-----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, DZcrE97s4luyrabLExnXid8i0OFs+JkKKsaD1HeQ4s7BjCTX9x26FaMZB4X4+J5e GkamRxVEfNlfrIXhlr27uw== 0000927016-00-001328.txt : 20000417 0000927016-00-001328.hdr.sgml : 20000417 ACCESSION NUMBER: 0000927016-00-001328 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NMT MEDICAL INC CENTRAL INDEX KEY: 0001017259 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 954090463 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21001 FILM NUMBER: 601312 BUSINESS ADDRESS: STREET 1: 27 WORMWOOD STREET CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6177370930 MAIL ADDRESS: STREET 1: 27 WORMWOOD STREET CITY: BOSTON STATE: MA ZIP: 02210 FORMER COMPANY: FORMER CONFORMED NAME: NITINOL MEDICAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19960619 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ----------------------- FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1999 or [ ] Transition Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ___________ to ____________. Commission File No. 000-21001 NMT MEDICAL, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 95-4090463 - ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 27 Wormwood Street, Boston, Massachusetts 02210 - ----------------------------------------- ---------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (617) 737-0930 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.001 par value per share (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] The aggregate market value of voting stock held by nonaffiliates of the registrant on April 7, 2000 was $30,536,363, based on the last reported sale price of the registrant's Common Stock on the Nasdaq National Market on that date. There were 10,908,421 shares of Common Stock outstanding as of April 7, 2000. DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K Document into which incorporated -------- ----------------------- Portions of the Registrant's Proxy Items 10, 11, 12 and 13 of Statement for the Annual Part III Meeting of Stockholders to be held on June 1, 2000 PART I ITEM I. BUSINESS OVERVIEW NMT Medical, Inc. (together with its subsidiaries, "the Company" or "NMT"), designs, develops and markets innovative medical devices that utilize advanced technologies and are delivered by minimally invasive procedures. The Company's products are designed to offer alternative approaches to existing complex treatments, thereby reducing patient trauma, shortening procedure, hospitalization and recovery times, and lowering overall treatment costs. The Company's business is conducted through two divisions: Nitinol, which markets septal repair devices, vena cava filters and self-expanding stents, and NMT Neurosciences, which develops, manufactures and markets specialty implants and instruments for neurosurgery, including cerebral spinal fluid ("CSF") shunts, the Spetzler(TM) Titanium Aneurysm Clip and endoscopes and instrumentation for minimally invasive neurosurgery. The Company's two operating segments are managed separately. See Note 16 of Notes to the Consolidated Financial Statements. The Company was founded in July 1986 to develop and commercialize medical devices using Nitinol, a nickel-titanium alloy with unique superelastic and thermal shape memory characteristics. In April 1990, the Company obtained clearance from the Food and Drug Administration (the "FDA") to market its initial Nitinol-based product, the Simon Nitinol Filter ("SNF"), in the United States. The Company entered into an exclusive distribution agreement with Bard Radiology ("Bard") for distribution of the SNF in the United States and certain other countries in May 1992. The Company's primary stent patent was issued in November 1994 and, during the same month, the Company entered into an exclusive license agreement with Boston Scientific to further develop, manufacture, market and distribute NMT's Nitinol-based stents worldwide. In November 1995, the Company expanded its relationship with Bard by granting Bard International the right to distribute the SNF in most markets outside the United States. The Company acquired the rights to the CardioSEAL Septal Occluder to expand its product base and complement its core technologies in February 1996 and since September 1999 has received notifications from the FDA of the approval of the CardioSEAL under Humanitarian Use Designation regulations for three indications. In furtherance of the Company's strategy to develop and commercialize a broad range of advanced medical technologies for minimally invasive applications, in July 1998, the Company acquired the neurosurgical instruments business of Elekta AB (PUBL), a Swedish corporation ("Elekta"). In April 2000, the Company sold the Selector(R) Ultrasonic Aspirator, Ruggles (TM) Surgical Instruments and cryosurgery product lines of its NMT Neurosciences division to companies controlled by Integra LifeServices Holdings Corporation for $12 million in cash. The Company used the proceeds of the transaction for debt reduction and for general working capital requirements. The Company's Consolidated Financial Statements for the fiscal year ended December 31, 1999 treat these businesses, as well as its distribution of high speed power surgical tools, as discontinued operations. See Note 3 of Notes to the Consolidated Financial Statements. PRODUCTS Nitinol Division The Company's Nitinol division markets the following devices: . septal repair devices . vena cava filters . stents. Septal Repair Devices. - ---------------------- In February 1996, the Company acquired the exclusive rights to its CardioSEAL Septal Occluder, which is designed for the repair of intracardiac shunts commonly known as "holes in the heart." Intracardiac shunts are common medical problems, occurring primarily in children, that result in abnormal blood flow through the chambers of the heart. The most common defects occur in either the arterial ("ASD") or ventricular ("VSD") septum which divide the left and right pumping chambers of the heart. The CardioSEAL Septal Occluder is designed to be a minimally invasive, less costly alternative to open heart surgery. Another common septal defect is the Patent Foramen Ovale ("PFO"), a transient hole which may open under straining efforts (coughing, defecating, etc.). PFO has been implicated as a possible cause of embolic stroke. Current treatment for patients who have experienced embolic strokes is lifelong anticoagulation therapy, which may result in significant side effects and/or patient noncompliance with the treatment regimen. Recently, some institutions have begun advocating open heart surgery to close PFOs to prevent additional strokes. 1 The CardioSEAL Septal Occluder is a catheter-delivered cardiac implant designed to close septal defects. The framework is made of MP35N, which has superior characteristics as an implant material (biocompatibility and corrosion and fatigue resistance), and is covered with two pieces of knitted polyester fabric, which promotes normal tissue in growth. The product is designed to be manufactured in five diameter sizes ranging from 17mm to 40mm. The CardioSEAL Septal Occluder is delivered to the site of the defect through a puncture of the femoral vein in the leg. Once the position of the CardioSEAL Septal Occluder is confirmed, the physician detaches the delivery system and removes it from the patient. To date, the CardioSEAL implant procedures have taken approximately one hour to complete, with patients returning home and able to perform normal activity just one or two days later. An earlier version of the septal repair device, named the Clamshell, was developed by Bard in collaboration with Children's Hospital of Boston. Between 1989 and 1991 Bard sponsored clinical trials of the Clamshell in over 700 patients with a variety of cardiac conditions. In 1991, Bard discovered fractures of the stainless steel framework in certain of the devices implanted during such clinical trials and, following such discovery, suspended its clinical trials. However, Bard subsequently submitted, and the FDA approved, a revised IDE to permit the continued use of the Clamshell for patients with limited therapeutic alternatives and whose status of being at high risk for surgery made their use of the Clamshell particularly necessary. The Company is not aware of any significant adverse clinical consequences resulting from the observed fractures. Extensive engineering redesign and testing, including the use of MP35N for the framework, resulted in significant improvements in both the fatigue and corrosion resistance of the device. In 1995, Bard donated the technology and associated assets to Children's Hospital of Boston which subsequently licensed the technology to InnerVentions. The Company acquired the rights to develop and commercialize the current septal repair device in February 1996. In connection with the acquisition, the Company acquired all of the existing development, manufacturing and testing equipment, patent licenses, know-how and documentation necessary to manufacture septal repair devices which had been originally developed by Bard. The Company introduced design enhancements to the CardioSEAL Occluder, the STARflex centering system, in the fall of 1998. The design of the STARflex centering system allows the device to self-adjust to variations in the anatomy of a septal defect without deforming the septum and interfering with the heart valves. These features accommodate easier implantation and the closure of larger defects which would otherwise not be possible. STARflex was awarded the CE Mark in September 1998 and commercialization began internationally in October 1998. The Company believes the CardioSEAL Septal Occluder may be suitable for approximately 55,000 patient implants annually for congenital heart defects and approximately 145,000 adult patients annually with PFOs. Such estimates are based on industry reports of the total numbers of patients diagnosed with such conditions and the Company's own analysis of the portions of such populations for whom its device may be suitable. The CardioSEAL is sold commercially in Europe and other international markets. In the United States, the FDA classifies the septal repair device as a Class III medical device, which requires receipt of pre-market approval prior to marketing. In August 1996, NMT received approval of its IDE from the FDA to conduct a multi-center pivotal clinical trial of the CardioSEAL for ASDs at a number of major hospitals and research centers in the United States (and one in Canada). Implants of the device began in October 1996 and were completed in February 1999. These patients were followed for a year while the Company collected data on a control group of patients who had open heart surgery for the closure of their ASDs for comparison to the CardioSEAL data. In addition, in the fall of 1999 implants of the device with the STARflex centering system began, with enrollment to be completed in the second quarter of 2000. The clinical data from these trials will then be used for the submission of a pre-market approval ("PMA") Application with the FDA for the CardioSEAL. In addition, the Company filed an IDE with the FDA in February 1998 to pursue clinical studies for the PFO indication in the United States, and also began PFO trials in Canada in 1998. The FDA's approval of the IDE had been conditioned on the incorporation by the Company of certain protocol modifications requested by the FDA. Some of the participating hospitals have received independent institutional review board ("IRB") approval. On July 27, 1998, the Company announced that it had established an international registry to support the clinical use of the CardioSEAL Septal Occlusion System in patients having PFO as the likely pathway of an embolic stroke or transient ischemic attack. The Transcatheter Occlusion of PFO In Stroke ("TOPIS") Registry allows physicians around the world to pool their data on PFO closure in an organized manner so as to generate a sizable database to demonstrate that closure of PFOs with the CardioSEAL is preferable to surgery, or to a lifetime of taking anticoagulant therapy, such as coumadin. The TOPIS registry complements the PFO clinical trials operated in the United States and Canada by the Company. The Company has received notifications from the FDA of the approval of the CardioSEAL(R) Septal Occluder under Humanitarian Use Designation ("HUD") regulations for three indications. Under HUD regulations, medical devices that provide safe treatment for limited populations of patients can be granted approval by the FDA based on more limited clinical experience than that required for a full Pre-Market Approval ("PMA"). Additionally, under these regulations, only one product can be approved for each indication. Boston Children's Hospital worked with the Company to generate the clinical data necessary for the approvals and on the approval application. 2 The first approval was granted in September 1999 for use of the CardioSEAL for closing fenestrated Fontan procedures. The fenestrated Fontan procedure is a surgical procedure utilizing a baffle material (e.g. PTFE) performed in patients born with seriously malformed hearts. As a part of this procedure, a fenestration, or hole, is placed in the baffle to allow the patient to adjust over time to the new hemodynamics created by the surgery, thereby reducing post- operative morbidity and mortality. After the patient has adjusted, the closure of the fenestration is desirable. However, re-operation of these patients to close the fenestration can carry significant risk. The second approval, also granted in September 1999, was granted for use of the CardioSEAL for closing muscular ventricular septal defects in patients at high risk of morbidity or mortality resulting from surgery. Muscular ventricular septal defects ("holes"), located at the rear of the septum or at the base of the heart, are particularly difficult to close surgically due to poor visualization by the surgeon. In February 2000, the Company received FDA approval under HUD regulations for use of the CardioSEAL(R) in treating PFO in patients with recurrent cryptogenic stroke due to presumed paradoxical embolism through a PFO and who have failed conventional drug therapy such as coumadin. Each of the three approved indications allows for the treatment of up to 4,000 patients per year. A selling price of $5,500 for each device was approved. The CardioSEAL Septal Occluder is marketed by the Company's direct sales force in Europe and through selected distributors worldwide. Vena Cava Filters. - ------------------ Vena cava filters are used for the prevention of pulmonary embolism (a blood clot lodged in the vessels supplying blood to the lungs). These emboli (clots), which often develop initially in the veins of the legs, can break loose and travel up the vena cava, through the heart and into the blood vessels of the lungs, causing acute respiratory and circulation problems. Vena cava filters are intended to trap these clots before they can reach the lungs. Patients at high risk for pulmonary embolism include post-operative orthopedic and neurosurgery patients, cancer patients undergoing surgery and chemotherapy and severe trauma victims. There are 600,000 incidents of pulmonary embolism diagnosed in the United States each year, with 125,000 to 150,000 deaths per year. While usually treated initially with anticoagulant drugs, patients at high risk for pulmonary embolism may be treated using vena cava filters in cases where drug therapy has failed or is contraindicated. Factors influencing the performance of vena cava filters include coverage of the vena cava and the pattern of the filtering method. Additionally, the variety of entry site options and the size of the delivery system affect ease of deployment of the vena cava filter. Simon Nitinol Filter. The Company has developed a Nitinol vena cava filter which possesses highly efficient clot filtering characteristics. The Company has engineered the thermal shape-memory characteristics of Nitinol to provide for ease of delivery of a vena cava filter which can be easily implanted in the patient by a minimally invasive procedure using the Company's patented catheter- based delivery systems. The Company's vena cava filter transforms into its intended shape once deployed into the body. The SNF can be implanted from the veins in the leg or neck, and is the only currently available vena cava filter which can also be implanted from the veins in the arm. The Company received FDA 510(k) clearance to market the SNF, and commenced sales, in April 1990. All 510(k) notifications with respect to subsequent modifications to the SNF have also been accepted by the FDA. In November 1995, the Company introduced a simplified, straight line catheter-based delivery system for its SNF. In November 1996, the Company received 510(k) clearance for the implementation of the SNF through the subclavian vein in the shoulder. On January 27, 1998, the CE Mark was granted for the SNF, which authorized the Company to sell the SNF in the European Union beginning in July 1998. Removable Vena Cava Filter. Currently available vena cava filters are permanent implants which can only be removed surgically. Therefore, patients who are at risk for pulmonary embolism for a defined period of time (post- operative recovery, recovery from trauma, etc.) and receive a vena cava filter have the implant in place for life. There is often a psychological resistance to implantation of a permanent device. As a result, a vena cava filter is often not used until a patient at risk has experienced his or her first pulmonary embolism. However, controlled studies conducted by others of the prophylactic use of currently available permanent vena cava filters in severe trauma patients have demonstrated a significant reduction in morbidity and mortality in this category of patients at high risk of pulmonary embolism. The Company believes that the availability of a removable vena cava filter may result in greater prophylactic use, and may be used in lieu of a permanently implanted device in certain circumstances. In September 1999 the Company received CE Mark approval for its unique, Recovery(TM) removable vena cava filter device. This innovative new device is the first implantable vena cava filter that can be removed with a simple catheter removal procedure early after implant. If desired, the Recovery(TM) filter may be left as a permanent filter. The approval is for the filter implant and the filter delivery system. A separate CE Mark application for the removal catheter was approved in December, 1999. The Company is currently completing the validation of its manufacturing process for the product at its Boston facility. The Company entered into an exclusive distribution agreement in May 1992 with Bard for distribution of the SNF in the United States and certain other countries. Beginning November 30, 1995, Bard International was granted the exclusive right to distribute the SNF in most markets outside the United States. Bard will begin limited distribution of the Recovery(TM) vena cava filter device in the second quarter of 2000 and expansion of sales to broader markets will begin later in 2000. Each of the 3 distribution agreements with Bard is for an initial five year term. Bard may renew, at its option, its agreement thereafter for periods of five years, which it did in November 1996. The Company's agreement with Bard International renews automatically for successive one year periods unless terminated by either party. Both distributors are obligated to make annual minimum purchases and have agreed not to sell competing vena cava filters during the term of the respective distribution agreements. Bard has also agreed not to compete for an additional two years after its distribution agreement with the Company has terminated. In addition, the Company has granted Bard a right of first offer for any of NMT's new devices which may be marketed to interventional radiologists and for which NMT desires to enter into an exclusive distributorship within the United States. Stents. - ------- Stents are used increasingly as adjuncts or alternatives to a variety of medical procedures because it is believed that they are beneficial to overall patient outcome and may, over time, reduce total treatment costs. To date, most stents have been used for the treatment of atherosclerotic plaque in the coronary arteries. The Company has developed and patented a Nitinol stent (the Hex-cell stent) which relies on a novel hexagonal cell (hex-cell) design. NMT's stents can be customized into a variety of sizes, shapes, flexibilities and radial force characteristics for use in treating specific indications. The Company believes that its stents may offer advantages over currently available stents in flexibility, radial strength and placement. In November 1994, NMT licensed to Boston Scientific, a worldwide leader in sales of minimally invasive medical devices, exclusive worldwide rights to develop, manufacture, market and distribute the Company's stent technology. Under the terms of this agreement, Boston Scientific funds, and has control over, product development, manufacturing scale-up, clinical trials, marketing and distribution worldwide and has the sole right to use the patents and technical information owned by NMT related to stents. Boston Scientific is not prohibited from selling competing stents and has established a broad-based stent program, including rights to Medinol, Ltd.'s stent technology. NMT receives a sales royalty, milestone payments, minimum license fees, manufacturing cost reduction incentives and reimbursement of development costs. Boston Scientific commercially launched the Company's stents for peripheral vascular use in Europe in January 1997 and in the United States in June 1997 for biliary use under the name Symphony. During 1998 Boston Scientific also began enrollment in a multi-center clinical trial for the Symphony stent in peripheral arteries. These trials are designed to gain approval for expanded labeling for the Symphony stent in the United States. Boston Scientific has completed a scale-up of its peripheral vascular stent manufacturing capabilities in the United States to enable it to manufacture NMT's stents in quantities to support initial commercialization in certain markets. The Company and Boston Scientific are currently pursuing projects to develop the Company's stents for a variety of applications. Boston Scientific is responsible for applying for registrations and regulatory approvals it deems necessary for NMT's stents. The Company believes that each of the vascular indications for the stent (coronary arteries, carotid arteries, peripheral vascular, abdominal aortic and peripheral vascular stent grafts) will require separate PMA applications prior to commercialization in the United States. NMT Neurosciences Division The Company's NMT Neurosciences division develops, manufactures and markets specialty implants and instruments for neurosurgery. The Company's neurosurgical products business includes the following primary product lines: . Implantable valves (shunts) and other accessories used in the management of hydrocephalus. . Titanium aneurysm clips for the management of intracranial aneurysms. Shunts. - ------- The full line of CSF shunts sold by the Company were originally developed by Cordis Neuroscience. CSF shunts are used to drain cerebral spinal fluid from the brain to maintain normal fluid balance in a variety of conditions where normal drainage is impaired. The most common condition in which these products are used is in the management of hydrocephalus. Hydrocephalus affects approximately one in 500 new-born children; the failure to treat this condition leads to severe neurological complications and can be life-threatening. The Company's product line includes a range of differential pressure valves, including the Hakim(R) Valve, which has been the industry standard for 30 years, and the Orbis-Sigma(R) Valve. An improved version of the Orbis-Sigma Valve, the OSV II, was released in 1998. The OSV II is unique in its ability to regulate both CSF flow and pressure. The Company's products also include horizontal- vertical lumbar valves and an all-plastic valve known as the Atlas(R). The accessories include products for the control of the over-drainage with differential valves, as well as basic tubing and connectors. In December 1998, the Company entered into an agreement with CS Fluids, Inc. ("CS Fluids") of Los Altos, California to cooperatively develop and manufacture a shunt device designed specifically to treat Alzheimer's Disease. Under the terms of the 4 agreement, NMT Neurosciences will work with CS Fluids to utilize the Company's patented shunt technology to develop, manufacture and clinically evaluate a shunt device with parameters specific to the Alzheimer's population. If the device proves clinically useful, CS Fluids has the option to enter into a manufacturing and supply relationship with NMT Neurosciences, and NMT Neuroscienses has first rights of negotiation for distribution of the device after the necessary regulatory approvals have been obtained. In early 1998 CS Fluids initiated Investigational Device Exemption ("IDE") approved clinical studies at Stanford University to examine the effects of utilizing CSF shunts in patients with Alzheimer's Disease. Expanded trials using the NMT Neurosciences shunt technology are expected to commence in mid 1999. Aneurysm Clips. - --------------- The Company's Spetzler(TM) Titanium Aneurysm Clip is used for the management of intracranial aneurysms. The Company believes that this clip is the only clip on the market made from commercially pure titanium, which provides complete compatibility with modern magnetic resonance imaging. Because the clip does not move in the high magnetic field or distort the image, the Company believes it is safer and more effective than competing products. The Spetzler(TM) Titanium Aneurysm Clip was developed in collaboration with Biotek Engineering, Inc. ("Biotek") under an exclusive worldwide royalty bearing license to the patents owned by Biotek. The clip is CE Marked, and the Company has obtained ISO 9000 certification of the Boston manufacturing facility for its production. Because of the long product life cycles of the products produced by the Neurosciences division, the Company does not anticipate making large investments in research and development of these products. The Company's current research and development efforts are focused on developing products that fulfill specific identified unmet needs of neurosurgeons or making incremental improvements to products currently within the Neurosciences division's portfolio. Research and development for the Company's CSF Shunts and aneurysm clips are conducted at the Company's Biot, France and Boston facilities, respectively. Marketing and Sales Strategy. - ----------------------------- NMT Neurosciences has developed a dedicated sales force in neurosurgery. The Company has direct sales forces in the United States and in Europe and supplements its direct selling efforts with distributors and manufacturers' representatives where direct coverage is inappropriate or not currently feasible. The North America selling activity is managed through the division's United States operations in Atlanta, Georgia. The Asian region is managed from the Company's Hong Kong office with a Distributor Manager. Sales for the rest of the world are managed through divisional headquarters in Biot, France. MANUFACTURING The Company manufactures the CardioSEAL Septal Occluder at its facility in Boston, which includes a Class 10,000 clean room. The Company has received ISO 9000 certification and has also received permission to affix the CE mark to its products. The Company has contracted with Lake Region Manufacturing ("Lake Region") for the production of the filter component of the SNF. The Company's agreement with Lake Region grants Lake Region the right to manufacture a certain percentage of the Company's worldwide requirements of the current filter until June 30, 2001. The Company is obligated to order a minimum quantity of the current filters and pay Lake Region a fixed price per unit. Lake Region has agreed not to manufacture filters for a third party for a period of two years after the termination of the agreement. Final assembly of the vena cava filter system is conducted by the Company in its facility in Boston. The Company is currently completing the validation of its manufacturing process for the Recovery(TM) vena cava filter at its Boston facility. The Company manufactures its neurosurgical instruments in a manufacturing facility located in Biot, France. The facility has received ISO 9001 and EN 46001 certification, which are based on adherence to established standards in the areas of quality assurance and manufacturing process control, and has also received permission to affix the CE Mark to its products. A variety of products utilized for the management of hydrocephalus and drug delivery are manufactured at the Biot facility. The Spetzler(TM) Titanium Aneurysm Clip is manufactured at the Company's manufacturing facility in Boston. The Biot facility also has a contract manufacturing agreement with Johnson & Johnson until April 2002 for the manufacturing of temporary pacing leads catheters. COMPETITION The Company believes that four companies, AGA Medical Corp., Microvena Corporation, Dr. Osypka GmbH, and Pediatric Cardiology Custom Medical Devices have developed devices that compete with CardioSEAL and which are being sold in Europe and other international markets, and that AGA and Microvena are also conducting clinical trials in the United States. Boston Scientific, among others, currently competes with the Company in sales of vena cava filters. Boston Scientific introduced the Greenfield Filter to the market in the mid-1970's and is still the market leader with more than half of current unit sales 5 of vena cava filters in the United States. Since the introduction of the SNF in 1990, NMT has achieved the second highest level of sales in the United States due primarily to its distribution agreement with Bard Radiology and the introduction of a new simplified delivery system. Other competitors in this market include Cook, Inc. and B. Braun. Competition in the stent market is intense and is expected to increase. Current competitors include Pfizer Inc./Schneider, Johnson & Johnson Interventional Systems Co., Cook, Inc., Guidant Corporation/ACS, Arterial Vascular Engineering, Inc., Medtronic, Inc., Boston Scientific (Medinol, Strecker and Radius/T/) and Bard/Angiomed. The Company believes that it has three principal competitors in the shunt market: Medtronic, J&J Professional and Neurocare. The Company has three principal competitors in the aneurysm clip market: Aesculap, Mizuho, and Codman. In addition, the clip market is currently influenced by competing devices, principally intracranial coils, to treat aneurysms. DISCONTINUED OPERATIONS In April 2000 the Company sold the U.K. operations of its NMT Neurosciences division, including the Selector(R) Ultrasonic Aspirator and cryosurgery product lines, its leased facility in Andover, England, and the Ruggles(TM) Surgical Instruments product line to companies controlled by Integra LifeSciences Holdings Corporation for $12 million in cash. The ultrasonic aspirator, which is sold under the Selector(R) trademark, utilizes multiple ultrasonic frequencies to selectively destroy and then aspirate or remove the tumor tissue. In 1998, the Company released a more compact unit known as the Selector II, which allows the direct attachment of the microsurgical handpiece. The Ruggles(TM) Surgical Instruments are used in cranial and spinal surgery. Prior to the disposition of this business the Company distributed instruments procured from instrument makers located mostly in the United States and Germany and worked closely with neurosurgeons to design specialty set instruments, with the name of the neurosurgeons typically an additional trademark on the products. The cryosurgical products are marketed under the Spembly tradename and include both liquid nitrogen and gas expansion technologies, which have applications in ophthalmic, general, gynecological, urological and cardiac surgery. The Company's Consolidated Financial Statements for the fiscal year ended December 31, 1999 and 1998 reflect these product lines as discontinued operations. In connection with the sale of the U.K. operations of its NMT Neurosciences division, the Company decided to eliminate the distribution of its capital- intensive product lines, specifically the high speed power surgical tools. The Company distributed the Sodem Systems line of powered surgical tools for cranial and spinal neurosurgery, known as the NMT High Speed System, pursuant to an exclusive distribution agreement entered into in July 1998. The powered surgical tools are used by neurosurgeons to create minimally invasive working channels through the bone of the skull and spine to access the surgical site. The Company's Consolidated Financial Statements also reflect this product line as discontinued operations. INVESTMENT IN IMAGE TECHNOLOGIES CORPORATION The Company has a 41 percent ownership interest in Image Technologies Corporation. ITC, a privately held company, is developing a line of advanced imaging products for minimally invasive surgery which require less equipment, are easier to use, reduce procedure time and personnel requirements, improve operating room efficiency and reduce overall treatment costs. In addition, the Company has extended to ITC an approximately $2.2 million senior credit line, which is convertible into preferred stock of ITC at rates ranging from $.50 to $9.97 per share. During 1999, ITC also issued the Company a warrant to purchase 10,030 shares of ITC's Series A Preferred Stock at an exercise price of $9.97 per share in connection with a debt financing. Thomas M. Tully, former President and Chief Executive Officer of the Company, was the Chairman and Chief Executive Officer of ITC until April 10, 2000 and William J. Knight, Vice President of Finance and Administration and Chief Financial Officer of the Company, was its Chief Financial Officer until December 15, 1999. ITC is located in leased space immediately adjacent to the Company's facilities. The principal products under development by ITC are: (i) TroView, a compact, computerized image viewing system allowing for easy, surgeon controlled enhancement of endoscopic images, including the recording and remote transmission of both still and full motion video. The TroView has full zoom capabilities to minimize the number of manipulations that have to take place with the device. (ii) TroCam/TT, an advanced endoscopic camera system for use with the TroView. The TroCam, unlike currently available systems, places the camera and lighting directly into the surgical field, allowing the surgeon to personally control the field of view by pivoting the camera and zooming in or out on the surgical field using a simple fingertip remote control device. The camera system is protected during surgery by a sterile, optically clear, disposable molded plastic cover that eliminates the need to re-sterilize the camera after each use. 6 (iii) EndoCam, an endocoupler/camera system that allows rigid or flexible endoscopes from other manufacturers to be used in conjunction with the TroView. The coupler is a sterile, single use device, which eliminated the need to re-sterilize the camera after each use. (iv) Operative TroCam, an endoscopic surgical system for use with the TroView that allows the camera system and surgical instruments to be inserted into the body through a single puncture site. (v) GynaCam, a disposable device for use of the camera and TroView system for examination of the cervix. (vi) SteriCam, an endocoupler/camera system that allows endoscopes from other manufacturers to be used with the TroView for the estimated 10 million endoscopic surgeries performed worldwide each year. The coupler is a sterile, single use device, which eliminates the need to re-sterilize the camera after each use. In November 1998, ITC began commercialization of its first products. ITC was awarded the CE Mark for the TroView and SteriCam products in October 1998, and in January 1999 received 510(k) approval for sale in the United States from the FDA for both products. With these approvals, the TroView and SteriCam products may now be sold in most international markets. Shipments to distributors have been initiated, and clinical demonstrations of the product to hospital customers have also begun. PATENTS AND PROPRIETARY TECHNOLOGY The Company seeks to protect its technology through the use of patents and trade secrets. The Company is the owner or licensee of 34 issued United States patents, and corresponding foreign patents, relating to its neurosurgical instruments products, stents, the SNF, the septal repair device, nitinol radiopaque markers and other cardiovascular devices. In addition, the Company has pending applications for additional patents in the United States and abroad. The Company's owned United States and foreign patents and patent applications cover its neurosurgical instruments products, stents, methods of manufacturing its stents, methods and devices for inserting its neurosurgical instruments products, stents and its SNF. The expiration dates of the Company's patents relating to its neurosurgical instruments range from 2003 to 2015. The expiration dates of the Company's patents relating to its stents range from 2012 to 2013. The patent for its vena cava filters expires in 2001, and the patent for its radiopaque markers expires in 2014. In addition, the Company is the exclusive licensee under certain patents relating to the CardioSEAL Septal Occluder and methods for repairing cardiac and vascular defects. The Company also holds licenses to certain technology used in the SNF and in nitinol septal repair devices. The Company also relies on trade secrets and technical know-how in the development and manufacture of its devices, which it seeks to protect, in part, through confidentiality agreements with its employees, consultants and other parties. The Company has 14 trademarks, 11 of which are registered with the United States Patent and Trademark Office. LICENSED TECHNOLOGY; ROYALTY OBLIGATIONS In connection with its septal repair device, the Company has obtained an exclusive worldwide license from Children's Medical Center Corporation under United States patents entitled "Occluder and Method for Repair of Cardiac and Vascular Defects" and "Occluder for Repair of Cardiac and Vascular Defects" and the respective corresponding foreign patents, patent applications and associated know-how. The license agreement provides for royalty payments of five percent based on net sales of the Company's CardioSEAL Septal Occluder until either the end of the term of the patents or termination of the agreement. The patents expire in September 2012 and June 2012, respectively. Pursuant to the license agreement, the Company is required to achieve certain milestones in exploiting the patent rights. The Company has achieved all required milestones to date. If the Company fails to achieve the milestones, Children's Medical Center Corporation may terminate the license agreement. The Company also has a royalty-free, worldwide sublicense under the U.S. patent entitled "System for the Percutaneous Transluminal Front-End Loading Delivery and Retrieval of a Prosthetic Occluder" and its corresponding foreign patents and associated know- how. The sublicense is exclusive in the field of the repair of atrial septal defects and nonexclusive in certain other fields. The Company has also obtained an exclusive worldwide license from Lloyd A. Marks, M.D. under the United States patent entitled "Aperture Occlusion Device." The license agreement with Dr. Marks provides for royalty payments based on net sales of nitinol septal repair devices which are covered by the patent until the end of term of the patent in 2011. Certain minimum royalty payments must be paid regardless of net sales. In connection with the SNF, the Company entered into a Technology Purchase Agreement dated April 14, 1987 with Morris Simon, M.D., the Company's Chief Scientific Director and co-founder and a current Director of the Company. Pursuant to the agreement, Dr. Simon assigned all the technology relating to the SNF to the Company in exchange for certain royalty payments based on net sales of technology invented by Dr. Simon relating to the SNF, to continue perpetually unless the agreement is sooner terminated. Dr. Simon agreed not to compete with the Company in the vena cava filter market during the term of the agreement In connection with the agreement, Beth Israel Hospital Association granted the Company an exclusive worldwide license under the 7 United States patent entitled "Blood Clot Filter." In consideration for the license, Dr. Simon assigned a percentage of his royalty payments from the Company to Beth Israel Hospital Association. Pursuant to his employment agreement, the Company has agreed to pay royalties of one to five percent to Mr. Stephen J. Kleshinski based on sales or licenses of products where Mr. Kleshinski was the sole or joint inventor. GOVERNMENT REGULATION The manufacture and sale of medical devices intended for commercial distribution are subject to extensive governmental regulations in the United States. Medical devices are regulated in the United States by the FDA under the Federal Food, Drug and Cosmetic Act (the "FDC Act") and generally require pre- market clearance or pre-market approval prior to commercial distribution. In addition, certain material changes or modifications to medical devices also are subject to FDA review and clearance or approval. Pursuant to the FDC Act, the FDA regulates the research, testing, manufacture, safety, labeling, storage, record keeping, advertising, distribution and production of medical devices in the United States. Noncompliance with applicable requirements can result in failure of the government to grant pre-market clearance or approval for devices, withdrawal of approvals, total or partial suspension of production, fines, injunctions, civil penalties, recall or seizure of products, and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed by the Company. Medical devices are classified into one of three classes, Class I, II or III, on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness. Generally, Class III devices are those that must receive pre-market approval by the FDA to ensure their safety and effectiveness (e.g., life-sustaining, life-supporting and implantable devices, or new devices which have not been found to be substantially equivalent to legally marketed devices), and require clinical testing to ensure safety and effectiveness and FDA approval prior to marketing and distribution. The FDA also has the authority to require clinical testing of Class I and Class II devices. A PMA application must be filed if a proposed device is not substantially equivalent to a legally marketed predicate device or if it is a Class III device for which the FDA has called for such applications. If human clinical trials of a device are required and if the device presents a "significant risk," the manufacturer or distributor of the device is required to file an IDE application with the FDA prior to commencing human clinical trials. The IDE application must be supported by data, typically the results of animal and, possibly, mechanical testing. If the IDE application is approved by the FDA, human clinical trials may begin at a specific number of investigational sites with a maximum number of patients, as approved by the agency. Sponsors of clinical trials are permitted to sell those devices distributed in the course of the study provided such costs do not exceed recovery of the costs of manufacture, research, development and handling. The clinical trials must be conducted under the auspices of an independent IRB established pursuant to FDA regulations. If one or more IRBs determine that a clinical trial involves a "nonsignificant risk" device, the sponsor of the study is not required to obtain FDA approval of an IDE application before beginning the study. However, prior IRB approval of the study is required and the study must be conducted in compliance with the applicable FDA regulations, including, but not limited to, FDA regulations regarding the protection of human subjects. Generally, before a new device can be introduced into the market in the United States, the manufacturer or distributor must obtain FDA clearance of a pre-market notification ("510(k) notification") submission or approval of a PMA application. If a medical device manufacturer or distributor can establish that a device is "substantially equivalent" to a legally marketed Class I or Class II device, or to a Class III device for which the FDA has not called for PMAs, the manufacturer or distributor may seek clearance from the FDA to market the device by filing a 510(k) notification. The 510(k) notification may need to be supported by appropriate data establishing the claim of substantial equivalence to the satisfaction of the FDA. The FDA's Modernization Act of 1997 (the "Modernization Act") was adopted with the intent of bringing better definition to the process for clearing 510(k) submissions. Although it is expected that the Modernization Act will result in shorter cycle times for clearances of 510(d) submissions, there can be no assurance that the FDA review process will not involve delays or that such clearances will be granted on a timely basis. If a manufacturer or distributor of medical devices cannot establish that a proposed device is substantially equivalent to a legally marketed device, the manufacturer or distributor must seek pre-market approval of the proposed device through submission of a PMA application. A PMA application must be supported by extensive data, including preclinical and clinical trial data, as well as extensive literature to prove the safety and effectiveness of the device. The Modernization Act allows the filing of a PMA to be modular, permitting the FDA to initiate review of the submission prior to completion of all sections. Under the FDC Act, the FDA has 180 days to review a filed PMA application. Again, although the changes in the PMA application review process are designed to shorten review times, there can be no assurance that delays will be eliminated or that PMA clearances will be granted on a timely basis. Certain Class III devices that were on the market before May 28, 1976 ("preamendments Class III devices"), and devices that are determined to be substantially equivalent to them, can be brought to market through the 510(k) process until the FDA, by regulation, calls for PMA applications for the devices. Generally, the FDA will not grant 510(k) clearance for such devices unless the facilities at which they are manufactured successfully undergo an FDA pre-approval GMP inspection. In addition, the FDC Act 8 requires the FDA either to down-classify preamendments Class III devices to Class I or Class II, or to publish a classification regulation retaining the devices in Class III. Manufacturers of preamendments Class III devices that the FDA retains in Class III must have PMA applications accepted by the FDA for filing within 90 days after the publication of a final regulation in which the FDA calls for PMAs. If the FDA calls for a PMA for a preamendments Class III device, a PMA must be submitted for the device even if the device has already received 510(k) pre-market clearance; however, if the FDA down-classifies a preamendments Class III device to Class I or Class II, a PMA application is not required. The FDA's reclassification determinations are to be based on safety and effectiveness information that manufacturers of certain preamendments Class III devices are required to submit to the FDA as set forth in two FDA orders published in August 1995. With the passage of the Safe Medical Devices Act of 1990, Congress sought to improve the framework to regulate medical devices. Congress recognized that for diseases and conditions affecting small populations, a device manufacturer's research and development costs could exceed its market returns, thereby making development of such devices unattractive. The HUD regulations were created to provide an incentive for development of devices to be used in the treatment of diseases or conditions affecting small numbers of patients. Under HUD regulations, medical devices that provide safe treatment and a reasonable assurance of effectiveness may be made available to small numbers of patients (up to 4,000 patients in the U.S. per year) on more limited clinical experience than that required for a PMA. In addition, under HUD regulations only one product can be approved for each indication. The current regulatory environment in Europe for medical devices differs significantly from that in the United States. There are several different regulatory regimes operating within the different European countries. Regulatory requirements for medical devices range from no regulations in some countries to rigorous regulations approaching the requirements of the FDA's regulations for Class III medical devices. Several countries require that device safety be demonstrated prior to approval for commercialization. The regulatory environment in certain European countries has undergone major changes as a result of the creation of medical device directives by the European Union. In particular, the European Union has promulgated rules which provide that medical products may not be marketed and sold commercially in the countries in the European Economic Area unless they receive a CE mark. The Company's Symphony stent, SNF, Recovery filter and CardioSEAL, and ITC's TroView and SteriCam have received approval for CE Marking. THIRD PARTY REIMBURSEMENT Health care providers in the United States, such as hospitals and physicians, that purchase medical devices such as shunts and stents, generally rely on third party payers, principally Medicare, Medicaid and private health insurance plans, to reimburse all or part of the costs and fees associated with the Company's devices. Major third party payers reimburse inpatient medical treatment, including all operating costs and all furnished items or services, including devices such as the Company's, at a prospectively fixed rate based on the diagnosis-related group ("DRG") that covers such treatment as established by the federal Health Care Financing Administration. For interventional procedures, the fixed rate of reimbursement is based on the procedure or procedures performed and is unrelated to the specific devices used in that procedure. The amount of profit relating to the procedure may be reduced by the use of the Company's devices. If a procedure is not covered by a DRG, certain third party payers may deny reimbursement. Alternatively, a DRG may be assigned that does not reflect the costs associated with the use of the Company's devices, resulting in underreimbursement. If, for any reason, the Company's products were not to be reimbursed by third party payers, the Company's ability to sell its products may be materially adversely affected. Mounting concerns about rising health care costs may cause more restrictive coverage and reimbursement policies to be implemented in the future. Several states and the federal government are investigating a variety of alternatives to reform the health care delivery system and further reduce and control health care spending. These reform efforts include proposals to limit spending on health care items and services, limit coverage for new technology and limit or control directly the price health care providers and drug and device manufacturers may charge for their services and products. The Company believes that domestic health care providers currently are reimbursed for the cost of purchasing the Company's SNF. In the international market, reimbursement by private third party medical insurance providers, including governmental insurers and providers, varies from country to country. In certain countries, the Company's ability to achieve significant market penetration may depend upon the availability of third party governmental reimbursement. The Company's independent distributors, and the health care providers to whom such distributors sell, obtain any necessary reimbursement approvals. PRODUCT LIABILITY AND INSURANCE The Company's business involves the risk of product liability claims. The Company maintains product liability insurance with coverage limits of $1 million per occurrence per policy year and an umbrella policy of $10 million. EMPLOYEES As of December 31, 1999, NMT employed 313 full-time employees and 21 part- time employees. The Company believes it maintains good relations with its employees. 9 ITEM 2. PROPERTIES The Company currently leases an approximately 27,000 square foot manufacturing, laboratory and administrative facility in Boston, Massachusetts. The Company also owns an approximately 80,000 square foot, state-of-the-art plant located in Biot, France, and leases an 11,500 square foot warehousing facility in Deluth, Georgia to house the United States operations, sales and marketing activities of the NMT Neurosciences division. The Company's principal executive offices are located at 27 Wormwood Street, Boston, Massachusetts 02210, and its telephone number is (617) 737-0930. ITEM 3. LEGAL PROCEEDINGS In March 1999, the Company filed a patent infringement suit in the U.S. District Court for Massachusetts against AGA Medical Corp. ("AGA"), claiming that AGA's Amplatzer Septal Occlusion device violates U.S. Patent No. 5,108,420, which is licensed exclusively to the Company. The Company is seeking to prevent further infringement of its patent as well as monetary damages. In April 1999, AGA served its Answer and Counterclaims denying liability and alleging that the Company has engaged in false or misleading advertising and in unfair or deceptive business practices. AGA's counterclaims seek an injunction and an unspecified amount of damages. In May 1999, the Company answered AGA's counterclaims denying liability. The case is currently in the early states of discovery. In papers dated November 24, 1999 Elekta AB (publ) filed a request for arbitration in the London Court of International Arbitration ("LCIA") alleging that the Company breached its payment obligation under the Sale and Purchase Agreement between the parties dated May 8, 1998 pursuant to which the Company purchased certain assets from Elekta. Elekta seeks approximately $1.6 million in damages. On January 14, 2000, the Company filed its response with the LCIA in which the Company denied Elekta's claims and indicated that it would assert a counterclaim for approximately $2.5 million for Elekta's breach of the same contract. On February 17, 2000 an arbitrator was appointed, and a Statement of the Case was sent to the LCIA by Elekta on March 23, 2000. The parties are currently in the pleadings stage. On January 21, 2000, a personal injury suit was filed in the Supreme Court of the State of New York, County of New York by Martin B. Levi, et. al. against Johnson & Johnson, Inc., et. al., including a subsidiary of the Company, claiming damages from placement of a defective Palmaz-Schatz coronary stent during a cardiac catherization procedure. Plaintiffs seek damages in excess of $31 million. The Company has requested that plaintiffs dismiss the Company's subsidiary from the action on the basis that the subsidiary never manufactured and/or distributed the stent product. Other than as described above, the Company has no material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 1999. 10 EXECUTIVE OFFICERS OF THE COMPANY - --------------------------------- The executive officers of the Company and their ages as of April 11, 2000 are as follows:
NAME AGE POSITION ---- --- -------- C. Leonard Gordon 70 Acting President, Chief Executive Officer and Director David A. Chazanovitz 49 President, NMT Neurosciences Division William J. Knight 50 Vice President of Finance and Administration, Chief Financial Officer, Secretary and Treasurer
C. LEONARD GORDON was appointed Acting President and Chief Executive Officer of NMT in April 2000. Mr. Gordon, a co-founder of the Company, served as the Company's Chief Executive Officer and President, from August 1990 to January 1996 and as Chairman of the Board from January 1996 until January 1998. Mr. Gordon has served as a director of the Company since its inception in 1986. Mr. Gordon has been engaged in venture capital enterprises for more than 10 years, particularly in the field of new medical technologies and devices. He was co-founder and Chief Executive Office of (i) Oxigene, Inc. a publicly-traded company engaged in the design and development of drugs and (ii) Biofield Corp., a publicly-traded medical device company that has developed a breast cancer detection system. Mr. Gordon served as Chairman of the Board and Chief Executive Officer of Immunotherapy, Inc., a privately-held biotechnology company and as President and Chief Executive Officer of Vacold LLC, a developmental biotechnology company. DAVID A. CHAZANOVITZ has served as President, NMT Neurosciences Division since July 1998. From January 1996 to July 1998, Mr. Chazanovitz served as President of NMT's Septal Repair Division. Prior to joining the Company, Mr. Chazanovitz served as President and Chief Executive Officer of InnerVentions from April 1995 until January 1996. Mr. Chazanovitz was employed by Bard from 1979 to 1995 in various positions including President of the USCI Angiography Division, Bard Electrophysiology Division and Bard Ventures Division where he was a founder. During his last two and one-half years at Bard, Mr. Chazanovitz had overall responsibility for the septal defect repair program. WILLIAM J. KNIGHT has served as Vice President of Finance and Administration and Chief Financial Officer since September 1998. From August 1996 until September 1998, Mr. Knight held the position of Vice President Administration and Chief Financial Officer of Zoll Medical Corporation, a medical device manufacturer. From September 1989 to February 1996, Mr. Knight was Vice President, Corporate Controller of Analytical Technology, Inc., a manufacturer of scientific instrumentation, which was acquired by ThermoElectron Corporation in December 1995. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Prices and Recent Sales of Unregistered Securities The Company's Common Stock is quoted on the Nasdaq National Market System under the symbol NMTI. There were approximately 100 stockholders of record of the Company's Common Stock on April 7, 2000. The following table lists for the periods indicated the high and low bid prices for the Company's Common Stock.
Period High Low ------ ---- --- 1998 ---- First quarter............ 11 1/8 6 3/4 Second quarter........... 10 1/2 5 1/4 Third quarter............ 7 13/16 2 15/16 Fourth quarter........... 5 5/8 2 1/2 1999 ---- First quarter............ 5 5/8 3 1/4 Second quarter........... 4 1/2 2 3/8 Third quarter............ 7 1/2 1 3/4 Fourth quarter........... 3 1/8 1 3/4
During the fiscal year ended December 31, 1999, the Company issued the following unregistered securities: In April 1999, the Company issued a warrant to purchase 25,000 shares of Common Stock at an exercise price of $3.41 per share, to a noteholder of the Company. The warrants may be exercised at any time and from time to time until February 14, 2001. The warrant contains weighted-average anti-dilution price protection. These securities were offered and issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended. Dividend Policy - --------------- The Company did not declare or pay any cash dividends on shares of its Common Stock during the fiscal years ended December 31, 1998 and December 31, 1999 and does not anticipate declaring or paying cash dividends in the foreseeable future. The Company expects that any earnings which it may realize will be retained for use in its business. 12 ITEM 6. SELECTED FINANCIAL DATA Selected Consolidated Financial Data. The following selected consolidated financial data are derived from the Company's Consolidated Financial Statements, which have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial data set forth below should be read in conjunction with the Consolidated Financial Statements and the Notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the other financial information appearing elsewhere in this Annual Report on Form 10-K.
Year Ended December 31, 1995 1996 1997 1998 1999 -------- --------- --------- --------- ---------- STATEMENT OF OPERATIONS DATA: In thousands, except per share data Revenues: Product sales $ 2,716 $ 4,557 $ 8,565 $ 23,024 $ 32,949 License fees and royalties 625 2,375 1,500 2,029 2,130 Product development 492 92 61 1 -- ------- ------- ------- -------- -------- 3,833 7,024 10,126 25,054 35,079 Expenses: Cost of product sales 1,264 2,387 3,765 10,819 15,215 Research and development 871 2,662 2,974 3,640 4,462 General and administrative 871 2,284 2,873 5,043 9,050 Selling and marketing 169 311 1,010 4,391 8,428 In-process research and development -- 1,111 2,449 4,710 -- Write-down of note receivable from Image Technologies Corporation -- -- -- -- 1,364 Impairment of long-lived asset -- -- -- -- 6,801 Merger and integration charge -- -- -- 687 -- Restructuring charge -- -- 194 -- -- ------- ------- ------- -------- -------- 3,175 8,755 13,265 29,290 45,320 ------- ------- ------- -------- -------- Income(loss) from operations 658 (1,731) (3,139) (4,236) (10,241) Equity in loss of affiliate -- -- -- (437) (489) Currency transaction (loss) gain -- -- (15) (88) 105 Interest income (expense), net (29) 568 1,546 (293) (2,335) ------- ------- ------- -------- -------- Income(loss) before provision for income taxes 628 (1,163) (1,608) (5,054) (12,960) Extraordinary loss on early extinguishment of debt -- -- -- -- (2,618) Provision for income taxes 44 -- 230 745 180 ------- ------- ------- -------- -------- Net gain (loss) from continuing operations 584 (1,163) (1,838) (5,799) (15,758) Net gain (loss) from discontinued operations -- -- -- 2,120 (3,295) ------- ------- ------- -------- -------- Net income(loss) $ 584 $(1,163) $(1,838) $ (3,679) $(19,053) ======= ======= ======= ======== ======== Cash dividends declared per common share $ .03 $ -- $ -- $ -- $ -- ======= ======= ======= ======== ======== Basic income (loss) per share: Continued operations $.16 $(.21) $(.19) $(.57) $(1.47) Discontinued operations -- -- -- .21 (.31) ------- ------- ------- -------- -------- Net income (loss) $.16 $(.21) $(.19) $(.36) $(1.77) ======= ======= ======= ======== ======== Diluted income (loss) per share $.15 $(.21) $(.19) $(.36) $ (1.77) ======= ======= ======= ======== ======== Weighted average common shares outstanding Basic 3,764 6,749 9,596 10,193 10,751 ======= ======= ======= ======== ======== Diluted 3,983 6,749 9,596 10,193 10,751 ======= ======= ======= ======== ========
13
At December 31, 1995 1996 1997 1998 1999 ------- ------- ------- -------- -------- In Thousands BALANCE SHEET DATA: Cash and cash equivalents $ 533 $ 4,082 $ 5,561 4,007 3,533 Short-term investments -- 25,273 20,822 5,114 -- Working capital (deficit) (1,277) 30,301 29,262 17,343 8,765 Total assets 1,661 34,930 35,006 63,715 38,747 Long-term obligations -- 416 612 18,903 14,853 Stockholders' equity (deficit) (844) 33,320 32,772 34,169 14,161
14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements based on our current expectations, assumptions, estimates and projections about the Company and our industry. These forward-looking statements are usually accompanied by words such as "believes," "anticipates," "plans," "expects" and similar expressions. Forward-looking statements involve risks and uncertainties, and our actual results may differ materially from the results anticipated in these forward-looking statements as a result of certain factors, as more fully described in this section under the caption "Certain Factors That May Affect Future Results." OVERVIEW Since its inception in 1986, the Company has focused its efforts of the design, development and commercialization of medical technologies which are delivered by minimally invasive procedures. Products and products under development include septal repair devices, vena cava filters and self-expanding stents. In July 1998, the Company acquired the neurosurgical instruments business ("ENI") of Elekta AB (PUBL) and operated the business as the Company's NMT Neurosciences division. In April 2000, following a decision by the Company's board of directors to discontinue the U.K. operations of its NMT NeuroSciences division, the Company sold certain assets of that division, including the Selector(R) Ultasonic Aspirator, and Ruggles(TM) Surgical instruments products. This sale reflected the Company's strategic decision to refocus its efforts on its core septal repair, filter and stent products. The Company recorded a $3.5 million loss on this sale comprised of proceeds of $12 million, estimated transaction and other costs of $3.7 million and net assets sold of $11.8 million. The transaction costs consisted principally of legal and accounting fees, severance arrangements with certain employees and other estimated costs associated with discontinuing the operation and consummating the sale. The Company's initial product, a vena cava filter system, received FDA clearance in 1990. This product is distributed in the United States and certain other countries by Bard and in other markets outside the United States by Bard International. Both distributors are obligated to make annual minimum purchases. The filter component of the current vena cava filter system is manufactured by Lake Region. The Company currently purchases components of its delivery systems of the vena cava filter system under purchase orders with third party suppliers. Final assembly of the vena cava filter system is done by the Company. In November 1994, the Company entered into an agreement with Boston Scientific pursuant to which Boston Scientific obtained exclusive worldwide rights to develop, manufacture, market and distribute the Company's stent technology and products which incorporate such technology. Under this license agreement, Boston Scientific is responsible for performing clinical trials for stents under development and for reimbursing the Company for stent development costs incurred by the Company. These reimbursements are classified as product development revenues in the Consolidated Statement of Operations. The Company also receives license fees, including milestone payments, royalties based upon product sales and certain manufacturing cost reduction incentive payments from Boston Scientific under the license agreement, which are included in the Company's revenues. See "Results of Operations." Most of the Company's costs associated with its stents are included in research and development expenses. In February 1996, the Company acquired, through the issuance of Common Stock, the rights to develop and commercialize its septal repair device. The Company commenced sales of the CardioSEAL Septal Occluder at the end of September 1996 in connection with clinical trials of the device, and the device has been sold commercially in Europe and other international markets since July 1997. Since September 1999, the FDA has granted approval for use of the CardioSEAL product under HUD regulations for three indications. The Company manufactures this device at its facility in Boston. The Company has agreed to make certain royalty payments to Children's Medical Center Corporation based on net sales of the CardioSEAL Septal Occluder. The Company has also agreed to pay certain royalties to Morris Simon, M.D., the Company's Chief Scientific Director, co-founder and a current Director, and to Beth Israel Hospital, Boston, based on sales of products using the technology invented by Dr. Simon relating to the SNF. In addition, pursuant to the Company's employment agreement with Mr. Stephen J. Kleshinski the Company has agreed to pay certain royalties based on sales or licenses of products where Mr. Kleshinski was the sole or joint inventor. In July, 1998, the Company acquired the neurosurgical instruments business of Elekta AB (PUBL), a Swedish corporation, for approximately U.S. $33 million in cash. In connection with the acquisition, the Company issued a total of 675,000 shares of Common Stock to J.H. Whitney & Co. and to one of its affiliates at a purchase price of $5.80 per share. Jeffrey R. Jay, a director of the Company, is a general partner of J.H. Whitney & Co. and Jeffrey F. Thompson, also a director of the Company, is a Vice President of J.H. Whitney & Co. 15 The acquisition was financed with $13 million of cash, plus approximately $3.1 million of acquisition costs, and a $20 million subordinated note issued to an affiliate of a significant stockholder of the Company. The subordinated note is due September 30, 2003 with quarterly interest payable at 10.101% per annum. The subordinated debt includes certain restrictive covenants relating to maintenance of certain ratios and cash levels. On September 13, 1999, the Company entered into a $10 million senior secured debt facility with a bank, $8 million of the proceeds of which was used to reduce the principal amount of the $20 million subordinated note. The Company also used $6 million of its own cash to further reduce the principal amount of the $20 million subordinated note. The balance outstanding under the subordinated note at December 31, 1999 was approximately $5.2 million. The remaining $2 million of the senior secured debt facility is available to be drawn down by the Company for working capital purposes, as needed. The facility has a term of three years with interest payable monthly at the bank's prime lending rate on U.S. borrowings and an equivalent market rate on foreign currency borrowings. As of December 31, 1999, the Company was not in compliance with certain of the debt covenants contained in both the subordinated note agreement and the senior secured debt agreement. As a result, the Company negotiated a waiver of default with each of these debtholders. Additionally, subsequent to year end, the Company used the proceeds from its sale of the U.K. operations and certain other assets of the NMT Neurosciences division (See Note 3(a) of the Notes to Consolidated Financial Statements in the accompanying financial statements) to reduce the subordinated note payable and the senior secured debt by $500,000 and $7.3 million, respectively. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998 Revenues. Revenues for the year ended December 31, 1999 increased to $35.1 million from $25.1 million for the year ended December 31, 1998. Product sales increased to $32.9 million for the year ended December 31, 1999 from $23.0 million for the year ended December 31, 1998. The increase is primarily attributable to the effect of including a full year's revenues related to the Company's NMT Neurosciences division during 1999 when compared to 1998 as the Company acquired this division on July 8, 1998. Additionally the Company had increased unit sales of vena cava filters and CardioSEAL Septal Occluders in the year ended December 31, 1999 as compared with the year ended December 31, 1998. Finally, in September 1999, the Company received approvals from the FDA for use of the CadioSEAL Septal Occluder under certain HUD regulations which contributed to the increased unit sales of that product during the year ended December 31, 1999. License fees and royalties for the year ended December 31, 1999 amounted to $2.1 million and consist of royalty payments of $1.5 million and cost-sharing payments received from Boston Scientific of approximately $300,000 and patent license payments of approximately $400,000. The Company recorded $2.0 million in license fees and royalties from Boston Scientific related to its stent technology in the year ended December 31, 1998, consisting of $300,000 of milestone payments, $1.5 million of royalty payments, and $200,000 of cost- sharing payments received from Boston Scientific. Cost of Product Sales. Cost of product sales increased to $15.2 million for the year ended December 31, 1999 from $10.8 million for the year ended December 31, 1998. The increase is primarily attributable to the effect of including a full year's cost of sales related to the Company's NMT Neurosciences division during 1999 when compared to the partial year in 1998. Also contributing to this increase were costs attributable to the Company's increased unit sales of vena cava filters and CardioSEAL Septal Occluders in the year ended December 31, 1999 as compared with the year ended December 31, 1998. Cost of product sales, as a percent of product sales, remained relatively consistent at 46% for the year ended December 31, 1999 as compared with 47% for the year ended December 31, 1998. Research and Development. Research and development expense increased to $4.5 million for the year ended December 31, 1999 from $3.6 million for the year ended December 31, 1998. The increase is primarily attributable to the effect of including a full year of research and development expenses related to the Company's NMT Neurosciences division during 1999 when compared to the partial year in 1998. Also contributing to this increase in research and development expense were increased regulatory and clinical trial expenses relating to clinical trials of the CardioSEAL Septal Occluder, as well as for more recent clinical trials related to fenestrated Fontan procedures (FEF), and ventricular septal defects (VSDs) for which the Company received FDA approval under HUD regulations in September 1999. In addition, the Company has had increased activity in the Company's development programs for vena cava filters, including CE Mark approval for its removable vena cava filter in September 1999, and for other products under development. General and Administrative. General and administrative expenses increased to $9.1 million for the year ended December 31, 1999 from $5.0 million for the year ended December 31, 1998. The increase is primarily attributable to the effect of including a full year of general and administrative expenses related to the Company's NMT Neurosciences division during 1999 when compared to the partial year in 1998. In addition, the Company had increased professional fees and travel expenses related to supporting the operations of the Company's NMT Neurosciences division for the full year ended December 31, 1999 as compared to the partial year for the year ended December 31, 1998. 16 Selling and Marketing. Selling and marketing expenses increased to $8.4 million for the year ended December 31, 1999 from $4.4 million for the year ended December 31, 1998 primarily attributable to the effect of including a full year of selling and marketing expenses related to the Company's NMT Neurosciences division during 1999 when compared to the partial year in 1998. During 1998, marketing activities related to the CardioSEAL Septal Occluder relating to clinical trials and the commencement of commercial sales of the CardioSEAL Septal Occluder that began in June 1997 in European and other international markets increased. During 1999, the marketing efforts related to these clinical trials decreased as the trials were coming to completion. However, marketing efforts were increased for new clinical trials relating to fenestrated Fontan procedures (FEF), and ventricular septal defects (VSDs) for which the Company received FDA approval under HUD regulations in September 1999. Write Down of Notes Receivable from Image Technologies Corporation. During the year ended December 31, 1999, the Company performed a detailed review of the ITC operations. Based upon this analysis and discussion with ITC's management and other investors, the Company determined that there was a significant risk that the Company's notes receivable from ITC would not be repaid. The analyses and discussions indicated that at September 30, 1999, (1) ITC had insufficient cash resources to fund its operations, (2) ITC's product revenue had declined during the year ended December 31, 1999 and was significantly below planned levels and (3) ITC was seeking additional capital from numerous sources and that any future financings would likely be dilutive to the Company's equity position and could contain a security interest senior to the Company. Accordingly, the Company charged the carrying value of the notes receivable to operations during the year ended December 31, 1999. Impairment of Long-lived Asset. In connection with the sale of the U.K. operations and certain other assets of its NMT Neurosciences division on April 5, 2000 (See Note 3(a) of the Notes to Consolidated Financial Statements in the accompanying financial statements as of December 31, 1999), the Company recorded at December 31, 1999 a $6.8 million impairment charge for goodwill recorded upon the acquisition of NMT Neurosciences in July 1998. This impairment charge was determined based upon the Company's analysis of estimated cash flows of NMT Neurosciences and the carrying value of all of the long-lived assets of NMT Neurosciences which were not sold in April 2000. The Company's assessment of the value of the assets of NMT Neurosciences was corroborated by independent outside parties. Equity in Net Loss of Image Technologies Corporation. During the year ended December 31, 1999 and 1998, the Company recorded $489,000 and $437,000, respectively, as its equity in the loss of ITC. The carrying value of the note receivable from ITC has been reduced by these amounts and charged to operations during the year ended December 31, 1999. See Note 4 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of December 31, 1999. Interest Expense. Interest expense was $2.8 million for the year ended December 31, 1999 as compared to $1.5 million for the year ended December 31, 1998. The increase was primarily the result of the Company's acquisition of ENI on July 8, 1998 for which the Company borrowed $20 million of subordinated debt, which accrues interest at 10.101% per annum. In addition, the amortization of original issue discount related to the subordinated note of $531,000 and $293,000 for the years ended December 31, 1999 and 1998, respectively, is included in interest expense in the statements of operations. See Note 9 of the Notes to Consolidated Financial Statements in the accompanying Financial Statements as of December 31, 1999. In April 2000, the Company repaid approximately $7.3 million of outstanding debt obligations from proceeds received from the sale of the U.K. operations and certain other assets of the NMT Neurosciences division. Accordingly, the Company expects interest expense to decrease in 2000. The Company did not allocate interest expense associated with the senior secured debt and subordinated notes to discontinued operations. Interest Income. Interest income was $480,000 for the year ended December 31, 1999 as compared to $1.2 million for the year ended December 31, 1998. The decrease was due to the Company's lower cash balances as a result of its financing the acquisition of ENI on July 8, 1998 with cash of $13 million, plus approximately $3.1 million of acquisition costs. Extraordinary Loss on Early Extinguishment of Debt. In connection with the $14 million reduction in September 1999 of its $20 million subordinated note payable to an affiliate of a significant stockholder of the Company (see Note 9 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of December 31, 1999), the Company recorded a $2.6 million extraordinary loss on the early extinguishment of debt in the statement of operations which primarily relates to the accelerated pro-rata write-off of the original issue discount and deferred financing costs of the subordinated note payable. Provision for Income Taxes. The Company had a provision for income taxes of $180,000 for the year ended December 31, 1999 which represents the taxes on income generated in France by NMT Neuroscience. The Company generated a net operating loss for federal and state income tax purposes in the United States in the year ended December 31, 1999. The Company had a provision for income taxes of $745,000 for the year ended December 31, 1998 based on an operating income before the write-off of in-process research and development expenses of $4,710,000, the equity in loss of ITC of $437,145 and other nondeductible items and an estimated effective tax rate of approximately 40%. Loss on Sale of Discontinued Operations. On April 5, 2000, the Company sold the U.K. operations and certain other assets of the NMT Neurosciences division, which consisted primarily of the Selector (R) Ultrasonic Aspirator, Ruggles(TM) Surgical Instruments and cryosurgery product lines, including certain assets and liabilities for $12.0 million in cash. The Company recorded a $3.5 million loss on this sale, comprised of proceeds of $12.0 million less estimated transaction costs of $3.7 million, and net assets sold of $11.8 million. The transaction costs consisted principally of legal and accounting fees, severance arrangements with certain employees and other estimated costs associated with discontinuing the operation and consummating the sale. Consolidated Financial Statements in the accompanying Financial Statements as of 17 December 31, 1999. Included in the loss on sale are the estimated operating results of the discontinued operations for the period from January 1, 2000 to April 1, 2000. The Company has not allocated interest expense to discontinued operations. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997 Revenues. Revenues for the year ended December 31, 1998 increased to $25.1 million from $10.1 million for the year ended December 31, 1997. Product sales increased to $23.0 million for the year ended December 31, 1998 from $8.6 million for the year ended December 31, 1997. The increase is primarily attributable to the effect of including revenues related to the Company's NMT Neurosciences division during 1998 as the Company acquired this division on July 8, 1998. Additionally the increase is attributable to increased unit sales of vena cava filters and CardioSEAL Septal Occluders in the year ended December 31, 1998 as compared with the year ended December 31, 1997. License fees for the year ended December 31, 1998 amounted to $2.0 million and consist of milestone payments of $300,000, royalty payments of $1.5 million and cost-sharing payments received from Boston Scientific of approximately $200,000. The Company recorded $1.5 million in license fees from Boston Scientific related to its stent technology in the year ended December 31, 1997, consisting of $300,000 of milestone payments, $1.0 million of royalty payments, and $200,000 of cost-sharing payments received from Boston Scientific. Cost of Product Sales. Cost of product sales increased to $10.8 million for the year ended December 31, 1998 from $3.8 million for the year ended December 31, 1997. The increase is primarily attributable to the effect of including cost of product sales related to the Company's acquisition of the products comprising NMT Neurosciences division. Additionally, the increase is attributable to increased unit sales of vena cava filters and CardioSEAL Septal Occluders in the year ended December 31, 1998 as compared with the year ended December 31, 1997. Cost of product sales, as a percent of product sales, increased to 47% for the year ended December 31, 1998 from 44% for the year ended December 31, 1997. This increase is due primarily to the inclusion of the cost of sales of products of the Company's acquisition of the products comprising NMT Neurosciences division which have a proportionately higher cost of product sales than do the vena cava filter and the CardioSEAL Septal Occluder. Research and Development. Research and development expense increased to $3.6 million for the year ended December 31, 1998 from $3.0 million for the year ended December 31, 1997. The increase is primarily attributable to the effect of including research and development expenses related to the Company's NMT Neurosciences division during 1998 as the Company acquired this division on July 8, 1998. The increase also reflects increased regulatory and clinical trial expenses relating to clinical trials of the CardioSEAL Septal Occluder that commenced in September 1996, as well as for clinical trials related to the closure of patent foramen ovales (PFO's) and increased activity in the Company's development programs for vena cava filters and other products under development. General and Administrative. General and administrative expenses increased to $5.0 million for the year ended December 31, 1998 from $2.9 million for the year ended December 31, 1997. The increase is primarily attributable to the effect of including research and development expenses related to the Company's acquisition of the products comprising NMT Neurosciences division during 1998 as the Company acquired this division on July 8, 1998. Selling and Marketing. Selling and marketing expenses increased to $4.4 million for the year ended December 31, 1998 from $1.0 million for the year ended December 31, 1997. The increase is primarily attributable to the effect of including selling and marketing expenses related to the Company's acquisition of the products comprising NMT Neurosciences division. The increase is also attributable to increases in marketing activities related to both the CardioSEAL Septal Occluder in connection with clinical trials and the commencement of commercial sales of the CardioSEAL Septal Occluder which began in June 1997 in European and other international markets. Acquired In-Process Research and Development. For the year ended December 31, 1998, the Company recorded $4.7 million of in-process research and development expenses related to the Company's acquisition of ENI. See Note 3(b) of the Notes to Consolidated Financial Statements in the accompanying Financial Statements as of December 31, 1999. On the date of acquisition, ENI's in-process research and development value was comprised of five primary research and development programs that were expected to reach completion between late 1998 and 2000. At the acquisition date, continuing research and development commitments to complete the projects were expected to be approximately an aggregate of $2.0 million through 2000 ($680,000, $888,000, and $383,000 in 1998, 1999, and 2000, respectively). For the year ended December 31, 1997, because of the uncertainty relating to the Company's realization of its investment in ITC, the Company recorded $2.4 million of in-process research and development expenses related to that investment. See Note 4 of the Notes to Consolidated Financial Statements in the accompanying Financial Statements as of December 31, 1999. 18 Merger and Integration Charge. As a result of the acquisition of ENI, the Company reorganized certain of its operations. In connection with this reorganization, the Company recorded merger and integration charges of $687,000 during the year ended December 31, 1998. See Note 6 of Notes to the Consolidated Financial Statements in the accompanying Financial Statements as of December 31, 1999. Restructuring Charge. During the first half of 1997, the Company reorganized its vena cava filter operations and brought the assembly of its straight-line vena cava filters in-house. In connection with this reorganization, the Company recorded a restructuring charge of $194,000 during the year ended December 31, 1997. See Note 5 of Notes to the Consolidated Financial Statements in the accompanying Financial Statements as of December 31, 1999. Equity in Net Loss of Image Technologies Corporation. During the year ended December 31, 1998, the Company recorded $437,000 as its equity in the loss of ITC. The carrying value of the note receivable from ITC has been reduced by the amount of the loss recorded by the Company. See Note 4 of the Notes to Consolidated Financial Statements in the accompanying Financial Statements as of December 31, 1999. Interest Expense. Interest expense was $1.5 million for the year ended December 31, 1998 as compared to $46,000 for the year ended December 31, 1997. The increase was primarily the result of the Company's acquisition of ENI on July 8, 1998 for which the Company borrowed $20 million of subordinated debt, which accrues interest at 10.101% per annum. In addition, the amortization of original issue discount related to the subordinated note of $293,000 for the year ended December 31, 1998 is included in interest expense in the statements of operations. See Note 9 of the Notes to Consolidated Financial Statements in the accompanying Financial Statements as of December 31, 1999 Interest Income. Interest income was $1.2 million for the year ended December 31, 1998 as compared to $1.6 million for the year ended December 31, 1997. The decrease was due to the Company's lower cash balances as a result of its financing the acquisition of ENI on July 8, 1998 with cash of $13 million, plus approximately $3.1 million of acquisition costs. Provision for Income Taxes. The Company had a provision for income taxes of $745,000 for the year ended December 31, 1998 based on an operating income before the $4,710,000 write-off of in-process research and development expenses, the equity in loss of ITC of $437,145 and other nondeductible items and an estimated effective tax rate of approximately 40%. For the year ended December 31, 1997 the Company had a provision for income taxes of $229,500 which reflects the non-deductibility of the in-process research and development expenses of $2,449,000, a portion of the $194,000 restructuring charge recorded in the period then ended, and the utilization of carry-forward net operating losses from previous years. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents and marketable securities equal to $3.5 million at December 31, 1999 as compared to $4.0 million as of December 31, 1998. During year ended December 31, 1999, the Company's operations used cash of approximately $203,000 which consists of approximately $15 million of cash used by operations prior to approximately $14 million of noncash charges and before changes in working capital items. In July 1998, the Company financed a portion of the acquisition of ENI with $16.1 million of the Company's cash and a $20 million subordinated note issued to an affiliate of a significant stockholder of the Company. The subordinated note is due September 30, 2003 with quarterly interest payable at 10.101% per annum, The subordinated debt includes certain covenants relating to maintenance of certain ratios and cash levels. On September 13, 1999, the Company entered into a $10 million senior secured debt facility with a bank, $8 million of the proceeds of which was used to reduce the principal amount of the $20 million subordinated note. The Company also used $6 million of its own cash to further reduce the principal amount of the $20 million subordinated note. The balance outstanding under the subordinated note at December 31, 1999 was approximately $5.2 million. The remaining $2 million of the senior secured debt facility is available to be drawn down by the Company for working capital purposes, as needed. The facility has a term of three years with interest payable monthly at the bank's prime lending rate on U.S. borrowings and an equivalent market rate on foreign currency borrowings. As of December 31, 1999, the Company was not in compliance with certain of the debt covenants contained in both the subordinated note agreement and the senior secured debt agreement. As a result, the Company negotiated a waiver of default with each of these debtholders. Additionally, subsequent to year end, the Company used the proceeds from the sale of the U.K. operations and certain other assets of the NMT Neurosciences division (See Note 3(a) of the Notes to Consolidated Financial Statements in the accompanying financial statements) to reduce the subordinated note payable and the senior secured debt by $500,000 and $7.3 million, respectively. Purchases and capitalized leases of property and equipment for use in the Company's research and development and general and administrative activities amounted to $518,000 for the year ended December 31, 1999. The Company also spent approximately $1.1 million on purchases of property and equipment in 1999 primarily in connection with the Company's implementation of new management information systems, which was financed through capital lease arrangements. Additionally the Company has entered into a finance facility agreement with a bank for borrowings of approximately $475,000 under which borrowings of $428,000 are outstanding as of December 31, 1999. See Note 9(c) of the Notes to Consolidated Financial Statements in the accompanying financial statements. 19 The Company is party to various contractual arrangements including royalty arrangements and employment and consulting agreements with current employees and consultants which are likely to increase as additional agreements are entered into and additional personnel are retained. Subsequent to year-end, Thomas M. Tully, President and Chief Executive Officer, resigned from the Company. The amount of his severance of approximately $300,000 will be charged to operations during the second quarter of 2000. The Company also has committed to purchase certain minimum quantities of the vena cava filter from a supplier through June 2001. See Note 10 of Notes to the Consolidated Financial Statements in the accompanying Financial Statements. All of these arrangements require cash payments by the Company over varying periods of time. Certain of these arrangements are cancelable on short notice and certain require termination or severance payments as part of any early termination. The Company may require additional funds for its research and product development programs, preclinical and clinical testing, operating expenses, regulatory processes, manufacturing and marketing programs and potential licenses and acquisitions. Any additional equity financing may be dilutive to stockholders, and additional debt financing, if available, may involve restrictive covenants. The Company's capital requirements will depend on numerous factors, including the sales of its products, the progress of its research and development programs, the progress of clinical testing, the time and cost involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, developments and changes in the Company's existing research, licensing and other relationships and the terms of any collaborative, licensing and other similar arrangements that the Company may establish. Euro Conversion On January 1, 1999, eleven of the fifteen member countries of the European Union adopted the "euro" as their national currency unit and irrevocably established fixed conversion rates between their existing sovereign currencies and the euro. During the three-year transition period between January 1, 1999 and January 1, 2002, the euro will be a "cashless" currency, existing only as a unit of account. Payments made to accounts in these member states may be made either in the denominated legacy currency unit of the account or in euros. Beginning on January 1, 2002, euro banknotes and coins will be introduced, and legacy currency banknotes and coins will be withdrawn from circulation. No later than July 1, 2002, the euro will be the sole national currency unit in these member states, and the legacy currency banknotes and coins will no longer be accepted as legal tender. The Company conducts a substantial portion of its business within the member countries of the European Union, and accordingly its existing systems are generally capable of accommodating multiple currencies, including the euro. The Company is assessing the potential impact from the euro conversion in a number of areas, including the following: (1) the competitive impact of cross- border price transparency, which may make it more difficult for businesses to charge different prices for the same products on a country-by-country basis; (2) the impact on currency exchange costs and currency exchange rate risk; and (3) the impact on existing contracts. As of December 31, 1999, the impact of the euro conversion has not had a material impact on the operations of the Company. 20 CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS The following important factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by management from time to time. WE HAVE HISTORICALLY FAILED TO MEET COVENANTS IN OUR LOAN AGREEMENTS AND MAY FACE DIFFICULTIES IN MEETING THEM IN THE FUTURE. We financed a significant portion of the acquisition of our neurosurgical instruments business with $20 million of subordinated debt borrowed from an affiliate of J.H. Whitney & Co., one of our significant stockholders. Subsequently, we entered into a $10 million senior secured debt facility with Brown Brothers Harriman & Co. In connection with this refinancing, we negotiated covenants relating to the operation of our business. As of December 31, 1999, we were not in compliance with certain of the debt covenants. In connection with our recent sale of a portion of the neurosurgical instruments business, we obtained a waiver of default from each lender. Although we believe that we will be able to satisfy the covenants as modified, our failure to meet our financial plan could result in our breach of certain of the covenants. If we breach any of these covenants and are not successful in obtaining a waiver, either noteholder could demand immediate repayment of the note. In addition, in the event of a breach of certain of the covenants, the interest rate we owe in connection with the debt may increase. We may seek to refinance this debt. We cannot be certain that we will be able to refinance on terms that are favorable to us or at all. WE MAY FACE DIFFICULTIES IN SATISFYING OUR FUTURE CAPITAL REQUIREMENTS. In the event that we are unable to obtain access to additional capital on terms that are favorable to us or at all, we may fail to meet our financial plan. Moreover, our failure to meet our financial plan could result in our breach of certain debt covenants. Our capital requirements will depend on a number of factors, including: . product sales; . progress of research and development programs and preclinical and clinical testing; . cost and time involved in obtaining regulatory approvals, and cost of filing; prosecuting, defending and enforcing patent claims and other intellectual property rights; and . unanticipated needs for capital, such as, a successful claim for indemnification by the buyer of our neurosurgical instruments business against us under the purchase agreement. WE FACE CHALLENGES IN REFOCUSING OUR BUSINESS STRATEGY. In connection with the commercialization of our CardioSEAL product and the recent sale of a portion of our neurosurgical instruments business, we have had to refocus our business strategy. This refocusing has placed significant demands on management and other resources. Our future success will depend on our ability to manage and implement our refocused business strategy effectively, including by: . developing and improving our operational, financial and other internal systems; . improving our sales and marketing capabilities; and . continuing to train, motivate and manage our employees. WE FACE UNCERTAINTIES WITH RESPECT TO COMMERCIALIZATION, PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE OF OUR PRODUCTS. Before certain of our products can be marketed and sold in the United States, including our CardioSEAL product, we may be required to conduct further research, product development, preclinical and clinical testing and obtain additional governmental regulatory approvals. We cannot be certain that our current products, or products currently under development, will achieve or continue to have market acceptance. Certain of the medical indications that can be treated by our devices can also be treated by surgery, drugs or other medical devices. Currently, the medical community widely accepts many alternative treatments, and these other treatments have a long history of use. We cannot be certain that our devices and procedures will be able to replace such established treatments or that either physicians or the medical community, in general, will accept and utilize our devices or any other medical products that we may develop. In addition, our future success depends, in part, on our ability to develop additional products. Even if we determine that a product candidate has medical benefits, the cost of commercializing that product candidate may be too high to justify development. In addition, competitors may develop products that are more effective, cost less or are ready for commercial introduction before our products. If we are unable to develop additional, commercially viable products, our future prospects will be limited. 21 WE MAY BE UNABLE TO COMPETE SUCCESSFULLY BECAUSE OF INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY. The medical device industry is characterized by rapidly evolving technology and intense competition. Existing and future products, therapies, technological approaches and delivery systems will continue to compete directly with our products. Many of our competitors have substantially greater capital resources, greater research and development, manufacturing and marketing resources and experience and greater name recognition than we do. In addition, new surgical procedures and medications could be developed that replace or reduce the importance of current or future procedures that utilize our products. As a result, any products that we develop may become obsolete before we recover any expenses incurred in connection with development of these products. OUR FUTURE SUCCESS MAY DEPEND IN PART UPON MAINTENANCE OF BUSINESS RELATIONSHIPS WITH COLLABORATORS. We have entered into distribution agreements with Bard Radiology and Bard International granting them exclusive distribution rights to our SNF, and into a license agreement with Boston Scientific granting Boston Scientific exclusive worldwide rights to develop, manufacture, market and distribute our stent technology, along with products incorporating such technology. Although Bard Radiology and Bard International have agreed not to sell competing filters, Boston Scientific is not prohibited from selling other stents and, in fact, manufactures and licenses from others a variety of stents that may compete with our stents. Boston Scientific may choose to emphasize such other stents in its developmental and marketing efforts. We cannot be certain that our arrangements will be renewed or that our existing relationships with Bard Radiology, Bard International or Boston Scientific will continue in their current form. Our business could be materially adversely affected if these arrangements prove unsuccessful or if these companies terminate their arrangements with us, negotiate lower prices, sell additional competing products, whether manufactured by themselves or others, or otherwise alter the nature of their relationships with us. OUR LIMITED MANUFACTURING HISTORY, DEPENDENCE ON THIRD PARTY MANUFACTURERS AND THE POSSIBILITY OF NON-COMPLIANCE WITH MANUFACTURING REGULATIONS RAISE UNCERTAINTIES WITH RESPECT TO OUR ABILITY TO COMMERCIALIZE FUTURE PRODUCTS. We use third parties to manufacture and distribute certain of our products. If our third party manufacturers experience delays or difficulties in producing, packaging or distributing our products, market introduction and subsequent sales of such products would be adversely affected, and we might have to seek alternative sources of supply. We cannot be certain that we will be able to enter into alternative supply arrangements at commercially acceptable rates, if at all. If we are unable to obtain or retain third party manufacturers on commercially acceptable terms, we may not be able to commercialize medical products as planned. The FDA and other regulatory authorities require that our products be manufactured according to rigorous standards including, but not limited to, Good Manufacturing Practice and ISO 9000. These regulatory requirements may significantly increase our production or purchasing costs and may even prevent us from making or obtaining our products in amounts sufficient to meet market demand. If we, or a third party manufacturer, change our approved manufacturing process, the FDA will require a new approval before that process could be used. Failure to develop our manufacturing capabilities may mean that even if we develop promising new products, we may not be able to produce them profitably, as a result of delays and additional capital investment costs. WE MAY BE UNABLE TO SUCCESSFULLY MARKET OUR PRODUCTS DUE TO LIMITED MARKETING AND SALES EXPERIENCE. Our neurosurgical implants and septal repair devices are generally marketed directly through our direct sales force. Because we have marketed our older products through third parties, we have limited experience marketing our products. In order to market directly the CardioSEAL Septal Occluder and any related products, we will have to develop a marketing and sales organization with technical expertise and distribution capabilities. WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS. Our success will depend, in part, on our ability to obtain patents, maintain trade secret protection and operate without infringing on the proprietary rights of third parties. We cannot be certain that: . any pending patent applications or any future patent application will result in issued patents; . the scope of any patent protection will exclude competitors or provide competitive advantages to us; . any of our patents will be held valid if subsequently challenged; or . others will not claim rights in or ownership of the patents and other proprietary rights held by us. Furthermore, we cannot be certain that others have not or will not develop similar products, duplicate any of our products or design around any patents issued or that may be issued in the future to us or to our licensors. Whether or not patents are issued to us or to our licensors, others may hold or receive patents which contain claims having a scope that covers products developed by us. We could incur substantial costs in defending any patent infringement suits or in asserting any patent rights, including those granted by 22 third parties. In addition, we may be required to obtain licenses to patents or proprietary rights from third parties. There can be no assurance that such licenses will be available on acceptable terms, if at all. AS A RESULT OF GOVERNMENT REGULATIONS, WE MAY EXPERIENCE LOWER SALES AND EARNINGS. The manufacture and sale of medical devices intended for commercial distribution are subject to extensive governmental regulations in the United States. Medical devices generally require pre-market clearance or pre-market approval prior to commercial distribution. Certain material changes or modifications to medical devices are also subject to regulatory review and clearance or approval. The regulatory approval process is expensive, uncertain and lengthy. If granted, the approval may include significant limitations on the indicated uses for which a product may be marketed. In addition, any products that we manufacture or distribute are subject to continuing regulation by the FDA. We cannot be certain that we will be able to obtain necessary regulatory approvals or clearances for our products on a timely basis or at all. The occurrence of any of the following events could have a material adverse effect on our business, financial condition and results of operations: . delays in receipt of, or failure to receive, regulatory approvals or clearances; . the loss of previously received approvals or clearances; . limitations on the intended use of a device imposed as a condition of regulatory approvals or clearances; or . our failure to comply with existing or future regulatory requirements. In addition, sales of medical device products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Failure to comply with foreign regulatory requirements also could have a material adverse effect on our business, financial condition and results of operations. WE FACE UNCERTAINTIES WITH RESPECT TO THE AVAILABILITY OF THIRD PARTY REIMBURSEMENT. In the United States, Medicare, Medicaid and other government insurance programs, as well as private insurance reimbursement programs, greatly affect revenues for suppliers of health care products and services. Such third party payors may affect the pricing or relative attractiveness of our products by regulating the maximum amount, if any, of reimbursement which they provide to the physicians and clinics using our devices, or any other products that we may develop. If, for any reason, the third party payors decided not to provide reimbursement for our products, this would materially adversely affect our ability to sell our products. Moreover, mounting concerns about rising health care costs may cause the government or private insurers to implement more restrictive coverage and reimbursement policies in the future. In the international market, reimbursement by private third party medical insurance providers and by governmental insurers and providers varies from country to country. In certain countries, our ability to achieve significant market penetration may depend upon the availability of third party governmental reimbursement. WE MAY NOT HAVE SUCCESSFULLY REDESIGNED THE CLAMSHELL SEPTAL REPAIR DEVICE. Between 1989 and 1991, Bard sponsored trials of an earlier version of the septal repair device, known as the Clamshell. In 1991, Bard discovered fractures of the stainless steel framework in certain of the devices implanted during such clinical trials and, following such discovery, suspended its clinical trials worldwide except for patients whose status of being at high risk for surgery made their use of the Clamshell particularly necessary. We determined that the fractures were caused by "metal fatigue", resulting from higher than anticipated forces acting on the Clamshell. Our redesign efforts resulted in the design of the current version of the septal repair device. Although the CardioSEAL Septal Occluder has undergone in vitro testing and has obtained limited humanitarian use designation by the FDA, we cannot be certain that such testing accurately simulates the actual forces in the human body or that similar fractures will not occur with the CardioSEAL Septal Occluder. If such fractures occur with adverse clinical consequences, our efforts to commercialize the CardioSEAL Septal Occluder may be significantly delayed, as we may be required to invest significant resources in further design and engineering of the device, or we may even have to discontinue development efforts. PRODUCT LIABILITY CLAIMS, PRODUCT RECALLS AND UNINSURED OR UNDERINSURED LIABILITIES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. The testing, marketing and sale of implantable devices and materials carry an inherent risk that users will assert product liability claims against us or our third party distributors. In these lawsuits, users might allege that their use of our devices had adverse effects on their health. A product liability claim or a product recall could have a material adverse effect on our business, financial condition and results of operations. Certain of our devices are designed to be used in life-threatening situations where there is a high risk of serious injury or death. Although we currently maintain limited product liability insurance coverage, we cannot be certain that in the future we will be able to maintain such coverage on acceptable terms or that current insurance or insurance subsequently obtained will provide adequate coverage against any or all potential claims. Furthermore, we cannot be certain that we will avoid significant product liability claims and the attendant adverse publicity. Any product liability claim or other claim with respect to 23 uninsured or underinsured liabilities could have a material adverse effect on our business, financial condition, and results of operations. INTENSE INDUSTRY COMPETITION FOR QUALIFIED EMPLOYEES THREATENS OUR ABILITY TO ATTRACT AND RETAIN NECESSARY, QUALIFIED PERSONNEL. In the medical device field, there is intense competition for qualified personnel, and we cannot be assured that we will be able to continue to attract and retain the qualified personnel necessary for the development of our business. Both the loss of the services of existing personnel as well as the failure to recruit additional qualified scientific, technical and managerial personnel in a timely manner would be detrimental to our anticipated growth and expansion into areas and activities requiring additional expertise such as marketing. The failure to attract and retain such personnel could adversely affect the our business. ITEM 7A. QUANTATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Company is subject to market risk in the form of interest rate risk and foreign currency risk. Interest rate risk is immaterial to the Company. As an international concern, the Company faces exposure to adverse movements in foreign currency exchange rates. These exposures may change over time and could have a material adverse impact on the Company's financial condition and results of operations. The Company's most significant foreign currency exposures relate to the United Kingdom and France, as a result of its manufacturing activities and assets in those countries. The accounts of the Company's foreign subsidiaries are translated in accordance with SFAS No. 52, Foreign Currency Translation. In translating the accounts of the foreign subsidiaries into U.S. dollars, assets and liabilities are translated at the rate of exchange in effect at the end of each reporting period, while stockholders' equity is translated at historical rates. Revenue and expense accounts are translated using the weighted average exchange rate in effect during the year. The Company's foreign currency transaction gains or losses are included in the accompanying consolidated statements of operations and amounted to a foreign currency transaction gain of $105,000 for the year ended December 31, 1999 as compared with a foreign currency transaction loss of $88,000 for the year ended December 31, 1998. The Company records the effects of changes in balance sheet items (i.e., cumulative foreign currency translation gains and losses) as a component of consolidated stockholders' equity. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. All financial statements required to be filed hereunder are filed as Appendix A hereto, are listed under Item 14(a) and are incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 24 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The response to this Item is contained in part under the caption "Executive Officers of the Company" in Part I of this Annual Report on Form 10-K and in part in the Company's Proxy Statement for the 2000 Annual Meeting of Stockholders to be held on June 1, 2000 (the "2000 Proxy Statement") under the caption "Proposal 1 -- Election of Directors," which section is incorporated herein by this reference. Officers are elected on an annual basis and serve at the discretion of the Board. The information required by this Item regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is contained in the 2000 Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION The response to this Item is contained in the 2000 Proxy Statement under the caption "Proposal 1 -- Election of Directors," which section is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The response to this Item is contained in the 2000 Proxy Statement under the caption "Stock Ownership of Certain Beneficial Owners and Management," which section is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The response to this Item is contained in the 2000 Proxy Statement under the caption "Certain Transactions," which section is incorporated herein by this reference. 25 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements. The following documents are filed as Appendix A -------------------- hereto and are included as part of this Annual Report on Form 10-K: Financial Statements of NMT Medical, Inc.: Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 1999 and 1998 Consolidated Statements of Operations for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to Consolidated Financial Statements (b) Financial Statement Schedules. The Company is not filing any financial ----------------------------- statement schedules as part of this Annual Report on Form 10-K because such schedules are either not applicable or the required information is included in the financial statements or notes thereto. (c) Exhibits. The exhibits filed as part of this Annual Report on -------- Form 10-K are listed in the Exhibit Index immediately preceding such exhibits, and are incorporated herein by this reference. The Company has identified with asterisks in the Exhibit Index each management contract and compensation plan filed as an exhibit to this Annual Report on Form 10-K in response to Item 14(c) of Form 10-K. (d) Reports on Form 8-K. The Company did not file any Reports on Form 8-K ------------------- during the fiscal quarter ended December 31, 1999. 26 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NMT MEDICAL, INC. By: /s/ C. Leonard Gordon ____________________________________________ C. Leonard Gordon Acting President and Chief Executive Officer Dated: April 13, 2000 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE /s/ C. Leonard Gordon Acting President and Chief Executive April 13, 2000 ______________________ Officer and Director (Principal C. Leonard Gordon Executive Officer) /s William J. Knight Vice President of Finance and April 13, 2000 ______________________ Administration and Chief William J. Knight Financial Officer (Principal Financial and Accounting Officer) /s/ R. John Fletcher Director April 13, 2000 ______________________ R. John Fletcher /s/ Jeffrey R. Jay, M.D. Director April 13, 2000 ______________________ Jeffrey R. Jay, M.D. /s/ Morris Simon, M.D. Director April 13, 2000 ______________________ Morris Simon, M.D. /s/ Robert A. Van Tassel, M.D. _______________________ Director April 13, 2000 Robert A. Van Tassel, M.D. /s/ Jeffrey F. Thompson Director April 13, 2000 _______________________ Jeffrey F. Thompson
Appendix A ---------- NMT MEDICAL, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS NMT MEDICAL, INC. AND SUBSIDIARIES: Report of Independent Public Accountants................................... A-2 Consolidated Balance Sheets as of December 31, 1999 and 1998............... A-3 Consolidated Statements of Operations for the Years Ended December 31, 1999, 1998, and 1997.................................................. A-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1999, 1998, and 1997..................................... A-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997.................................................. A-6 Notes to Consolidated Financial Statements................................. A-7
A-1 Report of Independent Public Accountants To NMT Medical, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of NMT Medical, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1999 and 1998 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NMT Medical, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Boston, Massachusetts April 5, 2000 A-2 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
At December 31, ------------------------ 1999 1998 ---- ---- Current assets: Cash and cash equivalents $ 3,533,475 $ 4,007,014 Marketable securities -- 5,113,537 Accounts receivable, net of allowances for doubtful accounts of $913,000 and $871,000 in 1999 and 1998, respectively 7,900,099 10,273,861 Inventories 4,634,348 5,283,432 Prepaid expenses and other current assets 2,429,016 3,308,610 ------------ ----------- Total current assets 18,496,938 27,986,454 ------------ ----------- Property, plant and equipment, at cost: Land and Buildings 4,650,000 4,650,000 Leasehold improvements 3,154,763 3,469,063 Laboratory and computer equipment 2,583,691 2,209,252 Equipment under capital lease 2,258,982 1,144,982 Office furniture and equipment 893,199 1,203,953 ------------ ----------- 13,540,635 12,677,250 Less--Accumulated depreciation and amortization 2,522,588 939,102 ------------ ----------- 11,018,047 11,738,148 ------------ ----------- Long-term investments in marketable securities -- 1,009,401 Notes receivable from Image Technologies Corporation -- 1,600,898 Goodwill and other intangible assets -- 6,975,010 Other assets 839,733 1,128,218 Net assets from discontinued operations 8,392,448 13,277,000 ------------ ----------- $ 38,747,166 $63,715,129 ============ =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 4,100,081 $ 6,226,190 Accrued expenses 4,629,366 4,215,500 Current portion of long-term debt obligations 1,002,877 202,248 ------------ ----------- Total current liabilities 9,732,324 10,643,938 ------------ ----------- Long-term debt obligations, net of current portion 13,570,355 17,544,743 Deferred tax liability 1,283,008 1,357,808 Commitments (Note 10) Stockholders' equity: Preferred stock, $.001 par value-- Authorized--3,000,000 shares Issued and outstanding--none -- -- Common stock, $.001 par value-- Authorized--30,000,000 shares Issued and outstanding--10,783,278 and 10,680,117 shares in 1999 and 1998, respectively 10,784 10,681 Additional paid-in capital 41,439,959 40,999,277 Cumulative translation adjustment (708,253) 687,000 Accumulated deficit (26,581,011) (7,528,318) ------------ ----------- Total stockholders' equity 14,161,479 34,168,640 ------------ ----------- $ 38,747,166 $63,715,129 ============ ===========
The accompanying Notes are an integral part of these Consolidated Financial Statements. A-3 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------------------- 1999 1998 1997 ---- ---- ---- Revenues: Product sales $ 32,948,584 $23,023,287 $ 8,564,810 License fees and royalties 2,130,539 2,028,973 1,500,000 Product development 245 1,453 60,898 ------------ ----------- ----------- 35,079,368 25,053,713 10,125,708 ------------ ----------- ----------- Expenses: Cost of product sales 15,215,081 10,819,003 3,765,235 Research and development 4,462,359 3,639,728 2,973,755 General and administrative 9,050,244 5,043,872 2,873,477 Selling and marketing 8,427,357 4,390,739 1,010,123 Write-down of note receivable from Image Technologies Corporation 1,364,369 -- -- Impairment of long-lived asset 6,801,000 -- -- Acquired in-process research and development -- 4,710,000 2,449,071 Merger and integration charge -- 687,242 -- Restructuring charge -- -- 193,636 ------------ ----------- ----------- 45,320,410 29,290,584 13,265,297 ------------ ----------- ----------- Loss from operations (10,241,042) (4,236,871) (3,139,589) Equity in net loss of Image Technologies Corporation (488,529) (437,145) -- Currency transaction gain (loss) 104,625 (87,596) (14,672) Interest expense (2,814,211) (1,461,346) (46,152) Interest income 479,617 1,168,056 1,591,922 ------------ ----------- ----------- (2,718,498) (818,031) 1,531,098 ------------ ----------- ----------- Loss before provision for income taxes (12,959,540) (5,054,902) (1,608,491) Extraordinary loss on early extinguishment of debt (2,618,428) -- -- Provision for income taxes 180,000 744,538 229,500 ------------ ----------- ----------- Net loss from continuing operations (15,757,968) (5,799,440) (1,837,991) ------------ ----------- ----------- Discontinued Operations: Net income from discontinued operations, net of income taxes of $265,000 and $142,000 during the years ended December 31, 1999 and 1998, respectively 236,827 2,120,000 -- Loss on sale of discontinued operations (3,531,552) -- -- ------------ ----------- ----------- Net (loss) gain from discontinued operations (3,294,725) 2,120,000 -- ------------ ----------- ----------- Net Loss $(19,052,693) $(3,679,440) $(1,837,991) ============ =========== =========== Basic and diluted net (loss) gain per common share: Continuing operations $(1.47) $(.57) $(.19) Discontinued operations (.31) .21 -- ------------ ----------- ----------- Net loss $(1.77) $(.36) $(.19) ============ =========== =========== Basic and diluted weighted average common shares outstanding 10,751,070 10,192,663 9,595,969 ============ =========== ===========
The accompanying Notes are an integral part of these Consolidated Financial Statements. A-4 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Convertible Preferred Stock Common Stock -------------------- --------------------- Additional Number $.001 Number $.001 Paid-in Accumulated of Shares Par Value of Shares Par Value Capital Deficit --------- --------- --------- --------- ------- ------- Balance, January 1, 1997 -- $ -- 9,435,922 $ 9,437 $35,321,821 $ (2,010,887) Exercise of common stock options -- -- 322,485 322 535,706 -- Exercise of warrants -- -- 64,779 65 275,894 -- Compensation relating to acceleration of vesting of common stock options -- -- -- -- 111,576 -- Tax benefit related to exercise of common stock options -- -- -- -- 366,000 -- Net loss -- -- -- -- -- (1,837,991) --------- --------- ---------- ------- ----------- ------------ Total comprehensive loss Balance, December 31, 1997 -- -- 9,823,186 9,824 36,610,997 (3,848,878) Common stock issued under the employee stock purchase plan -- -- 11,972 12 69,221 -- Common stock issued as a finders' fee in connection with the acquisition of Elekta Neurosurgical Instruments -- -- 113,793 114 659,885 -- Common stock issued for original issue discount on subordinated debt -- -- 561,207 561 3,254,440 -- Exercise of common stock options -- -- 169,959 170 303,055 -- Compensation relating to acceleration of vesting of common stock options -- -- -- -- 11,679 -- Cumulative translation adjustment -- -- -- -- -- -- Tax benefit related to exercise of common stock options -- -- -- -- 90,000 -- Net loss -- -- -- -- -- (3,679,440) --------- --------- ---------- ------- ----------- ------------ Total comprehensive loss Balance, December 31, 1998 -- -- 10,680,117 10,681 40,999,277 (7,528,318) Common stock issued under the employee stock purchase plan -- -- 22,461 22 59,104 -- Common stock warrants issued in connection with debt waivers -- -- -- -- 128,600 -- Exercise of common stock options -- -- 80,700 81 106,978 -- Compensation expense related to nonemployee stock options -- -- -- -- 146,000 -- Cumulative translation adjustment -- -- -- -- -- -- Net loss -- -- -- -- -- (19,052,693) --------- --------- ---------- ------- ----------- ------------ Total comprehensive loss Balance, December 31, 1999 -- $ -- 10,783,278 $10,784 $41,439,959 $(26,581,011) ========= ========= ========== ======= =========== ============
Consolidated Statements of Stockholders' Equity - (continued)
Cumulative Total Translation Stockholders' Comprehensive Adjustment Equity Loss ---------- ------ ---- Balance, January 1, 1997 $ -- $ 33,320,371 $ -- Exercise of common stock options -- 536,028 -- Exercise of warrants -- 275,959 -- Compensation relating to acceleration of vesting of common stock options -- 111,576 -- Tax benefit related to exercise of common stock options -- 366,000 -- Net loss -- (1,837,991) (1,837,991) ----------- ------------ ------------ Total comprehensive loss (1,837,991) ============ Balance, December 31, 1997 -- 32,771,943 -- Common stock issued under the employee stock purchase plan -- 69,233 -- Common stock issued as a finders' fee in connection with the acquisition of Elekta Neurosurgical Instruments -- 659,999 -- Common stock issued for origninal issue discount on subordinated debt -- 3,255,001 -- Exercise of common stock options -- 303,225 -- Compensation relating to acceleration of vesting of common stock options -- 11,679 -- Cumulative translation adjustment 687,000 687,000 687,000 Tax benefit related to exercise of common stock options -- 90,000 -- Net loss -- (3,679,440) (3,679,440) ----------- ------------ ------------ Total comprehensive loss (2,992,440) ============ Balance, December 31, 1998 687,000 34,168,640 Common stock issued under the employee stock purchase plan -- 59,126 -- Common stock warrants issued in connection with debt waivers -- 128,600 -- Exercise of common stock options -- 107,059 -- Compensation expense related to extension of stock options vesting -- 146,000 -- Cumulative translation adjustment (1,395,253) (1,395,253) (1,395,253) Net loss -- (19,052,693) (19,052,693) ----------- ------------ ------------ Total comprehensive loss $(20,447,946) ============ Balance, December 31, 1999 $ (708,253) $ 14,161,479 =========== ============
The accompanying Notes are an integral part of these Consolidated Financial Statements. A-5 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------- 1999 1998 1997 ---- ---- ---- Cash flows from operating activities: Net loss $(19,052,693) $ (3,679,440) $(1,837,991) Net (gain) loss from discontinued operations 3,294,725 (2,120,000) -- ------------ ------------ ----------- Net loss from continuing operations $(15,757,968) $ (5,799,440) $(1,837,991) Adjustments to reconcile net loss to net cash provided by (used in) operating activities-- Acquired in-process research and development -- 4,710,000 2,449,071 Noncash warrant issuance 128,600 -- -- Equity in loss of Image Technologies Corporation 488,529 437,145 -- Expense recorded on acceleration and extension of stock options vesting 146,000 11,679 111,576 Depreciation and amortization 2,067,395 1,391,088 461,141 Noncash tax provision 180,000 674,000 -- Noncash interest expense relating to original issue discount 531,264 215,490 -- Noncash interest expense relating to early extinguishment of debt 2,358,970 -- -- Write-down of note receivable from Image Technologies Corporation 1,364,369 -- -- Impairment of long-lived asset 6,801,000 -- -- Increase in accounts receivable reserves 42,000 596,000 -- Deferred tax benefit (74,800) (1,019,692) -- Changes in assets and liabilities-- Accounts receivable 2,078,314 (2,582,685) (1,535,178) Inventories 579,357 2,745,588 (325,288) Prepaid expenses and other current assets 794,478 700,406 (500,254) Accounts payable (1,821,804) (1,046,530) (254,176) Accrued expenses (109,147) 2,714,238 673,966 Deferred revenue -- (300,000) 300,000 ------------ ------------ ----------- Net cash (used in) provided by continuing operations (203,443) 3,447,287 (457,133) ------------ ------------ ----------- Net cash used in discontinued operations 1,589,828 (4,654,000) -- ------------ ------------ ----------- Cash flows from investing activities: Maturities (purchases) of marketable securities and long-term investments 6,122,938 16,167,143 4,056,855 Purchases of property, plant and equipment (518,000) (193,432) (272,380) Increase in other assets (497,213) (636,238) (81,855) Increase in investment in Image Technologies Corporation -- (2,038,043) -- Cash paid for acquisition of Image Technologies Corporation, net of cash acquired -- -- (2,449,071) Cash paid for acquisition of Elekta Neurosurgical Instruments, net of cash acquired -- (32,721,076) -- ------------ ------------ ----------- Net cash provided by (used in) investing activities 5,107,725 (19,421,646) 1,253,549 ------------ ------------ ----------- Cash flows from financing activities: Proceeds from issuance of common stock 107,059 303,225 811,986 Proceeds from issuance of common stock pursuant to employee stock purchase plan 59,126 69,233 -- (Payments of)/proceeds from subordinated notes payable (14,000,000) 20,000,000 -- Borrowings under financing arrangements 428,000 -- -- Proceeds from secured notes payable, net 7,279,134 -- -- Cash paid for deferred financing costs -- (852,849) -- Payments of bank debt -- (523,000) -- Payments of capital lease obligations (252,816) (190,519) (129,443) ------------ ------------ ----------- Net cash (used in) provided by financing activities (6,379,497) 18,806,090 682,543 ------------ ------------ ----------- Effect of exchange rate changes on cash (588,152) 267,838 -- Net (decrease) increase in cash and cash equivalents (473,539) (1,554,431) 1,478,959 Cash and cash equivalents, beginning of period 4,007,014 5,561,445 4,082,486 ------------ ------------ ----------- Cash and cash equivalents, end of period $ 3,533,475 $ 4,007,014 $ 5,561,445 ============ ============ ===========
The accompanying Notes are an integral part of these Consolidated Financial Statements. A-6 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) OPERATIONS NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) (the Company) designs, develops and markets innovative medical devices that utilize advanced technologies and are delivered by minimally invasive procedures. The Company's products are designed to offer alternative approaches to existing complex treatments, thereby reducing patient trauma, shortening procedure, hospitalization and recovery times and lowering overall treatment costs. The Company's patented medical devices include self-expanding stents, vena cava filters and septal repair devices (the CardioSeal Septal Occluder). The Company's stents have been commercially launched in Europe and in the United States (U.S.) for certain indications, its vena cava filters are marketed in the U.S. and abroad and the CardioSEAL Septal Occluder is sold commercially in the U.S. for certain humanitarian uses only, and in Europe and other international markets. Through its NMT Neurosciences division, the Company develops, manufactures, markets and sells specialty implants and instruments for neurosurgery including cerebral spinal fluid shunts, the Spetzler Titanium Aneurysm Clip and endoscopes and instrumentation for minimally invasive surgery. On April 5, 2000, the Company sold the U.K. operations of its NMT Neurosciences division including the Selector Ultrasonic Aspirator, Ruggles Surgical Instruments and cryosurgery product lines, including certain assets and liabilities, for approximately $12.0 million cash (see Note 3(a)). The results of these discontinued operations have been included in the accompanying financial statements for the years ended December 31, 1999 and 1998. As of December 31, 1999, the Company was not in compliance with certain of the debt covenants contained in both the subordinated note agreement and the senior secured debt agreement discussed in Notes 9(a) and 9(b). The Company obtained a waiver of default with each of these debtholders and also subsequently paid down approximately $7.8 million of this debt from the proceeds of the sale of the U.K. operations of NMT Neurosciences. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. A-7 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (b) Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting periods and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. (c) Cash and Cash Equivalents, Marketable Securities and Long-Term Investments in Marketable Securities The Company considers all investments with maturities of 90 days or less from the date of purchase to be cash equivalents and all investments with original maturity dates greater than 90 days to be marketable securities. Marketable securities are classified as current or long-term based on their remaining maturity as of the balance sheet date. In accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company has classified certain of its marketable securities as held-to- maturity and available-for-sale and its long-term investments in marketable securities as held-to-maturity. Held-to-maturity securities represent those securities for which the Company has the intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities represent those securities that do not meet the classification of held-to- maturity, are not actively traded and are reported at fair market value with unrealized gains and losses included in stockholders' equity. There were no unrealized gains or losses as of December 31, 1999 or 1998. Cash and cash equivalents, which are carried at cost and approximate market, consist of cash and money market accounts. A-8 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (c) Cash and Cash Equivalents, Marketable Securities and Long-Term Investments in Marketable Securities--(continued) Marketable securities, with a weighted average maturity of approximately 7 1/2 months at December 31, 1998, consist of the following:
AT DECEMBER 31, ------------------------- 1999 1998 ---- ---- Held-to-maturity-- Eurodollar bonds $ -- $3,310,627 Corporate debt securities -- 502,063 Medium term notes -- 500,847 Commercial paper -- -- Zero coupon bonds -- -- ---------- ---------- -- 4,313,537 Available-for-sale-- Taxable auction securities -- 800,000 ---------- ---------- $ -- $5,113,537 ---------- ==========
There were no realized gains or losses on the sale of available-for-sale securities during 1999 and 1998. Long-term investments in marketable securities, with a weighted average maturity of approximately 15 months at December 31, 1998, are carried at cost, which approximates market, and consist of the following:
AT DECEMBER 31, ------------------------- 1999 1998 ---- ---- Held-to-maturity-- Medium-term notes $ -- $1,009,401 Corporate debt securities -- -- ---------- ---------- $ -- $1,009,401 ---------- ==========
A-9 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (c) Cash and Cash Equivalents, Marketable Securities and Long-Term Investments in Marketable Securities--(continued) In addition, the following amounts of interest receivable generated from the Company's cash and cash equivalents, marketable securities, and long-term investments in marketable securities are included in prepaid expenses and other current assets in the accompanying consolidated balance sheets:
AT DECEMBER 31, 1999 1998 --------------------- ------------------- Short-term interest receivable $ -- $117,687 Long-term interest receivable -- 12,985 ----- -------- $ -- $130,672 ----- ========
(d) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
AT DECEMBER 31, 1999 1998 ------------------ ----------------- Components $2,379,474 $2,617,848 Finished goods 2,254,874 2,665,584 ---------- ---------- $4,634,348 $5,283,432 ========== ==========
Finished goods consist of materials, labor and manufacturing overhead. (e) Financial Instruments SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of an estimate of the fair value of certain financial instruments. The Company's financial instruments consist of cash and cash equivalents, marketable securities, long-term investments in marketable securities, accounts receivable and debt obligations. The estimated fair value of these financial instruments approximates their carrying value at December 31, 1999 and 1998, respectively. The estimated fair values have been determined through information obtained from market sources and management estimates. A-10 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (e) Financial Instrument--(continued) The Company does not have any material derivative or any other financial instruments as defined by SFAS No. 119, Disclosure About Derivative Financial Instruments and Fair Value of Financial Instruments. (f) Concentration of Credit Risk SFAS No. 105, Disclosure of Information about Financial Instruments with Off- Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. Financial instruments that subject the Company to credit risk consist primarily of trade accounts receivable. Accounts receivable subject the Company to the potential for credit risk with customers in the health care industry. The Company performs ongoing credit evaluations of its customers' financial condition but does not require collateral. Historically, the Company has not experienced significant losses related to its accounts receivable. The Company utilizes primarily one distributor for the sales of its filter products. This distributor had amounts due to the Company of approximately $748,000 and $992,000 as of December 31, 1999 and 1998, respectively. This distributor accounted for 26%, 33%, and 65% of product revenues for fiscal 1999, 1998 and 1997, respectively. The Company also had one customer whose revenues accounted for 12% and 10% of product revenues for fiscal 1999 and 1998. This customer's accounts receivable balance represented 5% and 8%, respectively of total accounts receivable for the years ended December 31, 1999 and 1998. The Company has a number of accounts receivable denominated in foreign currencies that are translated at year-end exchange rates. For the years ended December 31, 1999 and 1998, foreign sales accounted for 48% and 45% of total revenues, respectively. (g) Impairment of Long-Lived Assets The Company follows the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 addresses accounting and reporting requirements for impairment of long-lived assets based on their fair market values. A-11 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (g) Impairment of Long-Lived Assets--(continued) The carrying value of intangible assets, principally goodwill, is periodically reviewed by the Company based on the expected future undiscounted operating cash flows of the related business unit. At December 31, 1999, the Company recorded a $6,801,000 impairment charge for goodwill recorded upon the acquisition of NMT Neurosciences in July 1998. This impairment charge was determined based upon the Company's analysis of estimated future cash flows of NMT Neurosciences and the carrying value of all of the long-lived assets of NMT Neurosciences which were sold in April 2000. The Company's assessment of the value of the assets of NMT Neurosciences was corroborated by independent outside parties. (h) Depreciation and Amortization The Company provides for depreciation and amortization by charges to operations using the straight-line method, which allocates the cost of property, plant and equipment over the following estimated useful lives:
Estimated Asset Classification Useful Life -------------------- ----------- Buildings 30 Years Leasehold improvements Life of Lease Laboratory and computer equipment 3-7 Years Equipment under capital lease Life of Lease Office furniture and equipment 5-10 Years
(i) Revenue Recognition The Company records product sales upon shipment to the customer. Products sold to the Company's distributors are not subject to a right of return for unsold product. License fees, royalties and product development revenue are recognized as earned. A-12 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (j) Net Loss per Common and Potential Common Share The Company applies SFAS No. 128, Earnings per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. In accordance with Staff Accounting Bulletin (SAB) No. 98, the Company has determined that there were no nominal issuances of common stock or potential common stock in the periods prior to the Company's initial public offering. Diluted loss per share is the same as basic loss per share as the effects of the Company's potential common stock (2,066,956, 1,933,273 and 1,746,861 shares for the years ended December 31, 1999, 1998 and 1997, respectively) are antidilutive. (k) Foreign Currency The accounts of the Company's subsidiaries are translated in accordance with SFAS No. 52, Foreign Currency Translation. Accordingly, the accounts of the Company's foreign subsidiaries are translated from their local currency, which is the functional currency, into U.S. dollars, the reporting currency, using the exchange rate at the balance sheet date. Income and expense accounts are translated using an average rate of exchange during the period. Cumulative foreign currency translation gains or losses are reflected as a separate component of consolidated stockholders' equity and amounted to a cumulative loss of approximately $708,000 for the year ended December 31, 1999 and a cumulative gain of $687,000 for the year ended December 31, 1998. There was no foreign currency translation gains or losses for the year ended December 31, 1997. Additionally, the Company had a foreign currency exchange transaction gain of approximately $105,000 for the year ended December 31, 1999 and foreign currency losses of approximately $88,000 and $15,000 for the years ended December 31, 1998 and 1997, respectively. Foreign currency transaction gains and losses result from differences in exchange rates between the functional currency and the currency in which a transaction is denominated and are included in the consolidated statement of operations in the period in which the exchange rate changes. A-13 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (l) Comprehensive Income The Company applies the provisions of SFAS No. 130, Reporting Comprehensive Income, which establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. If presented on the statement of operations, comprehensive net loss would have increased the reported net loss by $1,395,000 for the year ended December 31, 1999 and decreased the net loss by $687,000 for the year ended December 31, 1998. (m) Recent Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133 as amended by SFAS No. 137, Deferral of the effective date of the FASB Statement No. 133 is effective for fiscal quarters beginning after June 15, 2000. SFAS No. 133 establishes accounting and reporting disclosure standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. The Company does not expect adoption of this statement to have a material impact on its consolidated financial position or results of operations. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 101, "Revenue Recognition." This bulletin established guidelines for revenue recognition. The Company does not expect the adoption of this methodology to have a material impact on the financial condition or results of operations. (n) Pension Obligations In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. The statement is effective for fiscal years beginning December 15, 1997. During the year ended December 31, 1998, the Company adopted the provisions of SFAS No. 132, which establishes accounting and reporting disclosure standards for pension and other postretirement benefit plans. As part of the acquisition of Elekta Neurosurgical Instruments (ENI) (See Note 3(b)), the Company assumed a defined benefit plan covering substantially all of its U.K. employees. This defined benefit plan was included in liabilities assumed by the purchaser of the Company's U.K. operations in April 2000 (see Note 3(a)). A-14 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (n) Pension Obligation--(continued) In October 1996, the Company adopted a qualified defined contribution plan, the Nitinol Medical Technologies, Inc. 401(k) Plan (the 401(k) Plan) pursuant to which U.S. employees may defer up to 15% of their salary, subject to certain limitations. The Company did not make any employee matching or other discretionary contributions to the 401(k) Plan for the years ended December 31, 1999, 1998 and 1997. (o) Prior-Year Account Balances Certain prior-year account balances have been reclassified to be consistent with the current year's presentation. A-15 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED) (p) Noncash Investing and Financing Activities The following table summarizes the supplemental disclosures of the Company's noncash financing and investing transactions for the periods indicated below:
For the Years Ended December 31, ----------------------------------- 1999 1998 1997 ---- ---- ---- Supplemental disclosure of cash flow information: Cash paid during the period for-- Interest $ 1,983,001 $ 1,371,912 $ 46,152 ============= ============ ======== Income Taxes $ 121,148 $ 728,324 $ 32,000 ============= ============ ======== Supplemental disclosure of noncash financing and investing transactions: Equipment acquired under capital lease obligations $ 1,100,000 $ 195,827 $400,091 ============= ============ ======== Noncash tax benefit relating to exercise of stock options $ -- $ 90,000 $366,000 ============= ============ ======== Abandonment of leasehold improvements $ -- $ -- $111,472 ============= ============ ======== Original issue discount recorded related to stock warrant issued in connection with subordinated notes payable $ -- $ 3,255,001 $ -- ============= ============ ======== Acquisition of Elekta Neurosurgical Instruments (ENI): Fair value of identifiable assets acquired $ -- $ 26,475,000 $ -- Goodwill and other intangibles $ -- 14,396,075 -- In-process research and development $ -- 4,710,000 -- Liabilities assumed $ -- (10,007,000) -- Issuance of Common Stock in connection with acquisition $ -- (659,999) -- Cash acquired -- (2,193,000) -- ------------- ------------ -------- Cash paid for purchase of ENI, net of cash acquired $ -- $ 32,721,076 $ -- ============= ============ ========
(3) NMT NEUROSCIENCES DIVISION (a) Sale of U.K. Operations of NMT Neurosciences Division On April 5, 2000, the Company sold the U.K. operations of its NMT Neurosciences division including the Selector Ultrasonic Aspirator, Ruggles Surgical Instruments and cryosurgery product lines and certain assets and liabilities for $12.0 million in cash. The Company recorded a $3.5 million loss on this sale, comprised of net proceeds of $12.0 million less estimated transaction and other costs of $3.7 million, and net assets sold of $11.8 million. The transaction costs consisted principally of legal and accounting fees, severance arrangements with certain employees and other estimated costs associated with discontinuing the operation and consummating the sale. A-16 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (3) NMT NEUROSCIENCES DIVISION--(CONTINUED) (a) Sale of U.K. Operations of NMT Neurosciences Division--(continued) The net assets sold as of December 31, 1999 consist of the following: Current assets $ 6,525,000 Property and equipment, net 1,273,000 Goodwill and other intangible assets, net 6,195,000 ----------- Total assets 13,993,000 Current liabilities (2,197,000) ----------- $11,796,000 ===========
The consolidated financial statements of the Company have been restated to reflect the financial results of the U.K. entity as a discontinued operation for the years ended December 31, 1999 and 1998. The Company did not allocate interest expense associated with the senior secured debt and subordinated notes discussed in Notes 9(a) and 9(b) to discontinued operations. The discontinued operation is estimated to have break-even operating results for the first quarter of 2000. The Company used approximately $7.3 million of the proceeds from this sale to fully pay down its senior secured debt agreement and $500,000 to pay down its subordinated note agreement as discussed in Notes 9(a) and 9(b). (b) Acquisition of Elekta Neurosurgical Instruments On July 8, 1998, the Company acquired ENI, the neurosurgical instruments business of Elekta AB (PUBL), a Swedish corporation, for approximately $33 million, plus acquisition costs of approximately $3.1 million. The acquisition has been accounted for as a purchase in accordance with the requirements of Accounting Principles Board (APB) Opinion No. 16, Business Combinations, and accordingly ENI's results of operations are included in those of the Company beginning on the date of the acquisition. The transaction was financed with $13 million of the Company's cash, $3.1 million of acquisition costs and $20 million of subordinated debt borrowed from an affiliate of a significant stockholder of the Company (see Note 9(a)). A significant portion of the purchase price was identified as intangible assets in an independent appraisal, using proven valuation procedures and techniques. A-17 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (3) NMT NEUROSCIENCES DIVISION--(CONTINUED) (b) Acquisition of Elekta Neurosurgical Instruments--(continued) These intangible assets included $4.7 million for acquired in-process research and development for projects that did not have future alternative uses. This allocation represents the estimated fair market value based on risk-adjusted cash flows related to the in-process research and development programs. The in-process research and development consists of five primary research and development programs that were expected to reach completion between late 1998 and 2000. At the acquisition date, continuing research and development commitments to complete the projects were expected to be approximately $2.0 million through 2000. These estimates are subject to change given the uncertainties of the development process. At the date of acquisition, the development of these programs had not yet reached technological feasibility and the in-process research and development had no alternative future uses. Accordingly, these costs were written off during the year ended December 31, 1998. For income tax purposes, a significant portion of the acquisition represented the purchase of stock with a carryover tax basis. Accordingly, a deferred tax liability has been established to account for the book and tax differences in book value for building and leasehold improvements. The remaining premium of approximately $17.2 million was allocated to the following identifiable assets, goodwill and other intangibles and will be amortized over periods of 7 to 30 years:
AMORTIZATION AMOUNT PERIOD ------ ------ Land and buildings $ 4,650,000 30 years Favorable lease 1,170,000 30 years Goodwill and other intangibles 13,226,000 7-20 years Deferred tax liability (1,896,000) ----------- $17,150,000 ===========
A-18 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (3) NMT NEUROSCIENCES DIVISION--(CONTINUED) (b) Acquisition of Elekta Neurosurgical Instruments--(continued) The total consideration allocated to the fair market value of assets and liabilities acquired on the purchase date is as follows, net of cash acquired of approximately $2.2 million: Accounts receivable $ 5,578,000 Inventories 6,688,000 Prepaid expenses and other current assets 2,024,000 Property and equipment 9,992,000 Goodwill and other intangible assets 14,396,075 In-process research and development 4,710,000 Accounts payable and accrued expenses (7,324,000) Senior debt (523,000) Deferred tax liability (2,160,000) ----------- $33,381,075 ===========
The Company issued 113,793 shares of the Company's $.001 par value common stock, valued at $5.80 per share, to a significant stockholder as a finders' fee in connection with the acquisition. In addition, the Company incurred direct acquisition costs of approximately $1.9 million. These amounts have been included in the purchase price. The following table presents selected unaudited financial information of the Company and the neurosurgical division of Elekta AB, assuming the companies combined on January 1, 1998. The unaudited pro forma results are not necessarily indicative of either the actual results that would have occurred had the acquisition been consummated on January 1, 1998 or of future results:
For the Year Ended December 31, 1998 ---- (Unaudited) Pro forma net revenues $35,315,000 =========== Pro forma net loss $(8,380,000) =========== Basic and diluted weighted average common shares outstanding 10,543,663 =========== Basic and diluted net loss per common share $ (.79) ===========
A-19 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (4) INVESTMENT IN IMAGE TECHNOLOGIES CORPORATION In May 1997, the Company invested $2.3 million in Image Technologies Corporation (ITC) in exchange for 345,722 shares of ITC's redeemable convertible Series A preferred stock, $.01 par value per share, which represented a 23% ownership interest in ITC. During the years ended December 31, 1999 and 1998, the Company recorded $489,000 and $437,000, respectively, as its equity in the net loss of ITC. Under the terms of this agreement, the Company also extended to ITC a $2 million credit line that bears interest at 10% per annum, payable monthly beginning March 31, 2001. This $2 million senior note is secured by substantially all of the assets of ITC. The principal amount of the note is convertible, at the option of the Company, into additional shares of ITC Series A preferred stock at a price per share of $2.54 at any time before January 1, 2001 and, if converted, any interest accrued as of such date shall be forgiven. If not converted, the note is payable on December 31, 2002. On December 30, 1998 and February 3, 1999, the Company amended its revolving credit note agreement with ITC to provide for additional borrowings of $50,000 and $100,000, respectively, under which ITC borrowed $38,043 and $100,000. The borrowings under the $50,000 note were repaid in April 1999. The $100,000 note accrues interest at 10% per annum and is generally subject to the same terms as the $2 million credit line agreement, except that it is convertible into additional shares of ITC Series A preferred stock at a price per share of $9.97. In connection with the issuance of the $100,000 note, ITC granted a warrant to the Company to purchase 10,030 shares of ITC Series A preferred stock at $9.97 per share. As of December 31, 1999, ITC borrowed $2.1 million under these agreements and owes the Company accrued interest of $281,000. During the year ended December 31, 1999, the Company performed a detailed review of the ITC operations. Based upon this analysis and discussion with ITC's management and investors, the Company determined that there was a significant risk that its notes receivable would be repaid by ITC. The analyses and discussions indicated that during the year ended December 31, 1999, ITC had insufficient cash resources to fund its operations, that product revenue had declined during 1999 and was far below planned levels and that ITC was seeking additional capital from numerous sources and that any future financing would possibly be dilutive to the Company's equity position and may contain a security interest senior to the Company's notes receivable. Accordingly, the Company charged the carrying value of the notes receivable to operations during the year ended December 31, 1999. A-20 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (5) RESTRUCTURING CHARGE During 1997, the Company reorganized its vena cava filter operations and brought the assembly of its straight-line vena cava filters in-house. In connection with this restructuring, the Company reduced staff and incurred other nonrecurring costs. The $194,000 restructuring charge in the accompanying statements of operations includes a noncash charge of $112,000 for the accelerated vesting of certain stock options, cash severance and benefits of $62,000, and $20,000 for the transfer of assembly technology. Other start-up costs related to the in-house assembly of the straight-line vena cava filter, including the training of manufacturing personnel and associated materials and overhead, are included in cost of goods sold in the accompanying statements of operations. (6) MERGER AND INTEGRATION CHARGE In connection with the acquisition of ENI on July 8, 1998, the Company reorganized its operations and recorded approximately $687,000 in merger and integration expenses during the year ended December 31, 1998. This amount consists principally of employee severance and replacement costs of $374,000, employee relocation costs of $152,000 and printing and corporate name change costs of $161,000. As of December 31, 1998, the accompanying consolidated balance sheet included approximately $235,000 of merger and integration expenses that were incurred but not yet paid. There are no such accrued expenses on the balance sheet as of December 31, 1999. (7) INCOME TAXES The Company provides for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. Accordingly, a deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates expected to be in effect when these differences reverse. The provision for income taxes in the accompanying consolidated statement of operations for the years ended December 31, 1999 and 1998 consists of the following:
At December 31, -------------------- 1999 1998 ---- ---- Foreign - current $ 180,000 $ 701,192 Federal - current (300,000) 411,038 State - current -- 13,000 --------- ---------- (120,000) 1,125,230 --------- ---------- Foreign - deferred (75,000) (169,192) Federal - deferred 375,000 (167,500) State - deferred -- (44,000) --------- ---------- 300,000 (380,692) --------- ---------- $ 180,000 $ 744,538 ========= ==========
A-21 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company has federal and state net operating loss carryforwards of approximately $15 million to reduce to reduce federal and state taxable income in future periods, if any and approximately $50,000 and $140,000 of federal and state tax credit carryforwards, respectively, to reduce federal and state income taxes in future periods, if any. These carryforwards are subject to review and possible adjustment by the Internal Revenue Service and their utilization may be limited by aggregate changes in significant ownership of the Company over a three year period as prescribed by Section 382 of the Internal Revenue Code. These carryforwards expire on various dates through 2019. As of December 31, 1999, the Company has available foreign net operating loss carryforwards of approximately $1.2 million. These operating losses were acquired in connection with the purchase of ENI, as discussed in Note 3. The Company did not allocate any of the purchase price to the net operating losses due to the uncertainty surrounding the ability to utilize the losses and the possibility that the losses are subject to review and possible adjustments by foreign tax authorities. The Company was able to utilize approximately $450,000 and $1.8 million of acquired operating losses during the years ended December 31, 1999 and 1998, respectively and credited the benefit of such losses of $180,000 and $674,000 to goodwill. The Company recorded the tax effect of utilizing these loss carryforwards as a reduction in the carrying value of the goodwill. The provision for income taxes in the year ended December 31, 1999 represents the taxes on income generated in France by NMT Neurosciences. The Company generated a net operating loss for federal and state income tax purposes in the United States in the year ended December 31, 1999. The provision for income taxes in 1998 and 1997 is calculated on the income before provision for taxes without taking into account the write-off of acquired in-process research and development, the equity in the loss of ITC and goodwill amortization. The acquired in-process write-off was $4,710,000 and $2,449,071 for 1998 and 1997, respectively, the equity in the net loss of ITC was $437,145 for 1998, and the goodwill amortization was $140,000 and $0 for 1998 and 1997, respectively. The tax effects of temporary differences that give rise to the significant portions of the current deferred tax asset (included in prepaid expenses and other current assets) and long-term deferred tax liability at December 31, 1999 and 1998 are as follows:
At December 31, --------------------- 1999 1998 ---- ---- Net operating loss carryforwards $ 1,646,000 $ -- Tax credit carryforwards 190,000 -- Timing differences, including reserves accruals, and write-offs 5,867,000 725,000 ----------- ----------- 7,703,000 725,000 Less - valuation allowance (7,703,000) (350,000) ----------- ----------- Net deferred tax asset -- 375,000 Deferred tax liability related to acquisition of ENI (1,283,008) (1,357,808) ----------- ----------- Net deferred tax asset (liability) $(1,283,008) $ (982,808) =========== ===========
A-22 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Company has provided a valuation allowance for its gross deferred tax asset due to the uncertainty surrounding the ability to realize this asset. The deferred tax liability relates primarily to the tax impact of the difference in the tax basis and book basis of the building and leasehold improvements resulting from the ENI purchase accounting. This difference in basis will not be deductible in future years. See Note 3. (8) DEFERRED REVENUE On November 22, 1994, the Company licensed exclusive, worldwide rights, including the right to sublicense to others, to develop, produce and market its stent technology to an unrelated third party (the License Agreement). Under the License Agreement the Company earned $1,829,000, $1,729,000 and $1,200,000 in license revenues during the years ended December 31, 1999, 1998 and 1997, respectively. (9) DEBT OBLIGATIONS The Company has the following debt outstanding as of December 31, 1999 and 1998:
1999 1998 ---- ---- Subordinated note payable $ 5,232,412 $16,960,489 Senior secured notes payable 7,279,134 -- Capital lease obligations 1,633,686 786,502 Line of credit facility 428,000 -- ----------- ----------- 14,573,232 17,746,991 Less-Current portion 1,002,877 202,248 ----------- ----------- $13,570,355 $17,544,743 =========== ===========
(a) Subordinated Note Payable The Company financed a significant portion of the acquisition of ENI (see Note 3(b)) with $20 million of subordinated debt borrowed from an affiliate of a significant stockholder of the Company. The subordinated debt is due September 30, 2003 with quarterly interest payable at 10.101% per annum and is subject to certain covenants, as amended. On September 13, 1999, the Company entered into a $10 million senior secured debt facility with a bank (See Note 9(b)), $8 million of the proceeds of which was used to reduce the principal amount of the subordinated note. The Company also used $6 million of its own cash to further reduce the principal amount of this note. In conjunction with this transaction, the Company recorded a $2.6 million extraordinary loss on the early extinguishment of debt in the accompanying statement of operations which primarily relates to the accelerated pro-rata write-off of the original issue discount and deferred financing costs of the subordinated note payable. The remaining original issue discount at December 31, 1999, is being amortized to interest expense over the remaining term of the subordinated debt of 45 months. The Company recorded approximately $531,000 of interest expense relating to the amortization of original issue discount for the year ended December 31, 1999. As of December 31, 1999, the Company was not in compliance with certain of the debt covenants of the subordinated note payable and has obtained a waiver of default from the holder of the note. Subsequent to year-end, the Company paid down $500,000 of this note from the proceeds obtained in connection with the sale of part of its Neurosciences division (see Note 3(a)). A-23 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (9) DEBT OBLIGATIONS--(CONTINUED) (b) Senior Secured Debt On September 13, 1999, the Company entered into a $10 million senior secured debt facility with a bank, $8 million of the proceeds of which was used to reduce the principal amount of the Company's subordinated note payable (See Note 9(a)). The remaining $2 million of the senior secured debt facility is available to be drawn down by the Company for working capital purposes, as needed. The facility has a term of three years with interest payable monthly at the bank's prime lending rate (8.5% at December 31, 1999) on U.S. borrowings and an equivalent market rate on foreign currency borrowings. As of December 31, 1999, the Company had outstanding borrowings of $7.3 million under this facility. As of December 31, 1999, the Company was not in compliance with certain of the debt covenants of the secured debt facility and has obtained a waiver of default from the bank. Subsequent to year-end, the Company paid down this note in its entirety from the proceeds obtained in connection with the sale of part of its Neurosciences division (see Note 3(a)). (c) Capital Lease Obligations In June 1996, the Company entered into a $1.5 million lease finance facility agreement with a bank under which the Company leases equipment at an interest rate that is 200 basis points above the bank's cost of funds. Leases under this agreement are payable in equal monthly installments over a period of 36- 60 months and expire through November 2001. Borrowings of $572,000 were made under this agreement, of which $202,000 was outstanding as of December 31, 1999. Upon expiration of this agreement in June 1997, the Company entered into a new agreement with the bank that provided the Company with similar terms and the option to borrow up to $1 million in the aggregate for the Company and ITC through March 31, 1998. Leases under this agreement are payable in equal monthly installments over a period of 36-60 months and expire through December 2002. Borrowings of $376,000 and $250,000 were made under this agreement by the Company and ITC, respectively, of which $196,000 and $113,000 were outstanding as of December 31, 1999. A-24 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (9) DEBT OBLIGATIONS--(CONTINUED) (c) Capital Lease Obligations--(continued) On April 1, 1998, the Company entered into a new agreement with this bank that provided the Company and ITC with similar terms and the option to borrow up to $750,000 through March 31, 1999. Borrowings of $169,000 and $163,000 have been made under this new agreement by the Company and ITC, respectively, of which $128,000 and $124,000 were outstanding as of December 31, 1999, respectively. Leases under these agreements are payable in equal monthly installments over a period of 60 months and expire through May 2004. The Company guarantees the outstanding leases of ITC under these agreements. In June 1999, the Company entered into a lease agreement with a bank for approximately $150,000 to be used for equipment purchases. Borrowings under this agreement accrue interest at 6.67%, are payable in monthly installments, are collateralized by the equipment purchased, and expire in June 2002. Approximately $105,000 is outstanding under this agreement as of December 31, 1999. In December 1999, the Company entered into a lease agreement with a bank for approximately $1 million to be used for equipment purchases. Borrowings under this agreement accrue interest at 5.64%, are payable in monthly installments, are collateralized by the equipment purchased, and expire in December 2002. Approximately $1 million of borrowings are outstanding as of December 31, 1999. A-25 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (9) DEBT OBLIGATIONS--(CONTINUED) (c) Capital Lease Obligations--(continued) Future minimum lease payments under the capital lease obligations of the Company as of December 31, 1999 are approximately as follows:
Year Ending Amount ----------- ------ 2000 $ 728,961 2001 575,507 2002 446,920 2003 35,674 2004 1,854 ----------- Total minimum lease payments 1,788,916 Less--Amount representing interest 155,230 ----------- 1,633,686 Less--Current portion 574,877 ----------- $ 1,058,809 ===========
(d) Line-of-Credit Facility In June 1999 the Company entered into a finance facility agreement with a bank for approximately $475,000. Borrowings under this facility accrue interest at a rate of 5.38% per annum and are collateralized by the Company's accounts receivables. Borrowings of $428,000 under this line were outstanding as of December 31, 1999. A-26 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (9) DEBT OBLIGATIONS--(CONTINUED) (e) Future Maturities of Debt Obligations Future payments of the Company's subordinated note, senior secured debt, and capital lease obligations are as follows:
Year Ending Amount ----------- ------ 2000 $ 1,156,961 2001 575,507 2002 7,726,054 2003 6,035,674 2004 1,854 ----------- 15,496,050 Less--Unamortized original issue discount (767,588) Less--Amount representing interest (155,230) ----------- $14,573,232 ===========
(10) COMMITMENTS (a) Manufacturing Agreement The Company contracts with an unrelated third party for the manufacture of certain components. Under the amended agreement dated February 15, 1996, the Company is required to purchase minimum unit quantities through June 2001. The aggregate minimum purchases under the agreement are approximately $2.6 million. In addition, in the event of an order cancellation or product conversion, the Company has agreed to purchase all in-process materials and all special materials purchased by the manufacturer for use in the production of these components, limited to purchase orders through 180 days after cancellation. (b) Operating Leases The Company has entered into operating leases for office and laboratory space and for motor vehicle leases. These leases expire through 2006. The leases require payment of all related operating expenses of the building, including real estate taxes and utilities in excess of base-year amounts. A-27 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (10) COMMITMENTS--(CONTINUED) Future minimum rental payments due under operating lease agreements as of December 31, 1999 are approximately as follows:
Year Ending Amount ----------- ------ 2000 $ 608,000 2001 635,000 2002 677,000 2003 637,000 2004 551,000 Thereafter 872,000 ---------- $3,980,000 ==========
Rent expense for the years ended December 31, 1999, 1998 and 1997 amounted to approximately $602,000, $524,000 and $482,000, respectively. In addition, the Company is a guarantor of the lease of office space for ITC (see Note 9(c)). (c) Royalties The Company has entered into various agreements that require payment of royalties based on specified percentages of future sales, as defined. In addition, the Company has agreed to pay royalties to certain employees based on sales or licenses of products where they were the sole or joint inventor. Future minimum commitments under these agreements are approximately $15,000 per year. Royalty expense under royalty agreements was $838,000, $640,000 and $278,000 for the years December 31, 1999, 1998 and 1997, respectively. In addition to the royalties discussed above, during the year ended December 31, 1998, the Company entered into an agreement to pay royalties of $87,500 per quarter to two individuals for a product for which these individuals own the rights. Payment of these royalties began in the fourth quarter of 1998 and are to be paid each quarter through the quarter ending September 30, 2001. The Company paid $350,000 for such royalties during the year ended December 31, 1999 of which approximately $50,000 has been expensed during 1999 and the remaining royalties will be expensed over the life of the royalty arrangement. Additionally, these individuals are also to receive $50,000 per quarter for their product development and marketing consulting efforts. These payments began in the third quarter of 1998 and will continue each quarter through the quarter ended June 30, 2000. The Company recorded $200,000 and $100,000 for such services during the years ended December 31, 1999 and 1998, respectively. (d) Legal Proceedings In papers dated November 24, 1999 Elekta AB (publ) filed a request for arbitration in the London Court of International Arbitration ("LCIA") alleging that the Company breached its payment obligation under the Sale and Purchase Agreement between the parties dated May 8, 1998 pursuant to which the Company purchased certain assets from Elekta as discussed in Note 3(b). Elekta seeks approximately $1.6 million in damages. On January 14, 2000, the Company filed its response with the LCIA in which the Company denied Elekta's claims and indicated that it would assert a counterclaim for approximately $2.5 million for Elekta's breach of the A-28 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) same contract. On February 17, 2000 an arbitrator was appointed, and a Statement of the Case was sent to the LCIA by Elekta on March 23, 2000. The parties are currently in the pleadings stage. (11) STOCK OPTIONS AND WARRANTS (a) Nonqualified Stock Options The Company granted nonqualified options to various officers, directors, employees, and/or consultants to purchase shares of common stock. The options become exercisable in full or in part at issuance or within one to four years of the date of issuance. All unexercised grants expire on the earlier of approximately seven to ten years from date of issuance or 90 days after termination of service as an officer, director, employee and/or consultant. As of December 31, 1999, 1,097,068 shares are subject to outstanding options at exercise prices of $.76-$14.00 per share. (b) Stock Option Plans 1994 Stock Option Plan. In May 1994, the Board of Directors approved a stock option plan (the 1994 Plan), which authorizes the Company to issue options to purchase up to 315,789 shares of the Company's common stock. The Company may grant options to officers, key employees, directors and consultants of the Company at an exercise price not less than fair market value as determined by the Board of Directors. Through December 31, 1999 the Company has granted 308,368 options under this plan and does not intend to grant any additional options under this plan. As of December 31, 1999, 58,880 shares are subject to outstanding options at exercise prices of $2.15- $8.93 per share. 1996 Stock Option Plan. The Nitinol Medical Technologies, Inc. 1996 Stock Option Plan (the 1996 Plan) was approved by the Company's stockholders in July 1996. The 1996 Plan provides for the grant of options to acquire a maximum of 600,000 shares of common stock. As of December 31, 1999, 586,284 shares are subject to outstanding options at exercise prices of $2.00-$14.63 per share. The Board of Directors has appointed a Stock Option Committee of the Board as the Plan Administrator. The 1996 Plan permits the granting of incentive stock options or nonstatutory stock options at the discretion of the Plan Administrator. Subject to the terms of the 1996 Plan, the Plan Administrator determines the terms and conditions of options granted under the 1996 Plan. At December 31, 1999, 13,716 shares are available for future grants under the 1996 Plan. A-29 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (11) STOCK OPTIONS AND WARRANTS--(CONTINUED) (b) Stock Option Plans--(continued) The 1996 Director's Stock Plan. The Nitinol Medical Technologies, Inc. 1996 stock option plan for nonemployee directors (the 1996 Directors' Stock Plan) was approved by the Company's stockholders in July 1996. The 1996 Directors' Stock Plan provides for the automatic grant of nonstatutory stock options to purchase shares of common stock to directors of the Company who are not employees of the Company and who do not otherwise receive compensation from the Company. Under the 1996 Directors' Stock Plan, 150,000 shares of common stock have been reserved for issuance of options. Each eligible director serving on the Board on the effective date of the 1996 Directors' Stock Plan automatically received an option to purchase 10,000 shares of common stock at a price equal to the initial public offering price, subject to vesting in equal monthly installments over a period of three years. In the future, each nonemployee director not otherwise compensated by the Company who joins the Board will automatically receive an initial grant of options to purchase 10,000 shares of common stock at an exercise price equal to the fair market value per share at the date of grant, subject to vesting in equal monthly installments over a three-year period. In each year other than the year in which a director receives an initial grant of options, such director will automatically receive options to purchase 2,500 shares of common stock that shall become fully vested six months after the date of grant. As of December 31, 1999, 87,500 shares are subject to outstanding options at an exercise price of $3.38-$13.13 per share, of which 83,056 shares are exercisable. 1998 Stock Incentive Plan. The Nitinol Medical Technologies, Inc. 1998 Stock Incentive Plan (the 1998 Plan) was approved by the Company's stockholders during 1998. The 1998 Plan provides for the grant of options to acquire a maximum of 800,000 shares of common stock. As of December 31, 1999, 237,225 shares are subject to outstanding options at exercise prices of $2.75-$6.50 per share. The 1998 Plan permits the granting of incentive stock options or nonstatutory stock options at the discretion of the Board of Directors. Subject to the terms of the 1998 Plan, the Board of Directors determines the terms and conditions of options granted under the 1998 Plan. As of December 31, 1999, 562,775 shares are available for future grants under the 1998 Plan. A-30 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (11) STOCK OPTIONS AND WARRANTS--(CONTINUED) (b) Stock Option Plans--(continued) The following table summarizes all stock option activity under all of the Company's stock option plans, including grants outside of the 1998, 1996 and 1994 Plans:
WEIGHTED AVERAGE EXERCISE NUMBER OF PRICE PER SHARES SHARE ------ ----- Balance, January 1, 1997 1,972,257 $ 3.56 Granted 141,500 12.04 Canceled (44,411) 9.72 Exercised (322,485) 1.68 --------- ------ Balance, December 31, 1997 1,746,861 4.44 Granted 459,600 7.20 Canceled (103,229) 9.19 Exercised (169,959) 1.79 --------- ------ Balance, December 31, 1998 1,933,273 5.05 --------- ------ Granted 281,675 3.70 Canceled (67,292) 8.67 Exercised (80,700) 1.33 --------- ------ Balance, December 31, 1999 2,066,956 $ 4.90 --------- ------ Exercisable, December 31, 1999 1,470,903 $ 4.32 ========= ====== Exercisable, December 31, 1998 1,286,891 $ 3.67 ========= ====== Exercisable, December 31, 1997 1,037,188 $ 2.99 ========= ======
The following detail pertains to outstanding options of the Company at December 31, 1998:
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER OF EXERCISE PRICE EXERCISE PRICE REMAINING NUMBER OF EXERCISE PRICE SHARES RANGE PER PER SHARE CONTRACTUAL LIFE OF SHARES PER SHARE OUTSTANDING SHARE OUTSTANDING OUTSTANDING OPTIONS OUTSTANDING EXERCISABLE EXERCISABLE - ----------------- ------------------ ---------------- ------------------- ------------- ----------------- 1,106,181 $ .76-4.25 $ 2.29 6.42 Years 923,436 $ 2.13 903,525 4.38-10.88 7.59 7.68 Years 514,717 7.83 57,250 11.50-14.63 12.70 7.35 Years 32,750 12.74 --------- ------------ ------ ---------- --------- ------ 2,066,956 $ .76-$14.63 $ 4.90 7.00 Years 1,470,903 $ 4.32 ========= ============ ====== ========== ========= ======
The Company accounts for its stock-based compensation plans under APB Opinion No. 25, Accounting for Stock Issued to Employees. SFAS No. 123 establishes a fair-value based method of accounting for stock-based compensation plans. A-31 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (11) STOCK OPTIONS AND WARRANTS--(CONTINUED) (b) Stock Option Plans--(continued) The Company has adopted the disclosure-only alternative under SFAS No. 123 for grants to employees, which requires disclosure of the pro forma effects on earnings and earnings per share as if SFAS No. 123 had been adopted, as well as certain other information. The Company has computed the pro forma disclosures required under SFAS No. 123 for all employee stock options granted in 1998, 1997 and 1996 using the Black-Scholes option pricing model prescribed by SFAS No. 123. The assumptions used and the weighted average information for the years ended December 31, 1999, 1998 and 1997 are as follows:
1999 1998 1997 ---- ---- ---- Risk-free interest rates 4.80%-6.38% 4.65%-5.72% 5.71%-6.61% Expected dividend yield -- -- -- Expected lives 7 years 7 years 3-5 years Expected volatility 87% 66% 67% Weighted average grant-date fair value of options granted during the period $ 2.90 $ 4.66 $ 6.38
The effect of applying SFAS No. 123 would be as follows for the years ended December 31, 1999, 1998 and 1997:
1999 1998 1997 ---- ---- ---- Net loss: As reported $(19,052,693) $(3,679,440) $(2,670,975) ============ =========== =========== Pro forma $(20,101,646) $(4,564,706) $(2,670,975) ============ =========== =========== Basic and diluted net loss per common share: As reported $ (1.77) $ (.36) $ (.28) ============ =========== =========== Pro forma $ (2.10) $ (.47) $ (.28) ============ =========== ===========
A-32 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (11) STOCK OPTIONS AND WARRANTS--(CONTINUED) (c) Warrants The following table summarizes the Company's warrant activity :
WEIGHTED AVERAGE EXERCISE NUMBER OF PRICE PER SHARES SHARE ------ ----- Balance, January 1, 1997 253,031 $3.48 Exercised (64,779) 4.26 ------- ----- Balance, December 31, 1997 188,252 3.21 Granted 28,489 2.15 Canceled -- -- Exercised -- -- ------- ----- Balance, December 31, 1998 216,741 3.07 Granted 25,000 3.41 ------- ----- Balance, December 31, 1999 241,741 $3.10 ======= ===== Exercisable, December 31, 1999 241,741 $3.10 ======= =====
On April 15, 1999, the Company negotiated a waiver of the default with the holder of the subordinated note payable (see note 9(a)). In connection with such waiver, the Company issued to the noteholder warrants to purchase 25,000 shares of common stock at $3.41 per share. Subsequent to year-end in connection with the Company's pay-down of debt discussed in note 9(c), the Company issued the noteholder warrants to purchase 20,000 shares of the Company's common stock at $4.94 per share. The Company determined the value of these warrants using the Black-Scholes option pricing model. (d) Employee Stock Purchase Plan Effective October 1, 1997, the Company's shareholders approved an employee stock purchase plan (the Stock Plan). The Stock Plan allows eligible employees to purchase common stock of the Company through payroll deductions at a price that is 85% of the lower of the closing price of the Company's stock on the either the beginning or ending of the six-month offering period. The Company has reserved 90,000 of its $.001 par value common stock for issuance under this Stock Plan. The Company issued 22,461 shares of common stock under the Stock Plan during the year ended December 31, 1999. A-33 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (12) TECHNOLOGY PURCHASE AGREEMENT Pursuant to a technology purchase agreement (TPA), the Company purchased from a stockholder/founder the proprietary rights to the primary patent for the SNF and related technology. Under the terms of the TPA, the Company made an initial payment of $15,000 and agreed to pay royalties based upon various rates of cumulative net sales, as defined, with minimum royalties payable of $15,000 per year. Royalties are payable over the life of the primary patent and commenced after FDA approval. The Company has granted the stockholder/founder a security interest in substantially all proprietary rights acquired by the Company. In the event of unsecured defaults, as set forth in the TPA, the Company has agreed to immediately pay the stockholder/founder damages of $100,000. (13) RELATED PARTY TRANSACTIONS Three stockholders of the Company and related entities provided management consulting services to the Company during the year ended December 31, 1997 amounting to $196,000. During the years ended December 31, 1999 and 1998, only one shareholder provided consulting services to the Company, at a rate of $100,000 per annum. Additionally, during the year ended December 31, 1999, an affiliate of a stockholder provided consulting services to the Company amounting to approximately $103,000. In September 1998, a former employee of the Company entered into a secured promissory note agreement with the Company under which the former employee borrowed $167,100, which accrues interest at 10 % per annum, and was due the earlier of September 30, 1999 or the tenth business day on which the closing price of the Company's stock is greater than $8.00 per share for any consecutive three-day period. As of December 31, 1999, the amount owed under this note agreement is approximately $131,000. The note agreement was extended under similar terms to September 30, 2000 and was paid in full subsequent to year-end. On September 1, 1998, a former employee of the Company borrowed $25,000 from the Company. The loan accrues interest at 10.101% per annum and is collateralized. The loan was due on January 15, 2000 but was subsequently extended to March 31, 2000 under similar terms. A-34 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (14) ACCRUED EXPENSES Accrued expenses consist of the following:
AT DECEMBER 31, --------------------- 1999 1998 ---- ---- Payroll and payroll related $1,607,773 $1,518,859 Taxes 635,530 954,860 Other accrued expenses 2,386,063 1,741,781 ---------- ---------- $4,629,366 $4,215,500 ========== ==========
A-35 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (15) FINANCIAL INFORMATION BY GEOGRAPHIC AREA Revenues by country for the years ended December 31, 1999, 1998 and 1997 are as follows:
Destination 1999 1998 1997 - ----------- ---- ---- ---- United States $18,251,000 $13,835,000 $ 8,201,848 The Netherlands 4,565,000 2,870,000 93,600 Germany 2,986,000 1,872,000 440,480 Other 9,277,368 6,476,713 1,389,780 ----------- ----------- ----------- $35,079,368 $25,053,713 $10,125,708 =========== =========== ===========
Long-lived assets by country as of December 31, 1999 and 1998 are as follows:
Destination 1999 1998 - ----------- ---- ---- France $ 8,282,000 $ 7,937,000 United States 5,201,635 4,690,750 Other 57,000 49,500 ----------- ----------- $13,540,635 $12,677,250 =========== ===========
(16) SEGMENT REPORTING The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, during the fourth quarter of 1998. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision, or decision making group, in deciding how to allocate resources and in assessing performance. A-36 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (16) SEGMENT REPORTING--(CONTINUED) The Company's chief operating decision making group is the Chief Executive Officer, members of Senior Management, and the Board of Directors. The operating segments are managed separately because each represents specific types of medical devices for specific markets (i.e. the core technologies segment includes minimally-invasive medical devices that were the primary products of the Company prior to the acquisition of ENI, while the neurosurgical segment includes primarily neurosurgical medical devices that were the primary products of ENI). The Company's operating segments include the core technologies product line and the neurosurgical product line. Revenues for the core technologies product line are derived from sales of the Simon Nitinol Filter (SNF) and the CardioSEAL Septal Occluder, as well as from licensing revenues from the Company's self-expanding stents. Revenues for the neurosurgical product line are derived from sales of cerebral spinal fluid shunts, the Spetzler Titanium Aneurysm Clip and endoscopes and instrumentation for minimally invasive surgery. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on stand-alone operating segment net income. Revenues are attributed to geographic areas based on where the customer is located. The Company operated in only one operating segment, core technologies products, during the year ended December 31, 1997. Segment information is presented as follows:
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------- 1999 1998 1997 ---- ---- ---- Segment Revenues: Core technologies products $ 15,058,368 $13,989,713 $10,125,728 Neurosurgical products 20,021,000 11,064,000 -- ------------ ----------- ----------- Total $ 35,079,368 $25,053,713 $10,125,728 ============ =========== =========== Segment Interest Income: Core technologies products $ 479,617 $ 1,168,056 $ 1,591,922 Neurosurgical products -- -- -- ------------ ----------- ----------- Total $ 479,617 $ 1,168,056 $ 1,591,922 ============ =========== =========== Segment Interest Expense: Core technologies products $ 2,426,211 $ 1,324,346 $ 46,152 Neurosurgical products 388,000 137,000 -- ------------ ----------- ----------- Total $ 2,814,211 $ 1,461,346 $ 46,152 ============ =========== =========== Segment Income Tax Provision: Core technologies products $ -- $ 744,538 $ 229,500 Neurosurgical products 180,000 -- -- ------------ ----------- ----------- Total $ 180,000 $ 744,538 $ 229,500 ============ =========== =========== Segment Depreciation and Amortization: Core technologies products $ 1,071,395 $ 892,088 $ 461,141 Neurosurgical products 966,000 499,000 -- ------------ ----------- ----------- Total $ 2,067,395 $ 1,391,088 $ 461,141 ============ =========== =========== Segment Equity in Net Loss of Investees: Core technologies products $ (488,529) $ (437,145) $ -- Neurosurgical products -- -- -- ------------ ----------- ----------- Total $ (488,529) $ (437,145) $ -- ============ =========== ===========
A-37 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------- 1999 1998 1997 ---- ---- ---- Segment Signficant Noncash Items: Core technologies products $ 8,165,369 $ 5,397,242 $ 2,642,707 Neurosurgical products -- -- -- ------------ ----------- ----------- Total $ 8,165,369 $ 5,397,242 $ 2,642,707 ============ =========== =========== Segment Income (Loss): Core technologies products $(14,455,968) $(5,378,440) $(1,837,991) Neurosurgical products (1,302,000) (421,000) -- ------------ ----------- ----------- Total net loss $(15,757,968) $(5,799,440) $(1,837,991) ============ =========== ===========
Segment balance sheet information is as follows as of December 31, 1999 and 1998:
1999 1998 ---- ---- Segment Long-Lived Tangible Assets: Core technologies products $ 3,963,402 $ 3,682,017 Neurosurgical products 9,577,233 8,995,233 ----------- ----------- Total $13,540,635 $12,677,250 =========== ===========
(17) VALUATION OF QUALIFYING ACCOUNTS The following table sets forth the activity in the Company's allowance for doubtful accounts and sales returns:
BALANCE AT PROVISION FOR UNCOLLECTIBLE YEARS ENDED BEGINNING OF BAD DEBT AND AMOUNTS OTHER BALANCE AT END DECEMBER 31, PERIOD RETURNS WRITTEN OFF ADDITIONS OF PERIOD ------------ ------ ------- ----------- --------- --------- 1997 17,000 108,000 -- -- 125,000 1998 125,000 596,000 (5,000) 155,000* 871,000 1999 871,000 185,000 (143,000) -- 913,000
* represents additions arising from the acquisition of ENI, net of reserves reclassified to net assets from discontinued operations. A-38 EXHIBIT INDEX
Exhibit No. Description of Exhibit - ----------- ---------------------- 2.1 Purchase Agreement, dated as of May, 1998, between the company and Elekta AB (PUBL), as amended by Amendment No. 1 dated as of July 8, 1998. (4) 2.2 Purchase Agreement by and among the Company, NMT NeuroSciences (US), Inc., NMT NeuroSciences Holdings (UK) Ltd., NMT NeuroSciences (UK) Ltd., Spembly Medical Ltd., Spembly Cryosurgery Ltd., Swedemed AB, Integra Neurosciences Holdings (UK) Ltd., and Integra Selector Corporation, dated as of March 20, 2000. 2.3 Asset Purchase Agreement by and among NMT NeuroSciences (US), Inc., the Company and Integra Selector Corporation, dated as of March 20, 2000. 3.1 Second Amended and Restated Certificate of Incorporation. (5) 3.2 Certificate of Amendment to the Company's Second Amended and Restated Certificate of Incorporation, as filed with the office of the Secretary of State of the State of Delaware on June 3, 1999. (9) 3.3 Amended and Restated By-laws. (1) 4.1 Form of Common Stock Certificate. 4.2 Rights Agreement, dated as of June 7, 1999, between NMT Medical, Inc. and American Stock Transfer & Trust Company, as Rights Agent, which includes as Exhibit A, the form of Certificate of Designation, as Exhibit B the form of Rights Certificate, and as Exhibit C, the Summary of Rights to Purchase Preferred Stock. (8) 10.1 Stock Purchase Agreement by and among the Company, Whitney Equity Partners, L.P., Boston Scientific Corporation, David J. Morrison, Corporate Decisions, Inc., dated as of February 16, 1996. (1) 10.2 Registration Rights Agreement by and among the Company, Whitney Equity Partners, L.P., Boston Scientific Corporation, David J. Morrison, Corporate Decisions, Inc., dated as of February 16, 1996. (1) 10.3 Agreement and Plan of Merger by and among the Company, NMT Heart, Inc., InnerVentions, Inc. and Fletcher Spaght, Inc., dated as of January 25, 1996. (1) 10.4 Stock Purchase Warrant by and between the Company and Fletcher Spaght, Inc., dated as of July 1, 1998. (11) 10.5 Stock Purchase Warrant by and between the Company and David A. Chazanovitz, dated as of July 1, 1998. (11) 10.6 Registration Rights Agreement by and between the Company and Fletcher Spaght, Inc., dated as of February 14, 1996. (1) 10.6.1 Amendment No. 1, dated July 1, 1998 to the Registration Rights Agreement by and between the Company and Fletcher Spaght, Inc., dated as of February 14, 1996. (11)
Exhibit No. Description of Exhibit - ----------- ---------------------- 10.7 Distribution Agreement by and between the Company and the Bard Radiology division of C.R. Bard, Inc., dated May 19, 1992, as amended on February 1, 1993, and October 1, 1995. (1)(2) 10.8 International Distribution Agreement by and between the Company and Bard International, Inc., dated as of November 30, 1995. (1)(2) 10.9 License and Development Agreement by and between the Company and Boston Scientific Corporation, dated as of November 22, 1994. (1)(2) 10.10 Manufacturing Agreement by and between the Company and Lake Region Manufacturing Company, Inc., dated February 15, 1996. (1)(2) 10.11 Technology Purchase Agreement by and between the Company and Morris Simon, M.D., dated as of April 14, 1987. (1)(2) 10.12 Asset and Technology Donation and Transfer Agreement by and between C.R. Bard, Inc. and Children's Medical Center Corporation dated as of May 12, 1995. (1) 10.13 Stock Transfer Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated as of June 19, 1995. (1) 10.14 License Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated June 19, 1995. (1)(2) 10.15 Sublicense Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated June 19, 1995. (1) 10.16 Assignment Agreement by and between the Company and The Beth Israel Hospital Association, dated June 30, 1994. (1) 10.17 License Agreement by and between the Company and Lloyd A. Marks, dated as of April 15, 1996. (1)(2) 10.18 Share Purchase Warrant by and between the Company and Lloyd A. Marks, dated April 15, 1996. (1) 10.19 Employment Agreement by and between the Company and Thomas M. Tully dated January 1, 1999. (7) (**) 10.20 Registration Rights Agreement by and between the Company and Thomas M. Tully, dated as of February 13, 1996. (1) 10.21 Employment Agreement by and between the Company and David Chazanovitz, dated February 13, 1996, as amended as of June 15, 1996. (1)(**) 10.21.1 Amendment to Employment Agreement by and between the Company and David Chazanovitz, dated July 9, 1996. (1)(**)
Exhibit No. Description of Exhibit - ----------- ---------------------- 10.22 Employment Agreement by and between the Company and David Chazanovitz dated July 1, 1998. (7) (**) 10.23 Employment Agreement by and between the Company and Stephen J. Kleshinski, dated July 22, 1993, as supplemented by agreement dated as of June 1, 1994. (**) 10.24 Form of Registration Rights Agreement between the Company and certain of its existing stockholders, dated as of February 14, 1996. (1) 10.25 Agreement of Lease by and between the Company and the Trustees of Wormwood Realty, dated as of May 8, 1996. (1) 10.26 Company 1994 Stock Option Plan. (1)(**) 10.27 Company 1996 Stock Option Plan. (1)(**) 10.28 Amendment No. 1 to 1996 Stock Option Plan. (5)(**) 10.29 Company 1996 Stock Option Plan for Non-Employee Directors. (1)(**) 10.30 Company 1998 Stock Incentive Plan (5)(**) 10.31 Subordinated Note and Common Stock Purchase Agreement by and among the Company, Whitney Subordinated Debt Fund, L.P. and, for certain purposes, J.H. Whitney & Co., dated as of July 8, 1998. (4) 10.32 Guarantee and Collateral Agreement made by the Company and certain of its Subsidiaries in favor of J.H. Whitney & Co., as Agent, dated as of July 8, 1998. (4) 10.33 Amendment No. 1 dated April 14, 1999 to Subordinated Note and Common Stock Purchase Agreement of July 8, 1998 by and among the Company, Whitney Subordinated Debt Fund, L.P., and, for certain purposes, J.H. Whitney & Co. (7) 10.34 Waiver No. 1 dated April 14, 1999 by and among the Company and Whitney Subordinated Debt Fund, L.P. (7) 10.35 Registration Rights Agreement among the Company, Whitney Subordinated Debt Fund, L.P. and J.H. Whitney & Co., dated as of July 8, 1998. (4) 10.36 Consulting Agreement between the Company and Morris Simon, M.D., dated February 27, 1998. (6) 10.37 Assignment Agreement between the Company and Morris Simon, M.D., dated February 27, 1998. (6) 10.38 Stock Option Agreement evidencing grant by the Company to Morris Simon, M.D., dated February 27, 1998. (6) 10.39 Non-plan Stock Option Agreement evidencing grant by the Company to Morris Simon, M.D., dated February 27, 1998. (6) 10.40 Registration Rights Agreement entered into by and among the Company and Morris Simon, M.D., dated February 27, 1998. (6)
Exhibit No. Description of Exhibit - ----------- ---------------------- 10.41 Registration Rights Agreement dated as of March 30, 1999 by and among the Company and the individuals listed on Schedule A thereto. (7) 10.42 Amendment dated May 12, 1999 to Waiver No. 1 dated April 14, 1999 by and among the Company and Whitney Subordinated Debt Fund, L.P. (7) 10.43 Amendment No. 2 dated November 9, 1998 to Purchase Agreement between the Company and Elekta AB (Publ.) of May 8, 1998. (7) 10.44 Amendment No. 1 dated as of March 30, 1999 to Registration Rights Agreement among the Company, Whitney Equity Partners, Boston Scientific Corporation, David J. Morrison and Corporate Decisions, Inc. of February 16, 1996. (7) 10.45 Amendment No. 1 dated as of March 30, 1999 to Registration Rights Agreement among the Company, Whitney Subordinated Debt Fund, L.P. and J.H. Whitney & Co. of July 8, 1998. (7) 10.46 Common Stock Purchase Warrant No. WSDF-4. (9) 10.47 Credit Agreement, dated as of September 13, 1999, among NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT NeuroSciences Innovasive Systems, Inc., as Borrowers, and Brown Brothers Harriman & Co., as Lender (10) 10.48 $5 Million Promissory Note, dated as of September 13, 1999, issued by NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc. in favor of Brown Brothers Harriman & Co. (10) 10.49 Guarantee, dated as of September 13, 1999, made by NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT NeuroSciences Innovasive Systems, Inc. in favor of Brown Brothers Harriman & Co. (10) 10.50 Security Agreement, dated as of September 13, 1999, between NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT NeuroSciences Innovasive Systems, Inc., as Debtors, and Brown Brothers Harriman & Co., as Lender. (10) 10.51 Collateral Patent Assignment, dated as of September 13, 1999, made by NMT Medical, Inc. in favor of Brown Brothers Harriman & Co. (10) 10.52 Pledge Agreement, dated as of September 13, 1999, between NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT NeuroSciences Innovasive Systems, Inc., as Pledgors, and Brown Brothers Harriman & Co., as Lender. (10) 10.53 Amendment No. 2 to Subordinated Note and Common Stock Purchase Agreement, dated as of September 13, 1999, by and among NMT Medical, Inc., Whitney Subordinated Debt Fund, L.P. and, for certain purposes, J.H. Whitney & Co. (10)
Exhibit No. Description of Exhibit - ----------- ---------------------- 10.54 $6 Million Subordinated Promissory Note, dated as of July 8, 1998, issued by NMT Medical, Inc. in favor of Whitney Subordinated Debt Fund, L.P. (10) 10.55 Letter Agreement of Waiver of Compliance with Certain Covenants under Credit Agreements, dated as of November 15, 1999, by and among NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as Borrowers, and Brown Brothers Harriman & Co., as Lender. (10) 10.56 Waiver No. 2, made as of November 12, 1999, by and between NMT Medical, Inc. and Whitney Subordinated Debt Fund, L.P. (10) 10.57 Waiver and Consent Agreement by and among Brown Brothers Harriman & Co., J.H. Whitney & Co., Whitney Subordinated Debt Fund, L.P. and the Borrowers named therein, dated as of March 20, 2000. 10.58 Common Stock Purchase Warrant No. BBH-1. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Arthur Andersen LLP 27.1 Financial Data Schedule.
(1) Incorporated by reference to Exhibits to the Registrant's Registration Statement on Form S-1 (File No. 333-06463). (2) Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Commission. (3) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (4) Incorporated by reference to Exhibits to the Registrant's Current Report on Form 8-K, dated July 8, 1998. (5) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. (6) Incorporated by reference to Exhibits to the Registrant's Amended Quarterly Report on Form 10-Q/A for the quarter ended April 31, 1998. (7) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 30, 1999. (8) Incorporated by reference to Exhibits to the Registrant's Current Report on Form 8-K, dated June 7, 1999. (9) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. (10) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. (11) Incorporated by reference to Exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. (**) Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Annual Report on Form 10-K. EX-2.2 2 PURCHASE AGREEMENT Exhibit 2.2 PURCHASE AGREEMENT Among NMT MEDICAL, INC., NMT NEUROSCIENCES (US), INC. NMT NEUROSCIENCES HOLDINGS (UK) LTD., NMT NEUROSCIENCES (UK) LTD., SPEMBLY MEDICAL LTD., SPEMBLY CRYOSURGERY LTD., SWEDEMED AB, INTEGRA NEUROSCIENCES HOLDINGS (UK) LTD. and INTEGRA SELECTOR CORPORATION TABLE OF CONTENTS Page ---- 1. DEFINITIONS........................................................ 1 2. PURCHASE AND SALE Of SHARES AND US-BASED ASSETS; ADJUSTMENTS; LIABILITIES........................................... 8 2.1 PURCHASE AND SALE............................................. 8 2.2 CLOSING PAYMENTS; CERTAIN EXCLUDED PAYMENTS................... 9 2.3 ADJUSTMENT TO PURCHASE PRICE.................................. 10 2.4 AGREEMENT REGARDING CERTAIN ACCOUNTS RECEIVABLES.............. 12 2.5 ACQUIRED AND EXCLUDED LIABILITIES............................. 12 2.6 CONSENTS...................................................... 13 3. REPRESENTATIONS AND WARRANTIES OF PARENT, SELLER AND NMT-US.............................................................. 13 3.1 ORGANIZATION, POWER, EXECUTION................................ 14 3.2 NO VIOLATION.................................................. 15 3.3 CAPITALIZATION; VALIDITY OF THE SHARES........................ 15 3.4 AUTHORIZATIONS; COMPLIANCE.................................... 16 3.5 FINANCIAL STATEMENTS; NO LIABILITIES.......................... 16 3.6 ABSENCE OF CERTAIN CHANGES.................................... 18 3.7 TAXES......................................................... 20 3.8 CONTRACTS, LICENSES, ETC...................................... 24 3.9 INTELLECTUAL PROPERTY......................................... 26 3.10 LABOR MATTERS................................................. 28 3.11 EMPLOYEE BENEFIT PLANS........................................ 29 3.12 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS...................... 30 3.13 INSURANCE..................................................... 31 3.14 RELATED PARTY RELATIONSHIPS................................... 32 3.15 OWNERSHIP OF TANGIBLE ASSETS AND LEASES....................... 32 3.16 BROKERS-SELLERS............................................... 34 3.17 LITIGATION.................................................... 34 3.18 PRODUCT WARRANTY AND PRODUCT LIABILITY CLAIMS................. 35 3.19 ENTERPRISE RESOURCE PLANNING SOFTWARE......................... 35 3.20 ELEKTA AGREEMENT.............................................. 35 3.21 INVENTORY..................................................... 36 3.22 CERTIFICATIONS; PRODUCT SAFETY................................ 36 3.23 CUSTOMERS, SUPPLIERS AND LICENSORS............................ 36 3.24 EXPORT........................................................ 37 3.25 [INTENTIONALLY OMITTED]....................................... 37 4. REPRESENTATIONS AND WARRANTIES OF BUYER AND ISC..................... 37 4.1 ORGANIZATION, POWER, EXECUTION................................ 37 4.2 NO VIOLATION.................................................. 37 4.3 BROKERS-BUYER AND ISC.......................................... 38 5. COVENANTS............................................................ 38 5.1 CONDUCT OF THE BUSINESS........................................ 38 5.2 CERTAIN CHANGES................................................ 38 5.3 ACCESS TO INFORMATION.......................................... 39 5.4 EMPLOYEES...................................................... 40 5.5 EXCLUSIVITY.................................................... 41 5.6 LIMITATIONS ON EMPLOYEE SOLICITATION AND COMPETITION........... 41 5.7 EMPLOYEE NOTIFICATION.......................................... 42 5.8 AGREEMENT ON TRANSFER OF INVENTORY, OTHER ASSETS, ETC. ........ 42 5.9 ACCOUNTING REFERENCE DATE CHANGE; SCHEDULES; SALES AND TRANSFER TAXES; FEES........................................... 43 5.10 RIGHT TO "NEUROSCIENCES" NAME; USE OF "NMT" NAME............... 44 5.11 SECTION 338 ELECTION........................................... 45 5.12 CONTINUATION OF PARENT INSURANCE COVERAGE...................... 45 5.13 AGREEMENT REGARDING ACCOUNTS RECEIVABLE........................ 45 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND ISC................. 45 6.1 REPRESENTATIONS AND WARRANTIES OF PARENT, SELLER, NMT-US....... 46 6.2 COVENANTS OF PARENT, SELLER, NMT-US AND ACQUIRED COMPANIES..... 46 6.3 NO INJUNCTION, ETC............................................. 46 6.4 ABSENCE OF ADVERSE CHANGES..................................... 46 6.5 FINANCIAL ACCOUNTING SYSTEM.................................... 46 6.6 PRE-CLOSING DIVIDEND........................................... 46 6.7 OTHER DELIVERIES............................................... 46 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT, SELLER AND NMT-US............................................................... 47 7.1 REPRESENTATIONS AND WARRANTIES OF BUYER AND ISC................ 47 7.2 COVENANTS OF BUYER AND ISC..................................... 47 7.3 NO INJUNCTION, ETC............................................. 47 7.4 OTHER DELIVERIES............................................... 47 8. PUBLICITY............................................................ 47 9. CONFIDENTIALITY...................................................... 48 10. COOPERATION.......................................................... 48 11. TERMINATION.......................................................... 49 11.1 BOTH PARTIES................................................... 49 11.2 BUYER.................................................. 49 11.3 PARENT................................................. 49 11.4 EFFECT OF TERMINATION.................................. 50 12. CLOSING 12.1 TIME AND PLACE OF CLOSING.............................. 50 12.2 PARENT/SELLER/NMT-US CLOSING DELIVERIES................ 50 13. [INTENTIONALLY OMITTED]...................................... 54 14. INDEMNIFICATION.............................................. 54 14.1 INDEMNIFICATION BY PARENT AND SELLER................... 54 14.2 INDEMNIFICATION BY BUYER AND ISC....................... 54 14.3 TAX INDEMNIFICATION AND OTHER TAX MATTERS.............. 55 14.4 LIMITATIONS ON INDEMNIFICATION......................... 56 14.5 CLAIMS FOR INDEMNIFICATION............................. 57 14.6 DEFENSE BY INDEMNIFYING PARTY.......................... 57 14.7 PAYMENT OF INDEMNIFICATION OBLIGATION.................. 58 14.8 EXCLUSIVE REMEDY....................................... 58 14.9 ELEKTA AGREEMENT....................................... 58 15. ADDITIONAL ACTIONS........................................... 58 15.1 SERVICES............................................... 58 15.2 ADDITIONAL AGREEMENTS.................................. 59 16. GENERAL...................................................... 60 16.1 [INTENTIONALLY OMITTED]................................ 60 16.2 PAYMENT OF EXPENSES.................................... 60 16.3 MODIFICATIONS; WAIVERS................................. 60 16.4 ASSIGNABILITY.......................................... 60 16.5 NO OTHER REPRESENTATIONS............................... 60 16.6 NOTICES................................................ 61 16.7 CAPTIONS............................................... 62 16.8 COUNTERPARTS........................................... 62 16.9 KNOWLEDGE.............................................. 62 16.10 GOVERNING LAW......................................... 62 17. ENTIRE AGREEMENT............................................. 62
ARTICLE VIII..................................................................................................................... 13 CONDITIONS TO BUYER'S OBLIGATIONS................................................................................................ 13 8.1 Representations, Warranties and Covenants. All representations and warranties of Seller and Parent contained in Article IV of this Agreement shall have been true and correct as of the date of this Agreement and shall be true and correct in all material respects (without duplication of any materiality qualifier contained therein) as of the Closing Date, and Seller and Parent shall have performed in all material respects all covenants required by this Agreement to be performed by any of them as of or before the Closing....................................................................................... 13 8.2 No Actions With Respect to Transactions. No Action shall have been instituted or threatened by any governmental authority or other Person that challenges, seeks damages in connection with, or seeks to restrain, any of the transactions contemplated by this Agreement........................................................ 13 8.3 Noncompetition Agreement. Each of Seller and Parent shall have executed and delivered to Buyer the Noncompetition Agreement..................................................................................................... 13 8.4 Closing Documents. Seller and Parent shall have delivered to Buyer the documents shown in the Closing Agenda as being delivered by them, and such other instruments and documents as may be reasonably requested by Buyer, all in form reasonably satisfactory to Buyer's counsel............................................ 13 8.5 No Material Adverse Change. There shall have been no Material Adverse Change since the Reference Date............................................................................................................................. 13 ARTICLE IX....................................................................................................................... 14 TERMINATION BEFORE CLOSING....................................................................................................... 14 9.1 Termination. This Agreement may be terminated by notice at any time prior to Closing:................................... 14 9.2 In the Event of Termination. In the event of termination of this Agreement:............................................. 14 ARTICLE XI....................................................................................................................... 15 SURVIVAL AND INDEMNIFICATION..................................................................................................... 15 11.1 Survival of Representations. The representations and warranties of the parties made in this Agreement shall survive the Closing for a period from the Closing to the 18 month anniversary of the Closing Date (or until resolution of any Indemnity Claim made on or before such date), except for the representations and warranties made in Section 4.7 with respect to title, which shall survive the Closing without limitation........................................................................................... 15 11.2 Indemnification.......................................................................................................... 16 ARTICLE XII...................................................................................................................... 18 MISCELLANEOUS.................................................................................................................... 18 12.1 Employees. Buyer shall have no obligation to hire any of Seller's employees............................................. 18 A. Agreements................................................................................................................. 6
EXHIBITS -------- 1.1(a) Financial Statements 1.1(b) Terms of Noncompetition Agreement 2.5 Allocation of Purchase Price 7.4 Closing Agenda 5 PURCHASE AGREEMENT ------------------ PURCHASE AGREEMENT (this "Agreement"), executed as of this 20th day of March, 2000, by and among NMT MEDICAL, INC., a Delaware corporation formerly known as Nitinol Medical Technologies, Inc. ("Parent"), NMT NEUROSCIENCES (US), INC., a Delaware corporation and wholly-owned subsidiary of Parent ("NMT-US"), NMT NEUROSCIENCES HOLDINGS (UK) LTD., a corporation organized under the laws of England and an indirect wholly-owned subsidiary of Parent ("Seller"), NMT NEUROSCIENCES (UK) LTD., a corporation organized under the laws of England and Wales and a wholly-owned subsidiary of Seller ("Neurosciences"), SPEMBLY MEDICAL LTD., a corporation organized under the laws of England and Wales and a wholly- owned subsidiary of Neurosciences ("Spembly"), SPEMBLY CRYOSURGERY LTD, a corporation organized under the laws of England and Wales and a wholly-owned subsidiary of Spembly ("Spembly-Cryosurgery"), SWEDEMED AB, a corporation organized under the laws of Sweden and a wholly-owned subsidiary of Neurosciences ("Swedemed" and, together with Neurosciences, Spembly and Spembly- Cryosurgery, collectively, the "Acquired Companies" and each, individually, an "Acquired Company"), INTEGRA NEUROSCIENCES HOLDINGS (UK) LTD., a corporation organized under the laws of England and Wales ("Buyer"), and INTEGRA SELECTOR CORPORATION, a Delaware corporation ("ISC"). WITNESSETH: WHEREAS, the Acquired Companies are engaged primarily in the neurosurgical and cryogenic surgical instrument business, with their principal manufacturing and production operations located in Andover, England; WHEREAS, NMT-US is the owner of various assets, rights and properties related to the business of the Acquired Companies located in the United States; WHEREAS, Seller is willing to sell to Buyer, and Buyer desires to purchase from Seller, all of the issued and outstanding capital shares of the Acquired Companies; and WHEREAS, NMT-US is willing to sell to ISC, and ISC desires to purchase from NMT-US, all of the assets, rights and properties related to the business of the Acquired Companies located in the United States. NOW THEREFORE, in consideration of the mutual premises, covenants, agreements, representations and warranties contained herein, the parties hereto agree as follows: 1. DEFINITIONS. In this Agreement the following terms shall have the meanings ----------- assigned to them below. "Acquired Company" and "Acquired Companies" shall have the meaning set forth in the preamble. "Acquired Liabilities" shall have the meaning set forth in Section 2.5(a) hereof. "Affiliate" of a specified Person (natural or juridical) shall mean a Person that directly, or indirectly through one or more intermediaries, controls, was controlled by, or was under common control with, the Person specified at December 31, 1999 or any time since such date. "Agreement" shall have the meaning set forth in the preamble. "Andover Facility" shall mean the facility of the Business at Newbury Road, Hampshire, England located on the Real Property. "Assets" shall mean all assets and contractual or other rights used or directly related to the Business, whether owned, directly or of record, by any of Parent, NMT-US, Seller, any Acquired Company or any of their respective Affiliates, including, without limitation, the property described on Exhibit A --------- attached hereto, but excluding the Excluded Assets, with only such changes therein as shall have occurred between the Reference Date and the Closing Date in the ordinary course of business consistent with the Acquired Companies' past practice and in transactions not inconsistent with any of the representations, warranties, covenants or agreements of Parent, Seller or any of the Acquired Companies set forth herein. "Auditor" shall have the meaning set forth in Section 2.3(b) hereof. "Authorizations" shall have the meaning set forth in Section 3.4 hereof. "Barclays Debt" shall mean any and all indebtedness (principal and interest), charges, fees, prepayment penalties and other amounts now or hereafter due and owing under that certain Treasury Loan Facility, dated as of April 18, 1998, between Barclays Bank PLC and Spembly, and any overdraft facility maintained by any of the Acquired Companies with Barclays Bank PLC. "Business" shall mean the research, development, manufacturing, marketing, selling and distribution business conducted or currently proposed to be conducted by the Acquired Companies and their respective Affiliates related to, or with respect to, the Products. "Business Day" shall mean any day banks are open for business in New York City, New York. "Buyer" shall have the meaning set forth in the preamble. "Buyer Indemnified Parties" shall have the meaning set forth in Section 14.1 hereof. "Chameleon Payment" shall have the meaning set forth in Section 2.2(c). "Closing" shall have the meaning as set forth in Section 12.1. "Closing Date" shall mean the date on which the Closing takes place. The Closing shall be effective as of the close of business, local time, on the Closing Date. 2 "Closing Date Balance Sheet" shall mean the balance sheet of the Business described in Section 2.3(a) hereof. "Code" shall mean the United States Internal Revenue Code of 1986, as amended from time to time. "Confidential Information" shall mean any confidential, proprietary or secret knowledge, information or data regarding the Business or any of the Acquired Companies, Products or Assets, including, without limitation, any and all customers lists, customer leads, financial information, trade secrets, market information or studies, designs, analyses and similar materials, except for such knowledge, information and data as is generally available to the public other than as a result of the unauthorized disclosure by any Person. "Continued Employee Payment" shall have the meaning set forth in Section 2.2(c). "Contract" shall mean any contract, lease, agreement, plan, policy, note, bond, indenture, license, mortgage or security instrument, arrangement, obligation or commitment, whether in writing, oral or otherwise. "Copyrights" shall mean all copyrights, assignments of copyrights, design rights, rights to mask works and database rights, and all registrations and applications for registration of any of the foregoing. "Critical Consents" shall have the meaning set forth in Section 2.6(c) hereof. "Damages" shall have the meaning set forth in Section 14.1 hereof. "Disclosure Schedules" shall have the meaning set forth in Section 3 hereof. "Distribution Arrangement" shall have the meaning set forth in Section 3.8(b) hereof. "Election" shall have the meaning set forth in Section 5.11 hereof. "Elekta" shall mean Elekta AB (publ), a Swedish company and the former owner of the Business. "Elekta Agreement" shall have the meaning set forth in Section 3.20 hereof. "Elekta Payables" shall have the meaning set forth in Section 2.4(a) hereof. "Elekta Receivables" shall have the meaning set forth in Section 2.4(a) hereof. "Employee Benefit Plans" shall mean all pension, retirement, profit sharing, deferred compensation, stock ownership, stock purchase, stock option, share option, restricted stock, bonus, severance or termination pay, redundancy, cafeteria, medical, hospital, life, health, accident, disability, death, tuition reimbursement or other employee benefit plans, schemes or arrangements. 3 "Environmental Laws" shall mean any applicable Law, Order or Permit or other binding determination (whether national, provincial, departmental, state or local) pertaining to (i) the use, analysis, generation, manufacture, storage, discharge, release, disposal or transportation of Hazardous Materials, (ii) the health and safety of employees and the public, (iii) environmental regulation, or (iv) with respect to Hazardous Materials, contamination, clean-up or disclosure, drinking water, exposure, release, groundwater, landfills, open dumps, storage tanks (underground or otherwise), solid or liquid waste, waste water, stormwater runoff, emissions or wells. "Exchange Act" shall mean the United States Securities Exchange Act of 1934, as amended. "Excluded Assets" shall mean the property described on Exhibit B hereto. --------- "Excluded Employees" shall have the meaning set forth in Section 3.11(h) hereof. "Excluded Liability Assumption Agreement" shall have the meaning set forth in Section 2.5(b) hereof. "Excluded Liabilities" shall have the meaning set forth in Section 2.5(b) hereof. "GAAP" shall mean Generally Accepted Accounting Principles in effect in the United States as of the relevant determination date consistently applied for all periods covered thereby. "Governmental Authority" shall mean any foreign, federal, state or local court or other governmental, administrative, or regulatory, authority, agency, department or body (including, without limitation, the United Kingdom Inland Revenue and the United States Internal Revenue Service). "Group Relief" shall have the meaning set forth in Section 3.7(r) hereof. "Hazardous Materials" shall mean petroleum, including crude oil or any fraction thereof, or any other chemical substance, material, object, condition, waste, pollutant or combination thereof which is hazardous or potentially hazardous, or designated as or deemed to be hazardous or potentially hazardous under applicable Environmental Laws to human health or safety or to the environment as a result of its radioactivity, ignitability, corrosivity, reactivity, explosivity, toxicity, carcinogenicity, infectiousness or other harmful or potentially harmful properties or effects and all of those chemicals, substances, materials, objects, conditions, wastes, pollutants or combinations thereof which are now listed, defined or regulated by any applicable law or regulation (whether national, provincial, departmental, state or local) based upon, directly or indirectly, such properties or effects. "Improvements" shall mean, collectively, any and all buildings, fixtures and other improvements located on the Real Property or located at the Andover Facility. "Indemnified Party" shall have the meaning set forth in Section 14.5 hereof. 4 "Indemnifying Party" shall have the meaning set forth in Section 14.5 hereof. "Insurance Policies" shall have the meaning set forth in Section 3.13 hereof. "Intergroup Receivables" shall have the meaning set forth in Section 2.4(a) hereof. "ISC" shall have the meaning set forth in the preamble. "Intellectual Property" shall mean any and all Copyrights, Patents, Know- How, and Trademarks, and all rights (including, without limitation, moral rights) vesting in the owner thereof pursuant to the applicable Laws of any competent jurisdiction. "Know-How" shall mean methods, devices, technology, trade secrets, industrial designs, know-how, show-how, technical and training manuals and documentation and other proprietary information, including, without limitation, proprietary processes, designs and formulae. "Law" shall mean any law, statute, regulation, rule, ordinance, Order, consent decree, settlement agreement, common law precedent, or governmental requirement, and any judgment, decision, decrees, writ, injunction, award, ruling or order of any court or Governmental Authority. "Liability" means any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost, fee or expense (including costs of investigation, collection and defense), claim, deficiency, guaranty or endorsement of or by any Person of any type, whether accrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, or otherwise. "Lien" shall mean any security interest, lien, mortgage, pledge, hypothecation, adverse claim, charge, encumbrance, preemptive right, conditional sale agreement, deed of trust or conveyance to secure debt, of any nature whatsoever and regardless of how created or arising. "Material Adverse Effect" shall mean an event, change, or occurrence which, together with any other event, change, or occurrence, individually or in the aggregate, has a material adverse effect or impact on (i) the financial position, business or results of operations of Acquired Companies, and the value of the US-Based Assets, taken as a whole, or (ii) the ability of Parent, NMT-US, Seller and/or any of the Acquired Companies to perform their obligations under this Agreement and the Related Agreements or to consummate the transactions contemplated hereby or thereby. "Net Worth" shall mean, with respect to (a) the Reference Date Balance Sheet and the Reference Date, the amount of US$3,022,000, and (b) with respect to the Closing Date Balance Sheet and the Closing Date, the adjusted amount of "TOTAL ASSETS" minus the amount "TOTAL LIABILITIES" in each case as are set forth on the Closing Date Balance Sheet. "Neurosciences" shall have the meaning set forth in the preamble. "NMT-US" shall have the meaning set forth in the preamble. 5 "Order" shall mean any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, ruling, or writ of any federal, state, local, or foreign or other court, arbitrator, mediator, tribunal, administrative agency, or Governmental Authority. "Parent" shall have the meaning set forth in the preamble. "Patents" shall mean patents and patent applications, all continuations, continuations-in-part, divisions, reissues, reexaminations, extensions and foreign counterparts of such patents and patent applications, and all invention disclosures and rights in inventions. "Pension Scheme" shall mean The Surgical Technology Group Pension and Life Assurance Scheme, as amended and in effect on the date hereof and at the Closing Date. "Permit" shall mean any national, federal, state, local, and foreign governmental approval, authorization, certificate, easement, filing, franchise, license, notice, permit, or right to which any Person is a party or that is or may be binding upon or inure to the benefit of any Person or its securities, assets, or business. "Person" shall mean any individual, corporation (including any non-profit corporation), general or limited partnership, limited liability company, Governmental Authority, joint venture, estate, trust, association, organization or other entity of any kind or nature. "Post-Closing Period" shall have the meaning set forth in Section 14.3(a) hereof. "Pre-Closing Dividend" shall have the meaning set forth in Section 5.2(e) hereof. "Pre-Closing Period" shall have the meaning set forth in Section 14.3(a) hereof. "Products" shall mean the products manufactured, assembled, repaired, developed, created, invented or researched by or on behalf of the Acquired Companies, including, without limitation, the Selector(TM) Ultrasonic Aspirator, cryosurgical and TNS product lines, products in the research and development stage, and such other products as more particularly identified on the Schedule -------- of Products attached hereto. - ----------- "Purchase Price" shall have the meaning set forth in Section 2.2(a) hereof. "Purchase Price Adjustment" shall have the meaning set forth in Section 2.3(c) hereof. "Real Property" shall mean the real property described on Schedule -------- 3.15(b)(i) hereto on which the Andover Facility is located, and which is leased - ---------- from The Borough Council of Test Valley by Spembly. "Reference Date" shall mean December 31, 1999. "Reference Date Balance Sheet" shall mean the adjusted balance sheet of the Business as of the Referenced Date attached hereto as Exhibit C. --------- 6 "Registered Intellectual Property" shall have the meaning set forth in Section 3.9(b). "Release" shall mean any intentional, negligent or accidental spilling, leaking, pumping, pouring, emitting, emptying, exposure, discharging, injecting, escaping, leaching, dumping, or disposing of any Hazardous Materials (including the abandonment or discarding of barrels, containers and other closed receptacles containing any Hazardous Materials). "Related Agreements" shall have the meaning set forth in Section 3.1(a). "SEC" shall mean the United States Securities and Exchange Commission. "Securities Act" shall mean the United States Securities Act of 1933, as amended. "Seller" shall have the meaning set forth in the preamble. "Seller Indemnified Parties" shall have the meaning set forth in Section 14.2 hereof. "Share Payment" shall have the meaning set forth in Section 2.2(a) hereof "Shares" shall mean all the issued and outstanding shares in the capital of Neurosciences, all of which shall be transferred to Seller at the Closing. "Spembly" shall have the meaning set forth in the preamble. "Spembly-Cryosurgery" shall have the meaning set forth in the preamble. "Stub Tax Period" shall mean the Tax period (or any portion thereof) commencing on January 1, 2000 and ending on the Closing Date. "Swedemed" shall have the meaning set forth in the preamble. "TA" shall have the meaning set forth in Section 3.7(p). "Tax" shall mean with respect to any Person, any tax, estimated tax, withholding tax, assessment, levy, impost, fee or other charge, however denominated, including any interest, penalties, additions to tax or additional amounts that may become payable in respect thereof, imposed by any Governmental Authority, which tax shall include, without limitation, any income tax, payroll and employee withholding tax, unemployment insurance, social security, sales and use tax, franchise tax, gross receipts tax, occupation tax, real and personal property tax, transfer tax, workers' compensation, corporation tax, advance corporation tax, national insurance and social security contributions, capital gains tax, inheritance tax, value added tax, customs excise and import duties, stamp duty, stamp duty reserve tax, insurance premium tax, air passenger duty, landfill tax, petroleum revenue tax, advance petroleum revenue tax, and gas levy and other obligations of the same or of a similar nature, for which such Person may be liable (including any such Tax related to any other Person for which such Person is liable, by contract, as transferee or successor, by law (including as a result of the application of Treasury Reg. Section 1.1502-6) or otherwise). 7 "Tax Return" or "Return" shall mean any United Kingdom, United States or foreign, federal, state, or local tax return, declaration, report, estimate, information return, statement, claim for refund or form relating to Taxes, including any schedule, computation, amendment or attachment thereto. "TCGA" shall have the meaning set forth in Section 3.7(q) hereof. "Trademarks" shall mean (a) registered trademarks and registered service marks, applications for registration for trademarks and service marks, renewal registrations and applications for renewal registrations, extensions and foreign counterparts of such registrations and applications for registration; (b) material unregistered trademarks and service marks; (c) corporate names, business names and trade names, whether registered or unregistered; and (d) Internet domain names and associated addresses and URL's, in each case together with all goodwill associated therewith. "Tradename" shall have the meaning set forth in Section 5.10. "TULRC" shall have the meaning set forth in Section 3.10(a) hereof. "US-Based Assets" shall mean those Assets which are owned by NMT-US or otherwise located in the United States, including, without limitation, those Assets identified on Exhibit A (US) hereto. -------------- "US-Based Assets Payment" shall have the meaning set forth in Section 2.2(a). "1998/1999 Tax Make-Whole Payment" shall have the meaning set forth in Section 2.2(c). 2. PURCHASE AND SALE OF SHARES AND US-BASED ASSETS; ADJUSTMENTS; LIABILITIES. ------------------------------------------------------------------------- 2.1 PURCHASE AND SALE. ----------------- (a) The Shares shall be transferred from Seller to Buyer as follows: (i) At the Closing, upon the terms and subject to the conditions of this Agreement, Seller as legal and beneficial owner and with full title guarantee shall sell, and Buyer shall purchase, the Shares with effect from Closing free from any Lien together with all accrued benefits and rights attached thereto and all dividends declared after the Reference Date in respect of the Shares. (ii) Seller waives or agrees to procure the waiver of any rights or restrictions conferred upon it or any other person which may exist in relation to the Shares under the articles of association of Neurosciences or otherwise. (iii) Buyer shall not be obliged to close the purchase of any of the Shares unless Seller closes the sale of all the Shares simultaneously, but the closing of the 8 purchase of some Shares shall not effect the rights of Buyer with respect to its rights to the other Shares. (b) At the Closing, upon the terms and subject to the conditions of this Agreement, NMT-US, as the legal and beneficial owner of US-Based Assets, shall sell, assign, transfer and convey the US-Based Assets to ISC, pursuant to a Bill of Sale in substantially the form of Exhibit E-1 hereto. ----------- 2.2 CLOSING PAYMENTS; CERTAIN EXCLUDED PAYMENTS. -------------------------------------------- (a) Subject to Sections 2.2(c), 2.2(d) and 2.3, the aggregate purchase price (the "Purchase Price") shall be: (i) US$7,300,000 for the Shares (as the same may be reduced pursuant to Section 2.2(c), the "Share Payment"), and (ii) US$700,000 for the US-Based Assets (the "US-Based Assets Payment"). Seller, Parent, NMT-US and Buyer agree that this purchase price allocation shall be used in all Tax and other filings with any Governmental Authority, and they shall not take any position contrary unless required to do so pursuant to a determination (as defined in Section 1313(a) of the Code or any provision similar to Section 1313(a)), in which event they shall provide prior written notice to the other parties hereunder. (b) Subject to Sections 2.2(c), 2.2(d) and 2.3, at the Closing Buyer shall (i) pay to Seller (or Seller's designee) in cash or by wire transfer of immediately available funds (to an account designated in writing not less than three (3) business days prior to Closing) an amount equal to the Share Payment, and (ii) ISC shall pay to NMT-US (or NMT-US's designee) in cash or by wire transfer of immediately available funds (to an account designated in writing not less than three (3) business days prior to Closing) an amount equal to the US- Based Assets Payment. (c) Notwithstanding the provisions of Sections 2.2(a) and 2.2(b) or any other adjustments to the Purchase Price hereunder (including, without limitation, any adjustments or payments pursuant to Sections 2.3 or 14 hereof), the Share Payment shall be reduced on a dollar-for-dollar basis by (i) the amount of the Liability incurred by the Acquired Companies with respect to the continued employment by Neurosciences of Steve Sinyard for a period of four (4) months following the Closing Date, including, without limitation, all amounts now or hereafter payable by any of the Acquired Companies or Buyer to or on behalf of, or in connection with the employment of, Steve Sinyard with respect to salary, bonus, insurance, pension, other employee benefits, or severance, termination or other redundancy payments (statutory or otherwise) (collectively, the "Continued Employee Payment"), (ii) the amount of any Liability now or hereafter incurred by the Acquired Companies in connection with the purchase and installation of, and related pre-operational consultancy services for, a new Chameleon brand integrated financial and accounting software system from Panacea Limited (the "Chameleon Payment"), and (iii) the amount of any Liability in respect of Taxes of any of the Acquired Companies for the Tax periods ended December 31, 1998 and December 31, 1999 that is not properly and fully reflected in the accrual therefor listed on the Reference Date Balance Sheet (or which was not paid in full prior to the Reference Balance Sheet Date) (the "1998/1999 Tax Make-Whole Payment"). Schedule 2.2(c) hereto sets forth Parent's good faith estimate of the amount of each of the Continued Employee Payment, the Chameleon Payment and the 1998/1999 Tax Make-Whole Payment as of the Closing Date, together with reasonable detail of the calculation thereof, the aggregate amount 9 of which the parties agree shall be deducted from the amount of the Share Payment payable by Buyer to Seller (or Seller's designee) at the Closing pursuant to Section 2.2(b). In the event that the actual amount of any of the Continued Employee Payment, the Chameleon Payment or the 1998/1999 Tax Make- Whole Payment exceeds the amount thereof set forth on Schedule 2.2(c), Buyer shall notify Seller and Parent in writing of the amount of such excess (and provide reasonable detail therefor), and Seller and Parent shall immediately pay to Buyer (or Buyer's designee) the full amount thereof. The parties agree that this provision shall not be subject to any offset, deduction or thresholds as may be applicable to other payments or rights to payments hereunder. (d) To the extent that Buyer is required to withhold any amounts from the Share Payment or the US-Based Assets Payment to satisfy any Tax withholding obligations of any applicable Tax authority in connection with or as a result of the transaction contemplated hereby, the amount of the Share Payment or the US- Based Assets Payment shall be reduced by such amounts required to be withheld. 2.3 ADJUSTMENT TO PURCHASE PRICE. ----------------------------- (a) Within ninety (90) calendar days after the Closing Date, a balance sheet of the Business reflecting the assets and Liabilities of the Business as of the close of business on the date immediately prior to the Closing Date including a calculation of Net Worth will be prepared by Buyer and delivered to Seller. Such balance sheet, as adjusted, is referred to herein as the "Closing Date Balance Sheet." The Closing Date Balance Sheet shall be prepared in a manner consistent with the Reference Date Balance Sheet (including with respect to adjustment procedures, discretionary allocations and other judgments) and shall reflect the consolidation of the assets and Liabilities of Acquired Companies and the Business in accordance with GAAP; provided, however, that, notwithstanding anything contained on the Reference Date Balance Sheet or herein to the contrary, the Closing Date Balance Sheet (i) shall not include any intercompany accounts as between any of the Acquired Companies, on the one hand, and Parent or any subsidiary or Affiliate of Seller (other than the Acquired Companies), on the other hand, including, without limitation, the Intergroup Receivables; (ii) shall not include any purchase accounting adjustments; (iii) shall not contain any Excluded Liabilities or any Liabilities related to indebtedness (other than capital lease obligations), including, without limitation, the Barclays Debt; (iv) shall not include any Liability underlying the obligations of the Acquired Companies with respect to the Continued Employee Payment or the Chameleon Payment (it being agreed that such Liabilities and corresponding payments shall be determined and paid pursuant to Section 2.2(c)); (v) shall include only such inventory that is (A) reflected on the Reference Date Balance Sheet or has been manufactured since the Reference Date, and (B) located at the Andover Facility or such other locations designated by Buyer. All foreign currency amounts shall be expressed in United States dollars using the exchange rate and conversion mechanism as required by GAAP; and (vi) shall include as an accrued expense for unpaid Taxes for the 1998 and 1999 Tax years an amount equal to that shown on the Reference Date Balance Sheet for such Tax years (for the avoidance of doubt, it is agreed among the parties that any deficiencies of such accrual shall be resolved on a dollar-for-dollar basis pursuant to the 1998/1999 Tax Make-Whole Payment under Section 2.2(c) or, as necessary, the indemnification rights under Section 14.3). Parent shall have the right to review the computations and work papers (including access to accountants' work 10 papers, subject to such confidentiality restrictions and indemnities as Buyer's accountants shall reasonably request) and underlying books and records used in connection with Buyer's preparation of the Closing Date Balance Sheet and to have access to the key employees and independent accountants of Buyer in connection therewith. Buyer shall maintain separate books and records for the Business until such time as any post-Closing adjustment under this Section 2.3 has been paid by the relevant party. (b) If Buyer and Parent cannot reach agreement with respect to the Closing Date Balance Sheet and the determination of Net Worth within ten (10) days after the delivery of the Closing Date Balance Sheet to Seller, Buyer and Parent shall jointly appoint an internationally-recognized accounting firm (other than any firm that has been engaged by Parent, Buyer or any of their Affiliates at any time during the prior three (3) years) (the "Auditor") (the cost of which shall be divided equally between Buyer and Parent) to determine the proper resolution of the disagreements between Buyer and Parent concerning the Closing Date Balance Sheet and the determination of Net Worth, whose determination shall be made within thirty (30) days and shall be final and binding on the parties. If Buyer and Parent cannot agree on the appointment of such a certified public accounting firm, such firm shall be selected at random from a list comprised of two firms chosen by Buyer and two firms chosen by Parent. The Auditor shall resolve all disputes and disputed items as soon as practicable, provided that the Auditor shall be bound by the provisions of Sections 2.2, 2.3 and 2.5, as applicable, and may not assign a value to any item greater than the greatest value for such item claimed by either party or less than the smallest value for such item claimed by either party. Each of Buyer and Parent shall permit the Auditor to have full access to the books, records, key employees and independent accountants of Buyer and Parent and their respective subsidiaries and affiliates in order to resolve any such disagreements. Unless the Auditor otherwise directs, each of the parties shall be limited to an initial written presentation to the Auditor and a written rebuttal. The parties shall present to the Auditor, and shall exchange, initial presentation documents no later than twenty (20) calendar days after retention or appointment of the Auditor pursuant to the third and fourth sentences of this Section 2.3(b), as applicable, and shall present to the Auditor, and shall exchange, written rebuttals no later than ten (10) calendar days thereafter. All determinations made by the Auditor shall be final, conclusive and binding on the parties. (c) Within ten (10) calendar days after final determination of the Closing Date Balance Sheet and the Net Worth as of the Closing Date, Parent and Seller shall pay to Buyer the amount, if any, by which the Net Worth as of the Reference Date (i.e., US$3,022,000) exceeds the Net Worth as of the Closing Date (the "Purchase Price Adjustment"). The Purchase Price Adjustment shall be paid by Parent or Seller to Buyer by wire transfer in immediately available funds to an account designated in writing by Buyer. Notwithstanding the foregoing, Parent shall not be required to make any payment pursuant to this Section 2.3(c) in the event that the Purchase Price Adjustment is equal to or less than US$250,000; provided, however that in the event that the Purchase Price Adjustment exceeds US$250,000 Seller and Parent shall pay the entire amount of the Purchase Price Adjustment in full, without regard to such threshold. The parties agree that to the extent that any portion of a Purchase Price Adjustment required to be paid hereunder is directly attributable to the diminution in value of the US-Based Assets between the Reference Date and the Closing Date, Parent and NMT-US shall, at the request of the Buyer, cause such portion of the Purchase Price Adjustment to be paid directly to ISC, which amount 11 shall be paid by Parent or NMT-US by wire transfer in immediately available funds to an account designated in writing by ISC. 2.4 AGREEMENT REGARDING CERTAIN ACCOUNTS RECEIVABLES. ------------------------------------------------ (a) Notwithstanding the fact that all accounts receivable by the Acquired Companies from Elekta (the "Elekta Receivables") are excluded from the Assets and all accounts payable to Elekta (the "Elekta Payables") are Excluded Liabilities, the parties hereby agree that the aggregate amount of accounts receivable of the Acquired Companies from any Affiliate of Parent (other than another Acquired Company) (the "Intergroup Receivables") shall be reduced, on a dollar-for-dollar basis, by an amount equal to the amount, if any, by which the Elekta Payables exceed the Elekta Receivables, in each case as such amounts exist immediately prior to the Closing Date. (b) Notwithstanding any provision herein to the contrary, Buyer hereby agrees to assume, effective at the Closing, from the relevant obligor the liability to pay the amount, if any, of any Intergroup Receivables that exist at Closing, it being agreed that Buyer shall only assume payment liability for such Intergroup Receivables to the extent that a corresponding and equivalent asset is owned by the Acquired Companies at Closing. Buyer may assign its obligation to assume such payment liability hereunder to one or more of its Affiliates (other than the Acquired Companies). 2.5 ACQUIRED AND EXCLUDED LIABILITIES. ---------------------------------- (a) Notwithstanding the fact that the transaction contemplated hereby is structured as a purchase of the Shares and the US-Based Assets, Buyer and ISC shall acquire at the Closing only: (i) those Liabilities included on the Closing Date Balance Sheet, and (ii) the obligations of the Acquired Companies under the contracts listed on Schedule 3.8 attached hereto (collectively, the "Acquired Liabilities"). Following the Closing, Buyer shall cause the Acquired Companies to discharge and perform all obligations related to the Acquired Liabilities, except to the extent that Buyer in good faith disputes the amount or existence thereof. (b) From and after the Closing, Seller, NMT-US and Parent shall retain any and all Liabilities related to the Business other than the Acquired Liabilities (collectively, the "Excluded Liabilities"), which shall include, without limitation, each of those Liabilities set forth on Exhibit D attached hereto, which Excluded Liabilities shall be explicitly assumed and retained by Seller, NMT-US and Parent pursuant to an Assignment and Assumption of Liabilities among Seller, Parent and each of the Acquired Companies in the form attached hereto as Exhibit E-2 (the "Excluded Liability Assumption Agreement"). Seller, NMT-US and Parent shall discharge and perform, or cause to be discharged and performed, all obligations related to the Excluded Liabilities, except to the extent that Parent in good faith disputes the amount or existence thereof. After Closing, none of Buyer, ISC, any of the Acquired Companies or any of their respective Affiliates shall have any responsibility or Liability to Seller, Parent or any other Person for any Excluded Liabilities. 2.6 CONSENTS. --------- 12 (a) The parties and each of their respective Affiliates shall cooperate in securing before and after the Closing all consents, approvals and authorizations from, and providing all notices to, each Governmental Authority whose consent, approval, authorization or receipt of notice is necessary to the sale, transfer or assignment of the Shares, any of the Assets or the US-Based Assets, or which is necessary to permit Buyer to own and operate the Acquired Companies, or ISC to own and operate the US-Based Assets, immediately following the Closing, including, without limitation, those consents, approvals, authorizations and notices listed on Schedule 2.6(a) attached hereto. --------------- (b) Parent, Seller, NMT-US, the Acquired Companies and their respective Affiliates shall obtain the waiver, consent, authorization and approval of, and give timely notice to, all Persons whose waiver, consent, authorization, approval or receipt of notice (i) is required in order to consummate the transactions contemplated by this Agreement or any Related Agreement, including, without limitation, the sale, transfer or assignment of any of the Shares, the Assets or the US-Based Assets or the Business which is necessary to permit Buyer to own the Shares, and to own and operate the Business immediately following the Closing, or (ii) is required by any Contract, Order or Permit to which Parent, Seller, NMT-US or any Acquired Company is or will be a party or subject on the Closing Date and (A) which would prohibit, or require the waiver, consent or approval of, or notice to, any Person to such transactions or (B) under which, without such waiver, consent, approval or notice, such transactions would constitute an occurrence of default under the provisions thereof, result in the acceleration of any obligation thereunder or give rise to a right of any party thereto to terminate or modify its obligations thereunder, including, without limitation, those waivers, consents, authorizations, approvals and notifications listed on Schedule 2.6(b) attached hereto. --------------- (c) Notwithstanding any provision in Sections 2.6(a) or 2.6(b) to the contrary, Buyer shall not be obligated to close until Parent, Seller, NMT-US and/or the relevant Acquired Companies have obtained each of the consents, approvals and authorizations, and delivered each of the notices, listed on Schedule 2.6(c) hereto (the "Critical Consents"). - --------------- 3. REPRESENTATIONS AND WARRANTIES OF PARENT, SELLER AND NMT-US. Parent, Seller ----------------------------------------------------------- and NMT-US, jointly and severally, represent and warrant to Buyer and ISC, that the statements contained in this Article 3 are correct and complete as of the date of this Agreement and will be correct and complete as of the Closing (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article 3), except as set forth in the disclosure schedules delivered by Parent, Seller and NMT-US to the Buyer and ISC on the date hereof (the "Disclosure Schedules"). Nothing in any schedule shall be deemed adequate to disclose an exception to a representation or warranty made herein, however, unless such schedule identifies the exception with reasonable particularity and describes the relevant facts in reasonable detail. Each reference to an Acquired Company in this Section 3 shall be deemed to mean each Acquired Company and the Acquired Companies collectively. The Disclosure Schedules will be arranged in numbered schedules corresponding to the section numbers contained in this Agreement; all references to a Schedule in this Article 3 refer to the corresponding section of the Disclosure Schedules. 13 3.1 ORGANIZATION, POWER, EXECUTION. ------------------------------- (a) Each of Parent, Seller and NMT-US is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority (corporate and other) to own its properties, to carry on its business as now being conducted, to execute, and deliver this Agreement and each of the agreements, documents and instruments contemplated herein (the "Related Agreements") to which it is a party, and to carry out the transactions contemplated hereby and thereby. Each of Parent, Seller and NMT-US is duly qualified to do business and in good standing in all jurisdictions in which its ownership of property or the character of its business requires such qualification, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. Certified copies of the charter and bylaws or other governing documents of each of Parent, Seller and NMT-US, as amended to date, are being delivered to Buyer and ISC herewith, are complete and correct, and no amendments have been made thereto or have been authorized since the date thereof. (b) Each Acquired Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority (corporate and other) to own its properties (including, without limitation, the Assets), to carry on its business as now being conducted, to execute, and deliver this Agreement and the Related Agreements to which it is a party, and to carry out the transactions contemplated hereby and thereby. Each Acquired Company is duly qualified to do business and in good standing in all jurisdictions in which its ownership of property or the character of its business requires such qualification, except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. Certified copies of the charter and bylaws or other governing documents of each Acquired Company, as amended to date, are being delivered to Buyer herewith, are complete and correct, and no amendments have been made thereto or have been authorized since the date thereof. (c) The execution and delivery of this Agreement and the Related Agreements to which Parent, Seller, NMT-US and each Acquired Company is a party, and the consummation of all transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Parent, Seller, NMT-US and such Acquired Company. This Agreement and each Related Agreement to which Parent, Seller, NMT-US or any Acquired Company is a party have been duly executed and delivered by Parent, Seller, NMT-US and/or such Acquired Company, and constitute, and each other Related Agreement required hereby to be executed and delivered by Parent, Seller, NMT-US or any Acquired Company will, when delivered, constitute, the valid and legally binding obligation of Parent, Seller, NMT-US and/or such Acquired Company, as the case may be, enforceable in accordance with its terms, subject to bankruptcy laws and general equitable principles. 3.2 NO VIOLATION. Except for those consents identified on Schedule ------------ -------- 2.6(a) and Schedule 2.6(b), none of the execution and delivery of this Agreement - ------ --------------- and the Related Agreements, the consummation of the transactions provided for herein and therein or contemplated hereby and thereby, and the fulfillment by the Parent, Seller, NMT-US and each Acquired Company of the terms hereof or thereof, will (with or without notice or passage of time or both) (a) conflict with or result in a breach of any provision of the charter documents or by-laws of the Parent, Seller, NMT-US or any Acquired Company, (b) result in a default, give rise to 14 any right of termination, non-renewal or acceleration, or require the giving of any notice, or receipt of any consent or approval (other than approval by the Boards of Directors of each of such party, which approvals have been obtained, and prior to the Closing Date will not have been revoked, rescinded or restricted) under any of the terms, conditions or provisions of any Contract, Distribution Arrangement or other obligation to which Parent, Seller, NMT-US or any Acquired Company is a party or by which it or any of their respective assets may be bound, except where such default, termination, non-renewal or acceleration, or failure to give such notice or receive such consent or approval has not resulted and could not reasonably be expected to result in a Material Adverse Effect; (c) violate any Law applicable to the Parent, Seller, NMT-US or any Acquired Company, or any of their respective assets, or (d) give rise to the imposition or creation of any Lien on any of the Shares. 3.3 CAPITALIZATION; VALIDITY OF THE SHARES. --------------------------------------- (a) Schedule 3.3(a) sets forth the authorized capital shares of each --------------- of the Acquired Companies and the record and beneficial owners of the issued and outstanding shares thereof as of the date hereof and as of the Closing Date. All of the issued and outstanding capital shares of each of the Acquired Companies have been and are duly and validly issued and outstanding and are fully paid and non-assessable, and are owned of record and beneficially by such Persons identified on Schedule 3.3(a) free and clear of any and all Liens. Other than --------------- this Agreement, there are no outstanding preemptive, conversion or other rights, options, warrants or agreements granted or issued by or binding upon Parent, Seller, any of the Acquired Companies or any of their respective Affiliates for the purchase or acquisition of any capital shares of any of the Acquired Companies. All outstanding capital shares of each of the Acquired Companies were issued in compliance with all applicable Laws. None of the Acquired Companies has any stock appreciation rights, profit participation, phantom share plan or similar rights outstanding with respect to its capital shares. (b) Immediately following the Closing, the Shares will be duly and validly issued, fully paid, non-assessable and legally and beneficially owned by Buyer free and clear of all Liens and preemptive rights. (c) Seller has and will at Closing have no other assets, rights or properties other than the Shares. 3.4 AUTHORIZATIONS; COMPLIANCE. -------------------------- (a) Each Acquired Company and, to the knowledge of Parent, Seller, NMT-US and each of the Acquired Companies, each other relevant Person (including, with respect to the US-Based Assets, NMT-US) has all Orders and Permits which are required by any Governmental Authority or pursuant to any Law to own, occupy and operate the Assets, to manufacture, distribute, market, promote and sell the Products, and to carry on the Business as presently conducted (collectively, the "Authorizations"), except where the failure to possess such Authorizations has not had and could not reasonably be expected to have a Material Adverse Effect. The Authorizations are in full force and effect, and will be in full force and effect immediately following the Closing. All of the Products comply, and have been manufactured, 15 marketed, distributed and sold in compliance with, all applicable Authorizations, Laws, Orders and Permits, except to the extent that failure to comply has not had or could not reasonably be expected to have a Material Adverse Effect. None of Parent, Seller or any of the Acquired Companies has reasonable grounds to believe that any of the Authorizations will not be renewed or continued in the ordinary course or as a result of the transactions contemplated hereby. The current ownership and operations of the Business and Assets are not in violation of any applicable Authorization, Law, Order or Permit, except to the extent that failure to comply has not had or could not reasonably be expected to have a Material Adverse Effect. (b) Schedule 3.4(b) sets forth a list by location of all Authorizations in respect of any of the Products held, registered or maintained in the name of any Person other than the Acquired Companies, including, without limitation, all Authorizations held by distributors and resellers of the Products . (c) To the knowledge of the Parent, Seller, NMT-US and each of the Acquired Companies, none of the Parent, Seller, NMT-US or any of the Acquired Companies, or any of their respective Affiliates has received notice that there has been, or is otherwise aware of, any breach of any of the terms or conditions of any Authorizations (or has knowledge of any threat thereof). None of the Parent, Seller, NMT-US or any of the Acquired Companies, or any of their respective Affiliates, has received notice requiring, or is otherwise aware of, any requirements regarding the accumulation and submission of substantial clinical data necessary to establish the safety and effectiveness of any Product not previously required or imposing any other material condition or requirement restricting the continued commercial distribution or use of such Product. 3.5 FINANCIAL STATEMENTS; NO LIABILITIES. ------------------------------------- (a) The Reference Date Balance Sheet was prepared in accordance with GAAP. Except as clearly indicated on the face thereof, the Reference Date Balance Sheet reflects all assets and all Liabilities of the Business existing as of the date thereof which are required to be reflected in financial statements prepared in accordance with GAAP. The Reference Date Balance Sheet, fairly presents, in all material respects, the financial condition of the Business at the date of such Reference Date Balance Sheet. Except as reflected in the Reference Date Balance Sheet or as disclosed in Schedule 3.5(a) and --------------- Schedule 3.8(c), none of the Acquired Companies or NMT-US is in default with - --------------- respect to any material Liabilities or obligations. Any Liabilities incurred or accrued subsequent to the date of the Reference Date Balance Sheet have been, or are being, paid, performed and discharged in the ordinary course as they become due, and all such Liabilities and obligations were incurred in the ordinary course of business consistent with the Acquired Companies' and NMT-US's past practice. All the books, records and accounts of the Acquired Companies are accurate and complete in all material respects, are in accordance with good business practice and all Laws applicable to the Acquired Companies and the conduct of their respective businesses and accurately present and reflect all of the transactions described therein. None of the Acquired Companies is engaged in any financing (including the incurring of any borrowing or any indebtedness in the nature of acceptances or acceptance credits) of a type which would not be required to be shown or reflected in the Reference Date Balance Sheet. 16 (b) Since the Reference Date, there has been (i) no change in the financial condition, results of operations, assets, Liabilities or business of the Business, which has had or could reasonably be expected to have a Material Adverse Effect; (ii) no damage, destruction or loss (whether or not covered by insurance) which has had or could reasonably be expected to have a Material Adverse Effect; (iii) no labor trouble which has had or could reasonably be expected to have a Material Adverse Effect; (iv) no sale or transfer of any Assets, except sales in the ordinary course of business consistent with the Acquired Companies' and NMT-US's past practice; (v) no imposition of any material Lien, or claim upon any of the Shares or Assets and any current year Lien with respect to personal or real property Taxes not yet due and payable and which shall be properly accrued for on the Closing Date Balance Sheet; (vi) no default in any Liability or obligation of any of the Acquired Companies or NMT- US which has had or could reasonably be expected to have a Material Adverse Effect; (vii) no agreement by any of the Acquired Companies or NMT-US to any change in the terms of any Contract to which it is a party that has had or could reasonably be expected to have a Material Adverse Effect; (viii) no waiver, cancellation or disposal by any of the Acquired Companies or NMT-US of, for less than the greater of face or fair value thereof, any claim or right which it has against others that has had or could reasonably be expected to have a Material Adverse Effect; (ix) no transaction or event which has increased or could reasonably be expected to materially increase the Tax Liability of any of the Acquired Companies or with respect to the US-Based Assets for any prior taxable year or the Tax Liability of any of the Acquired Companies or with respect to the US-Based Assets for any prior taxable year for which any of the Acquired Companies, Buyer or ISC would become liable following the Closing; (x) no transaction other than in the ordinary course of business; and (xi) no reduction in the profits available for distribution (as defined in Section 263(3) of the Companies Act, 1985) of any of the Acquired Companies that results in a negative amount as of the Closing Date. (c) None of the Acquired Companies or, with respect to the US-Based Assets, NMT-US, has any material Liabilities, except for (i) Liabilities shown on the Reference Date Balance Sheet, (ii) Liabilities which have arisen since the Reference Date in the ordinary course of business consistent with past custom and practice, and (iii) contractual and other Liabilities incurred in the ordinary course of business which are not required by GAAP to be reflected on a balance sheet. None of the Acquired Companies has or will have at Closing any Liability related to the Barclays Debt. (d) All accounts receivable of the Acquired Companies are reflected properly on the books and records, are valid receivables subject to no setoffs or counterclaims, are current and collectible, and will be collected in accordance with their terms at their recorded amounts, subject only to the reserve for bad debts set forth on the face of the Reference Balance Sheet, as adjusted for the passage of time through the Closing Date in accordance with the past custom and practice of the Acquired Companies. Except as set forth on Schedule 3.5(d)(ii), all accounts receivable listed on the Closing Date Balance - ------------------- Sheet will be valid receivables subject to no setoffs or counterclaims, will be current and collectible, and, except for such accounts receivable as are fully- insured as to collectability, will be collected in accordance with their terms at their recorded amounts, (subject only to the reserve for bad debts set forth on the face of the Closing Date Balance Sheet) within ninety (90) days following the date of their creation. 17 3.6 ABSENCE OF CERTAIN CHANGES. Since September 30, 1999, each of the -------------------------- Acquired Companies and, with respect to the US-Based Assets, NMT-US, has operated its business in the ordinary course of its business and consistent with past practice. Since September 30, 1999, except as disclosed in Schedule 3.6, ------------ (i) there have been, and as of Closing there will have been, no events, changes, or occurrences which have had or could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and (ii) none of the Acquired Companies or NMT-US has taken any action, or failed to take any action, prior to the date of this Agreement, which action or failure, if occurring after the date of this Agreement, would represent or result in a breach or violation of any of the covenants and agreements applicable to the Acquired Companies and NMT-US set forth in Section 5. Without limiting the generality of the foregoing and except as disclosed on Schedule 3.6, since ------------ September 30, 1999, none of the Acquired Companies or, as applicable and with respect to the US-Based Assets, NMT-US, has: (a) (i) abandoned or sold, leased, transferred or assigned any of its assets, tangible or intangible, other than for a fair consideration in the ordinary course of its business, consistent with past practice and which assets do not have an aggregate book value in excess of US$50,000 (excluding sales of inventory in the ordinary course), or (ii) mortgaged, incurred or permitted to be attached any Liens in excess of US$50,000 on any of its assets, tangible or intangible; (b) entered into any Contract involving more than US$50,000 in the aggregate, outside the ordinary course of business, consistent with past practice, and which cannot be terminated on less than thirty (30) days notice by such Acquired Company or NMT-US without penalty; (c) accelerated, terminated, modified (other than modifications in the ordinary course of business and consistent with past practice), or cancelled any Contract (or series of related Contracts) involving more than US$50,000 in the aggregate to which such Acquired Company or NMT-US is a party or is otherwise bound; (d) merged or consolidated with, or made any capital investment in, any loan to, any advance to, or any acquisition of the securities or assets of, any other Person (or series of related capital investments, loans, and acquisitions); (e) issued any note, bond, or other debt security or created, incurred, assumed, or guaranteed any indebtedness or capitalized lease obligation; (f) issued, sold or otherwise disposed, directly or indirectly, of any of its capital shares, or granted any options, warrants, or other rights to purchase or obtain (including upon conversion, exchange, or exercise) any of its capital shares; (g) granted any license or sublicense, transferred or assigned any right, or commenced or settled any litigation or dispute with respect to any Intellectual Property 18 (h) made or instituted any unusual or new methods of manufacture, purchase, sale, distribution, shipment or delivery, lease, management, accounting or operation, or shipped or delivered any quantity of Products in excess of normal shipment or delivery levels; (i) experienced any damage, destruction, or loss (whether or not covered by insurance) to its assets or property in an aggregate amount greater than US$50,000; (j) made any loan to, or entered into any other transaction with, any of its directors, officers, or employees or any of their family members, trustees or beneficiaries; (k) entered into any employment contract, deferred compensation agreement, severance agreement, retirement agreement or collective bargaining agreement, written or oral, or modified the terms of any existing such contract or agreement; (l) granted, provided or paid compensation or benefits to any of its directors, officers, or employees, other than salary increases in the ordinary course of such Acquired Company's business consistent with past practice; (m) adopted, amended, modified, or terminated any Employee Benefit Plan, including, without limitation, accelerating any payments due or to become due under any deferred compensation plan; (n) made any other change in employment terms for any of its directors, officers or employees; (o) made or pledged to make any charitable or other capital contribution which is (i) not reflected on the September 30, 1999 balance sheet delivered to Buyer's representatives or (ii) in excess of US$50,000 in the aggregate which remains unfulfilled; (p) made any capital expenditure or commitment for any capital expenditure in excess of US$50,000 in the aggregate; (q) amended its articles or memorandum/articles of incorporation/ association, by-laws or other governing instruments; (r) made any change in any accounting methods or systems of internal accounting controls; (s) waived, released or compromised any right or claim in excess of US$50,000 in the aggregate; (t) commenced or settled any litigation or similar adversarial proceeding, including, without limitation, any such litigation or proceeding involving the such Acquired Company or NMT-US that, if adversely determined, could restrict the operations of any of the Acquired Companies or the Business; 19 (u) entered into any closing agreement or settled or agreed to settle any claim or assessment for Taxes or surrendered any right to claim a refund of Taxes or otherwise offset or reduce any Tax liability; (v) made or changed any election with respect to Taxes; (w) experienced any labor dispute, other than individual grievances, or any lockouts, strikes, slowdowns, work stoppages by or with respect to any of its employees; or (x) experienced any event, occurrence, development or set of circumstances of facts, which individually or in the aggregate, has had or could reasonably be expected to have a Material Adverse Effect. 3.7 TAXES. ------ (a) Parent, Seller and each of the Acquired Companies have, except as set forth on Schedule 3.7(a), timely filed with the appropriate taxing --------------- authorities all Returns (including, without limitation, information Returns and other material information) in respect of Taxes with respect to the Business or any of the Acquired Companies, required to be filed through the date hereof and will timely file any such Returns required to be filed on or prior to the Closing Date. The Returns and other information filed are complete, true and accurate in all material respects. None of Parent, Seller or any of the Acquired Companies has requested any extension of time within which to file Returns (including, without limitation, information Returns) in respect of any Taxes. Parent, Seller and each of the Acquired Companies have delivered to Buyer true, complete and accurate copies of the Acquired Companies' Tax Returns (and statements of deficiency assessed against, or agreed to by the Acquired Companies or any other entity on behalf of the Acquired Companies) for the Tax periods of the Acquired Companies as to which the statutes of limitations with respect to Taxes have not expired. (b) Except as set forth on Schedule 3.7(b), all Taxes for which the --------------- Acquired Companies are or may be liable, in respect of periods (or portions thereof) ending on or before the Closing Date, have been timely paid or will be timely paid. (c) No deficiencies for Taxes have been claimed, asserted, proposed or assessed by any taxing or other Governmental Authority (foreign or domestic) against any Acquired Company. There are no pending or, to the best of the knowledge of Parent, Seller and each of the Acquired Companies, threatened audits, investigations or claims for or relating to any Liability in respect of Taxes, and there are no matters under discussion with any Governmental Authorities with respect to Taxes that in the reasonable judgment of the Acquired Companies, or their auditors or counsel, is likely to result in additional Liability of any Acquired Company for Taxes. No extension or waiver of a statute of limitations relating to Taxes is in effect with respect to any Acquired Company. No power of attorney has been executed by any Acquired Company with respect to any matter or matters relating to Taxes which are currently in force. There is no compromise or settlement with any taxing or other Governmental Authority that is binding any Acquired Company for any Tax period ending after the Closing Date. There are no requests for rulings or determinations relating to any Acquired Company pending with any taxing or other 20 Governmental Authority. Except as set forth on Schedule 3.7(a), each of the Tax --------------- Returns of the Acquired Companies for the past six (6) years have been agreed with the Taxing Authorities and no adjustments have been made (or suggested) to any Tax Returns of the Acquired Companies by any Governmental Authority. Set forth on Schedule 3.7(c) for each Acquired Company are the jurisdictions in --------------- which such Acquired Company has filed Tax Returns within the last three (3) Tax years. No taxing authority in a jurisdiction where an Acquired Company does not file Tax Returns has made any claim within the last three (3) years that such Acquired Company may be subject to taxation in that jurisdiction. The Acquired Companies have properly requested, received and retained all necessary exemption certificates and other documentation supporting any claimed exemption or waiver of Taxes on sales or other transactions as to which the Acquired Companies would have been obligated to collect or withhold Taxes. (d) There are no Liens on any of the Assets of the Acquired Companies or on any of the US-Based Assets that arose in connection with any failure (or alleged failure) to pay any Tax. None of the Assets of the Acquired Companies or the US-Based Assets is property that is required to be treated for Tax purposes as being owned by any other person. (e) The transaction contemplated herein is not subject to the Tax withholding provisions of Section 3406 of the Code, or of Subchapter A of Chapter 3 of the Code or of any other provision of Law. (f) The provisions for Taxes shown on the Reference Date Balance Sheet are, and the provisions for Taxes shown on the Closing Date Balance Sheet will be, adequate to discharge all Taxes incurred by the Acquired Companies with respect to all periods ending on or before the date thereof, including, with respect to the Closing Date Balance Sheet, as if the taxable year of each of the Acquired Companies ended on the Closing Date. (g) Except as set forth on Schedule 3.7(g) hereto, none of the Acquired -------------- Companies has, or has ever had, a permanent establishment (as defined by applicable Tax treaty) or other taxable presence nor has been subject to Tax in any country other than such Acquired Company's country of incorporation. (h) None of the Acquired Companies has ever been a member of an "affiliated group" of corporations (within the meaning of Section 1504 of the Code), other than the group of which NMT Medical, Inc. is the common parent. No member of any "affiliated group" of which NMT Medical, Inc. is the common parent has any outstanding waivers or extensions of any applicable statute of limitations relating to the assessment of Taxes. No Acquired Company has any actual or potential Liability for any Tax obligation of any other taxpayer (including without limitation any affiliated group of corporations or other entities that included such Acquired Company during a prior period). (i) None of the Acquired Companies (i) has any investment in "United States property" within the meaning of Section 956 of the Code, (ii) is a passive foreign investment company within the meaning of the Code or (iii) has been engaged in a United States trade or business for federal income tax purposes. 21 (j) None of the Acquired Companies (i) has consented at any time under any foreign tax provision similar to Section 341(v)(1) of the Code, to have provisions similar to Section 341(v)(2) of the Code apply to any disposition of the Acquired Companies' assets, or (ii) has agreed, or is required, under any foreign tax provision similar to Section 481(a) of the Code to make any adjustment by reason of a change in accounting method or otherwise. (k) All material elections with respect to Taxes affecting the Acquired Companies as of the date hereof are set forth on Schedule 3.7(k). --------------- (l) None of the Acquired Companies is party or subject to any Tax sharing, indemnity, allocation or similar agreements, whether or not reduced to writing. (m) Except as set forth on Schedule 3.7(m) hereto, none of the Acquired --------------- Companies is a party to any joint venture, partnership or other arrangement or contract that is or could be treated as a partnership for Tax purposes. (n) [INTENTIONALLY OMITTED] (o) [INTENTIONALLY OMITTED] (p) Except as set forth in Schedule 3.7(p) hereto, no Acquired Company is ------------ or has ever been a close company as defined by Section 414 of the Income and Corporation Taxes Act, 1988 ("TA"). (q) No Acquired Company has acquired any asset other than trading stock from any other company (other than another Acquired Company) belonging at the time of acquisition to the same group of companies as that Acquired Company within the meaning of Section 170 of the Taxation of Chargeable Gains Act, 1992 ("TCGA") and no member of any group of companies of which any Acquired Company is or has at any material time been the principal company (as defined in Section 170(2)(b) of the TCGA) has so acquired any asset. (r) Schedule 3.7(r) contains particulars of all arrangements relating to --------------- relief under Sections 402-413 of the TA ("Group Relief") to which the Acquired Companies are or have been party and: (i) all claims by any Acquired Company for such group relief were when made and are now valid and have been or will be allowed by way of relief from corporation tax; (ii) no Acquired Company has made or is liable to make any payment for group relief otherwise than in consideration for the surrender of Group Relief allowable to the Acquired Company by way of relief from corporation tax; (iii) each Acquired Company has received all payments due to it under any arrangement or agreement for surrender of Group Relief by it for periods prior to the Reference Date; 22 (iv) no such payment exceeds or could exceed the amount permitted by Section 402(6) of the TA; (v) there exist or existed for any period of account in respect of which a surrender has been made or purports to have been made no arrangements such as are specified in Section 410(1)-(6) of the TA. (s) Schedule 3.7(s) contains particulars of all arrangements for the --------------- surrender under Section 240 of the TA of any amount of advance corporation tax and in respect of receipts and surrenders disclosed: (i) no Acquired Company has paid or is liable to pay for the benefit of any advance corporation tax which is or may become incapable of set off against that company's liability to corporation tax; (ii) each Acquired Company has received all payments due to it for all surrenders or purported surrenders of advance corporation tax made by it; (iii) no such payment exceeds or could exceed the amount permitted by Section 240(8) of the TA; and (iv) there exist or existed for any period in respect of which a claim under Section 240 of the TA has been or is to be made no arrangements such as are specified in sub-section (11) of that section whereby any person could obtain control of the Acquired Company or of any subsidiary to which such surrender purports or is purported to be made. (t) None of the activities of the Acquired Companies have created Subpart F income, as described in Section 952(a) of the Code, from the date Parent and its Affiliates acquired such Acquired Companies to and including the Closing Date. (u) Schedule 3.7(u) sets forth in reasonable detail all Tax accruals of the --------------- Acquired Companies for the 1999 Tax year (it being agreed that, notwithstanding said schedule, for the purposes of the Reference Date Balance Sheet, the 1998/1999 Tax Make-Whole Payment and the Purchase Price Adjustment, the Tax accrual amount shall be as stated on the Reference Date Balance Sheet). 3.8 CONTRACTS, LICENSES, ETC. ------------------------- (a) Except as set forth in the appropriate subsection on Schedule -------- 3.8(a), or otherwise disclosed on Schedule 3.7(m), Schedule 3.8(b)(i), Schedule - ------ --------------- ------------------ -------- 3.11(c), Schedule 3.13, Schedule 3.15(a)(ii) or Schedule 3.15(b)(i), none of the - ------- ------------- ------------------- ------------------- Acquired Companies (or, with respect to the US-Based Assets, NMT-US) is a party to any Contract: (i) other than the Barclays Debt, evidencing indebtedness for borrowed money or the deferred purchase price of property, or pursuant to which such Acquired Company has guaranteed any obligation of any other Person, except any such Contracts with an aggregate 23 outstanding principal amount not exceeding US$50,000 and which may be prepaid on not more than thirty (30) days' notice without payment of penalty or permission; (ii) creating or purporting to create a material Lien on any of the Acquired Companies' properties or Assets, including the US-Based Assets; (iii) prohibiting or limiting the ability of any Acquired Company to engage in any line of business, to compete with any Person or to carry on its business anywhere in the world, including, without limitation, restricting any Acquired Company from selling, licensing or otherwise distributing any Products to any class or type of customers or through any type of channel in any geographic area or during any period of time; (iv) that are confidentiality agreements, joint venture, partnership or limited liability company agreements or similar arrangements; (v) for the purchase or sale of materials, commodities, supplies, products or other personal property, or for the furnishing or receipt of services, the performance of which will extend more than one year or involve consideration in excess of US$50,000 in the aggregate; (vi) for the sale, transfer, lease, license or parting with possession or ownership of any material assets of any of the Acquired Companies on, prior to or after the date hereof (other than sales of Products by the Acquired Companies pursuant to written orders in the ordinary course of business and consistent with past practice); (vii) that are license agreements pursuant to which any Acquired Company or NMT-US is a licensee or otherwise required to pay royalties, or which contain (A) a provision requiring such Acquired Company, NMT-US or any of their respective Affiliates to pay royalties to the licensor without regard to whether or not the licensed property is actually being used by Acquired Company or Affiliate, or (B) contain any provision which restricts, prohibits or is triggered by changes in control of the licensee; (viii) pursuant to which any Acquired Company or NMT-US receives or is entitled to receive royalty or similar payments; (ix) that grants to any Person or otherwise affects any of the Acquired Companies' or NMT-US's exclusive right to manufacture, produce, assemble, license or market any of the Products; (x) for the lease of personal property to or from any Person providing for lease payments in excess of US$50,000 per annum in the aggregate; (xi) requiring the performance of services or delivery of goods or materials by or to any Acquired Company or NMT-US for consideration exceeding US$50,000 in any one year that are not terminable by such Acquired Company or NMT-US on not more than thirty (30) days' without penalty; 24 (xii) for the employment or engagement of any Person on a full-time, part-time, consulting, or other basis providing annual compensation in excess of US$50,000 in the aggregate or which provide for the payment of deferred compensation; (xiii) under which it has advanced or loaned any amount to any of its directors, officers, and employees outside the ordinary course of business, consistent with past practice; or (xiv) that are material to any of the Acquired Companies or NMT-US, either individually or in the aggregate. Parent, Seller, NMT-US and the Acquired Companies have delivered or made available to Buyer a true, complete and correct copy of each written Contract and a reasonably detailed written description of each oral Contract listed on Schedule 3.8(a). - --------------- (b) (i) Except as set forth on Schedule 3.8(b)(i), none of the Parent, ------------------ Seller, NMT-US or any of the Acquired Companies or any of their respective Affiliates is party or subject to any Contract, promise, arrangement, understanding or Liability with any other Person with respect to the distribution, sale, sale representation, brokerage, resale or consignment of Products, whether oral, written or otherwise (the "Distribution Arrangements"). (ii) Except as disclosed on Schedule 3.8(b)(ii), each of the Distribution ------------------ Arrangements to which any Acquired Company or NMT-US is party or subject, or which relates to any of the Products, may be terminated at any time by such Acquired Company or NMT-US without any charge, penalty, fee or other Liability payable by or imposed upon Buyer or any Acquired Company, or any right to injunctive relief with respect to Buyer or any Acquired Company. (iii) The Exclusive Distributorship Agreement, dated as of August 28, 1995, by and between Candela Corporation and Spembly-Cryosurgery has been validly and legally terminated in accordance with the terms thereof prior to the date hereof. Except as set forth on Schedule 3.8(b)(iii), none of the Acquired Companies has, nor ------------------- will the Buyer have at Closing or any time thereafter, any obligations or liabilities in connection with said agreement or the termination thereof. (c) Except as disclosed on Schedule 3.8(c) hereto, each of the Contracts --------------- identified on Schedule 3.7(m), Schedule 3.8(a), Schedule 3.8(b)(i), -------------- --------------- ------------------ Schedule 3.11(c), Schedule 3.13, Schedule 3.15(a)(ii) or Schedule - ---------------- ------------- -------------------- 3.15(b)(i) hereto: - ---------- (i) is a valid and legally binding obligation of the Acquired Companies and, as applicable, Parent, Seller, NMT-US and their respective Affiliates party thereto, and, to the knowledge of Parent, Seller, NMT-US and the Acquired Companies, each other party thereto; (ii) will continue to be a valid and legally binding obligation in full force and effect on identical terms following the consummation of the transactions contemplated hereby; (iii) none of Parent, Seller, NMT-US or any of the Acquired Companies is in default under any such Contract except for such defaults which, individually or in the aggregate, have not had and could not reasonably be expected to have a Material Adverse Effect; 25 (iv) to the knowledge of Parent, Seller, NMT-US and the Acquired Companies, no other Person that is a party to such Contract is in default thereunder; and (v) except as disclosed on Schedule 2.6(a) and Schedule 2.6(b), to -------------- --------------- the knowledge of Parent, Seller, NMT-US and the Acquired Companies, no event has occurred or circumstance exists that (with or without the giving of notice, the lapse of time or both) gives any Person other than the Acquired Company that is a party to such Contract the right to declare a default, exercise any remedy under, accelerate the maturity or performance of, or terminate such Contract. (d) Except as disclosed on Schedule 3.8(d), none of the Acquired --------------- Companies or, with respect to the US-Based Assets, NMT-US, has received any payment from any contracting party in connection with or as an inducement for entering into any Contract except for payment for actual services rendered or to be rendered by the Acquired Companies or NMT-US consistent with amounts historically charged for such services. 3.9 INTELLECTUAL PROPERTY. ---------------------- (a) Schedule 3.9(a) includes a complete and correct list and summary --------------- description of all Intellectual Property owned by the Acquired Companies and, with respect to the US-Based Assets, NMT-US, together with a complete list of all material Contracts relating thereto, including without limitation all licenses granted by or to the Acquired Companies or, with respect to the US- Based Assets, NMT-US, with respect to any Intellectual Property. Except as disclosed on Schedule 3.9(a), all such Intellectual Property is legally and --------------- beneficially owned and owned of record by the Acquired Company indicated as the owner thereof, and, with respect to the US-Based Assets, NMT-US, free and clear of all Liens and constitutes all of such Intellectual Property necessary for the ownership and operation of the Assets and the lawful conduct of the Business as now conducted, except for Liens thereon that would not be reasonably likely to have a Material Adverse Effect. Other than the tradename "NMT", neither Parent nor any of its subsidiaries or Affiliates (including Seller and NMT-US, but excluding the Acquired Companies) owns or licenses any Intellectual Property used or required to be used in connection with the Business. (b) Each of the Acquired Companies and, with respect to the US-Based Assets, NMT-US, has such rights to use, protect, prosecute, sell, transfer, license, sublicense, dispose of or bring actions for the infringement of its rights in and to, and to exclude others from using, the Intellectual Property required to be listed on Schedule 3.9(a) as are established by the applicable -------------- Laws of each relevant jurisdiction (and to the extent provided in each agreement under which each Acquired Company or NMT-US is licensee) and granted to the sole and exclusive owner of an item of Intellectual Property of such kind. Except as disclosed on Schedule 3.9(b), each Acquired Company and, with respect to the US- --------------- Based Assets, NMT-US, is the sole beneficial and record owner of its Intellectual Property. The Intellectual Property required to be listed on Schedule 3.9(a) which is registered or the subject of an application for registration (collectively, the "Registered Intellectual Property") has been duly maintained in accordance with the legal and administrative requirements of the appropriate jurisdictions in all material respects, and has (except for patents which may have expired on their normal expiration dates) 26 not lapsed, expired, been canceled or been abandoned. No registration or application for registration of any item of Registered Intellectual Property is the subject of any pending opposition, challenge, interference, cancellation or other legal or governmental proceeding filed before any Governmental Authority. (c) Except as disclosed on Schedule 3.9(c), none of the Acquired --------------- Companies or, with respect to the US-Based Assets, NMT-US has received notice of any violation of and, to the knowledge of Parent, Seller, NMT-US and the Acquired Companies, (i) none of Acquired Companies (and none of their employees or agents) is infringing, misappropriating, misusing or violating, the rights of others in any Intellectual Property, and (ii) neither the Business nor any Acquired Company is subject to any claim to pay compensation pursuant to Sections 40 and 41 of the Patents Act 1977, and there are no facts or circumstances likely to give rise to such a claim. (d) To the knowledge of Parent, Seller, NMT-US and the Acquired Companies, there has been no infringement, unauthorized use, breach of confidentiality obligations, disclosure or misappropriation by any Person of any Intellectual Property required to be listed on Schedule 3.9(a). --------------- (e) Each of the Acquired Companies has reviewed its operations with a view towards assessing whether the Assets, Products and Business are Year 2000 Compliant. Schedule 3.9(e) contains a true, correct and complete list of all written or oral studies, audits, surveys, reports and investigations conducted by or on behalf of the Acquired Companies with respect to the foregoing. All computer software used in the Business is Year 2000 Compliant, it being agreed that no representations or warranties are being made with respect to the Chameleon financial and accounting software system. For purposes of this Agreement, "Year 2000 Compliant" with the foregoing shall mean that all such equipment and software has and will continue to, (i) function on and after January 1, 2000 and (ii) process, store and otherwise handle data containing or depending upon dates, on and after January 1, 2000, including leap year calculations. (f) Parent, Seller, NMT-US and each of the Acquired Companies and their respective Affiliates have taken reasonable security measures to safeguard and maintain their respective property rights in all Intellectual Property owned by the Acquired Companies and, with respect to the US-Based Assets, NMT-US. All officers, employees and consultants of the Acquired Companies or, with respect to the US-Based Assets, NMT-US, who have access to proprietary information have executed and delivered to the applicable Acquired Company(ies) or NMT-US an agreement regarding the protection of proprietary information, and the assignment to or ownership by the Acquired Companies of all Intellectual Property arising from the services performed for the Acquired Companies by such Persons. To the knowledge of the Parent, Seller, NMT-US and the Acquired Companies, no current or prior officers, employees or consultants of the Parent, Seller, NMT-US or any of the Acquired Companies claim, and the none of such parties is aware of any grounds to assert a claim to, any ownership interest in any Intellectual Property of the Acquired Companies or, with respect to the US- Based Assets, NMT-US as a result of having been involved in the development of such property while employed by or consulting to the Acquired Companies, NMT-US or otherwise. 27 (g) None of Parent, Seller, NMT-US or any of the Acquired Companies or their respective Affiliates (i) have sold, transferred, licensed or otherwise granted the right to any Person to use the name "Neurosciences" (or any word substantially similar thereto), whether alone or in combination with any other text or graphics, or (ii) except as set forth on Schedule 3.9(g) hereto, have registered, filed any application in respect of or otherwise sought ownership or rights in and to the name "Integra" (or any word substantially similar thereto), whether alone or in combination with any other text or graphics. 3.10 LABOR MATTERS. -------------- (a) Within the last three (3) years none of the Acquired Companies has been the subject of any trade dispute as defined in Section 218 of the UK Trade Union Labour Relations (Consolidation) Act 1992 ("TULRC"), nor has there been any strike, work stoppage or slow-down of any kind called or threatened to be called against any of them, and no event has occurred which could or might give rise to such dispute or action. None of the Acquired Companies has committed a violation of any applicable Law relating to trade or trade practices, which violation has had or could reasonably be expected to have a Material Adverse Effect. (b) Except as specified in Schedule 3.10(b), there are no Contracts, including recognition agreements and collective agreements, between any of the Acquired Companies and any trade union, workers' council or other body representing employees. (c) Except as set forth on Schedule 3.10(c), no supervisory employee of any of the Acquired Companies has given or received notice terminating his or her employment or office, and no such supervisory employee will be entitled to give such notice as a result of this Agreement or any of the Related Agreements. (d) To the knowledge of Parent, Seller and the Acquired Companies, there are no current investigations by any Governmental Authority in relation to any employment practice in the Acquired Companies. (e) Except as set forth on Schedule 3.10(e) hereto, there are no notices, consents, authorizations or approvals, or payments or indemnifications, in respect of any employee of the Business which would be required in the event that any of the Acquired Companies ceased operations and terminated its workforce. (f) No Acquired Company has entered into any agreement and no event has occurred which may involve an Acquired Company in the future acquiring any undertaking or part of one such that the United Kingdom Transfer of Undertakings (Protection of Employment) Regulations 1981 (as amended) may apply thereto. 28 3.11 EMPLOYEE BENEFIT PLANS ---------------------- (a) All Employee Benefit Plans have been maintained in compliance with the requirements of all applicable Laws and any rules, policies and procedures thereof. (b) None of the Acquired Companies maintains, contributes to, or is obligated to contribute to any "multiemployer plan," as defined in Section 3(37) of Employee Retirement Income Security Act of 1974 (as amended). (c) Schedule 3.11(c) hereto contains a complete and correct list ---------------- of all Employee Benefits Plans currently maintained or contributed to by the Acquired Companies with respect to any employee or former employee of the Acquired Companies. (d) No action, investigation or audit (other than routine claims for benefits) is pending or threatened against any Employee Benefit Plan of any of the Acquired Companies. (e) The Reference Date Balance Sheet reflects, and the Closing Date Balance Sheet will reflect, an accrual for any unpaid Liabilities relating to Employee Benefit Plans which are required to be accrued by GAAP. (f) No amounts will be paid or become payable, or benefits or vesting of benefits accelerated under, any Employee Benefit Plan of any Seller as a result of the transactions provided for in this Agreement. (g) Schedule 3.11(g) hereto contains a current list of all ---------------- employees of the Acquired Companies and their current employer, compensation (including salary, bonus and other benefit schemes, arrangements and understandings), title, job function and length of employment. Copies of all other standard terms and conditions, staff handbooks and policies have previously been provided to Buyer. (h) Schedule 3.11(h) hereto contains a list of all current ---------------- employees of the Acquired Companies who shall cease to be employees of the Acquired Companies effective upon the Closing (collectively, the "Excluded Employees"), and all accrued vacation, pension, benefit and similar Liabilities of the Acquired Companies in respect thereof. (i) No power under the Pension Scheme to augment benefits or to provide benefits which would not otherwise have been provided has been exercised since the date of its last actuarial valuation. (j) Only employees of the Acquired Companies have participated in the Pension Scheme. (k) All lump sum death-in-service benefits (other than a refund of the member's contributions with interest where appropriate) payable under the Pension Scheme on death before normal pension age of a member while in an employment to which the Pension Scheme relates are insured fully under a policy with an insurance company of good repute. 29 (l) All contributions to the Pension Scheme have at all times been made in accordance with the provisions of the Pension Scheme and the recommendations of the actuary to the Pension Scheme. The assets of the Pension Scheme will not be less than the greater of the Projected Benefit Obligation under US GAAP or the UK Minimum Funding Standard as of the Closing Date. (m) Except as set forth in Schedule 3.11(m) hereto, there has been ---------------- no increase or decrease in the rate of any contribution to the Pension Scheme by any Seller at any time in the three (3) years ending on the date of this Agreement and no such increase or decrease has been agreed to, or, on the basis of actuarial advice received in respect of the Pension Scheme, proposed or advised. (n) All life insurance and long term disability benefits under the Pension Scheme are fully insured outside of the Pension Scheme. (o) There are no material actions, suits or claims pending or threatened (other than routine claims for benefits) in respect of the Pension Scheme or the benefits thereunder. (p) No "surplus payment" within the meaning of the Pension Scheme Surpluses (Administration) Regulations 1987 (S.I. 1987 No. 352) has been made out of the Pension Scheme. 3.12 ENVIRONMENTAL, HEALTH AND SAFETY MATTERS. Except as set forth in ---------------------------------------- Schedule 3.12 hereto: - ------------- (a) The Acquired Companies and, with respect to the US-Based Assets, NMT-US, are and have at all times been in compliance with all applicable Environmental Laws in connection with the leasing, ownership, manufacture, operation and condition of the Real Property, the Assets and the Business. There are no past or pending violations or alleged violations by any of the Acquired Companies or, with respect to the US-Based Assets, NMT-US, of any Environmental Laws asserted by any Governmental Authority or third party. Set forth in Schedule 3.12(a) hereto are all Orders, Permits and other approvals necessary to - ---------------- conduct the Business or operate at the Real Property in compliance with Environmental Laws. (b) There is no past or ongoing Release of Hazardous Materials whether or not caused by the Acquired Companies into the environment on, from or within any real property owned, leased, or utilized at any time by the Business. No Release of Hazardous Materials into the environment has caused or aggravated any condition or damage which would necessitate response, removal, or other remedial action or otherwise restrict the use or occupation of any property whether under Environmental Laws or otherwise after the date of this Agreement with respect to any property, regardless of whether the property is owned, leased or otherwise utilized by the Acquired Companies. All environmental assessments, reports and investigations with respect to any property currently or previously owned, leased, or utilized by the Business, whether commissioned by the Acquired Companies or third parties, are identified on Schedule 3.12(b) ---------------- and have been made available to Buyer prior to the date hereof. 30 (c) Except as disclosed on Schedule 3.12(c) hereto, (i) there are ---------------- no Hazardous Materials located on, contained in, or otherwise part of any property utilized by the Business, (ii) none of the Acquired Companies or, with respect to the US-Based Assets, NMT-US, has arranged for the transportation, storage, treatment or disposal of any Hazardous Materials at any property or site not owned or controlled by the Business or has otherwise owned or operated at any property that has or could reasonably be expected to give rise to any Liability of the Acquired Companies or, after the date hereof, Buyer or ISC, under any Environmental Law, and (iii) none of Parent, Seller, NMT-US, the Acquired Companies or any of their respective Affiliates, employees, agents or representatives has received any notice or is aware of any requirement under any Environmental Law regarding the removal, containment, treatment or other action in respect of asbestos located in or on any real or personal property, including, without limitation, the Real Property and Improvements utilized in the Business. (d) Except as disclosed on Schedule 3.12(d), there are no landfills, lagoons, impoundments, waste piles, drum storage areas, or storage tanks (above or underground) on any property previously or currently owned, leased, or utilized by the Business. 3.13 INSURANCE. All policies and binders of insurance for product --------- liability, directors and officers, fire, liability, property workers' compensation and other customary matters held by or on behalf of, or which provide coverage for, the Acquired Companies or, with respect to the US-Based Assets, NMT-US, (the "Insurance Policies") are identified on Schedule 3.13(i) ---------------- hereto and have been made available to Buyer. The Insurance Policies are in full force and effect and none of the Acquired Companies, NMT-US or any other Person is in default with respect to any material provision contained in any Insurance Policy nor have any of the Acquired Companies, NMT-US or any other Person failed to give any notice of any material claim under any Insurance Policy in due timely fashion, nor has any coverage for current claims been denied. Since July 8, 1998, there has been no material adverse change in Parent's, Seller's, NMT- US's or any Acquired Company's relationship with its insurers or in premiums payable. Schedule 3.13(ii) contains a list of pending insurance claims relating ----------------- to the Business, the Assets and the Products, and a history of insurance claims/loss run relating to the Business and the Assets for the five (5) years preceding the date of this Agreement. 3.14 RELATED PARTY RELATIONSHIPS. None of the Acquired Companies is, --------------------------- or at Closing will be, indebted, directly or indirectly, or committed to make loans or extend credit, to any current or former officer or director (or any members of their immediate families) of any of the Acquired Companies, Parent, Seller, NMT-US or any of their respective Affiliates, in any amount whatsoever other than in connection with expenses or advances of expenses incurred in the ordinary course of the Business. No officer or director (or any members of their immediate families) of any of the Acquired Companies, Parent, Seller, NMT-US or any of their respective Affiliates or is, directly or indirectly, indebted to the Acquired Companies or has any direct or indirect ownership interest in any firm or entity with which the Acquired Companies is affiliated or with which any of the Acquired Companies has a business relationship, or any firm or entity which competes with any of the Acquired Companies. No officer or director (or any members of their immediate families) of any of the Acquired Companies, Parent, Seller, NMT-US or any of their respective Affiliates has, directly or indirectly, a financial interest in any Contract with any of the 31 Acquired Companies. None of the Acquired Companies is a guarantor or indemnitor of any indebtedness of any other Person. 3.15 OWNERSHIP OF TANGIBLE ASSETS AND LEASES. ---------------------------------------- (a) With respect to the Assets other than the Real Property and Improvements: (i) Except as disclosed on Schedule 3.15(a)(i) hereto (with ------------------- respect to leased Assets), the Acquired Companies have or will have at Closing good, valid and marketable title to all of the Assets (other than the US-Based Assets) free and clear of any Liens; provided, however, that to the extent that any Assets (other than the US-Based Assets) are owned by Parent, Seller or any of their respective Affiliates (other than the Acquired Companies), such Assets shall be transferred to the Acquired Companies prior to the Closing. (ii) Schedule 3.15(a)(ii) hereto describes each of the Assets -------------------- which has a value in excess of US$50,000 which is held under any lease or conditional sale or other title retention agreement and lists the related leases, conditional sale agreements or other title retention agreements. (iii) None of the Acquired Companies has received any payment from a lessor in connection with or as inducement for entering into any such lease except as set forth on Schedule 3.15(a)(iii). Any security deposits made --------------------- under the leases and agreements relating to the Assets described on Schedule -------- 3.15(a)(ii) are set forth on such Schedule. - ----------- (iv) None of the Assets are leased by any of the Acquired Companies or NMT-US to any other person or entity. (v) The property and Assets (including Intellectual Property) owned, leased or licensed by the Acquired Companies, or which they otherwise have a right to use, together with all Contracts to which they are a party, consist only of properties, assets, rights and Contracts relating to the Business and such property, Assets (including Intellectual Property), rights and Contracts are adequate to conduct the Business as currently conducted and proposed to be conducted. (vi) All machinery, equipment and tools used in the Business are usable and operable in good working order and condition, and are in a reasonable state of repair, subject only to ordinary wear and tear, and have been subject to regular maintenance, except where the failure to be in such state or condition has not had and could not reasonably be expected to have a Material Adverse Effect. (vii) Except pursuant to this Agreement, none of the Acquired Companies or NMT-US is a party to any Contract whereby there has been granted to anyone an absolute or contingent right to purchase, obtain or acquire any rights in any of the Assets. (viii) All of the Assets are, or will at Closing, be located at the Andover Facility or at such other locations as contemplated by Section 5.8(a). 32 (ix) NMT-US has, and will transfer to ISC at Closing, good, valid and marketable title to all of the US-Based Assets free and clear of any Liens. (b) With respect to the Real Property and Improvements: (i) Schedule 3.15(b)(i) hereto describes all real property ------------------- leased for use in the Business and lists the related leases. The leases described in Schedule 3.15(b)(i) hereto are in full force and effect and ------------------- constitute valid and legally binding obligations of the applicable Acquired Companies and the other respective parties thereto and are enforceable in accordance with their terms, subject to bankruptcy laws and general equitable principles. There are no material defaults of any Acquired Company or, to the knowledge of Parent, Seller or any of the Acquired Companies, any third party under any such leases (nor are there any events or conditions which, with notice or lapse of time, or both, would constitute a material default). (ii) None of the property, nor any part thereof, described in Schedule 3.15(b)(i) is leased by any of the Acquired Companies to any other - ------------------- person or entity. (iii) No consent of any landlord, property agent, manager or any other Person is required under any of the leases listed on Schedule 3.15(b)(i) ------------------- is required in connection with the transactions contemplated hereby. (iv) No Taxes, rates, assessments, water charges or sewer charges relating to the Real Property or the Improvements are in arrears and there are no special Taxes, assessments or charges pending or, to the knowledge of the Parent, Seller or any of the Acquired Companies, threatened, against the Real Property or the Improvements. (v) The Real Property and the Improvements are usable and operable in the Business as presently conducted, the Improvements are in good working order and condition, and in a reasonable state of repair, subject only to ordinary wear and tear, and, since July 8, 1998, have been subject to regular maintenance. (vi) There are no pending, and none of Parent, Seller or any of the Acquired Companies has received any written notice of, nor do any of Parent, Seller of any of the Acquired Companies have any knowledge of, any threatened or contemplated court or arbitration proceedings affecting the Real Property, the Improvements or any part thereof. (vii) None of the Acquired Companies is or has been in occupation of or entitled to any estate or interest in land or premises except for the Real Property. (viii) Except for the deposit of the title deeds of the Real Property, such property and its title deeds are free from any Lien or other third party right whether in the nature of security or otherwise. All assignments through the date of closing with respect to each of the leases listed on Schedule 3.15(b)(i) have been properly and legally made and, as ------------------- necessary, consented to by the appropriate parties, and are valid and enforceable. (ix) The Acquired Companies have performed and observed all covenants affecting or relating to the Real Property (or the use or occupancy thereof) requiring 33 observance or performance by it, except for such failure to observe or perform such covenants as has not had or could reasonably be expected to have a Material Adverse Effect, and none of Parent, Seller or any of the Acquired Companies has received any notice of, nor is aware of, any breach of any such covenants. (x) Except as set forth on Schedule 3.15(b)(x), all ------------------- manufacturing, distribution and related operations of the Business are carried out at the Andover Facility. Except for the operations of the Business, no business or operations of Parent or any Affiliate of Parent (other than the Acquired Companies) are conducted at the Andover Facility. (xi) The Acquired Companies have no Liabilities (in any capacity including as principal contracting party or guarantor) in relation to any lease, license or other interest in, or agreement relating to, land apart from the Real Property. (xii) All disclosure and replies to inquiries related to the Real Property made or given by or on behalf of Seller or the Acquired Companies to the Buyer or its counsel are complete and accurate and do not omit or fail to state any material information so requested. 3.16 BROKERS-SELLERS. None of the Parent, Seller, NMT-US or any of the --------------- Acquired Companies or any of their respective Affiliates have engaged any person or entity which has or could have any valid claim against Buyer, ISC or any of the Acquired Companies for a finder's fee, brokerage commission or other similar payment nor otherwise acted in such a manner as to give rise to any valid claim against Buyer, ISC or any of the Acquired Companies for a finder's fee, brokerage commission or other similar payment. 3.17 LITIGATION. There is no suit, action, proceeding, claim or ---------- investigation pending or, to the knowledge of Parent, Seller, NMT-US or any of the Acquired Companies, threatened, against NMT-US (with respect to the US-Based Assets) or any of the Acquired Companies relating to any of the Business or any of the Products or Assets, including, without limitation, claims for breach of product warranties, product liability claims and claims covered by any of the Insurance Policies. During the five (5) years preceding the date of this Agreement, there have been no product liability claims asserted in writing against any of the Acquired Companies or any of their Affiliates or predecessors-in-interest with respect to any of the Products, except as disclosed on Schedule 3.17 hereto. ------------- 3.18 PRODUCT WARRANTY AND PRODUCT LIABILITY CLAIMS. No Product --------------------------------------------- manufactured, sold, distributed or delivered by or on behalf of any Acquired Company or NMT-US is subject to any warranty, guaranty, right of return or other indemnity other than the relevant Acquired Company's applicable standard terms and conditions of sale, which are consistent with customary industry practice. The Parent has maintained product liability insurance coverage covering the Acquired Companies, NMT-US and the Products in amounts of not less than US$1,000,000 per occurrence and US$10,000,000 in the aggregate with respect to products manufactured, sold, distributed or delivered by the Acquired Companies and NMT-US. Such product liability insurance is on a claims made basis. With respect to Liabilities related to actual or potential warranty claims, the Acquired Companies have established an adequate reserve therefor in conformity with GAAP and the Acquired Companies' past custom and practice. The 34 Acquired Companies do not have nor will they have any Liability for warranty claims in excess of the reserve so established with respect to any Products sold prior to the Closing Date, provided that the Acquired Companies continue to perform warranty repair work in a manner consistent with their past practice. 3.19 ENTERPRISE RESOURCE PLANNING SOFTWARE. None of the Acquired Companies ------------------------------------- has any Liabilities or has made any payments with respect to the Movex system. The Movex system is currently sufficient for all of the Acquired Companies' material financial and accounting software needs and will be sufficient until such time as the Acquired Companies have reinstalled an operating and fully- functional Chameleon system. Following reinstallation of the Chameleon system and the transfer of data related to the Acquired Companies and the Products from the Movex system to the Chameleon system, all Confidential Information will be stored in, contained on or accessible only through or by such systems, software or hardware owned by the Acquired Companies and located solely at the Andover Facility. 3.20 ELEKTA AGREEMENT. Other than as set forth on Schedule 3.20 hereto, ---------------- none of the Acquired Companies or, with respect to the US-Based Assets, NMT-US, has any Liability to, or claims for indemnification against, Elekta pursuant to that certain Purchase Agreement, dated as of May 8, 1998 (as amended, the "Elekta Agreement"), between Elekta. None of Parent, Seller, NMT-US or any of the Acquired Companies is aware of any fact, condition or circumstance which gives, or could reasonably be expected to give, rise to any Liability of any of the Acquired Companies or, with respect to the US-Based Assets, NMT-US, to Elekta, pursuant to the Elekta Agreement or otherwise. Except as disclosed on Schedule 3.20, none of the Acquired Companies or, with respect to the US-Based Assets, NMT-US, is currently obtaining any service or product from, or is otherwise required to make payments to, Elekta or any of its Affiliates. 3.21 INVENTORY. All inventory reflected on the Reference Date Balance --------- Sheet and all other inventory acquired by the Acquired Companies since December 31, 1999, was acquired in the ordinary course of business and in a manner consistent with the Acquired Companies' and NMT-US's regular inventory practices. Except for demonstration inventory, all such inventory is in good and saleable condition, other than products in the development phase which have not been completed for offer or sale to customers. Except as set forth on Schedule 3.21, none of the Acquired Companies' or, with respect to the US-Based Assets, NMT-US's inventory is held by any Person (including any of their Affiliates) on consignment or is located outside of the Andover Facility or NMT-US's facility in Atlanta, Georgia. In the aggregate, adequate reserves have been established on the Reference Date Balance Sheet and on the Acquired Companies books of account with respect to excessive and obsolete inventory (it being agreed that for the purposes of this Section 3.21, the term "excessive and obsolete inventory" shall refer to any on-hand raw materials, parts, supplies, or finished Products which (a) cannot be sold at current prices in the ordinary course of business, (b) which are not usable in the production of current Products, or (c) which consist of on-hand quantities in excess of one year's historical usage). 35 3.22 CERTIFICATIONS; PRODUCT SAFETY ------------------------------ (a) Except as set forth on Schedule 3.22(a), (i) all operations of ---------------- the Business have achieved and maintained the ISO 9001 certification and are compliant with United States Food and Drug Administration Quality System Regulations in all material respects, and (ii) there is no pending and none of Parent, Seller or any of the Acquired Companies has received any notice of, nor is aware of, any threatened, action to audit, repeal, fail to renew or challenge any of such certifications. (b) Except as set forth on Schedule 3.22(b), none of Parent, Seller, ---------------- NMT-US, any Acquired Company or any of their respective Affiliates has been required to file any notification or other report with or provide information to any product safety agency, commission, board or other Governmental Authority of any jurisdiction concerning actual or potential hazards with respect to any Product manufactured, distributed, sold or leased or service rendered by any Acquired Company or any employee or agent thereof. Each Product manufactured, sold or leased, or service rendered by the Acquired Companies complies in all material respects with all product safety standards of each applicable product safety agency, commission, board or other Governmental Authority. 3.23 CUSTOMERS, SUPPLIERS AND LICENSORS. None of Parent, Seller, NMT-US, ---------------------------------- any of the Acquired Companies or any of their respective Affiliates has received written notice of or has knowledge that any customers or distributors of, or suppliers or licensors to the Business or any Product has taken any action (or intends or could reasonably be expected to take any action as a result of the transactions contemplated hereby), which could materially adversely affect the business relationship of any of the Acquired Companies with such customer, distributor, supplier or licensor. 3.24 EXPORT. Except as set forth on Schedule 3.24, none of Parent, ------ Seller, NMT-US or any of the Acquired Companies has sold at any time since July 8, 1998, or to the knowledge of Parent, Seller, NMT-US and the Acquired Companies, at any time prior thereto, directly or indirectly through any Affiliate, or to its knowledge, through a distributor or other Person, any Products in or to any of the following countries (or to any Person acting on behalf of any of the following countries): Burma (Myanmar), Cuba, Libya, Iran, Iraq, North Korea, Sudan, Syria, Yugoslavia, or the Taliban in Afghanistan or UNITA in Angola. 3.25 [INTENTIONALLY OMITTED] 4. REPRESENTATIONS AND WARRANTIES OF BUYER AND ISC. Buyer and ISC, jointly ----------------------------------------------- and severally, represent and warrant to Parent, Seller, NMT-US, as of the date hereof and as of the Closing Date, as follows: 4.1 ORGANIZATION, POWER, EXECUTION ------------------------------ (a) Each of Buyer and ISC is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all requisite power and authority (corporate and other) to own its properties, to carry on its business as now being conducted, to execute, and deliver this Agreement and each of the Related Agreements to which it is a party, and to carry out the transactions contemplated hereby and thereby. 36 (b) The execution and delivery of this Agreement and the Related Agreements to which Buyer or ISC is a party, and the consummation of all transactions contemplated hereby and thereby have been duly authorized by all necessary corporate action on the part of Buyer and ISC. This Agreement and each Related Agreement to which Buyer or ISC is a party have been duly executed and delivered by Buyer and ISC, and constitute, and each other Related Agreement required hereby to be executed and delivered by Buyer or ISC will, when delivered, constitute, the valid and legally binding obligation of Buyer or ISC, as applicable, enforceable in accordance with its terms, subject to bankruptcy laws and general equitable principles. 4.2 NO VIOLATION. Except for those consents identified on Schedule ------------ -------- 2.6(a), Schedule 2.6(b) or Schedule 4.2, none of the execution and delivery of - ------ -------------- ------------ this Agreement and the Related Agreements, the consummation of the transactions provided for herein and therein or contemplated hereby and thereby, and the fulfillment by Buyer and ISC of the terms hereof or thereof, will (with or without notice or passage of time or both) (a) conflict with or result in a breach of any provision of the charter documents or by-laws of Buyer or ISC, (b) result in a default, give rise to any right of termination, cancellation or acceleration, or require any consent or approval (other than approval by the Boards of Directors of Buyer and ISC, which approvals have been obtained, and prior to the Closing Date will not be revoked, rescinded or restricted) under any of the terms, conditions or provisions of any Contract or obligation to which either of Buyer or ISC is a party or by which it or any of its assets may be bound, or (c) violate any Law applicable to Buyer, ISC or any of their respective assets. 4.3 BROKERS-BUYER AND ISC. Neither Buyer nor ISC has engaged any person --------------------- who could have any valid claim against any Parent, Seller or NMT-US for a finder's fee, brokerage commission or other similar payment. 5. COVENANTS. Parent, Seller, NMT-US and each of the Acquired Companies, --------- jointly and severally, covenant and agree, on their respective behalf, as follows: 5.1 CONDUCT OF THE BUSINESS. From the date hereof through the Closing ----------------------- Date, except as otherwise permitted by this Agreement or unless the prior written consent of Buyer is obtained (such consent not to be unreasonably withheld or delayed), each Acquired Company and, with respect to the US-Based Assets, NMT-US shall, and Parent and Seller shall cause each Acquired Company and NMT-US to: (a) carry on the Business in the usual, regular and ordinary course in substantially the same manner as heretofore conducted and use its best efforts to maintain the present business organization and goodwill, keep available the services of present employees, and preserve relationships with customers, suppliers, distributors and others having dealings with the Business, (b) pay all bonuses and other compensation due to the employees of the Acquired Companies for all periods prior to the Closing, and (c) refrain from taking any action which would (i) adversely affect the ability of any party to obtain any consents required for the transactions contemplated hereby, (ii) adversely affect the ability of any party to perform its covenants and agreements under this Agreement or any Related Agreement, or (iii) constitute a breach of and representation or warranty contained in, or require additional disclosure under, Section 3.6, clauses (a) through (x), inclusive. Notwithstanding any provision herein to the contrary, Parent, Seller, NMT-US and the Acquired Companies agree that Buyer shall be entitled to receive full information regarding any pending material Contract negotiations and shall have the 37 right to advise and approve any and all such Contracts to be entered into by any of the Acquired Companies that will continue in effect following the Closing, including, without limitation, any agreements or arrangements with Dantec Measurement Technology Ltd. or Gyrus Medical Ltd. 5.2 CERTAIN CHANGES. Between the date hereof and the Closing Date, ---------------- except as otherwise specifically permitted by this Agreement or unless the prior written consent of Buyer is obtained (such consent not to be unreasonably withheld or delayed), none of Parent, Seller, NMT-US or any Acquired Company shall permit (a) the imposition or attachment of any Lien on any of the Assets, other than inchoate liens incurred in the ordinary course of business which would not have a Material Adverse Effect, individually or in the aggregate, (b) the sale, assignment, transfer, abandonment or other disposition of any of the Assets, or any interest therein, other than sales of Products in the ordinary course of the Business, (c) the sale, merger or consolidation of any of the Acquired Companies or any equity interests therein to or with any Person, (d) the modification, amendment, alteration, waiver or termination of any of the Contracts required to be disclosed on Schedule 3.7(m), Schedule 3.8(a), Schedule 3.8(b)(i), Schedule 3.11(c), Schedule 3.13(ii), Schedule 3.15(a)(ii) or Schedule 3.15(b)(i) hereto or of any right or interest of any Acquired Company or NMT-US thereunder, (e) the declaration or payment of any dividends or other distributions to an equityholder by any of the Acquired Companies (except for the dividend (the "Pre-Closing Dividend") to be made by each of the Acquired Companies in an amount equal to the lesser of (i) the maximum amount of a dividend that may be legally declared and paid in accordance with the requirements and limitations of the Companies Act, 1985, and (ii) the amount of the Intergroup Receivable (after giving effect to the adjustments under Section 2.4 above) of such Acquired Company from Affiliates of Parent (other than another Acquired Company)) or the purchase or redemption of any of their capital shares; or (f) any of the Acquired Companies to (i) take any action to amend its charter or bylaws or other governing documents; (ii) issue any stock, bonds, shares of its capital or other securities, or grant any option or issue any warrant to purchase or subscribe for any of such securities or issue any securities convertible into or exchangeable for such securities; (iii) incur any obligation or Liability (absolute or contingent), except current Liabilities incurred and obligations under Contracts entered into in the ordinary course of the Business consistent with the Acquired Companies' past practice; (iv) cancel any debts or claims, except in the ordinary course of the Business consistent with the Acquired Companies' past practice; (v) make, accrue or become liable for any bonus, profit sharing or incentive payment, except for accruals under existing Employee Benefit Plans, if any, or increase the rate of compensation payable or to become payable by it to any of its officers, directors or employees, other than increases in the ordinary course of the Business consistent with past practice; (vi) make any election or give any consent under the Code or the Tax Laws of any jurisdiction or make any termination, revocation or cancellation of any such election or any consent or compromise or settle any claim for past or present Tax due; (vii) waive or relinquish any rights of material value; (viii) make or permit any act or omission constituting a breach or default under any contract, indenture or agreement by which it or its properties are bound; (ix) enter into any Contracts other than those entered into in the ordinary course of business calling for payments which in the aggregate do not exceed US$50,000 for each such lease, contract, agreement or understanding; (x) engage any employee for a salary in excess of US$75,000 per annum; (xi) alter the terms, status or funding condition of any employee benefit plan; or (xii) commit or agree to do any of the foregoing in the future. 38 5.3 ACCESS TO INFORMATION. --------------------- (a) From the date hereof until the Closing Date, upon reasonable notice, Parent, Seller, NMT-US and each of the Acquired Companies shall, and shall cause each of their respective officers, directors, employees, agents, representatives, accountants and counsel to: (i) afford the officers, employees and authorized agents, accountants, counsel and representatives of the Buyer reasonable access, during normal business hours and without unreasonable interference with business operations, to the offices, properties, plants, other facilities, books and records of the Acquired Companies or NMT-US (with respect to the US-Based Assets), or otherwise related to the Business, and to those officers, directors, employees, agents, accountants, counsel, customers and suppliers of the Acquired Companies who have any knowledge relating to the Assets or the Business, (ii) furnish to the officers, employees and authorized agents, accountants, counsel and representatives of the Buyer such additional financial and operating data and other information regarding the Assets, properties and goodwill of the Acquired Companies, NMT-US and the Business (or legible copies thereof) as the Buyer may from time to time reasonably request, and (iii) provide Buyer with (A) all forms, certificates and/or other instruments required to pay the transfer and recording Taxes and charges arising from the transactions contemplated by this Agreement and any Related Agreement, together with evidence satisfactory to Buyer that such transfer Taxes and charges have been paid by the Parent and/or Seller, (B) a clearance certificate or similar document(s) which may be required by any Taxing authority to relieve Buyer of any obligation to withhold any portion of the payments to Parent and/or Seller pursuant to this Agreement or any Related Agreement and (C) all filings, rulings, clearances, interest clearance requests, Group Relief requests, communications with Inland Revenue and other such documentation that affects the Tax or financial position of the Acquired Companies. (b) Parent, Seller, NMT-US and the Acquired Companies shall promptly furnish to the Buyer all material financial reports and statements, budgets and similar items related to the Acquired Companies and NMT-US (with respect to the US-Based Assets) that are prepared in the ordinary course of business and which relate to the Business or the Assets between the date hereof and the Closing Date, including, without limitation, monthly reports of income, sales, revenue and cash flow, balance sheets and such other reports as are customarily distributed to senior management. 5.4 EMPLOYEES. --------- (a) Parent, Seller, NMT-US and the Acquired Companies agree to encourage the employees of the Business (other than the Excluded Employees) to continue their employment with the Acquired Companies following the Closing. (b) Subject to the provisions of Section 2.2(c) and the Transition Services Agreement, Buyer agrees that it shall cause Neurosciences to continue to employ Steven Sinyard for a period of four (4) months following the Closing Date (or such shorter period as may be requested by Parent or as may result from the earlier termination of Steven Sinyard's employment for any reason other than a termination by Neurosciences); provided, however, that in the event Steven Sinyard is not employed by Neurosciences for such four (4) month period, Buyer shall 39 reimburse, or cause to be reimbursed, to Seller the unused portion of the Continued Employee Payment (which reimbursement amount shall be subject to offset for any amounts for which Buyer, ISC or any of the Acquired Companies has made a claim for indemnification under Section 14 hereof). 5.5 EXCLUSIVITY. Prior to the Closing Date or the date on which this ----------- Agreement is terminated pursuant to Section 11, neither Parent, Seller, NMT-US the Acquired Companies nor any of their respective Affiliates, equityholders, officers, directors, representatives or agents shall directly, or indirectly through any other Person, encourage, solicit, initiate, engage or participate in discussions or negotiations with any Person (other than Buyer) concerning any merger, consolidation, sale, lease or licensing of assets, sale of equity interests, or other business combination involving the Assets (including, without limitation, the US-Based Assets), the Business, the Products or any of the Acquired Companies, or (b) provide any non-public information concerning the Assets (including, without limitation, the US-Based Assets), the Business, the Products, or the operations, properties or assets of any Acquired Company to any Person (other than Buyer and its representatives). Parent, Seller, NMT-US and the Acquired Companies shall immediately notify the Buyer of, and shall disclose to the Buyer all details of, any inquires, discussions or negotiations of the nature described in the first sentence of this Section 5.5. 5.6 LIMITATIONS ON EMPLOYEE SOLICITATION AND COMPETITION. During the ---------------------------------------------------- period of two (2) years following the Closing Date, none of Parent, NMT-US, Seller nor any of their Affiliates as of the Closing Date shall: (a) offer employment to or employ any individual who is or was an employee of the Acquired Companies (other than Excluded Employees) at the time of the offer of employment or at any time within one (1) year prior to the offer employment; or (b) manufacture, market, distribute or sell any product which has the same or substantially the same form, function or primary applications as any of the Products. The parties hereto agree that the duration and geographic scope of the non- solicitation and non-competition provisions set forth in this Section 5.6 are reasonable. In the event that any court determines that the duration or the geographic scope, or both, are unreasonable and that such provision is to that extent unenforceable, the parties hereto agree that the provision shall remain in full force and effect for the greatest time period and in the greatest area that would not render it unenforceable. The parties intend that these non- solicitation and non-competition provisions shall be deemed to be a series of separate covenants, one for each and every county of each and every state of the United States of America and each and every political subdivision of each and every country outside the United States of America where this provision is intended to be effective. Parent and Seller agree that damages are an inadequate remedy for any breach of this provision and that Buyer, ISC and the Acquired Companies shall, whether or not it is pursuing any potential remedies at law, be entitled to equitable relief in the form of preliminary and permanent injunctions without bond or other security upon any actual or threatened breach of this non-solicitation and non-competition provision. 40 5.7 EMPLOYEE NOTIFICATION. Prior to the Closing Date, Parent, Seller and --------------------- the Acquired Companies shall (a) complete all consultations required to be made with their respective worker's committees or works councils regarding the transactions contemplated hereby and (b) provide all notices required to be given to employees regarding the transactions contemplated hereby. 5.8 AGREEMENT ON TRANSFER OF INVENTORY, OTHER ASSETS, ETC. ----------------------------------------------------- (a) Within 60 days following the Closing Date, and subject to the terms of the Transition Services Agreement, Parent shall, and shall cause its Affiliates to, at no cost to Buyer or the Acquired Companies, transfer all of the Products and other Assets principally related to the Business (other than the US-Based Assets), including, without limitation, all inventory, consignment inventory, parts, field samples, sales and marketing materials, customer lists, customer leads, information, Confidential Information and data related to or used in the Business, wherever located and in whatever form (including, without limitation, in electronic, digital or magnetic format), to the Andover Facility; provided however, this provision shall not apply to Products that constitute demo equipment located at hospitals and TNS products which are currently leased to third parties pursuant to leases which are not currently in default. (b) Within 60 days following the Closing Date, and subject to the terms of the Transition Services Agreement, NMT-US shall transfer all Products located in the United States and other Assets related to the Business of the type described in Section 5.8(a) to NMT-US's Facility located in Atlanta, Georgia; provided, however, this provision shall not apply to Products that constitute demo equipment located at hospitals. (c) As soon as possible following the date hereof, but in no event later than the five (5) days prior to Closing, Parent, Seller and NMT-US shall cause to be prepared and delivered to Buyer a list indicating the name and address of each Person to whom Products were sold by any of the Acquired Companies or NMT-US since July 8, 1998. (d) Parent, Seller, NMT-US and their respective Affiliates (i) have not heretofore and shall not hereafter disclose, provide, allow access to or otherwise make available to any Person other than Buyer, ISC and their representatives, except pursuant to a valid and enforceable confidentiality agreement, any Confidential Information, (ii) shall promptly inform Buyer of any breach or threatened breach of any confidentiality agreement or other non- disclosure obligation with respect to any Confidentiality Information (it being agreed that in the event of any such breach or threatened breach Parent, Seller, NMT-US and their respective Affiliates shall assign to Buyer, ISC and the Acquired Companies (or in the event such assignment is not permitted, grant or cause to be granted to Buyer, ISC or an Acquired Company a power of attorney for the purpose of enforcing) all rights and remedies under such confidentiality agreement or other non-disclosure obligation), and (iii) shall, on or prior to the Closing (or, if earlier, the date of the disposition of the equity or assets of any of Parent's subsidiaries or Affiliates (other than the Acquired Companies) engaged in the neuroscience, cryogenic or similar business) ensure that all such Confidential Information is returned to the Acquired Companies, including, without limitation, any financial information or data on the Movex system (except with respect to two Persons to whom Confidential Information has been provided and whose counsel 41 has retained one copy of such information under seal pursuant to the terms of a valid and binding confidentiality agreement and with whom neither Parent nor any of its Affiliates is currently in active discussions). 5.9 ACCOUNTING REFERENCE DATE CHANGE; SCHEDULES; SALES AND TRANSFER --------------------------------------------------------------- TAXES; FEES. - ----------- (a) Parent and Seller shall cause each of the Acquired Companies to pass, effective immediately prior to the Closing Date, a resolution of its Board of Directors changing the accounting reference date of such Acquired Company to the Closing Date and shall give notice of such change to the Registrar of Companies in accordance with Section 225 of the Companies Act, 1985. (b) Schedule 5.9(b) hereto sets forth a reasonable estimate of --------------- the following information with respect to each Acquired Company for the 1998 Tax year: (i) the Tax basis of each Acquired Company's assets; (ii) the amount of any net operating loss, net capital loss and unused credits of each Acquired Company; and (iii) the amount of any deferred gain or loss allocable to each Acquired Company arising out of any intercompany or intergroup transactions, and group surrender and relief. For the 1999 Tax year and the Stub Tax Period, Parent and Seller shall provide Buyer such information set forth in (i) through (iii) of this Section 5.9(b) with respect to each Acquired Company no later than 30 days' prior to the time the relevant Returns and computations are required to be filed for such year and such information shall be in form and substance reasonably satisfactory to Buyer and the Acquired Companies. In the event that the information contemplated by the immediately preceding sentence is not timely provided or is not reasonably satisfactory to Buyer and the Acquired Companies in the form provided, Buyer and the Acquired Companies shall, at Parent's and Seller's sole cost and expense, direct their accountants and financial personnel to prepare such information and Parent and Seller shall reimburse Buyer and the Acquired Companies for the full amount of such preparation costs and expenses immediately upon receipt of written notice thereof (with reasonable supporting detail) from Buyer or the Acquired Companies. (c) Schedule 5.9(c) hereto sets forth a reasonable estimate of the --------------- following information with respect to each Acquired Company for the 1998 Tax year: (i) the amount of current and accumulated earnings and profits as of the date hereof and the amount expected as of the Closing Date; (ii) the amount of previously taxed income within the meaning of Section 959 of the Code as of the date hereof and the amount expected as of the Closing Date (taking into account the amount of dividend income to NMT Medical, Inc. or any of its subsidiaries under Section 1248 of the Code from the transaction contemplated by this Agreement); and (iii) the amount, if any, NMT Medical, Inc. or any of its subsidiaries, or the Buyer would be required to include in gross income with respect to each such Acquired Company pursuant to Section 951 of the Code if the taxable year of such Acquired Company were deemed to end on the Closing Date. For the 1999 Tax year and the Stub Tax Period, Parent and Seller shall provide Buyer such information set forth in (i) through (iii) of this Section 5.9(c) with respect to each Acquired Company no later than 30 days' prior to the time the relevant Returns and computations are required to be filed for such year. In the event that the information contemplated by the immediately preceding sentence is not timely provided or is not reasonably satisfactory to Buyer 42 and the Acquired Companies in the form provided, Buyer and the Acquired Companies shall, at Parent's and Seller's sole cost and expense, direct their accountants and financial personnel to prepare such information and Parent and Seller shall reimburse Buyer and the Acquired Companies for the full amount of such preparation costs and expenses immediately upon receipt of written notice thereof (with reasonable supporting detail) from Buyer or the Acquired Companies. (d) All transfer, documentary, sales, use, registration, stamp and other such Taxes (including all applicable real estate transfer or gains Taxes) and related fees (including any penalties, interest and additions to Tax) incurred in connection with this Agreement and the transactions contemplated hereby, including, without limitation, the transfer of the Shares and the Assets, shall be borne equally by Parent, Seller and NMT-US, on the one hand, and Buyer and ISC, on the other hand. Parent, Seller, NMT-US, Buyer and ISC shall cooperate timely in making all filings, Tax Returns, reports and forms as may be required to comply with the provisions of such Tax laws. (e) Parent, Seller and NMT-US shall deliver to Buyer and ISC at the Closing all necessary forms and certificates complying with applicable law, in form and substance satisfactory to Buyer, duly executed and acknowledged, certifying that the transactions contemplated hereby are exempt from withholding under the Code (including Section 1445 thereunder) and any provision of foreign, state or local law. (f) Parent, Seller and NMT-US shall cause the provisions of any Tax allocation or sharing agreement, whether or not written, or similar arrangement that may have been entered into by Parent, Seller, NMT-US or any of their respective Affiliates and the Acquired Companies to be terminated on or before the Closing Date, and no payments which are owed by or to the Acquired Companies pursuant thereto shall be made thereunder. After the Closing Date, no party shall have any rights or obligations under any such Tax allocation or sharing agreement or similar arrangement. 5.10 RIGHT TO "NEUROSCIENCES" NAME; USE OF "NMT" NAME. Parent, Seller, ------------------------------------------------ NMT-US and each of their relevant Affiliates (other than the Acquired Companies) confirm and, at Closing, shall reconfirm, to Buyer, ISC and the Acquired Companies that they have no objection to Buyer, ISC or any of the Acquired Companies or their respective Affiliates using the word "Neurosciences" (and all derivatives thereof), whether alone or in combination with any other text or graphics (collectively, the "Tradename"). In addition, Parent and Seller acknowledge and agree that, while neither Buyer or ISC is acquiring ownership of the acronym "NMT" (or any derivatives thereof), Buyer and the Acquired Companies shall have, for a period of three (3) years from Closing, a limited license to continue to use the acronym "NMT" to the extent that the same appears or is used upon any promotional or marketing materials, brochures, information, labels, packaging or similar materials related to any of the Products or used in connection with the Business, in each case as exist on the Closing Date. Following the Closing Date, Seller, directly or indirectly through an Affiliate, shall have the reasonable right to monitor the quality of Products bearing the acronym "NMT". The license to the acronym "NMT" granted under this Section 5.10 is subject to and conditioned on the maintenance of Product quality consistent with the quality of the Products measured on the date hereof. 43 5.11 SECTION 338 ELECTION. Buyer shall not make an election under Section -------------------- 338(g) of the Code with respect to the purchase of the Shares (the "Election") unless Parent provides written consent for such election which consent shall not be unreasonably withheld, delayed or conditioned. If such Parent consent is withheld, Parent shall provide Buyer a report prepared by a nationally recognized accounting firm showing the present value (discounted at 8%) incremental tax cost to Parent of such Election. In the event that Buyer indemnifies Parent for such incremental tax cost, Buyer shall be permitted to make such Election. 5.12 CONTINUATION OF PARENT INSURANCE COVERAGE. On or prior to the ----------------------------------------- Closing Date, Parent shall obtain, and shall, for a period of not less than five (5) years thereafter, maintain in full force and effect, continuation or "tail" insurance policy coverage in respect of its product liability insurance with respect to the Products, which coverage shall be in such amounts and of such types consistent with Parent's product liability coverage in effect immediately prior to Closing. 5.13 AGREEMENT REGARDING ACCOUNTS RECEIVABLE. In the event that Parent or --------------------------------------- Seller make any indemnification payment to Buyer or any of the Acquired Companies as a result of the failure of any accounts receivable of the Acquired Companies at Closing to be collected within 90 days of the date of their creation (or within such longer period set forth on Schedule 3.5(d)(ii)), Buyer ------------------- and the Acquired Companies shall assign to Parent or Parent's designee all of their respective right, title and interest in and to such accounts receivable for which Buyer or the Acquired Companies have actually received indemnification payment. 6. CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER AND ISC. All of the ---------------------------------------------------- obligations of Buyer and ISC to consummate the transactions contemplated by this Agreement and the Related Agreements shall be contingent upon and subject to the satisfaction, on or before the Closing Date, of each and every one of the following conditions, all or any of which may be waived, in whole or in part, by Buyer for purposes of consummating such transactions, but without prejudice to any other right or remedy which Buyer or ISC may have hereunder as a result of any misrepresentation by, or breach of any covenant, representation or warranty of, Seller, Parent, NMT-US or any Acquired Company contained in this Agreement or any other certificate or instrument furnished by Parent, Seller or NMT-US hereunder. To the extent that a representation is not qualified as to the best knowledge of or as to a Material Adverse Effect then it must be true in all material aspects. 6.1 REPRESENTATIONS AND WARRANTIES OF PARENT, SELLER, NMT-US. The -------------------------------------------------------- representation and warranties made by Parent, Seller and NMT-US to Buyer in Section 3 of this Agreement shall be true and correct in all material respects (except for such representations and warranties as are qualified by materiality or made to the best knowledge, which shall be true and correct) on and as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of such time, except and solely to the extent such representations and warranties speak as of a different date. 6.2 COVENANTS OF PARENT, SELLER, NMT-US AND ACQUIRED COMPANIES. Parent, ---------------------------------------------------------- Seller, NMT-US and each of the Acquired Companies shall have performed in all material 44 respects all of the covenants, acts and undertakings to be performed by them on or prior to the Closing Date. 6.3 NO INJUNCTION, ETC. No action, proceeding, investigation, ------------------ regulation or legislation shall have been instituted or threatened before any Governmental Authority to enjoin, restrain, or prohibit the consummation of the transactions contemplated hereby, or the ownership of any of the Shares or Assets, or operation of the Business by Buyer, ISC or any of their respective Affiliates following the Closing. 6.4 ABSENCE OF ADVERSE CHANGES. Since the Reference Date, there shall -------------------------- have been no material adverse change in the value or condition of, or title to the Shares, the Assets (including the US-Based Assets), the Business or the Products. 6.5 FINANCIAL ACCOUNTING SYSTEM. The Acquired Companies shall have --------------------------- placed a purchase order with respect to an updated Chameleon financial and accounting software system that shall allow the Acquired Companies to operate with respect to such matters on a stand-alone basis without any need for data or software from any other Person, including, without limitation, any information contained on the Movex system. 6.6 PRE-CLOSING DIVIDEND. Each of the Acquired Companies shall have -------------------- declared and paid the Pre-Closing Dividend. 6.7 OTHER DELIVERIES. Parent, Seller and NMT-US shall have delivered ---------------- each of the Closing deliveries specified in Section 12.2(a). 7. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PARENT, SELLER AND NMT-US. -------------------------------------------------------------------- All of the obligations of Seller, Parent and NMT-US to consummate the transactions contemplated by this Agreement shall be contingent upon and subject to the satisfaction, on or before the Closing Date, of each and every one of the following conditions, all or any of which may be waived, in whole or in part, by Parent for purposes of consummating such transactions, but without prejudice to any other right or remedy which it may have hereunder as a result of any misrepresentation by, or breach of any covenant, representation warranty of Buyer or ISC contained in this Agreement, or any certificate or instrument furnished by it hereunder. To the extent that a representation is not qualified as to the best knowledge of or as to a Material Adverse Effect then it must be true in all material aspects. 7.1 REPRESENTATIONS AND WARRANTIES OF BUYER AND ISC. The representations ----------------------------------------------- and warranties made by Buyer and ISC to Parent, Seller and NMT-US in Section 4 of this Agreement shall be true and correct in all material respects (except for such representations and warranties as are qualified by materiality or made to the best knowledge, which shall be true and correct) in as of the Closing Date with the same force and effect as though such representations and warranties had been made on and as of such date, except and solely to the extent such representations and warranties speak of a different date. 45 7.2 COVENANTS OF BUYER AND ISC. Buyer and ISC shall have performed in -------------------------- all material respects all of the covenants, acts and undertakings to be performed by it on or prior to the Closing Date. 7.3 NO INJUNCTION, ETC. No action, proceeding, investigation, ------------------- regulation or legislation shall have been instituted or threatened before Governmental Authority to enjoin, restrain, prohibit the consummation of the transactions contemplated hereby. 7.4 OTHER DELIVERIES. Buyer and ISC shall have delivered each of the ---------------- Closing deliveries specified in Section 12.2(b). 8. PUBLICITY. So long as this Agreement is in effect, the Buyer and Parent --------- shall use all reasonable efforts to develop a joint communications plan and each party shall use all reasonable efforts (a) to ensure that all press releases and other public statements with respect to the transactions contemplated hereby shall be consistent with such joint communications plan and (b) unless otherwise required by applicable law or by obligations pursuant to any listing agreement with or rules of any securities exchange, to consult with each other before issuing any press release or otherwise making any public statement with respect to this Agreement or the transactions contemplated hereby. Notwithstanding the foregoing, the parties agree that the form of press releases attached hereto as Exhibit F shall be issued following the date hereof. - --------- 9. CONFIDENTIALITY. Prior to the Closing, the parties hereto, and their --------------- representatives and assignees shall hold confidential all Confidential Information obtained from each of the other parties, and their respective Affiliates in connection herewith and, if the Closing shall be abandoned as provided herein, shall treat such information as confidential and, where such information is in documentary form, return such information to Parent; provided, however, Buyer's counsel may retain one copy of such information for its files. The provisions of this Section 9 shall not apply to information which is in the public domain due to no fault of Buyer or its representatives. The parties hereto, on their own behalf and on behalf of their respective representatives and assignees, agree that damages are an inadequate remedy for breach of this provision and that the non-breaching party shall, whether or not it is pursuing any potential remedies at law, be entitled to equitable relief in the form of preliminary and permanent injunctions without the posting of a bond or other security upon any actual or threatened breach of this Section 9. 10. COOPERATION. From time to time after the Closing, Parent, Seller, NMT-US, ----------- Buyer and ISC shall, and shall cause their respective Affiliates to, at the reasonable request of Buyer or Parent, as the case may be, and without further consideration, execute and deliver such further instruments of assignment, transfer, license or assumption and take such further actions Buyer or Parent may reasonably request in order more effectively to transfer, reduce to possession, vest in, and record title to any of the Shares or the Business (other than the US-Based Assets) more fully to Buyer, or the US-Based Assets more fully to ISC or to implement the assumption and retention by Parent and Seller of the Excluded Liabilities, including, without limitation, cooperation before and after the Closing on matters relating to the retention of certain of the Acquired Companies' personnel by Buyer, integration of sales force activity, identification of the Assets, ordering and relocation of inventory, and preservation of relationships with customers, suppliers and 46 distributors. The parties shall render, at no additional cost or charge to the other, such cooperation to one another with respect to such matters and with respect to such other matters concerning the transition of control of the Business as reason and commercial prudence dictate should be addressed before and after the Closing; provided, however, that reasonable out of pocket expenses incurred in compliance with this Section 10 by one party at the request of another party shall be promptly reimbursed by the requesting party to the party incurring such expenses. 11. TERMINATION. ----------- 11.1 BOTH PARTIES. This Agreement may be terminated at any time prior ------------ to the Closing: (a) by the mutual consent of Parent and Buyer; (b) by Parent or Buyer if there shall be any action or proceeding (other than an action or proceeding commenced or induced by a party hereto or by a party claiming a successor interest to a party hereto seeking to terminate or restrain performance under this Agreement) instituted by any Governmental Authority which shall seek to restrain, assess Liability in respect of, or prohibit or invalidate the transactions contemplated by this Agreement and which, in the judgment of such party, made in good faith and based upon the advice of its counsel, makes it inadvisable to proceed with the Closing; or (c) by Parent or Buyer if, through no fault of the terminating party, the Closing shall not have occurred by April 30, 2000. 11.2 BUYER. This Agreement may be terminated by Buyer: (a) at any time ----- prior to the Closing, if any of Parent, Seller, NMT-US or any Acquired Company shall have failed to comply in any material respect with any of its covenants or agreements contained in this Agreement and such failure shall not have been rectified during the period of twenty-eight (28) days after written notification thereof to Parent, (b) at any time prior to the Closing, if there shall be any action or proceeding (other than an action or proceeding commenced or induced by a party hereto or by a party claiming a successor interest to a party hereto seeking to terminate or restrain performance under this Agreement) instituted by or before any court or other Governmental Authority which could reasonably be expected to materially affect the right of Buyer to own, operate or control the Shares, the Assets (other than the US-Based Assets) or the Business, or the right of ISC to own, operate or control the US-Based Assets, subsequent to the Closing and which makes it impractical to proceed with the Closing; or (c) if any of the conditions precedent to the performance of its obligations at the Closing shall not have been fulfilled on or prior to April 30, 2000. 11.3 PARENT. This Agreement may be terminated by Parent: (a) at any time ------ prior to the Closing, if either of Buyer or ISC shall have failed to comply in any material respect with any of its covenants or agreements contained in this Agreement and such failure shall not have been rectified during the period of twenty-eight (28) days after written notification thereof to Buyer or (b) if any of the conditions precedent to the performance of its obligations at the Closing shall not have been fulfilled on or prior to April 30, 2000. 47 11.4 EFFECT OF TERMINATION. --------------------- (a) In the event of termination of this Agreement by either Parent or Buyer as provided in Sections 11.1, 11.2 or 11.3, this Agreement shall forthwith become void and there shall be no Liability or obligation on the part of Parent, Seller, NMT-US, any of the Acquired Companies, Buyer or ISC, or their respective Affiliates, representatives, officers or directors, except (i) with respect to Section 9, this Section 11.4, Section 16.2, Section 16.10 and Section 17, (ii) with respect to any Liabilities or damages incurred or suffered by a party as a result of the willful breach by the other party of any of its covenants or other agreements set forth in this Agreement. (b) In the event that this Agreement is terminated by Buyer pursuant to Section 11.2(a) or 11.2(c) (as a result of the failure of any condition precedent specified in Section 6.1 or 6.2), then the Parent, Seller and the Acquired Companies shall, jointly and severally, be obligated to pay to Buyer a cash fee of US$750,000, which amount shall be payable by wire transfer of immediately available funds no later than two (2) Business Days after such termination. (c) In the event that this Agreement is terminated by Parent pursuant to Section 11.3(a) or 11.3(b) (as a result of the failure of any condition precedent specified in Section 7.1 or 7.2, then Buyer shall pay to Parent a cash fee of US$750,000, which amount shall be payable by wire transfer of immediately available funds no later than two (2) Business Days after such termination. 12. CLOSING. ------- 12.1 TIME AND PLACE OF CLOSING. The meeting (the "Closing") of the ------------------------- parties at which the sale, assignment, transfer, endorsement and delivery of the Shares to Buyer, and the payment of the Purchase Price by Buyer to Seller, are completed, shall be held at a location mutually acceptable to the parties at 10:00 a.m. (local time) on such date as may be mutually agreed to in writing by the parties, but in no event later than April 30, 2000. 12.2 PARENT/SELLER/NMT-US CLOSING DELIVERIES --------------------------------------- (a) At the Closing, Parent, Seller and NMT-US shall deliver (and/or cause their Affiliates to deliver) to Buyer the following: (i) transfers in common form relating to all Shares duly executed in favor of the Buyer (or as it may direct); (ii) share certificates relating to the Shares; (iii) such bills of sale, assignments, assignments of leases, deeds, licenses and other instruments of assignment, conveyance and transfer, in form and substance reasonably satisfactory to Buyer, if any, as shall be necessary to convey to and vest in Buyer all of Parent's and Seller's right, title and interest in and to the Shares and to vest in the Acquired Companies, the Assets (other than the US-Based Assets); 48 (iv) such bills of sale, assignments, assignments of leases, deeds, licenses and other instruments of assignment, conveyance and transfer, in form and substance reasonably satisfactory to ISC, as shall be necessary to convey to and vest in ISC all of Parent's and NMT-US's right, title and interest in and to the US-Based Assets and to vest in ISC the US-Based Assets; (v) such instruments acknowledging Parent's and Seller's assumption and retention of the Excluded Liabilities, in form and substance reasonably satisfactory to Buyer, as shall be effective to assure Buyer that Parent and Seller will perform, or caused to be performed, all obligations related to the Excluded Liabilities following the Closing; (vi) a certificate, signed by the President and the Chief Financial Officer of Parent, certifying to the fulfillment of the conditions set forth in Sections 6.1 and 6.2 hereof; (vii) copies or satisfactory evidence of the consents, waivers and approvals described in Section 2.6 and listed on Schedule 2.6(c), together with such UCC-3 Termination Statements from Parent's secured creditors as Buyer may reasonably request; (viii) a legal opinion of UK counsel to each of Parent and Seller in the form of Exhibit G attached hereto; ---------- (ix) such other evidence of the performance of all covenants and satisfaction of all conditions required of the Parent, Seller and NMT-US by this Agreement, at or prior to the Closing, as Buyer or its counsel may reasonably require; (x) a copy of the resolutions of the Board of Directors of each of Parent, Seller, NMT-US and the Acquired Companies authorizing and approving the Agreement, the Related Agreements and all other transactions and agreements contemplated hereby and thereby; (xi) an undertaking by Parent, on behalf of itself and each of its Affiliates, that it will not object to the use of the Tradename by Buyer and its Affiliates following the Closing; (xii) a Transition Services Agreement, in substantially the form of Exhibit H hereto; - --------- (xiii) a listing of all accounts receivables included in the Assets as of a date not more than two (2) business days prior to the Closing Date, duly certified by the Chief Financial Officer of Parent as true and correct; and (xiv) resignations in the agreed terms duly executed as deeds of all the directors (other than Patrick Sparkes) and the secretary of any Acquired Company from their offices as director or secretary of and their employment with any Acquired Company containing a confirmation that they have no claims (whether statutory, contractual or otherwise) against any Acquired Company for compensation for loss of office or termination of employment or for 49 unpaid remuneration or otherwise together with delivery to the Buyer of all property of any Acquired Company in their possession or under their control; (xv) the written resignations of the auditors or each Acquired Company containing an acknowledgement that they have no claim against any Acquired Company for compensation for loss of office, professional fees or otherwise and a statement under section 394(i) of the Companies Act 1985; (xvi) the common seals, certificates of incorporation and statutory books, share certificate books and cheque books of each Acquired Company; (xvii) all land certificates, charge certificates, leases title deeds and other documents relating to the Real Property (except to the extent that the same are in possession of mortgagees pursuant to mortgages disclosed in Schedule 3.15(b)(i); (xviii) to the extent not in the possession of any Acquired Company, all books of account or references as to customers and/or suppliers and other records and all insurance policies in any way relating to or concerning the businesses of any Acquired Company; (xix) to the extent not in the possession of any Acquired Company, all licenses, consents, Permits and authorizations obtained by or issued to any Acquired Company or any other person in connection with the business carried on by any of them and such contracts, deeds or other documents (including assignments of any such licenses) as shall have been acquired by the Buyer prior to the date hereof; (xx) duly executed transfers of each share (other than the Shares) in the Acquired Companies not registered in the name of any Acquired Company in favor of the Buyer (or as it may direct); (xxi) share certificates relating to all of the issued shares (not including the Shares) in the capital of each of the Acquired Companies; (xxii) a release in the agreed terms duly executed as a deed in a form such satisfactory to the Buyer releasing each Acquired Company and their respective officers and employees from any liability whatsoever (actual or contingent) which may be owing to the Parent or Seller by any Acquired Company except those arising in the ordinary course of trade; (xxiii) a funds flow memo prepared by Parent's accountants setting forth the transactions among and between the parties hereto in connection with the transactions contemplated hereby; (xxiv) such other certificates, instruments and other documents reasonably requested by Buyer to effect the transactions contemplated hereby, all of which shall be reasonably satisfactory in form and substance to Buyer and its counsel. (b) PARENT/SELLER CLOSING RESOLUTIONS. At or prior to Closing (and prior to the taking effect of the resignations of the directors referred to in Section 50 12.2(a)(xiv) above), Parent and Seller shall procure the passing of board resolutions of each Acquired Company: (i) sanctioning for registration (subject to where necessary to due stamping) the transfers in respect of the Shares and any shares to which Section 12.2(a)(xx) refers; (ii) authorizing the delivery to the Buyer of share certificates in respect of the Shares and any shares to which Section 12.2(a)(xx) refers; (iii) appointing Stuart M. Essig and John B. Henneman, III to be the directors and John B. Henneman, III to be the secretary of each Acquired Company; and (iv) revoking all mandates to bankers and giving authority in favor of the directors appointed under Section 12.2(b)(iii) above or such other persons as the Buyer may nominate to operate the bank accounts thereof. (c) Parent and Seller shall procure that prior to or at Closing: (i) there are repaid in full all sums (if any) owing to any Acquired Company by the Seller or the Parent or any member of their group (other than any of the Acquired Companies) or by the directors of any Acquired Company or any of their connected persons except those arising in the ordinary course of trade and whether or not such sums are due for repayment; and (ii) each Acquired Company is released from any guarantee, indemnity, bond, letter of comfort or Lien or other similar obligation given or incurred by it which relates in whole or in part to debts or other liabilities or obligations whether actual or contingent, of any person other than an Acquired Company; and prior to such repayment or release the Parent and Seller undertake to Buyer (on behalf of themselves and as trustee on behalf of each Acquired Company) to keep each Acquired Company fully indemnified against any failure to make any such repayment or any liability arising under any such guarantee, indemnity, bond, letter of comfort or Lien. (d) BUYER/ISC CLOSING DELIVERIES. At the Closing, Buyer and ISC shall deliver to Parent the following: (i) evidence (which shall consist of a United States federal reference number) of the wire transfer of the Share Payment and US-Based Assets Payment to the appropriate parties; (ii) a certificate, signed by a duly authorized officer of Buyer, certifying to the fulfillment of the conditions set forth in Sections 7.1 and 7.2 hereof; (iii) satisfactory evidence of the approvals, consents and notifications listed on Schedule 4.2; 51 (iv) such other evidence of the performance of all the covenants and satisfaction of all of the conditions required of Buyer and ISC by this Agreement at or before the Closing as the Parent or its counsel may reasonably require; and (v) a copy of the resolutions of the Boards of Directors of the Buyer and ISC authorizing and approving the Agreement and all other transactions and agreements contemplated hereby. 13. [INTENTIONALLY OMITTED] 14. INDEMNIFICATION. ---------------- 14.1 INDEMNIFICATION BY PARENT AND SELLER. Parent, NMT-US and Seller ------------------------------------- shall, jointly and severally, indemnify and hold Buyer, ISC and their respective Affiliates (including, without limitation, the Acquired Companies following the Closing), and their respective directors, officers, employees and representatives (collectively, "Buyer Indemnified Parties") harmless from and against all damages, losses, costs, claims, expenses, interest, penalties and Liabilities including reasonable attorneys' and accountants' fees and costs of investigation (collectively, "Damages") suffered or incurred, directly or indirectly, by any Buyer Indemnified Party arising from or related to: (a) subject to the limitations set forth in Section 14.4, the breach or falsity of any representation or warranty of Parent, Seller, NMT-US or any Acquired Company contained herein; (b) any of the matters disclosed or required to be disclosed on Schedule 3.7(a), Schedule 3.7(b), Schedule 3.8(b)(ii), Schedule 3.8(c), Schedule 3.9(c), Schedule 3.13(ii), Schedule 3.17, or Schedule 3.20; (c) the breach of any covenant by Parent, Seller, NMT-US or, prior to the Closing, any Acquired Company, contained herein; or (d) any of the Excluded Liabilities. 14.2 INDEMNIFICATION BY BUYER AND ISC. Buyer and ISC shall, jointly and --------------------------------- severally, indemnify and hold the Parent, Seller, NMT-US, and their respective Affiliates, and their respective directors, officers, employees and representatives (collectively, "Seller Indemnified Parties") harmless from and against all Damages suffered or incurred, directly or indirectly, by any Seller Indemnified Party arising from or related to: (a) subject to the limitations set forth in Section 14.4, the breach or falsity of any representation or warranty of Buyer or ISC contained herein; (b) the breach of any covenant by Buyer or ISC contained herein; or 52 (c) any of the Acquired Liabilities following the Closing (except those relating to a breach of a covenant, representation or warranty by any of Parent, Seller, NMT-US or any of the Acquired Companies). 14.3 TAX INDEMNIFICATION AND OTHER TAX MATTERS ----------------------------------------- (a) Notwithstanding anything to the contrary in the Agreement, Parent, Seller and NMT-US shall, jointly and severally, indemnify, save and hold harmless the Buyer Indemnified Parties from and against any and all Damages incurred in connection with, arising out of, resulting from or relating to (i) any fact inconsistent with, or any untruth, inaccuracy or breach of, any representation, warranty or covenant of Parent, Seller, NMT-US or any of the Acquired Companies or the Seller contained in Sections 2.2(c) (with respect to the 1998/1999 Tax Make-Whole Payment), 3.7, 5.2(f)(vi), 5.9 or 5.11, and (ii) to the extent not covered in foregoing clause (i), paid under Section 2.2(c) or reflected in the accrual for Taxes (other than any accrual for deferred Taxes established to reflect timing differences between book and Tax income) on the Closing Date Balance Sheet, any and all Taxes attributable to the Acquired Companies and the US-Based Assets (A) with respect to all periods ending on or prior to the Closing Date, and (B) with respect to the Stub Tax Period. For the purposes of this Agreement, the period from January 1, 2000 through and including the Closing Date is referred to as the "Pre-Closing Period" and any period thereafter is referred to herein as the "Post-Closing Period." (b) For purposes of this Section 14.3, Tax or Taxes shall include the amount of Taxes which would have been paid but for the application of any credit or net operating or capital loss deduction attributable to periods or portions of a period beginning after the Closing Date. (c) For the avoidance of doubt, the parties agree that the provisions of this Section 14.3 shall be interpreted and applied in such a manner such that none of Buyer, ISC or any of the Acquired Companies shall be entitled to double or multiple recovery with respect to any Damages (i.e., to the extent that Buyer is paid out in full under Section 2.2(c) for an under- accrual of Taxes for the 1998 or 1999 Tax year, none of Buyer, ISC or any of the Acquired Companies shall be entitled to indemnification under this Section 14.3 on the basis of said under-accrual). (d) Buyer or its duly authorized agents shall cause the Acquired Companies to prepare and file all Returns in respect of Taxes for periods ending after the Closing Date. Seller or its duly authorized agents shall prepare and file all Returns in respect of Taxes for periods ending prior to or on the Closing Date, including, without limitation, the Stub Tax Period. Seller or its duly authorized agents shall conduct the preparation, submission and agreement of all United Kingdom Tax Returns of the Acquired Companies (and correspondence and other documentation relating thereto) for all accounting periods ending on or before the Closing Date, subject to all such Returns (including workpapers) being submitted in draft form to Buyer or its duly authorized agents for comment and approval within a reasonable time before they are due to be sent to Inland Revenue. If Buyer or its agents have any comments, Seller and its agents shall not unreasonably refuse to adopt such comments. Seller and Buyer shall respectively afford (or procure to be afforded) to the other or their agents such information and assistance as may reasonably be required to prepare, submit and agree all relevant Tax Returns. Buyer shall provide 53 that the Acquired Companies shall cause the Returns (and correspondence and other documentation relating thereto) referred to in this Section to be authorized, signed and returned to Seller for submission to the appropriate authority without undue or unreasonable delay. Nothing herein shall oblige Buyer to submit any Return or other document unless it is satisfied that it is accurate and complete in all material respects. Promptly after the Acquired Companies or Buyer acquires actual knowledge of an amount of Taxes due and unpaid with respect to any period ending on or before the Closing Date, the Acquired Companies or Buyer, as the case may be, shall give notice thereof to Parent. Parent shall pay the amount of such Taxes Buyer (or Buyer's designee), within 30 days after the receipt of such notice. (e) Parent and Buyer agree to give prompt notice to each other of any proposed adjustment to Taxes for periods ending on or prior to the Closing Date. Seller shall have the right to conduct any audit or proceeding with respect to Taxes involving the Acquired Companies for such period(s) provided that: (i) Buyer is kept fully informed of all relevant material matters relating to the Tax affairs of the Acquired Companies; (ii) Buyer receives copies of all relevant material written correspondence from any Tax authority; (iii) no material written communication is sent to any Tax authority without first submitting in draft form to Buyer allowing reasonable time for comment (such comments not to be unreasonably withheld or delayed); (iv) any reasonable comments made by Buyer are incorporated into the relevant document; and (v) nothing shall oblige Buyer to submit any Return or other document unless it is satisfied that it is accurate and complete in all material respects. Buyer or the Acquired Companies shall have the right at their option and expense to participate in any audit or proceeding with respect to Taxes involving the Acquired Companies for such period(s). 14.4 LIMITATIONS ON INDEMNIFICATION. ------------------------------- (a) Survival. All representations, warranties and covenants contained herein and each of the Related Agreements shall survive the execution and Closing of this Agreement; provided, however, that any claim for indemnification under Sections 14.1, 14.2 or 14.3 for the breach or falsity of any representation or warranty (but not covenants) must be made by giving written notice of such claim to the party from whom indemnity is sought not later than eighteen (18) months after the Closing Date; except, that: (i) the survival period for the representation or warranties under Section 3.11, 3.12 and 3.20 shall be five (5) years after the Closing Date; (ii) the survival period for the representation or warranties under Sections 3.3, 3.15(a)(i) and 3.15(b)(ii), shall be seven (7) years from the Closing Date; and (iii) the survival period for the representation or warranties under Section 3.7 shall be until thirty (30) days after the applicable statute of limitations has run. (b) Threshold. There shall be no indemnification for any such claim for breach of representation or warranty under Sections 14.1 or 14.2 unless the amount of any such single claim exceeds US$50,000 (excluding costs and interest claimed) and until the aggregate amount of all claims which each exceed US$50,000 (excluding costs and interest claimed) made by the 54 party seeking indemnification exceeds an amount equal to US$200,000, after which time such party shall be fully indemnified for all such claims (to the extent provided in Sections 14.1 or 14.2, as the case may be) from the first dollar of each such claim (including the amounts used to satisfy the US$200,000 threshold set forth in this Section 14.4); provided, however, that the foregoing limitations shall not apply to any claims for indemnification under Sections 14.1(b), 14.1(d), 14.2(c) or 14.3; provided, further, that for purposes of further clarification, the parties agree that the foregoing limitations shall not apply with respect to the breach of any covenant of any party to make payment to any other party hereunder, including, without limitation, any breach of the payment obligations contained in Section 2, Section 5, Section 11 or Section 14 of this Agreement. (c) Maximum Liability. The cumulative maximum liability (including costs and interest claimed) of Parent, Seller and NMT-US for indemnification pursuant to Section 14.1(a) and Section 14.1(c) shall not exceed the amount of the Purchase Price. 14.5 CLAIMS FOR INDEMNIFICATION. Whenever any claim shall arise for --------------------------- indemnification hereunder, the party seeking indemnification (the "Indemnified Party") shall promptly notify the party from whom indemnification is sought (the "Indemnifying Party") of the claim and, when known, the facts constituting the basis for such claim. For purposes of this Section 14.5, notice shall be deemed to be promptly made if it is given to the Indemnifying Party within ten (10) days of receipt by the Indemnified Party of any written notice of any third party claim. In the event of any claim for indemnification under this Agreement resulting from or in connection with any claim or legal proceedings by a third party, the notice to the Indemnifying Party shall specify, if known, the amount or an estimate of the amount of the Liability arising from such claim or legal proceeding. Except as provided in Section 14.6 of this Agreement, the Indemnified Party shall not settle or compromise any claim by a third party for which it may claim indemnification under this Agreement without the prior written consent of the Indemnifying Party. 14.6 DEFENSE BY INDEMNIFYING PARTY. In connection with any claim by an ------------------------------ Indemnified Party resulting from or arising out of any claim or legal proceeding by a person who is not a party to this Agreement, the Indemnifying Party at its sole cost and expense may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding if it acknowledges to the Indemnified Party in writing its obligation to indemnify the Indemnified Party with respect to all elements of such claim. The Indemnified Party shall be entitled to participate in (but not control) the defense of any such action, with its own counsel and at its own expense. If the Indemnifying Party does not assume the defense of any such claim or litigation resulting therefrom within thirty (30) days after the date of such claim is made, (a) the Indemnified Party may defend against such claim or litigation, in such manner as it may deem appropriate, including, but not limited to, settling such claim or litigation, after giving notice of the same to the Indemnifying Party, on such terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying Party shall be entitled to participate in (but not control) the defense of such action, with its own counsel and at its own expense. 14.7 PAYMENT OF INDEMNIFICATION OBLIGATION. All indemnification -------------------------------------- hereunder shall be effected by payment of cash or delivery of a cashier's or certified check in the 55 amount of the indemnification Liability. Any indemnification payment by a Seller to Buyer hereunder shall be deemed to be a reduction in the Purchase Price. 14.8 EXCLUSIVE REMEDY. The rights of indemnification set forth in this ---------------- Section 14 shall be, from and after the Closing Date, the exclusive remedy of each party for the breach by the other party of any representation, warranty, covenant or other term in this Agreement, except for claims based upon fraud and claims for specific performance or other equitable relief 14.9 ELEKTA AGREEMENT. If Buyer or, following the Closing, any of the ---------------- Acquired Companies, suffers Damages as a result of a condition or event that does not constitute a breach by Parent, Seller or NMT-US under this Agreement but such condition or event constitutes a breach by Elekta under the Elekta Agreement and would permit Parent, Seller or NMT-US to seek indemnification from Elekta pursuant to the terms of the Elekta Agreement, Parent, Seller and NMT-US agree to seek such indemnification and to deliver to Buyer or such Acquired Company, as the case may be, all amounts so recovered. Buyer agrees to reimburse Parent, Seller and NMT-US for all reasonable expenses incurred in connection with seeking such indemnification to the extent not required to be paid by Elekta under the Elekta Agreement. 15. ADDITIONAL ACTIONS. ------------------- 15.1 SERVICES. The parties recognize that in order for Buyer to assume -------- control of the Acquired Companies and the Business and for ISC to assume control of the US-Based Assets in an orderly manner it will be necessary for Parent, Seller, NMT-US and their respective Affiliates (other than the Acquired Companies) to assist Buyer, ISC and their Affiliates in the performance of certain business support functions after the Closing in view of the fact that the Acquired Companies and the Business have not been a freestanding enterprise. Understanding that Buyer and ISC must diligently develop the capacity to support the Acquired Companies and the Business as soon as practicable after the Closing Date, the parties shall cooperate during the period from the date hereof to the Closing Date to identify those areas which will require support from Parent, Seller, NMT-US and their respective Affiliates (other than the Acquired Companies) following the Closing and to enter into one or more service agreements providing for the rendering of such support by Parent, Seller, NMT-US and their Affiliates to Buyer and ISC such services to be performed at a reasonable level and at no charge to the Buyer and ISC (including without limitation, the Transaction Services Agreement referenced in Section 12.2(a)(ix)). 15.2 ADDITIONAL AGREEMENTS. In addition, the parties agree that: ---------------------- (a) Confidential Information. (i) From and after the Closing Date, the Parent, Seller, NMT-US shall hold in confidence, and use their best efforts to have all of their Affiliates, assignees and successors, and their respective officers, directors and personnel, to hold in confidence, all Confidential Information and shall not disclose, publish or make use of the same without the consent of the Buyer, except to the extent that such Confidential Information shall have become public knowledge other than by breach of this Agreement by any of such bound parties or to the extent required by law. 56 (ii) Each of Parent, Seller and NMT-US agrees that damages are an inadequate remedy for any breach of this provision and that Buyer and ISC shall, whether or not it is pursuing any potential remedies at law, be entitled to equitable relief in the form of preliminary and permanent injunctions without posting of bond or other security upon any actual or threatened breach of this non-solicitation and non-competition provision. (b) Sharing of Data. Parent and Seller shall have the right for a period of three (3) years following the Closing Date to have reasonable access to such books, records and accounts, including financial and Tax information, correspondence, production records, employment records and other similar information as are transferred to Buyer pursuant to the terms of this Agreement for the limited purposes of concluding its involvement in the Business prior to the Closing Date and for complying with its obligations under applicable securities, Tax, environmental, employment or other Laws. Buyer shall have the right for a period of three (3) years following the Closing Date to have reasonable access to those books, records and accounts, including financial and Tax information, correspondence, production records, employment records and other records which are retained by Parent, Seller or any of their respective Affiliates, assignees or successors pursuant to the terms of this Agreement to the extent that any of the foregoing relates to the Business transferred to, or Liabilities assumed by, Buyer hereunder or is otherwise needed by Buyer in order to comply with its obligations under applicable securities, Tax, environmental, employment or other laws and regulations. (c) Cooperation in Litigation. Each party hereto will fully cooperate with the other in the defense or prosecution of any litigation or proceeding already instituted or which may be instituted hereafter against or by such party relating to the Assets or arising out of the conduct of the Business prior to or after the Closing Date (other than litigation arising out the transactions contemplated by this Agreement or any Related Agreement). The party requesting such cooperation shall pay the out-of-pocket expenses (including legal fees and disbursements) of the party providing such cooperation and of its officers, directors, employees and agents reasonably incurred in connection with providing such cooperation, but shall not be responsible to reimburse the party providing such cooperation for such party's time spent in such cooperation or the salaries or costs of fringe benefits or similar expenses paid by the party providing such cooperation to its officers, directors, employees and agents while assisting in the defense or prosecution of any such litigation or proceeding. 16. GENERAL. 16.1 [INTENTIONALLY OMITTED] 16.2 PAYMENT OF EXPENSES. Except as specifically set forth elsewhere ------------------- in this Agreement, expenses related to this Agreement and attendant transactions, including the fees of brokers, counsel and accountants, shall be borne by the party incurring such expenses. No transaction expenses have been or shall be borne by any of the Acquired Companies. 16.3 MODIFICATIONS; WAIVERS. This Agreement may be modified and rights ---------------------- hereunder may be waived only by a writing executed and delivered on behalf of the party against 57 whom such modification or waiver is asserted. In no case shall any such modification or waiver be effective without the written consent of Buyer. 16.4 ASSIGNABILITY. This Agreement and the rights and obligations ------------- hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective successors (including successors by operation of law), assigns and legal representatives. This Agreement shall not be assignable by any party hereto, except that each of Parent, Seller, NMT-US, Buyer and ISC may assign their respective rights and obligations hereunder to one or more of its Affiliates, provided that, the assignor shall guarantee the performance of such assignees under this Agreement and further provided that if the Affiliate of Buyer or ISC to which the Buyer or ISC assigns its rights and obligations under this Agreement ceases to be an Affiliate of Buyer or ISC, Buyer or ISC, as the case may be shall cause such former Affiliate to assign its rights and obligations under this Agreement to Buyer or one of their Affiliates. 16.5 NO OTHER REPRESENTATIONS. Each of the parties acknowledges that ------------------------ in entering into this Agreement it has not relied on any representation, warranty, agreement or statement not set out in this Agreement or in any of the Related Agreements (or in any document, instrument or certificate contemplated hereby or thereby), whether express or implied, and that (in the absence of fraud) it will not have any right or remedy arising out of any such representation, warranty, agreement or statement. 16.6 NOTICES. Any communication to be given hereunder by any parties ------- to the other party shall be in writing and delivered by messenger, sent by overnight courier, or transmitted by facsimile or electronic mail (with confirmation of receipt by the intended party), to the address or designation of such party set forth below or as changed by such party by notice given hereunder. A communication transmitted by facsimile shall be deemed effective when transmitted; a communication sent by overnight courier shall be deemed effective two business days after being sent; and a communication delivered by messenger shall be deemed effective when delivered. if to Parent, Seller, NMT-US: c/o NMT Medical, Inc. 27 Wormwood Street Boston, Massachusetts 02110-1625 Attention: Thomas M. Tully, President Facsimile: (617) 737-0924 E-mail: tmt@nmtmedical.com with a copy to: Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Attention: Steven D. Singer, Esq. Facsimile: (617) 526-5000 E-mail: Steven.Singer@haledorr.com 58 to Buyer or ISC: c/o Integra Life Sciences Corporation 311 Enterprise Drive Plainsboro, New Jersey 08536 Attention: Stuart M. Essig and John B. Henneman, III Facsimile: (609) 275-1082 E-mail: Stuart_Essig@integra-ls.com Jack_Henneman@integra-ls.com with a copy to: Latham & Watkins Sears Tower, Suite 5800 Chicago, Illinois 60606 Attention: Michael D. Levin, Esq. Facsimile: (312) 993-9767 E-mail: Michael.Levin@lw.com The foregoing is not intended to be exclusive; any written communication actually received shall be effective when received. 16.7 CAPTIONS. The section captions used in this Agreement are for -------- reference and cross-reference purposes only and shall not otherwise affect the meaning or interpretation of this Agreement. 16.8 COUNTERPARTS. This Agreement may be executed in counterparts, each ------------ of which shall be deemed to be an original and all of which shall be deemed to constitute the same Agreement. 16.9 KNOWLEDGE. Any statement in this Agreement qualified by the --------- expression "so far as Parent, Seller, NMT-US and/or any of the Acquired Companies are aware" or "to the knowledge of any of Parent, Seller, NMT-US or the Acquired Companies" or "to the knowledge of Parent, Seller or NMT-US" or any similar expressions shall be deemed to include the knowledge of the directors of each of Parent, Seller, NMT-US and the Acquired Companies and, additionally, each of those individuals identified in Schedule 16.9 attached hereto. 16.10 GOVERNING LAW. This Agreement shall be governed by and construed ------------- in accordance with the Laws of the State of Delaware, without regard to the conflict of laws principles thereof. 17. ENTIRE AGREEMENT. This Agreement (including the Exhibits, Schedules and ---------------- attachments hereto) constitutes the entire agreement between the parties hereto and supersedes and cancels any prior agreements, representations, warranties, or communications, whether oral or written, between the parties hereto relating to the transactions contemplated hereby or the subject matter herein. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an agreement in writing signed by the party against whom or which the enforcement of such change, waiver, discharge or termination is sought. 59 IN WITNESS WHEREOF, the parties hereto have each caused this Agreement to be duly executed in its corporate name by a duly authorized officer thereof as of the date first above written. PARENT: ------ NMT MEDICAL, INC. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: President SELLER: ------ NMT NEUROSCIENCES HOLDINGS (UK), LTD. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: Director NMT-US: ------ NMT NEUROSCIENCES (US), INC. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: President ACQUIRED COMPANIES: ------------------ NMT NEUROSCIENCES (UK), LTD. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: Director S-1 SPEMBLY MEDICAL LTD. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: Director SPEMBLY CRYOSURGERY LTD. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: Director SWEDEMED AB By: /s/ David Chazanovitz ---------------------- Name: David Chazanovitz Title: Chairman of the Board BUYER: ----- INTEGRA NEUROSCIENCES HOLDINGS (UK) LTD. By: /s/ Stuart M. Essig -------------------- Name: Stuart M. Essig Title: Director ISC: --- INTEGRA SELECTOR CORPORATION By: /s/ Stuart M. Essig -------------------- Name: Stuart M. Essig Title: President S-2 SCHEDULE OF PRODUCTS -------------------- Product Listing - Selector, Cryo and TENS - ----------------------------------------- SELECTOR - -------- Selector Integra Console & - -------------------------- Selector Integra Service Module - ------------------------------- 24 KHZ Straight Handpiece 24 KHZ Angled Handpiece 24 KHZ Laparoscopic Handpiece 24 KHZ Neuro Short Handpiece 24 KHZ Neuro Long Handpiece 35 KHZ Straight Handpiece 35 KHZ Neuro Handpiece 24 KHZ MicroSurgical Handpiece Selector Integra Console (MRI) - ------------------------------ 24 KHZ Neuro Short Handpiece (MRI) 24 KHZ Neuro Long Handpiece (MRI) 35 KHZ Neuro Handpiece (MRI) 24 KHZ MicroSurgical Handpiece (MRI) CRYO - ---- Spembly 140 Console - ------------------- Series 40 R7 Probe Series 40 27-H-7L Probe Series 40 4-FAB-10L Probe Series 40 1-V-1 Probe Series 40 2-S-2 Probe Series 40 2-C-2 Probe Series 40 11-0-11 Probe Series 40 5-H-10 Probe Series 40 5-N-17 Probe Series 40 1-K-2 Probe Series 40 4-H-3 Probe Series 40 2-H-2 Probe Series 40 4-FAP-10 Probe Series 40 3-T-7C Probe Schedule of Products Page 1 Spembly 142 Console - ------------------- Series 42 4-4-3 Probe Series 42 11-0-11 Probe Series 42 4-H-5 Probe Series 42 5-H-10 Probe Series 42 3-R-2 Probe Series 42 27-H-7L Probe Series 42 4-FAB-10L Probe SL 2000 UK Console & - -------------------- SL 2000 (Westco) Console - ------------------------ Series 44 1-H-3 Probe Series 40 1-H-3 E Probe Series 44 2-T-10 Probe PCG 9 R - ------- PCG 12 R - -------- PCG 12 D Europe - --------------- Keeler ACU 22XT Console - ----------------------- Keeler CTU (Cylinder Top Unit) - ------------------------------ Series 22 89-V-1 Probe Series 22 3-ESF-2 Probe Series 22 3-E-2 Probe Series 22 3-R-2 Probe Series 22 3-RM-2 Probe Series 22 4-G-3 Probe Series 22 3-T-2 Probe Series 22 4-FAP-10 Probe Series 22 2-5-2 Probe Series 22 2-C-2 Probe Series 22 3-B-2 Probe Series 22 3-RO-2 Probe Series 22 2-CP-2 Probe Series 24 4-FAP-8 Probe Keeler Cryomaster - ----------------- Series 18 89-V-1 Probe Series 18 3-R-2 Probe Series 18 3-EX-2 Probe Series 18 3-B-2 Probe Schedule of Products Page 2 Series 18 2-C-2 Probe Series 18 4-G-3 Probe Series 18 4-FAP-10 Probe Series 18 3-ESF-2 Probe Series 18 3-T-2 Probe Series 18 4-FAP-8 Probe Series 18 2-CP-2 Probe Series 18 3-RM-2 Probe Series 18 3-RO-2 Probe DORC Console - ------------ DORC 89-V-1 Probe DORC 2-CP-2 Probe DORC 3-RO-2 Probe DORC 2-C-2 Probe DORC 3-E-2 Probe DORC 3-B-2 Probe DORC 3-R-2 Probe DORC 4-FAP-10 Probe DORC 3-T-2 Probe DORC 4-G-3 Probe DORC 3-EX-2 Probe DORC 3-ESF-2 Probe DORC 2-S-2 Probe DORC 3-RM-2 Probe Cryomedics 5000 Console - ----------------------- Series 50 3-R-2 Probe Series 50 4-G-3 Probe Series 50 2-S-2 Probe Series 50 2-C-2 Probe Series 50 89-V-1 Probe Series 50 1-C-1 Probe Series 50 1-S-1 Probe LCS 2000 Console & - ------------------ LCS 3000 Console - ---------------- 3mm Liver Probe - Orange, Yellow, Green, Blue, White 5mm Liver Probe - Orange, Yellow, Green, Blue, White 10mm Liver Probe - Orange, Yellow, Green, Blue, White 30mm Liver Probe - Orange, Yellow, Green, Blue, White 40mm Liver Probe - Orange, Yellow, Green, Blue, White Schedule of Products Page 3 50mm Liver Probe - Orange, Yellow, Green, Blue, White 60mm Liver Probe - Orange, Yellow, Green, Blue, White 3mm Prostate Probe - Orange, Yellow, Green, Blue, White HCS 2000 Console - ---------------- Cryoneedle 3 Channel & - ---------------------- Cryoneedle 3 Channel without arm & - ---------------------------------- Cryoneedle 5 Channel - -------------------- 3mm Liver Probe 5mm Liver Probe 10mm Liver Probe 40mm Liver Probe 2mm Laparoscopic Probe 2mm Long Laparoscopic Probe 3mm Laparoscopic Probe 3mm Laparascopie Probe Prostate Probe TENS - ---- Pulsar S Single Channel - ----------------------- Pulsar D Dual Channel - --------------------- Pulsar Obstetric - ---------------- Schedule of Products Page 4 EXHIBIT A --------- ASSETS 1. Shares of the Acquired Companies 2. Intellectual Property of the Acquired Companies, including that set forth on Schedule 3.9(a) --------------- 3. Permits and Licenses held by the Acquired Companies 4. The leasehold interest described on Schedule 3.15(b)(i) ------------------- 6. Contracts set forth on Schedule 3.8. ------------ 7. All inventory of Products and related parts, equipment and materials located in the United States (ownership and title to which shall be transferred to the Acquired Companies prior to the Closing). A-1 EXHIBIT A (US) -------------- US-BASED ASSETS 1. All customer databases, leadsheets, databases of actual or potential customers, lists of referring physicians, nurses and other medical professionals located in or related to Persons located in the United States, which relate to the Products or the Business. A(US)-1 EXHIBIT B --------- EXCLUDED ASSETS 1. Accounts receivable of NMT-US related to sales of Products in the United States prior to Closing. 2. Elekta Receivables. B-1 EXHIBIT C --------- REFERENCE DATE BALANCE SHEET C-1 NMT Neurosciences - Andover U.K. Operations and Related Inventory Reference Date Balance Sheet - December 31, 1999 Purchased By Retained By Integra NMT Medical ------------- ----------- ASSETS Current Assets Cash & Cash Equivalents $ 0 $ 645,000 Accounts Receivable 1,417,000 0 Interdivisional receivables 0 2,289,000 Corporate A/R 0 0 Elekta A/R 0 271,000 Inventory Selector, Cryo & TNS (in UK) 715,000 0 Selector (in US - excluding transfer price) 347,000 0 ----------- ---------- Total Inventory, net 1,062,000 0 Prepaid Expenses and Other Current Assets 82,000 0 ----------- ---------- Total Current Assets 2,561,000 3,205,000 PP&E Land and Buildings 0 0 Laboratory and Computer Equipment 463,000 0 Leasehold Improvements 947,000 0 Equipment Under Capital Lease 0 0 Office Furniture and Equipment 1,108,000 0 Accumulated Depreciation (1,244,000) 0 ----------- ---------- PP&E, net 1,274,000 0 Goodwill 192,000 0 Other Long-Term Assets 550,000 0 ----------- ---------- TOTAL ASSETS $ 4,577,000 $3,205,000 =========== ========== LIABILITIES Current Liabilities Accounts Payable $ 484,000 $ 0 Interdivisional Payables 0 237,000 Corporate A/P 0 63,000 Elekta A/P 0 566,000 Accrued Expenses 620,000 0 Taxes (State/Regional/VAT/Corporation) 174,000 0 Current Portion of Cap. Leases 42,000 0 Current Portion of Senior Debt (Barklays) 0 135,000 ----------- ---------- Total Current Liabilities 1,320,000 1,001,000 Capital Lease Obligation 50,000 0 Senior Debt (Barklays) 0 112,000 Deferred Taxes 185,000 0 ----------- ---------- TOTAL LIABILITIES $ 1,555,000 $1,113,000 =========== ========== - -------------------------------------------------------------------------------- Net Assets $ 3,022,000 $2,092,000 - -------------------------------------------------------------------------------- C-2 EXHIBIT D --------- EXCLUDED LIABILITIES 1. Any Liability attributable to a violation of any Environmental Law by the Business, any Acquired Company or Acquired Company's Affiliate prior to the Closing or the Release of any Hazardous Materials prior to the Closing (whether or not by any Acquired Company or any Acquired Company's Affiliate). 2. Liabilities related to Elekta Agreement or any claims or disputes thereunder (including, without limitation, the Elekta Payables). 3. Liabilities related to the continued employment of Steven Sinyard that exceed the Continued Employee Payment. 4. Liabilities related to any operations, leases or employees located outside of the Andover Facility, including without limitation, liabilities related to the operations in Hong Kong. 5. Liabilities (including, without limitation, product liability claims) related to any products, devices, parts or other materials manufactured, created, assembled, distributed, marketed, promoted or sold by Parent, Seller, NMT-US, any of the Acquired Companies or any of their respective Affiliates prior to the Closing Date, whether or not such products, devices, parts or other materials constitute Products hereunder, including, without limitation, any Liabilities related to the Modus line of products. 6. Liabilities related to Movex software system. D-1 EXHIBIT E-1 ----------- FORM OF BILL OF SALE (Attached) E-1 EXHIBIT E-1 ----------- BILL OF SALE ------------ This Bill of Sale dated March __, 2000 is executed and delivered by NMT Medical, Inc., a Delaware corporation ("Parent"), and NMT Neurosciences (US), Inc., a Delaware corporation ("NMT-US"), to Integra Selector Corporation, a Delaware corporation ("ISC"). All capitalized words and terms used in this Bill of Sale and not defined herein shall have the respective meanings ascribed to them in the Purchase Agreement dated as of March __, 2000 among Parent, NMT-US, ISC and other parties named therein (the "Purchase Agreement"). WITNESSETH: WHEREAS, pursuant to the Purchase Agreement, Parent and NMT-US have agreed to sell, transfer, convey, assign and deliver to ISC the US-Based Assets. NOW, THEREFORE, for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Parent and NMT-US hereby agrees as follows: 1. Transfer of US-Based Assets. Parent and NMT-US hereby sell, transfer, --------------------------- convey, assign and deliver to ISC, its successors and assigns, to have and to hold forever, all of the US-Based Assets. Notwithstanding the foregoing, the US-Based Assets to be transferred to the ISC under this Bill of Sale shall not include those assets listed on Exhibit B attached to the Purchase Agreement, which is incorporated herein by reference. 2. Further Assurances. Each of Parent and NMT-US hereby covenants and ------------------ agrees that it will, at the request of ISC and without further consideration, execute and deliver, and will cause its employees to execute and deliver, such other instruments of sale, transfer, conveyance and assignment, and take such other action as may reasonably be necessary to more effectively sell, transfer, convey, assign and deliver to, and vest in, ISC, its successors and assigns, good, clear, record and marketable title to the US-Based Assets hereby sold, transferred, conveyed, assigned and delivered, or intended so to be, and to put ISC in actual possession and operating control thereof, to assist ISC in exercising all rights with respect thereto and to carry out the purpose and intent of the Purchase Agreement. 3. Power of Attorney. Except as expressly provided in the Agreement, ----------------- each of Parent and NMT-US does hereby irrevocably constitute and appoint ISC, its successors and assigns, its true and lawful attorney, will full power of substitution, in its name or otherwise, and on behalf of Parent and NMT-US, or for its own use, to claim, demand, collect and receive at any time and from time to time any and all assets, properties, claims, accounts and other rights, tangible or intangible, hereby sold, transferred, conveyed, assigned and delivered, or intended so to be, and to prosecute the same at law or in equity and, upon discharge thereof, to complete, execute and deliver any and all necessary instruments of satisfaction and release. 4. Assignment. This Bill of Sale and the rights and obligations hereunder ---------- shall be binding upon and inure to the benefit of the parties hereto and their respective successors (including successors by operation of law), assigns and legal representatives. This Bill or Sale shall not be assignable by any party hereto, except that each of Parent and NMT- US may assign their respective rights and obligations hereunder to one or more of its Affiliates, provided that, the assignor shall guarantee the performance of such assignees under this Bill of Sale. 5. Counterparts. This Bill of Sale may be executed in counterparts, each of ------------ which shall be deemed to be an original and all of which shall be deemed to constitute the same Agreement. 6. Governing Law. This Bill of Sale shall be governed by and construed in ------------- accordance with the Laws of the State of Delaware, without regard to the conflict of laws principles thereof. 7. Incorporation of Preamble and Recitals. The preamble and recitals to this -------------------------------------- Agreement are hereby incorporated herein and made part hereof. 8. Disclosure to Third Parties. Notwithstanding any confidentiality, non- --------------------------- disclosure or similar provisions contained in the Purchase Agreement, this Bill of Sale may be disclosed ISC to any Person who claims or attempts to claim that ISC does not possess full right, title and interest in and to the US-Based Assets transferred hereby. 9. Relation to Purchase Agreement. This Bill of Sale shall be interpreted and ------------------------------ construed in a manner consistent with the provisions of the Purchase Agreement; provided, however, that in the event of any inconsistency between this Bill of Sale and the Purchase Agreement, the terms of the Purchase Agreement shall control. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the Parent and NMT-US have caused this instrument to be duly executed under seal as of and on the date first above written. NMT MEDICAL, INC. By:______________________________ Title:___________________________ NMT NEUROSCIENCES (US), INC. By:______________________________ Title:___________________________ ACCEPTED: - -------- INTEGRA SELECTOR CORPORATION By:________________________ Title:_____________________ EXHIBIT E-2 ----------- FORM OF EXCLUDED LIABILITIES ASSUMPTION AGREEMENT (Attached) E-2 EXHIBIT E-2 ----------- EXCLUDED LIABILITY ASSUMPTION AGREEMENT --------------------------------------- This Excluded Liability Assumption Agreement (this "Agreement"), dated March __, 2000, is made by each of NMT MEDICAL, INC., a Delaware corporation formerly known as Nitinol Medical Technologies, Inc. ("Parent"), NMT NEUROSCIENCES (US), INC., a Delaware corporation and wholly-owned subsidiary of Parent ("NMT-US"), NMT NEUROSCIENCES HOLDINGS (UK) LTD., a corporation organized under the laws of England and an indirect wholly-owned subsidiary of Parent ("Seller"), and NMT NEUROSCIENCES (UK) LTD., a corporation organized under the laws of England and Wales and a wholly-owned subsidiary of Seller ("Neurosciences"), in favor of SPEMBLY MEDICAL LTD., a corporation organized under the laws of England and Wales and a wholly-owned subsidiary of Neurosciences ("Spembly"), SPEMBLY CRYOSURGERY LTD, a corporation organized under the laws of England and Wales and a wholly-owned subsidiary of Spembly ("Spembly-Cryosurgery"), SWEDEMED AB, a corporation organized under the laws of Sweden and a wholly-owned subsidiary of Neurosciences ("Swedemed" and, together with Neurosciences, Spembly and Spembly-Cryosurgery, collectively, the "Acquired Companies" and each, individually, an "Acquired Company"), INTEGRA NEUROSCIENCES HOLDINGS (UK) LTD., a corporation organized under the laws of England and Wales ("Buyer"), and INTEGRA SELECTOR CORPORATION, a Delaware corporation ("ISC"). All capitalized words and terms used in this Excluded Liability Assumption Agreement and not defined herein shall have the respective meanings ascribed to them in the Purchase Agreement, dated as of March __, 2000, among the aforementioned parties (the "Purchase Agreement"). WITNESSETH: WHEREAS, pursuant to the Purchase Agreement, the Seller has agreed to sell, transfer, convey, assign and deliver to the Buyer all of the Shares of Neurosciences, together with certain assets owned by NMT-US, as a means of transferring the Business to Buyer; WHEREAS, notwithstanding the fact that the transaction contemplated by the Agreement is structured as a purchase of the Shares and the US-Based Assets, Buyer and ISC shall acquire at the Closing only those Liabilities specified in Section 2.5(a) of the Purchase Agreement; WHEREAS, it is a condition precedent to the closing of the transactions contemplated by the Purchase Agreement that, from and after the Closing, Seller, NMT-US and Parent shall assume retain the Excluded Liabilities; and WHEREAS, Parent, Seller and NMT-US hereby agree to execute and deliver this Agreement in favor of Buyer, ISC and the Acquired Companies to explicitly assume and retain the Excluded Liabilities. NOW, THEREFORE, for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, each of the Parent, Seller and NMT-US hereby agrees as follows: 1. Assumption and Retention. Each of the Parent, Seller and NMT-US, ------------------------ jointly and severally, hereby assumes and retains the Excluded Liabilities, including, without limitation, those set forth on Exhibit D to the Purchase --------- Agreement. 2. Discharge and Performance. Seller, NMT-US and Parent shall discharge ------------------------- and perform, or cause to be discharged and performed, all obligations related to the Excluded Liabilities, except to the extent that Parent in good faith disputes the amount or existence thereof. 3. No Liability of Buyer, ISC or the Acquired Companies. Seller, NMT-US ---------------------------------------------------- and Parent hereby agree and acknowledge that none of Buyer, ISC, any of the Acquired Companies or any of their respective Affiliates shall have any responsibility or Liability to Seller, Parent or any other Person for any Excluded Liabilities. 4. No Assumption of Acquired Liabilities. Notwithstanding the foregoing, ------------------------------------- none of Seller, Parent or NMT-US shall assume or retain any of the Acquired Liabilities under Section 2.5(a) of the Purchase Agreement. 5. Indemnification. Each of the Parent, the Seller and NMT-US agrees to --------------- indemnify and hold harmless the Buyer, ISC and the Acquired Companies from and against all Damages with respect to the failure of the Parent, the Seller or NMT-US to pay, discharge or otherwise satisfy or perform, when due, the liabilities, obligations and commitments hereby assumed and retained. 6. Assignment. This Agreement and the rights and obligations hereunder ---------- shall be binding upon and inure to the benefit of the parties hereto and their respective successors (including successors by operation of law), assigns and legal representatives. This Agreement shall not be assignable by any party hereto, except that each of Parent and Seller, NMT-US may assign their respective rights and obligations hereunder to one or more of its Affiliates, provided that, the assignor shall guarantee the performance of such assignees under this Agreement. 7. Counterparts. This Agreement may be executed in counterparts, each of ------------ which shall be deemed to be an original and all of which shall be deemed to constitute the same Agreement. 8. Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the Laws of the State of Delaware, without regard to the conflict of laws principles thereof. 9. Incorporation of Preamble and Recitals. The preamble and recitals to -------------------------------------- this Agreement are hereby incorporated herein and made part hereof. Further Assurances. From time to time after the date hereof and without further - ------------------ consideration, Parent, Seller and NMT-US shall execute and deliver, or cause to be executed and delivered, such further instruments of assumption and retention, and take such other actions as may reasonably be requested by Buyer, ISC or any of the Acquired Companies, in order to more effectively and fully consummate the assumption and retention of the Excluded Liabilities hereunder. 10. Disclosure to Third Parties. Notwithstanding any confidentiality, --------------------------- non-disclosure or similar provisions contained in the Purchase Agreement, this Agreement may be disclosed by (a) Buyer, ISC or any of the Acquired Companies to any Person who claims or attempts to claim that Buyer, ISC or any of the Acquired Companies shall pay, perform or discharge any of the Excluded Liabilities, or (b) by Parent, Seller or NMT-US to any Person who claims or attempts to claim that Parent, Seller or NMT-US shall pay, perform or discharge any of the Acquired Liabilities. 11. Relation to Purchase Agreement. This Agreement shall be interpreted ------------------------------ and construed in a manner consistent with the provisions of the Purchase Agreement; provided, however, that in the event of any inconsistency between this Agreement and the Purchase Agreement, the terms of the Purchase Agreement shall control. [SIGNATURE PAGE FOLLOWS] IN WITNESS WHEREOF, the Seller, the Parent and NMT-US have caused this instrument to be duly executed under seal as of and on the date first above written. NMT NEUROSCIENCES HOLDINGS (UK), LTD. By:__________________________________ Title:_______________________________ NMT MEDICAL, INC. By:__________________________________ Title:_______________________________ NMT NEUROSCIENCES (US), INC. By:__________________________________ Title:_______________________________ ACCEPTED: - -------- INTEGRA NEUROSCIENCES HOLDINGS (UK) LTD., on behalf of itself and its subsidiaries By:__________________________________ Title:_______________________________ INTEGRA SELECTOR CORPORATION By:__________________________________ Title:_______________________________ EXHIBIT F --------- FORM OF PRESS RELEASES F-1 NEWS BULLETIN FROM: RE: NMT MEDICAL 27 WORMWOOD STREET The Financial Relations Board BOSTON, MA 02210-1625 - ----------------------------- (Nasdaq/NMS:NMTI) BSMG WORLDWIDE - -------------------------------------------------------------------------------- FOR FURTHER INFORMATION: AT THE COMPANY AT THE FINANCIAL RELATIONS BOARD - ----------------- -------------------------------- Thomas M. Tully General Info: Paula Schwartz President & CEO Analyst Info: Brian Gill (617) 737-0930 Media Info: Deanne Eagle (212) 661-8030 FOR IMMEDIATE RELEASE - --------------------- March 21, 2000 NMT MEDICAL, INC. ANNOUNCES PARTIAL SALE OF ITS NEUROSCIENCES BUSINESS TO ------------------------------------------------------------------------- INTEGRA LIFESCIENCES HOLDING CORPORATION ---------------------------------------- Company to Focus on Higher Growth, High Margin Cardiovascular Businesses Boston, MA, March 21, 2000 -- NMT Medical, Inc. (Nasdaq/NMS: NMTI) today announced that it has entered into a definitive agreement to sell the Selector(R) Ultrasonic Aspirator, Ruggles(TM) Surgical Instruments and cryosurgery product lines of its NMT Neurosciences division, including certain assets and liabilities, to Integra LifeSciences Holdings Corporation (Nasdaq: IART) for $12 million in cash. NMT Medical will use the proceeds of the transaction for debt reduction and for general working capital requirements. Commenting on today's news, Thomas M. Tully, President and Chief Executive Officer of NMT Medical, said, "We are very pleased with this transaction, which allows us to focus more of our management and financial resources on the higher growth and profit potential of our core cardiovascular businesses, particularly the CardioSEAL(R) Septal Occluder - a unique cardiac implant designed to close holes in the heart. The three U.S. Food and Drug Administration (FDA) approvals we received for the CardioSEAL under Humanitarian Use Designation regulations last fall and earlier this year represent a major opportunity for NMT Medical. The response of interventional cardiologists to this innovative new procedure has been very encouraging with more than 40 interventional cardiology centers already approved for the use of the device and 85 more in various stages of gaining Institutional Review Board (IRB) approval. In the meantime, we are continuing to expand our direct sales force in the U.S. to meet the demand for product training and service. We are also preparing for the international market introduction of our unique Recovery(TM) removable vena cava filter with our distribution partner, CR Bard. This innovative new device is the first-ever implantable vena cava filter that can be removed with a simple catheter removal procedure early after implant -- or, if desired, can be left in permanently." NMT Medical Inc. Announces Partial Sale of its Neurosciences Businesses to Integra Holding Corporation Page 2 Mr. Tully continued, "As a result of this transaction, NMT Neurosciences should benefit from a sharper focus away from capital equipment and onto the sales of its remaining implantable products and disposables, while reducing overall expenses. We believe that our cerebral spinal fluid (CSF) pressure management product line, including the advanced Orbis Sigma II hydrocephalus shunt, is unsurpassed in the industry. Our direct sales organization in the U.S. and Europe will now be able to devote more sales time to these products to further build the franchise." Company to Report Full Year 1999 Results on or About April 14, 2000 Management noted that because the sale will be accounted for in NMT Medical's fourth quarter 1999 results, the Company will file for an extension and expects to submit its Form 10K for the year ended December 31, 1999 with the Securities and Exchange Commission on or about April 14, 2000. This extension will give the Company the time to obtain all of the information necessary to properly account for the transaction. Integra LifeSciences Holdings Corporation develops, manufactures and markets medical devices, implants and biomaterials primarily used in the treatment of spinal and cranial disorders, soft-tissue repair and orthopedics. Its corporate headquarters are located in Plainsboro, New Jersey with facilities in San Diego, California, Exton, Pennsylvania, Andover, England and Anasco, Puerto Rico. NMT Medical designs, develops and markets innovative medical devices that utilize advanced technologies and are delivered by minimally invasive procedures. The Company's products are designed to offer alternative approaches to existing complex treatments, thereby reducing patient trauma, shortening procedure, hospitalization and recovery times, and lowering overall treatment costs. The Company's medical devices include self-expanding stents, vena cava filters and septal repair devices. The NMT Neurosciences division serves the needs of neurosurgeons with a range of implantable and disposable products, including cerebral spinal fluid shunts, external drainage products, and the Spetzler(TM) Titanium Aneurysm Clip. This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties or other factors which may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Factors that might cause such a difference include, but are not limited to, those discussed under the heading "Certain Factors That May Affect Future Results" included in the Management's Discussion and Analysis of Financial Condition and Results of Operations in the Company's Annual Report on Form 10-K for the year ended December 31, 1998 and subsequent filings with the Securities and Exchange Commission. # # # To receive NMT Medical's latest news release and other corporate documents via FAX -- at no cost -- please dial 1-800-PRO-INFO. Enter the Company's symbol NMTI. Or visit NMT's website at www.nmtmedical.com NEWS RELEASE March 20, 2000 Contact: John B. Henneman, III Senior Vice President Chief Administrative Officer Integra LifeSciences Holdings Corporation 609-936-2481 jhenneman@integra-ls.com Integra LifeSciences Announces Agreement to Acquire The Selector(R) Ultrasonic Aspirator, Ruggles(TM) Surgical Instrumentation and Spembly Medical Cryosurgery Product Lines of NMT Medical, Inc. PLAINSBORO, N.J., March 21 /PRNewswire/ -- Integra LifeSciences Holdings Corporation (Nasdaq: IART) today announced that it has agreed to acquire from NMT Medical, Inc. (Nasdaq: NMTI) the Selector(R) Ultrasonic Aspirator, Ruggles(TM) Surgical Instrumentation and Spembly Medical Cryosurgery product lines, including certain assets and liabilities, for an acquisition price of $12.0 million. In connection with the acquisition, Integra will change the name of its neurosurgical device business from Integra NeuroCare to Integra NeuroSciences. Integra NeuroSciences designs, manufactures and sells implants, instruments and monitors used in neurosurgery and intensive care units, primarily for the treatment of neurological trauma and surgery. Revenue of the acquired product lines during 1999 was approximately $12.1 million. The combination of this purchase and the acquisition of Clinical Neuro Systems earlier this year expands Integra NeuroSciences business in the United States and around the world. Together with its seven-person medical education unit, Integra NeuroSciences' direct selling effort will expand to 45 U.S. field personnel focused on neurotrauma and neurosurgery. The Company will recruit a direct sales force for selling directly in the United Kingdom and Ireland. Integra NeuroSciences will continue to sell its products in over 60 countries worldwide through a combined network of approximately 100 international distributors. The $12.0 million acquisition price comes from cash on hand. Earlier this year, Integra announced that it had agreed to sell $5.4 million of preferred stock to investment affiliates of Soros Private Equity Partners LLC. That investment is expected to close by the end of March. Stuart M. Essig, Integra President and Chief Executive Officer, commented, "This acquisition establishes Integra as an industry leader in neurosurgery and neurotrauma. It allows us to continue to broaden and strengthen Integra's well- trained and experienced sales group, and adds to Integra's revenues and cash flow. These new products, along with our existing neurosurgical devices, will be sold through a direct sales force in the United States, United Kingdom, and Ireland." The assets to be acquired include a manufacturing, packaging and distribution facility located in Andover, England. Integra LifeSciences Holdings Corporation has its corporate headquarters in Plainsboro, NJ. Manufacturing and research facilities are also located in San Diego, CA, Anasco, Puerto Rico, and Exton, PA. The Company has approximately 475 full-time employees. Please feel free to visit the Company's Website at (http://www.integra-LS.com). This news release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve risks and uncertainties that could cause actual results to differ from predicted or pro-forma results. Achieving the anticipated benefits of business acquisitions will depend in part upon whether the integration of the companies' businesses is accomplished in an efficient manner, and there can be no assurance that this will occur. Further forward- looking factors include, but are not limited to, new product development, governmental approvals, market potential and resulting sales as well as potential therapeutic applications, and additional acquisitions. In addition, the economic, competitive, governmental, technological and other factors identified in Integra's filings with the Securities and Exchange Commission could affect actual results. Integra NeuroSciences --------------------- Fact Sheet ---------- Integra NeuroSciences is the neurosurgery division of Integra LifeSciences Holdings Corporation. Integra NeuroSciences sells direct in the United States through 38 direct sales representatives and seven clinical education specialists and approximately 100 international distributors who cover over 60 countries worldwide. Integra NeuroSciences has consistently brought innovative technologies to market. Integra NeuroSciences products are as follows:
Products Use Brand Intracranial For continuous pressure Camino(R); Clinical Neuro monitoring and and temperature monitoring Systems(TM); Ventrix(R) Drainage of the brain following injury intracranial pressure monitoring and drainage systems Ultrasonic For removal of tumors Selector(R) Ultrasonic aspiration Aspirator Neurosurgical Specifically designed for Heyer-Schulte(R); shunts the maintenance of the Novus(R); Sundt(R); chronic condition, Spetzler(R) hydrocephalus, i.e. excess shunting systems pressure in the brain,as well as hemodynamic shunting Neuroendoscopy For minimally invasive Neuro Navigational(R) surgical access to the brain Flexible endoscopes for neurosurgery Neurosurgical Specialized surgical Redmond(TM); Ruggles(TM) instruments instruments for neurosurgeons Neurosurgical and spinal instruments Neurosurgical Rapid hemostasis in Helitene(R)(1) hemostasis neurosurgical and spinal Microfibrillar surgery Hemostat Dural grafts For repair of damage to the DuraGen(TM) Dural dura mater, the membrane that Graft Matrix encases the brain and spinal column
Integra NeuroSciences products are manufactured around the globe - San Diego, California produces Camino(R), Ventrix(R), and Neuro Navigational(TM) products; Andover, England produces the Selector(R) ultrasonic aspirators and the cryosurgery products; Exton, Pennsylvania produces the Clinical Neuro Systems(TM) products; Plainsboro, New Jersey produces DuraGen(TM) and Helitene(R) products; the Anasco, Puerto Rico facility produces Heyer- Schulte(R) and Sundt(R) shunting products. (1) Not approved for neurological use in the United States. SOURCE Integra LifeSciences Holdings Corporation CONTACT: John B. Henneman, III, Senior Vice President and Chief Administrative Officer of Integra LifeSciences Holdings, 609-936-2481, or jhenneman@integra- ls.com/ EXHIBIT G --------- FORM OF UK COUNSEL TO OPINION G-1 EXHIBIT G --------- [To be on Collyer-Bristow letterhead] To: Integra Lifescience Holding Corp. Dear Sirs: NMT NEUROSCIENCES HOLDINGS (UK) LIMITED MT MEDICAL INC. We have acted as English legal advisers to NMT Neurosciences Holdings (UK) Limited (the "Company") in connection with the same by the Company of its entire shareholding in NMT Neurosciences (UK) Limited (the "Transaction") pursuant to the terms of an agreement dated 2000 between, inter alia, the Company and Integra Neurosciences Holdings (UK) Limited (the "Agreement"). Expressions defined in the Agreement have the same meanings where used in this opinion, save as otherwise specified. Documents examined We have examined:- (a) a copy of the Agreement as executed; (b) certified copy resolutions of the board of directors (and/or a committee thereof) of the Company relating (inter alia) to the Agreement; (c) a certified copy of the Memorandum and Articles of Association of the Company; a resolution of the shareholders of the Company approving the Transaction and authorising the directors of the Company to enter into the Agreement; (d) a resolution of the shareholders of the Company approving the Transaction and authorising the directors of the Company to enter into the Agreement; (e) a certificate from an officer of the Company dated 2000 stating that no winding up resolution has been passed and that the Company has received no notice of the appointment of a receiver or administrator or of any petition being presented. Searches carried out We arranged for a search to be carried out against the Company on 2000 at the Companies registry which did not reveal the existence of any order or resolution to wind up the Company or of the appointment of any receiver or administrator. Notice of an order, resolution or appointment does not appear immediately on the microfiche and a company search will not in any event reveal the existence of a petition to wind up or appoint an administrator. We have received the Officer's Certificate stating that no winding-up resolution has been passed and that the Company has received no notice of the appointment of a receiver or administrator or of any petition being presented. We made telephone inquiry of the High Court in London on 2000 and we were informed that according to the Court's computer records no such petition had been presented or order or appointment made. Except as stated above, for the purpose of this opinion we have not examined any contracts, instruments or other documents entered into by or affecting the Company or any corporate records of the Company, nor have we carried out any due diligence into the Company nor made any other enquiries concerning the Company. We have not investigated the laws of any country other than England and we assume that no foreign law affects any of the conclusions stated below. This opinion is given only with respect to English law and is itself governed by English law. Assumptions made In giving this opinion, we have assumed:- (a) that all signatures are genuine, all seals have been properly affixed, all copies conform to original documents, all originals are authentic and complete and that all documents are valid and binding on all parties thereto other than the Company; (b) the accuracy of all representations as to fact made in the Agreement by the Company. Based upon, and in reliance upon, the foregoing and subject to any matters not disclosed to us, and subject to the qualifications set out below we are of the opinion that:- (1) Status The Company is a limited liability company, duly incorporated in England and Wales and subsisting under English law and, so far as is discoverable from public records in England and Wales, is not in liquidation. (2) Powers and authority The Company has all requisite corporate power to enter into and perform the Agreement and the Transaction and has taken all necessary action to authorise the entry into and performance of the Agreement and the Transaction and matters contemplated thereby. (3) Legal validity Each of the obligations expressed to be assumed by the Company under the Agreement constitutes a legally valid, binding and enforceable obligation of the Company. (4) Non conflict The entry into and performance of the Agreement by the Company and the Transaction and matters thereby contemplated to be undertaken by the Company do not and will not violate the Memorandum or Articles of Associates of the Company. (5) Consents No authorisations, approvals, consents, licenses, exemptions, filings, registrations or other requirement of governmental, judicial and public bodies and authorities of or in England are required by law applicable to companies generally to permit the entry into or performance of the Agreement by the Company or in order to ensure the validity or enforceability of the Agreement against the Company. (6) Stamp duties No stamp duty, registration duty or similar taxes or charges are required to be paid by the Company in the United Kingdom as a result of the execution or delivery of the Agreement or in order to ensure the validity or enforceability of the Agreement. (7) Enforcement of Judgments A judgment of a competent state or federal court sitting in the United States of America finally and conclusively establishing a debt will prima facie be capable of enforcement in the English courts, but the defendant may have defences open to it and enforcement may not be permitted if inter alia; the judgment was obtained by fraud, was contrary to public policy under English law, relates to foreign penal or revenue laws, is contrary to natural justice, amounts to judgment on a matter previously determined by an English court, is given in proceedings brought in breach of agreement for settlement of disputes or if enforcement of the judgment is restricted by the provisions of the protection of Trading Interests Act 1980. Qualifications This opinion is subject to the following qualifications:- (a) The term "enforceable" as used above means that the obligations assumed by the Company under the Agreement are of a type which the English courts enforce. It does not mean that those obligations will necessarily be enforced in all circumstances in accordance with their terms. In particular:- (i) enforcement may be limited by any winding-up, administration, bankruptcy, insolvency, reorganisation, moratorium or similar laws affecting creditors' rights generally; (ii) an English court will not necessarily grant any remedy the availability of which is subject to equitable considerations or which is otherwise in the discretion of the court. In particular, orders for specific performance and injunctions are, in general, discretionary remedies under English law and specific performance is not available where damages are considered by the court to be an adequate alternative remedy; (iii) claims may become barred under the Limitation Acts or may be or become subject to defences of set-off or counterclaim; (iv) where obligations are to be performed in a jurisdiction outside England, they may not be enforceable in England to the extent that performance would be illegal or contrary to public policy under the laws of that jurisdiction. (b) An English court may stay proceedings if concurrent proceedings are being brought elsewhere. (c) The effectiveness of terms exculpating a party from a liability or duty otherwise owed (including liability arising out of the non-payment of stamp duty) is limited by law. (d) The Agreement may be amended orally by the parties thereto notwithstanding provisions therein to the contrary. (e) We have not been involved in the drafting, preparation or negotiation of the Agreement and accordingly express no opinion as to the sufficiency or effectiveness of the Agreement to achieve the purposes contemplated by the parties thereto. (f) This opinion does not extend to the Competition Act 1998 or the Fair Trading Act 1973 or any other competition legislation applicable in the UK and we express no opinion as to any notification or registration requirement thereunder or as to validity or enforceability thereunder. This opinion is given for the sole benefit of the person(s) to whom it is addressed and is not to be relied upon by or communicated to any other person or for any other purpose, nor is it to be quoted or made public in any way without our prior written consent. Yours faithfully, Collyer Bristow EXHIBIT H --------- FORM OF TRANSITION SERVICES AGREEMENT H-1 EXHIBIT H --------- TRANSITION SERVICES AGREEMENT This Transition Services Agreement (the "Agreement"), dated as of March ___, 2000, is entered into by and among NMT MEDICAL INC., a Delaware corporation formerly known as Nitinol Medical Technologies, Inc. ("Parent"), on its own behalf and on behalf of its Affiliates (as defined herein), NMT NEUROSCIENCES (UK) LTD., a corporation organized under the laws of England and Wales ("Neurosciences"), SPEMBLY MEDICAL LTD., a corporation organized under the laws of England and Wales and a wholly-owned subsidiary of Neurosciences ("Spembly"), SPEMBLY CRYOSURGERY LTD, a corporation organized under the laws of England and Wales and a wholly-owned subsidiary of Spembly ("Spembly-Cryosurgery"), SWEDEMED AB, a corporation organized under the laws of Sweden and a wholly-owned subsidiary of Neurosciences ("Swedemed" and, together with Neurosciences, Spembly and Spembly-Cryosurgery, collectively, the "Acquired Companies" and each, individually, an "Acquired Company"), INTEGRA NEUROSCIENCES HOLDINGS (UK) LTD., a corporation organized under the laws of England and Wales ("Buyer"), and INTEGRA SELECTOR CORPORATION, a Delaware corporation ("ISC"). WHEREAS, pursuant to a Purchase Agreement (the "Purchase Agreement"), dated as of March 20, 2000, by and among Parent, the Acquired Companies, Buyer and ISC and the other parties thereto, Buyer has agreed to purchase all of the issued and outstanding capital shares of NeuroSciences and ISC has agreed to purchase all of the assets, rights and properties related to the business of the Acquired Companies located in the United States; WHEREAS, pursuant to an Asset Purchase Agreement (the "Asset Purchase Agreement"), dated as of March 20, 2000, by and among Parent, NMT NeuroSciences (US) Inc. ("NMT-US") and ISC, ISC has agreed to purchase and the assets, rights, and properties related to the Ruggles(TM) neurosurgical instruments product line; WHEREAS, in order to facilitate the transfer of the Business (as hereinafter defined) to Buyer and ISC in connection with the Purchase Agreement and the Asset Purchase Agreement, Parent, directly and through its Affiliates, has agreed to provide the transition services as more fully described in this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants and obligations set forth herein, and for other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties agree as follows: ARTICLE I. DEFINITIONS 1.1 Definitions. Capitalized terms used but not defined herein will have the respective meanings ascribed thereto in the Purchase Agreement. In this Agreement the following terms shall have the meanings assigned to them below. "Affiliates" shall mean with respect to any Person, a Person that directly, or indirectly through one or more intermediaries, controls, was controlled by, or was under common control with, such Person at December 31, 1999 or any time since such date. "Business" shall mean the research, development, manufacturing, marketing, selling and distribution business conducted or currently proposed to be conducted by Buyer, ISC and the Acquired Companies and their respective Affiliates related to, or with respect to, the Products. "Effective Date" shall mean the date of this Agreement. "Products" shall mean the products manufactured, assembled, repaired, developed, created, invented or researched by or on behalf of the Acquired Companies or NMT-US, including, without limitation, the Selector(R) Ultrasonic Aspirator, cryosurgical, TNS, Ruggles(TM) products lines, products in the research and development stage and such other products as more particularly identified on the Schedule of Products attached to the Purchase Agreement or included as Assets under the Asset Purchase Agreement. "Recipients" shall collectively mean Buyer, ISC and the Acquired Companies. "Service Provider" shall collectively mean Parent and its Affiliates, including, without limitation, NMT-US, and NMT NeuroSciences Holdings (UK) Ltd., a corporation organized under the laws of England and Wales and an indirect wholly-owned subsidiary of Parent. "Transition Period" means, for each Transition Service, a period of sixty (60) days from the Closing Date. "Transition Services" means the services set forth on Exhibit A hereto in connection with Recipient's operation of the Business after the Closing Date. ARTICLE II. TRANSITION SERVICES 2.1 Provision of Transition Services; Term. (a) Service Provider will make available to Recipients each of the Transition Services, commencing on the Effective Date, for the applicable Transition Period, unless earlier terminated as provided herein. (b) Service Provider will perform the Transition Services in a manner substantially similar to the manner in which such services were performed by Service Provider prior to the Effective Date. Service Provider agrees to perform the Transition Services using the same standard of care that it uses in performing such services in its own affairs. Service Provider will only be obligated to provide Transition Services in a manner consistent with its past practice (including prioritization among projects for Service Provider and Recipients). 2.2 Cost. Service Provider will bear all costs, fees, and expenses, whether internal, external or otherwise, associated with the provision of Transition Services hereunder. 2.3 Use of Transition Services. Recipients will use the Transition Services for substantially the same purposes and in substantially the same manner as Service Provider used the Transition Services prior to the Closing Date. Recipients will not resell any Transition Service or otherwise use any Transition Service in any way other than in connection with the conduct of the Business consistent with past practice of Service Provider. 2.4 Nature of Transition Service. Recipients acknowledges and understands that the Transition Services provided hereunder are transitional in nature and are furnished by the Service Provider solely for the purpose of facilitating the sale of the Business. Recipients acknowledges and understands that the Service Provider is not in the business of providing Transition Services to third parties and has no long-term interest in continuing this Agreement. Recipients agrees to use best efforts to make a transition to its own internal organization or any other third party suppliers for the Transition Services as promptly as practicable. 2.5 Account Processing; Reconciliation. Recipients and Service Provider agree that during the Transition Period Service Provider shall continue to: (a) upon the written authorization of Recipients, submit and process accounts payable (including submission of orders for additional inventory) in accordance with prior practice and as reasonably required in light of orders for Products, and (b) collect and process accounts receivable for sales of Products and related parts and services. Service Provider shall provide Recipients with a weekly statement of cash disbursement and receipts pursuant to the foregoing and a reconciliation of net amounts owed to the Service Provider or Recipients, as the case may be. Within one (1) business day following Recipients' receipt of said statement, Recipients shall notify Service Provider of their acceptance thereof and, as applicable, pay to Service Provider any amount owed thereunder; if Recipients are owed any amounts pursuant to said statement, Service Provider shall pay such amounts to Recipients (or their designee) within one (1) business day of Recipients' acceptance thereof. In the event that Recipients disagree with any amounts set forth on said statement, the parties shall cooperate to resolve any disputed amounts as soon as practicable after delivery of the statement. ARTICLE III. FURTHER AGREEMENTS 3.1 Confidentiality. Upon the Effective Date, the parties hereto, and their representatives and assignees shall hold confidential all Confidential Information obtained from each of the other parties, and their respective Affiliates in connection herewith and, if the Closing shall be abandoned as provided in the Purchase Agreement, shall treat such information as confidential and, where such information is in documentary form, return such information to Parent. The provisions of this Section 3.1 shall not apply to information which is in the public domain due to no fault of Buyer or its representatives. The parties hereto, on their own behalf and on behalf of their respective representatives and assignees, agree that damages are an inadequate remedy for breach of this provision and that the non-breaching party shall, whether or not it is pursuing any potential remedies at law, be entitled to equitable relief in the form of preliminary and permanent injunctions without the posting of a bond or other security upon any actual or threatened breach of this Section 3.1. 3.2 Advice and Recommendation. Recipients shall in good faith consider all advice and recommendations of Service Provider relating to the subject matter of this Agreement. Notwithstanding the foregoing, except as specifically provided in the Purchase Agreement or the Asset Purchase Agreement, Recipients shall not have any obligation whatsoever to follow or implement any such advice or recommendation of Service Provider. 3.3 Relationship of the Parties; No Partnership or Joint Venture. Service Provider shall perform the Transition Services as an independent contractor to Recipients. In all matters relating to this agreement, each party hereto shall retain control over its employees, and employees of one party shall not be considered employees of the other party. No party shall have any right, power or authority to create any obligation, express or implied, on behalf of any other party. Nothing in this Agreement is intended to create or constitute a joint venture or partnership between the parties hereto or persons referred to herein. 3.4 Personnel. Transition Services will be performed by Service Provider's employees or by third parties under contract with Service Provider. Service Provider will be solely responsible for the payment of all direct and indirect compensation (including fringe benefits) for Service Provider personnel assigned to perform services under this Agreement, and will be responsible for worker's compensation insurance, employment taxes, and other employer liabilities relating to Service Provider's personnel. ARTICLE IV. TERMINATION 4.1 Termination by Recipients. Recipients may terminate this Agreement at any time upon prior written notice of such termination to Service Provider. ARTICLE V. SALES REPRESENTATIVES, DISTRIBUTORS, AND EMPLOYEE SERVICES 5.1 Sales Representatives and Distributors. (a) Notwithstanding the Transition Period, Service Provider shall make available, at the reasonable request of the Recipients, the Service Provider's commissioned sales representatives and distributors for the continued sale and distribution of Selector(R) capital equipment and Ruggles(TM) neurosurgical instruments product line for a period of up to ninety (90) days following the Effective Date, including, without limitation, commissioned sales representatives and distributors in the United States and Europe (b) Recipients will reimburse the Service Provider for all commissions paid to the Service Provider's commissioned sales representatives and distributors for Selector(R) capital equipment sales made within the 90-day period after the Effective Date based on their current compensation plan (but in no case shall such commission payable exceed 10% of such capital equipment sales in the case of commissioned sales representatives or exceed 20% of such capital equipment sales in the case of distributors) provided that such sales representatives: (i) provide detailed information on pending Selector(R) sales including, but not limited to, account name, the number of units involved in the pending sale, where they are in the selling process, names of key decision makers/influencers, proposed unit pricing, competitive threats, outcomes of previous product trials, capital budget money availability, copies of proposed acquisition methods, identification of issues that need to be addressed quickly, identification of obstacles to getting the order, and any other account information deemed important to closing the sale; (ii) visit the account with the Recipient's NeuroSpecialist for introduction to key customers; (iii) continue to provide product support to the account with the full knowledge of the Recipient's NeuroSpecialists for the ninety (90) day period; and (iv) are available for the purpose of allowing the Recipient's NeuroSpecialists to build a baseline understanding of the Selector(R) features and benefits. (c) In connection with the foregoing, Recipients shall cause its NeuroSpecialists to work closely with the Service Provider's sales representatives to learn the details of the sales situation and assume responsibility for closing the sales. (d) Recipients will reimburse the Service Provider for all commissions paid to the Service Provider's commissioned sales representatives and distributors for Ruggles(TM) purchase orders in excess of $15,000 which were initiated by the Service Provider's sales representative or distributor. (e) None of the responsibilities and obligations detailed in this Section 5.1 shall create any rights of or obligations with respect to third parties including without limitation, any rights of Service Provider's sales representatives or distributors to compensation from any Recipients. 5.2 Employee Services. With respect to the employees listed on Schedule 5.2, Recipients shall continue to employ such individuals and to process their payroll and benefits for a period equal to but not more than four (4) months from the Effective Date. Service Provider shall reimburse Recipients for all amounts paid pursuant to this Section 5.2 out of cash reflected on the balance sheet contemplated by Section 2.3 of the Purchase Agreement. Service Provider agrees to indemnify and hold harmless the Recipients against any and all liabilities related to the employees listed on Schedule 5.2. ARTICLE VI. MISCELLANEOUS 6.1 Cooperation. The parties hereto will cooperate with each other and will cause their officers, employees, agents, auditors and representatives to cooperate with each other during the Transition Period to facilitate the orderly separation of the Business from the Service Provider and to minimize any disruption to the respective businesses than might result from the transactions contemplated hereby. 6.2 Assignability. This Agreement and the rights and obligations ------------- hereunder shall be binding upon and inure to the benefit of the parties hereto and their respective successors (including successors by operation of law), assigns and legal representatives. This Agreement shall not be assignable by any party hereto, except that Service Provider and Recipients may assign their respective rights and obligations hereunder to one or more of its Affiliates, provided that, the assignor shall guarantee the performance of such assignees under this Agreement and further provided that if the Affiliate of Recipients to which the Recipients assigns its rights and obligations under this Agreement ceases to be an Affiliate of Recipients, Recipients shall cause such former Affiliate to assign its rights and obligations under this Agreement to Recipients or one of its Affiliates. 6.3 No Other Representations. Each of the parties acknowledges that ------------------------ in entering into this Agreement it has not relied on any representation, warranty, agreement or statement not set out in this Agreement or in any of the Related Agreements (or in any document, instrument or certificate contemplated hereby or thereby), whether express or implied, and that (in the absence of fraud) it will not have any right or remedy arising out of any such representation, warranty, agreement or statement. 6.4 Notices. Any communication to be given hereunder by any parties ------- to the other party shall be in writing and delivered by messenger, sent by overnight courier, or transmitted by facsimile or electronic mail (with confirmation of receipt by the intended party), to the address or designation of such party set forth below or as changed by such party by notice given hereunder. A communication transmitted by facsimile shall be deemed effective when transmitted; a communication sent by overnight courier shall be deemed effective two business days after being sent; and a communication delivered by messenger shall be deemed effective when delivered. if to Service Provider: c/o NMT Medical, Inc. 27 Wormwood Street Boston, Massachusetts 02110-1625 Attention: Thomas M. Tully, President Facsimile: (617) 737-0924 E-mail: tmt@nmtmedical.com ------------------ with a copy to: Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Attention: Steven D. Singer, Esq. Facsimile: (617) 526-5000 E-mail: Steven.Singer@haledorr.com -------------------------- to Recipients: c/o Integra Life Sciences Corporation 311 Enterprise Drive Plainsboro, New Jersey 08536 Attention: Stuart M. Essig and John B. Henneman, III Facsimile: (609) 275-1082 E-mail: Stuart.Essig@integra-ls.com --------------------------- Jack.Henneman@integra-ls.com ---------------------------- with a copy to: Latham & Watkins Sears Tower, Suite 5800 Chicago, Illinois 60606 Attention: Michael D. Levin, Esq. Facsimile: (312) 993-9767 E-mail: Michael.Levin@lw.com -------------------- The foregoing is not intended to be exclusive; any written communication actually received shall be effective when received. 6.5 Captions. The section captions used in this Agreement are for -------- reference and cross-reference purposes only and shall not otherwise affect the meaning or interpretation of this Agreement. 6.6 Counterparts. This Agreement may be executed in counterparts, ------------ each of which shall be deemed to be an original and all of which shall be deemed to constitute the same Agreement. 6.7 Choice of Law. This Agreement shall be governed by and construed ------------- in accordance with the Laws of the State of Delaware, without regard to the conflict of laws principles thereof. 6.8 Entire Agreement; Amendments and Waivers. This Agreement ---------------------------------------- (including Exhibits and attachments hereto) constitutes the entire agreement between the parties hereto and supersedes and cancels any prior agreements, representations, warranties, or communications, whether oral or written, between the parties hereto relating to the transactions contemplated hereby or the subject matter herein. This notwithstanding, this Agreement should not be read in derogation of any of the representation or covenants contained in the Purchase Agreement or the Asset Purchase Agreement. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an agreement in writing signed by the party against whom or which the enforcement of such change waiver, discharge or termination is sought. 6.9 Invalidity. In the event that any one or more of the provisions ---------- contained in this Agreement or in any other instrument referred to herein, will, for any reason, be held to be invalid, illegal or unenforceable in any respect, then to the maximum extent permitted by law, such invalidity, illegality or unenforceability will not affect any other provision of this Agreement or any other such instrument. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed on their respective behalf, by their respective officers thereunto duly authorized, all as of the day and year first above written. PARENT: ------ NMT MEDICAL, INC. By:_________________________________ Name: Title: NEUROSCIENCES: ------------- NMT NEUROSCIENCES HOLDINGS (UK), LTD. By:_________________________________ Name: Title: ACQUIRED COMPANIES: ------------------ NMT NEUROSCIENCES (UK), LTD. By:_________________________________ Name: Title: SPEMBLY MEDICAL LTD. By:_________________________________ Name: Title: SPEMBLY CRYOSURGERY LTD. By:_________________________________ Name: Title: SWEDEMED AB By:_____________________________________ Name: Title: BUYER: ----- INTEGRA NEUROSCIENCES HOLDINGS (UK) LTD. By:_____________________________________ Name: Title: ISC: --- INTEGRA SELECTOR CORPORATION By:_____________________________________ Name: Title: EXHIBIT A I. Transition Services / U.S. -------------------------- In connection with the U.S.-Based Assets related to the business of the Acquired Companies including, without limitation, the Selector(R) Ultrasonic Aspirator product line, and the assets, rights and properties related to the Ruggles(TM) neurosurgical instruments product line, whether acquired through the Purchase Agreement or the Asset Purchase Agreement, the following transition services will be provided by the Service Provider: A. Accounting and Financial Services To include the following: (i) billing and invoicing; (ii) collections/accounts receivable processing; (iii) accounts payable processing (including, without limitation, the placement of purchase orders for inventory and related parts and equipment at the direction of the Recipients and the timely payment of invoices in connection therewith); (iv) weekly reporting of cash disbursement and receipts related to sales, receivables and payables and in connection with such reporting, reconciliation of net amounts owed to Service Provider or Recipients; and (vi) such other accounting and financial services requested by the Recipients from time to time as are consistent with the operation of the Service Provider's Business prior to the date hereof. B. Customer Service To include the following: (i) order entry and customer service, whether by telephone or by facsimile; and (ii) implementation of a menu or other electronic/telephonic option on the Service Provider's incoming customer service telephone line which would allow customers who are either ordering or requesting information about the Selector(R) Ultrasonic Aspirator or Ruggles(TM) product lines to select a number which would route their calls directly to Recipient's Customer Service; provided however, that the Service Provider's obligation to provide the phone menu service specified in this clause (ii) is subject to the Service Provider's commercially reasonable efforts. C. Product Services To include the following: (i) shipping, at the Recipients' expense, Products to customers, sales representatives, and distributors; (ii) providing purchasing support and submitting purchase orders for additional inventory and related parts and equipment, upon Recipients written authorization; (iii) warehousing of finished Products; (iv) maintaining insurance for warehoused Products and for Products in transport pursuant to clause (i) and (v) of this Subsection C; (v) transportation, at the Service Provider's expense, of the acquired U.S.-Based inventory, consignment inventory, parts, field samples, sales and marketing materials, customer lists, customer leads, information, Confidential Information and data related to or used in the Business (as detailed in the Purchase Agreement and the Asset Purchase Agreement) including, without limitation, any and all unshipped orders, from the Service Provider's facility in Atlanta, Georgia to one or more locations of Recipient's choice upon completion of this Agreement's term; (v) technical support, including service, repair, or replacement of Products; and (vi) continued monitoring of loaner inventory. D. Employees To include the following: access to any and all employees, including without limitation, service and repair technicians, design engineers, customer service specialists, and accounting and financial specialists for the purposes of training or for any other purpose consistent with this Agreement. E. Information To include the following: access to any and all commercial information related to the Business including, without limitation, customer, supplier, and distributor information. II. Transition Services / U.K. (Service Provider to Recipient) ---------------------------------------------------------- In connection with the Acquired Companies the following Transition Services will be provided by the Service Provider: A. Movex To include the following: (i) Service Provider shall provide Recipients with continued use of the Movex System until such time that the upgraded Chameleon System is fully functional and operational (notwithstanding any specified duration of the Transition Period hereunder); (ii) Service Provider shall assist the Recipients with the transfer of all necessary data from the Movex System to the upgraded Chameleon System; and (iii) after the transition from the Movex System to the Chameleon System is complete, Service Provider shall cause the deletion of all data from the Movex system which relates to any of the Recipients, the Business or the Products and shall take any other action with regard to the Movex System which is necessary to transfer to Recipients and delete any confidential information regarding any of the Recipients, the Business or the Products. In the event that the Chameleon System is not fully functional and operational by the end of the Transition Period (except as a result of any act or omission of Service Provider), Recipients shall pay to Service Provider all out of pocket costs related to providing continued access to the Movex System to the Recipients not to exceed US$5000. per month. B. Information To include the following: (i) access to any and all commercial information related to the Acquired Companies including, without limitation, customer, supplier, and distributor information; (ii) access to any and all financial information related to the Acquired Companies; (iii) access to any and all personnel information related to the Acquired Companies; and (iv) access to any and all other information related to the operation of the Acquired Companies. III. Transition Services / U.K. (Recipient to Service Provider) ---------------------------------------------------------- In connection with the transition of shunt order entries from the Acquired Companies to Service Provider's facility in Biot, France, the following Transition Services will be provided to the Service Provider by the Recipient: A. Customer Service To include the following: (ii) order entry and customer service, whether by telephone, by facsimile, or in person; and (ii) assist the Service Provider in routing customer calls related to the Service Provider's shunt product line directly to the Service Provider's customer service. IV. Transition Services / Biot -------------------------- In connection with the transition of order entries for the Selector(R) Ultrasonic Aspirator and Ruggles(TM) neurosurgical instruments product lines from the Service Provider's facility in Biot, France to the Acquired Companies, the following Transition Services will be provided to the Recipient by the Service Provider: A. Customer Service To include the following: (i) order entry and customer service, whether by telephone or by facsimile; and (ii) assist the Recipient in routing customer calls related to the Recipient's Products directly to the Recipients' customer service. V. Transition Services / World-Wide -------------------------------- A. Product Services To include the following: (i) transportation, at the Service Provider's expense, of all Assets principally related to the Business, including, without limitation, all inventory, consignment inventory, parts, field samples, sales and marketing materials, customer lists, customer leads, information, Confidential Information and data related to or used in the Business, wherever located and in whatever form (including, without limitation, in electronic, digital, or magnetic format) to the Andover Facility; provided however, this Subsection shall not apply to Products that constitute demo equipment located at hospitals and TNS products which are currently leased to third parties pursuant to leases which are not currently in default; and (ii) maintaining insurance for Products in transport pursuant to clause (i) of this Subsection A. Schedule 5.2 ------------ Employee Services ----------------- . Steve Sinyard Schedule 4.2 ------------ NONE Schedule 4.2 Schedule 16.9 ------------- "Knowledge" Persons David Chazanovitz Graham Howe James St. John Rob Selwood Roger Simpson Steven Sinyard Patrick Sparkes Steve Taylor Thomas M. Tully Hans van Well Schedule 16.9 EX-2.3 3 ASSET PURCHASE AGREEMENT Exhibit 2.3 ASSET PURCHASE AGREEMENT by and among NMT NEUROSCIENCES (US), INC. as "Seller" NMT MEDICAL, INC. as "Parent" and INTEGRA SELECTOR CORPORATION as "Buyer" Dated as of March 20, 2000 TABLE OF CONTENTS -----------------
ARTICLE I..........................................................................................................................1 DEFINITIONS........................................................................................................................1 1.1 Certain Defined Terms. As used in this Agreement:...........................................................................1 1.2 Other Defined Terms. Each of the following terms shall have the meanings given it in the Section set forth opposite such term below:................................................................................................4 ARTICLE II.........................................................................................................................5 PURCHASE AND SALE OF ASSETS........................................................................................................5 2.1 Transfer of Assets. At the Closing, Seller will sell, convey, transfer, assign and deliver to Buyer, and Buyer will acquire from Seller, the Assets, free and clear of all Encumbrances..........................................5 2.2 Excluded Liabilities. Buyer shall not assume, or otherwise be responsible for, any liabilities or obligations of Seller, whether actual or contingent, matured or unmatured, known or unknown, and whether arising out of occurrences prior to, at or after the Closing Date (the "Liabilities")......................................5 2.5 Allocation of Purchase Price. The Purchase Price shall be allocated among the Assets in accordance with Exhibit 2.5. Buyer and Seller each agree to prepare and file Tax returns in a manner consistent with this allocation.............................................................................................7 2.6 Transfer Taxes and Transfer Fees. Seller shall be responsible for any documentary and transfer Taxes and any other Taxes imposed by reason of the transfers of Assets provided for under this Agreement..........................................................................................................................7 ARTICLE III........................................................................................................................7 CLOSING............................................................................................................................7 3.1 Closing. The Closing of the transactions contemplated by this Agreement (the "Closing") shall take place at the offices of Latham & Watkins, Sears Tower, Suite 5800, Chicago, Illinois 60606, at 10:00 a.m. local time, on March ___, 2000, or on such other date as the parties may agree (in any case, the "Closing Date")......................................................................................................7 ARTICLE IV.........................................................................................................................7 REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT................................................................................7 4.1 Organization.................................................................................................................7 (a) Seller. Seller is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, with full corporate power and authority to conduct the Business as it is presently being conducted and to own and lease its properties and assets.....................................................7 4.2 Authorization, Etc...........................................................................................................7 (a) Power and Actions Taken. Each of Seller and Parent has all requisite corporate power and authority and has taken or will take all requisite corporate action necessary, to execute and deliver this Agreement and the Noncompetition Agreement, to consummate the transactions contemplated on its part under this Agreement and each the Noncompetition Agreement, and to perform its obligations under this Agreement and the Noncompetition Agreement......................................................7 (b) Due Execution, Delivery and Enforceability. Each of Seller and Parent has duly executed and delivered or will duly execute and deliver this Agreement and the Noncompetition Agreement, and this Agreement and the Noncompetition Agreement is or will be a valid and legally binding obligation of such party, enforceable against each such party in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally and subject to general principles of equity (regardless of whether such enforcement is considered in a proceeding in law or at equity)..................................7
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4.3 No Conflict or Violation. The execution, delivery and performance of this Agreement and the Noncompetition Agreement will not: (i) violate or conflict with any provision of the governing documents of Seller or Parent; (ii) violate any Law; and (iii) violate, conflict with, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the creation of any Encumbrance upon any of the Assets or the Business pursuant to, any Contract to which Seller or Parent is a party or to which any Assets are subject.......................................................................................................................... 8 4.4 No Governmental or Other Consents. Except as set forth on Schedule 4.4, no consent or approval of, notice to, or filing with, any Person is required to be obtained, given or made by Seller or Parent to permit Seller to transfer any of the Assets to Buyer................................................................... 8 4.5 No Brokers. Seller, Parent and their respective agents have incurred no obligation for brokerage fees or similar payments in connection with the transactions contemplated by this Agreement...................................... 8 4.7 Permits. (a) Schedule 4.7 contains a complete and accurate list of the Permits and (b) the Permits constitute all licenses, permits, authorizations, certifications or orders of any governmental authority that are required to operate the Business as it is now conducted. The Permits set forth on Schedule 4.7 which are marked with an asterisk are transferable to Buyer at the Closing...................................................................................................................... 8 4.8 Title and Condition of Certain Assets. Seller has, and will transfer to Buyer at the Closing, good and marketable title to the Equipment, the Inventory and the other Assets free and clear of any Encumbrances. The Equipment is usable and operable in good working order and condition, and is in a reasonable state of repair, subject only to ordinary wear and tear, and has been subject to regular maintenance........................................................................................................... 8 4.9 Intellectual Property. Schedule 4.9 contains a complete and accurate list of the Intellectual Property. Except as set forth on Schedule 4.9: (i) Seller's right, title and interest in the Intellectual Property as owner or, subject to the terms of any applicable license, as licensee, is valid, enforceable, and uncontested, and is free and clear of all Encumbrances (except to the extent any of the Intellectual Property is licensed to Seller); (ii) to Seller's and Parent's knowledge, there are no infringements, unlawful uses, or defaults by any third party under any license or other agreement with respect to the Intellectual Property; and (iii) Seller is not in default of any license or other agreement, or infringing upon any rights of any third party, in its use of the Intellectual Property and neither Seller nor Parent have received any notice alleging any such default or infringement........................................................................................ 8 4.10 Litigation. There is no Action pending or, to Seller's or Parent's knowledge, threatened: (i) relating to the Business or the Assets; or (ii) seeking to delay, limit or enjoin any transaction contemplated by this Agreement................................................................................................... 9 4.11 Inventory. Schedule 4.11 contains a complete and accurate list of addresses at which Inventory is located. All Inventory reflected in the Financial Statements and all other Inventory acquired by Seller since the Reference Date was acquired in the ordinary course of business and in a manner consistent with Seller's regular inventory practices. Except for demonstration Inventory, all such Inventory is in good and saleable condition, except for products in the development phase which have not been completed for offer or sale to customers. Except as set forth on Schedule 4.11, none of Inventory is held by any Person (including any Affiliates of Seller) on consignment or is located outside of the locations shown on Schedule 4.11. Adequate reserves have been established on Seller's Books and Records with respect to excessive and obsolete Inventory (it being agreed that for the purposes of this Section 4.11, the term "excessive and obsolete inventory" shall refer to any on-hand raw materials, parts, supplies, or finished products which (a) cannot be sold at current prices in the ordinary course of business, (b) which are not usable in the production of current products, or (c) which consist of on-hand quantities in excess of one year's historical usage)......................................................................................................... 9 ARTICLE V........................................................................................................................10 REPRESENTATIONS AND WARRANTIES OF BUYER..........................................................................................10 5.1 Organization, Etc. Buyer is a corporation duly organized, validly existing and in good standing under the laws of Delaware. Buyer has all requisite corporate power and authority, and has taken or will take all corporate action necessary, to execute and deliver this Agreement and the
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Noncompetition Agreement, to consummate the transactions contemplated on its part under this Agreement and the Noncompetition Agreement, and to perform its obligations under this Agreement and the Noncompetition Agreement. This Agreement and the Noncompetition Agreement have been or will be duly executed and delivered by Buyer and each is or will be a valid and legally binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally and subject to general principles of equity (regardless of whether such enforcement is considered in a proceeding in law or at equity).....................................10 5.2 No Conflict or Violation. The execution, delivery and performance of this Agreement and the Noncompetition Agreement by Buyer: (i) will not violate or conflict with any provision of the governing documents of Buyer; (ii) will not violate any federal, state, local or foreign statute, rule, regulation, order or judgment of any governmental authority applicable to Buyer; and (iii) will not violate, conflict with, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, any contract, lease or agreement to which Buyer is a party, except for any such violation, conflict or default which would not impair Buyer's ability to perform its obligations under this Agreement or the Noncompetition Agreement.... 5.3 Governmental Consents. No consent or approval of, notice to, or filing with, any governmental authority is required to be made by Buyer to permit Buyer to purchase the Assets from Seller...................................11 5.4 No Brokers. Buyer and its agents have incurred no obligation for brokerage fees or similar payments in connection with the transactions contemplated by this Agreement....................................................11 ARTICLE VI.....................................................................................................................11 PRE-CLOSING COVENANTS OF SELLER, PARENT AND BUYER 6.1 Access. From the date of this Agreement through the Closing Date, Seller and Parent will (i) give Buyer and its Representatives full access, during normal business hours and as often as reasonably requested, to the Assets and the Business, including the Books and Records; and (ii) at Seller's expense, provide to Buyer all information reasonably requested by Buyer or its Representatives with respect to the Assets and the Business....................................................................................11 6.4 Risk of Loss. The parties acknowledge that Seller shall bear all risk of loss, destruction or damage to any of the Assets, from any cause, until the Closing, and thereafter Buyer shall bear all risk of loss...............................................................................................................12 6.5 Best Efforts To Cause Conditions To Be Satisfied. Between the date of this Agreement and the Closing, each of Seller and Parent will use its best efforts to cause to be satisfied the conditions contained in Articles VII and VIII of this Agreement................................................................12 ARTICLE VII....................................................................................................................12 CONDITIONS TO SELLER'S AND PARENT'S OBLIGATIONS...............................................................................12 7.1 Representations, Warranties and Covenants. All representations and warranties of Buyer contained in Article V of this Agreement shall have been true and correct as of the date of this Agreement and shall be true and correct in all material respects (without duplication of any materiality qualifier contained therein) as of the Closing Date, and Buyer shall have performed in all material respects all covenants required by this Agreement to be performed by it as of or before the Closing....................................................................................................................12 7.2 No Injunction. There shall not be in effect any injunction or other requirement of a governmental authority that: (a) restrains or prohibits the transfer of any Assets to Buyer; and (b) has become effective since the date of this Agreement..............................................................................13 7.3 Noncompetition Agreement. Buyer shall have executed and delivered to Seller and Parent the Noncompetition Agreement.......................................................................................................13 7.4 Closing Documents. Buyer shall have delivered to Seller the documents shown in the Closing Agenda attached to this Agreement as Exhibit 7.4 (the "Closing Agenda") as being delivered by Buyer, and such other instruments and documents as may be reasonably requested by Seller, all in form reasonably satisfactory to Seller's counsel....................................................................................13 4
ARTICLE VIII..................................................................................................................... 13 CONDITIONS TO BUYER'S OBLIGATIONS................................................................................................ 13 8.1 Representations, Warranties and Covenants. All representations and warranties of Seller and Parent contained in Article IV of this Agreement shall have been true and correct as of the date of this Agreement and shall be true and correct in all material respects (without duplication of any materiality qualifier contained therein) as of the Closing Date, and Seller and Parent shall have performed in all material respects all covenants required by this Agreement to be performed by any of them as of or before the Closing....................................................................................... 13 8.2 No Actions With Respect to Transactions. No Action shall have been instituted or threatened by any governmental authority or other Person that challenges, seeks damages in connection with, or seeks to restrain, any of the transactions contemplated by this Agreement........................................................ 13 8.3 Noncompetition Agreement. Each of Seller and Parent shall have executed and delivered to Buyer the Noncompetition Agreement..................................................................................................... 13 8.4 Closing Documents. Seller and Parent shall have delivered to Buyer the documents shown in the Closing Agenda as being delivered by them, and such other instruments and documents as may be reasonably requested by Buyer, all in form reasonably satisfactory to Buyer's counsel............................................ 13 8.5 No Material Adverse Change. There shall have been no Material Adverse Change since the Reference Date............................................................................................................................. 13 ARTICLE IX....................................................................................................................... 14 TERMINATION BEFORE CLOSING....................................................................................................... 14 9.1 Termination. This Agreement may be terminated by notice at any time prior to Closing:................................... 14 9.2 In the Event of Termination. In the event of termination of this Agreement:............................................. 14 ARTICLE XI....................................................................................................................... 15 SURVIVAL AND INDEMNIFICATION..................................................................................................... 15 11.1 Survival of Representations. The representations and warranties of the parties made in this Agreement shall survive the Closing for a period from the Closing to the 18 month anniversary of the Closing Date (or until resolution of any Indemnity Claim made on or before such date), except for the representations and warranties made in Section 4.7 with respect to title, which shall survive the Closing without limitation........................................................................................... 15 11.2 Indemnification.......................................................................................................... 16 ARTICLE XII...................................................................................................................... 18 MISCELLANEOUS.................................................................................................................... 18 12.1 Employees. Buyer shall have no obligation to hire any of Seller's employees............................................. 18 A. Agreements................................................................................................................. 6
EXHIBITS -------- 1.1(a) Financial Statements 1.1(b) Terms of Noncompetition Agreement 2.5 Allocation of Purchase Price 7.4 Closing Agenda 5 Disclosure Schedule ------------------- 4.4 Governmental and Other Consents 4.7 Permits (including assignability of Permits) 4.9 List of Intellectual Property 4.11 Locations and Ownership of Inventory 4.12(a) Certain Certifications 4.12(b) Notice re Certifications 4.14 Exports 6 This Asset Purchase Agreement (this "Agreement") is entered into as of March 20, 2000, by and among Integra Selector Corporation, a Delaware corporation ("Buyer"), NMT NeuroSciences (US), Inc., a Delaware corporation ("Seller"), and NMT Medical, Inc., a Delaware corporation ("Parent"). RECITALS -------- A. Seller owns certain assets used in the conduct of the Business (as defined below). Parent owns all of the outstanding equity interest in Seller. B. Buyer desires to purchase from Seller, and Seller desires to sell to Buyer, certain of such assets, upon the terms and subject to the conditions contained in this Agreement. AGREEMENT --------- NOW THEREFORE, in consideration of the mutual covenants and representations contained in this Agreement and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties agree as follows: ARTICLE I DEFINITIONS ----------- 1.1 Certain Defined Terms. As used in this Agreement: --------------------- "Accounts Receivable" shall mean all accounts receivable, notes receivable, ------------------- rights to refunds, prepayments and deposits. "Action" shall mean any action, claim (including product liability claim), ------ proceeding, dispute, audit or investigation. "Affiliate" shall mean, with respect to any Person, a Person that directly, --------- or indirectly through one or more intermediaries, controls, was controlled by, or was under common control with, such Person at December 31, 1999 or any time since such date. "Assets" shall mean all right, title and interest in and to the business, ------ properties, assets and rights of any kind, whether tangible or intangible, used in or related to the Business, consisting of all of Seller's right, title and interest in and to the following (but excluding the Excluded Assets): (a) Equipment; (b) Inventory; (c) Books and Records; 1 (d) Intellectual Property; and (e) Permits, to the extent transferable. "Books and Records" shall mean (i) all records of Seller and Parent ----------------- relating to the Assets, and (ii) all records of Seller and Parent used in or relating to the Business or customers or suppliers of the Business, including in each case (x) any records that are in electronic form, (y) any records relating to quality assurance, and (z) all lists of vendors, lists of current customers, lists of past customers, lists or other documents describing prospective customers (such as sales leads), owned information describing marketing and selling tactics and strategy, all quality system procedures, policies, orders, complaints and other records, and all regulatory filings and submissions to the United States Food and Drug Administration, but excluding in each case (A) corporate minute books and stock records of Seller and Parent, and (B) records relating to Seller's and Parent's employees. "Business" shall mean the Ruggles(R) business of importing, developing, -------- manufacturing, customizing, marketing, selling and distributing surgical instruments. "Contract" shall mean all agreements, contracts, leases (including all -------- leases with respect to real property), obligations, nongovernmental licenses and commitments to which Seller is a party or by which Seller is bound, whether oral or written. "Disclosure Schedule" shall mean the schedule attached to and incorporated ------------------- in this Agreement which sets forth the exceptions to the representations and warranties contained in Article IV of this Agreement and certain other ---------- information called for by Article IV; each reference in Article IV of this ---------- ---------- Agreement to any numbered schedule is a reference to that numbered section of the Disclosure Schedule. "Encumbrance" shall mean any claim, lien, pledge, security interest, ----------- restriction, easement, option or other preemptive right, possessory right, encumbrance or other similar right. "Equipment" shall mean all furnishings, machinery, supplies, equipment, --------- tools and other tangible personal property owned by Seller, Parent, or any of their respective Affiliates, and used in or related to the Business, wherever located, including all tools for modifying and repairing instruments. "Excluded Assets," shall mean the following assets of Seller, Parent or any --------------- of their respective Affiliates, which (even though used in or related to the Business) are not to be acquired by Buyer: (a) Owned Real Property; (b) Contracts (other than those constituting Intellectual Property); (c) cash and cash equivalents; 2 (d) Accounts Receivable; (e) Permits, to the extent not transferable; and (f) the tradename "NMT". "Financial Statements" shall mean (i) a statement of the revenue of Seller -------------------- for the twelve-month period ended December 31, 1999, and (ii) a statement of the Inventory Amount as of the Reference Date, all attached to this Agreement as Exhibit 1.1(a). - -------------- "GAAP" shall mean United States generally accepted accounting principles as ---- in effect from time to time. "including" shall mean including without limitation. --------- "Intellectual Property" shall mean any and all Copyrights, Patents, Know- --------------------- How, and Trademarks, and all rights (including moral rights) vesting in Seller, Parent, or any of their respective Affiliates pursuant to any Laws and used in or related to the Business. For purposes of this definition: (a) "Copyrights" shall mean all rights, rights to applications for copyrights, assignments of mask works and registration of any copyrights, design database rights, and of the foregoing; (b) "Patents" shall mean continuations-in-part, foreign counterparts invention patents and patent divisions, reissues, of such patents and disclosures and applications, if any, reexaminations, extensions and patent applications, rights in all continuations, and all inventions; (c) "Know-How" shall mean industrial designs, know-how, and documentation and processes, designs methods, devices, show-how, technical and other proprietary and formulae; and technology, trade training manuals information, secrets, including proprietary processes, designs and formulae; and (d) "Trademarks" shall mean (i) registered trademarks and registered service marks, applications for registration for trademarks and service marks, renewal registrations and applications for renewal registrations, extensions and foreign counterparts of such registrations and applications for registration; (ii) material unregistered trademarks and service marks; (iii) corporate names, business names and trade names, whether registered or unregistered; and (iv) Internet domain names and associated addresses and URL's, in each case including (A) any and all embodiments of the Ruggles mark and (B) all goodwill associated therewith. 3 "Inventory" shall mean (i) all inventory held for resale with respect to --------- the Business and owned by Seller or any Affiliate of Seller, including all inventory on consignment, (ii) all promotional materials with respect to the Business owned by Seller or any Affiliate of Seller, including all field samples, demos, hospital loaners and prototypes, and (iii) all raw materials, work in process, finished products, wrapping, supply and packaging materials and similar items with respect to the Business owned by Seller or any Affiliate of Seller, in each case wherever located. "Inventory Amount" shall mean a calculation of the book value of the ---------------- Inventory as of any date in accordance with GAAP, applied in accordance with Seller's past practice; provided, however, that in calculating the Inventory -------- ------- Amount as of any date, reserves shall equal the reserves set forth in the Financial Statements. "Law" shall mean any federal, state, local or foreign statute, rule, --- regulation, order, or judgment of any governmental authority applicable to the Assets or the Business. "Material Adverse Effect" or "Material Adverse Change" shall mean a ----------------------- ----------------------- material adverse effect on, or change in, the Assets. "Noncompetititon Agreement" shall mean a Noncompetition Agreement, dated as ------------------------- of the Closing, among the parties hereto, containing the provisions set forth in Exhibit 1.1(b). - -------------- "Owned Real Property" shall mean all real property owned in fee by Seller, ------------------- including all rights, easements and privileges appertaining or relating to such real property and all buildings, fixtures and improvements located on such real property. "Permit" shall mean any license, permit, authorization, certificate or ------ order of any governmental authority used in or related to the Business. "Person" shall mean any individual, corporation, general or limited ------ partnership, limited liability company, trust, governmental body or other entity. "Reference Date" shall mean December 31, 1999 -------------- "Representative" shall mean, with respect to any Person, any officer, -------------- director, principal, attorney, agent, employee or other representative of such Person. "Tax" shall mean any federal, state, local or foreign tax, assessment or --- other government charge, including any income, property, payroll, sales and transfer tax, and any penalty in connection with any such tax. 1.2 Other Defined Terms. Each of the following terms shall have the ------------------- meanings given it in the Section set forth opposite such term below: 4 Term Section ---- ------- Agreement Preamble Base Inventory Amount 2.3(b) Buyer Preamble Closing 3.1 Closing Agenda 7.4 Closing Date 3.1 Closing Inventory Statement 2.4(a) Closing Payment 2.3(b) Dispute Notice 2.4(c) Indemnified Party 11.2(c) Indemnifying Party 11.2(c) Liabilities 2.2 Losses 11.2(a) Parent Preamble Product Safety Regulations 4.12(a) Purchase Price 2.3 Seller Preamble Seller's Accountants 2.4(a) ARTICLE II PURCHASE AND SALE OF ASSETS --------------------------- 2.1 Transfer of Assets. At the Closing, Seller will sell, convey, ------------------ transfer, assign and deliver to Buyer, and Buyer will acquire from Seller, the Assets, free and clear of all Encumbrances. 2.2 Excluded Liabilities. Buyer shall not assume, or otherwise be -------------------- responsible for, any liabilities or obligations of Seller, whether actual or contingent, matured or unmatured, known or unknown, and whether arising out of occurrences prior to, at or after the Closing Date (the "Liabilities"). 2.3 Purchase Price. The purchase price for the Assets and Seller's and -------------- Parent's entry into the Noncompetition Agreement (the "Purchase Price") shall be: (a) $2,000,000 (Two Million Dollars); plus ---- (b) the estimate of the Inventory Amount delivered to Buyer at Closing (the "Base Inventory Amount"); ((a) and (b) being the "Closing Payment"), plus or minus, ------------- (c) the post-closing adjustment provided for in Section 2.4 of this ----------- Agreement. To the extent Buyer is required to withhold amounts from the Closing Payment to satisfy any tax withholding obligation of any applicable Tax authority in connection with or as a result of the transaction contemplated hereby, the amount of the Closing Payment shall be reduced by such 5 amounts to be withheld. At the Closing, Buyer shall pay to Seller the Closing Payment (less any amounts set forth in the preceding sentence) by wire transfer of immediately available funds to an account designated by Parent. 2.4 Post-Closing Adjustment. ----------------------- (a) Closing Inventory Statement. No later than (15) days after the --------------------------- Closing, Seller and Parent shall cause Arthur Andersen, Seller's independent accounts ("Seller's Accountants"), to deliver to Buyer (i) an itemization of the Inventory and (ii) a calculation of the Inventory Amount as of the Closing Date (the "Closing Inventory Statement"). As part of the preparation of the Closing Inventory Statement, Buyer may, at its option, conduct, or cause to be conducted, its own physical inventory, which may be observed by Seller and/or its Representatives. (b) Review and Cooperation. Buyer, its independent accountants, and its ---------------------- other Representatives shall have the right to review the Closing Inventory Statement, and Parent and Seller will cooperate with them in the review process and will provide them reasonable access to all information used in the preparation of the Closing Inventory Statement. (c) Dispute Resolution. Pursuant to such review, no later than (15) days ------------------ after its receipt of the Closing Inventory Statement, Buyer shall deliver to Seller a notice (the "Dispute Notice") describing any item or amount in the Closing Inventory Statement that is disputed by Buyer. If Buyer does not deliver a Dispute Notice to Seller, then the Closing Inventory Statement shall be deemed to be final and binding on the parties. The parties shall attempt to resolve any such dispute, but if they cannot do so within (30) days after the date of receipt of the Dispute Notice, then the parties shall jointly select an independent accountant to do so. If the parties cannot agree on the appointment of such independent accountant, such accountant shall be selected at random from a list comprised of two firms chosen by Parent and two firms chosen by Buyer (which firms shall not have been engaged by Parent, Buyer or any of their Affiliates during the prior (3) years). The determination of the Inventory Amount on the final Closing Inventory Statement made by such independent accountant will be final and binding on the parties, and Buyer, on the one hand, and Parent and Seller, on the other, will share equally the cost of retaining such independent accountant. (d) Adjustment Payment. No later than (10) days after the final ------------------ determination of the Inventory Amount pursuant to clause (c) above, the following payments, as applicable, shall be made by wire transfer of immediately available funds: (i) if the Inventory Amount on the final Closing Inventory Statement is greater than the Base Inventory Amount, then Buyer will pay to Seller the difference between the two; or (ii) if the Inventory Amount on the final Closing Inventory Statement is less than the Base Inventory Amount, then Parent will pay (or cause Seller to pay) to Buyer the difference between the two; provided, however, that no payment will be required by any party unless the -------- ------- difference between the Inventory Amount on the final Closing Inventory Statement and the Base Inventory Amount is at least $20,000 (Twenty Thousand Dollars) (in which case payment of the full amount of the difference will be required). 6 2.5 Allocation of Purchase Price. The Purchase Price shall be allocated ---------------------------- among the Assets in accordance with Exhibit 2.5. Buyer and Seller each agree to ----------- prepare and file Tax returns in a manner consistent with this allocation. 2.6 Transfer Taxes and Transfer Fees. Seller shall be responsible for any -------------------------------- documentary and transfer Taxes and any other Taxes imposed by reason of the transfers of Assets provided for under this Agreement. ARTICLE III CLOSING ------- 3.1 Closing. The Closing of the transactions contemplated by this ------- Agreement (the "Closing") shall take place at the offices of Latham & Watkins, Sears Tower, Suite 5800, Chicago, Illinois 60606, at 10:00 a.m. local time, on March ___, 2000, or on such other date as the parties may agree (in any case, the "Closing Date"). ARTICLE IV REPRESENTATIONS AND WARRANTIES OF SELLER AND PARENT --------------------------------------------------- Seller and Parent, jointly and severally, represent and warrant to Buyer as of the date of this Agreement and as of the Closing Date, as follows: 4.1 Organization. ------------- (a) Seller. Seller is a corporation duly organized, validly existing and ------ in good standing under the laws of the State of Delaware, with full corporate power and authority to conduct the Business as it is presently being conducted and to own and lease its properties and assets. (b) Parent. Parent is a corporation duly organized, validly existing and ------ in good standing under the laws of the State of Delaware. Parent is the sole stockholder of Seller and, except for Parent, no Person holds any equity interest in, or has any subscription right, preemptive right, warrant, option or other right to acquire any equity interest in, Seller. 4.2 Authorization, Etc. ------------------ (a) Power and Actions Taken. Each of Seller and Parent has all requisite ----------------------- corporate power and authority and has taken or will take all requisite corporate action necessary, to execute and deliver this Agreement and the Noncompetition Agreement, to consummate the transactions contemplated on its part under this Agreement and each the Noncompetition Agreement, and to perform its obligations under this Agreement and the Noncompetition Agreement. (b) Due Execution, Delivery and Enforceability. Each of Seller and Parent ------------------------------------------ has duly executed and delivered or will duly execute and deliver this Agreement and the Noncompetition Agreement, and this Agreement and the Noncompetition Agreement is or will be a valid and 7 legally binding obligation of such party, enforceable against each such party in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally and subject to general principles of equity (regardless of whether such enforcement is considered in a proceeding in law or at equity). 4.3 No Conflict or Violation. The execution, delivery and performance of ------------------------ this Agreement and the Noncompetition Agreement will not: (i) violate or conflict with any provision of the governing documents of Seller or Parent; (ii) violate any Law; and (iii) violate, conflict with, or constitute a default (or an event which, with notice or lapse of time or both, would constitute a default) under, or result in the creation of any Encumbrance upon any of the Assets or the Business pursuant to, any Contract to which Seller or Parent is a party or to which any Assets are subject. 4.4 No Governmental or Other Consents. Except as set forth on Schedule --------------------------------- -------- 4.4, no consent or approval of, notice to, or filing with, any Person is - --- required to be obtained, given or made by Seller or Parent to permit Seller to transfer any of the Assets to Buyer. 4.5 No Brokers. Seller, Parent and their respective agents have incurred ---------- no obligation for brokerage fees or similar payments in connection with the transactions contemplated by this Agreement. 4.6 Financial Statements. The Financial Statements: (i) are in -------------------- accordance with the Books and Records of Seller; and (ii) fairly present in all material respects the revenues of Seller for the twelve-month period ended December 31, 1999 and the Inventory Amount as of the Reference Date. 4.7 Permits. (a) Schedule 4.7 contains a complete and accurate list of ------- ------------ the Permits and (b) the Permits constitute all licenses, permits, authorizations, certifications or orders of any governmental authority that are required to operate the Business as it is now conducted. The Permits set forth on Schedule 4.7 which are marked with an asterisk are transferable to Buyer at ------------ the Closing. 4.8 Title and Condition of Certain Assets. Seller has, and will transfer ------------------------------------- to Buyer at the Closing, good and marketable title to the Equipment, the Inventory and the other Assets free and clear of any Encumbrances. The Equipment is usable and operable in good working order and condition, and is in a reasonable state of repair, subject only to ordinary wear and tear, and has been subject to regular maintenance. 4.9 Intellectual Property. Schedule 4.9 contains a complete and accurate --------------------- ------------ list of the Intellectual Property. Except as set forth on Schedule 4.9: (i) ------------ Seller's right, title and interest in the Intellectual Property as owner or, subject to the terms of any applicable license, as licensee, is valid, enforceable, and uncontested, and is free and clear of all Encumbrances (except to the extent any of the Intellectual Property is licensed to Seller); (ii) to Seller's and Parent's knowledge, there are no infringements, unlawful uses, or defaults by any third party under any 8 license or other agreement with respect to the Intellectual Property; and (iii) Seller is not in default of any license or other agreement, or infringing upon any rights of any third party, in its use of the Intellectual Property and neither Seller nor Parent have received any notice alleging any such default or infringement. 4.10 Litigation. There is no Action pending or, to Seller's or Parent's ---------- knowledge, threatened: (i) relating to the Business or the Assets; or (ii) seeking to delay, limit or enjoin any transaction contemplated by this Agreement. 4.11 Inventory. Schedule 4.11 contains a complete and accurate list of --------- ------------- addresses at which Inventory is located. All Inventory reflected in the Financial Statements and all other Inventory acquired by Seller since the Reference Date was acquired in the ordinary course of business and in a manner consistent with Seller's regular inventory practices. Except for demonstration Inventory, all such Inventory is in good and saleable condition, except for products in the development phase which have not been completed for offer or sale to customers. Except as set forth on Schedule 4.11, none of Inventory is ------------- held by any Person (including any Affiliates of Seller) on consignment or is located outside of the locations shown on Schedule 4.11. Adequate reserves have ------------- been established on Seller's Books and Records with respect to excessive and obsolete Inventory (it being agreed that for the purposes of this Section 4.11, ------------ the term "excessive and obsolete inventory" shall refer to any on-hand raw materials, parts, supplies, or finished products which (a) cannot be sold at current prices in the ordinary course of business, (b) which are not usable in the production of current products, or (c) which consist of on-hand quantities in excess of one year's historical usage). 4.12 Certifications; Product Safety; Other Laws and Permits. ------------------------------------------------------ (a) Except as set forth on Schedule 4.12(a), (i) all operations of the ---------------- Business have achieved and maintained the ISO 9001 and quality certifications and are compliant with United States Food and Drug Administration Quality System Regulations (collectively, the "Product Safety Regulations") in all material respects, and (ii) there is no pending, and neither Parent nor Seller has received any notice of, nor is aware of, any threatened, action to audit, repeal, fail to renew or challenge any of such certification. (b) Except as set forth on Schedule 4.12(b), none of Parent, Seller, ---------------- or their respective Affiliates has been required to file any notification or other report with or provide information to any product safety agency, commission, board or other governmental authority of any jurisdiction concerning actual or potential hazards with respect to any product manufactured, distributed, sold or leased or service rendered by Seller or the Business or any employee or agent thereof. Each product manufactured, sold or leased, or service rendered by Seller or the Business complies in all material respects with all product safety standards of each applicable product safety agency, commission, board or other governmental authority. (c) Seller has not, in the conduct of the Business or the use of the Assets, violated any Law or Permit (excluding the Product Safety Regulations), except where such violation has not had and will not have a Material Adverse Effect, and neither Seller nor Parent 9 has received any notice to the effect that, or otherwise been advised that, either the Business or the Assets are not in compliance with any Law or Permit. 4.13 Customers, Suppliers and Licensors. None of Parent, Seller or their ---------------------------------- respective Affiliates has received written notice of or has knowledge that any customers or distributors of, or suppliers or licensors to, the Business has taken any action (or intends or could reasonably be expected to take any action as a result of the transactions contemplated hereby), which could materially adversely affect the business relationship of Seller or the Business with such customer, distributor, supplier or licensor. 4.14 Export. Except as set forth on Schedule 4.14, neither Parent nor ------ ------------- Seller has sold at any time since July 8, 1998, or to the knowledge of Parent or Seller, at any time prior thereto, directly or indirectly through any Affiliate, or to its knowledge through a distributor or other Person, any products of the Business in or to any of the following countries (or to any Person acting on behalf of any of the following countries): Burma (Myanmar), Cuba, Libya, Iran, Iraq, North Korea, Sudan, Syria, Yugoslavia, or the Taliban in Afghanistan or UNITA in Angola. 4.15 Product Liability Claims. Seller has maintained product liability ------------------------ insurance coverage in amounts of not less than $1,000,000 per occurrence and $10,000,000 in the aggregate with respect to products of the Business manufactured, sold, distributed or delivered by Seller. Such products liability insurance is on a claims made basis. ARTICLE V REPRESENTATIONS AND WARRANTIES OF BUYER --------------------------------------- Buyer represents and warrants to Seller and Parent, as of the date of this Agreement and as of the Closing Date, as follows: 5.1 Organization, Etc. Buyer is a corporation duly organized, validly ----------------- existing and in good standing under the laws of Delaware. Buyer has all requisite corporate power and authority, and has taken or will take all corporate action necessary, to execute and deliver this Agreement and the Noncompetition Agreement, to consummate the transactions contemplated on its part under this Agreement and the Noncompetition Agreement, and to perform its obligations under this Agreement and the Noncompetition Agreement. This Agreement and the Noncompetition Agreement have been or will be duly executed and delivered by Buyer and each is or will be a valid and legally binding obligation of Buyer, enforceable against Buyer in accordance with its terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, or similar laws affecting the enforcement of creditors' rights generally and subject to general principles of equity (regardless of whether such enforcement is considered in a proceeding in law or at equity). 5.2 No Conflict or Violation. The execution, delivery and performance of ------------------------ this Agreement and the Noncompetition Agreement by Buyer: (i) will not violate or conflict with any provision of the governing documents of Buyer; (ii) will not violate any federal, state, local or foreign statute, rule, regulation, order or judgment of any governmental authority applicable to Buyer; and (iii) will not violate, conflict with, or constitute a default (or an event which, with 10 notice or lapse of time or both, would constitute a default) under, any contract, lease or agreement to which Buyer is a party, except for any such violation, conflict or default which would not impair Buyer's ability to perform its obligations under this Agreement or the Noncompetition Agreement. 5.3 Governmental Consents. No consent or approval of, notice to, or --------------------- filing with, any governmental authority is required to be made by Buyer to permit Buyer to purchase the Assets from Seller. 5.4 No Brokers. Buyer and its agents have incurred no obligation for ---------- brokerage fees or similar payments in connection with the transactions contemplated by this Agreement. ARTICLE VI PRE-CLOSING COVENANTS OF SELLER, PARENT AND BUYER ------------------------------------------------- Seller, Parent and Buyer covenant with each other as follows: 6.1 Access. From the date of this Agreement through the Closing Date, ------ Seller and Parent will (i) give Buyer and its Representatives full access, during normal business hours and as often as reasonably requested, to the Assets and the Business, including the Books and Records; and (ii) at Seller's expense, provide to Buyer all information reasonably requested by Buyer or its Representatives with respect to the Assets and the Business. 6.2 Operation of the Business. Between the date of this Agreement and the ------------------------- Closing, Seller and Parent will: (i) conduct the Business (including the collection of Accounts Receivable) only in the ordinary course of business, consistent with past practices; (ii) use their best efforts to maintain existing positive relations with suppliers, customers and others having business relationships with the Business; (iii) confer with Buyer concerning operational matters of material nature; and (iv) otherwise report periodically to Buyer concerning the status of the Business. 6.3 Notification. Between the date of this Agreement and the Closing, ------------ each party will promptly notify the other parties upon becoming aware of (a) any breach, when made, of the representations and warranties contained in Article IV ---------- or V of this Agreement, (b) any fact that would constitute such a breach if such - ---- representations and warranties had been made as of the time of its awareness of such fact, (c) any breach of a covenant contained in this Agreement, or (d) any fact that makes the satisfaction of any condition contained in Article VII or -------------- VIII of this Agreement impossible or unlikely. - ---- 11 6.4 Risk of Loss. The parties acknowledge that Seller shall bear all risk ------------ of loss, destruction or damage to any of the Assets, from any cause, until the Closing, and thereafter Buyer shall bear all risk of loss. 6.5 Best Efforts To Cause Conditions To Be Satisfied. Between the date of ------------------------------------------------ this Agreement and the Closing, each of Seller and Parent will use its best efforts to cause to be satisfied the conditions contained in Articles VII and ---------------- VIII of this Agreement. - ---- 6.6 Agreement on Assignment of Assets. Prior to the Closing Date, Seller --------------------------------- shall cause all Assets owned by Parent, or an Affiliate of Parent or Seller, to be assigned to Seller. 6.7 Obtaining Transfer of Permits. To the extent that Permits are ----------------------------- transferable by Seller to Buyer, Seller and Parent will promptly execute and file with the appropriate governmental authorities applications for approval of the transfer of all such Permits to Buyer. Each of Seller and Parent will use its best efforts to: (a) obtain all consents of governmental authorities required for the transfer of such Permits to Buyer; and (b) assist Buyer in obtaining all new Permits necessary for the operation of the Business by Buyer following the Closing. 6.8 Exclusivity. Prior to the Closing Date or the date on which this ----------- Agreement is terminated pursuant to Article IX, neither Parent, Seller, nor any ---------- of their respective Affiliates nor any of their respective Representatives shall directly, or indirectly through any other Person, encourage, solicit, initiate, engage or participate in discussions or negotiations with any Person (other than Buyer) concerning any merger, consolidation, sale, lease or licensing of assets, sale of equity interests, or other business combination involving the Assets or the Business, or (b) provide any non-public information concerning the Assets, or the Business to any Person (other than Buyer). Parent and Seller shall immediately notify Buyer of, and shall disclose to Buyer all details of, any inquires, discussions or negotiations of the nature described in the first sentence of this Section 6.8. ----------- ARTICLE VII CONDITIONS TO SELLER'S AND PARENT'S OBLIGATIONS ----------------------------------------------- The obligations of Seller and Parent with respect to consummation of the transactions provided for in this Agreement are subject, in the discretion of Seller and Parent, to the satisfaction at or before the Closing of the following conditions: 7.1 Representations, Warranties and Covenants. All representations and ----------------------------------------- warranties of Buyer contained in Article V of this Agreement shall have been --------- true and correct as of the date of this Agreement and shall be true and correct in all material respects (without duplication of any materiality qualifier contained therein) as of the Closing Date, and Buyer shall have performed in 12 all material respects all covenants required by this Agreement to be performed by it as of or before the Closing. 7.2 No Injunction. There shall not be in effect any injunction or other ------------- requirement of a governmental authority that: (a) restrains or prohibits the transfer of any Assets to Buyer; and (b) has become effective since the date of this Agreement. 7.3 Noncompetition Agreement. Buyer shall have executed and delivered to ------------------------ Seller and Parent the Noncompetition Agreement. 7.4 Closing Documents. Buyer shall have delivered to Seller the documents ----------------- shown in the Closing Agenda attached to this Agreement as Exhibit 7.4 (the ----------- "Closing Agenda") as being delivered by Buyer, and such other instruments and documents as may be reasonably requested by Seller, all in form reasonably satisfactory to Seller's counsel. ARTICLE VIII CONDITIONS TO BUYER'S OBLIGATIONS --------------------------------- The obligations of Buyer to consummate the transactions provided for in this Agreement are subject, in the discretion of Buyer, to the satisfaction at or before the Closing of the following conditions: 8.1 Representations, Warranties and Covenants. All representations and ----------------------------------------- warranties of Seller and Parent contained in Article IV of this Agreement shall ---------- have been true and correct as of the date of this Agreement and shall be true and correct in all material respects (without duplication of any materiality qualifier contained therein) as of the Closing Date, and Seller and Parent shall have performed in all material respects all covenants required by this Agreement to be performed by any of them as of or before the Closing. 8.2 No Actions With Respect to Transactions. No Action shall have been --------------------------------------- instituted or threatened by any governmental authority or other Person that challenges, seeks damages in connection with, or seeks to restrain, any of the transactions contemplated by this Agreement. 8.3 Noncompetition Agreement. Each of Seller and Parent shall have ------------------------ executed and delivered to Buyer the Noncompetition Agreement. 8.4 Closing Documents. Seller and Parent shall have delivered to Buyer ----------------- the documents shown in the Closing Agenda as being delivered by them, and such other instruments and documents as may be reasonably requested by Buyer, all in form reasonably satisfactory to Buyer's counsel. 8.5 No Material Adverse Change. There shall have been no Material Adverse -------------------------- Change since the Reference Date. 13 ARTICLE IX TERMINATION BEFORE CLOSING -------------------------- 9.1 Termination. This Agreement may be terminated by notice at any time ----------- prior to Closing: (a) By written consent of Buyer, Parent and Seller; (b) By Buyer or Seller if the Closing shall not have occurred on or before April 30, 2000; provided however, that this provision shall not be available to -------- ------- Buyer if Seller has the right to terminate this Agreement under clause (d) of this Section 9.1, and this provision shall not be available to Seller if Buyer ----------- has the right to terminate this Agreement under clause (c) of this Section 9.1; ----------- (c) By Buyer if (i) there is a material breach of any covenant to be performed by Parent or Seller under this Agreement which has not been waived by Buyer, (ii) any of the conditions contained in Article VIII of this Agreement ------------ has not been satisfied or waived by Buyer as of the Closing, or (iii) satisfaction of any of the conditions contained in Article VIII of this ------------ Agreement has become impossible (other than through a breach of a covenant contained in this Agreement by Buyer) and Buyer has not waived such condition; or (d) By Seller if (i) there is a material breach of any covenant to be performed by Buyer under this Agreement which has not been waived by Seller, (ii) any of the conditions contained in Article VII of this Agreement has not ----------- been satisfied or waived by Seller as of the Closing, or (iii) satisfaction of any of the conditions contained in Article VII of this Agreement has become ----------- impossible (other than through a breach of covenant contained in this Agreement by Seller or Parent) and Seller has not waived such condition. 9.2 In the Event of Termination. In the event of termination of this --------------------------- Agreement: (a) Each party will redeliver all documents, work papers and other material of any other party relating to the transactions contemplated by this Agreement, whether so obtained before or after the execution of this Agreement, to the party furnishing the same; (b) The provisions of Section 12.15 (Confidentiality) shall continue in ------------- full force and effect; and (c) No party hereto shall have any liability to any other party to this Agreement, except as stated in this Section 9.2 and except for any breach of a ----------- covenant contained in this Agreement occurring prior to the proper termination of this Agreement. The foregoing provisions shall not limit or restrict the availability of specific performance or other injunctive relief to the extent that specific performance or such other relief would otherwise be available to a party hereunder. 14 ARTICLE X ACTIONS BY THE PARTIES AFTER THE CLOSING ---------------------------------------- 10.1 Storage of Assets; Use of Certain Equipment. Seller and Parent shall ------------------------------------------- allow Buyer to store the Assets at their current location at no cost to Buyer for a period of 60 days after the Closing Date. Seller and Parent shall give Buyer and its Representatives reasonable access to Seller's and Parent's facilities to allow Buyer to remove the Assets. In addition, Seller shall allow Buyer to use Seller's bins and racks to assist in the storage and removal of the Assets. 10.2 Customer Service. For a period of 30 days after the Closing, Seller ---------------- shall, at its expense, provide all assistance reasonably requested by Buyer with transition customer service matters with respect to the Business. 10.3 Cooperation. From time to time after the Closing, Parent, Seller and ----------- Buyer shall, and shall cause their respective Affiliates to, at the reasonable request of Buyer or Parent, as the case may be, and without further consideration, execute and deliver such further instruments of assignment, transfer or license and take such further actions as Buyer or Parent may reasonably request in order more effectively to transfer, reduce to possession, vest in, and record title to any of the Assets more fully to Buyer, including cooperation before and after the Closing on matters relating to identification of the Assets, ordering and relocation of Inventory, and preservation of relationships with customers, suppliers and distributors. The parties shall render, at no additional cost or charge to the other, such cooperation to one another with respect to such matters and with respect to such other matters concerning the transition of control of the Business as reason and commercial prudence dictate should be addressed before and after the Closing; provided, -------- however, that reasonable out of pocket expenses incurred in compliance with this - ------- Section 10.3 by one party at the request of another party shall be promptly - ------------ reimbursed by the requesting party to the party incurring such expenses. 10.4 Agreement on Transfer of Assets. Within 60 days following the Closing ------------------------------- Date Seller shall and shall cause Parent and its Affiliates to, at no cost to Buyer, transfer all of the Assets located in the United States to Seller's facility in Atlanta, Georgia, provided however, this provision shall not apply to demo equipment located at hospitals. Within 60 days following the Closing Date, Seller shall and shall cause Parent and its Affiliates to, at no cost to Buyer, transfer all of the Assets not located in the United States to Seller's facility in Newbury Road, Hampshire, England, provided however, this provision shall not apply to demo equipment located at hospitals. ARTICLE XI SURVIVAL AND INDEMNIFICATION ---------------------------- 11.1 Survival of Representations. The representations and warranties of --------------------------- the parties made in this Agreement shall survive the Closing for a period from the Closing to the 18 month anniversary of the Closing Date (or until resolution of any Indemnity Claim made on or before such date), except for the representations and warranties made in Section 4.7 with respect to title, which ------------ shall survive the Closing without limitation. 15 11.2 Indemnification. --------------- (a) By Parent and Seller. Parent and Seller hereby jointly and severally -------------------- indemnify, save and hold harmless Buyer, its affiliates and subsidiaries, and its and their respective Representatives, from and against any and all costs, losses (including diminution in value), Taxes, liabilities, obligations, damages, Actions, claims, costs of mitigation or remedial action, and expenses, including attorneys' fees and all amounts paid in investigation, defense or settlement of any of the foregoing ("Losses"), incurred in connection with or arising out of: (i) subject to Section 11.2(e)(i), any breach of any representation ------------------ or warranty made by Parent or Seller in this Agreement or in documents delivered at the Closing (without regard, for purposes of this Section 11.2(a)(i), to any ------------------ qualifications as to materiality, Material Adverse Change or Material Adverse Effect); (ii) any breach of any covenant by Parent or Seller in this Agreement or the Noncompetition Agreement; (iii) any Liability (including any Liability for Taxes); (iv) any severance or other obligation due to any employee or former employee of Seller and deemed to arise out of the Closing or as a consequence of the execution and delivery of this Agreement and any Liability resulting from Buyer's election not to hire any employee of Seller; or (v) any noncompliance by Seller or Parent with applicable bulk sales laws (whether such laws are UCC-based or Tax-related) in connection with the transfer of the Assets or Buyer's nonwithholding of any amounts from the Closing Payment to satisfy any Tax withholding obligation of any Tax authority deemed to arise out of the Closing. (b) By Buyer. Buyer hereby indemnifies, saves and holds harmless Parent, -------- Seller, their respective affiliates and subsidiaries, and their respective Representatives, from and against any and all Losses incurred in connection with or arising out of: (i) Subject to Section 11.2(e)(ii), any breach of any ------------------------------ representation or warranty made by Buyer in this Agreement or in any documents delivered at the Closing (without regard, for purposes of this Section ------- 11.2(b)(i), to any qualifications as to materiality); - ---------- (ii) any breach of any covenant by Buyer in this Agreement or the Noncompetition Agreement; or (iii) the operation of the Business by Buyer after the Closing. (c) Claims for Indemnification. Whenever any claim shall arise for -------------------------- indemnification hereunder, the party seeking indemnification (the "Indemnified Party") shall promptly notify the party from whom indemnification is sought (the "Indemnifying Party") of the claim and, when 16 known, the facts constituting the basis for such claim. For purposes of this Section 11.2(c)(i), notice shall be deemed to be promptly made if it is given to - ------------------ the Indemnifying Party within ten (10) days of receipt by the Indemnified Party of any written notice of any third party claim. In the event of any claim for indemnification under this Agreement resulting from or in connection with any claim or legal proceedings by a third party, the notice to the Indemnifying Party shall specify, if known, the amount or an estimate of the amount of the Liability arising from such claim or legal proceeding. Except as provided in Section 11.2(e) of this Agreement, the Indemnified Party shall not settle or - --------------- compromise any claim by a third party for which it may claim indemnification under this Agreement without the prior written consent of the Indemnifying Party. (d) Defense by Indemnifying Party. In connection with any claim by any ----------------------------- Indemnified Party resulting from or arising out of any claim or legal proceeding by a person who is not a party to this Agreement, the Indemnifying Party at its sole cost and expense may, upon written notice to the Indemnified Party, assume the defense of any such claim or legal proceeding if it acknowledges to the Indemnified Party in writing its obligation to indemnify the Indemnified Party with respect to all elements of such claim. The Indemnified Party shall be entitled to participate in (but not control) the defense of any such action, with its own counsel and at its own expense. If the Indemnifying Party does not assume the defense of any such claim or litigation resulting therefrom within thirty (30) days after the date of such claim is made, (a) the Indemnified Party may defend against such claim or litigation, in such manner as it may deem appropriate, including, but not limited to, settling such claim or litigation, after giving notice of the same to the Indemnifying Party, on such terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying Party shall be entitled to participate in (but not control) the defense of such action, with its own counsel and at its own expense. (e) Limits on Liability. ------------------- (i) Parent and Seller shall not be obligated to indemnify Buyer under Section 11.2(a)(i) and Buyer shall not seek such indemnification from ---------- Parent or Seller for Losses that arise out of the inaccuracy of any representation or warranty under this Agreement unless such Losses aggregate more than $20,000 (Twenty Thousand Dollars), in which event Parent and Seller shall indemnify Buyer for the entire amount of such Losses up to a maximum amount equal to the Purchase Price. (ii) Buyer shall not be obligated to indemnify Parent and Seller under Section 11.2(b)(i) and neither Seller nor Parent shall seek such ------------------ indemnification from Buyer for Losses that arise out of the inaccuracy of any representation or warranty under this Agreement unless such Losses aggregate more than $20,000 (Twenty Thousand Dollars), in which event Buyer shall indemnify Parent and Seller for the entire amount of such Losses up to a maximum amount equal to the Purchase Price. 17 ARTICLE XII MISCELLANEOUS ------------- 12.1 Employees. Buyer shall have no obligation to hire any of Seller's --------- employees. 12.2 Payment of Expenses. Except as specifically set forth elsewhere in this ------------------- Agreement, expenses related to this Agreement and attendant transactions, including the fees of counsel and accountants, shall be borne by the party incurring such expenses. 12.3 Modifications; Waivers. This Agreement maybe modified and rights ---------------------- hereunder may be waived only by a writing executed and delivered on behalf of the party against whom such modification or waiver is asserted. In no case shall any such modification or waiver be effective without the written consent of Buyer. 12.4 Assignability. This Agreement and the rights and obligations hereunder ------------- shall be binding upon and inure to the benefit of the parties hereto and their respective successors (including successors by operation of law), assigns and legal representatives. This Agreement shall not be assignable by any party hereto, except that Buyer may assign its rights and obligations hereunder to one or more of its Affiliates. 12.5 No Other Representations. Each of the parties acknowledges that in ------------------------ entering into this Agreement it has not relied on any representation, warranty, agreement of statement not set out in this Agreement or the Noncompetition Agreement (or in any document, instrument or certificate contemplated hereby or thereby), whether express or implied, and that (in the absence of fraud) it will not have any right or remedy arising out of any such representation, warranty, agreement or statement. 12.6 Notices. Any communication to be given hereunder by any parties to the ------- other party shall be in writing and delivered by messenger, sent by overnight courier, or transmitted by facsimile or electronic mail (with confirmation of receipt by the intended party), to the address or designation of such party set forth below or as changed by such party by notice given hereunder. A communication transmitted by facsimile shall be deemed effective when transmitted; a communication sent by overnight courier shall be deemed effective two business days after being sent; and a communication delivery by messenger shall be deemed effective when delivered. If to Parent or Seller: c/o NMT Medical, Inc. 27 Wormwood Street Boston, Massachusetts 02110-1625 Attention: Thomas M. Tully, President Facsimile: (617) 737-0924 E-mail: tmt@nmtmedical.com 18 with a copy to: Hale and Dorr LLP 60 State Street Boston, Massachusetts 02109 Attention: Steven D. Singer, Esq. Facsimile: (617) 526-5000 E-mail: Steven.Singer@haledorr.com If to Buyer: c/o Integra LifeSciences Corporation 311 Enterprise Drive Plainsboro, New Jersey 08536 Attention: Stuart M. Essig and John B. Henneman, III Facsimile: (609) 275-1082 E-mail: Stuart_Essig@integra-ls.com Jack_Henneman@integra-ls.com with copies to: GoodSmith, Gregg & Unruh 300 S. Wacker Drive, Suite 3100 Chicago, Illinois 60606 Attention: Marilee C. Unruh Facsimile: (312) 322-0056 E-mail: ggu1981@aol.com and Latham & Watkins Sears Tower Suite 5800 Chicago, Illinois 60606 Attention: Michael D. Levin Facsimile: (312) 993-9767 E-mail: Michel.Levin@lw.com The foregoing is not intended to be exclusive; any written communication actually received shall be effective when received. 12.7 Captions. The section captions used in this Agreement are for reference -------- and cross-reference purposes only and shall not otherwise affect the meaning or interpretation of this Agreement. 12.8 Counterparts. This Agreement may be executed in counterparts, each of ------------ which shall be deemed to be an original and all of which shall be deemed to constitute the same Agreement. 12.9 Knowledge. Any statement in this Agreement qualified by the expression --------- "so far as Parent or Seller is aware" or "to the knowledge of Parent or Seller" or any similar expression shall be deemed to include the knowledge of the officers and directors of each of Parent and 19 Seller and, additionally, each employee of Parent and Seller whose responsibilities include managerial decision making for the Business. 12.10 Governing Law. This Agreement shall be governed by and construed in ------------- accordance with the Laws of the State of Delaware, without regard to the conflict of laws principles thereof. 12.11 Entire Agreement. This Agreement (including the Exhibits, Schedules ---------------- and attachments hereto) constitutes the entire agreement between the parties hereto and supersedes and cancels any prior agreements, representations, warranties, or communications, whether oral or written, between the parties hereto relating to the transactions contemplated hereby or the subject matter herein. Neither this Agreement nor any provision hereof may be changed, waived, discharged or terminated orally, but only by an agreement in writing signed by the party against whom or which the enforcement of such change, waiver, discharge or termination is sought. 12.12 Invalidity. In the event that any of the provisions contained in this ---------- Agreement shall, for any reason, be held to be invalid, illegal or unenforceable in any respect, then, to the maximum extent permitted by law, such invalidity, illegality or unenforceability shall not affect any other provision of this Agreement. 12.13 Cumulative Remedies. Except as otherwise specifically provided in this ------------------- Agreement, all rights and remedies of any party hereto are cumulative of each other and of every other right or remedy such party may otherwise have at law or in equity, and the exercise of one or more rights or remedies shall not prejudice or impair the concurrent or subsequent exercise of other rights or remedies. 12.14 Publicity. So long as this Agreement is in effect, Buyer and Parent --------- shall use all reasonable efforts to develop a joint communications plan and each party shall use all reasonable efforts (a) to ensure that all press releases and other public statements with respect to the transactions contemplated hereby shall be consistent with such joint communications plan and (b) unless otherwise required by applicable law or by obligations pursuant to any listing agreement with or rules of any securities exchange, to consult with each other before issuing any press release or otherwise making any public statement with respect to this Agreement or the transactions contemplated hereby. 12.15 Confidentiality. Prior to the Closing, the parties hereto, and their --------------- Representatives and assignees shall hold confidential all information obtained from each of the other parties and their respective Affiliates in connection herewith and, if the Closing shall be abandoned as provided herein, shall treat such information as confidential and where such information is in documentary form, return such information to the party that provided it, provided, however, -------- ------- each counsel may retain one copy of such information for its files. The provisions of this Section 12.15 shall not apply to information regarding Seller ------------- or Parent which is in the public domain due to no fault of Buyer or its Representatives. The parties hereto, on their own behalf and on behalf of their respective Representatives and assignees, agree that damages are an inadequate remedy for breach of this provision and that the non-breaching party shall, whether or not it is pursuing 20 any potential remedies at law, be entitled to equitable relief in the form of preliminary and permanent injunctions without the posting of a bond or other security upon any actual or threatened breach of this Section 12.15. ------------- 12.16 Use of "NMT" Name. Parent and Seller acknowledge and agree that, ----------------- while Buyer is not acquiring ownership of the acronym "NMT" (or any derivatives thereof), Buyer (and its successors and assigns) shall have for a period of three (3) years from Closing, a limited license to continue to use the acronym "NMT" to the extent that the same appears or is used upon any promotional or marketing materials, brochures, information, labels, packaging or similar materials related to any of the products or used in connection with the Business, in each case as existing on the Closing Date. Following the Closing Date, Seller (directly or indirectly through an Affiliate) shall have the right to monitor the quality of products bearing the acronym "NMT". The license to acronym "NMT" granted in this Section 12.16 is subject to and conditioned on the ------------- maintenance of product quality consistent with the quality of Seller's products on the date hereof. * * * [SIGNATURE PAGE FOLLOWS] 21 IN WITNESS WHEREOF, the parties executed and delivered this Agreement as of the day and year first above written. "BUYER" Integra Selector Corporation By: /s/ Stuart M. Essig ----------------------- Name: Stuart M. Essig ---------------------- Title: President --------------------- "SELLER" NMT Neurosciences (US), Inc. By: /s/ Thomas M. Tully ----------------------- Name: Thomas M. Tully ---------------------- Title: President --------------------- "PARENT" NMT Medical, Inc. By: /s/ Thomas M. Tully ----------------------- Name: Thomas M. Tully ---------------------- Title: President --------------------- S-1 EXHIBIT 1.1(a) -------------- FINANCIAL STATEMENTS Revenue for year ended 12/31/99 $2,450,000 Inventory $2,039,000 EXHIBIT 1.1(b) -------------- TERMS OF NONCOMPETITION AGREEMENT Noncompetition: Two (2) year noncompete with a global geographic scope. - -------------- Nonsolicitation: No nonsolicitation provision with respect to employees of - --------------- Seller. EXHIBIT 2.5 ----------- ALLOCATION OF PURCHASE PRICE Inventory $2,039,000 Intangibles $2,000,000 EXHIBIT 7.4 ----------- CLOSING AGENDA See attached. PURCHASE OF ASSETS OF NMT NEUROSCIENCES (US), INC. BY INTEGRA SELECTOR CORPORATION CLOSING CHECKLIST
Responsibility Signed By: -------------- ---------- A. Agreements _____ 1. Asset Purchase Agreement, with attachments GGU Parent Seller Buyer _____ 2. Bill of Sale GGU Seller _____ 3. Assignment of Trademarks GGU Seller _____ 4. Assignment of Patents GGU Seller _____ 5. Noncompetition Agreement GGU Parent Seller Buyer _____ 6. Certified good faith estimate of the Inventory Seller Seller Amount as of the Closing Date _____ 7. Receipt GGU Seller B. Seller's Organizational and Related Documents to be Delivered on or prior to Closing _____ 1. Certificate of Incorporation certified by the HD --- Delaware Secretary of State _____ 2. Good Standing Certificate from the Delaware HD --- Secretary of State _____ 3. Officer's Certificate with respect to: HD Seller B. Certificate of Incorporation; C. Bylaws; D. Incumbency; and E. Resolutions C. Parent's Organizational and Related Documents to be Delivered on or prior to Closing _____ 1. Certificate of Incorporation certified by the HD --- Delaware Secretary of State _____ 2. Good Standing Certificate from the Delaware HD --- Secretary of State
_____ 3. Officer's Certificate with respect to: HD Seller F. Certificate of Incorporation; G. Bylaws; H. Incumbency; and I. Resolutions D. Buyer's Organizational and Related Documents to be Delivered on or prior to Closing _____ 1. Certificate of Incorporation certified by the GGU --- Delaware Secretary of State _____ 2. Good Standing Certificate from the Delaware GGU --- Secretary of State _____ 3. Officer's Certificate with respect to: GGU Buyer J. Certificate of Incorporation; K. Bylaws; L. Incumbency; and M. Resolutions E. Conditions to Seller's Obligations _____ 1. Evidence of disposal of certain businesses by Buyer --- Parent to either an Affiliate of Buyer or any other Person _____ 2. Officer's Certificate of Buyer certifying that GGU Buyer all representations and warranties of Buyer contained in the Asset Purchase Agreement are true and correct in all material respects (without duplication of any materiality qualifier contained therein) as of the Closing Date F. Conditions to Buyer's Obligations _____ 1. Evidence that Buyer (or an Affiliate of Buyer) Seller --- has purchased certain complementary businesses (either from an Affiliate of Seller or any other Person) _____ 2. Evidence that transactions contemplated by the Seller --- Asset Purchase Agreement are exempt from any Tax withholding obligation of any Tax authority (i.e., FIRPTA) _____ 3. Officer's Certificate of Seller and Parent HD Seller certifying that all representations and Parent warranties of Seller and Parent contained in the Asset Purchase Agreement are true and correct in all material respects (without duplication of any materiality qualifier contained therein) as of the Closing Date
EX-4.1 4 FORM OF COMMON STOCK CERTIFICATE EXHIBIT 4.1 COMMON STOCK COMMON STOCK NUMBER SHARES NMT MEDICAL, INC. INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE CUSIP 629294 10 9 THIS CERTIFIES THAT is the record holder of FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK, $.001 PAR VALUE, PER SHARE, OF NMT MEDICAL, INC. (the "Corporation") subject to the provisions of the Certificate of Incorporation and By-Laws of the Corporation and transferable only on the books of the Corporation by the holder thereof, in person or by attorney upon surrender of this Certificate properly endorsed. The Corporation will furnish without charge to each shareholder who so requests a full statement of the designations, relative rights, preferences and limitations of the shares of each class of stock which the Corporation is authorized to issue, of the designations, relative rights, preferences and limitations of each series of preferred stock which the Corporation is authorized to issue so far as such terms have been fixed, and of the authority of the Board of Directors of the Corporation to designate and fix the relative rights, preferences and limitations of any series of preferred stock which the Corporation is authorized to issue. This Certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. Witness the facsimile Seal of the Corporation and the facsimile signatures of its authorized officers. Dated: [SEAL] Secretary President COUNTERSIGNED AND REGISTERED: AMERICAN STOCK TRANSFER & TRUST COMPANY (NEW YORK, N.Y.) By TRANSFER AGENT AND REGISTRAR AUTHORIZED SIGNATURE The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM--as tenants in common UNF GIFT MIN ACT - Custodian TEN ENT--as tenants by the entireties -------------------- JT TEN --as joint tenants with right of (Cust) (Minor) survivorship and not as tenants under Uniform Gifts common to Minors Act ----------------- (State) Additional abbreviations may also be used though not in the above list. For value received, hereby sell, assign and transfer unto --------------------- PLEASE INSERT SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER OF ASSIGNEE - -------------------------------------------------------------------------------- (PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - ----------------------------------------------------------- Shares of the common stock represented by the within Certificate, and do hereby irrevocably constitute and appoint - -------------------------------------------------------------------- Attorney to transfer the said stock on the books of the within named Corporation with full power of substitution in the premises. Dated: -------------------------------- X------------------------------------------- X------------------------------------------- NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR, WITHOUT ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER. Signature(s) Guaranteed By ----------------------------------------------------------------------------- THE SIGNATURE(S) MUST BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-10.23 5 EMPLOYMENT AGREEMENT Exhibit 10.23 AGREEMENT dated as of the 22nd day of July, 1993 by and between NITINOL MEDICAL TECHNOLOGIES, INC., (hereinafter called "Employer") and STEPHEN J. KLESHINSKI (hereinafter called "Executive"). WITNESSETH ---------- WHEREAS, Employer has developed and is developing medical devices, including devices made of the shape memory metal alloy, nitinol, the first of which is a patented vena cava filter; WHEREAS, Executive has been employed by Employer as director of research and development and quality control and assurance, and Employer and Executive desire to enter into an agreement to continue such employment; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto hereby agree as follows: 1. Employment. Employer hereby agrees to employ Executive, and Executive ---------- agrees to serve for the term of this Agreement on the terms and conditions hereinafter set forth. 2. Term. This Agreement shall be for a term of five (5) years commencing ---- June 1, 1993 and ending May 31, 1998. At the end of such term, or any additional term, this Agreement shall automatically renew for an additional term of one year on the same basis as that in effect at the end of any such term, unless one party shall notify the other in writing, not later than three months prior to the end of any term, that such party wishes to terminate employment at the end of the then current term. 3. Extent of Services; Duties. Executive will devote his full time and -------------------------- efforts to the business and affairs of the Employer and shall not, during the term of this Agreement, be engaged in any other business activity. Executive will work in the areas of research and development and quality control and assurance, and will use his best efforts to promote the interests of Employer. Executive will hold the office of Vice President, reporting to the Director of Science and the President and such other person as directed by the President and the Board of Directors of the Employer. Notwithstanding the foregoing, the Executive shall not be precluded from devoting such time to his personal financial affairs as shall not interfere with his duties hereunder, and shall be entitled to holidays in accordance with the practice of Employer. 4. Compensation. Employer will compensate Executive for all services ------------ rendered hereunder at a salary of $80,000 per annum from June 1, 1993 through May 31, 1994; $87,000 per annum from June 1, 1994 through May 31, 1995; $94,000 per annum from June 1, 1995 through May 31, 1996; $100,000 per annum from June 1, 1996 through May 31, 1997 and $105,000 per annum from June 1, 1997 through May 31, 1998. 5. Career Incentive Bonus Plan. Executive was previously granted 30,000 --------------------------- Units under the Career Incentive Bonus Plan. Employer agrees to grant an additional 120,000 Units under the Plan to Executive, effective as of July 1, 1993 in accordance with the terms of the plan. All Units shall convert to common stock of the Company as provided in the Plan, and when as and if the Company ceases to be an S corporation. 6. Expenses. Employer shall reimburse Executive against appropriate -------- vouchers for authorized business expenses reasonably incurred by him in the performance of his duties pursuant to the terms of this Agreement. 7. Secrecy; Inventions. ------------------- (a) Executive agrees that he shall not, during or after the termination of this Agreement, for any reason whatsoever, divulge, furnish or make accessible to any person, firm, corporation or other business entity, any confidential information, including but not limited to, inventions, processes, trade secrets, practices, methods, products or any confidential or secret aspect of the business of the Employer without the prior written consent of the Employer. This provision shall not apply to any confidential information which, through no breach of this agreement by Executive, becomes generally known in the medical device industry. (b) Executive agrees to communicate and make known to the Employer in a preservable manner all significant knowledge acquired by him during the term of this Agreement, including laboratory notes and logs relating to any methods, developments, and/or improvements, or know-how which concern, or could concern the present or future business of the Employer. (c) Executive agrees to assign to Employer any invention, idea, discovery or improvement conceived of, developed or perfected, solely or jointly, by Executive during the term of this Agreement or Executive's prior Agreement with Employer relating to medical devices or to the making, fabrication, training or use of nitinol, and to execute all documents and do all further acts which may be necessary or appropriate to perfect such assignment and at the request of Employer to cause a patent application to be made and a patent to issue and/or to defend a patent application or a patent on any such invention, in the United States and any other country, provided that all expenses in connection herewith shall be paid by Employer. 8. During the term of this Agreement and any renewal thereof, Employer shall pay Executive a 1% royalty on the gross revenues resulting from the sale of any product made and or sold in a jurisdiction where the Employer has a patent, filed subsequent to the date of this agreement, on an invention of Executive. Net Sales shall be the amount actually collected and shall not include transportation charges. Royalties shall be paid to Executive quarterly within 75 days after the end of each calendar quarter and Executive shall have the right within one year after receipt of statement to have a public accountant, during normal business hours, audit Employer's books to verify the accuracy of the royalty payments due pursuant to this Section 8. 9. Restrictive Covenant. -------------------- (a) Executive agrees that during the term hereof and for a period of 18 months next succeeding the termination of his employment with Employer for any reason whatsoever, he will not directly or indirectly engage in any business activity in competition with the business then being conducted or actively contemplated by Employer, whether for Executive's own account or as executive, partner, officer, -2- director, consultant or holder of more than 5% equity interest in any other entity or person. Executive further agrees that during said 18 month period he will not hire, offer to hire, entice away or try to persuade any executive, employee, supplier or agent of Employer to discontinue the relationship with the Employer, or assist any member of his immediate family, any business associate or other person, for consideration or otherwise, to do any of the aforesaid prohibited things. During the course of said 18 month period, Executive shall advise Employer, in writing, if he has received and wishes to accept any offer of employment from such a competitor. Such writing shall be sufficiently detailed regarding the nature and scope of the position and compensation offered. The Employer shall then have thirty (30) days following the receipt of said written notification to advise Executive of its election: (i) To waive the provision of this Section 8, only in which case Executive shall be free to accept such employment subject to all the other terms and conditions set forth herein; or (ii) To insist upon full compliance with the provisions of this Paragraph 9, in which case Employer shall compensate Executive at the base salary rate actually offered by its competitor for the duration of the aforesaid 18 month period or until Executive shall be employed elsewhere. (b) If Executive shall breach any of this Section 9, all Career Incentive Bonus Plan benefits, whether vested or unvested, shall lapse until final resolution of any claims by Employer for money damages, and Employer, in addition to any money damages, shall be entitled to an injunction to be issued by a court of competent jurisdiction enjoining, restraining or restricting Executive from such breach or violation. 10. Miscellaneous. ------------- (a) Neither this Agreement nor its execution and delivery has been induced by any representation, stipulation, warranty, agreement or understanding of any kind other than those specifically set forth herein. This Agreement constitutes the whole agreement between the parties hereto and there are no terms other than those contained herein. No variation hereof shall be deemed valid unless in writing and signed by the parties hereto and no discharge of the terms hereof shall be deemed valid unless by full performance by the parties hereto or by a writing signed by the parties hereto. No waiver by either party of any breach of any provision or condition of this Agreement shall be deemed a waiver of a breach of a similar or dissimilar provision or condition at the same time or any prior or subsequent time or of the provision or condition itself. (b) Each provision of this Agreement is intended to be severable and the invalidity or illegality of any portion of this Agreement shall not affect the validity or legality of the remainder hereof. If any of the provisions of this Agreement should be determined to be unenforceable by reason of being unreasonable in duration or in area, then such provision is intended to and shall extend only for such period of time and in such area as is determined to be reasonable and enforceable. (c) This Agreement supersedes and replaces the Agreement between the parties dated June 1, 1991. -3- (d) All notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be deemed to have been given at the time mailed enclosed in a certified postage-paid envelope, return receipt requested, addressed to the addresses of the respective parties stated below or to such changed addresses as such parties may have fixed by a notice, and simultaneously by facsimile telephone to the Fax phone number provided by the parties; provided, however, that any notice of any change of address or change of Fax number shall be effective only upon receipt. If to the Employer: c/o C. Leonard Gordon 461 Fifth Ave. 23rd Floor New York, NY 10017-6234 Fax (212) 684-3043 cc: Jack Reinstein 7779 Willow Glen Road Los Angeles, CA 90046-1610 If to the Executive: 599 Country Way Scituate, MA 02066 (e) This agreement shall inure to the benefit of and be binding upon the Employer, its successors and assigns, and upon the Executive, his heirs, executors, administrators and legal representatives. (f) Captions contained in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. (g) The terms and provisions of this Agreement and any dispute or controversy arising hereunder shall be governed by the laws of the State of New York applicable to contracts made and to be performed therein, without giving effect to the principles of conflicts of laws thereof. Any dispute or controversy arising out of this Agreement shall be submitted to binding arbitration to be held in the City of New York in accordance with the rules of the American Arbitration Association then in effect. (h) This Agreement may be executed in several counterparts and all so executed shall constitute one Agreement, binding on all parties hereto, notwithstanding that all the parties are not signatories to the original or the same counterpart. -4- IN WITNESS WHEREOF, the parties hereto have hereunder set their hands and seals the day and year first above written. NITINOL MEDICAL TECHNOLOGIES, INC. By: /s/ C. Leonard Gordon ------------------------------ C. Leonard Gordon Chief Executive Officer /s/ Stephen J. Kleshinski ------------------------------------- Stephen J. Kleshinski -5- SUPPLEMENTAL AGREEMENT This Supplemental Agreement by and between NITINOL MEDICAL TECHNOLOGIES, INC., (hereinafter referred to as "EMPLOYER") and STEPHEN J. KLESHINSKI (hereinafter referred to as "EXECUTIVE") is effective as of the First day of June, 1994. WHEREAS, EMPLOYER has entered into a License Development Agreement by and between Boston Scientific Corporation and EMPLOYER dated as of the 1st day of November, 1994 (The "License Agreement"). 1. EMPLOYER and EXECUTIVE are parties to a prior Agreement dated as of the 22nd day of July, 1993 (the "Prior Agreement"), a copy of which is attached hereto. The purpose of this Supplemental agreement is to amend the provisions of paragraph 8 of the Prior Agreement; but the Prior Agreement shall otherwise remain in full force and effect. 2. Paragraph 8 of the Prior Agreement is hereby amended to read as follows: 8. (a) During the term of this Agreement and any renewal thereof, EMPLOYER shall pay EXECUTIVE a royalty with respect to any product (other than a product including a Stent, as that term is defined in Section 1.20 of the License Agreement, or a Vena Cava filter product) made, used or sold by EMPLOYER or any licensee of EMPLOYER in any jurisdiction EMPLOYER has an Executive Patent (as defined below) the claims of which cover such manufacture, use or sale. With respect to any such product sold by EMPLOYER, the royalty shall be 1% of EMPLOYER's Net Sales (defined substantially as EMPLOYER'S gross sales adjusted as provided in the definition of Net Sales in Section 1.14 of the License Agreement, with such modifications as are appropriate to the circumstances) of such products; with respect to any such products sold (or to be sold) by a third party from which EMPLOYER directly or indirectly receives any payment with respect to any Executive Patent, the royalty shall be 5% of such payments. In the case of an Executive Patent in which EXECUTIVE is not the sole inventor, the royalty shall be apportioned (e.g., if the product is covered by only one Executive Patent as to which there are two inventors, EXECUTIVE shall receive a royalty equal to one-half the royalty which he would have received if he had been the sole inventor). Notwithstanding the foregoing no royalty shall be paid to EXECUTIVE with respect to any such product if EMPLOYER establishes that no invention which is the subject of any Executive Patent contributed to the value of such product. (b) EMPLOYER shall pay EXECUTIVE an amount equal to 5% of all licensing fees actually collected by EMPLOYER in conjunction with the sale or licensing of Stents or Products (as such terms are defined in Section 1.18 and 1.20 of the License Agreement). With respect to each Stent Product, such amount shall be due and payable for a period of ten (10) years following the first commercial sale of such product in any jurisdiction. In the event that EMPLOYER collects any monies from a third party as designated as an advance against future license fees, such monies shall be considered to have been collected when fully vested in EMPLOYER. (c) The payments to EXECUTIVE provided in subparagraphs (a) and (b) above shall if such be reduced by 50% from and after the time when EXECUTIVE's employment with EMPLOYER is terminated by EXECUTIVE voluntarily (but not by reason of death, sickness or other disability) or by EMPLOYER with due cause, but otherwise shall not be reduced, provided, however, that if termination under such circumstances shall occur within three years of the date of this Agreement said payment shall terminate. (d) The payments to EXECUTIVE provided in subparagraphs (a) and (b) above shall be made as promptly as practicable, but in any event within 75 days at the end of each calendar quarter with respect to payments received by the EMPLOYER during such calendar quarter; if no payments are due with respect to any calendar quarter, EMPLOYER shall provide EXECUTIVE a statement to such effect within the 75 day period. EMPLOYER shall keep complete and accurate books and records from which the amounts of such payments may be ascertained, and within one year after receipt of any payment or statement. EXECUTIVE, or a representative of EXECUTIVE, shall have the right to examine such books and records during business hours once in each calendar year to verify the accuracy of such payment or statement. (e) EMPLOYER's obligations under this Paragraph 8 may be assigned only in connection with the sale or other transfer of all or substantially all of EMPLOYER's business to which the subject matter of this paragraph relates, and then only if the assignee agrees to be bound thereby in a writing delivered to EXECUTIVE in advance of such transfer. (f) As used in this Paragraph 8, "Executive Patent" means any patent issued, and any patent application filed, after the effective date of the Prior Agreement in which EXECUTIVE is a sole or joint inventor. "Stent" shall have the same meaning as nitinol Stent in the Agreement with Boston Scientific Corporation. NITINOL MEDICAL TECHNOLOGIES, INC STEPHEN J. KLESHINSKI By: /s/ C. Leonard Gordon By: /s/ Stephen J. Kleshinski ------------------------------- ----------------------------- C. Leonard Gordon Chief Executive Officer Date: January 12, 1995 Date: January 22, 1995 ------------------------ ----------------------- -2- EX-10.57 6 WAIVER AND CONSENT AGREEMENT Exhibit 10.57 WAIVER AND CONSENT AGREEMENT ---------------------------- This is a Waiver and Consent Agreement dated as of March 20, 2000 by and among Brown Brothers Harriman & Co. ("BBH"), J.H. Whitney & Co. ("JHW"), Whitney Subordinated Debt Fund, L.P. ("WSDF" and, together with JHW, "Whitney") and the Borrowers (as defined below) party hereto. Reference is made to (i) that certain Credit Agreement, dated as of September 13, 1999 (the "U.S. Credit Agreement"), by and among NMT Medical, Inc. ("NMT") and its domestic subsidiaries (together with NMT, the "U.S. Borrowers") and BBH, (ii) that certain Credit Agreement, dated as of September 13, 1999 (the "French Credit Agreement"), by and among NMT NeuroSciences Implants (France) SA and NMT NeuroSciences Instruments (France) SARL, each a wholly owned subsidiary of NMT (collectively, the "French Borrowers" and together with the U.S. Borrowers, the "Borrowers"), and BBH, (iii) that certain Guarantee, dated as of September 13, 1999 (the "BBH Guarantee"), made by the U.S. Borrowers in favor of BBH, pursuant to which the U.S. Borrowers guaranteed the obligations of the French Borrowers under the French Credit Agreement, (iv) that certain Security Agreement, dated as of September 13, 1999 (the "Security Agreement"), by and among the U.S. Borrowers and BBH and (iv) that certain letter agreement regarding the post-closing delivery of certain documentation and the satisfaction of certain conditions, dated September 13, 1999 (the "Letter Agreement"). The U.S. Credit Agreement, the French Credit Agreement, the BBH Guarantee, the Security Agreement and the Letter Agreement are referred to collectively herein as the "BBH Loan Documents." Reference is further made to (i) that certain Subordinated Note and Common Stock Purchase Agreement, dated as of July 8, 1998 (the "Whitney Purchase Agreement"), by and among WSDF, NMT and, for certain purposes, JHW, as amended by that certain Amendment No. 1 dated April 14, 1999 ("Amendment No. 1") and as further amended by that certain Amendment No. 2 dated September 13, 1999 ("Amendment No. 2") (the Whitney Purchase Agreement as so amended, the "Amended Whitney Purchase Agreement"); (ii) that certain Subordinated Promissory Note, dated as of July 8, 1998, payable to WSDF in the original principal amount of $6,000,000 (the "Whitney Note") and (iii) that certain Guarantee and Collateral Agreement, dated as of July 8, 1998 (the "Whitney Guarantee"), by the U.S. Borrowers in favor of JHW, as Agent, as amended by Amendment No. 2 (as so amended, the "Amended Whitney Guarantee"). The Amended Whitney Purchase Agreement, the Whitney Note and the Amended Whitney Guarantee are referred to collectively herein as the "Whitney Loan Documents." WHEREAS, NMT has informed BBH and Whitney that: (i) NMT and NMT NeuroSciences (US), Inc. ("NMT US") intend to enter into a certain asset purchase agreement (the "ISC Agreement") with Integra Selector Corporation ("ISC") pursuant to which, inter alia, NMT US shall sell to ISC the Assets (as defined in the ISC Agreement), which transaction is intended to convey the assets used in or related to the Ruggles(R) business of importing, developing, manufacturing, customizing, marketing, selling and distributing surgical instruments and (ii) NMT, NMT US, NMT Neurosciences Holdings (UK) Limited ("NMT Holdings UK"), NMT Neurosciences (UK) Limited ("NMT UK"), Spembly Medical Limited ("SML"), Spembly Cryosurgery Limited ("SCL") and Swedemed AB ("SAB", and collectively with NMT UK, SML and SCL, the "Acquired Companies") intend to enter into a purchase agreement (the "INH Agreement") with Integra Neurosciences Holdings (UK) Limited ("Integra UK") and ISC pursuant to which, inter alia, (a) NMT Holdings UK shall sell to Integra UK all of the capital shares of NMT UK that are owned by NMT Holdings UK and (b) NMT US shall sell to ISC the US-Based Assets (as defined in the INH Agreement), which US-Based Assets include, in summary, those assets owned by NMT US or otherwise located in the United States that are used or related to the products manufactured, assembled, repaired, developed, created, invented or researched by or on behalf of the Acquired Companies (which include, without limitation, the Selector Ultrasonic Aspirator, cryosurgical and TNS product lines, products in the research and development stage and other products identified in the Schedule of Products in the INH Agreement). Each of BBH and Whitney acknowledges receipt of a copy of the ISC Agreement and the INH Agreement. The transactions contemplated by the ISC Agreement and the INH Agreement are referred to collectively herein as the "Sale Transactions." WHEREAS, NMT intends to use a portion of the expected approximately $12,000,000 of gross proceeds from the Sale Transactions to repay a portion of its obligations under the BBH Loan Documents and the Whitney Loan Documents; WHEREAS, NMT has requested that BBH and Whitney consent to the Sale Transactions and, in connection therewith, that (i) BBH and Whitney waive compliance with certain financial and other covenants set forth in the BBH Loan Documents and the Whitney Loan Documents respectively and (ii) BBH release its security interest in the Assets and the US-Based Assets; and WHEREAS, BBH and Whitney have agreed to consent to the Sale Transactions and waive compliance with certain covenants under the respective BBH Documents and Whitney Loan Documents and BBH has agreed to release its security interest in the Assets and the US-Based Assets, all in accordance with the terms and conditions set forth herein. NOW, THEREFORE, in consideration of the foregoing and the promises and agreements set forth herein, the parties agree as follows: 1. BBH waives compliance by the U.S. Borrowers with the financial covenants set forth in Section 6.09 of the U.S. Credit Agreement, which covenants are incorporated by reference into the BBH Guarantee in Section 10(a) thereof, for the fourth quarter of 1999, but only to the extent of the deviations from the relevant financial covenants delivered in writing to BBH in connection herewith. Whitney waives compliance by the U.S. Borrowers with the financial covenants set forth in Section 9.8 of the Amended Whitney Purchase Agreement for the fourth quarter of 1999. 2. BBH consents to the entering into agreements for and the consummation of the Sale Transactions and, in connection therewith, waives any default under the BBH Loan Documents that might otherwise be caused by or result from such Sale Transactions, including but not limited to any default due to non- compliance with Sections 5.03, 5.05 and 6.03 of the U.S. Credit Agreement (as 2 incorporated by reference into the BBH Guarantee). Whitney consents to the entering into agreements for and the consummation of the Sale Transactions and, in connection therewith, waives any default under the Whitney Loan Documents that might otherwise be caused by or result from such Sale Transactions, including but not limited to any default due to non-compliance with Sections 9.1, 9.6, 9.7 or 9.10 of the Amended Whitney Purchase Agreement or Section 5.9 of the Amended Whitney Guarantee. 3. The consummation of the Sale Transactions shall not constitute a "change of control" for purposes of Section 3(b) of the Whitney Note or otherwise trigger mandatory prepayment of the Whitney Note. 4. BBH shall be paid such amount from the proceeds of the Sale Transactions as is necessary to pay in full all monetary obligations of the Borrowers under the French Credit Agreement and to reduce the outstanding principal balance under the U.S. Credit Agreement as of the date of the Closing (as defined in paragraph 5 below) to $2,000,000. The parties agree that, upon such reduction of the principal amount outstanding under the U.S. Credit Agreement to $2,000,000 and such payment in full of all monetary obligations under the French Credit Agreement, the amount of the Commitment (as defined in the U.S. Credit Agreement) and the maximum aggregate principal amount of permitted Senior Indebtedness (as defined in the Amended Whitney Purchase Agreement) each shall be reduced to $2,000,000. Without affecting the effectiveness of the terms of the preceding sentence, the Borrowers agree that they shall execute as soon as practicable after such payments have been made, but in no event more than 10 business days after the date such payments have been made: (i) an amendment to the U.S. Credit Agreement memorializing such reduction of the Commitment to $2,000,000, in a form reasonably satisfactory to BBH and (ii) an amendment to the Amended Whitney Purchase Agreement memorializing such reduction of the permitted Senior Indebtedness to $2,000,000, in a form reasonably satisfactory to Whitney. In connection with the execution of this agreement, BBH also shall receive a fee of $50,000 in cash payable on the date hereof plus a warrant to purchase 20,000 shares of the common stock of NMT exercisable at the listed price of NMT common stock as of the close of business on the date hereof (the "Warrant"). The Warrant shall be delivered as soon as practicable, but in no event more than 10 business days after the date hereof, in a form reasonably satisfactory to BBH. WSDF shall be paid up to a total of $1,000,000 (but in no event less than $500,000) from the proceeds of the Sale Transactions payable as follows: (i) a minimum of $500,000 shall be paid by the close of business on the first business day after the Closing and (ii) up to an additional $500,000 shall be paid within 10 business days after the Closing, which amount shall be determined by NMT's management in good faith based on the cash flow and budgeting needs of NMT and its subsidiaries. BBH consents to such payment of up to $1,000,000 to WSDF and, in connection therewith, waives compliance with the subordination provisions and other payment restrictions contained in the BBH Loan Documents and the Whitney Note solely to the extent necessary to allow such payment to WSDF. Additionally, BBH and Whitney shall be paid their reasonable attorneys' fees in connection with this transaction (the amount of such fees to be provided to NMT prior to the Closing) by the close of business on the first business day after the Closing. 3 5. BBH agrees to release its security interest in the Assets and the US- Based Assets in connection with the closing of the Sale Transactions (the "Closing"). Such release shall be effective and self-executing simultaneously with the Closing (such release shall be deemed to be effective immediately prior to the conveyance of the Assets and the US-Based Assets, it being intended that such assets shall be sold free and clear of any security interest or lien of BBH). BBH agrees to execute, at NMT's expense, any UCC-3 termination statements and any other documentation reasonably requested by NMT to effectuate or evidence such security interest terminations. BBH acknowledges that it holds no security interest in the capital stock of any of the Acquired Companies or in any of the assets of any of the Acquired Companies. 6. BBH waives the defaults that would otherwise be caused by or result from, or have been caused by or have resulted from, the failure of the Borrowers heretofore to deliver the following item required by the Letter Agreement: the pledge of the stock of Image Technology Corp. (together with related stock powers executed in blank); provided that the Borrowers shall deliver the remaining documentation and satisfy the remaining conditions set forth in the Letter Agreement on or before May 31, 2000. The Borrowers acknowledge and agree that if all of the documentation required to be delivered under the Letter Agreement and all of the conditions required to be satisfied as set forth therein are not so delivered and satisfied on or before May 31, 2000, it shall constitute an immediate Event of Default under the U.S. Credit Agreement and the French Credit Agreement. 7. The waivers by BBH and Whitney are limited to those described herein, and nothing contained herein or in any other communication between any Borrower and BBH or Whitney shall constitute a consent to any other deviation from the terms of any of the BBH Loan Documents or Whitney Loan Documents. Except as expressly set forth herein, nothing contained in this agreement shall be deemed to modify or amend any of the BBH Loan Documents or Whitney Loan Documents, each of which remains in full force and effect, or constitute a course of dealing among the Borrowers and BBH or Whitney. 8. The making of this agreement shall not be construed as: (i) creating in favor of BBH a right to require its consent or approval to any future modification, amendment or waiver of or under the Whitney Loan Documents or (ii) creating in favor of Whitney a right to require its consent or approval to any future modification, amendment or waiver of or under the BBH Loan Documents. 9. The payment and other obligations of the Borrowers hereunder that are to be paid or performed after the date hereof shall not affect the validity or effect of the waivers and consents given by BBH and Whitney herein in connection with the Sale Transactions, it being intended that the buyers under the Sale Transactions may rely on the finality of such waivers and consents. The foregoing sentence shall not affect or be deemed to affect the obligations of the Borrowers to BBH and Whitney hereunder and any rights that BBH and Whitney may have under the BBH Loan Documents and the Whitney Loan Documents respectively. This agreement shall be effective only upon the execution hereof by BBH, Whitney and the Borrowers. 4 WHEREFORE, the parties have executed this agreement as a document under seal as of the date first written above. BROWN BROTHERS HARRIMAN & CO. By: /s/ Louise A. Coughlan ------------------------ Name: Louise A. Coughlan Title: Senior Vice President WHITNEY SUBORDINATED DEBT FUND, L.P. By: /s/ Daniel J. O'Brien ---------------------- Name: Daniel J. O'Brien Title: General Partner J.H. WHITNEY & CO. By: /s/ Daniel J. O'Brien ---------------------- Name: Daniel J. O'Brien Title: General Partner NMT MEDICAL, INC. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: President NMT HEART, INC. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: President 5 NMT INVESTMENTS CORP. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (INTERNATIONAL), INC. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (US), INC. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (IP), INC. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES INNOVASIVE SYSTEMS, INC. By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: President 6 NMT NEUROSCIENCES IMPLANTS (FRANCE) SA By: /s/ David A. Chazanovitz ------------------------- Name: David A. Chazanovitz Title: Director NMT NEUROSCIENCES INSTRUMENTS (FRANCE) SARL By: /s/ David A. Chazanovitz ------------------------- Name: David A. Chazanovitz Title: Co-Manager 7 EX-10.58 7 WARRANT AND SHARES OF COMMON STOCK Exhibit 10.58 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT ----------------------------------------------------------- Warrant No. BBH-1 Number of Shares: 20,000 (subject to adjustment) Date of Issuance: April 3, 2000 NMT MEDICAL, INC. ----------------- Common Stock Purchase Warrant ----------------------------- (Void after April 3, 2005) NMT Medical, Inc., a Delaware corporation (the "Company"), for value received, hereby certifies that Brown Brothers Harriman & Co., or its registered assigns (the "Registered Holder"), is entitled, subject to the terms and conditions set forth below, to purchase from the Company, at any time or from time to time on or after the date of issuance and on or before 5:00 p.m. (Boston time) on April 3, 2005, 20,000 shares of Common Stock, $.001 par value per share, of the Company, at a purchase price of $4.9375 per share. The shares purchasable upon exercise of this Warrant, and the purchase price per share, each as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase Price," respectively. 1. Exercise. (a) This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as Exhibit I duly executed by the Registered Holder or by the Registered Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of the Purchase Price payable in respect of the number of Warrant Shares purchased upon such exercise. (b) The Registered Holder may, at its option, elect to pay some or all of the Purchase Price payable upon an exercise of this Warrant by cancelling a portion of this Warrant exercisable for such number of Warrant Shares as is determined by dividing (i) the total Purchase Price payable in respect of the number of Warrant Shares being purchased upon such exercise by (ii) the excess of the Fair Market Value per share of Common Stock (as defined below) as of the Exercise Date (as defined in subsection 1(c) below) over the Purchase Price per share. If the Registered Holder wishes to exercise this Warrant pursuant to this method of payment with respect to the maximum number of Warrant Shares purchasable pursuant to this method, then the number of Warrant Shares so purchasable shall be equal to the total number of Warrant Shares, minus the product obtained by multiplying (x) the total number of Warrant Shares by (y) a fraction, the numerator of which shall be the Purchase Price per share and the denominator of which shall be the Fair Market Value per share of Common Stock as of the Exercise Date. The Fair Market Value per share of Common Stock shall be determined as follows: (i) If the Common Stock is listed on a national securities exchange, the Nasdaq National Market or another nationally recognized trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the average of the high and low reported sale prices per share of Common Stock thereon on the trading day immediately preceding the Exercise Date; or, if no such price is reported on such date, the average of the high and low reported sale prices per share of Common Stock on the next preceding day with a trade (but not more than five trading days) (provided that if no such price is reported on such day, the Fair Market Value per share of Common Stock shall be determined pursuant to clause (ii)). (ii) If the Common Stock is not listed on a national securities exchange, the Nasdaq National Market or another nationally recognized trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the amount most recently determined by the Board of Directors to represent the fair market value per share of the Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company); and, upon request of the Registered Holder, the Board of Directors (or a representative thereof) shall promptly notify the Registered Holder of the Fair Market Value per share of Common Stock. Notwithstanding the foregoing, if the Board of Directors has not made such a determination within the three-month period prior to the Exercise Date, then (A) the Board of Directors shall make a determination of the Fair Market Value per share of the Common Stock within 15 days of a request by the Registered Holder that it do so, and (B) the exercise of this Warrant pursuant to this subsection 1(b) shall be delayed until such determination is made. (c) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant shall have been surrendered to the Company as provided in subsection 1(a) above (the "Exercise Date"). At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (d) As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 10 days thereafter, the Company, at its expense, will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of full Warrant Shares to which the Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which the Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof; and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Warrant Shares equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the sum of (a) the number of such shares purchased by the Registered Holder upon such exercise plus (b) the number of Warrant -2- Shares (if any) covered by the portion of this Warrant cancelled in payment of the Purchase Price payable upon such exercise pursuant to subsection 1(b) above. 2. Adjustments. ----------- (a) Diluting Issuances. ------------------ (i) Definitions. For purposes of this Section 2, the following definitions shall apply: (A) "Option" shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities. (B) "Original Issue Date" shall mean the date on which this Warrant was first issued. (C) "Convertible Securities" shall mean any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock, but excluding Options. (D) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued (or, pursuant to subsection 2(a)(iii) below, deemed to be issued) by the Company after the Original Issue Date, other than: (I) shares of Common Stock issued or issuable upon conversion or exchange of any Convertible Securities or exercise of any Options outstanding on the Original Issue Date; (II) shares of Common Stock issued or issuable by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that are covered by subsections 2(b) or 2(c) below; or (III) shares of Common Stock (or Options with respect thereto) issued or issuable to employees or directors of, or consultants to, the Company pursuant to a plan or arrangement approved by the Board of Directors of the Company. (ii) No Adjustment of Purchase Price. No adjustments to the Purchase Price shall be made unless the consideration per share (determined pursuant to subsection 2(a)(v)) for an Additional Share of Common Stock issued or deemed to be issued by the Company is less than the Purchase Price in effect immediately prior to the issue of such Additional Shares. (iii) Issue of Securities Deemed Issue of Additional Shares of Common Stock. If the Company at any time or from time to time after the Original Issue Date shall issue -3- any Options (excluding Options covered by subsection 2(a)(i)(D)(III) above) or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to subsection 2(a)(v) hereof) of such Additional Shares of Common Stock would be less than the Purchase Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (A) No further adjustment in the Purchase Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) If such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase or decrease in the consideration payable to the Company, then upon the exercise, conversion or exchange thereof, the Purchase Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (C) Upon the expiration or termination of any such unexercised Option, the Purchase Price shall not be readjusted, but the Additional Shares of Common Stock deemed issued as the result of the original issue of such Option shall not be deemed issued for the purposes of any subsequent adjustment of the Purchase Price; (D) In the event of any change in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any such Option or Convertible Security, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Purchase Price then in effect shall forthwith be readjusted to such Purchase Price as would have obtained had the adjustment which was made upon the issuance of such Option or Convertible Security not exercised, converted or exchanged prior to such change been made upon the basis of such change; and (E) No readjustment pursuant to clause (B) or (D) above shall have the effect of increasing the Purchase Price to an amount which exceeds the lower of (i) the Purchase Price on the original adjustment date, or (ii) the Purchase Price that would have resulted from any issuances of Additional Shares of Common Stock between the original adjustment date and such readjustment date. -4- In the event the Company, after the Original Issue Date, amends the terms of any such Options or Convertible Securities (whether such Options or Convertible Securities were outstanding on the Original Issue Date or were issued after the Original Issue Date), then such Options or Convertible Securities, as so amended, shall be deemed to have been issued after the Original Issue Date and the provisions of this subsection 2(a)(iii) shall apply. (iv) Adjustment of Purchase Price Upon Issuance of Additional Shares of Common Stock. (A) In the event the Company shall at any time after the Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to subsection 2(a)(iii)), without consideration or for a consideration per share less than the Purchase Price in effect immediately prior to such issue, then and in such event, such Purchase Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Purchase Price by a fraction, (A) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue plus (2) the number of shares of Common Stock which the aggregate consideration received or to be received by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such Purchase Price; and (B) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; provided that, (i) for the purpose of this subsection 2(a)(iv), all shares of Common Stock issuable upon conversion or exchange of Convertible Securities outstanding immediately prior to such issue shall be deemed to be outstanding, and (ii) the number of shares of Common Stock deemed issuable upon conversion or exchange of such outstanding Convertible Securities shall not give effect to any adjustments to the conversion or exchange price or conversion or exchange rate of such Convertible Securities resulting from the issuance of Additional Shares of Common Stock that is the subject of this calculation. (B) Notwithstanding the foregoing, the applicable Purchase Price shall not be so reduced at such time if the amount of such reduction would be an amount less than $.01, but any such amount shall be carried forward and reduction with respect thereto shall be made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $.01 or more. (v) Determination of Consideration. For purposes of this subsection 2(a), the consideration received by the Company for the issue of any Additional Shares of Common Stock shall be computed as follows: (A) Cash and Property: Such consideration shall: (I) insofar as it consists of cash, be computed at the aggregate of cash received by the Company, excluding amounts paid or payable for accrued interest; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of -5- such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration per share received by the Company for Additional Shares of Common Stock deemed to have been issued pursuant to subsection 2(a)(iii), relating to Options and Convertible Securities, shall be determined by dividing (x) the total amount, if any, received or receivable by the Company as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Multiple Closing Dates. In the event the Company shall issue on more than one date Additional Shares of Common Stock which are comprised of shares of the same series or class of Preferred Stock, and such issuance dates occur within a period of no more than 120 days, then, upon the final such issuance, the Purchase Price shall be readjusted to give effect to all such issuances as if they occurred on the date of the final such issuance (and without giving effect to any adjustments as a result of such prior issuances within such period). (b) Adjustment for Stock Splits and Combinations. If the Company shall at any time or from time to time after the Original Issue Date effect a subdivision of the outstanding Common Stock, the Purchase Price then in effect immediately before that subdivision shall be proportionately decreased. If the Company shall at any time or from time to time after the Original Issue Date combine the outstanding shares of Common Stock, the Purchase Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this paragraph shall become effective at the close of business on the date the subdivision or combination becomes effective. (c) Adjustment for Certain Dividends and Distributions. In the event the Company at any time, or from time to time after the Original Issue Date shall make or issue, or -6- fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Purchase Price then in effect immediately before such event shall be decreased as of the time of such issuance or, in the event such a record date shall have been fixed, as of the close of business on such record date, by multiplying the Purchase Price then in effect by a fraction: (1) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, if such record date shall have been fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Purchase Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Purchase Price shall be adjusted pursuant to this paragraph as of the time of actual payment of such dividends or distributions. (d) Adjustment in Number of Warrant Shares. When any adjustment is required to be made in the Purchase Price pursuant to subsections 2(a), 2(b) or 2(c), the number of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (e) Adjustments for Other Dividends and Distributions. In the event the Company at any time or from time to time after the Original Issue Date shall make or issue, or fix a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Company (other than shares of Common Stock) or in cash or other property (other than cash out of earnings or earned surplus, determined in accordance with generally accepted accounting principles), then and in each such event provision shall be made so that the Registered Holder shall receive upon exercise hereof, in addition to the number of shares of Common Stock issuable hereunder, the kind and amount of securities of the Company and/or cash and other property which the Registered Holder would have been entitled to receive had this Warrant been exercised into Common Stock on the date of such event and had the Registered Holder thereafter, during the period from the date of such event to and including the Exercise Date, retained any such securities receivable, giving application to all adjustments called for during such period under this Section 2 with respect to the rights of the Registered Holder. (f) Adjustment for Mergers or Reorganizations, etc. If there shall occur any reorganization, recapitalization, consolidation or merger involving the Company in which the -7- Common Stock is converted into or exchanged for securities, cash or other property (other than a transaction covered by subsections 2(b), 2(c) or 2(e)), then, following any such reorganization, recapitalization, consolidation or merger, the Registered Holder shall receive upon exercise hereof the kind and amount of securities, cash or other property which the Registered Holder would have been entitled to receive if, immediately prior to such reorganization, recapitalization, consolidation or merger, the Registered Holder had held the number of shares of Common Stock subject to this Warrant. In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Registered Holder, to the end that the provisions set forth in this Section 2 (including provisions with respect to changes in and other adjustments of the Purchase Price) shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities, cash or other property thereafter deliverable upon the exercise of this Warrant. (g) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Purchase Price pursuant to this Section 2, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to the Registered Holder a certificate setting forth such adjustment or readjustment (including the kind and amount of securities, cash or other property for which this Warrant shall be exercisable and the Purchase Price) and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of the Registered Holder, furnish or cause to be furnished to the Registered Holder a certificate setting forth (i) the Purchase Price then in effect and (ii) the number of shares of Common Stock and the amount, if any, of other securities, cash or property which then would be received upon the exercise of this Warrant. 3. Fractional Shares. The Company shall not be required upon the exercise of this Warrant to issue any fractional shares, but shall make an adjustment therefor in cash on the basis of the Fair Market Value per share of Common Stock, as determined pursuant to subsection 1(b) above. 4. Requirements for Transfer. (a) This Warrant and the Warrant Shares shall not be sold or transferred unless either (i) they first shall have been registered under the Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Act. (b) Notwithstanding the foregoing, no registration or opinion of counsel shall be required for (i) a transfer by a Registered Holder which is a corporation to a wholly owned subsidiary of such corporation, a transfer by a Registered Holder which is a partnership to a partner of such partnership or a retired partner of such partnership or to the estate of any such partner or retired partner, or a transfer by a Registered Holder which is a limited liability company to a member of such limited liability company or a retired member or to the estate of any such member or retired member, provided that the transferee in each case agrees in writing -8- to be subject to the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144 under the Act. (c) Each certificate representing Warrant Shares shall bear a legend substantially in the following form: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be offered, sold or otherwise transferred, pledged or hypothecated unless and until such securities are registered under such Act or an opinion of counsel satisfactory to the Company is obtained to the effect that such registration is not required." The foregoing legend shall be removed from the certificates representing any Warrant Shares, at the request of the holder thereof, at such time as they become eligible for resale pursuant to Rule 144(k) under the Act. 5. No Impairment. The Company will not, by amendment of its charter or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 6. Notices of Record Date, etc. In the event: (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right; or (b) of any capital reorganization of the Company, any reclassification of the Common Stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity and its Common Stock is not converted into or exchanged for any other securities or property), or any transfer of all or substantially all of the assets of the Company; or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder a notice specifying, as the case may be, (i) the record date for such dividend, distribution or right, and the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock -9- (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least ten days prior to the record date or effective date for the event specified in such notice. 7. Reservation of Stock. The Company will at all times reserve and keep available, solely for issuance and delivery upon the exercise of this Warrant, such number of Warrant Shares and other securities, cash and/or property, as from time to time shall be issuable upon the exercise of this Warrant. 8. Exchange of Warrants. Upon the surrender by the Registered Holder, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 4 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of the Registered Holder or as the Registered Holder (upon payment by the Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock (or other securities, cash and/or property) then issuable upon exercise of this Warrant. 9. Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. 10. Transfers, etc. (a) The Company will maintain a register containing the name and address of the Registered Holder of this Warrant. The Registered Holder may change its or his address as shown on the warrant register by written notice to the Company requesting such change. (b) Subject to the provisions of Section 4 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant with a properly executed assignment (in the form of Exhibit II hereto) at the principal office of the Company. (c) Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder as the absolute owner hereof for all purposes; provided, however, that if and when this Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 11. Mailing of Notices, etc. All notices and other communications from the Company to the Registered Holder shall be mailed by first-class certified or registered mail, postage prepaid, to the address last furnished to the Company in writing by the Registered Holder. All notices and other communications from the Registered Holder or in connection herewith to the Company shall be mailed by first-class certified or registered mail, postage prepaid, to the Company at its principal office set forth below. If the Company should at any time change the -10- location of its principal office to a place other than as set forth below, it shall give prompt written notice to the Registered Holder and thereafter all references in this Warrant to the location of its principal office at the particular time shall be as so specified in such notice. The Company: NMT Medical, Inc. 27 Wormwood Street Boston, MA 02110 Facsimile Number: (617) 737-1267 Attention: Chief Financial Officer 12. No Rights as Stockholder. Until the exercise of this Warrant, the Registered Holder shall not have or exercise any rights by virtue hereof as a stockholder of the Company. Notwithstanding the foregoing, in the event (i) the Company effects a split of the Common Stock by means of a stock dividend and the Purchase Price of and the number of Warrant Shares are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), and (ii) the Registered Holder exercises this Warrant between the record date and the distribution date for such stock dividend, the Registered Holder shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend. 13. Change or Waiver. Any term of this Warrant may be changed or waived only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 14. Section Headings. The section headings in this Warrant are for the convenience of the parties and in no way alter, modify, amend, limit or restrict the contractual obligations of the parties. 15. Governing Law. This Warrant will be governed by and construed in accordance with the internal laws of the Commonwealth of Massachusetts (without reference to the conflicts of law provisions thereof). EXECUTED as of the Date of Issuance indicated above. NMT Medical, Inc. By: /s/ William J. Knight ---------------------- [Corporate Seal] Title: Vice President and ------------------ Chief Financial Officer ----------------------- ATTEST: /s/ Ian J. Platt - ------------------------- -11- EXHIBIT I --------- PURCHASE FORM ------------- To:_________________ Dated:_______________ The undersigned, pursuant to the provisions set forth in the attached Warrant (No. BBH-1), hereby irrevocably elects to purchase (check applicable box): [ ] _____ shares of the Common Stock covered by such Warrant; or [ ] the maximum number of shares of Common Stock covered by such Warrant pursuant to the cashless exercise procedure set forth in Section 1(b). The undersigned herewith makes payment of the full purchase price for such shares at the price per share provided for in such Warrant, which is $________. Such payment takes the form of (check applicable box or boxes): [ ] $______ in lawful money of the United States; and/or [ ] the cancellation of such portion of the attached Warrant as is exercisable for a total of _____ Warrant Shares (using a Fair Market Value of $_____ per share for purposes of this calculation); and/or [ ] the cancellation of such number of Warrant Shares as is necessary, in accordance with the formula set forth in Section 1(b), to exercise this Warrant with respect to the maximum number of Warrant Shares purchasable pursuant to the cashless exercise procedure set forth in Section 1(b). Signature:_____________________ Address: _____________________ _____________________ -12- EXHIBIT II ---------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED, ________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (No. BBH-1) with respect to the number of shares of Common Stock covered thereby set forth below, unto: Name of Assignee Address No. of Shares - ---------------- ------- ------------- Dated:_____________________ Signature:________________________________ Signature Guaranteed: By: _______________________ the signature should be guaranteed by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved signature guarantee medallion program) pursuant to Rule 17Ad-15 under the Securities Exchange Act of 1934. -13- EX-21.1 8 SUBSIDIARIES OF THE REGISTRANT Exhibit 21.1 List of subsidiaries for NMT Medical, Inc.: NMT Heart, Inc. NMT Investments Corp. Nitinol Medical Technologies FSC, Inc. Nitinol Medical Technologies International B.V. NMT NeuroSciences (International), Inc. NMT NeuroSciences (US), Inc. NMT NeuroSciences (IP), Inc. NMT NeuroSciences Holdings (UK) Limited NMT NeuroSciences Holdings B.V. NMT NeuroSciences (UK) Limited* Spembly Medical Ltd.* Spembly Cryosurgery Ltd.* Swedemed AB* NMT NeuroSciences (Belgium) SA NMT NeuroSciences Instruments B.V. NMT NeuroSciences Holdings (France) SA NMT NeuroSciences (Hong Kong) Limited NMT NeuroSciences GmbH NMT Innovasive Systems, Inc. NMT NeuroSciences (Spain) SA NMT NeuroSciences Implants (France) SA NMT NeuroSciences Instruments (France) SARL - -------------------- * Sold to Integra Neurosciences Holdings (UK) Ltd. on April 5, 2000. EX-23.1 9 CONSENT OF INDEPENDENT ACCOUNTANTS Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 333-31751 and 333-67265. /s/ Arthur Andersen LLP Boston, Massachusetts April 14, 2000 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1999 AND FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. YEAR DEC-31-1999 JAN-01-1999 DEC-31-1999 3,533,475 0 8,813,099 871,000 4,634,348 18,496,938 13,540,635 2,522,588 38,747,166 9,732,324 0 0 0 10,784 14,150,695 38,747,166 32,948,584 35,079,368 15,215,081 30,105,329 2,718,498 185,000 2,814,211 12,959,540 180,000 (15,757,968) (3,294,726) (2,618,428) 0 (19,052,693) $(1.77) $(1.77)
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