-----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, UGh9D/b7Nq/eHk1VKxjP5phw8DMfBWawVKDUM3Zk410oafff/lNhzVcAnRJR8e38 aYPjAQq5mXBs9y4G84orhA== 0000927016-01-001662.txt : 20010409 0000927016-01-001662.hdr.sgml : 20010409 ACCESSION NUMBER: 0000927016-01-001662 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NMT MEDICAL INC CENTRAL INDEX KEY: 0001017259 STANDARD INDUSTRIAL CLASSIFICATION: SURGICAL & MEDICAL INSTRUMENTS & APPARATUS [3841] IRS NUMBER: 954090463 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21001 FILM NUMBER: 1590006 BUSINESS ADDRESS: STREET 1: 27 WORMWOOD STREET CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6177370930 MAIL ADDRESS: STREET 1: 27 WORMWOOD STREET CITY: BOSTON STATE: MA ZIP: 02210 FORMER COMPANY: FORMER CONFORMED NAME: NITINOL MEDICAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19960619 10-K 1 0001.txt FORM 10K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Mark One) [X] Annual Report Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 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 No. 000-21001 NMT MEDICAL, INC. (Exact Name of Registrant as Specified in its Charter) Delaware 95-4090463 - ------------------------------- ------------------------------------ (State or Other Jurisdiction of (I.R.S. Employer Identification No.) Incorporation or Organization) 27 Wormwood Street, Boston, Massachusetts 02210 - ----------------------------------------- --------- (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (617) 737-0930 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: None SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: Common Stock, $.001 par value per share (Title of Class) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [_] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [_] The aggregate market value of voting stock held by nonaffiliates of the registrant on March 26, 2001 was $7,902,806, based on the last reported sale price of the registrant's Common Stock on the Nasdaq National Market on that date. There were 10,954,463 shares of Common Stock outstanding as of March 26, 2001. DOCUMENTS INCORPORATED BY REFERENCE Part of Form 10-K Document into which incorporated -------- ----------------------- Portions of the Registrant's Proxy Items 10, 11, 12 and 13 of Statement for the Annual Part III Meeting of Stockholders to be held on June 7, 2001 PART I ITEM I. BUSINESS OVERVIEW NMT Medical, Inc. (together with its subsidiaries, "the Company" or "NMT"), designs, develops and markets innovative medical devices that utilize advanced technologies and are delivered by minimally invasive procedures. The Company's products are designed to offer alternative approaches to existing complex treatments, thereby reducing patient trauma, shortening procedure, hospitalization and recovery times, and lowering overall treatment costs. The Company's cardiovascular business unit provides the interventional cardiologist, interventional radiologist and vascular surgeon with proprietary catheter-based implant technologies that minimize the risk of embolic events. The cardiovascular business unit also serves the pediatric interventional cardiologist with a broad range of cardiac septal repair implants delivered with nonsurgical catheter techniques. The Company's neurosciences business unit serves the needs of neurosurgeons with a range of implantable and single-use products, including cerebral spinal fluid shunts, external drainage products and aneurysm clips. The Company's two business units are managed separately. See Note 15 of Notes to the Consolidated Financial Statements. The Company was founded in July 1986 to develop and commercialize medical devices using nitinol, a nickel-titanium alloy with unique superelastic and thermal shape memory characteristics. In April 1990, the Company obtained clearance from the Food and Drug Administration (the "FDA") to market its initial nitinol-based product, the Simon Nitinol Filter(R) ("SNF"), in the United States. The Company entered into an exclusive distribution agreement with Bard Radiology, a division of C. R. Bard, Inc. ("Bard"), for distribution of the SNF in the United States and certain other countries in May 1992. The Company's primary stent patent was issued in November 1994 and, during the same month, the Company entered into an exclusive license agreement with Boston Scientific to further develop, manufacture, market and distribute the Company's nitinol-based stents worldwide. In November 1995, the Company expanded its relationship with Bard by granting Bard International, Inc. the right to distribute the SNF in most markets outside the United States pursuant to an International Distribution Agreement. The Company acquired the rights to the CardioSEAL(R) Septal Occluder to expand its product base in February 1996 and since September 1999 has received notifications from the FDA of the approval of the CardioSEAL(R) under Humanitarian Device Exemption("HDE") regulations for three indications. In furtherance of the Company's strategy to develop and commercialize a broad range of advanced medical technologies for minimally invasive applications, in July 1998 the Company acquired the neurosurgical instruments business of Elekta AB (PUBL), a Swedish corporation ("Elekta"). In April 2000, the Company sold the Selector(R) Ultrasonic Aspirator, Ruggles (TM) Surgical Instruments and cryosurgery businesses of its neurosciences business unit to companies controlled by Integra LifeSciences Holdings Corporation for $12 million in cash. The Company used the proceeds of the transaction for debt reduction and for general working capital requirements. The Company's Consolidated Financial Statements included herein treat these businesses as discontinued operations. See Note 3 of Notes to the Consolidated Financial Statements. The Company is exploring strategic alternatives with respect to the remaining neurosciences business unit. PRODUCTS Cardiovascular Business Unit The Company's cardiovascular business unit markets the following devices: . cardiac septal repair devices . vena cava filters . stents. Cardiac Septal Repair Devices - ----------------------------- In February 1996, the Company acquired the exclusive rights to the CardioSEAL(R) cardiac septal repair implant, which is used for the repair of intracardiac shunts that result in abnormal blood flow through the chambers of the heart. The most common defects occur in either the atrial ("ASD") or ventricular ("VSD") septum which divides the left and right pumping chambers of the heart. The CardioSEAL(R) cardiac septal repair implant is a catheter- based, less costly alternative to open heart surgery. Another common cardiac septal defect is the Patent Foramen Ovale ("PFO"), a transient hole that may open under straining efforts (coughing, defecating, etc.). PFO has been implicated as a possible cause of embolic stroke. Current treatment for patients who have experienced embolic strokes is lifelong anticoagulation therapy or open heart surgery. Both drug therapy and open heart surgery may present significant risks to the embolic stroke patient with a PFO. The Company's cardiac septal repair technology is 1 a less invasive, less costly alternative to open heart surgery or drug treatment for this patient population. The Company acquired the rights to develop and commercialize its current cardiac septal repair device in February 1996 from InnerVentions, Inc., a licensee of the Children's Hospital of Boston. In connection with the acquisition, the Company acquired all of the existing development, manufacturing, testing equipment, patent licenses, know-how and documentation necessary to manufacture cardiac septal repair devices. In 1998, the Company introduced design enhancements to the CardioSEAL(R) cardiac septal repair device, the STARFlex(TM) centering system. The design of the STARFlex(TM) centering system allows the implant to self-adjust to variations in the anatomy of a septal defect without deforming the septum and interfering with the heart valves. These features accommodate easier implantation and the closure of larger defects which would otherwise not be possible. STARFlex(TM) was awarded the CE Mark in September 1998 and commercialization began internationally in October 1998. Two additional STARFlex(TM) systems with the CE Mark were added to the product line to treat large ASDs. Also, during 2000 the Company introduced the QuickLoad enhancement to the entire CardioSEAL(R) family, providing a more ergonomic implant loading system. The Company estimates that the worldwide market potential for its cardiac septal repair technology is approximately 500,000 procedures annually, with current congenital heart defect procedures (ASD, VSD, etc.) counting for about 30,000 and the balance being the potential for the emerging PFO procedures. The CardioSEAL(R) is sold commercially in Europe and other international markets. In the United States, the FDA classifies septal repair devices as Class III medical devices, which requires receipt of pre-market approval ("PMA") prior to marketing. Clinical trials of the CardioSEAL(R) for ASD and PFO closure are under way at a number of major hospitals and research centers in the United States and Canada. The clinical data from these trials will then be used for the submission of a PMA application with the FDA for the CardioSEAL(R). The Company has established an international registry to support the clinical use of the CardioSEAL(R) cardiac septal repair implant in patients having PFO as the likely pathway of an embolic stroke or transient ischemic attack. The registry allows physicians around the world to pool their data on PFO closure in an organized manner so as to generate a sizable database to demonstrate that closure of PFOs with the CardioSEAL(R) is a clinically viable alternative to surgery, or to lifetime anticoagulant therapy, such as coumadin. The Company has received notifications from the FDA of the approval of the CardioSEAL(R) Septal Occluder under HDE regulations for three indications. Under HDE regulations, medical devices that provide safe treatment for limited populations of patients can be granted approval by the FDA based on more limited clinical experience than that required for a full PMA. Boston Children's Hospital worked with the Company to generate the clinical data necessary for the approvals and on the approval application. The first HDE approval was granted in September 1999 for use of the CardioSEAL(R) for nonsurgically closing Fenestrated Fontans. Traditionally, the Fenestrated Fontan procedure is a surgical procedure utilizing a baffle material (e.g. PTFE) performed in patients born with seriously malformed hearts. As a part of this procedure, a fenestration, or hole, is placed in the baffle to allow the patient to adjust over time to the new hemodynamics created by the surgery, thereby reducing post-operative morbidity and mortality. After the patient has adjusted, the closure of the fenestration is desirable. However, re- operation of these patients to close the fenestration can carry significant risk. The Company's cardiac septal repair technology offers a nonsurgical alternative to these patients. The second HDE approval, also granted in September 1999, was granted for use of the CardioSEAL(R) for closing muscular ventricular septal defects ("VSD") in patients with high surgical risk factors. In February 2000, the Company received FDA approval under HDE regulations for use of the CardioSEAL(R) in treating PFO in patients with recurrent cryptogenic stroke due to presumed paradoxical embolism through a PFO and who have failed conventional drug therapy such as coumadin. Each of the three approved indications allows for the treatment of up to 4,000 patients per year. A selling price of $5,500 for each device was approved. The CardioSEAL(R) Septal Occluder is marketed by the Company's direct sales force in the U.S. and Europe and through selected distributors worldwide. The product was awarded an HCPC passthrough code in September 2000 and has a favorable medical policy position from the national Blue Cross Blue Shield Association. Vena Cava Filters - ----------------- The Company's vena cava filter technology is used for the prevention of pulmonary embolism (a blood clot lodged in the vessels supplying blood to the lungs). The emboli (clots), which often develop initially in the veins of the legs, can break loose and travel up the vena cava, through the heart and into the blood vessels of the lungs, causing acute respiratory and circulation 2 problems. Vena cava filters are intended to trap these clots before they can reach the lungs. Patients at high risk for pulmonary embolism include post- operative orthopedic and neurosurgery patients, cancer patients undergoing surgery and chemotherapy and severe trauma victims. The Company estimates that the current worldwide market potential for vena cava filters is 100,000 procedures annually. The Company has developed a nitinol vena cava filter which possesses highly efficient clot filtering characteristics, the Simon Nitinol Filter(R) ("SNF"). The Company has engineered the thermal shape-memory characteristics of nitinol to provide for ease of delivery of a vena cava filter which can be easily implanted in the patient by a minimally invasive procedure using the Company's patented catheter-based delivery systems. The Company's vena cava filter transforms into its intended shape once deployed into the body. The SNF can be implanted from the veins in the leg or neck, and is the only currently available vena cava filter which can also be implanted from the veins in the arm. The Company received FDA 510(k) clearance to market the SNF, and commenced sales, in April 1990. All 510(k) notifications with respect to subsequent modifications to the SNF were accepted by the FDA. In November 1995, the Company introduced a simplified, straight line catheter-based delivery system for its SNF. In November 1996, the Company received 510(k) clearance for the implementation of the SNF through the subclavian vein in the shoulder. On January 27, 1998, the CE Mark was granted for the SNF, which authorized the Company to sell the SNF in the European Union beginning in July 1998. The Company entered into a 5-year exclusive distribution agreement in May 1992 with Bard Radiology, a division of Bard, for the SNF in the United States and certain other countries. This 1992 distribution agreement was renewed by Bard Radiology for a second 5-year period and contains further renewal options. Beginning November 30, 1995, pursuant to an International Distribution Agreement, Bard International, Inc., a subsidiary of Bard, was granted the exclusive right to distribute the SNF in most markets outside the United States. The Company's international distribution agreement renews automatically for successive one year periods unless terminated by either party. Under each distribution agreement, the distributors are obligated to make annual minimum purchases and have agreed not to sell competing nitinol vena cava filters during the term of the respective distribution agreements. Additionally, Bard Radiology has agreed to this non-compete provision for an additional two years after the termination of the 1992 distribution agreement. In addition, the Company has granted each distributor a right of first offer for certain of the Company's new devices pursuant to the terms of such agreements. During August 2000, the Company filed a demand for arbitration relating to certain provisions of the U.S. distribution agreement. Please see Item 3 (Legal Proceedings) for more information. Removable Vena Cava Filter. Currently available vena cava filters are permanent implants which can only be removed surgically. Therefore, patients who are at risk for pulmonary embolism for a defined period of time (post-operative recovery, recovery from trauma, etc.) and receive a vena cava filter have the implant in place for life. There is often a psychological resistance to implantation of a permanent device. As a result, a vena cava filter is often not used until a patient at risk has experienced his or her first pulmonary embolism. However, controlled studies conducted by others of the prophylactic use of currently available permanent vena cava filters in severe trauma patients have demonstrated a significant reduction in morbidity and mortality in this category of patients at high risk of pulmonary embolism. The Company believes that the availability of a removable vena cava filter may result in greater prophylactic use, and may be used in lieu of a permanently implanted device in certain circumstances. In September 1999, the Company received CE Mark approval for its unique, removable vena cava nitinol filter device ("RNF"). This innovative new device is the first implantable vena cava filter that can be removed with a simple catheter removal procedure soon after implant or several weeks later. If desired, the RNF may be left as a permanent filter. The approval is for the filter implant and the filter delivery system. A separate CE Mark application for the removal catheter was approved in December 1999. During 2000, under a compassionate use clearance given to the Company and one hospital in Canada, 20 patients were successfully treated with RNF, with removals successfully achieved in all patients within twelve weeks after implant. The Company continues to gather information on product design aspects for potential incorporation in the proposed product. During August 2000, the Company filed a demand for arbitration relating to certain provisions of the U.S. distribution agreement. Please see Item 3 (Legal Proceedings) for more information. Stents - ------ Stents are used increasingly as adjuncts or alternatives to a variety of medical procedures because it is believed that they are beneficial to overall patient outcome and may, over time, reduce total treatment costs. To date, most stents have been used for the treatment of atherosclerotic plaque in the coronary arteries. The Company has developed and patented a nitinol stent (the Hex-cell stent) which relies on a novel hexagonal cell (hex-cell) design. The Company's stents can be customized into a variety of sizes, shapes, flexibilities and radial force characteristics for use in treating specific indications. The Company believes that its stents may offer advantages over currently available stents in flexibility, radial strength and placement. 3 In November 1994, the Company licensed to Boston Scientific Corporation ("Boston Scientific"), a worldwide leader in sales of minimally invasive medical devices, the exclusive worldwide rights to develop, manufacture, market and distribute the Company's stent technology. Under the terms of this agreement, Boston Scientific has the sole right to use the patents and technical information owned by the Company related to stents. Boston Scientific is not prohibited from selling competing stents and has established a broad-based stent program, including rights to Medinol, Ltd.'s stent technology. Pursuant to the license agreement, the Company receives sales royalties, manufacturing cost reduction incentives and reimbursement of development costs. Boston Scientific commercially launched the Company's stents for peripheral vascular use in Europe in January 1997 and in the United States in June 1997 for biliary use under the name Symphony . During 1998, Boston Scientific also began enrollment in a multi-center clinical trial for the Symphony stent in peripheral arteries. These trials are designed to gain approval for expanded labeling for the Symphony stent in the United States. Boston Scientific has completed a scale-up of its peripheral vascular stent manufacturing capabilities in the United States to enable it to manufacture the Company's stents in quantities to support initial commercialization in certain markets. Boston Scientific is responsible for applying for registrations and regulatory approvals that it deems necessary for the Company's stents. The Company believes that each of the vascular indications for the stent (coronary arteries, carotid arteries, peripheral vascular, abdominal aortic and peripheral vascular stent grafts) will require separate PMA applications prior to commercialization in the United States. Neurosciences Business Unit The Company's neurosciences business unit develops, manufactures and markets specialty implants and instruments for neurosurgery. The Company's neurosurgical products business includes the following primary product lines: . Implantable valves (shunts) and other accessories used in the management of cerebral spinal fluid ("CSF"). . Titanium aneurysm clips for the management of intracranial aneurysms. Shunts - ------ CSF shunts are used to drain cerebral spinal fluid from the brain to maintain normal fluid balance in a variety of conditions where normal drainage is impaired. The most common condition in which these products are used is in the management of hydrocephalus. Hydrocephalus affects approximately one in 500 newborn children. The failure to treat this condition leads to severe neurological complications and can be life-threatening. The Company's product line includes a range of differential pressure valves, including the Hakim(R) Valve, which has been the industry standard for 30 years, and the Orbis-Sigma(R) Valve. An improved version of the Orbis-Sigma(R) Valve, the OSV II, was released in 1998. The OSV II is unique in its ability to regulate both CSF flow and pressure. The Company's products also include horizontal-vertical lumbar valves and an all-plastic valve known as the Atlas(R). The accessories include products for the control of the over-drainage with differential valves, as well as basic tubing and connectors. The Company estimates that the worldwide market potential for CSF shunts is approximately 85,000 procedures per year. In December 1998, the Company entered into an agreement with CS Fluids, Inc. ("CS Fluids") of Los Altos, California to cooperatively develop and manufacture a shunt device designed specifically to treat Alzheimer's Disease. Under the terms of the agreement, the neurosciences business unit will work with CS Fluids to utilize the Company's patented shunt technology to develop, manufacture and clinically evaluate a shunt device with parameters specific to the Alzheimer's population. If the device proves clinically useful, CS Fluids has the option to enter into a manufacturing and supply relationship with the Company, and the Company has first right of negotiation for distribution of the device after the necessary regulatory approvals have been obtained. In early 1998 CS Fluids initiated Investigational Device Exemption ("IDE") approved clinical studies at Stanford University to examine the effects of utilizing CSF shunts in patients with Alzheimer's Disease. CS Fluids is in the process of finalizing a protocol for a larger clinical study expected to commence during 2001. Aneurysm Clips - -------------- The Company's Spetzler(TM) Titanium Aneurysm Clip is used for the management of intracranial aneurysms. The Company believes that this clip is the only FDA approved clip on the market made from commercially pure titanium, which provides complete compatibility with modern magnetic resonance imaging. Because the clip does not move in the high magnetic field or distort the image, the Company believes it is safer and more effective than competing products. The Spetzler(TM) Titanium Aneurysm Clip was developed in collaboration with Biotek Engineering, Inc. ("Biotek") under an exclusive worldwide royalty 4 bearing license to the patents owned by Biotek. The clip is CE Marked, and the Company has obtained ISO 9000 certification of the Boston manufacturing facility for its production. Powered Surgical Tools - ---------------------- The neurosciences business unit distributed the Sodem Systems line of powered surgical tools for cranial and spinal neurosurgery, known as the NMT High Speed System, pursuant to an exclusive distribution agreement entered into in July 1998. The powered surgical tools are used by neurosurgeons to create minimally invasive working channels through the bone of the skull and spine to access the surgical site. In 1999, as a result of perceived product quality problems, the neurosciences business unit ceased its distribution activities for these products. In July 2000 Sodem Diffusion SA ("Sodem") filed a breach of contract suit against NMT Neurosciences. This litigation was settled subsequent to year- end (see Note 6 of Notes to Consolidated Financial Statements). MARKETING AND SALES STRATEGY The Company has entered into agreements with entities affiliated with Bard for the worldwide distribution of the SNF. The Company markets its CardioSEAL(R) cardiac septal repair products through the business unit's direct sales force covering the United States, Canada and most of Europe. A few select distributors are selling CardioSEAL(R) products in other strategically important geographic markets. The neurosciences business unit uses a combination of a direct sales force, distributors and manufacturers' representatives worldwide. The North American selling activity is managed through the business unit's United States operations in Atlanta, Georgia. The Asian region is managed from the Company's Hong Kong office. Sales for the rest of the world are managed through the business unit's headquarters in Biot, France. CUSTOMERS Bard, through its division, Bard Radiology, and its subsidiary, Bard International, accounted for 23%, 26% and 33% of product revenues for fiscal 2000, 1999 and 1998, respectively. The Company had one customer, Cordis Europa N.V., whose revenues accounted for 12% and 10% of product revenues for fiscal 1999 and 1998, respectively. MANUFACTURING The Company manufactures the CardioSEAL(R) cardiac septal repair system at its facility in Boston, which includes a Class 10,000 clean room. The Company has received ISO 9000 certification and has also received permission to affix the CE mark to its products. The Company has contracted with Lake Region Manufacturing ("Lake Region") for the production of the filter component of the SNF. Under this agreement, Lake Region acquired the right to manufacture a certain percentage of the Company's worldwide requirements of the SNF component until June 30, 2001, which agreement is expected to be extended until December 31, 2001. The Company is obligated to order a minimum quantity of the current filters and pay Lake Region a fixed price per unit. Lake Region has agreed not to manufacture filters for a third party for a period of two years after the termination of the agreement. Final assembly of the vena cava filter system is conducted by the Company in its facility in Boston. The Company manufactures its neurosurgical products in a manufacturing facility located in Biot, France. The facility has received ISO 9001 and EN 46001 certification, which are based on adherence to established standards in the areas of quality assurance and manufacturing process control, and has also received permission to affix the CE Mark to its products. The Spetzler(TM) Titanium Aneurysm Clip is manufactured at the Company's manufacturing facility in Boston. The Biot facility also has a contract manufacturing agreement with Johnson & Johnson until April 2002 for the manufacturing of temporary pacing leads catheters. COMPETITION The following is a description of the companies that NMT believes to be its principal competitors. Three companies, AGA Medical Corp., W. L. Gore and Pediatric Cardiology Custom Medical Devices, have developed devices that compete with CardioSEAL(R) and are being sold in Europe and other international markets. AGA and W. L. Gore are also conducting clinical trials in the United States. 5 Competitors in vena cava filter products include Boston Scientific Corporation, Johnson & Johnson, Cook and B. Braun. Current competitors in the vascular stent market are Johnson & Johnson, Guidant and Medtronic. The two principal competitors in the CSF shunt market are Medtronic and Johnson & Johnson. The Company has three principal competitors in the aneurysm clip market: Aesculap, Mizuho, and Codman. In addition, the clip market is currently influenced by competing devices, principally intracranial coils, to treat aneurysms. DISCONTINUED OPERATIONS In April 2000 the Company sold the U.K. operations of its neurosciences business unit, including the Selector(R) Ultrasonic Aspirator and cryosurgery businesses, its leased facility in Andover, England, and the Ruggles(TM) Surgical Instruments business to companies controlled by Integra LifeSciences Holdings Corporation for $12 million in cash. The ultrasonic aspirator, which was sold under the Selector(R) trademark, utilized multiple ultrasonic frequencies to selectively destroy and then aspirate or remove the tumor tissue. In 1998, the Company released a more compact unit known as the Selector II, which allowed the direct attachment of the microsurgical handpiece. The Ruggles(TM) Surgical Instruments were used in cranial and spinal surgery. Prior to the disposition of this business the Company distributed instruments procured from instrument makers located mostly in the United States and Germany and worked closely with neurosurgeons to design specialty set instruments, with the name of the neurosurgeon typically an additional trademark on the products. The cryosurgical products were marketed under the Spembly tradename and included both liquid nitrogen and gas expansion technologies, which have applications in ophthalmic, general, gynecological, urological and cardiac surgery. The Company's Consolidated Financial Statements included herein reflect these businesses as discontinued operations. INVESTMENT IN IMAGE TECHNOLOGIES CORPORATION In November 2000 the Company sold its ownership interest in Image Technologies Corporation, including shares of preferred stock of ITC, secured convertible notes and a warrant to purchase shares of ITC common stock, to Argo Capital Partners L.P. for $350,000 in cash and assumption of the Company's position as guarantor of certain ITC liabilities. See Note 4 of Notes to Consolidated Financial Statements. ITC, a privately held company, is developing a line of advanced imaging products for minimally invasive surgery which require less equipment, are easier to use, reduce procedure time and personnel requirements, improve operating room efficiency and reduce overall treatment costs. Thomas M. Tully, former President and Chief Executive Officer of the Company, was the Chairman and Chief Executive Officer of ITC until April 10, 2000 and William J. Knight, former Vice President of Finance and Administration and Chief Financial Officer of the Company, was its Chief Financial Officer until December 15, 1999. ITC was located in leased space immediately adjacent to the Company's facilities until June 2000 at which time the lease was assumed by the Company. PATENTS AND PROPRIETARY TECHNOLOGY The Company seeks to protect its technology through the use of patents and trade secrets. The Company is the owner or licensee of more than 40 issued United States patents, and corresponding foreign patents, relating to its neurosurgical instruments products, stents, the SNF, the RNF, the cardiac septal repair devices, nitinol radiopaque markers and other cardiovascular devices. These patents expire at various dates ranging from 2003 to 2018. In addition, the Company has pending applications for additional patents in the United States and abroad. The Company's owned United States and foreign patents and patent applications cover its neurosurgical instruments products, stents, SNF and RNF. The expiration dates of the Company's patents relating to its neurosurgical instruments range from 2003 to 2015. The expiration dates of the Company's patents relating to its stents range from 2012 to 2016. The patents related to permanent and removable vena cava filters expire from 2016 to 2018, its anastomosis devices expire in 2016 and the patent for its radiopaque markers expires in 2014. In addition, the Company is the exclusive licensee under certain patents, expiring from 2012 to 2016, relating to the CardoSEAL(R) Septal Occluder and methods for repairing cardiac and vascular defects. The Company also holds licenses to certain technology used in the SNF and in nitinol septal repair devices. The Company also relies on trade secrets and technical know-how in the development and manufacture of its devices, which it seeks to protect, in part, through confidentiality agreements with its employees, consultants and other parties. The Company has 14 trademarks, 11 of which are registered with the United States Patent and Trademark Office. LICENSED TECHNOLOGY; ROYALTY OBLIGATIONS In connection with its cardiac septal repair devices, the Company has obtained an exclusive worldwide license from Children's Medical Center Corporation under United States patents entitled "Occluder and Method for Repair of Cardiac and Vascular Defects", "Occluder for Repair of Cardiac and 6 Vascular Defects" and "Self-Centering Umbrella-Type Septal Closure Device" and the respective corresponding foreign patents, patent applications and associated know-how. The license agreement, as amended, provides for royalty payments of 7 1/2% based on commercial net sales of the Company's CardioSEAL(R) Septal Occluder. In addition, once cumulative net sales reach increments of $25 million there are additional one-time royalty payments due of $250,000, at which times the royalty rate increases sequentially by 1%, to a maximum of 10 1/2%. Royalties continue until either the end of the term of the patents (ranging from 2012 to 2016) or termination of the agreement. Pursuant to the license agreement, the Company is required to achieve certain milestones in exploiting the patent rights. The Company has achieved all required milestones to date . If the Company fails to achieve the milestones, Children's Medical Center Corporation may terminate the license agreement. The Company also has a royalty- free, worldwide sublicense under the U.S. patent entitled "System for the Percutaneous Transluminal Front-End Loading Delivery and Retrieval of a Prosthetic Occluder" and its corresponding foreign patents and associated knowhow. The sublicense is exclusive in the field of the repair of atrial septal defects and nonexclusive in certain other fields. The Company has also obtained an exclusive worldwide license from Lloyd A. Marks, M.D. under the United States patent entitled "Aperture Occlusion Device." The license agreement with Dr. Marks provides for royalty payments, subject to certain annual minimums, based on net sales of nitinol septal repair devices which are covered by the patent until the end of the term of the patent in 2011. In connection with the SNF, the Company entered into a Technology Purchase Agreement dated April 14, 1987 with Morris Simon, M.D., the Company's Chief Scientific Director and co-founder and a current Director of the Company. Pursuant to the agreement, Dr. Simon assigned all the technology relating to the SNF to the Company in exchange for certain royalty payments based on net sales of technology invented by Dr. Simon relating to the SNF, to continue perpetually unless the agreement is sooner terminated. Dr. Simon agreed not to compete with the Company in the vena cava filter market during the term of the agreement. In connection with the agreement, Beth Israel Hospital Association granted the Company an exclusive worldwide license under the United States patent entitled "Blood Clot Filter." In consideration for the license, Dr. Simon assigned a percentage of his royalty payments from the Company to Beth Israel Hospital Association. Pursuant to his employment agreement, the Company has agreed to pay royalties of one to five percent to Mr. Stephen J. Kleshinski based on sales or licenses of products where Mr. Kleshinski was the sole or joint inventor. The employment agreement ended as of December 31, 2000. GOVERNMENT REGULATION The manufacture and sale of medical devices intended for commercial distribution are subject to extensive governmental regulations in the United States. Medical devices are regulated in the United States by the FDA under the Federal Food, Drug and Cosmetic Act (the "FDC Act") and generally require pre- market clearance or pre-market approval prior to commercial distribution. In addition, certain material changes or modifications to medical devices also are subject to FDA review and clearance or approval. Pursuant to the FDC Act, the FDA regulates the research, testing, manufacture, safety, labeling, storage, record keeping, advertising, distribution and production of medical devices in the United States. Noncompliance with applicable requirements can result in failure of the government to grant pre-market clearance or approval for devices, withdrawal of approvals, total or partial suspension of production, fines, injunctions, civil penalties, recall or seizure of products, and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed by the Company. Medical devices are classified into one of three classes, Class I, II or III, on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness. Generally, Class III devices are those that must receive pre-market approval by the FDA to ensure their safety and effectiveness (e.g., life-sustaining, life-supporting and implantable devices, or new devices which have not been found to be substantially equivalent to legally marketed devices), and require clinical testing to ensure safety and effectiveness and FDA approval prior to marketing and distribution. The FDA also has the authority to require clinical testing of Class I and Class II devices. A PMA application must be filed if a proposed device is not substantially equivalent to a legally marketed predicate device or if it is a Class III device for which the FDA has called for such applications. If human clinical trials of a device are required and if the device presents a "significant risk," the manufacturer or distributor of the device is required to file an IDE application with the FDA prior to commencing human clinical trials. The IDE application must be supported by data, typically the results of animal and, possibly, mechanical testing. If the IDE application is approved by the FDA, human clinical trials may begin at a specific number of investigational sites with a maximum number of patients, as approved by the agency. Sponsors of clinical trials are permitted to sell those devices distributed in the course of the study provided such costs do not exceed recovery of the costs of manufacture, research, development and handling. The clinical trials must be conducted under the auspices of an independent IRB established pursuant to FDA regulations. If one or more IRBs determine that a clinical trial involves a "nonsignificant risk" device, the sponsor of the study is not required to obtain FDA approval of an IDE application before beginning the study. However, prior IRB approval of the study is required and the study 7 must be conducted in compliance with the applicable FDA regulations, including, but not limited to, FDA regulations regarding the protection of human subjects. Generally, before a new device can be introduced into the market in the United States, the manufacturer or distributor must obtain FDA clearance of a pre- market notification ("510(k) notification") submission or approval of a PMA application. If a medical device manufacturer or distributor can establish that a device is "substantially equivalent" to a legally marketed Class I or Class II device, or to a Class III device for which the FDA has not called for PMAs, the manufacturer or distributor may seek clearance from the FDA to market the device by filing a 510(k) notification. The 510(k) notification may need to be supported by appropriate data establishing the claim of substantial equivalence to the satisfaction of the FDA. The FDA's Modernization Act of 1997 (the "Modernization Act") was adopted with the intent of bringing better definition to the process for clearing 510(k) submissions. Although it is expected that the Modernization Act will result in shorter cycle times for clearances of 510(k) submissions, there can be no assurance that the FDA review process will not involve delays or that such clearances will be granted on a timely basis. If a manufacturer or distributor of medical devices cannot establish that a proposed device is substantially equivalent to a legally marketed device, the manufacturer or distributor must seek pre-market approval of the proposed device through submission of a PMA application. A PMA application must be supported by extensive data, including preclinical and clinical trial data, as well as extensive literature to prove the safety and effectiveness of the device. The Modernization Act allows the filing of a PMA to be modular, permitting the FDA to initiate review of the submission prior to completion of all sections. Under the FDC Act, the FDA has 180 days to review a filed PMA application. Again, although the changes in the PMA application review process are designed to shorten review times, there can be no assurance that delays will be eliminated or that PMA clearances will be granted on a timely basis. Certain Class III devices that were on the market before May 28, 1976 ("preamendments Class III devices"), and devices that are determined to be substantially equivalent to them, can be brought to market through the 510(k) process until the FDA, by regulation, calls for PMA applications for the devices. Generally, the FDA will not grant 510(k) clearance for such devices unless the facilities at which they are manufactured successfully undergo an FDA pre-approval Good Manufacturing Practice ("GMP") inspection. In addition, the FDC Act requires the FDA either to down-classify preamendments Class III devices to Class I or Class II, or to publish a classification regulation retaining the devices in Class III. Manufacturers of preamendments Class III devices that the FDA retains in Class III must have PMA applications accepted by the FDA for filing within 90 days after the publication of a final regulation in which the FDA calls for PMAs. If the FDA calls for a PMA for a preamendments Class III device, a PMA must be submitted for the device even if the device has already received 510(k) pre-market clearance; however, if the FDA down-classifies a preamendments Class III device to Class I or Class II, a PMA application is not required. The FDA's reclassification determinations are to be based on safety and effectiveness information that manufacturers of certain preamendments Class III devices are required to submit to the FDA as set forth in two FDA orders published in August 1995. With the passage of the Safe Medical Devices Act of 1990, Congress sought to improve the framework to regulate medical devices. Congress recognized that for diseases and conditions affecting small populations, a device manufacturer's research and development costs could exceed its market returns, thereby making development of such devices unattractive. The HDE regulations were created to provide an incentive for development of devices to be used in the treatment of diseases or conditions affecting small numbers of patients. Under HDE regulations, medical devices that provide safe treatment and a reasonable assurance of effectiveness may be made available to small numbers of patients (less than 4,000 patients in the U.S. per year) on more limited clinical experience than that required for a PMA. In addition, under HDE regulations only one product can be approved for each indication. The current regulatory environment in Europe for medical devices differs significantly from that in the United States. There are several different regulatory regimes operating within the different European countries. Regulatory requirements for medical devices range from no regulations in some countries to rigorous regulations approaching the requirements of the FDA's regulations for Class III medical devices. Several countries require that device safety be demonstrated prior to approval for commercialization. The regulatory environment in certain European countries has undergone major changes as a result of the creation of medical device directives by the European Union. In particular, the European Union has promulgated rules which provide that medical products may not be marketed and sold commercially in the countries in the European Economic Area unless they receive a CE Mark. The Company's Symphony stent, SNF, Recovery Filter and CardioSEAL(R) products have received approval for CE Marking. THIRD PARTY REIMBURSEMENT Health care providers in the United States, such as hospitals and physicians, that purchase medical devices such as shunts and stents, generally rely on third party payers, principally Medicare, Medicaid and private health insurance plans, to reimburse all or 8 part of the costs and fees associated with the Company's devices. Major third party payers reimburse inpatient medical treatment, including all operating costs and all furnished items or services, including devices such as the Company's, at a prospectively fixed rate based on the diagnosis-related group ("DRG") that covers such treatment as established by the federal Health Care Financing Administration. For interventional procedures, the fixed rate of reimbursement is based on the procedure or procedures performed and is unrelated to the specific devices used in that procedure. The amount of profit relating to the procedure may be reduced by the use of the Company's devices. If a procedure is not covered by a DRG, certain third party payers may deny reimbursement. Alternatively, a DRG may be assigned that does not reflect the costs associated with the use of the Company's devices, resulting in underreimbursement. If, for any reason, the Company's products were not to be reimbursed by third party payers, the Company's ability to sell its products may be materially adversely affected. Mounting concerns about rising health care costs may cause more restrictive coverage and reimbursement policies to be implemented in the future. Several states and the federal government are investigating a variety of alternatives to reform the health care delivery system and further reduce and control health care spending. These reform efforts include proposals to limit spending on health care items and services, limit coverage for new technology and limit or control directly the price health care providers and drug and device manufacturers may charge for their services and products. The Company believes that domestic health care providers currently are reimbursed for the cost of purchasing the Company's SNF and for the CardioSEAL(R) Septal Occluders used in HDE procedures. In the international market, reimbursement by private third party medical insurance providers, including governmental insurers and providers, varies from country to country. In certain countries, the Company's ability to achieve significant market penetration may depend upon the availability of third party governmental reimbursement. The Company's independent distributors, and the health care providers to whom such distributors sell, obtain any necessary reimbursement approvals. PRODUCT LIABILITY AND INSURANCE The Company's business involves the risk of product liability claims. The Company maintains product liability insurance with coverage limits of $1 million per occurrence on a claims made basis, with a maximum $2 million aggregate per policy year, and an umbrella policy of $10 million. EMPLOYEES As of December 31, 2000, the Company employed 191 full-time employees and 30 part-time employees. The Company believes it maintains good relations with its employees. 9 ITEM 2. PROPERTIES The Company currently leases an approximately 35,000 square foot manufacturing, laboratory and administrative facility in Boston, Massachusetts, including approximately 8,000 square feet previously occupied by ITC until June 2000. The Company also owns an approximately 80,000 square foot, state-of-the- art plant located in Biot, France, and leases an 11,500 square foot warehousing facility in Duluth, Georgia to house the United States operations, sales and marketing activities of the Neurosciences business unit. The Company's principal executive offices are located at 27 Wormwood Street, Boston, Massachusetts 02210, and its telephone number is (617) 737-0930. ITEM 3. LEGAL PROCEEDINGS 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. As currently pleaded, Elekta's claim seeks approximately $2 million in damages and NMT's counterclaim seeks approximately $2 million in damages. On January 17-19, 2001, the arbitrator conducted a hearing on preliminary legal issues. On March 15, 2001, the Arbitrator issued a partial award which for the most part clarified certain legal issues without deciding the merits of either Elekta's claims or the Company's counterclaims. The Arbitrator did dismiss an approximate $314,000 portion of NMT's counter claim, but indicated, however, that $289,000 of that portion may still be recoverable by NMT in litigation outside the Arbitration process as "ordinary trade debts". The hearing on the merits of Elekta's claims and the Company's counterclaims has not been scheduled. 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 sought approximately US$18 million in damages in addition to costs and fees of their attorneys. NMT France filed a counterclaim for approximately US$30 million plus costs. On February 23, 2001, Sodem and NMT France entered into a settlement agreement whereby the parties agreed to withdraw their respective claims. Pursuant to the settlement agreement, NMT France paid a settlement fee of US$500,000 and agreed to return the remaining inventory in the Company's possession. On August 11, 2000, the Company filed a demand for arbitration before the American Arbitration Association in Boston, Massachusetts to obtain a determination that Bard does not have distribution rights to the Company's Recovery Filter(TM) under the 1992 U.S. distribution agreement between the Company and Bard Radiology, a division of Bard, and that the Company may sell the Recovery Filter(TM) technology to a third party without violating the agreement. Bard has filed a counterclaim seeking a contrary declaration and an indeterminate amount of damages. Hearings are scheduled to begin on April 30, 2001. Other than as described above, the Company has no material pending legal proceedings. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of fiscal year 2000. 10 EXECUTIVE OFFICERS OF THE COMPANY - --------------------------------- The executive officers of the Company and their ages as of March 26, 2001 are as follows:
NAME AGE POSITION - ---- --- -------- John E. Ahern 56 President, Chief Executive Officer and Chairman of the Board of Directors Richard E. Davis 43 Vice President and Chief Financial Officer
JOHN E. AHERN has served as President, Chief Executive Officer and Chairman of the Company since September 2000. Most recently, Mr. Ahern was Vice President, Emerging Technology Investment Group at C.R. Bard, Inc., where he was responsible for identifying, investing in and managing early-stage medical technologies and companies. In his 13 years with Bard, Mr. Ahern also held the senior marketing and strategic planning positions in three of Bard's cardiovascular divisions. Mr. Ahern's medical device industry experience also includes Vice President of Worldwide Sales and Marketing at IntraSonix, Area Manager for the Middle East and North Africa at Abbott Laboratories and various sales and marketing positions at Becton Dickinson. RICHARD E. DAVIS has served as Vice President and Chief Financial Officer since February 2001. From August 2000 to February 2001 Mr. Davis served as Interim Chief Financial Officer of the Company through his employment with the consulting firm of Argus Management Corporation. From July 1998 to July 2000, Mr. Davis was Vice President and Chief Financial Officer of Q-Peak, Inc., a marketer and manufacturer of solid state laser systems. Prior to that, Mr. Davis was employed for ten years by TJX Companies, Inc. in various senior financial management positions where he was responsible for business and strategic planning, cash flow and expense management and accounting and operational controls. 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS (a) Market Prices and Recent Sales of Unregistered Securities The Company's Common Stock is quoted on the Nasdaq National Market System under the symbol NMTI. There were approximately 89 stockholders of record of the Company's Common Stock on March 26, 2001, representing approximately 1,825 shareholder accounts. The following table lists for the periods indicated the high and low closing prices for the Company's Common Stock.
Period High Low ------ ----- ------ 1999 ---- First quarter......... 5 5/8 3 1/4 Second quarter........ 4 1/2 2 3/8 Third quarter......... 7 1/2 2 3/4 Fourth quarter........ 3 1/8 1 3/4 2000 ---- First quarter......... 6 2 7/8 Second quarter........ 4 3/4 2 11/16 Third quarter......... 4 2 1/16 Fourth quarter........ 2 1/4 13/16
During the years ended December 31, 1999 and 2000, the Company issued the following unregistered securities: In April 1999, the Company issued a warrant to purchase 25,000 shares of Common Stock at an exercise price of $3.41 per share, to a noteholder of the Company. The warrants may be exercised at any time and from time to time until February 14, 2004. The warrant contains weighted-average anti-dilution price protection. These securities were offered and issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended. In April 2000, the Company issued a warrant to purchase 20,000 shares of Common Stock at an exercise price of $4.94 per share, to a noteholder of the Company. The warrants may be exercised at any time and from time to time until April 3, 2005. The warrant contains weighted-average anti-dilution price protection. These securities were offered and issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended. Dividend Policy - --------------- The Company did not declare or pay any cash dividends on shares of its Common Stock during the years ended December 31, 2000 and 1999 and does not anticipate declaring or paying cash dividends in the foreseeable future. The Company expects that any earnings which it may realize will be retained for use in its business. 12 ITEM 6. SELECTED FINANCIAL DATA The following selected consolidated financial data are derived from the Company's Consolidated Financial Statements, which have been audited by Arthur Andersen LLP, independent public accountants. The selected consolidated financial data set forth below should be read in conjunction with the Consolidated Financial Statements and the Notes thereto, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the other financial information appearing elsewhere in this Annual Report on Form 10-K.
YEAR ENDED DECEMBER 31, 1996 1997 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- STATEMENT OF OPERATIONS DATA: In thousands, except per share data Revenues: Product Sales $ 4,557 $ 8,565 $ 23,024 $ 32,949 $ 35,662 License fees and royalties 2,375 1,500 2,029 2,130 811 Product development 92 61 1 - - ----------- ----------- ----------- ----------- ----------- 7,024 10,126 25,054 35,079 36,473 Costs and Expenses: Cost of product sales 2,387 3,765 10,819 15,215 15,019 Research and development 2,662 2,974 3,640 4,462 4,951 General and administrative 2,284 2,873 5,043 9,050 9,535 Selling and marketing 311 1,010 4,391 8,428 8,786 Impairment of long-lived assets - - - 6,801 7,054 Settlement of litigation - - - - 673 In-process research and development 1,111 2,449 4,710 - - Merger and integration charge - - 687 - - Write-down of note receivable from Image Technologies Corporation - - - 1,364 - Restructuring charge - 194 - - - ----------- ----------- ----------- ----------- ----------- Total costs and expenses 8,755 13,265 29,290 45,320 46,018 ----------- ----------- ----------- ----------- ----------- Loss from operations (1,731) (3,139) (4,236) (10,241) (9,545) Equity in loss of Image Technologies Corporation - - (437) (489) - Gain on sale of investment in Image Technologies Corporation - - - - 440 Currency transaction gain (loss) - (15) (88) 105 191 Interest expense (42) (46) (1,461) (2,814) (1,237) Interest income 610 1,592 1,168 479 211 ----------- ----------- ----------- ----------- ----------- Total other income (expense) 568 1,531 (818) (2,719) (395) ----------- ----------- ----------- ----------- ----------- Loss before income taxes (1,163) (1,608) (5,054) (12,960) (9,940) Extraordinary loss on early extinguishment of debt - - - (2,618) - Provision for income taxes - 230 745 180 - ----------- ----------- ----------- ----------- ----------- Net loss from continuing operations (1,163) (1,838) (5,799) (15,758) (9,940) Net gain (loss) from discontinued operations - 2,120 (3,295) 345 ----------- ----------- ----------- ----------- ----------- Net loss $ (1,163) $ (1,838) $ (3,679) $ (19,053) $ (9,595) =========== =========== =========== =========== =========== Basic and diluted income (loss) per share: Continuing operations $ (0.17) $ (0.19) $ (0.57) $ (1.47) $ (0.91) Discontinued operations - - 0.21 (0.31) 0.03 ----------- ----------- ----------- ----------- ----------- Net loss $ (0.17) $ (0.19) $ (0.36) $ (1.77) $ (0.88) =========== =========== =========== =========== =========== Weighted average common shares outstanding 6,749 9,596 10,193 10,751 10,909 =========== =========== =========== =========== ===========
AT DECEMBER 31, 1996 1997 1998 1999 2000 ----------- ----------- ----------- ----------- ----------- In thousands BALANCE SHEET DATA: Cash and cash equivalents $ 4,082 $ 5,561 $ 4,007 $ 3,533 $ 6,761 Short-term investments 25,273 20,822 5,114 - - Working capital 30,301 29,262 17,343 8,765 6,420 Total assets 34,930 35,006 63,715 38,747 19,091 Long-term obligations 416 612 18,903 14,853 4,422 Stockholders' Equity 33,320 32,772 34,169 14,161 4,326
The following table presents our unaudited statement of operations data for each quarter in the two years ended December 31, 2000. The information for each of these quarters is unaudited, but has been prepared on the same basis as the audited financial statements appearing elsewhere in this document. In our opinion, all necessary adjustments, consisting only of normal recurring adjustments, have been made to present fairly the unaudited quarterly results when read in conjunction with our audited financial statements and the notes thereto appearing elsewhere in this document. Please see the discussion on discontinued operations in Item 7 (Management's Discussion and Analysis of Financial Condition and Results of Operations). These operating results are not necessarily indicative of the results of operations that may be expected for any future period.
THREE MONTHS ENDED ------------------------------------------------------------------------------------ MAR. 31 JUN. 30 SEP. 30 DEC. 31 MAR. 31 JUN. 30 SEP. 30 DEC. 31 1999 1999 1999 1999 2000 2000 2000 2000 --------- --------- --------- --------- --------- --------- ---------- --------- STATEMENT OF OPERATIONS DATA: In thousands, except per share data (unaudited) Revenues: Product Sales $ 7,316 $ 8,792 $ 8,884 $ 7,957 $ 9,756 $ 9,000 $ 8,992 $ 7,914 License fees and royalties 450 418 425 837 249 193 203 166 --------- --------- --------- --------- --------- --------- ---------- --------- 7,766 9,210 9,309 8,794 10,005 9,193 9,195 8,080 Costs and Expenses: Cost of product sales 2,898 4,112 3,607 4,598 4,029 3,612 4,263 3,114 Research and development 960 1,137 1,200 1,165 1,275 1,372 1,334 970 General and administrative 2,188 2,039 2,246 2,577 2,398 2,135 3,497 1,505 Selling and marketing 2,104 1,554 2,122 2,648 2,018 2,483 2,367 1,918 Impairment of long-lived assets - - - 6,801 - 7,054 - - Settlement of litigation - - - - - - - 673 Write-down of note receivable from Image Technologies Corporation - - 1,364 - - - - - --------- --------- --------- --------- --------- --------- ---------- --------- 8,150 8,842 10,539 17,789 9,720 16,656 11,461 8,180 --------- --------- --------- --------- --------- --------- ---------- --------- Income (loss) from operations (384) 368 (1,230) (8,995) 285 (7,463) (2,266) (100) Equity in loss of Image Technologies Corporation (134) (165) (189) - - - - - Gain on sale of investment in Image Technologies Corporation - - - - - - - 440 Currency transaction gain (loss) 201 26 (221) 98 133 118 189 (249) Interest expense (733) (682) (622) (777) (360) (480) (199) (199) Interest income 168 165 116 30 10 57 69 75 --------- --------- --------- --------- --------- --------- ---------- --------- (498) (656) (916) (649) (217) (305) 59 67 --------- --------- --------- --------- --------- --------- ---------- --------- Income (loss) before income taxes (882) (288) (2,146) (9,644) 68 (7,768) (2,207) (33) Extraordinary loss on early extinguishment of debt - - (2,618) - - - - - Provision (benefit) for income taxes (180) 96 (24) 288 - - - - --------- --------- --------- --------- --------- --------- ---------- --------- Net income (loss) from continuing operations (702) (384) (4,740) (9,932) 68 (7,768) (2,207) (33) Net gain (loss) from discontinued operations 167 66 70 (3,598) - (933) - 1,278 --------- --------- --------- --------- --------- --------- ---------- --------- Net income (loss) $ (535) $ (318) $ (4,670) $(13,530) $ 68 $ (8,701) $ (2,207) $ 1,245 ========= ========= ========= ========= ========= ========= ========== ========= Basic and diluted income (loss) per share: Continuing operations $ (0.07) $ (0.04) $ (0.44) $ (0.92) $ 0.01 $ (0.71) $ (0.20) $ - Discontinued operations 0.02 0.01 0.01 (0.33) - (0.09) - 0.12 --------- --------- --------- --------- --------- --------- ---------- --------- Net income (loss) $ (0.05) $ (0.03) $ (0.43) $ (1.25) $ 0.01 $ (0.80) $ (0.20) $ 0.11 ========= ========= ========= ========= ========= ========= ========== ========= Weighted average common shares outstanding 10,684 10,767 10,769 10,783 10,822 10,919 10,939 10,954 ========= ========= ========= ========= ========= ========= ========== =========
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K. This Annual Report on Form 10-K contains forward-looking statements based on our current expectations, assumptions, estimates and projections about the Company and our industry. These forward-looking statements are usually accompanied by words such as "believes," "anticipates," "plans," "expects" and similar expressions. Forward-looking statements involve risks and uncertainties, and our actual results may differ materially from the results anticipated in these forward-looking statements as a result of certain factors, as more fully described in this section under the caption "Certain Factors That May Affect Future Results." OVERVIEW Since its inception in 1986, the Company has focused its efforts on the design, development and commercialization of medical technologies which are delivered by minimally invasive procedures. Products and products under development include cardiac septal repair devices, vena cava filters and self- expanding stents. In July 1998, the Company acquired the neurosurgical instruments business ("ENI") of Elekta AB (PUBL) for approximately $33 million in cash and operated the business as the Company's neurosciences business unit. In April 2000, following a decision by the Company's board of directors to discontinue the U.K. operations of its neurosciences business unit, the Company sold certain assets of that division, including the Selector(R) Ultasonic Aspirator, and Ruggles(TM) Surgical instruments products. This sale reflected the Company's strategic decision to refocus its efforts on its core septal repair, filter and stent products. The Company recorded a $3.5 million loss on this sale in the year ended December 31, 1999. The Company has recorded a gain on the sale of the U.K. operations of $345,000 in the year ended December 31, 2000, representing a revision of estimates made concerning the costs associated with the sale. The net loss of $3.2 million was comprised of proceeds of $12 million, estimated transaction and other costs of $3.8 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 Company is exploring strategic alternatives with respect to the remaining businesses which comprise the neurosciences business unit. The Company's initial product, a vena cava filter system, received FDA clearance in 1990. This product is distributed in the United States and certain other countries by Bard Radiology and in other markets outside the United States by Bard International. Both distributors are obligated to make annual minimum purchases. The filter component of the current vena cava filter system is manufactured by Lake Region. The Company currently purchases components of its delivery systems of the vena cava filter system under purchase orders with third party suppliers. Final assembly of the vena cava filter system is done by the Company. 13 In November 1994, the Company entered into an agreement with Boston Scientific pursuant to which Boston Scientific obtained exclusive worldwide rights to develop, manufacture, market and distribute the Company's stent technology and products which incorporate such technology. Under this license agreement, Boston Scientific is responsible for performing clinical trials for stents under development and for reimbursing the Company for any stent development costs incurred by the Company. The Company receives royalties based upon product sales and certain manufacturing cost reduction incentive payments from Boston Scientific under the license agreement, which are included in the Company's revenues. In February 1996, the Company acquired, through the issuance of Common Stock, the rights to develop and commercialize its cardiac septal repair devices. The Company commenced sales of the CardioSEAL(R) Septal Occluder at the end of September 1996 in connection with clinical trials of the device, and the device has been sold commercially in Europe and other international markets since July 1997. Since September 1999, the FDA has granted approval for use of the CardioSEAL(R) product under HDE regulations for three indications. The Company manufactures this device at its facility in Boston. The Company has agreed to make certain royalty payments to Children's Medical Center Corporation based on net sales of the CardioSEAL(R) Septal Occluder. The Company has also agreed to pay certain royalties to Morris Simon, M.D., the Company's Chief Scientific Director, co-founder and a current Director, and to Beth Israel Hospital, Boston, based on sales of products using the technology invented by Dr. Simon relating to the SNF. In addition, pursuant to the Company's employment agreement with Mr. Stephen J. Kleshinski the Company has agreed to pay certain royalties based on sales or licenses of products where Mr. Kleshinski was the sole or joint inventor. Mr. Kleshinski's employment agreement terminated as of December 31, 2000. RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 2000 COMPARED WITH YEAR ENDED DECEMBER 31, 1999 Revenues. Revenues for the year ended December 31, 2000 increased 4% to $36.5 million from $35.1 million for the year ended December 31, 1999. Product sales increased 8% to $35.7 million compared to $32.9 million. An approximately $4.3 million increase in CardioSEAL(R) Septal Occluder product sales was partially offset by an approximately $1.5 million decrease in product sales from the neurosciences business unit. License fees and royalties for the year ended December 31, 2000 decreased 62% to $811,000 from $2.1 million for the year ended December 31, 1999. These revenues relate primarily to the exclusive distribution of the Company's stent technology by Boston Scientific Corporation and included $671,000 and $1.5 million of royalties and $140,000 and $300,000 of cost-sharing payments for the years ended December 31, 2000 and 1999, respectively. The $829,000 decrease in royalty payments is attributable to the elimination of quarterly guaranteed minimums of $375,000 as of December 31, 1999. Additionally, for the year ended December 31, 1999 the Company's neurosciences business unit received patent license payments of approximately $400,000. Cost of Product Sales. Cost of product sales decreased by $200,000 to $15.0 million for the year ended December 31, 2000 from $15.2 million for the year ended December 31, 1999. Cost of product sales, as a percent of product sales, decreased to 42.1% for the year ended December 31, 2000 as compared to 46.2 % for the year ended December 31, 1999. The decrease in cost of product sales as a percent of product sales in 2000 is primarily attributable to a shifting sales mix in favor of the Company's CardioSEAL(R) Septal Occluders which have a lower product cost as a percent of sales than the Company's other product lines. Research and Development. Research and development expense increased by $500,000 or 11% to $5.0 million for the year ended December 31, 2000 from $4.5 million for the year ended December 31, 1999. The increase is primarily attributable to contract management, clinical monitoring, data management and biostatisical analysis in support of the FDA approval process for various medical use applications of the CardioSEAL(R) and StarFlex(TM) products. General and Administrative. General and administrative expenses increased by 5.5% to $9.5 million for the year ended December 31, 2000 from $9.1 million for the year ended December 31, 1999. The increase is primarily attributable to a significant increase in legal fees associated with ongoing litigation and general corporate matters. Selling and Marketing. Selling and marketing expenses increased by 4.3% to $8.8 million for the year ended December 31, 2000 from $8.4 million for the year ended December 31, 1999. This increase is primarily attributable to the development of a direct sales force for the CardioSEAL(R) products in the United States and Europe. 14 Impairment of Long-lived Assets. The neurosciences business unit has continued to incur operating losses for the year ended December 31, 2000, which has caused management and the Board of Directors of the Company to periodically consider various strategic alternatives for that unit. In the second quarter, based upon these considerations, an undiscounted cash flow analysis and other considerations, the Company recorded a $7.1 million impairment charge to reduce the carrying value of the long-lived assets of the neurosciences business unit to their estimated fair value. The long-lived assets consist primarily of a building and other fixed assets located in the Company's Biot, France facility. The current year impairment charge follows a $6.8 million impairment charge for the year ended December 31, 1999 for goodwill recorded upon the acquisition of neurosciences business unit in July 1998. Settlement of Litigation. For the year ended December 31, 2000, the Company recorded a charge of $673,000 associated with the settlement, after year-end, of litigation between Sodem Diffusion SA ("Sodem") and NMT NeuroSciences Implants (France) SA ("NMT France"), a wholly owned subsidiary of the Company (see Note 6 of the Notes to Consolidated Financial Statements). Gain on Sale of Investment in Image Technologies Corporation. During the year ended December 31, 2000, the Company sold its investment in Image Technologies Corporation for $350,000 cash proceeds plus assumption of the Company's position as guarantor of certain ITC liabilities (see Notes 4 and 9(c) of the Notes to Consolidated Financial Statements). Interest Expense. Interest expense for the year ended December 31, 2000 decreased by 56% to $1.2 million from $2.8 million for the year ended December 31, 1999. The decrease is attributable to the repayment of $6 million of the Company's subordinated note in September 1999 and the repayments of $7.3 million and $500,000 of the senior secured debt and the subordinated note, respectively, on April 5, 2000 in connection with the sale of the U.K operations of the Company's neurosciences business unit (see Note 9(a) and 9(b) of the Notes to Consolidated Financial Statements). Interest Income. Interest income for the year ended December 31, 2000 decreased by 56% to $211,000 from $480,000 for the year ended December 31, 1999. This decrease is primarily attributable to the use of $6 million of cash to repay a portion of the subordinated note in September 1999. Gain (Loss) on Sale of Discontinued Operations. Net gain from discontinued operations was $345,000 for the year ended December 31, 2000 compared to a net loss of $3.3 million for the year ended December 31, 1999. The net loss in 1999 represented a $3.5 million loss on the sale of the U.K. operations of the Company's neurosciences business unit, partially offset by $200,000 of income from the discontinued operations. The gain from discontinued operations in 2000 represents a revision of estimates made concerning the costs associated with the sale of the U.K. operations (see Note 3(a) of Notes to Consolidated Financial Statements). YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998 Revenues. Revenues for the year ended December 31, 1999 increased to $35.1 million from $25.1 million for the year ended December 31, 1998. Product sales increased to $32.9 million for the year ended December 31, 1999 from $23.0 million for the year ended December 31, 1998. The increase is primarily attributable to the effect of including a full year's revenues related to the Company's neurosciences business unit during 1999 when compared to 1998 as the Company acquired this division on July 8, 1998. Additionally the Company had increased unit sales of vena cava filters and CardioSEAL Septal Occluders in the year ended December 31, 1999 as compared with the year ended December 31, 1998. Finally, in September 1999, the Company received approvals from the FDA for use of the CadioSEAL Septal Occluder under certain HDE regulations which contributed to the increased unit sales of that product during the year ended December 31, 1999. License fees and royalties for the year ended December 31, 1999 amounted to $2.1 million and consist of royalty payments of $1.5 million and cost-sharing payments received from Boston Scientific of approximately $300,000 and patent license payments of approximately $400,000. The Company recorded $2.0 million in license fees and royalties from Boston Scientific related to its stent technology in the year ended December 31, 1998, consisting of $300,000 of milestone payments, $1.5 million of royalty payments, and $200,000 of cost- sharing payments received from Boston Scientific. Cost of Product Sales. Cost of product sales increased to $15.2 million for the year ended December 31, 1999 from $10.8 million for the year ended December 31, 1998. The increase is primarily attributable to the effect of including a full year's cost of sales related to the Company's neurosciences business unit during 1999 when compared to the partial year in 1998. Also contributing to this increase were costs attributable to the Company's increased unit sales of vena cava filters and CardioSEAL(R) 15 Septal Occluders in the year ended December 31, 1999 as compared with the year ended December 31, 1998. Cost of product sales, as a percent of product sales, remained relatively consistent at 46% for the year ended December 31, 1999 as compared with 47% for the year ended December 31, 1998. Research and Development. Research and development expense increased to $4.5 million for the year ended December 31, 1999 from $3.6 million for the year ended December 31, 1998. The increase is primarily attributable to the effect of including a full year of research and development expenses related to the Company's neurosciences business unit during 1999 when compared to the partial year in 1998. Also contributing to this increase in research and development expense were increased regulatory and clinical trial expenses relating to clinical trials of the CardioSEAL Septal Occluder, as well as for more recent clinical trials related to fenestrated Fontan procedures (FEF), and ventricular septal defects (VSDs) for which the Company received FDA approval under HDE regulations in September 1999. In addition, the Company has had increased activity in the Company's development programs for vena cava filters, including CE Mark approval for its removable vena cava filter in September 1999, and for other products under development. General and Administrative. General and administrative expenses increased to $9.1 million for the year ended December 31, 1999 from $5.0 million for the year ended December 31, 1998. The increase is primarily attributable to the effect of including a full year of general and administrative expenses related to the Company's neurosciences business unit during 1999 when compared to the partial year in 1998. In addition, the Company had increased professional fees and travel expenses related to supporting the operations of the Company's neurosciences business unit for the full year ended December 31, 1999 as compared to the partial year for the year ended December 31, 1998. Selling and Marketing. Selling and marketing expenses increased to $8.4 million for the year ended December 31, 1999 from $4.4 million for the year ended December 31, 1998 primarily attributable to the effect of including a full year of selling and marketing expenses related to the Company's neurosciences business unit during 1999 when compared to the partial year in 1998. During 1998, marketing activities related to the CardioSEAL Septal Occluder relating to clinical trials and the commencement of commercial sales of the CardioSEAL Septal Occluder that began in June 1997 in European and other international markets increased. During 1999, the marketing efforts related to these clinical trials decreased as the trials were coming to completion. However, marketing efforts were increased for new clinical trials relating to fenestrated Fontan procedures (FEF), and ventricular septal defects (VSDs) for which the Company received FDA approval under HDE regulations in September 1999. Write Down of Notes Receivable from Image Technologies Corporation. During the year ended December 31, 1999, the Company performed a detailed review of the ITC operations. Based upon this analysis and discussion with ITC's management and other investors, the Company determined that there was a significant risk that the Company's notes receivable from ITC would not be repaid. The analysis and discussions indicated that at September 30, 1999, (1) ITC had insufficient cash resources to fund its operations, (2) ITC's product revenue had declined during the year ended December 31, 1999 and was significantly below planned levels and (3) ITC was seeking additional capital from numerous sources and that any future financings would likely be dilutive to the Company's equity position and could contain a security interest senior to the Company. Accordingly, the Company charged the carrying value of the notes receivable of approximately $1.4 million to operations during the year ended December 31, 1999. Impairment of Long-lived Asset. In connection with the sale of the U.K. operations and certain other assets of its neurosciences business unit on April 5, 2000 (see Note 3(a) of the Notes to Consolidated Financial Statements), the Company recorded at December 31, 1999 a $6.8 million impairment charge for goodwill recorded upon the acquisition of the neurosciences business unit in July 1998. This impairment charge was determined based upon the Company's analysis of estimated cash flows of its neurosciences business unit and the carrying value of all of the long-lived assets of neurosciences business unit which were not sold in April 2000. The Company's assessment of the value of the assets of neurosciences business unit was corroborated by independent outside parties. Equity in Net Loss of Image Technologies Corporation. During the year ended December 31, 1999 and 1998, the Company recorded $489,000 and $437,000, respectively, as its equity in the loss of ITC. The carrying value of the note receivable from ITC has been reduced by these amounts and charged to operations during the year ended December 31, 1999. See Note 4 of the Notes to Consolidated Financial Statements. Interest Expense. Interest expense was $2.8 million for the year ended December 31, 1999 as compared to $1.5 million for the year ended December 31, 1998. The increase was primarily the result of the Company's acquisition of ENI on July 8, 1998 for which the Company borrowed $20 million of subordinated debt, which accrues interest at 10.101% per annum. In addition, the amortization of original issue discount related to the subordinated note of $531,000 and $293,000 for the years ended December 31, 1999 and 1998, respectively, is included in interest expense in the statements of operations. See Note 9 of the Notes to Consolidated Financial Statements. In April 2000, the Company repaid approximately $7.3 million of outstanding debt obligations from proceeds received from the sale of the U.K. operations and certain other assets of the neurosciences business unit. 16 The Company did not allocate interest expense associated with the senior secured debt and subordinated notes to discontinued operations. Interest Income. Interest income was $480,000 for the year ended December 31, 1999 as compared to $1.2 million for the year ended December 31, 1998. The decrease was due to the Company's lower cash balances as a result of its financing the acquisition of ENI on July 8, 1998 with cash of $13 million, plus approximately $3.1 million of acquisition costs. Extraordinary Loss on Early Extinguishment of Debt. In connection with the $14 million reduction in September 1999 of its $20 million subordinated note payable to an affiliate of a significant stockholder of the Company (see Note 9 of the Notes to Consolidated Financial Statements), the Company recorded a $2.6 million extraordinary loss on the early extinguishment of debt in the statement of operations which primarily relates to the accelerated pro-rata write-off of the original issue discount and deferred financing costs of the subordinated note payable. Provision for Income Taxes. The Company had a provision for income taxes of $180,000 for the year ended December 31, 1999 which represents the taxes on income generated in France by the Company's neuroscience. business unit The Company generated a net operating loss for federal and state income tax purposes in the United States in the year ended December 31, 1999. The Company had a provision for income taxes of $745,000 for the year ended December 31, 1998 based on an operating income before the write-off of in-process research and development expenses of $4,710,000, the equity in loss of ITC of $437,145 and other nondeductible items and an estimated effective tax rate of approximately 40%. Loss on Sale of Discontinued Operations. On April 5, 2000, the Company sold the U.K. operations and certain other assets of the neurosciences business unit, which consisted primarily of the Selector (R) Ultrasonic Aspirator, Ruggles(TM) Surgical Instruments and cryosurgery product lines, including certain assets and liabilities for $12.0 million in cash. The Company recorded a $3.5 million loss on this sale, comprised of proceeds of $12.0 million less estimated transaction costs of $3.7 million, and net assets sold of $11.8 million. The transaction costs consisted principally of legal and accounting fees, severance arrangements with certain employees and other estimated costs associated with discontinuing the operation and consummating the sale. Included in the loss on sale are the estimated operating results of the discontinued operations for the period from January 1, 2000 to April 1, 2000. The Company has not allocated interest expense to discontinued operations. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents and marketable securities of $6.8 million at December 31, 2000 as compared to $3.5 million as of December 31, 1999. During year ended December 31, 2000, the Company's operations provided cash of approximately $2.1 million which consisted of approximately $9.9 million of cash used by operations prior to approximately $8.8 million of noncash charges and $3.2 million net decrease in working capital items. In July 1998, the Company financed a portion of the acquisition of ENI with $16.1 million of the Company's cash and a $20 million subordinated note issued to an affiliate of a significant stockholder of the Company. The subordinated note is due September 30, 2003 with quarterly interest payable at 10.101% per annum. 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 remaining $2 million of the senior secured debt facility was available to be drawn down by the Company for working capital purposes, as needed. The facility had a term of three years with interest payable monthly at the bank's prime lending rate on U.S. borrowings and an equivalent market rate on foreign currency borrowings. In April 2000, the Company used the proceeds from the sale of the U.K. operations and certain other assets of the neurosciences business unit (see Note 3(a) of the Notes to Consolidated Financial Statements) to reduce the subordinated note payable by $500,000 and to repay the entire senior secured debt balance of $7.3 million. In September 2000, the working capital portion of the senior secured debt facility was terminated by the bank. At December 31, 2000, the outstanding balance of the subordinated note, net of original issue discount of approximately $551,000, was approximately $4.9 million. At December 31, 2000, the Company was in compliance with newly amended subordinated debt covenants relating to maintenance of tangible net equity. In addition, the subordinated debt covenants relating to maintenance of certain ratios, tangible net equity and income were amended for 2001. The $1.0 million current portion of the subordinated debt balance consists of (a) $200,000 due January 2001 from the proceeds obtained in connection with the sale of the Company's investment in ITC (see Note 4 of the Notes to Consolidated Financial Statements); and (b) $800,000 due April 2001 in connection with the amended debt covenants agreement. Purchases of property and equipment for use in the Company's manufacturing, research and development and general and administrative activities, exclusive of the assumption of equipment under lease and capital lease obligations of approximately 17 $90,000 from ITC, amounted to $395,000 for the year ended December 31, 2000. In September 2000, the Company entered into a new equipment financing agreement for up to a maximum of $250,000 of purchases based upon a 3-year term. As of December 31, 2000 approximately $100,000 of purchases were in the process of being financed under this arrangement, leaving approximately $150,000 available to finance future equipment purchases. The Company is party to various contractual arrangements including royalty arrangements and employment and consulting agreements with current employees and consultants. Minimum guaranteed royalty payments for 2001 are approximately $300,000. The Company also has committed to purchase certain minimum quantities of the vena cava filter component from a supplier through June 2001, which agreement is expected to be extended through December 2001. See Note 10 of Notes to the Consolidated Financial Statements. All of these arrangements require cash payments by the Company over varying periods of time. Certain of these arrangements are cancelable on short notice and certain require termination or severance payments as part of any early termination. The Company may require additional funds for its research and product development programs, preclinical and clinical testing, operating expenses, regulatory processes, manufacturing and marketing programs and potential licenses and acquisitions. Any additional equity financing may be dilutive to stockholders, and additional debt financing, if available, may involve restrictive covenants. The Company's capital requirements will depend on numerous factors, including the sales of its products, the progress of its research and development programs, the progress of clinical testing, the time and cost involved in obtaining regulatory approvals, the cost of filing, prosecuting, defending and enforcing any patent claims and other intellectual property rights, competing technological and market developments, developments and changes in the Company's existing research, licensing and other relationships and the terms of any collaborative, licensing and other similar arrangements that the Company may establish. The Company believes that existing cash and cash expected to be generated from operations will be sufficient to meet its working capital, financing and capital expenditure requirements through at least 2001. Euro Conversion On January 1, 1999, eleven of the fifteen member countries of the European Union adopted the "euro" as their national currency unit and irrevocably established fixed conversion rates between their existing sovereign currencies and the euro. During the three-year transition period between January 1, 1999 and January 1, 2002, the euro will be a "cashless" currency, existing only as a unit of account. Payments made to accounts in these member states may be made either in the denominated legacy currency unit of the account or in euros. Beginning on January 1, 2002, euro banknotes and coins will be introduced, and legacy currency banknotes and coins will be withdrawn from circulation. No later than July 1, 2002, the euro will be the sole national currency unit in these member states, and the legacy currency banknotes and coins will no longer be accepted as legal tender. The Company conducts a substantial portion of its business within the member countries of the European Union, and accordingly its existing systems are generally capable of accommodating multiple currencies, including the euro. The Company is assessing the potential impact from the euro conversion in a number of areas, including the following: (1) the competitive impact of cross- border price transparency, which may make it more difficult for businesses to charge different prices for the same products on a country-by-country basis; (2) the impact on currency exchange costs and currency exchange rate risk; and (3) the impact on existing contracts. As of December 31, 2000, the impact of the euro conversion has not had a material impact on the operations of the Company. 18 CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS The following important factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K and presented elsewhere by management from time to time. WE HAVE HISTORICALLY FAILED TO MEET COVENANTS IN OUR LOAN AGREEMENTS AND MAY FACE DIFFICULTIES IN MEETING THEM IN THE FUTURE. We financed a significant portion of the acquisition of our neurosurgical instruments business with $20 million of subordinated debt borrowed from an affiliate of Whitney & Co., one of our significant stockholders. As of December 31, 1999 and through the first nine months of 2000, we were not in compliance with certain of the debt covenants and obtained necessary waivers of default from the lender. As of December 31, 2000 the subordinated debt covenants have been modified and the Company is in compliance as of that date. In connection with the revised covenants the Company has agreed to a further subordinated note repayment of $800,000 in April 2001. Although we believe that we will be able to satisfy the covenants as modified, our failure to meet our financial plan could result in our breach of certain of the covenants. If we breach any of these covenants and are not successful in obtaining a waiver, the noteholder could demand immediate repayment of the note. In addition, in the event of a breach of certain of the covenants, the interest rate we owe in connection with the debt may increase. We may seek to refinance this debt. We cannot be certain that we will be able to refinance on terms that are favorable to us or at all. WE MAY FACE DIFFICULTIES IN SATISFYING OUR FUTURE CAPITAL REQUIREMENTS. In the event that we are unable to obtain access to additional capital on terms that are favorable to us or at all, we may fail to meet our financial plan. Moreover, our failure to meet our financial plan could result in our breach of certain debt covenants. Our capital requirements will depend on a number of factors, including: . product sales; . progress of research and development programs and preclinical and clinical testing; . cost and time involved in obtaining regulatory approvals, and cost of filing, prosecuting, defending and enforcing patent claims and other intellectual property rights; and . unanticipated needs for capital, such as a successful claim for indemnification by the buyer of our neurosurgical instruments business against us under the purchase agreement. WE MAY FACE CHALLENGES MAINTAINING OUR NASDAQ NATIONAL MARKET LISTING. On January 26, 2001, we received a delisting notification from the Nasdaq National Market for failure to maintain net tangible assets of at least $4 million. We appealed this determination and, on March 22, 2001, we appeared before a hearing panel of the Nasdaq National Market and presented evidence of our ability to meet the Nasdaq National Market maintenance requirements. Although we believe that we will continue to meet the requirements for inclusion on the Nasdaq National Market, we cannot assure you that the panel will find in our favor. If the panel decides to delist us, we will be removed immediately from the Nasdaq National Market without prior notification. If we are delisted, we will have constrained access to capital markets and you may find it more difficult to buy and sell our securities. WE MAY FACE CHALLENGES IN REFOCUSING OUR BUSINESS STRATEGY. In connection with the commercialization of our CardioSEAL(R) product, and the recent sale of a portion of our neurosciences business unit, we have had to refocus our business strategy. This refocusing has placed significant demands on a new senior management team and other resources. Our future success will depend on our ability to manage and implement our refocused business strategy effectively, including by: . developing and improving our operational, financial and other internal systems; . improving our sales and marketing capabilities; and . continuing to train, motivate and manage our employees. WE MAY FACE UNCERTAINTIES WITH RESPECT TO COMMERCIALIZATION, PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE OF OUR PRODUCTS. Before certain of our products can be marketed and sold in the United States, including our CardioSEAL(R) product, we may be required to conduct further research, product development, preclinical and clinical testing and obtain additional governmental regulatory approvals. We cannot be certain that our current products, or products currently under development, will achieve or continue to have market acceptance. Certain of the medical indications that can be treated by our devices can also be treated by surgery, drugs or other medical devices. Currently, the medical community widely accepts many alternative treatments, and these other treatments have a long history of use. We cannot be certain that our devices and procedures will be able to replace such established treatments or that either physicians or the medical community, in general, will accept and utilize our devices or any 19 other medical products that we may develop. In addition, our future success depends, in part, on our ability to develop additional products. Even if we determine that a product candidate has medical benefits, the cost of commercializing that product candidate may be too high to justify development. In addition, competitors may develop products that are more effective, cost less or are ready for commercial introduction before our products. If we are unable to develop additional, commercially viable products, our future prospects will be limited. WE MAY BE UNABLE TO COMPETE SUCCESSFULLY BECAUSE OF INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY. The medical device industry is characterized by rapidly evolving technology and intense competition. Existing and future products, therapies, technological approaches and delivery systems will continue to compete directly with our products. Many of our competitors have substantially greater capital resources, greater research and development, manufacturing and marketing resources and experience and greater name recognition than we do. In addition, new surgical procedures and medications could be developed that replace or reduce the importance of current or future procedures that utilize our products. As a result, any products that we develop may become obsolete before we recover any expenses incurred in connection with development of these products. OUR FUTURE SUCCESS MAY DEPEND IN PART UPON MAINTENANCE OF BUSINESS RELATIONSHIPS WITH COLLABORATORS. We have entered into distribution agreements with each of Bard Radiology and Bard International granting them exclusive distribution rights to our SNF, and into a license agreement with Boston Scientific granting Boston Scientific exclusive worldwide rights to develop, manufacture, market and distribute our stent technology, along with products incorporating such technology. Although each of Bard Radiology and Bard International has agreed not to sell competing filters, Boston Scientific is not prohibited from selling other stents and, in fact, manufactures and licenses from others a variety of stents that may compete with our stents. Boston Scientific may choose to emphasize such other stents in its developmental and marketing efforts. We cannot be certain that our arrangements will be renewed or that our existing relationships with the companies will continue in their current form. In August 2000, the Company filed a demand for arbitration relating to the 1992 distribution agreement with Bard Radiology. Our business could be materially adversely affected if these arrangements prove unsuccessful or if these companies terminate their arrangements with us, negotiate lower prices, sell additional competing products, whether manufactured by themselves or others, or otherwise alter the nature of their relationships with us. OUR LIMITED MANUFACTURING HISTORY, DEPENDENCE ON THIRD PARTY MANUFACTURERS AND THE POSSIBILITY OF NON-COMPLIANCE WITH MANUFACTURING REGULATIONS RAISE UNCERTAINTIES WITH RESPECT TO OUR ABILITY TO COMMERCIALIZE FUTURE PRODUCTS. We use third parties to manufacture and distribute certain of our products. If our third party manufacturers experience delays or difficulties in producing, packaging or distributing our products, market introduction and subsequent sales of such products would be adversely affected, and we might have to seek alternative sources of supply. We cannot be certain that we will be able to enter into alternative supply arrangements at commercially acceptable rates, if at all. If we are unable to obtain or retain third party manufacturers on commercially acceptable terms, we may not be able to commercialize medical products as planned. The FDA and other regulatory authorities require that our products be manufactured according to rigorous standards including, but not limited to, Good Manufacturing Practice and ISO 9000. These regulatory requirements may significantly increase our production or purchasing costs and may even prevent us from making or obtaining our products in amounts sufficient to meet market demand. If we, or a third party manufacturer, change our approved manufacturing process, the FDA will require a new approval before that process could be used. Failure to develop our manufacturing capabilities may mean that even if we develop promising new products, we may not be able to produce them profitably, as a result of delays and additional capital investment costs. WE MAY BE UNABLE TO SUCCESSFULLY MARKET OUR PRODUCTS DUE TO LIMITED MARKETING AND SALES EXPERIENCE. Our neurosurgical implants and cardiac septal repair devices are marketed through our direct sales force and distributors. Because we have marketed our initial products (such as stents and vena cava filters) through third parties, we have limited experience marketing our products directly. In order to market directly the CardioSEAL(R) Septal Occluder and any related products, we will have to continue to develop a marketing and sales organization with technical expertise and distribution capabilities. WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS. Our success will depend, in part, on our ability to obtain patents, maintain trade secret protection and operate without infringing on the proprietary rights of third parties. We cannot be certain that: . any pending patent applications or any future patent application will result in issued patents; . the scope of any patent protection will exclude competitors or provide competitive advantages to us; . any of our patents will be held valid if subsequently challenged; or . others will not claim rights in or ownership of the patents and other proprietary rights held by us. 20 Furthermore, we cannot be certain that others have not or will not develop similar products, duplicate any of our products or design around any patents issued or that may be issued in the future to us or to our licensors. Whether or not patents are issued to us or to our licensors, others may hold or receive patents which contain claims having a scope that covers products developed by us. We could incur substantial costs in defending any patent infringement suits or in asserting any patent rights, including those granted by third parties. In addition, we may be required to obtain licenses to patents or proprietary rights from third parties. There can be no assurance that such licenses will be available on acceptable terms, if at all. Our issued U.S. patents, and corresponding foreign patents, expire at various dates ranging from 2002 to 2018. When each of our patents expires, competitors may develop and sell products based on the same or similar technologies as those covered by the expired patent. AS A RESULT OF GOVERNMENT REGULATIONS, WE MAY EXPERIENCE LOWER SALES AND EARNINGS. The manufacture and sale of medical devices intended for commercial distribution are subject to extensive governmental regulations in the United States. Medical devices generally require pre-market clearance or pre-market approval prior to commercial distribution. Certain material changes or modifications to medical devices are also subject to regulatory review and clearance or approval. The regulatory approval process is expensive, uncertain and lengthy. If granted, the approval may include significant limitations on the indicated uses for which a product may be marketed. In addition, any products that we manufacture or distribute are subject to continuing regulation by the FDA. We cannot be certain that we will be able to obtain necessary regulatory approvals or clearances for our products on a timely basis or at all. The occurrence of any of the following events could have a material adverse effect on our business, financial condition and results of operations: . delays in receipt of, or failure to receive, regulatory approvals or clearances; . the loss of previously received approvals or clearances; . limitations on the intended use of a device imposed as a condition of regulatory approvals or clearances; or . our failure to comply with existing or future regulatory requirements. In addition, sales of medical device products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Failure to comply with foreign regulatory requirements also could have a material adverse effect on our business, financial condition and results of operations. WE FACE UNCERTAINTIES WITH RESPECT TO THE AVAILABILITY OF THIRD PARTY REIMBURSEMENT. In the United States, Medicare, Medicaid and other government insurance programs, as well as private insurance reimbursement programs, greatly affect revenues for suppliers of health care products and services. Such third party payors may affect the pricing or relative attractiveness of our products by regulating the maximum amount, if any, of reimbursement which they provide to the physicians and clinics using our devices, or any other products that we may develop. If, for any reason, the third party payors decided not to provide reimbursement for our products, this would materially adversely affect our ability to sell our products. Moreover, mounting concerns about rising health care costs may cause the government or private insurers to implement more restrictive coverage and reimbursement policies in the future. In the international market, reimbursement by private third party medical insurance providers and by governmental insurers and providers varies from country to country. In certain countries, our ability to achieve significant market penetration may depend upon the availability of third party governmental reimbursement. PRODUCT LIABILITY CLAIMS, PRODUCT RECALLS AND UNINSURED OR UNDERINSURED LIABILITIES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. The testing, marketing and sale of implantable devices and materials carry an inherent risk that users will assert product liability claims against us or our third party distributors. In these lawsuits, users might allege that their use of our devices had adverse effects on their health. A product liability claim or a product recall could have a material adverse effect on our business, financial condition and results of operations. Certain of our devices are designed to be used in life-threatening situations where there is a high risk of serious injury or death. Although we currently maintain limited product liability insurance coverage, we cannot be certain that in the future we will be able to maintain such coverage on acceptable terms or that current insurance or insurance subsequently obtained will provide adequate coverage against any or all potential claims. Furthermore, we cannot be certain that we will avoid significant product liability claims and the attendant adverse publicity. Any product liability claim or other claim with respect to uninsured or underinsured liabilities could have a material adverse effect on our business, financial condition, and results of operations. 21 INTENSE INDUSTRY COMPETITION FOR QUALIFIED EMPLOYEES COULD AFFECT OUR ABILITY TO ATTRACT AND RETAIN NECESSARY, QUALIFIED PERSONNEL. In the medical device field, there is intense competition for qualified personnel, and we cannot be assured that we will be able to continue to attract and retain the qualified personnel necessary for the development of our business. Both the loss of the services of existing personnel as well as the failure to recruit additional qualified scientific, technical and managerial personnel in a timely manner would be detrimental to our anticipated growth and expansion into areas and activities requiring additional expertise such as marketing. The failure to attract and retain such personnel could adversely affect our business. ITEM 7A. 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 sale of the UK operations of its Neurosciences division and consistently reduced its foreign currency exposure, it remains an international concern. Accordingly, the Company faces exposure to adverse movements in foreign currency exchange rates. These exposures may change over time and could have a material adverse impact on the Company's financial condition. 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. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. All financial statements required to be filed hereunder are filed as Appendix A hereto, are listed under Item 14(a) and are incorporated herein by this reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 22 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The response to this Item is contained in part under the caption "Executive Officers of the Company" in Part I of this Annual Report on Form 10-K and in part in the Company's Proxy Statement for the 2001 Annual Meeting of Stockholders to be held on June 7, 2001 (the "2001 Proxy Statement") under the caption "Proposal 1 -- Election of Directors," which section is incorporated herein by this reference. Officers are elected on an annual basis and serve at the discretion of the Board. The information required by this Item regarding compliance with Section 16(a) of the Securities Exchange Act of 1934, as amended, is contained in the 2001 Proxy Statement under the caption "Section 16(a) Beneficial Ownership Reporting Compliance" and is incorporated herein by this reference. ITEM 11. EXECUTIVE COMPENSATION The response to this Item is contained in the 2001 Proxy Statement under the caption "Proposal 1 -- Election of Directors," which section is incorporated herein by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The response to this Item is contained in the 2001 Proxy Statement under the caption "Stock Ownership of Certain Beneficial Owners and Management," which section is incorporated herein by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The response to this Item is contained in the 2001 Proxy Statement under the caption "Certain Transactions," which section is incorporated herein by this reference. 23 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Financial Statements. The following documents are filed as Appendix A hereto and are included as part of this Annual Report on Form 10-K: Financial Statements of NMT Medical, Inc. and Subsidiaries: Report of Independent Public Accountants Consolidated Balance Sheets as of December 31, 2000 and 1999 Consolidated Statements of Operations for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Stockholders' Equity for the years ended December 31, 2000, 1999 and 1998 Consolidated Statements of Cash Flows for the years ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements (b) Financial Statement Schedules. The Company is not filing any financial statement schedules as part of this Annual Report on Form 10-K because such schedules are either not applicable or the required information is included in the financial statements or notes thereto. (c) Exhibits. The exhibits filed as part of this Annual Report on Form 10-K are listed in the Exhibit Index immediately preceding such exhibits, and are incorporated herein by this reference. The Company has identified with asterisks in the Exhibit Index each management contract and compensation plan filed as an exhibit to this Annual Report on Form 10-K in response to Item 14(c) of Form 10-K. (d) Reports on Form 8-K. The Company did not file any Reports on Form 8-K during the fiscal quarter ended December 31, 2000. 24 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. NMT MEDICAL, INC. By: /s/ John E. Ahern ----------------- John E. Ahern President and Chief Executive Officer Dated: March 30, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
SIGNATURE TITLE DATE President, Chief Executive Officer March 30, 2001 /s/ John E. Ahern and Chairman of the Board (Principal - -------------------------------------- Executive Officer) John E. Ahern Vice President and March 30, 2001 /s/ Richard E. Davis Chief Financial Officer (Principal - -------------------------------------- Financial and Accounting Officer) Richard E. Davis /s/ Robert G. Brown Director March 30, 2001 - -------------------------------------- Robert G. Brown Director March 30, 2001 /s/ Cheryl Clarkson - -------------------------------------- Cheryl Clarkson /s/ R. John Fletcher Director March 30, 2001 - -------------------------------------- R. John Fletcher /s/ C. Leonard Gordon Director March 30, 2001 - -------------------------------------- C. Leonard Gordon, Esq. /s/ James E. Lock Director March 30, 2001 - -------------------------------------- James E. Lock, M.D. /s/ Francis J. Martin Director March 30, 2001 - -------------------------------------- Francis J. Martin /s/ Morris Simon Director March 30, 2001 - -------------------------------------- Morris Simon, M.D.
25 Appendix -------- NMT MEDICAL, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants.................................. A-2 Consolidated Balance Sheets as of December 31, 2000 and 1999.............. A-3 Consolidated Statements of Operations for the Years Ended December 31, 2000, 1999, and 1998......................................... A-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 2000, 1999, and 1998......................................... A-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999, and 1998...................................................... A-6 Notes to Consolidated Financial Statements................................ A-7 A-1 Report of Independent Public Accountants To NMT Medical, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of NMT Medical, Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999 and the related consolidated statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of NMT Medical, Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ Arthur Andersen LLP Boston, Massachusetts March 2, 2001 A-2 NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) and Subsidiaries Consolidated Balance Sheets
At December 31, 2000 1999 ------------ ------------ Assets Current assets: Cash and cash equivalents $ 6,761,144 $ 3,533,475 Accounts receivable, net of reserves of $1,079,000 and $913,000 in 2000 and 1999, respectively 5,446,647 7,900,099 Inventories 3,440,254 4,634,348 Prepaid expenses and other current assets 1,115,070 2,429,016 ------------ ------------ Total current assets 16,763,115 18,496,938 ------------ ------------ Property and equipment, at cost: Land and buildings 4,650,000 4,650,000 Laboratory and computer equipment 3,555,212 3,284,294 Leasehold improvements 3,129,897 3,268,897 Equipment under capital lease 2,480,512 2,258,982 Office furniture and equipment 1,103,662 1,062,228 ------------ ------------ 14,919,283 14,524,401 Less- Accumulated depreciation and amortization 13,052,460 3,506,354 ------------ ------------ 1,866,823 11,018,047 ------------ ------------ Other assets 461,474 839,733 Net assets from discontinued operations -- 8,392,448 ------------ ------------ $ 19,091,412 $ 38,747,166 ============ ============ Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 3,533,194 $ 4,100,081 Accrued expenses 5,228,846 4,629,366 Current portion of debt obligations 1,581,459 1,002,877 ------------ ------------ Total current liabilities 10,343,499 9,732,324 ------------ ------------ Long-term debt obligations, net of current portion 4,421,522 13,570,355 Deferred tax liability -- 1,283,008 Commitments and Contingencies (Notes 10 and 17) 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--10,954,463 and 10,783,278 shares in 2000 and 1999, respectively 10,955 10,784 Additional paid-in capital 42,031,096 41,439,959 Cumulative translation adjustment (1,539,595) (708,253) Accumulated deficit (36,176,065) (26,581,011) ------------ ------------ Total Stockholders' Equity 4,326,391 14,161,479 ------------ ------------ $ 19,091,412 $ 38,747,166 ============ ============
The accompanying Notes are an integral part of these Consolidated Financial Statements. A-3 NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) and Subsidiaries Consolidated Statements of Operations
For The Years Ended December 31, 2000 1999 1998 ------------ ------------ ------------ Revenues: Product sales $ 35,662,466 $ 32,948,829 $ 23,024,740 License fees and royalties 810,539 2,130,539 2,028,973 ------------ ------------ ------------ 36,473,005 35,079,368 25,053,713 ------------ ------------ ------------ Costs and Expenses: Cost of product sales 15,018,482 15,215,081 10,819,003 Research and development 4,951,154 4,462,359 3,639,728 General and administrative 9,534,577 9,050,244 5,043,872 Selling and marketing 8,786,264 8,427,357 4,390,739 Impairment of long-lived assets 7,054,106 6,801,000 -- Settlement of litigation 673,000 -- -- Acquired in-process research and development -- -- 4,710,000 Merger and integration charge -- -- 687,242 Write-down of note receivable from Image Technologies Corporation -- 1,364,369 -- ------------ ------------ ------------ Total costs and expenses 46,017,583 45,320,410 29,290,584 ------------ ------------ ------------ Loss from operations (9,544,578) (10,241,042) (4,236,871) Other Income (Expense): Equity in net loss of Image Technologies Corporation -- (488,529) (437,145) Gain on sale of investment in Image Technologies Corporation 439,781 -- -- Currency transaction gain (loss) 190,997 104,625 (87,596) Interest expense (1,237,556) (2,814,211) (1,461,346) Interest income 211,098 479,617 1,168,056 ------------ ------------ ------------ Total other expense, net (395,680) (2,718,498) (818,031) ------------ ------------ ------------ Loss before income taxes (9,940,258) (12,959,540) (5,054,902) Extraordinary loss on early extinguishment of debt -- (2,618,428) -- Provision for income taxes -- 180,000 744,538 ------------ ------------ ------------ Net loss from continuing operations (9,940,258) (15,757,968) (5,799,440) Discontinued operations: Net income from discontinued operations, net of income taxes of $0, $265,000 and $142,000 during the years ended December 31, 2000, 1999 and 1998, respectively -- 236,827 2,120,000 Gain (loss) on sale of discontinued operations 345,204 (3,531,552) -- ------------ ------------ ------------ Net gain (loss) from discontinued operations 345,204 (3,294,725) 2,120,000 ------------ ------------ ------------ Net loss $ (9,595,054) $(19,052,693) $ (3,679,440) ============ ============ ============ Basic and diluted net (loss) income per common share: Continuing operations $ (0.91) $ (1.47) $ (0.57) Discontinued operations 0.03 (0.31) 0.21 ------------ ------------ ------------ Net loss $ (0.88) $ (1.77) $ (0.36) ============ ============ ============ Basic and diluted weighted average common shares outstanding 10,908,945 10,751,070 10,192,663 ============ ============ ============
The accompanying Notes are an integral part of these Consolidated Financial Statements. A-4 NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) and Subsidiaries Consolidated Statements of Stockholders' Equity
Convertible Preferred Stock Common Stock ------------------------ ---------------------------- Additional Number of $0.001 Number of $0.001 Paid-in Accumulated Shares Par Value Shares Par Value Capital Deficit ------------------------ -------------------------- -------------- -------------- Balance, December 31, 1997 - $ - 9,823,186 $9,824 $36,610,997 $ (3,848,878) Common stock issued under the employee stock purchase plan - - 11,972 12 69,221 - Common stock issued as a finders' fee in connection with the acquisition of Elekta Neurosurgical Instruments - - 113,793 114 659,885 - Common stock issued for original issue discount on subordinated debt - - 561,207 561 3,254,440 - Exercise of common stock options - - 169,959 170 303,055 - Compensation relating to acceleration of vesting of common stock options - - - - 11,679 - Cumulative translation adjustment - - - - - - Tax benefit related to exercise of common stock options - - - - 90,000 - Net loss - - - - - (3,679,440) ----------------------- ------------------------- -------------- -------------- Total comprehensive loss Balance, December 31, 1998 - - 10,680,117 10,681 40,999,277 (7,528,318) Common stock issued under the employee stock purchase plan - - 22,461 22 59,104 - Common stock warrants issued in connection with debt waivers - - - - 128,600 - Exercise of common stock options - - 80,700 81 106,978 - Compensation expense related to nonemployee stock options - - - - 146,000 - Cumulative translation adjustment - - - - - - Net loss - - - - - (19,052,693) ----------------------- ------------------------- -------------- -------------- Total comprehensive loss Balance, December 31, 1999 - - 10,783,278 10,784 41,439,959 (26,581,011) Common stock issued under the employee stock purchase plan - - 29,276 29 63,769 - Exercise of common stock options and warrants - - 141,909 142 527,368 - Cumulative translation adjustment - - - - - - Net loss - - - - - (9,595,054) ----------------------- ------------------------- -------------- -------------- Total comprehensive loss Balance, December 31, 2000 - $ - 10,954,463 $10,955 $42,031,096 $(36,176,065) ======================= ========================= ============== ==============
Cumulative Total Translation Stockholders' Comprehensive Adjustment Equity Loss ---------------- -------------- ----------------- Balance, December 31, 1997 $ - $32,771,943 $ - Common stock issued under the employee stock purchase plan - 69,233 - Common stock issued as a finders' fee in connection with the acquisition of Elekta Neurosurgical Instruments - 659,999 - Common stock issued for original issue discount on subordinated debt - 3,255,001 - Exercise of common stock options - 303,225 - Compensation relating to acceleration of vesting of common stock options - 11,679 - Cumulative translation adjustment 687,000 687,000 687,000 Tax benefit related to exercise of common stock options - 90,000 - Net loss - (3,679,440) (3,679,440) -------------- ---------------- ------------------- Total comprehensive loss $ (2,992,440) =================== Balance, December 31, 1998 687,000 34,168,640 $ - Common stock issued under the employee stock purchase plan - 59,126 - Common stock warrants issued in connection with debt waivers - 128,600 - Exercise of common stock options - 107,059 - Compensation expense related to nonemployee stock options - 146,000 - Cumulative translation adjustment (1,395,253) (1,395,253) (1,395,253) Net loss - (19,052,693) (19,052,693) -------------- ---------------- ------------------- Total comprehensive loss $(20,947,946) =================== Balance, December 31, 1999 (708,253) 14,161,479 $ - Common stock issued under the employee stock purchase plan - 63,798 - Exercise of common stock options and warrants - 527,510 - Cumulative translation adjustment (831,342) (831,342) (831,342) Net loss - (9,595,054) (9,595,054) -------------- ---------------- ------------------- Total comprehensive loss $(10,426,396) =================== Balance, December 31, 2000 $(1,539,595) $ 4,326,391 ============== ================
The accompanying Notes are an integral part of these Consolidated Financial Statements. A-5 NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) and Subsidiaries Consolidated Statements of Cash Flow
For the Years Ended December 31, -------------------------------------------- 2000 1999 1998 ------------ ------------ ------------ Cash flows from operating activities: Net loss $ (9,595,054) $(19,052,693) $ (3,679,440) Net (gain) loss from discontinued operations (345,204) 3,294,725 (2,120,000) ------------ ------------ ------------ Net loss from continuing operations (9,940,258) (15,757,968) (5,799,440) Adjustments to reconcile net loss to net cash provided by (used in) operating activities -- Impairment of long-lived asset 7,054,106 6,801,000 -- Depreciation and amortization 1,157,020 2,067,395 1,391,088 Noncash interest expense relating to original issue discount 473,405 531,264 215,490 Increase in accounts receivable reserves 145,239 42,000 596,000 Acquired in-process research and development -- -- 4,710,000 Noncash warrant issuance -- 128,600 -- Equity in loss of Image Technologies Corporation -- 488,529 437,145 Expense recorded on acceleration and extension of stock options vesting -- 146,000 11,679 Noncash tax provision -- 180,000 674,000 Noncash interest expense relating to early extinguishment of debt -- 2,358,970 -- Write-down of note receivable from Image Technologies Corporation -- 1,364,369 -- Deferred tax benefit -- (74,800) (1,019,692) Changes in assets and liabilities-- Accounts receivable 1,770,385 2,078,314 (2,582,685) Inventories 1,052,358 579,357 2,745,588 Prepaid expenses and other current assets 709,802 794,478 700,406 Accounts payable (331,047) (1,821,804) (1,046,530) Accrued expenses 25,650 (109,147) 2,714,238 Deferred revenue -- -- (300,000) ------------ ------------ ------------ Net cash provided by (used in) continuing operations 2,116,660 (203,443) 3,447,287 ------------ ------------ ------------ Net cash (used in) provided by discontinued operations (2,327,617) 1,589,828 (4,654,000) ------------ ------------ ------------ Cash flows from investing activities: Maturities of marketable securities and long-term investments -- 6,122,938 16,167,143 Purchases of property, plant and equipment (394,880) (518,000) (193,432) Decrease (increase) in other assets 283,349 (497,213) (636,238) Increase in investment in Image Technologies Corporation -- -- (2,038,043) Cash paid for acquisition of Elekta Neurosurgical Instruments, net of cash acquired -- -- (32,721,076) Proceeds from sale of discontinued operations 11,632,000 -- -- ------------ ------------ ------------ Net cash provided by (used in) investing activities 11,520,469 5,107,725 (19,421,646) ------------ ------------ ------------ Cash flows from financing activities: Proceeds from issuance of common stock 527,510 107,059 303,225 Proceeds from issuance of common stock pursuant to employee stock purchase plan 63,798 59,126 69,233 (Payments of ) proceeds from subordinated note payable (500,000) (14,000,000) 20,000,000 (Payments of) proceeds from financing arrangements (428,000) 428,000 -- (Payments of) proceeds from senior secured notes payable, net (7,279,134) 7,279,134 -- Cash paid for deferred financing costs -- -- (852,849) Payments of bank debt -- -- (523,000) Payments of capital lease obligations (489,640) (252,816) (190,519) ------------ ------------ ------------ Net cash (used in) provided by financing activities (8,105,466) (6,379,497) 18,806,090 ------------ ------------ ------------ Effect of exchange rate changes on cash 23,623 (588,152) 267,838 ------------ ------------ ------------ Net increase (decrease) in cash and cash equivalents 3,227,669 (473,539) (1,554,431) Cash and cash equivalents, beginning of period 3,533,475 4,007,014 5,561,445 ------------ ------------ ------------ Cash and cash equivalents, end of period $ 6,761,144 $ 3,533,475 $ 4,007,014 ============ ============ ============
The accompanying Notes are an integral part of these Consolidated Financial Statements. A-6 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements (1) OPERATIONS NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) (the Company or NMT) designs, develops and markets innovative medical devices that utilize advanced technologies and are delivered by minimally invasive procedures. The Company's products are designed to offer alternative approaches to existing complex treatments, thereby reducing patient trauma, shortening procedure, hospitalization and recovery times and lowering overall treatment costs. The Company's patented medical devices include self-expanding stents, vena cava filters and cardiac septal repair devices. 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 neuroscience business unit, the Company develops, manufactures, markets and sells specialty devices for neurosurgery, including cerebral spinal fluid shunts on the Spetzler(TM) Titanium Aneurysm Clip. On April 5, 2000, the Company sold the U.K. operations of its neurosciences business unit, including the Selector(R) Ultrasonic Aspirator, Ruggles(TM) surgical instruments and cryosurgery product lines and certain assets and liabilities for approximately $12.0 million in cash (see Note 3(a)). The results of these discontinued operations and the loss incurred upon the sale of the operations have been included as separate line items in the statement of operations in the accompanying financial statements for the years ended December 31, 2000, 1999 and 1998. Certain prior-period amounts have been reclassified to conform to the current period's presentation. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. (b) Management Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the reported amounts of revenues and expenses during the reporting periods and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. (c) Cash and Cash Equivalents The Company considers all investments with maturities of 90 days or less from the date of purchase to be cash equivalents and all investments with original maturity dates greater than 90 days to be marketable securities. Cash and cash equivalents, which are carried at cost and approximate market, consist of cash and money market accounts. A-7 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) (d) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: AT DECEMBER 31, 2000 1999 ---------- ---------- Components $1,723,209 $2,379,474 Finished goods 1,717,045 2,254,874 ---------- ---------- $3,440,254 $4,634,348 ========== ========== Finished goods consist of materials, labor and manufacturing overhead. (e) Financial Instruments Statement of Financial Accounting Standards SFAS No. 107, Disclosures about Fair Value of Financial Instruments, requires disclosure of an estimate of the fair value of certain financial instruments. The Company's financial instruments consist of cash and cash equivalents, accounts receivable and debt obligations. The estimated fair value of these financial instruments approximates their carrying value at December 31, 2000 and 1999, respectively. The estimated fair values have been determined through information obtained from market sources and management estimates. The Company does not have any material derivative or any other financial instruments as defined by SFAS No. 119, Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments. (f) Concentration of Credit Risk and Significant Customers SFAS No. 105, Disclosure of Information About Financial Instruments with Off- Balance-Sheet Risk and Financial Instruments with Concentrations of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. Financial instruments that subject the Company to the potential for credit risk consist primarily of trade accounts receivable with customers in the health care industry. The Company performs ongoing credit evaluations of its customers' financial condition but does not require collateral. Historically, the Company has not experienced significant losses related to its accounts receivable. The Company utilizes primarily one distributor for the sales of its filter products. This distributor had amounts due to the Company of approximately $470,000 and $748,000 as of December 31, 2000 and 1999, respectively. This distributor accounted for 23%, 26% and 33% of product revenues for fiscal 2000, 1999 and 1998, respectively. The Company also had one customer whose revenues accounted for 12% and 10% of product revenues for fiscal 1999 and 1998, respectively. At December 31, 2000 approximately 31% of gross accounts receivable represent accounts denominated in foreign currencies that are translated at year-end exchange rates. For the years ended December 31, 2000, 1999 and 1998, foreign sales accounted for 38%, 48% and 45% of total revenues, respectively. A-8 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) (g) Impairment of Long-Lived Assets The Company follows the provisions of SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. SFAS No. 121 addresses accounting and reporting requirements for impairment of long-lived assets based on their fair market values. The carrying value of intangible assets, principally goodwill, is periodically reviewed by the Company based on the expected future undiscounted operating cash flows of the related business unit. At December 31, 1999, the Company recorded a $6.8 million impairment charge for goodwill recorded upon the acquisition of the neurosciences business unit in July 1998. This impairment charge was determined based upon the Company's analysis of estimated cash flows of the neurosciences business unit and the carrying value of all of the long-lived assets of the neurosciences business unit which were sold in April 2000. The Company's assessment of the future value of the assets of the neurosciences business unit was corroborated by independent outside parties. During the year ended December 31, 2000, the Company recorded a $7.1 million impairment charge to reduce the carrying value of the long-lived assets of the neuroscience business unit (exclusive of its U.K. operations sold in April 2000) to their estimated fair value. The long-lived assets that are impaired consist primarily of a building and other fixed assets located in the Company's Biot, France 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 does not include losses which may occur upon a decision to sell or liquidate the neuroscience business unit, including exit costs, transaction costs and additional losses on the sale or disposition of the assets. (h) Depreciation and Amortization The Company provides for depreciation and amortization by charges to operations using the straight-line method, which allocates the cost of property, plant and equipment over the following estimated useful lives: ESTIMATED ASSET CLASSIFICATION USEFUL LIFE -------------------- ----------- Buildings 30 Years Leasehold improvements Life of Lease Laboratory and computer equipment 3-7 Years Equipment under capital lease Life of Lease Office furniture and equipment 5-10 Years (i) Revenue Recognition The Company records product sales upon transfer of title to the customer, provided that there is persuasive evidence of an arrangement and the collection of the sales price is probable. Products sold to the Company's distributors are not subject to a right of return for unsold product. License fees and royalties are recognized as earned. In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin (SAB) No. 101, Revenue Recognition. This bulletin summarizes certain views of the Staff on applying accounting principles generally accepted in the United States to revenue recognition in financial statements. The Company believes that its current revenue recognition policy complies with SAB No. 101. A-9 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) (j) Net Loss per Common and Potential Common Share Basic and diluted net loss per share are presented in conformity with SFAS No. 128, Earnings per Share, for all periods presented. In accordance with SFAS No. 128, basic and diluted net loss per share was determined by dividing net loss available for common shareholders by the weighted average common shares outstanding during the period. Basic and diluted net loss per share are the same because all outstanding common stock options and warrants have been excluded, as they are antidilutive. Options and warrants to purchase a total of 2,401,949, 2,308,697 and 2,150,014 common shares have been excluded from the computation of diluted weighted average shares outstanding for the years ended December 31, 2000, 1999 and 1998, respectively. (k) Foreign Currency The accounts of the Company's subsidiaries are translated in accordance with SFAS No. 52, Foreign Currency Translation. Accordingly, the accounts of the Company's foreign subsidiaries are translated from their local currency, which is the functional currency, into U.S. dollars, the reporting currency, using the exchange rate at the balance sheet date. Income and expense accounts are translated using an average rate of exchange during the period. Cumulative foreign currency translation gains or losses are reflected as a separate component of consolidated stockholders' equity. The net change in cumulative foreign currency gain (loss) amounted to ($831,000), ($1,395,000) and $687,000 for the years ended December 31, 2000, 1999 and 1998, respectively. Additionally, the Company had foreign currency exchange transaction gains of approximately $191,000 and $105,000 for the years ended December 31, 2000 and 1999, respectively, and a foreign currency exchange transaction loss of $88,000 for the year ended December 31, 1998. 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. (l) Comprehensive Income The Company applies the provisions of SFAS No. 130, Reporting Comprehensive Income which establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. Comprehensive income is defined as the change in equity of a business enterprise during a period from transactions and other events and circumstances from non-owner sources. If presented on the statement of operations, comprehensive net loss would have increased the reported net loss by $831,000 and $1,395,000 for the years ended December 31, 2000 and 1999 and decreased the net loss by $687,000 for the year ended December 31, 1998. A-10 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) (m) Recent Accounting Pronouncements In March 2000, the Financial Accounting Standards Board (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 Accounting Principles Board (APB) Opinion No. 25, Accounting For Stock Issued to Employees in specified events, as defined. The interpretation is effective July 1, 2000, but covers certain events occurring during the period after December 15, 1998, but before the effective date. The adoption of this pronouncement did not have a significant impact on the Company's financial position or results of operations. In June 1998, the FASB issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments, including derivative instruments embedded in other contracts, and for hedging activities. The Company currently does not engage in trading market risk sensitive instruments or purchasing hedging instruments or "other than trading" instruments that are likely to expose them to market risk, whether interest rate, foreign currency exchange, commodity price or equity price risk. The Company may do so in the future to the extent that operations expand domestically and abroad. The Company will adopt SFAS No. 133, as required by SFAS No. 137, in fiscal year 2001. The adoption of SFAS No. 133 is not expected to have a material impact on the Company's financial condition or results of operations. (n) Pension Obligations In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement Benefits. The statement is effective for fiscal years beginning December 15, 1997. During the year ended December 31, 1998, the Company adopted the provisions of SFAS No. 132, which modified accounting and reporting disclosure standards for pension and other postretirement benefit plans. As part of the acquisition of Elekta Neurosurgical Instruments ("ENI"), the Company assumed a defined benefit plan covering substantially all of its U.K. employees. This defined benefit plan was included in liabilities assumed by the purchaser of the Company's U.K. operations in April 2000 (see Note 3(a)). In October 1996, the Company adopted a qualified defined contribution plan. Under the Company's 401(k) Plan, U.S. employees may defer up to 15% of their salary, subject to certain limitations. The Company did not make any employee matching or other discretionary contributions to the 401(k) Plan for the years ended December 31, 2000, 1999 and 1998. A-11 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED) (o) Supplemental Cash Flow Information and Noncash Investing and Financing Activities The following table summarizes the supplemental disclosures of the Company's noncash financing and investing transactions for the periods indicated below:
For the Years Ended December 31, 2000 1999 1998 -------- ---------- ------------ Supplemental disclosure of cash flow information: Cash paid during the period for-- Interest $741,425 $1,983,001 $ 1,371,912 ======== ========== ============ Income Taxes $ 50,000 $ 121,148 $ 728,324 ======== ========== ============ Supplemental disclosure of noncash financing and investing transactions: Equipment acquired under capital lease obligations $ 89,847 $1,100,000 $ 195,827 ======== ========== ============ Noncash tax benefit relating to exercise of stock options $ --- $ -- $ 90,000 ======== ========== ============ Original issue discount recorded related to stock warrant issued in connection with subordinated notes payable $ --- $ -- $ 3,255,001 ======== ========== ============ Acquisition of Elekta Neurosurgical Instruments (ENI): Fair value of identifiable assets acquired $ --- $ -- $ 26,475,000 Goodwill and other intangibles --- -- 14,396,075 In-process research and development --- -- 4,710,000 Liabilities assumed --- -- (10,007,000) Issuance of Common Stock in connection with acquisition --- -- (659,999) Cash acquired --- -- (2,193,000) -------- ---------- ------------ Cash paid for purchase of ENI, net of cash acquired $ --- $ -- $ 32,721,076 ======== ========== ============
(3) NEUROSCIENCES BUSINESS UNIT (a) Sale of U.K. Operations of Neurosciences Business Unit On April 5, 2000, the Company sold the U.K. operations of its neuroscience business unit including the Selector(R) Ultrasonic Aspirator, Ruggles(TM) Surgical Instruments and cryosurgery businesses and certain assets and liabilities for $12.0 million in cash. The Company recorded an estimated $3.5 million loss on the anticipated sale in the year ended December 31, 1999. The Company has recorded a gain on the sale of the U.K. operations of approximately $345,000 in the year ended December 31, 2000, representing a revision of estimates made concerning the costs associated with the sale. The total net loss of $3.2 million was comprised of net proceeds of approximately $12.0 million less estimated transaction and other costs of $3.8 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 (2,089,000) ----------- $11,416,000 =========== A-12 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (3) NEUROSCIENCES BUSINESS UNIT - (CONTINUED) The consolidated financial statements of the Company have been restated to reflect the financial results of the U.K. entity as a discontinued operation for the year ended December 31, 1998. The Company did not allocate interest expense associated with the senior secured debt and subordinated notes discussed in Notes 9(a) and 9(b) to discontinued operations. The Company used approximately $7.3 million of the proceeds from this sale to fully pay down its senior secured debt agreement and $500,000 to pay down its subordinated note agreement as discussed in Notes 9(a) and 9(b). (b) Acquisition of Elekta Neurosurgical Instruments On July 8, 1998 the Company acquired ENI, the neurosurgical instruments business of Elekta AB (PUBL), a Swedish corporation, for approximately $33 million, plus acquisition costs of approximately $3.1 million. The acquisition has been accounted for as a purchase in accordance with the requirements of APB Opinion No. 16, Business Combinations, and accordingly ENI's results of operations are included in those of the Company beginning on the date of the acquisition. The transaction was financed with $13 million of the Company's cash, $3.1 million of acquisition costs and $20 million of subordinated debt borrowed from an affiliate of a significant stockholder of the Company (See Note 9(a)). A significant portion of the purchase price was identified as intangible assets in an independent appraisal, using proven valuation procedures and techniques. These intangible assets included $4.7 million for acquired in-process research and development for projects that did not have future alternative uses. This allocation represents the estimated fair market value based on risk-adjusted cash flows related to the in-process research and development programs. The in-process research and development consists of five primary research and development programs that were expected to reach completion between late 1998 and 2000. At the acquisition date, continuing research and development commitments to complete the projects were expected to be approximately $2.0 million through 2000. At the date of acquisition, the development of these programs had not yet reached technological feasibility and the in-process research and development had no alternative future uses. Accordingly, these costs were written off during the year ended December 31, 1998. For income tax purposes, a significant portion of the acquisition represented the purchase of stock with a carryover tax basis. Accordingly, a deferred tax liability has been established to account for the book and tax differences in book value for building and leasehold improvements. The remaining premium of approximately $17.2 million was allocated to the following identifiable assets, goodwill and other intangibles: AMORTIZATION AMOUNT PERIOD ------ ------ Land and buildings $ 4,650,000 30 years Favorable lease 1,170,000 30 years Goodwill and other intangibles 13,226,000 7-20 years Deferred tax liability (1,896,000) ----------- $17,150,000 =========== A-13 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (3) NEUROSCIENCES BUSINESS UNIT - (CONTINUED) The total consideration allocated to the fair market value of assets and liabilities acquired on the purchase date is as follows, net of cash acquired of approximately $2.2 million: Accounts receivable $ 5,578,000 Inventories 6,688,000 Prepaid expenses and other current assets 2,024,000 Property and equipment 9,992,000 Goodwill and other intangible assets 14,396,075 In-process research and development 4,710,000 Accounts payable and accrued expenses (7,324,000) Senior debt (523,000) Deferred tax liability (2,160,000) ----------- $33,381,075 =========== The Company issued 113,793 shares of the Company's $.001 par value common stock, valued at $5.80 per share, to a significant stockholder as a finder's fee in connection with the acquisition. In addition, the Company incurred direct acquisition costs of approximately $1.9 million. These amounts have been included in the purchase price. For the years ended December 31, 2000 and 1999, impairment charges of $7.1 million and $6.8 million were recorded against tangible assets and goodwill, respectively, related to the above acquisition (see Note 2(g)). (4) INVESTMENT IN IMAGE TECHNOLOGIES CORPORATION In May 1997 the Company invested $2.3 million in Image Technologies Corporation (ITC) in exchange for 345,722 shares of ITC's redeemable convertible Series A preferred stock, $.01 par value per share, which represented a 23% ownership interest in ITC. During the years ended December 31, 1999 and 1998, the Company recorded $489,000 and $437,000, respectively, as its equity in the net loss of ITC. Under the terms of this agreement, the Company also extended to ITC a $2 million credit line that bore interest at 10% per annum, payable monthly beginning March 31, 2001. This $2 million senior note was secured by substantially all of the assets of ITC. The principal amount of the note was convertible, at the option of the Company, into additional shares of ITC Series A preferred stock at a price per share of $2.54 at any time before January 1, 2001 and, if converted, any interest accrued as of such date would have been forgiven. If not converted, the note was payable on December 31, 2002. On December 30, 1998 and February 3, 1999, the Company amended its revolving credit note agreement with ITC to provide for additional borrowings of $50,000 and $100,000, respectively, under which ITC borrowed $38,043 and $100,000. The borrowings under the $50,000 note were repaid in April 1999. The $100,000 note accrued interest at 10% per annum and was generally subject to the same terms as the $2 million credit line agreement, except that it was convertible into additional shares of ITC Series A preferred stock at a price per share of $9.97. In connection with the issuance of the $100,000 note, ITC granted a warrant to the Company to purchase 10,030 shares of ITC Series A preferred stock at $9.97 per share. As of December 31, 1999, ITC borrowed $2.1 million under these agreements and owed the Company accrued interest of $281,000. During the year ended December 31, 1999, the Company performed a detailed review of the ITC operations. Based upon this analysis and discussion with ITC's management and investors, the Company determined that there was a significant risk that its notes receivable would not be repaid by ITC. The analyses and discussions indicated that during the year ended December 31, 1999, ITC had insufficient cash resources to fund its operations, that product revenue had declined during 1999 and was far below planned levels and that ITC was A-14 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (4) INVESTMENT IN IMAGE TECHNOLOGIES CORPORATION - (CONTINUED) seeking additional capital from numerous sources and that any future financing would possibly be dilutive to the Company's equity position and may contain a security interest senior to the Company's notes receivable. Accordingly, the Company charged the carrying value of the notes receivable to operations during the year ended December 31, 1999. At November 30, 2000, the Company sold its investment in ITC for $350,000 plus assumption of NMT's position as guarantor of certain ITC liabilities. The Company recorded a gain on this sale of $439,781 (see Note 9(c)). (5) MERGER AND INTEGRATION CHARGE In connection with the acquisition of ENI on July 8, 1998, the Company reorganized its operations and recorded approximately $687,000 in merger and integration expenses during the year ended December 31, 1998. This amount consists principally of employee severance and replacement costs of $374,000, employee relocation costs of $152,000 and printing and corporate name change costs of $161,000. (6) SETTLEMENT OF LITIGATION 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 ("NMT France"), a wholly owned subsidiary of the Company, breached its obligations under an exclusive distribution agreement, dated as of November 10, 1998, pursuant to which NMT France was acting as the exclusive worldwide distributor of Sodem's products. Sodem sought approximately $18 million in damages in addition to costs and fees of their attorneys. NMT France filed a counterclaim for approximately $30 million plus costs. On February 23, 2001 NMT France and Sodem settled the litigation, resulting in a charge of $673,000 in the accompanying statement of operations for the year ended December 31, 2000, consisting of a $500,000 settlement fee paid to Sodem plus legal fees and associated costs. (7) INCOME TAXES The Company provides for income taxes in accordance with the provisions of SFAS No. 109, Accounting for Income Taxes. Accordingly, a deferred tax asset or liability is determined based on the difference between the financial statement and tax basis of assets and liabilities, as measured by the enacted tax rates expected to be in effect when these differences reverse. A-15 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (7) INCOME TAXES - (CONTINUED) The provision (benefit) for income taxes in the accompanying consolidated statements of operations for the years ended December 31, 2000, 1999 and 1998 consists of the following: At December 31, 2000 1999 1998 -------- --------- ---------- Foreign - current $ - $ 180,000 $ 701,192 Federal - current -- (300,000) 411,038 State - current -- -- 13,000 -------- --------- ---------- -- (120,000) 1,125,230 -------- --------- ---------- Foreign - deferred -- (75,000) (169,192) Federal - deferred -- 375,000 (167,500) State - deferred - -- (44,000) -------- --------- ---------- -- 300,000 (380,692) -------- --------- ---------- $ -- $ 180,000 $ 744,538 ======== ========= ========== The Company has federal and state net operating loss carryforwards of approximately $3.0 million to reduce to reduce federal and state taxable income in future periods, if any, and approximately $699,000 of tax credit carryforwards, to reduce federal and state income taxes in future periods, if any. These carryforwards are subject to review and possible adjustment by the Internal Revenue Service and their utilization may be limited by aggregate changes in their utilization may be limited by aggregate changes in significant ownership of the Company over a three year period as prescribed by Section 382 of the Internal Revenue Code. These carryforwards expire on various dates through 2020. As of December 31, 2000, the Company has available foreign net operating loss carryforwards of approximately $2.2 million. The Company did not allocate any of the purchase price to the net operating losses due to the uncertainty surrounding the ability to utilize the losses and the possibility that the losses are subject to review and possible adjustments by foreign tax authorities. The Company was able to utilize approximately $450,000 and $1.8 million of acquired operating losses during the years ended December 31, 1999 and 1998, respectively. The Company recorded the tax effect of utilizing these loss carryforwards in the amounts of $180,000 and $674,000 as a reduction in the carrying value of the goodwill during the years ended December 31, 1999 and 1998, respectively. The provision for income taxes in the year ended December 31, 1999 represents the taxes on income generated in France by the neuroscience business unit. The Company generated a net operating loss for federal and state income tax purposes in the United States in the years ended December 31, 2000 and 1999. The provision for income taxes in 1998 is calculated on the income before provision for taxes without taking into account the write-off of acquired in- process research and development ($4,710,000), the equity in the loss of ITC ($437,145) and goodwill amortization ($140,000). A-16 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (7) INCOME TAXES - (CONTINUED) The tax effects of temporary differences that give rise to the significant portions of the current deferred tax asset (included in prepaid expenses and other current assets) at December 31, 2000 and 1999 are as follows: AT DECEMBER 31, 2000 1999 ----------- ----------- Net operating loss carryforwards $ 1,202,000 $ 1,646,000 Tax credit carryforwards 699,000 190,000 Timing differences, including reserves accruals, and write-offs 3,006,000 5,867,000 ----------- ----------- 4,907,000 7,703,000 Less - Valuation allowance (4,907,000) (7,703,000) ----------- ----------- Net deferred tax asset -- -- Deferred tax liability related to the acquisition of ENI -- (1,283,000) ----------- ----------- Net deferred tax asset (liability) $ -- $(1,283,000) =========== =========== The Company has provided a valuation allowance for its gross deferred tax asset due to the uncertainty surrounding the ability to realize this asset. The deferred tax liability relates primarily to the tax impact of the difference in the tax basis and book basis of the building and leasehold improvements resulting from the ENI purchase accounting. (8) LICENSE FEES AND ROYALTIES On November 22, 1994, the Company licensed exclusive, worldwide rights, including the right to sublicense to others, to develop, produce and market its stent technology to an unrelated third party (the License Agreement). Under the License Agreement, the Company earned approximately $811,000, $1,779,000 and $1,729,000 in royalty revenues during the years ended December 31, 2000, 1999 and 1998, respectively. (9) DEBT OBLIGATIONS The Company has the following debt outstanding as of December 31, 2000 and 1999: 2000 1999 ---------- ----------- Subordinated note payable $4,948,783 $ 5,232,412 Senior secured notes payable -- 7,279,134 Capital lease obligations 1,054,198 1,633,686 Line of credit facility -- 428,000 ---------- ----------- 6,002,981 14,573,232 Less--Current portion 1,581,459 1,002,877 ---------- ----------- $4,421,522 $13,570,355 ========== =========== A-17 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (9) DEBT OBLIGATIONS - (CONTINUED) (a) Subordinated Note Payable The Company financed a significant portion of the acquisition of ENI (see Note 3(b)) with $20 million of subordinated debt borrowed from an affiliate of a significant stockholder of the Company. The subordinated debt is due September 30, 2003 with quarterly interest payable at 10.101% per annum and is subject to certain covenants, as amended. On September 13, 1999, the Company entered into a $10 million senior secured debt facility with a bank (see Note 9(b)), $8 million of the proceeds of which was used to reduce the principal amount of the subordinated note. The Company also used $6 million of its own cash to further reduce the principal amount of this note. In conjunction with this transaction, the Company recorded a $2.6 million extraordinary loss on the early extinguishment of debt in the accompanying statement of operations, which primarily relates to the accelerated pro rata write-off of the original issue discount and deferred financing costs of the subordinated note payable. The remaining original issue discount at December 31, 2000 is being amortized to interest expense over 33 months. The Company recorded approximately $216,000 and $531,000 of interest expense relating to the amortization of original issue discount for the years ended December 31, 2000 and 1999, respectively. As of December 31, 2000, the Company was in compliance with newly amended debt covenants of the subordinated note payable. At December 31, 2000 the $1 million current portion of the subordinated debt consists of (a) $200,000 due January 2001 from the proceeds obtained in connection with the sale of the Company's investment in ITC (see Note 4); and (b) $800,000 due April 2001. (b) Senior Secured Debt On September 13, 1999, the Company entered into a $10 million senior secured debt facility with a bank, $8 million of the proceeds of which was used to reduce the principal amount of the Company's subordinated note payable (see Note 9(a)). The remaining $2 million of the senior secured debt facility was available to be drawn down by the Company for working capital purposes, as needed. The facility had a term of three years with interest payable monthly at the bank's prime lending rate on U.S. borrowings and an equivalent market rate on foreign currency borrowings. As of December 31, 1999, the Company had outstanding borrowings of $7.3 million under this facility. In April 2000, the Company paid down this note in its entirety from the proceeds obtained in connection with the sale of part of its neurosciences business unit (see Note 3(a)). The bank terminated the availability of this facility in September 2000. (c) Capital Lease Obligations In June 1996, the Company entered into a $1.5 million lease finance facility agreement with a bank under which the Company leased equipment at an interest rate that is 200 basis points above the bank's cost of funds. Leases under this agreement are payable in equal monthly installments over a period of 36- 60 months and expire through November 2001. Borrowings of $572,000 were made under this agreement, of which approximately $88,000 was outstanding as of December 31, 2000. A-18 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (9) DEBT OBLIGATIONS - (CONTINUED) Upon expiration of this agreement in June 1997, the Company entered into a new agreement with the bank that provided the Company with similar terms and the option to borrow up to $1 million in the aggregate for the Company and ITC through March 31, 1998. Leases under this agreement are payable in equal monthly installments over a period of 36-60 months and expire through December 2002. Borrowings of $376,000 were made under this agreement by the Company, of which approximately $144,000 was outstanding as of December 31, 2000. On April 1, 1998, the Company entered into a new agreement with this bank that provided the Company with similar terms and the option to borrow up to $750,000 through March 31, 1999. Borrowings of $169,000 have been made under this new agreement by the Company, of which approximately $106,000 was outstanding as of December 31, 2000, respectively. Leases under these agreements are payable in equal monthly installments over a period of 60 months and expire through May 2004. In June 2000, certain ITC capital lease obligations and related equipment were transferred to the Company. These leases had outstanding borrowings of approximately $73,000 at December 31, 2000. The Company had been the guarantor of other outstanding lease obligations of ITC under the above-referenced bank agreements. Effective November 30, 2000, this guarantee has been assumed by a third party in connection with the Company's sale of its investment in ITC (see note 4). In June 1999, the Company entered into a lease agreement with a bank for approximately $150,000 to be used for equipment purchases. Borrowings under this agreement accrue interest at 6.67%, are payable in monthly installments, are collateralized by the equipment purchased, and expire in June 2002. Approximately $33,000 is outstanding under this agreement as of December 31, 2000. In December 1999, the Company entered into a lease agreement with a bank for approximately $1 million to be used for equipment purchases. Borrowings under this agreement accrue interest at 5.64%, are payable in monthly installments, are collateralized by the equipment purchased, and expire in December 2002. Approximately $610,000 of borrowings is outstanding as of December 31, 2000. A-19 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (9) DEBT OBLIGATIONS - (CONTINUED) (d) Lines of Credit In June 1999, the Company entered into lease finance facility agreement with a bank for approximately $475,000. Borrowings under this facility accrue interest at a rate of 5.38% per annum and are collateralized by the Company's accounts receivables. Borrowings of $428,000 under this line were outstanding as of December 31, 1999 and were paid in full during the first quarter of 2000. In September 2000, the Company entered into an equipment lease financing facility providing for borrowings of up to $250,000. Leases under this agreement are payable in equal monthly installments over 36 months. There were no borrowings under this agreement as of December 31, 2000. Approximately $100,000 of equipment purchases at December 31, 2000 will be financed under this facility. (e) Future Maturities of Debt Obligations Future payments of the Company's subordinated note, senior secured debt, and capital lease obligations are as follows: YEAR ENDING AMOUNT ----------- ------ 2001 $ 1,649,901 2002 466,807 2003 4,544,299 2004 1,854 ----------- 6,662,861 Less--Unamortized original issue discount (551,217) Less--Amount representing interest (108,663) ----------- 6,002,981 Less--Current portion (1,581,459) ----------- $ 4,421,522 =========== (10) COMMITMENTS (a) Manufacturing Agreement The Company contracts with an unrelated third party for the manufacture of certain components. Under the amended agreement dated February 15, 1996, the Company is required to purchase minimum annual unit quantities through June 2001. As of December 31, 2000, the minimum remaining purchase commitment is approximately $100,000. The agreement is expected to be extended for an additional six months ending December 2001. In addition, in the event of an order cancellation or product conversion, the Company has agreed to purchase all in-process materials and all special materials purchased by the manufacturer for use in the production of these components, limited to purchase orders through 180 days after cancellation. A-20 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (10) COMMITMENTS - (CONTINUED) (b) Operating Leases The Company has entered into operating leases for office and laboratory space and motor vehicle leases, including the ITC office lease assumed by the Company in June 2000. These leases expire through 2006. The leases require payment of all related operating expenses of the building, including real estate taxes and utilities in excess of base year amounts. Future minimum rental payments due under operating lease agreements as of December 31, 2000 are approximately as follows: YEAR ENDING AMOUNT ----------- ------ 2001 $ 865,000 2002 779,000 2003 658,000 2004 558,000 2005 551,000 Thereafter 321,000 ---------- $3,732,000 ========== Rent expense for the years ended December 31, 2000, 1999 and 1998 amounted to approximately $797,000, $602,000 and $524,000, respectively. (c) Royalties The Company has entered into various agreements that require payment of royalties based on specified percentages of future sales, as defined. In addition, the Company has agreed to pay royalties to certain employees and a stockholder/founder based on sales or licenses of products where they were the sole or joint inventor. Future minimum commitments under these agreements are approximately $30,000 per year. In addition to the aforementioned, during the year ended December 31, 1998, the Company entered into an agreement to pay minimum royalties of $87,500 per quarter through September 2001 to two individuals for a product for which these individuals own the rights. Any excess of the minimum royalties paid over the royalties earned are creditable against future sales until expiration of the associated patents. At December 31, 2000, approximately $174,000 and $200,000 of minimum royalties in excess of royalties earned were classified as prepaid expenses and other assets, respectively, on the accompanying balance sheet. Additionally, these individuals are entitled to $50,000 per quarter for their product development and marketing consulting efforts through the quarter ended June 30, 2000. The Company recorded $175,000, $200,000 and $100,000 for such services during the years ended December 31, 2000, 1999 and 1998, respectively. Royalty expense under royalty agreements was $1,648,000, $838,000 and $640,000 for the years December 31, 2000, 1999 and 1998, respectively. A-21 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (11) STOCK OPTIONS AND WARRANTS (a) Nonqualified Stock Options The Company granted nonqualified options to various officers, directors, employees, and/or consultants to purchase shares of common stock. The options become exercisable in full or in part at issuance or within one to four years of the date of issuance. All unexercised grants expire on the earlier of approximately seven to ten years from date of issuance or 90 days after termination of service as an officer, director, employee and/or consultant. As of December 31, 2000, 1,061,279 shares are subject to outstanding options at exercise prices of $.76-$14.00 per share. (b) Stock Option Plans 1994 Stock Option Plan. In May 1994, the Board of Directors approved a stock option plan (the 1994 Plan), which authorizes the Company to issue options to purchase up to 315,789 shares of the Company's common stock. The Company may grant options to officers, key employees, directors and consultants of the Company at an exercise price not less than fair market value as determined by the Board of Directors. Through December 31, 2000, the Company has granted 308,368 options under the 1994 Plan. As of December 31, 2000, 30,890 shares are subject to outstanding options at exercise prices of $2.15-$8.93 per share. At December 31, 2000, pursuant to the terms of the 1994 Plan, no further options may be granted under the 1994 Plan. 1996 Stock Option Plan. The Company's 1996 Stock Option Plan (the 1996 Plan) was approved by the Company's stockholders in July 1996. The 1996 Plan provides for the grant of options to acquire a maximum of 600,000 shares of common stock. As of December 31, 2000, 394,400 shares are subject to outstanding options at exercise prices of $2.00-$14.63 per share. The Board of Directors has appointed a Stock Option Committee of the Board as the Plan Administrator. The 1996 Plan permits the granting of incentive stock options or nonstatutory stock options at the discretion of the Plan Administrator. Subject to the terms of the 1996 Plan, the Plan Administrator determines the terms and conditions of options granted. At December 31, 2000, 205,600 shares are available for future grants under the 1996 Plan. The 1996 Director's Stock Plan. The Company's 1996 stock option plan for nonemployee directors (the 1996 Directors' Stock Plan) was approved by the Company's stockholders in July 1996. The 1996 Directors' Stock Plan provides for the automatic grant of nonstatutory stock options to purchase shares of common stock to directors of the Company who are not employees of the Company and who do not otherwise receive compensation from the Company. Under the 1996 Directors' Stock Plan, 150,000 shares of common stock have been reserved for issuance of options. Each eligible director serving on the Board on the effective date of the 1996 Directors' Stock Plan automatically received an option to purchase 10,000 shares of common stock at a price equal to the initial public offering price, subject to vesting in equal monthly installments over a period of three years. In the future, each nonemployee director not otherwise compensated by the Company who joins the Board will automatically receive an initial grant of options to purchase 10,000 shares of common stock at an exercise price equal to the fair market value per share at the date of grant, subject to vesting in equal monthly installments over a three-year period. A-22 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (11) STOCK OPTIONS AND WARRANTS - (CONTINUED) In each year other than the year in which a director receives an initial grant of options, such director will automatically receive options to purchase 2,500 shares of common stock that shall become fully vested six months after the date of grant. As of December 31, 2000, 92,500 shares are subject to outstanding options at an exercise price of $2.38-$13.13 per share, of which 68,889 shares are exercisable. At December 31, 2000, 57,500 shares are available for future grant under the 1996 Directors' Stock Plan. 1998 Stock Incentive Plan. The Company's 1998 Stock Incentive Plan (the 1998 Plan) was approved by the Company's stockholders during 1998. The 1998 Plan provides for the grant of options to acquire a maximum of 800,000 shares of common stock. As of December 31, 2000, 660,800 shares are subject to outstanding options at exercise prices of $1.88-$6.50 per share. The 1998 Plan permits the granting of incentive stock options or nonstatutory stock options at the discretion of the Board of Directors. Subject to the terms of the 1998 Plan, the Board of Directors determines the terms and conditions of options granted. As of December 31, 2000, 37,170 shares are available for future grants under the 1998 Plan. The following table summarizes all stock option activity under all of the Company's stock option plans, including grants outside of the 1998, 1996 and 1994 Plans: WEIGHTED AVERAGE EXERCISE NUMBER OF PRICE PER SHARES SHARE --------- ---------------- Balance, December 31, 1997 1,746,861 $ 4.44 Granted 459,600 7.20 Canceled (103,229) 9.19 Exercised (169,959) 1.79 --------- -------- Balance, December 31, 1998 1,933,273 5.05 --------- -------- Granted 281,675 3.70 Canceled (67,292) 8.67 Exercised (80,700) 1.33 --------- -------- Balance, December 31, 1999 2,066,956 $ 4.90 --------- -------- Granted 639,565 2.97 Cancelled (424,404) 5.35 Exercised (42,249) 2.44 --------- -------- Balance, December 31, 2000 2,239,868 $ 4.30 ========= ======== Exercisable, December 31, 2000 1,466,284 $ 4.44 ========= ======== Exercisable, December 31, 1999 1,470,903 $ 4.32 ========= ======== Exercisable, December 31, 1998 1,286,891 $ 3.67 ========= ======== A-23 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (11) STOCK OPTIONS AND WARRANTS - (CONTINUED) The following detail pertains to outstanding options of the Company at December 31, 2000:
WEIGHTED WEIGHTED AVERAGE WEIGHTED EXERCISE PRICE AVERAGE REMAINING AVERAGE NUMBER OF RANGE PER EXERCISE PRICE CONTRACTUAL LIFE NUMBER OF EXERCISE PRICE SHARES SHARE PER SHARE OF SHARES PER SHARE OUTSTANDING OUTSTANDING OUTSTANDING OPTIONS OUTSTANDING EXERCISABLE EXERCISABLE ----------- ----------- ----------- ------------------- ----------- ----------- 65,786 $ .76-1.14 $ 0.99 3.23 Years 65,786 $ 0.99 1,215,753 1.88-2.75 2.26 6.68 Years 790,045 2.16 102,597 2.88-4.25 3.31 8.31 Years 40,912 3.29 235,050 4.38-6.50 4.64 8.44 Years 72,085 4.70 362,682 6.63-9.88 7.28 6.16 Years 300,955 7.22 258,000 10.00-14.63 10.70 6.21 Years 196,501 10.63 --------- ------------ ------ ------------- --------- ------ 2,239,868 $ .76-14.63 $ 4.30 6.70 Years 1,466,284 $ 4.44 ========= ============ ====== ============= ========= ======
The Company accounts for its stock-based compensation plans under APB Opinion No. 25. SFAS No. 123 establishes a fair-value based method of accounting for stock-based compensation plans. The Company has adopted the disclosure-only alternative under SFAS No. 123 for grants to employees which requires disclosure of the pro forma effects on earnings and earnings per share as if SFAS No. 123 had been adopted, as well as certain other information. The Company has computed the pro forma disclosures required under SFAS No. 123 for all employee stock options granted in 1998, 1997 and 1996 using the Black-Scholes option pricing model prescribed by SFAS No. 123. The assumptions used and the weighted average information for the years ended December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998 ----------- ----------- ----------- Risk-free interest rates 5.78%-6.72% 4.80%-6.38% 4.65%-5.72% Expected dividend yield -- -- -- Expected lives 7 years 7 years 7 years Expected volatility 52% 87% 66% Weighted average grant-date fair value of options granted during the period $ 1.76 $ 2.90 $ 4.66
The effect of applying SFAS No. 123 would be as follows for the years ended December 31, 2000, 1999 and 1998:
2000 1999 1998 ------------ ------------ ----------- Net loss: As reported $ (9,595,054) $(19,052,693) $(3,679,440) ============ ============ =========== Pro forma $(10,173,512) $(20,101,646) $(4,564,706) ============ ============ =========== Basic and diluted net loss per common share: As reported $ (.88) $ (1.77) $ (.36) ============ ============ =========== Pro forma $ (.93) $ (2.10) $ (.47) ============ ============ ===========
A-24 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (11) STOCK OPTIONS AND WARRANTS - (CONTINUED) (c) Warrants The following table summarizes the Company's warrant activity: WEIGHTED AVERAGE EXERCISE NUMBER OF PRICE PER SHARES SHARE ------------------ ----------------- Balance, December 31, 1997 188,252 $3.21 Granted 28,489 2.15 Canceled -- -- Exercised -- -- ------- ----- Balance, December 31, 1998 216,741 3.07 Granted 25,000 3.41 ------- ----- Balance, December 31, 1999 241,741 3.10 Granted 20,000 4.94 Exercised (99,660) 4.26 ------- ----- Balance, December 31, 2000 162,081 $2.62 ======= ===== Exercisable, December 31, 2000 162,081 $2.62 ======= ===== Pursuant to Emerging Issues Task Force (EITF) Issue 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in a Company's Own Stock, the Company believes that equity classification is appropriate for all outstanding warrants. On April 15, 1999, the Company negotiated a waiver of the default with the holder of the subordinated note payable (see Note 9(a)). In connection with such waiver, the Company issued to the noteholder warrants to purchase 25,000 shares of Common Stock at $3.41 per share. On April 3, 2000, in connection with the Company's pay down of debt discussed in Note 9(b), the Company issued the noteholder warrants to purchase 20,000 shares of the Company's common stock at $4.94 per share. The Company determined the value of these warrants using the Black-Scholes pricing model and charged such values to interest expense for the year ended December 31, 1999. (d) Employee Stock Purchase Plan Effective October 1, 1997, the Company's shareholders approved an employee stock purchase plan (the Stock Plan). The Stock Plan allows eligible employees to purchase common stock of the Company through payroll deductions at a price that is 85% of the lower of the closing price of the Company's stock on the either the beginning or ending of the six-month offering period. The Company has reserved 90,000 of its $.001 par value common stock for issuance under this Stock Plan. The Company issued 29,276 and 22,461 shares of common stock under the Stock Plan during the years ended December 31, 2000 and 1999, respectively. A-25 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (12) RELATED PARTY TRANSACTIONS During the years ended December 31, 2000, 1999 and 1998, one shareholder provided consulting services to the Company, at a rate of $100,000 per annum. Additionally, during the year ended December 31, 1999, an affiliate of a stockholder provided consulting services to the Company amounting to approximately $103,000. In September 1998, a former employee of the Company entered into a secured promissory note agreement with the Company under which the former employee borrowed $167,100 plus interest at 10 % per annum and was due the earlier of September 30, 1999 or the tenth business day on which the closing price of the Company's stock is greater than $8.00 per share for any consecutive three-day period. As of December 31, 1999, the amount owed under this note agreement was approximately $131,000. The note agreement was extended under similar terms to September 30, 2000 and was paid in full as of March 31, 2000. On September 1, 1998 a former employee of the Company borrowed $25,000 from the Company. The loan accrues interest at 10.101% per annum and is collateralized. The loan was due on January 15, 2000 but was subsequently extended to June 30, 2000 under similar terms. Subsequent to year-end approximately $11,000 of this loan has been repaid. (13) ACCRUED EXPENSES Accrued expenses consist of the following: AT DECEMBER 31, 2000 1999 ---------- ---------- Payroll and payroll related $1,765,165 $1,607,773 Taxes 446,944 635,530 Legal settlement 628,000 -- Other accrued expenses 2,388,737 2,386,063 ---------- ---------- $5,228,846 $4,629,366 ========== ========== (14) FINANCIAL INFORMATION BY GEOGRAPHIC AREA Revenues by country for the years ended December 31, 2000, 1999 and 1998 are as follows: 2000 1999 1998 ----------- ----------- ----------- Destination ----------- United States $22,600,000 $18,251,000 $13,835,000 The Netherlands 2,855,000 4,565,000 2,870,000 Germany 2,344,000 2,986,000 1,872,000 France 1,218,000 1,888,000 947,000 Other 7,456,005 7,389,368 5,529,713 ----------- ----------- ----------- $36,473,005 $35,079,368 $25,053,713 =========== =========== =========== A-26 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (14) FINANCIAL INFORMATION BY GEOGRAPHIC AREA - (CONTINUED) Long-lived assets by country as of December 31, 2000 and 1999 are as follows: 2000 1999 ----------- ----------- Destination ----------- France $ 8,968,999 $ 9,265,766 United States 5,867,621 5,201,635 Other 82,663 57,000 ----------- ----------- $14,919,283 $14,524,401 =========== =========== (15) SEGMENT REPORTING The Company adopted SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, during the fourth quarter of 1998. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision making group is the Chief Executive Officer, members of Senior Management, and the Board of Directors. The operating segments are managed separately because each represents specific types of medical devices for specific markets (i.e., the cardiovascular segment includes minimally-invasive medical devices that were the primary products of the Company prior to the acquisition of ENI while the neurosurgical segment includes primarily neurosurgical medical devices that were the primary products of ENI). The Company's operating segments include the cardiovascular business unit and the neuroscience business unit. Revenues for the cardiovascular business unit are derived from sales of the Simon Nitinol Filter(R) (SNF) and the CardioSEAL(R) Septal Occluder, as well as from licensing revenues from the Company's self-expanding stents. Revenues for the neuroscience business unit are derived from sales of cerebral spinal fluid shunts and Spetzler(TM) Titanium Aneurysm Clips. A-27 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (15) SEGMENT REPORTING - (CONTINUED) The accounting policies of the business 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 YEARS ENDED DECEMBER 31, 2000 1999 1998 ----------- ----------- ----------- Segment Revenues: Cardiovascular products $18,596,005 $15,058,368 $13,989,713 Neurosurgical products 17,877,000 20,021,000 11,064,000 ----------- ----------- ----------- Total revenues $36,473,005 $35,079,368 $25,053,713 =========== =========== =========== Segment Interest Income: Cardiovascular products $ 211,098 $ 479,617 $ 1,168,056 Neurosurgical products -- -- -- ----------- ----------- ----------- Total $ 211,098 $ 479,617 $ 1,168,056 =========== =========== =========== Segment Interest Expense: Cardiovascular products $ 1,168,556 $ 2,426,211 $ 1,324,346 Neurosurgical products 69,000 388,000 137,000 ----------- ----------- ----------- Total $ 1,237,556 $ 2,814,211 $ 1,461,346 =========== =========== =========== Segment Income Tax Provision: Cardiovascular products $ -- $ -- $ 744,538 Neurosurgical products -- 180,000 -- ----------- ----------- ----------- Total $ -- $ 180,000 $ 744,538 =========== =========== =========== Segment Depreciation and Amortization: Cardiovascular products $ 637,944 $ 1,071,395 $ 892,088 Neurosurgical products 519,076 966,000 499,000 ----------- ----------- ----------- Total $ 1,157,020 $ 2,067,395 $ 1,391,088 =========== =========== =========== Segment Equity in Net Loss of Investees: Cardiovascular products $ -- $ (488,529) $ (437,145) Neurosurgical products -- -- -- ----------- ----------- ----------- Total $ -- $ (488,529) $ (437,145) =========== =========== =========== Segment Significant Noncash Items: Cardiovascular products $ -- $ 1,364,369 $ 5,397,242 Neurosurgical products 7,054,106 6,801,000 -- ----------- ------------ ----------- Total $ 7,054,106 $ 8,165,369 $ 5,397,242 =========== ============ =========== Segment Income (Loss): Cardiovascular products $ (941,331) $ (7,654,968) $(5,378,440) Neurosurgical products (8,998,927) (8,103,000) (421,000) ----------- ------------ ----------- Total net loss $(9,940,258) $(15,757,968) $(5,799,440) =========== ============ ===========
A-28 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (15) SEGMENT REPORTING - (CONTINUED) Segment balance sheet information is as follows as of December 31, 2000 and 1999: 2000 1999 ----------- ----------- Segment Long-Lived Tangible Assets: Cardiovascular products $ 4,550,284 $ 3,963,402 Neurosurgical products 10,368,999 10,560,999 ----------- ----------- Total $14,919,283 $14,524,401 =========== =========== (16) VALUATION OF QUALIFYING ACCOUNTS The following table sets forth the activity in the Company's allowance for doubtful accounts and sales returns:
BALANCE AT UNCOLLECTIBLE YEARS ENDED BEGINNING PROVISION FOR AMOUNTS BALANCE AT END OF DECEMBER 31, OF PERIOD BAD DEBT AND RETURNS WRITTEN OFF OTHER ADDITIONS PERIOD ------------ --------- -------------------- ----------- --------------- ------ 1998 $ 125,000 $ 596,000 $ (5,000) $ 155,000* $ 871,000 1999 871,000 185,000 (143,000) -- 913,000 2000 913,000 228,000 (62,000) -- 1,079,000
*Represents additions arising from the acquisition of ENI, net of reserves reclassified to net assets from discontinued operations. (17) 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. As currently pleaded, Elekta's claim seeks approximately $2 million in damages and NMT's counterclaim seeks approximately $2 million in damages. On January 17-19, 2001, the arbitrator conducted a hearing on preliminary legal issues. On March 15, 2001, the Arbitrator issued a partial award which for the most part clarified certain legal issues without deciding the merits of either Elekta's claims or the Company's counterclaims. The Arbitrator did dismiss an approximate $314,000 portion of NMT's counter claim, but indicated, however, that $289,000 of that portion may still be recoverable by NMT in litigation outside the Arbitration process as "ordinary trade debts". The hearing on the merits of Elekta's claims and the Company's counterclaims has not been scheduled. A-29 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES Notes to Consolidated Financial Statements - (Continued) (17) LEGAL PROCEEDINGS (CONTINUED) On August 11, 2000, the Company filed a demand for arbitration before the American Arbitration Association in Boston, Massachusetts to obtain a determination that Bard does not have distribution rights to the Company's Recovery Filter(TM) under the 1992 U.S. distribution agreement between the Company and Bard Radiology, a division of Bard, and that the Company may sell the Recovery Filter(TM) technology to a third party without violating the agreement. Bard has filed a counterclaim seeking a contrary declaration and an indeterminate amount of damages. Hearings are scheduled to begin on April 30, 2001. Other than as described above, the Company has no material pending legal proceedings. A-30 EXHIBIT INDEX Exhibit No. Description of Exhibit - ----------- ---------------------- 2.1 Purchase Agreement, dated as of May, 1998, between the Company and Elekta AB (PUBL), as amended by Amendment No. 1 dated as of July 8, 1998. (4) 2.2 Purchase Agreement by and among the Company, NMT NeuroSciences (US), Inc., NMT NeuroSciences Holdings (UK) Ltd., NMT NeuroSciences (UK) Ltd., Spembly Medical Ltd., Spembly Cryosurgery Ltd., Swedemed AB, Integra Neurosciences Holdings (UK) Ltd., and Integra Selector Corporation, dated as of March 20, 2000. (12) 2.3 Asset Purchase Agreement by and among NMT NeuroSciences (US), Inc., the Company and Integra Selector Corporation, dated as of March 20, 2000. (12) 3.1 Second Amended and Restated Certificate of Incorporation. (5) 3.2 Certificate of Amendment to the Company's Second Amended and Restated Certificate of Incorporation, as filed with the office of the Secretary of State of the State of Delaware on June 3, 1999. (9) 3.3 Amended and Restated By-laws. (1) 4.1 Form of Common Stock Certificate. (12) 4.2 Rights Agreement, dated as of June 7, 1999, between the Company and American Stock Transfer & Trust Company, as Rights Agent, which includes as Exhibit A, the form of Certificate of Designation, as Exhibit B the form of Rights Certificate, and as Exhibit C, the Summary of Rights to Purchase Preferred Stock. (8) 10.1 Stock Purchase Agreement by and among the Company, Whitney Equity Partners, L.P., Boston Scientific Corporation, David J. Morrison, Corporate Decisions, Inc., dated as of February 16, 1996. (1) 10.2 Registration Rights Agreement by and among the Company, Whitney Equity Partners, L.P., Boston Scientific Corporation, David J. Morrison, Corporate Decisions, Inc., dated as of February 16, 1996. (1) 10.3 Agreement and Plan of Merger by and among the Company, NMT Heart, Inc., InnerVentions, Inc. and Fletcher Spaght, Inc., dated as of January 25, 1996. (1) 10.4 Stock Purchase Warrant by and between the Company and Fletcher Spaght, Inc., dated as of July 1, 1998. (11) 10.5 Stock Purchase Warrant by and between the Company and David A. Chazanovitz, dated as of July 1, 1998. (11) 10.6 Registration Rights Agreement by and between the Company and Fletcher Spaght, Inc., dated as of February 14, 1996. (1) 10.6.1 Amendment No. 1, dated July 1, 1998 to the Registration Rights Agreement by and between the Company and Fletcher Spaght, Inc., dated as of February 14, 1996. (11) Exhibit No. Description of Exhibit - ----------- ---------------------- 10.7 Distribution Agreement by and between the Company and the Bard Radiology division of C.R. Bard, Inc., dated May 19, 1992, as amended on February 1, 1993, and October 1, 1995. (1)(2) 10.8 International Distribution Agreement by and between the Company and Bard International, Inc., dated as of November 30, 1995. (1)(2) 10.9 License and Development Agreement by and between the Company and Boston Scientific Corporation, dated as of November 22, 1994. (1)(2) 10.10 Manufacturing Agreement by and between the Company and Lake Region Manufacturing Company, Inc., dated February 15, 1996. (1)(2) 10.11 Technology Purchase Agreement by and between the Company and Morris Simon, M.D., dated as of April 14, 1987. (1)(2) 10.12 Asset and Technology Donation and Transfer Agreement by and between C.R. Bard, Inc. and Children's Medical Center Corporation dated as of May 12, 1995. (1) 10.13 Stock Transfer Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated as of June 19, 1995. (1) 10.14 License Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated June 19, 1995. (1)(2) 10.15 Sublicense Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated June 19, 1995. (1) 10.16 Assignment Agreement by and between the Company and The Beth Israel Hospital Association, dated June 30, 1994. (1) 10.17 License Agreement by and between the Company and Lloyd A. Marks, dated as of April 15, 1996. (1)(2) 10.18 Share Purchase Warrant by and between the Company and Lloyd A. Marks, dated April 15, 1996. (1) 10.19 Employment Agreement by and between the Company and Thomas M. Tully dated January 1, 1999. (7) (**) 10.20 Registration Rights Agreement by and between the Company and Thomas M. Tully, dated as of February 13, 1996. (1) 10.21 Employment Agreement by and between the Company and David Chazanovitz, dated February 13, 1996, as amended as of June 15, 1996.(1)(**) 10.21.1 Amendment to Employment Agreement by and between the Company and David Chazanovitz, dated July 9, 1996. (1)(**) Exhibit No. Description of Exhibit - ----------- ---------------------- 10.22 Employment Agreement by and between the Company and David Chazanovitz dated July 1, 1998. (7) (**) 10.23 Employment Agreement by and between the Company and Stephen J. Kleshinski, dated July 22, 1993, as supplemented by agreement dated as of June 1, 1994. (**) (12) 10.24 Form of Registration Rights Agreement between the Company and certain of its existing stockholders, dated as of February 14, 1996. (1) 10.25 Agreement of Lease by and between the Company and the Trustees of Wormwood Realty, dated as of May 8, 1996. (1) 10.26 Company 1994 Stock Option Plan. (1)(**) 10.27 Company 1996 Stock Option Plan. (1)(**) 10.28 Amendment No. 1 to 1996 Stock Option Plan. (5)(**) 10.29 Company 1996 Stock Option Plan for Non-Employee Directors. (1)(**) 10.30 Company 1998 Stock Incentive Plan (5)(**) 10.31 Subordinated Note and Common Stock Purchase Agreement by and among the Company, Whitney Subordinated Debt Fund, L.P. and, for certain purposes, J.H. Whitney & Co., dated as of July 8, 1998. (4) 10.32 Guarantee and Collateral Agreement made by the Company and certain of its Subsidiaries in favor of J.H. Whitney & Co., as Agent, dated as of July 8, 1998. (4) 10.33 Amendment No. 1 dated April 14, 1999 to Subordinated Note and Common Stock Purchase Agreement of July 8, 1998 by and among the Company, Whitney Subordinated Debt Fund, L.P., and, for certain purposes, J.H. Whitney & Co. (7) 10.34 Waiver No. 1 dated April 14, 1999 by and among the Company and Whitney Subordinated Debt Fund, L.P. (7) 10.35 Registration Rights Agreement among the Company, Whitney Subordinated Debt Fund, L.P. and J.H. Whitney & Co., dated as of July 8, 1998. (4) 10.36 Consulting Agreement between the Company and Morris Simon, M.D., dated February 27, 1998. (6) 10.37 Assignment Agreement between the Company and Morris Simon, M.D., dated February 27, 1998. (6) 10.38 Stock Option Agreement evidencing grant by the Company to Morris Simon, M.D., dated February 27, 1998. (6) 10.39 Non-plan Stock Option Agreement evidencing grant by the Company to Morris Simon, M.D., dated February 27, 1998. (6) 10.40 Registration Rights Agreement entered into by and among the Company and Morris Simon, M.D., dated February 27, 1998. (6) Exhibit No. Description of Exhibit - ----------- ---------------------- 10.41 Registration Rights Agreement dated as of March 30, 1999 by and among the Company and the individuals listed on Schedule A thereto. (7) 10.42 Amendment dated May 12, 1999 to Waiver No. 1 dated April 14, 1999 by and among the Company and Whitney Subordinated Debt Fund, L.P. (7) 10.43 Amendment No. 2 dated November 9, 1998 to Purchase Agreement between the Company and Elekta AB (Publ.) of May 8, 1998. (7) 10.44 Amendment No. 1 dated as of March 30, 1999 to Registration Rights Agreement among the Company, Whitney Equity Partners, Boston Scientific Corporation, David J. Morrison and Corporate Decisions, Inc. of February 16, 1996. (7) 10.45 Amendment No. 1 dated as of March 30, 1999 to Registration Rights Agreement among the Company, Whitney Subordinated Debt Fund, L.P. and J.H. Whitney & Co. of July 8, 1998. (7) 10.46 Common Stock Purchase Warrant No. WSDF-4. (9) 10.47 Credit Agreement, dated as of September 13, 1999, among NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT NeuroSciences Innovasive Systems, Inc., as Borrowers, and Brown Brothers Harriman & Co., as Lender (10) 10.48 $5 Million Promissory Note, dated as of September 13, 1999, issued by NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc. in favor of Brown Brothers Harriman & Co. (10) 10.49 Guarantee, dated as of September 13, 1999, made by NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT NeuroSciences Innovasive Systems, Inc. in favor of Brown Brothers Harriman & Co. (10) 10.50 Security Agreement, dated as of September 13, 1999, between NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT NeuroSciences Innovasive Systems, Inc., as Debtors, and Brown Brothers Harriman & Co., as Lender. (10) 10.51 Collateral Patent Assignment, dated as of September 13, 1999, made by the Company in favor of Brown Brothers Harriman & Co. (10) 10.52 Pledge Agreement, dated as of September 13, 1999, between NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT NeuroSciences Innovasive Systems, Inc., as Pledgors, and Brown Brothers Harriman & Co., as Lender. (10) 10.53 Amendment No. 2 to Subordinated Note and Common Stock Purchase Agreement, dated as of September 13, 1999, by and among the Company, Whitney Subordinated Debt Fund, L.P. and, for certain purposes, J.H. Whitney & Co. (10) Exhibit No. Description of Exhibit - ----------- ---------------------- 10.54 $6 Million Subordinated Promissory Note, dated as of July 8, 1998, issued by the Company in favor of Whitney Subordinated Debt Fund, L.P. (10) 10.55 Letter Agreement of Waiver of Compliance with Certain Covenants under Credit Agreements, dated as of November 15, 1999, by and among NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as Borrowers, and Brown Brothers Harriman & Co., as Lender. (10) 10.56 Waiver No. 2, made as of November 12, 1999, by and between the Company and Whitney Subordinated Debt Fund, L.P. (10) 10.57 Waiver and Consent Agreement by and among Brown Brothers Harriman & Co., J.H. Whitney & Co., Whitney Subordinated Debt Fund, L.P. and the Borrowers named therein, dated as of March 20, 2000. (12) 10.58 Common Stock Purchase Warrant No. BBH-1. (12) 10.59 Amendment No. 3 to Subordinated Note and Common Stock Purchase Agreement, dated as of April 5, 2000, by and among NMT Medical, Inc., Whitney Subordinated Debt Fund, L.P. and, for certain purposes, J.H. Whitney & Co. (13) 10.60 First Amendment to Credit Agreement, dated as of April 5, 2000, by and among NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc. as the Borrowers and Brown Brothers Harriman & Co. as the Lender. (14) 10.61 Severance and Settlement Agreement and Release, dated as of April 8, 2000, by and between NMT Medical, Inc. and Thomas M. Tully. (13) (**) 10.62 Employment Agreement by and between the Company and John E. Ahern, dated as of September 21, 2000. (15) (**) 10.63 Waiver and Amendment No. 4, made as of November 13, 2000, by and between the Company and Whitney Subordinated Debt Fund, L.P. (15) 10.64 Employment Agreement by and between the Company and Richard E. Davis, dated as of February 14, 2000.(**) 10.65 Settlement Agreement, dated as of February 14, 2001, by and between the Company and C. Leonard Gordon.(**) 10.66 License Agreement, dated as of October 2000, by and between the Company and Children's Medical Center Corporation. 10.67 Termination Agreement, dated as of March 29, 2001, by and among the Company, NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc., and NMT NeuroSciences Innovasive Systems, Inc. and Brown Brothers Harriman & Co. 10.68 Termination Agreement, dated as of March 29, 2001, by and among NMT NeuroSciences Implants (France) SA, NMT NeuroSciences Instruments (France) SARL and Brown Brothers Harriman & Co. 10.69 Amendment No. 5, dated as of December 31, 2000, by and between the Company and Whitney Subordinated Debt Fund, L.P. 21.1 Subsidiaries of the Registrant. 23.1 Consent of Arthur Andersen LLP. - ----------------- (1) Incorporated by reference to Exhibits to the Registrant's Registration Statement on Form S-1 (File No. 333-06463). (2) Confidential treatment requested as to certain portions, which portions are omitted and filed separately with the Commission. (3) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1997. (4) Incorporated by reference to Exhibits to the Registrant's Current Report on Form 8-K, dated July 8, 1998. (5) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1998. (6) Incorporated by reference to Exhibits to the Registrant's Amended Quarterly Report on Form 10-Q/A for the quarter ended April 31, 1998. (7) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. (8) Incorporated by reference to Exhibits to the Registrant's Current Report on Form 8-K, dated June 7, 1999. (9) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1999. (10) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. (11) Incorporated by reference to Exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1998. (12) Incorporated by reference to Exhibits to the Registrant's Annual Report on Form 10-K for the fiscal year ended December 31, 1999. (13) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 2000. (14) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 2000. (15) Incorporated by reference to Exhibits to the Registrant's Quarterly Report on Form 10-Q for the quarter ended September 30, 2000. (**) Management contract or compensatory plan or arrangement required to be filed as an Exhibit to this Annual Report on Form 10-K. EX-10.64 2 0002.txt EMPLOYMENT AGREEMENT Exhibit 10.64 EMPLOYMENT AGREEMENT This Agreement is effective as of the 14th day of February, 2001, by and between Richard E. Davis (the "Executive") and NMT Medical, Inc., a Delaware corporation (the "Company"). WHEREAS, the Company wishes to employ the Executive as the Vice President and Chief Financial Officer 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 February 14, 2004, 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 Vice President and Chief Financial Officer of the Company. In such capacity, the Executive shall report to the President and Chief Executive Officer of the Corporation (the "President") 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 of the Company (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. 3. BASE SALARY. ----------- During the Employment Term, the Executive shall be paid an annual base salary of $190,000 ("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 President 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 President. 4. STOCK OPTIONS. ------------- On the Effective Date, the Executive shall be granted a stock option (the "Options") to purchase 85,000 shares of common stock, par value $.001 per share, of the Company (the "Common Stock"), under either the Company's 1998 Stock Incentive Plan or 1996 Stock Option Plan. The exercise price for the Options shall be the closing price ($1.25) 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 or the termination of the Executive's employment without cause pursuant to Section 13. 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. 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 a cash bonus of up to 30% of the Salary as then in effect for such fiscal year 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 President 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 President in consultation with the Executive on an annual basis; provided, however, that the President, in his 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. 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"). 2 (b) Vacation. During each twelve month period of the Employment Term, the Executive shall be entitled to three 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. 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, 3 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 February 15, 2001 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. 4 (b) 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 such other office or location; (iv) 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) Annual Bonus for the fiscal year in which such termination is effected, notwithstanding the provisions of Section 5 and as if the Executive had served throughout such fiscal year and had satisfied the goals as set forth in the Incentive Plan for such fiscal year; and (iii) Continued Salary for a period of nine months from the Termination Date. 5 In addition, all exercisable Options shall expire 360 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 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 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 6 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 to (i) indemnify the Executive in his capacity as an officer of the Company and, to the extent applicable, as an officer and director of 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. 7 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: (a) If to the Company: NMT Medical, Inc. 27 Wormwood Street Boston, MA 02210 Attn: John E. Ahern With a copy to: Hale and Dorr LLP 60 State Street Boston, MA 02109-1803 Attn: Steven D. Singer, Esq. (b) If to the Executive, at his address as it appears on the Company's records, With a copy to: Mr. Barry Gold, Esq. Conn Kavanaugh Rosenthal Peisch & Ford, LLP 10 Post Office Square Boston, MA 02109 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. 8 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. This Agreement may be executed by facsimile signature. 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.] 9 THE UNDERSIGNED have executed this Agreement effective as of the date first written above. COMPANY: NMT Medical, Inc. By: /s/ John E. Ahern ------------------------------------- John E. Ahern President and Chief Executive Officer EXECUTIVE: /s/ Richard Davis ------------------------------------- Richard E. Davis 10 EX-10.65 3 0003.txt SETTLEMENT AGREEMENT Exhibit 10.65 SETTLEMENT AGREEMENT Settlement Agreement between NMT Medical, Inc. ("NMT") and C. Leonard Gordon ("Gordon") dated as of February 14, 2001. BACKGROUND ---------- 1. NMT employed Gordon as Acting President and Chief Executive Officer ("CEO") commencing April 8, 2000. Gordon was removed within a month as Acting President and CEO. 2. Gordon has asserted that NMT, by failing to grant him options to acquire 60,000 shares of NMT common stock and by replacing him as Acting President and CEO, was in breach of agreements between Gordon and NMT. 3. Gordon has previously made demand upon the Board of Directors of NMT (the "Board"), by means of, inter alia, various draft memoranda addressed to the Board (the "Memoranda"), to bring suit against certain entities, stating his intention to bring such suit derivatively if the Board should decline the demand. Gordon has withdrawn said demand, but has requested reimbursement from NMT for the legal fees he expended on behalf of NMT in connection with said proposed suit, which he represents were exclusively fees paid or owed to the law firm of Piper Marbury Rudnick & Wolfe LLP. 4. The Board has previously agreed to an arbitration of these matters by a designated lawyer, but each of NMT and Gordon wishes to settle the foregoing matters now. NOW THEREFORE, in consideration of the premises, the agreement hereinafter set forth and the payment, options and releases set forth in this Settlement Agreement, the parties hereto hereby agree as follows: 1. NMT will pay Gordon $100,000 promptly following the execution of this Settlement Agreement. 2. NMT will grant Gordon a non-statutory option to purchase all or any part of 60,000 shares of NMT common stock, at the per share exercise price equal to the closing price of NMT's common stock on the Nasdaq National Market on the close of business on the date hereof. Said option shall be evidenced by an option agreement dated the date hereof substantially in the form of Exhibit A to this Settlement Agreement. 3. In consideration of the foregoing, Gordon does hereby release NMT, its successors and assigns (collectively, the "Released Parties"), and shall hold them harmless from and against any and all claims, causes of action, loss, cost or expense relating to the subject matter set forth in paragraph 2 under "Background", including but not limited to any legal expenses in connection with Gordon's aforesaid employment by NMT as Acting President and CEO. Gordon does hereby further release the Released Parties, and shall hold them harmless from and against, any and all claims, loss, cost or expense relating to any legal or other expenses, including those owed to the law firm of Piper Marbury Rudnick & Wolfe LLP in connection with the aforesaid demand for a suit described in paragraph 3 under "Background". Any claims relating to the events and circumstances set forth in paragraph 2 of "Background" and any claims relating to the events and circumstances set forth in paragraph 3 of "Background" are collectively referred to herein as the "Claims." 4. Gordon, on behalf of himself individually and as a stockholder of NMT, hereby covenants not to sue any of the Released Parties, their respective attorneys, agents and employees, J. H. Whitney & Co. (together with each of its affiliates), Jeffrey R. Jay, M.D., Jeffrey F. Thompson, Fletcher Spaght, Inc., R. John Fletcher, The Children's Hospital Boston, or James E. Lock, M.D. in connection with or relating to any of the Claims. NMT Medical, Inc. By: /s/ John E. Ahern /s/ C. Leonard Gordon ----------------- --------------------- John E. Ahern C. Leonard Gordon President and Chief Executive Officer -2- EXHIBIT A NMT MEDICAL, INC. NON-STATUTORY STOCK OPTION LETTER AGREEMENT 1996 STOCK OPTION PLAN TO: C. Leonard Gordon We are pleased to inform you that you have been granted an option (the "Option") to purchase 60,000 shares (the "Shares") of the common stock, $.001 par value per share (the "Common Stock"), of NMT Medical, Inc. (the "Company"), at an exercise price of $1.25 per share (the "Exercise Price"). The date of grant of the Option is February 14, 2001 (the "Grant Date"). A copy of the Plan is attached, and the provisions thereof, including, without limitation, those relating to withholding taxes, are incorporated into this Agreement by reference. The terms of the option are as set forth in the Plan and in this Agreement. The most important of the terms set forth in the Plan are summarized as follows: Term. The term of the option is seven (7) years from Grant Date, unless sooner terminated. Exercise. During your lifetime only you can exercise the Option. The Plan also provides for exercise of the Option by the personal representative of your estate or the beneficiary thereof following your death. You may use the Notice of Exercise in the form attached to this Agreement when you exercise the Option. Payment for Shares. The Option may be exercised by the delivery of: (a) Cash, personal check (unless at the time of exercise the Plan Administrator determines otherwise), or bank certified or cashier's checks; or (b) Unless the Plan Administrator in its sole discretion determines otherwise, a properly executed Notice of Exercise, together with irrevocable instructions to a broker to promptly deliver to the Company the amount of sale or loan proceeds to pay the Exercise Pice. Termination. In the event that your relationship with the Company ceases for any reason other than termination for cause, death, or total disability, and unless by its terms the Option sooner terminates or expires, the Plan Administrator hereby waives Section 5.7 of the Plan such that the Option shall continue to vest and remain exercisable in accordance with the provisions hereof notwithstanding such cessation. In the event that your relationship with the Company ceases by reason of termination for cause, death or total disability, then the provisions of Section 5.7 and Section 5.8 of the Plan shall govern the Option. Transfer of Option. The Option is not transferable except by will or by the applicable laws of descent and distribution or pursuant to a qualified domestic relations order. Vesting. During the period of your continuous relationship with the Company or any subsidiary thereof, the Option shall be (i) immediately exercisable with respect to 12,500 shares of Common Stock on the Grant Date and (ii) shall become exercisable with respect to an additional 1,250 shares Common Stock on the eighth day of each month thereafter until fully vested. Notwithstanding the foregoing, the Option 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 cash or the right to receive cash, securities, or other property, (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 or (c) any sale of all or substantially all of the assets of the Company. YOU SHOULD CONSULT WITH YOUR TAX ADVISOR CONCERNING THE RAMIFICATIONS TO YOU OF HOLDING OR EXERCISING YOUR OPTIONS OR HOLDING OR SELLING THE SHARES UNDERLYING SUCH OPTIONS. You understand that, during any period in which the Shares which may be acquired pursuant to your Option are subject to the provisions of Section 16 of the Securities Exchange Act of 1934, as amended (and you yourself are also so subject), in order for your transactions under the Plan to qualify for the exemption from Section 16(b) provided by Rule 16b-3, a total of six months must elapse between the grant of the Option and the sale of Shares underlying the Option. Please execute the Acceptance and Acknowledgement set forth below on the enclosed copy of this Agreement and return it to the undersigned. Very truly yours, NMT MEDICAL, INC. By: /s/ John E. Ahern ---------------------------------------------- Name: John E. Ahern Title: President and Chief Executive Officer -2- ACCEPTANCE AND ACKNOWLEDGEMENT I, a resident of the State of New York, accept the stock option described above granted under the NMT Medical, Inc. 1996 Stock Option Plan (the "Plan"), and acknowledge receipt of a copy of this Agreement, including a copy of the Plan. I have read and understand the Plan. Dated: February 14, 2001 ----------------- Taxpayer I.D. Number: ---------------------- Signature: /s/ C. Leonard Gordon --------------------- By his or her signature below, the spouse of the Optionee, if such Optionee is legally married as of the date of such Optionee's execution of this Agreement, acknowledges that he or she has read this Agreement and the Plan and is familiar with the terms and provisions thereof, and agrees to be bound by all the terms and conditions of this Agreement and the Plan. Dated: ---------------------- Spouse's Signature: ---------------------- Printed Name: ---------------------- -3- NOTICE OF EXERCISE The undersigned, pursuant to an incentive Stock Option Letter Agreement (the "Agreement") between the undersigned and NMT Medical, Inc. (the "Company"), hereby irrevocably elects to exercise purchase rights represented by the Agreement, and to purchase thereunder [______] shares (the "Shares") of the Company's common stock, $.001 par value per share (the "Common Stock"), covered by the Agreement and herewith makes payment in full therefor. The undersigned acknowledges that the number of shares of Common Stock subject to the Agreement is hereafter reduced by the number of shares of Common Stock represented by the Shares. Very truly yours, --------------------------------------------- Name: Social Security No. ------------------------- Address: ------------------------------------- --------------------------------------------- -4- EX-10.66 4 0004.txt LICENSE AGREEMENT Exhibit 10.66 LICENSE AGREEMENT This Agreement is made and entered into as of October, 2000 (the Effective Date), by and between CHILDREN'S MEDICAL CENTER CORPORATION, a charitable corporation duly organized and existing under the laws of the Commonwealth of Massachusetts and having its principal office at 300 Longwood Avenue, Boston, Massachusetts, 02115, U.S.A. (hereinafter referred to as "CMCC"), and NMT, Inc. a business corporation organized and existing under the laws of the State of Delaware and having its principal office at 27 Wormwood Street, Boston, MA 02210 hereinafter referred to as "Licensee"). WHEREAS, CMCC is the owner of certain Study Data (as that term shall be defined hereafter) and has the right to grant licenses for the use thereof; desires to see Study Data utilized in the public interest and is willing to grant a license thereunder on the terms and conditions described herein; WHEREAS, Licensee desires to obtain a limited exclusive license under the terms and conditions of this Agreement. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto agree as follows: ARTICLE I. DEFINITIONS For the purposes of this Agreement, the following words and phrases shall have the meanings set forth below: A. "Affiliate" shall mean any company or other legal entity controlling, controlled by or under common control with Licensee. For purposes of the definition of "Affiliate" the term "control" shall mean: (i) in the case of a corporate entity, the direct or indirect ownership of at least a majority of the stock or participating shares entitled to vote for the election of directors of that entity; (ii) in the case of a partnership, the power customarily held by a general partner to direct the management and policies of such partnership; or (iii) in the case of a joint venture, whether in corporate, partnership or other legal form, a more than nominal economic interest and managerial role. B. "License Field" shall mean the preparation and prosecution of applications to support a Product Marketing Application to the Food and Drug Administration for Ventricular Septal Defect ("VSD") Closure using the CardioSEAL or STARflex device. C. "Licensee" shall mean Licensee and/or its successor(s) or assignee(s) and/or its Affiliates. D. "Study Data" shall mean data and results of the studies relating to VSD Closure (including, but not limited to data obtained during the conduct of the High Risk CardioSEAL study, the Clamshell registry and the STARflex VSD Study) [FILL IN IRB NUMBERS] conducted under the supervision of Dr. Kathy Jenkins, between [FILL IN DATES OF STUDY]. E. "Sublicensee" shall mean a person or entity unaffiliated with Licensee to who Licensee has granted an arm's length sublicense under this Agreement. ARTICLE II. GRANT CMCC hereby grants to Licensee a exclusive license to use Study Data solely in the License Field for Five (5) years from the Effective Date of this Agreement which shall be the term thereof, unless it shall be sooner terminated as hereinafter provided. ARTICLE III. DUE DILIGENCE Licensee shall use the Study Data in a diligent manner to seek regulatory approval for the CardioSEAL and/or STARflex device in the treatment of VSD with the United States Food and Drug Administration ("FDA"). ARTICLE IV. PAYMENTS A. For the provision of the High Risk current and updated CardioSEAL data, NMT will make four quarterly payments of $25,000 each on January 1, 2001, April 1, 2001, July 1, 2001, and October 1, 2001. B. For provision of the existing Clamshell registry data, NMT will make a single payment of $25,000 within thirty (30) days of the execution of this Agreement. If updated information on Clamshell patients is requested by the FDA, these data will be provided at no additional charge to NMT. C. If STARflex data is to be provided to NMT either as part of the initial application or as a supplement, a payment of $25,000 will be made on January 1, 2002. ARTICLE V. UNIFORM INDEMNIFICATION AND INSURANCE PROVISIONS A. Licensee shall indemnify, defend and hold harmless CMCC, its corporate affiliates, current or future directors, trustees, officers, faculty, medical and professional staff, employees, students and agents and their respective successors, heirs and assigns (the "Indemnitees"), against any liability, damage, loss or expense (including reasonable attorney's fees and expenses of litigation) incurred by or impose upon the Indemnitees or any one of them in connection with any claims, suits, actions, demands or judgments arising out of any theory of product liability (including, but not limited to, actions in the form of tort, warranty, or strict liability) concerning any product, process or service made, used or sold pursuant to any right or license granted under this Agreement. B. Licensee's indemnification under Article VIII, Paragraph A above shall not apply to any liability, damage, loss or expense to the extent that it is directly attributable to the negligent activities, reckless misconduct or intentional misconduct of the Indemnitees. 2 C. Licensee agrees, at its own expense, to provide attorneys reasonably acceptable to CMCC to defend against any actions brought or filed against any party indemnified hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought. D. Beginning at the time as any such product, process or service is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee or by a sublicensee, Affiliate or agent of Licensee, Licensee shall, at its sole cost and expense, procure and maintain commercial general liability insurance in amounts not less than $2,000,000 per incident and $2,000,000 annual aggregate and naming the Indemnitees as additional insureds. Such commercial general liability insurance shall provide (i) product liability coverage and (ii) contractual liability coverage for Licensee's indemnification under Article VIII, Paragraphs A through C of this Agreement. If Licensee elects to self-insure all or part of the limits described above (including deductibles or retentions which are in excess of $250,000 annual aggregate), such self-insurance program must be acceptable to CMCC and the Risk Management Foundation of the Harvard Medical Institutions, Inc. The minimum amount of coverage required under this Article VIII, Paragraph E shall not be construed to create a limited of Licensee's liability with respect to its indemnification under Article VIII, Paragraphs A through C of this Agreement. E. Licensee shall provided CMCC with written evidence of such insurance upon request of CMCC. Licensee shall provide CMCC with written notice at least fifteen (15) days prior to the cancellation, non-renewal or material change in such insurance. If Licensee does not obtain replacement insurance providing comparable coverage within such fifteen (15) day period, CMCC shall have the right to terminate this Agreement effective at the end of such fifteen (15) day period without notice of any additional waiting periods. F. Licensee shall maintain such commercial general liability insurance during (i) the period that any such product or service is being commercially distributed or sold (other than for the purpose of obtaining regulatory approvals) by Licensee or by a sublicensee, Affiliate or agent of Licensee and (ii) a reasonable period after the period referred to above, which in no event shall be less than fifteen (15) years. G. Article VIII, Paragraphs A through F shall survive expiration or termination of this Agreement. H. CMCC MAKES NO WARRANTY, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTY OF MERCHANTABILITY OR ANY IMPLIED WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO ANY PATENT, TRADEMARK, SOFTWARE, TRADE SECRET, TANGIBLE RESEARCH PROPERTY, INFORMATION OR DATA LICENSED OR OTHERWISE PROVIDED TO LICENSEE HEREUNDER AND HEREBY DISCLAIMS THE SAME. 3 ARTICLE VI. NON-USE OF NAMES Licensee shall not use the name of Children's Medical Center Corporation nor the name of any of its corporate affiliates or employees, not any adaptation thereof, in any advertising, promotional or sales literature without prior written consent obtained from CMCC in each case, except that Licensee may state that it is licensed by CMCC under one or more of the patents and/or applications comprising the Patent Rights, and Licensee may comply with disclosure requirements of all applicable laws relating to its business, including United States and state security laws. ARTICLE VII. ASSIGNMENT A. Except as otherwise provided herein, this Agreement is not assignable in whole or in part, and any attempt to do so shall be void and of no effect. B. CMCC may assign this Agreement at any time to any corporate affiliate of CMCC without the prior consent of Licensee. C. Except as provided in Article XI, Paragraph D below, Licensee may assign this Agreement to another entity only with the prior written consent of CMCC, which consent shall not be unreasonably withheld or delayed. D. Notwithstanding anything herein to the contrary, in the even Licensee merges with another entity, is acquired by another entity, or sells all or substantially all of its assets to another entity, Licensee may assign its rights and obligations hereunder to, in the event of a merger or acquisition, the surviving entity, and in the event of a sale, the acquiring entity, without CMCC's consent so long as: (i) Licensee is not then in breach of this Agreement; (ii) the proposed assignee has a net worth at least equivalent to the net worth Licensee had as of the date of this Agreement; (iii) the proposed assignee has available resources and sufficient scientific, business and other expertise comparable to Licensee in order to satisfy its obligations hereunder; (iv) Licensee provides written notice of the assignment to CMCC, together with documentation sufficient to demonstrate the requirements set forth in subparagraphs (i) through (iii) above, at least thirty (3) days prior to the effective date of the assignment; and (v) CMCC receives from the assignee, in writing, at least thirty (30) days prior to the effective date of the assignment: (a) reaffirmation of the terms of this Agreement; (b) an agreement to be bound by the terms of this Agreement; and (c) an agreement to perform the obligations of Licensee under this Agreement. ARTICLE VIII. TERM AND TERMINATION A. The term of this Agreement shall be not less than five (5). B. CMCC may terminate this Agreement immediately upon the bankruptcy, insolvency, liquidation, dissolution or cessation of operations of Licensee; or the filing of 4 any voluntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of Licensee; or any assignment by Licensee for the benefit of creditors; or the filing of any involuntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of Licensee which is not dismissed within ninety (90) days of the date on which it is filed or commenced. C. CMCC may terminate this Agreement upon thirty (30) days prior written notice in the event of Licensee's failure to make to CMCC payments due and payable hereunder in a timely manner, unless Licensee shall make all such payments to CMCC within said thirty (30) day period. Upon the expiration of the thirty (30) day period, if Licensee shall not have made all such payments to CMCC, the rights, privileges and licenses granted hereunder shall terminate. D. Except as otherwise provided in Paragraph C above, CMCC may terminate this Agreement upon sixty (60) days prior written notice in the event of Licensee's breach or default of any material term or condition or warranty contained in this Agreement, unless Licensee shall cure such breach to CMCC's reasonable satisfaction within said sixty (60) day period. Upon the expiration of the sixty (60) day period, if Licensee shall not have cured said breach to the reasonable satisfaction of CMCC, the rights, privileges and license granted hereunder shall terminate. E. Licensee shall have the right to terminate this Agreement at any time upon thirty (30) prior written notice to CMCC if CMCC shall fail to deliver data in a timely manner. ARTICLE X. PAYMENTS, NOTICES AND OTHER COMMUNICATIONS A. All payments, notices, reports and/or other communications made in accordance with this Agreement, shall be sufficiently made or given on the date of the mailing if delivered by hand, by facsimile or sent by first class mail postage prepaid and addressed as follows: In the case of CMCC: Chief Intellectual Property Officer Intellectual Property Office Children's Hospital 300 Longwood Avenue Boston, MA 02115 In the case of Licensee: President NMT, Inc. 27 Wormwood Street Boston, MA 02210 or such other address as either party shall notify the other in writing. 5 ARTICLE XI. GENERAL PROVISIONS A. All rights and remedies hereunder will be cumulative and not alternative, and this Agreement shall be construed and governed by the laws of the Commonwealth of Massachusetts. B. This Agreement may be amended only by written agreement signed by the parties. C. It is expressly agreed by the parties hereto that CMCC and Licensee are independent contractors and nothing in this Agreement is intended to create an employer relationship, joint venture, or partnership between the parties. No party has the authority to bind the other. D. This Agreement constitutes the entire agreement between the parties with respect to the subject matter hereof and supersedes all proposals, negotiations and other communications between the parties, whether written or oral, with respect to the subject matter hereof. E. If any provisions of this Agreement shall be held to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired thereby. F. This Agreement may be executed in any number of counterparts, each of which shall be deemed an original as against the party whose signature appears thereon but all of which taken together shall constitute but one and the same instrument. G. The failure of either party to assert a right to which it is entitled or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar or subsequent failure to perform any such term or condition by the other party. H. Licensee agrees to mark any Licensed Products sold in the United States with all applicable United States patent numbers. All Licensed Products shipped to or sold in other countries shall be marked in such a manner as to conform with the patent laws and practices of the country of manufacture or sale. I. Each party hereto agrees to execute, acknowledge and deliver such further instruments and do all such further acts as may be necessary or appropriate to carry out the purposes and intent of this Agreement. J. The paragraph headings contained in this Agreement are for references purposes only and shall not in any way affect the meaning or interpretation of this Agreement. 6 IN WITNESS WHEREOF, the parties have executed this Agreement as of the date last written below. CHILDREN'S MEDICAL CENTER CORPORATION LICENSEE By: /s/ William New By: /s/ John E. Ahern ----------------------------------------- --------------------------- Name: William New Name: John Ahern --------------------------------------- ------------------------- Title: Vice President Research Administration Title: President / CEO -------------------------------------- ------------------------ Date: 1/11/01 Date: 1/5/01 --------------------------------------- ------------------------- 7 EX-10.67 5 0005.txt TERMINATION AGREEMENT EXHIBIT 10.67 TERMINATION AGREEMENT --------------------- This TERMINATION AGREEMENT dated as of March 29, 2001, is among NMT Medical, Inc., a Delaware corporation, NMT Heart, Inc., a Delaware corporation, NMT Investments Corp., a Massachusetts corporation, NMT NeuroSciences (International), Inc., a Delaware corporation, NMT NeuroSciences (US), Inc., a Delaware corporation, NMT NeuroSciences (IP), Inc., a Delaware corporation, and NMT Neurosciences Innovasive Systems, Inc., a Florida corporation (collectively, the "Borrowers"), and Brown Brothers Harriman & Co. (the "Lender"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement (as defined below). Recitals -------- A. Pursuant to the terms of that certain Credit Agreement dated as of September 13, 1999, among the Borrowers and the Lender (as amended to date, the "Credit Agreement"), the Lender has provided certain financial accommodations to the Borrowers; B. The Borrowers have (i) repaid to the Lender all outstanding Loans under the Credit Agreement and paid all of their other obligations thereunder (including, without limitation, all outstanding fees, charges and disbursements of counsel for the Lender) and (ii) delivered to the Lender any original Letters of Credit outstanding under the Credit Agreement marked "terminated"; and C. The Borrowers and the Lender desire to terminate the Credit Agreement and the ability of the Borrowers to borrow thereunder. NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: Section 1. Termination of Loan Documents. The Credit Agreement and each of the security documents and pledge agreements referred to in Section 4.01 of the Credit Agreement or otherwise provided to the Lender in connection with the Credit Agreement and the transactions contemplated thereby (collectively, with the Credit Agreement, the "Loan Documents") are hereby terminated and shall be of no further force or effect, except, as to each such Loan Document, for provisions therein that expressly survive the termination of such Loan Document, including, without limitation, Sections 2.11, 2.12 and 8.03 of the Credit Agreement in accordance with Section 8.05 thereof. The Borrowers hereby terminate all obligations of the Lender to make any further extensions of credit pursuant to the Credit Agreement. At the request of the Borrowers, the Lender shall this day deliver to the Borrowers the promissory note executed by the Borrowers in favor of the Lender pursuant to the Credit Agreement. Section 2. Release of Collateral. The Lender hereby terminates and releases any security interests in or liens on any property of the Borrowers or any other party heretofore granted to secure the payment or performance of the obligations of the Borrowers under the Loan Documents (collectively, the "Collateral"), and hereby releases and reassigns all such Collateral to the Borrowers or such other parties (as applicable). At the request of the Borrowers, the Lender shall this day return to the Borrowers all stock certificates and other Collateral delivered to the Lender. Section 3. Further Assurances. The parties to this Agreement shall, upon the reasonable request of the other party and at the reasonable expense of the Borrowers (including, without limitation, the payment of the reasonable fees, charges and disbursements of counsel for the Lender), take any and all actions and execute any and all documents (including, but not limited to, the UCC-3 termination statements attached hereto as Exhibit A and the patent assignment termination attached hereto as Exhibit B) necessary or desirable to effectuate the terms and intent of this Agreement, including, without limitation, the termination of the Loan Documents as provided herein and the release of the Collateral. Without limiting the generality of the foregoing, at the request of the Borrowers, the Lender hereby reconfirms its authorization (as set forth in that certain Release of Security Interest Agreement dated as of March 20, 2000) of J.H. Whitney & Co. and Whitney Subordinated Debt Fund, L.P. (collectively, "Whitney") to, at the expense of the Borrowers, execute and deliver to the Borrowers all patent security interest terminations or other documentation, and take any and all actions, deemed necessary or advisable by the Borrowers to evidence, implement or confirm the termination of Whitney's security interest in or lien on the non-United States patents of the Borrowers and/or the affiliates of the Borrowers (such security interest in and/or lien on such non-United States patents to have been held by Whitney for the benefit of the Lender pursuant to that certain Amendment No. 2 to Subordinated Note and Common Stock Purchase Agreement, dated as of September 13, 1999, by and among NMT Medical, Inc. and Whitney). Section 4. Miscellaneous. This Agreement (i) may be executed in any number of counterparts, which together shall constitute one instrument, (ii) shall be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the Commonwealth of Massachusetts and (iii) shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. [END OF TEXT] 2 Each of the undersigned has caused this Agreement to be executed and delivered by its duly authorized officer as of the date hereof. NMT MEDICAL, INC. By: /s/ John E. Ahern ------------------------------ Name: John E. Ahern Title Chief Executive Officer NMT HEART, INC. By: /s/ John E. Ahern ------------------------------ Name: John E. Ahern Title President NMT INVESTMENTS CORP. By: /s/ John E. Ahern ------------------------------ Name: John E. Ahern Title President NMT NEUROSCIENCES (INTERNATIONAL), INC. By: /s/ John E. Ahern ------------------------------ Name: John E. Ahern Title President 3 NMT NEUROSCIENCES (US), INC. By: /s/ John E. Ahern ------------------------------ Name: John E. Ahern Title President NMT NEUROSCIENCES (IP), INC. By: /s/ John E. Ahern ------------------------------ Name: John E. Ahern Title President NMT NEUROSCIENCES INNOVASIVE SYSTEMS, INC. By: /s/ John E. Ahern ------------------------------ Name: John E. Ahern Title President BROWN BROTHERS HARRIMAN & CO. By: /s/ Gregory S. Pachus ------------------------------ Name: Gregory S. Pachus Title Vice President 4 EX-10.68 6 0006.txt TERMINATION AGREEMENT EXHIBIT 10.68 TERMINATION AGREEMENT --------------------- This TERMINATION AGREEMENT dated as of March 29, 2001, is among NMT NeuroSciences Implants (France) SA, a French limited liability company, and NMT NeuroSciences Instruments (France) SARL, a French limited liability company (collectively, the "Borrowers"), and Brown Brothers Harriman & Co. (the "Lender"). Capitalized terms used herein and not otherwise defined shall have the meanings set forth in the Credit Agreement (as defined below). Recitals -------- A. Pursuant to the terms of that certain Credit Agreement dated as of September 13, 1999, among the Borrowers and the Lender (as amended to date, the "Credit Agreement"), the Lender has provided certain financial accommodations to the Borrowers; and B. The Borrowers have repaid to the Lender all outstanding Loans under the Credit Agreement and paid all of their other obligations thereunder (including, without limitation, all outstanding fees, charges and disbursements of counsel for the Lender). NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows: Section 1. Termination of Loan Documents. The Credit Agreement and each of the guarantees, security documents and pledge agreements referred to in Section 4.01 of the Credit Agreement or otherwise provided to the Lender in connection with the Credit Agreement and the transactions contemplated thereby (collectively, with the Credit Agreement, the "Loan Documents") are hereby terminated and shall be of no further force or effect, except, as to each such Loan Document, for provisions therein that expressly survive the termination of such Loan Document, including, without limitation, Sections 2.06, 2.07 and 7.03 of the Credit Agreement in accordance with Section 7.05 thereof. At the request of the Borrowers, the Lender shall this day deliver to the Borrowers all promissory notes executed by the Borrowers in favor of the Lender pursuant to the Credit Agreement. Section 2. Release of Collateral. The Lender hereby terminates and releases any security interests in or liens on any property of the Borrowers or any other party heretofore granted to secure the payment or performance of the obligations of the Borrowers under the Loan Documents (collectively, the "Collateral"), and hereby releases and reassigns all such Collateral to the Borrowers or such other parties (as applicable). At the request of the Borrowers, the Lender shall this day return to the Borrowers all stock certificates and other Collateral delivered to the Lender. Section 3. Further Assurances. The parties to this Agreement shall, upon the reasonable request of the other party and at the reasonable expense of the Borrowers (including, without limitation, the payment of the reasonable fees, charges and disbursements of counsel for the Lender), take any and all actions and execute any and all documents necessary or desirable to effectuate the terms and intent of this Agreement, including, without limitation, the termination of the Loan Documents as provided herein and the release of the Collateral. Section 4. Miscellaneous. This Agreement (i) may be executed in any number of counterparts, which together shall constitute one instrument, (ii) shall be governed by and construed in accordance with the laws (other than the conflict of laws rules) of the Commonwealth of Massachusetts and (iii) shall bind and inure to the benefit of the parties hereto and their respective successors and assigns. [END OF TEXT] 2 Each of the undersigned has caused this Agreement to be executed and delivered by its duly authorized officer as of the date hereof. NMT NEUROSCIENCES IMPLANTS (FRANCE) SA By: /s/ Daniel Rigoudy ---------------------------------- Name: Daniel Rigoudy Title: Directeur Generale NMT NEUROSCIENCES INSTRUMENTS (FRANCE) SARL By: /s/ John E. Ahern ---------------------------------- Name: John E. Ahern Title: Duly Authorized BROWN BROTHERS HARRIMAN & CO. By: /s/ Gregory S. Pachus ---------------------------------- Name: Gregory S. Pachus Title: Vice President 3 EX-10.69 7 0007.txt AMENDMENT #5 Exhibit 10.69 AMENDMENT NO. 5 --------------- This Amendment No. 5, made as of December 31, 2000 (this "Amendment"), is by and among NMT Medical, Inc. (the "Company"), on the one hand, and Whitney Subordinated Debt Fund, L.P. (the "Purchaser") and Whitney & Co., f/k/a J. H Whitney & Co., ("Whitney"), 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, the Purchaser and, for certain purposes, Whitney 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, (iii) Amendment No. 3, dated as of April 5, 2000, and (iv) Amendment No. 4 dated as of November 13, 2000 ("Amendment No.4"), (as so amended, the "Purchase Agreement"), regarding the Company's $6,000,000 Subordinated Promissory Note due September 30, 2003 (the "Note"); WHEREAS, the Company has requested the Purchaser to amend certain covenants contained in the Purchase Agreement for the fiscal quarters ended December 31, 2000 and ending March 31, 2001 and the Company and Purchaser wish to amend the Purchase Agreement with respect to ongoing financial covenant requirements and certain required principal payments on the Note. 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. Sections 9.8 (a) (Total Leverage Test), 9.8 (b) (Fixed Charge Coverage), 9.8 (c) (Current Ratio) and 9.8 (d) (Tangible Net Worth) of the Purchase Agreement shall not be effective for the calendar quarters ended December 31, 2000 and ending March 31, 2001. 2. Sections 9.8 (a) and 9.8 (c) of the Purchase Agreement are hereby deleted for the calendar quarters ending June 30, 2001, September 30, 2001 and December 31, 2001. 3. Section 9.8 (b) of the Purchase Agreement is hereby amended and restated as follows: "(b) Fixed Charge Coverage. The Borrowers shall not permit the Borrowers' consolidated Fixed Charge Coverage for any twelve (12) month period ending on the last day of a calendar quarter to be less than 1.50; provided however that the foregoing shall not apply to the 1 calendar quarter ending June 30, 2001 and, for the calendar quarters ending September 30, 2001 and December 31, 2001, in lieu of the foregoing, the Borrower shall not permit the Borrowers' consolidated Fixed Charge Coverage for the three (3) month period ending September 30, 2001 to be less than 1.00, or for the six (6) month period ending December 31, 2001 to be less than 1.10. "FIXED CHARGE COVERAGE" will be calculated as illustrated on Schedule 9.8." 4. The following shall be added to Section 9.8 (d) of the Purchase Agreement at the end thereof: "Notwithstanding the foregoing, the Borrowers shall not be required to maintain the prescribed minimum amounts set forth above for any period during 2001. Instead, the Borrowers shall not permit the Borrowers' consolidated Tangible Net Worth to be less than $4,000,000 as of the last day of any calendar quarter during 2001." 5. The following shall be added to the Purchase Agreement as Section 9.8 (e): "(e) Minimum EBITDA. The Borrowers shall not permit the Borrowers' consolidated EBITDA (as calculated on Schedule 9.8) as of the last day of any calendar quarter on a year-to-date basis, to be less than the amount set forth below for such period: Period Amount ----------------------------------- ----------- 3 months ending March 31, 2001 $ 50,000 6 months ending June 30, 2001 $ 250,000 9 months ending September 30, 2001 $ 600,000 12 months ending December 31, 2001 $1,000,000" 6. Paragraph 2 of Amendment No. 4 shall be replaced in its entirety with the following: 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 March, 2001 (which shall be delivered no later than April 30, 2001), 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 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. 7. The Company covenants and agrees that (x) it shall pay to Purchaser on or before April 5, 2001 the sum of $800,000 on account of the principal of the Note plus all reasonable costs and expenses of Purchaser related to this Amendment, including without limitation, the reasonable costs and expenses of its counsel and (y) if the Company closes on the sale of its Neurosciences Division (the "Sale") on or before September 30, 2001 then upon such Closing 60% of the Net Proceeds shall be paid and applied on account of the Note. Such payment shall be applied first to principal, then to accrued and unpaid interest and then to any additional amounts, if any, due to the Purchaser under the Note. However, in any event, the Purchaser shall not be entitled to receive more than payment in full of all principal, accrued interest and additional amounts, if any, due under the Note (and the Company shall not be required to pay any amount that would result in the Purchaser receiving more than payment in full under the Note). The Purchaser agrees to accept such payment and hereby waives compliance with Section 9.6 of the Purchase Agreement with respect to the Sale and any default under the Purchase Agreement, 2 the Note or any related documents that would or might otherwise result from the consummation of the Sale. The Purchaser further agrees that the Sale shall not constitute a "Change of Control" for purposes of Section 3(b) of the Note or otherwise trigger mandatory prepayment of the Note (except to the extent that the payment set forth above constitutes a mandatory prepayment). The application to principal of the Note of amounts paid under this paragraph 7 shall not constitute a waiver of the Company's obligation to pay interest accruing through the respective dates of such payments on the amounts so paid, which interest shall be paid together with the next required payment of interest under the Note. 8. This Amendment may be signed 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 in lieu of original signatures to evidence the execution of this Amendment. 9. Except as expressly modified by this Amendment, all of the terms and provisions of the Purchase Agreement and the Note (as affected by a certain Release of Security Interest Agreement dated as of March 20, 2000 by and among, among others, the Company and the Purchaser and certain waiver agreements pertaining to the Purchase Agreement) shall continue in full force and effect and all parties hereto shall be entitled to the benefits thereof. 10. This Amendment 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. 3 IN WITNESS WHEREAS, the parties hereto have caused this Amendment 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 WHITNEY & CO. By: Whitney General Partner, L.L.C., its General Partner By: /s/ Daniel J. O'Brien --------------------- Name: Daniel J. O'Brien Title: A Managing Member 4 EX-21.1 8 0008.txt SUBSIDIARIES Exhibit 21.1 List of subsidiaries for NMT Medical, Inc.: NMT Heart, Inc. NMT Investments Corp. Nitinol Medical Technologies FSC, Inc. Nitinol Medical Technologies International B.V. NMT NeuroSciences (International), Inc. NMT NeuroSciences (US), Inc. NMT NeuroSciences (IP), Inc. NMT Neurosciences Holdings (UK) Limited NMT Neurosciences Holdings B.V. NMT Neurosciences (Belgium) SA NMT Neurosciences Instruments B.V. NMT NeuroSciences Holdings (France) SA NMT Neurosciences (Hong Kong) Limited NMT NeuroSciences GmbH NMT Innovasive Systems, Inc. NMT Neurosciences (Spain) SA NMT NeuroSciences Implants (France) SA NMT NeuroSciences Instruments (France) SARL EX-23.1 9 0009.txt CONSENT OF ARTHUR ANDERSEN LLP Exhibit 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation of our report included in this Form 10-K, into the Company's previously filed Registration Statement File Nos. 333-31751 and 333-67265. /s/ Arthur Andersen LLP Boston, Massachusetts March 30, 2001 -----END PRIVACY-ENHANCED MESSAGE-----