do business, dated as of a recent date before the Closing of the Interim Investment. (g) The conditions in this Section 6.4 must have been satisfied or waived by ACS no later than 24 months from the date hereof. 6.5 Conditions to ACS's Obligation to Purchase Series A-3 Preferred Shares. The obligation of ACS hereunder to purchase the Series A-3 Preferred Stock to be purchased by it on the Closing Date of the Final Investment is subject to the satisfaction of each of the following conditions, provided that these conditions are for ACS's sole benefit and may be waived by ACS at any time in ACS's sole discretion: (a) The Company shall have completed the Phase I Trial (as defined in the Collaboration Agreement) and shall have delivered to ACS the Phase I Trial Safety Report that complies with the requirements set forth in Exhibit G. The completion of the Phase I Trial is defined as the time when all patients enrolled in the trial have been followed-up according to the trial protocol and any additional FDA required follow-up and when all Phase I Trial clinical reports and data have been provided to ACS. (b) The Company shall have delivered to ACS the data and analysis for the clinical readiness review for the PDT Device. "Clinical readiness" means that the device would have met acceptable Good Manufacturing Practices guidelines or the FDA Investigational Device Exemption/510K approval guidelines (including, for example, such items as design, material acceptability, manufacturing and quality processes) for use in patients as indicated in reports or FDA documentation provided by the Company to ACS. (c) The Company shall certify that there has been no material adverse change in the financial condition of the Company from the date hereof to the Closing Date of the Final Investment. In addition, the representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing of the Final Investment as though made at that time and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed, satisfied or complied with by the Company at or prior to the Closing of the Final Investment. ACS shall have received a certificate, executed by the Chief Executive Officer or Chief Financial Officer of the Company, dated as of the Closing of the Final Investment to the foregoing effect. (d) The Company shall have delivered to ACS Audited Financial Statements and other financial information evidencing that it has invested no less than $3,000,000 from the date hereof to the date on which the conditions of this Section 6.5 are met (not including the amounts of the purchase price for the Preferred Stock that will be committed for MCI's working capital pursuant to Section 4.8 hereof or the amount required to be invested by the Company pursuant to Section 6.4(d) hereof) for MCI's ongoing working capital needs. * . (e) The Certificate of Designation for the Series A-3 Preferred Stock in the form of Exhibit C attached hereto shall have been filed with the Secretary of State of the State of Delaware and shall continue to be in full force and effect as of the Closing Date of the Interim Investment. (f) ACS shall have received from the Company's Secretary, a certificate having attached thereto (i) the Company's Certificate of Incorporation, including the Certificates of Designation for the Series A-1 Preferred Stock, the Series A-2 Preferred Stock and the Series A-3 Preferred Stock, as in effect at the time of the Closing of the Final Investment, (ii) the Company's Bylaws as in effect at the time of the Closing of the Final Investment, and (iii) good standing certificates (including tax good standing) with respect to the Company from the applicable authority(ies) in Delaware and any other jurisdiction in which the Company is qualified to do business, dated as of a recent date before the Closing of the Final Investment. (g) The conditions in this Section 6.5 must have been satisfied or waived by ACS no later than 48 months from the date hereof. 6.6 No Obligation. (a) Notwithstanding anything to the contrary, ACS shall have no obligation to purchase any Securities pursuant to the terms of this Agreement if at any time: (i) the financial statements and other reports of the Company indicates a material decrease in the allocation of resources to MCI or to the development, pre-clinical and clinical investigations of light activated compositions or drugs and related devices or systems for use in the treatment of cardiovascular diseases; or (ii) the Company or any of its affiliates is unable to obtain adequate supplies of the compounds and derivatives of these compounds necessary for the development, pre-clinical and clinical investigations of the Lead Drug or other PDT Drug. (b) Notwithstanding anything to the contrary, ACS shall have no obligation to purchase any Series A-3 Preferred Stock in the Final Investment if: (i) the FDA does not grant the Company the INDA relating to the Lead Drug within * of the initial submission; (ii) the first human patient in the Phase I Trial has not been enrolled within * of the initial submission of the INDA relating to the Lead Drug; or (iii) the enrollment of all patients in the Phase I Trial has not been completed within * of the enrollment date of the first human patient. ARTICLE VII COVENANTS 7.1 Delivery of Financial Statements. The Company shall deliver to each holder of Securities: (a) as soon as practicable, but in any event within one hundred (100) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholder's equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles, and audited and certified by an independent public accounting firm of nationally recognized standing selected by the Company (the "Audited Financial Statements"); (b) as soon as practicable, but in any event within sixty (60) days after the end of each of the three (3) quarters of each fiscal year of the Company, (i) an unaudited profit or loss statement, a statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter of the Company and (ii) monthly breakdowns of expenditure information for MCI; (c) as soon as practicable, but in any event thirty (30) days prior to the end of each fiscal year, financial projections, including at least a balance sheet and income statement, for MCI for the upcoming fiscal year; and (d) any other financial information as ACS may reasonably request to the extent such information is kept by the Company or MCI in the normal course of business; provided, however, that the Company shall not be obligated to provide any material nonpublic information. 7.2 Project Covenants. In addition to the representations and obligations of the Company set forth elsewhere in this Agreement, the Registration Rights Agreement and in the Collaboration Agreement, the Company also: (a) represents that $12,000,000 is currently a reasonable estimate of the Company's costs and expenses (direct and indirect) to complete the pre-clinical and the Phase I feasibility trial stages of the project contemplated by the Collaboration Agreement and to operate and support MCI as it is currently proposed to be operated, including amounts paid to the Company for performance of activities and supply of services on behalf of MCI; and (b) agrees that the Company shall be responsible for any costs and expenses in excess of the $12,000,000 contemplated by this Agreement reasonably required to complete the pre-clinical and the Phase I feasibility trial stages of the project contemplated by the Collaboration Agreement. ARTICLE VIII GOVERNING LAW; MISCELLANEOUS 8.1 Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of California without giving effect to conflict-of-laws principles. The parties hereto irrevocably consent to the jurisdiction of the United States federal courts and state courts located in the County of Santa Clara in the State of California in any suit or proceeding based on or arising under this Agreement or the transactions contemplated hereby and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The parties hereto agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. The parties hereto irrevocably waive any right to a trial by jury under applicable law. 8.2 Counterparts. This Agreement may be executed in two or more counterparts, including, without limitation, by facsimile transmission, all of which counterparts shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party. In the event any signature page is delivered by facsimile transmission, the party using such means of delivery shall cause additional original executed signature pages to be delivered to the other parties as soon as practicable thereafter. 8.3 Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. 8.4 Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement or the validity or enforceability of this Agreement in any other jurisdiction. 8.5 Entire Agreement: Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the maters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor ACS makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived other than by an instrument in writing signed by the party to be charged with enforcement and no provision of this Agreement may be amended other than by an instrument in writing signed by the Company and ACS. 8.6 Notice. Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by nationally-recognized overnight courier or by facsimile machine confirmed telecopy, and shall be deemed delivered at the time and date of receipt (which shall include telephone line facsimile transmission). The addresses for such communications shall be: If to the Company: ------------------ Miravant Medical Technologies 336 Bollay Drive Santa Barbara, CA 93117 Attention: John M. Philpott Facsimile: (805) 685-1901 with copy (which will not constitute notice) to: Sheppard Mullin Richter & Hampton, LLP 800 Anacapa Street Santa Barbara, CA 93101 Attention: Joseph E. Nida, Esq. Facsimile: (805) 568-5516 with copy (which will not constitute notice) to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304-1050 Attention: John Sheridan, Esq. Facsimile: (650) 493-6811 If to ACS: Advanced Cardiovascular Systems, Inc. 3200 Lakeside Drive Santa Clara, CA 95054-2807 Attention: General Counsel Facsimile: (408) 845-3987 with a copy (which will not constitute notice) to: Faegre & Benson LLP 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55409 Attention: Michael A. Stanchfield Facsimile: (612) 766-1600 Each party hereto shall provide notice to the other parties of any change in address. 8.7 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and assigns. Neither the Company nor ACS shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, ACS may assign its rights and obligations hereunder to any of its "affiliates," as that term is defined under the Securities Act, without the consent of the Company so long as such affiliate is an accredited investor (within the meaning of Regulation D under the Securities Act) and agrees in writing to be bound by this Agreement. This provision shall not limit ACS's right to transfer the Securities pursuant to the terms of this Agreement or to assign ACS's rights hereunder to any such transferee. In that regard, if ACS sells all or part of its Preferred Stock to someone that acquires the shares subject to restrictions on transferability (other than restrictions, if any, arising out of the transferee's status as an affiliate of the Company), ACS shall be permitted to assign its rights hereunder, in whole or in part, to such transferee. 8.8 Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other person. 8.9 Survival and Indemnification. The representations and warranties of the Company and the agreements and covenants shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of ACS. The Company agrees to indemnify and hold harmless, and advance expenses as they are incurred to, ACS and each of ACS `s officers, directors, employees, partners, agents and affiliates for loss or damage arising as a result of or related to (i) any breach or alleged breach by the Company of any of its representations, warranties, covenants or obligations set forth herein, (ii) any cause of action, suit or claim brought or made against ACS or its officers, directors, employees, partners, agents or affiliates by a third party (including for these purposes a derivative action brought on behalf of the Company) and arising out of or resulting from (A) the execution, delivery, performance or enforcement of this Agreement or any other certificate, instrument or document contemplated hereby or thereby and (B) any transaction financed or to be financed in whole or in part, directly or indirectly, with the proceeds of the issuance and sale of the Securities, or (iii) the status of ACS or holder of the Securities as an investor in the Company. To the extent that the foregoing undertaking by the Company may be unenforceable for any reason, the Company shall make the maximum contribution to the payment and satisfaction of each of such liabilities which is permissible under applicable law. Except as otherwise set forth herein, the mechanics and procedures with respect to the rights and obligations under this Section 8.9 shall be the same as those set forth in Section 6(c) of the Registration Rights Agreement. The representations and warranties of ACS shall survive the Closing hereunder and ACS shall indemnify and hold harmless the Company and each of its officers, directors, employees, partners, agents and affiliates for any loss or damage arising as a result of the breach of ACS's representations and warranties. 8.10 Further Assurances. Each party hereto shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. 8.11 Publicity. Upon the execution of this Agreement and the initial funding by ACS, each party may issue a press release regarding this transaction and may file reports as appropriate with the SEC; provided, however, that the Company provides a copy of its press release and current report on Form 8-K prior to releasing or filing to obtain ACS's approval of such press release and current report. ACS shall also provide a copy of its press release to the Company for its review. 8.12 Remedies. No provision of this Agreement providing for any remedy to ACS shall limit any remedy which would otherwise be available to ACS at law or in equity. Nothing in this Agreement shall limit any rights ACS may have with any applicable federal or state securities laws with respect to the investment contemplated hereby. The Company acknowledges that a breach by it of its obligations hereunder shall cause irreparable harm to ACS. Accordingly, the Company acknowledges that the remedy at law for a material breach of its obligations under this Agreement shall be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that ACS shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate compliance, without the necessity of showing economic loss and without any bond or other security being required. 8.13 Final Agreement. This Agreement, including the Exhibits and Schedules hereto embody the entire agreement and understanding of the parties hereto in respect of the subject matter contained herein, and supersede all prior agreements and understandings among the parties with respect to such subject matter. This Agreement does not supersede the Mutual Confidentiality Agreement, dated May 11, 2001, between the Company and ACS. [Signatures on next page] IN WITNESS WHEREOF, the ACS and the Company have caused this Agreement to be duly executed as of the date first above written. COMPANY: MIRAVANT MEDICAL TECHNOLOGIES: By: -------------------------------------------- Name: Gary S. Kledzik Title: Chief Executive Officer PURCHASER: ADVANCED CARDIOVASCULAR SYSTEMS, INC. By: -------------------------------------------- Name: Mark A. Murray Title: Vice President, Finance and Business Development EX-4 4 exhibit4_2.txt EXHIBIT 4.2 EXHIBIT 4.2 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT, dated as of July 1, 2004 (the "Agreement"), is made by and between MIRAVANT MEDICAL TECHNOLOGIES, a Delaware corporation, 336 Bollay Drive, Santa Barbara, California 93117 (the "Company"), and ADVANCED CARDIOVASCULAR SYSTEMS, INC., a wholly owned subsidiary of Guidant Corporation ("ACS"). W I T N E S S E T H : WHEREAS, in connection with the Securities Purchase Agreement dated July 1, 2004, between ACS and the Company (the "Purchase Agreement"), the Company has agreed, upon the terms and subject to the conditions of said Purchase Agreement, to issue and sell to ACS shares of its Series A-1, Series A-2 and Series A-3 Preferred Stock (the "Preferred Stock") and issue shares of Common Stock into which Preferred Stock is converted. In connection with the sale of the Preferred Stock to ACS (the "Offering"), ACS will be entitled to registration rights as set forth in this Agreement; and WHEREAS, to induce ACS to execute and deliver the Purchase Agreement, the Company has agreed to provide certain registration rights under the Securities Act of 1933, as amended, and the rules and regulations thereunder, or any similar successor statute (collectively, the "Securities Act"), and applicable state securities laws with respect to the Registrable Securities, as hereinafter defined. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Company and ACS hereby agree as follows: 1. Definitions. Capitalized terms used and not otherwise defined herein shall have the respective meanings set forth in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings: (a) "Holders" includes ACS and any holder of Registrable Securities who receives such Registrable Securities pursuant to Section 9 hereof who is entitled to include their securities in certain Registration Statements filed by the Company. (b) "Registrable Securities" means (i) the shares of Common Stock issued or issuable upon the conversion of the Preferred Stock and (ii) any shares of Common Stock or other securities issued or issuable from time to time as a dividend or other distribution on or in exchange for or otherwise with respect to the shares referred to in clause (i). (c) "Registration Period" means the period between the date of this Agreement and the earlier of (i) the date on which all of the Registrable Securities have been sold in transactions where the transferee is not subject to securities law resale restrictions (or is subject to securities law resale restrictions solely because it is an "affiliate" of the Company under the Securities Act and the rules promulgated thereunder), or (ii) the date on which all of the Registrable Securities (in the opinion of ACS's counsel) may be immediately sold without registration and free of restrictions on transfer. (d) "Registration Statement" means a registration statement of the Company filed with the Securities and Exchange Commission (the "SEC") under the Securities Act to register the Registrable Securities. (e) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a Registration Statement in compliance with the Securities Act and applicable rules and regulations thereunder and pursuant to Rule 415 under the Securities Act, and the declaration or ordering of effectiveness of such Registration Statement by the SEC. 2. Registration. (a) Mandatory Registration. Pursuant to the terms of this Section 2(a), the Company will prepare and file a Registration Statement with the SEC, registering all of the Registrable Securities for resale following the conversion by the Holders of at least one-third (1/3) of their Preferred Stock into Registrable Securities (the date of such conversion referred to as the "Conversion Date"). To the extent allowable under the Securities Act and the rules promulgated thereunder, the Registration Statement shall include such indeterminate number of additional shares of Common Stock as may become issuable upon conversion of the Preferred Stock to prevent dilution resulting from stock splits, stock dividends, dilution or similar transactions as provided in the Purchase Agreement or the Certificate of Designation that describe the rights of the Preferred Stock. The Registration Statement (and each amendment or supplement thereto) shall be provided to, and subject to the reasonable approval of, the Holders and their counsel. The Company will use commercially reasonable efforts to cause the Registration Statement to be filed with the SEC as soon as practicable, but not later than ninety (90) days from the Conversion Date (the "Registration Deadline"). Additionally, if the SEC reviews the Registration Statement and requires the Company to make modifications thereto, then it will use its commercially reasonable efforts to have the Registration Statement declared effective as soon as practicable. Such commercially reasonable efforts shall include, but not be limited to, promptly responding to all comments received from the staff of the SEC. Should the Company receive notification from the SEC that the Registration Statement will receive no action or no review from the SEC, the Company shall cause such Registration Statement to become effective within five (5) business days of such SEC notification. Once declared effective by the SEC, the Company shall cause such Registration Statement to remain effective throughout the Registration Period. In the event that after the Conversion Date and before the Registration Statement is filed, the offices of the SEC are closed due to acts of God, war or terror, then the Registration Deadline will be extended by a number of days equal to the days of any such closure. (b) Eligibility for Registration. The Company represents and warrants that it currently does not meet the requirements for the use of Form S-3, but it will use its commercially reasonable efforts to become eligible to register the Common Stock on a Form S-3 in the future. However, the Company is eligible to use Form S-2 under the Securities Act for registration of the sale by the Holders of the Registrable Securities and the Company shall file all reports required to be filed by the Company with the SEC in a timely manner so as to maintain such eligibility for the use of Form S-2. The Company represents that, when required to file a Registration Statement under this Agreement, it will file a Form S-1 or Form S-2, at the Company's discretion, if it cannot become eligible to file a Form S-3. (c) Piggy-Back Registrations. If, at any time and from time to time prior to the expiration of the Registration Period, the Company shall agree to grant piggy-back registrations rights to any other holder of the Company's securities or convertible securities, the Company shall grant to the Holders the same rights pursuant to the same terms. 3. Additional Obligations of the Company. In connection with the registration of the Registrable Securities, the Company shall have the following additional obligations: (a) The Company shall keep the Registration Statement required by Section 2(a) hereof effective pursuant to Rule 415 under the Securities Act at all times during the Registration Period as defined in Section 1(d) above. (b) The Registration Statement (including any amendments or supplements thereto and prospectuses contained therein) filed by the Company (i) shall comply in all material respects with the requirements of the Securities Act and the rules and regulations promulgated thereunder and (ii) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. The Company shall prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary to keep the Registration Statement effective at all times during the Registration Period, and, during such period, shall comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities of the Company covered by the Registration Statement until such time as all of such Registrable Securities have been disposed of in accordance with the intended methods of disposition by the sellers thereof as set forth in the Registration Statement. In the event the number of shares of Common Stock included in a Registration Statement filed pursuant to this Agreement is insufficient to cover all of the Registrable Securities, the Company shall amend the Registration Statement and/or file a new Registration Statement so as to cover all of the Registrable Securities as soon as practicable, but in no event more than twenty (20) business days after the Company first determines (or reasonably should have determined) the need therefor. The Company shall use its best efforts to cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. (c) The Company shall furnish to the Holders whose Registrable Securities are included in the Registration Statement and the Holders' legal counsel (i) promptly after the same is prepared and publicly distributed, filed with the SEC or received by the Company, one copy of the Registration Statement and any amendment thereto; each preliminary prospectus and final prospectus and each amendment or supplement thereto; and, in the case of the Registration Statement required under Section 2(a) above, each letter written by or on behalf of the Company to the SEC and each item of correspondence from the SEC, in each case relating to such Registration Statement (other than any portion of any item thereof which contains information for which the Company has sought confidential treatment); (ii) by the end of the second business day from the date the Company is notified of the effectiveness of the Registration Statement or any amendment thereto, a notice stating that the Registration Statement or amendment has been declared effective; and (iii) such number of copies of a prospectus, including a preliminary prospectus, and all amendments and supplements thereto, and such other documents as the Holders may reasonably request in order to facilitate the disposition of the Registrable Securities owned by the Holders. (d) The Company shall use its best efforts to (i) register and qualify the Registrable Securities covered by the Registration Statement under such other securities or blue sky laws of such jurisdictions as the Holders reasonably request, (ii) prepare and file in those jurisdictions such amendments (including post-effective amendments) and supplements to such registrations as may be necessary to maintain the effectiveness thereof during the Registration Period, (iii) take such other actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all other actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions. Notwithstanding the foregoing provision, the Company shall not be required in connection therewith or as a condition thereto to (i) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 3(d), (ii) subject itself to general taxation in any such jurisdiction, (iii) file a general consent to service of process in any such jurisdiction, (iv) provide any undertakings that cause more than nominal expense or burden to the Company, or (v) make any change in its charter or bylaws, which in each case the Board of Directors of the Company determines to be contrary to the best interests of the Company and its stockholders. (e) The Company shall notify the Holders who hold Registrable Securities being sold pursuant to a Registration Statement of the happening of any event of which the Company has knowledge as a result of which the prospectus included in the Registration Statement as then in effect includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (a "Suspension Event"). The Company shall make such notification as promptly as practicable after the Company becomes aware of such Suspension Event, shall promptly, but in all events within five (5) business days, use its best efforts to prepare a supplement or amendment to the Registration Statement to correct such untrue statement or omission, and shall deliver a number of copies of such supplement or amendment to the Holders as the Holders may reasonably request. Notwithstanding the foregoing provision, the Company shall not be required to maintain the effectiveness of the Registration Statement for a period (a "Delay Period") expiring upon the later to occur of (i) the date on which the Company is able to comply with its disclosure obligations and SEC requirements related thereto or (ii) thirty (30) days after the occurrence of the Suspension Event. (f) The Company shall use its best efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement and, if such an order is issued, shall use its best efforts to obtain the withdrawal of such order at the earliest possible time and to notify the Holders who hold Registrable Securities being sold (or, in the event of an underwritten offering, the managing underwriters) of the issuance of such order and the resolution thereof. (g) The Company shall permit a single firm of counsel designated by the Holders who hold a majority in interest of the Registrable Securities being sold pursuant to such registration to review the Registration Statement and all amendments and supplements thereto (as well as all requests for acceleration or effectiveness thereof) a reasonable period of time prior to their filing with the SEC, and shall not file any document in a form to which such counsel reasonably objects. (h) At the request of the Holders who hold Registrable Securities being sold pursuant to such registration, the Company shall furnish on the date that Registrable Securities are delivered to an underwriter for sale in connection with the Registration Statement (i) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, addressed to the Holders; and (ii) an opinion, dated such date, from counsel representing the Company for purposes of such Registration Statement, in form and substance as is customarily given in an underwritten public offering, addressed to the underwriters and the Holders. (i) The Company shall make available for inspection by the Holders whose Registrable Securities are being sold pursuant to such registration, any underwriter participating in any disposition pursuant to the Registration Statement, and any attorney, accountant or other agent retained by the Holders or underwriter (collectively, the "Inspectors"), all pertinent financial and other records, pertinent corporate documents and properties of the Company (collectively, the "Records") as shall be reasonably necessary to enable each Inspector to exercise its due diligence responsibility, and cause the Company's officers, directors and employees to supply all information which any Inspector may reasonably request for purposes of such due diligence; provided, however, that each Inspector shall hold in confidence and shall not make any disclosure (except to the Holders) of any Record or other information which the Company determines in good faith to be confidential, and of which determination the Inspectors are so notified, unless (i) the disclosure of such Records is necessary to avoid or correct a misstatement or omission in any Registration Statement, (ii) the release of such Records is ordered pursuant to a subpoena or other order from a court or government body of competent jurisdiction, or such release is reasonably necessary in connection with litigation or other legal process or (iii) the information in such Records has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company shall not be required to disclose any confidential information in such Records to any Inspector until and unless such Inspector shall have entered into confidentiality agreements (in form and substance satisfactory to the Company) with the Company with respect thereto, substantially in the form of this Section 3(i). Each Holder agrees that it shall, upon learning that disclosure of such Records is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at the Company's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the Records deemed confidential. Nothing herein shall be deemed to limit the Investor's ability to sell Registrable Securities in a manner which is otherwise consistent with applicable laws and regulations. (j) The Company shall hold in confidence and shall not make any disclosure of information concerning the Holders provided to the Company pursuant hereto unless (i) disclosure of such information is necessary to comply with federal or state securities laws, (ii) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (iii) the release of such information is ordered pursuant to a subpoena or other order from a court or governmental body of competent jurisdiction, or such release is reasonably necessary in connection with litigation or other legal process or (iv) such information has been made generally available to the public other than by disclosure in violation of this or any other agreement. The Company agrees that it shall, upon learning that disclosure of such information concerning the Holders is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Holders and allow the Holders, at their expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information. (k) The Company shall provide a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the Registration Statement. (l) The Company shall cooperate with the Holders who hold Registrable Securities being sold and the managing underwriter or underwriters, if any, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legends) representing Registrable Securities to be sold pursuant to the Registration Statement and enable such certificates to be in such denominations or amounts as the case may be, and registered in such names as the managing underwriter or underwriters, if any, or the Holders may reasonably request; and, within three (3) business days after a Registration Statement which includes Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel selected by the Company to deliver, to the transfer agent for the Registrable Securities (with copies to the Holders whose Registrable Securities are included in such Registration Statement) instructions to the transfer agent to issue new stock certificates without a legend and an opinion of such counsel that the Registrable Securities have been registered. (m) The Company shall take all other reasonable actions necessary to expedite and facilitate disposition by the Holders of the Registrable Securities pursuant to the Registration Statement. (n) At the request of any Holder, the Company shall promptly prepare and file with the SEC such amendments (including post-effective amendments) and supplements to the Registration Statement and the prospectus used in connection with the Registration Statement as may be necessary in order to change the plan of distribution set forth in such Registration Statement to conform to written information supplied to the Company by such Holder for such purpose. (o) The Company shall comply with all applicable laws related to a Registration Statement and offering and sale of securities and all applicable rules and regulations of governmental authorities in connection therewith. (p) From and after the date of this Agreement until the expiration of the Registration Period, the Company shall not, and shall not agree to, allow the holders of any other securities of the Company to include any of their securities ("Other Securities") which are not Registrable Securities in the Registration Statement required to be filed pursuant to Section 2(a) hereof without the consent of the holders of a majority in interest of the Registrable Securities unless the Holders are entitled to include Registrable Securities in any registration statement required to be filed by the Company at the request of the holders of such Other Securities. (q) Use commercially reasonable efforts to list all Registrable Securities covered by the Registration Statement on any securities exchange on which the same class of securities issued by the Company are then listed. 4. Obligations of the Holders. In connection with the registration of the Registrable Securities, the Holders shall have the following obligations: (a) It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Agreement with respect to Registrable Securities of a particular Holder that such Holder shall furnish to the Company such information regarding itself, the number of Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required by rules of the SEC to effect the registration of the Registrable Securities. The information so provided by the Holders shall be included without material alteration in the Registration Statement and shall not be materially modified without such Holder's written consent. At least ten (10) business days prior to the first anticipated filing date of the Registration Statement, the Company shall notify the Holders of the information the Company requires from each such Holder (the "Requested Information") if such Holder elects to have any of its Registrable Securities included in the Registration Statement. If within five (5) business days of such notice the Company has not received the Requested Information from a Holder (a "Non-Responsive Holder"), then the Company may file the Registration Statement without including Registrable Securities of such Non-Responsive Holder. (b) Each Holder, by such Holder's acceptance of the Registrable Securities, agrees to cooperate with the Company as reasonably requested by the Company in connection with the preparation and filing of the Registration Statement hereunder, unless such Holder has notified the Company in writing of such Holder's election to exclude all of the Holder's Registrable Securities from the Registration Statement. (c) Each Holder agrees that, upon receipt of any notice from the Company of the happening of any event of the kind described in Section 3(e) or 3(f), such Holder will immediately discontinue disposition of Registrable Securities pursuant to the Registration Statement covering such Registrable Securities until such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by Section 3(e) or 3(f) and, if so directed by the Company, such Holder shall deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies, other than file copies, in such Holder's possession, of the prospectus covering such Registrable Securities current at the time of receipt of such notice. (d) No Holder may participate in any underwritten registration hereunder unless such Holder (i) agrees to sell such Holder's Registrable Securities on the basis provided in any underwriting arrangements approved by the Holder entitled hereunder to approve such arrangements, (ii) completes and executes all questionnaires, powers of attorney, indemnities, underwriting agreements and other documents reasonably required under the terms of such underwriting arrangements, and (iii) agrees to pay its pro rata share of all underwriting discounts and commissions and other fees and expenses of investment bankers and any manager or managers of such underwriting and legal expenses of the underwriter applicable with respect to its Registrable Securities, in each case to the extent not payable by the Company pursuant to the terms of this Agreement. 5. Expenses of Registration. All expenses, other than underwriting discounts and commissions, incurred in connection with registrations, filings or qualifications pursuant to Sections 2 and 3, including, without limitation, all registration, listing and qualifications fees, printers and accounting fees, the fees and disbursements of counsel for the Company, and the reasonable fees and disbursements of one counsel selected by the Holders pursuant to Section 3(e) hereof shall be borne by the Company not to exceed five thousand dollars ($5,000) in the aggregate. In addition, the Company shall pay each Holder's costs and expenses (including legal fees) incurred in connection with the enforcement of the rights of such Holder hereunder. 6. Indemnification. In the event any Registrable Securities are included in a Registration Statement under this Agreement: (a) To the extent permitted by law, the Company will indemnify and hold harmless and defend (i) each Holder who holds such Registrable Securities, (ii) the directors, officers, employees, agents, and any person who controls the Holder within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended (the "Exchange Act"), any underwriter (as defined in the Securities Act) for the Holders and the directors, officers, employees, agents, and any person who controls any such underwriter within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Person"), against any losses, claims, damages, expenses or liabilities (joint or several) (collectively "Claims") to which any of them become subject under the Securities Act, the Exchange Act or otherwise, insofar as such Claims (or actions or proceedings, whether commenced or threatened, in respect thereof) arise out of or are based upon any of the following statements, omissions or violations in the Registration Statement, or any post-effective amendment thereof, or any prospectus included therein: (i) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement or any post-effective amendment thereof or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any preliminary prospectus if used prior to the effective date of such Registration Statement, or contained in the final prospectus (as amended or supplemented, if the Company files any amendment thereof or supplement thereto with the SEC) or the omission or alleged omission to state therein any material fact necessary to make the statements made therein, in light of the circumstances under which the statements therein were made, not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act or any state securities law or any rule or regulation (the matters in the foregoing clauses (i) through (iii) being, collectively, "Violations"). Subject to the restrictions set forth in Section 6(c) with respect to the number of legal counsel, the Company shall reimburse ACS and each other Indemnified Person promptly as such expenses are incurred and are due and payable, for any legal fees or other reasonable expenses incurred by them in connection with investigating or defending any such Claim. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(a): (A) shall not apply to a Claim arising out of or based upon a Violation which occurs in reliance upon and in conformity with information furnished in writing to the Company by any Indemnified Person expressly for use in connection with the preparation of the Registration Statement or any such amendment thereof or supplement thereto, if such prospectus was timely made available by the Company pursuant to Section 3(c) hereof; (B) with respect to any preliminary prospectus, shall not inure to the benefit of any such person from whom the person asserting any such Claim purchased the Registrable Securities that are the subject thereof (or to the benefit of any person controlling such person) if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected in the prospectus, as then amended or supplemented, if a prospectus was timely made available by the Company pursuant to Section 3(c) hereof and such person asserting the Claim was promptly advised in writing not to use the incorrect prospectus prior to the use giving rise to the Violation and such person, notwithstanding such advice, used it; and (C) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Company, which consent shall not be unreasonably withheld. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of the Indemnified Persons and shall survive the transfer of the Registrable Securities by the Holder pursuant to Section 9. (b) In connection with any Registration Statement in which a Holder is participating, (i) each such Holder shall, severally and not jointly, agree to indemnify and hold harmless, to the same extent and in the same manner set forth in Section 6(a), the Company, each of its directors, each of its officers who signs the Registration Statement, each person, if any, who controls the Company within the meaning of the Securities Act or the Exchange Act, any underwriter and any other stockholder selling securities pursuant to the Registration Statement or any of its directors or officers or any person who controls such stockholder or underwriter within the meaning of the Securities Act or the Exchange Act (each, an "Indemnified Party") against any Claim to which any of them may become subject, under the Securities Act, the Exchange Act or otherwise, insofar as such Claim arises out of or is based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished to the Company by the Holder expressly for use in connection with such Registration Statement, and (ii) subject to the restrictions set forth in Section 7(c), such Holder will promptly reimburse any legal or other expenses incurred by them in connection with investigating or defending any reasonable Claim; provided, however, that the indemnification agreement contained in this Section 6(b) shall not apply to amounts paid in settlement of any Claim if such settlement is effected without the prior written consent of the Holder, which consent shall not be unreasonably withheld; provided further, however, that the Holder shall be liable under this Section 6(b) for only that amount of a Claim as does not exceed the net proceeds to ACS as a result of the sale of Registrable Securities pursuant to such Registration Statement. Such indemnity shall remain in full force and effect regardless of any investigation made by or on behalf of such Indemnified Party and shall survive the transfer of the Registrable Securities by the Holder pursuant to Section 9. Notwithstanding anything to the contrary contained herein, the indemnification agreement contained in this Section 6(b) with respect to any preliminary prospectus shall not inure to the benefit of any Indemnified Party if the untrue statement or omission of material fact contained in the preliminary prospectus was corrected on a timely basis in the prospectus, as then amended or supplemented. (c) Promptly after receipt by an Indemnified Person or Indemnified Party under this Section 6 of notice of the commencement of any action (including any governmental action), such Indemnified Person or Indemnified Party shall, if a Claim in respect thereof is to made against any indemnifying party under this Section 6, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume control of the defense thereof with counsel mutually satisfactory to the indemnifying parties; provided, however, that an Indemnified Person or Indemnified Party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if, in the reasonable opinion of counsel retained by the indemnifying party, the representation by such counsel of the Indemnified Person or Indemnified Party and the indemnifying party would be inappropriate due to actual or potential differing interests between such Indemnified Person or Indemnified Party and other party represented by such counsel in such proceeding or the actual or potential defendants in, or targets of, any such action include both the indemnified party and the indemnifying party and any such indemnified party reasonably determines that there may be legal defenses available to such indemnified party that are in conflict with those available to such indemnifying party. The indemnifying party shall pay for only one separate legal counsel for the indemnified parties, and such legal counsel shall be selected by the Holders holding a majority in interest of the Registrable Securities included in the Registration Statement to which the Claim relates (if the parties entitled to indemnification hereunder are Indemnified Persons) or by the Company (if the parties entitled to indemnification hereunder are Indemnified Parties). The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the Indemnified Person or Indemnified Party under this Section 6, except to the extent that the indemnifying party is prejudiced in its ability to defend such action. The indemnification required by this Section 6 shall be made by periodic payments of the amount thereof during the course of the investigation or defense, as such expense, loss, damage or liability is incurred and is due and payable. The provisions of this Section 6 shall survive the termination of this Agreement. 7. Contribution. To the extent any indemnification provided for in Section 6 herein is unavailable to the indemnified parties in respect of any Claim referred to herein (other than by reason of the exceptions provided therein), then each such indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such Claim to the fullest extent permitted by law, in such proportion as is appropriate to reflect the relative fault of the indemnifying party, on the one hand, and the indemnified party, on the other hand, with respect to the Violation giving rise to the applicable Claim, which relative fault shall be determined by reference to, among other things, whether the Violation relates to information supplied by the indemnifying party or the indemnified party. In no event shall the obligation of any indemnifying party to contribute under this Section 7 exceed the amount that such indemnifying party would have been obligated to pay by way of indemnification if the indemnification provided for under Section 6(a) or 6(b) hereof had been available under the circumstances. The parties agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the indemnified parties were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in the immediately preceding paragraphs. The amount paid or payable by an indemnified party as a result of any Claim shall be deemed to include, subject to the limitations set forth above, any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending any such action or claim. Notwithstanding the provisions of this Section 7, no Holder or underwriter shall be required to contribute any amount in excess of the amount by which (a) in the case of any Holder, the net proceeds actually received by such Holder from the sale of Registrable Securities pursuant to such Registration Statement or (ii) in the case of an underwriter, the total price at which the Registrable Securities purchased by it and distributed to the public were offered to the public exceeds, in any such case, the amount of any damages that such Holder or underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act ) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 8. Public Information. With a view to making available to the Holders the benefits of Rule 144 promulgated under the Securities Act or any other similar rule or regulation of the SEC that may at any time permit the Holders to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to: (a) file with the SEC in a timely manner and make and keep available all reports and other documents required of the Company under the Exchange Act so long as the Company remains subject to such requirements and the filing and availability of such reports and other documents is required for the applicable provisions of Rule 144; and (b) furnish to each Holder so long as the Holder holds Registrable Securities, promptly upon request, (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 and the Exchange Act, (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to permit the Holder to sell such securities pursuant to Rule 144 without registration. 9. Assignment of Registration Rights. The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by the Holders to transferees or assignees of all or any portion of such securities or Preferred Stock convertible into Registrable Securities only if (i) the Holder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (ii) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being transferred or assigned, (iii) following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the Securities Act and applicable state securities laws, (iv) at or before the time the Company received the written notice contemplated by clause (ii) of this sentence, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein, (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Agreement, and (vi) such transferee shall be an "accredited investor" as that term is defined in Rule 501 of Regulation D promulgated under the Securities Act. 10. Amendment of Registration Rights. Provisions of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Holders holding a majority in interest of the Registrable Securities; provided, however, that (a) no consideration shall be paid to a Holder by the Company in connection with an amendment hereto unless each Holder similarly affected by such amendment receives a pro rata amount of consideration from the Company; (b) unless a Holder otherwise agrees, each amendment hereto must similarly affect each Holder, and (c) assignees of registration rights made in accordance with Section 8 of this Agreement may become parties to this Agreement without any amendment hereto or any consent or approval of any other Holder. Any amendment or waiver effected in accordance with this Section 10 shall be binding upon the Holders and the Company. 11. Miscellaneous. (a) Conflicting Instructions. A person or entity is deemed to be a holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities or the securities upon which such Registrable Securities are issuable upon conversion thereof. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (b) Notices. Any notices required or permitted to be given under the terms of this Agreement shall be in writing and shall be delivered personally or sent by a nationally recognized overnight delivery service or by facsimile transmission with confirmation of receipt. Any notice so given shall be deemed effective upon receipt if delivered personally or by overnight delivery or facsimile transmission, in each case addressed to a party at the following address or such other address as each such party furnishes to the other in accordance with this Section 11(b): If to the Company: ------------------ Miravant Medical Technologies 336 Bollay Drive Santa Barbara, CA 93117 Attention: John M. Philpott Facsimile: (805) 685-1901 with copy (which will not constitute notice) to: Sheppard Mullin Richter & Hampton, LLP 800 Anacapa Street Santa Barbara, CA 93101 Attention: Joseph E. Nida, Esq. Facsimile: (805) 568-5516 with copy (which will not constitute notice) to: Wilson Sonsini Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304-1050 Attention: John Sheridan, Esq. Facsimile: (650) 493-6811 If to ACS: Advanced Cardiovascular Systems, Inc. Vascular Intervention Group 3200 Lakeside Drive Santa Clara, California 95054 Attention: General Counsel Facsimile: (408) 845-3333 with a copy (which will not constitute notice) to: Faegre & Benson LLP 2200 Wells Fargo Center 90 South Seventh Street Minneapolis, MN 55402 Attention: Michael A. Stanchfield Facsimile: (612) 766-1600 (c) Waiver. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (d) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California without giving effect to conflict-of-laws principles. The parties hereto irrevocably consent to the jurisdiction of the United States federal courts and state courts located in the County of Santa Clara in the State of California in any suit or proceeding based on or arising under this Agreement or the transactions contemplated hereby and irrevocably agree that all claims in respect of such suit or proceeding may be determined in such courts. The Company and each Holder irrevocably waives the defense of an inconvenient forum to the maintenance of such suit or proceeding in such forum. The Company and the Holders further agree that service of process upon the Company or the Holders, as applicable, in accordance with Section 11(b) shall be deemed in every respect effective service of process upon the Company or the Holders in any suit or proceeding arising hereunder. Nothing herein contained shall affect the Holders' right to serve process in any other manner permitted by law. The parties hereto agree that a final non-appealable judgment in any such suit or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on such judgment or in any other lawful manner. (e) Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof. (f) Entire Agreement. This Agreement and the Purchase Agreement (including all schedules and exhibits thereto) constitute the entire agreement among the parties hereto with respect to the subject matter hereof. There are no restrictions, promises, warranties or undertakings, other than those set forth or referred to herein or therein. This Agreement supersedes all prior agreements and understandings among the parties hereto with respect to the subject matter hereof. (g) Successors and Assigns. Subject to the requirements of Section 9 hereof, this Agreement shall inure to the benefit of and be binding upon the successors and assigns of each of the parties hereto. (h) Use of Pronouns. All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. (i) Headings. The headings and subheadings in the Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. (j) Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement. This Agreement, once executed by a party, may be delivered to the other party hereto by facsimile transmission, and facsimile signatures shall be binding on the parties hereto. (k) Further Acts. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby. (l) Remedies. No provision of this Agreement providing for any remedy to the Holders shall limit any remedy which would otherwise be available to Holders at law or in equity. Nothing in this Agreement shall limit any rights a Holder may have with any applicable federal or state securities laws with respect to the investment contemplated hereby. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holders. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement, that the Holders shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate compliance, without the necessity of showing economic loss and without any bond or other security being required. (m) Consents. All consents and other determinations to be made by the Holders pursuant to this Agreement shall be made by the Holders who hold a majority of the Registrable Securities and who are subject to provisions of this Agreement, determined as if all shares of Preferred Stock then outstanding had been converted into Registrable Securities. IN WITNESS WHEREOF, the parties have caused this Registration Rights Agreement to be duly executed as of the date first above written. COMPANY: MIRAVANT MEDICAL TECHNOLOGIES By:_____________________________________ Name: Gary S. Kledzik Title: Chief Executive Officer ACS: ADVANCED CARDIOVASCULAR SYSTEMS, INC. By: ___________________________ Name: Mark A. Murray Title: Vice President, Finance and Business Development [Signature Page to the Registration Rights Agreement] EX-10 5 exhibit10_1.txt EXHIBIT 10.1 EXHIBIT 10.1 COLLABORATION AGREEMENT This Collaboration Agreement (this "Agreement"), made as of July 1, 2004 (the "Effective Date"), is by and between Advanced Cardiovascular Systems, Inc., a corporation organized under the laws of California and having a place of business at 3200 Lakeside Drive, Santa Clara, California 95054 (herein referred to as "ACS"), and Miravant Medical Technologies, together with its subsidiary, Miravant Cardiovascular, Inc., both corporations organized under the laws of Delaware and having places of business at 336 Bollay Drive, Santa Barbara, California 93117 (collectively referred to as "MMT"). ACS and MMT may each be referred to as a "Party" or, collectively, as the "Parties" in this Agreement. RECITALS WHEREAS, ACS is engaged in the design, development, manufacture and commercialization of medical devices for the diagnosis and treatment of cardiovascular diseases, and ACS has patented and other proprietary medical devices and systems for delivery of therapeutic compositions and drugs to patients; WHEREAS, MMT is developing photodynamic therapy ("PDT") products using light activated compositions or drugs and related devices or systems for the treatment of diseases, such as ophthalmology, dermatology, cardiovascular, oncology and other conditions and diseases; WHEREAS, the Parties wish to enter into a business alliance in which they will collaborate on the development, pre-clinical and clinical investigations of certain light activated compositions or drugs and related devices or systems for use in the treatment of cardiovascular diseases, all on the terms and conditions set forth below; and WHEREAS, contemporaneously with the execution and delivery of this Agreement, the Parties are executing and delivering a Securities Purchase Agreement and a Registration Rights Agreement pursuant to which ACS has agreed purchase certain MMT preferred stock and to provide certain registration rights under the Securities Act, the rules and regulations promulgated thereunder and applicable state securities laws. AGREEMENT NOW, THEREFORE, in consideration of the covenants and obligations expressed herein, and intending to be legally bound, the Parties agree as follows: ARTICLE 1: DEFINITIONS 1.1 "ACS Indemnitees" has the meaning ascribed to it in Section 11.1. 1.2 "ACS Inventions" has the meaning ascribed to it in Section 9.2. 1.3 "Affiliate" means, with respect to any Party, any corporation or other business entity, which controls, is controlled by, or is under common control with such Party. A corporation or other entity shall be regarded as in control of another corporation or entity if it owns or directly or indirectly controls at least fifty percent (50%) of the voting stock or other ownership interest of the other corporation or entity (or alternatively, if not meeting the preceding and with respect to foreign entities, if it owns the maximum such ownership interest permitted by law), or if it possesses, directly or indirectly, the power to direct or cause the direction of the management and policies of the corporation or other entity or the power to elect or appoint at least fifty percent (50%) of the members of the governing body of the corporation or other entity. 1.4 "Agreement" has the meaning ascribed to it in the preamble hereof. 1.5 "Confidential Information" means all proprietary, non-public information that has commercial value or other utility in a Party's business, including but not limited to any information, inventions, know-how, biological materials, chemical compounds, data, pre-clinical data, and materials provided by one Party to the other pursuant to this Agreement, whether existing or disclosed in oral, written, graphic, digital, optical, electronic or other form. 1.6 "Effective Date" has the meaning ascribed to it in the preamble hereof. 1.7 "FDA" means the United States Food and Drug Administration and any successor agency thereto. 1.8 "INDA" means (a) an Investigational New Drug Application, as defined in the United States Federal Food, Drug and Cosmetic Act, as amended, and the regulations promulgated thereunder, that is required to be filed with the FDA before beginning clinical testing of human subjects, or any successor application or procedure, (b) any foreign counterpart of a United States Investigational New Drug Application, and (c) all supplements and amendments, including supplemental Investigational New Drug Applications and related foreign counterparts, that may be filed with respect to the foregoing. 1.9 "Intellectual Property" means all of the following or their substantial equivalents or counterparts in any jurisdiction throughout the world: (i) patents, patent applications and invention disclosures, (ii) trademarks, service marks, trade dress, trade names, corporate names, logos and Internet domain names, (iii) copyrights, software and source code and copyrightable works, (iv) registrations and applications for any registration for any of the foregoing and (v) trade secrets, know-how, confidential information and inventions. 1.10 "Joint Inventions" has the meaning ascribed to it in Section 9.2. 1.11 "JSC" has the meaning ascribed to it in Section 2.1. 1.12 "Lead Drug" means that certain MMT compound designated as MV0633, or such other PDT Drug, as the Parties may mutually agree to in writing. 1.13 "MMT Indemnitees" has the meaning ascribed to it in Section 11.2. 1.14 "MMT Inventions" has the meaning ascribed to it in Section 9.2. 1.15 "PDT" has the meaning ascribed to it in the recitals hereof. 1.16 "PDT Device" means those certain non-thermal medical laser devices, including catheters, that have light sources of any wavelength and associated equipment designed by MMT to activate the Lead Drug or PDT Drug for the treatment of cardiovascular disease in the Therapeutic Field. 1.17 "PDT Drug" means those certain light activated compositions or drugs that are designated as MV0633 and MV0611, including compounds and derivatives of these compounds that have been, are being, or will be evaluated during the term of this Agreement by MMT for the treatment of patients within the Therapeutic Field or that are being developed by MMT during the Term and activated with a PDT Device for the treatment of patients within the Therapeutic Field. For clarity, the MMT compound designated as SnET2 is not a PDT Drug under this Agreement. 1.18 "PDT Technology" means existing and future technology owned or controlled by MMT that is specifically directed to treating cardiovascular indications within the Therapeutic Field and necessary for the manufacture, use or sale of PDT Drug, PDT Device or PDT Therapy, including, without limitation, materials and processes utilized in production or processing of such PDT Drug, PDT Device or PDT Therapy, and trade secret information or know-how relating to such materials and processes. 1.19 "PDT Therapy" means a PDT Drug, its related delivery product or system, and its related light activation product or system that are owned or controlled by MMT and used for the treatment of a patient within the Therapeutic Field. 1.20 "Party" and/or "Parties" has the meaning ascribed to it in the preamble hereof. 1.21 "Patent Prosecution" has the meaning ascribed to it in Section 9.3. 1.22 "Patent Rights" means all existing patents and patent applications and all patent applications disclosing or claiming any Lead Drug, PDT Drug, PDT Device or PDT Therapy conceived by a Party during the Term, including any continuations, continuations-in-part, divisions, provisionals or any substitute applications, any patent issued with respect to any such patent applications, any reissue, reexamination, renewal or extension (including any supplemental patent certificate) of any such patent, and any confirmation patent or registration patent or patent of addition based on any such patent, and all foreign counterparts of any of the foregoing. 1.23 "Phase I Trial" means a complete program of one or more human clinical trials in the United States wherein such program is intended to initially evaluate the safety and/or pharmacological effect of, or otherwise to satisfy the requirements of 21 ss.CFR 312.21(a), with respect to a Lead Drug, PDT Drug, PDT Device or PDT Therapy for a particular condition in patients under study within the Therapeutic Field. 1.24 "Phase II Trial" means a complete program of one or more human clinical trials in the United States wherein such program is intended to initially evaluate the appropriate dose of a drug for effectiveness of, or otherwise satisfy the requirements of 21 CFR ss.312.21(b), with respect to a Lead Drug, PDT Drug, PDT Device or PDT Therapy for a particular condition in patients under study within the Therapeutic Field. 1.25 "Pre-Clinical Development Program" means the collection of pre-clinical development activities including, without limitation, conducting all animal studies, good laboratory practices (GLP) animal studies, or other studies and gathering all data required with respect to non-safety research studies, early stage drug development, drug metabolism, mechanism of action analyses, pharmacokinetics, potency, selectivity, safety/toxicology and manufacturing scale up, which are to be conducted by MMT as it deems necessary with input from the JSC in order to file an INDA submission with the FDA for a Lead Drug, PDT Drug, PDT Device or PDT Therapy in the Therapeutic Field. 1.26 "Term" has the meaning ascribed to it in Section 12.1. 1.27 "Therapeutic Field" means the use of a Lead Drug, PDT Drug, PDT Device or PDT Therapy for PDT treatment of human cardiovascular diseases including but not limited to treatment of atherosclerotic vascular disease and prevention of restenosis as well as other cardiovascular diseases or indications designated by mutual written agreement of MMT and ACS from time to time in accordance with the terms of this Agreement. Notwithstanding the foregoing, Therapeutic Field shall not in any case include hemodialysis graft applications, arterio-venous access disease, or diseases requiring local (non-intravenous) SnET2 PDT drug delivery. 1.28 "Third Party" means a person or party other than ACS and MMT. ARTICLE 2: JOINT COMMITTEE 2.1 Joint Steering Committee. Promptly following the Effective Date, the Parties shall establish a Joint Steering Committee ("JSC") for the purposes of collaborating on the development of MMT's Lead Drug, PDT Drug, PDT Device or PDT Therapy within the Therapeutic Field pursuant to the preliminary development plan that is attached to this Agreement as Exhibit A, in the manner and to the extent provided herein. The JSC will be staffed by ACS and MMT employee appointees, and the total number of JSC members will be eight (8), with four (4) appointees for each Party, but the number may be adjusted upward or downward by mutual agreement of the Parties. ACS initial JSC appointees will include one business development manager, one new ventures research fellow, one new ventures director and one clinical-regulatory research fellow. MMT's initial JSC appointees will include one Endovascular Product Team Leader, one Atherosclerosis Program Manager, one Cardiovascular Program Manager, and one Director of Corporate Development & Strategic Planning. Either Party may replace any of one or more of its appointees to the JSC at-will by giving written notice thereof to the other Party. 2.2 Chairperson. The chairperson of the JSC shall be selected initially by MMT from among the MMT employee appointees serving on the JSC and shall serve in such role for one (1) year. After such one year period, the chairperson of the JSC shall be selected from among the ACS employee appointees then serving on the JSC, and that person will then serve in such role for one (1) year. Thereafter, ACS and MMT shall alternate annually in selecting the chairperson of the JSC from their respective appointees throughout the Term. The Chairperson of the JSC will be responsible for calling and chairing meetings, developing meeting agendas, and recording and distributing meeting minutes and directing future actions of the JSC. The Chairperson of the JSC shall call one (1) meeting, either face-to-face, video conference, or telephone conference, as appropriate, for every calendar quarter during the Term or more frequently as mutually agreed by the Parties. 2.3 Responsibilities of the Joint Steering Committee. (a) In general, the responsibilities of the JSC will be to analyze, consult, review and advise MMT, solely on a non-binding, advisory basis, concerning the research, development, record keeping and other activities related to any Lead Drug, PDT Drug, PDT Device, PDT Therapy or the Pre-Clinical Development Program. As part of its responsibilities, the JSC will review and make non-binding recommendations as necessary from time to time concerning MMT's Pre-Clinical Development Program and Phase I Trial. Specific review and consulting activities for JSC include, but are not limited to, (i) recommending guidelines for staffing physician advisory groups, Pre-clinical Development Program Plans, and Phase I Trial plans, (ii) discussing project projections, budgets, tracking reports, and timelines, (iii) reviewing and discussing data from pre-clinical studies and clinical trials, (iv) recommending additional research studies beyond Pre-clinical Development Program Plans, (v) recommending timing of and content for the INDA submission program with respect to any Lead Drug, PDT Drug, PDT Device or PDT Therapy in the Therapeutic Field, (vi) recommending content for the clinical readiness review, (vii) analysis of the Phase I Trial Report, and (viii) recommending how to amend, as needed, the Pre-clinical Development Program and Phase I Trial plans. (b) The JSC shall have such other responsibilities as are expressly set forth elsewhere in this Agreement or as are assigned to it as mutually agreed upon by the Parties in writing. (c) For clarity, MMT shall have the sole and exclusive right to determine and control all research, development, commercialization and other activities with respect to any Lead Drug, PDT Drug, PDT Device, PDT Therapy and PDT Technology. ARTICLE 3: MMT AND ACS OBLIGATIONS AND RESPONSIBILITIES 3.1 MMT Obligations and Responsibilities. (a) MMT, through its Pre-Clinical Development Program, will use commercially reasonable efforts to develop sufficient data concerning the Lead Drug, PDT Drug, PDT Device, or PDT Therapy to enable MMT to file an INDA submission with the FDA for such Lead Drug, PDT Drug, PDT Device, or PDT Therapy in an expeditious and efficient manner. (b) MMT agrees, in order for the JSC to undertake its responsibilities, to provide the JSC with its information, data, records and other documents including but not limited to MMT's comprehensive project plans and tracking reports related to the Lead Drug, PDT Drug, PDT Device, PDT Therapy, Pre-Clinical Development Program, and the Phase I Trial. (c) MMT will use commercially reasonable efforts to i) provide technical expertise concerning PDT Technology, ii) conduct its activities for the Pre-Clinical Development Program and Phase I Trial, and (iii) provide data, results and other related information generated in the course of the Pre-Clinical Development Program and Phase I Trial to the JSC for review and comment. (d) MMT agrees to provide ACS with exclusive access to its records reflecting inventions, ideas, information or data related to any Lead Drug, PDT Drug, PDT Device, PDT Therapy or PDT Technology developed in the course of work done under a Pre-Clinical Development Program and Phase I Trial and to its records and data that existed prior to this Agreement related to any PDT Drug. ACS acknowledges that MMT may share such records with its third party contractors who are performing services for MMT in connection with the Phase I Trial and who are under a confidentiality obligation with MMT without violating the exclusive access granted to ACS herein. MMT also agrees to provide ACS with written quarterly research and development updates as well as pre-clinical research and clinical research updates in a format that is mutually agreed upon by the Parties. 3.2 ACS Obligations and Responsibilities. ACS agrees, through its appointees to the JSC, to (i) provide pre-clinical, clinical and regulatory advice and consultation to MMT, (ii) offer its business and strategic perspectives concerning treatment of atherosclerotic vascular disease, and (iii) provide, in its sole discretion, reasonable advice and consultation concerning catheter devices and systems for use in, or as used for, PDT Therapy. ARTICLE 4: EXCLUSIVITY 4.1 Exclusive Collaboration Within The Therapeutic Field. Subject to any obligations of the Parties herein, each Party agrees that it will not commence a research, development, or commercialization plan or program, directly or indirectly in collaboration with any Third Party, for the purpose of researching, developing, delivering, administering, commercializing or otherwise exploiting any Lead Drug, PDT Drug, PDT Device or PDT Therapy in the Therapeutic Field during the Term, unless otherwise mutually agreed to by the Parties in writing. The Parties acknowledge that this exclusivity obligation does not prevent ACS or its Affiliates from making equity investments in, licensing or acquiring PDT technology of any Third Party in the Therapeutic Field. Notwithstanding the foregoing, MMT shall have the right to have any of the activities under the Pre-Clinical Development Program and Phase I Trial conducted on its behalf by Third Party contractors, and except as provided herein nothing contained herein shall restrict either party's right to research, discover, develop, manufacture and/or commercialize PDT products and technology outside the Therapeutic Field. ARTICLE 5: RIGHT OF FIRST REFUSAL 5.1 ACS's Right Of First Refusal. Upon (i) the completion of the Phase I Trial as that event is defined in Section 12.1, or (ii) receipt by either party of notice of termination of this Agreement pursuant to Section 12.2(a), (b), (c) or (e), ACS shall have a right of first refusal ("ROFR") for a period of 12 months to participate in any Phase II Trial. ACS participation may include, but is not limited to, consultation regarding the design, manufacture or use of light activation catheters or products, providing clinical and regulatory consultation to MMT, providing funding to MMT for access to the Phase II Trial data and results, or conducting the Phase II Trial in collaboration with MMT or independently in the event that MMT would transfer or assign the INDA to ACS, in each case as mutually agreed in writing by the Parties in accordance with the process set forth in Section 5.1. ACS shall have thirty (30) days to decide to exercise its ROFR after receiving written notice from MMT that it has a bona-fide intention to begin, or that it has a bona-fide intention to have a third party begin, any Phase II Trial. If ACS exercises its ROFR it shall notify MMT in writing within such 30 day period. Then, the Parties will have an additional thirty (30) days from the date of ACS's notice to MMT to exclusively negotiate and enter into a term sheet concerning ACS participation in the Phase II Trial. If the Parties execute a term sheet, they agree for a period of at least sixty (60) days following the date of ACS's notice to MMT to negotiate in good faith to reach a definitive agreement. In the event that MMT and ACS enter into a definitive agreement, that agreement shall provide ACS with an option to obtain a license from MMT to develop and commercialize, or otherwise exploit any Lead Drug, PDT Drug, PDT Device or PDT Therapy within the Therapeutic Field on terms to be mutually agreed upon by the Parties. If with respect to the subject of a particular written notice received by ACS pursuant to this Section 5.1, the Parties do not execute either the term sheet or the definitive agreement within the foregoing time periods, then ACS's rights and MMT's obligations under this Section 5.1 shall terminate, unless extended by mutual agreement or in the event a delay is caused by the other Party's action or inaction, and MMT may proceed with its plans for a Phase II Trial as set forth in the notice to ACS. This Article 5 shall survive expiration or termination of this Agreement except in the event of termination pursuant to Section 12.2(d) hereof. ARTICLE 6: COSTS 6.1 Pre-Clinical Development Program and Phase I Trial Costs. All costs and expenses related to research and development of PDT Therapy, MMT's Pre-Clinical Development Program and Phase I Trial during the Term will be borne by MMT. ARTICLE 7: MMT RECORD KEEPING 7.1 Documentation. All tasks conducted by MMT in the course of its performance under this Agreement shall be completely and accurately recorded, recorded in reasonably sufficient detail and, where applicable, in good scientific manner. 7.2 Policies for Maintaining Records. In order to protect the Parties' Patent Rights under United States law in any inventions conceived or reduced to practice during or as a result of any work performed by the Parties under this Agreement, each Party agrees to require, consistent with its existing policies, its employees to record and maintain all data and information developed during this Agreement in such a manner as to enable the Parties to use such records to establish the earliest date of invention and/or diligence to reduction to practice. At a minimum, such individuals will record all inventions generated by them in standard laboratory notebooks which are dated and corroborated by non-inventors on a regular, contemporaneous basis. ARTICLE 8: CONFIDENTIAL INFORMATION 8.1 Confidentiality Obligations. The Parties agree that, for the Term and for three (3) years thereafter, either Party that receives Confidential Information (a "Receiving Party") from the other Party (a "Disclosing Party") shall keep completely confidential and shall not publish or otherwise disclose and shall not use for any purpose (except as expressly permitted hereunder) any Confidential Information furnished to it by the Disclosing Party pursuant to this Agreement (including, without limitation, know-how), except to the extent that it can be established by the Receiving Party that such Confidential Information: (a) was already known to the Receiving Party prior to the time of disclosure by the Disclosing Party, other than under an obligation of confidentiality from the Disclosing Party, as shown by written records; (b) was generally available to the public or otherwise part of the public domain at the time of its disclosure to the Receiving Party; (c) became generally available to the public or otherwise part of the public domain after its disclosure and other than through any act or omission of the Receiving Party in breach of this Agreement; (d) was subsequently lawfully disclosed to the Receiving Party by a Third Party without breach of an obligation to the Disclosing Party; (e) can be shown by written records to have been independently developed by the Receiving Party without reference to the Confidential Information received from the Disclosing Party and without breach of any of the provisions of this Agreement; or (f) is information that the Disclosing Party has specifically agreed in writing that the Receiving Party may disclose. 8.2 Written Assurances and Permitted Uses of Confidential Information. (a) Each Party shall inform its employees and consultants who perform work under this Agreement of the obligations of confidentiality specified in Sections 8.1 and 8.2, and all such persons shall be bound by the terms of confidentiality substantially similar to those set forth therein. (b) The Receiving Party may disclose Confidential Information to the extent the Receiving Party is compelled to disclose such information by a court or other tribunal of competent jurisdiction; provided however, that in such case the Receiving Party shall immediately give notice to the Disclosing Party so that the Disclosing Party may seek a protective order or other remedy from said court or tribunal. In any event, the Receiving Party shall disclose only that portion of the Confidential Information that, in the opinion of its legal counsel, is legally required to be disclosed and will exercise reasonable efforts to ensure that any such information so disclosed will be accorded confidential treatment by said court or tribunal. (c) To the extent it is reasonably necessary or appropriate to fulfill its obligations and exercise its rights under this Agreement, either Party may disclose Confidential Information of the other Party to its Affiliates, on a need-to-know basis, provided that such Affiliates agree in writing to be bound by the provisions of this Article 8, and keep such Confidential Information confidential for the same time periods and to the same extent as such Party is required to keep the Confidential Information confidential under this Agreement. 8.3 Publication. (a) MMT shall not publish or present any of the data or results of the Pre-Clinical Development Program or the Phase 1 Trial until ACS has completed its review of all materials to be provided to ACS by MMT pursuant to this Agreement and the Securities Purchase Agreement. In no event shall the time for ACS to complete its review be less than sixty (60) days after receipt of such data and/or results by ACS. If MMT receives no response from ACS within such sixty (60) day period, MMT shall be free to proceed with publication or presentation of such data or results. (b) No Party may publish Confidential Information of the other Party, the use of which is restricted under this Article 8, without the prior written consent of the other Party. (c) If the Parties determine that patent protection is suitable for any results proposed to be published, then no Party may publish such results without first obtaining prior written approval from patent counsel in charge of prosecuting that patent application (who shall take into consideration the absolute novelty requirements of applicable jurisdictions). 8.4 Public Announcements. (a) Neither Party shall make any public announcement or disclosure concerning the terms of this Agreement (including its attachments) or concerning the transactions described herein and therein or the performance of either Party's rights or obligations under this Agreement, either directly or indirectly, without first obtaining the prior written approval of the other Party and its agreement upon the nature, text, and timing of such announcement or disclosure, which approval and agreement shall not be unreasonably withheld, conditioned or delayed; provided, however, any disclosure which is required by law as advised by the disclosing Party's counsel may be made without the prior approval of the other Party. Notwithstanding the foregoing, MMT may, without prior approval of ACS, make presentations to shareholders and potential investors regarding the Pre-Clinical Development Program or Phase I Trial necessary for such shareholders and potential investors to evaluate securities purchases in MMT, provided such presentations do not contain ACS Confidential Information. (b) The Party desiring to make any public announcement shall provide the other Party with a written copy of the proposed announcement at least five (5) days prior to public release to allow such other Party to comment upon such announcement prior to public release. The Party receiving the proposed announcement shall have five (5) days to provide comments to the Party desiring to make said public announcement. If the Party receiving the proposed announcement fails to provide comments to the Party desiring to make the announcement within five (5) days, the receiving Party is deemed to forego its ability to provide comments and the Party desiring to make the announcement shall be allowed to publicly release said announcement. (c) In addition, MMT may file a copy of this Agreement with the U.S. Securities and Exchange Commission in connection with any public offering of MMT's securities or regular reporting obligations as a public company. In connection with any such filing, MMT will attempt to obtain confidential treatment of economic and trade secret information for which such treatment is reasonably available in accordance with applicable laws and regulations. ARTICLE 9: PATENTS AND INTELLECTUAL PROPERTY 9.1 Existing Rights Retained. MMT shall retain all of its ownership interests in its Intellectual Property, as such exist as of the Effective Date and ACS shall retain all of its ownership interests in its Intellectual Property, as such exist as of the Effective Date. Except as specifically provided in this Agreement or in the Securities Purchase Agreement, nothing in this Agreement shall be construed to transfer ownership of any Intellectual Property existing as of the Effective Date from one Party to the other Party, and neither Party grants any license, express or implied, under its Intellectual Property (including without limitation Patent Rights) to the other Party. 9.2 Inventions. Inventorship of inventions, whether patentable or not, that are conceived or reduced to practice during the Term in the course of the performance of activities pursuant to this Agreement shall be determined in accordance with U.S. patent laws for determining inventorship. Ownership of such inventions, as between the Parties, shall be determined as follows: (a): MMT shall solely own all inventions and materials conceived solely by MMT or its employees, agents, or consultants during the Term which result from the performance of its obligations under this Agreement ("MMT Inventions"). (b) ACS shall solely own all inventions and materials conceived solely by ACS or its employees, agents, or consultants during the Term which result from the performance of ACS' obligations under this Agreement ("ACS Inventions"). c) Each Party shall own an undivided interest in all inventions and materials conceived jointly by employees, agents, or consultants of both Parties during the Term which result from the performance of the Parties' obligations under this Agreement ("Joint Inventions"). Either Party may exploit its interest in and to the Joint Inventions independent of the other Party, without accounting to such other Party. 9.3 Patent Prosecution of Patent Rights. The right to control matters of (a) deciding to file, preparing, filing and prosecuting patent applications (including reissue, continuing, divisional, and substitute applications and any foreign counterparts thereof); (b) maintaining any Patent Rights; and (c) managing any interference or opposition proceedings relating to the foregoing ((a), (b) and (c) collectively, "Patent Prosecution"), and responsibility for all costs and expenses associated with such Patent Prosecution covering any MMT Inventions or ACS Inventions, shall be the sole and exclusive right of the Party owning such invention. If any Joint Inventions are conceived or reduced to practice under this Agreement, the Parties will mutually agree upon the responsibilities for the Patent Prosecution of such Joint Inventions and the allocation of corresponding costs and expenses. 9.4 Option to MMT Inventions. MMT agrees to provide ACS with a complete written disclosure of all MMT Inventions arising from the advice and consultation provided to MMT by ACS pursuant to Section 3.2(iii) hereof within thirty (30) days from the date MMT becomes aware of such MMT Invention. ACS shall have up to a one (1) year option period, commencing upon ACS's receipt of a disclosure, to obtain a license from MMT to such MMT Inventions under commercially reasonable terms and conditions as are mutually agreed upon by the Parties and including royalty provisions that shall not exceed five percent (5%) of the net sales of any licensed products. 9.5 Cooperation. With respect to all MMT Inventions, ACS Inventions and Joint Inventions that are the subject of this Agreement and the subject of Patent Prosecution, each Party shall: (a) execute all further assignments and other instruments to document their respective ownership consistent with this Article 9 as reasonably requested by the other Party; (b) make its employees, agents and consultants reasonably available to the other Party (or to the other Party's authorized attorneys, agents or representatives), to the extent reasonably necessary to enable the appropriate Party hereunder to undertake Patent Prosecution; c) cooperate, if necessary and appropriate, with the other Party in gaining patent term extensions; (d) endeavor in good faith to coordinate its efforts under this Agreement with the other Party to minimize or avoid interference with the Patent Prosecution of the other Party's patent applications; and (e) require its employees, agents and consultants engaged in any work performed under this Agreement to agree in writing to assign all Intellectual Property created, conceived or reduced to practice in connection therewith to their respective employer, and the Parties shall ensure that each such employee, agent and consultant has signed such a written agreement before any work performed under this Agreement commences. ARTICLE 10: REPRESENTATIONS AND WARRANTIES 10.1 Authority. Each Party represents and warrants that as of the Effective Date it has the full right, power and authority to enter into this Agreement and that this Agreement has been duly executed by each Party and constitutes a legal, valid and binding obligation of each Party, enforceable in accordance with its terms. 10.2 Commercially Reasonable Efforts. MMT represents and warrants that it will use good faith commercially reasonable efforts, consistent with sound business judgment, to perform the activities for which it is responsible under the Pre-Clinical Development Program and Phase I Trial. 10.3 Intellectual Property. (a) MMT represents and warrants that it owns or controls the rights necessary to grant the rights granted to ACS under this Agreement. (b) MMT represents and warrants that as of the Effective Date, there is no pending lawsuit or threatened lawsuit against it asserting that any Lead Drug, PDT Drug, PDT Device or PDT Therapy or that the manufacture, use, sale, offer for sale or import of a Lead Drug, PDT Drug, PDT Device or PDT Therapy infringes upon or misappropriates any Intellectual Property of any Third Party. 10.4 No Conflicts. Each Party represents and warrants that the execution, delivery and performance of this Agreement does not conflict with, or constitute a breach or default under any of its charter or organizational documents, any law, order, judgment or governmental rule or regulation applicable to it, or any material agreement, contract, commitment or instrument to which it is a party. 10.5 No Existing Third Party Rights. Each Party represents and warrants that its obligations under this Agreement are not encumbered by any rights granted by such Party to any Third Parties that are or may be inconsistent with the rights or options granted in this Agreement. 10.6 Disclaimer Of Warranties. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS AND EXTENDS NO WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT. ARTICLE 11: INDEMNIFICATION 11.1 Indemnification by MMT. MMT shall indemnify, defend and hold ACS, its Affiliates and their permitted contractors and agents, employees, officers and directors (the "ACS Indemnitees") harmless from and against any and all liability, damage, loss, cost or expense (including reasonable attorneys' fees) arising out of Third Party claims or lawsuits related to (a) MMT's performance of its obligations under this Agreement, (b) a breach by MMT of any of its covenants, representations or warranties set forth in this Agreement, or (c) the design, manufacture, use or sale by MMT of a Lead Drug, PDT Drug, PDT Device or PDT Therapy; provided, however, all of the foregoing is only to the extent such claims or suits do not result from a breach of any of the provisions of this Agreement, negligence or willful misconduct of any of the ACS Indemnitees. Upon the assertion of any such claim or suit, ACS shall promptly notify MMT thereof and MMT shall appoint counsel reasonably acceptable to the affected ACS Indemnitees to represent such ACS Indemnitees with respect to any claim or suit for which indemnification is sought. Affected ACS Indemnitees shall not settle any such claim or suit without the prior written consent of MMT, unless such ACS Indemnitees shall have first waived their rights to indemnification hereunder. 11.2 Indemnification by ACS. ACS shall indemnify, defend and hold MMT, its Affiliates and their permitted contractors and agents, employees, officers and directors (the "MMT Indemnitees") harmless from and against any and all liability, damage, loss, cost or expense (including reasonable attorneys' fees) arising out of Third Party claims or lawsuits related to (a) ACS' performance of its obligations under this Agreement, or (b) a breach by ACS of any of its covenants, representations or warranties set forth in this Agreement; provided, however, all of the foregoing is only to the extent that such claims or suits do not result from a breach of any of the provisions of this Agreement, negligence or willful misconduct of the MMT Indemnitees. Upon the assertion of any such claim or suit, MMT shall promptly notify ACS thereof and ACS shall appoint counsel reasonably acceptable to the affected MMT Indemnitees to represent such MMT Indemnitees with respect to any claim or suit for which indemnification is sought. Affected MMT Indemnitees shall not settle any such claim or suit without the prior written consent of ACS, unless such MMT Indemnitees shall have first waived their rights to indemnification hereunder. 11.3 Insurance. Each Party shall maintain insurance with respect to its activities hereunder. Such insurance shall be in such amounts and subject to such deductibles as the Parties may agree based upon standards prevailing in the industry at the time. ACS acknowledges that MMT does not have product liability insurance as of the Effective Date of this Agreement and that ACS is not requiring MMT to obtain such product liability insurance. ARTICLE 12: TERM AND TERMINATION 12.1 Term. This Agreement shall commence on the Effective Date and, unless terminated pursuant to Section 12.2, shall terminate in its entirety four (4) months after the delivery of the Phase I Trial data and results to ACS, provided that ACS has reviewed the clinical data and results of the Phase I Trial. If ACS has not completed its review, this Agreement shall be extended at the request of ACS for no longer than one year after the completion of the Phase I Trial. For the purpose of this Agreement, the completion of the Phase I Trial is defined as the time when all patients enrolled in the trial have been followed-up according to the trial protocol and any additional FDA required follow-up and when all Phase I Trial clinical reports and data have been provided to ACS. The period of time from the Effective Date until termination is the "Term." 12.2 Termination. (a) The failure by a Party to comply with any of the material obligations contained in this Agreement shall entitle the other Party to give notice to have the default cured. If such default is not cured within sixty (60) days after the receipt of such notice or diligent steps are not taken to cure if by its nature such default could not be cured within sixty (60) days, then the notifying Party shall be entitled, without prejudice to any of its other rights conferred on it by this Agreement, and in addition to any other remedies that may be available to it, to terminate this Agreement in its entirety; provided, however, that such right to terminate shall be stayed in the event that, during such sixty (60) day period, the Party alleged to have been in default shall have: (a) initiated a dispute resolution proceeding in accordance with Article 13, below, with respect to the alleged default, and (b) diligently and in good faith cooperated in the prompt resolution of such proceeding. (b) Either Party may terminate this Agreement in the event the other Party at any time becomes insolvent or makes a general assignment for the benefit of creditors, or if a petition in bankruptcy, or any reorganization is commenced by, against or in respect of such other party and that petition is not stayed or dismissed within thirty (30) days. (c) ACS may terminate this Agreement upon seven (7) days written notice to MMT upon the assignment of this Agreement by MMT to a direct competitor of ACS or its Affiliates including, but not limited to, Johnson and Johnson, Boston Scientific Corporation, Medtronic, Inc., Abbott Laboratories or such Third Parties as otherwise confirmed in writing by ACS, from time to time, as being an ACS direct competitor. (d) ACS may terminate this Agreement upon sixty (60) days written notice if it determines, using reasonable business judgment and good faith, that the data or results reported to ACS and generated either during or after the Pre-Clinical Development Program or Phase I Trial fail to demonstrate either safety or efficacy, do not support further development of a Lead Drug, PDT Drug, PDT Device or PDT Therapy, or would lead to a significant delay in regulatory approval or commercialization of a Lead Drug, PDT Drug, PDT Device or PDT Therapy. (e) ACS may immediately terminate this Agreement by providing written notice of termination to MMT in the event that MMT fails to meet the conditions that are needed to be satisfied in order to obligate ACS to make either the interim or final investments that are set out in Sections 6.4 and 6.5 of the Securities Purchase Agreement executed by the Parties contemporaneously with this Agreement, or in the event ACS does not make an investment due to one of the events in Section 6.6 of the Securities Purchase Agreement. In the event ACS provides MMT with such written notice, this Agreement shall automatically terminate and the parties rights with respect to data collected prior to the Effective Date of this Agreement and to data generated pursuant to this Agreement shall be as set forth in Section 12.3(d), (e) and (f) hereof. 12.3 Effect of Termination. (a) Upon receipt of written notice of termination by either party pursuant to Section 12.2(a) or (b) of this Agreement, then the party receiving notice shall immediately forfeit and transfer to the party giving notice all rights to all pre-clinical and clinical data developed or generated under this Agreement relating to the Lead Drug or other PDT Drug. (b) Upon receipt of written notice of termination from ACS pursuant to Section 12.2(c) of this,Agreement, * . (c) Upon receipt of written notice of termination from ACS pursuant to Section 12.2(d) of this Agreement, * . (d) Upon receipt of written notice of termination from ACS under Section 12.2(e) of this Agreement because MMT has failed to satisfy any of its obligations under Section 6.4(a) or (b) of the Securities Purchase Agreement, * .. (e) Upon receipt of written notice of termination from ACS under Section 12.2(e) of this Agreement because MMT has failed to satisfy any of its obligations under Section 6.4(d) or 6.5(d) of the Securities Purchase Agreement, * . (f) Upon receipt of written notice of termination from ACS under Section 12.2(e) of this Agreement because MMT has failed to satisfy any of its obligations under Section 6.4(c), (e), (f) or (g) or 6.5(a), (b), (c), (e), (f) or (g) of the Securities Purchase Agreement, * . 12.4 Survival Of Obligations. The termination or expiration of this Agreement shall not relieve the Parties of any obligations accruing prior to such termination, and any such termination shall be without prejudice to the rights of either Party against the other. The provisions of Articles 8, 9, 10, 11 and 13 shall survive any termination of this Agreement, and Article 5 shall survive as provided in such Article 5. ARTICLE 13: DISPUTE RESOLUTION 13.1 Dispute Resolution Process. Both Parties understand and appreciate that their long term mutual interest will be best served by affecting a rapid and fair resolution of any claims or disputes concerning the obligations or terms of this Agreement. Therefore, both Parties agree to use their commercially reasonable best efforts to resolve all such disputes as rapidly as possible on a fair and equitable basis. 13.2 Executive Dispute Resolution. If any dispute or claim arising under this Agreement cannot be readily resolved by the Parties, then the Parties agree to refer the matter to their respective ACS and MMT executive officers, or their designees, for review and a non-binding resolution. A copy of the terms of this Agreement, agreed upon facts (and areas of disagreement), and concise summary of the basis for each Party's contentions will be provided to both executive officers who shall review the same, confer and attempt to reach a mutual resolution of the dispute. If the Parties fail to resolve the dispute at the executive officer level, then the Parties agree to refer the matter to their respective ACS and MMT executives at the corporate office level, or their designees, for review and a non-binding resolution. If the Parties fail to resolve the dispute at the corporate officer level, the Parties may pursue other available legal processes to resolve the dispute. ARTICLE 14: MISCELLANEOUS PROVISIONS 14.1 Injunctive Relief. The Parties acknowledge that (i) the covenants and the restrictions contained in of this Agreement are an inducement to the other Party to enter into this Agreement and are necessary and required for the protection of the Parties, (ii) such covenants relate to matters that are of a special, unique and extraordinary character that give each of such covenants a special, unique and extraordinary value, and (iii) a breach of any of such covenants may result in irreparable harm and damages to a Party in an amount difficult to ascertain and which cannot be adequately compensated by a monetary award. Accordingly, in addition to any of the relief to which any Party may be entitled under this Agreement, at law or in equity, such Party shall be entitled to seek temporary and permanent injunctive relief from any breach or threatened breach of such covenants without proof of actual damages that have been or may be caused to such Party by such breach or threatened breach. In the event an action for injunctive relief is brought by a Party, the other Party waives any right to require the Party bringing such action to post any bond or other security with the court in connection therewith. 14.2 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without giving effect to the principles of conflict of laws thereof. 14.3 Assignment. This Agreement shall be binding upon and inure to the benefit of MMT and ACS and their respective successors and permitted assigns. Neither Party shall be permitted to assign its rights or obligations hereunder without the prior written consent of the other Party hereto, except that either Party shall have the right to assign or otherwise transfer all of its rights and obligations hereunder (i) to an Affiliate, or (ii) in connection with a sale of all or substantially all of its business or assets, whether by merger, sale of stock, sale of assets, or otherwise, in each case and (iii) provided that all rights and obligations under this Agreement are assigned or transferred together in their entirety and provided further that such assignment or transfer shall not relieve the assigning/transferring Party from fulfilling any of its obligations to the other Party. 14.4 Compliance With Laws. Each Party shall comply with all applicable laws and regulations in connection with its performance of its obligations and exercise of its rights under this Agreement. Each Party shall furnish to the other Party any information reasonably requested or required by that Party during the Term to enable that Party to comply with the requirements of any applicable United States or foreign federal, state and/or government agency. 14.5 Further Assurances. At any time or from time to time following the date of this Agreement, each Party shall, at the request of the other Party and to the extent reasonably necessary to fulfill the express intent hereof, (i) deliver or cause to be delivered to the requesting Party any records, data or other documents consistent with the provisions of this Agreement, (ii) duly execute and deliver, or cause to be duly executed or delivered, all such consents, assignments, documents or further instruments of transfer or license as required by this Agreement, and (iii) take or cause to be taken all such actions, in each case as the requesting Party may reasonably deem necessary in order for the requesting Party to obtain the full benefits of this Agreement and the transactions contemplated hereby. 14.6 Severability. In the event that any provision of this Agreement is determined to be invalid or unenforceable by a court of competent jurisdiction, the remainder of this Agreement shall remain in full force and effect without said provision. In such event, the parties shall in good faith attempt to negotiate a substitute clause for any provision declared invalid or unenforceable, which substitute clause shall most nearly approximate the intent of the Parties in agreeing to such invalid provision, without itself being invalid. 14.7 Waivers and Amendments; Preservation of Remedies. This Agreement may be amended, modified, superseded, canceled, renewed or extended, and the terms and Therapeutic Fields hereof may be waived, only by a written instrument signed by the Parties or, in the case of a waiver, the Party waiving compliance. No delay on the part of any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of any Party of any right, power or privilege hereunder, nor any single or partial exercise of any right, power or privilege hereunder, preclude any other or other exercise thereof hereunder. The rights and remedies herein provided are cumulative and are not exclusive of any rights or remedies which any Party may otherwise have at law or in equity. 14.8 Headings. The captions to the several Articles and Sections hereof are not a part of this Agreement, but are included merely for convenience of reference only and shall not affect its meaning or interpretation. 14.9 Counterparts. This Agreement may be executed in any number of counterparts, each such counterpart shall be deemed to be an original instrument and which together shall constitute one instrument. 14.10 Successors. This Agreement shall inure to the benefit of and be binding upon each of the Parties and their respective permitted successors and assigns. 14.11 Notices. All notices, requests, demands, claims, and other communications hereunder shall be in writing and shall be deemed to have been duly given if delivered personally, by telecopy (receipt confirmed), sent by nationally recognized overnight courier or mailed by registered or certified mail (return receipt requested and postage prepaid), to the parties at the addresses set forth below (or at such other address for such party as shall be specified by like notice). All such notices and other communications shall be deemed to have been given and received (i) in the case of personal delivery, on the date of such delivery, (ii) in the case of delivery by telecopy, on the date of such delivery, (iii) in the case of delivery by nationally recognized overnight courier, on the second business day following the date when sent, and (iv) in the case of mailing, on the fifth business day following such mailing. if to MMT: Miravant Medical Technologies 336 Bollay Drive Santa Barbara, CA 93117 Attention: John M. Philpott Facsimile: (805) 685-1901 with copy (which will not constitute notice) to: Sheppard Mullin Richter & Hampton, LLP 800 Anacapa Street Santa Barbara, CA 93101 Attention: Joseph E. Nida, Esq. Facsimile: (805) 568-5516 with copy (which will not constitute notice) to: Wilson, Sonsini, Goodrich & Rosati 650 Page Mill Road Palo Alto, CA 94304 Attention: John Sheridan, Esq. Facsimile: (650) 493-6811 If to ACS: Advanced Cardiovascular Systems, Inc. 3200 Lakeside Drive Santa Clara, California 95054 Attention: General Counsel Facsimile: (408) 845-3987 14.12 No Consequential Damages. IN NO EVENT SHALL EITHER PARTY OR ANY OF ITS RESPECTIVE AFFILIATES BE LIABLE TO THE OTHER PARTY OR ANY OF ITS AFFILIATES FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, NEGLIGENCE, STRICT LIABILITY OR OTHERWISE, INCLUDING, BUT NOT LIMITED TO, LOSS OF PROFITS OR REVENUE, OR CLAIMS OF CUSTOMERS OF ANY OF THEM OR OTHER THIRD PARTIES FOR SUCH OR OTHER DAMAGES. 14.13 Independent Contractor. Neither Party shall be construed to be a partner, joint venturer, franchisee, employee, principal, agent, representative or participant of or with the other for any purpose whatsoever. Neither Party has any right or authority to assume or to create any obligation or responsibility, express or implied, on behalf of or in the name of the other Party in any manner. 14.14 Complete Agreement. This Agreement, together with its Exhibits, constitutes the entire agreement, both written and oral, among the Parties with respect to the subject matter hereof, and all prior agreements respecting the subject matter hereof, either written or oral, expressed or implied. IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized officers as of the Effective Date, each copy of which shall for all purposes be deemed to be an original. MIRAVANT MEDICAL TECHNOLOGIES: By: ----------------------------------------------------- Name: Gary S. Kledzik Title: Chief Executive Officer MIRAVANT CARDIOVASCULAR, INC. By: ----------------------------------------------------- Name: John M. Philpott Title: Chief Financial Officer ADVANCED CARDIOVASCULAR SYSTEMS, INC. By: ----------------------------------------------------- Name: Mark A. Murray Title: Vice President, Finance and Business Development [Signature Page to the Collaboration Agreement] EXHIBIT A PRELIMINARY DEVELOPMENT PLAN The following chart outlines the planned clinical development activities, responsibilities, and currently estimated timelines. Timelines may be revised as program progresses. * EX-99 6 exhibit31_1.txt EXHIBIT 31.1 Exhibit 31.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, Gary S. Kledzik, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Miravant Medical Technologies; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 12, 2004 By:./s/ Gary S. Kledzik ----------------------------- Name: Gary S. Kledzik Title: Chief Executive Officer EX-99 7 exhibit31_2.txt EXHIBIT 31.2 Exhibit 31.2 CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 I, John M. Philpott, certify that: 1. I have reviewed this quarterly report on Form 10-Q of Miravant Medical Technologies; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): c) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and d) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 12, 2004 By: /s/ John M. Philpott --------------------------------- Name: John M. Philpott Title: Chief Financial Officer EX-99 8 exhibit32_1.txt EXHIBIT 32.1 Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Gary S. Kledzik, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Miravant Medical Technologies on Form 10-Q for the fiscal quarter ended June 30, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Miravant Medical Technologies. By:./s/ Gary S. Kledzik ----------------------------- Name: Gary S. Kledzik Title: Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, John M. Philpott, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of Miravant Medical Technologies on Form 10-Q for the fiscal quarter ended June 30, 2004 fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of Miravant Medical Technologies. By: /s/ John M. Philpott --------------------------------- Name: John M. Philpott Title: Chief Financial Officer -----END PRIVACY-ENHANCED MESSAGE-----