-----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, QZb2u6Ali2aJ72nqPgTqlDtdKeYhSmjTjIprPb70Zzf7V6Pjfvhfn7EIzokfZekY LMlmXOAYDa1D85b1S7++9Q== 0000927016-99-003012.txt : 19990817 0000927016-99-003012.hdr.sgml : 19990817 ACCESSION NUMBER: 0000927016-99-003012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 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-Q SEC ACT: SEC FILE NUMBER: 000-21001 FILM NUMBER: 99691939 BUSINESS ADDRESS: STREET 1: 27 WORMWOOD STREET CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6177370930 MAIL ADDRESS: STREET 1: 27 WORMWOOD STREET CITY: BOSTON STATE: MA ZIP: 02210 FORMER COMPANY: FORMER CONFORMED NAME: NITINOL MEDICAL TECHNOLOGIES INC DATE OF NAME CHANGE: 19960619 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-Q (Mark One) [x] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1999 or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______ to ______ Commission file number: 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 Incorporation or Organization) Identification No.) 27 Wormwood Street, Boston, Massachusetts 02210 - ------------------------------------------------------------------ (Address of Principal Executive Offices) (Zip Code) 617-737-0930 ------------ (Registrant's Telephone Number, Including Area Code) Nitinol Medical Technologies, Inc. ---------------------------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ___ --- As of August 6,1999, there were 10,769,239 shares of Common Stock, $.001 par value per share, outstanding. NMT Medical, Inc. INDEX ----- Part I. Financial Information Page Number --------------------- ----------- Item 1. Financial Statements. Consolidated Balance Sheets at December 31, 1998 and June 30, 1999 3 Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1999 and 1998 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 17 Item 3. Quantitative and Qualitative Disclosures about Market Risk. 26 Part II. Other Information ----------------- Item 2. Changes in Securities and Use of Proceeds. 27 Item 3. Defaults Upon Senior Securities. 27 Item 4. Submission of Matters to a Vote of Security Holders. 27 Item 6. Exhibits and Reports on Form 8-K. 28 Signatures 29 Part I -- Financial Information - ------------------------------- Item 1. Financial Statements -------------------- NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) and Subsidiaries Consolidated Balance Sheets
At At June 30, December 31, 1999 1998 ---------------------------------- Assets (Unaudited) Current assets: Cash and cash equivalents $ 3,693,185 $ 4,007,014 Marketable securities 3,867,051 5,113,537 Accounts receivable, net of allowances for doubtful accounts of $756,000 and $946,000 as of June 30, 1999 and December 31, 1998, respectively 10,481,393 11,785,861 Inventories 11,478,069 10,848,432 Prepaid expenses and other current assets 3,921,448 3,516,610 ---------------------------- Total current assets 33,441,146 35,271,454 ---------------------------- Property, plant and equipment, at cost: Land and buildings 4,650,000 4,650,000 Laboratory and computer equipment 2,636,483 2,621,211 Office furniture and equipment 2,572,645 2,299,589 Leasehold improvements 4,071,156 4,429,235 Equipment under capital lease 1,167,982 1,144,982 ---------------------------- 15,098,266 15,145,017 Less- Accumulated depreciation and amortization 2,635,279 1,961,869 ---------------------------- 12,462,987 13,183,148 ---------------------------- Long-term investments in marketable securities - 1,009,401 Notes receivable from Image Technologies Corporation 1,363,348 1,600,898 Goodwill and other intangible assets, net 13,147,091 13,478,010 Other assets 1,538,085 1,640,218 ---------------------------- $61,952,658 $ 66,183,129 ============================ Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 4,657,657 $ 6,619,190 Accrued expenses 5,048,319 5,219,500 Current portion of debt obligations 17,576,121 386,248 ---------------------------- Total current liabilities 27,282,097 12,224,938 ---------------------------- Long-term debt obligations, net of current portion 793,561 17,798,743 Deferred tax liability 1,929,408 1,990,808 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-10,769,239 and 10,680,117 shares at June 30, 1999 and December 31,1998, respectively 10,770 10,681 Addditional paid-in capital 41,184,487 40,999,277 Cumulative translation adjustment (867,000) 687,000 Accumulated deficit (8,380,665) (7,528,318) ---------------------------- Total stockholders' equity 31,947,592 34,168,640 ---------------------------- $61,952,658 $ 66,183,129 ============================
The accompanying Notes are an integral part of these Consolidated Financial Statements. 3 NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) and Subsidiaries Consolidated Statements of Operations (Unaudited)
For the Three Months Ended For the Six Months Ended June 30, June 30, 1999 1998 1999 1998 --------------------------------- ------------------------------- Revenues: Product sales $ 11,845,636 $ 2,916,637 $ 22,417,095 $ 5,525,522 License fees 418,693 457,500 868,938 1,227,252 --------------------------------- ------------------------------- 12,264,329 3,374,137 23,286,033 6,752,774 --------------------------------- ------------------------------- Expenses: Cost of product sales 5,058,058 1,094,459 9,364,019 2,114,138 Research and development 1,296,478 907,930 2,403,466 1,672,365 General and administrative 3,008,424 665,704 5,885,361 1,313,349 Selling and marketing 2,449,693 404,462 5,226,068 725,359 --------------------------------- ------------------------------- 11,812,653 3,072,555 22,878,914 5,825,211 --------------------------------- ------------------------------- Income from operations 451,676 301,582 407,119 927,563 --------------------------------- ------------------------------- Equity in net loss of Image Technologies Corporation (165,421) (93,337) (299,550) (93,337) Currency transaction gain (loss) 26,282 (36,908) 227,044 (69,464) Interest expense (753,269) (14,828) (1,570,521) (30,555) Interest income 165,554 392,771 350,161 791,376 --------------------------------- ------------------------------- (726,854) 247,698 (1,292,866) 598,020 --------------------------------- ------------------------------- Income (loss) before provision for income taxes (275,178) 549,280 (885,747) 1,525,583 Provision (benefit) for income taxes 42,300 218,500 (33,400) 550,500 --------------------------------- ------------------------------- Net income (loss) $ (317,478) $ 330,780 $ (852,347) $ 975,083 ================================= =============================== Basic net income (loss) per common share $ (0.03) $ 0.03 $ (0.08) $ 0.10 ================================= =============================== Weighted average common shares outstanding 10,766,852 9,828,213 10,725,542 9,825,713 ================================= =============================== Diluted net income (loss) per common share $ (0.03) $ 0.03 $ (0.08) $ 0.09 ================================= =============================== Diluted weighted average common shares outstanding 10,766,852 10,845,316 10,725,542 10,904,221 ================================= =============================== The accompanying Notes are an integral part of these Consolidated Financial Statements.
4 NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) and Subsidiaries Consolidated Statements of Cash Flows (Unaudited)
For the Six Months Ended June 30, 1999 1998 ------------------------------ Cash flows from operating activities: Net income (loss) $ (852,347) 975,083 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities- Equity in net loss of Image Technologies Corporation 299,550 93,337 Depreciation and amortization 1,178,825 267,806 Noncash tax provision 403,000 - Noncash interest expense 361,520 - Increase (decrease) in accounts receivables reserves (189,760) 80,000 Changes in assets and liabilities- - Accounts receivable 1,204,338 (1,061,973) Inventories (988,561) (244,908) Prepaid expenses and other current assets (604,685) 322,712 Accounts payable (1,674,810) 613,814 Accrued expenses (95,178) (322,283) Deferred revenue - (300,000) ------------------------------ Net cash provided by (used in) operating activities (958,108) 423,588 ------------------------------ Cash flows from investing activities: Maturities of marketable securities 2,268,870 13,208,377 Purchases of property, plant and equipment (672,854) (83,870) Increase in investment in Image Technologies Corporation, net (62,000) (487,506) Increase in other assets (331,384) (447,800) ------------------------------ Net cash provided by investing activities 1,202,632 12,189,201 ------------------------------ Cash flows from financing activities: Payments of capital lease obligations (105,808) (88,162) Proceeds from issuance of common stock 135,299 44,150 Payments of senior debt (88,000) - ------------------------------ Net cash used in financing activities (58,509) (44,012) ------------------------------ Effect of exchange rate changes on cash (499,844) - ------------------------------ Net increase (decrease) in cash and cash equivalents (313,829) 12,568,777 Cash and cash equivalents, beginning of period 4,007,014 5,561,445 ------------------------------ Cash and cash equivalents, end of period $ 3,693,185 $18,130,222 ============================== Supplemental disclosure of cash flow information: Cash paid during the period for- Interest $ 1,141,373 $ 30,555 ============================== Taxes $ 98,148 $ 517,324 ============================== Noncash investing and financing activities: Issuance of warrants in connection with debt waiver $ 50,000 $ - ============================== The accompanying Notes are an integral part of these Consolidated Financial Statements.
5 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Operations NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) (the Company) designs, develops and markets innovative medical devices that utilize advanced technologies and are delivered by minimally invasive procedures. The Company's products are designed to offer alternative approaches to existing complex treatments, thereby reducing patient trauma, shortening procedure, hospitalization and recovery times and lowering overall treatment costs. The Company's patented medical devices include self-expanding stents, vena cava filters and septal repair devices (the CardioSeal Septal Occluder). The Company's stents have been commercially launched in Europe and in the United States (U.S.) for certain indications, its vena cava filters are marketed in the U.S. and abroad and the CardioSEAL Septal Occluder is in the clinical trials stage in the U.S. and is sold commercially in Europe and other international markets. As a result of the Company's acquisition on July 8, 1998 of the neurosurgical instruments business (ENI) of Elekta AB (PUBL), a Swedish corporation, which the Company operates through its NMT Neurosciences division, the Company develops, manufactures, markets, and sells specialty implants and instruments for neurosurgery including cerebral spinal fluid shunts, the Selector Ultrasonic Aspirator, Ruggles Surgical Instruments, the Spetzler Titanium Aneurysm Clip and endoscopes and instrumentation for minimally invasive surgery. As of June 30, 1999, the Company was not in compliance with certain of the debt covenants contained in the subordinated note agreement, as amended, and has not obtained a waiver of default from the subordinated noteholder, which is an affiliate of one of the Company's principal stockholders. As a result, the Company has classified this subordinated note payable as a current liability on the accompanying balance sheets as of June 30, 1999. The Company is currently seeking to refinance this debt. Upon refinancing of this subordinated note payable, the Company anticipates that it will record a non-cash extraordinary loss on the early extinguishment of this subordinated note payable equal to the difference between the face value of the note and its carrying value. As of June 30, 1999, the discount from face value is approximately $2.8 million. There can be no assurance that the Company will be able to refinance this debt on acceptable terms. See Note 4. 2. Interim Financial Statements The accompanying Consolidated Financial Statements as of June 30, 1999 and for the three and six month periods then ended are unaudited. In management's opinion, these unaudited Consolidated Financial Statements have been prepared on the same basis as the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, as filed with the Securities and Exchange Commission on on April 15, 1999, and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. 6 NMT MEDICAL, INC. (FOMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 2. Interim Financial Statements--(continued) The results of operations for the three and six month periods ended June 30, 1999 are not necessarily indicative of the results expected for the fiscal year ending December 31, 1999. 3. Acquisition of Elekta Neurosurgical Instruments On July 8, 1998 the Company acquired Elekta Neurosurgical Instruments (ENI), the neurosurgical instruments business of Elekta AB (PUBL), a Swedish corporation, and financed this transaction with $13 million of the Company's cash, plus acquisition costs of $3.1 million, and $20 million of subordinated debt borrowed from an affiliate of a significant stockholder of the Company. The following table presents selected unaudited financial information of the Company and the neurosurgical division of Elekta AB, assuming the companies combined on January 1, 1998. The unaudited pro forma results are not necessarily indicative of either the actual results that would have occurred had the acquisition been consummated on January 1, 1998, or of future results:
FOR THE THREE MONTHS ENDED JUNE 30, 1999 1998 ---- ---- (Actual) (Pro forma) Net revenues $12,264,329 $11,784,000 =========== =========== Net loss $ (317,478) $(1,068,000) =========== =========== Basic and diluted weighted average shares outstanding 10,766,852 10,503,213 =========== =========== Basic and diluted net loss per share $ (.03) $ (.10) =========== ===========
FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998 -------- --------- (Actual) (Pro forma) Net revenues $23,286,033 $23,572,000 =========== =========== Net loss $ (852,347) $(1,827,000) =========== =========== Basic and diluted weighted average shares outstanding 10,725,542 10,500,713 =========== =========== Basic and diluted net loss per share $ (.08) $ (.17) =========== ===========
7 NMT MEDICAL, INC. (FOMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 4. Subordinated Note Payable The Company financed a significant portion of the acquisition of ENI (see Note 3) with $20 million of subordinated debt borrowed from an affiliate of a significant stockholder of the Company. The subordinated debt, secured by substantially all of the assets of the Company, is due September 30, 2003 with quarterly interest payable at 10.101% per annum and contains certain restrictive covenants as defined by the agreement. As of June 30, 1999, the Company was not in compliance with certain of the covenants contained in the subordinated note, as amended, and has not obtained a waiver of default from the subordinated noteholder. As a result, the Company has classified this subordinated note payable as a current liability on the accompanying balance sheet as of June 30, 1999. The Company is currently seeking to refinance this debt. Upon refinancing of this subordinated note payable, the Company anticipates that it will record a non-cash extraordinary loss on the early extinguishment of this subordinated note payable equal to the difference between the face value of the note and its carrying value. As of June 30, 1999, the discount from face value is approximately $2.8 million. There can be no assurance that the Company will be able to refinance this debt on acceptable terms. 5. Reclassifications Certain prior period amounts have been reclassified to conform to the current period's presentation. 6. Cash and Cash Equivalents, Marketable Securities, and Long-Term Investments in Marketable Securities The Company considers all investments with maturities of 90 days or less from the date of purchase to be cash equivalents and all investments with original maturity dates greater than 90 days to be marketable securities. Marketable securities are classified as current or long term based on their remaining maturity as of the balance sheet date. In accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company has classified certain of its marketable securities as held-to- maturity and available-for-sale and its long-term investments in marketable securities as held-to-maturity. Held-to-maturity securities represent those securities for which the Company has the intent and ability to hold to maturity and are reported at amortized cost. 8 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. Cash and Cash Equivalents, Marketable Securities, and Long-Term Investments in Marketable Securities--(continued) Available-for-sale securities represent those securities that do not meet the classification of held-to-maturity, are not actively traded and are reported at fair market value with unrealized gains and losses included in stockholders' equity. There were no unrealized gains or losses for the three and six month periods ended June 30, 1999 or 1998. Cash and cash equivalents, which are carried at cost and approximate market value, consist of the following at:
June 30, December 31, 1999 1998 ---- ---- Cash $3,693,185 $3,995,112 Cash equivalents-- Money market -- 11,902 ---------- ---------- $3,693,185 $4,007,014 ========== ==========
Marketable securities, with a weighted average maturity of approximately 4 months and 7 1/2 months at June 30, 1999 and December 31, 1998, respectively, are carried at cost which approximates market value and consist of the following at:
June 30, December 31, 1999 1998 ---- ---- Held-to-maturity-- Eurodollar bonds $2,361,167 $3,310,627 Medium-term notes 1,505,884 500,847 Corporate debt securities -- 502,063 ---------- ---------- 3,867,051 4,313,537 Available-for-sale-- Taxable auction securities -- 800,000 ---------- ---------- $3,867,051 $5,113,537 ========== ==========
There were no realized gains or losses on the sale of available-for-sale securities during the three and six month periods ended June 30, 1999 and 1998. 9 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 6. Cash and Cash Equivalents, Marketable Securities, and Long-Term Investments in Marketable Securities--(continued) Long-term investments, with a weighted average maturity of approximately 15 months at December 31, 1998, are carried at cost which approximates market. As of December 31, 1998, the amount of long-term investments was $1,009,401 and consisted of medium-term notes. The Company held no long-term investments as of June 30, 1999. In addition, the following amounts of interest receivable generated from the Company's cash and cash equivalents, marketable securities, and long-term investments are included in prepaid expenses and other current assets and in other assets in the accompanying balance sheets at:
June 30, December 31, 1999 1998 ---- ---- Short-term interest receivable $168,658 $117,687 Long-term interest receivable -- 12,985 -------- -------- $168,658 $130,672 ======== ========
7. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
June 30, December 31, 1999 1998 ------- ----------- Components $ 3,667,146 $ 3,117,848 Finished Goods 7,810,923 7,730,584 ----------- ----------- $11,478,069 $10,848,432 =========== ===========
8. Net Income (Loss) per Common and Common Equivalent Share The Company applies SFAS No. 128, Earnings per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. In accordance with Staff Accounting Bulletin (SAB) No. 98, the Company has determined that there were no nominal issuances of common stock or potential common stock in the periods prior to the Company's initial public offering. 10 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 8. Net Income (Loss) per Common and Common Equivalent Share--(continued) Diluted loss per share is the same as basic loss per share for the three and six month periods ended June 30, 1999 as the effects of the Company's potential common stock (367,742 shares and 511,291 shares for the three and six month periods ended June 30, 1999, respectively) are antidilutive. Calculations of basic and diluted net income (loss) per share are as follows: Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 ----------- ----------- ----------- ----------- Net income (loss) available to common stockholders $ (317,478) $ 330,780 $ (852,347) $ 975,083 =========== =========== =========== =========== Weighted average common shares outstanding 10,766,852 9,828,213 10,725,542 9,825,713 Potential common stock pursuant to stock options and warrants -- 1,017,103 -- 1,078,508 ----------- ----------- ----------- ----------- Diluted weighted average common shares outstanding 10,766,852 10,845,316 10,725,542 10,904,221 =========== =========== =========== =========== Basic net income (loss) per share $ (.03) $ .03 $ (.08) $ .10 =========== =========== =========== =========== Diluted net income (loss) per share $ (.03) $ .03 $ (.08) $ .09 =========== =========== =========== ===========
9. Foreign Currency The accounts of the Company's subsidiaries are translated in accordance with SFAS No. 52, Foreign Currency Translation. Accordingly, the accounts of the Company's foreign subsidiaries are translated from their local currency, which is the functional currency, into U.S. dollars, the reporting currency, using the exchange rate at the balance sheet date. Income and expense accounts are translated using an average rate of exchange during the period. Cumulative foreign currency translation gains or losses are reflected as a component of consolidated stockholders' equity and amounted to a loss of $542,000 and $867,000 for the three and six month periods ended June 30, 1999. There were no foreign currency translation gains or losses for the three and six month periods ended June 30, 1998. Additionally, the Company had a foreign currency exchange transaction gain of approximately $26,000 and a foreign currency exchange transaction loss of $37,000 for the three month period ended June 30, 1999 and 1998, respectively. For the six months ended June 30, 1999, the Company had a foreign currency transaction gain of approximately $227,000 and a foreign currency transaction loss of $69,000 for the six months ended June 30, 1998. 11 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 9. Foreign Currency--(continued) Foreign currency transaction gains and losses result from differences in exchange rates between the functional currency and the currency in which a transaction is denominated and are included in the consolidated statement of operations in the period in which the exchange rate changes. 10. Comprehensive 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. The adoption of this standard did not have a material effect on the Company's financial statements, as the only element of comprehensive income related to the Company is the foreign currency translation adjustment which is presented separately on the balance sheet as required. If presented on the statement of operations for the three and six month periods ended June 30, 1999, comprehensive net loss would have increased the reported net loss by $542,000 and $1,554,000, respectively. There were no differences in net income and comprehensive net income for the three and six month periods ended June 30, 1998. 11. Investment in Image Technologies Corporation On May 29, 1997 the Company entered into an agreement to invest $2.3 million in Image Technologies Corporation (ITC) in exchange for 345,722 shares of ITC's $.01 par value redeemable convertible preferred stock, representing a 23% ownership interest in ITC. Under the terms of this agreement, the Company has also extended ITC a credit line, subject to an annual interest rate of 10%, of up to $2 million of senior debt, exchangeable for convertible preferred stock at the option of the Company and equivalent to up to an additional 20% ownership of ITC. As of June 30, 1999, ITC has borrowed $2 million under this agreement and owes the Company accrued interest of approximately $169,000. On December 30, 1998 and February 3, 1999, the Company entered into a revolving credit note agreement with ITC for an additional $50,000 and $100,000, respectively, under which ITC borrowed $38,043 and $100,000. 12 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 11. Investment in Image Technologies Corporation--(continued) These notes accrue interest at 10% per annum, are subject to the same terms as the $2 million credit line agreement, and are payable in full at the option of the Company. 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. On March 30, 1999, ITC entered into a finance agreement with a third party whereby the third party purchased 120,361 shares of ITC's common stock at $9.97 per share. The Company was issued an additional 39,151 shares of ITC Series A preferred stock in conjunction with this financing in order to maintain its 23% ownership interest in ITC. A portion of the proceeds from this financing was used to repay certain bridge financing, including approximately $38,000 borrowed from the Company in December 1998. The agreement provided for the issuance of additional shares of common stock to the third party and the Company if ITC does not reach certain milestones as set forth in the agreement. As a result, on June 30, 1999, both the third party and the Company received 894,110 shares and 267,072 shares of ITC common stock and Series A preferred stock, respectively. On August 6, 1999, ITC signed a letter of intent for a senior secured convertible note agreement with this same third party for $1.5 million. The Company also has the option to purchase the remaining 57% of ITC for $24.5 million, of which up to $7.84 million may be payable in cash. The option expired on May 29, 1999 and was extended to November 30, 1999 in accordance with the terms of the Company's agreement with ITC. 13 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 12. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following at:
June 30, December 31, 1999 1998 -------------- -------------- Refundable and deferred income taxes $1,316,297 $ 753,749 Value added tax receivable 306,074 156,593 Interest 448,453 754,850 Equipment deposit 154,070 543,327 Advances to suppliers -- 247,000 Commissions 106,000 193,000 Insurance 175,965 178,804 Royalties 266,000 -- Maintenance 119,000 -- Promotional materials 195,000 -- Other prepaid expenses 834,589 689,287 ---------- ---------- $3,921,448 $3,516,610 ========== ==========
13. Accrued Expenses Accrued expenses consist of the following at:
June 30, December 31, 1999 1998 -------------- --------------- Payroll and payroll related $1,577,951 $1,803,859 Severance and relocation costs 145,000 -- Income taxes 966,225 275,600 Sales taxes 229,000 753,000 Professional fees 159,841 566,776 Inventory 715,818 493,059 Royalties 371,038 265,331 Interest 169,000 106,000 Insurance 97,818 103,081 Other accrued expenses 616,628 852,794 ---------- ---------- $5,048,319 $5,219,500 ========== ==========
14 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. Segment Reporting The Company applies the provisions of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information. SFAS No. 131 established standards for reporting information about operating segments in annual financial statements and requires selected information about operating segments in interim financial reports issued to stockholders. It also established standards for related disclosures about products and services and geographic areas. Operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision, or decision making group, in deciding how to allocate resources and in assessing performance. The Company's chief operating decision making group is the Chief Executive Officer, members of Senior Management, and the Board of Directors. The operating segments are managed separately because each represents specific types of medical devices for specific markets (i.e. the core technologies segment includes minimally-invasive medical devices that were the primary products of the Company prior to the acquisition of ENI while the neurosurgical segment includes primarily neurosurgical medical devices that were the primary products of ENI). The Company's operating segments include the core technologies product line and the neurosurgical product line. Revenues for the core technologies product line are derived from sales of the Simon Nitinol Filter (SNF) and the CardioSEAL Septal Occluder, as well as from licensing revenues from the Company's self-expanding stents. Revenues for the neurosurgical product line are derived from sales of cerebral spinal fluid shunts, the Selector Ultrasonic Aspirator, Ruggles Surgical Instruments, the Spetzler Titanium Aneurysm Clip and endoscopes and instrumentation for minimally invasive surgery. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performance based on stand-alone operating segment net income. Revenues are attributed to geographic areas based on where the customer is located. The Company operated in only one operating segment, core technologies products, during the three and six month periods ended June 30, 1998. Segment information is presented as follows: 15 NMT MEDICAL, INC. (FOMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) 14. Segment Reporting--(continued)
For the Three Months Ended For the Six Months Ended June 30, June 30, 1999 1998 1999 1998 ---- ---- ---- ---- Segment Revenues: Core technologies products $ 3,708,001 $3,374,137 $ 6,718,705 $6,752,774 Neurosurgical products 8,556,328 -- 16,567,328 -- ----------- ---------- ----------- ---------- Total revenues $12,264,329 $3,374,137 $23,286,033 $6,752,774 =========== ========== =========== ========== Segment Interest Income: Core technologies products $ 165,554 $ 392,771 $ 333,161 $ 791,376 Neurosurgical products -- -- 17,000 -- ----------- ---------- ----------- ---------- Total $ 165,554 $ 392,771 $ 350,161 $ 791,376 =========== ========== =========== ========== Segment Interest Expense: Core technologies products $ (174,219) $ (14,828) $ (393,421) $ (30,555) Neurosurgical products (579,050) -- (1,177,100) -- ----------- ---------- ----------- ---------- Total $ (753,269) $ (14,828) $(1,570,521) $ (30,555) =========== ========== =========== ========== Segment Income Tax Provision (Benefit): Core technologies products $ 454,020 $ 218,500 $ 404,040 $ 550,500 Neurosurgical products (411,720) -- (437,440) -- ----------- ---------- ----------- ---------- Total $ 42,300 $ 218,500 $ (33,400) $ 550,500 =========== ========== =========== ========== Segment Depreciation and Amortization: Core technologies products $ 324,470 $135,812 $ 649,068 $267,806 Neurosurgical products 305,757 -- 529,757 -- --------- -------- ----------- -------- Total revenues $ 630,227 $135,812 $ 1,178,825 $267,806 ========= ======== =========== ======== Segment Equity in Net Loss of Investee: Core technologies products $(165,241) $(93,337) $ (299,550) $(93,337) Neurosurgical products -- -- -- -- --------- -------- ----------- -------- Total $(165,241) $(93,337) $ (299,550) $(93,337) ========= ======== =========== ======== Segment Income (Loss): Core technologies products $(423,448) $330,780 $(1,195,287) $975,083 Neurosurgical products 105,970 -- 342,940 -- --------- -------- ----------- -------- Total $(317,478) $330,780 $ (852,347) $975,083 ========= ======== =========== ======== Segment Expenditures for Long-Lived Assets: Core technologies products $ 5,276 $ 46,832 $ 15,261 $ 83,870 Neurosurgical products 404,969 -- 657,593 -- --------- -------- ----------- -------- Total $ 410,245 $ 46,832 $ 672,854 $ 83,870 ========= ======== =========== ========
16 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS ----------------------------------------------------------------------- OF OPERATIONS ------------- This Quarterly Report on Form 10-Q, other than the historical financial information, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements involve known and unknown risks, uncertainties or other factors which may cause actual results, performance or achievement of the Company to be materially different from any future results, performance, or achievement expressed or implied by such forward-looking statements. Factors that might cause such a difference include uncertainties in market demand and acceptance, government regulation and approvals, and intellectual property rights and litigation; the impact of healthcare reform programs and competitive products and pricing; risks associated with technology and product development and commercialization, potential product liability, management of growth, and dependence on significant corporate relationships, and other risks detailed in the Company's Annual Report on Form 10-K as of December 31, 1998 filed with the Securities and Exchange Commission on April 15, 1999. RESULTS OF OPERATIONS Three months ended June 30, 1999 compared with three months ended June 30, 1998 Revenues. Revenues for the three months ended June 30, 1999 increased to $12.3 million from $3.4 million for the three months ended June 30, 1998. Product sales increased to $11.8 million for the three months ended June 30, 1999 from $2.9 million for the three months ended June 30, 1998. The increase is primarily attributable to the Company's acquisition of the neurosurgical instruments business (ENI) of Elekta AB (PUBL), a Swedish corporation, on July 8, 1998. This acquisition was accounted for as a purchase and accordingly ENI's results of operations, including product revenues of $8.6 million for the three month period ended June 30, 1999 are included with those of the Company. Additionally, the Company had increased unit sales of CardioSEAL Septal Occluders and vena cava filters during the three months ended June 30, 1999 as compared with the three months ended June 30, 1998. License fees for the three months ended June 30, 1999 amounted to $419,000 and consist of minimum quarterly royalty payments of $375,000 and cost-sharing payments from Boston Scientific of approximately $44,000. License fees for the three months ended June 30, 1998 amounted to $457,500 consisting of minimum quarterly royalty payments of $375,000 and cost-sharing payments from Boston Scientific of approximately $82,500. Cost of Product Sales. Cost of product sales increased to $5.1 million for the three months ended June 30, 1999 from $1.1 million for the three months ended 17 June 30, 1998. The increase was primarily due to the Company's acquisition of ENI whereby ENI's cost of product sales of $3.8 million are included with those of the Company for the three months ended June 30, 1999. Additionally, the Company had increased unit sales of CardioSEAL Septal Occluders and vena cava filters during the three months ended June 30, 1999 as compared with the three months ended June 30, 1998. Cost of product sales, as a percent of product sales, increased to 43% for the three months ended June 30, 1999 from 38% for the three months ended June 30, 1998. This increase is due to the inclusion of ENI's products which have a higher cost of product sales as a percent of sales than do the vena cava filter and CardioSEAL Septal Occluder partially offset by increased sales of the CardioSEAL Septal Occluder which has a lower cost of product sales as a percent of sales than does the vena cava filter. Research and Development. Research and development expense increased to $1.3 million for the three months ended June 30, 1999 from $908,000 for the three months ended June 30, 1998. The increase is primarily attributable to the Company's acquisition of ENI whereby ENI's research and development expenses of $294,000 are included with those of the Company for the three months ended June 30, 1999. Additionally, the increase reflects increased regulatory and clinical trial expenses relating to clinical trials of the CardioSEAL Septal Occluder that commenced in September 1996, as well as for clinical trials related to the closure of patent foramen ovales (PFO's) and increased activity in the Company's development programs for vena cava filters and other products under development. General and Administrative. General and administrative expenses increased to $3.0 million for the three months ended June 30, 1999 from $666,000 for the three months ended June 30, 1998. The increase is primarily attributable to the inclusion of ENI's general and administrative expenses of $1.9 million for the three months ended June 30, 1999 and the amortization of goodwill related to the acquisition of ENI. Selling and Marketing. Selling and marketing expenses increased to $2.4 million for the three months ended June 30, 1999 from $404,000 for the three months ended June 30, 1998. The increase is primarily attributable to the inclusion of ENI's selling and marketing expenses of $2.3 million for the three months ended June 30, 1999 and increased marketing activities related to the CardioSEAL Septal Occluder in connection with the promotion of commercial sales that commenced in Europe and other international markets in June 1997. Equity in Net Loss of Image Technologies Corporation. During the three months ended June 30, 1999 and 1998, the Company recorded $165,000 and $93,000, respectively as its equity in the net loss of ITC. The carrying value of the note receivable from ITC has been reduced by the amount of the loss recorded by the Company. See Note 11 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of June 30, 1999. 18 Interest Expense. Interest expense was $753,000 for the three months ended June 30, 1999 as compared to $15,000 for the three months ended June 30, 1998. The increase was primarily the result of the Company's acquisition of ENI 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 $118,000 is included in the statement of operations for the three months ended June 30, 1999. Interest Income. Interest income was $166,000 for the three months ended June 30, 1999 as compared to $393,000 for the three months ended June 30, 1998. The decrease was due to the Company's lower cash balances as a result of its financing the acquisition of ENI with cash of $13.0 million, plus approximately $3.1 million of acquisition costs. Provision (Benefit) for Income Taxes. The Company had a provision for income taxes of $42,300 for the three months ended June 30, 1999 based on an operating income before nondeductible items and an estimated effective tax rate of approximately 40%. The Company had a provision for income taxes of $218,500 for the three months ended June 30, 1998 based on an operating income of $643,000 and an estimated effective tax rate of 34%. Six months ended June 30, 1999 compared with six months ended June 30, 1998 Revenues. Revenues for the six months ended June 30, 1999 increased to $23.3 million from $6.8 million for the six months ended June 30, 1998. Product sales increased to $22.4 million for the six months ended June 30, 1999 from $5.5 million for the six months ended June 30, 1998. The increase is primarily attributable to the Company's acquisition of ENI on July 8, 1998 and accordingly ENI's results of operations, including product revenues of $16.6 million, are included in those of the Company. Additionally, the Company had increased unit sales of CardioSEAL Septal Occluders and vena cava filters during the six months ended June 30, 1999 as compared to the six months ended June 30, 1998. License fees for the six months ended June 30, 1999 amounted to $869,000 and consist of minimum quarterly royalty payments of $750,000 and cost-sharing payments from Boston Scientific of approximately $119,000. License fees for the six months ended June 30, 1998 amounted to approximately $1.2 million and consist of minimum quarterly royalty payments of $750,000, milestone payments of $300,000 and cost-sharing payments from Boston Scientific of approximately $176,000. Cost of Product Sales. Cost of product sales increased to $9.4 million for the six months ended June 30, 1999 from $2.1 million for the six months ended June 30, 1998 primarily due to the Company's acquisition of ENI on July 8, 1998 and 19 accordingly $7.2 million of ENI's cost of product sales are included with those of the Company. Cost of product sales also increased due to increases in unit sales of CardioSEAL Septal Occluders and vena cava filters during the six months ended June 30, 1999 as compared with the six months ended June 30, 1998. Cost of product sales, as a percent of product sales, increased to 42% for the six months ended June 30, 1999 from 38% for the six months ended June 30, 1998. This increase is due to the inclusion of ENI's products which have a higher cost of product sales as a percent of sales than do the vena cava filter and CardioSEAL Septal Occluder partially offset by increased sales of the CardioSEAL Septal Occluder which has a lower cost of product sales as a percent of sales than does the vena cava filter. Research and Development. Research and development expenses increased to $2.4 million for the six months ended June 30, 1999 from $1.7 million for the six months ended June 30, 1998. The increase is primarily attributable to the Company's acquisition of ENI on July 8, 1998 and accordingly ENI's research and development expenses of $578,000 are included with those of the Company. Additionally, the increase reflects increased regulatory and clinical trial expenses relating to clinical trials of the CardioSEAL Septal Occluder that commenced in September 1996, as well as for clinical trials related to the closure of patent foramen ovales (PFO) and increased activity in the Company's development programs for vena cava filters and other products under development. General and Administrative. General and administrative expenses increased to $5.9 million for the six months ended June 30, 1999 from $1.3 million for the six months ended June 30, 1998. The increase is primarily attributable to the inclusion of ENI's general and administrative expenses of $3.7 million for the six months ended July 30, 1999 and the amortization of goodwill related to the acquisition of ENI. Additionally, the Company recorded $78,000 of expenses pertaining to the Company's negotiations related to noncompliance with and amendment to certain of its debt covenants as of March 31, 1999. The Company also recorded an additional $134,000 of expenses consisting of legal, accounting, and employee relocation costs. Selling and Marketing. Selling and marketing expenses increased to $5.2 million for the six months ended June 30, 1999 from $725,000 for the six months ended June 30, 1998. The increase is primarily attributable to the inclusion of ENI's selling and marketing expenses of $4.3 million for the six months ended June 30, 1999 and increased marketing activities related to the CardioSEAL Septal Occluder in connection with the promotion of commercial sales that commenced in Europe and other international markets in June 1997. Additionally, the Company recorded $225,000 of expenses in conjunction with the termination and replacement of certain individuals in the sales and product management departments of the Company and for related legal and consulting costs. 20 Equity in Net Loss of Image Technologies Corporation. During the six months ended June 30, 1999 and 1998, the Company recorded $300,000 and $93,000, respectively, as its equity in the net loss of ITC. The carrying value of the note receivable from ITC has been reduced by the amount of the loss recorded by the Company. See Note 11 to the Notes to Consolidated Financial Statements in the accompanying financial statements as of June 30, 1999. Interest Expense. Interest expense was $1.6 million for the six months ended June 30, 1999 as compared to $31,000 for the six months ended June 30, 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 $231,000 is included in the statement of operations for the six months ended June 30, 1999. In conjunction with the Company's renegotiation of its debt covenants as of March 31, 1999, the Company recorded $50,000 of interest expense related to the issuance of warrants to the holder of the note. Interest Income. Interest income was $350,000 for the three months ended June 30, 1999 as compared to $791,000 for the three months ended June 30, 1998. The decrease was due to the Company's lower cash balances as a result of its financing the acquisition of ENI with cash of $13.0 million, plus approximately $3.1 million of acquisition costs. Provision (Benefit) for Income Taxes. The Company had a benefit for income taxes of $33,400 for the six months ended June 30, 1999, based on an operating loss before nondeductible items an estimated effective tax rate of 40%. For the six months ended June 30, 1998, the Company had a provision for income taxes of $550,500 based on an operating income of $1.6 million before nondeductible items and an estimated effective tax rate of 34%. LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents and marketable securities equal to $7.6 million at June 30, 1999 as compared to $9.1 million at December 31, 1998. During the six months ended June 30, 1999, the Company's operations utilized cash of approximately $1.0 million which consists of approximately $1.2 million of cash generated by operations prior to approximately $2.1 million of noncash charges and before changes in working capital items. During the second quarter of 1999, the Company increased its focus on reducing levels of accounts receivables and inventories in an effort to generate increased cash flows from operations. In July 1998, the Company financed a portion of the acquisition of ENI with $13 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, which is secured by all of the assets of the Company, is due September 30, 21 2003 with quarterly interest payable at 10.101% per annum. The subordinated debt includes certain restrictive covenants relating to maintenance of certain ratios and cash levels. As of June 30, 1999, the Company was not in compliance with certain of the covenants contained in the subordinated note, as amended, and has not obtained a waiver of default from the subordinated noteholder. As a result, the Company has classified this subordinated note payable as a current liability on the accompanying balance sheet as of June 30, 1999. The Company is currently seeking to refinance this debt. Upon refinancing of this subordinated note payable, the Company anticipates that it will record a non-cash extraordinary loss on the early extinguishment of this subordinated note payable equal to the difference between the face value of the note and its carrying value. As of June 30, 1999, the discount from face value is approximately $2.8 million. There can be no assurance that the Company will be able to refinance this debt on acceptable terms. See Note 4 to the Notes to Consolidated Financial Statements in the accompanying financial statements as of June 30, 1999. Purchases and capitalized leases of property and equipment for use in the Company's research and development and general and administrative activities amounted to $673,000 for the six months ended June 30, 1999. The Company anticipates that it will spend approximately $1.5 million on purchases of property and equipment in 1999 consisting primarily in connection with the Company's implementation of new management information systems. See "Year 2000 Readiness". As a result, the Company's depreciation and amortization expense increased to $1.2 million for the six months ended June 30, 1999 as compared with $268,000 for the six months ended June 30, 1998. The increase is also attributable to the acquisition of ENI, whose depreciation and amortization is approximately $306,000 for the six months ended June 30, 1999, as well as the amortization of goodwill resulting from the acquisition itself. In May 1997, the Company acquired a 23 percent ownership interest in ITC for $2.3 million and incurred approximately $149,000 of expenses associated with the investment. ITC was a development stage Company in May 1997 and was focusing its efforts on developing certain early stage technologies. Due to the uncertainty regarding the realization of its investment, the Company charged the amount of the purchase price and related acquisition costs to operations during the year ended December 31,1997 as in-process research and development. In connection with the Company's investment in ITC, the Company extended to ITC a credit line of up to $2.0 million of senior debt under a loan agreement (the "loan agreement") that bears interest at 10% per annum. The note is convertible into equity at the rate of one percent of ownership per $100,000 borrowed. During the second quarter of 1998, ITC began to make borrowings against this line in order to fund its operations and as of June 30, 1999 owes the Company $2.0 million, plus accrued interest of approximately $169,000. In addition, in December 1998 and February 1999 the Company amended its loan agreement with ITC to provide ITC with an additional $50,000 and $100,000, respectively, of financing under the same terms and conditions as the $2.0 million senior debt financing. In connection with the February 1999 amendment, ITC issued to the Company a warrant to purchase 10,030 shares of ITC's Series A Preferred Stock at an exercise price of $9.97 per share. As of June 30, 1999, ITC had outstanding borrowings of $100,000 under this facility. The Company has not 22 recorded interest income on the note receivable from ITC because interest is not due until the earlier of (i) the closing of any debt or equity financing by ITC resulting in at lease $4.0 million in gross proceeds to ITC, (ii) the merger or consolidation, or other combination, of ITC into or with another corporation or the sale of all or substantially all of the assets of ITC or (iii) thirty months following November 30, 1999 or following the date upon which the Company exercises its option to purchase all of the outstanding capital stock of ITC. In addition, under the loan agreement, the payment of all interest will be waived if the Company exercises its option to convert its senior debt into additional equity. This option to convert expired May 29, 1999 but was extended until November 30, 1999 in accordance with the terms of the Company's agreement with ITC. The Company believes that the amount due from ITC will be collectible from ITC's future cash flows or from independent financing. During the three months ended June 30, 1999, the Company recorded $165,000 as its equity in the loss of ITC, and reduced the carrying value of the note receivable by such amount. The Company believes that the carrying value of the note, approximately $1.4 million as of June 30, 1999, is fully realizable. During the three and six month periods ended June 30, 1999, ITC generated approximately $184,000 and $400,000 of product revenues, respectively. On March 30, 1999, ITC entered into an agreement for the issuance and sale of 120,361 shares of common stock at a purchase price of $9.97 per share to a third party. In connection with this issuance, ITC issued 39,159 shares of Series A redeemable convertible preferred stock to NMT in order for NMT to maintain its 23 percent ownership interest in ITC. A portion of the proceeds from this financing was used to repay certain bridge financing, including approximately $38,000 borrowed from the Company in December 1998, plus accrued interest thereon. The agreement provided for the issuance of additional shares of common stock to the purchaser if ITC does not reach certain milestones as set forth in the agreement. As a result, on June 30, 1999, both the Company and the third party were issued 267,072 shares and 894,110 shares of ITC Series A preferred stock and common stock, respectively. On August 6, 1999, ITC signed a letter of intent for a senior secured convertible note agreement with this same third party for $1.5 million. As an international concern, the Company faces exposure to adverse movements in foreign currency exchange rates. These exposures may change over time and could have a material adverse impact on the Company's financial condition and results of operations. The Company's most significant foreign currency exposures relate to the United Kingdom and France, as a result of its manufacturing activities and assets in those countries. The accounts of the Company's foreign subsidiaries are translated in accordance with SFAS No. 52, Foreign Currency Translation. In translating the accounts of the foreign subsidiaries into U.S. dollars, assets and liabilities are translated at the rate of exchange in effect at the end of each reporting period, while stockholders' equity is translated at historical rates. Revenue and expense accounts are translated using the weighted average exchange rate in effect during the year. The Company's foreign currency transaction gains or losses are included in the accompanying consolidated statements of operations and amounted to a foreign currency transaction gain of $227,000 for the six months ended June 30, 1999 as compared with a foreign currency transaction loss of $69,000 for the six months ended June 30, 1998. The Company records the effects of changes in balance sheet items (i.e., cumulative foreign currency translation gains and losses) as a component of consolidated stockholders' equity. For the three and six month periods ended June 30, 1999. Cumulative foreign currency translation losses amounted to $542,000 and $867,000, respectively. The Company is party to various other substantial contractual arrangements including salaries and fees for current employees and consultants which are likely to increase as additional agreements are entered into and additional personnel are retained. The Company also has committed to purchase certain minimum quantities of the vena cava filter from a supplier through June 2001. See Note 10 of Notes to the Consolidated Financial Statements included in the Company's Annual Report on Form 10-K as filed with the Securities and Exchange Commission on April 15, 1999. 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. 23 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. Year 2000 Readiness Prior to the Company's acquisition of ENI, the Company had reviewed its internal computer systems and their capabilities of recognizing the year 2000 and years thereafter. At that time, the Company believed that it was Year 2000 compliant in all material respects. In addition, prior to the acquisition of ENI by the Company, management of ENI had determined that its financial and operational systems needed modification or replacement not only to be year 2000 compliant but to (a) improve functionality, (b) assure continued euro currency compliance, (c) provide more meaningful information and (d) integrate the various companies within ENI onto a world- class Enterprise Reporting System (ERP). ENI management had developed a comprehensive plan for implementing the new system, including selecting the system and related providers of implementation assistance, but the decision to proceed was postponed until the closing of the acquisition. After the closing of the acquisition, the Company authorized the plan described above in August 1998, and committed to the implementation of a new ERP system for its NMT Neurosciences Division. The new systems are expected to be fully operational by the beginning of the fourth quarter of 1999 at a total project cost of $2.0 million, of which approximately $1.3 million will be for computer hardware and other capital expenditures. The Company anticipates financing the capital component above and expects to fund the remainder from operating cash flows. While the Company currently does not have a contingency plan in the event a particular system is not Year 2000 compliant, such a plan will be developed if it becomes clear that the Company is not going to achieve its scheduled compliance objectives. Since the Company is completely replacing the systems 24 at its Neurosciences Division with a commercially available and tested ERP product, it is believed that the project will proceed more efficiently than had the Company chosen to modify its existing systems. Currently, the project is 30 to 60 days behind schedule due to a delayed start. However, target dates have remained unchanged as the Company believes they continue to be realistic as the largest of the three major divisions of the Neurosciences Division has implemented and has been using its system successfully with the other two divisions to follow by the end of the third quarter and the beginning of the fourth quarter of 1999. Since the Company interfaces with its major customers and suppliers via telephone and fax, the Company does not expect to incur significant losses in the event that either the Company or its customers and suppliers are not Year 2000 compliant. The Company has obtained notices from major customers and suppliers that they are Year 2000 compliant. In addition, the Company's products are Year 2000 compliant. The costs of the project and the date on which the Company believes it will complete the implementation of its ERP system are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of resources and other factors. However, there can be no guarantee that these estimates will be achieved and actual results could differ materially from those anticipated. 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 irrevocable 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, including its Neurosciences Division, 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 new ERP system described above is designed to facilitate continued euro currency compliance. 25 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. The Company's foreign currency transaction gains or losses are included in the accompanying consolidated statements of operations and amounted to a foreign currency transaction gain of $227,000 for the six months ended June 30, 1999 as compared with a foreign currency transaction loss of $69,000 for the six months ended June 30, 1998. Item 3. Quantitive and Qualitative Disclosures About Market Risk. -------------------------------------------------------- The Company is subject to market risk in the form of interest rate risk and foreign currency risk. Interest rate risk is immaterial to the Company. As an international concern, the Company faces exposure to adverse movements in foreign currency exchange rates. These exposures may change over time and could have a material adverse impact on the Company's financial condition and results of operations. The Company's most significant foreign currency exposures relate to the United Kingdom and France as a result of its manufacturing activities and assets in those countries. The accounts of the Company's foreign subsidiaries are translated in accordance with SFAS No. 52, Foreign Currency Translation. In translating the accounts of the foreign subsidiaries into U.S. dollars, assets and liabilities are translated at the rate of exchange in effect at the end of each reporting period, while stockholders' equity is translated at historical rates. Revenue and expense accounts are translated using the weighted average exchange rate in effect during the year. The Company's foreign currency transaction gains or losses are included in the accompanying consolidated statements of operations and amounted to a foreign currency transaction gain of $227,000 for the six months ended June 30, 1999 as compared with a foreign currency transaction loss of $69,000 for the six months ended June 30, 1998. The Company records the effects of changes in balance sheet items (i.e., cumulative foreign currency translation gains and losses) as a component of consolidated stockholders' equity. For the three and six month periods ended June 30, 1999, cumulative foreign currency translation losses amounted to $542,000 and $867,000, respectively. 26 Part II -- Other Information - ---------------------------- Item 2. Changes in Securities and Use of Proceeds. ------------------------------------------ (c) Recent Sales of Unregistered Securities. On April 14, 1999, the Company --------------------------------------- issued to Whitney Subordinated Debt Fund, L.P. ("WSDF") a warrant to purchase 25,000 shares of the Company's Common Stock at an exercise price of $3.41 per share. The warrant was issued pursuant to the terms of Waiver No. 1 to the Subordinated Note and Common Stock Purchase Agreement, dated as of July 8, 1998, by and among the Company, WSDF and, for certain purposes, J.H. Whitney & Co. The warrant was offered and issued in reliance upon the exemption from registration set forth in Section 4(2) of the Securities Act of 1933, as amended. No underwriters were engaged in connection with the issuance of the warrant. The warrant is exercisable at any time or from time to time on or after April 14, 1999 and expires on February 14, 2001. The warrant contains weighted- average anti-dilution price protection. (d) Uses of Proceeds from Registered Securities. There has been no change ------------------------------------------- to the information previously provided by the Company on its Quarterly Report on Form 10-Q for the period ended March 31, 1999, relating to securities sold by the Company pursuant to its Registration Statement on Form S-1 (Registration No. 333-06463), which was declared effective on September 27, 1996. The Company financed a significant portion of the acquisition of ENI with $20 million of subordinated debt borrowed from an affiliate of a significant stockholder of the Company. The subordinated note agreement dated July 8, 1998 contains working capital restrictions and limitations upon the payment of dividends. The subordinated note agreement, as amended to date, is filed as an exhibit to the Company's Current Report on Form 8-K dated July 8, 1998 and Quarterly Report on Form 10-Q for the quarter ended March 31, 1999. Item 3. Defaults Upon Senior Securities ------------------------------- (a) Material Default with Respect to Indebtedness. As of June 30, 1999, --------------------------------------------- the Company was not in compliance with certain of the restrictive covenants contained in its subordinated note agreement. See Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources, and Note 4 of Notes to the Company's Consolidated Financial Statements for the quarter ended June 30, 1999. Item 4. Submission of Matters to a Vote of Security Holders. The 1999 Annual --------------------------------------------------- Meeting of Stockholders of the Company was held on June 3, 1999 (the "Meeting"). Present at the Meeting in person or through representation by proxy were a total of 9,282,428 shares of Common Stock out of a total of 10,700,417 shares entitled to vote, thereby making a quorum. The following actions were taken at the Meeting: 1. The election of seven members of the Board of Directors, each to serve for a one-year term; and 2. The approval of the Certificate of Amendment to the Company's Second Amended and Restated Certificate of Incorporation, which changed the Company's name from Nitinol Medical Technologies, Inc. to NMT Medical, Inc. The results of the voting on each of the matters presented to the stockholders at the Meeting are set forth below:
VOTES VOTES VOTES BROKER FOR WITHHELD AGAINST ABSTENTIONS NON-VOTES 1. Election of Directors: Thomas M. Tully............... 9,268,178 14,250 N.A. N.A. N.A. Morris Simon, M.D............. 9,268,178 14,250 N.A. N.A. N.A. C. Leonard Gordon............. 9,268,178 14,250 N.A. N.A. N.A. Jeffrey F. Thompson........... 9,268,178 14,250 N.A. N.A. N.A. R. John Fletcher.............. 9,268,178 14,250 N.A. N.A. N.A. Jeffrey R. Jay, M.D........... 9,207,461 79,467 N.A. N.A. N.A. Robert A. Van Tassel, M.D..... 9,268,178 14,250 N.A. N.A. N.A. 2. Certificate of Amendment to to Company's Second Amended and Restated Certificate of Incorporation.. 9,264,992 N.A. 3,586 13,850 N.A.
27 Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits. -------- 3.1 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 3.2 Certificate of Designation, as filed with the office of the Secretary of State of the State of Delaware on June 14, 1999 4.1 Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated June 7, 1999 10.1 Common Stock Purchase Warrant No. WSDF-4 27.1 Financial Data Schedule (b) Reports on Form 8-K. On June 4, 1999, the Company filed a Form 8-K ------------------- (the "June 4 Form 8-K") with the Securities and Exchange Commission (the "Commission"), disclosing that on June 3, 1999, the Company's stockholders had approved a Certificate of Amendment to the Company's Second Amended and Restated Certificate of Incorporation (the "Certificate of Amendment") which changed the Company's name to NMT Medical, Inc. A copy of the Company's June 3, 1999 press release regarding stockholder approval of the Certificate of Amendment was included as Exhibit 99.1 to the June 4 Form 8-K. On June 8, 1999, the Company filed a Form 8-K (the "June 8 Form 8-K") with the Commission, disclosing that on May 26, 1999, the Company's Board of Directors declared a dividend of one Right for each outstanding share of the Company's Common Stock to stockholders of record at the close of business on June 10, 1999. The description and terms of the Rights are set forth in a Rights Agreement dated as of June 7, 1999 (the "Rights Agreement") between the Company and American Stock Transfer & Trust Company, as Rights Agent. Both the Rights Agreement and the Company's press release, dated May 27, 1999, announcing adoption of the Stockholder Rights Plan, were included as Exhibits 4.1 and 99.1, respectively, to the June 8 Form 8-K. 28 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NMT MEDICAL, INC. Date: August 16, 1999 By: /s/ Thomas M. Tully -------------------------------- Thomas M. Tully President and Chief Executive Officer Date: August 16, 1999 By: /s/ William J. Knight -------------------------------- William J. Knight Vice President of Finance and Administration and Chief Financial Officer 29 EXHIBIT INDEX Exhibits - -------- 3.1 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. 3.2 Certificate of Designation, as filed with the office of the Secretary of State of the State of Delaware on June 14, 1999 4.1 Rights Agreement between the Company and American Stock Transfer & Trust Company, as Rights Agent, dated June 7, 1999 (1) 10.1 Common Stock Purchase Warrant No. WSDF-4 27.1 Financial Data Schedule (1) Incorporated by reference to Exhibits to the Registrant's Current Report on Form 8-K, dated June 7, 1999, as filed with the Securities and Exchange Commission on June 8, 1999. EX-3.1 2 CERTIFICATE OF AMENDMENT Exhibit 3.1 CERTIFICATE OF AMENDMENT OF SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF NITINOL MEDICAL TECHNOLOGIES, INC. Pursuant to Section 242 of the General Corporation Law of the State of Delaware Nitinol Medical Technologies, Inc. (hereinafter called the "Corporation"), a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify as follows: By vote of the Board of Directors of the Corporation, a resolution was duly adopted pursuant to Section 242 of the General Corporation Law of the State of Delaware, setting forth an amendment to the Second Amended and Restated Certificate of Incorporation of the Corporation and declaring said amendment to be advisable. At a meeting of the stockholders of the Corporation, the stockholders of the Corporation duly approved said proposed amendment in accordance with Section 242 of the General Corporation Law of the State of Delaware. The resolution setting forth the amendment is as follows: RESOLVED: That Article FIRST of the Second Amended and Restated Certificate of Incorporation of the Corporation be and hereby is deleted in its entirety and the following new Article FIRST is inserted in lieu thereof: FIRST. The name of the Corporation is NMT Medical, Inc. IN WITNESS WHEREOF, the Corporation has caused this Certificate of Amendment to be signed by its President and Chief Executive Officer this 3rd day of June, 1999. NITINOL MEDICAL TECHNOLOGIES, INC. By: /s/ Thomas M. Tully ------------------- Name: Thomas M. Tully Title: President and Chief Executive Officer EX-3.2 3 CERTIFICATE OF DESIGNATION EXHIBIT 3.2 CERTIFICATE OF DESIGNATION OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK OF NMT MEDICAL, INC. _________________________ (Pursuant to Section 151 of the General Corporation Law of Delaware) _________________________ NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.), a Delaware corporation (the "Corporation"), pursuant to authority conferred on the Board of Directors of the Corporation by the Second Amended and Restated Certificate of Incorporation and in accordance with the provisions of Section 151 of the General Corporation Law of the State of Delaware, certifies that the Board of Directors of the Corporation, at a meeting duly called and held, at which a quorum was present and acting throughout, duly adopted the following resolution: RESOLVED: That pursuant to the authority vested in the Board of Directors of NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc., and hereinafter called the "Corporation") in accordance with the provisions of the Second Amended and Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), the Board of Directors hereby creates a series of Preferred Stock, $.001 par value per share (the "Preferred Stock"), of the Corporation having the designation and relative rights, preferences and limitations as set forth on Exhibit A attached hereto. IN WITNESS WHEREOF, the Corporation has caused this certificate to be duly executed by its President on this 11th day of June, 1999. NMT MEDICAL, INC. By: /s/ Thomas M. Tully -------------------------------------- Thomas M Tully President Exhibit A --------- NMT MEDICAL, INC. CERTIFICATE OF DESIGNATION OF SERIES A JUNIOR PARTICIPATING PREFERRED STOCK (Pursuant to Section 151 of the General Corporation Law of Delaware) ___________________________________ RESOLVED: That pursuant to the authority vested in the Board of Directors of NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc., and hereinafter called the "Corporation") in accordance with the provisions of the Second Amended and Restated Certificate of Incorporation, as amended (the "Certificate of Incorporation"), the Board of Directors hereby creates a series of Preferred Stock, $.001 par value per share (the "Preferred Stock"), of the Corporation having the designation and relative rights, preferences and limitations as follows: SERIES A JUNIOR PARTICIPATING PREFERRED STOCK: Section 1. Designation and Amount. The shares of such series shall be ---------------------- designated as "Series A Junior Participating Preferred Stock" (the "Series A Preferred Stock") and the number of shares constituting the Series A Preferred Stock shall be 50,000. Such number of shares may be increased or decreased by resolution of the Board prior to issuance; provided, that no decrease shall -------- reduce the number of shares of Series A Preferred Stock to a number less than the number of shares then outstanding plus the number of shares reserved for issuance upon the exercise of outstanding options, rights or warrants or upon the conversion of any outstanding securities issued by the Corporation convertible into Series A Preferred Stock. Section 2. Dividends and Distributions. --------------------------- (A) Subject to the rights of the holders of any shares of any series of Preferred Stock (or any similar stock) ranking prior and superior to the Series A Preferred Stock with respect to dividends, the holders of shares of Series A Preferred Stock, in preference to the holders of Common Stock, par value $.001 per share (the "Common Stock"), of the Corporation, and of any other junior stock, shall be entitled to receive, when, as and if declared by the Board out of funds of the Corporation legally available for the payment of dividends, quarterly dividends payable in cash on the last day of each fiscal quarter of the Corporation in each year (each such date being referred to herein as a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend Payment Date after the first issuance of a share or fraction of a share of Series A Preferred Stock, in an amount per share (rounded to the nearest cent) equal to the greater of (a) $10 or (b) subject to the provision for adjustment hereinafter set forth, 1,000 times the aggregate per share amount of all cash dividends, and 1,000 times the aggregate per share amount (payable in kind) of all non-cash dividends or other distributions, other than a dividend payable in shares of Common Stock or a subdivision of the outstanding shares of Common Stock (by reclassification or otherwise), declared on the Common Stock since the immediately preceding Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend Payment Date, since the first issuance of any share or fraction of a share of Series A Preferred Stock. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the preceding sentence shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. In the event the Corporation shall at any time declare or pay any dividend on the Series A Preferred Stock payable in shares of Series A Preferred Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Series A Preferred Stock (by reclassification or otherwise than by payment of a dividend in shares of Series A Preferred Stock) into a greater or lesser number of shares of Series A Preferred Stock, then in each such case the amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under clause (b) of the first sentence of this Section 2(A) shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Series A Preferred Stock that were outstanding immediately prior to such event and the denominator of which is the number of shares of Series A Preferred Stock outstanding immediately after such event. (B) The Corporation shall declare a dividend or distribution on the Series A Preferred Stock as provided in paragraph (A) of this Section immediately after it declares a dividend or distribution on the Common Stock (other than a dividend payable in shares of Common Stock) and the Corporation shall pay such dividend or distribution on the Series A Preferred Stock before the dividend or distribution declared on the Common Stock is paid or set apart; provided that, in the event no dividend or distribution shall have been declared on the Common Stock during the period between any Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date, a dividend of $10 per share on the Series A Preferred Stock shall nevertheless be payable on such subsequent Quarterly Dividend Payment Date. 2 (C) Dividends shall begin to accrue and be cumulative on outstanding shares of Series A Preferred Stock from the Quarterly Dividend Payment Date next preceding the date of issue of such shares, unless the date of issue of such shares is prior to the record date for the first Quarterly Dividend Payment Date, in which case dividends on such shares shall begin to accrue from the date of issue of such shares, or unless the date of issue is a Quarterly Dividend Payment Date or is a date after the record date for the determination of holders of shares of Series A Preferred Stock entitled to receive a quarterly dividend and before such Quarterly Dividend Payment Date, in either of which events such dividends shall begin to accrue and be cumulative from such Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends paid on the shares of Series A Preferred Stock in an amount less than the total amount of such dividends at the time accrued and payable on such shares shall be allocated pro rata on a share-by-share basis among all such shares at the time outstanding. The Board may fix a record date for the determination of holders of shares of Series A Preferred Stock entitled to receive payment of a dividend or distribution declared thereon, which record date shall be not more than 60 days prior to the date fixed for the payment thereof. Section 3. Voting Rights. The holders of shares of Series A Preferred ------------- Stock shall have the following voting rights: (A) Subject to the provision for adjustment hereinafter set forth, each share of Series A Preferred Stock shall entitle the holder thereof to 1,000 votes on all matters submitted to a vote of the stockholders of the Corporation. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such number by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. In the event the Corporation shall at any time declare or pay any dividend on the Series A Preferred Stock payable in shares of Series A Preferred Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Series A Preferred Stock (by reclassification or otherwise than by payment of a dividend in shares of Series A Preferred Stock) into a greater or lesser number of shares of Series A Preferred Stock, then in each such case the number of votes per share to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Series A Preferred Stock that were outstanding immediately prior to such event and the denominator of which is the number of 3 shares of Series A Preferred Stock outstanding immediately after such event. (B) Except as otherwise provided herein, in the Certificate of Incorporation or by law, the holders of shares of Series A Preferred Stock and the holders of shares of Common Stock and any other capital stock of the Corporation having general voting rights shall vote together as one class on all matters submitted to a vote of stockholders of the Corporation. (C) (i) If at any time dividends on any Series A Preferred Stock shall be in arrears in an amount equal to six quarterly dividends thereon, the holders of the Series A Preferred Stock, voting as a separate series from all other series of Preferred Stock and classes of capital stock, shall be entitled to elect two members of the Board in addition to any Directors elected by any other series, class or classes of securities and the authorized number of Directors will automatically be increased by two. Promptly thereafter, the Board of the Corporation shall, as soon as may be practicable, call a special meeting of holders of Series A Preferred Stock for the purpose of electing such members of the Board. Such special meeting shall in any event be held within 45 days of the occurrence of such arrearage. (ii) During any period when the holders of Series A Preferred Stock, voting as a separate series, shall be entitled and shall have exercised their right to elect two Directors, then, and during such time as such right continues, (a) the then authorized number of Directors shall be increased by two, and the holders of Series A Preferred Stock, voting as a separate series, shall be entitled to elect the additional Directors so provided for, and (b) each such additional Director shall not be a member of any existing class of the Board, but shall serve until the next annual meeting of stockholders for the election of Directors, or until his successor shall be elected and shall qualify, or until his right to hold such office terminates pursuant to the provisions of this Section 3(C). (iii) A Director elected pursuant to the terms hereof may be removed with or without cause by the holders of Series A Preferred Stock entitled to vote in an election of such Director. (iv) If, during any interval between annual meetings of stockholders for the election of Directors and while the holders of Series A Preferred Stock shall be entitled to elect two Directors, there is no such Director in office by reason of resignation, death or removal, then, promptly thereafter, the Board shall call a special meeting of the holders of Series A Preferred Stock for the purpose of filling such vacancy and such vacancy shall be filled at such special meeting. Such special meeting shall in any event be held within 45 days of the occurrence of such vacancy. (v) At such time as the arrearage is fully cured, and all dividends accumulated and unpaid on any shares of Series A Preferred Stock outstanding are 4 paid, and, in addition thereto, at least one regular dividend has been paid subsequent to curing such arrearage, the term of office of any Director elected pursuant to this Section 3(C), or his successor, shall automatically terminate, and the authorized number of Directors shall automatically decrease by two, the rights of the holders of the shares of the Series A Preferred Stock to vote as provided in this Section 3(C) shall cease, subject to renewal from time to time upon the same terms and conditions, and the holders of shares of the Series A Preferred Stock shall have only the limited voting rights elsewhere herein set forth. (D) Except as set forth herein, or as otherwise provided by law, holders of Series A Preferred Stock shall have no special voting rights and their consent shall not be required (except to the extent they are entitled to vote with holders of Common Stock as set forth herein) for taking any corporate action. Section 4. Certain Restrictions. -------------------- (A) Whenever quarterly dividends or other dividends or distributions payable on the Series A Preferred Stock as provided in Section 2 are in arrears, thereafter and until all accrued and unpaid dividends and distributions, whether or not declared, on shares of Series A Preferred Stock outstanding shall have been paid in full, the Corporation shall not: (i) declare or pay dividends, or make any other distributions, on any shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock; (ii) declare or pay dividends, or make any other distributions, on any shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except dividends paid ratably on the Series A Preferred Stock and all such parity stock on which dividends are payable or in arrears in proportion to the total amounts to which the holders of all such shares are then entitled; (iii) of any stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock, provided that the Corporation may at any time redeem, purchase or otherwise acquire shares of any such junior stock in exchange for shares of any stock of the Corporation ranking junior (either as to dividends or upon dissolution, liquidation or winding up) to the Series A Preferred Stock; or (iv) redeem or purchase or otherwise acquire for consideration any shares of Series A Preferred Stock, or any shares of stock ranking on a parity with the Series A Preferred Stock, except in accordance with a purchase offer made in writing 5 or by publication (as determined by the Board) to all holders of such shares upon such terms as the Board, after consideration of the respective annual dividend rates and other relative rights and preferences of the respective series and classes, shall determine in good faith will result in fair and equitable treatment among the respective series or classes. (B) The Corporation shall not permit any subsidiary of the Corporation to purchase or otherwise acquire for consideration any shares of stock of the Corporation unless the Corporation could, under paragraph (A) of this Section 4, purchase or otherwise acquire such shares at such time and in such manner. Section 5. Reacquired Shares. Any shares of Series A Preferred Stock ----------------- purchased or otherwise acquired by the Corporation in any manner whatsoever shall be retired and cancelled promptly after the acquisition thereof. All such shares shall upon their cancellation become authorized but unissued shares of Preferred Stock and may be reissued as part of a new series of Preferred Stock subject to the conditions and restrictions on issuance set forth herein, in the Certificate of Incorporation, or in any other Certificate of Designation creating a series of Preferred Stock or any similar stock or as otherwise required by law. Section 6. Liquidation, Dissolution or Winding Up. -------------------------------------- (A) Upon any liquidation, dissolution or winding up of the Corporation, no distribution shall be made (1) to the holders of shares of stock ranking junior (either as to dividends or upon liquidation, dissolution or winding up) to the Series A Preferred Stock unless, prior thereto, the holders of shares of Series A Preferred Stock shall have received $1000 per share, plus an amount equal to accrued and unpaid dividends and distributions thereon, whether or not declared, to the date of such payment, provided that the holders of shares of Series A Preferred Stock shall be entitled to receive an aggregate amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount to be distributed per share to holders of shares of Common Stock, or (2) to the holders of shares of stock ranking on a parity (either as to dividends or upon liquidation, dissolution or winding up) with the Series A Preferred Stock, except distributions made ratably on the Series A Preferred Stock and all such parity stock in proportion to the total amounts to which the holders of all such shares are entitled upon such liquidation, dissolution or winding up. (B) Neither the consolidation, merger or other business combination of the Corporation with or into any other corporation nor the sale, lease, exchange or conveyance of all or any part of the property, assets or business of the Corporation shall be deemed to be a liquidation, dissolution or winding up of the Corporation for purposes of this Section 6. 6 (C) In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of paragraph (A) of this Section 6 shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. In the event the Corporation shall at any time declare or pay any dividend on the Series A Preferred Stock payable in shares of Series A Preferred Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Series A Preferred Stock (by reclassification or otherwise than by payment of a dividend in shares of Series A Preferred Stock) into a greater or lesser number of shares of Series A Preferred Stock, then in each such case the aggregate amount to which holders of shares of Series A Preferred Stock were entitled immediately prior to such event under the proviso in clause (1) of paragraph (A) of this Section 6 shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Series A Preferred Stock that were outstanding immediately prior to such event and the denominator of which is the number of shares of Series A Preferred Stock outstanding immediately after such event. Section 7. Consolidation, Merger, etc. Notwithstanding anything to the -------------------------- contrary contained herein, in case the Corporation shall enter into any consolidation, merger, combination or other transaction in which the shares of Common Stock are exchanged for or changed into other stock or securities, cash and/or any other property, then in any such case each share of Series A Preferred Stock shall at the same time be similarly exchanged or changed into an amount per share, subject to the provision for adjustment hereinafter set forth, equal to 1,000 times the aggregate amount of stock, securities, cash and/or any other property (payable in kind), as the case may be, into which or for which each share of Common Stock is changed or exchanged. In the event the Corporation shall at any time declare or pay any dividend on the Common Stock payable in shares of Common Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Common Stock (by reclassification or otherwise than by payment of a dividend in shares of Common Stock) into a greater or lesser number of shares of Common Stock, then in each such case the amount set forth in the preceding sentence with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Common Stock outstanding immediately after such event and the denominator of which is the number of shares of Common Stock that were outstanding immediately prior to such event. In the event the Corporation shall at 7 any time declare or pay any dividend on the Series A Preferred Stock payable in shares of Series A Preferred Stock, or effect a subdivision, combination or consolidation of the outstanding shares of Series A Preferred Stock (by reclassification or otherwise than by payment of a dividend in shares of Series A Preferred Stock) into a greater or lesser number of shares of Series A Preferred Stock, then in each such case the amount set forth in the first sentence of this Section 7 with respect to the exchange or change of shares of Series A Preferred Stock shall be adjusted by multiplying such amount by a fraction, the numerator of which is the number of shares of Series A Preferred Stock that were outstanding immediately prior to such event and the denominator of which is the number of shares of Series A Preferred Stock outstanding immediately after such event. Section 8. No Redemption. The shares of Series A Preferred Stock shall not ------------- be redeemable. Section 9. Rank. The Series A Preferred Stock shall rank, with respect to ---- the payment of dividends and the distribution of assets, junior to all series of any other class of the Preferred Stock issued either before or after the issuance of the Series A Preferred Stock, unless the terms of any such series shall provide otherwise. Section 10. Amendment. At such time as any shares of Series A Preferred --------- Stock are outstanding, the Certificate of Incorporation, as amended, of the Corporation shall not be amended in any manner which would materially alter or change the powers, preferences or special rights of the Series A Preferred Stock so as to affect them adversely without the affirmative vote of the holders of at least two-thirds of the outstanding shares of Series A Preferred Stock, voting together as a single class. Section 11. Fractional Shares. Series A Preferred Stock may be issued in ----------------- fractions of a share which shall entitle the holder, in proportion to such holder's fractional shares, to exercise voting rights, receive dividends, participate in distributions and have the benefit of all other rights of holders of Series A Preferred Stock. 8 EX-10.1 4 COMMON STOCK PURCHASE WARRANT NO. WSDF-4 EXHIBIT 10.1 THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUED UPON ITS EXERCISE ARE SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH IN SECTION 4 OF THIS WARRANT ----------------------------------------------------------------------- Warrant No. WSDF-4 Number of Shares: 25,000 (subject to adjustment) Date of Issuance: April 14, 1999 Nitinol Medical Technologies, Inc. ---------------------------------- Common Stock Purchase Warrant ----------------------------- (Void after February 14, 2001) Nitinol Medical Technologies, Inc., a Delaware corporation (the "Company"), for value received, hereby certifies that Whitney Subordinated Debt Fund, L.P., or its registered assigns (the "Registered Holder"), is entitled, subject to the terms set forth below, to purchase from the Company, at any time or from time to time on or after the date of issuance and on or before February 14, 2001 at not later than 5:00 p.m. (Boston, Massachusetts time), 25,000 shares of Common Stock, $.001 par value per share, of the Company, at a purchase price of $3.41 per share. The shares purchasable upon exercise of this Warrant, and the purchase price per share, each as adjusted from time to time pursuant to the provisions of this Warrant, are hereinafter referred to as the "Warrant Shares" and the "Purchase Price," respectively. 1. Exercise. -------- (a) This Warrant may be exercised by the Registered Holder, in whole or in part, by surrendering this Warrant, with the purchase form appended hereto as Exhibit I duly executed by such Registered Holder or by such Registered --------- Holder's duly authorized attorney, at the principal office of the Company, or at such other office or agency as the Company may designate, accompanied by payment in full, in lawful money of the United States, of the Purchase Price payable in respect of the number of Warrant Shares purchased upon such exercise. (b) The Registered Holder may, at its option, elect to pay some or all of the Purchase Price payable upon an exercise of this Warrant by cancelling a portion of this Warrant exercisable for such number of Warrant Shares as is determined by dividing (i) the total Purchase Price payable in respect of the number of Warrant Shares being purchased upon such exercise by (ii) the excess of the Fair -1- Market Value per share of Common Stock as of the effective date of exercise, as determined pursuant to subsection 1(c) below (the "Exercise Date") over the Purchase Price per share. If the Registered Holder wishes to exercise this Warrant pursuant to this method of payment with respect to the maximum number of Warrant Shares purchasable pursuant to this method, then the number of Warrant Shares so purchasable shall be equal to the total number of Warrant Shares, minus the product obtained by multiplying (x) the total number of Warrant Shares by (y) a fraction, the numerator of which shall be the Purchase Price per share and the denominator of which shall be the Fair Market Value per share of Common Stock as of the Exercise Date. The Fair Market Value per share of Common Stock shall be determined as follows: (i) If the Common Stock is listed on a national securities exchange, the NASDAQ National Market System, the NASDAQ system, or another nationally recognized exchange or trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the last reported sale price per share of Common Stock thereon on the Exercise Date; or, if no such price is reported on such date, such price on the next preceding business day (provided that if no such price is reported on the next preceding business day, the Fair Market Value per share of Common Stock shall be determined pursuant to clause (ii)). (ii) If the Common Stock is not listed on a national securities exchange, the NASDAQ National Market System, the NASDAQ system or another nationally recognized exchange or trading system as of the Exercise Date, the Fair Market Value per share of Common Stock shall be deemed to be the amount most recently determined by the Board of Directors to represent the fair market value per share of the Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company); and, upon request of the Registered Holder, the Board of Directors (or a representative thereof) shall promptly notify the Registered Holder of the Fair Market Value per share of Common Stock. Notwithstanding the foregoing, if the Board of Directors has not made such a determination within the three-month period prior to the Exercise Date, then (A) the Fair Market Value per share of Common Stock shall be the amount next determined by the Board of Directors to represent the fair market value per share of the Common Stock (including without limitation a determination for purposes of granting Common Stock options or issuing Common Stock under an employee benefit plan of the Company), (B) the Board of Directors shall make such a determination within 15 days of a request by the Registered Holder that it do so, and (C) the exercise of this Warrant pursuant to this subsection 1(b) shall be delayed until such determination is made. (c) Each exercise of this Warrant shall be deemed to have been effected immediately prior to the close of business on the day on which this Warrant -2- shall have been surrendered to the Company as provided in subsection 1(a) above. At such time, the person or persons in whose name or names any certificates for Warrant Shares shall be issuable upon such exercise as provided in subsection 1(d) below shall be deemed to have become the holder or holders of record of the Warrant Shares represented by such certificates. (d) As soon as practicable after the exercise of this Warrant in full or in part, and in any event within 10 days thereafter, the Company, at its expense, will cause to be issued in the name of, and delivered to, the Registered Holder, or as such Holder (upon payment by such Holder of any applicable transfer taxes) may direct: (i) a certificate or certificates for the number of full Warrant Shares to which such Registered Holder shall be entitled upon such exercise plus, in lieu of any fractional share to which such Registered Holder would otherwise be entitled, cash in an amount determined pursuant to Section 3 hereof; and (ii) in case such exercise is in part only, a new warrant or warrants (dated the date hereof) of like tenor, calling in the aggregate on the face or faces thereof for the number of Warrant Shares equal (without giving effect to any adjustment therein) to the number of such shares called for on the face of this Warrant minus the sum of (a) the number of such shares purchased by the Registered Holder upon such exercise plus (b) the number of Warrant Shares (if any) covered by the portion of this Warrant cancelled in payment of the Purchase Price payable upon such exercise pursuant to subsection 1(b) above. 2. Adjustments. ----------- (a) General. The Purchase Price shall be subject to adjustment from ------- time to time pursuant to the terms of this Section 2. (b) Diluting Issuances. ------------------ (i) Special Definitions. For purposes of this subsection 2(b), ------------------- the following definitions shall apply: (A) "Option" shall mean rights, options or warrants to ------ subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities, excluding options described in clause (III) of subsection 2(b)(i)(D) below. (B) "Original Issue Date" shall mean the date on which this ------------------- Warrant was first issued. (C) "Convertible Securities" shall mean any evidences of ---------------------- indebtedness, shares or other securities directly or indirectly convertible into or exchangeable for Common Stock. -3- (D) "Additional Shares of Common Stock" shall mean all --------------------------------- shares of Common Stock issued (or, pursuant to subsection 2(b)(iii) below, deemed to be issued) by the Company after the Original Issue Date, other than shares of Common Stock issued or issuable: (I) upon conversion of shares of Preferred Stock outstanding on the Original Issue Date; (II) by reason of a dividend, stock split, split-up or other distribution on shares of Common Stock that are excluded from the definition of Additional Shares of Common Stock by the foregoing clause (I) or this clause (II); or (III) to employees or directors of, or consultants to, the Company pursuant to a plan adopted by the Board of Directors of the Company. (ii) No Adjustment of Purchase Price. No adjustments to the ------------------------------- Purchase Price shall be made unless the consideration per share (determined pursuant to subsection 2(b)(v)) for an Additional Share of Common Stock issued or deemed to be issued by the Company is less than the Purchase Price in effect on the date of, and immediately prior to, the issue of such Additional Shares. (iii) Issue of Securities Deemed Issue of Additional Shares of -------------------------------------------------------- Common Stock. If the Company at any time or from time to time after the - ------------ Original Issue Date shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares of Common Stock (as set forth in the instrument relating thereto without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to subsection 2(b)(v) hereof) of such Additional Shares of Common Stock would be less than the Purchase Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (A) No further adjustment in the Purchase Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock -4- upon the exercise of such Options or conversion or exchange of such Convertible Securities; (B) If such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Company, upon the exercise, conversion or exchange thereof, the Purchase Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto), and any subsequent adjustments based thereon, shall, upon any such increase becoming effective, be recomputed to reflect such increase insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; (C) Upon the expiration or termination of any unexercised Option, the Purchase Price shall not be readjusted, but the Additional Shares of Common Stock deemed issued as the result of the original issue of such Option shall not be deemed issued for the purposes of any subsequent adjustment of the Purchase Price; (D) In the event of any change in the number of shares of Common Stock issuable upon the exercise, conversion or exchange of any Option or Convertible Security, including, but not limited to, a change resulting from the anti-dilution provisions thereof, the Purchase Price then in effect shall forthwith be readjusted to such Purchase Price as would have obtained had the adjustment which was made upon the issuance of such Option or Convertible Security not exercised or converted prior to such change been made upon the basis of such change; and (E) No readjustment pursuant to Clause (B) or (D) above shall have the effect of increasing the Purchase Price to an amount which exceeds the lower of (i) the Purchase Price on the original adjustment date, or (ii) the Purchase Price that would have resulted from any issuances of Additional Shares of Common Stock between the original adjustment date and such readjustment date. (iv) Adjustment of Purchase Price Upon Issuance of Additional -------------------------------------------------------- Shares of Common Stock. In the event the Company shall at any time after the - ---------------------- Original Issue Date issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to subsection 2(b)(iii), but excluding shares issued as a dividend or distribution or upon a stock split or combination as provided in subsection 2(c)), without consideration or for a consideration per share less than the Purchase Price in effect on the date of and immediately prior to such issue, then and in such event, such Purchase Price shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Purchase Price by a fraction, (A) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to such issue plus (2) the number of shares of Common Stock which the aggregate consideration received or to be received by the Company for the total -5- number of Additional Shares of Common Stock so issued would purchase at such Purchase Price; and (B) the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common Stock so issued; provided that, (i) for the -------- ---- purpose of this subsection 2(b)(iv), all shares of Common Stock issuable upon exercise or conversion of Options or Convertible Securities outstanding immediately prior to such issue shall be deemed to be outstanding (other than shares excluded from the definition of "Additional Shares of Common Stock" by virtue of clause (III) of subsection 2(b)(i)(D)), and (ii) the number of shares of Common Stock deemed issuable upon conversion of such outstanding Options and Convertible Securities shall not give effect to any adjustments to the conversion price or conversion rate of such Options or Convertible Securities resulting from the issuance of Additional Shares of Common Stock that is the subject of this calculation. Notwithstanding the foregoing, the applicable Purchase Price shall not be so reduced at such time if the amount of such reduction would be an amount less than $.05, but any such amount shall be carried forward and reduction with respect thereto made at the time of and together with any subsequent reduction which, together with such amount and any other amount or amounts so carried forward, shall aggregate $.05 or more. (v) Determination of Consideration. For purposes of this ------------------------------ subsection 2(b), the consideration received by the Company for the issue of any Additional Shares of Common Stock shall be computed as follows: (A) Cash and Property: Such consideration shall: ----------------- (I) insofar as it consists of cash, be computed at the aggregate of cash received by the Company, excluding amounts paid or payable for accrued interest or accrued dividends; (II) insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and (III) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Company for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (I) and (II) above, as determined in good faith by the Board of Directors. (B) Options and Convertible Securities. The consideration ---------------------------------- per share received by the Company for Additional Shares of Common Stock deemed to have been issued pursuant to subsection 2(b)(iii), relating to Options and Convertible Securities, shall be determined by dividing -6- (x) the total amount, if any, received or receivable by the Company as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Company upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (y) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. (vi) Multiple Closing Dates. In the event the Company shall ---------------------- issue on more than one date Additional Shares of Common Stock which are comprised of shares of the same series or class of Preferred Stock, and such issuance dates occur within a period of no more than 120 days, then the Purchase Price shall be adjusted only once on account of such issuances, with such adjustment to occur upon the final such issuance and to give effect to all such issuances as if they occurred on the date of the final such issuance. (c) Recapitalizations. If outstanding shares of the Company's Common ----------------- Stock shall be subdivided into a greater number of shares or a dividend in Common Stock shall be paid in respect of Common Stock, the Purchase Price in effect immediately prior to such subdivision or at the record date of such dividend shall simultaneously with the effectiveness of such subdivision or immediately after the record date of such dividend be proportionately reduced. If outstanding shares of Common Stock shall be combined into a smaller number of shares, the Purchase Price in effect immediately prior to such combination shall, simultaneously with the effectiveness of such combination, be proportionately increased. (d) Mergers, etc. If there shall occur any capital reorganization or ------------ reclassification of the Company's Common Stock (other than a change in par value or a subdivision or combination as provided for in subsection 2(c) above), or any consolidation or merger of the Company with or into another corporation, or a transfer of all or substantially all of the assets of the Company, then, as part of any such reorganization, reclassification, consolidation, merger or sale, as the case may be, lawful provision shall be made so that the Registered Holder of this Warrant shall have the right thereafter to receive upon the exercise hereof the kind and amount of shares of stock or other securities or property which such Registered Holder would have been entitled to receive if, immediately prior to any such reorganization, reclassification, consolidation, merger or sale, as the case may be, such Registered Holder had held the number of shares of Common Stock which were then -7- purchasable upon the exercise of this Warrant. In any such case, appropriate adjustment (as reasonably determined in good faith by the Board of Directors of the Company) shall be made in the application of the provisions set forth herein with respect to the rights and interests thereafter of the Registered Holder of this Warrant, such that the provisions set forth in this Section 2 (including provisions with respect to adjustment of the Purchase Price) shall thereafter be applicable, as nearly as is reasonably practicable, in relation to any shares of stock or other securities or property thereafter deliverable upon the exercise of this Warrant. (e) Adjustment in Number of Warrant Shares. When any adjustment is -------------------------------------- required to be made in the Purchase Price, the number of Warrant Shares purchasable upon the exercise of this Warrant shall be changed to the number determined by dividing (i) an amount equal to the number of shares issuable upon the exercise of this Warrant immediately prior to such adjustment, multiplied by the Purchase Price in effect immediately prior to such adjustment, by (ii) the Purchase Price in effect immediately after such adjustment. (f) Certificate of Adjustment. When any adjustment is required to be ------------------------- made pursuant to this Section 2, the Company shall promptly mail to the Registered Holder a certificate setting forth the Purchase Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment. Such certificate shall also set forth the kind and amount of stock or other securities or property into which this Warrant shall be exercisable following such adjustment. 3. Fractional Shares. The Company shall not be required upon the ----------------- exercise of this Warrant to issue any fractional shares, but shall make an adjustment therefor in cash on the basis of the Fair Market Value per share of Common Stock, as determined pursuant to subsection 1(b) above. 4. Requirements for Transfer. ------------------------- (a) This Warrant and the Warrant Shares shall not be sold or transferred unless either (i) they first shall have been registered under the Securities Act of 1933, as amended (the "Act"), or (ii) the Company first shall have been furnished with an opinion of legal counsel, reasonably satisfactory to the Company, to the effect that such sale or transfer is exempt from the registration requirements of the Act. (b) Notwithstanding the foregoing, no registration or opinion of counsel shall be required for (i) a transfer by a Registered Holder which is a partnership to a partner of such partnership or a retired partner of such partnership who retires after the date hereof, or to the estate of any such partner or retired partner, if the transferee agrees in writing to be subject to the terms of this Section 4, or (ii) a transfer made in accordance with Rule 144 under the Act. -8- (c) Each certificate representing Warrant Shares shall bear a legend substantially in the following form: "The securities represented by this certificate have not been registered under the Securities Act of 1933, as amended, and may not be offered, sold or otherwise transferred, pledged or hypothecated unless and until such securities are registered under such Act or an opinion of counsel satisfactory to the Company is obtained to the effect that such registration is not required." The foregoing legend shall be removed from the certificates representing any Warrant Shares, at the request of the holder thereof, at such time as they become eligible for resale pursuant to Rule 144(k) under the Act. 5. No Impairment. The Company will not, by amendment of its charter or ------------- through reorganization, consolidation, merger, dissolution, sale of assets or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms of this Warrant, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holder of this Warrant against impairment. 6. Liquidating Dividends. If the Company pays a dividend or makes a --------------------- distribution on the Common Stock payable otherwise than in cash out of earnings or earned surplus (determined in accordance with generally accepted accounting principles) except for a stock dividend payable in shares of Common Stock (a "Liquidating Dividend"), then the Company will pay or distribute to the Registered Holder of this Warrant, upon the exercise hereof, in addition to the Warrant Shares purchased upon such exercise, the Liquidating Dividend which would have been paid to such Registered Holder if it or he had been the owner of record of such Warrant Shares immediately prior to the date on which a record is taken for such Liquidating Dividend or, if no record is taken, the date as of which the record holders of Common Stock entitled to such dividends or distribution are to be determined. 7. Notices of Record Date, etc. In case: --------------------------- (a) the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time deliverable upon the exercise of this Warrant) for the purpose of entitling or enabling them to receive any dividend or other distribution, or to receive any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right; or -9- (b) of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation (other than a consolidation or merger in which the Company is the surviving entity), or any transfer of all or substantially all of the assets of the Company; or (c) of the voluntary or involuntary dissolution, liquidation or winding-up of the Company, then, and in each such case, the Company will mail or cause to be mailed to the Registered Holder of this Warrant a notice specifying, as the case may be, (i) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (ii) the effective date on which such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up is to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such other stock or securities at the time deliverable upon the exercise of this Warrant) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, transfer, dissolution, liquidation or winding-up. Such notice shall be mailed at least ten (10) days prior to the record date or effective date for the event specified in such notice. 8. Reservation of Stock. The Company will at all times reserve and keep -------------------- available, solely for issuance and delivery upon the exercise of this Warrant, such number of Warrant Shares and other stock, securities and property, as from time to time shall be issuable upon the exercise of this Warrant. 9. Exchange of Warrants. Upon the surrender by the Registered Holder of -------------------- any Warrant or Warrants, properly endorsed, to the Company at the principal office of the Company, the Company will, subject to the provisions of Section 4 hereof, issue and deliver to or upon the order of such Holder, at the Company's expense, a new Warrant or Warrants of like tenor, in the name of such Registered Holder or as such Registered Holder (upon payment by such Registered Holder of any applicable transfer taxes) may direct, calling in the aggregate on the face or faces thereof for the number of shares of Common Stock called for on the face or faces of the Warrant or Warrants so surrendered. 10. Replacement of Warrants. Upon receipt of evidence reasonably ----------------------- satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and (in the case of loss, theft or destruction) upon delivery of an indemnity agreement (with surety if reasonably required) in an amount reasonably satisfactory to the Company, or (in the case of mutilation) upon surrender and cancellation of this Warrant, the Company will issue, in lieu thereof, a new Warrant of like tenor. -10- 11. Transfers, etc. -------------- (a) The Company will maintain a register containing the names and addresses of the Registered Holders of this Warrant. Any Registered Holder may change its or his address as shown on the warrant register by written notice to the Company requesting such change. (b) Subject to the provisions of Section 4 hereof, this Warrant and all rights hereunder are transferable, in whole or in part, upon surrender of this Warrant with a properly executed assignment (in the form of Exhibit II ---------- hereto) at the principal office of the Company. (c) Until any transfer of this Warrant is made in the warrant register, the Company may treat the Registered Holder of this Warrant as the absolute owner hereof for all purposes; provided, however, that if and when this -------- ------- Warrant is properly assigned in blank, the Company may (but shall not be obligated to) treat the bearer hereof as the absolute owner hereof for all purposes, notwithstanding any notice to the contrary. 12. Mailing of Notices, etc. All notices and other communications from ----------------------- the Company to the Registered Holder of this Warrant shall be mailed by first- class certified or registered mail, postage prepaid, to the address furnished to the Company in writing by the last Registered Holder of this Warrant who shall have furnished an address to the Company in writing. All notices and other communications from the Registered Holder of this Warrant or in connection herewith to the Company shall be mailed by first-class certified or registered mail, postage prepaid, to the Company at its principal office set forth below. If the Company should at any time change the location of its principal office to a place other than as set forth below, it shall give prompt written notice to the Registered Holder of this Warrant and thereafter all references in this Warrant to the location of its principal office at the particular time shall be as so specified in such notice. 13. No Rights as Stockholder. Until the exercise of this Warrant, the ------------------------ Registered Holder of this Warrant shall not have or exercise any rights by virtue hereof as a stockholder of the Company. 14. Change or Waiver. Any term of this Warrant may be changed or waived ---------------- only by an instrument in writing signed by the party against which enforcement of the change or waiver is sought. 15. Headings. The headings in this Warrant are for purposes of reference -------- only and shall not limit or otherwise affect the meaning of any provision of this Warrant. -11- 16. Governing Law. This Warrant will be governed by and construed in ------------- accordance with the laws of the Commonwealth of Massachusetts. Nitinol Medical Technologies, Inc. By: /s/ Thomas M. Tully --------------------------------------- [Corporate Seal] Name: Thomas M. Tully Title: President and Chief Executive Officer -12- EXHIBIT I --------- PURCHASE FORM ------------- To:_________________ Dated:____________ The undersigned, pursuant to the provisions set forth in the attached Warrant (No. ___), hereby irrevocably elects to purchase _____ shares of the Common Stock covered by such Warrant. The undersigned herewith makes payment of $____________, representing the full purchase price for such shares at the price per share provided for in such Warrant. Such payment takes the form of (check applicable box or boxes): [_] $______ in lawful money of the United States; and/or [_] The cancellation of such portion of the attached Warrant as is exercisable for a total of _____ Warrant Shares (using a Fair Market Value of $_____ per share for purposes of this calculation). Signature:_____________________ Address:_______________ _________________ EXHIBIT II ---------- ASSIGNMENT FORM --------------- FOR VALUE RECEIVED, ________________________________________ hereby sells, assigns and transfers all of the rights of the undersigned under the attached Warrant (No. ____) with respect to the number of shares of Common Stock covered thereby set forth below, unto: Name of Assignee Address No. of Shares - ---------------- ------- ------------- Dated:_____________________ Signature:________________________________ Dated:_____________________ Witness:_________________________________ EX-27.1 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1999 AND FOR THE THREE AND SIX MONTH PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 3,693,185 3,867,051 11,237,633 756,240 11,478,069 33,441,146 15,098,266 2,635,279 61,952,658 27,282,097 0 0 0 10,770 31,936,822 61,952,658 22,417,095 23,286,033 9,364,019 13,514,895 72,506 (180,000) (1,220,360) (885,747) (852,347) (852,347) 0 0 0 (852,347) ($.08) ($.08)
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