-----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, KhLwBMFH/j4qiSXpXYHgJ9IOHvbHzg327+ua2LMeYvn5tfMbnD1OIjEuKvO8EKqn E3GlSl9HdtFGhDdClJO4Aw== /in/edgar/work/0000927016-00-004026/0000927016-00-004026.txt : 20001115 0000927016-00-004026.hdr.sgml : 20001115 ACCESSION NUMBER: 0000927016-00-004026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NMT MEDICAL INC CENTRAL INDEX KEY: 0001017259 STANDARD INDUSTRIAL CLASSIFICATION: [3841 ] IRS NUMBER: 954090463 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-21001 FILM NUMBER: 766611 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-Q 1 0001.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 2000 ------------------ or [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________ to __________ Commission file number: 000-21001 --------- NMT Medical, Inc. - -------------------------------------------------------------------------------- (Exact Name of Registrant as Specified in Its Charter) Delaware 95-4090463 - -------------------------------------------------------------------------------- (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 27 Wormwood Street, Boston, Massachusetts 02210 - -------------------------------------------------------------------------------- (Address of Principal Executive Offices) (Zip Code) Registrant's Telephone Number, Including Area Code: 617-737-0930 ------------ Not Applicable - -------------------------------------------------------------------------------- Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report. 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 --- --- As of November 8, 2000, there were 10,954,462 shares of Common Stock, $.001 par value per share, outstanding. NMT Medical, Inc. INDEX -----
Page Number ----------- Part I. Financial Information Item 1. Financial Statements. Consolidated Balance Sheets at September 30, 2000 and December 31, 1999 3 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2000 and 1999 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 13 Item 3. Quantitative and Qualitative Disclosures About Market Risk. 17 Part II. Other Information Item 1. Legal Proceedings. 18 Item 3. Defaults Upon Senior Securities. 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 6. Exhibits and Reports on Form 8-K. 20 Signature 21
2 NMT Medical, Inc. and Subsidiaries Consolidated Balance Sheets (Unaudited)
At At September 30, December 31, 2000 1999 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 5,519,148 $ 3,533,475 Accounts receivable, net of reserves of $1,227,000 and $934,000 as of September 30, 2000 and December 31, 1999, respectively 5,473,556 7,900,099 Inventories 3,061,908 4,634,348 Prepaid expenses and other current assets 1,995,041 2,429,016 ------------ ------------ Total current assets 16,049,653 18,496,938 ------------ ------------ Property, plant and equipment, at cost: Land and Buildings 4,650,000 4,650,000 Laboratory and computer equipment 3,474,951 3,284,294 Office furniture and equipment 1,020,662 1,062,228 Leasehold improvements 3,111,897 3,268,897 Equipment under capital lease 2,350,512 2,258,982 ------------ ------------ 14,608,022 14,524,401 Less - Accumulated depreciation and amortization 12,862,532 3,506,354 ------------ ------------ 1,745,490 11,018,047 ------------ ------------ Other assets 276,472 839,733 Net assets from discontinued operations - 8,392,448 ------------ ------------ $ 18,071,615 $ 38,747,166 ============ ============ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 2,202,111 $ 4,100,081 Accrued expenses 4,714,225 4,629,366 Current portion of debt obligations 947,230 1,002,877 Net liabilities from discontinued operations 2,198,031 - ------------ ------------ Total current liabilities 10,061,597 9,732,324 ------------ ------------ Long-term debt obligations, net of current portion 5,139,182 13,570,355 Deferred tax liability - 1,283,008 Commitments and contingencies (Note 13) 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-10,941,721 and 10,783,278 shares at September 30, 2000 and December 31,1999, respectively 10,942 10,784 Additional paid-in capital 42,007,655 41,439,959 Cumulative translation adjustment (1,726,595) (708,253) Accumulated deficit (37,421,166) (26,581,011) ------------ ------------ Total stockholders' equity 2,870,836 14,161,479 ------------ ------------ $ 18,071,615 $ 38,747,166 ============ ============
The accompanying Notes are an integral part of these Consolidated Financial Statements. 3 NMT Medical, Inc. and Subsidiaries Consolidated Statements of Operations (Unaudited)
For the Three Months Ended For the Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ----------- ----------- ------------ ----------- Revenues: Product sales $ 8,992,108 $ 8,883,630 $ 27,748,507 $24,991,642 License fees 202,184 425,000 644,274 1,293,693 ----------- ----------- ------------ ----------- 9,194,292 9,308,630 28,392,781 26,285,335 ----------- ----------- ------------ ----------- Expenses: Cost of product sales 4,263,164 3,606,845 11,904,136 10,616,332 Research and development 1,333,965 1,199,464 3,980,856 3,297,134 General and administrative 3,496,523 2,245,872 8,044,754 6,473,234 Selling and marketing 2,366,876 2,121,700 6,868,668 5,779,768 Write-down of note receivable from Image Technologies Corporation - 1,364,369 - 1,364,369 Impairment of long-lived assets (Note 4) - - 7,054,106 - ----------- ----------- ------------ ----------- 11,460,528 10,538,250 37,852,520 27,530,837 ----------- ----------- ------------ ----------- Loss from operations (2,266,236) (1,229,620) (9,459,739) (1,245,502) ----------- ----------- ------------ ----------- Other Income (Expense): Equity in net loss of Image Technologies Corporation - (188,979) - (488,529) Currency transaction gain (loss 189,188 (220,902) 440,337 6,142 Interest expense (199,058) (622,193) (1,038,886) (2,036,714) Interest income 69,046 116,462 135,879 449,623 ----------- ----------- ------------ ----------- 59,176 (915,612) (462,670) (2,069,478) ----------- ----------- ------------ ----------- Loss before benefit for income taxes (2,207,060) (2,145,232) (9,922,409) (3,314,980) Benefit for income taxes - (23,700) (14,850) (108,100) ----------- ----------- ------------ ----------- Loss before extraordinary loss on early extinguishment of debt (2,207,060) (2,121,532) (9,907,559) (3,206,880) Extraordinary loss on early extinguishment of debt - (2,618,428) - (2,618,428) ----------- ----------- ------------ ----------- Net loss from continuing operations (2,207,060) (4,739,960) (9,907,559) (5,825,308) Net income (loss) from discontinued operations, net of income taxes - 70,000 (932,596) 303,000 ----------- ----------- ------------ ----------- Net Loss $(2,207,060) $(4,669,960) $(10,840,155) $(5,522,308) =========== =========== ============ =========== Basic and diluted net income (loss) per common share: Continuing operations before extraordinary item $ (0.20) $ (0.20) $ (0.91) $ (0.30) =========== =========== ============ =========== Extraordinary item - $ (0.24) - $ (0.24) =========== =========== ============ =========== Discontinued operations $ - $ 0.01 $ (0.09) $ 0.03 =========== =========== ============ =========== Net loss $ (0.20) $ (0.43) $ (1.00) $ (0.52) =========== =========== ============ =========== Basic and diluted weighted average common shares outstanding 10,939,330 10,769,239 10,893,663 10,710,234 =========== =========== ============ ===========
The accompanying Notes are an integral part of these Consolidated Financial Statements. 4 NMT Medical, Inc. and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
For the Nine Months Ended September 30, 2000 1999 ------------ ------------ Cash flows from operating activities: Net loss $(10,840,155) $ (5,522,308) Net income (loss) from discontinued operations (932,596) 303,000 ------------ ------------ Net loss from continuing operations (9,907,559) (5,825,308) Adjustments to reconcile net loss to net cash used in operating activities- Equity in net loss of Image Technologies Corporation - 488,529 Write down of note receivable from Image Technologies Corporation - 1,364,369 Depreciation and amortization 952,094 1,285,948 Deferred tax benefit - (390,000) Noncash tax provision - 330,000 Noncash interest expense related to early extinguishment of debt - 2,358,940 Noncash interest expense 433,232 504,722 Increase (decrease) in accounts receivables reserves 389,239 (422,109) Impairment of long-lived assets 7,054,106 - Changes in assets and liabilities- Accounts receivable 1,625,547 1,340,963 Inventories 1,254,636 (1,816,061) Prepaid expenses and other current assets 346,265 (308,328) Accounts payable (2,281,568) (2,338,531) Accrued expenses 102,010 675,166 ------------ ------------ Net cash used in operating activities (31,998) (2,751,700) ------------ ------------ Net cash (used in) provided by discontinued operations (1,974,117) 1,384,000 ------------ ------------ Cash flows from investing activities: Maturities of marketable securities - 6,135,921 Purchases of property, plant and equipment (83,619) (564,682) Increase in investment in Image Technologies Corporation, net - (62,000) Decrease (increase) in other assets 283,349 (152,699) Proceeds from sale of the UK operations 11,632,000 - ------------ ------------ Net cash provided by investing activities 11,831,730 5,356,540 ------------ ------------ Cash flows from financing activities: Payments of capital lease obligations (366,037) (156,436) Proceeds from issuance of common stock 567,855 135,299 Payments of subordinated debt, net (500,000) (14,000,000) (Payments of) borrowings under senior debt, net (7,707,134) 7,504,881 ------------ ------------ Net cash used in financing activities (8,005,316) (6,516,256) ------------ ------------ Effect of exchange rate changes on cash 165,374 (219,674) ------------ ------------ Net increase (decrease) in cash and cash equivalents 1,985,673 (2,747,090) Cash and cash equivalents, beginning of period 3,533,475 4,007,014 ------------ ------------ Cash and cash equivalents, end of period $ 5,519,148 $ 1,259,924 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for- Interest $ 634,993 $ 1,705,955 ============ ============ Taxes $ 50,000 $ 121,148 ============ ============ Noncash investing and financing activities: Issuance of warrants in connections with debt waiver $ - $ 50,000 ============ ============ Purchase of fixed assets under capital lease $ 89,847 $ 22,988 ============ ============
The accompanying Notes are an integral part of these Consolidated Financial Statements. 5 NMT Medical, Inc. and Subsidiaries Notes to Consolidated Financial Statements 1. Operations NMT Medical, 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 devices for neurosurgery including cerebral spinal fluid shunts on the Spetzler Titanium Aneurysm Clip. 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 approximately $12 million in cash (see Note 3). The results of these discontinued operations have been included in the accompanying financial statements for the three months ended September 30, 1999 and the nine months ended September 30, 2000 and 1999, respectively. The accompanying consolidated financial statements include accounts of the Company and its wholly owned subisdiaries. All intercompany transactions and balances have been eliminated in consolidation. As of September 30, 2000, the Company was not in compliance with certain of the debt covenants contained in the subordinated note agreement discussed in Note 5. The Company obtained a waiver of default from the debtholder. 2. Interim Financial Statements The accompanying Consolidated Financial Statements as of September 30, 2000 and for the three and nine-month periods then ended are unaudited. In management's opinion, these unaudited Consolidated Financial Statements have been prepared on the same basis as the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999, as amended by Amendment No. 1 thereto on Form 10K/A, and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. The results of operations for the three- and nine- month periods ended September 30, 2000 are not necessarily indicative of the results expected for the fiscal year ending December 31, 2000. 3. Sale of the U.K. Operations of the 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 incurred a $3.4 million loss on this sale, comprised of net proceeds of approximately $12.0 million less estimated transaction and other costs of $3.9 million, and net assets sold of $11.4 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 net assets sold consisted of the following: Current assets $ 6,807,000 Property and equipment, net 1,203,000 Goodwill and other intangible assets, net 5,495,000 Total assets 13,505,000 Current liabilities assumed by the buyer (2,089,000) ----------- $11,416,000 =========== The consolidated financial statements of the Company have been restated to reflect the financial results of the U.K. operations as a discontinued operation for the three months ended September 30, 1999 and the nine months ended September 30, 2000 and 1999, respectively, and as of December 31, 1999. Reported revenues, expenses, and cash flows exclude the operating results of the discontinued operations. Revenues from discontinued operations were approximately $2,778,000 and $9,644,000 for the nine months ended September 30, 2000 and 1999, respectively. The Company did not allocate interest expense associated with the senior secured debt and subordinated note discussed in Notes 5(a) and 5(b) to discontinued operations. The Company used approximately $7.3 million of the proceeds from this sale to fully pay down its senior secured debt agreement and related interest and $500,000 to pay down its subordinated note agreement as discussed in Note 5. During the second quarter the Company revised its estimate for the Company's net loss from discontinued operations by approximately $933,000 and as such has recorded a loss for the discontinued operation of $933,000 in the nine months ended September 30, 2000. 6 NMT Medical, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 4. Impairment of Long-Lived Assets The Company follows the provisions of Statement of Financial Accounting Standards (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. In accordance with SFAS No. 121, the carrying value of long-lived assets is periodically reviewed by the Company based on the expected future undiscounted cash flows. The NMT Neurosciences division has continued to incur operating losses which has caused management and the Board of Directors of the Company to consider various strategic alternatives for that division. Based upon these considerations and an analysis of the undiscounted cash flows, the Company determined that there was an impairment of the long-lived assets of the NMT Neurosciences division. In the quarter ended June 30, 2000, the Company recorded a $7.1 million impairment charge to reduce the carrying value of the long-lived assets of the NMT Neurosciences division to their estimated fair value. The long-lived assets which are impaired consist primarily of a building and other fixed assets located in the Company's Biot, France Neurosciences facility. The Company's estimates of fair value for such assets was based upon discounted cash flows and was corroborated by outside parties. This asset impairment charge recorded in the quarter ended June 30, 2000 was based upon estimates and does not include losses which may occur upon a decision to sell or liquidate the NMT Neurosciences division including exit costs, transaction costs and additional losses on the sale or disposition of the assets. These additional charges, if incurred, could be significant. 5. Debt (a) Subordinated Note Payable In July 1998, the Company financed a significant portion of the acquisition of the neurosurgical instruments business of Elekta AB (PUBL) with $20 million of subordinated debt borrowed from an affiliate of a significant stockholder of the Company. On September 13, 1999, the Company entered into a $10 million senior secured debt facility with a bank (See Note 5(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. The Company paid down $500,000 of this note from the proceeds obtained in connection with the sale of the U.K. operations of its NMT Neurosciences division (see Note 3). The remaining $4.9 million of the subordinated debt on the balance sheet as of September 30, 2000 is due September 30, 2003 with quarterly interest payable at 10.101% per annum and is subject to certain covenants, as amended. As of September 30, 2000, 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. (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 5(a)). The remaining $2 million of the senior secured debt facility was available to be drawn down by the Company for working capital purposes. The Company has not made any borrowings under this $2 million facility and the bank terminated the availability of this facility on August 12, 2000. On April 5, 2000, the Company paid down this note and related interest in its entirety from the proceeds obtained in connection with the sale of the U.K. operations of its NMT Neurosciences division (see Note 3). 6. Reclassifications Certain prior period amounts have been reclassified to conform to the current period's presentation. 7 NMT Medical, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 7. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: September 30, December 31, 2000 1999 ------------- ------------ Components $1,714,977 $2,379,474 Finished Goods 1,346,931 2,254,874 ---------- ---------- $3,061,908 $4,634,348 ========== ========== 8. Net Income (Loss) per Common and Common Equivalent 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. Diluted loss per share is the same as basic loss per share for the three- and nine-month periods ended September 30, 2000 and 1999 as the effects of the Company's potential common stock (2,482,302 shares and 2,283,353 shares for the periods ended September 30, 2000 and 1999, respectively) are antidilutive. 9. 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 $1.7 million and $708,000 as of September 30, 2000 and December 31, 1999, respectively. Additionally, the Company had foreign currency transaction gains (losses) of approximately $189,000 and $(221,000) during the three months ended September 30, 2000 and 1999, respectively. During the nine months ended September 30, 2000 and 1999, the Company recorded foreign currency transaction gains of approximately $440,000 and $6,000, 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. 10. Comprehensive Loss The only components of comprehensive loss reported by the Company are net loss and foreign currency translation adjustments.
For the Three Months Ended For the Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ----------- ----------- ------------ ----------- Net loss $(2,207,060) $(4,669,960) $(10,840,155) $(5,522,308) Foreign currency translation adjustments (206,003) 728,000 (1,018,342) (826,000) ----------- ----------- ------------ ----------- Comprehensive loss $(2,413,063) $(3,941,960) $(11,858,497) $(6,348,308) =========== =========== ============ ===========
8 NMT Medical, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 11. Accrued Expenses Accrued expenses consist of the following at: September 30, December 31, 2000 1999 ------------- ------------ Payroll and payroll related $2,232,119 $1,607,773 Sales taxes 523,555 560,000 Other accrued expenses 1,958,551 2,461,593 ---------- ---------- $4,714,225 $4,629,366 ========== ========== 12. Segment Reporting The Company applies the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. 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. The Company's chief operating decision making group includes 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 Company's primary products prior to the acquisition of its Neurosciences division while the neurosurgical segment includes primarily neurosurgical medical devices that were the primary products of the Neurosciences division). 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 on the Spetzler Titanium Aneurysm Clip. 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. Segment information is presented as follows:
For the Three Months Ended For the Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ---------- ---------- ----------- ----------- Segment Revenues: Core technologies products $4,997,292 $4,035,630 $14,937,781 $10,754,335 Neurosurgical products 4,197,000 5,273,000 13,455,000 15,531,000 ---------- ---------- ----------- ----------- Total revenues $9,194,292 $9,308,630 $28,392,781 $26,285,335 ========== ========== =========== =========== Segment Interest Income: Core technologies products $ 69,046 $ 116,462 $ 135,879 $ 449,623 Neurosurgical products -- -- -- -- ---------- ---------- ----------- ----------- Total $ 69,046 $ 116,462 $ 135,879 $ 449,623 ========== ========== =========== ===========
9 NMT Medical, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 12. Segment Reporting--(continued)
For the Three Months Ended For the Nine Months Ended September 30, September 30, 2000 1999 2000 1999 ------------ ----------- ------------ ----------- Segment Interest Expense: Core technologies products $ (199,058) $ (606,193) $ (969,886) $(2,009,714) Neurosurgical products -- (16,000) (69,000) (27,000) ------------ ----------- ------------ ----------- Total $ (199,058) $ (622,193) $ (1,038,886) $(2,036,714) ============ =========== ============ =========== Segment Income Tax Provision (Benefit): Core technologies products $ -- $ (49,700) $ -- $ (157,100) Neurosurgical products -- 26,000 (14,850) 49,000 ------------ ----------- ------------ ----------- Total $ -- $ (23,700) $ (14,850) $ (108,100) ============ =========== ============ =========== Segment Depreciation and Amortization: Core technologies products $ 176,226 $ 341,383 $ 482,003 $ 648,684 Neurosurgical products -- 171,048 470,091 637,264 ------------ ----------- ------------ ----------- Total $ 176,226 $ 512,431 $ 952,094 $ 1,285,948 ============ =========== ============ =========== Segment Equity in Net Loss of and Write-Down of Note Receivable from Investee: Core technologies products $ -- $ 1,553,348 $ -- $ 1,852,898 Neurosurgical products -- -- -- -- ------------ ----------- ------------ ----------- Total $ -- $ 1,553,348 $ -- $ 1,852,898 ============ =========== ============ =========== Segment Income (Loss): Core technologies products $ (1,007,060) $(4,982,960) $ (1,370,487) $(6,724,308) Neurosurgical products (1,200,000) 313,000 (9,469,668) 1,202,000 ------------ ----------- ------------ ----------- Total $ (2,207,060) $(4,669,960) $(10,840,155) $(5,522,308) ============ =========== ============ ===========
Segment balance sheet information is as follows as of September 30, 2000 and December 31, 1999: September 30, December 31, 2000 1999 ------------- ------------ Segment Long-Lived Tangible Assets: Core technologies products $ 4,364,023 $ 3,963,402 Neurosurgical products 10,243,999 10,560,999 ----------- ----------- Total $14,608,022 $14,524,401 =========== =========== 10 NMT Medical, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 13. Contingencies The Company is a party to the following legal proceedings which could have a material adverse impact on the Company's results of operations or liquidity if there were an adverse outcome. Although the Company intends to pursue its rights in each of these matters vigorously, it cannot predict the ultimate outcomes. . In December 1998, the Company filed a patent infringement suit in the United States District Court for the District of Massachusetts (the "Court") against AGA Medical Corp. ("AGA"), claiming that AGA's Amplatzer aperture occlusion devices infringe U.S. Patent No. 5,108,420, which is licensed exclusively to the Company. The Company is seeking an injunction to prevent further infringement 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. There is pending before the Court a motion by AGA for summary judgment. The case is currently in 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. 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 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. On May 15, 2000, the Company filed a statement of defenses and counterclaims. On July 7, 2000, Elekta submitted a reply pleading. On October 9, 2000, the Company filed a Statement of Reply. The arbitration hearing is scheduled to begin on January 15, 2001. As currently pleaded, Elekta's claim seeks approximately $2 million in damages and NMT's counterclaim seeks approximately $2 million in damages. . On July 17, 2000, Sodem Diffusion SA ("Sodem") filed a claim with the Tribunal de Premiere Instance in Geneva, Switzerland, alleging that NMT NeuroSciences Implants (France), a wholly owned subsidiary of the Company ("NMT France"), breached its obligations under an exclusive distribution agreement, dated as of November 10, 1998, pursuant to which NMT France is acting as the exclusive worldwide distributor of Sodem's products. Sodem seeks approximately US$18 million in damages in addition to costs and fees of their attorneys. The Company must file its response to the claim by December 21, 2000. . On August 11, 2000, the Company filed a demand for arbitration before the American Arbitration Association in Boston, Massachusetts to obtain a determination that its Recovery Filter(TM) is not covered by the 1992 Agreement giving C.R. Bard, Inc. exclusive distribution rights to the Company's Simon Nitinol Filter (TM). C.R. Bard, Inc. has filed a counterclaim seeking a contrary declaration and an indeterminate amount of damages. . 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 sought damages in excess of $31 million. The claim has been discontinued as against the Company and its subsidiary. 11 NMT Medical, Inc. and Subsidiaries Notes to Consolidated Financial Statements (continued) 14. New Accounting Pronouncements In June 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, Accounting for Derivative and Hedging Activities. SFAS No. 133, as amended by SFAS No. 137, is effective for all fiscal quarters beginning with the quarter ending September 30, 2000. SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. The Company has adopted SFAS No. 133 in its quarter ending September 30, 2000 and such adoption did not have a material impact on the Company's results of operations, financial position or cash flows. In March 2000, the FASB issued Interpretation No. 44, Accounting For Certain Transactions Involving Stock Compensation - An Interpretation of APB Opinion No. 25. The Interpretation clarifies the application of Opinion 25 in certain situations, as defined. The Interpretation became effective July 1, 2000, but covers certain events that occur after December 15, 1998. The effects of applying this interpretation should be applied on a prospective basis from the effective date. For the quarter ended September 30, 2000 application of this Interpretation had no effect on the Company's results of operations. 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. This Quarterly Report on Form 10-Q, other than the historical financial information, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements involve known and unknown risks, uncertainties or other factors which may cause actual results, performance or achievement of the Company to be materially different from any future results, performance, or achievement expressed or implied by such forward-looking statements. Factors that might cause such a difference include uncertainties in market demand and acceptance, government regulation and approvals, and intellectual property rights and litigation; the impact of healthcare reform programs and competitive products and pricing; risks associated with technology and product development and commercialization, potential product liability, management of growth, and dependence on significant corporate relationships, and other risks detailed in the Company's Annual Report on Form 10-K for the year ended December 31, 1999 as amended by Amendment No.1 thereto on Form 10-K/A. Certain footnote disclosures normally included in financial statements prepared with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes the disclosures in these financial statements are adequate to make the information presented not misleading. These condensed consolidated financial statements should be read in conjunction with the Company's audited financial statements for the year ended December 31, 1999. The results of operations for the three- and nine-month periods ended September 30, 2000 are not necessarily indicative of the results for a full fiscal year. RESULTS OF OPERATIONS THREE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH THREE MONTHS ENDED SEPTEMBER 30, 1999 Revenues. Revenues of $9.2 million for the three months ended September 30, 2000 decreased 1% from $9.3 million for the three months ended September 30, 1999. Product sales increased to $9.0 million for the three months ended September 30, 2000 from $8.9 million for the three months ended September 30, 1999. The Company had a 28% and 62% increase in the unit sales and dollar sales, respectively of CardioSEAL Septal Occluders during the three months ended September 30, 2000 as compared with the three months ended September 30, 1999 partially offset by a 20% decrease in dollar sales of the Company's neurosurgical products. License fees for the three months ended September 30, 2000 amounted to $202,000 consisting of quarterly royalty payments of $148,000 and cost-sharing payments of approximately $54,000 from Boston Scientific. License fees for the three months ended September 30, 1999 amounted to $425,000 consisting of guaranteed minimum quarterly royalty payments of $375,000 and cost-sharing payments of approximately $50,000 from Boston Scientific. This decrease in the royalty payments during the quarter ended September 30, 2000 as compared with the quarter ended September 30, 1999 is attributable to the expiration of the Company's guaranteed minimums under the license agreement with Boston Scientific as of the beginning of 2000. Cost of Product Sales. Cost of product sales increased to $4.3 million or 47% of product sales for the three months ended September 30, 2000 from $3.6 million or 41% for the three months ended September 30, 1999. The lower gross margin percentage on product sales is primarily due to decreased sales of the Company's neurosurgical products, resulting in a higher overhead absorption rate. Additionally, these products have a higher cost of product sales as a percent of sales than do the CardioSEAL Septal Occluders and vena cava filters. Research and Development. Research and development expenses increased by $100,000 or 11% to $1.3 million for the three months ended September 30, 2000 from $1.2 million for the three months ended September 30, 1999. The increase reflects increased regulatory and clinical trial expenses relating to clinical trials of the CardioSEAL and STARFlex Septal Occluder as well as pending product enhancements. In addition, the Company increased its spending on existing product line improvements and for new products under development. General and Administrative. General and administrative expenses increased by $1.3 million or 56% to $3.5 million for the three months ended September 30, 2000 from $2.2 million for the three months ended September 30, 1999 primarily due to increased legal and professional fees resulting from the Company's defense of patents and other legal proceedings (see Liquidity and Capital Resources and Part II, Item 1, "Legal Proceedings") and increased allowance for overdue accounts receivable and other reserves. 13 Selling and Marketing. Selling and marketing expenses increased by $245,000 or 12% to $2.4 million for the three months ended September 30, 2000 from $2.1 million for the three months ended September 30, 1999. The increase is primarily attributable to increased marketing activities related to the U.S. commercialization of the CardioSEAL Septal Occluder for which the Company received FDA approval under HUD regulations late in the third quarter and the beginning of the fourth quarter of 1999. Interest Expense. Interest expense was $199,000 for the three months ended September 30, 2000 as compared to $622,000 for the three months ended September 30, 1999. The decrease was primarily due to the use of $7.8 million of the proceeds from the April 5, 2000 sale of the U.K. operations of its NMT Neurosciences division (see Note 3 in the accompanying Notes to Consolidated Financial Statements) to retire the remaining $7.3 million outstanding senior secured debt and reduce the subordinated note payable by $500,000 to $5.5 million (see Note 5 in the accompanying Notes to Consolidated Financial Statements). The subordinated note accrues interest at 10.101% per annum. In addition, the amortization of original issue discount related to the subordinated note of $39,000 and $106,000, for the three months ended September 30, 2000 and 1999, respectively, is included in interest expense in the accompanying consolidated statements of operations. Interest Income. Interest income was $69,000 for the three months ended September 30, 2000 as compared to $116,000 for the three months ended September 30, 1999. The decrease was due to the Company's lower cash balances resulting from its use of $6 million and $500,000 in September 1999 and April 2000, respectively, to reduce the principal amount of its $20 million subordinated note payable (see Note 5 in the accompanying Notes to Consolidated Financial Statements). NINE MONTHS ENDED SEPTEMBER 30, 2000 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1999 Revenues. Revenues for the nine months ended September 30, 2000 increased by $2.1 million or 8% to $28.4 million from $26.3 million for the nine months ended September 30, 1999. Product sales increased by $2.8 million or 11% to $27.7 million for the nine months ended September 30, 2000 from $25.0 million for the nine months ended September 30, 1999. The Company had a 77% and 115% increase in unit sales and dollar sales, respectively of CardioSEAL Septal Occluders during the nine months ended September 30, 2000 as compared to the nine months ended September 30, 1999 offset by a 13% decrease in dollar sales of the Company's neurosurgical products. License fees for the nine months ended September 30, 2000 amounted to approximately $644,000 consisting of minimum quarterly royalty payments of $551,000 and cost-sharing payments of approximately $93,000 from Boston Scientific. License fees for the nine months ended September 30, 1999 amounted to $1,294,000 consisting of guaranteed minimum royalty payments of $1,125,000 and cost-sharing payments of approximately $169,000 from Boston Scientific. This decrease in the royalty payments during the nine months ended September 30, 2000 as compared with the nine months ended September 30, 1999 is attributable to the expiration of the Company's guaranteed minimums under the license agreement with Boston Scientific as of the beginning of 2000 after which the license fees are being recorded by the Company on an actual, rather than guaranteed, basis. Cost of Product Sales. Cost of product sales increased to $11.9 million or 43% of product sales for the nine months ended September 30, 2000 from $10.6 million or 42% for the nine months ended September 30, 1999 primarily due to decreased sales of the Company's neurosurgical products, partially offset by increased unit sales of CardioSEAL Septal Occluders and vena cava filters which have a lower cost of product sales as a percent of sales than the neurosurgical products. Cost of product sales as a percentage of product sales remained constant for the nine months ended September 30, 2000 and 1999 due to the offsetting effects of increased sales of the CardioSEAL Septal Occluder, which has a lower cost of product sales as a percent of sales than do the vena cava filter and neurosurgical products. Research and Development. Research and development expenses increased by $700,000 or 21% to $4.0 million for the nine months ended September 30, 2000 from $3.3 million for the nine months ended September 30, 1999. The increase reflects increased regulatory and clinical trial expenses relating to clinical trials of the CardioSEAL and STARFlex Septal Occluder as well as pending product enhancements. In addition, the Company increased its spending on existing product line improvements and for new products under development. General and Administrative. General and administrative expenses increased by $1.6 million or 24% to $8.0 million for the nine months ended September 30, 2000 from $6.5 million for the nine months ended September 30, 1999 primarily due to increased legal and professional fees resulting from the Company's defense of patents and other legal proceedings (see Liquidity and Capital Resources and Part II, Item 1, "Legal Proceedings") and increased allowances for overdue accounts receivable and other reserves. 14 Selling and Marketing. Selling and marketing expenses increased by $1.1 million or 19% to $6.9 million for the nine months ended September 30, 2000 from $5.8 million for the nine months ended September 30, 1999. The increase is primarily attributable to increased marketing activities related to the U.S. commercialization of the CardioSEAL Septal Occluder for which the Company received FDA approval under HUD regulations late in the third quarter and the beginning of the fourth quarter of 1999. Impairment of Long-Lived Assets. In the second quarter of 2000, the Company recorded a $7.1 million impairment charge to reduce the carrying value of the long-lived assets of the NMT Neurosciences division to their estimated fair value. The long-lived assets which were impaired consisted primarily of a building and other fixed assets located in the Company's Biot, France Neurosciences facility. The Company's estimates of fair value for such assets were based upon discounted cash flows and was corroborated by outside parties. This asset impairment charge recorded in the nine months ended September 30, 2000 was based upon estimates and does not include losses which may occur upon any decision to sell or liquidate the NMT Neurosciences division including exit costs, transaction costs and additional losses on the sale or disposition of the assets. These additional charges, if incurred, could be significant. Interest Expense. Interest expense was $1.0 million for the nine months ended September 30, 2000 as compared to $2.0 million for the nine months ended September 30, 1999. The decrease was primarily due to the use of $6 million available cash on September 13, 1999 to reduce the Company's then $20 million subordinated note payable and the use of $7.8 million of the proceeds from the April 5, 2000 sale of the U.K. operations of its NMT Neurosciences division to retire the remaining $7.3 million outstanding senior secured debt and to further reduce the subordinated note payable by $500,000 to $5.5 million (see Notes 3 and 5 in the accompanying Notes to Consolidated Financial Statements). The subordinated note accrues interest at 10.101% per annum. In addition, the amortization of original issue discount related to the subordinated note of $115,000 and $338,000, for the nine months ended September 30, 2000 and 1999, respectively, is included in interest expense in the accompanying statements of operations. Interest Income. Interest income was $136,000 for the nine months ended September 30, 2000 as compared to $450,000 for the nine months ended September 30, 1999. The decrease was due to the Company's lower cash balances resulting from its use of $6 million and $500,000 in September 1999 and April 2000, respectively, to reduce the principal amount of its $20 million subordinated note payable (see Note 5 in the accompanying Notes to Consolidated Financial Statements). LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents of $5.5 million at September 30, 2000 as compared to $3.5 million at December 31, 1999. During the nine months ended September 30, 2000, the Company's operations utilized cash of approximately $32,000 which consists of approximately $9.9 million of cash used by operations offset by approximately $8.8 million of noncash operating charges and a net reduction of approximately $1.1 million in working capital items. In July 1998, the Company financed a portion of the acquisition of the NMT Neurosciences division 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 bank terminated the availability of the senior secured debt facility on August 12, 2000 (see Note 5 in the accompanying Notes to Consolidated Financial Statements). On April 5, 2000, the Company used the proceeds from the sale of the U.K. operations of its NMT Neurosciences division (see Note 3 in the accompanying Notes to Consolidated Financial Statements) to reduce the subordinated note payable and the senior secured debt, including its related interest, by $500,000 and $7.3 million, respectively, leaving approximately $3.8 million from the proceeds for working capital purposes. The balance outstanding under the subordinated note at September 30, 2000 was approximately $4.9 million, net of unamortized original issue discount of $591,000. As of September 30, 2000, the Company was not in compliance with certain of the debt covenants contained in the subordinated note agreement and obtained a waiver of default with the debtholder. 15 The Company is a party to several legal proceedings which could have a material adverse impact on the Company's results of operations or liquidity if there were an adverse outcome. Although the Company intends to pursue its rights in each of these matters vigorously, it cannot predict the ultimate outcomes (see Note 13 in the accompanying Notes to Consolidated Financial Statements and Part II, Item 1, "Legal Proceedings"). Purchases and capitalized leases of property and equipment for use in the Company's research and development and general and administrative activities amounted to $173,000 for the nine months ended September 30, 2000. The Company received $568,000 in cash proceeds from the exercise of common stock options and warrants for the nine months ended September 30, 2000. The Company is a party to various contractual arrangements including royalty arrangements and employment and consulting agreements for current employees and consultants. On April 8, 2000, Thomas M. Tully, President and Chief Executive Officer, resigned from the Company. The amount of his severance of approximately $300,000 and related recruiting fees for his replacement were charged to operations during the three months ended March 31, 2000. The Company also has committed to purchase certain minimum quantities of the vena cava filter from a supplier through June 2001. The aggregate minimum purchases under the agreement subsequent to September 30, 2000 are approximately $540,000. 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. In addition to the above, 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, if available, may be dilutive to stockholders, and any additional debt financing, if available, may involve restrictive covenants. The Company's capital requirements will depend on numerous factors, including the outcome of the Company's strategic review of the NMT Neurosciences business, the outcome of pending legal proceedings, 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 September 30, 2000, the impact of the euro conversion has not had a material impact on the operations of the Company. 16 ITEM 3. QUANTITATIVE 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. Although the Company has decreased its international operations following the recent sale of the UK operations of its Neurosciences division and concomitantly reduced its foreign currency exposure, it remains an international concern. Accordingly, the Company faces exposure to adverse movements in foreign currency exchange rates. (See Note 9 to the Notes to Consolidated Financial Statements). These exposures may change over time and could have a material adverse impact on the Company's financial condition. The Company's most significant foreign currency exposures relate to its manufacturing activities and assets in France. The Company translates the accounts of its foreign subsidiaries in accordance with SFAS No. 52, "Foreign Currency Translation." In translating these foreign currency accounts 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 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. Other than as described above, the Company does not believe that there have been material changes in reported market risks faced by it since December 31, 1999, as reported in its Annual Report on Form 10-K (as amended). 17 PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS. The Company is a party to the following legal proceedings that could have a material adverse impact on the Company's results of operations or liquidity if there were an adverse outcome. Although the Company intends to pursue its rights in each of these matters vigorously, it cannot predict the ultimate outcomes. . In December 1998, the Company filed a patent infringement suit in the United States District Court for the District of Massachusetts (the "Court") against AGA Medical Corp. ("AGA"), claiming that AGA's Amplatzer aperture occlusion devices infringe U.S. Patent No. 5,108,420, which is licensed exclusively to the Company. The Company is seeking an injunction to prevent further infringement 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. There is pending before the Court a motion by AGA for summary judgment. The case is currently in 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. 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 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. On May 15, 2000, the Company filed a statement of defenses and counterclaims. On July 7, 2000, Elekta submitted a reply pleading. On October 9, 2000, the Company filed a Statement of Reply. The arbitration hearing is scheduled to begin on January 15, 2001. As currently pleaded, Elekta's claim seeks approximately $2 million in damages and NMT's counterclaim seeks approximately $2 million in damages. . On July 17, 2000, Sodem Diffusion SA ("Sodem") filed a claim with the Tribunal de Premiere Instance in Geneva, Switzerland, alleging that NMT NeuroSciences Implants (France), a wholly owned subsidiary of the Company ("NMT France"), breached its obligations under an exclusive distribution agreement, dated as of November 10, 1998, pursuant to which NMT France is acting as the exclusive worldwide distributor of Sodem's products. Sodem seeks approximately US$18 million in damages in addition to costs and fees of their attorneys. The Company must file its response to the claim by December 21, 2000. . On August 11, 2000, the Company filed a demand for arbitration before the American Arbitration Association in Boston, Massachusetts to obtain a determination that its Recovery Filter(TM) is not covered by the 1992 Agreement giving C.R. Bard, Inc. exclusive distribution 18 rights to the Company's Simon Nitinol Filter (TM). C.R. Bard, Inc. has filed a counterclaim seeking a contrary declaration and an indeterminate amount of damages. . 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 sought damages in excess of $31 million. The claim has been discontinued as against the Company and its subsidiary. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. (a) Material Default with Respect to Indebtedness. As of September 30, 2000, the Company was not in compliance with certain covenants contained in its subordinated note agreement with certain entities affiliated with Whitney & Co. ("Whitney"). The Company obtained a waiver of default from Whitney. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources, and Note 5(a) of the Notes to Consolidated Financial Statements in the accompanying financial statements. The waiver of default is filed as an exhibit to this Quarterly Report on Form 10-Q. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. The 2000 Annual Meeting of Stockholders of the Company was held on August 18, 2000 (the "Meeting"). Present at the Meeting in person or through representation by proxy were a total of 9,244,405 shares of Common Stock out of a total of 10,921,721 shares entitled to vote, thereby making a quorum. The action taken at the Meeting consisted of the election of six members of the Board of Directors of the Company, each to serve for a one-year term. The results of the voting on the matter presented to the stockholders at the Meeting are as follows: VOTES VOTES DIRECTORS FOR WITHHELD - --------- ----------- -------- Morris Simon, M.D. 6,705,975 2,538,430 C. Leonard Gordon 6,705,975 2,538,430 R. John Fletcher 9,145,220 99,185 Jeffrey R. Jay, M.D. 9,019,295 225,110 Jeffrey F. Thompson 9,123,520 120,885 Robert A. Van Tassel, M.D. 9,215,485 28,920 There were no abstentions and broker non-votes as to this matter. 19 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibits. -------- Exhibit No. Description of Exhibit - ---------- ---------------------- 10.1 Employment Agreement, dated as of September 21, 2000, by and between John E. Ahern and NMT Medical, Inc. 10.2 Waiver and Amendment No. 4, made as of November 13, 2000, by and between NMT Medical, Inc. and Whitney Subordinated Debt Fund, L.P. 27 Financial Data Schedule (b) Reports on Form 8-K. ------------------- . On July 7, 2000, the Company filed a Current Report on Form 8-K with the Securities and Exchange Commission (the "SEC") announcing the date, time and place of the 2000 Annual Meeting of Stockholders of the Company, in addition to deadlines for submission of stockholder proposals and the anticipated mailing date of the Company's 1999 Annual Report to Stockholders and Notice and Proxy Statement of the 2000 Annual Meeting of Stockholders. . On July 19, 2000, the Company filed a Current Report on Form 8-K with the SEC reporting that the Board of Directors of the Company had restructured the Company's management team so as to allow the Office of the President, with William J. Knight and Rudy Davis as Acting Co-Presidents, to have more of the day-to-day operating responsibilities, and that, accordingly, Jeffrey R. Jay, M.D. and R. John Fletcher had each resigned as Acting Co-Chief Executive Officer. . On August 2, 2000, the Company filed a Current Report on Form 8-K with the SEC reporting that William J. Knight had resigned, effective August 15, 2000, as Vice President of Finance and Administration, Chief Financial Officer and Acting Co-President of the Company. . On August 28, 2000, the Company filed a Current Report on Form 8-K with the SEC reporting that John E. Ahern had been appointed, effective as of September 21, 2000, as President and Chief Executive Officer of the Company. 20 SIGNATURES Pursuant to the requirements 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. Date: November 14, 2000 By: /s/ John E. Ahern ------------------------------------- John E. Ahern President and Chief Executive Officer 21 EXHIBIT INDEX Exhibit No. Description of Exhibit - -------- ---------------------- 10.1 Employment Agreement, dated as of September 21, 2000, by and between John E. Ahern and NMT Medical, Inc. 10.2 Waiver and Amendment No. 4 made as of November 13, 2000, by and between NMT Medical, Inc. and Whitney Subordinated Debt Fund, L.P. 27 Financial Data Schedule EX-10.1 2 0002.txt EMPLOYMENT AGREEMENT EXHIBIT 10.1 EMPLOYMENT AGREEMENT This Agreement is effective as of the 21st day of September, 2000, by and between John E. Ahern (the "Executive") and NMT Medical, Inc., a Delaware corporation (the "Company"). WHEREAS, the Company wishes to employ the Executive as the President and Chief Executive Officer and Chairman of the Board of Directors of the Company under the terms and conditions set forth below; and WHEREAS, the Executive wishes to accept such employment under those terms and conditions; NOW, THEREFORE, in consideration of the provisions and mutual covenants contained in this Agreement and for other good and valuable consideration, the Company and the Executive (the "Parties") agree as follows: 1. TERM OF EMPLOYMENT. ------------------ The Company agrees to employ the Executive, and the Executive agrees to serve, on the terms and conditions of this Agreement, for a period commencing as of the date hereof (the "Effective Date") and ending on December 31, 2002, or such shorter period as may be provided for herein. The employment term described above is hereinafter referred to as the "Employment Term". The Employment Term may be extended only in writing signed by both the Company and the Executive. 2. POSITION, DUTIES, RESPONSIBILITIES. ---------------------------------- During the Employment Term, the Executive shall serve as President and Chief Executive Officer of the Company. In such capacity, the Executive shall report to the Board of Directors of the Company (the "Board of Directors") and shall perform such duties and have such responsibilities of an executive nature as are set forth in the Company's Amended and Restated By-Laws, as amended from time to time (the "By-Laws"), and as are customarily performed by a person holding such office, it being recognized that the Executive's duties and responsibilities, consistent with his titles hereunder, may be changed by the Board of Directors from time to time. The Executive shall devote his full business time and attention to the performance of his duties under this Agreement. In addition, the Executive shall serve without additional compensation as Chairman of the Board and as a director of the Company and on any committees of the Board of Directors, if requested, subject to the terms of the By-Laws and, in the case of his service as a director, to the approval of the stockholders of the Company to the extent required by applicable law and the By-Laws. 3. BASE SALARY. ----------- During the Employment Term, the Executive shall be paid an annual base salary of $300,000 ("Salary"), subject to deductions for social security, state payroll and unemployment and all other legally required or authorized deductions and withholding. The Executive's Salary shall be payable in accordance with the Company's standard payroll practice. The Board of Directors shall review the Executive's Salary at least on an annual basis, upon the anniversary of this Agreement; provided, however, that any actual additional Salary increases shall be in the sole discretion of the Board of Directors. 4. STOCK OPTIONS. ------------- On the Effective Date, the Executive shall be granted a stock option (the "Options") to purchase 150,000 shares of common stock, par value $.001 per share, of the Company (the "Common Stock"), under the Company's 1998 Stock Incentive Plan (the "1998 Plan"). The exercise price for the Options shall be the closing price ($2.156) of the Common Stock on the date of grant, which date shall be the Effective Date. The Options shall, to the maximum extent permissible under Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), constitute incentive stock options, with any balance of the Options to be treated as non-statutory stock options. The Options shall vest in 48 equal monthly installments on each monthly anniversary of the date of grant. Once exercisable, the Options shall remain exercisable for a period of ten (10) years from the date of grant (the "Final Exercise Date"). Notwithstanding the foregoing, the Options shall become immediately exercisable in the event of a Change of Control of the Company. For purposes of this Agreement, a "Change of Control of the Company" shall be deemed to have occurred only upon (a) any merger or consolidation of the Company with or into another entity as a result of which the Common Stock is converted into or exchanged for the right to receive cash, securities or other property or (b) any exchange of all or substantially all shares of the Company for cash, securities or other property pursuant to a statutory share exchange transaction. 5. INCENTIVE PAYMENTS. ------------------ (a) 2000 Bonus. After the completion of the Company's fiscal quarter ending December 31, 2000 (the "Fourth Quarter") and as soon as the Company's financial information required to be included in its Annual Report on Form 10-K for the fiscal year 2000 is available, but in no event later than 90 days after the end of the Fourth Quarter, the Executive shall be entitled to receive a bonus (the "2000 Bonus") consisting of (1) a cash bonus of up to $25,000 and (2) a stock option grant to purchase 12,500 shares of Common Stock (the "2000 Bonus Option") provided that (i) the Executive satisfies agreed-upon financial and other performance goals each as contained in an incentive plan for the Executive relating to the Fourth Quarter (the "2000 Incentive Plan"), as established in good faith by the Board of Directors in consultation with the Executive as soon as practicable after the Effective Date, and (ii) the Company achieves an agreed-upon profit target relating to the Fourth Quarter as contained in the 2000 Incentive Plan and as established in good faith by the Board of Directors in consultation with the Executive as soon as practicable after the Effective Date; provided, however, that the Board of Directors, in its reasonable discretion, shall determine whether the Executive has satisfied such goals. In the event that the Executive is entitled to the 2000 Bonus, then the Executive shall receive the 2000 Bonus prior to the Company filing its Annual Report on Form 10-K for the fiscal year 2000. (i) 2000 Bonus Option. The exercise price for the 2000 Bonus Option shall be the closing price of the Common Stock on the date of grant of the 2000 Bonus Option. The 2000 Bonus Option shall, to the maximum extent permissible under Section 422 of the Code constitute incentive stock options, with any balance of the 2000 Bonus Option to be treated as non-statutory stock options. The 2000 Bonus Option shall vest in 48 equal monthly installments on each monthly anniversary of the date of grant. Once exercisable, the 2000 Bonus Option shall remain exercisable for a period of ten (10) years from the date of grant. Notwithstanding the foregoing, the 2000 Bonus Option shall become immediately exercisable in the event of a Change of Control of the Company. (b) Annual Bonus. Commencing with the Company's fiscal year 2001, after the completion of the Company's fiscal year and as soon as the Company's financial information required to be included in its Annual Report on Form 10-K for such fiscal year is available, but in no event later than 90 days after the end of such fiscal year, the Executive shall be entitled to receive an annual bonus (the "Annual Bonus") consisting of (1) a cash bonus of up to $100,000 and (2) a stock option grant to purchase 50,000 shares of Common Stock (the "Annual Bonus Option") provided that (i) the Executive satisfies agreed-upon financial and other performance goals each as contained in an annual incentive plan for the Executive as established in good faith by the Board of Directors in consultation with the Executive on an annual basis (the "Incentive Plan") and (ii) the Company achieves an agreed-upon profit target as contained in the Incentive Plan as established in good faith by the Board of Directors in consultation with the Executive on an annual basis; provided, however, that the Board of Directors, in its reasonable discretion, shall determine whether the Executive has satisfied such goals. In the event that the Executive is entitled to the Annual Bonus, then the Executive shall receive the Annual Bonus prior to the Company filing its Annual Report on Form 10-K for such fiscal year. (i) Annual Bonus Option. The exercise price for the Annual Bonus Option shall be the closing price of the Common Stock on the date of grant of Annual Bonus Option. The Annual Bonus Option shall, to the maximum extent permissible under Section 422 of the Code constitute incentive stock options, with any balance of the Annual Bonus Option to be treated as non-statutory stock options. The Annual Bonus Option shall vest in 48 equal monthly installments on each monthly anniversary of the date of grant. Once exercisable, the Annual Bonus Option shall remain exercisable for a period of ten (10) years from the date of grant. Notwithstanding the foregoing, the Annual Bonus Option shall become immediately exercisable in the event of a Change of Control of the Company. 6. EMPLOYEE BENEFITS. ----------------- (a) Benefit Programs. During the Employment Term, the Company shall provide the Executive and eligible family members with medical, dental, and disability insurance and such other benefits and perquisites as are provided in the Company's applicable plans and programs to its employees generally; provided, that the Executive meets the qualifications therefor ("Benefits"). (i) Notwithstanding the provisions of Section 6(a), the Company shall pay to the Executive an amount equal to $450.81 per month, net of all taxes and required deductions, as reimbursement for the payments made by the Executive for his health insurance policy with Cigna Healthcare (the "Outside Health Insurance"); provided, however, that (x) during the term of the Executive's Outside Health Insurance, the Executive shall not be entitled to any of the Benefits to the extent covered by the Executive's Outside Health Insurance, (y) the Executive shall not renew his Outside Health Insurance upon its expiration and (z) the Executive shall be entitled to the Benefits upon the expiration of the Outside Health Insurance. (b) Vacation. During each twelve month period of the Employment Term, the Executive shall be entitled to no less than four weeks of vacation; provided, however, that any vacation time not taken during any year shall be forfeited. The Executive shall also be entitled to all paid holidays given by the Company to its officers and employees. (c) Relocation Expenditures. The Company shall reimburse the Executive for the reasonable and documented expenses incurred by the Executive for a period of 90 days following the Effective Date relating to the Executive's relocation and temporary living expenses, including housing, meals and travel, which expenses shall not exceed $15,000. Notwithstanding the foregoing, the Company shall not be obligated to reimburse the Executive for any such expenses that are not documented. 7. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE. ----------------------------------------------- The Executive represents and warrants to the Company that the Executive is under no contractual or other restriction or obligation which is inconsistent with the execution of this Agreement, the performance of his duties hereunder, or the other rights of the Company hereunder. 8. NON-COMPETITION; NON-SOLICITATION. --------------------------------- In view of the unique and valuable services it is expected Executive will render to the Company, Executive's knowledge of the customers, trade secrets, and other proprietary information relating to the business of the Company and its customers and suppliers and similar knowledge regarding the Company it is expected Executive will obtain, and in consideration of the compensation to be received hereunder, Executive agrees that he will not, during the period he is employed by the Company under this Agreement or otherwise, and for a period of one year after he ceases to be employed by the Company under this Agreement or otherwise, compete with or be engaged in, or Participate In (as defined below) any other business or organization (which shall not include a university, hospital, or other non-profit organization) which during such one year period is or as a result of the Executive's engagement or participation would become competitive with the Company's business of designing, developing, manufacturing, marketing and selling neurosurgical devices, vena cava filters, stents, septal repair devices or other medical devices being designed, developed, manufactured, marketed or sold by the Company up to the time of such cessation; provided, however, that the provisions of this Section 8 shall not be deemed breached merely because the Executive owns less than 1% of the outstanding capital stock of a corporation, if, at the time of its acquisition by the Executive such stock is listed on a national securities exchange. The term "Participate In" shall mean: "directly or indirectly, for his own benefit or for, with or through any other person (including the Executive's immediate family), firm or corporation, own, manage, operate, control, loan money to, or participate in the ownership, management, operation or control of, or be connected as a director, officer, employee, partner, consultant, agent, independent contractor, or otherwise with, or acquiesce in the use of his name in." The Executive will not, directly or indirectly, solicit or interfere with, or endeavor to entice away from the Company any of its suppliers, customers or employees within a period of one year after the date of termination of the Executive's employment (the "Termination Date"). The Executive will not directly or indirectly employ any person who was an employee of the Company within a period of one year after such person leaves the employ of the Company. If any restriction contained in this Section 8 shall be deemed to be invalid, illegal, or unenforceable by reason of the extent, duration or geographical scope thereof, or otherwise, then the court making such determination shall have the right to reduce such extent, duration, geographical scope or other provisions hereof, and in its reduced form such restriction shall then be enforceable in the manner contemplated hereby. 9. INTELLECTUAL PROPERTY RIGHTS. ---------------------------- Any interest in patents, patent applications, inventions, technological innovations, copyrights, copyrightable works, developments, discoveries, designs and processes which the Executive during the period he is employed by the Company under this Agreement or otherwise may acquire, conceive of or develop, either alone or in conjunction with others, utilizing the time, material, facilities or information of the Company ("Inventions") shall belong to the Company; as soon as the Executive owns, conceives of, or develops any Invention, he agrees immediately to communicate such fact in writing to the Board of Directors, and without further compensation, but at the Company's expense, forthwith upon request of the Company, the Executive shall execute all such assignments and other documents (including applications for patents, copyrights, trademarks, and assignments thereof) and take all such other action as the Company may reasonably request in order (a) to vest in the Company all of the Executive's right, title and interest in and to such Inventions, free and clear of liens, mortgages, security interests, pledges, charges and encumbrances and (b), if patentable or copyrightable, to obtain patents or copyrights (including extensions and renewals) therefor in any and all countries in such name as the Company shall determine. 10. NONDISCLOSURE. ------------- The Employee Nondisclosure and Secrecy Agreement dated as of September 21, 2000 between the Company and the Executive shall remain in full force and effect. 11. INJUNCTIVE RELIEF. ----------------- Because a breach of the provisions of any of Section 8, Section 9 and Section 10 could not adequately be compensated by money damages, the Company shall be entitled, in addition to any other right and remedy available to it, to an injunction restraining such breach or a threatened breach, and in either case no bond or other security shall be required in connection therewith. The Executive agrees that the provisions of each of Section 8, Section 9 and Section 10 are necessary and reasonable to protect the Company in the conduct of its business. 12. TERMINATION OF THE EXECUTIVE UPON DEATH OR DISABILITY. ----------------------------------------------------- (a) The term of the Executive's employment shall terminate automatically upon his death. In addition, the Company shall have the right to terminate the Employment Term upon the Disability (as defined below) of the Executive. If the Executive's employment is terminated by the Company due to the Executive's death or Disability, then the Executive, his guardian or his estate, as applicable, shall be entitled to: (i) Salary and Benefits earned to the Termination Date; and (ii) other benefits as are provided under the applicable plans and programs of the Company as then in effect. (b) In addition, if the Executive's employment is terminated due to his death or Disability, and the Company has not terminated the Executive's employment for Cause pursuant to Section 14 below, any of the Options, 2000 Bonus Option and the Annual Bonus Options shall remain exercisable to the extent that any of the Options, 2000 Bonus Option and the Bonus Options were exercisable on the date of the Executive's death or Disability for a period of one year following the Termination Date pursuant to this Section 12(b), and shall thereafter expire. (c) For purposes of this Agreement, "Disability" shall mean any physical or mental disability or incapacity that renders the Executive incapable of performing his duties hereunder for a period of 180 consecutive calendar days or for shorter periods aggregating 180 calendar days during any consecutive twelve- month period. 13. INVOLUNTARY TERMINATION WITHOUT CAUSE. ------------------------------------- (a) The Executive shall be deemed to have been involuntarily terminated without Cause (as defined below) if one of the following events occurs: (i) The Company terminates the Executive's employment at anytime without Cause (as defined below); (ii) There occurs a substantial reduction by the Company in the Executive's responsibilities, authorities, powers and duties from the responsibilities, authorities, powers and duties exercised by the Executive just prior to such reduction but excluding such reduction effected with the Executive's prior consent or for reasons arising out of the Executive's gross negligence or willful misconduct; (iii) The Company requires the Executive to be based principally at any office or location which is outside New England, unless the Executive consents to be based principally at another office or location; (iv) Subject to Section 6(a)(i) of this Agreement, the Company's failure to (x) maintain the Executive's eligibility for participation in existing benefit plans then being made available by the Company to other employees of the Company having substantially similar levels of responsibility as the Executive or (y) provide to the Executive substantially the same benefits or other perquisites then being provided or paid to the other employees of the Company having substantially similar levels of responsibility as the Executive; or (v) There occurs a breach of this Agreement by the Company which continues for more than seven (7) business days after the Executive gives written notice to the Company, setting forth in reasonable detail the nature of such breach. (b) If the Executive's employment is involuntarily terminated at any time without Cause (as defined below), the Executive shall be entitled to: (i) Salary and Benefits earned to the Termination Date; (ii) Any of the 2000 Bonus and Annual Bonus as accrued to the Termination Date; provided, however, that the Board of Directors, in its reasonable discretion, shall determine whether the Executive has satisfied the conditions to the Executive's receipt of each of the 2000 Bonus and Annual Bonus; and (iii) Continued Salary for a period of six months from the Termination Date. In addition, all exercisable Options, 2000 Bonus Option and Annual Bonus Options shall expire 90 days after the Termination Date. 14. TERMINATION BY THE COMPANY FOR CAUSE. ------------------------------------ (a) GENERAL. The Company shall have the right to terminate the Executive's employment for Cause, as defined in subsection (b) below, in which event, the Executive shall be entitled only to Salary and Benefits earned to the Termination Date. In addition, all exercisable Options, 2000 Bonus Option and Annual Bonus Options shall expire as of the Termination Date. (b) CAUSE. For purposes of this Agreement, "Cause" shall mean: (i) fraud, embezzlement or gross insubordination on the part of the Executive; (ii) conviction of or the entry of a plea of nolo contendere by the Executive to any felony or crime of moral turpitude; (iii) a material breach of, or the willful failure or refusal by the Executive to perform and discharge, his duties, responsibilities or obligations under this Agreement that is not corrected within 20 days following written notice thereof to the Executive by the Company, such notice to state with specificity the nature of the breach, failure or refusal; provided, that if such breach, failure or refusal cannot reasonably be corrected within 20 days of written notice thereof, correction shall be commenced by the Executive within such period and shall be corrected as soon as practicable thereafter; or (iv) any act of willful misconduct by the Executive which is intended to result in substantial personal enrichment of the Executive at the expense of the Company or any of its subsidiaries or affiliates. 15. TERMINATION BY THE EXECUTIVE WITHOUT CAUSE. The Executive may ------------------------------------------ terminate this Agreement at any time with or without cause by providing thirty (30) days' prior written notice to the Company, in which event, the Executive shall be entitled only to Salary and Benefits earned to the Termination Date. In addition, all exercisable Options, 2000 Bonus Option and Annual Bonus Options shall expire 90 days after the Termination Date. 16. WITHHOLDING. ----------- Anything to the contrary notwithstanding, all payments required to be made by the Company under this Agreement to the Executive, his spouse, his estate or beneficiaries, shall be subject to withholding of such amounts relating to taxes as the Company may reasonably determine it should withhold pursuant to any applicable law or regulation. In addition, in the event that the Company reasonably determines that it is required to make any payments of withholding taxes as a result of Executive's receipt of any other income pursuant to the terms of this Agreement, the Company may, as a condition to such receipt, require that the Executive provide the Company with an amount of cash sufficient to enable the Company to pay such withholding taxes. 17. LOCK-UP AGREEMENT. ------------------ In the event that the Company seeks to consummate a public offering of its securities during the Employment Term, the Executive shall execute an agreement in a form and substance satisfactory to the managing underwriter or underwriters of the Company's securities, not to sell, pledge, contract to sell, grant any option or otherwise dispose of any shares of stock owned or acquired by the Executive for such period of time as requested by such underwriter of all other executive officers of the Company. 18. INDEMNIFICATION. --------------- During the Employment Term, the Company agrees (i) to indemnify the Executive in his capacity as an officer and director of the Company and, to the extent applicable, each subsidiary of the Company, as provided in Article Eighth of the Company's Second Amended and Restated Certificate of Incorporation, as amended, and (ii) use its best efforts to maintain in effect its director and officer liability insurance policies. 19. LEGAL FEES. ---------- The Company shall reimburse the Executive all reasonable and documented legal fees, costs and expenses incurred by the Executive in contesting or disputing any breach of this Agreement by the Company or in seeking to obtain or enforce any right or benefit provided by this Agreement; provided, however, that the Company shall have no such obligation to reimburse the Executive for such legal fees, costs and expenses unless the final resolution of such matter is determined by a court of competent jurisdiction to be in the Executive's favor. 20. ASSIGNABILITY; BINDING NATURE. ----------------------------- This Agreement and all rights of the Executive shall inure to the benefit of and be enforceable by the Executive's personal or legal representatives, estates, executors, administrators, heirs and beneficiaries. All amounts payable to the Executive hereunder shall be paid, in the event of the Executive's death, to the Executive's estate, heirs and representatives. This Agreement shall inure to the benefit of, be binding upon, and be enforceable by, any successor, surviving or resulting company or other entity to which all or substantially all of the Company's business and assets shall be transferred. 21. ENTIRE AGREEMENT. ---------------- This Agreement, together with the Employee Nondisclosure and Secrecy Agreement, contains the entire agreement between the Executive and the Company (each, a "Party") concerning the subject matter hereof and supersedes all prior agreements, understandings, discussions, negotiations, and undertakings, whether written or oral, between the Parties with respect thereto. 22. AMENDMENTS AND WAIVERS. ---------------------- This Agreement may not be modified or amended except by a writing signed by both Parties. A Party may waive compliance by the other Party with any term or provision of this Agreement, or any part thereof, provided that the term or provision, or part thereof, is for the benefit of the waiving Party. Any waiver will be limited to the facts or circumstances giving rise to the noncompliance and will not be deemed either a general waiver or modification with respect to the term or provision, or part thereof, being waived, or as to any other term or provision of this Agreement, nor will it be deemed a waiver of compliance with respect to any other facts or circumstances then or thereafter occurring. 23. NOTICE. ------ Any notice given under this Agreement shall be in writing and shall be deemed given when delivered personally or by courier, or five days after being mailed, certified or registered mail, duly addressed to the Party concerned at the address indicated below or at such other address as such Party may subsequently provide, in accordance with the notice and delivery provisions of this Section 23: To the Company: NMT Medical, Inc. 27 Wormwood Street Boston, MA 02210 Attn.: Board of Directors with a copy to: Hale and Dorr LLP 60 State Street Boston, MA 02109-1803 Attn: Steven D. Singer, Esq. To the Executive: John E. Ahern 1120 Edson Hill Road Stowe, VT 05672 with a copy to: Edwards & Angell, LLP 101 Federal Street Boston, MA 02110-1800 Attn: Jonathan M. Lourie, Esq. 24. SEVERABILITY. ------------ In the event that any provision or portion of this Agreement shall be determined to be invalid or unenforceable for any reason, the remaining provisions or portions of this Agreement will be unaffected thereby and shall remain in full force and effect to the fullest extent permitted by law. 25. SURVIVORSHIP. ------------ The respective rights and obligations of the Parties hereunder shall survive any termination of this Agreement to the extent necessary to the intended preservation of such rights and obligations. 26. REFERENCES. ---------- In the event of the Executive's death or a judicial determination of his incompetence, reference in this Agreement to the Executive shall be deemed, where appropriate, to refer to his legal representative or, where appropriate, to his beneficiary or beneficiaries. 27. GOVERNING LAW. ------------- This Agreement shall be governed by and construed and interpreted in accordance with the laws of The Commonwealth of Massachusetts without reference to the principles of conflicts of law. 28. HEADINGS. -------- The headings of sections contained in this Agreement are for convenience only and shall not be deemed to control or affect the meaning or construction of any provision of this Agreement. 29. COUNTERPARTS. ------------ This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. [The remainder of this page has been intentionally left blank.] THE UNDERSIGNED have executed this Agreement effective as of the date first written above. COMPANY: NMT Medical, Inc. By: /s/ Randall W. Davis ------------------------ Name: Randall W. Davis ------------------ Title: Acting President ------------------ EXECUTIVE: /s/ John E. Ahern --------------------------- John E. Ahern EX-10.2 3 0003.txt WAIVER EXHIBIT 10.2 WAIVER AND AMENDMENT NO. 4 -------------------------- This Waiver and Amendment No. 4, made as of November 13, 2000 (this "Waiver"), is by and among NMT Medical, Inc. (the "Company"), on the one hand, and Whitney Subordinated Debt Fund, L.P. (the "Purchaser"), on the other hand. Capitalized terms used herein and not otherwise defined have the meanings assigned to such terms in the Purchase Agreement (as defined below). W I T N E S S E T H: WHEREAS, the Company and the Purchaser are parties to the Subordinated Note and Common Stock Purchase Agreement, dated as of July 8, 1998, as amended by (i) Amendment No. 1, dated April 14, 1999, (ii) Amendment No. 2, dated September 13, 1999, and (iii) Amendment No. 3, dated as of April 5, 2000, by and among the Company, the Purchaser, and, for certain purposes, J. H. Whitney & Co. (as so amended, the "Purchase Agreement"), regarding the Company's $20,000,000 subordinated notes due September 30, 2003; WHEREAS, the Company has requested the Purchaser to waive compliance with certain covenants contained in the Purchase Agreement for the fiscal quarter ended September 30, 2000 and the Company and Purchaser wish to amend the Purchase Agreement to provide that certain information will be provided and certain covenant compliance will be tested on a monthly basis. NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The Purchaser hereby waives compliance by the Company with the provisions of Sections 9.8(a), (b), (c), (e) and (f) of the Purchase Agreement solely with respect to the fiscal quarter ended September 30, 2000. 2. The Company acknowledges and agrees that the Company is required to and shall deliver to Purchaser, as soon as available and in any event within thirty (30) days after the end of each month, beginning with November 2000, the consolidated balance sheet of the Company and its Subsidiaries, as at the end of such month and the related consolidated statements of operations, stockholders' equity (deficit) and cash flow for such month and for the period from the beginning of the then current fiscal year of the Company to the end of such month (and, with respect to financial statements delivered for 1 months that are also the last month of any fiscal quarter, accompanied by the related consolidated statements of operations, stockholders' equity (deficit) and cash flow for such fiscal quarter) and a schedule of the outstanding Indebtedness for borrowed money of the Company and its Subsidiaries describing in reasonable detail each such debt issue or loan outstanding and the principal amount and amount of accrued and unpaid interest with respect to each such debt issue or loan. The Company and Purchaser confirm and agree that the financial covenants continued in Sections 9.8 (a)(b)(c) and (f) which require compliance as of the end of the calendar quarter shall be and are hereby amended to require such compliance as of the end of each month beginning November 30, 2000 and, accordingly, wherever there appears in Sections 9.8 (a)(b)(c) and (f) the term "the last day of a calendar quarter" or any similar term, same shall be and hereby is amended to refer to "the last day of a month". 3. This Waiver may be signed in counterparts, and by the various parties on separate counterparts. Each set of counterparts which contains the signature of each of the parties shall constitute a single instrument with the same effect as if the signature thereto were upon the same instrument. The parties hereto agree that each party shall accept facsimile signatures as legally sufficient, binding and admissible evidence of the execution of this Waiver. 4. Except as expressly modified by this Waiver, all of the terms and provisions of the Purchase Agreement, by and among the Company and the Purchaser, and the Notes shall continue in full force and effect and all parties hereto shall be entitled to the benefits thereof 5. This Waiver shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflict of laws of such state. IN WITNESS WHEREAS, the parties hereto have caused this Waiver to be signed by their respective duly authorized officers as of the date first written above. NMT MEDICAL, INC. By: /s/ John E. Ahern ------------------------------------------ Name: John E. Ahern Title: President and Chief Executive Officer WHITNEY SUBORDINATED DEBT FUND, L.P. By: /s/ James H. Fordyce ------------------------------------------ Name: James H. Fordyce Title: A General Partner 2 EX-27 4 0004.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 2000 AND FOR THE THREE AND NINE-MONTH PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 5,519,148 0 6,700,556 (1,227,000) 3,061,908 16,049,653 14,608,022 12,862,532 18,071,615 10,061,597 0 0 0 10,942 2,859,894 18,071,615 27,748,507 28,392,781 11,904,136 11,904,136 25,118,808 389,239 903,007 (9,922,409) (14,850) (9,907,559) (932,596) 0 0 (10,840,155) (1.00) (1.00)
-----END PRIVACY-ENHANCED MESSAGE-----