-----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, BY96c1yPvDDpYHDkV9sXuXB9MSB9ngy6RWGq37gfZpaebb2ezk6HhGAgiZF4ag3q NHi45qdhuj21/I+GLiM26g== 0000927016-99-003770.txt : 19991117 0000927016-99-003770.hdr.sgml : 19991117 ACCESSION NUMBER: 0000927016-99-003770 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: 99754815 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 September 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) Not Applicable -------------- (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No --- --- As of November 5, 1999, there were 10,783,278 shares of Common Stock, $.001 par value per share, outstanding. NMT Medical, Inc. INDEX -----
Page Number ----------- Part I. Financial Information --------------------- Item 1. Financial Statements. Consolidated Balance Sheets at September 30, 1999 and December 31, 1998 3 Consolidated Statements of Operations for the Three Months Ended September 30, 1999 and 1998 and for the Nine Months Ended September 30, 1999 and 1998 4 Consolidated Statements of Cash Flows for the Nine Months Ended September 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. 27 Part II. Other Information ----------------- Item 2. Changes in Securities and Use of Proceeds. 28 Item 3. Defaults Upon Senior Securities. 28 Item 6. Exhibits and Reports on Form 8-K. 28 Signatures 30
2 Part I -- Financial Information Item 1. Financial Statements NMT Medical, Inc. (formerly Nitinol Medical Technologies, Inc.) and Subsidiaries Consolidated Balance Sheets
At At September 30, December 31, 1999 1998 ------------------------------- (Unaudited) Assets Current assets: Cash and cash equivalents $ 1,259,924 $ 4,007,014 Marketable securities - 5,113,537 Accounts receivable, net of allowances for doubtful accounts of $994,000 and $946,000 as of September 30, 1999 and December 31, 1998, respectively 11,247,350 11,785,861 Inventories 11,158,237 10,848,432 Prepaid expenses and other current assets 3,779,848 3,516,610 ------------------------------- Total current assets 27,445,359 35,271,454 ------------------------------- Property, plant and equipment, at cost: Land and Buildings 4,650,000 4,650,000 Laboratory and computer equipment 2,848,715 2,621,211 Office furniture and equipment 2,888,146 2,299,589 Leasehold improvements 4,222,856 4,429,235 Equipment under capital lease 1,322,982 1,144,982 ------------------------------- 15,932,699 15,145,017 Less- Accumulated depreciation and amortization 3,219,373 1,961,869 ------------------------------- 12,713,326 13,183,148 ------------------------------- Long-term investments in marketable securities - 1,009,401 Notes receivable from Image Technologies Corporation - 1,600,898 Goodwill and other intangible assets, net 13,038,833 13,478,010 Other assets 1,188,851 1,640,218 ------------------------------- $ 54,386,369 $ 66,183,129 =============================== Liabilities and Stockholders' Equity Current Liabilities: Accounts payable $ 4,820,286 $ 6,619,190 Accrued expenses 5,785,359 5,219,500 Current portion of debt obligations 445,787 386,248 ------------------------------- Total current liabilities 11,051,432 12,224,938 ------------------------------- Long-term debt obligations, net of current portion 13,411,597 17,798,743 Deferred tax liability 1,917,708 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 September 30, 1999 and December 31,1998, respectively 10,770 10,681 Addditional paid-in capital 41,184,487 40,999,277 Cumulative translation adjustment (139,000) 687,000 Accumulated deficit (13,050,625) (7,528,318) ------------------------------- Total stockholders' equity 28,005,632 34,168,640 ------------------------------- $ 54,386,369 $ 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 Nine Months Ended September 30, September 30, 1999 1998 1999 1998 ----------------------------- ------------------------------ Revenues: Product sales $ 11,948,630 $ 11,920,173 $ 34,365,725 $ 17,445,695 License fees 777,000 296,558 1,645,938 1,523,810 ----------------------------- ------------------------------ 12,725,630 12,216,731 36,011,663 18,969,505 ----------------------------- ------------------------------ Expenses: Cost of product sales 4,899,845 5,024,891 14,253,660 7,139,029 Research and development 1,375,464 1,120,353 3,789,134 2,792,718 General and administrative 3,167,872 2,234,606 9,053,233 3,547,956 Selling and marketing 2,853,700 2,748,310 8,079,768 3,473,668 In-process research and development - 4,710,000 - 4,710,000 Merger and integration - 687,242 - 687,242 Write down of notes receivable from Image Technologies Corporation 1,364,369 - 1,364,369 - ----------------------------- ------------------------------ 13,661,250 16,525,402 36,540,164 22,350,613 ----------------------------- ------------------------------ Income (loss) from operations (935,620) (4,308,671) (528,501) (3,381,108) ----------------------------- ------------------------------ Equity in net loss of Image Technologies Corporation (188,979) (154,614) (488,529) (247,951) Currency transaction gain (loss) (220,902) (18,939) 6,142 (88,403) Interest expense (687,193) (658,973) (2,257,714) (689,528) Interest income 108,462 155,109 458,623 946,485 ----------------------------- ------------------------------ (988,612) (677,417) (2,281,478) (79,397) ----------------------------- ------------------------------ Loss before provision (benefit) for income taxes (1,924,232) (4,986,088) (2,809,979) (3,460,505) Provision (benefit) for income taxes 127,300 (38,313) 93,900 512,187 ----------------------------- ------------------------------ Loss before extraordinary loss on early extinguishment of debt (2,051,532) (4,947,775) (2,903,879) (3,972,692) Extraordinary loss on early extinguishment of debt (2,618,428) - (2,618,428) - ----------------------------- ------------------------------ Net loss $ (4,669,960) $ (4,947,775) $(5,522,307) $(3,972,692) ============================= ============================== Basic and diluted loss per common share before extraordinary loss on early extinguishment of debt $ (0.19) $ (0.47) $ (0.27) $ (0.40) ============================= ============================== Basic and diluted loss per common share for extraordinary loss on early extinguishment of debt $ (0.24) $ - $ (0.24) $ - ============================= ============================== Basic and diluted net loss per common share $ (0.43) $ (0.47) $ (0.52) $ (0.40) ============================= ============================== Basic and diluted weighted average common shares outstanding 10,769,239 10,464,675 10,710,234 10,041,041 ============================= ==============================
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 Nine Months Ended September 30, 1999 1998 ----------------------------------- Cash flows from operating activities: Net loss $(5,522,307) (3,972,692) Adjustments to reconcile net loss to net cash used in operating activities- In-process research and development - 4,710,000 Acceleration of stock options - 11,679 Equity in net loss of Image Technologies Corporation 488,259 247,951 Write down of notes receivable from Image Technologies Corporation 1,364,369 - Depreciation and amortization 1,777,615 780,872 Deferred tax benefit (390,000) - Noncash tax provision 330,000 - Noncash interest expense 504,722 178,785 Noncash interest expense related to early extinguishment of debt 2,358,940 Increase (decrease) in accounts receivables reserves (489,109) - Changes in assets and liabilities- - Accounts receivable 1,808,866 (8,663,892) Inventories (408,567) 416,260 Prepaid expenses and other current assets (52,386) (1,193,929) Accounts payable (2,626,422) 6,078,947 Accrued expenses 652,857 274,004 Deferred revenue - (300,000) ----------------------------------- Net cash used in operating activities (202,893) (1,432,015) ----------------------------------- Cash flows from investing activities: Maturities of marketable securities 6,135,921 14,920,848 Purchases of property, plant and equipment (1,204,157) (551,004) Increase in investment in Image Technologies Corporation, net (62,000) (1,247,800) Increase in other assets (540,032) (971,871) Acquisition of Elekta Neurosurgical Instruments, net of cash acquired - (33,193,714) ----------------------------------- Net cash provided by (used in) investing activities 4,329,732 (21,043,541) ----------------------------------- Cash flows from financing activities: Payments of capital lease obligations (162,435) (135,454) Proceeds from issuance of common stock 135,299 4,178,492 Payments of senior debt (132,000) (17,592) (Payments of) borrowings under subordinated debt, net (14,000,000) 16,744,999 Borrowings under senior secured debt, net 7,504,881 - ----------------------------------- Net cash provided by (used in) financing activities (6,654,255) 20,770,445 ----------------------------------- Effect of exchange rate changes on cash (219,674) 267,032 ----------------------------------- Net decrease in cash and cash equivalents (2,747,090) (1,438,079) Cash and cash equivalents, beginning of period 4,007,014 5,561,445 ----------------------------------- Cash and cash equivalents, end of period $ 1,259,924 $ 4,123,366 =================================== Supplemental disclosure of cash flow information: Cash paid during the period for- Interest $ 1,705,955 $ 689,528 =================================== Taxes $ 121,148 $ 528,324 =================================== Noncash investing and financing activities: Issuance of warrants in connection with debt waiver $ 50,000 $ - =================================== Equipment under capital lease obligation $ 22,988 $ 58,538 =================================== Acquisition of Elekta Neurosurgical Instruments: Fair value of assets acquired - 32,691,000 Goodwill and intangible assets - 10,081,714 In-process research and development - 4,710,000 Liabilities assumed - (12,096,000) Cash acquired - (2,193,000) ----------------------------------- - 33,193,714 ===================================
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 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 the U.S. for certain humanitarian uses only, and in Europe and other international markets. As a result of the Company's acquisition on July 8, 1998 of Elekta Neurosurgical Instruments (ENI), the neurosurgical instruments business of Elekta AB (PUBL), a Swedish corporation (Elekta AB), 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 September 30, 1999, the Company was not in compliance with certain of the debt covenants contained in both the subordinated note agreement and the senior secured debt agreement discussed in Note 4. The Company negotiated a waiver of default with each of these debtholders. 2. Interim Financial Statements The accompanying Consolidated Financial Statements as of September 30, 1999 and for the three and nine month periods then ended are unaudited. In management's opinion, these unaudited Consolidated Financial Statements have been prepared on the same basis as the audited Consolidated Financial Statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, as filed with the Securities and Exchange Commission 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. (FORMERLY 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 nine month periods ended September 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 ENI 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 (see Note 4). 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 NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 --------------------- -------------------- (Actual) (Pro forma) Net revenues $36,011,663 $35,789,000 =========== =========== Net loss $(5,522,307) $(6,843,000) =========== =========== Basic and diluted weighted average shares outstanding 10,710,234 10,716,041 =========== =========== Basic and diluted net loss per share $ (.52) $ (.64) =========== ===========
4. Debt (a) 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 is due September 30, 2003 with quarterly interest payable at 10.101% per annum and is subject to certain covenants, as amended. 7 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 4. Debt (a) Subordinated Note Payable--(continued) On September 13, 1999, the Company entered into a $10 million senior secured debt facility with a bank (See Note 4(b)), $8 million of the proceeds of which was used to reduce the principal amount of the subordinated note. The Company also used $6 million of its own cash to further reduce the principal amount of this note. As of September 30, 1999, the Company was not in compliance with certain of the debt covenants of the subordinated note and has obtained a waiver of default from the holder of the note. In conjunction with this transaction, the Company recorded a $2.6 million extraordinary loss on the early extinguishment of debt in the accompanying statement of operations which primarily relates to the accelerated pro-rata write-off of the original issue discount and deferred financing costs of the subordinated note payable. (b) Senior Secured Debt On September 13, 1999, the Company entered into a $10 million senior secured debt facility with a bank, $8 million of the proceeds of which was used to reduce the principal amount of the Company's subordinated note payable (See Note 4(a)). The remaining $2 million of the senior secured debt facility is available to be drawn down by the Company for working capital purposes, as needed. The facility has a term of three years with interest payable monthly at the bank's prime lending rate on U.S. borrowings and an equivalent market rate on foreign currency borrowings. As of September 30, 1999, the Company had outstanding borrowings of $7.5 million under this facility. As of September 30, 1999, the Company was not in compliance with certain of the debt covenants of the secured debt facility and has obtained a waiver of default from the bank. 5. Reclassifications Certain prior period amounts have been reclassified to conform to the current period's presentation. 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 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. The Company considers all investments with maturities of 90 days or less from the date of purchase to be cash equivalents and all investments with original maturity dates greater than 90 days to be marketable securities. Marketable securities are classified as current or long term based on their remaining maturity as of the balance sheet date. In accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company has classified certain of its marketable securities as held-to- maturity and available-for-sale and its long-term investments in marketable securities as held-to-maturity. Held-to-maturity securities represent those securities for which the Company has the intent and ability to hold to maturity and are reported at amortized cost. Available-for-sale securities represent those securities that do not meet the classification of held-to- maturity, are not actively traded and are reported at fair market value with unrealized gains and losses included in stockholders' equity. There were no unrealized gains or losses for the three and nine month periods ended September 30, 1999 and 1998. Cash and cash equivalents, which are carried at cost and approximate market value, consist of the following at:
September 30, December 31, 1999 1998 -------------- ------------ Cash $1,259,924 $3,995,112 Cash equivalents-- Money market -- 11,902 ---------- ---------- $1,259,924 $4,007,014 ========== ==========
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) Marketable securities, with a weighted average maturity of approximately 7 1/2 months at December 31, 1998 are carried at cost which approximates market value and consist of the following at:
September 30, December 31, 1999 1998 ------------- ------------ Held-to-maturity-- Eurodollar bonds $ -- $3,310,627 Medium-term notes -- 500,847 Corporate debt securities -- 502,063 ----------- ---------- -- 4,313,537 Available-for-sale-- Taxable auction securities -- 800,000 ----------- ---------- $ -- $5,113,537 =========== ==========
There were no realized gains or losses on the sale of available-for-sale securities during the three and nine month periods ended September 30, 1999 and 1998. Long-term investments, with a weighted average maturity of approximately 15 months at December 31, 1998, are carried at cost which approximates market value. 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 September 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:
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ Short-term interest receivable $ -- $117,687 Long-term interest receivable -- 12,985 ----- -------- $ -- $130,672 ===== ========
10 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 7. Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ Components $ 3,550,697 $ 3,117,848 Finished Goods 7,607,540 7,730,584 ----------- ----------- $11,158,237 $10,848,432 =========== ===========
8. Net Loss per Common and Common Equivalent Share The Company applies SFAS No. 128, Earnings per Share. SFAS No. 128 establishes standards for computing and presenting earnings per share and applies to entities with publicly held common stock or potential common stock. Diluted loss per share is the same as basic loss per share for the three and nine month periods ended September 30, 1999 as the effects of the Company's potential common stock (294,154 shares and 449,385 shares for the three and nine month periods ended September 30, 1999, respectively) are antidilutive. 9. Foreign Currency The accounts of the Company's subsidiaries are translated in accordance with SFAS No. 52, Foreign Currency Translation. Accordingly, the accounts of the Company's foreign subsidiaries are translated from their local currency, which is the functional currency, into U.S. dollars, the reporting currency, using the exchange rate at the balance sheet date. Income and expense accounts are translated using an average rate of exchange during the period. Cumulative foreign currency translation gains or losses are reflected as a component of consolidated stockholders' equity and amounted to a gain of $728,000 and a loss of $139,000 for the three and nine month periods ended September 30, 1999, respectively. For the three and nine month periods ended September 30, 1998, the Company had a cumulative foreign currency translation gain of $669,000. Additionally, the Company had a foreign currency exchange transaction loss of approximately $221,000 and $19,000 for the three month periods ended September 30, 1999 and 1998, respectively. 11 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 9. Foreign Currency--(continued) For the nine months ended September 30, 1999, the Company had a foreign currency transaction gain of approximately $6,000 and a foreign currency transaction loss of $88,000 for the nine months ended September 30, 1998. Foreign currency transaction gains and losses result from differences in exchange rates between the functional currency and the currency in which a transaction is denominated and are included in the consolidated statement of operations in the period in which the exchange rate changes. 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, comprehensive net gain would have decreased the reported net loss by $728,000 and $669,000 for the three months ended September 30, 1999 and 1998, respectively. For the nine month periods ended September 30, 1999, the comprehensive net loss would have increased the reported net loss by $826,000 and decreased the reported net loss by $669,000 for the nine months ended September 30, 1998. 11. Investment in Image Technologies Corporation In May 1997, the Company invested $2.3 million in Image Technologies Corporation (ITC) in exchange for 345,722 shares of ITC's redeemable convertible Series A preferred stock, $.01 par value per share, which represented a 23% ownership interest in ITC. During the three and nine months ended September 30, 1999, the Company recorded $189,000 and $489,000 as its equity in the net loss of ITC. Under the terms of this agreement, the Company also extended to ITC a $2 million senior credit line that bears interest at 10% per annum, payable quarterly beginning March 31, 2001. This $2 million senior note is secured by substantially all of the assets of ITC. The principal amount of the note is convertible at the option of the Company into additional shares of ITC Series A preferred stock at a price per share of $2.54 at any time before January 1, 2001, and, if converted, any interest accrued as of such date shall be forgiven. If not converted, the note is payable on December 31, 2002, but may be prepaid in whole or in part by ITC without penalty after December 31, 2000. 12 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. Investment in Image Technologies Corporation--(continued) On December 30, 1998 and February 3, 1999, the Company amended its revolving credit note agreement with ITC to provide for additional borrowings of $50,000 and $100,000, respectively, under which ITC borrowed $38,043 and $100,000. Borrowings under the $50,000 note were repaid in April 1999. The $100,000 note accrues interest at 10% per annum and is generally subject to the same terms as the $2 million credit line agreement, except that it is convertible into additional shares of ITC Series A preferred stock at a price per share of $9.97. As of September 30, 1999, ITC has borrowed $2.1 million under these agreements and owes the Company accrued interest of $226,000. 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. In connection with this financing, ITC issued to the Company an additional 39,159 shares of ITC Series A preferred stock. 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 provides for the issuance of additional shares of common stock to the third party and the Company if ITC does not achieve certain milestones as set forth in the agreement. As a result, on June 30, 1999, ITC issued to the third party 471,414 shares of ITC common stock and to the Company 267,072 shares of ITC Series A preferred stock. On August 27, 1999, ITC entered into two senior secured convertible note agreements with this same third party for $1.5 million and $500,000 respectively (the "Series A Note" and the "Series B Note," respectively). The Series A Note and Series B Note are secured by substantially all of the assets of ITC and accrue interest at 10% per annum which is payable quarterly beginning March 31, 2001. These notes mature on December 31, 2002 but may be prepaid without penalty on or after December 31, 2000. Prior to December 31, 2000, the Series A Note is convertible, at the option of the lender into shares of ITC common stock at a rate of $1.25 per share. The Series B Note also has a similar conversion feature at a rate to be determined in accordance with the note agreement but not less than $1.00 per share. As of September 30, 1999, ITC has borrowed $1.5 million under the Series A Note agreement. In connection with this financing, ITC issued to the Company an additional 753,540 shares of ITC Series A preferred stock. 13 NMT MEDICAL, INC. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) 11. Investment in Image Technologies Corporation--(continued) As of September 30, 1999, the Company performed a detailed review of the ITC operations. Based upon this review and discussion with ITC's management and investors, the Company determined that there was a significant risk that its notes receivable would be repaid by ITC. The review and discussions indicated that at September 30, 1999, ITC had insufficient cash resources to fund its operations, that product revenue had declined in the third quarter of 1999 and was far below planned levels and that future financing would possibly by dilutive to the Company's equity position and may contain a security interest senior to the Company's notes receivable. Accordingly, the Company charged the $1.4 million carrying value of the notes receivable and related costs of $190,000 to operations in the third quarter of 1999. 12. Prepaid Expenses and Other Current Assets Prepaid expenses and other current assets consist of the following at:
September 30, December 31, 1999 1998 ------------- ------------ Refundable and deferred income $1,343,297 $ 753,749 taxes Other prepaid expenses 2,436,551 2,762,861 ---------- ---------- $3,779,848 $3,516,610 ========== ==========
13. Accrued Expenses Accrued expenses consist of the following at:
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ Payroll and payroll related $1,431,122 $1,803,859 Income taxes 1,268,294 275,600 Inventory 726,659 493,059 Other accrued expenses 2,359,284 2,646,982 ---------- ---------- $5,785,359 $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 Company's primary products prior to its 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. Segment information is presented as follows: 15 NMT Medical, Inc. (FORMERLY NITINOL MEDICAL TECHNOLOGIES, INC.) and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED FOR THE NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, 1999 1998 1999 1998 ----------------- ----------------- ------------------ ----------------- Segment Revenues: Core technologies products $ 4,035,630 $ 3,238,731 $10,754,335 $ 9,991,505 Neurosurgical products 8,690,000 8,978,000 25,257,328 8,978,000 ----------- ----------- ----------- ----------- Total revenues $12,725,630 $12,216,731 $36,011,663 $18,969,505 =========== =========== =========== =========== Segment Interest Income: Core technologies products $ 108,462 $ 155,109 $ 441,623 $ 946,485 Neurosurgical products -- -- 17,000 -- ----------- ----------- ----------- ----------- Total $ 108,462 $ 155,109 $ 458,623 $ 946,485 =========== =========== =========== =========== Segment Interest Expense: Core technologies products $ (171,855) $ (193,205) $ (565,276) $ (223,760) Neurosurgical products (515,338) (465,768) (1,692,438) (465,768) ----------- ----------- ----------- ----------- Total $ (687,193) $ (658,973) $(2,257,714) $ (689,528) =========== =========== =========== =========== Segment Income Tax Provision (Benefit): Core technologies products $ 147,735 $ (459,370) $ 491,775 $ 91,130 Neurosurgical products (20,435) 421,057 (397,875) 421,057 ----------- ----------- ----------- ----------- Total $ 127,300 $ (38,313) $ 93,900 $ 512,187 =========== =========== =========== =========== Segment Depreciation and Amortization: Core technologies products $ 341,383 $ 260,573 $ 990,451 $ 528,379 Neurosurgical products 257,407 252,493 787,164 252,493 ----------- ----------- ----------- ----------- Total $ 598,790 $ 513,066 $ 1,777,615 $ 780,872 =========== =========== =========== =========== Segment Equity in Net Loss of Investee: Core technologies products $(1,553,348) $ (154,614) $(1,852,898) $ (247,951) Neurosurgical products -- -- -- -- ----------- ----------- ----------- ----------- Total $(1,553,348) $ (154,614) $(1,852,898) $ (247,951) =========== =========== =========== =========== Segment Income (Loss): Core technologies products $(4,722,357) $(5,396,314) $(5,970,846) $(4,421,232) Neurosurgical products 52,397 448,539 448,539 448,540 ----------- ----------- ----------- ----------- Total $(4,669,960) $(4,947,775) $(5,522,307) $(3,972,692) =========== =========== =========== =========== Segment Expenditures for Long-Lived Assets: Core technologies products $ 63,433 $ 54,243 $ 101,682 $ 83,870 Neurosurgical products 467,870 467,134 1,102,475 467,134 ----------- ----------- ----------- ----------- Total $ 531,303 $ 521,377 $ 1,204,157 $ 551,004 =========== =========== =========== ===========
16 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS. --------------------- This Quarterly Report on Form 10-Q for the quarterly period ended September 30, 1999, 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 September 30, 1999 compared with three months ended September 30, 1998 Revenues. Revenues for the three months ended September 30, 1999 increased to $12.7 million from $12.2 million for the three months ended September 30, 1998. Product sales remained constant at $11.9 million for the three months ended September 30, 1999 and 1998. The Company had increased unit sales of the CardioSEAL Septal Occluder and the vena cava filter which partially offset a decrease in the Company's neurosurgical products revenue during the three months ended September 30, 1999 as compared with the three months ended September 30, 1998. License fees for the three months ended September 30, 1999 amounted to $777,000 and consist of minimum quarterly royalty payments of $375,000 and cost- sharing payments from Boston Scientific of $50,000 and a patent license payment from Johnson & Johnson for $352,000. License fees for the three months ended September 30, 1998 amounted to $297,000 consisting of minimum quarterly royalty payments of $199,000 and cost-sharing payments from Boston Scientific of approximately $98,000. Cost of Product Sales. Cost of product sales decreased to $4.9 million for the three months ended September 30, 1999 from $5.0 million for the three months ended September 30, 1998. The decrease was primarily due to the Company's increased sales of the CardioSEAL Septal Occluder and the vena cava filter which have a lower cost of product sales as a percent of sales than do the Company's neurosurgical products, and as a result, cost of product sales, as a percent of product sales, decreased to 41% for the three months ended September 30, 1999 from 42% for the three months ended September 30, 1998. 17 Research and Development. Research and development expense increased to $1.4 million for the three months ended September 30, 1999 from $1.1 million for the three months ended September 30, 1998. The increase is primarily attributable to increased regulatory and clinical trial expenses relating to clinical trials of the CardioSEAL Septal Occluder that commenced in September 1996, as well as for more recent clinical trials related to fenestrated Fontan procedures (FEF's), and ventricular septal defects (VSD's) for which the Company received Food and Drug Administration (FDA) approval during the three months ended September 30, 1999. In addition, the Company has had increased activity in the Company's development programs for vena cava filters, including CE Mark approval for its removable vena cava filter in September 1999, and for other products under development. General and Administrative. General and administrative expenses increased to $3.2 million for the three months ended September 30, 1999 from $2.2 million for the three months ended September 30, 1998. The increase is primarily attributable to increased professional fees and travel expenses related to supporting the operations of the Company's neurosurgical division, which was acquired on July 8, 1998. Selling and Marketing. Selling and marketing expenses increased to $2.9 million for the three months ended September 30, 1999 from $2.7 million for the three months ended September 30, 1998. The increase is primarily attributable to an increase in the allowance for doubtful accounts as the Company continues to focus its efforts on better collections of its accounts receivable and providing reserves for those accounts that may become uncollectible. In-Process Research and Development. For the three months ended September 30, 1998, the Company recorded $4.7 million of in-process research and development expenses related to the Company's acquisition of ENI on July 8, 1998. See Note 3 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of September 30, 1999. On the date of acquisition, ENI's in-process research and development value was comprised of five primary research and development programs that were expected to reach completion between late 1998 and 2000. At the acquisition date, continuing research and development commitments to complete the projects were expected to be approximately $2.0 million through 2000 ($680,000, $888,000, and $383,000 in 1998, 1999, and 2000, respectively). These estimates are subject to change, given the uncertainties of the development process, and no assurance can be given that deviations from these estimates will not occur. Merger and Integration Expense. As a result of the acquisition of ENI on July 8, 1998, the Company reorganized certain of its operations. In connection with this reorganization, the Company recorded merger and integration expenses of $687,000 in the quarter ended September 30, 1998. Write Down of Notes Receivable from Image Technologies Corporation. As of September 30, 1999, the Company performed a detailed review of the ITC operations. Based upon this review and discussion with ITC's management and investors, the Company determined that there was a significant risk that its notes receivable would be repaid by ITC. The review and discussions indicated that at September 30, 1999, ITC had insufficient cash resources to fund its operations, that product revenue had declined in the third quarter of 1999 and was far below planned levels and that future financing would possibly be dilutive to the Company's equity position and may contain a security interest senior to the Company's notes receivable. Accordingly, the Company charged the $1.4 million carrying value of the notes receivable and related costs of $190,000 to operations in the third quarter of 1999. Equity in Net Loss of Image Technologies Corporation. During the three months ended September 30, 1999 and 1998, the Company recorded $189,000 and $155,000, respectively as its equity in the net loss of ITC. The carrying value of the note receivable from ITC has been reduced by these amounts. 18 Interest Expense. Interest expense was $687,000 for the three months ended September 30, 1999 as compared to $659,000 for the three months ended September 30, 1998. The slight increase was primarily the result of the Company refinancing its subordinated debt with an affiliate of a significant stockholder of the Company on September 13, 1999. See Note 4 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of September 30, 1999. Interest Income. Interest income was $108,000 for the three months ended September 30, 1999 as compared to $155,000 for the three months ended September 30, 1998. The decrease was due to the Company's liquidation of its marketable securities and long term investments in marketable securities in order to partly reduce its subordinated debt with an affiliate of a significant stockholder of the Company. See Note 4 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of September 30, 1999. Extraordinary Loss on Early Extinguishment of Debt. In connection with the $14 million reduction in September 1999 of its $20 million subordinated note payable to an affiliate of a significant stockholder of the Company (see Note 4 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of September 30, 1999), the Company recorded a $2.6 million extraordinary loss on the early extinguishment of debt in the statement of operations for the three months ended September 30, 1999 which primarily relates to the accelerated pro-rata write-off of the original issue discount and deferred financing costs of the subordinated note payable. Provision (Benefit) for Income Taxes. The Company had a provision for income taxes of $127,000 for the three months ended September 30, 1999 based on an operating income in Europe before nondeductible items and an estimated effective tax rate of approximately 40%. The Company did not record a benefit for the net operating loss generated in the United States for the three months ended September 30, 1999. For the three months ended September 30, 1998 the Company had a benefit for income taxes of $38,000 based on an operating loss before nondeductible items and an estimated effective tax rate of approximately 40%. 19 NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED WITH NINE MONTHS ENDED SEPTEMBER 30, 1998 Revenues. Revenues for the nine months ended September 30, 1999 increased to $36.0 million from $19.0 million for the nine months ended September 30, 1998. Product sales increased to $34.4 million for the nine months ended September 30, 1999 from $17.4 million for the nine months ended September 30, 1998. The increase is primarily attributable to the Company's acquisition of ENI on July 8, 1998 and accordingly ENI's product revenues of $25.3 million for the nine months ended September 30, 1999 represent nine months of activity as compared with $9.0 million which represents less than three months of activity during the nine month period ended September 30, 1998. Additionally, the Company had increased unit sales of the CardioSEAL Septal Occluder and vena cava filter during the nine months ended September 30, 1999 as compared with the nine months ended September 30, 1998. License fees for the nine months ended September 30, 1999 amounted to approximately $1.6 million and consist of minimum quarterly royalty payments of $1.1 million and cost-sharing payments from Boston Scientific of approximately $169,000 and a patent license payment from Johnson & Johnson of $352,000. License fees for the nine months ended September 30, 1998 amounted to approximately $1.5 million and consist of minimum quarterly royalty payments of $1.1 million, milestone payments of $300,000 and cost-sharing payments from Boston Scientific of approximately $99,000. Cost of Product Sales. Cost of product sales increased to $14.3 million for the nine months ended September 30, 1999 from $7.1 million for the nine months ended September 30, 1998. The increase is primarily attributable to the Company's acquisition of ENI on July 8, 1998 and accordingly ENI's cost of sales of $10.6 million for the nine months ended September 30, 1999 represents nine months of activity as compared with $3.9 million which represents less than three months of activity during the nine month period ended September 30, 1998. Additionally, the Company had increased unit sales of the CardioSEAL Septal Occluder and vena cava filter during the nine months ended September 30, 1999 as compared with the nine months ended September 30, 1998. Cost of product sales, as a percent of product sales, increased slightly from 41% to 42% for the nine months ended September 30, 1999 and 1998 as a result of increased sales of the CardioSEAL Septal Occluder and the vena cava filter which have a lower cost of product sales as a percent of sales than do the Company's neurosurgical products offset by the inclusion of sales of the neurosurgical products during the nine month periods ended September 30, 1999 and 1998. Research and Development. Research and development expenses increased to $3.8 million for the nine months ended September 30, 1999 from $2.8 million for the nine months ended September 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 $859,000 for the nine months ended September 30, 1999 represents nine months of activity as compared with $231,000 which represents less than three months of activity during the nine month period ended September 30, 1998. 20 Additionally, the Company had increased regulatory and clinical trial expenses relating to clinical trials of the CardioSEAL Septal Occluder that commenced in September 1996, as well as for more recent clinical trials related to FEF's, and VSD's for which the Company received FDA approval during the three months ended September 30, 1999. In addition, the Company has had increased activity in the Company's development programs for vena cava filters, including CE Mark approval for its removable vena cava filter in September 1999, and for other products under development. General and Administrative. General and administrative expenses increased to $9.1 million for the nine months ended September 30, 1999 from $3.5 million for the nine months ended September 30, 1998. The increase is primarily attributable to the Company's acquisition of ENI on July 8, 1998 and accordingly ENI's general and administrative expenses of $5.7 million for the nine months ended September 30, 1999 represents nine months of activity as compared with $1.5 million which represents less than three months of activity during the nine month period ended September 30, 1998. In connection with this acquisition, general and administrative expenses include goodwill amortization of $485,000 and $110,000 for the nine months ended September 30, 1999 and 1998, respectively. Additionally, the Company had increased professional fees and travel expenses related to supporting the operations of the Company's neurosurgical division. Selling and Marketing. Selling and marketing expenses increased to $8.1 million for the nine months ended September 30, 1999 from $3.5 million for the nine months ended September 30, 1998. The increase is primarily attributable to the Company's acquisition of ENI on July 8, 1998 and accordingly ENI's selling and marketing expenses of $6.6 million for the nine months ended September 30, 1999 represents nine months of activity as compared with $2.1 million which represents less than three months of activity during the nine month period ended September 30, 1998. In-Process Research and Development. For the nine months ended September 30, 1998, the Company recorded $4.7 million of in-process research and development expenses related to the Company's acquisition of ENI on July 8, 1998. See Note 3 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of September 30, 1999. On the date of acquisition, ENI's in-process research and development value was comprised of five primary research and development programs that were expected to reach completion between late 1998 and 2000. At the acquisition date, continuing research and development commitments to complete the projects were expected to be approximately $2.0 million through 2000 ($680,000, $888,000, and $383,000 in 1998, 1999, and 2000, respectively). These estimates are subject to change, given the uncertainties of the development process, and no assurance can be given that deviations from these estimates will not occur. Merger and Integration Expense. As a result of the acquisition of ENI on July 8, 1998, the Company reorganized certain of its operations. In connection with this reorganization, the Company recorded merger and integration expenses of $687,000 in the quarter ended September 30, 1998. 21 Write Down of Notes Receivable from Image Technologies Corporation. As of September 30, 1999, the Company performed a detailed review of the ITC operations. Based upon this review and discussion with ITC's management and investors, the Company determined that there was a significant risk that its notes receivable would be repaid by ITC. The review and discussions indicated that at September 30, 1999, ITC had insufficient cash resources to fund its operations, that product revenue had declined in the third quarter of 1999 and was far below planned levels and that future financing would possibly be dilutive to the Company's equity position and may contain a security interest senior to the Company's notes receivable. Accordingly, the Company charged the $1.4 million carrying value of the notes receivable and related costs of $190,000 to operations in the third quarter of 1999. Equity in Net Loss of Image Technologies Corporation. During the nine months ended September 30, 1999 and 1998, the Company recorded $489,000 and $248,000, respectively, as its equity in the net loss of ITC. Interest Expense. Interest expense was $2.3 million for the nine months ended September 30, 1999 as compared to $690,000 for the nine months ended September 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 $338,000 and $179,000 for the nine months ended September 30, 1999 and 1998, respectively, included interest expense in the statements of operations. See Note 4 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of September 30, 1999. Interest Income. Interest income was $459,000 for the nine months ended September 30, 1999 as compared to $946,000 for the nine months ended September 30, 1998. The decrease was due to the Company's lower cash balances as a result of its financing the acquisition of ENI on July 8, 1998 with cash of $16.1 million. Extraordinary Loss on Early Extinguishment of Debt. In connection with the $14 million reduction in September 1999 of its $20 million subordinated note payable to an affiliate of a significant stockholder of the Company (see Note 4 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of September 30, 1999), the Company recorded a $2.6 million extraordinary loss on the early extinguishment of debt in the statement of operations for the nine months ended September 30, 1999 which primarily relates to the accelerated pro-rata write-off of the original issue discount and deferred financing costs of the subordinated note payable. Provision for Income Taxes. The Company had a provision for income taxes of $94,000 and $512,000 for the nine months ended September 30, 1999 and 1998, respectively, based on an operating income in Europe before nondeductible items and an estimated effective tax rate of 40%. The Company recorded a benefit for income taxes of $390,000 for the net operating loss generated in the United States for the nine months ended September 30, 1999. 22 LIQUIDITY AND CAPITAL RESOURCES The Company had cash and cash equivalents and marketable securities equal to $1.3 million at September 30, 1999 as compared to $9.1 million at December 31, 1998. The decrease is primarily due to the refinancing of its subordinated note payable (See Note 4 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of September 30, 1999) whereby the Company used $6 million of cash to reduce the subordinated note payable. During the nine months ended September 30, 1999, the Company's operations used cash of approximately $203,000 which consists of approximately $233,000 of cash generated by operations prior to approximately $5.8 million of noncash charges and before changes in working capital items. In July 1998, the Company financed a portion of the acquisition of ENI with $16.1 million of the Company's cash and a $20 million subordinated note issued to an affiliate of a significant stockholder of the Company. The subordinated note is due September 30, 2003 with quarterly interest payable at 10.101% per annum, The subordinated debt includes certain covenants relating to maintenance of certain ratios and cash levels. On September 13, 1999, the Company entered into a $10 million senior secured debt facility with a bank, $8 million of the proceeds of which was used to reduce the principal amount of the $20 million subordinated note. The Company also used $6 million of its own cash to further reduce the principal amount of the $20 million subordinated note. The remaining $2 million of the senior secured debt facility is available to be drawn down by the Company for working capital purposes, as needed. The facility has a term of three years with interest payable monthly at the bank's prime lending rate on U.S. borrowings and an equivalent market rate on foreign currency borrowings. As of September 30, 1999, the Company was not in compliance with certain of the debt covenants contained in both the subordinated note agreement and the senior secured debt agreement. As a result, the Company negotiated a waiver of default with each of these debtholders. See Note 4 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of September 30, 1999 for additional disclosure. Purchases and capitalized leases of property and equipment for use in the Company's research and development and general and administrative activities amounted to $531,000 and $1.2 million for the three and nine month periods ended September 30, 1999, respectively. The Company anticipates that it will spend approximately $1.5 million on purchases of property and equipment in 1999 primarily in connection with the Company's implementation of new management information systems. See "Year 2000 Readiness." 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. 23 In connection with the Company's equity investment in ITC, the Company has extended to ITC a credit line of up to $2.0 million and an additional $100,000 of senior debt under a loan agreement that bears interest at 10% per annum. The carrying value of these notes receivable from ITC has been reduced by the equity in the net loss of ITC through September 30, 1999. As of September 30, 1999 the Company determined that there was a significant risk that its notes receivable from ITC would be repaid due to ITC having insufficient cash resources to fund its operations and product revenue that was far below planned levels as of September 30, 1999. Accordingly, the Company charged the carrying value of the notes receivable from ITC of approximately $1.4 million and related costs of $190,000 to operations in the third quarter of 1999. There can be no assurance that ITC will be able to pay the principal and accrued interest on these notes, in whole or in part, when due. Any failure of ITC to pay such principal or interest could have a material adverse effect on the Company's financial condition or results of operations. See Note 11 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of September 30, 1999. 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 and losses are included in the accompanying statements of operations and amounted to a foreign currency transaction gain of $6,000 for the nine months ended September 30, 1999 as compared with a foreign currency transaction loss of $88,000 for the nine months ended September 30, 1998. The Company records the effects of changes in balance sheet items (i.e., cumulative foreign currency translation gain and losses) as a component of consolidated stockholders' equity. The Company had a cumulative foreign currency translation gain of $728,000 for the three months ended September 30, 1999 and a cumulative foreign currency translation loss of $139,000 for the nine months then ended. 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. 24 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 and currently believes that it is year 2000 compliant. 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 December 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 has financed a portion of the capital component and has funded the remainder from operating cash flows. Currently, two of the three major divisions of the Neurosciences Division have implemented and have been using their systems successfully with the third division to follow by early December 1999. Because the Company is completely replacing the systems at its Neurosciences Division with a commercially available and tested ERP product, it believes that the project is proceeding more efficiently than had the Company chosen to modify its existing systems. As a result, the Company currently does not have a contingency plan in the event a particular system is not year 2000 compliant, but such a plan will be developed if it becomes clear that the Company is not going to achieve its scheduled compliance objectives. 25 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 member state currency unit of the account or in euros. Beginning on January 1, 2002, euro banknotes and coins will be introduced, and member state 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 member state 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. The Company is assessing the potential impact from the euro conversion in a number of areas, including the following: (1) the competitive impact of cross- border price transparency, which may make it more difficult for businesses to charge different prices for the same products on a country-by-country basis; (2) the impact on currency exchange costs and currency exchange rate risk and (3) the impact on existing contracts. As of September 30, 1999 the euro conversion has not had a material impact on the operations of the Company. 26 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. ---------------------------------------------------------- The Company is subject to market risk in the form of interest rate risk and foreign currency risk. Interest rate risk is immaterial to the Company. 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 $6,000 for the nine months ended September 30, 1999 as compared with a foreign currency transaction loss of $88,000 for the nine months ended September 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. The Company recorded a cumulative foreign currency translation gain of $728,000 for the three months ended September 30, 1999 and a cumulative foreign currency translation loss of $139,000 for the nine months then ended. 27 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS. ----------------------------------------- (d) Uses of Proceeds from Registered Securities. During the third quarter ------------------------------------------- of 1999, the Company used the balance of its offering proceeds, approximately $6 million, from the sale of securities by the Company pursuant to its Registration Statement on Form S-1 (Registration No. 333-06463), which was declared effective on September 27, 1996, to repay a portion of the subordinated note payable to a significant stockholder of the Company. 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. During the third quarter of 1999, the Company entered into a $10 million senior secured debt facility with a bank, $8 million of the proceeds of which was used to reduce the principal amount of the $20 million subordinated note. The subordinated note agreement dated July 8, 1998 and the credit agreement dated September 13, 1999 contain 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, the Quarterly Report on Form 10-Q for the quarter ended March 31, 1999 and this Quarterly Report on Form 10-Q for the quarter ended September 30, 1999, and the credit agreement is filed as an exhibit to this Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. ITEM 3. DEFAULTS UPON SENIOR SECURITIES. ------------------------------- (a) Material Default with Respect to Indebtedness. As of September 30, --------------------------------------------- 1999, the Company was not in compliance with certain of the debt covenants contained in both its subordinated note agreement and its credit agreement. The Company obtained a waiver of default from each of the debtholders. See Management's Discussion and Analysis of Financial Condition and Results of Operations Liquidity and Capital Resources, and Note 4 of the Notes to Consolidated Financial Statements in the accompanying financial statements as of September 30, 1999. Each of the waivers of default are filed an exhibit to this Quarterly Report on Form 10-Q for the quarter ended September 30, 1999. Item 6. EXHIBITS AND REPORTS ON FORM 8-K. -------------------------------- (a) Exhibits. -------- 10.1 Credit Agreement, dated as of September 13, 1999, among NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as Borrowers, and Brown Brothers Harriman & Co., as Lender 10.2 $5 Million Promissory Note, dated as of September 13, 1999, issued by NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc. in favor of Brown Brothers Harriman & Co. 10.3 Guarantee, dated as of September 13, 1999, made by NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc. in favor of Brown Brothers Harriman & Co. 10.4 Security Agreement, dated as of September 13, 1999, between NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as Debtors, and Brown Brothers Harriman & Co., as Lender 10.5 Collateral Patent Assignment, dated as of September 13, 1999, made by NMT Medical, Inc. in favor of Brown Brothers Harriman & Co. 10.6 Pledge Agreement, dated as of September 13, 1999, between NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as Pledgors, and Brown Brothers Harriman & Co., as Lender 10.7 Amendment No. 2 to Subordinated Note and Common Stock Purchase Agreement, dated as of September 13, 1999, by and among NMT Medical, Inc., Whitney Subordinated Debt Fund, L.P. and, for certain purposes, J.H. Whitney & Co. 10.8 $6 Million Subordinated Promissory Note, dated as of July 8, 1998, issued by NMT Medical, Inc. in favor of Whitney Subordinated Debt Fund, L.P. 10.9 Amended and Restated Loan and Security Agreement, dated as of August 27, 1999, between NMT Medical, Inc. and Image Technologies Corporation 28 10.10 Second Amended and Restated Stockholders' Option Agreement, dated as of August 27, 1999, by and among NMT Medical, Inc., Image Technologies Corporation and the Stockholders of Image Technologies Corporation listed on Schedule A thereto 10.11 Letter Agreement of Waiver of Compliance with Certain Covenents under Credit Agreements, dated as of November 15, 1999, by and among NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as Borrowers, and Brown Brothers Harriman & Co., as Lender 10.12 Waiver No. 2, made as of November 12, 1999, by and between NMT Medical, Inc. and Whitney Subordinated Debt Fund, L.P. 27.1 Financial Data Schedule (b) Reports on Form 8-K. On September 15, 1999, the Company filed a ------------------- Current Report on Form 8-K with the Securities and Exchange Commission disclosing that on September 13, 1999, the Company closed a $10 million senior secured debt facility with Brown Brothers Harriman & Co. A copy of the Company's September 13, 1999 press release announcing the closing of the senior secured debt facility was included as Exhibit 99.1 to the Form 8-K. 29 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NMT MEDICAL, INC. Date: November 15, 1999 By:/s/ Thomas M. Tully ------------------------------------- Thomas M. Tully President and Chief Executive Officer Date: November 15, 1999 By:/s/ William J. Knight ------------------------------------- William J. Knight Vice President of Finance and Administration and Chief Financial Officer 30 EXHIBIT INDEX Exhibits. - -------- 10.1 Credit Agreement, dated as of September 13, 1999, among NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as Borrowers, and Brown Brothers Harriman & Co., as Lender 10.2 $5 Million Promissory Note, dated as of September 13, 1999, issued by NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc. in favor of Brown Brothers Harriman & Co. 10.3 Guarantee, dated as of September 13, 1999, made by NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc. in favor of Brown Brothers Harriman & Co. 10.4 Security Agreement, dated as of September 13, 1999, between NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as Debtors, and Brown Brothers Harriman & Co., as Lender 10.5 Collateral Patent Assignment, dated as of September 13, 1999, made by NMT Medical, Inc. in favor of Brown Brothers Harriman & Co. 10.6 Pledge Agreement, dated as of September 13, 1999, between NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as Pledgors, and Brown Brothers Harriman & Co., as Lender 10.7 Amendment No. 2 to Subordinated Note and Common Stock Purchase Agreement, dated as of September 13, 1999, by and among NMT Medical, Inc., Whitney Subordinated Debt Fund, L.P. and, for certain purposes, J.H. Whitney & Co. 10.8 $6 Million Subordinated Promissory Note, dated as of July 8, 1998, issued by NMT Medical, Inc. in favor of Whitney Subordinated Debt Fund, L.P. 10.9 Amended and Restated Loan and Security Agreement, dated as of August 27, 1999, between NMT Medical, Inc. and Image Technologies Corporation 31 10.10 Second Amended and Restated Stockholders' Option Agreement, dated as of August 27, 1999, by and among NMT Medical, Inc., Image Technologies Corporation and the Stockholders of Image Technologies Corporation listed on Schedule A thereto 10.11 Letter Agreement of Waiver of Compliance with Certain Covenants under Credit Agreements, dated as of November 15, 1999, by and among NMT Medical, Inc., NMT Heart, Inc., NMT Investments Corp., NMT NeuroSciences (International), Inc., NMT NeuroSciences (US), Inc., NMT NeuroSciences (IP), Inc. and NMT Neurosciences Innovasive Systems, Inc., as Borrowers, and Brown Brothers Harriman & Co., as Lender 10.12 Waiver No. 2, made as of November 12, 1999, by and between NMT Medical, Inc. and Whitney Subordinated Debt Fund, L.P. 27.1 Financial Data Schedule 32 EX-10.1 2 CREDIT AGREEMENT EXHIBIT 10.1 ================================================================================ CREDIT AGREEMENT dated as of September 13, 1999 among NMT MEDICAL, INC., NMT HEART, INC., NMT INVESTMENTS CORP., NMT NEUROSCIENCES (INTERNATIONAL), INC., NMT NEUROSCIENCES (US), INC., NMT NEUROSCIENCES (IP), INC., NMT NEUROSCIENCES INNOVASIVE SYSTEMS, INC., as Borrowers and BROWN BROTHERS HARRIMAN & CO., as Lender ================================================================================ TABLE OF CONTENTS
Page ---- ARTICLE I Definitions..................................................................................... 1 SECTION 1.01. Defined Terms.............................................................................. 1 SECTION 1.02. Terms Generally............................................................................ 9 SECTION 1.03. Accounting Terms; GAAP..................................................................... 10 ARTICLE II The Credit...................................................................................... 10 SECTION 2.01. Commitment................................................................................. 10 SECTION 2.02. Note....................................................................................... 10 SECTION 2.03. Requests for Revolving Borrowings.......................................................... 10 SECTION 2.04. Letters of Credit.......................................................................... 11 SECTION 2.05. Funding of Borrowings...................................................................... 13 SECTION 2.06. Termination and Reduction of Commitment.................................................... 13 SECTION 2.07. Repayment of Loans; Evidence of Debt....................................................... 14 SECTION 2.08. Prepayment of Loans........................................................................ 14 SECTION 2.09. Fees....................................................................................... 14 SECTION 2.10. Interest................................................................................... 15 SECTION 2.11. Increased Costs............................................................................ 15 SECTION 2.12. Taxes...................................................................................... 16 SECTION 2.13. Payments Generally......................................................................... 17 SECTION 2.14. Senior Status of Obligations............................................................... 17 ARTICLE III Representations and Warranties.................................................................. 17 SECTION 3.01. Organization; Powers....................................................................... 17 SECTION 3.02. Authorization; Enforceability.............................................................. 17 SECTION 3.03. Governmental Approvals; No Conflicts....................................................... 18 SECTION 3.04. Financial Condition; No Material Adverse Change............................................ 18 SECTION 3.05. Properties................................................................................. 18 SECTION 3.06. Litigation and Environmental Matters....................................................... 19 SECTION 3.07. Compliance with Laws and Agreements........................................................ 19 SECTION 3.08. Investment and Holding Company Status...................................................... 19 SECTION 3.09. Taxes...................................................................................... 19 SECTION 3.10. ERISA...................................................................................... 20 SECTION 3.11. Disclosure................................................................................. 20 SECTION 3.12. Year 2000.................................................................................. 20 ARTICLE IV Conditions...................................................................................... 21 SECTION 4.01. Effective Date............................................................................. 21 SECTION 4.02. Each Credit Event.......................................................................... 22
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Page ---- ARTICLE V Affirmative Covenants........................................................................... 22 SECTION 5.01. Financial Statements and Other Information................................................. 22 SECTION 5.02. Notices of Material Events................................................................. 24 SECTION 5.03. Existence; Conduct of Business............................................................. 24 SECTION 5.04. Payment of Obligations..................................................................... 24 SECTION 5.05. Maintenance of Properties; Insurance....................................................... 25 SECTION 5.06. Books and Records; Inspection Rights....................................................... 25 SECTION 5.07. Compliance with Laws....................................................................... 25 SECTION 5.08. Use of Proceeds and Letters of Credit...................................................... 25 SECTION 5.09. Receipt of Proceeds from French Credit Agreement........................................... 25 SECTION 5.10. Grant of Mortgage on Real Property......................................................... 25 SECTION 5.11. Subsidiary Guarantees...................................................................... 25 ARTICLE VI Negative Covenants.............................................................................. 26 SECTION 6.01. Indebtedness............................................................................... 26 SECTION 6.02. Liens...................................................................................... 27 SECTION 6.03. Fundamental Changes........................................................................ 28 SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions.................................. 28 SECTION 6.05. Hedging Agreements......................................................................... 29 SECTION 6.06. Restricted Payments........................................................................ 29 SECTION 6.07. Transactions with Affiliates............................................................... 30 SECTION 6.08. Restrictive Agreements..................................................................... 30 SECTION 6.09. Financial Covenants........................................................................ 30 ARTICLE VII Events of Default............................................................................... 32 ARTICLE VIII Miscellaneous................................................................................... 34 SECTION 8.01. Notices.................................................................................... 34 SECTION 8.02. Waivers; Amendments........................................................................ 35 SECTION 8.03. Expenses; Indemnity; Damage Waiver......................................................... 35 SECTION 8.04. Successors and Assigns..................................................................... 36 SECTION 8.05. Survival; Nature of Obligations............................................................ 36 SECTION 8.06. Counterparts; Integration; Effectiveness................................................... 37 SECTION 8.07. Severability............................................................................... 37 SECTION 8.08. Right of Setoff............................................................................ 37 SECTION 8.09. Governing Law; Jurisdiction; Consent to Service of Process................................. 38 SECTION 8.10. WAIVER OF JURY TRIAL....................................................................... 38 SECTION 8.11. Headings................................................................................... 39 SECTION 8.12. Confidentiality............................................................................ 39
(ii) SCHEDULES: - --------- Schedule 3.05 -- Patents and Patent Applications Schedule 3.06 -- Disclosed Matters Schedule 6.01 -- Existing Indebtedness Schedule 6.02 -- Existing Liens Schedule 6.04 -- Existing Investments Schedule 6.08 -- Existing Investments Schedule 6.09(a) -- Net Funded Indebtedness and Adjusted Operating Cash Flow Definitions Schedule 6.09(b) -- Fixed Charge Coverage Definition EXHIBITS: - -------- Exhibit A -- Form of Note Exhibit B -- Form of Opinion of Borrowers' Counsel (iii) CREDIT AGREEMENT dated as of September 13, 1999, among NMT Medical, Inc., a Delaware corporation, NMT Heart, Inc., a Delaware corporation, NMT Investments Corp., a Massachusetts corporation, NMT NeuroSciences (International), Inc., a Delaware corporation, NMT NeuroSciences (US), Inc., a Delaware corporation, NMT NeuroSciences (IP), Inc., a Delaware corporation, and NMT Neurosciences Innovasive Systems, Inc., a Florida corporation, as Borrowers, and Brown Brothers Harriman & Co., as Lender. The parties hereto agree as follows: ARTICLE I Definitions ----------- SECTION 1.01. Defined Terms. As used in this Agreement, the following ------------- terms have the meanings specified below: "Affiliate" means, with respect to a specified Person, another Person --------- that directly, or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Alternate Base Rate" means, for any day, a rate per annum equal to ------------------- the greater of (a) the Base Rate in effect on such day, or (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. Any change in the Alternate Base Rate due to a change in the Base Rate or the Federal Funds Effective Rate shall be effective from and including the effective date of such change in the Base Rate or the Federal Funds Effective Rate, respectively. "Availability Period" means the period from and including the ------------------- Effective Date to but excluding the earlier of the Maturity Date and the date of termination of the Commitment. "Barclays Debt" means the outstanding Indebtedness of Spembly Medical ------------- Ltd. to Barclays Bank plc in the principal amount as of the date hereof of approximately (Pounds)180,000 pursuant to that certain Barclays Treasury Loan Facility, dated as of April 15, 1996, by and between Spembly Medical Ltd. and Barclays Bank plc. "Base Rate" means the rate of interest per annum publicly announced --------- from time to time by Brown Brothers Harriman & Co. as its prime rate in effect at its principal office in Boston, Massachusetts; each change in the Prime Rate shall be effective from and including the date such change is publicly announced as being effective. "Board" means the Board of Governors of the Federal Reserve System of ----- the United States of America. "Borrowers" means NMT Medical, Inc., a Delaware corporation, NMT --------- Heart, Inc., a Delaware corporation, NMT Investments Corp., a Massachusetts corporation, NMT NeuroSciences (International), Inc., a Delaware corporation, NMT NeuroSciences (US), Inc., a Delaware corporation, NMT NeuroSciences (IP), Inc., a Delaware corporation, and NMT Neurosciences Innovasive Systems, Inc., a Florida corporation. "Borrowing" means each Revolving Loan hereunder. --------- "Borrowing Request" means a request by any Borrower for a Revolving ----------------- Loan in accordance with Section 2.03. "Business Day" means any day that is not a Saturday, Sunday or other ------------ day on which commercial banks in New York, New York or Boston, Massachusetts are authorized or required by law to remain closed. "Capital Lease Obligations" of any Person means the obligations of ------------------------- such Person to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof, which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. "Change in Control" means (a) the acquisition of ownership, directly ----------------- or indirectly, beneficially or of record, by any Person or group (within the meaning of the Securities Exchange Act of 1934 and the rules of the Securities and Exchange Commission thereunder as in effect on the date hereof), of shares representing more than 25% of the aggregate ordinary voting power represented by the issued and outstanding capital stock of NMT Medical, Inc.; (b) occupation of a majority of the seats (other than vacant seats) on the board of directors of NMT Medical, Inc. by Persons who were neither (i) nominated by the board of directors of NMT Medical, Inc. nor (ii) appointed by directors so nominated; or (c) the acquisition of direct or indirect Control of NMT Medical, Inc. by any Person or group. "Change in Law" means (a) the adoption of any law, rule or regulation ------------- after the date of this Agreement, (b) any change in any law, rule or regulation or in the interpretation or application thereof by any Governmental Authority after the date of this Agreement or (c) compliance by the Lender (or, for purposes of Section 2.11(b), by any lending office of the Lender) with any request, guideline or directive (whether or not having the force of law) of any Governmental Authority made or issued after the date of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time ---- to time. "Commitment" means the commitment of the Lender to make Revolving ---------- Loans and to issue Letters of Credit hereunder. The initial amount of the Lender's Commitment is $5,000,000. 2 "Control" means the possession, directly or indirectly, of the power ------- to direct or cause the direction of the management or policies of a Person, whether through the ability to exercise voting power, by contract or otherwise. "Controlling" and "Controlled" have meanings correlative thereto. ----------- ---------- "Default" means any event or condition which constitutes an Event of ------- Default or which upon notice, lapse of time or both would, unless cured or waived, become an Event of Default. "Disclosed Matters" means the actions, suits and proceedings and the ----------------- environmental matters disclosed in Schedule 3.06. "dollars" or "$" refers to lawful money of the United States of ------- - America. "Domestic Subsidiary" means each Subsidiary that is incorporated or ------------------- organized in the United States or any state or territory thereof. "Effective Date" means the date on which the conditions specified in -------------- Section 4.01 are satisfied (or waived in accordance with Section 8.02). "Environmental Laws" means all laws, rules, regulations, codes, ------------------ ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, release or threatened release of any Hazardous Material. "Environmental Liability" means any liability, contingent or otherwise ----------------------- (including any liability for damages, costs of environmental remediation, fines, penalties or indemnities), of any Borrower or Subsidiary directly or indirectly resulting from or based upon (a) violation of any Environmental Law, (b) the generation, use, handling, transportation, storage, treatment or disposal of any Hazardous Materials, (c) exposure to any Hazardous Materials, (d) the release or threatened release of any Hazardous Materials into the environment or (e) any contract, agreement or other consensual arrangement pursuant to which liability is assumed or imposed with respect to any of the foregoing. "ERISA" means the Employee Retirement Income Security Act of 1974, as ----- amended from time to time. "ERISA Affiliate" means any trade or business (whether or not --------------- incorporated) that, together with any Borrower, is treated as a single employer under Section 414(b) or (c) of the Code or, solely for purposes of Section 302 of ERISA and Section 412 of the Code, is treated as a single employer under Section 414 of the Code. "ERISA Event" means (a) any "reportable event", as defined in Section ----------- 4043 of ERISA or the regulations issued thereunder with respect to a Plan (other than an event for which the 30-day notice period is waived); (b) the existence with respect to any Plan of an "accumulated funding deficiency" (as 3 defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (c) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (d) the incurrence by any Borrower or any of its ERISA Affiliates of any liability under Title IV of ERISA with respect to the termination of any Plan; (e) the receipt by any Borrower or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to an intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (f) the incurrence by any Borrower or any of its ERISA Affiliates of any liability with respect to the withdrawal or partial withdrawal from any Plan or Multiemployer Plan; or (g) the receipt by any Borrower or any ERISA Affiliate of any notice, or the receipt by any Multiemployer Plan from any Borrower or any ERISA Affiliate of any notice, concerning the imposition of Withdrawal Liability or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA. "Event of Default" has the meaning assigned to such term in Article ---------------- VII. "Excluded Taxes" means, with respect to the Lender or any other -------------- recipient of any payment to be made by or on account of any obligation of any Borrower hereunder, (a) income or franchise taxes imposed on (or measured by) its net income by the United States of America, or by the jurisdiction under the laws of which such recipient is organized or in which its principal office is located or applicable lending office is located, and (b) any branch profits taxes imposed by the United States of America or any similar tax imposed by any other jurisdiction in which any Borrower is located. "Federal Funds Effective Rate" means, for any day, the weighted ---------------------------- average (rounded upwards, if necessary, to the next 1/100 of 1%) of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as published on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so published for any day that is a Business Day, the average (rounded upwards, if necessary, to the next 1/100 of 1%) of the quotations for such day for such transactions received by the Lender from three Federal funds brokers of recognized standing selected by it. "Financial Officer" of any Borrower means the chief financial officer, ----------------- principal accounting officer, treasurer or controller of such Borrower. "French Credit Agreement" means that certain credit agreement, dated ----------------------- as of the date hereof, by and among NMT NeuroSciences Implants (France) SA, a French limited liability company, and NMT NeuroSciences Instruments (France) SARL, a French limited liability company, as Borrowers, and Brown Brothers Harriman & Co., as Lender. "GAAP" means generally accepted accounting principles in the United ---- States of America. "Governmental Authority" means the government of the United States of ---------------------- America, any other nation or any political subdivision thereof, whether state or local, and any agency, authority, 4 instrumentality, regulatory body, court, central bank or other entity exercising executive, legislative, judicial, taxing, regulatory or administrative powers or functions of or pertaining to government. "Guarantee" of or by any Person (the "guarantor") means any --------- --------- obligation, contingent or otherwise, of the guarantor guaranteeing or having the economic effect of guaranteeing any Indebtedness or other obligation of any other Person (the "primary obligor") in any manner, whether directly or --------------- indirectly, and including any obligation of the guarantor, direct or indirect, (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Indebtedness or other obligation or to purchase (or to advance or supply funds for the purchase of) any security for the payment thereof, (b) to purchase or lease property, securities or services for the purpose of assuring the owner of such Indebtedness or other obligation of the payment thereof, (c) to maintain working capital, equity capital or any other financial statement condition or liquidity of the primary obligor so as to enable the primary obligor to pay such Indebtedness or other obligation or (d) as an account party in respect of any letter of credit or letter of guaranty issued to support such Indebtedness or obligation; provided that the term Guarantee shall not include -------- endorsements for collection or deposit in the ordinary course of business. "Hazardous Materials" means all explosive or radioactive substances ------------------- or wastes and all hazardous or toxic substances, wastes or other pollutants, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. "Hedging Agreement" means any interest rate protection agreement, ----------------- foreign currency exchange agreement, commodity price protection agreement or other interest or currency exchange rate or commodity price hedging arrangement. "Indebtedness" of any Person means, without duplication, (a) all ------------ obligations of such Person for borrowed money or with respect to deposits or advances of any kind, (b) all obligations of such Person evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person upon which interest charges are customarily paid, (d) all obligations of such Person under conditional sale or other title retention agreements relating to property acquired by such Person, (e) all obligations of such Person in respect of the deferred purchase price of property or services (excluding current accounts payable incurred in the ordinary course of business), (f) all Indebtedness of others secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Lien on property owned or acquired by such Person, whether or not the Indebtedness secured thereby has been assumed, (g) all Guarantees by such Person of Indebtedness of others, (h) all Capital Lease Obligations of such Person, (i) all obligations, contingent or otherwise, of such Person as an account party in respect of letters of credit and letters of guaranty and (j) all obligations, contingent or otherwise, of such Person in respect of bankers' acceptances. The Indebtedness of any Person shall include the Indebtedness of any other entity (including any partnership in which such Person is a general partner) to the extent such Person is liable therefor as a result of such Person's ownership interest in or other relationship with such entity, except to the extent the terms of such Indebtedness provide that such Person is not liable therefor. 5 "Indemnified Taxes" means Taxes other than Excluded Taxes. ----------------- "Interest Payment Date" means the last day of each month, and the day --------------------- that the Loans are required to be repaid. "LC Disbursement" means a payment made by the Lender pursuant to a --------------- Letter of Credit. "LC Exposure" means, at any time, the sum of (a) the aggregate undrawn ----------- amount of all outstanding Letters of Credit at such time plus (b) the aggregate amount of all LC Disbursements that have not yet been reimbursed by or on behalf of the Borrowers at such time. "Lender" means Brown Brothers Harriman & Co., and any successors and ------ assigns thereof. "Letter of Credit" means any letter of credit issued pursuant to this ---------------- Agreement. "Lien" means, with respect to any asset, (a) any mortgage, deed of ---- trust, lien, pledge, hypothecation, encumbrance, charge or security interest in, on or of such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, capital lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities, any purchase option, call or similar right of a third party with respect to such securities. "Loans" means all loans made by the Lender to any Borrower pursuant to ----- this Agreement. "Material Adverse Effect" means a material adverse effect on (a) the ----------------------- business, assets, operations, prospects or condition, financial or otherwise, of the Borrowers and the Subsidiaries taken as a whole, (b) the ability of the respective borrowers to perform any of their respective obligations under this Agreement or the French Credit Agreement or (c) a material portion of the rights of or benefits available to the Lender under this Agreement or the French Credit Agreement (other than as a result of any action taken or failed to be taken by the Lender). "Material Indebtedness" means Indebtedness (other than the Loans and --------------------- Letters of Credit), or obligations in respect of one or more Hedging Agreements, of any one or more of the Borrowers or the Subsidiaries in an aggregate principal amount exceeding $100,000. For purposes of determining Material Indebtedness, the "principal amount" of the obligations of any Borrower or Subsidiary in respect of any Hedging Agreement at any time shall be the maximum aggregate amount (giving effect to any netting agreements) that such Borrower or Subsidiary would be required to pay if such Hedging Agreement were terminated at such time. "Maturity Date" means September 13, 2002. ------------- 6 "Multiemployer Plan" means a multiemployer plan as defined in Section ------------------ 4001(a)(3) of ERISA. "Other Taxes" means any and all present or future stamp or documentary ----------- taxes or any other excise or property taxes, charges or similar levies arising from any payment made hereunder or from the execution, delivery or enforcement of, or otherwise with respect to, this Agreement (but expressly excluding Excluded Taxes). "PBGC" means the Pension Benefit Guaranty Corporation referred to and ---- defined in ERISA and any successor entity performing similar functions. "Permitted Encumbrances" means: ---------------------- (a) Liens imposed by law for taxes that are not yet due or are being contested in compliance with Section 5.04; (b) carriers', warehousemen's, mechanics', materialmen's, repairmen's and other like Liens imposed by law, arising in the ordinary course of business and securing obligations that are not overdue by more than 30 days or are being contested in compliance with Section 5.04; (c) pledges and deposits made in the ordinary course of business in compliance with workers' compensation, unemployment insurance and other social security laws or regulations; (d) deposits to secure the performance of bids, trade contracts, leases, statutory obligations, surety and appeal bonds, performance bonds and other obligations of a like nature, in each case in the ordinary course of business; (e) judgment liens in respect of judgments that do not constitute an Event of Default under clause (k) of Article VII; and (f) easements, zoning restrictions, rights-of-way and similar encumbrances on real property imposed by law or arising in the ordinary course of business that do not materially detract from the value of the affected property or interfere with the ordinary conduct of business of any Borrower or Subsidiary; provided that the term "Permitted Encumbrances" shall not include any Lien - -------- securing Indebtedness. "Permitted Investments" means: --------------------- (a) direct obligations of, or obligations the principal of and interest on which are unconditionally guaranteed by, the United States of America (or by any agency thereof to the extent 7 such obligations are backed by the full faith and credit of the United States of America), in each case maturing within one year from the date of acquisition thereof; (b) investments in commercial paper maturing within 270 days from the date of acquisition thereof and having, at such date of acquisition, the highest credit rating obtainable from Standard & Poor's or from Moody's Investors Services, Inc.; (c) investments in certificates of deposit, banker's acceptances and time deposits maturing within 180 days from the date of acquisition thereof issued or guaranteed by or placed with, and money market deposit accounts issued or offered by, any office of Brown Brothers Harriman & Co. or any domestic office of any commercial bank organized under the laws of the United States of America or any State thereof which has a combined capital and surplus and undivided profits of not less than $500,000,000; (d) fully collateralized repurchase agreements with a term of not more than 30 days for securities described in clause (a) above and entered into with a financial institution satisfying the criteria described in clause (c) above; and (e) short term investment funds or instruments sponsored or managed by the Lender or selected as a short term investment by the Lender in its capacity as money manager for any Borrower or Subsidiary. "Person" means any natural person, corporation, limited liability ------ company, trust, joint venture, association, company, partnership, Governmental Authority or other entity. "Plan" means any employee pension benefit plan (other than a ---- Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code or Section 302 of ERISA, and in respect of which any Borrower or any ERISA Affiliate is (or, if such plan were terminated, would under Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5) of ERISA. "Related Parties" means, with respect to any specified Person, such --------------- Person's Affiliates and the respective directors, officers, employees, agents and advisors of such Person and such Person's Affiliates. "Restricted Payment" means any dividend or other distribution (whether ------------------ in cash, securities or other property) with respect to any shares of any class of capital stock of NMT Medical, Inc. or any Subsidiary, or any payment (whether in cash, securities or other property), including any sinking fund or similar deposit, on account of the purchase, redemption, retirement, acquisition, cancellation or termination of any such shares of capital stock of NMT Medical, Inc. or any option, warrant or other right to acquire any such shares of capital stock of NMT Medical, Inc. "Revolving Loan" means a Loan made pursuant to Section 2.03. -------------- 8 "subsidiary" means, with respect to any Person (the "parent") at any ---------- ------ date, any corporation, limited liability company, partnership, association or other entity the accounts of which would be consolidated with those of the parent in the parent's consolidated financial statements if such financial statements were prepared in accordance with GAAP as of such date, as well as any other corporation, limited liability company, partnership, association or other entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or, in the case of a partnership, more than 50% of the general partnership interests are, as of such date, owned, controlled or held, or (b) that is, as of such date, otherwise Controlled by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. "Subsidiary" means any subsidiary of NMT Medical, Inc. ---------- "Taxes" means any and all present or future taxes, levies, imposts, ----- duties, deductions, charges or withholdings imposed by any Governmental Authority. "Transactions" means the execution, delivery and performance by the ------------ Borrowers of this Agreement, and the security documents and pledge agreements referred to in Article IV hereof, the borrowing of Loans, the use of the proceeds thereof and the issuance of Letters of Credit hereunder. "U.K. Lease" means the lease of Spembly Medical Ltd. for the premises ---------- located at Newbury Road, Andover, Hampshire SP104DR, United Kingdom. "Whitney Agreement" means the Subordinated Note and Common Stock ----------------- Purchase Agreement dated as of July 8, 1998, as amended, by and among NMT Medical, Inc. (f/k/a Nitinol Medical Technologies, Inc.), Whitney Subordinated Debt Fund, L.P. and J.H. Whitney & Co. "Whitney Notes" means the 10.101% Subordinated Promissory Notes due ------------- September 30, 2003 issued by NMT Medical, Inc. in the original principal amount of $20,000,000. "Withdrawal Liability" means liability to a Multiemployer Plan as a -------------------- result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. SECTION 1.02. Terms Generally. The definitions of terms herein shall --------------- apply equally to the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include", "includes" and "including" shall be deemed to be followed by the phrase "without limitation". The word "will" shall be construed to have the same meaning and effect as the word "shall". Unless the context requires otherwise (a) any definition of or reference to any agreement, instrument or other document herein shall be construed as referring to such agreement, instrument or other document as from time to time amended, supplemented or otherwise modified (subject to any restrictions on such amendments, supplements or modifications set forth herein), (b) any reference herein to any Person shall be construed to include such Person's successors 9 and assigns, (c) the words "herein", "hereof" and "hereunder", and words of similar import, shall be construed to refer to this Agreement in its entirety and not to any particular provision hereof, (d) all references herein to Articles, Sections, Exhibits and Schedules shall be construed to refer to Articles and Sections of, and Exhibits and Schedules to, this Agreement and (e) the words "asset" and "property" shall be construed to have the same meaning and effect and to refer to any and all tangible and intangible assets and properties, including cash, securities, accounts and contract rights. SECTION 1.03. Accounting Terms; GAAP. Except as otherwise expressly ---------------------- provided herein, all terms of an accounting or financial nature shall be construed in accordance with GAAP, as in effect from time to time; provided -------- that, if the Borrowers notify the Lender that the Borrowers request an amendment to any provision hereof to eliminate the effect of any change occurring after the date hereof in GAAP or in the application thereof on the operation of such provision (or the Lender notifies the Borrowers that it requests an amendment to any provision hereof for such purpose), regardless of whether any such notice is given before or after such change in GAAP or in the application thereof, then such provision shall be interpreted on the basis of GAAP as in effect and applied immediately before such change shall have become effective until such notice shall have been withdrawn or such provision amended in accordance herewith. ARTICLE II The Credit ---------- SECTION 2.01. Commitment. Subject to the terms and conditions set forth ---------- herein, the Lender agrees to make Revolving Loans to the Borrowers from time to time during the Availability Period in an aggregate principal amount that will not result in the aggregate amount of all outstanding Revolving Loans plus the LC Exposure exceeding the Commitment. Within the foregoing limit and subject to the terms and conditions set forth herein, the Borrowers may borrow, prepay and reborrow Revolving Loans. SECTION 2.02. Note. The obligations of the Borrowers hereunder with ---- respect to all Revolving Loans shall be evidenced by a Note in the form of Exhibit A hereto made by each of the Borrowers. SECTION 2.03. Requests for Revolving Borrowings. To request a Revolving --------------------------------- Borrowing, the Borrowers shall notify the Lender of such request by telephone not later than 11:00 a.m., Boston time, one Business Day before the date of the proposed Borrowing; provided that any such notice of a Borrowing to finance the -------- reimbursement of an LC Disbursement as contemplated by Section 2.04(d) may be given not later than 10:00 a.m., Boston time, on the date of the proposed Borrowing. Each such telephonic Borrowing Request shall be irrevocable and shall be confirmed promptly by hand delivery or telecopy to the Lender of a written Borrowing Request in a form approved by the Lender and signed by the Borrowers. 10 SECTION 2.04. Letters of Credit. ----------------- (a) General. Subject to the terms and conditions set forth herein, ------- the Borrowers may request the issuance of Letters of Credit for their own account, in a form reasonably acceptable to the Lender, at any time and from time to time during the Availability Period. In the event of any inconsistency between the terms and conditions of this Agreement and the terms and conditions of any form of letter of credit application or other agreement submitted by the Borrowers to, or entered into by the Borrowers with, the Lender relating to any Letter of Credit, the terms and conditions of this Agreement shall control. (b) Notice of Issuance, Amendment, Renewal, Extension; Certain ---------------------------------------------------------- Conditions. To request the issuance of a Letter of Credit (or the amendment, - ---------- renewal or extension of an outstanding Letter of Credit), the Borrowers shall hand deliver or telecopy (or transmit by electronic communication, if arrangements for doing so have been approved by the Lender) to the Lender (reasonably in advance of the requested date of issuance, amendment, renewal or extension) a notice requesting the issuance of a Letter of Credit, or identifying the Letter of Credit to be amended, renewed or extended, and specifying the date of issuance, amendment, renewal or extension (which shall be a Business Day), the date on which such Letter of Credit is to expire (which shall comply with paragraph (c) of this Section), the amount of such Letter of Credit, the name and address of the beneficiary thereof and such other information as shall be necessary to prepare, amend, renew or extend such Letter of Credit. If requested by the Lender, the Borrowers also shall submit a letter of credit application on the Lender's standard form in connection with any request for a Letter of Credit. A Letter of Credit shall be issued, amended, renewed or extended only if (and upon issuance, amendment, renewal or extension of each Letter of Credit the Borrowers shall be deemed to represent and warrant that), after giving effect to such issuance, amendment, renewal or extension (i) the LC Exposure shall not exceed $500,000 and (ii) the sum of the total Revolving Loans and LC Exposure shall not exceed the total Commitment. (c) Expiration Date. Each Letter of Credit shall expire at or prior --------------- to the close of business on the earlier of (i) the date one year after the date of the issuance of such Letter of Credit (or, in the case of any renewal or extension thereof, one year after such renewal or extension) and (ii) the date that is five Business Days prior to the Maturity Date; provided, however, that -------- ------- if requested by the Borrowers a Letter of Credit shall automatically be renewed and extended for an additional year (but not beyond the date specified in clause (ii) above) unless the Lender notifies the Borrowers of its refusal to so renew and extend such Letter of Credit within 30 days prior to the date such Letter of Credit would otherwise expire. (d) Reimbursement. If the Lender shall make any LC Disbursement in ------------- respect of a Letter of Credit, the Borrowers shall reimburse such LC Disbursement by paying to the Lender an amount equal to such LC Disbursement not later than 12:00 noon, Boston time, on the date that such LC Disbursement is made, if any Borrower shall have received notice of such LC Disbursement prior to 10:00 a.m., Boston time, on such date, or, if such notice has not been received by the Borrowers prior to such time on such date, then not later than 12:00 noon, Boston time, on the Business Day immediately following the day that any Borrower receives such notice; provided that the Borrowers may, subject to -------- the conditions to borrowing set forth herein, request in accordance with Section 2.03 that such payment be financed with 11 a Revolving Loan in an equivalent amount and, to the extent so financed, the Borrowers' obligation to make such payment shall be discharged and replaced by the resulting Borrowing. (e) Obligations Absolute. The Borrowers' obligation to reimburse LC -------------------- Disbursements as provided in paragraph (d) of this Section shall be absolute, unconditional and irrevocable, and shall be performed strictly in accordance with the terms of this Agreement under any and all circumstances whatsoever and irrespective of (i) any lack of validity or enforceability of any Letter of Credit or this Agreement, or any term or provision therein, (ii) any draft or other document presented under a Letter of Credit proving to be forged, fraudulent or invalid in any respect or any statement therein being untrue or inaccurate in any respect, (iii) payment by the Lender under a Letter of Credit against presentation of a draft or other document that does not comply with the terms of such Letter of Credit, or (iv) any other event or circumstance whatsoever, whether or not similar to any of the foregoing, that might, but for the provisions of this Section, constitute a legal or equitable discharge of, or provide a right of setoff against, the Borrowers' obligations hereunder. Neither the Lender nor any of its Related Parties shall have any liability or responsibility by reason of or in connection with the issuance or transfer of any Letter of Credit or any payment or failure to make any payment thereunder (irrespective of any of the circumstances referred to in the preceding sentence), or any error, omission, interruption, loss or delay in transmission or delivery of any draft, notice or other communication under or relating to any Letter of Credit (including any document required to make a drawing thereunder), any error in interpretation of technical terms or any consequence arising from causes beyond the control of the Lender; provided that the foregoing shall not -------- be construed to excuse the Lender from liability to the Borrowers to the extent of any direct damages (as opposed to consequential damages, claims in respect of which are hereby waived by the Borrowers to the fullest extent permitted by applicable law) suffered by the Borrowers that are caused by the Lender's failure to exercise care when determining whether drafts and other documents presented under a Letter of Credit comply with the terms thereof. The parties hereto expressly agree that, in the absence of gross negligence or willful misconduct on the part of the Lender, the Lender shall be deemed to have exercised care in each such determination. In furtherance of the foregoing and without limiting the generality thereof, the parties agree that, with respect to documents presented which appear on their face to be in substantial compliance with the terms of a Letter of Credit, the Lender may, in its sole discretion, either accept and make payment upon such documents without responsibility for further investigation, regardless of any notice or information to the contrary, or refuse to accept and make payment upon such documents if such documents are not in strict compliance with the terms of such Letter of Credit. (f) Disbursement Procedures. The Lender shall, promptly following its ----------------------- receipt thereof, examine all documents purporting to represent a demand for payment under a Letter of Credit. The Lender shall promptly notify the Borrowers by telephone (confirmed by telecopy) of such demand for payment and whether the Lender has made or will make an LC Disbursement thereunder; provided -------- that any failure to give or delay in giving such notice shall not relieve the Borrowers of their obligation to reimburse the Lender with respect to any such LC Disbursement. (g) Interim Interest. If the Lender shall make any LC Disbursement, ---------------- then, unless the Borrowers shall reimburse such LC Disbursement in full on the date such LC Disbursement is made, the 12 unpaid amount thereof shall bear interest, for each day from and including the date such LC Disbursement is made to but excluding the date that the Borrowers reimburse such LC Disbursement, at the rate provided for in Section 2.10(b). Interest accrued pursuant to this paragraph shall be for the account of the Lender. (h) Cash Collateralization. If any Event of Default shall occur and ---------------------- be continuing, on the Business Day that the Borrowers receive notice from the Lender demanding the deposit of cash collateral pursuant to this paragraph, the Borrowers shall deposit in an account with the Lender, an amount in cash equal to the LC Exposure as of such date plus any accrued and unpaid interest and fees thereon; provided that the obligation to deposit such cash collateral shall -------- become effective immediately, and such deposit shall become immediately due and payable, without demand or other notice of any kind, upon the occurrence of any Event of Default with respect to any Borrower described in clause (h) or (i) of Article VII. Such deposit shall be held by the Lender as collateral for the payment and performance of the obligations of the Borrowers under this Agreement. The Lender shall have exclusive dominion and control, including the exclusive right of withdrawal, over such account. All such deposits shall be invested, at the option of the Borrowers, in certificates of deposit issued by the Lender or in a Lender sponsored money market fund. Interest or profits, if any, on such investments shall accumulate in such account. Moneys in such account shall be applied by and paid to the Lender as reimbursement for LC Disbursements for which it has not been reimbursed and, to the extent not so applied, shall be held for the satisfaction of the reimbursement obligations of the Borrowers for the LC Exposure at such time or, if the maturity of the Loans has been accelerated, be applied to satisfy any other obligations of the Borrowers under this Agreement. If the Borrowers are required to provide an amount of cash collateral hereunder as a result of the occurrence of an Event of Default, such amount (to the extent not applied as aforesaid) shall be returned to the Borrowers within three Business Days after all Events of Default have been cured or waived. SECTION 2.05. Funding of Borrowings. The Lender will make Loans --------------------- available to the Borrowers by promptly crediting the amounts so received, in like funds, to an account of any Borrower maintained with the Lender in Boston and designated by the Borrowers in the applicable Borrowing Request; provided -------- that Revolving Loans made to finance the reimbursement of an LC Disbursement as provided in Section 2.04(d) shall be remitted to the Lender. SECTION 2.06. Termination and Reduction of Commitment. --------------------------------------- (a) Unless previously terminated, the Commitment shall terminate on the Maturity Date. (b) The Borrowers may at any time terminate, or from time to time reduce, the Commitment; provided that (i) each reduction of the Commitment shall -------- be in an amount that is an integral multiple of $100,000 and not less than $1,000,000 and (ii) the Borrowers shall not terminate or reduce the Commitment if, after giving effect to any concurrent prepayment of the Loans in accordance with Section 2.08, the sum of the outstanding amount of all Loans plus the LC Exposure would exceed the Commitment. 13 (c) The Borrowers shall notify the Lender of any election to terminate or reduce the Commitment under paragraph (b) of this Section at least three Business Days prior to the effective date of such termination or reduction, specifying such election and the effective date thereof. Each notice delivered by the Borrowers pursuant to this Section shall be irrevocable. SECTION 2.07. Repayment of Loans; Evidence of Debt. ------------------------------------ (a) The Borrowers hereby unconditionally promise to pay to the Lender the then unpaid principal amount of each Revolving Loan on the Maturity Date. (b) The Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness of the Borrowers to the Lender resulting from each Loan made by the Lender, including the amounts of principal and interest payable and paid to the Lender from time to time hereunder. (c) The entries made in the accounts maintained pursuant to paragraph (b) of this Section shall be prima facie evidence of the existence and amounts ----- ----- of the obligations recorded therein; provided that the failure of the Lender to -------- maintain such accounts or any error therein shall not in any manner affect the obligation of the Borrowers to repay the Loans in accordance with the terms of this Agreement. SECTION 2.08. Prepayment of Loans. The Borrowers shall have the right at ------------------- any time and from time to time to prepay without penalty any Borrowing in whole or in part. SECTION 2.09. Fees. ---- (a) The Borrowers agree to pay to the Lender a nonusage fee, which shall accrue at the rate of 0.375% per annum on the average daily amount of any unused portion of the Commitment during the period from and including the date hereof to but excluding the date on which such Commitment terminates. Accrued nonusage fees shall be payable in arrears on the last day of March, June, September and December of each year and on the date on which the Commitment terminates, commencing on the first such date to occur after the date hereof. As used herein, usage of the Lender's Commitment includes Revolving Loans and LC Exposure. All nonusage fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed. (b) The Borrowers agree to pay to the Lender a fee with respect to all outstanding Letters of Credit, which shall accrue at the rate of 1.5% per annum on the average daily amount of the Lender's LC Exposure (excluding any portion thereof attributable to unreimbursed LC Disbursements), as well as the Lender's standard fees with respect to the issuance, amendment, renewal or extension of any Letter of Credit or processing of drawings thereunder. Such fees shall be payable in advance upon the issuance of any Letter of Credit. All such fees shall be computed on the basis of a year of 360 days and shall be payable for the actual number of days elapsed. 14 (c) The Borrowers agree to pay to the Lender a closing fee as set forth in the letter from it to NMT Medical, Inc. dated June 18, 1999. SECTION 2.10. Interest. -------- (a) All Loans shall bear interest at the Alternate Base Rate. (b) Notwithstanding the foregoing, if any principal of or interest on any Loan or any fee or other amount payable by the Borrowers hereunder is not paid when due, whether at stated maturity, upon acceleration or otherwise, such overdue amount shall bear interest, after as well as before judgment, at a rate per annum equal to the Alternate Base Rate plus 4%. (c) Accrued interest on each Loan shall be payable in arrears on each Interest Payment Date for such Loan and upon termination of the Commitment; provided that interest accrued pursuant to paragraph (b) of this Section shall - -------- be payable on demand. (d) All interest hereunder shall be computed on the basis of a year of 360 days, and shall be payable for the actual number of days elapsed. The applicable Alternate Base Rate shall be determined by the Lender, and such determination shall be conclusive absent manifest error. SECTION 2.11. Increased Costs. --------------- (a) If any Change in Law shall: (i) impose, modify or deem applicable any reserve, special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by, the Lender; or (ii) impose on the Lender any other condition affecting this Agreement or any Loans made by the Lender or any Letter of Credit issued hereunder; and the result of any of the foregoing shall be to increase the cost to the Lender of making or maintaining any Loan (or of maintaining its obligation to make any such Loan) or to increase the cost to the Lender of issuing or maintaining any Letter of Credit or to reduce the amount of any sum received or receivable by the Lender hereunder (whether of principal, interest or otherwise), then the Borrowers will pay to the Lender such additional amount or amounts as will compensate the Lender for such additional costs incurred or reduction suffered. (b) If the Lender determines that any Change in Law regarding capital requirements has or would have the effect of reducing the rate of return on the Lender's capital as a consequence of this Agreement or the Loans made by the Lender, or the Letters of Credit issued by the Lender, to a level below that which the Lender could have achieved but for such Change in Law (taking into consideration 15 the Lender's policies with respect to capital adequacy), then from time to time the Borrowers will pay to the Lender such additional amount or amounts as will compensate the Lender for any such reduction suffered. (c) A certificate of the Lender setting forth in reasonable detail the basis for any such additional payment and the amount or amounts necessary to compensate the Lender as specified in paragraph (a) or (b) of this Section shall be delivered to the Borrowers and shall be conclusive absent manifest error. The Borrowers shall pay the Lender the amount shown as due on any such certificate within 10 days after receipt thereof. (d) Failure or delay on the part of the Lender to demand compensation pursuant to this Section shall not constitute a waiver of the Lender's right to demand such compensation; provided that any such demand shall be made within 90 -------- days of the event or condition giving rise to the demand on which it is based. SECTION 2.12. Taxes. ----- (a) Any and all payments by or on account of any obligation of the Borrowers hereunder shall be made free and clear of and without deduction for any Indemnified Taxes or Other Taxes; provided that if the Borrowers shall be -------- required to deduct any Indemnified Taxes or Other Taxes from such payments, then (i) the sum payable shall be increased as necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section), the Lender receives an amount equal to the sum it would have received had no such deductions been made, (ii) the Borrowers shall make such deductions and (iii) the Borrowers shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. In addition, the Borrowers shall pay all Other Taxes to the relevant Governmental Authority in accordance with applicable law. (b) The Borrowers shall indemnify the Lender within 10 days after written demand therefor, for the full amount of any Indemnified Taxes or Other Taxes paid by the Lender on or with respect to any payment by or on account of any obligation of the Borrowers hereunder (including Indemnified Taxes or Other Taxes imposed or asserted on or attributable to amounts payable under this Section) and any penalties, interest and reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes or Other Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to the Borrowers by the Lender shall be conclusive absent manifest error. (c) As soon as practicable after any payment of Indemnified Taxes or Other Taxes by the Borrowers to a Governmental Authority, the Borrowers shall deliver to the Lender the original or a certified copy of a receipt issued by such Governmental Authority evidencing such payment, a copy of the return reporting such payment or other evidence of such payment reasonably satisfactory to the Lender. 16 SECTION 2.13. Payments Generally. ------------------ (a) The Borrowers shall make each payment required to be made by it hereunder (whether of principal, interest, fees or reimbursement of LC Disbursements, or of amounts payable under Section 2.11 or 2.12, or otherwise) prior to 2:00 p.m., Boston time, on the date when due, in immediately available funds, without set-off or counterclaim. Any amounts received after such time on any date shall be deemed to have been received on the next succeeding Business Day for purposes of calculating interest thereon. All such payments shall be made to the Lender at its offices in Boston, Massachusetts, except that payments pursuant to Sections 2.11, 2.12 and 8.03 shall be made directly to the Persons entitled thereto. If any payment hereunder shall be due on a day that is not a Business Day, the date for payment shall be extended to the next succeeding Business Day, and, in the case of any payment accruing interest, interest thereon shall be payable for the period of such extension. All payments hereunder shall be made in dollars. (b) If at any time insufficient funds are received by and available to the Lender to pay fully all amounts of principal, unreimbursed LC Disbursements, and interest and fees then due hereunder, such funds shall be applied (i) first, towards payment of interest and fees then due hereunder, and (ii) second, towards payment of principal and unreimbursed LC Disbursements then due hereunder. SECTION 2.14. Senior Status of Obligations. All rights of the Lender ---------------------------- with respect to the payment and performance of all obligations of the Borrowers hereunder of every kind and description, whether now existing or hereafter arising, shall be senior to all rights of the holders of the Whitney Notes, and such rights of the Lender shall not be subordinated in right of payment to any other Indebtedness of any Borrower or Subsidiary. ARTICLE III Representations and Warranties ------------------------------ The Borrowers represent and warrant to the Lender that (provided that, for -------- purposes of the Borrowers making the following representations and warranties as of the date hereof only, the term "Subsidiary" shall in no event include Image Technology Corp.): SECTION 3.01 Organization; Powers. Each of the Borrowers and the -------------------- Subsidiaries is duly organized, validly existing and in good standing (where applicable) under the laws of the jurisdiction of its organization, has all requisite power and authority to carry on its business as now conducted and, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, is qualified to do business in, and is in good standing in, every jurisdiction where such qualification is required. SECTION 3.02. Authorization; Enforceability. The Transactions to be ----------------------------- entered into by the respective Borrowers are within each of the respective Borrower's corporate powers and have been duly 17 authorized by all necessary corporate and, if required, stockholder action. This Agreement has been duly executed and delivered by each Borrower and constitutes a legal, valid and binding obligation of each Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors' rights generally and subject to general principles of equity, regardless of whether considered in a proceeding in equity or at law. SECTION 3.03 Governmental Approvals; No Conflicts. The Transactions (a) ------------------------------------ do not require any consent or approval of, registration or filing with, or any other action by, any Governmental Authority, except such as have been obtained or made and are in full force and effect, (b) will not violate any applicable law or regulation or the charter, by-laws or other organizational documents of any Borrower or Subsidiary or any order of any Governmental Authority, (c) will not violate or result in a default under any indenture, agreement or other instrument binding upon any Borrower or Subsidiary or its assets, or give rise to a right thereunder to require any payment to be made by any Borrower or Subsidiary, and (d) will not result in the creation or imposition of any Lien on any asset of any Borrower or Subsidiary. SECTION 3.04. Financial Condition; No Material Adverse Change. ----------------------------------------------- (a) The Borrowers have heretofore furnished to the Lender the consolidated balance sheet and statements of income, stockholders equity and cash flows of NMT Medical, Inc. and its Subsidiaries (i) as of and for each of the last three fiscal years ended December 31, 1998, reported on by Arthur Andersen LLP, independent public accountants, and (ii) as of and for the fiscal quarter and the portion of the fiscal year ended June 30, 1999, certified by its chief financial officer. Such financial statements present fairly, in all material respects, the financial position and results of operations and cash flows of NMT Medical, Inc. and its Subsidiaries as of such dates and for such periods in accordance with GAAP, subject to year-end audit adjustments and the absence of footnotes in the case of the statements referred to in clause (ii) above. (b) Since December 31, 1998, there has been no material adverse change in the business, assets, operations, prospects or condition, financial or otherwise, of NMT Medical, Inc. and its Subsidiaries taken as a whole. SECTION 3.05. Properties. ---------- (a) Each of the Borrowers and the Subsidiaries has good title to, or valid leasehold interests in, all its real and personal property material to its business, except for minor defects in title that do not interfere with its ability to conduct its business as currently conducted or to utilize such properties for their intended purposes. (b) Each of the Borrowers and the Subsidiaries owns, or is licensed to use, all trademarks, tradenames, copyrights, patents and other intellectual property material to its business, and the use thereof by the Borrowers and the Subsidiaries does not infringe upon the rights of any other Person, except for any such infringements that, individually or in the aggregate, could not reasonably be expected 18 to result in a Material Adverse Effect. Attached hereto as Schedule 3.05 is a complete and accurate list of all of the patents and patent applications owned by the Borrowers as of the date hereof. SECTION 3.06. Litigation and Environmental Matters. ------------------------------------ (a) There are no actions, suits or proceedings by or before any arbitrator or Governmental Authority pending against or, to the knowledge of the Borrowers, threatened against or affecting any Borrower or Subsidiary (i) as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected, individually or in the aggregate, to result in a Material Adverse Effect (other than the Disclosed Matters) or (ii) that involve this Agreement or the Transactions. (b) Except for the Disclosed Matters and except with respect to any other matters that, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect, no Borrower or Subsidiary (i) has failed to comply with any Environmental Law or to obtain, maintain or comply with any permit, license or other approval required under any Environmental Law, (ii) has become subject to any Environmental Liability, (iii) has received notice of any claim with respect to any Environmental Liability or (iv) knows of any basis for any Environmental Liability. (c) Since the date of this Agreement, there has been no change in the status of the Disclosed Matters that, individually or in the aggregate, has resulted in, or materially increased the likelihood of, a Material Adverse Effect. SECTION 3.07. Compliance with Laws and Agreements. Each of the Borrowers ----------------------------------- and the Subsidiaries is in compliance with all laws, regulations and orders of any Governmental Authority applicable to it or its property and all indentures, agreements and other instruments binding upon it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. No Default has occurred and is continuing. SECTION 3.08. Investment and Holding Company Status. No Borrower or ------------------------------------- Subsidiary is (a) an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940 or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935. SECTION 3.09. Taxes. Each of the Borrowers and the Subsidiaries has ----- timely filed or caused to be filed all Tax returns and reports required to have been filed and has paid or caused to be paid all Taxes required to have been paid by it, except (a) Taxes that are being contested in good faith by appropriate proceedings and for which such Borrower or Subsidiary, as the case may be, has set aside on its books adequate reserves or (b) to the extent that the failure to do so could not reasonably be expected to result in a Material Adverse Effect. 19 SECTION 3.10 ERISA. No ERISA Event has occurred or is reasonably ----- expected to occur that, when taken together with all other such ERISA Events for which liability is reasonably expected to occur, could reasonably be expected to result in a Material Adverse Effect. The present value of all accumulated benefit obligations under each Plan (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $10,000 the fair market value of the assets of such Plan, and the present value of all accumulated benefit obligations of all underfunded Plans (based on the assumptions used for purposes of Statement of Financial Accounting Standards No. 87) did not, as of the date of the most recent financial statements reflecting such amounts, exceed by more than $25,000 the fair market value of the assets of all such underfunded Plans. SECTION 3.11 Disclosure. The Borrowers have disclosed to the Lender all ---------- agreements, instruments and corporate or other restrictions to which any of them or any Subsidiary is subject, and all other matters known to them, that, individually or in the aggregate, could reasonably be expected to result in a Material Adverse Effect. None of the reports, financial statements, certificates or other information (other than any such information provided in draft or preliminary form) furnished by or on behalf of the Borrowers to the Lender in connection with the negotiation of this Agreement or delivered hereunder (as modified or supplemented by other information so furnished) contains any material misstatement of fact or, when taken together, omits to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided that, -------- with respect to projected financial information or other information provided in estimated form, the Borrowers represent only that such information was prepared in good faith based upon assumptions believed to be reasonable at the time. SECTION 3.12. Year 2000. Any reprogramming required to permit the proper --------- functioning, in and following the year 2000, of (i) the Borrowers' and the Subsidiaries' computer systems and (ii) equipment containing embedded microchips (including systems and equipment supplied by others or with which any of the Borrower's or Subsidiary's systems interface) and the testing of all such systems and equipment, as so reprogrammed, will be completed by December 1999. The cost to the Borrowers and the Subsidiaries of such reprogramming and testing and of the reasonably foreseeable consequences of year 2000 to the Borrowers and the Subsidiaries (including, without limitation, reprogramming errors and the failure of others' systems or equipment) will not result in a Default or a Material Adverse Effect. Except for such of the reprogramming referred to in the preceding sentence as may be necessary, the computer and management information systems of the Borrowers and the Subsidiaries are and, with ordinary course upgrading and maintenance, will continue for the term of this Agreement to be, sufficient to permit the Borrowers and the Subsidiaries to conduct their respective businesses without Material Adverse Effect. 20 ARTICLE IV Conditions ---------- SECTION 4.01. Effective Date. The obligations of the Lender to make -------------- Loans and issue Letters of Credit hereunder shall not become effective until the date on which (x) each of the following conditions is satisfied (or waived in accordance with Section 8.02) and (y) each of the conditions set forth in Section 4.01 of the French Credit Agreement is satisfied (or waived in accordance with the terms thereof): (a) The Lender (or its counsel) shall have received from each party hereto either (i) a counterpart of this Agreement signed on behalf of such party or (ii) written evidence satisfactory to the Lender (which may include telecopy transmission of a signed signature page of this Agreement) that such party has signed a counterpart of this Agreement. (b) The Lender shall have received a favorable written opinion (addressed to the Lender and dated the Effective Date) of Hale and Dorr LLP, counsel for the Borrowers, substantially in the form of Exhibit B, and covering such other matters relating to the Borrowers, this Agreement or the Transactions as the Lender shall reasonably request. The Borrowers hereby request such counsel to deliver such opinion. (c) The Lender shall have received such documents and certificates as it or its counsel may reasonably request relating to the organization, existence and good standing of the Borrowers, the authorization of the Transactions and any other legal matters relating to the Borrowers and the Subsidiaries, this Agreement or the Transactions, all in form and substance satisfactory to the Lender and its counsel. (d) The Lender shall have received a certificate, dated the Effective Date and signed by the President, a Vice President or a Financial Officer of each of the Borrowers, confirming compliance with the conditions set forth in paragraphs (a) and (b) of Section 4.02. (e) The Lender shall have received security documents in form and substance satisfactory to it from each of the Borrowers granting to the Lender a first priority Lien on all of their assets (subject to Liens permitted hereunder), other than any owned real property. (f) The Lender shall have received pledge agreements (together with the pledged stock certificates and related stock powers executed in blank) in form and substance satisfactory to it pursuant to which the Lender shall receive a first priority Lien on all outstanding shares or interests of the Subsidiaries held by the Borrowers; provided that the pledge by any -------- Borrower of any voting stock or interests in any Subsidiary that is not a Domestic Subsidiary shall be limited to sixty-five percent (65%) of such voting stock or interests. 21 (g) The Lender shall have received all fees and other amounts due and payable on or prior to the Effective Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Borrowers hereunder. (h) The Whitney Agreement and the Whitney Notes shall have been amended in form and substance satisfactory to the Lender and all collateral securing the Whitney Notes shall have been released and terminated; provided that, pursuant to a collateral agency agreement in form and -------- substance satisfactory to the Lender, the security interests in certain foreign patents as in effect on the date hereof shall be maintained solely on behalf of the Lender. (i) All of the collateral securing the Barclays Debt shall have been released and terminated, other than the U.K. Lease. SECTION 4.02. Each Credit Event. The obligation of the Lender to make a ----------------- Loan on the occasion of any Borrowing or to issue, amend, renew or extend any Letter of Credit is subject to the satisfaction of the following conditions: (a) The representations and warranties of the Borrowers set forth in this Agreement shall be true and correct on and as of the date of such Borrowing or the date of issuance, amendment, renewal or extension of such Letter of Credit, as applicable. (b) At the time of and immediately after giving effect to such Borrowing or the issuance, amendment, renewal or extension of such Letter of Credit, as applicable, no Default shall have occurred and be continuing. Each Borrowing and each issuance, amendment, renewal or extension of a Letter of Credit shall be deemed to constitute a representation and warranty by the Borrowers on the date thereof as to the matters specified in paragraphs (a) and (b) of this Section. ARTICLE V Affirmative Covenants --------------------- Until the Commitment has expired or been terminated and the principal of and interest on each Loan and all fees payable hereunder shall have been paid in full and all Letters of Credit shall have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrowers covenant and agree with the Lender that: SECTION 5.01. Financial Statements and Other Information. The Borrowers ------------------------------------------ will furnish to the Lender: 22 (a) within 90 days after the end of each fiscal year of NMT Medical, Inc., its audited consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all reported on by Arthur Andersen LLP or other independent public accountants of recognized national standing (without a "going concern" or like qualification or exception and without any qualification or exception as to the scope of such audit) to the effect that such consolidated financial statements present fairly in all material respects the financial condition and results of operations of NMT Medical, Inc. and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied; (b) within 45 days after the end of each of the first three fiscal quarters of each fiscal year of NMT Medical, Inc., its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows as of the end of and for such fiscal quarter and the then elapsed portion of the fiscal year, setting forth in each case in comparative form the figures for the corresponding period or periods of (or, in the case of the balance sheet, as of the end of) the previous fiscal year, all certified by one of its Financial Officers as presenting fairly in all material respects the financial condition and results of operations of NMT Medical, Inc. and its consolidated Subsidiaries on a consolidated basis in accordance with GAAP consistently applied, subject to normal year-end audit adjustments and the absence of footnotes; (c) concurrently with any delivery of financial statements under clause (a) or (b) above, a certificate of a Financial Officer of the Borrowers (i) certifying as to whether a Default has occurred and, if a Default has occurred, specifying the details thereof and any action taken or proposed to be taken with respect thereto, (ii) setting forth reasonably detailed calculations demonstrating compliance with Section 6.09 and (iii) stating whether any change in GAAP or in the application thereof has occurred since the date of the audited financial statements referred to in Section 3.04 and, if any such change has occurred, specifying the effect of such change on the financial statements accompanying such certificate; (d) concurrently with any delivery of financial statements under clause (a) above, a certificate of the accounting firm that reported on such financial statements stating whether they obtained knowledge during the course of their examination of such financial statements of any Default (which certificate may be limited to the extent required by accounting rules or guidelines); (e) promptly after the same become publicly available, copies of all periodic and other reports, proxy statements and other materials filed by NMT Medical, Inc. with the Securities and Exchange Commission, or any Governmental Authority succeeding to any or all of the functions of said Commission, or with any national securities exchange, or distributed by NMT Medical, Inc. to its shareholders generally, as the case may be; and 23 (f) promptly following any request therefor, such other information regarding the operations, business affairs and financial condition of the Borrowers and the Subsidiaries, or compliance with the terms of this Agreement, as the Lender may reasonably request. SECTION 5.02. Notices of Material Events. The Borrowers will furnish to -------------------------- the Lender prompt written notice of the following: (a) the occurrence of any Default hereunder, including, without limitation, as a result of any Default under the French Credit Agreement; (b) the filing or commencement of any action, suit or proceeding by or before any arbitrator or Governmental Authority against or affecting any Borrower or Subsidiary or any Affiliate thereof that, if adversely determined, could reasonably be expected to result in a Material Adverse Effect; (c) the occurrence of any ERISA Event that, alone or together with any other ERISA Events that have occurred, could reasonably be expected to result in liability of any Borrower or Subsidiary in an aggregate amount exceeding $25,000; and (d) any other development that results in, or could reasonably be expected to result in, a Material Adverse Effect. Each notice delivered under this Section shall be accompanied by a statement of a Financial Officer or other executive officer of the Borrowers setting forth the details of the event or development requiring such notice and any action taken or proposed to be taken with respect thereto. SECTION 5.03. Existence; Conduct of Business. Each of the Borrowers ------------------------------ will, and will cause each of the Subsidiaries to, do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and the rights, licenses, permits, privileges and franchises material to the conduct of its business; provided that the foregoing shall not prohibit -------- any merger, consolidation, liquidation or dissolution permitted under Section 6.03. SECTION 5.04. Payment of Obligations. Each of the Borrowers will, and ---------------------- will cause each of the Subsidiaries to, pay its obligations, including Tax liabilities, that, if not paid, could result in a Material Adverse Effect before the same shall become delinquent or in default, except where (a) the validity or amount thereof is being contested in good faith by appropriate proceedings, (b) such Borrower or Subsidiary, as the case may be, has set aside on its books adequate reserves with respect thereto in accordance with GAAP and any other applicable standards for any Subsidiary that is not a Domestic Subsidiary and (c) the failure to make payment pending such contest could not reasonably be expected to result in a Material Adverse Effect. 24 SECTION 5.05. Maintenance of Properties; Insurance. Each of the ------------------------------------ Borrowers will (a) keep and maintain all property material to the conduct of its business in good working order and condition, ordinary wear and tear excepted, and (b) maintain, with financially sound and reputable insurance companies, insurance in such amounts and against such risks as are customarily maintained by companies engaged in the same or similar businesses operating in the same or similar locations. SECTION 5.06. Books and Records; Inspection Rights. Each of the ------------------------------------ Borrowers will, and will cause each of the Subsidiaries to, keep proper books of record and account in which full, true and correct entries are made of all dealings and transactions in relation to its business and activities. Each of the Borrowers will, and will cause each of the Subsidiaries to, permit any representatives designated by the Lender, upon reasonable prior notice, to visit and inspect its properties, to examine and make extracts from its books and records, and to discuss its affairs, finances and condition with its officers and independent accountants, all at such reasonable times and as often as reasonably requested. SECTION 5.07 Compliance with Laws. Each of the Borrowers will, and will -------------------- cause each of the Subsidiaries to, comply with all laws, rules, regulations and orders of any Governmental Authority applicable to it or its property, except where the failure to do so, individually or in the aggregate, could not reasonably be expected to result in a Material Adverse Effect. SECTION 5.08. Use of Proceeds and Letters of Credit. The proceeds of the ------------------------------------- Loans will be used only for the prepayment and retirement of $3,000,000 of the Whitney Notes and the balance for general corporate purposes. No part of the proceeds of any Loan will be used, whether directly or indirectly, for any purpose that entails a violation of any of the Regulations of the Board, including Regulations U and X. Letters of Credit will be issued only for the payment of suppliers and for other purposes satisfactory to the Lender. SECTION 5.09. Receipt of Proceeds from French Credit Agreement. The ------------------------------------------------ proceeds of the loans made by the Lender under the French Credit Agreement to the Subsidiaries parties thereto, which are received by any Borrower, directly or indirectly, as dividends, payment of existing indebtedness or otherwise, will be used only toward the prepayment and retirement of the Whitney Notes. SECTION 5.10. Grant of Mortgage on Real Property. At any time upon the ---------------------------------- request of the Lender, the Borrowers will (within 10 days following such request) grant to the Lender a first priority mortgage (subject to such customary zoning, easement, tax and other interests and encumbrances which do not in the aggregate materially decrease the value of or restrict the marketability of such property) on any and all real property now owned or hereafter acquired by any Borrower. In connection therewith, the Borrowers will also provide (within 60 days following such request) to the Lender customary title insurance, surveys, zoning documents and other closing documents. SECTION 5.11. Subsidiary Guarantees. At any time upon the request of the --------------------- Lender, the Borrowers will, within a reasonable period after such request, cause any Subsidiary that is not a Domestic Subsidiary to execute a guarantee, in form and substance satisfactory to the Lender, pursuant to which such 25 Subsidiary shall guarantee the payment and performance by the Borrowers of their obligations hereunder; provided that such guarantee shall be limited in amount -------- and otherwise in a form which does not create any adverse U.S. tax consequences to the Borrowers in the reasonable judgment of the Borrowers' tax advisors. ARTICLE VI Negative Covenants ------------------ Until the Commitment has expired or terminated and the principal of and interest on each Loan and all fees payable hereunder have been paid in full and all Letters of Credit have expired or terminated and all LC Disbursements shall have been reimbursed, the Borrowers covenant and agree with the Lender that: SECTION 6.01 Indebtedness. The Borrowers will not, and will not permit ------------ any Subsidiary to, create, incur, assume or permit to exist any Indebtedness, except: (a) Indebtedness created hereunder; (b) Indebtedness existing on the date hereof and set forth in Schedule 6.01 and, except as set forth in clauses (f) and (g) of this Section 6.01, extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; (c) Indebtedness of any Borrower to any Borrower or Subsidiary; (d) Guarantees existing on the date hereof and set forth in Schedule 6.01, and extensions, renewals and replacements of such Guarantees that do not increase the outstanding amount so guaranteed, and any Guarantee of the Whitney Notes by any Subsidiary executed after the date hereof; provided -------- that (i) such Guarantee shall be in form and substance satisfactory to the Lender, (ii) such Guarantee shall be subordinate and junior to the Indebtedness created hereunder and under the French Credit Agreement (and any Guarantee thereof by any Borrower or Subsidiary) and (ii) such Subsidiary shall have guaranteed the Indebtedness created hereunder and, to the extent permitted by applicable law, under the French Credit Agreement; (e) Indebtedness incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; provided that (i) such Indebtedness is incurred prior to or within 90 days -------- after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (e) shall not exceed $300,000 at any time outstanding; 26 (f) the Barclays Debt, but no extensions, renewals or replacements thereof; (g) the Whitney Notes, but no extensions, renewals or replacements thereof; and provided that the Borrowers may not prepay the Whitney Notes -------- in whole or in part (other than on the Effective Date in the principal amount of up to $14,000,000 and in accordance with the terms hereof and of that certain Guarantee, dated as of the date hereof, made by the Borrowers with respect to the indebtedness of certain Subsidiaries under the French Credit Agreement) without the prior written consent of the Lender; (h) Indebtedness in an aggregate principal amount of up to $1,200,000 to be extended after the date hereof to NMT NeuroSciences Implants (France) SA by CIC Lyonnaise De Banque upon such terms and conditions as shall be approved by the Lender, which approval shall not be unreasonably withheld, and solely for the lease of computer equipment, but no extensions, renewals or replacements thereof; and (i) Indebtedness created under the French Credit Agreement and any Guarantee of such Indebtedness by any Borrower or Subsidiary, and extensions, renewals and replacements of such Indebtedness and Guarantees. SECTION 6.02. Liens. The Borrowers will not, and will not permit any ----- Subsidiary to, create, incur, assume or permit to exist any Lien on any property or asset now owned or hereafter acquired by it, or assign or sell any income or revenues (including accounts receivable) or rights in respect of any thereof, except: (a) Permitted Encumbrances; (b) any Lien on any property or asset of any Borrower or Subsidiary existing on the date hereof and set forth in Schedule 6.02; provided that -------- (i) such Lien shall not apply to any other property or asset of any Borrower or Subsidiary and (ii) such Lien shall secure only those obligations which it secures on the date hereof and, except as otherwise set forth herein, extensions, renewals and replacements thereof that do not increase the outstanding principal amount thereof; (c) Liens on fixed or capital assets acquired, constructed or improved by any Borrower or Subsidiary; provided that (i) such security interests -------- secure Indebtedness permitted by clause (e) of Section 6.01, (ii) such security interests and the Indebtedness secured thereby are incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement, (iii) the Indebtedness secured thereby does not exceed 90% of the cost of acquiring, constructing or improving such fixed or capital assets and (iv) such security interests shall not apply to any other property or assets of any Borrower or Subsidiary; (d) Liens on any fixed assets (other than real property) owned or acquired after the date hereof by NMT NeuroSciences Implants (France) SA; provided that (i) such security interests -------- 27 secure only the Indebtedness permitted by clause (h) of Section 6.01 and (ii) such security interests shall not apply to any other property or assets of any Borrower or Subsidiary; and (e) Liens in favor of the Lender securing the Indebtedness hereunder and the Indebtedness permitted by clause (i) of Section 6.01. SECTION 6.03. Fundamental Changes. ------------------- (a) The Borrowers will not, and will not permit any Subsidiary to, merge into or consolidate with any other Person, or permit any other Person to merge into or consolidate with it, or sell, transfer, lease or otherwise dispose of (in one transaction or in a series of transactions) all or substantially all of its assets, or all or substantially all of the stock of any of its subsidiaries (in each case, whether now owned or hereafter acquired), or liquidate or dissolve, except that, if at the time thereof and immediately after giving effect thereto no Default shall have occurred and be continuing, (i) any Borrower may merge into any other Borrower, (ii) any Borrower or Subsidiary may sell, transfer, lease or otherwise dispose of its assets to any Borrower, (iii) any Borrower (other than NMT Medical, Inc.) may merge with any other Person in connection with an acquisition permitted by Section 6.04 as long as such Borrower is the surviving corporation, (iv) any Person in connection with an acquisition permitted under Section 6.04 or any Subsidiary may merge into any Borrower as long as such Borrower is the surviving corporation and (v) any Borrower (other than NMT Medical, Inc.) or any Subsidiary may liquidate or dissolve if such Borrower or Subsidiary determines in good faith that such liquidation or dissolution is in the best interests of its stockholders and is not disadvantageous to the Lender. No Borrower shall, or shall permit any Subsidiary to, create, form or acquire any subsidiary without the prior written consent of the Lender; provided that any Borrower may create, form or acquire a -------- Domestic Subsidiary if such Borrower notifies the Lender in writing at least 30 days in advance thereof and, effective on the date it is created, formed or acquired, such Domestic Subsidiary becomes a Borrower hereunder, it guarantees the Indebtedness created under the French Credit Agreement, it grants the Lender a perfected first priority Lien in all of its assets, and all of its capital stock is pledged on a perfected first priority basis to the Lender. (b) The Borrowers will not, and will not permit any Subsidiary to, engage to any material extent in any business other than businesses of the general type conducted by the Borrowers and the Subsidiaries on the date of execution of this Agreement and businesses reasonably related thereto. SECTION 6.04. Investments, Loans, Advances, Guarantees and Acquisitions. --------------------------------------------------------- The Borrowers will not, and will not permit any Subsidiary to, purchase, hold or acquire any capital stock, evidences of indebtedness or other securities (including any option, warrant or other right to acquire any of the foregoing) of, make or permit to exist any loans or advances to, Guarantee any obligations of, or make or permit to exist any investment or any other interest in, any other Person, or purchase or otherwise acquire (in one transaction or a series of transactions) any assets of any other Person constituting a business unit, except: (a) Permitted Investments; 28 (b) investments by any Borrower or Subsidiary existing on the date hereof in the capital stock of its subsidiaries; (c) loans or advances made by any Borrower or Subsidiary to any Borrower or, with notice as promptly as practicable to the Lender, to any borrower under the French Credit Agreement; (d) Guarantees constituting Indebtedness permitted by Section 6.01; (e) acquisitions by any Borrower as long as (i) the acquired assets are used for, or the acquired Person is engaged in, businesses of the type conducted by the Borrowers on the date hereof or businesses reasonably related thereto, (ii) if such acquisition involves the formation or acquisition by any Borrower of any Person that becomes a Subsidiary as a result of or in connection with such acquisition, then such Subsidiary must be a wholly-owned Domestic Subsidiary and it must, prior to or simultaneously with such acquisition, execute and deliver to the Lender (A) documentation causing it to become a Borrower hereunder, (B) a guarantee of the Indebtedness created under the French Credit Agreement, (C) security documents giving the Lender a first priority perfected Lien in all of its assets, and (D) documentation giving to the Lender perfected first priority pledge of all of its outstanding capital stock, in each case in form and substance satisfactory to the Lender and its counsel, (iii) immediately before and immediately after such acquisition, no Default will occur or exist and (iv) the Borrowers give the Lender written notice thereof at least 20 days in advance of such acquisition; (f) investments by any Borrower or Subsidiary existing on the date hereof and set forth in Schedule 6.04; provided that the amount of any -------- such investment made by such Borrower or Subsidiary shall not increase after the date hereof; and (g) investments by any Borrower in Image Technology Corp. after the date hereof in a maximum aggregate amount which, when added to the amount by which trade payables paid by any Borrower on behalf of Image Technology Corp. exceeds trade receivables of Image Technology Corp. collected by any Borrower, does not at any time exceed $200,000. SECTION 6.05. Hedging Agreements. The Borrowers will not, and will not ------------------ permit any Subsidiary to, enter into any Hedging Agreement, other than Hedging Agreements entered into in the ordinary course of business to hedge or mitigate risks to which the Borrowers or the Subsidiaries are exposed in the conduct of their business or the management of their liabilities. SECTION 6.06. Restricted Payments. The Borrowers will not, and will not ------------------- permit any Subsidiary to, declare or make, or agree to pay or make, directly or indirectly, any Restricted Payment, except (a) any Borrower may declare and pay dividends with respect to its capital stock payable solely in additional shares of its common stock, and (b) Subsidiaries may declare and pay dividends ratably with respect to their capital stock to any Borrower or Subsidiary. 29 SECTION 6.07. Transactions with Affiliates. The Borrowers will not sell, ---------------------------- lease or otherwise transfer any property or assets to, or purchase, lease or otherwise acquire any property or assets from, or otherwise engage in any other transactions with, any of their Affiliates, except (a) in the ordinary course of business at prices and on terms and conditions not less favorable to the Borrowers or the Subsidiaries than could be obtained on an arm's-length basis from unrelated third parties, and (b) any other transaction permitted by this Agreement. SECTION 6.08. Restrictive Agreements. The Borrowers will not, and will ---------------------- not permit any Subsidiary to, directly or indirectly, enter into, incur or permit to exist any agreement or other arrangement that prohibits, restricts or imposes any condition upon (a) the ability of any Borrower or Subsidiary to create, incur or permit to exist any Lien upon any of its property or assets, or (b) the ability of any Subsidiary to pay dividends or other distributions with respect to any shares of its capital stock or to make or repay loans or advances to any Borrower or to Guarantee Indebtedness of any Borrower or any Subsidiary; provided that (i) the foregoing shall not apply to restrictions and conditions - -------- imposed by law or by this Agreement, (ii) the foregoing shall not apply to restrictions and conditions existing on the date hereof identified on Schedule 6.08 (but shall apply to any extension or renewal of, or any amendment or modification expanding the scope of, any such restriction or condition), (iii) the foregoing shall not apply to customary restrictions and conditions contained in agreements relating to the sale of a Subsidiary pending such sale, provided such restrictions and conditions apply only to the Subsidiary that is to be sold and such sale is permitted hereunder, (iv) clause (a) of the foregoing shall not apply to restrictions or conditions imposed by any agreement relating to secured Indebtedness permitted by this Agreement if such restrictions or conditions apply only to the property or assets securing such Indebtedness and (v) clause (a) of the foregoing shall not apply to customary provisions in leases and other contracts restricting the assignment thereof. SECTION 6.09. Financial Covenants. ------------------- (a) Total Leverage Test. The Borrowers shall not permit the ratio of ------------------- consolidated Net Funded Indebtedness of NMT Medical, Inc. and its consolidated Subsidiaries as of the last day of any calendar quarter ending on the date or during any of the periods set forth below to consolidated Adjusted Operating Cash Flow of NMT Medical, Inc. and its consolidated Subsidiaries for the twelve (12) month period ending on the last day of such calendar quarter to be greater than the ratio set forth below for such period:
Date or Period Ratio -------------- ----- September 30, 1999 4.0:1.00 December 31, 1999 3.0:1.00 January 1, 2000 and thereafter 2.5:1.00
"Net Funded Indebtedness" and "Adjusted Operating Cash Flow" will be ----------------------- ---------------------------- calculated as illustrated on Schedule 6.09(a). 30 (b) Fixed Charge Coverage. The Borrowers shall not permit --------------------- consolidated Fixed Charge Coverage of NMT Medical, Inc. and its consolidated Subsidiaries for any twelve (12) month period ending on the last day of a calendar quarter to be less than 1.50 to 1.00. "Fixed Charge Coverage" will be calculated as illustrated on Schedule --------------------- 6.09(b). (c) Current Ratio. The Borrowers shall not permit the ratio of ------------- consolidated Current Assets of NMT Medical, Inc. and its consolidated Subsidiaries to consolidated Current Liabilities of NMT Medical, Inc. and its consolidated Subsidiaries as of the last day of any calendar quarter to be less than 1.25 to 1.00. As used herein, the following terms shall have the following meanings: "Current Assets" shall mean, at any date, the aggregate of the current -------------- assets of NMT Medical, Inc. and its consolidated Subsidiaries determined on a consolidated basis as of such date, as determined in accordance with GAAP. "Current Liabilities" shall mean, at any date, the aggregate of the current ------------------- liabilities of NMT Medical, Inc. and its consolidated Subsidiaries determined on a consolidated basis as of such date, as determined in accordance with GAAP; provided that at all times all outstanding Loans hereunder and under the French - -------- Credit Agreement shall be deemed to be Current Liabilities. (d) Tangible Net Worth. The Borrowers shall not permit Consolidated ------------------ Tangible Net Worth of NMT Medical, Inc. and its consolidated Subsidiaries as of the last day of any calendar quarter during any of the periods set forth below to be less than the amount set forth below for such period:
Period Amount ------ ------ September 30, 1999 to and including December 30, 1999 $16,250,000 December 31, 1999 to and including December 30, 2000 $17,750,000 December 31, 2000 to and including December 30, 2001 $21,000,000 December 31, 2001 and thereafter $25,000,000
As used herein, the term "Consolidated Tangible Net Worth" means (a) the total ------------------------------- assets of NMT Medical, Inc. and its consolidated Subsidiaries on a consolidated basis as determined in accordance with GAAP, minus (b) the total liabilities of ----- NMT Medical, Inc. and its consolidated Subsidiaries on a consolidated basis as determined in accordance with GAAP, minus (c) the total book value of all assets ----- of NMT Medical, Inc. and its consolidated Subsidiaries properly classified as intangible assets in accordance with GAAP, including such items as good will, the purchase price of acquired assets in excess of the fair market value thereof, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and rights with respect to the foregoing, minus (d) all ----- amounts representing any write-up in the book value of any assets of NMT Medical, Inc. and its consolidated Subsidiaries resulting from a revaluation thereof 31 subsequent to the date hereof, minus (e) to the extent otherwise includable in ----- the computation of Consolidated Tangible Net Worth, any subscriptions receivable, minus (f) all amounts representing any ownership interest in Image ----- Technology Corp.; provided, however, that in calculating Consolidated Tangible -------- ------- Net Worth no effect shall be given to any foreign currency translations. ARTICLE VII Events of Default ----------------- If any of the following events ("Events of Default") shall occur: ----------------- (a) the Borrowers shall fail to pay any principal of any Loan or any reimbursement obligation in respect of any LC Disbursement when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or otherwise; (b) the Borrowers shall fail to pay any interest on any Loan or any fee or any other amount (other than an amount referred to in clause (a) of this Article) payable under this Agreement, when and as the same shall become due and payable, and such failure shall continue unremedied for a period of three Business Days; (c) any representation or warranty made or deemed made by or on behalf of any Borrower or, if applicable, Subsidiary in or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, or in any report, certificate, financial statement or other document furnished pursuant to or in connection with this Agreement or any amendment or modification hereof or waiver hereunder, shall prove to have been incorrect in any material respect when made or deemed made; (d) any Borrower shall fail to observe or perform any covenant, condition or agreement contained in Section 5.02, 5.03 (with respect to such Borrower's existence), 5.08, 5.09, 5.10 or 5.11 or in Article VI; (e) any Borrower shall fail to observe or perform any covenant, condition or agreement contained in this Agreement (other than those specified in clause (a), (b) or (d) of this Article), and such failure shall continue unremedied for a period of 30 days after notice thereof from the Lender to the Borrowers; (f) any Borrower or Subsidiary shall fail to make any payment (whether of principal or interest and regardless of amount) in respect of any Material Indebtedness, when and as the same shall become due and payable (unless such payment is disputed in good faith and with a reasonable basis and the holder of such Material Indebtedness is not exercising any rights to enforce such payment); 32 (g) any event or condition occurs that results in the acceleration of the maturity of or any default or event of default occurring or being declared with respect to any Material Indebtedness; (h) an involuntary proceeding shall be commenced or an involuntary petition shall be filed seeking (i) liquidation, reorganization or other relief in respect of any Borrower or Subsidiary or its debts, or of a substantial part of its assets, under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect or (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for any Borrower or Subsidiary or for a substantial part of its assets, and, in any such case, such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (i) any Borrower or Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking liquidation, reorganization or other relief under any Federal, state or foreign bankruptcy, insolvency, receivership or similar law now or hereafter in effect, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or petition described in clause (h) of this Article, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for such Borrower or Subsidiary or for a substantial part of its assets, (iv) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors or (vi) take any action for the purpose of effecting any of the foregoing; (j) any Borrower or Subsidiary shall become unable, admit in writing its inability or fail generally to pay its debts as they become due; (k) one or more judgments for the payment of money in an aggregate amount in excess of $100,000 shall be rendered against any Borrower or Subsidiary and the same shall remain undischarged for a period of 30 consecutive days during which execution shall not be effectively stayed, or any action shall be legally taken by a judgment creditor to attach or levy upon any assets of any Borrower or Subsidiary to enforce any such judgment and such attachment shall not be dissolved within 60 days thereafter; (l) an ERISA Event shall have occurred that, in the opinion of the Lender, when taken together with all other ERISA Events that have occurred, could reasonably be expected to result in liability of any Borrower or Subsidiary in an aggregate amount exceeding (i) $25,000 in any year or (ii) $100,000 for all periods; (m) a Change in Control shall occur; (n) any security document executed and delivered in connection herewith shall cease to be in full force and effect, or shall cease to give the Lender the Liens, rights, powers and 33 privileges purported to be created thereby, superior and prior to the rights of all third Persons and subject to no other Liens (except in each case to the extent expressly permitted herein or in such security document); (o) any Borrower shall fail to observe or perform any covenant, condition or agreement contained in any security document executed and delivered in connection herewith beyond applicable notice and cure periods; or (p) an Event of Default (as defined therein) shall have occurred under the French Credit Agreement; then, and in every such event (other than an event with respect to any Borrower described in clause (h) or (i) of this Article), and at any time thereafter during the continuance of such event, the Lender may, by notice to the Borrowers, take either or both of the following actions, at the same or different times: (i) terminate the Commitment, and thereupon the Commitment shall terminate immediately, and (ii) declare the Loans then outstanding to be due and payable in whole (or in part, in which case any principal not so declared to be due and payable may thereafter be declared to be due and payable), and thereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall become due and payable immediately, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers; and in case of any event with respect to any Borrower described in clause (h) or (i) of this Article, the Commitment shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and all fees and other obligations of the Borrowers accrued hereunder, shall automatically become due and payable, without presentment, demand, protest or other notice of any kind, all of which are hereby waived by the Borrowers. ARTICLE VIII Miscellaneous ------------- SECTION 8.01. Notices. Except in the case of notices and other ------- communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to any Borrower, to it at 27 Wormwood Street, Boston, Massachusetts 02210-1625, Attention of Chief Financial Officer (Telecopy No. 617-737-0924), with a copy to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention of Steven D. Singer, Esq. (Telecopy No. 617-526-5000); and 34 (b) if to the Lender, to Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109-3661, Attention of Victoria W. Evans, Assistant Manager (Telecopy No. 617-772-1138), with a copy to Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109-2881, Attention of Raymond C. Zemlin, P.C. (Telecopy No. 617-523-1231); Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. SECTION 8.02 Waivers; Amendments. ------------------- (a) No failure or delay by the Lender in exercising any right or power hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Lender hereunder are cumulative and are not exclusive of any rights or remedies that they would otherwise have. No waiver of any provision of this Agreement or consent to any departure by any Borrower therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) of this Section, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. Without limiting the generality of the foregoing, the making of a Loan or issuance of a Letter of Credit shall not be construed as a waiver of any Default, regardless of whether the Lender may have had notice or knowledge of such Default at the time. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Lender and the Borrowers. SECTION 8.03. Expenses; Indemnity; Damage Waiver. ---------------------------------- (a) The Borrowers shall pay (i) all reasonable out-of-pocket expenses incurred by the Lender, including the reasonable fees, charges and disbursements of counsel for the Lender, in connection with the preparation and administration of this Agreement or any amendments, modifications or waivers of the provisions hereof (whether or not the transactions contemplated hereby or thereby shall be consummated), (ii) all reasonable out-of-pocket expenses incurred by the Lender in connection with the issuance, amendment, renewal or extension of any Letter of Credit or any demand for payment thereunder and (iii) all out-of-pocket expenses incurred by the Lender, including the fees, charges and disbursements of any counsel for the Lender, in connection with the enforcement or protection of its rights in connection with this Agreement, including its rights under this Section, or in connection with the Loans made or Letters of Credit issued hereunder, including all such out-of-pocket expenses incurred during any workout, restructuring or negotiations in respect of such Loans or Letters of Credit. 35 (b) The Borrowers shall indemnify the Lender, and each Related Party of the Lender (each such Person being called an "Indemnitee") against, and hold ---------- each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including the fees, charges and disbursements of any counsel for any Indemnitee, incurred by or asserted against any Indemnitee arising out of, in connection with, or as a result of (i) the execution or delivery of this Agreement or any agreement or instrument contemplated hereby, the performance by the parties hereto of their respective obligations hereunder or the consummation of the Transactions or any other transactions contemplated hereby, (ii) any Loan or Letter of Credit or the use of the proceeds therefrom (including any refusal by the Lender to honor a demand for payment under a Letter of Credit if the documents presented in connection with such demand do not strictly comply with the terms of such Letter of Credit), (iii) any actual or alleged presence or release of Hazardous Materials on or from any property owned or operated by any Borrower or Subsidiary, or any Environmental Liability related in any way to any Borrower or Subsidiary, or (iv) any actual or prospective claim, litigation, investigation or proceeding relating to any of the foregoing, whether based on contract, tort or any other theory and regardless of whether any Indemnitee is a party thereto; provided that such -------- indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a court of competent jurisdiction by final and nonappealable judgment to have resulted from the gross negligence or wilful misconduct of such Indemnitee. (c) To the extent permitted by applicable law, no Borrower shall assert, and each Borrower hereby waives, any claim against any Indemnitee, on any theory of liability, for special, indirect, consequential or punitive damages (as opposed to direct or actual damages) arising out of, in connection with, or as a result of, this Agreement or any agreement or instrument contemplated hereby, the Transactions, any Loan or Letter of Credit or the use of the proceeds thereof. (d) All amounts due under this Section shall be payable not later than five Business Days after written demand therefor. SECTION 8.04. Successors and Assigns. The provisions of this Agreement ---------------------- shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns permitted hereby, except that no Borrower may assign or otherwise transfer any of its rights or obligations hereunder without the prior written consent of the Lender (and any attempted assignment or transfer by the Borrower without such consent shall be null and void). Nothing in this Agreement, expressed or implied, shall be construed to confer upon any Person (other than the parties hereto, their respective successors and assigns permitted hereby and, to the extent expressly contemplated hereby, the Related Parties of the Lender) any legal or equitable right, remedy or claim under or by reason of this Agreement. SECTION 8.05. Survival; Nature of Obligations. All covenants, agreements, ------------------------------- representations and warranties made by any Borrower herein and in the certificates or other instruments delivered in connection with or pursuant to this Agreement shall be joint and several obligations of all of the Borrowers, and shall be considered to have been relied upon by the other parties hereto and shall survive the execution and delivery of this Agreement and the making of any Loans and issuance of any Letters of Credit, regardless 36 of any investigation made by any such other party or on its behalf and notwithstanding that the Lender may have had notice or knowledge of any Default or incorrect representation or warranty at the time any credit is extended hereunder, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any fee or any other amount payable under this Agreement is outstanding and unpaid or any Letter of Credit is outstanding and so long as the Commitment has not expired or terminated. The provisions of Sections 2.11, 2.12 and 8.03 shall survive and remain in full force and effect regardless of the consummation of the transactions contemplated hereby, the repayment of the Loans, the expiration or termination of the Letters of Credit and the Commitment or the termination of this Agreement or any provision hereof. SECTION 8.06. Counterparts; Integration; Effectiveness. This Agreement ---------------------------------------- may be executed in counterparts (and by different parties hereto on different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract. This Agreement, the other documents contemplated hereby and any separate letter agreements with respect to fees payable to the Lender constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof. Except as provided in Section 4.01, this Agreement shall become effective when it shall have been executed by the Lender and when the Lender shall have received counterparts hereof which, when taken together, bear the signatures of each of the other parties hereto, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. Delivery of an executed counterpart of a signature page of this Agreement by telecopy shall be effective as delivery of a manually executed counterpart of this Agreement. SECTION 8.07. Severability. Any provision of this Agreement held to be ------------ invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction. SECTION 8.08. Right of Setoff. If an Event of Default shall have occurred --------------- and be continuing, the Lender and each of its Affiliates is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other obligations at any time owing by the Lender or such Affiliate to or for the credit or the account of any Borrower against any of and all the obligations of the Borrowers now or hereafter existing under this Agreement, irrespective of whether or not the Lender shall have made any demand under this Agreement and although such obligations may be unmatured. The rights of the Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which it may have. 37 SECTION 8.09. Governing Law; Jurisdiction; Consent to Service of Process. ---------------------------------------------------------- (a) This Agreement shall be construed in accordance with and governed by the law of the Commonwealth of Massachusetts. (b) Each of the Borrowers hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Superior Court of the Commonwealth of Massachusetts sitting in Suffolk County and of the United States District Court for the District of Massachusetts, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Commonwealth of Massachusetts or, to the extent permitted by law, such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Agreement shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Agreement against any Borrower or its properties in the courts of any jurisdiction. (c) Each of the Borrowers hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 8.01. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. SECTION 8.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO -------------------- THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 38 SECTION 8.11. Headings. Article and Section headings and the Table of -------- Contents used herein are for convenience of reference only, are not part of this Agreement and shall not affect the construction of, or be taken into consideration in interpreting, this Agreement. SECTION 8.12. Confidentiality. The Lender agrees to maintain the --------------- confidentiality of the Information (as defined below), except that Information may be disclosed (a) to its and its Affiliates' directors, officers, employees and agents, including accountants, legal counsel and other advisors (it being understood that the Persons to whom such disclosure is made will be informed of the confidential nature of such Information and instructed to keep such Information confidential), (b) to the extent requested by any regulatory authority, (c) to the extent required by applicable laws or regulations or by any subpoena or similar legal process, (d) to any other party to this Agreement, (e) in connection with the exercise of any remedies hereunder or any suit, action or proceeding relating to this Agreement or the enforcement of rights hereunder, (f) subject to an agreement containing provisions substantially the same as those of this Section, to any assignee of or participant in, or any prospective assignee of or participant in, any of its rights or obligations under this Agreement, (g) with the consent of the Borrowers or (h) to the extent such Information (i) becomes publicly available other than as a result of a breach of this Section or (ii) becomes available to the Lender on a nonconfidential basis from a source other than any Borrower. For the purposes of this Section, "Information" means all information received from the Borrowers or ----------- any Subsidiary relating to the Borrowers and the Subsidiaries or their businesses, other than any such information that is available to the Lender on a nonconfidential basis prior to disclosure by the Borrowers or such Subsidiary; provided that, in the case of information received from the Borrowers or any - -------- Subsidiary after the date hereof, such information is clearly identified at the time of delivery as confidential. Any Person required to maintain the confidentiality of Information as provided in this Section shall be considered to have complied with its obligation to do so if such Person has exercised the same degree of care to maintain the confidentiality of such Information as such Person would accord to its own confidential information. [Remainder of Page Intentionally Left Blank] 39 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. NMT MEDICAL, INC. By: /s/ Thomas M. Tully --------------------------- Name: Thomas M. Tully Title: President NMT HEART, INC. By: /s/ Thomas M. Tully --------------------------- Name: Thomas M. Tully Title: President NMT INVESTMENTS CORP. By: /s/ Thomas M. Tully --------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (INTERNATIONAL), INC. By: /s/ Thomas M. Tully --------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (US), INC. By: /s/ Thomas M. Tully --------------------------- Name: Thomas M. Tully Title: President 40 NMT NEUROSCIENCES (IP), INC. By: /s/ Thomas M. Tully --------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES INNOVASIVE SYSTEMS, INC. By: /s/ Thomas M. Tully --------------------------- Name: Thomas M. Tully Title: President BROWN BROTHERS HARRIMAN & CO. By: /s/ A. Heaton Robertson ------------------------------- Name: A. Heaton Robertson Title: Partner 41 EX-10.2 3 PROMISSORY NOTE EXHIBIT 10.2 PROMISSORY NOTE Boston, Massachusetts $5,000,000 September 13, 1999 FOR VALUE RECEIVED, the undersigned (each a "Borrower" and collectively, -------- the "Borrowers") hereby jointly and severally promise to pay to the order of --------- Brown Brothers Harriman & Co. or its assigns (the "Lender"), in lawful money of ------ the United States of America in immediately available funds, at the office of the Lender located at 40 Water Street, Boston, MA 02109-3661 on the Maturity Date (as defined in the Agreement) the principal sum of FIVE MILLION DOLLARS ($5,000,000) or, if less, the then aggregate unpaid principal amount of all Loans (as defined in the Agreement) outstanding under the Agreement. The Borrowers also hereby jointly and severally promise to pay interest on the unpaid principal amount hereof in like money at said office from the date hereof until paid at the rates and at the times provided in the Agreement. This Note is subject to the terms of that certain Credit Agreement, dated as of the date hereof, among the Borrowers and the Lender (as amended, modified or supplemented from time to time, the "Agreement") and is entitled to the --------- benefits thereof. This Note is secured by the security documents described in the Agreement. As provided in the Agreement, this Note is subject to prepayment prior to the Maturity Date. In case an Event of Default (as defined in the Agreement) shall occur and be continuing, the principal of and accrued interest on this Note may become or be declared to be due and payable in the manner and with the effect provided in the Agreement. The Borrowers hereby waive presentment, demand, protest or notice of any kind in connection with this Note. THIS NOTE SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS. NMT MEDICAL, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT HEART, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT INVESTMENTS CORP. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (INTERNATIONAL), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (US), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (IP), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President 2 NMT NEUROSCIENCES INNOVASIVE SYSTEMS, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President 3 EX-10.3 4 GUARANTEE EXHIBIT 10.3 GUARANTEE --------- GUARANTEE dated as of September 13, 1999 made by the guarantors which are signatories hereto (collectively, the "Guarantors" and individually, each a ---------- "Guarantor"), in favor of BROWN BROTHERS HARRIMAN & CO. (the "Lender"). - ---------- ------ Reference is made to that certain Credit Agreement, dated as of the date hereof (as amended, supplemented, extended or otherwise modified from time to time, the "French Credit Agreement"), among NMT NeuroSciences Implants (France) SA, a ----------------------- French limited liability company, and NMT NeuroSciences Instruments (France) SARL, a French limited liability company (collectively, the "French ------ Subsidiaries"), and the Lender. - ------------ WHEREAS, the French Subsidiaries have entered into the French Credit Agreement to arrange for loans in the aggregate principal amount of 4,847,309.74 Euros (the "Loans"), the proceeds of which will be used to enable the repayment ----- of certain intercompany debt to one or more of the Guarantors; WHEREAS, pursuant to the French Credit Agreement, the Lender has agreed to make the Loans to the French Subsidiaries upon the terms and subject to the conditions set forth therein; WHEREAS, the Guarantors are direct or indirect parents or sister subsidiaries of the French Subsidiaries; WHEREAS, the operations of the French Subsidiaries and the Guarantors are conducted on a combined basis with significant shared management, purchasing, planning, financial controls and other functions, and the French Credit Agreement will directly or indirectly benefit the Guarantors' various businesses; and WHEREAS, it is a condition precedent to the obligations of the Lender to make the Loans to the French Subsidiaries under the French Credit Agreement that the Guarantors shall have executed and delivered this Guarantee to the Lender. NOW, THEREFORE, in consideration of the premises and to induce the Lender to enter into the French Credit Agreement and to make the Loans to the French Subsidiaries under the French Credit Agreement, each Guarantor hereby agrees with the Lender as follows: 1. Defined Terms. Capitalized terms not otherwise defined herein shall ------------- have the meanings set forth in the French Credit Agreement. 2. Guarantee. --------- (a) Each Guarantor hereby jointly and severally, unconditionally and irrevocably, guarantees to the Lender and its respective successors, endorsees, transferees and assigns, the prompt and complete payment and performance by the French Subsidiaries when due (whether at the stated maturity, by acceleration or otherwise) of the unpaid principal of and interest on the Loans and all other obligations and liabilities of the French Subsidiaries to the Lender (including interest accruing at the then applicable rate provided in the French Credit Agreement after the stated maturity, by acceleration or otherwise), whether direct or indirect, absolute or contingent, due or to become due, now existing or hereafter incurred, which may arise under, out of, or in connection with, the French Credit Agreement or any other document made, delivered or given in connection therewith, whether on account of principal, interest, fees, indemnities, costs, expenses or otherwise (including all reasonable fees and disbursements of counsel to the Lender that are required to be paid by the French Subsidiaries pursuant to the terms of the French Credit Agreement) (each and all of the above obligations, collectively, the "Guaranteed ---------- Obligations"). - ----------- (b) Each Guarantor further agrees to pay any and all expenses (including all reasonable fees and disbursements of counsel) which may be paid or incurred by the Lender in enforcing any rights with respect to, or collecting against, any Guarantor under this Guarantee. This Guarantee shall remain in full force and effect until the Guaranteed Obligations and all amounts owing hereunder are paid in full and any obligations to provide financial accommodations to the French Subsidiaries under the French Credit Agreement are terminated. (c) No payment or payments made by any French Subsidiary, any Guarantor or any other Person or received or collected by the Lender from any French Subsidiary, any Guarantor or any other Person by virtue of any action or proceeding or any set-off or appropriation or application at any time or from time to time in reduction of or in payment of any Guaranteed Obligations shall be deemed to modify, reduce, release or otherwise affect the liability of any Guarantor hereunder which shall, notwithstanding any such payment or payments, remain liable for the Guaranteed Obligations until the Guaranteed Obligations and all amounts owing hereunder are paid in full and any obligations to provide financial accommodations to the French Subsidiaries under the French Credit Agreement are terminated. 3. Right of Set-off. In addition to any rights now or hereafter granted ---------------- under applicable law or otherwise, and not by way of limitation of any such rights, upon the occurrence and during the continuance of an Event of Default, the Lender is hereby authorized at any time or from time to time, without presentment, demand, protest or other notice of any kind to the French Subsidiaries, any Guarantor or to any other Person, any such notice being hereby expressly waived, to set off and to appropriate and apply any and all deposits (general or special, but excluding any deposits in payroll or escrow accounts) and any other Indebtedness at any time held or owing by the Lender (including, without limitation, by branches and agencies of the Lender wherever located) to or for the credit or the account of any Guarantor against and on account of the obligations and liabilities of any Guarantor hereunder, and all other claims of any nature or description arising out of or connected with this Guarantee, irrespective of whether the Lender shall have made any demand hereunder and although said obligations, liabilities or claims, or any of them, shall be contingent or unmatured. 4. No Subrogation. Notwithstanding any payment or payments made by any -------------- Guarantor hereunder or any set-off or application of funds of any Guarantor by the Lender, no Guarantor shall be 2 entitled to exercise or enforce any subrogation rights of the Lender against the French Subsidiaries or any other Person or any guarantee or right of offset held by the Lender for the payment of the Guaranteed Obligations, nor shall any Guarantor seek or be entitled to seek any contribution or reimbursement from the French Subsidiaries or any other Person in respect of payments made by any Guarantor hereunder, until all amounts owing to the Lender by the French Subsidiaries on account of the Guaranteed Obligations and all amounts owing hereunder are paid in full and any obligations to provide financial accommodations to the French Subsidiaries under the French Credit Agreement are terminated. If any amount shall be paid to any Guarantor on account of such subrogation rights at any time when all of the Guaranteed Obligations and all amounts owing hereunder shall not have been paid in full or any obligations to provide financial accommodations to the French Subsidiaries under the French Credit Agreement shall not have been terminated, such amount shall be held by such Guarantor in trust for the Lender, segregated from other funds of such Guarantor, and shall, forthwith upon receipt by such Guarantor, be turned over to the Lender in the exact form received by such Guarantor (duly indorsed by such Guarantor to the Lender, if required), to be applied against such Guaranteed Obligations, whether matured or unmatured, in such order as the Lender may determine. 5. Amendments, etc. with respect to the Guaranteed Obligations; Waiver of ---------------------------------------------------------------------- Rights. Each Guarantor shall remain obligated hereunder notwithstanding that, - ------ without any reservation of rights against such Guarantor and without notice to or further assent by such Guarantor, any demand for payment of any of the Guaranteed Obligations made by the Lender may be rescinded by such party and any of the Guaranteed Obligations continued, and the Guaranteed Obligations, or the liability of any other party upon or for any part thereof, or any guarantee therefor or right of offset with respect thereto, may, from time to time, in whole or in part, be renewed, extended, amended, modified, accelerated, compromised, waived, surrendered or released by the Lender, and the French Credit Agreement may be amended, modified, supplemented or terminated, in whole or in part, as the Lender may deem advisable from time to time, and any guarantee or right of offset at any time held by the Lender for the payment of the Guaranteed Obligations may be waived. When making any demand hereunder against any Guarantor, the Lender may, but shall be under no obligation to, make a similar demand on the French Subsidiaries or any other Guarantor, and any failure by the Lender to make any such demand or to collect any payments from the French Subsidiaries or any other Guarantor or any release of the French Subsidiaries or such other Guarantor shall not relieve any Guarantor, and shall not impair or affect the rights and remedies, express or implied, or as a matter of law, of the Lender against any Guarantor. For the purposes hereof "demand" shall include the commencement and continuance of any legal proceedings. 6. Guarantee Absolute and Unconditional. Each Guarantor waives any and ------------------------------------ all notice of the creation, renewal, extension or accrual of any of the Guaranteed Obligations and notice of or proof of reliance by the Lender upon this Guarantee or acceptance of this Guarantee; the Guaranteed Obligations, and any of them, shall conclusively be deemed to have been created, contracted or incurred, or renewed, extended, amended or waived, in reliance upon this Guarantee; and all dealings between the French Subsidiaries and each Guarantor, on the one hand, and the Lender, on the other hand, likewise shall be conclusively presumed to have been had or consummated in reliance upon this Guarantee. Each Guarantor waives diligence, presentment, protest, demand for payment and notice of 3 default or nonpayment to or upon the French Subsidiaries or such Guarantor with respect to the Guaranteed Obligations. Each Guarantor understands and agrees that this Guarantee shall be construed as a continuing, absolute and unconditional guarantee and surety of payment without regard to (a) the validity, regularity or enforceability of the French Credit Agreement, any of the Guaranteed Obligations or any other guarantee or right of offset with respect thereto at any time or from time to time held by the Lender, (b) any defense, set-off or counterclaim (other than a defense of payment or performance) which may at any time be available to or be asserted by the French Subsidiaries or any Guarantor against the Lender, or (c) any other circumstance whatsoever (with or without notice to or knowledge of the French Subsidiaries or any Guarantor) which constitutes, or might be construed to constitute, an equitable or legal discharge of any French Subsidiary for the Guaranteed Obligations, or of any Guarantor under this Guarantee, in bankruptcy or in any other instance. When pursuing its rights and remedies hereunder against any Guarantor, the Lender may, but shall be under no obligation to, pursue such rights and remedies as it may have against the French Subsidiaries or any other Person or against any guarantee for the Guaranteed Obligations or any right of offset with respect thereto, and any failure by the Lender to pursue such other rights or remedies or to collect any payments from the French Subsidiaries or any such other Person or to realize upon any guarantee or to exercise any such right of offset, or any release of the French Subsidiaries or any such other Person or any such guarantee or right of offset, shall not relieve any Guarantor of any liability hereunder, and shall not impair or affect the rights and remedies, whether express, implied or available as a matter of law, of the Lender against any Guarantor. This Guarantee shall remain in full force and effect and be binding in accordance with and to the extent of its terms upon each Guarantor and the successors and assigns thereof, and shall inure to the benefit of the Lender, and its respective successors, endorsees, transferees and assigns, until all the Guaranteed Obligations and the obligations of each Guarantor under this Guarantee shall have been satisfied by payment in full and any obligations to provide financial accommodations to the French Subsidiaries under the French Credit Agreement shall have been terminated. 7. Reinstatement. This Guarantee shall continue to be effective, or be ------------- reinstated, as the case may be, if at any time payment, or any part thereof, of any of the Guaranteed Obligations is rescinded or must otherwise be restored or returned by the Lender upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of any French Subsidiary or Guarantor, or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, any French Subsidiary or Guarantor or any substantial part of its property, or otherwise, all as though such payments had not been made. 8. Payments. Each Guarantor hereby guarantees that payments made by such -------- Guarantor of principal of and interest on the Loans pursuant to the terms hereof (such payments to be made in Euros) and any other payments hereunder (such payments to be made in U.S. dollars) will be made to the Lender without set-off or counterclaim at the office of the Lender located at 40 Water Street, Boston, MA 02109-3661. 9. Representations and Warranties. In order to induce the Lender to ------------------------------ enter into the French Credit Agreement and to make the Loans to the French Subsidiaries thereunder, each Guarantor hereby represents and warrants to the Lender that the respective representations and warranties of such 4 Guarantor set forth in Article III of that certain Credit Agreement, dated as of the date hereof, by and among the Guarantors and the Lender (the "U.S. Credit ----------- Agreement") (each Guarantor in such capacity, a "Borrower") are true and - --------- correct. 10. Compliance with U.S. Credit Agreement. ------------------------------------- (a) In order to induce the Lender to enter into the French Credit Agreement and to make the Loans to the French Subsidiaries thereunder, until all amounts owing to the Lender by the French Subsidiaries on account of the Guaranteed Obligations and all amounts owing hereunder are paid in full and any obligations to provide financial accommodations to the French Subsidiaries under the French Credit Agreement are terminated, each Guarantor covenants and agrees with the Lender to, at all times, observe and perform, or cause to be observed and performed, all of the covenants, conditions and obligations required to be observed and performed, or caused to be observed and performed, by such Guarantor under the U.S. Credit Agreement, including, without limitation, the affirmative and negative covenants set forth in Articles V and VI thereof. (b) At any time upon the request of the Lender, to the extent permitted by applicable law, the Guarantors will, within a reasonable period after such request, cause any Subsidiary (as defined in the U.S. Credit Agreement) that is not a Domestic Subsidiary (as defined in the U.S. Credit Agreement) to become a party hereto or otherwise guarantee the Guaranteed Obligations, in form and substance satisfactory to the Lender; provided that -------- such guarantee shall be limited in amount and otherwise in a form which does not create any adverse U.S. tax consequences to the Guarantors in the reasonable judgment of the Guarantors' tax advisors. 11. Notice. All notices and other communications provided for herein ------ shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to any Guarantor, to it at 27 Wormwood Street, Boston, Massachusetts 02210-1625, Attention of Chief Financial Officer (Telecopy No. 617-737-0924), with a copy to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention of Steven D. Singer, Esq. (Telecopy No. 617-526- 5000); and (b) if to the Lender, to Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109-3661, Attention of Victoria W. Evans, Assistant Manager (Telecopy No. 617-772-1138), with a copy to Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109-2881, Attention of Raymond C. Zemlin, P.C. (Telecopy No. 617-523-1231); Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Guarantee shall be deemed to have been given on the date of receipt. 5 12. Severability. Any provision of this Guarantee which is prohibited or ------------ unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. 13. Integration. This Guarantee and the documents referred to herein ----------- represent the entire agreement of the Guarantors with respect to the subject matter hereof and there are no promises or representations by the Lender relative to the subject matter hereof not reflected herein or therein. 14. Amendments in Writing; No Waiver; Cumulative Remedies. ----------------------------------------------------- (a) None of the terms or provisions of this Guarantee may be waived, amended, supplemented or otherwise modified except as provided in Section 7.02 of the French Credit Agreement. (b) The Lender shall not by any act (except by a written instrument pursuant to Section 14(a) hereof), delay, indulgence, omission or otherwise be deemed to have waived any right or remedy hereunder or to have acquiesced in any Default or Event of Default or in any breach of any of the terms and conditions hereof. No failure to exercise, nor any delay in exercising, on the part of the Lender any right, power or privilege hereunder shall operate as a waiver thereof. No single or partial exercise of any right, power or privilege hereunder shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. A waiver by the Lender of any right or remedy hereunder on any one occasion shall not be construed as a bar to any right or remedy which the Lender would otherwise have on any future occasion. (c) The rights and remedies herein provided are cumulative, may be exercised singly or concurrently and are not exclusive of any other rights or remedies provided by law. 15. Section Headings. The section headings used in this Guarantee are for ---------------- convenience of reference only and are not to affect the construction hereof or be taken into consideration in the interpretation hereof. 16. Successors and Assigns. This Guarantee shall be binding upon the ---------------------- successors and assigns of each Guarantor and shall inure to the benefit of the Lender and its successors and assigns. 17. Governing Law; Jurisdiction; Consent to Service of Process. ---------------------------------------------------------- (a) This Guarantee shall be construed in accordance with and governed by the law of the Commonwealth of Massachusetts. (b) Each of the Guarantors hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of the Superior Court of the Commonwealth of 6 Massachusetts sitting in Suffolk County and of the United States District Court for the District of Massachusetts, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Guarantee, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such Commonwealth of Massachusetts or, to the extent permitted by law, such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Nothing in this Guarantee shall affect any right that the Lender may otherwise have to bring any action or proceeding relating to this Guarantee against any Guarantor or its properties in the courts of any jurisdiction. (c) Each Guarantor hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or hereafter have to the laying of venue of any suit, action or proceeding arising out of or relating to this Guarantee in any court referred to in paragraph (b) of this Section. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. (d) Each Guarantor hereby agrees that service of all writs, complaints, process and summonses in any suit, action or proceeding arising out of or relating to this Guarantee, or for recognition or enforcement of any judgment, may be made upon NMT Medical, Inc., a Delaware corporation (the "Process Agent"), with an office on the date hereof at 27 Wormwood Street, - -------------- Boston, Massachusetts 02210-1625. Each Guarantor hereby irrevocably appoints the Process Agent its true and lawful attorney-in-fact in its name, place and stead to accept such service of any and all such writs, complaints, process and summonses. Each Guarantor agrees that any election by the Lender to give notice of any such service to such Guarantor shall not impair or affect the validity of such service or of the judgment based thereon. (e) Each party to this Guarantee irrevocably consents to service of process in the manner provided for notices in Section 11. Nothing in this Guarantee will affect the right of any party to this Guarantee to serve process in any other manner permitted by law. 18. WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE -------------------- FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY LEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS GUARANTEE OR THE TRANSACTIONS CONTEMPLATED HEREBY (WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND THE OTHER PARTIES HERETO HAVE BEEN INDUCED 7 TO ENTER INTO THIS GUARANTEE BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS SECTION. 19. No Offset. All payments by the Guarantors hereunder shall be made --------- without setoff or counterclaim and free and clear of and without deduction for any foreign or domestic taxes, levies, imposts, duties, charges, fees, deductions, withholdings, compulsory loans, restriction or conditions of any nature now or hereafter imposed or levied by any jurisdiction or any political subdivision thereof or taxing or other authority therein unless any Guarantor is required by law to make such deduction or withholding. Except as otherwise expressly provided in this Section 19, if any such obligation is imposed upon any Guarantor with respect to any amount payable hereunder, such Guarantor will pay to the Lender, on the date on which such amount is due and payable hereunder, such additional amount as shall be necessary to enable the Lender to receive the same net amount which it would have received on such due date had no such obligation been imposed upon such Guarantor. The Guarantors will deliver promptly to the Lender, certificates or other valid vouchers for all taxes or other charges deducted from or paid with respect to payments made by the Guarantors hereunder. 20. Senior Status of Obligations. All rights of the Lender with respect ---------------------------- to the payment and performance of all Guaranteed Obligations by the Guarantors hereunder of every kind and description, whether now existing or hereafter arising, shall be senior to all rights of the holders of the Whitney Notes, and such rights of the Lender shall not be subordinated in right of payment to any other Indebtedness of any Guarantor. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 8 IN WITNESS WHEREOF, each of the undersigned has caused this Guarantee to be duly executed and delivered by its duly authorized officer as of the day and year first above written. NMT MEDICAL, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT HEART, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT INVESTMENTS CORP. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (INTERNATIONAL), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (US), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President 9 NMT NEUROSCIENCES (IP), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES INNOVASIVE SYSTEMS, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President 10 EX-10.4 5 SECURITY AGREEMENT EXHIBIT 10.4 SECURITY AGREEMENT ------------------ SECURITY AGREEMENT dated as of September 13, 1999 between NMT MEDICAL, INC. and the other entities listed on Schedule I hereto (each a "Debtor" and ---------- ------ collectively, the "Debtors") and BROWN BROTHERS HARRIMAN & CO. (the "Lender"). ------- ------ WHEREAS, the Debtors have entered into that certain Credit Agreement, dated as of the date hereof, among the Debtors and the Lender (as amended, supplemented, extended or otherwise modified from time to time, the "U.S. Credit ----------- Agreement"), pursuant to which the Debtors have arranged for a $5,000,000 credit - --------- facility, the proceeds of which will be used to prepay a portion of the Whitney Notes and for general corporate purposes; WHEREAS, pursuant to the U.S. Credit Agreement, the Lender has agreed to make loans to the Debtors upon the terms and subject to the conditions set forth therein; WHEREAS, the Debtors are parties to that certain Guarantee, dated as of the date hereof, in favor of the Lender (as amended, supplemented, extended or otherwise modified from time to time, the "Guarantee"), pursuant to which the --------- Debtors have guaranteed the payment and performance by NMT NeuroSciences Implants (France) SA, a French limited liability company, and NMT NeuroSciences Instruments (France) SARL, a French limited liability company (collectively, the "French Subsidiaries"), of their obligations and liabilities under that certain ------------------- Credit Agreement, dated as of the date hereof, by and among the French Subsidiaries and the Lender (together with the U.S. Credit Agreement, the "Credit Agreements"); - ------------------ WHEREAS, the operations of the Debtors and the French Subsidiaries are conducted on a combined basis with significant shared management, purchasing, planning, financial controls and other functions, and the Credit Agreements will directly or indirectly benefit the Debtors' various businesses; and WHEREAS, it is a condition precedent to the obligations of the Lender to make loans to the Debtors and the French Subsidiaries under the respective Credit Agreements that the Debtors shall have executed and delivered this Agreement to the Lender, as security for the payment and performance of all obligations of the Debtors to the Lender. NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 GRANT OF SECURITY Section 1.1 Grant of Security. The Debtors, jointly and severally, ----------------- hereby grant to the Lender a continuing first priority security interest (the "Security Interest") in and to, and pledge and ----------------- assign to the Lender, all of the Debtors' right, title and interest in and to all tangible and intangible personal property of the Debtors, all wherever located and whether now existing or hereafter acquired or arising (all of which, together with any other property in which the Lender may in the future be granted a security interest pursuant hereto, is referred to hereinafter as the "Personal Property Collateral"), including, without limitation, the following: ---------------------------- (a) all Accounts and all Receivables; (b) all Inventory; (c) all General Intangibles; (d) all Equipment; (e) all Fixtures; (f) all Goods; (g) all Tangible Personal Property; (h) all Chattel Paper; (i) all books, records, ledgers, print-outs, papers, data, file materials and information relating to the Debtors' businesses, the Personal Property Collateral, any account debtors in respect thereof and/or to the operation of the Debtors' businesses, and all rights of access to such books, records, ledgers, print-outs, papers, data, file materials and information, and all property in which such books, records, ledgers, print-outs, papers, data, file materials and information are stored, recorded and maintained; (j) all Instruments, Documents of Title, Documents, policies and certificates of insurance, Securities, investment property, deposits, deposit accounts, money, cash or other property; (k) all federal, state, and local tax refunds and/or abatements to which the Debtors are or become entitled, no matter how or when arising, including, but not limited to, any loss carryback tax refunds; (l) all Trade Secrets, Proprietary Information, computer programs, customer lists, patient lists, manuals, Patents, developmental ideas and concepts, and all papers, drawings, blueprints, sketches and documents relating to all of the foregoing and/or relating to the operation of the Debtors' businesses and/or the Personal Property Collateral; (m) all insurance proceeds, refunds and premium rebates, whether any of such proceeds, refunds and premium rebates arise out of any of the foregoing or otherwise; (n) all Contracts, contract rights, leases and security agreements; and (o) all products and proceeds of any and all of the foregoing; together with (i) all security pledged, assigned, hypothecated or granted to or held by the Debtors to secure any of the foregoing, (ii) all General Intangibles arising out of the Debtors' rights in any Goods, the sale of which gave rise thereto, (iii) any property received in payment, settlement or compromise of any Account or Receivable, (iv) all guarantees, endorsements and indemnifications on, or of, any of the foregoing, (v) all rights, remedies and privileges pertaining to any of the foregoing, (vi) all powers of attorney for the execution of any evidence of indebtedness or security or other writing in connection therewith, (vii) all evidences of the filing of financing statements and other statements and the registration of other instruments in connection therewith and amendments thereto, and (viii) all of the Debtors' rights to use, in perpetuity, in connection with the operation of the Debtors' businesses, the Marks and trade names now or hereafter used in connection with the operation of any of the businesses of the Debtors, and the goodwill of the Debtors with respect thereto. Section 1.2 Security for Obligations. This Agreement and the Security ------------------------ Interest shall secure the payment and performance of all of the Secured Obligations. ARTICLE 2 GENERAL REPRESENTATIONS, WARRANTIES AND COVENANTS Each Debtor represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows: 2 Section 2.1 Necessary Filings. All filings, registrations, recordings ----------------- and possession of the Personal Property Collateral necessary or appropriate to create, preserve and perfect the Security Interest have been or will be accomplished and the Security Interest constitutes or will constitute, upon satisfaction of such filings, registrations, recordings and possession, a perfected security interest therein (to the extent that the same can be perfected by filing, registration or recording and excepting therefore railroad cars, locomotives and other rolling stock, titled vehicles and aircraft) prior to the rights of all other Persons therein (other than any such rights pursuant to Permitted Encumbrances) and subject to no other Liens (other than Permitted Encumbrances) and is entitled to all the rights, priorities and benefits afforded to perfected security interests by the Uniform Commercial Code as enacted in any and all relevant jurisdictions or any other relevant law. Section 2.2 No Liens. Such Debtor is, and as to Personal Property -------- Collateral acquired by it from time to time after the date hereof such Debtor will be, the owner of all Personal Property Collateral pledged by it hereunder free from any Lien, security interest, encumbrance or other right, title or interest of any Person (other than Permitted Encumbrances), and such Debtor shall defend the Personal Property Collateral against all material claims and demands of all Persons at any time claiming the same or any interest therein (other than in connection with Permitted Encumbrances) adverse to the Lender. Section 2.3 Other Financing Statements. As of the date hereof, there is -------------------------- no financing statement (or similar voluntary statement or instrument of registration under the law of any jurisdiction) covering or purporting to cover any interest of any kind in the Personal Property Collateral (other than financing statements filed in respect of Permitted Encumbrances), and so long as any of the Secured Obligations or any commitments of the Lender to make any loans or advances or otherwise extend credit to any Debtor remain outstanding, such Debtor will not execute or authorize to be filed in any public office any financing statement (or similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Personal Property Collateral, except financing statements filed or to be filed in respect of and covering the security interests granted hereby by such Debtor or in connection with Permitted Encumbrances. Section 2.4 Chief Executive Office; Records. As of the date hereof, the ------------------------------- chief executive office of such Debtor is located at the address indicated on Exhibit A hereto for such Debtor. Such Debtor will not move its chief executive - --------- office except to such new location as such Debtor may establish in accordance with the last sentence of this Section 2.4. A complete set of books of account and records of such Debtor relating to the Receivables and the contract rights are, and will continue to be, kept at such chief executive office, at one or more of the other record locations set forth on Exhibit A hereto for such Debtor --------- or at such new locations as such Debtor may establish in accordance with the last sentence of this Section. No Debtor shall establish new locations for such offices until (a) it shall have given to the Lender not less than 30 days' prior written notice of its intention to do so, clearly describing such new location and providing such other information in connection therewith as the Lender may reasonably request, and (b) with respect to such new location, it shall have taken all action reasonably satisfactory to the Lender, to maintain the security interest of the Lender in the Personal Property Collateral intended to be granted hereby at all times fully perfected and in full force and effect. 3 Section 2.5 Location of Receivables. All Receivables and contract ----------------------- rights of such Debtor are, and will continue to be, maintained at, and controlled and directed (including, without limitation, for general accounting purposes) from, the office locations described above or such new location established in accordance with the last sentence of this Section 2.5. No Debtor shall establish new locations for such offices until (a) it shall have given to the Lender not less than 30 days' prior written notice of its intention to do so, clearly describing such new location and providing such other information in connection therewith as the Lender may reasonably request and (b) with respect to such new location, it shall have taken all action reasonably satisfactory to the Lender, to maintain the security interest of the Lender in the Personal Property Collateral intended to be granted hereby at all times fully perfected and in full force and effect. Section 2.6 Recourse. This Agreement is made with full recourse to each -------- Debtor and pursuant to and upon all the warranties, representations, covenants and agreements on the part of such Debtor contained herein, and otherwise in writing in connection herewith or therewith. Section 2.7 Trade Names; Change of Name. Except as set forth on Exhibit --------------------------- ------- B, as of the date hereof, no Debtor has or operates in any jurisdiction under, - - or in the preceding 12 months has had or has operated in any jurisdiction under, any trade names, fictitious names or other names except its legal name. No Debtor shall change its legal name or assume or operate in any jurisdiction under any trade, fictitious or other name, except new names established in accordance with the last sentence of this Section 2.7. No Debtor shall assume or operate in any jurisdiction under any new trade, fictitious or other name until (a) it shall have given to the Lender not less than 20 days' prior written notice of its intention so to do, clearly describing such new name and the jurisdictions in which such new name shall be used and providing such other information in connection therewith as the Lender may reasonably request and (b) with respect to such new name, it shall have taken all action reasonably requested by the Lender, to maintain the security interest of the Lender in the Personal Property Collateral intended to be granted hereby at all times fully perfected and in full force and effect. Section 2.8 Patents. The Debtors shall notify the Lender in writing as ------- promptly as practicable, but in no event more than five days following (i) the filing by any Debtor of any application for the registration of any Patent with the United States Patent and Trademark Office or any similar office or agency or (ii) the acquisition by any Debtor of any Patent in any other manner. Such Debtor shall execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Lender may request to evidence and perfect the Lender's security interest in such Patent and the General Intangibles of such Debtor related thereto or represented thereby. ARTICLE 3 SPECIAL PROVISIONS CONCERNING RECEIVABLES; CONTRACTS; INSTRUMENTS Section 3.1 Additional Representations and Warranties. As of the time ----------------------------------------- when each of its Receivables arises, each Debtor shall be deemed to have represented and warranted that such 4 Receivable and, to the best knowledge of such Debtor, all records, papers and documents of such Debtor relating thereto, are what they purport to be in all material respects, and that such Receivable will, to the best knowledge of such Debtor and to the extent applicable, evidence true and valid obligations of the account debtor named therein. Section 3.2 Maintenance of Records. Each Debtor will keep and maintain ---------------------- at its own cost and expense, records of its Receivables and Contracts and such Debtor will make the same available to the Lender for inspection, at such Debtor's own cost and expense, at any and all reasonable times upon reasonable prior notice to such Debtor. Upon the occurrence and during the continuance of an Event of Default, each Debtor shall, at the reasonable request of the Lender and at such Debtor's own cost and expense, deliver all tangible evidence of its Receivables and contract rights (including, without limitation, all documents evidencing the Receivables and all Contracts) and such books and records to the Lender or to its representatives (copies of which evidence and books and records may be retained by such Debtor). If the Lender so directs, upon the occurrence and during the continuance of an Event of Default, such Debtor shall legend, in form and manner satisfactory to the Lender, the Receivables and the Contracts, as well as books, records and documents of such Debtor evidencing or pertaining to such Receivables and Contracts with an appropriate reference to the fact that such Receivables and Contracts have been assigned to the Lender and that the Lender has a security interest therein. Section 3.3 Direction to Account Debtors; Contracting Parties; etc. ------------------------------------------------------- Upon the occurrence and during the continuance of an Event of Default, each Debtor agrees, if the Lender so directs such Debtor, (a) to cause all payments on account of the Receivables and Contracts to be made directly to the Cash Collateral Account, (b) that the Lender may, at its option, directly notify the obligors with respect to any Receivables and/or under any Contracts to make payments with respect thereto as provided in preceding clause (a), and (c) that the Lender may enforce collection of any such Receivables and Contracts and may adjust, settle or compromise the amount of payment thereof, in the same manner and to the same extent as such Debtor. Without notice to or assent by any Debtor, the Lender may apply any or all amounts then in, or thereafter deposited in, the Cash Collateral Account which application shall be effected in the manner provided in Section 5.4 of this Agreement. The reasonable costs and expenses (including reasonable attorneys' fees) of collection, whether incurred by the relevant Debtor or the Lender, shall be borne by the relevant Debtor. The Lender shall deliver a copy of each notice referred to in the preceding clause (b) to the relevant Debtor; provided that the failure by the Lender to so -------- notify such Debtor shall not affect the effectiveness of such notice or the other rights of the Lender created by this Section 3.3. Section 3.4 Modification of Terms; etc. No Debtor shall rescind or --------------------------- cancel any indebtedness evidenced by any Receivable or under any Contract, or modify any term thereof or make any adjustment with respect thereto, or extend or renew the same, or compromise or settle any material dispute, claim, suit or legal proceeding relating thereto, or sell any Receivable or Contract, or interest therein, without the prior written consent of the Lender, except as not prohibited by the U.S. Credit Agreement and in accordance with such Debtor's reasonable business practices in the ordinary course of business. 5 Section 3.5 Collection. Each Debtor shall endeavor in accordance with ---------- reasonable business practices to cause to be collected from the account debtor named in each of its Receivables or obligor under any Contract any and all amounts owing under or on account of such Receivable or Contract. The reasonable costs and expenses (including, without limitation, attorneys' fees) of collection, if incurred by a Debtor, or after an Event of Default, by the Lender, shall be borne by the relevant Debtor. Section 3.6 Acknowledgment. The Lender acknowledges that the Debtors -------------- may not be permitted to assign their rights and obligations under or grant a security interest in certain Contracts, including certain leases, pursuant to the terms thereof. With respect to such Contracts, nothing herein shall be construed as an assignment to the Lender of such rights and obligations or the grant of a security interest therein to the extent so prohibited. For purposes of clarification, to the extent permitted thereunder, the parties hereto acknowledge that the Debtors have granted a security interest in the Debtors' rights to receive payments under such Contracts and any other rights of the Debtors thereunder pursuant to the terms of this Agreement. ARTICLE 4 PROVISIONS CONCERNING ALL PERSONAL PROPERTY COLLATERAL Section 4.1 Protection of Lender's Security. Each Debtor will at all ------------------------------- times keep its Equipment insured in favor of the Lender, at such Debtor's own expense; all policies or certificates with respect to such insurance (and any other insurance maintained by such Debtor) (a) shall be endorsed to the Lender's reasonable satisfaction for the benefit of the Lender (including, without limitation, by naming the Lender as additional insured and loss payee) and (b) shall state that such insurance policies shall not be canceled without 30 days' prior written notice thereof by the insurer to the Lender; and upon the Lender's request, certified copies of such policies or certificates with respect thereto shall be deposited with the Lender. If any Debtor shall fail to insure its Equipment in accordance with the preceding sentence, or if any Debtor shall fail to so endorse and deposit all policies or certificates with respect thereto, the Lender shall have the right (but shall be under no obligation), upon prior written notice to such Debtor, to procure such insurance and such Debtor agrees to promptly reimburse the Lender for all costs and expenses of procuring such insurance. The Lender shall, at the time any proceeds of such insurance are distributed to the Lender, apply such proceeds in accordance with Section 5.4 hereof except as otherwise provided by the applicable Credit Agreement. The liability of each Debtor to pay the Secured Obligations shall in no way be affected or diminished by reason of the fact that any Personal Property Collateral may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to such Debtor. Section 4.2 Further Actions. Each Debtor will, at its own expense, --------------- make, execute, endorse, acknowledge, file and/or deliver to the Lender from time to time such lists, descriptions and designations of its Personal Property Collateral, warehouse receipts, receipts in the nature of warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, 6 reports and other assurances or instruments and take such further steps relating to the Personal Property Collateral and other property or rights covered by the security interest hereby granted, which the Lender deems reasonably appropriate or advisable to perfect, preserve or protect its security interest in the Personal Property Collateral; provided that no Debtor shall be required to take -------- any action that would expand the obligations or limit the rights of any Debtor under this Agreement. Section 4.3 Financing Statements. Each Debtor agrees to execute and -------------------- deliver to the Lender such financing statements, in form reasonably acceptable to the Lender, as the Lender may from time to time reasonably request or as are necessary or desirable in the reasonable opinion of the Lender to establish and maintain a valid, enforceable, first priority perfected security interest in the Personal Property Collateral as provided herein and the other rights and security contemplated hereby all in accordance with the Uniform Commercial Code as enacted in any and all relevant jurisdictions or any other relevant law. Each Debtor will pay any applicable filing fees, recordation taxes and related expenses relating to its Personal Property Collateral. Each Debtor hereby authorizes the Lender to file any such financing statements without the signature of such Debtor where permitted by law. ARTICLE 5 REMEDIES UPON OCCURRENCE OF EVENT OF DEFAULT Section 5.1 Remedies; Obtaining the Personal Property Collateral Upon --------------------------------------------------------- Default. Each Debtor agrees that, if an Event of Default shall have occurred - ------- and be continuing, then and in every such case, the Lender, in addition to any rights now or hereafter existing under applicable law, shall have all rights as a secured creditor under the Uniform Commercial Code in all relevant jurisdictions and may: (a) personally, or by agents or attorneys, immediately take possession of the Personal Property Collateral or any part thereof, from such Debtor or any other Person who then has possession of any part thereof with or without notice or process of law, and for that purpose may enter upon such Debtor's premises where any of the Personal Property Collateral is located and remove the same and use in connection with such removal any and all services, supplies, aids and other facilities of such Debtor; (b) instruct the obligor or obligors on any agreement, instrument or other obligation (including, without limitation, the Receivables and the Contracts) constituting the Personal Property Collateral to make any payment required by the terms of such agreement, instrument or other obligation directly to the Lender; (c) withdraw all monies, securities and instruments in any cash collateral or other account in which the Lender holds a security interest for application to the Secured Obligations in accordance with Section 5.4 hereof; (d) sell, assign or otherwise liquidate any or all of the Personal Property Collateral or any part thereof in accordance with Section 5.2 hereof, or direct the relevant Debtor to sell, 7 assign or otherwise liquidate any or all of the Personal Property Collateral or any part thereof, and, in each case, take possession of the proceeds of any such sale or liquidation; (e) take possession of the Personal Property Collateral or any part thereof, by directing the relevant Debtor in writing to deliver the same to the Lender at any commercially reasonable place or places designated by the Lender, in which event such Debtor shall at its own expense: (i) forthwith cause the same to be moved to the place or places so designated by the Lender and there delivered to the Lender; (ii) store and keep any Personal Property Collateral so delivered to the Lender at such commercially reasonable place or places pending further action by the Lender as provided in Section 5.2 hereof; and (iii) while the Personal Property Collateral shall be so stored and kept, provide such guards and maintenance services as shall be necessary to protect the same and to preserve and maintain them in good condition; and (f) license or sublicense, whether on an exclusive or nonexclusive basis, any Marks, Patents or Copyrights included in the Personal Property Collateral for such term and on such conditions and in such manner as the Lender shall in its reasonable judgment determine; it being understood that each Debtor's obligation so to deliver the Personal Property Collateral is of the essence of this Agreement and that, accordingly, upon application to a court of equity having jurisdiction, the Lender shall be entitled to a decree requiring specific performance by such Debtor of said obligation. Section 5.2 Remedies: Disposition of the Personal Property Collateral. --------------------------------------------------------- If an Event of Default shall have occurred and be continuing, any Personal Property Collateral, whether or not in the possession of the Lender, may be sold, assigned, leased or otherwise disposed of by the Lender under one or more contracts or as an entirety, and without the necessity of gathering at the place of sale the property to be sold, and in general in such manner, at such time or times, at such place or places and on such terms as the Lender may, in compliance with any mandatory requirements of applicable law, determine to be commercially reasonable. Any of the Personal Property Collateral may be sold, leased or otherwise disposed of, in the condition in which the same existed when taken by the Lender or after any overhaul or repair at the expense of the relevant Debtor which the Lender shall determine to be commercially reasonable. Any such disposition which shall be a private sale or other private proceedings permitted by such requirements shall be made upon not less than 10 days' written notice to the relevant Debtor specifying the time at which such disposition is to be made and the intended sale price or other consideration therefor, and shall be subject, for the 10 days after the giving of such notice, to the right of the relevant Debtor or any nominee of such Debtor to acquire the Personal Property Collateral involved at a price or for such other consideration at least equal to the intended sale price or other consideration so specified. Any such disposition which shall be a public sale permitted 8 by such requirements shall be made upon not less than 10 days' written notice to the relevant Debtor specifying the time and place of such sale and, in the absence of applicable requirements of law, shall be by public auction (which may, at the Lender's option, be subject to reserve), after publication of notice of such auction not less than 10 days prior thereto in two newspapers in general circulation in Boston, Massachusetts. To the extent permitted by any such requirement of law, the Lender may bid for and become the purchaser of the Personal Property Collateral or any item thereof, offered for sale in accordance with this Section without accountability to the relevant Debtor. If, under mandatory requirements of applicable law, the Lender shall be required to make disposition of the Personal Property Collateral within a period of time which does not permit the giving of notice to the relevant Debtor as hereinabove specified, the Lender need give such Debtor only such notice of disposition as shall be reasonably practicable in view of such mandatory requirements of applicable law. Section 5.3 Waiver of Claims. EXCEPT AS OTHERWISE PROVIDED IN THIS ---------------- AGREEMENT, (A) EACH DEBTOR HEREBY WAIVES, TO THE EXTENT PERMITTED BY APPLICABLE LAW, NOTICE AND JUDICIAL HEARING IN CONNECTION WITH THE LENDER'S TAKING POSSESSION OR THE LENDER'S DISPOSITION OF ANY OF THE PERSONAL PROPERTY COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICE AND HEARING FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT WHICH SUCH DEBTOR WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF THE UNITED STATES OR OF ANY STATE, AND (B) EACH DEBTOR HEREBY FURTHER WAIVES, TO THE EXTENT PERMITTED BY LAW: (i) all damages occasioned by such taking of possession except any damages which are determined by a final, non-appealable court order to have been caused by the Lender's gross negligence or willful misconduct; (ii) all other requirements as to the time, place and terms of sale or other requirements with respect to the enforcement of the Lender's rights hereunder; and (iii) all rights of redemption, appraisement, valuation, stay, extension or moratorium now or hereafter in force under any applicable law in order to prevent or delay the enforcement of this Agreement or the absolute sale of the Personal Property Collateral or any portion thereof, and each Debtor, for itself and all who may claim under it, insofar as it or they now or hereafter lawfully may, hereby waives the benefit of all such laws. Any sale of any Personal Property Collateral properly completed in accordance with applicable law or the grant of options to purchase, or any other realization upon, any Personal Property Collateral shall operate to divest all right, title, interest, claim and demand, either at law or in equity, of the relevant Debtor therein and thereto, and shall be a perpetual bar both at law and in equity against such Debtor and against any and all Persons claiming or attempting to claim the Personal Property Collateral so sold, optioned or realized upon, or any part thereof, from, through and under such Debtor. 9 Section 5.4 Application of Proceeds. ----------------------- (a) All moneys collected by the Lender upon any sale or other disposition of the Personal Property Collateral, together with all other moneys received by the Lender hereunder, shall be applied to the payment of the Secured Obligations in such order or preference as is provided in the applicable Credit Agreement. (b) It is understood and agreed that the Debtors shall remain jointly and severally liable to the extent of any deficiency between the amount of the proceeds of the Personal Property Collateral hereunder and the aggregate amount of the Secured Obligations. Section 5.5 Remedies Cumulative. Each and every right, power and remedy ------------------- hereby specifically given to the Lender shall be in addition to every other right, power and remedy specifically given under this Agreement, or now or hereafter existing at law, in equity or by statute and each and every right, power and remedy whether specifically herein given or otherwise existing may be exercised from time to time or simultaneously and as often and in such order as may be deemed expedient by the Lender. All such rights, powers and remedies shall be cumulative and the exercise or the beginning of the exercise of one shall not be deemed a waiver of the right to exercise any other or others. No delay or omission of the Lender in the exercise of any such right, power or remedy and no renewal or extension of any of the Secured Obligations shall impair any such right, power or remedy or shall be construed to be a waiver of any Default or Event of Default or an acquiescence therein. No notice to or demand on any Debtor in any case shall entitle it to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Lender to any other or further action in any circumstances without notice or demand. In the event that the Lender shall bring any suit to enforce any of its rights hereunder and shall be entitled to judgment, then in such suit the Lender may recover reasonable expenses, including reasonable attorneys' fees, and the amounts thereof shall be included in such judgment. ARTICLE 6 DEFINITIONS Unless otherwise defined herein, terms which are defined in the U.S. Credit Agreement and used herein are so used as so defined. The following terms shall have the meanings herein specified. Such definitions shall be equally applicable to the singular and plural forms of the terms defined. "Accounts" shall have the meaning provided in the UCC. -------- "Agreement" shall mean this Security Agreement as the same may be modified, --------- supplemented or amended from time to time in accordance with its terms. "Cash Collateral Account" shall mean one or more interest bearing cash ----------------------- collateral accounts to be established at and maintained with the Lender, following the occurrence of a Default. All deposits in 10 such accounts shall be invested, at the option of the Debtors, in certificates of deposit issued by the Lender or in a Lender sponsored money market fund. "Chattel Paper" shall have the meaning provided in the UCC. ------------- "Contract" shall have the meaning provided in the UCC. -------- "Copyrights" shall mean any United States copyright owned (or subject to ---------- the rights of ownership) by any Debtor, including any registrations of any copyright, in the United States Copyright Office, as well as any application for a copyright registration now or hereafter made with the United States Copyright Office by any Debtor. "Default" shall mean any event which, with notice or lapse of time, or ------- both, would constitute an Event of Default. "Documents" shall have the meaning provided in the UCC. --------- "Documents of Title" shall have the meaning provided in the UCC. ------------------ "Equipment" shall have the meaning provided in the UCC, including, without --------- limitation, all fixtures, machinery, equipment, motor vehicles, and other goods, whether now owned or hereafter acquired by the Debtors, wherever located, all replacements, substitutions and all parts thereof and all accessions thereto, as well as all of the Debtors' right, title and interest in and to any such goods now or hereafter held or used by the Debtors under any lease, lease-purchase, conditional sales, use or other agreements under which the Debtors are entitled to the use and possession thereof, with any other rights and benefits flowing from such agreements, all as may be used or useful in connection with the Debtors' businesses as now or hereafter carried on, any operations incidental to or associated with the same, or for any other purpose. "Event of Default" shall mean any Event of Default under, and as defined ---------------- in, any Credit Agreement and shall in any event, without limitation, include any payment default on any of the Secured Obligations after the expiration of any applicable grace period. "Fixtures" shall have the meaning provided in the UCC. -------- "General Intangibles" shall have the meaning provided in the UCC. ------------------- "Goods" shall have the meaning provided in the UCC. ----- "Instruments" shall have the meaning provided in the UCC. ----------- "Inventory" shall have the meaning provided in the UCC, including, without --------- limitation, all inventory in all of its forms, wherever located, now or hereafter existing, including, but not limited to, (a) raw materials and work in process therefor, finished goods thereof, and materials used or consumed in 11 the manufacture or production thereof, and (b) goods which are returned to or repossessed by the Debtors and all accessions thereto and products thereof. "Liens" shall mean any security interest, mortgage, pledge, lien, claim, ----- charge, encumbrance, title retention agreement, lessor's interest in a financing lease or analogous instrument, in, of, or on any Debtor's property. "Marks" shall mean any United States trademarks, service marks and trade ----- names now owned, subject to a right of ownership or hereafter acquired by any Debtor, including any registration of, or application for, any trademarks and service marks in the United States Patent and Trademark Office, and any trade dress including logos and/or designs used by any Debtor in the United States. "Patents" shall mean any patents owned, subject to a right of ownership by ------- or hereafter acquired by any Debtor and any divisions, continuations, reissues, reexaminations, extensions or renewals thereof, as well as any application for a patent now or hereafter made by any Debtor or subject to a right of ownership in such Debtor. "Permitted Encumbrances" shall mean Liens permitted under Section 6.02 of ---------------------- the U.S. Credit Agreement. "Personal Property Collateral" shall have the meaning provided in Section ---------------------------- 1.1 of this Agreement. "Proceeds" shall have the meaning provided in the UCC or under other -------- relevant law and, in any event, shall include, but not be limited to, (a) any and all proceeds of any insurance, indemnity, warranty or guaranty payable to the Lender or any Debtor from time to time with respect to any of the Personal Property Collateral, (b) any and all payments (in any form whatsoever) made or due and payable to any Debtor from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture of all or any part of the Personal Property Collateral by any governmental authority (or any Person acting under color of governmental authority) and (c) any and all other amounts from time to time paid or payable under or in connection with any of the Personal Property Collateral. "Proprietary Information" means all information and know-how worldwide, ----------------------- including, without limitation, technical data, manufacturing data, research and development data, data relating to compositions, processes and formulations, manufacturing and production know-how and experience, management know-how, training programs, manufacturing, engineering and other drawings, specifications, performance criteria, operating instructions, maintenance manuals, technology, technical information, software, engineering and computer data and databases, design and engineering specifications, catalogs, promotional literature and financial, business and marketing plans, inventions and invention disclosures. "Receivables" shall mean collectively, all (a) Instruments, Documents, ----------- Accounts, Proceeds, General Intangibles and Chattel Paper, and (b) rights to payment for goods sold or leased or services rendered by the Debtors or any other party, whether now in existence or arising from time to time 12 hereafter and whether or not yet earned by performance, including, without limitation, obligations evidenced by an account, note, contract, security agreement, chattel paper or other evidence of indebtedness. "Secured Obligations" shall mean (a) the full and prompt payment when due ------------------- (whether at the stated maturity, by acceleration or otherwise) of all obligations and liabilities of each and all of the Debtors to the Lender, whether now existing or hereafter incurred under, arising out of or in connection with the U.S. Credit Agreement, the Guarantee or any other agreement with or for the benefit of the Lender to which any of the Debtors is a party or to which any of the Debtors is bound and the due performance and compliance by each and all of the Debtors with the terms of each such agreement, including, without limitation, the full and prompt payment of all unpaid principal of and interest on (including interest accruing on or after the filing of a petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding, relating to any one or more of the Debtors to the extent allowed under applicable law) any and all such obligations; (b) any and all sums advanced by the Lender in order to preserve any collateral securing the obligations referred to in clause (a) or to preserve the security interests of the Lender in such collateral; (c) in the event of any proceeding for the collection or enforcement of any obligations referred to in clause (a), after an Event of Default shall have occurred and be continuing, the reasonable expenses of re-taking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the collateral securing the obligations referred to in clause (a), or of any exercise by the Lender of its rights hereunder, together with reasonable attorneys' fees and court costs; and (d) any and all other liabilities and obligations whatsoever of any one or more of the Debtors to the Lender. "Securities" shall have the meaning provided in the UCC. ---------- "Security Interest" shall have the meaning provided in Section 1.1 of this ----------------- Agreement. "Tangible Personal Property" shall mean all machinery, equipment, -------------------------- furniture, furnishings, movable walls or partitions, computers or trade fixtures, goods, inventory supplies, and other personal property owned or leased by the Debtors and used or useful in the operation of the Debtors' businesses or arising in connection therewith or relating thereto. "Termination Date" shall have the meaning provided in Section 7.8 of this ---------------- Agreement. "Trade Secrets" shall mean any secretly held existing engineering and other ------------- data, information, production procedures and other know-how relating to the design, manufacture, assembly, installation, use, operation, marketing, sale and servicing of any products or business of the Debtors worldwide whether written or not written. "UCC" shall mean the Uniform Commercial Code as the same may, from time to --- time, be in effect in The Commonwealth of Massachusetts. 13 ARTICLE 7 MISCELLANEOUS Section 7.1 Notices. Except in the case of notices and other ------- communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to any Debtor, c/o NMT Medical, Inc., 27 Wormwood Street, Boston, Massachusetts 02210-1625, Attention of Chief Financial Officer (Telecopy No. 617-737-0924), with a copy to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention of Steven D. Singer, Esq. (Telecopy No. 617-526-5000); and (b) if to the Lender, to Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109-3661, Attention of Victoria W. Evans, Assistant Manager (Telecopy No. 617-772-1138), with a copy to Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109-2881, Attention of Raymond C. Zemlin, P.C. (Telecopy No. 617-523-1231). Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. Section 7.2 Waiver; Amendment. None of the terms and conditions of this ----------------- Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by each Debtor directly affected thereby and the Lender. Section 7.3 Obligations Absolute. The obligations of each Debtor -------------------- hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (a) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of such Debtor, (b) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of this Agreement, or (c) any amendment to or modification of this Agreement or any security for any of the Secured Obligations whether or not any Debtor shall have notice or knowledge of any of the foregoing. Section 7.4 Successors and Assigns. This Agreement shall be binding ---------------------- upon each Debtor and its successors and assigns and shall inure to the benefit of the Lender and its successors and assigns. All agreements, statements, representations and warranties made by each Debtor herein or in any certificate or other instrument delivered by such Debtor or on its behalf under this Agreement shall be considered to have been relied upon by the Lender and shall survive the execution and delivery of this Agreement regardless of any investigation made by the Lender on its behalf. 14 Section 7.5 Headings Descriptive. The headings of the several sections -------------------- of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement. Section 7.6 Governing Law. THIS AGREEMENT AND THE RIGHTS AND ------------- OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS. Section 7.7 Duties with Respect to Collateral. It is expressly agreed, --------------------------------- anything herein contained to the contrary notwithstanding, that the Lender shall not have any obligations or liabilities with respect to any Personal Property Collateral by reason of or arising out of this Agreement, other than the duty to use reasonable care in the safe custody of any Personal Property Collateral in its possession, nor shall the Lender be required or obligated in any manner to perform or fulfill any of the obligations of any Debtor under or with respect to any Personal Property Collateral. Section 7.8 Termination; Release. After the Termination Date, this -------------------- Agreement shall terminate (provided that all indemnities set forth in the Credit -------- Agreements and the Guarantee shall survive such termination) and the Lender, at the expense of the respective Debtor, will as promptly as practicable execute and deliver to such Debtor a proper instrument or instruments (including termination statements) acknowledging the satisfaction and termination of this Agreement, and will duly assign, transfer and deliver to such Debtor (without recourse and without any representation or warranty) such of the Personal Property Collateral as may be in the possession of the Lender and has not theretofore been sold or otherwise applied or released pursuant to this Agreement. As used in this Agreement, "Termination Date" shall mean the date ---------------- upon which all Secured Obligations have been paid in full, all commitments with respect thereto have terminated, no promissory note is outstanding (and all loans have been repaid in full), all Letters of Credit have been terminated and all other Secured Obligations then due and payable have been paid in full. Section 7.9 Severability. The provisions of this Agreement are intended ------------ to be severable. If for any reason any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. Section 7.10 Counterparts. This Agreement may be executed in any number ------------ of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. Section 7.11 The Lender. The Lender will hold in accordance with this ---------- Agreement all items of the Personal Property Collateral at any time received under this Agreement. It is expressly understood and agreed that the obligations of the Lender as holder of the Personal Property Collateral and interests therein and with respect to the disposition thereof, and otherwise under this Agreement, are only those expressly set forth in this Agreement and as otherwise provided by applicable law. 15 Section 7.12 JURISDICTION; IMMUNITIES. ------------------------ (a) THE DEBTORS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY MASSACHUSETTS OR UNITED STATES FEDERAL COURT SITTING IN SUFFOLK COUNTY OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND THE DEBTORS HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH MASSACHUSETTS STATE OR FEDERAL COURT. THE DEBTORS IRREVOCABLY CONSENT TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE DEBTORS AT THEIR ADDRESSES SPECIFIED IN SECTION 7.1. THE DEBTORS AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE DEBTORS FURTHER WAIVE ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS. THE DEBTORS FURTHER AGREE THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE LENDER SHALL BE BROUGHT ONLY IN MASSACHUSETTS STATE OR UNITED STATES FEDERAL COURT SITTING IN SUFFOLK COUNTY. THE DEBTORS WAIVE ANY RIGHT THEY MAY HAVE TO JURY TRIAL. (b) Nothing in this Section 7.12 shall affect the right of the Lender to serve legal process in any other manner permitted by law or affect the right of the Lender to bring any action or proceeding against any Debtor or its property in the courts of any other jurisdictions. (c) To the extent that any Debtor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether from service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, such Debtor hereby irrevocably waives, to the extent permitted by law, such immunity in respect of its obligations under this Agreement. [Remainder of Page Intentionally Left Blank] 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. NMT MEDICAL, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT HEART, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT INVESTMENTS CORP. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (INTERNATIONAL), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (US), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President 17 NMT NEUROSCIENCES (IP), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES INNOVASIVE SYSTEMS, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President BROWN BROTHERS HARRIMAN & CO. By: /s/ A. Heaton Robertson ----------------------------- Name: A. Heaton Robertson Title: President 18 Schedule I ---------- NMT Heart, Inc. NMT Investments Corp. NMT NeuroSciences (International), Inc. NMT NeuroSciences (US), Inc. NMT NeuroSciences (IP), Inc. NMT Neurosciences Innovasive Systems, Inc. EX-10.5 6 COLLATERAL PATENT ASSIGNMENT EXHIBIT 10.5 COLLATERAL PATENT ASSIGNMENT ---------------------------- WHEREAS, NMT Medical, Inc. (f/k/a Nitinol Medical Technologies, Inc.), a Delaware corporation (the "Debtor"), owns the patents and the patent applications and any and all patents which may issue therefrom (collectively, the "Patent Rights"), for which there are recordings or applications in the United States Patent and Trademark Office under the numbers shown on Schedule A; ---------- WHEREAS, the Debtor has entered into that certain Credit Agreement, dated as of the date hereof, among the Debtor, certain subsidiaries of the Debtor named therein (together with the Debtor, the "NMT Entities") and Brown Brothers Harriman & Co. (the "Secured Party") (as amended, supplemented, extended or otherwise modified from time to time, the "U.S. Credit Agreement"), pursuant to which the NMT Entities have arranged for a $5,000,000 credit facility; WHEREAS, the NMT Entities are parties to that certain Guarantee, dated as of the date hereof, in favor of the Secured Party (as amended, supplemented, extended or otherwise modified from time to time, the "Guarantee"), pursuant to which the NMT Entities have guaranteed the payment and performance by NMT NeuroSciences Implants (France) SA, a French limited liability company, and NMT NeuroSciences Instruments (France) SARL, a French limited liability company (collectively, the "French Subsidiaries"), of their obligations and liabilities under that certain Credit Agreement, dated as of the date hereof, by and among the French Subsidiaries and the Secured Party (together with the U.S. Credit Agreement, the "Credit Agreements"); WHEREAS, the NMT Entities are parties to that certain Security Agreement, dated as of the date hereof, by and among the NMT Entities and the Secured Party (as amended, supplemented, extended or otherwise modified from time to time, the "Security Agreement"), pursuant to which the NMT Entities have granted to the Secured Party a security interest in all of their personal property, including, without limitation, all of the Patent Rights, as security for the obligations of the NMT Entities under the U.S. Credit Agreement and the Guarantee, as well as certain other obligations as set forth in the Security Agreement (collectively, the "Secured Obligations"); and WHEREAS, it is a condition precedent to the obligations of the Secured Party to make loans to the NMT Entities and the French Subsidiaries under the respective Credit Agreements that the Debtor shall have executed and delivered this Collateral Patent Assignment (this "Assignment") to the Secured Party. NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is acknowledged, the Debtor does hereby collaterally assign unto the Secured Party and grant to the Secured Party a security interest in and to: 1. The Patent Rights (including, without limitation, the inventions and improvements described and claims therein) listed on Schedule A ---------- attached hereto; 2. All reissues, divisions, continuations, renewals, extensions and continuations-in-part thereof; 3. All income, royalties, damages and payments now and hereafter due and/or payable under and with respect thereto, including, without limitation, damages and payments for past or future infringements thereof; 4. The right to sue and recover for past, present and future infringements thereof; 5. All rights corresponding thereto and throughout the world; and 6. All other proceeds and products of the foregoing, including, without limitation, any rights pursuant to its agreements with any other party relating thereto. This Assignment is made for collateral purposes only. Upon payment in full of the Secured Obligations and termination of the Security Agreement, all remaining right, title and interest in and to the Patent Rights shall automatically revert to the Debtor. The Debtor expressly acknowledges and affirms that the rights and remedies of the Secured Party with respect to the assignment and security interest granted hereby are more fully set forth in the Security Agreement which is incorporated herein in its entirety by this reference. [Remainder of page intentionally left blank] 2 IN WITNESS WHEREOF, the undersigned has executed this Collateral Patent Assignment under seal as of the date set forth below. Dated: September 13, 1999 NMT MEDICAL, INC. Witness: /s/ Lisa R. Haddad By: /s/ Thomas M. Tully ------------------------ -------------------- Name: Lisa R. Haddad Name: Thomas M. Tully Title: President COMMONWEALTH OF MASSACHUSETTS ) )ss COUNTY OF SUFFOLK ) On this 13th day of September, 1999, before me Pamela Fall Rautenberg the undersigned officer, personally appeared Thomas M. Tully known personally to me to be the President of NMT Medical, Inc., a Delaware corporation, and acknowledged that he, as an officer being authorized to do so, executed the foregoing instrument for the purposes therein contained, by signing the name of the corporation by himself as an officer. IN WITNESS WHEREOF I have hereunto set my hand and official seal. /s/ Pamela Fall Rautenberg -------------------------------- Notary Public Print Name: Pamela Fall Rautenberg (SEAL) My Commission Expires: December 16, 1999 3 Schedule A - ---------- U.S. PATENTS AND APPLICATIONS PATENT NO. TITLE ISSUE DATE - ----------------------------------------------------------------------- 1 5,485,667 METHOD FOR ATTACHING A MARKER TO A 1/23/96 MEDICAL INSTRUMENT - ----------------------------------------------------------------------- 2 5,540,712 STENT AND METHOD AND APPARATUS FOR 7/30/96 FORMING AND DELIVERING THE SAME - ----------------------------------------------------------------------- 3 5,354,308 METAL WIRE STENT 10/11/94 - ----------------------------------------------------------------------- 4 5,395,390 METAL WIRE STENT 3/7/95 - ----------------------------------------------------------------------- 5 5,776,162 VESSEL IMPLANTABLE SHAPE MEMORY 7/7/98 APPLIANCE WTIH SUPERELASTIC HINGED JOINT - ----------------------------------------------------------------------- 6 5,741,297 DAISY OCCLUDER AND METHOD FOR SEPTAL 4/21/98 DEFECT REPAIR - ----------------------------------------------------------------------- 7 5,669,933 REMOVABLE EMBOLUS BLOOD CLOT FILTER 9/23/97 - ----------------------------------------------------------------------- 8 5,746,765 STENT AND METHOD AND APPARATUS FOR 5/5/98 FORMING AND DELIVERING THE SAME - ----------------------------------------------------------------------- 9 5,755,778 ANASTOMOSIS DEVICE 5/26/98 - ----------------------------------------------------------------------- 10 5,836,968 REMOVABLE EMBOLUS BLOOD CLOT FILTER 11/17/98 - ----------------------------------------------------------------------- 11 5,902,317 STENT AND METHOD AND APPARATUS FOR 5/11/99 FORMING AND DELIVERING THE SAME - ----------------------------------------------------------------------- 12 5,921,995 ANASTOMOSIS DEVICE 7/13/99 - ----------------------------------------------------------------------- 13 5,403,309 CRYOSURGICAL ABLATION 4/4/95 - ----------------------------------------------------------------------- 14 5,368,556 IMPLANTABLE DRAINAGE VALVE FOR THE 11/29/94 TREATMENT OF HYDROCEPHALUS - ----------------------------------------------------------------------- 15 4,974,581 ULTRASONIC KNIFE 12/4/90 - ----------------------------------------------------------------------- 16 4,540,400 NON-INVASIVELY ADJUSTABLE VALVE 9/10/85 - ----------------------------------------------------------------------- 17 4,769,002 INTERCRANIAL PRESSURE REGULATOR VALVE 9/6/88 - ----------------------------------------------------------------------- 18 4,776,838 THREE STAGE VALVE 10/11/88 - ----------------------------------------------------------------------- 19 4,627,832 THREE STAGE INTRACRANIAL PRESSURE RELIEF 12/9/86 VALVE HAVING SINGLE-PIECE VALVE STEM - ----------------------------------------------------------------------- PATENT NO. TITLE ISSUE DATE - ----------------------------------------------------------------------- 20 4,714,459 THREE STAGE INTRACRANIAL PRESSURE 12/22/87 CONTROL VALVE - ----------------------------------------------------------------------- 21 4,729,762 THREE STAGE IMPLANTABLE PRESSURE RELIEF 3/8/88 VALVE WITH ADJUSTABLE VALVE STEM MEMBERS - ----------------------------------------------------------------------- 22 5,069,663 HYDROCEPHALUS VALVE 12/3/91 - ----------------------------------------------------------------------- 23 5,102,389 MEMBRANE COMPOSITE 4/7/92 - ----------------------------------------------------------------------- 24 5,336,166 THREE STAGE IMPLANTABLE VALVE 8/9/94 - ----------------------------------------------------------------------- 25 5,368,556 IMPLANTABLE DRAINAGE VALVE FOR THE 11/29/94 TREATMENT OF HYDROCEPHALUS - ----------------------------------------------------------------------- 26 5,437,627 IMPLANTABLE VALVE FOR THE TREATMENT OF 8/1/95 HYDROCEPHALY - ----------------------------------------------------------------------- 27 5,718,712 DILATATION BALLOON CATHETER FOR 2/17/98 ENDOSCOPY - ----------------------------------------------------------------------- 28 4,668,231 IMPLANTABLE HAND-OPERABLE DISPENSERS 5/26/87 FOR FLUID MEDICAMENTS - ----------------------------------------------------------------------- 29 4,718,894 MANUALLY ACTUATED, IMPLANTABLE DEVICE 1/12/88 TO SEQUENTIALLY FEED DOSES OF A SUBSTANCE, IN PARTICULAR A THERAPEUTANT - ----------------------------------------------------------------------- 30 4,601,724 MANUFACTURE OF TUBING ASSEMBLY FOR 7/22/86 DRAINAGE CATHETER - ----------------------------------------------------------------------- 31 4,723,556 INTRACRANIAL VENTRICULAR CATHETER 2/9/88 ASSEMBLY - ----------------------------------------------------------------------- 32 4,731,056 EXTERNAL DRAINAGE ANTISIPHON DEVICE 3/15/88 - ----------------------------------------------------------------------- 33 4,767,400 POROUS VENTRICULAR CATHETER 8/30/88 - ----------------------------------------------------------------------- 34 5,409,462 CYST PUNCTURE CATHETER ASSEMBLY 4/25/95 - ----------------------------------------------------------------------- 35 4,946,443 CATHETER INTRODUCER 8/7/90 - ----------------------------------------------------------------------- 36 4,487,603 IMPLANTABLE MICROINFUSION PUMP SYSTEM 12/11/84 - ----------------------------------------------------------------------- 37 4,548,607 IMPLANTABLE MANUALLY ACTUATED 10/22/85 MEDICATION DISPENSING SYSTEM - ----------------------------------------------------------------------- 38 4,551,128 CEREBROSPINAL FLUID SHUNT VALVE 11/5/85 - ----------------------------------------------------------------------- PATENT NO. TITLE ISSUE DATE - ----------------------------------------------------------------------- 39 4,557,721 SERVO VALVE 12/10/85 - ----------------------------------------------------------------------- 40 4,557,722 FILL PORT FOR AN IMPLANTABLE DISPENSING 12/10/85 SYSTEM - ----------------------------------------------------------------------- 41 4,576,035 SELF-CALIBRATING DIFFERENTIAL CONDITION 3/18/86 SENSOR - ----------------------------------------------------------------------- 42 4,578,057 VENTRICULAR RIGHT ANGLE CONNECTOR AND 3/25/86 SYSTEM - ----------------------------------------------------------------------- 43 4,583,967 TELESCOPING CATHETER SHUNT SYSTEM 4/22/86 - ----------------------------------------------------------------------- 44 4,598,579 PORTABLE INSTRUMENT TO TEST 7/8/86 PRESSURE/FLOW OF VENTRICULAR SHUNT VALVES - ----------------------------------------------------------------------- 45 4,631,051 VENTRICULAR AMNIOTIC SHUNT AND 12/23/86 INTRODUCER SYSTEM - ----------------------------------------------------------------------- 46 4,675,003 THREE STAGE PRESSURE REGULATOR VALVE 6/23/87 - ----------------------------------------------------------------------- 47 4,681,559 PLURAL VALVE THREE STAGE PRESSURE RELIEF 7/21/87 SYSTEM - ----------------------------------------------------------------------- 48 4,705,499 IMPLANTABLE SERVO VALVE HAVING INTEGRAL 11/10/87 PRESSURE SENSOR - ----------------------------------------------------------------------- 49 4,714,458 THREE STAGE VALVE WITH FLEXIBLE VALVE 12/22/87 SEAT - ----------------------------------------------------------------------- 50 4,744,786 INFUSION PUMP 5/17/88 - ----------------------------------------------------------------------- 51 4,776,839 THREE STAGE IMPLANTABLE PRESSURE RELIEF 10/11/88 VALVE WITH IMPROVED VALVE STEM MEMBER - ----------------------------------------------------------------------- 52 4,781,672 THREE STAGE IMPLANTABLE FLOW CONTROL 11/1/88 VALVE WITH IMPROVED VALVE CLOSURE MEMBER - ----------------------------------------------------------------------- 53 4,676,772 ADJUSTABLE IMPLANTABLE VALVE HAVING 6/30/87 NON-INVASIVE POSITION INDICATOR - ----------------------------------------------------------------------- 54 4,636,149 DIFFERENTIAL THERMAL EXPANSION DRIVEN 1/13/87 PUMP - ----------------------------------------------------------------------- U.S. APPLICATION NO. TITLE FILING DATE - ----------------------------------------------------------------------- 55 09/274,108 GRIPPING DEVICE FOR IMPLANTING, 3/23/99 REPOSITIONING OR EXTRACTING AN OBJECT WITHIN A BODY VESSEL - ----------------------------------------------------------------------- 56 08/824,249 OSV2 3/26/96 - ----------------------------------------------------------------------- 57 08/822,513 PRESSURE AND ANTI-GRAVITY 3/26/96 REGULATING VALVE - ----------------------------------------------------------------------- 58 09/360,654 REMOVABLE EMBOLUS BLOOD CLOT 7/26/99 FILTER AND FILTER DELIVERY UNIT - ----------------------------------------------------------------------- 59 09/160,384 REMOVABLE EMBOLUS BLOOD CLOT 9/25/98 FILTER - ----------------------------------------------------------------------- EX-10.6 7 PLEDGE AGREEMENT EXHIBIT 10.6 PLEDGE AGREEMENT ---------------- PLEDGE AGREEMENT dated as of September 13, 1999 (as amended, supplemented or otherwise modified from time to time, this "Agreement"), between NMT MEDICAL, --------- INC. and the other entities listed on Schedule I hereto (each a "Pledgor" and ---------- ------- collectively, the "Pledgors") and BROWN BROTHERS HARRIMAN & CO. (the "Lender"). -------- ------ WHEREAS, the Pledgors have entered into that certain Credit Agreement, dated as of the date hereof, among the Pledgors and the Lender (as amended, supplemented, extended or otherwise modified from time to time, the "U.S. Credit ----------- Agreement"), pursuant to which the Pledgors have arranged for a $5,000,000 - --------- credit facility, the proceeds of which will be used to prepay a portion of the Whitney Notes and for general corporate purposes; WHEREAS, pursuant to the U.S. Credit Agreement, the Lender has agreed to make loans to the Pledgors upon the terms and subject to the conditions set forth therein; WHEREAS, the Pledgors are parties to that certain Guarantee, dated as of the date hereof, in favor of the Lender (as amended, supplemented, extended or otherwise modified from time to time, the "Guarantee"), pursuant to which the --------- Pledgors have guaranteed the payment and performance by NMT NeuroSciences Implants (France) SA, a French limited liability company, and NMT NeuroSciences Instruments (France) SARL, a French limited liability company (collectively, the "French Subsidiaries"), of their obligations and liabilities under that certain ------------------- Credit Agreement, dated as of the date hereof, by and among the French Subsidiaries and the Lender (together with the U.S. Credit Agreement, the "Credit Agreements"); - ------------------ WHEREAS, the operations of the Pledgors and the French Subsidiaries are conducted on a combined basis with significant shared management, purchasing, planning, financial controls and other functions, and the Credit Agreements will directly or indirectly benefit the Pledgors' various businesses; and WHEREAS, it is a condition precedent to the obligations of the Lender to make loans to the Pledgors and the French Subsidiaries under the respective Credit Agreements that the Pledgors shall have executed and delivered this Agreement to the Lender, as security for the payment and performance of all obligations of the Pledgors to the Lender. NOW, THEREFORE, in consideration of the premises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE 1. DEFINITIONS Unless otherwise defined herein, terms which are defined in the U.S. Credit Agreement and used herein are so used as so defined. The following terms shall have the meanings herein specified. Such definitions shall be equally applicable to the singular and plural forms of the terms defined. "Commitments" shall mean the obligations of the Lender to make loans and ----------- advances, issue letters of credit and otherwise extend financial accommodations to and for the account of the Pledgors and the French Subsidiaries under the Credit Agreements or under any other document executed in connection therewith. "Equity Rights" means, with respect to any Person, any subscriptions, ------------- options, warrants, commitments, preemptive rights or agreements of any kind (including, without limitation, any stockholders' or voting trust agreements) for the issuance, sale, registration or voting of, or outstanding securities convertible into, any additional shares of capital stock of any class, or partnership or other ownership interests of any type held in such Person. "Pledged Collateral" means any and all right, title and interest of each ------------------ Pledgor in, to or under the Pledged Stock, the Pledged Partnership Interests, the Pledged Membership Interests and the Pledged Obligations, whether now owned or hereafter acquired, together with all the proceeds thereof and any replacements, additions or substitutions thereof or thereto and all accounts arising from the sale or disposition thereof. "Pledged Membership Interests" means any and all right, title and interest ---------------------------- of each Pledgor, as a member, in and to any limited liability companies that now or in the future are listed on Schedule II hereto, and all rights and interests ----------- of such Pledgor in the property, capital, profits and losses of, and all distributions paid or distributed by or out of, such limited liability companies, together with all rights of such Pledgor under the limited liability company agreements governing such limited liability companies; provided that, -------- with respect to the pledge of membership interests hereunder to secure the Pledgors' obligations and liabilities to the Lender under the U.S. Credit Agreement and the Guarantee, the term "Pledged Membership Interests" shall ---------------------------- include only sixty-five percent (65%) of the voting interests of any subsidiary that is not a Domestic Subsidiary and which is now or in the future listed on Schedule II hereto. - ----------- "Pledged Obligations" means any and all right, title and interest of each ------------------- Pledgor in and to any and all Indebtedness obligations owed to such Pledgor by any Person, whether now existing or hereafter incurred, and in and to all collateral granted to such Pledgor to or for the benefit of such Pledgor as collateral security for such obligations. "Pledged Partnership Interests" means any and all right, title and interest ----------------------------- of each Pledgor, as a general or limited partner, in and to any general and limited partnerships that now or in the future are listed on Schedule III ------------ hereto, and all rights and interests of such Pledgor in the property, capital, profits and losses of, and all distributions paid or distributed by or out of, such general and limited partnerships, together with all rights of such Pledgor under the partnership agreements governing such general and limited partnerships; provided that, with respect to the pledge of partnership interests -------- hereunder to secure the Pledgors' obligations and liabilities to the Lender under the U.S. Credit Agreement and the Guarantee, the term "Pledged Partnership ------------------- Interests" shall include only sixty-five percent (65%) of the voting interests - --------- of any subsidiary that is not a Domestic Subsidiary and which is now or in the future listed on Schedule III hereto. ------------ 2 "Pledged Stock" means any and all right, title and interest of each Pledgor ------------- in and to the capital stock of and Equity Rights in and to the corporations that now or in the future are listed on Schedule IV hereto, and all rights and ----------- interests of such Pledgor in any dividends or other distributions paid in respect of such capital stock and Equity Rights; provided that, with respect to -------- the pledge of capital stock hereunder to secure the Pledgors' obligations and liabilities to the Lender under the U.S. Credit Agreement and the Guarantee, the term "Pledged Stock" shall include only sixty-five percent (65%) of the voting ------------- stock of any subsidiary that is not a Domestic Subsidiary and which is now or in the future listed on Schedule IV hereto. ----------- "Secured Obligations" shall mean (a) the full and prompt payment when due ------------------- (whether at the stated maturity, by acceleration or otherwise) of all obligations and liabilities of each and all of the Pledgors to the Lender, whether now existing or hereafter incurred under, arising out of or in connection with the U.S. Credit Agreement, the Guarantee or any other agreement with or for the benefit of the Lender to which any Pledgor is a party or to which any Pledgor is bound and the due performance and compliance by each and all of the Pledgors with the terms of each such agreement, including, without limitation, the full and prompt payment of all unpaid principal of and interest on (including interest accruing on or after the filing of a petition in bankruptcy or the commencement of any insolvency, reorganization or like proceeding, relating to any Pledgor to the extent allowed under applicable law) any and all such obligations; (b) any and all sums advanced by the Lender in order to preserve any collateral securing any of the obligations referred to in clause (a) or to preserve the Lender's security interest in such collateral; (c) in the event of any proceeding for the collection or enforcement of any obligations or liabilities referred to in clause (a), after an Event of Default (as hereinafter defined) shall have occurred and be continuing, the reasonable expenses of re-taking, holding, preparing for sale or lease, selling or otherwise disposing of or realizing on the collateral securing the obligations referred to in clause (a), or of any exercise by the Lender of its rights hereunder, together with reasonable attorneys' fees and court costs; and (d) any and all other liabilities and obligations whatsoever of any Pledgor to the Lender. "Security" has the same meaning as in Section 2(l) of the Securities Act of -------- 1933, as amended. "UCC" means the Uniform Commercial Code as the same may, from time to time, --- be in effect in The Commonwealth of Massachusetts. ARTICLE 2. COLLATERAL Section 2.1 Grant of Security Interest. As security for the payment by -------------------------- the Pledgors of the Secured Obligations and the performance by the Pledgors of their obligations and undertakings under this Agreement and any other document made in connection herewith, each of the Pledgors does hereby grant, bargain, convey, assign, transfer, mortgage, hypothecate, pledge, confirm and grant a continuing security interest to the Lender, in and to all right, title and interest of such Pledgors in the Pledged Collateral. 3 Section 2.2 Delivery of Certificates; Delivery of Financing Statements. ---------------------------------------------------------- (a) Each Pledgor, as applicable, hereby delivers to the Lender all of the certificates evidencing the Pledged Stock owned by such Pledgor, in each case, endorsed in blank or accompanied with appropriate undated stock powers duly executed in blank. Each Pledgor has caused the Lien of the Lender in and to the Pledged Stock to be registered upon the books of each of the issuers of the Pledged Stock. All other shares of the Pledged Stock subsequently acquired by any Pledgor shall be pledged and delivered to the Lender contemporaneously with the acquisition thereof, accompanied by stock powers duly executed in blank, with signature properly guaranteed. (b) Each Pledgor has executed and delivered to the Lender such financing statements as the Lender has requested, with respect to that portion of the Pledged Collateral in which a Lien may be perfected by the filing of a financing statement against such Pledgor. Each Pledgor has directed each of the issuers of the Pledged Partnership Interests and the Pledged Membership Interests to register the Lien of the Lender in and to the Pledged Partnership Interests and the Pledged Membership Interests upon the books of each of the issuers of the Pledged Partnership Interests and the Pledged Membership Interests. None of the Pledged Partnership Interests or the Pledged Membership Interests are represented by a certificate. If at any time any of the Pledged Partnership Interests or Pledged Membership Interests shall be represented by one or more certificates or by any documents that are Instruments (as defined in the UCC), then the Pledgor shall promptly deliver the same to the Lender accompanied by duly executed transfer powers endorsed in blank respecting such certificates or documents. (c) Each Pledgor hereby agrees to promptly deliver to the Lender, upon the request of the Lender, all promissory notes, instruments and agreements evidencing the Pledged Obligations held by such Pledgor in suitable form for transfer by endorsement and delivery or accompanied by duly executed instruments of transfer or assignment in blank. If any Pledgor shall receive any promissory notes, instruments or agreements constituting Pledged Obligations after the date hereof (including, without limitation, any certificate representing any distribution in connection with any recapitalization, reclassification or increase or reduction of capital, or issued in connection with any reorganization) in respect of Pledged Obligations, such Pledgor agrees: (i) to accept the same as the agent of the Lender; (ii) to hold the same in trust on behalf of and for the benefit of the Lender subject to use or transfer permitted by this Agreement or the U.S. Credit Agreement; and (iii) upon the request of the Lender, to deliver any and all promissory notes, instruments or agreements evidencing the same to the Lender, in the exact form received, with the endorsement in blank of such Pledgor when necessary and with an appropriate undated instrument of transfer or assignment duly executed in blank (with signatures properly guaranteed), to be held by the Lender subject to the terms of this Agreement, as additional Pledged Collateral. Section 2.3 Acknowledgment. The Lender acknowledges that the Pledgors -------------- may not be permitted to assign their rights and obligations under or grant a security interest in certain Pledged Obligations pursuant to the terms thereof. With respect to such Pledged Obligations, nothing herein shall be construed as an assignment to the Lender of such Pledged Obligations or the grant of a security interest therein to the extent so prohibited. For purposes of clarification, to the extent permitted 4 thereunder, the parties hereto acknowledge that the Pledgors have granted a security interest in the Pledgors' rights to receive payments under such Pledged Obligations and any other rights of the Pledgors thereunder pursuant to the terms of this Agreement. ARTICLE 3, REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING SECURITY Section 3.1 Title, Liens. Each Pledgor represents, warrants and covenants ------------- that: (a) Schedules II, III and IV hereto completely and accurately list all of the Pledged Membership Interests, the Pledged Partnership Interests and the Pledged Stock owned by such Pledgor as described therein; and (b) the respective Pledged Collateral is owned solely by such Pledgor and no other Person has any right, title, interest, claim or Lien thereon, or thereto. Section 3.2 Sale of Pledged Collateral; Liens. Except as specifically --------------------------------- permitted by this Agreement or the U.S. Credit Agreement, each Pledgor: (a) will not sell, assign or otherwise transfer any of the Pledged Collateral, other than Pledged Obligations in accordance with reasonable business practices in the ordinary course of business; (b) will keep all Pledged Collateral in existence on the date, and all Pledged Collateral acquired after the date, of execution of this Agreement, free from all Liens other than Permitted Encumbrances; and (c) will pay and discharge, when due, all taxes, levies and other charges upon any Pledged Collateral, and shall defend all Pledged Collateral against all claims of any Person (other than, with respect to any Permitted Encumbrance, the holder thereof) other than the Lender. The Lender will not be required to take any steps to perfect its security interest in the Pledged Partnership Interests, the Pledged Membership Interests, the Pledged Stock or the Pledged Obligations or to collect or realize upon the Pledged Partnership Interests, the Pledged Membership Interests, the Pledged Stock or the Pledged Obligations or any distribution in respect thereof, nor shall loss of or damage to the Pledged Collateral release any Pledgor from any obligation contained in this Agreement. Section 3.3 Voting Rights Concerning Pledged Collateral. ------------------------------------------- (a) During the term of this Agreement, and so long as no Event of Default shall have occurred and be continuing, each Pledgor shall have the right to vote the Pledged Stock, the Pledged Partnership Interests and the Pledged Membership Interests on all corporate, partnership or membership questions for all purposes. 5 (b) Upon the occurrence and during the continuance of an Event of Default, the Lender, upon written notice to the appropriate Pledgor, shall be permitted to exercise all voting powers pertaining to the Pledged Stock, the Pledged Partnership Interests and the Pledged Membership Interests. The Lender, after the occurrence and during the continuance of any such Event of Default, and at its election, is hereby irrevocably appointed to vote the Pledged Stock, the Pledged Partnership Interests and the Pledged Membership Interests upon any corporate, partnership or membership matter; provided that with respect to any -------- general partnership or membership interest included among the Pledged Collateral, the foregoing proxy shall be construed so that, and shall be limited to the extent necessary so that, the Lender shall not be or become liable as a general partner or a manager or managing member. Section 3.4 Payments. -------- (a) So long as no Event of Default has occurred, and to the extent not prohibited by any Credit Agreement or any other document made in connection therewith or herewith, each Pledgor shall be entitled to receive and retain any payments, including, without limitation, principal and interest payments, paid on the Pledged Obligations. (b) Upon the occurrence and during the continuance of an Event of Default, (i) all rights of each Pledgor to receive or demand, as the case may be, any payments, including, without limitation, principal and interest payments, which such Pledgor is authorized to receive or demand pursuant to paragraph (a) of this Section 3.4 shall cease, and all such rights shall thereupon become vested in the Lender, which shall have the sole and exclusive right and authority to receive or demand, as the case may be, and retain such principal and interest payments (and all other payments in respect of the Pledged Obligations); in addition, all principal and interest payments (and all other payments in respect of the Pledged Obligations) which are received by any Pledgor contrary to the provisions of this Section 3.4(b) shall be received in trust for the benefit of the Lender, shall be segregated from other property or funds of such Pledgor and shall be forthwith delivered to the Lender as Pledged Collateral in the same form as so received (with any necessary endorsement) and (ii) all rights of each Pledgor to exercise any rights and powers (including the right to receive and retain payments on the Pledged Obligations) which it would otherwise be entitled to exercise pursuant to this Section 3.4 shall cease, and all such rights shall thereupon become vested in the Lender, which shall have the sole and exclusive right and authority to exercise all such rights and powers until such Event of Default shall have been cured or waived in accordance with the applicable Credit Agreement, at which time all such rights shall thereupon become revested in such Pledgor. Any and all money and other property paid over to or received by the Lender as Pledged Collateral and retained by the Lender pursuant to the provisions of this Section 3.4(b) shall be retained by the Lender in an account to be established by the Lender upon receipt of such money or other property and shall be applied in accordance with the provisions of the applicable Credit Agreement. (c) Upon the occurrence and during the continuance of an Event of Default, each Pledgor further agrees that so long as the Pledged Obligations continue to be Pledged Collateral under this Agreement, such Pledgor will not permit any of the notes, instruments or other agreements evidencing the Pledged Obligations to be amended, modified or changed in any material way, nor will 6 such Pledgor accept any waiver, indulgence, modification or other departure by any obligor under such Pledged Obligations from any provision of the Pledged Obligations, without first obtaining written consent of the Lender, which consent shall not be unreasonably withheld. Section 3.5 No Restrictions. Each Pledgor represents and warrants that --------------- each of the shares of the Pledged Stock is fully paid and non-assessable, that there are no restrictions upon the transfer (other than pursuant to state and federal securities laws) of, or the right to vote in respect of, any of the Pledged Collateral and that such Pledgor has the right to vote, pledge and grant a security interest in or otherwise transfer such Pledged Collateral free of any Lien. Each Pledgor hereby consents to the grant of a security interest in and the transfer of the Pledged Collateral by each other Pledgor pursuant to the terms hereof as may be required under any applicable partnership agreement or limited liability company agreement. Section 3.6 Subsequent Changes Affecting Pledged Collateral. Each Pledgor ----------------------------------------------- hereby represents and warrants that it has made its own arrangements for keeping informed of changes or potential changes affecting the Pledged Collateral (including, without limitation, rights to convert, rights to subscribe, payment of dividends, reorganization or other exchanges, tender offers and voting rights of the Pledged Stock, the Pledged Partnership Interests and the Pledged Membership Interests), and such Pledgor agrees that the Lender shall have no responsibility or liability for informing such Pledgor of any such changes or potential changes or for taking any action or omitting to take any action with respect thereto. The Lender may, upon the occurrence and during the continuance of an Event of Default, without notice and at its option, transfer or register the Pledged Stock, the Pledged Partnership Interests, the Pledged Membership Interests or any part thereof, into its or its nominee's name, or endorse any of the Pledged Obligations for negotiation, without any indication that such Pledged Stock, Pledged Partnership Interest, Pledged Membership Interest or Pledged Obligation is subject to the security interest hereunder. Section 3.7 Adjustments with Respect to the Pledged Collateral. In the -------------------------------------------------- event that, during the term of this Agreement, any stock dividend, reclassification, adjustment or other change is declared or made in the capital structure, of any issuer whose Securities constitute Pledged Collateral, or any option included with the Pledged Collateral is exercised, or both, all new, substituted and additional shares, or membership interests or other Securities, issued by reason of any such change or exercise shall be delivered and held by the Lender under the terms of this Agreement in the same manner as the collateral originally pledged hereunder; provided, however, that nothing -------- ------- contained in this Section 3.7 shall be deemed to permit the issuance of any warrants or other rights or options by any issuer whose Securities constitute Pledged Collateral that is not expressly permitted by the applicable Credit Agreement or any other document made in connection therewith or herewith. Section 3.8 Equity Rights with Respect to Pledged Collateral. In the ------------------------------------------------ event that during the term of this Agreement any Equity Rights shall be issued or exercised in connection with the Pledged Collateral, such warrants, rights and options and all new stock, partnership interests or membership interests or other Securities acquired by any Pledgor in connection therewith shall be immediately assigned and delivered to the Lender to be held under the terms of this Agreement in the same manner as the Pledged Collateral originally pledged hereunder; provided, however, that nothing contained in -------- ------- 7 this Section 3.8 shall be deemed to permit the issuance of any Equity Rights by any issuer whose Securities constitute Pledged Collateral that is not expressly permitted in the applicable Credit Agreement or any other document made in connection therewith or herewith. Section 3.9 Certain Additional Rights. In connection with any sale of ------------------------- Pledged Collateral by the Lender, the Lender shall have the right to execute any document or form, in its name or the name of the appropriate Pledgor, that may be necessary or desirable in connection with such sale after an Event of Default. Section 3.10 Reimbursement. The Pledgors shall pay any and all reasonable ------------- costs, including, without limitation, reasonable attorneys' fees, legal expenses and court costs, that the Lender may incur in enforcing, defending or protecting its Lien on, or rights and interests in, the Pledged Collateral, or any of its rights and remedies under this or any other agreement between the parties hereto or in respect to any of the transactions to be had thereunder or hereunder and, until paid by the Pledgors, such sums shall be considered as additional Secured Obligations. The Pledgors shall indemnify and hold harmless the Lender from and against any and all liability, loss or damage that it may suffer or incur and that arises out of or results from a partnership or limited liability company agreement or a certificate of partnership or limited liability company and any claim or any alleged obligation, liability or duty on the part of the Lender to perform or discharge any of the terms, covenants or provisions of the foregoing or any other agreement or document obligating or binding, or purporting to obligate or bind, together with all reasonable costs and expenses (including, without limitation, reasonable costs and attorneys' fees) paid or incurred in connection therewith and, until paid by the Pledgors, such sums shall be considered as additional Secured Obligations; provided, however, that the -------- ------- indemnification contained in this sentence shall not apply to liabilities, losses or damages that the Lender may suffer and that (i) arise after and in the event that it has purchased the Pledged Stock, the Pledged Partnership Interests or the Pledged Membership Interests upon foreclosure or sale in lieu of foreclosure or (ii) arise by reason of the gross negligence or the willful misconduct of the Person to be indemnified. Subject to the terms of the Credit Agreements, the Guarantee and except to the extent specifically limited by applicable law, the Lender shall not be liable or responsible in any way for the safekeeping of the Pledged Collateral or for any loss or damage thereto or for any diminution in the value thereof, all of which shall be at the sole risk of the Pledgors. Section 3.11 Further Assurances. So long as any of the Secured ------------------ Obligations or any Commitments shall be outstanding, each Pledgor, at its expense, will timely execute, acknowledge, deliver, file and record, or will cause to be executed, acknowledged, delivered, filed or recorded, all such further instruments, conveyances, transfers, financing statements, continuation statements and assurances as may be necessary or appropriate (and, in any event, as may be requested by the Lender) to subject to the Lien of this Agreement, and to preserve, continue and protect the Lien of this Agreement on, the Pledged Collateral, including, without limitation, any Pledged Collateral acquired after the date of this Agreement, or as the Lender may reasonably require for the better granting, bargaining, selling, remising, releasing, confirming, conveying, warranting, assigning, transferring, pledging, delivering and setting over to the Lender, and for perfecting the Lender's rights in, every part of the Pledged Collateral, or as may be required in order to transfer to, or perfect the rights of any new 8 agent or agents in, the Pledged Collateral; provided that no Pledgor shall be -------- required to take any action that would expand the obligations or limit the rights of any Pledgor under this Agreement. ARTICLE 4. DEFAULTS -- REMEDIES Section 4.1 Nature of Events. An "Event of Default" shall exist if any ---------------- Event of Default under, and as defined in, any Credit Agreement occurs and is continuing. Section 4.2 Default Remedies. ---------------- (a) If an Event of Default exists, the Lender may exercise all of the rights and remedies of a secured party under the Uniform Commercial Code as enacted in any and all relevant jurisdictions and all of the rights and remedies in this Agreement, in the Credit Agreements, the Guarantee, or in any other document executed in connection therewith or herewith, it being expressly understood that no such remedy is intended to be exclusive of any other remedy or remedies, but each and every remedy shall be cumulative and shall be in addition to every other remedy given in this Agreement, in the Credit Agreements, in the Guarantee, or in any other document executed in connection therewith or herewith or now or hereafter existing at law or in equity or by statute, and may be exercised from time to time as often as may be deemed expedient by the Lender. (b) If an Event of Default exists, the Lender shall have the right, at any time or from time to time, to sell any or all of the Pledged Collateral. (c) Each Pledgor and the Lender agree that 10 days' notice to such Pledgor of any public or private sale or other disposition of the Pledged Collateral shall be reasonable notice thereof, and such sale shall be at such reasonable locations as the Lender shall designate in such notice. Any other requirement of notice, demand or advertisement for sale is, to the extent permitted by law, waived by such Pledgor. Sales for cash at any public or private sale are all hereby deemed (without limitation) to be commercially reasonable. To the extent permitted by applicable law, the Lender shall have the right to bid at any such sale. Proceeds arising from any such sale shall be applied in the manner set forth in the applicable Credit Agreement. (d) If an Event of Default exists, the Lender may also, with or without proceeding with sale or foreclosure or demanding payment of the Secured Obligations, without notice, appropriate and apply to the payment of the Secured Obligations and the other obligations secured under this Agreement, any and all Pledged Collateral in its possession and any and all balances, credits, deposit accounts, reserves or other moneys due or owing to such Pledgor held by the Lender under this Agreement or otherwise to the extent permitted by law. (e) Anything in this Agreement contained to the contrary notwithstanding, and in view of the fact that federal and state securities laws may impose certain restrictions on the method by which a sale of the Pledged Collateral that consists of Securities may be effected after an Event of Default, upon the occurrence or existence of an Event of Default, the Lender may, from time to time, 9 attempt to sell all or any part of such Pledged Collateral by means of a private placement restricting the bidders and prospective purchasers to those who will represent or agree as to their investment intent or method of resale or both in a manner reasonably required by the Lender to assure compliance with applicable securities laws. In so doing, the Lender may solicit offers to buy such Pledged Collateral, or any part of it, for cash, from a limited number of investors deemed by the Lender, in its reasonable commercial judgment, to be responsible parties who might be interested in purchasing such Pledged Collateral, and if the Lender solicits and receives such offers from not less than three such investors, then the acceptance by the Lender of the highest offer obtained therefrom shall be deemed to be a commercially reasonable method of disposition (as defined in the UCC) of such Pledged Collateral unless applicable law provides otherwise. (f) All covenants, conditions, provisions, warranties, guaranties, indemnities and other undertakings of the Pledgors contained in this Agreement, the U.S. Credit Agreement, the Guarantee, or any other document executed in connection therewith or herewith or in any document referred to in this Agreement, the U.S. Credit Agreement, the Guarantee, or any other document executed in connection therewith or herewith or contained in any agreement supplementary to this Agreement, the U.S. Credit Agreement, the Guarantee or any other document executed in connection therewith or herewith, shall be cumulative and not exclusive of any of the terms, covenants, conditions or agreements of the Pledgors contained in this Agreement, the U.S. Credit Agreement, the Guarantee, or any other document executed in connection therewith or herewith. (g) The Pledgors will pay to the Lender all reasonable expenses (including court costs and reasonable attorneys' fees and expenses) of, or incident to, the enforcement of any of the provisions of this Agreement and all other charges due against the Pledged Collateral, including, without limitation, taxes, assessments, security interests, Liens or encumbrances upon the Pledged Collateral (except for Permitted Encumbrances) and any expenses, including transfer or other taxes, arising in connection with any sale, transfer or other disposition of the Pledged Collateral. Section 4.3 Other Enforcement Rights. The Lender may proceed to protect ------------------------ and enforce this Agreement by suit or suits or proceedings in equity, at law or in bankruptcy, and whether for the specific performance of any covenant or agreement in this Agreement contained or in execution or aid of any power in this Agreement granted to the extent permitted by law, or for foreclosure under this Agreement, or for the appointment of a receiver or receivers for the Pledged Collateral or any part thereof, for the recovery of judgment for the obligations secured by this Agreement or for the enforcement of any other proper, legal or equitable remedy available under applicable law. Section 4.4 Effect of Sale, etc. -------------------- (a) Any sale or sales properly completed pursuant to the provisions of this Agreement and applicable law, whether under any right or power granted hereby or thereby or pursuant to any legal proceedings, shall operate to divest any Pledgor of all right, title, interest, claim and demand whatsoever, either at law or in equity, of, in and to the Pledged Collateral, or any part thereof, so sold, and any Pledged Collateral so sold shall be free and clear of any and all rights of redemption by, through or under any Pledgor. At any such sale the Lender may bid for and purchase 10 the Pledged Collateral sold and may make payment therefor as set forth in clause (b) of this Section 4.4, and may hold, retain and dispose of such Pledged Collateral without further accountability. (b) The receipt by the Lender, or by any Person authorized under any judicial proceedings to make any such sale, of the proceeds of any such sale shall be a sufficient discharge to any purchaser of the Pledged Collateral, or of any part thereof, sold as aforesaid; and no such purchaser shall be bound to see to the application of such proceeds, or be bound to inquire as to the authorization, necessity or propriety of any such sale. In the event that, at any such sale, the Lender is the successful purchaser, it shall be entitled, for the purpose of making settlement or payment, to use and apply such Pledged Collateral to its Secured Obligations by crediting thereon the amount apportionable and applicable thereto out of the net proceeds of such sale. Section 4.5 Delay or Omission; No Waiver. No course of dealing on the ---------------------------- part of the Lender nor any delay or failure on the part of the Lender to exercise any right shall impair such right or operate as a waiver of such right or otherwise prejudice the Lender's rights, powers and remedies. No waiver by the Lender of any Default or Event of Default under any Credit Agreement, whether such waiver be full or partial, shall extend to or be taken to affect any subsequent Default or Event of Default under any Credit Agreement, or to impair the rights resulting therefrom except as may be otherwise expressly provided in this Agreement. Every right and remedy given by this Agreement, by the Credit Agreements, by the Guarantee, by any document executed in connection therewith and herewith or by law to the Lender may be exercised from time to time as often as may be deemed expedient by the Lender. Section 4.6 Application of Proceeds. The proceeds of any exercise of ----------------------- rights with respect to the Pledged Collateral, or any part thereof, and the proceeds and the avails of any remedy under this Agreement shall be paid to and applied in accordance with the provisions of the applicable Credit Agreement. If there is a deficiency, each Pledgor shall, subject always to the other provisions of this Agreement, the Credit Agreements, and the Guarantee, remain liable therefor and shall forthwith pay the amount of any such deficiency to the Lender. Section 4.7 Cumulative Remedies. No remedy under this Agreement, the ------------------- Credit Agreements, and the Guarantee, or under any other document executed in connection therewith or herewith is intended to be exclusive of any other remedy, but each and every remedy shall be cumulative and in addition to any and every other remedy given under this Agreement, any Credit Agreement, any Guarantee, or under any other document executed in connection therewith or herewith or otherwise existing; nor shall the giving, taking or enforcement of any other or additional security, collateral or guaranty for the payment or performance of the Secured Obligations operate to prejudice, waive or affect the security of this Agreement or any rights, powers or remedies under this Agreement, nor shall the Lender be required to look first to, enforce or exhaust any such other or additional security, collateral or guaranties. Section 4.8 Waivers by the Pledgors. Each Pledgor hereby waives notice of ----------------------- acceptance of this Agreement and of extensions to any borrower under any Credit Agreement of credit, loans, advances or other financial assistance thereunder, or under any other agreement, note, document or 11 instrument now or at any time or times hereafter executed by any Pledgor or French Subsidiary and delivered to the Lender. Each Pledgor further waives presentment and demand for payment of any of the Secured Obligations, protest and notice of dishonor or default with respect to any of the Secured Obligations, and all other notices to which such Pledgor might otherwise be entitled, except as otherwise expressly provided in this Agreement, any Credit Agreement or the other documents made in connection therewith or herewith, or as prohibited by law. Section 4.9 Consent. Each Pledgor hereby consents that from time to time, ------- before or after the occurrence or existence of any Event of Default, with or without notice to or assent from any Pledgor, any security at any time held by or available to the Lender for any of the Secured Obligations, or any other security at any time held by or available to the Lender for any obligation of any other Person secondarily or otherwise liable for any of the Secured Obligations, may be exchanged, surrendered, or released and any of the Secured Obligations may be changed, altered, renewed, extended, continued, surrendered, compromised, waived or released, in whole or in part, as the Lender or the holder thereof may see fit, and each Pledgor shall remain bound under this Agreement notwithstanding any such exchange, surrender, release, change, alteration, renewal, extension, continuance, compromise, waiver or release. ARTICLE 5. DEFEASANCE Section 5.1 Satisfaction and Discharge. If any Pledgor shall pay and -------------------------- discharge the entire indebtedness on all Secured Obligations outstanding by paying or causing to be paid the principal of, and interest on, all Secured Obligations outstanding, as and when the same become due and payable; and if any Pledgor shall also pay or cause to be paid all other sums payable under this Agreement with respect to the Secured Obligations and all sums payable under the Credit Agreements, or any one or more of the documents made in connection therewith or herewith, and fully discharges or causes to be discharged every other obligation herein or in the Credit Agreements, or in any other document made in connection therewith or herewith, contained or otherwise secured by this Agreement, or any other document made in connection therewith or herewith; and if all Commitments shall have been terminated, then and in that case all of the right, title and interest of the Lender in the Pledged Collateral created hereby shall cease and terminate, and thereupon the Lender shall forthwith execute and deliver as promptly as practicable, without recourse, proper deeds, assignments, terminations, certificates evidencing the Pledged Stock and other instruments or documents acknowledging satisfaction and discharging all of the right, title and interest of the Lender in the Pledged Collateral created hereby (subject to any disposition thereof that may have been made by the Lender pursuant to any Credit Agreement, or any other document made in connection therewith or herewith). Section 5.2 Disposal of Assets; Release of Lien. So long as no Default or ----------------------------------- Event of Default shall exist or be created as a result thereof under any Credit Agreement, if any Pledgor shall sell, lease, transfer or otherwise dispose of any of the Pledged Collateral in a manner not prohibited by any Credit Agreement, then the Lender, upon payment to it of all amounts then owed to it as fees and expenses under this Agreement, shall forthwith execute proper instruments releasing the interests in such Pledged Collateral so disposed of from the Lien of the Lender created under this Agreement. Upon the 12 payment in full of any of the Pledged Obligations, the Lender, upon payment to it of all amounts then owed to it as fees and expenses under this Agreement, shall forthwith execute proper instruments releasing the interests of such Pledged Collateral serving as collateral security for such Pledged Obligations, as well as any promissory notes evidencing such Pledged Obligations, from the Lien of the Lender created under this Agreement. ARTICLE 6. MISCELLANEOUS Section 6.1 Amendments and Waivers. Except as otherwise expressly ---------------------- provided in this Agreement or any Credit Agreement, any provision of this Agreement may be amended or modified only by an instrument in writing signed by the Pledgors and the Lender and any provision of this Agreement may be waived by the Lender. Section 6.2 Survival. The obligations of the Pledgors under Section 3.10 -------- and Section 4.2(g) of this Agreement shall survive the repayment of the loans under the Credit Agreements and the termination of the Commitments. Section 6.3 Successors and Assigns. This Agreement shall be binding upon, ---------------------- and shall inure to the benefit of, the Pledgors, the Lender, and their respective successors and assigns. Section 6.4 Notices. Except in the case of notices and other ------- communications expressly permitted to be given by telephone, all notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed by certified or registered mail or sent by telecopy, as follows: (a) if to any Pledgors, c/o NMT Medical, Inc., 27 Wormwood Street, Boston, Massachusetts 02210-1625, Attention of Chief Financial Officer (Telecopy No. 617-737-0924), with a copy to Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109, Attention of Steven D. Singer, Esq. (Telecopy No. 617-526-5000); and (b) if to the Lender, to Brown Brothers Harriman & Co., 40 Water Street, Boston, Massachusetts 02109-3661, Attention of Victoria W. Evans, Assistant Manager (Telecopy No. 617-772-1138), with a copy to Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts 02109-2881, Attention of Raymond C. Zemlin, P.C. (Telecopy No. 617-523-1231). Any party hereto may change its address or telecopy number for notices and other communications hereunder by notice to the other parties hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt. 13 Section 6.5 JURISDICTION; IMMUNITIES. ------------------------ (a) THE PLEDGORS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY MASSACHUSETTS OR UNITED STATES FEDERAL COURT SITTING IN SUFFOLK COUNTY OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT, AND THE PLEDGORS HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH MASSACHUSETTS STATE OR FEDERAL COURT. THE PLEDGORS IRREVOCABLY CONSENT TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE PLEDGORS AT THEIR ADDRESSES SPECIFIED IN SECTION 6.4. THE PLEDGORS AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE PLEDGORS FURTHER WAIVE ANY OBJECTION TO VENUE IN SUCH STATE AND ANY OBJECTION TO AN ACTION OR PROCEEDING IN SUCH STATE ON THE BASIS OF FORUM NON CONVENIENS. THE PLEDGORS FURTHER AGREE THAT ANY ACTION OR PROCEEDING BROUGHT AGAINST THE LENDER SHALL BE BROUGHT ONLY IN MASSACHUSETTS STATE OR UNITED STATES FEDERAL COURT SITTING IN SUFFOLK COUNTY. THE PLEDGORS WAIVE ANY RIGHT THEY MAY HAVE TO JURY TRIAL. (b) Nothing in this Section 6.5 shall affect the right of the Lender to serve legal process in any other manner permitted by law or affect the right of the Lender to bring any action or proceeding against any Pledgor or its property in the courts of any other jurisdictions. (c) To the extent that any Pledgor has or hereafter may acquire any immunity from jurisdiction of any court or from any legal process (whether from service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to itself or its property, such Pledgor hereby irrevocably waives, to the extent permitted by law, such immunity in respect of its obligations under this Agreement. Section 6.6 Headings. The headings and captions hereunder are for -------- convenience only and shall not affect the interpretation or construction of this Agreement. Section 6.7 Severability. The provisions of this Agreement are intended ------------ to be severable. If for any reason any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction, such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. Section 6.8 Counterparts. This Agreement may be executed in any number of ------------ counterparts, all of which taken together shall constitute one and the same instrument, and any party hereto may execute this Agreement by signing any such counterpart. 14 Section 6.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND ------------- INTERPRETED AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE COMMONWEALTH OF MASSACHUSETTS. Section 6.10 Power of Attorney. Each Pledgor hereby makes, constitutes ----------------- and appoints the Lender the true and lawful agent and attorney-in-fact of such Pledgor, with full power of substitution: (a) if an Event of Default exists, and to the fullest extent permitted by applicable law, to transfer any of the Pledged Stock, the Pledged Partnership Interests or the Pledged Membership Interests on the books of the issuer thereof to the name of the Lender or its nominee, and to indorse for negotiation its name; (b) if an Event of Default exists, and to the fullest extent permitted by applicable law, to collect all notes, checks, acceptances, drafts, money orders or other instruments included in the Pledged Collateral, with full power to endorse the name of such Pledgor upon any such notes, checks, acceptances, drafts, money orders, instruments or other documents relating to the Pledged Collateral and to effect the deposit and collection thereof, and the further right and power to endorse the name of such Pledgor on any document relating to the Pledged Collateral; (c) if an Event of Default exists, to sign the name of such Pledgor to drafts against its debtors, to notices to such debtors, to assignments and to notices of assignments, financing statements, continuation statements or other public records or notices and all other instruments and documents; and (d) to execute, acknowledge, deliver, file and record, or cause to be executed, acknowledged, delivered, filed or recorded, all such further instruments, deeds, conveyances, mortgages, transfers, financing statements, continuation statements and assurances as may be necessary or appropriate (and, in any event, as may be requested by the Lender) to subject to the Lien of this Agreement, and to preserve, continue and protect the Lien of this Agreement on, the Pledged Collateral after a request by the Lender to take any action, and the failure or refusal of such Pledgor to comply with such request within 10 days; provided that the Lender shall not take any action that would expand the - -------- obligations or limit the rights of any Pledgor under this Agreement. Each Pledgor agrees, in the absence of willful wrongdoing or gross negligence, that neither the Lender nor any of its agents, designees or attorneys-in-fact will be liable for any acts of commission or omission, or for any error of judgment or mistake of fact or law with respect to the exercise of the power of attorney granted under this Section 6.10. The power of attorney granted under this Section 6.10 is coupled with an interest and shall be irrevocable so long as any Secured Obligation or Commitment remains outstanding. Section 6.11 Term of Agreement. This Agreement shall be and remain in ----------------- full force and effect so long as any Secured Obligations or Commitments are outstanding. 15 Section 6.12 Acknowledgment. Each of the issuers of each of the Pledged -------------- Partnership Interests and the Pledged Membership Interests (the "Issuers"), by ------- executing the attached acknowledgment to this Agreement, hereby acknowledges and confirms that (a) each Pledgor has requested that each Issuer register, on each Issuer's books, the pledge of the Pledged Partnership Interests and the Pledged Membership Interests in favor of the Lender, and (b) the pledge of the Pledged Partnership Interests and the Pledged Membership Interests in favor of the Lender has been noted on the books and records of each Issuer. [Remainder of Page Intentionally Left Blank] 16 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. NMT MEDICAL, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT HEART, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT INVESTMENTS CORP. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (INTERNATIONAL), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (US), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President 17 NMT NEUROSCIENCES (IP), INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President NMT NEUROSCIENCES INNOVASIVE SYSTEMS, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President BROWN BROTHERS HARRIMAN & CO. By: /s/ A. Heaton Robertson ----------------------------- Name: A. Heaton Robertson Title: Partner 18 Schedule I ---------- NMT Heart, Inc. NMT Investments Corp. NMT NeuroSciences (International), Inc. NMT NeuroSciences (US), Inc. NMT NeuroSciences (IP), Inc. NMT Neurosciences Innovasive Systems, Inc. Schedule IV ----------- to Pledge Agreement ------------------- Pledged Stock ------------- 1. NMT Medical, Inc. (owner of 100% of the outstanding and issued shares of ----------------- the following**): NMT NeuroSciences (International), Inc. (a Delaware corporation) NMT Heart, Inc. (a Delaware corporation) NMT Investments Corp. (a Massachusetts corporation) NMT NeuroSciences (US), Inc. (a Delaware corporation) NMT NeuroSciences (IP), Inc. (a Delaware corporation) Nitinol Medical Technologies FSC, Inc. (Barbados) Nitinol Medical Technologies International B.V. (Netherlands) 2. NMT NeuroSciences (US), Inc. (owner of 100% of the outstanding and issued ---------------------------- shares of the following): NMT Neurosciences Innovasive Systems, Inc. (a Florida corporation) 3. NMT NeuroSciences (International), Inc. (owner of 100% of the outstanding --------------------------------------- and issued shares of the following**): NMT Neurosciences Holdings (UK) Limited (United Kingdom) NMT Neurosciences Holdings B.V. (Netherlands) NMT NeuroSciences Holdings (France) SA (owner of only 99,994 out of 100,000 shares) (France) **all pledges of shares of non-U.S. entities limited to 65% of the total amount of such shares 20 EX-10.7 8 AMENDMENT 2 TO SUBORDINATED NOTE EXHIBIT 10.7 AMENDMENT NO. 2 TO SUBORDINATED NOTE AND COMMON STOCK PURCHASE AGREEMENT by and among NMT MEDICAL, INC., WHITNEY SUBORDINATED DEBT FUND, L.P. and, for certain purposes J. H. WHITNEY & CO. ____________________________ September 13, 1999 _____________________________ AMENDMENT NO. 2 TO SUBORDINATED NOTE AND COMMON STOCK PURCHASE AGREEMENT This Amendment No. 2 to Subordinated Note and Common Stock Purchase Agreement (this "Amendment"), dated as of September 13, 1999, by and among NMT Medical, Inc. (f/k/a Nitinol Medical Technologies, Inc., ) ("Company"), a Delaware corporation, Whitney Subordinated Debt Fund, L.P., ("Purchaser") and, solely for the purposes of Sections 2.1 and 4(c) hereof, J.H. Whitney & Co. ("Whitney"). WHEREAS, on July 8, 1998, the parties hereto entered into the Subordinated Note and Common Stock Purchase Agreement (the "July 8, 1998 Agreement") and on April 14, 1999 the Company and the Purchaser entered into Amendment No. 1 (the "First Amendment") to the July 8, 1998 Agreement (the July 8, 1998 Agreement, as amended by the First Amendment, the "Original Agreement"); WHEREAS, contemporaneously with the execution of this Amendment, (a) the Company, the other borrowers thereunder and Brown Brothers Harriman & Co. are entering into a Credit Agreement (the "U.S. Credit Agreement"), and (b) NMT NeuroSciences Implants (France) SA, the other borrower thereunder and Brown Brothers Harriman & Co. are entering into a Credit Agreement (the "French Credit Agreement" and together with the U.S. Credit Agreement, collectively, the "Credit Agreement"), each dated September 13, 1999; WHEREAS, contemporaneously with the execution of this Amendment, the Company and the other guarantors thereunder are entering into a Guarantee in favor of Brown Brothers Harriman & Co. (the "Guarantee"), dated September 13, 1999; WHEREAS, a portion of the loan proceeds under the Credit Agreement together with additional funds of the Company, shall be paid by the Company to Purchaser upon the closing hereof, to be applied in payment of $14,000,000 of principal of the WSDF Note and all unpaid accrued interest on the WSDF Note; and WHEREAS, the Company has requested and the Purchaser and Whitney have agreed to amend the Original Agreement in order to, among other things, (i) terminate all of the security interests granted by the Company to Purchaser under the Original Agreement except as otherwise set forth herein, (ii) amend, among other things, the principal amount of and the subordination provisions of the WSDF Note, and (iii) amend various covenants contained in the Original Agreement, all as hereinafter set forth. NOW THEREFORE, in consideration of the premises set forth herein and for other good and valuable consideration, the sufficiency and receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS ----------- 1.1 Original Agreement Definitions. ------------------------------ (a) All capitalized terms used in this Amendment but not defined shall have the meanings given to them in the Original Agreement. In the event of a conflict between the definitions contained in this Amendment and those contained in the Original Agreement, the definitions contained herein shall prevail. (b) All references to the Note in the Original Agreement shall be deemed to refer to the New Note (as defined below) from and after the date hereof. (c) "Domestic Subsidiary" shall mean, each Subsidiary that is incorporated or organized in the United States or any state or territory thereof. (d) "Barclays Debt" shall mean, the outstanding Indebtedness of Spembly Medical Ltd. to Barclays Bank plc in the principal amount as of the date hereof of approximately (Pounds)180,000 pursuant to that certain Barclays Treasury Loan Facility, dated as of April 15, 1996, by and between Spembly Medical Ltd. and Barclays Bank plc. (e) "Senior Indebtedness" shall mean the principal of, premium, if any, and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect hereto, whether or not such interest is an allowed claim under applicable law) on, and all reasonable fees, reimbursement and indemnity obligations, and all other obligations (collectively hereinafter referred to as the "Obligations") arising under or in connection with the Credit Agreement, the Guarantee or any instruments, agreements or documents issued or executed in connection therewith, as the same may be amended from time to time thereafter, together with any Obligations created or incurred in connection with one or more restatements, renewals, extensions, restructurings, refundings, replacements or refinancings of the Credit Agreement or the Guarantee; provided, however, that -------- ------- the aggregate principal amount of Senior Indebtedness shall not exceed $13,000,000. 2 ARTICLE 2 AMENDMENTS TO ORIGINAL AGREEMENT -------------------------------- 2.1 Termination of Security Interests and Amendments to Guarantee and ----------------------------------------------------------------- Collateral Agreement. - -------------------- (a) Purchaser and Whitney hereby terminate and release all security interests and interests in collateral granted to Purchaser and/or Whitney, in any capacity, pursuant to the Pledge Agreements, which are hereby terminated, and pursuant to or contemplated by the Guarantee and Collateral Agreement; provided that, all other obligations of the Guarantors pursuant to the Guarantee - -------- ---- and Collateral Agreement shall continue in full force and effect, except as set forth herein below to the contrary, and except that at any time during which payment under the New Note may not be made pursuant to paragraph 7(a)(D) thereof, such payment shall not be made by any Guarantor, and at any time during which the exercise of remedies specified in paragraph 7(a)(E) of the New Note is prohibited pursuant to said paragraph 7(a)(E), such remedies shall not be exercised against any Guarantor, provided further that all such security -------- ------- interests and interests in collateral which are non-U.S. patents shall continue in full force and effect and, subject to Brown Brothers Harriman & Co. and Purchaser and/or Whitney entering into an agreement satisfactory to them (which shall be without representation or warranty of any kind by Purchaser and/or Whitney) shall be held by Purchaser and/or Whitney, as applicable, for the benefit of Brown Brothers Harriman & Co.. Accordingly, any reference in the Original Agreement or in the Guarantee and Collateral Agreement or in any other document related thereto to the terms "collateral," "security," "security interests," or any similar such term, for the benefit of Purchaser and/or Whitney, shall be deemed of no further force or effect, except with respect to the non-U.S. patents. In furtherance of the foregoing, Sections 3 (except with respect to the non-U.S. patents), 5.2 - 5.8, 6 and 7 of the Guarantee and Collateral Agreement shall be of no further force and effect, and Section 8.14 of the Guarantee and Collateral Agreement shall be amended and restated in its entirety as follows: "8.14 Additional Grantors. Each Subsidiary of the Borrower that is ------------------- required to become a party to this Agreement pursuant to Section 9.15 of the Note Purchase Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Assumption Agreement in form and substance reasonably satisfactory to the Lenders." (b) Purchaser and/or Whitney, as applicable, shall, at the cost and expense of the Company, (i) deliver to the Company all stock certificates and stock powers previously delivered to Purchaser pursuant to the Pledge Agreements, and (ii) execute and deliver to the Company such UCC-3 termination statements and other instruments as the Company shall submit, and as are reasonably deemed necessary or appropriate by the Company to terminate such security interests, provided however that any of the foregoing documents -------- ------- described in this Section 2.1 (collectively, the "Security Release Documents") may be delivered to the Company after the date hereof and, in such event, the Purchaser's and/or Whitney's, as applicable, obligation to deliver same shall survive the closing of the transactions contemplated hereby. 3 2.2 Financial Statements and Other Information. Any requirement contained ------------------------------------------ in Section 8.1 or elsewhere in the Original Agreement requiring delivery by the Company, on a weekly basis, of cash flow statements, is hereby deleted. Section 8.1(j) of the Original Agreement is hereby deleted. 2.3 Payment of Obligations. Section 8.3(b) of the Original Agreement is ---------------------- amended and restated in its entirety as follows: "(b) all lawful claims which the Company and each of its Subsidiaries is obligated to pay, which are due and which, if unpaid, might by law become a Lien upon its property, unless the same are being contested in good faith by appropriate proceedings and adequate reserves in accordance with GAAP are being maintained by the Company or such Subsidiary, provided that the foregoing shall not limit or restrict the Company's right to incur, assume or permit to exist any Lien which constitutes a Permitted Encumbrance pursuant to Section 9.5(i) of the Agreement." 2.4 Limitation on Indebtedness. Section 9.4 of the Original Agreement -------------------------- shall be amended and restated in its entirety as follows: "9.4 Limitation on Indebtedness. Neither the Company nor any Subsidiary, will create, incur, assume or permit to exist any Indebtedness, except Indebtedness created under the Transaction Documents and the following Indebtedness, in an aggregate principal amount not greater than $13,000,000 (but such limitation of amount shall not include inter-company debt or account balances): (a) Senior Indebtedness; (b) Indebtedness existing on the date hereof and set forth in Schedule 9.4, and extensions, renewals and replacements of any such Indebtedness that do not increase the outstanding principal amount thereof; (c) Indebtedness of the Company to any Subsidiary or of any Domestic Subsidiary to the Company or to any other Subsidiary; (d) Guarantees existing on the date hereof and set forth in Schedule 9.4 by the Company of Indebtedness of any Subsidiary or by any Subsidiary of any Indebtedness of the Company or any other Subsidiary, and extensions, renewals and replacements of such guarantees that do not increase the outstanding amount so guaranteed; (e) Indebtedness incurred to finance the acquisition, construction or improvement of any fixed or capital assets, including Capital Lease Obligations and any Indebtedness assumed in connection with the acquisition of any such assets or secured by a Lien on any such assets prior to the acquisition thereof, and extensions, renewals and replacements of any such Indebtedness that do not 4 increase the outstanding principal amount thereof; provided that (i) such -------- Indebtedness is incurred prior to or within 90 days after such acquisition or the completion of such construction or improvement and (ii) the aggregate principal amount of Indebtedness permitted by this clause (e) shall not exceed $300,000 at any time outstanding; (f) the Barclays Debt, but no extensions, renewals or replacements thereof; and (g) Indebtedness in an aggregate principal amount of up to $1,200,000 to be extended after the date hereof to NMT NeuroSciences Implants (France) SA by CIC Lyonnaise De Banque upon such terms and conditions as shall be approved by Purchaser, which approval shall not be unreasonably withheld, and solely for the lease of computer equipment, but no extensions, renewals or replacements thereof. 2.5 Limitations on Restricted Payments. Section 9.7 of the Original ---------------------------------- Agreement shall be amended and restated in its entirety as follows: "9.7 Limitations on Restricted Payments. The Company shall not, and shall not permit any of its Subsidiaries to declare, or make any Restricted Payment, except that Subsidiaries may pay dividends to the Company or any other Subsidiary." 2.6 Financial Covenants. Section 9.8 of the Original Agreement shall be ------------------- amended and restated in its entirety as follows: "9.8 Financial Covenants. (a) Total Leverage Test. The Company and the Subsidiaries ------------------- (collectively, the "Borrowers") shall not permit the ratio of the Borrowers' consolidated Net Funded Indebtedness as of the last day of any calendar quarter ending on the date or during any of the periods set forth below to the Borrowers' consolidated Adjusted Operating Cash Flow for the twelve (12) month period ending on the last day of such calendar quarter to be greater than the ratio set forth below for such period:
Date or Period Ratio -------------- ----- September 30, 1999 4.0:1.00 December 31, 1999 3.0:1.00 January 1, 2000 and thereafter 2.5:1.00
"Net Funded Indebtedness" and "Adjusted Operating Cash Flow" will be calculated as illustrated on Schedule 9.8. 5 (b) Fixed Charge Coverage. The Borrowers shall not permit the --------------------- Borrowers' consolidated Fixed Charge Coverage for any twelve (12) month period ending on the last day of a calendar quarter to be less than 1.50 to 1.00. "Fixed Charge Coverage" will be calculated as illustrated on Schedule 9.8. (c) Current Ratio. The Borrowers shall not permit the ratio of the ------------- Borrowers' consolidated Current Assets to the Borrowers' consolidated Current Liabilities as of the last day of any calendar quarter to be less than 1.25 to 1.00. As used herein, the following terms shall have the following meanings: "Current Assets" shall mean, at any date, the aggregate of the current assets of the Borrowers determined on a consolidated basis as of such date, as determined in accordance with GAAP. "Current Liabilities" shall mean, at any date, the aggregate of the current liabilities of the Borrowers, determined on a consolidated basis as of such date, as determined in accordance with GAAP; provided, that at all times all outstanding loans under the Credit Agreement shall be deemed to be Current Liabilities. (d) Tangible Net Worth. The Borrowers shall not permit the Borrowers' ------------------ Consolidated Tangible Net Worth as of the last day of any calendar quarter during any of the periods set forth below to be less than the amount set forth below for such period:
Period Amount ------ ------ September 30, 1999 to and including December 30, 1999 $16,250,000 December 31, 1999 to and including December 30, 2000 $17,750,000 December 31, 2000 to and including December 30, 2001 $21,000,000 December 31, 2001 and thereafter $25,000,000
As used herein, the term "Consolidated Tangible Net Worth" means (a) the total assets of the Borrowers on a consolidated basis as determined in accordance with GAAP, minus (b) the total liabilities of the Borrowers on a consolidated basis ----- as determined in accordance with GAAP, minus (c) the total book value of all ----- assets of the Borrowers properly classified as intangible assets in accordance with GAAP, including such items as good will, the purchase price of acquired assets in excess of the fair market value thereof, trademarks, trade names, service marks, brand names, copyrights, patents and licenses, and rights with respect to the foregoing, minus (d) all amounts representing any write-up in the ----- book value of any 6 assets of the Borrowers resulting from a revaluation thereof subsequent to the date hereof, minus (e) to the extent otherwise includable in the computation of ----- Consolidated Tangible Net Worth, any subscriptions receivable, minus (f) all ----- amounts representing any ownership interest in Image Technology Corp.; provided, however, that in calculating Consolidated Tangible Net Worth no effect shall be given to any foreign currency translations." 2.7 Limitation on Liens. Sections (i), (j) and (k) of Section 9.5 of the ------------------- Original Agreement are hereby deleted and the following is hereby included as Section 9.5(i) thereof: "(i) Liens to secure Indebtedness permitted by Section 9.4, including, without limitation, (x) Liens existing on the date hereof, all of which Liens currently in existence are set forth on Schedule 9.5 hereto and renewals and extensions thereof and (y) Liens otherwise permitted by Section 6.02 of the U.S. Credit Agreement." 2.8 Section 9.6(c) of the Original Agreement shall be amended and restated in its entirety as follows: "(c) Sale and leaseback transactions relating to real estate or capital equipment; provided however, that, subject to the Purchaser obtaining the prior ---------------- consent of the holders of the Senior Indebtedness, 50% of the Net Proceeds of any such transaction shall be utilized by the Company to prepay the outstanding principal and any outstanding interest or penalties on the New Note." 2.9 Subsidiaries. Section 9.15 of the Original Agreement shall be amended ------------ and restated in its entirety as follows: "9.15 Subsidiaries. (a) The Company shall not, nor shall any of the Subsidiaries be permitted to, directly or indirectly, establish, create or acquire any new Domestic Subsidiary unless (i) such new Domestic Subsidiary shall have become a Guarantor under the Guarantee and Collateral Agreement by executing a joinder in form and substance satisfactory to the Purchaser, which Guarantee shall be subordinate and junior to all Senior Indebtedness as and to the extent provided in the New Note, and (ii) there shall have been delivered to the Purchaser such approvals, opinions and other documents as the Purchaser may reasonably request. (b) With respect to any Subsidiary of the Borrower which is not a Domestic Subsidiary (each a "Foreign Subsidiary"), the Purchaser may request any such Foreign Subsidiary to execute a guarantee, in form and substance satisfactory to the Purchaser, pursuant to which such Foreign Subsidiary shall guarantee the prompt and complete payment and performance by the Company, when due (whether at the stated maturity, acceleration or otherwise), of the Borrower's Obligations (as defined in the Guarantee and Collateral Agreement) (a "Foreign Guarantee"), provided that each such Foreign Guarantee -------- ---- 7 shall be limited to the amount that such Foreign Subsidiary executing such Foreign Guarantee benefits and receives value from the Borrower Obligations (it being intended that any such Foreign Guarantee shall be in a form which does not create any adverse U.S. tax consequences to the Company or any Subsidiary of the Company, in the reasonable judgment of the Company's tax advisors); and provided -------- further that such Foreign Guarantee shall be subordinate and junior to all - ------- Senior Indebtedness as and to the extent provided in the New Note. Each Foreign Subsidiary executing a Foreign Guarantee shall deliver to the Purchaser such approvals and other documents reasonably requested by the Purchaser, but no legal or other professional opinions, provided that the Company will not be -------- ---- required to provide any such approvals or other documents if the Company will incur more than a minimal cost to document the same. The Company shall not, nor shall any of the Subsidiaries be permitted to, directly or indirectly, establish, create or acquire any new Foreign Subsidiary unless the Company gives the Purchaser at least ten Business Days prior written notice of the Company's or any Subsidiary's intention to do so." 2.10 Notices. Section 11.3 of the Original Agreement shall be amended and ------- restated in its entirety as follows: "11.3 Notices. All notices, demands and other communications provided for or permitted hereunder shall be made in writing and shall be by registered or certified first-class mail, return receipt requested, telecopier (with receipt confirmed), courier service or personal delivery: (a) if to the Purchaser: Whitney Subordinated Debt Fund, L.P. 177 Broad Street Stanford, Connecticut 06901 Telecopier No.: (203) 973-1422 Attention: Mr. Daniel J. O'Brien with a copy to: Morrison, Cohen, Singer & Weinstein, LLP 750 Lexington New York, New York 10022 Telecopier No.: (212) 735-8708 Attention: David A. Scherl, Esq. (b) if to the Company NMT Medical, Inc. 27 Wormwood Street Boston, Massachusetts 02210 Telecopier: (617) 737-0924 Attention: Mr. Theodore I. Pincus 8 with a copy to: Hale and Dorr, LLP 60 State Street Boston, Massachusetts 02109 Telecopier: (617) 526-5000 Attention: Steven D. Singer, Esq. All such notices and communications shall be deemed to have been duly given; when delivered by hand, if personally delivered; when delivered by courier, if delivered by commercial overnight courier service; if mailed, five Business Days after being deposited in the mail, postage prepaid; or if telecopies, when receipt is acknowledged." 2.11 Investments. Section 9.11 of the Original Agreement is hereby amended ----------- to include as a permitted investment the Company's investment in ITC described on Schedule 9.11. ARTICLE 3 REPRESENTATIONS AND WARRANTIES ------------------------------ The Company represents and warrants to the Purchaser as follows: 3.1 Corporate Existence and Power. The Company and each of its Domestic ----------------------------- Subsidiaries: (a) is, and after giving effect to the transactions contemplated by this Amendment, will be a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation; (b) will have all requisite corporate power and authority to own and operate its property, to lease the property it operates as lessee and to conduct the business in which it is currently, or is currently proposed to be, engaged; and (c) is, and after giving effect to the transactions contemplated by this Amendment, will be duly qualified as a foreign corporation, licensed and in good standing under the laws of each jurisdiction where its ownership, lease or operation of property or the conduct of its business requires such qualification, except to the extent that the failure to do so would not have a material adverse effect on the Condition of the Company. The Company has the corporate power and authority to execute, deliver and perform its obligations under this Amendment and the New Note. 3.2 Authority, Etc. The execution and delivery by the Company of this -------------- Amendment and the performance by the Company of all of its agreements and obligations under this Amendment and the Original Agreement as amended hereby (i) are within the corporate authority of the Company, (ii) have been duly authorized by all necessary corporate proceedings by the Company, (iii) do not conflict with or result in any breach or contravention of any provision of law, statute, rule or regulation to which the Company is subject or any judgment, order, writ, injunction, license or permit applicable to the Company, and (iv) do not conflict with any provision of the corporate charter or by-laws of, or any agreement or other instrument binding upon, the Company. 9 3.3 Enforceability of Obligations. This Amendment and the Original ----------------------------- Agreement as amended hereby constitute the legal, valid and binding obligations of the Company, enforceable against it in accordance with their respective terms. 3.4 No Default. After giving effect to this Amendment no default or Event ---------- of Default exists under the New Note. ARTICLE 4 CONDITIONS TO EFFECTIVENESS --------------------------- Concurrently with the execution of this Amendment: (a) the Company shall deliver to the Purchaser: (i) an original counterpart signature to this Amendment, duly executed and delivered by the Company; (ii) a copy of the fully-executed Credit Agreement and Guarantee with all exhibits and schedules thereto in form and substance satisfactory to the Purchaser; (iii) $14,415,110.00 by wire transfer of immediately available funds to such account as Purchaser shall designate, in payment of $14,000,000 of principal of the WSDF Note and all interest accrued on the WSDF Note through September 13, 1999; (iv) a Note in the principal amount of $6,000,000 (the "New Note"), the form of which is attached hereto as Exhibit A, and --------- (v) a certificate from the Company and dated the date of this Amendment and signed by the Secretary or an Assistant Secretary of the Company, certifying (A) that the attached copies of the Certificate of Incorporation and By-laws of the Company, and resolutions of the Board of Directors of the Company, approving the Transaction Documents to which it is a party and the transactions contemplated hereby and thereby, are all true, complete and correct and remain unamended and in full force and effect, and (B) as to the incumbency and specimen signature of each officer of the Company executing any Transaction Document to which it is a party or any other document delivered in connection herewith on behalf or the Company; (b) the Company shall reimburse all of the Purchaser's and Whitney's reasonable out-of-pocket expenses, including without limitation, the reasonable fees and disbursements of counsel, Morrison Cohen Singer & Weinstein, LLP; and 10 (c) Purchaser and Whitney, as applicable, shall deliver to the Company: (i) the WSDF Note in the original principal amount of $20,000,000, for cancellation, and (ii) the Security Release Documents to the extent required to be delivered at such time, as provided in Section 2.1. ARTICLE 5 MISCELLANEOUS ------------- 5.1 Continued Effectiveness. Notwithstanding anything contained herein, ----------------------- the terms of this Amendment are not intended to and do not serve to effect a novation as to the Original Agreement. The parties hereto expressly do not intend to extinguish the Original Agreement. Instead, it is the express intention of the parties hereto to reaffirm the Indebtedness created under the Original Agreement, in the reduced amount as described herein, (including, without limitation, the New Note) and the other documents contemplated thereby and to reaffirm the rights and obligations contained in the Original Agreement as amended hereby. The Original Agreement as amended hereby and each of the other documents contemplated thereby, as amended hereby, shall remain in full force and effect. Except as herein amended, the Original Agreement shall remain unchanged and in full force and effect, and is hereby ratified in all respects. All of the representations, warranties and covenants contained in the Original Agreement as amended hereby and in this Amendment shall survive the execution and delivery of this Amendment. 5.2 Successors and Assigns; Third Party Beneficiaries. This Amendment ------------------------------------------------- shall inure to the benefit of and be binding upon the successors and permitted assigns of the parties hereto. The Company may not assign any of its rights under the Agreement without the prior written consent of the Purchaser. Except as provided in Article 7 of the Original Agreement and in Article 7 of the New Note, no Person other than the parties hereto and their successors and permitted assigns is intended to be a beneficiary of any of the Transaction Documents. 5.3 References. Any reference to the Original Agreement contained in any ---------- notice, instrument, certificate, or other document executed concurrently with or after the execution and delivery of this Amendment shall be deemed to include the amendments contained in this Amendment unless otherwise stated therein. 5.4 Signatures; Counterparts. Telefacsimile transmissions of any executed ------------------------ original document and/or retransmission of any executed telefacsimile transmission shall be deemed to be the same as the delivery of an executed original. At the request of any party hereto, the other parties hereto shall confirm telefacsimile transmissions by executing duplicate original documents and delivering the same to the requesting party or parties. This Amendment may be executed in any number of counterparts and by the 11 parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. 5.5 Headings. The headings in this Amendment are for convenience of -------- reference only and shall not limit or otherwise affect the meaning hereof. 5.6 GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE (INCLUDING GIVING EFFECT TO GOL SECTION 5-1401). 5.7 Severability. If any one or more of the provisions contained herein, ------------ or the application thereof in any circumstance, is held invalid, illegal or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions hereof shall not be in any way impaired, unless the provisions held invalid, illegal or unenforceable shall substantially impair the benefits of the remaining provisions hereof. 5.8 Certain Expenses. The Company will pay all reasonable expenses of the ---------------- Purchaser and of Whitney (including fees, charges and disbursements of counsel) in connection with review, execution and delivery after the date hereof of any of the Security Release Documents, any further amendment, supplement, modification or waiver of or to any provision of the Agreement, the New Note, any agency or similar agreement with respect to security interests in non-U.S. patents requested by the Company and the holder of the Senior Indebtedness, or any consent to any departure by the Company from the terms of any provision of the Original Agreement as amended hereby or the New Note. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 12 IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed and delivered by their respective officers hereunto duly authorized as of the date first above written. NMT MEDICAL, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President WHITNEY SUBORDINATED DEBT FUND, L.P. By: /s/ Daniel J. O'Brien --------------------------- Name: Daniel J. O'Brien A General Partner For purposes of Sections 2.1 and 4(c) only: J. H. WHITNEY & CO. By: /s/ Daniel J. O'Brien --------------------------- Name: Daniel J. O'Brien Title: General Partner [signature page to amendment no.2] 13 EX-10.8 9 SUBORDINATED PROMISSORY NOTE EXHIBIT 10.8 SUBORDINATED PROMISSORY NOTE ---------------------------- THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS NMT MEDICAL, INC. 10.101% SUBORDINATED PROMISSORY NOTE DUE SEPTEMBER 30, 2003 $6,000,000 New York, New York as of July 8, 1998 FOR VALUE RECEIVED, the undersigned, NMT MEDICAL, INC. (f/k/a Nitinol Medical Technologies, Inc.), a Delaware corporation (the "Borrower") hereby promises to pay to the order of Whitney Subordinated Debt Fund, L.P. ("WSDF"), a Delaware limited partnership, or its registered assigns (the "Holder"), the principal sum of SIX MILLION DOLLARS ($6,000,000) on September 30, 2003 (the "Maturity Date"), with interest thereon from time to time as provided herein. 1. Purchase Agreement. This Subordinated Promissory Note (the "Note") is ------------------ issued by the Borrower, as of the date hereof, pursuant to the Subordinated Note and Common Stock Purchase Agreement, dated as of July 8, 1998, by and among the Borrower, WSDF and, for certain purposes, J. H. Whitney & Co., as amended by Amendment No. 1 thereto dated April 14, 1999 and Amendment No. 2 thereto dated as of September 13, 1999 (as so amended, the "Purchase Agreement"). This Note, together with all other notes issued pursuant to paragraph 12 hereof are hereinafter referred to as the "Notes." The Holder is entitled to the benefits of this Note and the Purchase Agreement, as it relates to the Note, and may enforce the agreements of the Borrower contained herein and therein and exercise the remedies provided for hereby and thereby or otherwise available in respect hereto and thereto. Capitalized terms used herein without definition are used herein with the meanings ascribed to such terms in the Purchase Agreement. 2. Interest. The Borrower promises to pay interest on the principal -------- amount of this Note at the rate of 10.101 % per annum. The Borrower shall pay accrued interest quarterly on each March 31, June 30, September 30 and December 31 of each year or, if any such date shall not be a Business Day, on the next succeeding Business Day to occur after such date (each date upon which interest shall be so payable, an "Interest Payment Date"), beginning on September 30, 1998; provided, however, that notwithstanding anything to the -------- ------- contrary contained herein or in the Purchase Agreement, the interest accruing under this Note in respect of the quarterly periods ending September 30, 1998, December 31, 1998 and March 31, 1999 (other than additional interest incurred upon and during the occurrence of an Event of Default) shall be satisfied as specified in Section 8.10 of the Purchase Agreement, provided further that -------- ------- interest accruing under this Note in respect of the period beginning July 1, 1999 and ended September 13, 1999 shall be paid on September 13, 1999. Interest on this Note shall be paid by wire transfer of immediately available funds to an account at a bank designated by the Holder. Interest on this Note shall accrue from the date of issuance until repayment of the principal and payment of all accrued interest in full. Interest shall accrue and be computed on the basis of a 360-day year of twelve 30-day months. Notwithstanding the foregoing provisions of this Section 2, but subject to applicable law, any overdue principal of and overdue interest on this Note shall bear interest, payable on demand in immediately available funds, for each day from the date payment thereof was due to the date of actual payment, at a rate equal to the rate of interest otherwise in effect pursuant to the first sentence of this Section 2 plus 2% per annum, ---- and, upon and during the occurrence of an Event of Default (as hereinafter defined) (other than an Event of Default pursuant to Section 6(a)(ii) of this Note), this Note shall bear interest, from the date of the occurrence of such Event of Default until such Event of Default is cured or waived, payable on demand in immediately available funds, at a rate equal to the rate of interest otherwise in effect pursuant to the first sentence of this Section 2 plus 2% per annum. Subject to applicable law, any interest that shall accrue on overdue interest on this Note as provided in the preceding sentence and shall not have been paid in full on or before the next Interest Payment Date to occur after the Interest Payment Date on which the overdue interest became due and payable shall itself be deemed to be overdue interest on this Note to which the preceding sentence shall apply. In the event that any interest rate provided for herein shall be determined to be unlawful, such interest rate shall be computed at the highest rate permitted by applicable law. Any payment by the Borrower of any interest amount in excess of that permitted by law shall be considered a mistake, with the excess being applied to the principal of this Note without prepayment premium or penalty. 3. Mandatory Payment. ----------------- (a) Secondary Public Offering. Subject to the Holder having obtained ------------------------- such consent as is required pursuant to Section 7(c) hereof and to the other provisions of Section 7 hereof, upon the consummation of a Secondary Public Offering (as hereinafter defined), the Borrower shall prepay the outstanding principal amount of this Note (together with interest accrued and unpaid thereon), within 5 Business Days after receipt by the Borrower of the proceeds of such Secondary Public Offering. For the purposes hereof, "Secondary Public Offering" means the sale by the Borrower of its capital stock pursuant to a registration statement on Form S-1, Form S-3 or otherwise under the Securities Act in which the issuer receives Net Cash Proceeds equal to or in excess of $25 million. For the purposes hereof, "Net Cash Proceeds" means (x) the cash proceeds in respect of a Secondary Public Offering minus (y) brokerage ----- commissions or underwriting fees and other fees and expenses (including, without limitation, fees, charges and disbursements of counsel) relating to such Secondary Public Offering. 2 (b) Change of Control. Subject to the Holder having obtained such ----------------- consent as is required pursuant to Section 7(c) hereof and to the other provisions of Section 7 hereof, upon a Change of Control (as hereinafter defined), the Borrower shall prepay the outstanding principal amount of this Note (together with interest accrued and unpaid thereon), within 5 Business Days after the occurrence of such Change of Control. For the purposes hereof, "Change of Control" means (i) any transaction or series of transactions in which any Person or group, other than WSDF, Whitney Equity Partners, L.P., the Borrower or any affiliates of the foregoing becomes the beneficial owner of 50% or more of the then outstanding capital stock of the Borrower or of any Subsidiary of the Borrower, the operations of which in the reasonable judgment of the Holder would constitute a material part of the business or operations of the Borrower and all of its Subsidiaries, taken as a whole, (ii) the sale of all or substantially all of the assets of the Borrower or any Subsidiary of the Borrower, the operations of which in the reasonable judgment of the Holder would constitute a material part of the business or operations of the Borrower and all of its Subsidiaries, taken as a whole, (iii) the liquidation of the Borrower, or (iv) the combination of the Borrower or of any Subsidiary of the Borrower, the operations of which in the reasonable judgment of the Holder would constitute a material part of the business or operations of the Borrower and all of its Subsidiaries, taken as a whole, with another entity, as a result of which (A) the shareholders of Borrower or any of its Subsidiaries hold less than 50% of the total of all voting shares outstanding or (B) directors of the Borrower or any of its Subsidiaries constitute less than a majority of the Board of Directors of the combined entity; provided, however, that any of the events -------- ------- described in subdivisions (i), (ii) or (iv) as applied to a Subsidiary of the Borrower shall be a Change in Control only if such event is also an Event of Default. (c) Notice. The Borrower shall give written notice to the Holder of ------ the existence of an event giving rise to any potential mandatory prepayment pursuant to this Section 3 at least 5 Business Days prior to the date of such prepayment. Such notice shall be given in the manner specified in Section 11.3 of the Purchase Agreement. 4. Optional Prepayment. ------------------- (a) Upon notice given to the Holder as provided in Section 4(b), and subject to the Borrower obtaining such consent as is required pursuant to Section 7(c) hereof and to the other provisions of Section 7 hereof, the Borrower, at its option, may prepay all or any portion of this Note at any time, by paying an amount equal to the outstanding principal amount of this Note, or the portion of this Note called for prepayment, together with interest accrued and unpaid thereon to the date fixed for prepayment, together with costs and expenses (including, without limitation, reasonable fees, charges and disbursements of counsel), if any, associated with such prepayment, without penalty or premium; provided, however, each prepayment of less than the full -------- ------- outstanding principal balance of the Note shall be in an aggregate principal amount of $500,000 or a whole multiple thereof. (b) The Borrower may give written notice of prepayment of this Note or any portion thereof not less than 10 nor more than 30 days prior to the date fixed for such prepayment. Such notice of prepayment shall be given in the manner specified in Section 11.3 of the Purchase Agreement. Upon 3 notice of prepayment being given by the Borrower, the Borrower covenants and agrees that it will prepay, on the date therein fixed for prepayment, this Note or, if applicable, the portion hereof so called for prepayment at the outstanding principal amount thereof of the portion thereof so called for prepayment, together with interest accrued and unpaid thereon to the date fixed for such prepayment, together with the costs and expenses referred to in Section 4(a) or 4(c). (c) All optional prepayments under this Section 4 shall include payment of accrued and unpaid interest on the principal amount so prepaid and shall be applied first to all costs, expenses and indemnities payable under the Purchase Agreement, then to payment of default interest, if any, then to payment of accrued interest, and thereafter to principal. 5. Amendment. Amendments and modifications of this Note may be made only --------- in the manner provided in Section 11.6 of the Purchase Agreement. 6. Defaults and Remedies. --------------------- (a) Events of Default. An "Event of Default" shall occur if ----------------- (i) the Borrower shall default in the payment of the principal of this Note, when and as the same shall become due and payable, whether at maturity or at a date fixed for prepayment or by acceleration or otherwise; or (ii) the Borrower shall default in the payment of any installment of interest on this Note according to its terms, when and as the same shall become due and payable and such default shall continue for a period of five days; or (iii) the Borrower shall default in the due observance or performance of any covenant to be observed or performed pursuant to Sections 8.1, 8.2(a), 8.3 (except to the extent otherwise covered in Sections 6(a)(i) and 6(a)(ii) above), 8.7, 8.9 or Article 9 of the Purchase Agreement; or (iv) the Borrower or any of its Subsidiaries shall default in the due observance or performance of any other material covenant, condition or agreement on the part of the Borrower, its parent or any of its Subsidiaries to be observed or performed pursuant to the terms hereof or pursuant to the terms of the Purchase Agreement or any of the Transaction Documents (other than those referred to in clauses (i), (ii) or (iii) of this Section 6(a)), and such default shall continue for 30 days after the earlier of (A) the date the Borrower is required pursuant to the Transaction Documents or otherwise to give notice thereof to the Holder (whether or not such notice is actually given) or (B) the date of written notice thereof, specifying such default and, if such default is capable of being remedied, requesting that the same be remedied, shall have been given to the Borrower by the Holder; or 4 (v) any representation, warranty or certification made by or on behalf of the Borrower or its Subsidiaries in the Purchase Agreement, this Note, the Transaction Documents or in any certificate or other document delivered pursuant hereto or thereto shall have been incorrect in any material respect when made; or (vi) any event or condition shall occur that results in (A) the acceleration of the maturity of any Indebtedness of the Borrower or any of its Subsidiaries, or (B) a default of any Indebtedness of the Borrower or any of its Subsidiaries, in either case in a principal amount aggregating $1,000,000 or more; or (vii) any uninsured damage to or loss, theft or destruction of any assets of the Borrower or any of its Subsidiaries shall occur that is in excess of $250,000; or (viii) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (a) relief in respect of the Borrower or any of its Subsidiaries, or of a substantial part of their property or assets, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (b) the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of its Subsidiaries, or for a substantial part of their property or assets, or (c) the winding up or liquidation of the Borrower or any of its Subsidiaries; and in each case such proceeding or petition shall continue undismissed for 60 days, or an order or decree approving or ordering any of the foregoing shall be entered; or (ix) the Borrower or any of its Subsidiaries shall (a) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (b) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in paragraph (viii) of this Section 6(a), (c) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Borrower or any of its Subsidiaries, or for a substantial part of their property or assets, (d) file an answer admitting the material allegations of a petition filed against it in any such proceeding, (e) make a general assignment for the benefit of creditors, (f) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (g) take any action for the purpose of effecting any of the foregoing; or (x) one or more judgments for the payment of money in an aggregate amount in excess of $100,000 (to the extent not covered by insurance) shall be rendered against the Borrower or any of its Subsidiaries and the same shall remain undischarged for a period of 30 days during which execution shall not be effectively stayed, or any action shall 5 be legally taken by a judgment creditor to levy upon assets or properties of the Borrower or any of its Subsidiaries to enforce any such judgment; or (xi) any guaranty given by a Guarantor shall at any time after its execution and delivery and for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by any Guarantor or any Guarantor shall deny it has any further liability or obligation thereunder; or (xii) the Guarantee and Collateral Agreement shall at any time after its execution and delivery and for any reason cease to be in full force and effect or shall be declared null and void, or the validity or enforceability thereof shall be contested by the Borrower or any Guarantor or the Borrower or any Guarantor shall deny it has any further liability or obligation under such Agreement or the Borrower or any Guarantor shall fail to perform any of its obligations thereunder. (b) Acceleration. If an Event of Default occurs under Section ------------ 6(a)(viii) or (ix), then the outstanding principal of and all accrued interest on this Note shall automatically become immediately due and payable, without presentment, demand, protest or notice of any kind, all of which are hereby expressly waived. If any other Event of Default occurs and is continuing the Holder, by written notice to the Borrower may declare the principal of and accrued interest on this Note to be immediately due and payable. Upon such declaration, such principal and interest shall become immediately due and payable. The Holder shall rescind an acceleration and its consequences if all existing Events of Default have been cured or waived, except nonpayment of principal or interest that has become due solely because of the acceleration, and if the rescission would not conflict with any judgment or decree. Any notice or rescission shall be given in the manner specified in Section 11.3 of the Purchase Agreement. 7. Subordination. ------------- (a) Anything contained in this Note to the contrary notwithstanding, the indebtedness evidenced by this Note shall be subordinate and junior, to the extent set forth in the following paragraph, to all Senior Indebtedness of the Borrower. "Senior Indebtedness" shall mean the principal of, premium, if any, ------------------- and interest (including any interest accruing subsequent to the filing of a petition of bankruptcy at the rate provided for in the documentation with respect hereto, whether or not such interest is an allowed claim under applicable law) on, and all reasonable fees, reimbursement and indemnity obligations, and all other obligations (collectively hereinafter referred to as the "Obligations") arising under or in connection with the Credit Agreements, each dated as of September 13, 1999, among the Borrower, the other borrowers thereunder and Brown Brothers Harriman & Co. (the "U.S. Credit Agreement") and among NMT Neurosciences Implants (France) SA, the other borrower thereunder and Brown Brothers Harriman & Co. (the "French Credit Agreement" and together with the U.S. Credit Agreement, collectively, the "Credit Agreement") and the Guarantee, dated as of September 13, 1999, among the Borrower and the other guarantors thereunder in favor of Brown Brothers Harriman & Co. (the "Guarantee") or any instruments, agreements or documents issued or executed in connection therewith, as the same may be amended from 6 time to time thereafter, together with any Obligations created or incurred in connection with one or more restatements, renewals, extensions, restructurings, refundings, replacements or refinancings of the Credit Agreement or the Guarantee; provided, however, that the aggregate principal amount of Senior -------- ------- Indebtedness shall not exceed $13,000,000. (A) In the event of any insolvency, bankruptcy, liquidation, reorganization or other similar proceedings, or any receivership proceedings in connection therewith, relative to the Borrower or its creditors or its property, and in the event of any proceedings for voluntary liquidation, dissolution or other winding up of the Borrower, whether or not involving insolvency or bankruptcy proceedings, then all Senior Indebtedness shall first be paid in full in cash, before any payment, whether on account of principal, interest or otherwise, is made upon this Note. (B) In any of the proceedings referred to in paragraph (A) above, any payment or distribution of any kind or character, whether in cash, property, stock or obligations which may be payable or deliverable in respect of this Note shall be paid or delivered directly to the holders of Senior Indebtedness for application in payment thereof, unless and until all Senior Indebtedness shall have been paid in full in cash and all obligations to provide financial accommodations to the Borrower pursuant to the Credit Agreement shall have been terminated; provided, however, that (i) -------- ------- the Holder may receive securities that are subordinate to the Senior Indebtedness to at least the same extent as this Note if pursuant to such proceedings the distributions to the holders of the Senior Indebtedness in the form of cash, securities or other property, by set-off or otherwise, provide for payment of the full amount of the allowed claim of the holders of the Senior Indebtedness, and (ii) if payment or delivery by the Borrower of cash, securities or other property to the Holder is authorized by an order or decree giving effect, and stating in such order or decree that the effect is given, to the subordination of this Note to the Senior Indebtedness, and made by a court of competent jurisdiction in such proceeding, payment or delivery by the Borrower of such cash, securities or other property shall be made to the Holder in accordance with such order or decree. (C) No payment shall be made, directly or indirectly, on account of this Note upon maturity of any Senior Indebtedness, whether as a result of the lapse of time, acceleration or otherwise, unless and until all principal thereof and interest thereon and all other Obligations in respect thereof shall first be paid in full in cash and all obligations to provide financial accommodations to the Borrower pursuant to the Credit Agreement shall have been terminated. (D) Upon receipt by the Borrower and the Holder of a Blockage Notice (as defined below), then the Borrower shall not make, directly or indirectly, to the Holder any 7 payment of any kind of or on account of all or any part of this Note and the Holder shall not accept from the Borrower any payment of any kind of or on account of all or any part of this Note prior to the expiration of the Blockage Period (as defined below), unless and until (i) the Senior Default (as defined below) to which the Blockage Notice refers shall have been cured or waived or shall have ceased to exist or (ii) all such Senior Indebtedness shall have been paid in full in cash and all obligations to provide financial accommodations to the Borrower pursuant to the Credit Agreement shall have been terminated; it being understood that (x) in the case of a Blockage Notice which refers to a Nonmonetary Default (as defined below) not more than two (2) such Blockage Notices may be given during any period of 360 days, provided that if such Blockage Notices are given in a manner which creates a continuous Blockage Period, then such continuous Blockage Period shall be limited to 150 days, and (y) if a Blockage Notice which refers to a Senior Payment Default (as defined below) and a Blockage Notice which refers to any Senior Default are given in a manner which creates a continuous Blockage Period, then such continuous Blockage Period shall be limited to 360 days. For purposes of this Section 7, the following terms have the meanings specified below: "Blockage Notice" shall mean written notice of the occurrence and continuance of a Senior Default delivered to the Borrower and the Holder. "Blockage Period" shall mean the period commencing upon the receipt by the Borrower and the Holder of a Blockage Notice and having a duration of: (i) 360 days if the Senior Default to which the Blockage Notice refers is a Senior Payment Default; or (ii) 120 days if the Senior Default to which the Blockage Notice refers is a Nonmonetary Default. "Nonmonetary Default" shall mean an event of default or any event or circumstance (other than a Senior Payment Default) with respect to any Senior Indebtedness permitting (after notice or lapse of time or both if required) one or more holders of such Senior Indebtedness to declare such Senior Indebtedness due and payable prior to the date on which it is otherwise due and payable or to suspend the providing of credit to the Borrower pursuant to any agreements relating to such Senior Indebtedness. "Senior Default" shall mean a Senior Payment Default or a Nonmonetary Default. 8 "Senior Payment Default" shall mean any default in payment of any principal of, premium, if any, or interest on or any other obligations payable in respect of Senior Indebtedness when the same becomes due and payable (other than at maturity, whether as a result of the lapse of time, acceleration or otherwise). (E) As long as any Senior Indebtedness or any obligation to provide financial accommodations to the Borrower pursuant to the Credit Agreement remains outstanding, upon the occurrence of an Event of Default under this Note, the Holder shall not, unless any holder of Senior Indebtedness shall have caused such Senior Indebtedness to become due prior to its stated maturity or any of the proceedings referred to in paragraph (A) above shall have been commenced, demand, receive, retain, sue for or otherwise seek enforcement or collection of any amounts payable on account of principal of or interest on this Note or otherwise take any action against the Borrower to enforce its rights under the Purchase Agreement and this Note or applicable law prior to the expiration of 120 days after written notice of intention to accelerate on account of the occurrence of such Event of Default shall have been given by the Holder to the Borrower and the holders of the Senior Indebtedness (the "Remedy Standstill Period"). Upon the expiration or termination of any Remedy Standstill Period, the Holder may exercise its rights under this Note other than the right to accelerate the maturity date of this Note based upon the occurrence of any Event of Default which has been cured or otherwise remedied during the Remedy Standstill Period. (b) Subject to the payment in full in cash of all Senior Indebtedness and the termination of all obligations to provide financial accommodations to the Borrower pursuant to the Credit Agreement, the Holder shall be subrogated to the rights of the holders of Senior Indebtedness to receive payments or distributions of any kind or character, whether in cash, property, stock or obligations, which may be payable or deliverable to the holders of Senior Indebtedness, until the principal of, and interest on, this Note shall be paid in full in cash, and, as between the Borrower, its creditors other than the holders of Senior Indebtedness, and the Holder, no such payment or distribution made to the holders of Senior Indebtedness by virtue of this Section 7 which otherwise would have been made to the Holder shall be deemed a payment by the Borrower on account of the Senior Indebtedness, it being understood that the provisions of this Section 7 are and are intended solely for the purposes of defining the relative rights of the Holder, on the one hand, and the holder of the Senior Indebtedness, on the other hand. Subject to the rights under this Section 7 of holders of Senior Indebtedness to receive cash, property, stock or obligations otherwise payable or deliverable to the Holder, nothing herein shall (i) impair, as between the Borrower and the Holder, the obligation of the Borrower, which is unconditional and absolute, to pay to the Holder the principal hereof and interest hereon in accordance with its terms, or (ii) prevent (except as otherwise specified therein) the Holder from exercising all remedies otherwise permitted by applicable law or hereunder upon default hereunder, or (iii) affect the relative rights of the Holder and creditors of the Borrower other than holders of Senior Indebtedness. 9 (c) If any payment or distribution of any character or any security, whether in cash, securities or other property, shall be received by the Holder in contravention of any of the terms hereof or the Borrower shall prepay all or any portion of this Note in accordance with Section 4 hereof without the Holder having received the prior written consent of the holders of the Senior Indebtedness, in each case before all the Senior Indebtedness obligations have been paid in full in cash and all obligations to provide financial accommodations to the Borrower pursuant to the Credit Agreement have been terminated, such payment or distribution or security shall be received in trust for the benefit of, and shall be paid over or delivered and transferred to, the holders of the Senior Indebtedness at the time outstanding in accordance with the priorities then existing among such holders for application to the payment of all Senior Indebtedness remaining unpaid, to the extent necessary to pay all such Senior Indebtedness in full in cash and, in such event, any such payment or distribution so paid over, delivered or transferred shall not, as between the Borrower and its creditors on the one hand, and the Holder on the other hand, be deemed a payment by Borrower on account of this Note. (d) The rights under these subordination provisions of the holders of any Senior Indebtedness as against the Holder shall remain in full force and effect without regard to, and shall not be impaired or affected by: (i) any act or failure to act on the part of the Borrower; or (ii) any extension or indulgence in respect of any payment or prepayment of any Senior Indebtedness or any part thereof or in respect of any other amount payable to any holder of any Senior Indebtedness; or (iii) any amendment, modification or waiver of, or addition or supplement to, or deletion from, or compromise, release, consent or other action in respect of, any of the terms of any Senior Indebtedness or any other agreement which may be made relating to any Senior Indebtedness; or (iv) any exercise or non-exercise by the holder of any Senior Indebtedness of any right, power, privilege or remedy under or in respect of such Senior Indebtedness or these subordination provisions or any waiver of any such right, power, privilege or remedy or of any default in respect of such Senior Indebtedness or these subordination provisions or any receipt by the holder of any Senior Indebtedness of any security, or any failure by such holder to perfect a security interest in, or any release by such holder of, any security for the payment of such Senior Indebtedness; or (v) any merger or consolidation of the Borrower or any of its subsidiaries into or with any other person, or any sale, lease or transfer of any or all of the assets of the Borrower or any of its subsidiaries to any other person; or 10 (vi) any absence of any notice to, or knowledge by, the Holder of any claim hereunder of the existence or occurrence of any of the matters or events set forth in the foregoing clauses (i) through (v). (e) To the extent permitted by applicable law, the Holder unconditionally waives (i) notice of any of the matters referred to in Section 7(d); (ii) all notices which may be required, whether by statute, rule of law or otherwise, to preserve intact any rights of any holder of any Senior Indebtedness, including, without limitation, any demand, presentment and protest, proof of notice of nonpayment under any Senior Indebtedness, and notice of any failure on the part of the Borrower to perform and comply with any covenant, agreement, term or condition of any Senior Indebtedness; (iii) any right to the enforcement, assertion or exercise by any holder of any Senior Indebtedness of any right, power, privilege or remedy conferred in such Senior Indebtedness or otherwise; (iv) any requirements of diligence on the part of any holder of any of the Senior Indebtedness; (v) any requirement on the part of the holder of any Senior Indebtedness to mitigate damages resulting from any default under such Senior Indebtedness; and (vi) any notice of any sale, transfer or other disposition of any Senior Indebtedness by any holder thereof. (f) The obligations of the Holder under these subordination provisions shall continue to be effective, or be reinstated, as the case may be, if at any time any payment in respect of any Senior Indebtedness, or any other payment to any holder of any Senior Indebtedness in its capacity as such, is rescinded or must otherwise be restored or returned by the holder of such Senior Indebtedness upon the occurrence of any proceeding referred to in paragraph 7(a) (A) or upon or as a result of the appointment of a receiver, intervenor or conservator of, or trustee or similar officer for, the Borrower or any substantial part of its property or otherwise, all as though such payment had not been made. (g) Notwithstanding anything to the contrary herein, the Borrower shall not, as long as any Senior Indebtedness remains outstanding or any obligation to provide financial accommodations to the Borrower pursuant to the Credit Agreement remains outstanding, offer (and the Holder shall not at any such time accept) any pledge of collateral with respect to the obligations of the Borrower under this Note, provided that the foregoing shall not prevent any subsidiary of the Borrower from guaranteeing the obligations of the Borrower under this Note. (h) The provisions of this Section 7 are for the benefit of the holders from time to time of the Senior Indebtedness and, as long as any Senior Indebtedness or any obligations to provide financial accommodations to the Borrower pursuant to the Credit Agreement remains outstanding, may not be modified, rescinded or canceled in whole or in part without the prior written consent thereto of the holders of the Senior Indebtedness. (i) The Borrower and the Holder hereby expressly agree that the holders of the Senior Indebtedness may enforce any and all rights derived herein by suit, either in equity or law, for specific performance of any agreement contained in this Section 7 or for judgment at law and any other relief whatsoever appropriate to such action or procedure. 11 (j) The Holder acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of Senior Indebtedness, and each holder of the Senior Indebtedness shall be deemed conclusively to have relied upon such subordination provisions in acquiring or continuing to hold such Senior Indebtedness. (k) The failure to make a payment on account of principal of or interest on or other amounts constituting Subordinated Indebtedness by reason of any provision of this Section 7 shall not be construed as preventing the occurrence of an Event of Default under Section 6. 8. Use of Proceeds. The Borrower shall use the principal from this Note --------------- (a) for the payment of fees and expenses in connection with the transactions contemplated under the Transaction Documents and (b) to fund the purchase price of the Acquisition under the Elekta Purchase Agreement. 9. Suits for Enforcement. --------------------- (a) Subject to Section 7, upon the occurrence of any one or more Events of Default, the Holder of this Note may proceed to protect and enforce its rights hereunder by suit in equity, action at law or by other appropriate proceeding, whether for the specific performance of any covenant or agreement contained in the Purchase Agreement or this Note or in aid of the exercise of any power granted in the Purchase Agreement or this Note, or may proceed to enforce the payment of this Note, or to enforce any other legal or equitable right of the Holders of this Note. (b) In case of any default under this Note, the Borrower will pay to the Holder such amounts as shall be sufficient to cover the reasonable costs and expenses of such Holder due to such default, as provided in Article 7 of the Purchase Agreement. 10. Remedies--Cumulative. No remedy herein conferred upon the Holder is -------------------- intended to be exclusive of any other remedy and each and every such remedy shall be cumulative and shall be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. 11. Remedies Not Waived. No course of dealing between the Borrower and ------------------- the Holder or any delay on the part of the Holder in exercising any rights hereunder shall operate as a waiver of any right. 12. Transfer. -------- (a) The term "Holder" as used herein shall also include any transferee of this Note whose name has been recorded by the Borrower in the Note Register. Each transferee of this Note acknowledges that this Note has not been registered under the Securities Act, and may be transferred only pursuant to an effective registration under the Securities Act or pursuant to an applicable exemption from the registration requirements of the Securities Act. 12 (b) The Borrower shall maintain a register (the "Note Register") in its principal offices for the purpose of registering the Note and any transfer thereof, which register shall reflect and identify, at all times, the ownership of any interest in the Note. Upon the issuance of this Note, the Borrower shall record the name of the initial purchaser of this Note in the Note Register as the first Holder. Upon surrender for registration of transfer or exchange of this Note at the principal offices of the Borrower, the Borrower shall, at its expense, execute and deliver one or more new Notes of like tenor and of denominations of at least $500,000 (except as may be necessary to reflect any principal amount not evenly divisible by $500,000) of a like aggregate principal amount, registered in the name of the Holder or a transferee or transferees. Every Note surrendered for registration of transfer or exchange shall be duly endorsed, or be accompanied by written instrument of transfer duly executed by the Holder of such Note or such Holder's attorney duly authorized in writing. 13. Replacement of Note. On receipt by the Borrower of an affidavit of an ------------------- authorized representative of the Holder stating the circumstances of the loss, theft, destruction or mutilation of this Note (and in the case of any such mutilation, on surrender and cancellation of such Note), the Borrower, at its expense, will promptly execute and deliver, in lieu thereof, a new Note of like tenor. If required by the Borrower, such Holder must provide an indemnity bond or other indemnity sufficient in the judgment of the Borrower to protect the Borrower from any loss which it may suffer if a lost, stolen or destroyed Note is replaced. 14. Covenants Bind Successors and Assigns. All the covenants, ------------------------------------- stipulations, promises and agreements in this Note contained by or on behalf of the Borrower shall bind its successors and assigns, whether so expressed or not. 15. GOVERNING LAW. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ------------- ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE. 16. Headings. The headings in this Note are for convenience of --------- reference only and shall not limit or otherwise affect the meaning hereof. NMT MEDICAL, INC. By: /s/ Thomas M. Tully ------------------------- Name: Thomas M. Tully Title: President 13 EX-10.9 10 AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT EXHIBIT 10.9 ________________________________________________________________________________ AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT Dated as of August 27, 1999 between NMT Medical, Inc. (the "Lender") and Image Technologies Corporation (the "Borrower") ________________________________________________________________________________ AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT This Amended and Restated Loan and Security Agreement, dated as of August 27, 1999, is between NMT Medical, Inc. (f/k/a Nitinol Medical Technologies, Inc.), a Delaware corporation having a principal place of business at 27 Wormwood Street, Boston, Massachusetts 02210-1625 (the "Lender") and Image Technologies Corporation, a Delaware corporation having a principal place of business at 27 Wormwood Street, Boston, Massachusetts 02210-1625 (the "Borrower"). RECITALS -------- WHEREAS, the Lender and the Borrower are parties to that certain Loan and Security Agreement dated as of May 29, 1997, as amended by Amendment No. 1 dated as of December 30, 1998 ("Amendment No. 1"), Amendment No. 2 dated as of February 3, 1999 ("Amendment No. 2") and Amendment No. 3 dated as of July 14, 1999 ("Amendment No. 3"; the Loan and Security Agreement, Amendment No. 1, Amendment No. 2 and Amendment No. 3 referred to collectively as the "Loan and Security Agreement"), pursuant to which the Lender has provided the Borrower with an approximately $2,100,000 revolving working capital line of credit for the operation of the Borrower's business; WHEREAS, the Lender has advanced $2,100,000 to the Borrower under such line of credit and no additional advances are expected to be made hereunder; WHEREAS, the Borrower, the Lender and Argo Capital Partners I L.P., a Delaware limited partnership ("Argo") are entering into a Note Purchase Agreement of even date herewith (such Note Purchase Agreement, together with any addendum entered into pursuant to Section 1.4 thereof referred to collectively as the "Note Purchase Agreement"), pursuant to which the Borrower will issue and sell to Argo, and Argo will purchase from the Borrower, convertible notes in the aggregate principal amount of $2,000,000, which notes will be secured pursuant to the terms and conditions of the Argo Security Documents (as defined below); and WHEREAS, the parties hereto wish to further amend the Loan and Security Agreement to reflect the extension of the full credit commitment to the Borrower by the Lender and the transactions contemplated by the Note Purchase Agreement. NOW, THEREFORE, in consideration of the undertakings set forth herein and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS ----------- As used in this Agreement: "Agreement" means this Amended and Restated Loan and Security Agreement, as it may be amended or modified and in effect from time to time. "Argo Notes" means (i) the Senior Secured Convertible Note, Series A of the Borrower, of even date herewith, payable to Argo in the aggregate principal amount of $1,500,000, (ii) the Senior Secured Convertible Note, Series B of the Borrower, of even date herewith, payable to Argo in the aggregate principal amount of $500,000, and (iii) any Supplemental Series A Notes (as defined in the Note Purchase Agreement) issued pursuant to Section 1.4 of the Note Purchase Agreement. "Argo Security Documents" means (i) the Security Agreement, of even date herewith, between the Borrower and Argo, (ii) the Guarantee, of even date herewith, executed by Robert Lee Thompson and Pinotage for the benefit of Argo and (iii) the Security Agreement, of even date herewith, between Argo, Robert Lee Thompson and Pinotage. "Business Day" means, with respect to any borrowing or payment, a day other than Saturday or Sunday on which banks are open for business in Boston, Massachusetts. "Code" means the Uniform Commercial Code of the jurisdiction with respect to which such term is used, as in effect from time to time. "Collateral" shall have the meaning assigned to such term in Article IV hereof. "Default" means any of the events specified in Article VII, whether or not any requirement for the giving of notice, lapse of time, or both, or any other condition has been satisfied. "Event of Default" shall have the meaning set forth in Article VII. "GAAP" means generally accepted accounting principles consistent with those from time to time adopted by the Financial Accounting Standards Board, or its successor. 2 "Governmental Authority" means any nation or government, any state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "Guarantors" means Robert Lee Thompson and Pinotage. "Guarantee" means the Amended and Restated Guarantee, of even date herewith, in substantially the form attached hereto as Exhibit B, executed by --------- Robert Lee Thompson and Pinotage in favor of the Lender. "Indebtedness" means all liabilities, obligations and indebtedness of any and every kind and nature, including, without limitation, all liabilities and all obligations to general creditors (other than trade payables), whether now or hereafter owing, arising, due or payable, from Borrower to any Person and howsoever evidenced, created, incurred, acquired or owing, whether primary, secondary, direct, contingent, fixed or otherwise. "Intellectual Property Assignments" means those Grants of Security Interest in substantially the form attached hereto as Exhibits E(1) and E(2), executed ------------- ---- and delivered by the Borrower in favor of the Lender. "Intercreditor Agreement" means the intercreditor agreement, of even date herewith, by and between the Lender and Argo in substantially the form attached hereto as Exhibit F. --------- "Interest Payment Date" means, subject to Section 9.5, each March 31, June 30, September 30 and December 31, beginning March 31, 2001, and the Payment Date. "Lender Guarantees" shall have the meaning assigned to such term in Article II hereof. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), charge, levy, execution, seizure, attachment, garnishment, security interest or other encumbrance or any preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever. "Loan" means the loan made to Borrower from Lender pursuant to this Agreement in the aggregate principal amount of $2,100,000. 3 "Loan Documents" means this Agreement, the Guarantee, the Security Agreement, the Note, the Intellectual Property Assignments and all other documents, agreements or instruments executed or delivered in connection with any of the foregoing. "Loan Parties" means the Borrower, any Guarantor, or any other Person that guarantees or grants a Lien to secure the Note or the Obligations or any part thereof; individually, a "Loan Party." "Material Adverse Effect" means a material adverse effect on (i) the business, assets, operations or financial or other condition of Borrower, (ii) the Borrower's ability to pay the Obligations in accordance with the terms thereof or (iii) the Collateral or the Lender's Liens on the Collateral or the priority of such Liens. "Note" has the meaning set forth in Section 2.1 of this Agreement, and as such Note may be amended pursuant to Section 9.5 of this Agreement. "Obligations" means all unpaid principal of and accrued and unpaid interest on the Note, all amounts due under the Lender Guarantees and all other obligations, interest (including post-petition interest) (whether or not allowed by applicable law), fees, charges and expenses of the Borrower to the Lender arising under or in connection with the Loan Documents or the Lender Guarantees. "Other Agreements" means all Supplemental Documentation, the Lender Guarantees and all agreements, instruments and documents, including, without limitation, notes, mortgages, deeds of trust, chattel mortgages, pledges, powers of attorney, consents, assignments, contracts, notices, security agreements, leases, financing statements, subordination agreements, trust account agreements and all other written matter whether heretofore, now, or hereafter executed by or on behalf of Borrower and delivered to the Lender with respect to this Agreement. "Payment Date" means December 31, 2002. "Permitted Indebtedness" means the indebtedness or obligations described in Section 6.11(a) of this Agreement. "Permitted Liens" means the liens, mortgages, encumbrances, pledges and other security interests described in clauses (i), (ii) and (iv) of Section 6.11(b) of this Agreement. 4 "Person" means any corporation, natural person, firm, joint venture, partnership, trust, unincorporated organization, enterprise, government or any department or agency of any government. "Pinotage" means Pinotage, L.L.C., an Arkansas limited liability company. "Requirement of Law" means, as to any Person, the certificate of incorporation and by-laws or other organizational or governing documents of such Person, and any law, statute, ordinance, code, order, decree, treaty, rule or regulation or determination of an arbitrator or a court or other Governmental Authority, in each case applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Security Agreement" means the Amended and Restated Security Agreement in substantially the form attached hereto as Exhibit C, executed by Robert Lee --------- Thompson and Pinotage in favor of the Lender. "Series A Preferred" means the Series A Convertible Preferred Stock, $0.01 par value per share, of the Borrower. "Solvent" means, with respect to any Person on a particular date, the condition that on such date, (a) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (b) the present fair salable value of the assets of such Person is not less than the amount that will be required to pay the probable liabilities of such Person on its debts as they become absolute and matured, (c) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond such Person's ability to pay as such debts and liabilities mature, and (d) such Person is not engaged in any business or a transaction, and is not about to engage in any business or a transaction, for which such Person's property would constitute an unreasonably small amount of capital. Contingent liabilities shall be computed as the amount which, in light of the relevant facts and circumstances, represents the amount that can reasonably be expected to become an actual or matured liability. "Stockholders Option Agreement" means the Amended and Restated Stockholders Option Agreement, dated as of March 30, 1999, by and among the Borrower, each of the stockholders named therein and the Lender, as it may be amended or modified and in effect from time to time. "Supplemental Documentation" means agreements, instruments, documents, financing statements, warehouse receipts, bills of lading, notices of assignment of 5 accounts, schedules of accounts assigned, mortgages and other written matter necessary or requested by the Lender to perfect and maintain perfected the Lender's security interest in the Collateral. Any accounting term used in this Agreement shall have, unless otherwise specifically provided herein, the meaning customarily given such term in accordance with GAAP, and all financial computations hereunder shall be computed, unless otherwise specifically provided herein, in accordance with GAAP consistently applied. That certain terms or computations are explicitly modified by the phrase "in accordance with GAAP" shall in no way be construed to limit the foregoing. All other undefined terms contained in this Agreement shall, unless the context indicates otherwise, have the meanings provided for by the Code as in effect in the Commonwealth of Massachusetts to the extent the same are used or defined therein. The words "herein," "hereof" and "hereunder" and other words of similar import refer to this Agreement as a whole, including the Exhibits and Schedules hereto, as the same may from time to time be amended, modified or supplemented and not to any particular section, subsection or clause contained in this Agreement. Wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural, and pronouns stated in the masculine, feminine or neuter gender shall include the masculine, the feminine and the neuter. ARTICLE II THE LOAN -------- 2.1. The Loan. On the terms and conditions set forth in this Agreement, -------- the Lender has made the Loan to the Borrower. The Loan is evidenced by two promissory notes, one in the original principal amount of $2,000,000 (the "$2,000,000 Note"), and one in the original principal amount of $100,000 (the "$100,000 Note"), both executed and delivered by the Borrower in substantially the form of Exhibit A(1) and A(2) hereto (referred to collectively as the --------------------- "Note"). The Borrower shall repay the aggregate outstanding principal amount of the Loan together with all accrued but unpaid interest due on the Loan and all other amounts owing under this Agreement or the Loan Documents or the Lender Guarantees on the Payment Date. 2.2. Interest. -------- (a) Interest Rates and Payments. The Loan, and the amount due under --------------------------- any Lender Guarantee, shall accrue interest at a rate per annum equal to ten percent (10%) 6 (the "Interest Rate"). Subject to Section 9.5 of this Agreement, interest on the Loan shall be payable quarterly in arrears on each Interest Payment Date. (b) Interest Basis. Interest shall be calculated for actual days -------------- elapsed on the basis of a 360-day year unless such calculation would result in a usurious rate of interest in which case interest shall be calculated on the basis of a 365 or 366 day year, as the case may be. Interest shall be payable for the day the Loan is made but not for the day of any payment on the amount paid if payment is received prior to noon (local time) at the place of payment. If any payment of principal of or interest on the Loan shall become due on a day which is not a Business Day, such payment shall be made on the next succeeding Business Day and, in the case of a principal payment, such extension of time shall be included in computing interest in connection with such payment. 2.3. Method of Payment. All payments of principal, interest and fees ----------------- hereunder shall be made in immediately available funds in United States Dollars to the Lender at the Lender's address specified pursuant to Section 10.14 of this Agreement, by noon (local time) on the date when due. Beginning January 1, 2001, the Loan may be prepaid in whole or in part without penalty. 2.4. Lender Guarantees. The Lender may, in its sole discretion, agree, on ----------------- the terms and conditions set forth in this Agreement, to guarantee obligations of the Borrower under (i) that certain Lease by and between the Borrower and Wormwood Realty Trust for the lease of premises located at 27 Wormwood Street, Boston, Massachusetts and (ii) that certain Equipment Lease by and between the Borrower and BancBoston Leasing, which guarantees in an aggregate amount shall not exceed $1.2 million and shall be on terms and conditions acceptable to the Lender, in its sole discretion (the "Lender Guarantees"). The Borrower shall repay to the Lender any amounts paid under the Lender Guarantees, together with all accrued interest thereon, no later than the Payment Date. Unless otherwise agreed by the parties, all Lender Guarantees issued by the Lender hereunder shall terminate on the Payment Date. The Borrower acknowledges and agrees that in the event the Lender is required to make any payments under Lender's guarantee of the Lease described above, the Borrower shall, at the request of the Lender, assign all of its rights, including occupancy, under the Lease to the Lender and promptly vacate the leased premises, as provided in that certain agreement, dated as of May 29, 1997, by and between the Lender and the Borrower. ARTICLE III CONDITIONS PRECEDENT -------------------- 7 Simultaneous with the execution and delivery of this Agreement, the Borrower shall furnish to the Lender, or caused to be furnished to the Lender (unless otherwise waived by the Lender), the following, in a form and substance reasonably satisfactory to the Lender and its counsel: (a) the Note; (b) the Security Agreement and the Guarantee, together with written documentation satisfactory to Lender evidencing that Lender holds a perfected security interest in the collateral securing such Guarantee; (c) each of the other Loan Documents; (d) a certificate of the Secretary of the Borrower: (1) certifying that attached thereto are true and correct copies of documents evidencing all corporate action taken to authorize this transaction and (2) giving the name, position and signature specimen of all authorized officers; (e) the written opinion of counsel to the Borrower, addressed to the Lender in the form attached hereto as Exhibit D; --------- (f) written documentation satisfactory to Lender evidencing that Lender holds a perfected security interest in the Collateral junior only to the Permitted Liens; and (g) such other documents as Lender or its counsel may reasonably request. ARTICLE IV GRANT OF SECURITY INTEREST -------------------------- 4.1 To secure payment and performance when due of all Obligations, the Borrower hereby grants to the Lender a security interest in all of the following, whether now owned or hereafter acquired by the Borrower: (a) Inventory, including but not limited to all inventory, supplies, raw materials, work in process, goods, merchandise, finished inventory and other tangible personal property held by the Borrower for sale or for lease, furnished or to be furnished under contracts of service, or used or consumed in the Borrower's business, goods in transit, any and all returned 8 or repossessed inventory or merchandise and all documents of title (whether negotiable or non-negotiable) representing any of the foregoing, and all proceeds thereof; and (b) Accounts, including but not limited to all accounts, all rights of the Borrower to payment for goods sold or leased or for services rendered, and all accounts receivable of the Borrower; all obligations owing to the Borrower evidenced by an instrument or chattel paper; all rights of the Borrower to payment under a contract not yet earned by performance; all obligations owing to the Borrower of any kind or nature, including all writings, if any, evidencing the same, including all instruments, drafts, acceptances and chattel paper; and any and all proceeds of any of the foregoing. Further included within the term "Accounts" are all right, title and interest of Borrower in and to the inventory which gave rise to any Account (including the right of stoppage in transit), all guaranties of, and security and liens with respect to, any Account, and all Accounts, and Documents of Borrower as defined in the Uniform Commercial Code; and (c) Instruments and Chattel Paper, including all instruments and chattel paper as defined in the Uniform Commercial Code and all proceeds thereof; and (d) General Intangibles, including, but not limited to, all general intangibles as defined in the Uniform Commercial Code and all proceeds thereof, including without limitation, any and all contract rights, any and all rights of Borrower to any refund of any tax assessed against Borrower or paid by Borrower, loss carry-back tax refunds, insurance premium rebates, unearned premiums, insurance proceeds, choses in action, names, trade names, goodwill, trade secrets, computer programs, computer records, data, computer software, customer lists, patents, patent rights, patent applications, patents pending, patent licenses or assignments, development ideas and concepts, licenses, permits, franchises, telephone numbers, literary rights, rights to performance, trademarks, trademark applications, trademark rights, logos, intellectual property, technology, trade secrets, technical information, copyrights, proprietary or other processes, blueprints, drawings, designs, diagrams, plans, reports, charts, catalogs, manuals, research, literature, proposals, cost estimates, routes, and other reproductions on paper or otherwise, of any and all concepts or ideas, whether or not related to the business or operations of Borrower, and including the patents and trademarks listed on Schedule I hereto; and ---------- 9 (e) Equipment, including but not limited to all equipment, vehicles, machinery, tools, furniture, fixtures, trade fixtures and parts. Further included within the term "Equipment" is all tangible personal property utilized in the conduct of the Borrower's business (but excluding any property hereinbefore defined as "Inventory") and all additions, accessions, substitutions, components, and replacements thereto, therefor and thereof and all proceeds thereof; and (f) Investment Property (as defined in Article 8 of the Uniform Commercial Code); and (g) All other tangible and intangible property of the Borrower; and all products and proceeds of all of the above subclauses (a) through (g), including insurance proceeds (collectively, the "Collateral"). ARTICLE V REPRESENTATIONS AND WARRANTIES ------------------------------ The Borrower represents and warrants to the Lender that on the date hereof: 5.1. Organization; Good Standing. The Borrower is a corporation duly --------------------------- organized, validly existing and in good standing under the laws of its jurisdiction of incorporation and is duly qualified and in good standing in every other jurisdiction where it is doing business. 5.2. Executive Offices. The location of the Borrower's chief executive ----------------- office, principal place of business, other offices and places of business and of the Borrower's Accounts and Inventory are set forth on Schedule 5.2 hereto, and ------------ are the sole offices and places of business of Borrower. 5.3. Corporate Power; Authorization; Enforceable Obligations. The ------------------------------------------------------- execution, delivery and performance by Borrower of the Loan Documents and Other Agreements, to the extent it is a party thereto, and the creation of all Liens provided for herein and therein: (i) are within Borrower's corporate power; (ii) have been, and will be, duly authorized by all necessary or proper action; (iii) are not in contravention of any provision of Borrower's by-laws or charter; (iv) will not violate any Requirement of Law; (v) will not conflict with or result in the breach or termination of, constitute a default under, or accelerate any performance required by, any indenture, mortgage, deed of 10 trust, lease, agreement or other instrument to which Borrower is a party or by which Borrower or any of its property is bound (except for such conflict, breach, termination, default or acceleration as could not reasonably be expected to have a Material Adverse Effect or which has been waived or consented to); (vi) will not result in the creation or imposition of any Lien upon any of the property of Borrower other than those in favor of the Lender, all pursuant to the Loan Documents; and (vii) do not require the consent or approval of any Governmental Authority or any other Person except such consents as have been obtained and are in effect. Each of the Loan Documents has been duly executed and delivered for the benefit of or on behalf of Borrower and each constitutes a legal, valid and binding obligation of Borrower, enforceable against it in accordance with its terms. 5.4. Title; No Other Liens. Except for the security interest granted to --------------------- the Lender pursuant to this Agreement and as listed in Schedule 5.4, the ------------ Borrower owns each item of the Collateral free and clear of any and all Liens, encumbrances or claims of others. No financing statement, Lien instrument or other public notice with respect to all or any part of the Collateral is on file or of record in any public office, except such as have been filed in favor of the Lender pursuant to this Agreement and as listed in Schedule 5.4. ------------ 5.5. Perfected Liens. The security interests granted pursuant to this --------------- Agreement (a) upon completion of the filings and other actions specified on Schedule 5.5(a) (which, in the case of all filings and other documents referred - --------------- to on such Schedule, have been delivered to the Lender in completed and duly executed form) will constitute valid perfected security interests in all of the Collateral in favor of the Lender, as collateral security for the Obligations, enforceable in accordance with the terms hereof against all creditors of the Borrower and any Persons purporting to purchase any Collateral from the Borrower and (b) are prior to all other Liens on the Collateral in existence on the date hereof except for Liens described on Schedule 5.5(b). --------------- 5.6. Solvency. As of the date hereof, after giving effect to the -------- transactions contemplated by the Loan Documents, the Borrower will be Solvent. 5.7. Other Representations and Warranties in Note Purchase Agreement. All --------------------------------------------------------------- of the representations and warranties of the Borrower set forth in Section 3 of the Note Purchase Agreement are true and correct as if made on the date hereof. ARTICLE VI COVENANTS --------- 11 Unless the Lender shall otherwise consent in writing, while the Note or any Obligations remain outstanding to the Borrower under this Agreement or any other agreement, note, document or instrument with the Lender, Borrower covenants and agrees with the Lender that from and after the date of this Agreement until the Obligations shall have been paid in full: 6.1. Covenants in Loan Document. Borrower shall take, or shall refrain -------------------------- from taking, as the case may be, each action that is necessary to be taken or not taken, as the case may be, so that no Default or Event of Default is caused by the failure to take such action. 6.2. Delivery of Instruments and Chattel Paper. If any amount payable ----------------------------------------- under or in connection with any of the Collateral shall be or become evidenced by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be immediately delivered to the Lender, duly endorsed in a manner satisfactory to Lender, to be held as Collateral pursuant to this Agreement. 6.3. Maintenance of Insurance. ------------------------ (a) The Borrower will maintain, with financially sound and reputable companies, insurance policies (i) insuring the Inventory and Equipment against loss by fire, explosion, theft and such other casualties as may be reasonably satisfactory to the Lender and (ii) to the extent requested by the Lender, insuring the Borrower and the Lender against liability for personal injury and property damage relating to such Inventory and Equipment, such policies to be in such form and amounts and having such coverage as may be reasonably satisfactory to the Lender. (b) All such insurance shall (i) provide that no cancellation, reduction in amount or change in coverage thereof shall be effective until at least 30 days after receipt by the Lender of written notice thereof, (ii) name the Lender as insured party or loss payee, (iii) if reasonably requested by the Lender, include a breach of warranty clause and (iv) be reasonably satisfactory in all other respects to the Lender. (c) The Borrower shall deliver to the Lender a report of a reputable insurance broker with respect to such insurance during the month of April in each calendar year and such supplemental reports with respect thereto as the Lender may from time to time reasonably request. 12 6.4. Payment of Obligations. The Borrower will pay and discharge or ---------------------- otherwise satisfy at or before maturity or before they become delinquent, as the case may be, all taxes, assessments and governmental charges or levies imposed upon the Collateral or in respect of income or profits therefrom, as well as all claims of any kind (including, without limitation, claims for labor, materials and supplies) against or with respect to the Collateral, except that no such charge need be paid if the amount or validity thereof is currently being contested in good faith by appropriate proceedings, reserves in conformity with GAAP with respect thereto have been provided on the books of the Borrower and such proceedings could not reasonably be expected to result in the sale, forfeiture or loss of any material portion of the Collateral or any interest therein. 6.5. Maintenance of Perfected Security Interest; Further Documentation. ----------------------------------------------------------------- (a) The Borrower shall maintain the security interest and shall defend such security interest against the claims and demands of all Persons whomsoever. (b) The Borrower will furnish to the Lender from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as the Lender may reasonably request, all in reasonable detail. (d) At any time and from time to time, upon the written request of the Lender, and at the sole expense of the Borrower, the Borrower will promptly and duly execute and deliver and have recorded, such further instruments and documents and take such further actions as the Lender may reasonably request for the purpose of obtaining or preserving the full benefits of this Agreement and of the rights and powers herein granted, including, without limitation, the filing of any financing or continuation statements under the Uniform Commercial Code (or other similar laws) in effect in any jurisdiction with respect to the security interests created hereby and complying with the Federal Assignment of Claims Act. (d) A photographic or other reproduction of this Agreement shall be sufficient as a financing statement or other filing or recording document or instrument for filing or recording in any jurisdiction. 6.6. Changes in Locations, Name, Etc. The Borrower will not, except upon -------------------------------- 30 days prior written notice of and delivery to the Lender of (a) all additional executed financing statements and other documents reasonably requested by the Lender to maintain the validity, perfection and priority of the security interests provided for herein 13 and (b) if applicable, a written supplement to Schedule 5.2 showing any additional location at which such Borrower's Inventory or Equipment shall be kept: (i) permit any of the Inventory or Equipment to be kept at a location other than those listed on Schedule 5.2; ------------ (ii) change the location of its chief executive office from that referred to in this Agreement; or (iii) change its name, identity or corporate structure to such an extent that any financing statement filed by the Lender in connection with this Agreement would become misleading. 6.7. Notices. The Borrower will advise the Lender immediately in ------- reasonable detail of: (a) any Lien on any of the Collateral; (b) any Default or Event of Default; and (c) the occurrence of any other event which could reasonably be expected to have a material adverse effect on the aggregate value of the Collateral or on the security interests created hereby. 6.8. Intellectual Property. --------------------- (a) The Borrower will (i) continue to use each trademark on each and every trademark class of goods applicable to its current line as reflected in its current catalogs, brochures and price lists in order to maintain such trademark in full force free from any claim of abandonment for non-use, (ii) maintain as in the past the quality of products and services offered under such trademark, (iii) use such trademark with the appropriate notice of registration and all other notices or legends required by applicable Requirements of Law, (iv) not adopt or use any mark which is confusingly similar or a colorable imitation of such trademark unless the Lender shall obtain a perfected security interest in such mark pursuant to this Agreement, and (v) not (and not permit any licensee or sublicensee, thereof to) do any act or knowingly omit to do any act whereby such trademark may become invalidated or impaired in any way. 14 (b) The Borrower will not do any act, or omit to do any act, whereby any patent may become abandoned or dedicated to the public. (c) The Borrower (either itself or through licensees) will not infringe upon the intellectual property rights of any other Person. (d) The Borrower will notify the Lender immediately if it knows or has reason to know, that any application or registration relating to any material intellectual property may become forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the United States Patent and Trademark Office, the United States Copyright Office or any court or tribunal in any country) regarding the Borrower's ownership of, or the validity of, any material intellectual property or such Borrower's right to register the same or to own and maintain the same. (e) Whenever the Borrower, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any intellectual property with the United States Patent and Trademark Office, the United States Copyright Office or any similar office or agency in any other country or any political subdivision thereof, the Borrower shall report such filing to the Lender within five Business Days after the last day of the fiscal quarter in which such filing occurs. Upon the request of the Lender, the Borrower shall execute and deliver, and have recorded, any and all agreements, instruments, documents and papers as the Lender may request to evidence the Lender's security interest in any patent or trademark and the goodwill and general intangibles of such Grantor relating thereto or represented thereby. (f) The Borrower will take all reasonable and necessary steps, including without limitation, in any proceeding before the United States Patent and Trademark Office, or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of the intellectual property, including, without limitation, filing of applications for renewal, affidavits of use and affidavits of incontestability. (g) In the event that any intellectual property is infringed, misappropriated or diluted by a third party, the Borrower shall (i) take such actions as the Borrower shall reasonably deem appropriate under the circumstances to 15 protect such intellectual property and (ii) if such intellectual property is of material economic value, promptly notify the Lender after it learns thereof and sue for infringement, misappropriation or dilution, to seek injunctive relief where appropriate and to recover any and all damages for such infringement, misappropriation or dilution. 6.9. Landlord and Warehouseman Waivers. The Borrower shall deliver to the --------------------------------- Lender waivers of contractual and statutory landlord's, landlord's mortgagee's and warehouseman's Liens in form and substance satisfactory to the Lender under each existing lease, warehouse agreement or similar agreement to which the Borrower is a party. If any Collateral is at any time in the possession or control of any warehouseman, bailee or any of Lender's agents or processors, the Lender shall notify such warehouseman, bailee, agent or processor of the security interests created hereby and to hold all such Collateral for the Lender's account subject to the Lender's instructions. 6.10. Transactions with Affiliates. Borrower shall not make any payments ---------------------------- or distributions of any kind to any shareholder of the Borrower or any affiliates of such shareholder on account of stock ownership. Borrower shall not enter into any transaction for the purchase, sale or exchange of property or the rendering of any service to or for any shareholder or director of the Borrower, or any affiliate of such person or entity, unless such transactions are in the ordinary course of Borrower's business and are upon fair and reasonable terms no less favorable to Borrower than Borrower would obtain in a comparable arm's length transaction with an unaffiliated person. 6.11. Indebtedness and Liens. ---------------------- (a) The Borrower will not create, incur, assume, guarantee or become liable, contingently or otherwise, with respect to any indebtedness or obligation, except (i) Indebtedness which is subordinated to the Obligations, provided the terms of such Indebtedness, including the terms of subordination - -------- thereof, are satisfactory to the Lender, in its sole discretion, in all respects; (ii) current liabilities of the Borrower incurred in the ordinary course of business consistent with past practice and not incurred through the borrowing of money or the obtaining of credit (except credit on an open account customarily extended); (iii) Indebtedness in respect of taxes or other governmental charges being contested in good faith by the appropriate proceedings; (iv) operating leases entered into by the Borrower in the ordinary course, provided such operating leases shall not cause an Event of Default -------- herein; (vi) Indebtedness pursuant to the terms and conditions of the Note Purchase Agreement; and (vii) such other Indebtedness described on Schedule 5.4 ------------ hereto. 16 (b) The Borrower will not create, incur or allow to be created or exist any Lien, encumbrance, mortgage, pledge or other security interest of any kind upon any of its assets, except (i) Liens securing the Obligations; (ii) Liens securing taxes or governmental charges not yet due; (iii) Liens securing obligations under the Note Purchase Agreement; or (iv) Liens described on Schedule 5.4 hereto. - ------------ 6.12. Issuance of Securities. Borrower will not authorize or issue, or ---------------------- enter into any agreement for the authorization or issuance of, any shares of any class or series of stock of the Borrower or any rights, options or warrants to subscribe for, purchase or otherwise acquire common stock or other capital stock of the Borrower or any evidences of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable or exercisable for common stock or other capital stock of the Borrower, other than (i) up to an aggregate of 200,000 shares of common stock issued pursuant to the Borrower's 1997 Stock Option Plan as in effect on the date hereof, (ii) shares of Series A Preferred (and shares of common stock issuable upon conversion thereof) issued pursuant to this Agreement, (iii) any warrants issuable to Junewicz & Company ("Junewicz", and all such warrants referred to collectively as the "Junewicz Warrants") pursuant to that certain engagement letter dated May 23, 1997 between the Company and Junewicz (and shares of Common Stock issuable upon exercise thereof), (iv) the Argo Notes (and shares of Common Stock issuable upon conversion thereof), (v) shares of Series A Preferred (and shares of Common Stock issuable upon conversion thereof) issued to the Lender pursuant to Section 1.2 and 1.4 of the Note Purchase Agreement and (vi) shares of Common Stock issuable to Argo pursuant to Sections 1.4 of the Note Purchase Agreement. 6.13. Inspection. Borrower will keep accurate and complete records of ---------- the Collateral, and Lender or any of its agents shall have the right, upon reasonable notice, to inspect the Collateral wherever located and to visit Borrower's place or places of business, at intervals to be determined by Lender and without Borrower's hindrance or delay, to inspect, audit, check and make extracts from any copies of books, records, journals, orders, receipts and correspondence that relate to the Collateral or to the general financial condition of Borrower. Lender may temporarily remove any of the Borrower's records for the purpose of having copies made thereof. Borrower hereby authorizes the Lender to communicate directly with its independent certified public accountants and authorizes those accountants to disclose to the Lender any and all financial statements and other supporting financial documents and schedules. 6.14. Taxes. Borrower will pay all real and personal property taxes, ----- assessments and charges as well as all franchise, income, unemployment, old age benefit, 17 withholding, sales and other taxes assessed against it, or payable by it at such times and in such manner as to prevent any penalty from accruing or any lien or charge from attaching to its property, and will furnish the Lender upon request, receipts, or other evidence that deposits or payments have been made. 6.15. Sales. Borrower will not sell or dispose of any of its assets, ----- including the Collateral, except in the ordinary and usual course of its business. 6.16. Reimbursement. Borrower will reimburse Lender on demand for any ------------- sums paid or advanced by Lender to satisfy any tax, lien or security interest or other encumbrance on the Collateral, to provide insurance on the Collateral or to pay for the maintenance and preservation of the Collateral; provided however, -------- ------- that Lender shall not be obligated to make any such payments or deposits. Any such sums paid or advanced by Lender shall be deemed secured by the Collateral and constitute part of the Obligations. 6.17. Solvency. Borrower will remain Solvent. -------- ARTICLE VII DEFAULTS -------- The occurrence of any one or more of the following events shall constitute an Event of Default, without further notice or demand: 7.1. Any representation or warranty made or deemed made by the Borrower or any other Loan Party in this Agreement, the Other Agreements, any Loan Document, the Series A Purchase Agreement, the Stockholders Option Agreement, or in any certificate, document or financial or other statement furnished by it at any time under or in connection with this Agreement, the Other Agreements, any other Loan Document, the Series A Purchase Agreement or the Stockholders Option Agreement shall prove to have been incorrect in any material respect on or as of the date made or deemed made. 7.2. Nonpayment of principal of or interest on the Note when due. 7.3. The breach by the Borrower, or by any other Loan Party, of any covenant or agreement contained in this Agreement, the Series A Purchase Agreement or the Stockholders Option Agreement. 7.4. There shall have occurred a default or an event of default under any of the Loan Documents or under any other agreement, instrument or document with respect to 18 borrowed money to which the Borrower is a party, including the Note Purchase Agreement, the Argo Security Documents or the Argo Notes. 7.5. The Borrower or any other Loan Party shall (i) have an order for relief entered with respect to it under the Federal bankruptcy laws as now or hereafter in effect, (ii) make an assignment for the benefit of creditors, (iii) apply for, seek, consent to, acquiesce in, or have appointed for it or any substantial portion of its property a receiver, custodian, trustee, examiner, liquidator or similar official for it or any substantial part of its property, (iv) institute any proceeding seeking an order for relief under the Federal bankruptcy laws as now or hereafter in effect or seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution, winding up, liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or fail to file an answer or other pleading denying the material allegations of any such proceeding filed against it, (v) take any corporate or other action to authorize or effect any of the foregoing actions set forth in this Section 7.5, (vi) generally not, or shall be unable to, or shall admit in writing its inability to, pay its debts as they become due, or (vii) cease to be Solvent. 7.6. Any of the Loan Documents shall cease, for any reason, to be in full force and effect, or the Borrower or any other Loan Party which is a party to any Loan Document shall so assert or the Lien created by any Loan Document shall cease to be enforceable and of the same effect and priority purported to be created thereby. 7.7. One or more judgments or decrees shall be entered against the Borrower or any other Loan Party involving in the aggregate a liability (not paid or fully covered by insurance) of $250,000 or more, and all such judgments or decrees shall not have been vacated, discharged, stayed or bonded pending appeal within thirty days from the entry thereof. 7.8 The Guarantee shall cease, for any reason, to be in full force and effect or any Guarantor shall so assert. ARTICLE VIII ACCELERATION AND REMEDIES ------------------------- 8.1. Acceleration. If any Event of Default described in Sections 7.4 or ------------ 7.5 occurs with respect to the Borrower, the Obligations shall immediately become due and payable without any election, notice or action on the part of the Lender. If any other Event of Default occurs, the Lender may declare the Obligations to be due and payable, whereupon the Obligations shall become immediately due and payable, without 19 presentment, demand, protest or notice of any kind, all of which the Borrower hereby expressly waives. 8.2. Preservation of Rights; No Adverse Impact. No delay or omission of ----------------------------------------- the Lender to exercise any right under this Agreement or any of the Loan Documents, shall impair such right or be construed to be a waiver of any Event of Default or an acquiescence therein. Any single or partial exercise of any such right shall not preclude other or further exercise thereof or the exercise of any other right, and no waiver, amendment or other variation of the terms, conditions or provisions of the Loan Documents, whatsoever shall be valid unless in writing signed by the Lender, and then only to the extent in such writing specifically set forth. All remedies contained in the Loan Documents, or by law afforded shall be cumulative and all shall be available to the Lender until the Obligations have been paid in full. 8.3. Remedies. -------- (a) If an Event of Default shall occur and be continuing, the Lender may exercise, in addition to all other rights and remedies granted to it under this Agreement and in any other instrument or agreement securing, evidencing or relating to the Obligations, all rights and remedies of a secured party under the Uniform Commercial Code or any other applicable law. Without limiting the generality of the foregoing, the Lender may, upon an Event of Default, proceed to protect and enforce the Lender's rights by suit in equity, action of law and/or other appropriate proceeding either for specific performance of any covenant or condition contained in this Agreement, any Loan Document or in any instrument or document delivered to the Lender pursuant hereto, or in the exercise of any rights, remedies or powers granted in this Agreement, any Loan Document and/or any such instrument or document. (b) The Lender may enter and take possession of all Collateral and the premises on which they are located, and in the Lender's sole discretion operate and use Borrower's equipment, whether or not Collateral hereunder, complete work in process, without being liable to Borrower on account of any losses, damage or depreciation that may occur as a result thereof so long as Lender shall act reasonably and in good faith; and at the Lender's option and without notice to Borrower (except as specifically herein provided) Lender may sell, lease, assign and deliver the whole or any part of the Collateral, or any substitute therefor or any addition thereto, at public or private sale, for cash, upon credit, or for future delivery, at such prices and upon such terms as Lender deems advisable, including without limitation, the right to sell or lease in conjunction with other property, real or personal, and allocate the sale or lease proceeds among the items of property sold without the necessity of the Collateral being present at any such sale or lease, or in view of prospective purchasers thereof. Lender shall give Borrower at 20 least ten (10) days' notice by hand delivery or by United States first-class mail, postage prepaid (in which event notice shall be deemed to have been given when so deposited in the mail), to the address specified herein, of the time and place of any public or private sale or other disposition unless the Collateral is perishable, threatens to decline speedily in value, or is the type customarily sold in a recognized market. Upon such sale, Lender may become the purchaser of the whole or any part of the Collateral, discharged from all claims and free from any right of redemption. In case of any such sale by Lender of all or any of said Collateral on credit or for future delivery, property so sold may be retained by Lender until the selling price is paid by the purchaser. Lender shall incur no liability in case of the failure of the purchaser to take up and pay for the property so sold. In case of any such failure, the said property may again be sold. (c) The Lender, for a term to commence on the date of the occurrence of an Event of Default and continuing thereafter until all debts and Obligations of any kind or character owing from Borrower to Lender are fully paid and discharged, may enter and use all premises or places of business which Borrower presently has or may hereafter have and where any of said Collateral may be located, and the Lender may use all machinery and equipment owned or leased by Borrower and all goodwill, patent rights, trade names, or logos, whether or not Collateral hereunder. (d) Borrower will assemble the Collateral in a single location at a place to be designated by Lender and make the Collateral at all times secure and available to Lender. (e) Following the occurrence of an Event of Default, at Borrower's expense, the Lender in its own name or in the name of others may communicate with account debtors in order to verify with them to Lender's satisfaction the existence, amount and terms of any accounts or contract rights and also notify account debtors that Collateral has been assigned to Lender and that payments shall be made directly to Lender. Upon request of Lender, Borrower will so notify such account debtors and will indicate on all billings to such account debtors that their accounts must be paid to Lender. Borrower does hereby appoint Lender and its agents as Borrower's attorney-in-fact: to collect, compromise, endorse, sell or otherwise deal with the Collateral or proceeds thereof in its own name or in the name of the Borrower; to endorse the name of Borrower upon any notes, checks, drafts, money orders, or other instruments, documents, receipts or Collateral that may come into its possession and to apply the same in full or part payment of any amounts owing to Lender; to sign and endorse the name of Borrower upon any documents, instruments, drafts against account debtors, assignments, verifications and notices in connection with Accounts, and any instrument or document relating thereto or to Borrower's rights therein; and to give written notice to any office and officials of the United States Post Office to effect such 21 change or changes of address that all mail addressed to Borrower may be delivered directly to Lender. Borrower hereby grants to its said attorney-in- fact full power to do any and all things necessary to be done in and about the premises as fully and effectually as Borrower might or could do, and hereby ratifies all that its attorney-in-fact shall lawfully do or cause to be done by virtue hereof. This power of attorney is coupled with an interest and is irrevocable for the term of this Agreement for all transactions hereunder and thereafter as long as Borrower may be indebted to Lender. For the purpose of enabling the Lender, during the continuance of an Event of Default, to exercise rights and remedies hereunder at such time as the Lender will be lawfully entitled to exercise such rights and remedies, and for no other purpose, the Borrower hereby grants to the Lender, to the extent assignable, an irrevocable, non-exclusive license (exercisable without payment of royalty or other compensation to the Borrower), until the Obligations are paid in full, to use, assign, license or sublicense any of the intellectual property now owned or hereafter acquired by the Borrower, wherever the same may be located, including in such license reasonably access to all media in which any of the licensed items may be recorded or stored and to all computer programs used for the compilation or printout thereof. 8.4. Application of Proceeds. Any and all proceeds of any Collateral ------------------------ realized or obtained by the Lender upon exercise of its rights and remedies hereunder, shall be applied to the amounts outstanding under this Agreement or any other Loan Document, after payment of any and all costs and expenses, fees and commissions and taxes of such sale, collection or other realization, in accordance with the following: (a) Any and all proceeds of any Collateral shall first be applied to the payment of any and all expenses (including reasonable attorneys' fees), charges or other amounts which may be due and owing under this Agreement or the Loan Documents; and (b) Any and all proceeds of any Collateral remaining after application as provided in paragraph (a) above shall first be applied to the payment of principal, interest and all other amounts outstanding under the Note or under the Loan Documents; and (c) Any surplus remaining after application as provided in paragraphs (a) and (b) above shall be paid to the Borrower, or its successors or assigns, or to whomsoever may be lawfully entitled to receive the same. 8.5 Deficiency. The Borrower shall remain liable for any deficiency if ---------- the proceeds of any sale or other disposition of the Collateral are insufficient to pay its 22 Obligations and the fees and disbursements of any attorneys employed by the Lender to collect such deficiency. 8.6 Remedies Cumulative. All remedies available under this Agreement are ------------------- cumulative and the exercise of any one remedy shall not preclude the exercise of any other remedy hereunder. ARTICLE IX CONVERSION ---------- 9. Optional Conversion. The Note shall be subject to optional ------------------- conversion, at the Lender's option, as set forth below (the "Conversion Rights"): 9.1 Right to Convert. The outstanding principal amount of the Note shall ---------------- be convertible, at the option of the Lender, in whole or in part, at any time and from time to time prior to December 31, 2000, into fully paid and nonassessable shares of Series A Preferred in accordance with the provisions set forth below. The principal amount of the $2,000,000 Note to be converted shall be convertible into the number of shares of Series A Preferred obtained by dividing the principal amount of the $2,000,000 Note by $2.54 (as adjusted for stock splits and similar events) and the principal amount of the $100,000 Note to be converted shall be convertible into the number of shares of Series A Preferred obtained by dividing the principal amount of the $100,000 Note by $9.97 (as adjusted for stock splits and similar events). 9.2 Fractional Shares. No fractional shares of Series A Preferred shall ----------------- be issued upon conversion of any portion of the Note, but the Note will be marked to reflect a credit for the amount of the Note converted in respect of which any fraction of a share would otherwise be issuable upon conversion of such portion of the Note. Such credit shall be based on the fair market value of the Series A Preferred at the time of conversion of any portion of the Note, as determined in good faith by the Board of Directors. 9.3 Mechanics of Conversion. ----------------------- (a) In order for the Lender to convert any portion of the Note into shares of Series A Preferred, the Lender shall deliver to the Borrower, during usual business hours at the Borrower's principal executive offices, written notice of its election to convert the portion of the Note specified in such notice, into shares of Series A Preferred. Such notice shall also state the name or names (and addresses) in which the Lender wishes the certificate or certificates for shares of Series A Preferred which shall be issuable on such conversion to be issued. Such conversion shall be deemed to have been 23 made at the time the notice specified above shall have been received by the Borrower at its principal executive office (the "Conversion Date"), and the holder in whose name any certificate or certificates for shares of Series A Preferred shall be issuable upon such conversion shall be deemed to have become on the Conversion Date the holder of record of the shares represented thereby. The Borrower shall, as soon as practicable after the Conversion Date (and, in any event, within five Business Days), issue and deliver to the Lender, or to its nominees, a certificate or certificates for the number of shares of Series A Preferred to which the Lender shall be entitled. If less than the entire outstanding principal amount of the Note is being converted, the Note shall promptly be marked to reflect a credit for the amount of the Note so converted. (b) The Lender shall, at all times prior to January 1, 2001, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the conversion of the Note such number of its duly authorized shares of Series A Preferred as shall from time to time be sufficient to effect the conversion of the Note. (c) The Borrower shall pay any and all issue and other taxes that may be payable in respect of any issuance or delivery of shares of Series A Preferred pursuant to this Article IX. 9.4 Mergers and Consolidations. If, prior to January 1, 2001, the -------------------------- Borrower shall at any time consolidate or merge with, or otherwise combine with, another corporation (other than a merger or consolidation in which the Borrower is the surviving corporation), the Lender will thereafter be entitled to receive, upon the conversion of any portion of the Note, the securities or property to which a holder of the number of shares of Series A Preferred then deliverable upon the conversion of the Note would have been entitled upon such consolidation, merger or combination, and the Borrower shall take such steps in connection with such consolidation, merger or combination as may be necessary to ensure that the provisions hereof shall thereafter be applicable, as nearly as reasonably may be, in relation to any securities or property thereafter deliverable upon the conversion of the Note. 9.5 Accrued Interest. Upon the conversion of any portion of the Loan, the ---------------- Borrower shall not be required to pay any accrued but unpaid interest on the amount so converted up to the Conversion Date. In the event the Note is not converted on or prior to December 31, 2000, on January 1, 2001 all accrued but unpaid interest on the Note up to such date will be added to the principal amount of the Note and the Note will be amended to reflect such increase. 9.6 Securities Act of 1933. Upon conversion of any portion of the Note, ---------------------- the Lender may be required to execute and deliver to the Borrower an instrument, in form 24 satisfactory to the Borrower, representing that the shares issuable upon conversion of the Note are being acquired for investment and not with a view to distribution within the meaning of the Securities Act of 1933, as amended. ARTICLE X GENERAL PROVISIONS ------------------ 10.1. Survival of Representations. All representations and warranties of --------------------------- the Borrower contained in this Agreement shall survive delivery of the Note. 10.2. Headings. Section headings in this Agreement are for convenience of -------- reference only, and shall not govern the interpretation of any of the provisions of this Agreement. 10.3. Entire Agreement. The Loan Documents and the Note Purchase ---------------- Agreement embody the entire agreement and understanding between the Borrower and the Lender and supersede all prior agreements and understandings between the Borrower and the Lender, including the Loan and Security Agreement, relating to the subject matter hereof. 10.4. No Third-Party Beneficiary. This Agreement shall not be construed -------------------------- so as to confer any right or benefit upon any Person other than the parties to this Agreement and their respective successors and assigns. 10.5. Expenses. All expenses (including, without limitation, all -------- reasonable attorneys' fees and expenses) incurred in connection with preparing, executing and delivering this Agreement and the Loan Documents and all related instruments and documents executed and delivered in connection herewith, and in connection with any and all amendments and/or modifications of the Loan Documents shall be borne by the Borrower. Upon the occurrence of a Default, or Event of Default that has occurred and is continuing, Borrower shall pay to Lender on demand all expenses incurred in connection with the collection and enforcement of all Obligations under the Loan Documents, including, without limitation, all reasonable attorneys' fees and expenses, and all costs incurred by Lender in connection with the collection and enforcement of the Obligations and in connection with any proceeding commenced by or against the Borrower under Title 11 of the U.S. Code. 10.6. Indemnity. Borrower hereby indemnifies the Lender and its --------- respective directors, officers, employees, affiliates and agents (collectively, "Indemnified Persons") against, and agrees to hold each such Indemnified Person harmless from, any and all losses, claims, costs, fees, expenses, damages and liabilities, including claims brought by 25 any officer, director or shareholder or former officer, director or shareholder of the Borrower, and related expenses (including reasonable counsel fees and expenses), incurred by such Indemnified Person arising out of any claim, litigation, investigation or proceeding (whether or not such Indemnified Person is a party thereto) relating to any transactions, services or matters that are the subject of, or related to, the Loan Documents; provided, however, that such -------- ------- indemnity shall not apply to any such losses, claims, costs, fees, expenses, damages or liabilities determined by a court of competent jurisdiction to have arisen from the gross negligence or willful misconduct of such Indemnified Person. All amounts due hereunder shall be payable on demand, shall survive repayment of the Note, and shall constitute Obligations secured by this Agreement. 10.7. Severability of Provisions. Any provision in this Agreement that is -------------------------- held to be inoperative, unenforceable, or invalid in any jurisdiction shall, as to that jurisdiction, be inoperative, unenforceable, or invalid without affecting the remaining provisions in that jurisdiction or the operation, enforceability, or validity of that provision in any other jurisdiction, and to this end the provisions of this Agreement are declared to be severable. 10.8. CHOICE OF LAW. THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE ------------- GOVERNED BY AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS WITHOUT REGARD TO THE PRINCIPLES OF CONFLICT OF LAWS THEREOF. 10.9. CONSENT TO JURISDICTION. THE BORROWER HEREBY IRREVOCABLY SUBMITS TO ----------------------- THE JURISDICTION OF THE COURTS OF THE COMMONWEALTH OF MASSACHUSETTS AND THE UNITED STATES DISTRICT COURT OF MASSACHUSETTS FOR THE PURPOSE OF ANY SUIT, ACTION OR OTHER PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT OR ANY LOAN DOCUMENTS AND THE BORROWER HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS AGAINST THE BORROWER IN THE COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE BORROWER AGAINST THE LENDER OR ANY AFFILIATE OF THE LENDER INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY LOAN 26 DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN THE COMMONWEALTH OF MASSACHUSETTS. 10.10. WAIVER OF JURY TRIAL. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN -------------------- ANY JUDICIAL PROCEEDING INVOLVING, DIRECTLY OR INDIRECTLY, ANY MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS AGREEMENT OR ANY LOAN DOCUMENT OR THE RELATIONSHIP ESTABLISHED THEREUNDER. 10.11. Further Assurances. The Borrower, at its own expense, shall do, ------------------ make, execute and deliver all such additional and further acts, deeds, assurances, documents, instruments and certificates as the Lender may reasonably require, including, without limitation, (a) executing, delivering and filing financial statements and continuation statements under the Code and grants of security interests in patents, patent applications, trademarks, trademark applications and other intellectual property of the Borrower, (b) obtaining governmental and other third party consents and approvals, and (c) obtaining waivers from mortgagees and landlords. 10.12. Set off. In addition to, and without limitation of, any rights of ------- the Lender under applicable law, if the Borrower becomes insolvent, however evidenced, or any Event of Default occurs, any indebtedness from the Lender to the Borrower may be offset and applied toward the payment of the Obligations owing to the Lender, whether or not the Obligations, or any part hereof, shall then be due. 10.13. Successors and Assigns. The terms and provisions of this Agreement ---------------------- and the Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights or obligations under the Loan Documents. 10.14. Giving Notice. All notices and other communications provided to ------------- any party hereto under this Agreement or any other Loan Document shall be in writing and shall be delivered by hand, sent by fax or overnight courier or mailed by first class certified or registered mail, return receipt requested, postage prepaid, in each case addressed or delivered to such party at their addresses set forth in the first paragraph of this Agreement, unless otherwise designated in writing to the other parties hereto. Notices provided in accordance with this Section 10.14 shall be deemed given (1) when received, if sent by hand, (2) when received, if sent by fax prior to 5:00 p.m. local time at the place received (otherwise on the next following Business Day), (3) one Business Day 27 after delivery to a nationally reorganized overnight courier service and (4) three Business Days after deposit in the U.S. mail, first class certified or registered, postage prepaid. 10.15. Change of Address. The Borrower and the Lender may each change the ----------------- address for service of notice upon it by a notice in writing to the other parties hereto. 10.16. Amendments. The Lender and the Borrower may enter into written ---------- agreements supplemental hereto for the purpose of adding or modifying any provisions to the Loan Documents or changing in any manner the rights of the Lender or the Borrower hereunder or waiving any Default hereunder. To be effective, any such amendment or waiver must be in writing and signed by the Lender and the Borrower. 10.17. Counterparts. This Agreement may be executed in any number of ------------ counterparts, all of which taken together shall constitute one agreement, and any of the parties hereto may execute this Agreement by signing any such counterpart. This Agreement shall be effective when it has been executed by the Borrower and the Lender. IN WITNESS WHEREOF, the Borrower and the Lender have executed this Agreement as of the date first above written. Borrower: IMAGE TECHNOLOGIES CORPORATION 27 Wormwood Street Boston, MA 02210 By: /s/ James C. Torraco --------------------- Name: James C. Torraco Title: President Lender: NMT MEDICAL, INC. 27 Wormwood Street Boston, MA 02210 By: /s/ Thomas M. Tully -------------------- Name: Thomas M. Tully Title: President 28 EX-10.10 11 SECOND AMENDED AND RESTATED STOCKHOLDER OPTION EXHIBIT 10.10 ------------- SECOND AMENDED AND RESTATED STOCKHOLDERS' OPTION AGREEMENT This Second Amended and Restated Stockholders' Option Agreement (the "Agreement") is made this 27th day of August, 1999, by and among NMT Medical, Inc. (f/k/a Nitinol Medical Technologies, Inc.), a Delaware corporation (the "Purchaser"), Image Technologies Corporation, a Delaware corporation (the "Company"), and the holders (the "Stockholders") of (1) the shares of common stock, $.01 par value per share ("Common Stock"), (2) the warrants to purchase shares of Common Stock ("Warrants"), of the Company listed on Schedule A hereto ---------- and (3) the Senior Secured Convertible Notes of the Company listed on Schedule A ---------- hereto (the "Notes"). All such shares of Common Stock, together with the Warrants, are collectively referred to as the "Shares." Recitals: -------- WHEREAS, (a) the Purchaser and the Company entered into a Series A Preferred Stock Purchase Agreement dated as of May 29, 1997 (the "Series A Purchase Agreement"), pursuant to which the Purchaser purchased an aggregate of 345,722 shares of the Company's Series A Convertible Preferred Stock, $.01 par value per share (the "Series A Preferred"), and (b) in connection with the execution and delivery of the Series A Purchase Agreement, the Company, the Purchaser and certain of the Stockholders entered into a Stockholders' Option Agreement (the "Option Agreement") of even date therewith, and as subsequently amended, providing the Purchaser with an option to purchase all Shares owned by such Stockholders; WHEREAS, in connection with the execution and delivery of that certain Stock Purchase Agreement, dated as of March 30, 1999 (the "Purchase Agreement") by and between the Company and Argo Capital Partners I L.P., a Delaware limited partnership ("Argo Capital"), pursuant to which (a) Argo Capital purchased an aggregate of 120,361 shares of Common Stock and (b) 39,159 shares of Series A Preferred were issued to the Purchaser, the parties hereto entered into an Amended and Restated Stockholders' Option Agreement dated as of March 30, 1999 (the "Amended and Restated Option Agreement") to, among other things, (x) consent to any transfers of Shares made by Stockholders prior to the date thereof and (y) include Argo Capital as a "Stockholder" and the Common Stock issued or to be issued to Argo Capital as "Shares" for all purposes under the Option Agreement. WHEREAS, the Company, Argo Capital and the Purchaser are entering into a Note Purchase Agreement of even date herewith (the "Note Purchase Agreement"), pursuant to which the Company will issue and sell to Argo, and Argo will purchase from the Company, the Notes; and WHEREAS, the parties wish to amend and restate the Amended and Restated Option Agreement to, among other things, include the shares of Common Stock issuable upon conversion of the Notes as "Shares" for all purposes hereunder. NOW THEREFOR, in consideration of the mutual covenants contained herein and for other valuable consideration, receipt of which is hereby acknowledged, the parties hereto agree as follows: ARTICLE I STOCK OPTION Section 1.1 Grant of Stock Option. Each of the Stockholders hereby grants --------------------- to the Purchaser an irrevocable option (the "Option") to purchase all Shares currently owned by such Stockholder as set forth on Schedule A hereto and any ---------- additional Shares acquired by such Stockholder (whether by purchase, dividend, stock split, recapitalization or otherwise) after the date of this Agreement (all such Shares being referred to as the "Stockholder's Shares" and, collectively, as the "Stockholder Shares"). The aggregate purchase price payable by the Purchaser for the Stockholder Shares is $24,500,000, to be paid pro rata per Stockholder Share, thirty-two percent (32%) of which shall be paid in cash and the balance of which shall be paid in shares of common stock, $.001 par value per share, of the Purchaser (the "Purchaser Common Stock") (as it may be adjusted pursuant to Section 1.6, collectively, the "Purchase Price"). For purposes of the foregoing, the Purchaser Common Stock shall be valued at the average of the closing prices of Purchaser Common Stock as reported by the Nasdaq National Market System on each of the last ten trading days ending five business days prior to the Closing (as defined below). Section 1.2 Exercise of Option. ------------------ (a) The Option may be exercised by the Purchaser, in whole but not in part, at any time after the date hereof and prior to December 1, 1999. (b) In the event the Purchaser wishes to exercise the Option for the Stockholder Shares, the Purchaser shall send a written notice (the "Exercise Notice") to the Stockholders specifying the place, the date (not more than 120 days from the date of the Exercise Notice), and the time for the closing of such purchase. The closing of the purchase of Stockholder Shares pursuant to this Section 1.2(b) (the "Closing") shall occur at the place, on the date and at the time designated by the Purchaser in its Exercise Notice, provided that if, at the date of the Closing herein provided for, the conditions set forth in Sections 1.4 and 1.5 shall not have been satisfied (or waived), the -2- Purchaser may postpone the Closing until a date within five business days after such conditions are satisfied. Any such postponement shall not relieve the Stockholders of any liability for failure to meet the conditions specified in Section 1.5 hereof. (c) The Purchaser shall not be under any obligation to deliver an Exercise Notice and may allow the Option to terminate without purchasing any Stockholder Shares hereunder; provided, however, that once the Purchaser has delivered to the Stockholders an Exercise Notice, subject to the terms and conditions of this Agreement and the satisfaction of the provisions of Section 1.5 hereof, the Purchaser shall be bound to effect the purchase as described in such Exercise Notice. Section 1.3 Closing. At the Closing, (a) each Stockholder shall deliver ------- to the Purchaser (in accordance with the Purchaser's instructions) a certificate or certificates (the "Certificates") representing the number of such Stockholder's Shares to be purchased at such Closing, duly endorsed or accompanied by stock powers duly executed in blank and (b) the Purchaser shall deliver to such Stockholder (i) a certified or bank cashier's check or checks payable to or upon the order of such Stockholder in the amount set forth opposite such Stockholder's name on Schedule A hereto and (ii) a certificate ---------- representing shares of Purchaser Common Stock valued in accordance with Section 1.1. Section 1.4 Stockholder Conditions. The obligation of each Stockholder ---------------------- to sell Stockholder Shares at the Closing is subject to the following conditions: (i) The representations and warranties of the Purchaser contained in Article IV shall be true and correct in all material respects on the date thereof as if made on such date. (ii) All waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR Act") applicable to the exercise of the Option shall have expired or been terminated. (iii) There shall be no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, nor any statute, rule, regulation or order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining the purchase of the Stockholder Shares pursuant to the exercise of the Option. (iv) All Stockholder Shares are purchased at the Closing. -3- Section 1.5 Purchaser's Conditions. The obligation of the Purchaser to ---------------------- purchase the Stockholder Shares at the Closing is subject to the following conditions: (i) The representations and warranties of the Stockholders and the Company contained in Article II and Article Ill, respectively, shall be true and correct in all material respects on the date thereof as if made on such date. (ii) All waiting periods under the HSR Act applicable to the exercise of the Option shall have expired or been terminated. (iii) There shall be no preliminary or permanent injunction or other order, decree or ruling issued by a court of competent jurisdiction or by a governmental, regulatory or administrative agency or commission, nor any statute, rule, regulation or order promulgated or enacted by any governmental authority, prohibiting or otherwise restraining the purchase of the Stockholder Shares pursuant to the exercise of the Option. (iv) The Company shall have complied with its covenants in Article VI of this Agreement. Section 1.6 Adjustment Upon Changes in Capitalization or Merger. --------------------------------------------------- In the event of any change in the Company's capital stock by reason of stock dividends, stock splits, mergers, consolidations, recapitalizations, combinations, conversions, exchanges of shares, extraordinary or liquidating dividends, or other changes in the corporate or capital structure of the Company which would have the effect of diluting or changing the Purchaser's rights hereunder, the number and kind of shares or securities subject to the Option and the Purchase Price per Stockholder Share (but not the total Purchase Price) shall be appropriately and equitably adjusted so that the Purchaser shall receive upon exercise of the Option the number and class of shares or other securities or property that the Purchaser would have received in respect of the Stockholder Shares purchasable upon exercise of the Option if the Option had been exercised immediately prior to such event. Each Stockholder shall take such steps in connection with such consolidation, merger, liquidation or other such action as may be necessary to assure that the provisions hereof shall thereafter apply as nearly as possible to any securities or property thereafter deliverable upon exercise of the Option. ARTICLE II -4- REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each of the Stockholders severally represents and warrants to the Purchaser as follows: Section 2.1 Title to Shares. Such Stockholder has good and marketable --------------- title to the Stockholder's Shares free and clear of any and all covenants, conditions, restrictions, voting trust arrangements, liens, charges, encumbrances, options and adverse claims or rights whatsoever. Schedule A ----------- attached hereto sets forth a true and correct description of all shares of (and rights to acquire) capital stock of the Company owned by such Stockholder. Schedule B attached hereto is a true and complete list of the stockholders, - ----------- optionholders, warrantholders and other security holders of the Company showing (i) the number of shares of Common Stock, Preferred Stock or other securities or rights of the Company held by each Stockholder as of the date of this Agreement and the consideration paid to the Company, if any, therefore, and (ii) the fully diluted percentage interest in the Company held by each Stockholder, after giving effect to the transactions contemplated hereby and the exercise of all options, warrants or other rights or securities convertible into or exchangeable or exercisable for Common Stock or other securities of the Company (including shares issued or issuable under the Company's 1997 Stock Option Plan and shares issuable upon exercise of any warrants issued or issuable to Junewicz & Company ("Junewicz," and any such warrants referred to collectively as the "Junewicz Warrants") pursuant to that certain engagement letter dated May 23, 1997 between the Company and Junewicz (the "Junewicz Agreement") and (iii) the number of shares of Common Stock or other securities of the Company issuable upon the exercise of options, warrants or other rights held by each optionholder, warrantholder or rights holder as of the date of this Agreement, together with the grant date, exercise price, vesting schedule and expiration date of each outstanding option, warrant or other right. Except as set forth on Schedule B, ---------- there are no shares of Common Stock, preferred stock or other securities or capital stock of the Company issued or outstanding. Except as set forth on Schedule B attached hereto (i) no subscription, warrant, option, convertible - ---------- security or other right (contingent or otherwise) to purchase or acquire any shares of capital stock of the Company is authorized or outstanding, (ii) the Company has no obligation (contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such right or to issue or distribute to holders of any shares of its capital stock any evidences of indebtedness or assets of the Company and (iii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. -5- Section 2.2 Authority. Such Stockholder has the full right, power and --------- authority to enter into this Agreement and to transfer, convey and sell to the Purchaser at the Closing the Stockholder's Shares to be sold by such Stockholder hereunder and, upon consummation of the purchase contemplated hereby, the Purchaser will acquire from such Stockholder good and marketable title to such Stockholder's Shares, free and clear of all covenants, conditions, restrictions, voting trust arrangements, liens, charges, encumbrances, options and adverse claims or rights whatsoever. Such Stockholder has duly executed and delivered this Agreement and this Agreement constitutes the valid and binding obligation of such Stockholder enforceable against such Stockholder in accordance with its terms. The execution of and performance of the transactions contemplated by this Agreement and compliance with its provisions by such Stockholder will not violate any provision of law and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or require a consent or waiver under, the Certificate of Incorporation or By- Laws of the Company (each as amended to date) or any agreement or instrument to which such Stockholder is a party or by which he or any of his properties is bound, or any decree, judgment, order, statute, rule or regulation applicable to such Stockholder. Section 2.3 Government Consents. No consent, approval, order or ------------------- authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority is required on the part of such Stockholder or the Company in connection with the execution and delivery of this Agreement or the transactions to be consummated at the Closing, as contemplated by this Agreement (except that the pre-merger notification provisions of the HSR Act may apply). Section 2.4 Litigation. Such Stockholder is not a party to, subject to ---------- or bound by any agreement or any judgment, order, writ, prohibition, injunction or degree of any court or other government body, and there is no action, suit or proceeding or governmental inquiry or investigation pending which would prevent the execution or delivery of this Agreement by such Stockholder or the transfer, conveyance and sale of the Stockholder's Shares to be sold by such Stockholder to the Purchaser pursuant to the terms hereof. Section 2.5 Brokers. No broker or finder has acted for such Stockholder ------- in connection with this agreement or the transactions contemplated hereby, except that, pursuant to the Junewicz Agreement, a true and correct copy of which is attached hereto as Schedule C, the Company has retained Junewicz in ---------- connection with the transactions contemplated by this Agreement and, except for compensation due to Junewicz, no broker or finder is entitled to any brokerage or finder's fee or other commissions in respect of such transactions based upon agreements, arrangements or understandings made by or on behalf of such Stockholder. -6- ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY The Company represents and warrants to the Purchaser as follows: Section 3.1 Authority. The execution, delivery and performance by the --------- Company of this Agreement, and the consummation by the Company of the transactions contemplated hereby, have been duly authorized by all necessary corporate action. This Agreement has been duly executed and delivered by the Company and constitutes the valid and binding obligation of the Company enforceable in accordance with its terms. The execution of and performance of the transactions contemplated by this Agreement and compliance with its provisions by the Company will not violate any provision of law and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or require a consent or waiver under, its Certificate of Incorporation or By- Laws (each as amended to date) or any indenture, lease, agreement or other instrument to which the Company is a party or by which it or any of its properties is bound, or any decree, judgment, order, statute, rule or regulation applicable to the Company. Section 3.2 Capitalization. The authorized capital stock of the Company -------------- (immediately prior to the Closing) consists of 5,000,000 shares of common stock, $0.01 par value per share (the "Common Stock"), of which 1,146,196 shares are issued and outstanding, and 1,000,000 shares of Preferred Stock, $0.01 par value per share, all of which 1,000,000 shares have been designated as Series A Preferred, of which 345,722 shares are issued and outstanding. All of the issued and outstanding shares of Common Stock have been duly authorized and validly issued and are fully paid and nonassessable. The total number of shares of Common Stock that may be issued under the 1997 Stock Option Plan is 200,000, of which 134,200 shares are issuable pursuant to outstanding stock options. No options to be issued pursuant to the 1997 Stock Option Plan will vest or become exercisable prior to the expiration of the Option. Except as set forth in Exhibit B hereto, (i) no subscription, warrant, option, convertible security or - --------- other right (contingent or otherwise) to purchase or acquire any shares of capital stock of the Company is authorized or outstanding, (ii) the Company has no obligation (contingent or otherwise) to issue any subscription, warrant, option, convertible security or other such right or to issue or distribute to holders of any shares of its capital stock any evidences of indebtedness or assets of the Company, and (iii) the Company has no obligation (contingent or otherwise) to purchase, redeem or otherwise acquire any shares of its capital stock or any interest therein or to pay any dividend or make any other distribution in respect thereof. -7- Section 3.3 Government Consents. No consent, approval, order or ------------------- authorization of, or registration, qualification, designation, declaration or filing with, any governmental authority is required on the part of the Company in connection with the execution and delivery of this Agreement, or the transactions to be consummated at the Closing, as contemplated by this Agreement, except such filings as shall have been made prior to and shall be effective on and as of the Closing (except that the pre-merger notification provisions of the HSR Act may apply). Section 3.4 Litigation. There is no action, suit or proceeding, or ---------- governmental inquiry or investigation, pending, or, to the best of the Company's knowledge, any basis therefor or threat thereof, against the Company, which questions the validity of this Agreement or the right of the Company to enter into it. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE PURCHASER The Purchaser represents and warrants to each of the Stockholders that the Purchaser has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution, delivery and performance by the Purchaser of this Agreement and the consummation by the Purchaser of the transactions contemplated hereby (i) have been duly authorized by the Board of Directors of the Purchaser and no other corporate action on the part of the Purchaser is necessary to authorize the execution, delivery or performance by the Purchaser of this Agreement and the consummation by the Purchaser of the transactions contemplated hereby and (ii) will not result in a violation of any order, writ, injunction, decree, statute, rule or regulation applicable to the Purchaser (except that the pre-merger notification requirements of the HSR Act may apply). This Agreement has been duly executed and delivered by the Purchaser and is a valid and binding agreement of the Purchaser, enforceable against the Purchaser in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvency, moratorium or other similar laws relating to creditors' rights generally. ARTICLE V COVENANTS OF THE STOCKHOLDERS Each of the Stockholders hereby covenants and agrees that: -8- Section 5.1 No Proxies for or Encumbrances on Stockholder Shares. Except ---------------------------------------------------- as provided in this Agreement, such Stockholder shall not during the term of this Agreement, without the prior written consent of the Purchaser, directly or indirectly, (i) grant any proxies or enter into any voting trust or other agreement or arrangement with respect to the voting of any Stockholder Shares or (ii) sell, assign, transfer, encumber or otherwise dispose of, or enter into any contract, option or other arrangement or understanding with respect to the direct or indirect sale, assignment, transfer, encumbrance or other disposition of, any Shares. Such Stockholder shall not seek or solicit any such sale, assignment, transfer, encumbrance or other disposition or any such contract, option or other arrangement or assignment or understanding and agrees to notify the Purchaser promptly and to provide all details requested by the Purchaser if such Stockholder shall be approached or solicited, directly or indirectly, by any person with respect to any of the foregoing. Notwithstanding the foregoing, the Purchaser hereby consents to the transfers, sales or other dispositions by Stockholders of Stockholder Shares which have occurred between the period beginning on May 29, 1997 and ending on the date of this Agreement and which are reflected on the Schedule of Stockholder Shares on Schedule A hereto, and waives any claims for breach of contract that it might have with respect to such dispositions of Stockholder Shares made in violation of Section 5.1 of the Option Agreement. Section 5.2 No Shop. Such Stockholder shall not directly or indirectly ------- (i) solicit, initiate or encourage (or authorize any person to solicit, initiate or encourage) any inquiry, proposal or offer from any person to acquire the business, property or capital stock of the Company or any direct or indirect subsidiary thereof, or any acquisition of a substantial equity interest in, or a substantial amount of the assets of, the Company or any direct or indirect subsidiary thereof, whether by merger, purchase of assets, tender offer or other transaction or (ii) participate in any discussion or negotiations regarding, or furnish to any other person any information with respect to, or otherwise cooperate in any way with, or participate in, facilitate or encourage any effort or attempt by any other person to do or seek any of the foregoing. Such Stockholder shall promptly advise the Purchaser of the terms of any communications it may receive relating to any of the foregoing. Section 5.3 Conduct of Stockholders. Such Stockholder will not (i) take, ----------------------- agree or commit to take any action that would make any representation and warranty of such Stockholder hereunder inaccurate in any respect as of any time prior to the termination of this Agreement or (ii) omit, or agree or commit to omit, to take any action necessary to prevent any such representation or warranty from being inaccurate in any respect at any such time. ARTICLE VI -9- COVENANTS OF THE COMPANY The Company hereby covenants and agrees that during the term of this Agreement, the Company shall not, without the prior written consent of the Purchaser: (a) authorize or issue, or enter into any agreement for the issuance of, any shares of any class or series of stock of the Company or any rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or any capital stock or other capital stock or securities of the Company or any evidence of indebtedness, shares or other securities directly or indirectly convertible into or exchangeable or exercisable for Common Stock of the Company other than (i) up to an aggregate of 200,000 shares of Common Stock issued pursuant to the Company's 1997 Stock Option Plan as in effect on the date hereof, (ii) shares of Series A Preferred (and shares of Common Stock of the Company issuable upon conversion thereof) issuable pursuant to the Series A Purchase Agreement, (iii) shares of Series A Preferred (and shares of Common Stock of the Company issuable upon conversion thereof) issued pursuant to the Loan and Security Agreement and (iv) the Junewicz Warrants and shares of Common Stock issuable upon exercise of the Junewicz Warrants; (b) grant or award any option pursuant to the 1997 Stock Option Plan that vests or becomes exercisable prior to the expiration of the Option or accelerate the vesting of any such option prior to the expiration of the Option; (c) grant or award any option pursuant to the 1997 Stock Option Plan to either of Robert Lee Thompson or James C. Torraco; (d) create, incur, assume, guarantee or become liable, contingently or otherwise with respect to any indebtedness or obligation, other than pursuant to the Loan and Security Agreement or in the ordinary course of business consistent with past practice; (e) create, incur or allow to be created or exist any lien, encumbrance, mortgage, pledge or other security interest of any kind upon any of its assets except (i) liens securing the obligations of the Company under the Loan and Security Agreement, (ii) liens securing taxes or governmental charges not yet due, or (iii) liens described on Schedule D hereto; or ---------- (f) enter into any agreement or arrangement relating to the patents, patent applications, trademarks, service marks, trademark and service mark applications, trade names, copyright registrations and licenses or other product rights -10- necessary for the conduct of the Company's business as conducted and as proposed to be conducted which could adversely affect the Company's ownership interest or rights therein. ARTICLE VII PURCHASER RIGHT OF FIRST REFUSAL (a) In the event the Purchaser does not exercise the Option, then, in such event, during the 12-month period commencing on the date of expiration of the Option, the Company shall not enter into any agreement for the (i) sale of all or substantially all of the capital stock of the Company, (ii) merger of the Company with or into, or the consolidation of the Company with, any other corporation, or any similar combination with any other corporation or (iii) sale, lease or disposition of all or substantially all of the Company's properties or assets (any such transaction referred to as a "Purchase Transaction"), unless in each such case the Company shall have first complied with this Agreement. The Company shall deliver to the Purchaser a written notice of any proposed or intended Purchase Transaction (the "Offer"), which Offer shall (i) identify and describe in reasonable detail the terms of the proposed Purchase Transaction, (ii) describe in reasonable detail the price and other terms of the proposed Purchase Transaction, (iii) identify by name the persons or entities that will be parties to the proposed Purchase Transaction, and (iv) offer to enter into an agreement with the Purchaser on the same terms and conditions as the proposed Purchase Transaction. The Purchaser shall have the right, for a period of sixty (60) days following receipt of such Offer, to exercise its right to enter into an agreement with the Company on the same terms and conditions specified in the Offer. The Offer by its term shall remain open and irrevocable for such 60-day period. (b) To accept the Offer, the Purchaser must deliver a written notice to the Company, prior to the end of the 60-day period, setting forth its desire to enter into an agreement with the Company at the price and upon the other terms specified in the Offer. (c) The obligation of the Purchaser to enter into an agreement with the Company pursuant to the provisions of this Article VII is subject in all cases to the preparation, execution and delivery by the Company and the Purchaser of definitive agreements relating to such transaction reasonably satisfactory in form and substance to the Purchaser and its counsel. Each party agrees to negotiate diligently and in good faith to enter into such definitive agreements. -11- (d) The rights of the Purchaser under this Article VII shall only apply in the event that the proposed Purchase Transaction is related to, results from or follows any change, modification or amendment of, or waiver of rights under, the License Agreement of even date herewith by and between the Company and Robert Lee Thompson. ARTICLE VIII MISCELLANEOUS Section 8.1 Expenses. All costs and expenses incurred in connection with -------- this Agreement shall be paid by the party incurring such cost or expense; provided, however, that Argo Capital's reasonable costs and expenses incurred in connection with this Agreement shall be paid by the Company. Section 8.2 Further Assurances. The Purchaser and the Stockholders will ------------------ each execute and deliver or cause to be executed and delivered all further documents and instruments and use their respective best efforts to secure such consents and take all such further action as may be reasonably necessary in order to consummate the transactions contemplated hereby or to enable the Purchaser and any assignee to exercise and enjoy all benefits and rights of the Stockholders with respect to the Option and the Stockholder Shares. Section 8.3 Additional Agreements. Subject to the terms and conditions --------------------- of this Agreement, each of the parties hereto agrees to use all reasonable efforts to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable under applicable laws and regulations and which may be required under any agreements, contracts, commitments, instruments, understandings, arrangements or restrictions of any kind to which such party is a party or by which such party is governed or bound, to consummate and make effective the transactions contemplated by this Agreement. Section 8.4 Remedies. The parties hereto agree that the Purchaser may be -------- irreparably damaged if for any reason any Stockholder fails to sell such Stockholder's Shares (or other securities deliverable pursuant to Section 1.6) upon exercise of the Option or to perform any of its other obligations under this Agreement, or if the Company fails to perform any of its obligations under Article VII of this Agreement, and that the Purchaser would not have any adequate remedy at law for money damages in such event. Accordingly, the Purchaser shall be entitled to specific performance and injunctive and other equitable relief to enforce the performance of this Agreement by each Stockholder and to enforce the performance of Article VII of this -12- Agreement by the Company. This provision is without prejudice to any other rights that the Purchaser may have against any Stockholder for any failure to perform its obligations under this Agreement. If the Purchaser breaches its obligation to effect the purchase of the Stockholder Shares after delivery of its Exercise Notice, subject to the terms and conditions of the Agreement and the satisfaction of Section 1.5 hereof, the Stockholders will be entitled to pursue usual and customary legal, equitable and other remedies. Section 8.5 Notices. All notices, requests, consents and other ------- communications under this Agreement shall be in writing and shall be delivered by hand, sent by fax or nationally recognized overnight courier or mailed by first class certified or registered mail, return receipt requested, postage prepaid: If to the Company, at 27 Wormwood Street, Boston, Massachusetts 02210, Attention: President, or at such other address or addresses as may have been furnished in writing by the Company to the Purchaser with a copy to Peter B. Finn, Esq., Rubin and Rudman LLP, 50 Rowes Wharf, Boston, Massachusetts 02110; If to a Stockholder, at his address set forth on Schedule A to this ---------- Agreement or at such other address or addresses as may have been furnished in writing by such Stockholder to the Purchaser, with a copy to Peter B. Finn, Esq., Rubin and Rudman LLP, 50 Rowes Wharf, Boston, Massachusetts 02110; or If to the Purchaser, at NMT Medical, Inc., 27 Wormwood Street, Boston, Massachusetts 02210, or at such other address as may have been furnished to the Company and the Stockholders in writing by the Purchaser, with a copy to Steven D. Singer, Esq., Hale and Dorr LLP, 60 State Street, Boston, Massachusetts 02109. Notices provided in accordance with this Section 8.5 shall be deemed given (1) when received, if sent by hand, (2) when received, if sent by fax prior to 5:00 p.m. local time at the place received (otherwise on the next following business day), (3) one business day after delivery to a nationally recognized overnight courier service, and (4) three business days after deposit in the U.S. mail, first class certified or registered, postage prepaid. Section 8.6 Survival of Representations and Warranties. All ------------------------------------------ representations and warranties contained in this Agreement shall survive delivery of and payment for the Stockholder Shares. Section 8.7 Amendments; Termination. Any term of this Agreement, ----------------------- including the allocation of the Purchase Price between cash and Purchaser Common -13- Stock set forth in Section 1.1, may be amended or modified and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactivity or prospectively), with the written consent of the Purchaser, the Company and Stockholders holding at least a majority of the Shares. Any amendment, modification or waiver effected in accordance with this Section 8.7 shall be binding upon each Stockholder, the Company and the Purchaser. This Agreement may be terminated upon written consent of the parties hereto. Section 8.8 Successors and Assigns. The provisions of this Agreement ---------------------- shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, provided that the Purchaser may assign its rights and obligations to any affiliate of the Purchaser and provided, further, that no Stockholder may assign, delegate or otherwise transfer any of its rights or obligations under this Agreement without the consent of the Purchaser. Section 8.9 Governing Law. This Agreement shall be construed in ------------- accordance with and governed by the laws of the Commonwealth of Massachusetts without giving effect to the principles of conflicts of laws thereof. Section 8.10 Counterparts; Effectiveness. This Agreement may be signed in --------------------------- any number of counterparts, each of which shall be an original, with the same effect as if the signatures thereto and hereto were upon the same instruments. This Agreement shall become effective when each party hereto shall have received counterparts hereof signed by all of the other parties hereto. Section 8.11 Obligations Separate. The obligations of the Stockholders -------------------- hereunder are several and not joint. Section 8.12 Publicity. The Company (represented by James C. Torraco), --------- on the one hand, and the Purchaser, on the other hand, will consult with each other and obtain the prior approval of the other party before issuing any press release or other public statements with respect to the transactions consummated pursuant to the Purchase Agreement and any related agreements, as well as the operations of the Company generally, and shall not issue any such press release or make any such public statement prior to such consultation, except as may be required by applicable law. * * * Remainder of page intentionally left blank * * * -14- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed as of the day and year first above written. PURCHASER: NMT MEDICAL, INC. By: /s/ Thomas M. Tully ------------------------------------- Name: Thomas M. Tully Title: President COMPANY: IMAGE TECHNOLOGIES CORPORATION By: /s/ James C. Torraco ------------------------------------- Name: James C. Torraco Title: President STOCKHOLDERS: /s/ James C. Torraco ---------------------------------------- James C. Torraco ---------------------------------------- Dean Witter f/b/o William L. Clayborn ---------------------------------------- William L. Clayborn ---------------------------------------- Lisa L. Williams ---------------------------------------- Ryan G. Williams -15- ---------------------------------------- Joseph A. Staley ---------------------------------------- Ken A. Cornelius ---------------------------------------- William R. Ross ---------------------------------------- Ronald G. Williams ---------------------------------------- Laura Ann and James Robertson /s/ Bjorn R. Koritz ---------------------------------------- Bjorn R. Koritz ---------------------------------------- Robert Lee Thompson, Jr. ---------------------------------------- Michael Meyers ---------------------------------------- Evan Ratner ---------------------------------------- Herb Feldman ---------------------------------------- Steven Kantor -16- ---------------------------------------- Mark Von Kreuter ---------------------------------------- J. Mark Junewicz ---------------------------------------- J. Mark Junewicz c/o Christian J. Junewicz ---------------------------------------- Peter Green THE DEVER FAMILY TRUST By: ------------------------------------- Name: Title: ROBERTSON OIL CO., INC. By: ------------------------------------- Name: Title: RICHARD S. RUTKOWSKI REVOCABLE TRUST By: ------------------------------------- Name: Title: -17- WAYBURN RAY SMITH REVOCABLE TRUSTS By: ------------------------------------- Name: Title: MARILYN JOANNE SMITH REVOCABLE TRUSTS By: ------------------------------------- Name: Title: CURRAN PARTNERS, L.P. By: ------------------------------------- Name: Title: DELAWARE GUARANTY & TRUST, F/B/O JOHN P. CURRAN IRA By: ------------------------------------- Name: Title: ---------------------------------------- Walter E. Rockwell ---------------------------------------- Gene Niswander -18- ---------------------------------------- Martin Ruzicka PINOTAGE, LLC By: /s/ Robert Lee Thompson ------------------------------------- Name: Robert Lee Thompson Title: Manager JUNEWICZ & CO., INC. By: ------------------------------------- Name: Title: ---------------------------------------- Marc Van Lith ARGO CAPITAL PARTNERS I L.P. By: ------------------------------------- Name: Title: -19- Schedule A ----------
Name and Address of Number of Stockholder Stockholder Shares/1/ - ---------------------------- -------------------------- James C. Torraco 188,036 3 Sewell Court Medfield, MA 025052 Dean Witter f/b/o 200,000 William L. Clayborn P.O. Box 610167 Dallas, Texas 75261 William L. Clayborn 24,563 P.O. Box 610167 Dallas, TX 75261 Lisa L. Williams 16,666 123 Seminole Drive Trophy Club, TX 76262 Ryan G. Williams 16,666 123 Seminole Drive Trophy Club, TX 76262 Joseph A. Staley 50,000 104 Forest Hill Drive Trophy Club, TX 76262 Ken A. Cornelius 5,556 2501 Kensington Place Collegeville, TX 76034 William R. Ross 5,556 1008 Trophy Club Drive Trophy Club, TX 76262
- ---------------------------- /1/ Represents shares of Common Stock of the Company unless otherwise indicated. -20- Ronald G. Williams, 16,668 President Instramed Surgical Associates, Inc. 602 Front Street Roanoke, TX 76261 Laura Ann and James 25,000 Robertson 11710 Pleasant Ridge Terrace Apt. 1411 Little Rock, AR 72212 Bjorn R. Koritz 29,249 48 Old Mill Road Greenwich, CT 06831 Robert Lee Thompson, Jr. 25,000 8334 Dogwood Lane Rogers, AR 72756 Michael Meyers 10,571 215 East 68th Street Apt. 11K New York, NY 10021 Evan Ratner 3,571 105 Giordano Drive West Orange, NJ 07052 Herb Feldman 7,142 215 East 68th Street Apt. 29C New York, NY 10021 Steven Kantor 7,142 175 East 74th Street, Apt. 11C New York, NY 10021 Mark Von Kreuter 3,571 124 Goodwives River Road Darien, CT 06820 -21- J. Mark Junewicz 11,071 Junewicz & Co., Inc. 45 Rockefellar Plaza Suite 2000 New York, NY 10111 J. Mark Junewicz c/o 1,313; Warrant to Christian J. Junewicz purchase 17,737 shares Junewicz & Company of Common Stock/2/ 45 Rockefeller Plaza Suite 2000 New York, NY 10111 Peter Green 15,000 5 Mallard Street London, England Dever Family Trust 13,888 c/o The Dever Family Trust 2941 Oakland Zion Road Fayetteville, Arkansas 72701 Robertson Oil Co., Inc. 12,776 123 N. Block Street, Suite A Fayetteville, Arkansas 72701 Richard S. Rutkowski 11,250 Revocable Trust 133 Pomeroy Avenue Pittsfield, Massachusetts 01201 Wayburn Ray Smith 3,571 Revocable Trust [address] - ---------------------------- /2/ In the event the Purchaser converts the principal amount borrowed by the Company under the Loan and Security Agreement into additional shares of Series A Preferred, Junewicz & Company shall be entitled to receive a warrant to purchase a number of shares of Common Stock equal to 5% of the number of additional share of Series A Preferred issued to the Purchaser. -22- Marilyn Joanne Smith 3,571 Revocable Trust [address] Curran Partners, L.P. 30,063 Curran Management 237 Park Avenue, Suite 900 New York, New York 10017 Delaware Guaranty & Trust, 15,031 f/b/o John P. Curran IRA Curran Management 237 Park Avenue, Suite 900 New York, New York 10017 Walter E. Rockwell 1,500 9737 Mast Boulevard Santee, California 92071 Gene Niswander 1,000 1909 Central Drive, Suite 300 Bedford, Texas 76021 Martin Ruzicka 5,000 142 Stawell Street Burnley, Victoria, Australia 3121 Pinotage, LLC 384,689 19308 Pinecrest Trail Rogers, Arizona 72756 Junewicz & Co., Inc. Warrant to purchase 76 45 Rockefellar Plaza shares of Common Suite 2000 Stock/3/ New York, New York 10111 - ---------------------------- /3/ In the event the Purchaser converts the principal amount borrowed by the Company under the Loan and Security Agreement into additional shares of Series A Preferred, Junewicz & Company shall be entitled to receive a warrant to purchase a number of shares of Common Stock equal to 5% of the number of additional share of Series A Preferred issued to the Purchaser. -23-
Marc Van Lith Warrants to purchase 525 West 22nd Street 10,735 shares of Apt. 5(f) Common Stock. New York, New York 10011 Argo Capital Partners I L.P. 120,361/4/ 8080 North Central Senior Secured Expressway, Suite 1600 Convertible Notes of the Dallas, Texas 75206-1819 Company dated August 27, 1999 in the aggregate principal amount of $2,000,000 Total: 1,266,557 shares of Common Stock and warrants to purchase 28,548 shares of Common Stock.
- ----------------------- /4/ Refers to Shares subject to adjustment pursuant to (S) 1.2 of the Purchase Agreement. -24- Schedule C ---------- [LETTERHEAD OF JUNEWICZ & CO., INC. APPEARS HERE] May 23, 1997 Image Technologies Corporation 1909 Central Drive, Suite 302 Bedford, TX 76021 Attention: Mr. R. Lee Thompson President and CEO Gentlemen: This letter agreement (the "Agreement") will confirm the arrangement under which Junewicz & Co., Inc. ("Junewicz") has been engaged by Image Technologies Corporation (the "Company") to act as its exclusive financial advisor in connection with the transactions being contemplated with Nitinol Medical Technologies, Inc. ("Nitinol"). As the Company's financial advisor, Junewicz has introduced the Company and other investors to Nitinol and has assisted the Company in structuring and negotiating the transactions being contemplated with Nitinol. The Company and Junewicz further agree as follows: 1. Transactions Contemplated with Nitinol -------------------------------------- The transactions being contemplated between the Company, R. Lee Thompson ("Thompson"), James C. Torraco ("Torraco") and Nitinol, Curran Capital Management and John P. Curran (collectively "Curran") are as follows: At the first closing, the following transactions will occur: a) Nitinol will purchase $2.3 million of Series A Preferred Stock ("Preferred Stock") from the Company ("Transaction 1a"); b) Curran will purchase $300,000 of Common Stock ("Common Stock") from the Company ("Transaction 1b"); and c) The Company will purchase $300,000 of Common Stock from Thompson and Torraco ("Transaction 1c"). Subsequent to the first closing, the following transactions may occur: d) Nitinol will provide a credit line to the Company of up to $2.0 million of senior debt (the "Revolving Credit Loan"). Nitinol will have the right to convert all or any portion of the amount drawn down under the Revolving Credit Line into additional shares of Preferred Stock of the Company. Nitinol may also, at any time during the Option Period (defined as the period during Nitinol may exercise its option to purchase all of the outstanding capital stock of the Company pursuant to the Stockholders Option Agreement (the "Purchase Option")), convert all or any -25- Image Technologies Corporation May 23, 1997 Page 2 portion of any undrawn amounts under the Revolving Credit Loan into additional shares of Preferred Stock of the Company ("Transaction 1d"). e) Nitinol will have the option to purchase all remaining shares of the Company for an additional $24.5 million at any time during the Option Period ("Transaction 1e"). 2. Fees and Expenses ----------------- In consideration for its services hereunder, Junewicz shall receive 7,500 shares of the Company's Common Stock as a retainer payment. Such shares shall be issued on or before the closing of Transactions 1a, 1b and 1c. In addition, Junewicz shall be entitled to receive the following indicated compensation from the indicated obligors at the closing of the respective transactions: a) The Company shall pay to Junewicz a cash fee equal to 5% of the gross proceeds of any sale of Preferred Stock by the Company to Nitinol. In addition, the Company shall issue to Junewicz an amount of warrants equal to 5% of the number of shares of Preferred Stock sold by the Company to Nitinol, less the number of shares of Common Stock redeemed by the Company from Thompson and Torraco in Transaction 1c. (Transactions 1a and 1d) b) The Company shall pay to Junewicz a cash fee equal to 6% of the gross proceeds of any sale of Common Stock by the Company to Curran or other investors originated by Junewicz. In addition, the Company shall issue to Junewicz an amount of warrants equal to 6% of the number of shares of Common Stock sold by the Company to Curran or other investors originated by Junewicz. (Transaction 1b) c) If Nitinol purchases the remaining shares of the Company, the Company agrees to pay Junewicz an additional cash transaction fee equal to 2.0% of the Aggregate Consideration paid to the Company's shareholders up to $25 million, and 1.5% of the Aggregate Consideration on the portion greater than $25 million. (Transaction 1e) The warrants (to purchase Common Stock) issued to Junewicz under Transactions 1a, 1b and 1d shall have an exercise price equal to the price paid for the Preferred Stock or Common Stock by Nitinol, Curran or other investors originated by Junewicz and shall be exerciseable at any time for a period of five years from the date of the respective transactions. In the event of (i) an initial public offering by the Company, or (ii) a reorganization, merger or sale of the Company, the Company shall permit the "cashless exercise" of any warrants granted to Junewicz in this Paragraph (i.e., the exercise of the warrants without payment of the exercise price in cash with the result that Junewicz receives upon exercise cash representing the difference between the exercise price of the warrants and the initial public offering or sale price of the Common Stock without requiring Junewicz to pay the exercise price in cash). For purposes of this agreement, the term "Aggregate Consideration" shall mean the total fair market value (on the date of payment) of all consideration (including cash, securities, property, all remaining debt on the Company's financial statements and other indebtedness and obligations assumed by Nitinol and any other form of consideration) paid or payable, or otherwise distributed, directly or indirectly, to the Company or its security holders in connection with Transaction 1e. In addition to the foregoing compensation, the Company shall reimburse Junewicz promptly -26- Image Technologies Corporation May 23, 1997 Page 3 upon request, for its reasonable out-of-pocket expenses, which may include fees and disbursements of its legal counsel. 3. Indemnification --------------- The Company jointly and severally agree to indemnify Junewicz in accordance with the indemnification provisions (the "Indemnification Provisions") as set forth in Annex A to this Agreement, which is incorporated by reference into this Agreement. 4. Prior Representation of Nitinol by Junewicz ------------------------------------------- The Company has been advised that Junewicz has performed investment banking services for Nitinol within the past two years and has a continuing personal and business relationship with Nitinol, its executive officers and with J.H. Whitney & Co., a major shareholder of Nitinol. In addition, the Company was advised after the engagement of Junewicz but before the execution of any definitive agreements relating to the transactions discussed herein that Junewicz holds 99,660 warrants in Nitinol. The Company hereby expressly consents to Junewicz, representation of the Company notwithstanding the information set forth in this Paragraph. In particular, the information that is set forth in this Paragraph shall not constitute gross negligence or willful misconduct by Junewicz within the meaning set forth in Annex A. 5. Governing Law and Other Matters ------------------------------- This agreement shall be governed by and construed in accordance with the Laws of the State of New York without regard to the conflict of laws principles thereof. Neither this Agreement nor any written advice (written or oral) rendered by Junewicz in connection with this Agreement may be disclosed to any third party or circulated or referred to publicly without the prior written consent of Junewicz. Please confirm that the foregoing is in accordance with your understanding by signing and returning the enclosed duplicate copy of this Agreement, which shall thereupon constitute a binding agreement as of the date set forth above. Very truly yours, JUNEWICZ & CO., INC. By: /s/ J. Mark Junewicz ---------------------- J. Mark Junewicz Confirmed and Agreed to this 23 day of May, 1997: IMAGE TECHNOLOGIES CORPORATION By: /s/ Robert Lee Thompson ------------------------- R. Lee Thompson President & Chief Executive Officer -27- Image Technologies Corporation May 23, 1997 Annex A In the event that Junewicz becomes involved in any capacity in any action, proceeding or investigation brought by or against any person including stockholders of the Company, in connection with any matter referred to in this Agreement, the Company periodically will reimburse Junewicz for its legal and other expenses (including the cost of any investigation and preparation) incurred in connection therewith. The Company also will indemnify and hold harmless against any losses, claims, damages, expenses or liabilities to any such person in connection with any matter referred to in this Agreement, except to the extent that any loss, claim, damage or liability is judicially determined to have resulted primarily from the gross negligence or willful misconduct of Junewicz in performing the services that are the subject of this Agreement. If for any reason the foregoing indemnification is unavailable to Junewicz or insufficient to hold it harmless, then the Company shall contribute to the amount paid or payable by Junewicz as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative benefits of the Company and the other stockholders on one hand and Junewicz on the other hand in the matters contemplated by this Agreement, as well as the relative fault of the Company on the one hand and Junewicz on the other hand with respect to such loss, claim, damage or liability and any other relevant equitable considerations. The reimbursement, indemnity and contribution obligations of the Company under this paragraph shall be in addition to any liability which the Company may otherwise have, including, without limitation, any liability which the Company may have to Junewicz pursuant to the Agreement and shall extend upon the same terms and conditions to the controlling person of Junewicz, and shall be binding upon and inure to the benefit of any successors, assigns, heirs, and personal representatives of the Company, Junewicz, any such affiliate and any such person. The Company also agrees that neither Junewicz nor its control person shall have any liability to the Company or the stockholders of the Company for or in connection with any matter referred to in this Agreement except to the extent that any losses, claims, damages, liabilities or expenses incurred by the Company are judicially determined to have resulted primarily from the gross negligence or willful misconduct of Junewicz in performing the services that are subject to this Agreement. The foregoing provisions shall survive any termination or completion of the engagement provided by this Agreement and this Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to the conflict of laws principles thereof. The Company agrees that they will not settle or compromise or consent to the entry of any judgment in any pending or threatened claim, action, suit or proceeding in respect of which indemnification may be sought hereunder unless such settlement, compromise or consent includes an unconditional release of Junewicz and the controlling person of Junewicz from all liability arising out of such claim, action, suit or proceeding. -28- EX-10.11 12 LETTER AGREEMENT OF WAIVER OF EVENTS EXHIBIT 10.11 November 15, 1999 NMT Medical, Inc. 27 Wormwood Street Boston, MA 02210 Re: Waiver of Compliance with Certain Covenants ------------------------------------------- Ladies and Gentlemen: Reference is made to (i) that certain Credit Agreement, dated as of September 13, 1999 (the "U.S. Credit Agreement"), by and among NMT Medical, Inc. ("NMT") and its domestic subsidiaries (together with NMT, the "U.S. Borrowers") and Brown Brothers Harriman & Co. (the "Lender"), (ii) that certain Credit Agreement, dated as of September 13, 1999 (the "French Credit Agreement"), by and among NMT NeuroSciences Implants (France) SA and NMT NeuroSciences Instruments (France) SARL, each a wholly owned subsidiary of NMT (collectively, the "French Borrowers" and together with the U.S. Borrowers, the "Borrowers"), and the Lender, (iii) that certain Guarantee, dated as of September 13, 1999 (the "Guarantee"), made by the U.S. Borrowers in favor of the Lender, pursuant to which the U.S. Borrowers guaranteed the obligations of the French Borrowers under the French Credit Agreement, and (iv) that certain letter agreement regarding the post-closing delivery of certain documentation and the satisfaction of certain conditions, dated September 13, 1999 (the "Letter Agreement"). The U.S. Credit Agreement, the French Credit Agreement, the Guarantee and the Letter Agreement are referred to collectively herein as the "Credit Documents." The U.S. Borrowers have delivered to the Lender the calculations attached hereto as Exhibit A regarding compliance with the financial covenants set forth in Section 6.09 of the U.S. Credit Agreement for the third quarter of 1999. Based on such calculations, the U.S. Borrowers were not in compliance with the financial covenants set forth in Sections 6.09(a), (b) and (d) of the U.S. Credit Agreement, which covenants are incorporated by reference into the Guarantee in Section 10(a) thereof. In addition, as of the date hereof, the Borrowers have not delivered the following items to the Lender on or before September 30, 1999 as required by the Letter Agreement: (i) such releases, termination statements and other instruments as reasonably requested by the Lender and its counsel to evidence the termination of the security interests in, and the release of, all of the collateral securing the Barclays Debt (as defined in the U.S. Credit Agreement), other than the U.K. Lease (as defined in the U.S. Credit Agreement), and (ii) the pledge of the stock of Image Technology Corp. (together with related stock powers executed in blank). Also, certain of the documents previously delivered and conditions previously satisfied as required by the Letter Agreement were not so delivered or satisfied on or before the September 30, 1999 deadline. The Lender hereby waives the Borrowers' compliance with the financial covenants set forth in the U.S. Credit Agreement and the provisions of the Letter Agreement described in the preceding two paragraphs, but only (x) to the extent of the deviations from the relevant financial covenants set forth in Exhibit A and the U.S. Borrowers' failure to comply with such covenants for the third quarter of 1999 and (y) solely with respect to the deviations from the Letter Agreement described above; provided that the Borrowers shall deliver the remaining documentation and satisfy the remaining conditions set forth in the Letter Agreement on or before January 31, 2000. The Borrowers acknowledge and agree that if all of the documentation required to be delivered under the Letter Agreement and all of the conditions required to be satisfied as set forth therein are not so delivered and satisfied on or before January 31, 2000, it shall constitute an immediate Event of Default under both the U.S. Credit Agreement and the French Credit Agreement. This waiver applies only with respect to the Borrowers' non-compliance with the provisions of the U.S. Credit Agreement, the Guarantee and the Letter Agreement described herein, and nothing contained herein or in any other communication between any Borrower and the Lender shall constitute a consent to any other deviation from the terms of any of the Credit Documents. Nothing contained in this waiver shall be deemed to modify or amend any of the Credit Documents, each of which remains in full force and effect, or constitute a course of dealing among the Borrowers and the Lender. By their acknowledgment in the spaces provided below, (A) the U.S. Borrowers hereby confirm to the Lender that the representations and warranties of the U.S. Borrowers set forth in Article III of the U.S. Credit Agreement are true and correct as of the date hereof as if set forth herein in full, (B) the French Borrowers hereby confirm to the Lender that the representations and warranties of the French Borrowers set forth in Article III of the French Credit Agreement are true and correct as of the date hereof as if set forth herein in full, and (C) the Borrowers hereby certify that, after giving effect to this waiver, no Default (as defined in the applicable Credit Agreement) exists under either the U.S. Credit Agreement or the French Credit Agreement. This waiver is conditioned upon, and shall be effective only contemporaneous with, the granting and effectiveness of a similar waiver by Whitney Subordinated Debt Fund, L.P. ("Whitney") under that certain Subordinated Note and Stock Purchase Agreement, dated as of July 8, 1998, by and among NMT, Whitney and, for limited purposes, J.H. Whitney & Co., as amended (the "Whitney Agreement"), with respect to NMT's failure to comply with the same financial covenants as set forth in Sections 9.8(a), (b) and (d) of the Whitney Agreement. [Remainder of Page Intentionally Left Blank] 2 Very truly yours, BROWN BROTHERS HARRIMAN & CO. By: /s/ Jared S. Keyer ------------------------------ Name: Jared S. Keyer Title: Manager ACKNOWLEDGED AND AGREED: NMT MEDICAL, INC. By: /s/ William J. Knight ------------------------------ Name: William J. Knight Title: Vice President of Finance and Administration and Chief Financial Officer NMT HEART, INC. By: /s/ Thomas M. Tully ------------------------------ Name: Thomas M. Tully Title: President NMT INVESTMENTS CORP. By: /s/ Thomas M. Tully ------------------------------ Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (INTERNATIONAL), INC. By: /s/ Thomas M. Tully ------------------------------ Name: Thomas M. Tully Title: President 3 NMT NEUROSCIENCES (US), INC. By: /s/ Thomas M. Tully ------------------------------ Name: Thomas M. Tully Title: President NMT NEUROSCIENCES (IP), INC. By: /s/ Thomas M. Tully ------------------------------ Name: Thomas M. Tully Title: President NMT NEUROSCIENCES INNOVASIVE SYSTEMS, INC. By: /s/ Thomas M. Tully ------------------------------ Name: Thomas M. Tully Title: President NMT NEUROSCIENCES IMPLANTS (FRANCE) SA By: /s/ David A. Chazanovitz ------------------------------ Name: David A. Chazanovitz Title: Director NMT NEUROSCIENCES INSTRUMENTS (FRANCE) SARL By: /s/ David A. Chazanovitz ------------------------------ Name: David A. Chazanovitz Title: Co-Manager 4 EX-10.12 13 WAIVER FROM JH WHITNEY EXHIBIT 10.12 WAIVER NO. 2 ------------ This Waiver No. 2, made as of November 12, 1999 (this "Waiver"), is by and between NMT Medical, Inc. (the "Company"), on the one hand, and Whitney Subordinated Debt Fund, L.P., on the other hand. Capitalized terms used herein and not otherwise defined have the meanings assigned to such terms in the Purchase Agreement (as defined below). W I T N E S S E T H ------------------- WHEREAS, the Company and the Purchaser are parties to the Subordinated Note and Common Stock Purchase Agreement, dated as of July 8, 1998, as amended by Amendment No. 1 dated as of April 14, 1999 and Amendment No. 2 dated as of September 13, 1999 (as so amended, the "Purchase Agreement"), regarding the Company's subordinated notes due September 30, 2003; WHEREAS, the Company has requested the Purchaser to waive compliance with certain covenants contained in the Purchase Agreement for the fiscal quarter ended September 30, 1999. NOW, THEREFORE, in consideration of the premises and mutual agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. The Purchaser hereby waives compliance by the Company with the provisions of Section 9.8(a), 9.8(b) and 9.8(d) of the Purchase Agreement solely with respect to the fiscal quarter ended September 30, 1999. Such waiver shall not apply to any other covenants or to any period other than the fiscal quarter ended September 30, 1999. 2. This Waiver may be signed in counterparts, and by the various parties on separate counterparts. Each set of counterparts which contains the signature of each of the parties shall constitute a single instrument with the same effect as if the signature thereto were upon the same instrument. The parties hereto agree that each party shall accept facsimile signatures as legally sufficient, binding and admissible evidence of the execution of this Waiver. 3. Except as expressly modified by this Waiver, all of the terms and provisions of the Purchase Agreement and the Notes shall continue in full force and effect and all parties hereto shall be entitled to the benefits thereof. 4. This Waiver shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principals of conflict of laws of such state. IN WITNESS WHEREOF, the parties hereto have caused this Waiver to be signed by their respective duly authorized officers as of the date first written above. NMT MEDICAL, INC. By: /s/ William J. Knight ----------------------------------------- Name: William J. Knight Title: Vice President of Finance and Administration and Chief Financial Officer WHITNEY SUBORDINATED DEBT FUND, L.P. By: /s/ Jeffrey R. Jay ----------------------------------------- Name: Jeffrey R. Jay Title: A General Partner EX-27 14 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED FINANCIAL STATEMENTS AS OF SEPTEMBER 30, 1999 AND FOR THE THREE AND NINE MONTH PERIODS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1,259,924 0 12,241,639 994,289 11,158,237 27,445,359 15,932,699 3,219,373 54,386,369 11,051,432 0 0 0 10,770 27,994,862 54,386,369 34,365,725 36,011,663 14,253,660 22,286,504 482,387 0 1,799,091 (2,809,979) 93,900 (2,903,879) 0 (2,618,428) 0 (5,522,307) (.52) (.52)
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