-----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, IE5PpyjlnBi9NTj7hUd9yCEn9UvbQ70+z+OoOOTyGmnwx0/XOMXle7UArJ/3/zky N/QiGF1CziSZAGm3DIi3cw== 0000950130-96-003121.txt : 19960814 0000950130-96-003121.hdr.sgml : 19960814 ACCESSION NUMBER: 0000950130-96-003121 CONFORMED SUBMISSION TYPE: S-1/A PUBLIC DOCUMENT COUNT: 15 FILED AS OF DATE: 19960813 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NITINOL MEDICAL TECHNOLOGIES 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: S-1/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-06463 FILM NUMBER: 96609316 BUSINESS ADDRESS: STREET 1: 263 SUMMER STREET CITY: BOSTON STATE: MA ZIP: 02210 BUSINESS PHONE: 6177370930 MAIL ADDRESS: STREET 1: 263 SUMMER STREET CITY: BOSTON STATE: MA ZIP: 02210 S-1/A 1 AMENDMENT NO. 2 TO THE FORM S-1 As filed with the Securities and Exchange Commission on August 13, 1996 Registration No. 333-06463 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ---------------- AMENDMENT NO. 2 TO FORM S-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ---------------- NITINOL MEDICAL TECHNOLOGIES, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 3841 95-4090463 (STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER JURISDICTION OF CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.) INCORPORATION OR ORGANIZATION) 263 SUMMER STREET BOSTON, MASSACHUSETTS 02210 (617) 737-0930 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) THOMAS M. TULLY PRESIDENT AND CHIEF EXECUTIVE OFFICER 263 SUMMER STREET BOSTON, MASSACHUSETTS 02210 (617) 737-0930 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ---------------- Copies to: STEPHEN H. KAY, ESQ. TIMOTHY G. MASSAD, ESQ. SQUADRON, ELLENOFF, PLESENT & CRAVATH, 551 SWAINE & MOORE SHEINFELD, LLP 825 EIGHTH AVENUE FIFTH AVENUE NEW YORK, NEW YORK 10019 NEW YORK, NEW YORK 10176 (212) 474-1000 (212) 661-6500 ---------------- APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] ---------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE. - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- CROSS-REFERENCE SHOWING LOCATION IN PROSPECTUS OF INFORMATION REQUIRED BY ITEMS OF FORM S-1 PURSUANT TO ITEM 501(B) OF REGULATION S-K
REGISTRATION STATEMENT AND ITEM AND HEADING LOCATION IN PROSPECTUS ------------------------------------------- ---------------------- 1. Forepart of the Registration Statement and Outside Front Cover Page of Prospectus.................... Outside Front Cover of Prospectus 2. Inside Front and Outside Back Cover Pages of Prospectus........................................ Inside Front and Outside Back Cover of Prospectus 3. Summary Information, Risk Factors and Ratio of Earnings to Fixed Charges......................... Prospectus Summary; Risk Factors (Page 6); Not Applicable 4. Use of Proceeds................................... Prospectus Summary; Use of Proceeds 5. Determination of Offering Price................... Outside Front Cover of Prospectus; Underwriting 6. Dilution.......................................... Dilution 7. Selling Security Holders.......................... Not Applicable 8. Plan of Distribution.............................. Outside Front Cover of Prospectus; Underwriting 9. Description of Securities to be Registered........ Description of Capital Stock 10. Interests of Named Experts and Counsel............ Legal Matters 11. Information with Respect to the Registrant........ Prospectus Summary; Risk Factors; Use of Proceeds; Dividend Policy; Capitalization; Selected Consolidated Financial Data; Management's Discussion and Analysis of Financial Condition and Results of Operations; Business; Management; Principal Stockholders; Description of Capital Stock; Financial Statements; Financial Statement Schedules 12. Disclosure of Commission Position on Indemnification for Securities Act Liabilities.... Not Applicable 13. Other Expenses of Issuance and Distribution....... Part II 14. Indemnification of Directors and Officers......... Part II 15. Recent Sales of Unregistered Securities........... Part II 16. Exhibits and Financial Statement Schedules........ Part II; Exhibits 17. Undertakings...................................... Part II
Information contained herein is subject to completion or amendment. A registration statement relating to these securities has been filed with the Securities and Exchange Commission. These securities may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This Prospectus shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any State in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such State. PROSPECTUS Subject To Completion Dated , 1996 2,700,000 Shares Nitinol Medical - -------------------------------------------------------------------------------- Technologies, Inc. Common Stock (par value $.001 per share) All of the Common Stock offered hereby is being offered by Nitinol Medical Technologies, Inc., a Delaware corporation (together with its subsidiaries, "NMT" or the "Company"). Prior to the Offering, there has been no public market for the Common Stock. It is currently anticipated that the initial public offering price will be between $12.00 and $14.00 per share. See "Underwriting" for information relating to the factors considered in determining the initial public offering price. The Company's Common Stock has been approved for quotation on the Nasdaq National Market under the symbol "NMTI", subject only to official notice of issuance. SEE "RISK FACTORS" COMMENCING ON PAGE 6 FOR CERTAIN INFORMATION THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - --------------------------------------------------------------
PRICE TO UNDERWRITING PROCEEDS TO PUBLIC DISCOUNT(1) COMPANY(2) - -------------------------------------------------------------- Per Share $ $ $ - -------------------------------------------------------------- Total (3) $ $ $
- -------------------------------------------------------------- (1) The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended. See "Underwriting." (2) Before deducting expenses of the Offering payable by the Company, estimated at $700,000. (3) The Company has granted the Underwriters an option to purchase up to an additional 405,000 shares of Common Stock, on the same terms as set forth above, solely to cover over-allotments, if any. If such option is exercised in full, the total Price to Public, Underwriting Discount and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." The shares of Common Stock being offered by this Prospectus are being offered by the Underwriters, subject to prior sale, when, as and if delivered to and accepted by the Underwriters, and subject to approval of certain legal matters by Cravath, Swaine & Moore, counsel for the Underwriters. It is expected that delivery of the shares of Common Stock will be made against payment therefor on or about , 1996 at the offices of J.P. Morgan Securities Inc., 60 Wall Street, New York, New York. J.P. MORGAN & CO. CS FIRST BOSTON JEFFERIES & COMPANY, INC. , 1996 EDGAR DESCRIPTION OF FRONT INSIDE COVER Diagrams depicting the following: 1. The Company's CardioSeal Septal Occluder and its placement in the human body; 2. Deployment of the Company's Simon Nitinol Filter and its placement in the human body; and 3. The Company's Hex-cell Stent and its deployment and placement in the human body. No person has been authorized to give any information or make any representations not contained in this Prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by the Company or any Underwriter. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, the Common Stock in any jurisdiction to any person to whom it is unlawful to make such offer or solicitation. No action has been or will be taken in any jurisdiction by the Company or by any Underwriter that would permit a public offering of the Common Stock or possession or distribution of this Prospectus in any jurisdiction where action for that purpose is required, other than in the United States. Persons into whose possession this Prospectus comes are required by the Company and the Underwriters to inform themselves about and to observe any restrictions as to the Offering of the Common Stock and the distribution of this Prospectus. TABLE OF CONTENTS
PAGE Prospectus Summary...................... 3 Risk Factors............................ 6 Use of Proceeds......................... 12 Dividend Policy......................... 13 Capitalization.......................... 13 Dilution................................ 14 Selected Consolidated Financial Data.... 15 Management's Discussion and Analysis of Financial Condition and Results of Operations............................. 16
PAGE Business.......................... 21 Management........................ 39 Certain Transactions.............. 48 Principal Stockholders............ 50 Description of Capital Stock...... 52 Shares Eligible for Future Sale... 54 Underwriting...................... 55 Legal Matters..................... 56 Experts........................... 56 Additional Information............ 56 Index to Financial Statements..... F-1
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATIONS OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS. Prior to the Offering, the Company has not been subject to the reporting requirements of the Securities Exchange Act of 1934 (the "Exchange Act"). The Company intends to furnish stockholders with annual reports containing consolidated financial statements audited by its independent auditors and such other periodic reports as the Company may determine to be appropriate or as may be required by law. IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE- COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE ACCOUNTS OF OTHERS IN COMMON STOCK OF THE COMPANY PURSUANT TO EXEMPTIONS FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934. The product names Simon Nitinol Filter(R), SNF(R) and CardioSeal(TM) and the Company's logo are trademarks of the Company. All other brand names or trademarks appearing in this Prospectus are the property of their respective holders. 2 PROSPECTUS SUMMARY The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and the Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus. Unless otherwise noted herein, all information contained in this Prospectus (i) reflects a 1 for 1.9 reverse stock split effective as of July 9, 1996, (ii) reflects the conversion of all outstanding Convertible Preferred Stock of the Company into 1,993,212 shares of Common Stock and 37,871 shares of Redeemable Preferred Stock of the Company upon the closing of the Offering (the "Conversion") and the immediate application of a portion of the net proceeds of the Offering to redeem all such shares of Redeemable Preferred Stock (the "Redemption"), and (iii) assumes no exercise of the Underwriters' over- allotment option. THE COMPANY Nitinol Medical Technologies, Inc. designs, develops, and markets innovative medical devices that utilize advanced materials 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. At this time, the Company's stents are in European clinical trials for certain indications, its vena cava filters are marketed in the United States and abroad, and the Company is completing the development of its septal repair device. NMT has developed an expertise in precisely engineering nitinol and other advanced materials for a variety of innovative medical device applications. Nitinol is a nickel-titanium alloy that exhibits unique superelastic and thermal shape-memory characteristics which enable the Company's nitinol-based medical devices to transform into their intended shape once deployed into the body. The Company has developed capabilities in advanced device fabrication, materials characterization, manufacturing and process control and sophisticated in vitro testing resulting in highly efficient and reliable manufacturing processes. The Company has established arrangements with Boston Scientific Corporation ("Boston Scientific") and C. R. Bard, Inc. ("Bard"), worldwide leaders in sales of minimally invasive medical devices, for the distribution, sales and marketing of its stents and its nitinol vena cava filter, respectively. BUSINESS STRATEGY The Company's strategy is to develop and commercialize a broad range of advanced medical devices for minimally invasive applications to address unmet medical needs by (i) designing and developing new products by leveraging its core technologies to precisely engineer nitinol and other advanced materials, (ii) continuing to market products with more extensive distribution requirements through collaborations with established market leaders, (iii) creating direct marketing and distribution capabilities for products, such as the septal repair device, with smaller and more easily accessible user groups, (iv) developing commercial scale manufacturing facilities to become a fully- integrated medical device company, and (v) seeking licensing and acquisition opportunities that will complement the Company's business and strengthen its competitive position. PRODUCTS Stents. NMT's patented self-expanding nitinol stents are designed to hold open arteries, veins and other passageways of the body that have closed or become obstructed as a result of aging, disease or trauma. The Company's stents are placed in the body using catheter-based delivery systems. Once deployed, they exert radial force against the walls of passageways to enable such passageways to remain open and functional. NMT's proprietary stents can be manufactured in a variety of sizes, shapes and flexibilities and with varying radial force characteristics to treat a number of specific medical indications. Stents have emerged as one of the fastest growing segments of the medical device market and are increasingly being used as adjuncts or alternatives to a variety of medical procedures. The stent market has grown from its infancy in 1990 to estimated worldwide sales of $500 million in 1995, with continued growth expected. In November 1994, the Company entered into an exclusive license agreement with Boston Scientific to further develop, manufacture, market and distribute 3 NMT's stents worldwide. Boston Scientific is currently conducting clinical trials in Europe for peripheral vascular stenting and peripheral vascular stent grafting applications. The Company has been advised by Boston Scientific that it intends to commence marketing of the Company's peripheral vascular stents in Europe during 1996 and that it intends to seek Food and Drug Administration ("FDA") approval for an Investigational Device Exemption ("IDE") to permit the commencement of United States clinical trials for peripheral vascular stenting in the near future. Vena Cava Filters. The Company's patented Simon Nitinol Filter ("SNF") is a nitinol vena cava filter designed to prevent pulmonary embolism (a blood clot lodged in the vessels supplying blood to the lungs), a condition which results in approximately 125,000 to 150,000 deaths annually in the United States. Vena cava filters are generally used in cases where drug therapy has failed or is contraindicated. The Company's vena cava filter is implanted using the Company's patented, catheter-based delivery systems from veins in the leg or neck. Additionally, the SNF is the only currently available vena cava filter which can be implanted from veins in the arm. In 1990, the Company obtained FDA clearance to market the SNF in the United States. The SNF has been distributed in the United States and certain other countries by the Bard Radiology Division of Bard ("Bard Radiology") since 1992. In 1996, Bard International, Inc. ("Bard International") began distributing the SNF outside the United States. Septal Repair Devices. The Company is currently completing the development of the CardioSeal Septal Occluder, an innovative, patented device for the minimally invasive repair of defects in the septal wall of the heart, commonly known as "holes in the heart." These defects, which occur primarily in children, presently are treated by open heart surgery. The Company believes that the CardioSeal Septal Occluder may be suitable for use in approximately 55,000 patient implants annually for congenital heart defects, as well as for approximately 145,000 adult patients annually with Patent Foramen Ovale, another septal defect which may contribute to embolic stroke. The septal repair device was originally developed by Bard in collaboration with Children's Hospital of Boston. NMT acquired the rights to develop and commercialize the septal repair device in February 1996. The Company believes that the clinical utility of the septal repair device was demonstrated with an earlier version of the device that was evaluated in over 700 patients in clinical trials conducted between 1989 and 1991. Children's Hospital of Boston is conducting clinical trials of the current version of the septal repair device under an IDE permitting implantation of such devices in patients at high risk for surgery. In August 1996, the Company received conditional approval of its IDE application from the FDA to conduct multi-center clinical trials of the CardioSeal Septal Occluder in the United States. NMT intends to begin clinical trials for the CardioSeal Septal Occluder in the United States, Canada and Europe in late 1996. The Company's principal executive offices are located at 263 Summer Street, Boston, MA 02210, and its telephone number is (617) 737-0930. RISK FACTORS The purchase of Common Stock offered hereby is speculative and involves substantial risk, including risks related to the Company's limited commercialization, manufacturing and marketing experience, the Company's dependence upon collaborators and its expected near-term losses; and uncertainties as to product development, market acceptance, competition, technological change and governmental regulation. See "Risk Factors." THE OFFERING The offering of 2,700,000 shares of Common Stock initially being offered is re- ferred to herein as the "Offering." COMMON STOCK OFFERED....................2,700,000 shares COMMON STOCK OUTSTANDING AFTER THE 8,985,922 shares OFFERING(1)............................ USE OF PROCEEDS.........................Redemption of the Redeemable Preferred Stock and funding of research, development, clinical trials and regulatory matters, leasehold improvements and equipment lease financing obligations, potential licenses and acquisitions of technologies or products that complement NMT's business and for working capital and other general corporate purposes. NASDAQ NATIONAL MARKET SYMBOL..........."NMTI" - ------- (1)Excludes an aggregate of 1,982,910 shares of Common Stock issuable pursuant to options and warrants outstanding as of July 31, 1996. See "Capitalization," "Management--Stock Option Plans" and "Description of Capital Stock." 4 SUMMARY CONSOLIDATED FINANCIAL INFORMATION The following table sets forth summary consolidated financial data derived from the Consolidated Financial Statements of the Company. The data should be read in conjunction with the Consolidated Financial Statements and the Notes thereto and other financial information included elsewhere in this Prospectus. --------------------------------------------------------
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, 1991 1992 1993 1994 1995 1995 1996 ----------- ---------- ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) In thousands, except per share data STATEMENT OF OPERATIONS DA- TA: Revenues: Product sales.............. $ 1,292 $ 2,073 $ 2,003 $ 1,837 $ 2,716 $ 1,303 $ 1,999 License fees............... -- -- -- 773 625 -- 625 Product development........ -- -- -- 38 492 269 79 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1,292 2,073 2,003 2,647 3,833 1,572 2,703 Expenses: Cost of product sales...... 265 497 655 812 1,264 546 924 Research and development... 173 210 272 555 871 366 1,163 General and administrative. 410 536 468 770 871 279 940 Selling and marketing...... 413 454 285 182 169 65 103 In-process research and development(1)............ -- -- -- -- -- -- 1,111 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1,261 1,697 1,680 2,319 3,175 1,256 4,241 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) from opera- tions...................... 31 376 323 328 658 316 (1,538) Interest income (expense), net........................ (180) (136) (62) (39) (29) (11) 101 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income (loss) before provision for income taxes. (149) 240 261 289 628 305 (1,437) Provision for income tax- es(2)...................... -- -- -- -- 44 -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income (loss)........... $ (149) $ 240 $ 261 $ 289 $ 584 $ 305 $ (1,437) ========== ========== ========== ========== ========== ========== ========== Net income (loss) per common and common equivalent share(3)................... $ (.02) $ .04 $ .04 $ .04 $ .08 $ .04 $ (.21) ========== ========== ========== ========== ========== ========== ========== Weighted average common and common equivalent shares outstanding(3)............. 6,406 6,704 6,678 6,856 6,985 6,984 6,846 ========== ========== ========== ========== ========== ========== ========== Cash dividends declared per common share(4)........ $ -- $ -- $ -- $ .13 $ .03 $ -- $ -- ========== ========== ========== ========== ========== ========== ==========
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AT JUNE 30, 1996 PRO FORMA PRO FORMA(5) AS ADJUSTED(6) ------------ -------------- (UNAUDITED) In thousands BALANCE SHEET DATA: Cash and cash equivalents.......................... $5,718 $33,161 Working capital.................................... 5,309 32,752 Total assets....................................... 7,988 35,431 Long term obligations.............................. 29 29 Preferred stock redemption liability............... 4,326 -- Stockholders' equity............................... 2,029 33,798
- ------- (1) Relates to a write-off of in-process research and development incurred in connection with the Company's acquisition of the septal repair device technology. See Note 3 of Notes to the Consolidated Financial Statements. (2) In the periods prior to October 19, 1995 the Company elected to be taxed as an "S" corporation for income tax purposes. Accordingly, there was no provision for income taxes in these periods. See Note 4 of Notes to the Consolidated Financial Statements. (3) Computed on the basis described in Note 2(j) of Notes to the Consolidated Financial Statements. (4) Computed based on the actual number of common shares outstanding at the time the dividend was declared. In the periods prior to October 19, 1995 the Company elected to be taxed as an "S" corporation for income tax purposes. (5) The pro forma balance sheet data gives effect to the Conversion. (6) Adjusted to reflect the sale of 2,700,000 shares of Common Stock offered hereby (at an assumed initial public offering price of $13.00 per share) and receipt by the Company of the estimated net proceeds therefrom, and the application of a portion of such proceeds to fund the Redemption. See "Use of Proceeds" and "Capitalization." 5 RISK FACTORS In addition to the other information in this Prospectus, the following factors should be considered carefully by prospective investors in evaluating the Company and its business before purchasing shares of Common Stock offered hereby. LIMITED COMMERCIALIZATION; UNCERTAINTIES OF PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE The Company currently markets only one product, the Simon Nitinol Filter. The Company's stents and CardioSeal Septal Occluder may require substantial further investment in research, product development, preclinical and clinical testing and governmental regulatory approvals prior to being marketed and sold in the United States and other countries. The Company's success will depend, in part, on its ability, either by itself or in collaboration with others, to complete such product development efforts, obtain such regulatory approvals, establish manufacturing and marketing programs for such proposed products and gain market acceptance. The Company's product development efforts are subject to the risks inherent in the development of products based on innovative technologies. These risks include the possibilities that the Company's technologies or any or all of its products will be found to be ineffective or unsafe, or will otherwise fail to receive necessary regulatory approvals; that the products, if safe and effective, will be difficult to manufacture on a large scale or be uneconomical to market; that the proprietary rights of third parties will interfere with the Company's product development; or that third parties will market superior or equivalent products which achieve greater market acceptance. Furthermore, there can be no assurance that the Company or its collaborators will conduct their product development efforts within the time frames currently anticipated or that such efforts will be completed successfully. See "Business--Products." There can be no assurance that the Company's stents, septal repair devices, or any other products developed by the Company will achieve market acceptance. The degree of market acceptance for the Company's products will depend upon a number of factors, including the receipt and timing of regulatory approvals, the establishment and demonstration in the medical community of the clinical safety, efficacy and cost-effectiveness of the Company's products and their advantages over existing technologies. Additionally, certain of the medical indications that can be treated by the Company's devices can also be treated by surgery, drugs or other medical devices. Many alternative treatments currently are widely accepted in the medical community and have a long history of use. There can be no assurance that the Company's devices and procedures will be able to replace such established treatments or that physicians or the medical community in general will accept and utilize the Company's devices or any other medical products that may be developed by the Company. Long-term market acceptance of NMT's products will depend, in part, on the capabilities and operating features of the Company's products as compared to other available products. Failure of the Company's products to gain market acceptance would have a material adverse effect on the Company's business, financial condition and results of operations. See "--Intense Competition; Rapid Technological Change" and "Business--Products." DEPENDENCE UPON COLLABORATORS The Company has entered into distribution agreements with Bard Radiology and Bard International granting them exclusive distribution rights to the Company's SNF, and a license agreement with Boston Scientific granting Boston Scientific exclusive worldwide rights to develop, manufacture, market and distribute the Company's stent technology and products which incorporate such technology. Although Bard Radiology and Bard International have agreed not to sell competing filters, Boston Scientific is not prohibited from selling other stents and, in fact, manufactures and licenses from others a variety of stents that may compete with the Company's stents. Boston Scientific may choose to emphasize such other stents in its developmental and marketing efforts. See "-- Intense Competition; Rapid Technological Change." The Company's future product development and marketing depends on the success of these arrangements and the ability to renew such arrangements. There can be no assurance that such arrangements will be renewed or that the Company's existing relationships with Bard Radiology, Bard International or Boston Scientific will continue in their current form. The Company's business could be materially adversely affected if its arrangements with Bard Radiology, Bard International or Boston Scientific prove unsuccessful or if such companies terminate their arrangements with the Company, negotiate lower prices, sell additional competing products, whether manufactured by themselves or others, or otherwise alter the nature of their relationships with the Company. The amount and timing of resources to be devoted by the Company's existing and future collaborators to performing their contractual responsibilities are not 6 within the control of the Company. In addition, there can be no assurance that such collaborators will perform their obligations as expected or that the Company will derive any additional revenue from such arrangements. There also can be no assurance that the Company's collaborators will not pursue existing or alternative technologies in preference to products being developed in collaboration with the Company. There can be no assurance that the Company will be able to negotiate additional collaborative arrangements in the future on acceptable terms, if at all, or that such collaborative arrangements will be successful. See "Business--Strategy," "Business--Products" and "Business-- Agreements with Boston Scientific and Bard." INTENSE COMPETITION; RAPID TECHNOLOGICAL CHANGE The medical device industry is characterized by rapidly evolving technology and intense competition. Other companies in the medical device industry are currently marketing products that compete with the Company's devices and may be developing, or could in the future develop, additional products that are competitive with the Company's. Many of the Company's competitors have substantially greater capital resources, greater research and development, manufacturing and marketing resources and experience and greater name recognition than the Company. There can be no assurance that the Company will be able to compete against such competitors and potential competitors in terms of research and development, manufacturing, marketing and sales. Certain of the Company's competitors, including Johnson & Johnson, Inc., currently market stents, and Boston Scientific, which has entered into an exclusive license agreement with the Company relating to the Company's stent technology, distributes competing stents, competes with the Company in the vena cava filter market and has substantially greater sales than the Company. The Company believes that other companies are actively developing competitive septal repair devices. Such companies may succeed in obtaining regulatory approvals and commercializing their septal repair devices sooner than the Company. There can be no assurance that the Company's competitors will not succeed in developing or marketing technologies and products that are more effective than those developed or marketed by the Company or that would render the Company's technology and products obsolete or noncompetitive. Additionally, new surgical procedures and medications could be developed that replace or reduce the importance of current or future procedures that use the Company's products. Accordingly, the Company's success will depend in part on its ability to respond quickly to medical and technological changes through the development and introduction of new products. Product development involves a high degree of risk and there can be no assurance that the Company's new product development efforts will result in any commercially successful products. Additionally, in many cases the medical indications that can be treated by the Company's devices can also be treated by surgery and drugs as well as other medical devices. See "Business--Products." EXPECTED NEAR-TERM LOSSES The Company expects operating losses to continue at least through early 1997 as it continues to expend substantial resources to complete development of the Company's products, seek regulatory clearances or approvals, build its marketing, sales and manufacturing organizations and conduct further research and development. There can be no assurance that the Company's products under development will ever gain commercial acceptance, generate revenues or achieve profitability or that the Company will resume profitability. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." LIMITED MANUFACTURING HISTORY; DEPENDENCE ON THIRD PARTY MANUFACTURERS The Company currently uses third parties to manufacture and distribute the SNF and, pursuant to its exclusive license agreement, will use Boston Scientific to manufacture and distribute its stents. The Company intends to continue to use third parties to manufacture and distribute such products and certain other products which the Company may seek to develop. If the Company should encounter delays or difficulties with third party manufacturers in producing, packaging or distributing its proposed products, market introduction and subsequent sales of such products would be adversely affected and the Company may have to seek alternative sources of supply. No assurance can be made that the Company will be able to enter into alternative supply arrangements at commercially acceptable rates, if at all. Moreover, contract manufacturers that the Company may use must adhere to current Good Manufacturing Practice ("GMP") regulations enforced by the FDA. If the Company is unable to obtain or retain third party manufacturers on commercially acceptable terms, it may not be able to commercialize medical products as planned. The Company's dependence upon third parties for the manufacture of medical products may materially adversely affect the Company's profit margins and its ability to develop and distribute products on a timely and competitive basis. 7 The Company plans to manufacture the CardioSeal Septal Occluder itself and, for such purpose, is currently constructing its own manufacturing facility. The Company has had no previous experience in the scale-up or manufacture of medical products. The Company's manufacturing facility will be subject to GMP, ISO 9000 and other regulatory requirements, will be subject to risks regarding delays or difficulties encountered in manufacturing any such medical products and will require a substantial investment of capital. There can be no assurance that the Company will be able to manufacture any such products successfully or in a cost-effective manner or that the Company can achieve and maintain compliance with GMP, ISO 9000 and other regulatory requirements. See "Business--Products" and "Business--Government Regulation." LIMITED MARKETING AND SALES EXPERIENCE Although the Company has limited internal marketing and sales resources and personnel, and currently relies primarily on third parties to market and sell its products, the Company plans to market the CardioSeal Septal Occluder directly, if and when it receives the required regulatory approvals. In order to market the CardioSeal Septal Occluder and any other products that it may develop, the Company will have to develop a marketing and sales organization with technical expertise and distribution capabilities. The development of such an organization will require significant expenditures, management resources and time. There can be no assurance that the Company will be able to develop such a marketing and sales organization. See "Business--Products." DEPENDENCE ON PATENTS AND PROPRIETARY TECHNOLOGY The Company's success will depend, in part, on its ability to obtain patents, maintain trade secret protection and operate without infringing on the proprietary rights of third parties. The validity and breadth of claims covered in medical technology patents involve complex legal and factual questions and, therefore, may be highly uncertain. No assurance can be given that any pending patent applications or any future patent application will result in issued patents, the scope of any patent protection will exclude competitors or provide competitive advantages to the Company, any of the Company's patents will be held valid if subsequently challenged or others will not claim rights in or ownership of the patents and other proprietary rights held by the Company. Furthermore, there can be no assurances that others have not or will not develop similar products, duplicate any of the Company's products or design around any patents issued or that may be issued in the future to the Company or its licensors. In addition, whether or not patents are issued to the Company or its licensors, others may hold or receive patents which contain claims having a scope that covers products developed by the Company. Moreover, there can be no assurances that patents issued to or licensed by or to the Company will not be challenged, invalidated or circumvented or that the rights thereunder will provide any competitive advantage. The Company could incur substantial costs in defending any patent infringement suits or in asserting any patent rights, including those granted by third parties. In addition, the Company may be required to obtain licenses to patents or proprietary rights from third parties. There can be no assurance that such licenses will be available on acceptable terms if at all. If the Company does not obtain required licenses, it could encounter delays in product development or find that the development, manufacture or sale of products requiring such licenses could be foreclosed. See "Business--Patents and Proprietary Rights" and "Business--Licensed Technology; Royalty Obligations." The Company also relies on unpatented proprietary technology, trade secrets and know-how and no assurance can be given that others will not independently develop substantially equivalent proprietary information, techniques or processes, that such technology or know-how will not be disclosed or that the Company can meaningfully protect its rights to such unpatented proprietary technology, trade secrets, or know-how. Although the Company has entered into non-disclosure agreements with its employees and consultants, there can be no assurance that such non-disclosure agreements will provide adequate protection for the Company's trade secrets or other proprietary know-how. GOVERNMENT REGULATION; PRODUCT APPROVALS UNCERTAIN The manufacture and sale of medical devices intended for commercial distribution are subject to extensive governmental regulations in the United States. Medical devices are regulated in the United States by the FDA under the Federal Food, Drug, and Cosmetic Act (the "FDC Act") and generally require pre- market clearance or pre-market approval prior to commercial distribution. In addition, certain material changes or modifications to medical devices also are subject to FDA review and clearance or approval. Pursuant to the FDC Act, the FDA regulates the research, testing, manufacture, safety, labeling, storage, record keeping, advertising, distribution and production of medical devices in the United States. Noncompliance with applicable requirements can result in failure of the government to 8 grant pre-market clearance or approval for devices, withdrawal of approvals, total or partial suspension of production, fines, injunctions, civil penalties, recall or seizure of products, and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed by the Company. Generally, before a new device can be introduced into the market in the United States, the manufacturer must obtain FDA clearance of a pre-market notification ("510(k) notification") or approval of a PMA application. If a medical device manufacturer can establish that a device is "substantially equivalent" to a legally marketed device, the manufacturer may seek clearance from the FDA to market the device by filing a 510(k) notification. If a manufacturer or distributor of medical devices cannot establish that a proposed device is substantially equivalent to a legally marketed device, the manufacturer must seek pre-market approval of the proposed device through submission of a PMA application. The PMA approval process is expensive, uncertain and lengthy. A number of devices for which pre-market approval has been sought by other companies have never been approved for marketing. The review time is often significantly extended by the FDA, which may require more information or clarification of information already provided in the submission. In addition, the FDA will inspect the manufacturing facility to ensure compliance with the GMP regulations for medical devices prior to approval of the PMA application. If granted, the approval may include significant limitations on the indicated uses for which a product may be marketed. Any products manufactured or distributed by the Company are subject to continuing regulation by the FDA including record keeping requirements, reporting of adverse experience with the use of the device, postmarket surveillance, postmarket registry and other actions deemed necessary by the FDA. The FDA's regulations require agency approval of a PMA supplement for certain changes if they affect the safety and effectiveness of the device, including, but not limited to, new indications for use; labeling changes; the use of a different facility to manufacture, process, or package the device. For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness, or that constitute a major change in the intended use of the device, will require new 510(k) submissions. There can be no assurance that the Company will be able to obtain necessary regulatory approvals or clearances for its products on a timely basis or at all, and delays in receipt of, or failure to receive, such approvals or clearances, the loss of previously received approvals or clearances, limitations on intended use imposed as a condition of such approvals or clearances, or failure to comply with existing or future regulatory requirements could have a material adverse effect on the Company's business, financial conditions and results of operations. The Company's first product, the SNF, underwent significant clinical investigation under an IDE and received 510(k) clearance in 1990. Subsequent improvements and modifications to the SNF have also received 510(k) clearance from the FDA. There can be no assurance that future modifications of the device will obtain such clearance. The 510(k) clearances for the SNF were based on substantial equivalence of the device to other cardiovascular intravascular filters, which are "preamendments Class III devices." It is likely that the FDA will call for PMAs for such preamendments Class III devices, including the SNF, and that the Company will be required to have a PMA for the SNF accepted for filing by the FDA within 90 days after the date that the FDA calls for PMAs. There can be no assurance that the Company will be able to file a PMA within the prescribed time period or that any data and information submitted in a PMA will be adequate to support approval of the device. If the FDA were to require the Company to conduct a new clinical study to support the safety and efficacy of the SNF, the preparation of the PMA would take substantially longer than 90 days. Failure of the Company to submit a PMA and have it accepted for filing by the FDA within the required time frame could result in the Company being required to cease commercial distribution of the SNF. In addition the Company may not be permitted to continue commercial distribution of the SNF pending the FDA's review of the PMA. The Company's failure to have a PMA accepted for filing, or a failure to obtain FDA approval of the PMA, would result in the Company being required to cease commercial distribution of the SNF which would have a material adverse effect on the Company's business, financial condition and results of operations. Sales of medical device products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. The time required to obtain approvals required by foreign countries may be longer or shorter than that required for FDA approval, and requirements for licensing may differ from FDA requirements. Failure to comply with foreign regulatory requirements also could have a material adverse effect on the Company's business, financial condition and results of operations. See "Business-- Government Regulation." 9 UNCERTAIN AVAILABILITY OF THIRD PARTY REIMBURSEMENT; POSSIBLE HEALTH CARE RE- FORMS In the United States, suppliers of health care products and services are greatly affected by Medicare, Medicaid and other government insurance programs, as well as by private insurance reimbursement programs. Third party payers may affect the pricing or relative attractiveness of the Company's products by regulating the maximum amount of reimbursement provided for by such payers to the physicians and clinics using the Company's devices, or any other products that the Company may develop, or by taking the position that such reimbursement is not available at all. The level of reimbursement by third party payers in those states that do provide reimbursement varies considerably. Major third party payers reimburse inpatient medical treatment, including all operating costs and all furnished items or services, including devices such as the Company's, at a prospectively fixed rate based on the diagnosis-related group ("DRG") that covers such treatment as established by the federal Health Care Financing Administration. For interventional procedures, the fixed rate of reimbursement is based on the procedure or procedures performed and is unrelated to the specific devices used in such procedure. The amount of profit realized by suppliers of health care services relating to the procedure may be reduced by the use of the Company's devices. If a procedure is not covered by a DRG, certain third party payers may deny reimbursement. Alternatively, a DRG may be assigned that does not reflect the costs associated with the use of the Company's devices, resulting in limited reimbursement. If, for any reason, the Company's products were not to be reimbursed by third party payers, the Company's ability to sell its products may be materially adversely affected. Mounting concerns about rising health care costs may cause more restrictive coverage and reimbursement policies to be implemented in the future. Several states and the federal government are investigating a variety of alternatives to reform the health care delivery system and further reduce and control health care spending. These reform efforts include proposals to limit spending on health care items and services, limit coverage for new technology and limit or control directly the price health care providers and drug and device manufacturers may charge for their services and products. In the international market, reimbursement by private third party medical insurance providers, and governmental insurers and providers varies from country to country. In certain countries, the Company's ability to achieve significant market penetration may depend upon the availability of third party governmental reimbursement. See "Business--Government Regulation." UNCERTAINTIES OF SUCCESSFUL REDESIGN OF THE SEPTAL REPAIR DEVICE Between 1989 and 1991 Bard sponsored trials of an earlier version of the septal repair device, known as the Clamshell. In 1991, Bard discovered fractures of the stainless steel framework in certain of the devices implanted during such clinical trials and, following such discovery, suspended its clinical trials worldwide except for patients at high risk for surgery. It was determined that the fractures were caused by metal fatigue resulting from higher than anticipated forces acting on the Clamshell. Redesign efforts were initiated, resulting in the design of the current version of the septal repair device. Although the CardioSeal Septal Occluder has undergone in vitro testing, there can be no assurance that such testing accurately simulates the actual forces in the human body or that similar fractures will not occur with the CardioSeal Septal Occluder. If such fractures occur, the Company's efforts to commercialize the CardioSeal Septal Occluder may be significantly delayed and the Company may be required to invest significant resources in further designing and engineering the device or to discontinue its development efforts. See "Business--Products." PRODUCT LIABILITY RISKS; INSURANCE The testing, marketing and sale of implantable devices and materials entail an inherent risk that product liability claims will be asserted against the Company or its third party distributors in the event that the use of the Company's devices is alleged to have adverse effects on a patient. A product liability claim or a product recall could have a material adverse effect on the Company's business, financial condition and results of operations. Certain of the Company's devices are designed to be used in life-threatening situations where there is a high risk of serious injury or death. Although the Company currently maintains limited product liability insurance coverage, there can be no assurance that in the future the Company will be able to maintain such coverage on acceptable terms or that current insurance or insurance subsequently obtained will provide adequate coverage against any or all potential claims. Furthermore there can be no assurance that the Company will avoid significant product liability claims and the attendant adverse publicity. Any product liability claim or other claim with respect to uninsured or underinsured liabilities could have a material adverse effect on the Company's business, financial condition, and result of operations. See "Business--Product Liability and Insurance." 10 UNCERTAIN FUTURE CAPITAL REQUIREMENTS The Company may require funds in addition to the net proceeds of the Offering for its research and product development programs, preclinical and clinical testing, operating expenses, regulatory processes and manufacturing and marketing programs. The Company may seek such additional funding through public or private financing or collaborative, licensing or other arrangements with corporate partners. If additional funds are raised by issuing equity securities, further dilution to existing stockholders will result and future investors may be granted rights superior to those of existing stockholders; 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 preclinical and 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 new collaborative, licensing and other arrangements that the Company may establish. See "Business--Licensed Technology; Royalty Obligations," "Management-Employment Agreements" and "Certain Transactions." The Company's cash requirements will vary from those now planned and such variances may be material. There can be no assurance that additional financing will be available when needed or, if available, will be available on acceptable or affordable terms. Insufficient funds may prevent the Company from implementing its business strategy or may require the Company to delay, scale back or eliminate certain of its research and product development programs or to license to third parties rights to commercialize products or technologies that the Company would otherwise seek to develop itself. See "Management Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." DEPENDENCE ON QUALIFIED PERSONNEL There is intense competition for qualified personnel in the medical device field, and there can be no assurance that the Company will be able to continue to attract and retain qualified personnel necessary for the development of its business. The loss of the services of existing personnel as well as the failure to recruit additional qualified scientific, technical and managerial personnel in a timely manner would be detrimental to the Company's anticipated growth and expansion into areas and activities requiring additional expertise such as marketing. The failure to attract and retain such personnel could adversely affect the Company's business. See "Business--Employees" and "Management." NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE Prior to the Offering, there has been no public market for the Company's Common Stock and there can be no assurance that an active public market for the Company's Common Stock will develop or be sustained in the future. The initial public offering price of the Common Stock will be determined by negotiations between the Company and the Underwriters. See "Underwriting" for a discussion of the factors to be considered in determining the initial public offering price. In addition, the market price of the Common Stock is likely to be highly volatile as frequently occurs with publicly traded emerging growth companies and medical device companies. Factors such as results of clinical trials, announcements of technological innovations or new products by the Company or its competitors, government regulatory action affecting the Company's proposed products in either the United States or foreign countries, developments or disputes concerning patent or proprietary rights and market conditions for emerging growth and medical device companies in general, as well as period-to- period fluctuations in the Company's financial results, could have a significant impact on the market price of the Common Stock. BROAD DISCRETION AS TO USE OF PROCEEDS Approximately 42% of the estimated net proceeds of the Offering has been allocated to working capital and other general corporate purposes and will be used for such specific purposes as management may determine, including potential license or acquisition arrangements with other companies. The Company is currently evaluating certain potential license or acquisition opportunities; however, the Company has no agreements, arrangements or understandings with any third parties for any such licenses or acquisitions at this time. There can be no assurance that the Company will enter into or consummate any such license or acquisition or, if entered into, that any such arrangements will be successful. Accordingly, management will have broad discretion with respect to the expenditure of a substantial portion of the net proceeds of the Offering. See "Use of Proceeds." 11 AVAILABILITY OF PREFERRED STOCK FOR ISSUANCE In addition to its authorized shares of Common Stock, the Company's Amended and Restated Certificate of Incorporation authorizes the issuance of up to 3,000,000 shares of undesignated preferred stock. Upon completion of the Offering, no shares of preferred stock of the Company will be outstanding, and the Company has no present intention to issue any shares of preferred stock. However, because the rights and preferences of any series of preferred stock may be set by the Board of Directors in its sole discretion, the rights and preferences of any such preferred stock may be superior to those of the Common Stock and thus may adversely affect the rights of the holders of Common Stock. See "Description of Capital Stock--Preferred Stock." POSSIBLE ADVERSE EFFECT OF SHARES ELIGIBLE FOR FUTURE SALES Upon completion of the Offering, the Company's existing stockholders will beneficially own an aggregate of 6,285,922 shares of Common Stock. Sales of substantial amounts of Common Stock in the public market by such persons after the Offering could adversely affect prevailing market prices for the Common Stock. At July 31, 1996, 281,520 shares of Common Stock were issuable upon exercise of outstanding warrants at a weighted average exercise price of $3.34 per share and 1,701,390 shares of Common Stock were issuable upon exercise of outstanding stock options at a weighted average exercise price of $2.50 per share. The Company, certain stockholders and directors and officers of the Company have agreed to enter into lock-up agreements with the Underwriters not to dispose of any shares of Common Stock, nor any securities convertible into or exchangeable or exercisable for any such shares, without the prior written consent of J.P. Morgan Securities Inc. for a period of 180 days after the Offering, subject to certain limited exceptions. After such 180-day period, however, substantially all shares of Common Stock currently outstanding will be eligible for sale in the public market pursuant to Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), if the conditions to that Rule have been met. The Company's current stockholders are also entitled to certain rights with respect to the registration under the Securities Act of shares held by them. See "Management," "Description of Capital Stock-- Registration Rights" and "Shares Eligible for Future Sale." NO DIVIDENDS The Company does not anticipate declaring or paying cash dividends in the foreseeable future. The Company expects that any earnings which it may realize will be retained for use in its business. See "Dividend Policy." DILUTION Investors purchasing shares of Common Stock in the Offering will incur immediate dilution of $9.25 in the per share net tangible book value of their Common Stock (assuming an initial public offering price of $13.00). The Company has granted to officers, directors, certain principal stockholders and others numerous options and warrants to purchase Common Stock at prices below the offering price. Investors purchasing shares of Common Stock in the Offering will incur additional dilution to the extent outstanding warrants and options are exercised. See "Dilution," "Management--Options Granted Outside of the Plans" and "Certain Transactions." USE OF PROCEEDS The net proceeds to the Company from the Offering are estimated to be approximately $31.9 million, assuming an initial public offering price of $13.00 per share ($36.8 million if the over-allotment option is exercised in full), after deducting the underwriting discount and offering expenses payable by the Company. The Company will use approximately $4.5 million of the net proceeds for the Redemption of the Company's Redeemable Preferred Stock, $.001 par value per share ("Redeemable Preferred Stock"), including the payment of accrued dividends. See "Certain Transactions." The Company anticipates that it will use approximately $8.0 million of the net proceeds for research, development, clinical trials and regulatory matters; approximately $3.0 million to develop the Company's sales and marketing capabilities; and approximately $3.0 million for leasehold improvements and payments under certain equipment lease financing obligations to be incurred in connection with the Company's relocation to a new manufacturing, laboratory and administrative facility. The Company intends to use the balance of the net proceeds, approximately $13.4 million, for potential licenses and acquisitions of technologies or products that complement the business of the Company and for other general corporate purposes, including working capital. As of the date of this Prospectus, the Company is evaluating certain potential license or acquisition opportunities; however, the Company has no agreements, arrangements or understandings with any third parties for any such licenses or acquisitions. Pending such uses, the Company intends to invest the net proceeds of the Offering in interest-bearing, investment grade securities. 12 The foregoing represents the Company's best estimate of its allocation of the net proceeds from the sale of the Common Stock offered hereby based upon the current state of its business operations, its current plans and current economic and industry conditions and is subject to reallocation among the categories listed above or to new categories. The amounts actually expended for each purpose may vary significantly depending upon numerous factors, including the progress of the Company's clinical trials and actions relating to regulatory matters, and the costs and timing of expansion of marketing, sales and manufacturing activities, and hence the Company's management will retain broad discretion in the allocation of a substantial portion of the net proceeds. See "Risk Factors--Broad Discretion as to Use of Proceeds." DIVIDEND POLICY From the Company's inception through October 19, 1995, the Company was an "S" corporation for federal and state income tax purposes. As such, the Company generally was not subject to federal or state income taxes, but its income was taxable to its stockholders. The Company declared and paid dividends in the aggregate amount of $600,000 for such period. The Company does not anticipate declaring or paying cash dividends in the foreseeable future. The Company expects that any earnings which it may realize will be retained for use in its business. CAPITALIZATION The following table sets forth as of June 30, 1996 (i) the pro forma capitalization of the Company which gives effect to the Conversion, and (ii) the pro forma capitalization as adjusted to give effect to the sale of the shares of Common Stock offered hereby at an assumed offering price of $13.00 per share (after deducting the underwriting discount and offering expenses payable by the Company) and the application of a portion of the net proceeds therefrom for the Redemption. See "Use of Proceeds." This table should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus. AT JUNE 30, 1996 PRO FORMA PRO FORMA AS ADJUSTED --------- ----------- Dollars in thousands Current portion of long term obligations $ 406 $ 406 ========= =========== Long term obligations 29 29 --------- ----------- Preferred stock redemption liability 4,326 -- --------- ----------- Stockholders' Equity: Preferred Stock, $.001 par value; 3,000,000 shares authorized; none issued and outstanding pro forma and as adjusted -- -- Common Stock, $.001 par value; 30,000,000 shares authorized; 6,285,922 shares issued and outstanding pro forma; 8,985,922 shares pro forma as adjusted(1) 6 9 Additional paid-in capital 4,308 36,074 Accumulated deficit (2,285) (2,285) --------- ----------- Total stockholders' equity 2,029 33,798 --------- ----------- Total capitalization $6,383 $33,826 ========= ===========
- ------- (1) Excludes 1,982,910 shares of the Company's Common Stock reserved for issu- ance pursuant to the exercise of options and warrants outstanding as of June 30, 1996 at a weighted average exercise price of $2.62 per share of which op- tions and warrants to purchase 948,807 shares of Common Stock were then exer- cisable. 13 DILUTION Dilution is the amount by which the initial public offering price paid by the purchasers of the shares of Common Stock will exceed the net tangible book value per share of Common Stock after the Offering. Net tangible book value per share is determined at any date by subtracting the total liabilities of the Company from the total book value of the tangible assets of the Company and dividing the difference by the number of shares of Common Stock deemed to be outstanding at such date. The net tangible book value of the Company as of June 30, 1996 was $1,893,778 or $.30 per share pro forma after giving effect to the Conversion. After giving effect to the sale of 2,700,000 shares of Common Stock offered by the Company hereby at an assumed initial public offering price of $13.00 per share and the application of a portion of the estimated net proceeds therefrom for the Redemption, the pro forma net tangible book value of the Company as of June 30, 1996 would have been $33,662,778 or $3.75 per share. This represents an immediate increase in net tangible book value of $3.45 per share to existing stockholders and an immediate dilution of $9.25 per share to new investors purchasing the shares of Common Stock in the Offering. The following table illustrates the dilution of a new investor's equity on a per share basis as of March 31, 1996: ----------- Assumed initial public offering price per share of Common Stock $ 13.00 Pro forma net tangible book value per share of Common Stock be- fore the Offering $ .30 Increase in net tangible book value per share attributable to new investors 3.45 ----- Pro forma net tangible book value after the Offering (1) 3.75 ------- Dilution per share to new investors(1) $ 9.25 =======
- ------- (1) If the Underwriters' over-allotment option is exercised in full, the pro forma net tangible book value after the Offering would be approximately $4.11 per share, resulting in dilution to new investors in the Offering of $8.89 per share. See "Underwriting." The following table sets forth, as of June 30, 1996, the difference between (i) the number of shares of Common Stock purchased from the Company (including the Common Stock to be issued upon the Conversion), the total consideration paid and the average price per share paid by the existing stockholders for such shares and (ii) the number of shares of Common Stock to be purchased by new investors in the Offering from the Company, the total consideration to be paid and the average price per share to be paid by them for such shares and (iii) the percentage of shares purchased from the Company by new investors and the percentage of the consideration paid to the Company for such shares by new investors. ---------------------------------------
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE PRICE NUMBER PERCENT AMOUNT PERCENT PER SHARE --------- ------- ----------- ------- ------------- Existing Stockholders 6,285,922 70.0% $ 4,528,481 11.4% $ .72 New Investors 2,700,000 30.0 35,100,000 88.6 13.00 --------- ----- ----------- ----- Total 8,985,922 100.0% $39,628,151 100.0% ========= ===== =========== =====
At July 31, 1996, 281,520 shares of Common Stock were issuable upon exercise of outstanding warrants at a weighted average exercise price of $3.34 per share and 1,701,390 shares of Common Stock were issuable upon exercise of outstanding stock options at a weighted average exercise price of $2.50 per share. To the extent these warrants or options are exercised, there will be further dilution to new investors. See "Capitalization," "Management--Stock Option Plans," "Management--Options Granted Outside of the Plans" and "Description of Capital Stock." 14 SELECTED CONSOLIDATED FINANCIAL DATA The following table sets forth selected consolidated financial data of the Company. The selected consolidated financial data as of December 31, 1994 and 1995 and for the three years in the period ended December 31, 1995 are derived from the Company's Consolidated Financial Statements, which have been audited by Arthur Andersen LLP, independent public accountants and together with their report thereon are included elsewhere in this Prospectus. The selected consolidated financial data for the years ended December 31, 1991, 1992 and 1993 are derived from the Company's Consolidated Financial Statements which, in the case of 1992 and 1993, have been audited by Arthur Andersen LLP. The selected consolidated financial data as of March 31, 1996 and the three months ended March 31, 1995 and 1996 are derived from the Company's unaudited Consolidated Financial Statements included elsewhere in this Prospectus. In the opinion of management, the unaudited Consolidated Financial Statements of the Company have been prepared on the same basis as the audited Consolidated Financial Statements and include all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for these periods. Results for the three months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. The selected consolidated financial data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus.
SIX MONTHS YEAR ENDED DECEMBER 31, ENDED JUNE 30, 1991 1992 1993 1994 1995 1995 1996 ----------- ---------- ---------- ---------- ---------- ---------- ---------- (UNAUDITED) (UNAUDITED) In thousands, except per share data STATEMENT OF OPERATIONS DA- TA: Revenues: Product sales $ 1,292 $ 2,073 $ 2,003 $ 1,837 $ 2,716 $ 1,303 $ 1,999 License fees -- -- -- 773 625 -- 625 Product development -- -- -- 38 492 269 79 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1,292 2,073 2,003 2,647 3,833 1,572 2,703 Expenses: Cost of product sales 265 497 655 812 1,264 546 924 Research and development 173 210 272 555 871 366 1,163 General and administrative 410 536 468 770 871 279 940 Selling and marketing 413 454 285 182 169 65 103 In-process research and development(1) -- -- -- -- -- -- 1,111 ---------- ---------- ---------- ---------- ---------- ---------- ---------- 1,261 1,697 1,680 2,319 3,175 1,256 4,241 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income(loss) from operations 31 376 323 328 658 316 (1,538) Interest income (expense), net (180) (136) (62) (39) (29) (11) 101 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Income(loss) before provision for income taxes (149) 240 261 289 628 305 (1,437) Provision for income tax- es(2) -- -- -- -- 44 -- -- ---------- ---------- ---------- ---------- ---------- ---------- ---------- Net income(loss) $ (149) $ 240 $ 261 $ 289 $ 584 $ 305 $ (1,437) ========== ========== ========== ========== ========== ========== ========== Net income(loss) per common and common equivalent share(3) $ (.02) $ .04 $ .04 $ .04 $ .08 $ .04 $ (.21) ========== ========== ========== ========== ========== ========== ========== Weighted average common and common equivalent shares outstanding(3) 6,406 6,704 6,678 6,856 6,985 6,984 6,846 ========== ========== ========== ========== ========== ========== ========== Cash dividends declared per common share(4)............ $ -- $ -- $ -- $ .13 $ .03 $ -- $ -- ========== ========== ========== ========== ========== ========== ==========
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AT DECEMBER 31, AT JUNE 30, 1991 1992 1993 1994 1995 1996 --------- -------- -------- -------- -------- ----------- (UNAUDITED) In thousands BALANCE SHEET DATA: Cash and cash equiva- lents $ 32 $ 205 $ 644 $ 715 $ 533 $ 5,718 Working capital (defi- cit) (957) 415 512 68 (1,277) 5,309 Total assets 419 1,207 1,152 1,253 1,661 7,988 Long-term obligations 825 2,141 1,957 1,690 -- 29 Redemption value of pre- ferred stock -- -- -- -- -- 4,326 Stockholders' equity (deficit) (1,697) (1,457) (1,190) (1,331) (844) 2,029
- ------- (1) Relates to a write-off of in-process research and development incurred in connection with the Company's acquisition of the septal repair device technology. See Note 3 of Notes to the Consolidated Financial Statements. (2) In the periods prior to October 19, 1995 the Company elected to be taxed as an "S" corporation for income tax purposes. Accordingly, there was no provision for income taxes in these periods. See Note 4 of Notes to the Consolidated Financial Statements. (3) Computed on the basis described in note 2(j) of Notes to the Consolidated Financial Statements. (4) Computed based on the actual number of common shares outstanding at the time the dividend was declared. In the periods prior to October 19, 1995 the Company elected to be taxed as an "S" Corporation for income tax purposes. 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion of the financial condition and results of operations of the Company should be read in conjunction with the Consolidated Financial Statements and the Notes thereto included elsewhere in this Prospectus. OVERVIEW Since its inception in 1986, the Company has focused its efforts on the design, development and commercialization of medical devices which are delivered by minimally invasive procedures. The products developed or under development include self-expanding stents, vena cava filters and septal repair devices. The Company's initial product, a vena cava filter system, was given FDA clearance in 1990. This product is distributed in the United States and certain other countries by Bard Radiology and in other markets outside the United States by Bard International. Both distributors are obligated to make annual minimum purchases. The filter component of the current vena cava filter system is manufactured by Lake Region Manufacturing Inc. ("Lake Region"). The Company currently purchases its delivery systems for the vena cava filter under purchase orders with third party suppliers. The vena cava filter is the only product sold by the Company during the periods discussed below. The majority of the Company's revenues, and all of its cost of product sales, are related to the vena cava filter during such periods. In November 1994, the Company entered into an agreement with Boston Scientific pursuant to which Boston Scientific obtained exclusive worldwide rights to develop, manufacture, market and distribute the Company's stent technology and products which incorporate such technology. Under this license agreement, Boston Scientific is responsible for performing clinical trials for stents under development and for reimbursing the Company for stent development costs incurred by the Company. These reimbursements are classified as product development revenues in the Consolidated Statement of Operations. The Company also receives license fees, including milestone payments, from Boston Scientific under this license agreement. Upon commercialization, the Company will receive royalties based upon product sales and certain manufacturing cost reduction incentives from Boston Scientific under the license agreement. The Company's revenues in the periods discussed below include such license fees and reimbursements. Most of its costs associated with its stents are included in research and development expenses. In February 1996, the Company acquired, through the issuance of Common Stock, the rights to develop and commercialize its septal repair device. The Company has not yet realized any revenue related to its septal repair device. The Company expects to manufacture this device itself which will result in increased operating expenses as discussed below. In the first half of 1996 the Company significantly increased the scope of its operations. This included the addition of a new Chief Executive Officer, an Executive Vice President and Chief Financial Officer and a President of the Septal Repair Division, which was formed in February 1996. In addition, in April 1996, the Company entered into a lease for a new manufacturing, laboratory and administrative space which will increase the Company's annual facility lease payments by approximately $400,000. The Company anticipates taking full occupancy in September 1996 upon completion of construction of the facility to the Company's specifications. The Company expects operating expenses to continue to increase significantly as it enters into clinical trials for the septal repair device, accelerates its other product development programs and builds the infrastructure necessary to commercialize its technologies. The Company has agreed to make certain royalty payments to Children's Medical Center Corporation based on net sales of the CardioSeal Septal Occluder. The Company has also agreed to pay certain royalties to Morris Simon, M.D., the Company's Scientific Director and co-founder, based on sales of products using the technology invented by Dr. Simon relating to the SNF. In addition, pursuant to the Company's employment agreements with Mr. Kleshinski and Dr. Harry, respectively, the Company has agreed to pay certain royalties based on sales or licenses of products where either Mr. Kleshinski or Dr. Harry, as the case may be, was the sole or joint inventor. See "Management--Employment Agreements" and Note 8(d) of Notes to the Consolidated Financial Statements. 16 RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1995 Revenues. Revenues for the six months ended June 30, 1996 increased to $2.7 million from $1.6 million for the six months ended June 30, 1995 (a 69% increase). Product sales derived from the sale of vena cava filters increased to $2.0 million for the six months ended March 31, 1996 from $1.3 million for the six months ended June 30, 1996 (a 54% increase). The increase in product sales was primarily due to increased unit sales of vena cava filters, which in turn, was primarily due to the introduction of the straight-line delivery system in November 1995, and the commencement of international distribution by Bard International in January 1996. The Company recorded $625,000 in license fees from Boston Scientific related to its stent technology in the six months ended June 30, 1996, consisting of a $250,000 milestone payment and the first two quarters minimum royalty payments of $187,500 each. Product development revenues from Boston Scientific (which consist of reimbursement of certain costs incurred by the Company) decreased to $79,000 for the six months ended June 30, 1996 from $269,000 for the six months ended June 30, 1995 (a 71% decrease), due to the completion of the Company's transfer of its stent technology to Boston Scientific in November 1995 which has resulted in a reduction of stent development costs incurred by the Company on behalf of Boston Scientific. Cost of Product Sales. Cost of product sales increased to $924,000 for the six months ended June 30, 1996 from $546,000 for the six months ended June 30, 1995 (a 69% increase). The cost of product sales in both periods was entirely related to vena cava filters, and the increase reflects the increase in vena cava filters sold in the six months ended June 30, 1996. Cost of products sales, as a percent of product sales, increased to 46% for the six months ended March 31, 1996 from 42% for the six months ended June 30, 1995. This increase reflects the impact of the introduction of the straight-line delivery system which has a higher unit manufacturing cost as a percent of the selling price. Research and Development. Research and development expense increased to $1.2 million for the six months ended June 30, 1996 from $366,000 for the six months ended June 30, 1995 (a 228% increase). The increase reflects increased activity in the Company's development programs for vena cava filters, the CardioSeal Septal Occluder and other products under development. Increased expenses resulted primarily from increases in personnel and related costs, engineering expenses and facilities related costs. The Company received reimbursement from Boston Scientific for $79,000 and $269,000 of these expenses in the six months ended June 30, 1996 and 1995 respectively, which amounts are included in revenues. General and Administrative. General and administrative expenses increased to $937,000 for the six months ended June 30, 1996 from $279,000 for the six months ended June 30, 1995 (a 236% increase). The increase consisted primarily of increases in personnel and related costs, legal and professional fees and consulting expenses. These increases resulted from the Company's expanded scope of operations. Selling and Marketing. Selling and marketing expenses increased to $103,000 for the six months ended June 30, 1996 from $65,000 for the six months ended June 30, 1995 (a 58% increase). The increase related primarily to the introduction of the straight-line delivery system and the international distribution of the vena cava filter by Bard International beginning in January 1996, and secondarily to pre-marketing activities related to the CardioSeal Septal Occluder. Selling and marketing expenses for the six months ended June 30, 1995 were entirely related to vena cava filters. In-Process Research and Development. For the six months ended June 30, 1996, the Company recorded a charge of $1.1 million for in-process research and development related to the CardioSeal Septal Occluder which was acquired in February 1996. See Note 3 of Notes to the Consolidated Financial Statements. Interest Income (Expense), Net. Interest income, net was $101,000 for the six months ended June 30, 1996 as compared to interest expense, net amounting to $11,000 for the six months ended June 30, 1995. This increase was primarily due to the receipt in February 1996 of $7.5 million in net proceeds from the sale of Convertible Preferred Stock. Interest expense in both periods consisted primarily of interest on subordinated debt to stockholders, which was fully repaid in April 1996. Income Taxes. The Company had no income tax provision for the six months ended June 30, 1996 as it incurred an operating loss. Prior to October 19, 1995, the Company elected to be taxed as a "S" Corporation for federal and state 17 income tax purposes and, accordingly, the financial statements do not include a provision for income taxes for the six months ended June 30, 1995. The Company has not recorded a pro forma tax provision as there would have been sufficient net operating loss carryforwards to offset income in all periods presented. See Note 4 to the Consolidated Financial Statements. YEAR ENDED DECEMBER 31, 1995 COMPARED WITH YEAR ENDED DECEMBER 31, 1994 Revenues. Revenues increased to $3.8 million in 1995 from $2.6 million in 1994 (a 46% increase). Product sales of vena cava filters increased to $2.7 million in 1995 from $1.8 million in 1994 (a 50% increase). This increase is primarily due to increased unit sales of vena cava filters which the Company attributes primarily to the distribution agreements with Bard. License fees, which consist of payments from Boston Scientific related to the Company's stent technology, decreased to $625,000 in 1995 from $773,000 in 1994 (a 19% decrease). License fees in 1995 represent amounts received upon the achievement of a contractual milestone. License fees in 1994 represented initial license fees received from Boston Scientific upon entering into the license agreement in November 1994. Product development revenues increased to $492,000 in 1995 from $38,000 in 1994. The significant increase in 1995 reflects a full year of development efforts funded by Boston Scientific under the agreements entered into in November 1994. Cost of Product Sales. Cost of product sales increased to $1.3 million in 1995 from $812,000 in 1994 (a 60% increase). The increase in cost of product sales reflects the increase in vena cava filter units sold in 1995. Cost of product sales, as a percent of product sales, increased to 47% in 1995 from 44% in 1994 primarily due to the introduction of the vena cava straight-line delivery system in November 1995, which has a higher unit manufacturing cost as a percent of the selling price. Research and Development. Research and development expenses increased to $871,000 in 1995 from $555,000 in 1994 (a 57% increase). The increase reflects increased product development and patent registration costs associated with the development of the Company's stent technology which was licensed to Boston Scientific in November 1994. Increased expenses resulted primarily from increases in personnel, engineering expenses and facilities related costs. The Company received reimbursement from Boston Scientific for $492,000 and $38,000 of these expenses in 1995 and 1994, respectively, which amounts are included in revenues. General and Administrative. General and administrative expenses increased to $871,000 in 1995 from $770,000 in 1994 (a 13% increase). The increase is primarily due to the expansion of the Company's infrastructure necessary to support the growth of the Company and increases in product development activities. Increased expenses consisted primarily of increases in personnel and related costs and consulting expenses. Selling and Marketing. Selling and marketing expenses decreased to $169,000 in 1995 from $182,000 in 1994 (a 7% decrease). Selling and marketing expenses in 1995 and 1994 are entirely related to the Company's vena cava filter. Interest Income (Expense), Net. Interest expense, net decreased to $29,000 in 1995 from $39,000 in 1994 (a 26% decrease). The decrease reflects the repayment of subordinated debt to stockholders. Interest income in 1995 and 1994 was not significant. YEAR ENDED DECEMBER 31, 1994 COMPARED WITH YEAR ENDED DECEMBER 31, 1993 Revenues. Revenues increased to $2.6 million in 1994 from $2.0 million in 1993 (a 30% increase). Product sales decreased to $1.8 million in 1994 from $2.0 million in 1993 (a 10% decrease). The decrease in product sales was due primarily to a decrease in the sales price of such filters received by the Company, as a result of the distribution agreement with Bard Radiology, offset in part by increased unit sales. In 1992 the Company entered into its exclusive distribution agreement with Bard Radiology, pursuant to which it receives a specified percentage of the average selling price of the vena cava filter. This percentage decreased in August 1993 from its introductory level and then again in October 1994, to its current level under the agreement. The Company does not anticipate any additional reductions under the terms of the agreement in the near future. License fees were $773,000 in 1994. The Company had no license fee revenue in 1993. License fees represent initial license fees received from Boston Scientific upon entering into the license agreement in November 1994. Product development revenues were $38,000 in 1994. The increase reflects development efforts funded by Boston Scientific under the agreement entered into in November 1994. 18 Cost of Product Sales. Cost of product sales increased to $812,000 in 1994, from $655,000 in 1993 (a 24% increase). The increase in cost of product sales reflects the increase in vena cava filter units sold. Cost of product sales, as a percent of product sales, increased to 44% in 1994 as compared to 33% in 1993 primarily due to the impact of the contractual reduction in the unit selling price of vena cava filters. Research and Development. Research and development expenses increased to $555,000 in 1994 from $272,000 in 1993 (a 104% increase). The increase reflects increased product development and patent registration costs associated with the development of the Company's stent technology which was licensed to Boston Scientific in November 1994. Increased expenses consisted primarily of increases in personnel, engineering expenses and facilities related costs. The Company received reimbursement from Boston Scientific for $38,000 of these expenses in 1994, which amount is included in revenues. General and Administrative. General and administrative expenses increased to $770,000 in 1994 from $468,000 in 1993 (a 65% increase). The increase is primarily due to the expansion of the Company's infrastructure necessary to support the growth of the Company and increases in product development activities. Increased expenses consisted primarily of increases in personnel and related costs and consulting expenses. Selling and Marketing. Selling and marketing expenses decreased to $182,000 in 1994 from $285,000 in 1993 (a 36% decrease). Selling and marketing expenses in 1994 and 1993 are primarily related to the Company's vena cava filter. The decrease reflects the Company's decision in 1993 to discontinue selling the filter through independent distributors and begin distributing exclusively through Bard. Interest Income (Expense), Net. Interest expense, net decreased to $39,000 in 1994 from $62,000 in 1993 (a 37% decrease). The decrease in 1994 reflects the repayment of a portion of the subordinated debt due to stockholders. Interest income in 1994 and 1993 was not significant. LIQUIDITY AND CAPITAL RESOURCES The Company has funded its operations primarily through cash flows from operations of $525,000, $1.2 million and $647,000 in the years ended December 31, 1995, 1994 and 1993, respectively. In the six months ended June 30, 1996, operations utilized cash of $1,092,000 of which part was used to fund a portion of the acquisition of the septal repair device technology and for working capital. Cash flows from operations include $500,000 of upfront license fees and a $100,000 advance product development billing received from Boston Scientific in 1994 and recorded as deferred revenue. Cash flow from operations was used to fund increases in accounts receivable of $238,000 and $282,000 in the year ended December 31, 1995 and the six months ended June 30, 1996, respectively. Such increases reflect the increases in product sales and the timing of such product sales. In February 1996, the Company received approximately $7.5 million in net proceeds from the sale of 3,787,104 shares of Convertible Preferred Stock, which funds were used in part to accelerate its facilities and infrastructure expansion. In the year ended December 31, 1994 and the six months ended June 30, 1996, the Company made distributions to its stockholders of $500,000 and $100,000, respectively. In 1994, the Company began repaying a $1.5 million loan received in 1992 from Bard. Loan payments are based upon the number of domestic vena cava units sold to Bard Radiology. The loan is expected to be fully repaid by the end of 1996. Payments during 1994, 1995 and the six months ended June 30, 1996 amounted to $242,000, $477,000 and $382,000, respectively. In addition, during the years ended December 31, 1993, 1994, 1995 and the six months ended June 30, 1996, the Company repaid subordinated debt to its stockholders amounting to $184,000, $329,000, $2,500, and $309,000, respectively. Purchases of property and equipment for use in its research and development and general and administrative activities amounted to $336,000 during the three years ended December 31, 1995 and $275,000 during the six months ended June 30, 1996. In May 1996, the Company entered into a lease for a new manufacturing research and administrative facility which is expected to increase its annual facility lease payments by approximately $400,000 beginning in the third quarter of 1996. The Company anticipates incurring costs during 1996 and 1997 for leasehold improvements for its new facility of approximately $1.4 million, net of the landlord's contribution, and for purchases of equipment and furniture of approximately $1.5 million. The Company has received a $1.5 million firm commitment for financing substantially all of the equipment and furniture. The Company anticipates incurring additional leasehold improvements and purchases of equipment and furniture. 19 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 has also committed to purchase certain minimum quantities of the vena cava filter from a supplier through June 2001. See Note 8(a) of Notes to the Consolidated Financial Statements. All of these arrangements require cash payments by the Company over varying periods of time. Certain of these arrangements are cancelable on short notice and certain require termination or severance payments as part of any early termination. The Company believes that the anticipated net proceeds of the Offering, its existing resources and cash flow from current operations will be sufficient to fund its current level of operations and planned new product development, including increased working capital requirements and capital expenditures, for the foreseeable future. The Company expects to accelerate its product development, marketing and other activities with the proceeds of the Offering. The Company has incurred a net loss of $1.4 million for the six months ended June 30, 1996, primarily as a result of a charge of $1.1 million for acquired in-process research and development. See Note 3 of Notes to the Consolidated Financial Statements. The Company expects operating losses to continue at least through early 1997 as it continues to expend substantial resources to complete development of the Company's products, seek regulatory clearances or approvals, build its marketing, sales and manufacturing organizations and conduct further research and development. The Company may require funds in addition to the net proceeds of the Offering 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 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 preclinical and 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 terms of any collaborative, licensing and other arrangements that the Company may establish. 20 BUSINESS OVERVIEW The Company designs, develops, and markets innovative medical devices that utilize advanced materials and are delivered by minimally invasive procedures. The Company's products offer alternative approaches to complex medical 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 (the Simon Nitinol Filter) and septal repair devices (the CardioSeal Septal Occluder). The Company's strategy is to develop and commercialize a broad range of advanced medical devices for minimally invasive applications to address unmet medical needs. At this time, the Company's stents are in European clinical trials for certain indications, its vena cava filters are marketed in the United States and abroad, and the Company is completing development of its septal repair device. The Company has established arrangements with Boston Scientific and Bard, worldwide leaders in sales of minimally invasive medical devices, for the distribution, sale and marketing of its stents and its Simon Nitinol Filter, respectively. The Company intends to continue to market products with extensive distribution requirements through collaborations with established market leaders. NMT intends to develop direct marketing and distribution capabilities for products with smaller and more easily accessible user groups (such as the CardioSeal Septal Occluder). BACKGROUND The Company was founded in July 1986 to develop and commercialize medical devices using nitinol. Dr. Morris Simon, the Company's Scientific Director and co-founder, was one of the first medical researchers to investigate the use of nitinol for medical device applications. In April 1990, the Company obtained FDA clearance to market its initial product, the Simon Nitinol Filter, in the United States. The Company entered into an exclusive distribution agreement with Bard Radiology for distribution of the SNF in the United States and certain other countries in May 1992. The Company's primary stent patent was issued in November 1994 and, during the same month, the Company entered into an exclusive license agreement with Boston Scientific to further develop, manufacture, market and distribute NMT's stents worldwide. In November 1995, the Company expanded its relationship with Bard by granting Bard International the right to distribute the SNF in most markets outside the United States. In February 1996, the Company acquired the rights to its CardioSeal Septal Occluder to complement the Company's core technologies and expand its product base. See "Certain Transactions." CORE TECHNOLOGIES NMT has developed an expertise in precisely engineering nitinol and other advanced materials, such as MP35N, for a variety of innovative medical device applications. The Company has developed capabilities in advanced device fabrication, materials characterization, manufacturing and process control and sophisticated in vitro testing resulting in highly efficient and reliable manufacturing processes. Nitinol, a nickel-titanium alloy, has unique superelastic and thermal shape- memory characteristics. The superelastic characteristics enable a nitinol-based device to undergo severe deformation without permanent damage to either its shape or strength. The thermal shape-memory characteristics of nitinol enable a device which has been radically deformed to return to its intended shape in response to a small change in temperature. The mechanical properties that can be engineered into nitinol-based devices permit innovative product designs that presently would be difficult or impossible to replicate with other materials. The Company utilizes both the superelastic and thermal shape-memory characteristics of nitinol for medical device applications. The Company has demonstrated its ability to utilize these characteristics to provide for ease of access and delivery of sophisticated medical devices that transform into their intended shape once placed into the body. Nitinol is biocompatible and non-ferromagnetic, thereby allowing the use of magnetic resonance imaging on patients with nitinol-based device implants. MP35N is an advanced metal alloy which is biocompatible and resistant to corrosion and fatigue. The Company has combined the use of MP35N with knitted polyester in developing the CardioSeal Septal Occluder. Knitted polyester, a biocompatible fabric that encourages tissue in-growth, has been extensively used in the vasculature for many years. 21 STRATEGY The key elements of the Company's business strategy include: .Developing a broad range of advanced medical devices for minimally invasive applications which offer alternative approaches to existing medical treatments to reduce patient trauma, procedure, hospitalization and recovery times, and overall treatment costs. .Targeting development of products for large, fast growing market segments with unmet medical needs. .Focusing development efforts on core technologies which leverage the Company's expertise in nitinol and other advanced materials. .Establishing collaborations with market leaders for the marketing and distribution of products in larger markets with more extensive distribution requirements. .Creating direct marketing and distribution capabilities for products with smaller and more easily accessible user groups. .Developing commercial scale manufacturing facilities to become a fully-integrated medical device company. .Strengthening the Company's competitive position by developing, acquiring and licensing technologies and products that complement its business. PRODUCTS Stents Stents are small tubes that hold open arteries, veins and other passageways in the body, such as the esophagus and bile duct, that have closed or become obstructed as a result of disease, trauma, or aging. Stents are placed in the body using catheter-based delivery systems in minimally invasive procedures. Once deployed, they exert radial force against the walls of passageways to enable such passageways to remain open and functional. A number of different stent designs, materials and delivery systems, with varying characteristics are currently available. The three most prevalent stent designs are slotted tubes (a metal tube from which most of the material is removed, resulting in a lattice-like structure), coiled stents (continuous coiled wire) and wire mesh stents (knitted metal wire). Most stents are currently manufactured using stainless steel or similar alloys and are deployed through the expansion of a balloon on a catheter-based delivery system. After deployment, a second balloon may be used to further expand the stent. Certain stents, including the Company's, are self-expanding, thereby eliminating the need for a balloon on the delivery catheter. The factors influencing the performance of a stent include ease of deployment, radial strength, flexibility, stability and the ability to achieve precise placement. Stents have emerged as one of the fastest growing segments of the medical device market and are used increasingly as adjuncts or alternatives to a variety of medical procedures because it is believed that they are beneficial to overall patient outcome and may, over time, reduce total treatment costs. Stents are increasingly being used in connection with the treatment of atherosclerosis, a vascular disease characterized by the deposit of fatty substances (plaque) in the interior walls of blood vessels. The accumulation of plaque narrows the blood vessels, thereby reducing blood flow. Accumulation of atherosclerotic plaque in the vessels of the heart can result in narrowing or blockage of the arteries that provide blood flow to the heart, causing chest pain (angina pectoris) and heart attacks. Atherosclerosis in the peripheral vessels can cause a narrowing or blockage of the vessels that provide blood to the legs, causing pain and cramps, and possible tissue damage, which in severe cases can result in amputation. Atherosclerotic plaque in the carotid arteries, located near the surface of the neck, can cause a narrowing of the vessels that provide the primary blood flow to the brain, causing dizzy spells, "mini strokes" known as transient ischemic attacks (TIA's) and strokes. 22 Balloon dilation (angioplasty) of the coronary and peripheral arteries has become one of the most common minimally invasive procedures performed worldwide. The effectiveness of angioplasty has been limited by the relatively high rate of reclosure of the treated vessels (restenosis) during the first several months after dilation. Therefore, the use of stents in conjunction with angioplasty is increasingly becoming an accepted practice to reduce the incidence of restenosis. Advanced carotid artery disease is currently generally treated by invasive surgery (endarterectomy). Angioplasty with stenting is being used on an experimental basis as a minimally invasive alternative to surgery in the carotid arteries. Injury, disease, birth defect or trauma can cause a weakening of a section of an arterial wall that can result in a bulge in the artery called an aneurysm, which if ruptured can lead to death. One of the most common of these aneurysms is an abdominal aortic aneurysm ("AAA"). Current treatment of AAA requires highly invasive surgery. Stent grafts using catheter-based delivery systems are currently being performed on an experimental basis. Stents are also being used for palliative treatment of certain cancers. During the later stages of esophageal cancer, for example, patients often develop a narrowing of the esophagus due to tumor ingrowth. This narrowing inhibits the ability to swallow. These strictures are now treated most often with painful dilations or laser ablation. Pancreatic cancer often results in a narrowing of the bile duct due to tumor ingrowth. The patient can become jaundiced and develop fever. Current treatment for tumor ingrowth of the bile duct includes the use of plastic and self-expanding metal mesh stents. NMT's Hex-cell Stents. The Company has developed and patented a nitinol stent which relies on a novel hexagonal cell (hex-cell) design. NMT's stents can be customized into a variety of sizes, shapes, flexibilities, and radial force characteristics for use in treating specific indications. The Company utilizes both the superelastic and thermal shape-memory characteristics of nitinol to provide for ease of access and delivery of its stents which transform into their intended shape once placed into the body. NMT's stents have the following characteristics which the Company believes will offer patients and physicians advantages over many competing stents and surgical procedures: . Self-expanding deployment does not necessitate the use of a balloon catheter-based delivery system, thereby avoiding vessel occlusion during stent placement and simplifying the procedure. . Controlled, sustained radial force, prevents movement of the stent after deployment and provides resistance to vessel spasm. . Cannot be permanently deformed by compression or trauma to the stented vessel, thereby avoiding accidental reclosure. .Radial strength, overall rigidity and shape can be varied for different medical applications. . Large expansion ratio (up to 15:1) enables a larger diameter NMT stent to be delivered by a small diameter catheter, helping to prevent injury at the access site and to adjacent vessels and may provide improved access to smaller vessels. .Minimal length change during deployment aids in precise placement. . Easy mating with graft material to enable use in procedures such as AAA repair and peripheral vascular stent grafting. Market Opportunity. The stent market has grown from its infancy in 1990 to estimated worldwide sales of $500 million in 1995 with continued growth expected. As shown in the following table, the Company estimates that in 1995 there were approximately 1.7 million procedures for medical conditions that stents have been designed to address. Although stents are not used currently in most of these cases, the Company believes that stents may be used as an adjunct or alternative treatment in many of these procedures. 23 PROCEDURES POTENTIALLY SUITABLE FOR STENTS--1995 -------------------------
UNITED STATES INTERNATIONAL WORLDWIDE ------------- ------------- --------- Coronary Angioplasty 450,000 245,000 695,000 Peripheral Vascular Graft Surgery 175,000 145,000 320,000 Peripheral Vascular Angioplasty 140,000 130,000 270,000 Carotid Surgery 100,000 85,000 185,000 Abdominal Aortic Aneurysm Surgery 45,000 45,000 90,000 Biliary 40,000 60,000 100,000 Esophageal 10,000 15,000 25,000 --------- --------- --------- Total 960,000 725,000 1,685,000 ========= ========= =========
The estimates in the foregoing table are based on available data concerning procedures performed in the United States. The Company's estimates outside the United States are based upon its extrapolation of such data. To date, most stents have been used for the treatment of atherosclerotic plaque in the coronary arteries. The Company believes that the increase in stent usage for other procedures and indications has been limited, in part, by the characteristics of stents currently available. NMT believes that its stents may offer certain advantages over currently available stents and, in connection with its collaboration with Boston Scientific, is actively pursuing the development of its stents in each of the market segments described below. See "Risk Factors--Limited Commercialization; Uncertainties of Product Development and Market Acceptance," "--Relationship with Boston Scientific," "--Current Status" and "--Agreements with Boston Scientific and Bard." Peripheral Vascular. Existing stents for vascular disease include both balloon- expandable and self-expanding stents. While stent use is well established in the larger vessels such as the iliac arteries, currently available stents have limitations in their use in the smaller, more exposed vessels of the leg due to difficulty of placement, insufficient radial strength and flexibility and a higher risk of clot formation. The Company believes that its stents may offer advantages over currently available stents in flexibility, radial strength and placement. NMT's stents have precisely engineered radial strength, cannot be permanently deformed after deployment, and can be delivered using a small diameter catheter. Peripheral Vascular Stent Grafts. For many patients who currently undergo surgical bypass grafting for the treatment of atherosclerosis in the vessels of the legs, the length of the blockage makes balloon dilation and traditional stenting difficult or impractical. The Company believes that its stents may provide for a new minimally invasive alternative to bypass surgery using long covered stents or multiple stents joined with graft material (stent grafts) and inserted in the vessel percutaneously. NMT's stents can be mated easily to graft material, cannot be deformed by trauma to the stented vessel, can be engineered with precise radial force to prevent movement and assure hemostasis (absence of blood leakage around the stent) after deployment. The self-expanding deployment of NMT's stents may also simplify the delivery mechanics for the physician. Carotid Arteries. While some stenting of the carotid arteries (located near the surface of the neck) is being done experimentally, the Company believes that the characteristics of current stents limit their utility in the carotid arteries. Balloon expandable stents require occluding blood flow to the brain during deployment. In addition, balloon expandable stents can be permanently deformed by compression or trauma to the stented vessel. The Company believes its stents will not require occluding blood flow to the brain during deployment and, unlike currently available balloon expandable stents, cannot be permanently deformed after deployment, thereby preventing accidental closure of the vessel. In addition, the Company believes that its stents can be engineered to exert precise radial force to prevent movement, are designed to conform well to the vessel shape, have minimal length change during deployment for highly accurate placement, and can be delivered by a small diameter catheter. 24 Abdominal Aortic Aneurysm. The Company believes that the use of a covered stent or stented graft could provide a minimally invasive alternative to surgery in the treatment of AAA. The Company believes that its stents may be particularly well suited for AAA treatment. Specifically, NMT's stents can be mated easily to grafting material and have sustained radial force to prevent migration and assure hemostasis. In addition, NMT's stents have a large expansion (up to 15:1) ratio for deployment of a large diameter stent on a small diameter catheter and are self-expanding thereby avoiding occlusion of the aorta during deployment and simplifying the procedure. Esophageal/Biliary. Existing palliative treatment for esophageal cancer includes painful dilations. Laser ablation is also utilized, but is a treatment that requires sophisticated equipment and highly-trained physicians, and often requires expensive repeat procedures. Existing stents for tumor ingrowth of the bile duct primarily include plastic and self-expanding wire mesh stents. Plastic stents can become blocked rather quickly because of their narrow diameter, and the wire mesh stents, due to their mesh design, may not resist further tumor growth. The Company believes that its stents may have advantages for both of these indications. NMT's stents have a large expansion ratio for delivery of a large diameter stent on a small diameter catheter and exert sustained radial force which may resist recoil from continued tumor growth. Coronary Arteries. Existing stents for coronary disease include balloon- expandable or self-expanding wire mesh stents. The Company believes that its stents may have advantages over other stents for use in coronary arteries. NMT's stents are self-expanding to avoid balloon occlusion of the vessel during placement, may not require post-deployment ballooning, and exhibit minimal length change during deployment for highly accurate placement. Relationship with Boston Scientific. In November 1994, NMT licensed to Boston Scientific, a worldwide leader in sales of minimally invasive medical devices, exclusive worldwide rights to develop, manufacture, market and distribute the Company's stent technology. Boston Scientific is the leader in the peripheral angioplasty market, a leader in the vascular graft market and a leader in the coronary angioplasty market. Under the terms of this agreement, Boston Scientific funds, and has control over, product development, manufacturing scale-up, clinical trials, marketing and distribution worldwide and has the sole right to use the patents and technical information owned by NMT related to stents. NMT receives a sales royalty, milestone payments, minimum license fees, manufacturing cost reduction incentives and reimbursement of development costs. Boston Scientific has assumed responsibility for conducting the necessary preclinical and clinical studies, obtaining the regulatory approvals it deems necessary, and manufacturing and marketing NMT's stents worldwide. Boston Scientific is not prohibited from selling competing stents and has established a broad-based stent program. In addition to its collaboration with the Company, Boston Scientific has obtained exclusive worldwide rights to Medinol, Ltd.'s balloon expandable stent technology and has developed its own Strecker knitted stent technology and Sabre(TM) self-expanding stent technology. Boston Scientific launched Medinol's NIR(TM) coronary stent in Europe in March 1996. In May 1996, Boston Scientific acquired Mintec, Inc., a privately held company, which develops stent graft technology and has announced its intention to launch a device for the repair of AAAs in the near future. The Company believes that its relationship with Boston Scientific, a market leader which has made a significant commitment to developing stent technology, will facilitate the development and commercialization of the Company's stents. The Company and Boston Scientific are currently pursuing projects to develop the Company's stents for a variety of applications. The markets ultimately targeted for commercial sales will be determined by Boston Scientific pursuant to the license agreement. See "Risk Factors--Dependence Upon Collaborators" and "--Agreements with Boston Scientific and Bard." Current Status. European clinical trials for the NMT stent in peripheral vessels have been initiated by Boston Scientific. Boston Scientific has advised the Company that it intends to begin marketing a line of the Company's peripheral vascular stents in Europe during 1996 under the name Symphony and intends to seek FDA approval of an 25 IDE for peripheral vascular applications in the near future. Boston Scientific has also initiated European trials of the NMT stent for peripheral vascular stent grafts. Such trials are intended to demonstrate that a stent graft may provide for a new minimally invasive alternative to bypass surgery using multiple NMT stents joined with graft material and inserted in the vessel percutaneously. See "Risk Factors--Limited Commercialization; Uncertainties of Product Development and Market Acceptance." Boston Scientific is completing a scale-up of its stent manufacturing capabilities in the United States to enable it to manufacture NMT's stents in quantities to support clinical trials and initial anticipated commercialization in certain markets. The Company and Boston Scientific continue to work collaboratively towards the development of NMT's stents for additional indications and to achieve manufacturing efficiencies. Competition. Competition in the stent market is intense and is expected to increase. Most of the stents sold today are balloon expandable and have been designed primarily for coronary applications. However, the companies listed below, as well as other companies, may be developing additional stents. Some of the stents being developed may be more similar to the Company's stents than those in the market today, although the Company does not know of any competitor that is developing a stent substantially similar to its product. Johnson & Johnson Interventional Systems Co., Cook Inc., Guidant Corporation/ACS, Boston Scientific/Medinol, and Arterial Vascular Engineering, Inc., among others, currently sell stainless steel, balloon expandable stents in the United States or internationally. The following table lists the Company's major competitors who are currently selling or, to the Company's knowledge, developing self-expanding stents in the United States or internationally.
---------------------------- MATERIAL DESIGN COMPANY --------------- ------------ Pfizer, Inc./Schneider Stainless steel Wire mesh Medtronic, Inc./Instent Nitinol Coil Boston Scientific (Strecker) Tantalum Wire mesh Boston Scientific (Sabre(TM)) Nitinol Slotted tube Bard/Angiomed Nitinol Slotted tube
Vena Cava Filters Vena cava filters are used for the prevention of pulmonary embolism (a blood clot lodged in the vessels supplying blood to the lungs). These emboli (clots), which often develop initially in the veins of the legs, can break loose and travel up the vena cava, through the heart and into the blood vessels of the lungs, causing acute respiratory and circulation problems. Vena cava filters are intended to trap these clots before they can reach the lungs. Patients at high risk for pulmonary embolism include post-operative orthopedic and neurosurgery patients, cancer patients undergoing surgery and chemotherapy and severe trauma victims. There are 600,000 incidents of pulmonary embolism diagnosed in the United States each year with 125,000 to 150,000 deaths per year. While usually treated initially with anticoagulant drugs, vena cava filters may be used in cases where drug therapy has failed or is contraindicated. Factors influencing the performance of vena cava filters include coverage of the vena cava and the pattern of the filtering method. Additionally, the variety of entry site options and the size of the delivery system affects ease of deployment. Simon Nitinol Filter. The Company has developed a nitinol vena cava filter which possesses highly efficient clot filtering characteristics. The Company has engineered both the superelastic and thermal shape-memory characteristics of nitinol to provide for ease of delivery of a vena cava filter which can be easily implanted in the patient by a minimally invasive procedure using the Company's patented catheter-based delivery systems. The Company's vena 26 cava filter transforms into its intended shape once deployed into the body. The SNF can be implanted from the veins in the leg or neck, and is the only currently available vena cava filter which can also be implanted from the veins in the arm. NMT believes the Simon Nitinol Filter offers patients and physicians several advantages over competing vena cava filters, including the following: .Sophisticated design facilitates accurate deployment and provides for highly efficient clot filtration. .Smallest diameter catheter-based delivery system results in minimal trauma to the access site or to the vessels during deployment. .Largest number of delivery options (leg, neck and arm) provides adaptability to individual patient conditions and anatomy. .Device flexibility facilitates easy maneuvering of the device through tortuous anatomy during deployment to the filter delivery site. Market Opportunity. The worldwide sales for vena cava filters were estimated to be $53 million in 1995. Worldwide sales for vena cava filters has grown at an average annual rate of 14% for the past four years. The United States represents 75% of current worldwide sales. NMT's vena cava filters currently have an approximately 11% share of vena cava filter sales in the United States. See "--Competition." The European market is currently small but is expected to grow as clinical data on the cost effectiveness of vena cava filter use continues to be developed. Current Status. The Company received FDA 510(k) clearance to market the SNF, and commenced sales, in April 1990. All 510(k) notifications with respect to subsequent modifications to the SNF have also been accepted by the FDA. In November 1995, the Company introduced a simplified, straight line catheter- based delivery system for its SNF. New Product Development. The Company is currently developing a retrievable vena cava filter and a superelastic vena cava filter, discussed below. Retrievable Vena Cava Filter. Currently available vena cava filters are permanent implants which can only be removed surgically. Therefore, patients who are at risk for pulmonary embolism for a defined period of time (post- operative recovery, recovery from trauma, etc.) and receive a vena cava filter have the implant in place for life. There is often a psychological resistance to implantation of a permanent device. As a result, a vena cava filter is often not used until a patient at risk has experienced his or her first pulmonary embolism. However, recent controlled studies conducted by others of the prophylactic use of currently available permanent vena cava filters in severe trauma patients have demonstrated a significant reduction in morbidity and mortality in this category of high-risk patients for pulmonary embolism. The Company believes that the availability of a retrievable vena cava filter may result in greater prophylactic use, and may be used in lieu of a permanently implanted device in certain circumstances. The Company is conducting early design and feasibility work on a retrievable vena cava filter which can be placed into the body and later removed. Vena cava filters which remained implanted for six weeks were successfully removed from sheep in studies conducted by the Company in April 1996. Following additional laboratory and animal testing, the Company anticipates commencing European clinical trials during 1997. The Company also anticipates filing an IDE for a retrievable vena cava filter during 1997 to enable the Company to conduct human clinical trials in the United States. See "Risk Factors--Limited Commercialization; Uncertainties of Product Development and Market Acceptance." Superelastic Vena Cava Filter. Presently, all vena cava filters have the potential for a filter leg to penetrate the wall of the vena cava into surrounding organs or structures. Although no significant adverse clinical consequences have resulted from reported protrusions to date associated with the Simon Nitinol Filter (nor to the Company's knowledge with respect to any other vena cava filter), the Company believes that a vena cava filter which utilizes the superelastic 27 characteristic of Nitinol to avoid this phenomenon would represent a technological advance. Furthermore, there can be no assurances that adverse clinical consequences associated with filter leg penetration will not occur in the future. See "Risk Factors--Product Liability Risks; Insurance." The Company is conducting research and development related to a superelastic vena cava filter. The Company's proposed superelastic vena cava filter would resemble the current SNF but would incorporate structural changes in the legs of the device enabling each leg of the filter to exert an evenly measured degree of controlled outward force against the wall of the vessel regardless of the diameter of the patient's vena cava. The superelastic vena cava filter would be designed to enable secure placement, while offering constant radial leg force and reduced potential for penetration of the wall of the vena cava. The Company believes that this cannot be achieved presently using traditional device materials. See "Risk Factors--Limited Commercialization; Uncertainties of Product Development and Market Acceptance." Relationship with Bard. The Company entered into an exclusive distribution agreement in May 1992 with Bard Radiology for distribution of the SNF in the United States and certain other countries. Sales and market penetration for the SNF have increased significantly as a result of this agreement. See "Management's Discussion and Analysis of Financial Condition and Results of Operations." Beginning November 30, 1995, Bard International was granted the exclusive right to distribute the SNF in most markets outside the United States. Although there can be no assurance, NMT believes that international sales and market share growth will increase substantially as a result. The loss of either distributor would have a material adverse affect on the Company's business. See "Risk Factors--Dependence Upon Collaborators." Each of the distribution agreements is for a five year term. Bard Radiology may renew, at its option, its agreement thereafter for periods of five years. The Company's agreement with Bard International renews automatically for successive one year periods unless terminated by either party. Both distributors are obligated to make annual minimum purchases and have agreed not to sell competing vena cava filters during the term of the respective distribution agreements. Bard Radiology has also agreed not to compete for an additional two years after its distribution agreement with the Company has terminated. In addition, the Company has granted Bard Radiology a right of first offer for any of NMT's new devices which may be marketed to interventional radiologists and for which NMT desires to enter into an exclusive distributorship within the United States. See "--Agreements with Boston Scientific and Bard." Manufacturing. The Company has contracted with Lake Region for the production of the filter component of the SNF. The Company's agreement with Lake Region grants Lake Region the right to manufacture at least 75% of the Company's worldwide requirements of the current filter, for a period of five years until June 30, 2001. The Company is obligated to order a minimum quantity of the current filters and pay Lake Region a fixed price per unit. Lake Region has agreed not to manufacture filters for a third party for a period of two years after the termination of the agreement. See "Risk Factors--Limited Manufacturing History; Dependence on Third Parties." The Company currently purchases the delivery systems for the SNF under purchase orders from third- party suppliers. Competition. Boston Scientific, among others, currently competes with the Company in sales of vena cava filters. Boston Scientific introduced the Greenfield Filter to the market in the mid-1970's and is still the predominant leader with approximately 70% of current unit sales of vena cava filters in the United States. Since the introduction of the Simon Nitinol Filter in 1990, NMT has achieved the second highest level of sales (approximately 11% of current unit sales) in the United States due primarily to its distribution agreement with Bard Radiology and the introduction of a new simplified delivery system. Other competitors in this market include B. Braun and Cook, Inc. 28 Septal Repair Devices The Company has acquired exclusive rights to develop and market a patented septal repair device, the CardioSeal Septal Occluder, which is designed for the repair of intracardiac shunts commonly known as "holes in the heart." Intracardiac shunts are common medical problems, occurring primarily in children, that result in abnormal blood flow through the chambers of the heart. The most common defects occur in either the atrial ("ASD") or ventricular ("VSD") septum which divide the left and right pumping chambers of the heart. Patients with these defects may suffer from poorly oxygenated blood and require increased cardiac effort to adequately supply blood to the body. This may lead to congestive heart failure and pulmonary hypertension, resulting in severe incapacity or even death. The current treatment is open heart surgery. Open- heart surgery involves opening a patient's chest, cutting through the sternum, connecting the patient to a heart/lung machine and opening the heart to surgically repair the hole. Such a procedure is costly and generally requires up to a week of hospitalization and an extensive recovery period. The CardioSeal Septal Occluder is designed to be a minimally invasive, less costly alternative to open heart surgery. The following three diagrams illustrate normal cardiac anatomy, a hole in the atrial septum of the heart (ASD) and a hole in the ventricular septum of the heart (VSD), respectively. [GRAPHIC APPEARS HERE] Another common septal defect is the Patent Foramen Ovale ("PFO"), a transient hole which may open under straining efforts (coughing, defecating, etc.). PFO has been implicated as a possible cause of embolic strokes, in which small blood clots escape through the PFO and travel to the brain. Current treatment for patients who have experienced embolic strokes is lifelong anticoagulation therapy, which may result in significant side effects and/or patient noncompliance with the treatment regimen. Recently, some institutions have begun advocating open heart surgery to close PFO's to prevent additional strokes. The Company believes that its septal repair device using a minimally- invasive delivery system may address the needs of the PFO market. The diagram below shows a cross-section of the heart and a transient hole between the left and right atriums, know as a PFO. [GRAPHIC APPEARS HERE] 29 CardioSeal Septal Occluder. The CardioSeal Septal Occluder is a catheter- delivered cardiac implant designed to close septal defects. The device consists of eight wire spring arms covered with two pieces of knitted polyester fabric which form two opposed disk-like occluders each having an umbrella shape. The framework is made of MP35N, a material chosen because of its superior characteristics as an implant material (biocompatibility and corrosion and fatigue resistance). Knitted polyester was chosen because of its extensive use in the cardiovascular system and its ability to promote normal tissue in- growth. At the center of the occluders is an inter-connection point which allows the product to be placed within the septal defect so that one umbrella is opened on each side of the defect. The product is designed to be manufactured in five diameter sizes ranging from 17mm to 40mm. The CardioSeal Septal Occluder is delivered to the site of the defect through a puncture of the femoral vein in the leg. The device is loaded into a delivery catheter and moved toward the defect site (top left diagram). At the defect site, the CardioSeal Septal Occluder is deployed through the defect (top center diagram) and the first umbrella is opened (top right diagram). The delivery system is then retracted through the hole so that the first umbrella comes into contact with the septal wall (bottom left diagram). The delivery system is then retracted further allowing the second umbrella to open and seal the defect from both sides (bottom center diagram). Once the position of the CardioSeal Septal Occluder is confirmed, the physician detaches the delivery system and removes it from the patient (bottom right diagram). [GRAPHIC APPEARS HERE] An earlier version of the septal repair device, named the Clamshell, was developed by Bard in collaboration with Children's Hospital of Boston. Between 1989 and 1991 Bard sponsored clinical trials of the Clamshell in over 700 patients with a variety of cardiac conditions. In 1991, Bard discovered fractures of the stainless steel framework in certain of the devices implanted during such clinical trials and, following such discovery, suspended its clinical trials. However, the FDA permitted the continued use of the Clamshell for patients with limited therapeutic alternatives and at high risk for surgical repair of their condition. The Company is not aware of any significant adverse clinical consequences resulting from the observed fractures. Redesign efforts were initiated in collaboration with Dr. James Lock, Chairman of the Cardiology Department at Children's Hospital of Boston. Extensive engineering redesign and testing, including the use of MP35N for the framework, resulted in significant improvements in both the fatigue and corrosion resistance of the device. See "Risk Factors--Uncertainties of Successful Redesign of the Septal Repair Device" and "Risk Factors--Product Liability Risks; Insurance." In 1995, Bard donated the technology and associated assets to Children's Hospital of Boston which subsequently licensed the technology to InnerVentions. The Company acquired the rights to develop and commercialize the current septal repair device in February 1996. In connection with the acquisition, the Company acquired all of the existing development, manufacturing and testing equipment, patent licenses, know-how and documentation necessary to manufacture septal repair devices which had been originally developed by Bard. NMT has hired certain key personnel who worked on this project at Bard. See "Certain Transactions." Market Opportunity. The Company believes the CardioSeal Septal Occluder may be suitable for approximately 55,000 patient implants annually for congenital heart defects and approximately 145,000 adult patients annually with 30 PFOs. Such estimates are based on industry reports of the total numbers of patients diagnosed with such conditions and the Company's own analysis of the portions of such populations for whom its device may be suitable. See "Risk Factors--Limited Commercialization; Uncertainties of Product Development and Market Acceptance." Current Status. The Company believes that based on clinical usage of the septal repair device since 1989, clinical utility has been demonstrated. Children's Hospital of Boston is currently conducting clinical trials of the redesigned Clamshell device under an IDE granted by the FDA in the second quarter of 1996 to allow for use of the devices in patients with a variety of cardiac conditions and at high risk for surgery. The devices being tested by Children's Hospital of Boston were provided by Bard and were not included in the assets acquired by the Company. The CardioSeal Septal Occluder will be manufactured based on the same design specifications as the redesigned Clamshell devices currently being tested by Children's Hospital of Boston. The Company has tested the CardioSeal Septal Occluder with an extensive series of pre-clinical tests. Such pre-clinical testing culminated with an accelerated in vitro life test of 630 million cycles (which equates to 10 years at 120 heartbeats per minute). During such testing, no fractures occurred in the CardioSeal Septal Occluder even though the stress levels were set to simulate significantly greater levels of stress observed clinically with the original Clamshell device. The Company believes that the current CardioSeal Septal Occluder is now ready to enter clinical trials and intends to commence clinical trials for the CardioSeal Septal Occluder in Europe in late 1996. In the United States, the FDA classifies the septal repair device as a Class III medical device, which requires receipt of pre-market approval prior to marketing. In August 1996, the Company received conditional approval of its IDE to conduct a multi-center, pivotal clinical trial in the United States for ASDs. The Company's approval is conditioned on minor modifications to the investigational plan recommended by the FDA and accepted by the Company, and the submission of additional data to the FDA within 45 days, which the Company is preparing. The Company anticipates initiating its United States clinical trials for ASD in the fourth quarter of 1996 pending product availability. See "Risk Factors-- Government Regulation; Product Approvals Uncertain." Clinical protocol submissions have been made in Canada and Europe to commence ASD clinical trials. The study protocol will be substantially the same as that used in the United States. The Company anticipates commencement of these clinical trials in late 1996 and will pursue clinical studies for the PFO indication following the successful completion of its ASD trials. There can be no assurances, however, that the Company's proposed clinical trials will be successfully completed or that the Company will be able to achieve the foregoing product development schedule. See "Risk Factors--Government Regulation; Product Approvals Uncertain." New Product Development. The Company is currently evaluating design enhancements to the CardioSeal Septal Occluder as well as alternative designs for the device. The Company is considering the use of nitinol for the device to further reduce the size of the delivery system, further simplify the deployment procedure and potentially broaden the range of therapeutic indications. Marketing and Sales Strategy. The Company intends to develop its own sales force to market the CardioSeal Septal Occluder. There are approximately 150 to 200 pediatric interventional cardiologists in the United States who could potentially implant the device. These specialists practice at an estimated 75 to 100 institutions that provide advanced cardiac care to children. It is estimated that a similar number of centers would be targeted internationally. Therefore, the Company believes that the size and scope of the target audience is manageable with a small, specialized sales and marketing team. The Company's marketing strategy will require a specific physician training program prior to selling products into any center. See "Risk Factors-- Limited Manufacturing History; Dependence on Third Party Manufacturers." Manufacturing. The Company has signed a lease for, and is in the process of renovating, an approximately 27,000 square foot facility in Boston, Massachusetts. A fully integrated GMP and ISO 9000 manufacturing facility will be included in this space so that the manufacture of the CardioSeal Septal Occluder can be appropriately controlled. Integral to the facility will be a Class 10,000 clean room for the final manufacture of the device. See "Risk Factors--Limited Manufacturing History; Dependence on Third Party Manufacturers." Competition. The Company believes that only three companies, Microvena Corporation, Dr. Osypka GmbH, and Pediatric Cardiology Custom Medical Devices are actively developing competitive devices and that none of these companies currently has a product on the market. PATENTS AND PROPRIETARY TECHNOLOGY The Company seeks to protect its technology through the use of patents and trade secrets. The Company is the owner or licensee of eight issued United States patents, and corresponding foreign patents, relating to its stents, the SNF, the 31 septal repair device and nitinol radiopaque markers. The Company has received a notice of allowance from the United States Patent and Trademark Office on a ninth United States patent application. In addition, the Company has pending applications for additional patents in the United States and abroad. The Company's owned United States and foreign patents and patent applications cover its stents, methods of manufacturing its stents, methods and devices for inserting its stents, its SNF and devices for inserting its SNF. The expiration dates of the Company's patents relating to its stents range from 2012 to 2013. The patent for its vena cava filters expires in 2001 and the patent for its radiopaque markers expires in 2014. In addition, the Company is the exclusive licensee under certain patents relating to the CardioSeal Septal Occluder and methods for repairing cardiac and vascular defects. The Company also holds licenses to certain technology used in the SNF and in nitinol septal repair devices. See "--Licensed Technology; Royalty Obligations." There can be no assurance that the Company's pending patent applications in the United States and abroad will be granted. No assurance can be given that patents issued to or licensed by or to the Company will not be challenged, invalidated or circumvented, or that the rights granted thereunder will provide any competitive advantage. The Company could incur substantial costs in defending any patent infringement suit or in asserting any patent rights, including those granted by third parties. Any adverse outcome could subject the Company to significant liabilities to third parties, require disputed rights to be licensed from third parties, or require the Company to cease selling its devices. The Company also relies on trade secrets and technical know-how in the development and manufacture of its devices, which it seeks to protect, in part, through confidentiality agreements with its employees, consultants and other parties. The Company's agreements with its employees and consultants generally require such individuals to assign to the Company any inventions conceived or reduced to practice by them while employed or retained by the Company. There can be no assurance, however, that these agreements will provide meaningful protection or adequate remedies for the Company in the event of unauthorized use, transfer or disclosure of such information or inventions. The employment agreements between the Company and Mr. Kleshinski, Vice President of Research and Development, and Dr. Harry, Vice President of Research Engineering, while requiring that their inventions be assigned to the Company, provide that the Company is obligated to pay certain royalties to Messrs. Kleshinski and Harry based on sales or licenses of products where either Mr. Kleshinski or Dr. Harry, as the case may be, was the sole or joint inventor. The Company has seven trademarks, two of which are registered in the United States Patent and Trademark Office. LICENSED TECHNOLOGY; ROYALTY OBLIGATIONS In connection with its septal repair device, the Company has obtained an exclusive worldwide license from Children's Medical Center Corporation under United States patents entitled "Occluder and Method for Repair of Cardiac and Vascular Defects" and "Occluder for Repair of Cardiac and Vascular Defects" and the respective corresponding foreign patents, patent applications and associated know-how. The license agreement provides for royalty payments of five percent based on net sales of the Company's CardioSeal Septal Occluder until the end of the term of the patents or termination of the agreement. The patents expire in September 2012 and June 2012, respectively. Pursuant to the license agreement, the Company is required to achieve certain milestones in exploiting the patent rights. The Company has achieved all required milestones to date. If the Company fails to achieve the milestones, Children's Medical Center Corporation may terminate the license agreement. The Company also has a royalty-free, worldwide sublicense under the United States patent entitled "System for the Percutaneous Transluminal Front-End Loading Delivery and Retrieval of a Prosthetic Occluder" and its corresponding foreign patents and associated know-how. The sublicense is exclusive in the field of the repair of atrial septal defects and nonexclusive in certain other fields. The Company has also obtained an exclusive worldwide license from Lloyd A. Marks, M.D. under the United States patent entitled "Aperture Occlusion Device". The license agreement with Dr. Marks provides for royalty payments based on net sales of nitinol septal repair devices which are covered by the patent until the end of term of the patent in 2011. Certain minimum royalty payments must be paid regardless of net sales. Dr. Marks was also issued warrants to purchase 5,263 shares of Common Stock, which warrants are accompanied by certain "piggy-back" registration rights. See "Description of Capital Stock--Registration Rights." In connection with the Simon Nitinol Filter, the Company entered into a Technology Purchase Agreement dated April 14, 1987 with Morris Simon, M.D., the Company's Scientific Director and co-founder. Pursuant to the agreement, Dr. 32 Simon assigned all the technology relating to the SNF to the Company in exchange for certain royalty payments based on net sales of technology invented by Dr. Simon relating to the SNF, to continue perpetually unless the agreement is sooner terminated. Dr. Simon agreed not to compete with the Company in the vena cava filter market during the term of the agreement. In connection with the agreement, Beth Israel Hospital Association granted the Company an exclusive worldwide license under U.S. patent entitled "Blood Clot Filter". In consideration for the license, Dr. Simon assigned a percentage of his royalty payments from the Company to Beth Israel Hospital Association. Pursuant to their respective employment agreements, the Company has agreed to pay royalties of one to five percent to Messrs. Kleshinski and Harry based on sales or licenses of products where either Mr. Kleshinski or Dr. Harry, as the case may be, was the sole or joint inventor. See Note 8 of Notes to the Consolidated Financial Statements. The Company is not obligated to pay royalties to Mr. Kleshinski with respect to the Company's stents or vena cava filters or to Dr. Harry with respect to the Company's devices which were being sold prior to January 1994 unless Dr. Harry's inventions result in an increased sales price to the Company. See "Management--Employment Agreements." AGREEMENTS WITH BOSTON SCIENTIFIC AND BARD Boston Scientific In November 1994, NMT entered into an agreement with Boston Scientific, pertaining to its stent technology. Under the terms of the agreement, NMT granted to Boston Scientific exclusive worldwide rights to develop, manufacture, market and distribute products incorporating NMT's stent technology. Boston Scientific has the right to market and advertise products based on the Company's stent technology exclusively under its own name and the Company has no right to any trademarks or tradenames developed by Boston Scientific. Boston Scientific has exclusive control over, and is responsible for, funding product development, manufacturing scale-up, clinical trials, marketing and distribution worldwide. The agreement obligates Boston Scientific to use diligent efforts in a commercially reasonable manner to develop, manufacture and market products using NMT's stent technology; however, there can be no assurance that Boston Scientific will develop the Company's stents for any particular application. In addition, Boston Scientific is not prohibited from developing or selling competing stents. See "Risk Factors-- Dependence Upon Collaborators." Boston Scientific is obligated to pay NMT a percentage of revenue from the sale of products using NMT's stent technology. If the fees payable are less than certain minimum levels, Boston Scientific must pay the difference or NMT can elect to make the license non-exclusive. The license fees may be reduced in the event a competing stent with a similar design, as defined in the agreement, acquires a 10% or greater sales share with respect to any particular application. Boston Scientific is also obligated to make payments upon the occurrence of certain developmental events and the achievement of certain manufacturing cost reductions, and reimburse certain development costs. The term of the agreement is for the longer of 20 years from market launch or the date on which the last NMT patent relating to stents expires. Boston Scientific also has the perpetual non-exclusive and royalty-free right to manufacture, use and sell all products as to which it has previously paid licensing fees and on products for which all applicable patents have expired or have been held invalid. Such additional rights granted to Boston Scientific survive termination of the agreement. Bard The Company has entered into strategic distribution agreements with Bard Radiology (as amended, the "Bard Radiology Agreement") and Bard International (the "Bard International Agreement") to distribute the SNF in the United States and certain other countries. The Bard Radiology Agreement, signed in May 1992 and amended in February 1993 and October 1995, grants Bard Radiology the exclusive right to distribute the Simon Nitinol Filter, and any changes, improvements or modifications thereto, in the United States and certain other countries for a five year term renewable by Bard Radiology for additional five year terms thereafter. The Company also granted Bard Radiology a right of first offer to obtain exclusive distribution rights in the United States for any new devices developed by the Company that may be marketed to interventional radiologists and for which NMT desires to enter into an exclusive distributorship within the United States. The Company sells the SNF to Bard Radiology at determined prices and Bard Radiology is required to purchase certain minimums to maintain its exclusivity. Pursuant to the Bard Radiology Agreement, Bard Radiology is obligated to provide the Company with quarterly purchase orders in substantial conformity with its purchase forecasts 33 submitted to the Company. Bard Radiology has further agreed not to compete with the Company in the vena cava filter market during the term of the agreement and for two years after termination. The Company has agreed not to make or sell any competing device as long as Bard maintains its exclusivity under the agreement. The Bard International Agreement, signed in November 1995, grants Bard International the exclusive right to distribute the Simon Nitinol Filter, and any changes, improvements or modifications thereto, worldwide (excluding the United States and certain other countries) for a five year term which is automatically renewed for successive one year periods unless terminated by either party. The Company sells the SNF to Bard International at determined prices and Bard International is required to make certain minimum purchases which, if not met, could result in termination of the agreement by the Company. Pursuant to the Bard International Agreement, Bard International is obligated to provide the Company with quarterly purchase orders in substantial conformity with its forecasts submitted to the Company. Bard International has further agreed not to compete with the Company in the vena cava filter market during the term of the Bard International Agreement. GOVERNMENT REGULATION The manufacture and sale of medical devices intended for commercial distribution are subject to extensive governmental regulations in the United States. Medical devices are regulated in the United States by the FDA under the FDC Act and generally require pre-market clearance or pre-market approval prior to commercial distribution. In addition, certain material changes or modifications to medical devices also are subject to FDA review and clearance or approval. Pursuant to the FDC Act, the FDA regulates the research, testing, manufacture, safety, labeling, storage, record keeping, advertising, distribution and production of medical devices in the United States. Noncompliance with applicable requirements can result in failure of the government to grant pre-market clearance or approval for devices, withdrawal of approvals, total or partial suspension of production, fines, injunctions, civil penalties, recall or seizure of products, and criminal prosecution. The FDA also has the authority to request repair, replacement or refund of the cost of any device manufactured or distributed by the Company. Medical devices are classified into one of three classes, Class I, II or III, on the basis of the controls deemed by the FDA to be necessary to reasonably ensure their safety and effectiveness. Class I devices are subject to general controls and Class II devices are subject to general and to special controls (e.g., performance standards, postmarket surveillance, patient registries, and FDA guidelines). Generally, Class III devices are those that must receive pre- market approval by the FDA to ensure their safety and effectiveness (e.g., life-sustaining, life-supporting and implantable devices, or new devices which have not been found to be substantially equivalent to legally marketed devices), and require clinical testing to ensure safety and effectiveness and FDA approval prior to marketing and distribution. The FDA also has the authority to require clinical testing of Class I and Class II devices. A PMA application must be filed if a proposed device is not substantially equivalent to a legally marketed predicate device or if it is a Class III device for which the FDA has called for such applications. If human clinical trials of a device are required and if the device presents a "significant risk," the manufacturer or distributor of the device is required to file an IDE application with the FDA prior to commencing human clinical trials. The IDE application must be supported by data, typically the results of animal and, possibly, mechanical testing. If the IDE application is approved by the FDA, human clinical trials may begin at a specific number of investigational sites with a maximum number of patients, as approved by the agency. Sponsors of clinical trials are permitted to sell those devices distributed in the course of the study provided such costs do not exceed recovery of the costs of manufacture, research, development and handling. The clinical trials must be conducted under the auspices of an independent institutional review board ("IRB") established pursuant to FDA regulations. If one or more IRBs determine that a clinical trial involves a "nonsignificant risk" device, the sponsor of the study is not required to obtain FDA approval of an IDE application before beginning the study. However, prior IRB approval of the study is required and the study must be conducted in compliance with the applicable FDA regulations, including, but not limited to, FDA's regulations regarding the protection of human subjects. Generally, before a new device can be introduced into the market in the United States, the manufacturer or distributor must obtain FDA clearance of a pre- market notification ("510(k) notification") submission or approval of a PMA application. If a medical device manufacturer or distributor can establish that a device is "substantially equivalent" to a legally marketed Class I or Class II device, or to a Class III device for which the FDA has not called 34 for PMAs, the manufacturer or distributor may seek clearance from the FDA to market the device by filing a 510(k) notification. The 510(k) notification may need to be supported by appropriate data establishing the claim of substantial equivalence to the satisfaction of the FDA. The FDA recently has been requiring a more rigorous demonstration of substantial equivalence. Following submission of the 510(k) notification, the manufacturer or distributor may not place the device into commercial distribution until an order is issued by the FDA. At this time, the FDA typically responds to the submission of a 510(k) notification within 90 to 200 days, but it may take longer. An FDA order may declare that the device is substantially equivalent to a legally marketed device and allow the proposed device to be marketed in the United States. The FDA, however, may determine that the proposed device is not substantially equivalent or require further information, including clinical data, to make a determination regarding substantial equivalence. Such determination or request for additional information could delay market introduction of the product that is the subject of the 510(k) notification. For any devices that are cleared through the 510(k) process, modifications or enhancements that could significantly affect safety or effectiveness, or constitute a major change in the intended use of the device, will require new 510(k) submissions. If a manufacturer or distributor of medical devices cannot establish that a proposed device is substantially equivalent to a legally marketed device, the manufacturer or distributor must seek pre-market approval of the proposed device through submission of a PMA application. A PMA application must be supported by extensive data, including preclinical and clinical trial data, as well as extensive literature to prove the safety and effectiveness of the device. Following receipt of a PMA application, if the FDA determines that the application is sufficiently complete to permit a substantive review, the agency will "file" the application. Under the FDC Act, the FDA has 180 days to review a filed PMA application, although the review of an application more often occurs over a protracted time period, and generally takes approximately two years or more from the filing date to complete. The PMA approval process is expensive, uncertain and lengthy. A number of devices for which pre-market approval has been sought have never been approved for marketing. The review time is often significantly extended by the FDA, which may require more information or clarification of information already provided in the submission. During the review period, an advisory committee likely will be convened by the FDA to review and evaluate the application and provide recommendations to the agency as to whether the device should be approved. In addition, the FDA will inspect the manufacturing facility to ensure compliance with the GMP regulations for medical devices prior to approval of the PMA application. If granted, the approval may include significant limitations on the indicated uses for which a product may be marketed. The FDA's regulations require agency approval of a PMA supplement for certain changes if they affect the safety and effectiveness of the device, including, but not limited to, new indications for use; labeling changes; the use of a different facility to manufacture, process, or package the device. Certain Class III devices that were on the market before May 28, 1976 ("preamendments Class III devices"), and devices that are determined to be substantially equivalent to them, can be brought to market through the 510(k) process until the FDA, by regulation, calls for PMA applications for the devices. Generally, the FDA will not grant 510(k) clearance for such devices unless the facilities at which they are manufactured successfully undergo an FDA pre-approval GMP inspection. In addition, the FDC Act requires the FDA either to down-classify preamendments Class III devices to Class I or Class II, or to publish a classification regulation retaining the devices in Class III. Manufacturers of preamendments Class III devices that the FDA retains in Class III must have PMA applications accepted by the FDA for filing within 90 days after the publication of a final regulation in which the FDA calls for PMAs. If the FDA calls for a PMA for a preamendments Class III device, a PMA must be submitted for the device even if the device has already received 510(k) pre- market clearance; however, if the FDA down-classifies a preamendments Class III device to Class I or Class II, a PMA application is not required. The FDA's reclassification determinations are to be based on safety and effectiveness information that manufacturers of certain preamendments Class III devices are required to submit to the FDA as set forth in two FDA orders published in August 1995. The Company's first product, the SNF, underwent significant clinical investigation under an IDE and received 510(k) clearance in 1990. Subsequent improvements and modifications to the SNF have also received 510(k) clearance from the FDA. The Company currently is preparing a 510(k) submission seeking clearance for additional modifications. There can be no assurances that such future modifications of the device will obtain clearance. The 510(k) clearances for the SNF were based on substantial equivalence of the device to other cardiovascular intravascular filters, which are 35 preamendments Class III devices. The FDA has characterized cardiovascular intravascular filters as not likely candidates for down-classification under the reclassification provisions of the FDC Act pertaining to preamendments Class III devices. Thus, it is likely that the FDA will call for PMAs for cardiovascular intravascular filters and that the Company will be required to have a PMA for the SNF accepted for filing by the FDA within 90 days after the date that the FDA calls for PMAs. There can be no assurance that the Company will be able to file a PMA within the prescribed time period or that any data and information submitted in a PMA will be adequate to support approval of the device. The Company believes it would be able to file a PMA within a 90 day time frame utilizing its existing clinical data. If the FDA were to require the Company to conduct a new clinical study to support the safety and efficacy of the SNF, the preparation of the PMA would take substantially longer than 90 days. Failure of the Company to submit a PMA and have it accepted for filing by the FDA within the required timeframe could result in the Company being required to cease commercial distribution of the SNF. Upon timely filing of a PMA, the Company believes, based on FDA's announced position as to certain other preamendments class III medical devices, that the FDA would permit continued commercial distribution of the SNF during the time necessary to review the PMA. There can be no assurance, however, that FDA would permit continued commercial distribution of the SNF pending FDA's review of a PMA for that device nor can there be any assurance given that the FDA would approve a PMA submitted for the SNF. Any denial by the FDA of a PMA for the SNF would result in the Company being required to cease commercial distribution of the SNF. Any requirement by the agency that the Company cease commercial distribution of the SNF would have a material adverse effect on the Company's business, financial condition and results of operations. On July 22, 1996, the Company submitted safety and effectiveness data to the FDA in accordance with one of the August 1995 FDA orders addressing the classification of preamendments Class III devices. The FDA will use this data, along with data furnished by manufacturers of similar devices, in determining the final classification of the SNF. Boston Scientific is responsible for applying for registrations and regulatory approvals it deems necessary for NMT's stents. It is believed that each of the vascular indications for the stent (coronary arteries, carotid arteries, peripheral vascular, AAA and peripheral vascular stent grafts) will require separate PMA applications prior to commercialization in the United States. Boston Scientific has commenced clinical trials in Europe of NMT's stents for peripheral vascular and peripheral vascular stent grafts applications. Commencing clinical trials in Europe is a strategy, now commonly used in the industry, which allows significant information to be gained and may enhance the ability to develop a United States based protocol of study. The Company believes, based on competitive product filings, that the non- vascular stent indications will qualify for the 510(k) notification. The filings for esophageal and biliary indications will also be the responsibility of Boston Scientific. There can be no assurance that the FDA will agree that the non-vascular stent indications may be cleared through the 510(k) process or, if a 510(k) notification is submitted, that the non-vascular stent will be deemed substantially equivalent to a legally marketed predicate device. In addition, there can be no assurance that Boston Scientific will submit regulatory filings for any particular indications for the stents, or that Boston Scientific will submit regulatory filings in every country in which the stents could be marketed. See "Risk Factors--Government Regulation; Product Approvals Uncertain." The septal repair device will also be subject to the PMA process in the United States. NMT submitted an application for an IDE to the FDA in May 1996. Submission of an IDE does not give assurance that the FDA will approve the IDE and, if it is approved, there can be no assurance that the FDA will determine that the data derived from these studies support the safety and efficacy of the device or warrant the continuation of clinical studies. There can be no assurance that the Company will be able to obtain necessary regulatory approvals or clearances for its products on a timely basis or at all, and delays in receipt of or failure to receive such approvals or clearances, the loss of previously received approvals or clearances, limitations on intended use imposed as a condition of such approvals or clearances, or failure to comply with existing or future regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operations. Currently, the Company is dependent on third parties to manufacture its products for use in clinical trials and commercial distribution. These third parties are required to register with the FDA as medical device manufacturers. 36 The third party manufacturers are inspected by the FDA for compliance with the GMP and other applicable regulations. In addition, the third party manufacturers will be specifically inspected by the FDA before the agency will approve a PMA application for the Company's products. There can be no assurance that the third party manufacturers on which the Company depends for the manufacture of its products will be able to come into compliance with the GMP regulations at the time of the preapproval inspection or to maintain such compliance. The Company currently intends to manufacture its septal repair device. The Company's manufacturing facilities will be required to be registered with the FDA and will be subject to the GMP regulations. FDA approval will be required before the Company could begin commercial distribution of medical devices from its own manufacturing facilities. Any products manufactured or distributed by the Company are subject to continuing regulation by the FDA including record keeping requirements, reporting of adverse experience with the use of the device, post-market surveillance, post-market registry and other actions deemed necessary by the FDA. The Company is required to provide information to the FDA on deaths or serious injuries alleged to have been associated with the use of its medical devices, as well as product malfunctions that would likely cause or contribute to death or serious injury if the malfunction were to recur in a similar device marketed by the manufacturer. In addition, the FDA prohibits an approved device from being marketed or promoted for unapproved uses. If the FDA believes that a company is not in compliance with the law, it can initiate proceedings to detain or seize products, issue a recall, enjoin future violations and assess civil and criminal penalties against the Company, its officers and its employees. Failure to comply with applicable regulatory requirements could have a material adverse effect on the Company's business, financial condition and results of operation. The advertising of most FDA-regulated products is subject to both FDA and Federal Trade Commission jurisdiction. The Company also is subject to regulation by the Occupational Safety and Health Administration and by other governmental entities. Sales of medical device products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. The time required to obtain approvals required by foreign countries may be longer or shorter than that required for FDA approval, and requirements for licensing may differ from FDA requirements. Failure to comply with foreign regulatory requirements also could have a material adverse effect on the Company's business, financial condition and results of operations. The current regulatory environment in Europe for medical devices differs significantly from that in the United States. There is currently no universally accepted definition of a medical device in Europe and there is no common approach to medical device regulation among the various countries. There are several different regulatory regimes operating within the different European countries. Regulatory requirements for medical devices range from no regulations in some countries to rigorous regulations approaching the requirements of the FDA's regulations for Class III medical devices. Several countries require that device safety be demonstrated prior to approval for commercialization. The regulatory environment in certain European countries is expected to undergo major changes as a result of the creation of medical device directives by the European Union. Regulations regarding the manufacture and sale of the Company's products are subject to change. The Company cannot predict what impact, if any, such changes might have on its business, financial condition or results of operations. The Company plans to implement policies and procedures intended to allow the Company to receive ISO 9000 certification. ISO 9000 certification is based on adherence to established standards in the areas of quality assurance and manufacturing process control. This certification is a significant European Union sales requirement that will permit the Company or its collaborators to affix the prescribed "CE" mark to its products. The European Union has promulgated rules which require that medical products receive a CE mark by mid- 1998 in order to commercially market and sell medical products in the countries of the European Economic Area. Failure to receive CE mark certification will prohibit the Company from selling its products in Europe. There can be no assurance that the Company will be successful in meeting their certification requirements. 37 THIRD PARTY REIMBURSEMENT Health care providers, such as hospitals and physicians, that purchase medical devices such as stents, generally rely on third party payers, principally Medicare, Medicaid and private health insurance plans, to reimburse all or part of the costs and fees associated with the Company's devices. Major third party payers reimburse inpatient medical treatment, including all operating costs and all furnished items or services, including devices such as the Company's, at a prospectively fixed rate based on the DRG that covers such treatment as established by the federal Health Care Financing Administration. For interventional procedures, the fixed rate of reimbursement is based on the procedure or procedures performed and is unrelated to the specific devices used in that procedure. The amount of profit relating to the procedure may be reduced by the use of the Company's devices. If a procedure is not covered by a DRG, certain third party payers may deny reimbursement. Alternatively, a DRG may be assigned that does not reflect the costs associated with the use of the Company's devices, resulting in underreimbursement. If, for any reason, the Company's products were not to be reimbursed by third party payers, the Company's ability to sell its products may be materially adversely affected. Mounting concerns about rising health care costs may cause more restrictive coverage and reimbursement policies to be implemented in the future. Several states and the federal government are investigating a variety of alternatives to reform the health care delivery system and further reduce and control health care spending. These reform efforts include proposals to limit spending on health care items and services, limit coverage for new technology and limit or control directly the price health care providers and drug and device manufacturers may charge for their services and products. The Company believes that domestic health care providers currently are reimbursed for the cost of purchasing the Company's SNF. In the international market, reimbursement by private third party medical insurance providers, including governmental insurers and providers, varies from country to country. In certain countries, the Company's ability to achieve significant market penetration may depend upon the availability of third party governmental reimbursement. The Company's independent distributors, and the health care providers to whom such distributors sell, obtain any necessary reimbursement approvals. There can be no assurance as to either United States or foreign markets that third party reimbursement and coverage will be available and adequate, that current reimbursement amounts will not be decreased in the future or that future legislation, regulation or reimbursement policies of third party payers will not occur. See "Risk Factors--Uncertain Availability of Third Party Reimbursement; Possible Health Care Reforms." EMPLOYEES As of July 31, 1996, NMT employed 31 full-time and three part-time employees. Further staff will be added at the completion of the Offering as required by the demands of the planned manufacturing scale-up for the septal repair device and other development programs. No employees are covered by collective bargaining agreements, and the Company believes it maintains good relations with its employees. FACILITIES The Company currently occupies approximately 7,500 square feet of laboratory, pilot manufacturing and office space in Boston. The Company has entered into a lease for a new manufacturing, laboratory and administrative facility in Boston comprising approximately 27,000 square feet which it expects to occupy commencing in the third quarter of 1996. LEGAL PROCEEDINGS The Company has no material pending legal proceedings. PRODUCT LIABILITY AND INSURANCE The Company's business involves the risk of product liability claims. The Company has not experienced any product liability claims to date. Although the Company maintains product liability insurance with coverage limits of $5 million per occurrence and an annual aggregate maximum of $5 million, there can be no assurance that product liability claims will not exceed such insurance coverage limits, which could have a material adverse effect on the Company's business, financial condition and results of operations, or that such insurance will be available on commercially reasonably terms or at all. See "Risk Factors--Product Liability Risks; Insurance." 38 MANAGEMENT The following table sets forth certain information with respect to certain directors, executive officers and other key personnel of the Company: Directors and Executive Officers - --------------------------------------------------------------------------------
NAME AGE POSITION - ------------------------------------------------------------------------------- Thomas M. Tully (1) 50 President, Chief Executive Officer and Director David A. Chazanovitz 45 President, Septal Repair Division Theodore I. Pincus 53 Executive Vice President and Chief Financial Officer C. Leonard Gordon 67 Chairman of the Board (1)(2) Morris Simon, M.D. 70 Director and Scientific Director Michael C. Brooks (2) 51 Director Robert G. Brown 53 Director R. John Fletcher 50 Director (2)(3) Jeffrey R. Jay, M.D. 38 Director (1)(3) - ------- (1) Member of the Compensation Committee (2) Member of the Audit Committee (3) Member of the Stock Option Committee Key Personnel - ------------------------------------------------------------------------------- NAME AGE POSITION - ------------------------------------------------------------------------------- Sherrie Coval-Gold- 39 Vice President of Regulatory Affairs smith Rudy Davis 44 Vice President of Marketing and Sales, Septal Repair Division Jason Harry, Ph.D. 38 Vice President of Research Engineering Stephen Kleshinski 43 Vice President of Research and Development Eugene O'Donnell 49 Vice President for Vena Cava Filter Operations Carol Ryan 33 Vice President of Product Development, Septal Repair Division James W. Sheppard 37 Director of Operations, Septal Repair Division
THOMAS M. TULLY has served as President, Chief Executive Officer and Director of NMT since January 1996. From June 1995 to January 1996 Mr. Tully served as a consultant to the Company. From May 1994 to April 1995, Mr. Tully served as President of the Institute of Molecular Biology, a biotechnology company focused on tissue repair and regeneration and from August 1991 to March 1994, Mr. Tully served as President of Organogenesis, Inc., a biotechnology company focused on the commercialization of medical device applications of tissue engineering. Prior to that Mr. Tully served for three years as the President of the Schneider division of Pfizer, Inc., which concentrates on interventional radiology, and cardiology, and spent nine years in various executive positions in consumer products and medical devices at Johnson & Johnson, Inc. and was the founding President of Johnson & Johnson Interventional Systems, an interventional medicine company. DAVID A. CHAZANOVITZ has served as President of NMT's Septal Repair Division since January 1996. He has over 20 years of experience in the medical products business. Mr. Chazanovitz served as President and Chief Executive Officer of InnerVentions from April 1995 until January 1996. Mr. Chazanovitz was employed by Bard from 1979 to 1995 in various positions including President of the USCI Angiography Division, Bard Electrophysiology Division and Bard Ventures Division where he was a founder. During his last two and one-half years at Bard Mr. Chazanovitz had overall responsibility for the septal defect repair program. THEODORE I. PINCUS has served as Chief Financial Officer of the Company, as a part-time employee since June 1995 and became an Executive Vice President and a full-time employee in May 1996. From September 1993 to April 1996 he served as Chief Financial Officer of Immunotherapy, Inc., a privately-held biopharmaceutical company, and for the 39 past six years until joining the Company as a full-time employee he has been President of The Pincus Group, a management consulting firm. From August 1992 to March 1995 he also served as the Chief Financial Officer of Biofield Corp., then a privately-held medical device company. Mr. Pincus is a Certified Public Accountant and from 1985 to 1989 he was a partner at Ernst & Young, an accounting firm. MORRIS SIMON, M.D., a co-founder of NMT, is a Director and Scientific Director of the Company. Since 1973, Dr. Simon has been a Director of Clinical Radiology, Department of Radiology, at Beth Israel Hospital, and since 1976, a Professor of Radiology at Harvard Medical School. C. LEONARD GORDON, a co-founder of NMT, served as the Company's Chief Executive Officer and President, from August 1990 to January 1996. Mr. Gordon has served as a Director of the Company since its inception in 1986 and as Chairman of the Board of the Company since January 1996. Mr. Gordon has been engaged in venture capital enterprises for more than 10 years, particularly in the field of new medical technologies and devices. He was co-founder and Chief Executive Officer of (i) Oxigene, Inc. a publicly-traded company engaged in the design and development of drugs and (ii) Biofield Corp., a publicly-traded medical device company that has developed a breast cancer detection system. Mr. Gordon presently serves as Chairman of the Board of Biofield Corp. and Chairman of the Board of Immunotherapy, Inc., a privately-held biotechnology company. Mr. Gordon has practiced law in New York City for approximately 41 years and is currently of counsel to Gordon Altman Butowsky Weitzen Shalov & Wein. MICHAEL C. BROOKS has been a director of the Company since March 1996. Mr. Brooks was appointed as a Director as a designee selected by the holders of the Company's Convertible Preferred Stock. He has been a General Partner of J.H. Whitney & Co., a venture capital partnership, since January 1985 and currently serves as Managing Partner. Mr. Brooks is also a director of SunGard Data Systems, Inc., a computer software and services company, DecisionOne Holdings Corp., a multivendor computer service company, P-Com, Inc., a millimeter wave wireless system technology company, and several private companies. ROBERT G. BROWN has been a Director of the Company since 1992. From 1987 to 1992 he served as President and Chief Operating Officer of NMT. Prior to joining NMT, Mr. Brown spent approximately 15 years in various marketing and business development positions with the Boston Scientific Corporation. R. JOHN FLETCHER was elected a Director of the Company in January 1996. Mr. Fletcher is the founder and Chief Executive Officer of Fletcher Spaght, Inc., a management consulting company which specializes in strategic development for health care and high technology businesses. Prior to founding Fletcher Spaght, Inc. in 1983, he was a senior member of The Boston Consulting Group, a management consulting company. Mr. Fletcher was the Chairman of the Board of InnerVentions from its inception. Mr. Fletcher is a director of AutoImmune, a biotechnology company developing orally administered pharmaceutical products and Bachman Information Systems, Inc., a software development company. JEFFREY R. JAY, M.D. has been a Director of the Company since March 1996. Dr. Jay was appointed as a director as a designee selected by the holders of the Company's Convertible Preferred Stock. Since 1993, he has been a General Partner of J.H. Whitney & Co., a venture capital partnership. From 1988 to 1993, Dr. Jay was employed by Canaan Partners, a venture capital firm. Dr. Jay currently is a national advisory member of the American Medical Association's Physician Capital Source Committee and is on the Board of CRA Managed Care, Inc., a workers compensation managed care company, UtiliMed, a diagnostic imaging managed care company, and Advance ParadigM, Inc., a health benefits manager. SHERRIE COVAL-GOLDSMITH, Vice President of Regulatory Affairs, joined the Company in February 1996. From 1995 until January 1996, Ms. Coval-Goldsmith had been Director of Regulatory Affairs for T-Cell Sciences, Inc., a developmental stage biotechnology company. From 1994 until 1995, she had been Director of Regulatory Affairs of Institute of Molecular Biology, Inc., a biotechnology company focused on tissue repair and regeneration. Prior to that, Ms. Coval- Goldsmith had over 10 years of clinical research experience, including serving as Manager of Clinical Research and Regulatory Affairs for the Stryker Biotech Division of Stryker Corp., a medical device company, where she had responsibility for an advanced implantable device. RUDY DAVIS joined the Company as its Vice President of Marketing and Sales, Septal Repair Division in May 1996. During the past 11 years he has held marketing positions of increasing responsibility with various divisions of Bard, and is a co-inventor of the original Clamshell device. He is a registered respiratory therapist with ten years clinical and administrative experience in the Cardiology Department at the Catherine McAuley Health Center in Ann Arbor, Michigan. 40 JASON HARRY, PH.D. joined NMT in July 1994 as Director of Engineering and became Vice President of Research Engineering in January 1996. Dr. Harry has been involved in biomedical engineering research and development for over 15 years. His fields of interest have included ocular mechanics, orthopaedics, skeletal muscle biophysics and locomotion, and functional neural stimulation. He worked for three years as a research engineer in the Orthopaedic Biomechanics Laboratory of Beth Israel Hospital/Harvard Medical School. Following his doctoral work at Harvard University, he was a member of the engineering faculty at Brown University for five years. During that time, he developed a research program based in part on the use of shape memory alloys in medical devices, including a miniature neural electrode and a hip joint prosthesis component. STEPHEN KLESHINSKI, Vice President of Research and Development, joined NMT in 1987 as the Company's first employee. Mr. Kleshinski has 15 years of medical experience in academic and commercial settings. From 1980 to 1987 he was involved in academic medical research at Beth Israel Hospital/Harvard Medical School. For the last eight years he has been responsible for all technical aspects of product and process design and development for NMT. EUGENE O'DONNELL was appointed Vice President for Vena Cava Filter Operations effective January 1, 1996. Mr. O'Donnell previously served as General Manager of the Company since November 1992. He joined the Company in 1990 as National Sales Manager after the SNF became commercially available. Prior to joining NMT, he spent nine years in a variety of sales and product marketing positions with Boston Scientific. His experience includes over 19 years in the field of cardiovascular medical devices. CAROL RYAN has served as Vice President of Product Development, Septal Repair Division, since February 1996. She has nine years of medical device engineering experience with various divisions of Bard including both manufacturing and new product development. During the past three and one-half years, she has had the responsibility for management of the technical activities associated with the re-design effort leading to the current septal repair device. JAMES W. SHEPPARD joined NMT in March 1996 as Director of Operations, Septal Repair Division. Mr. Sheppard has fourteen years of increasing responsibility in medical device manufacturing, twelve of which were at Bard manufacturing various cardiovascular devices including angiography, critical care and electrophysiology catheters. While at Bard he established new manufacturing facilities and organizations. More recently, Mr. Sheppard served as Director of Manufacturing for Summit Technology, Inc., a company producing lasers for vision correcting surgery. COMMITTEES The Board of Directors has a Compensation Committee which has authority to review and approve all compensation arrangements, including annual incentive awards for senior officers of the Company, an Audit Committee which has authority to recommend annually to the Board of Directors the engagement of the independent auditors of the Company and review the scope and results of the audit, the adequacy of the Company's internal accounting controls and the professional services furnished by the independent auditors and a Stock Option Committee which administers the Company's stock option plans. DIRECTORS COMPENSATION All directors hold their offices until the next stockholders' meeting of the Company and until their successors are elected and qualified. Directors who do not otherwise receive compensation from the Company receive $4,000 per year and all directors receive reimbursement of travel expenses. The Company has entered into oral arrangements with C. Leonard Gordon, the Company's Chairman of the Board, and Dr. Morris Simon, the Company's Scientific Director. See "Certain Transactions." LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION The Company's Amended and Restated Certificate of Incorporation limits the liability of directors to the maximum extent permitted by Delaware law. Delaware law provides that directors of a corporation will not be personally liable for monetary damages for breach of their fiduciary duties as directors, except liability for (i) any breach of their duty of loyalty to the corporation or its stockholders, (ii) acts or omissions not in good faith or which involve intentional 41 misconduct or a knowing violation of law, (iii) unlawful payments of dividends or unlawful stock repurchases or redemptions or (iv) any transaction form which the director derived an improper personal benefit. Such limitation of liability does not apply to liabilities arising under the federal securities laws and does not affect the availability of equitable remedies such as injunctive relief or rescission. The Company's bylaws provide that the Company shall indemnify its directors and executive officers and may indemnify its other officers and employees and other agents to the fullest extent permitted by law. At present, there is no pending litigation or proceeding involving a director or officer of the Company in which indemnification is required or permitted and the Company is not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. EXECUTIVE COMPENSATION The following table sets forth compensation paid or earned for the fiscal year ended December 31, 1995 for (i) those persons who served as the Company's Chief Executive Officer during the year ended December 31, 1995 and (ii) the three other most highly compensated executive officers of the Company at December 31, 1995 (collectively, the "Named Executive Officers"). 1995 SUMMARY COMPENSATION TABLE ----------------------------------
ANNUAL COMPENSATION -------------------------------------------- LONG-TERM COMPENSATION AWARDS ------------ SECURITIES UNDERLYING ALL OTHER SALARY(1) BONUS(1) OPTIONS(#) COMPENSATION NAME AND PRINCIPAL POSITION -------- ------- ------------ ------------ Thomas M. Tully $45,000 $15,000 -- -- President and Chief Executive Officer(2) David A. Chazanovitz 20,000 -- -- -- President, Septal Repair Division(3) Theodore I. Pincus 31,000 10,000 52,630 -- Executive Vice President and Chief Financial Officer(4) C. Leonard Gordon 112,500 1,000 302,628 $4,000(7) Chairman of the Board and Former Chief Executive Officer(5)(6)
- ------- (1) All four individuals listed were part-time consultants to the Company in 1995. (2) The present annual base salary is $175,000. (3) The present annual base salary is $160,000. (4) The present annual base salary is $160,000. (5) The present annual rate of compensation as a consultant to the Company is $135,000. (6) Does not include income as an "S" Corporation stockholder. (7) Director's fees. 42 Option Grants in Last Fiscal Year The following table sets forth certain information concerning options granted to the Chief Executive Officer and the Named Executive Officers during the fiscal year ended December 31, 1995, including information concerning the potential realizable value of such options. -----------------------------------------------
INDIVIDUAL GRANTS ------------------------------------------- POTENTIAL PERCENTAGE REALIZABLE VALUE OF TOTAL AT ASSUMED ANNUAL NUMBER OF OPTIONS EXERCISE RATES OF STOCK SECURITIES GRANTED TO OR BASE PRICE UNDERLYING INDIVIDUALS PRICE PER APPRECIATION FOR OPTIONS IN FISCAL SHARE EXPIRATION OPTION TERM GRANTED YEAR ($/SHARE) DATE 5%($) 10%($) NAME ---------- ----------- --------- ---------- -------- -------- Thomas M. Tully(1) -- -- -- -- -- -- David A. Chazanovitz(2) -- -- -- -- -- -- Theodore I. Pincus(3) 26,315 4.9% $2.15 10/13/02 $ 23,033 $ 53,676 26,315 4.9 2.15 12/21/05 35,581 90,170 C. Leonard Gordon 210,525 39.0 2.15 10/13/02 184,265 429,417
- ------- (1)In February 1996, options to purchase 263,157 shares of Common Stock at $2.15 per share were granted and in May 1996 options to purchase 116,433 shares of Common Stock at $6.95 per share were granted. (2) In February 1996, options to purchase 118,421 shares of Common Stock at $2.15 per share were granted. (3) In April 1996, additional options to purchase 39,473 shares of Common Stock at $2.15 per share were granted. The fair market value of this stock on the date of the grant was $3.19 per share. AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES The following table sets forth certain information concerning the number and value of securities underlying exercisable and unexercisable stock options as of the fiscal year ended December 31, 1995 by the Company's Chief Executive Officer and the Named Executive Officers. Options for 15,789 shares at $.19 per share were exercised by the Former Chief Executive Officer in September 1995. There were no other exercises of stock options during the fiscal year ended December 31, 1995. --------------------------------------------------
NUMBER NUMBER OF SECURITIES OF SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED ACQUIRED OPTIONS AT IN-THE-MONEY OPTIONS AT ON VALUE DECEMBER 31, 1995 DECEMBER 31, 1995(4) EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE NAME --------- -------- ----------- ------------- ----------- ------------- Thomas M. Tully -- -- -- -- -- -- David A. Chazanovitz -- -- -- -- -- -- Theodore I. Pincus -- -- 1,461(1) 51,168(1) -- -- C. Leonard Gordon 15,789 $30,900 198,828(2) 103,800(3) $103,024 --
- ------- (1) Exercisable and unexercisable options are at $2.15 per share. (2)Includes 26,315 options to purchase Common Stock at $.76 per share; 65,788 options to purchase Common Stock at $1.14 per share, and 106,725 options to purchase Common Stock at $2.15 per share. (3) All at $2.15 per share. (4)Value is determined by subtracting the exercise price per share from the es- timated fair market value at December 31, 1995 ($2.15 per share) as determined by the Board of Directors, and multiplying by the number of shares subject to the option. EMPLOYMENT AGREEMENTS Effective September 1, 1995, Thomas M. Tully became President and Chief Executive Officer of the Company pursuant to an employment agreement dated February 13, 1996. The agreement is for a term of three years, however, if Mr. Tully is employed by the Company on June 1, 1998, the term will automatically be extended until August 31, 43 1999, unless either party gives three months prior written notice. Pursuant to his agreement, Mr. Tully receives a salary of $175,000 the first year until August 31, 1996, $200,000 the second year and after September 1, 1997, a salary of $250,000 per year. Mr. Tully is also eligible to receive bonus payments upon the achievement by the Company of certain specified goals. In addition, upon the closing of the acquisition of the septal repair technology, Mr. Tully received a lump sum payment of $125,000 and non-qualified stock options to purchase 263,157 shares of the Company's Common Stock, which options are exercisable at $2.15 per share. Options to purchase 42,631 shares vested upon execution of the agreement and the remaining options vest at a rate of 3.45% per month and are accompanied by certain "piggy-back" registration rights. See "--Options Granted Outside of the Plans" and "Description of Capital Stock-- Registration Rights." The options are exercisable for a period of ten years after the vesting thereof and become immediately exercisable in the event of a change of control of the Company. If Mr. Tully's employment is terminated due to his death or disability, the number of options deemed to be exercisable shall be an amount equal to the number of options exercisable at the date of termination multiplied by two and the portion of the options due to become exercisable on the first day of the month coincident with or next following the date of termination, prorated for the number of days he was employed during that month, shall become exercisable and all other unexercisable options shall expire. Mr. Tully will forfeit all unexercisable options if the Company terminates him either with or without cause. If the Company terminates Mr. Tully's employment without cause, the Company will be obligated to continue to pay his annual salary for a period of one year from termination. Mr. Tully has agreed not to compete with the Company for a period of one year after he ceases to be employed with the Company. Mr. Tully has agreed to serve on the Company's Board of Directors upon request of the Company during the term of his employment agreement. Effective January 1, 1996, David A. Chazanovitz became President, Septal Repair Division pursuant to a three-year employment agreement dated February 13, 1996. Pursuant to his agreement, Mr. Chazanovitz receives a salary of $160,000 the first year, $175,000 the second year and $185,000 the third year. Mr. Chazanovitz is also eligible to receive bonus payments upon the achievement by the Company of certain specified goals. In connection with his employment, Mr. Chazanovitz received (i) non-qualified stock options to purchase 92,105 shares of the Company's Common Stock at an exercise price of $2.15 per share, which vest at a rate of 2.77% per month and (ii) options to purchase an aggregate of up to 26,315 shares of the Company's Common Stock at an exercise price of $2.15 per share subject to vesting in the amounts and upon the earlier of (x) the achievement of certain milestones as described in his employment agreement or (y) December 31, 2000. See "--Options Granted Outside of the Plans." The options are exercisable for a period of ten years after the vesting thereof and become immediately exercisable in the event of a change of control of the Company. If Mr. Chazanovitz' employment is terminated due to his death or disability, the portion of the options due to become exercisable on the first day of the month coincident with or next following the date of termination, prorated for the number of days he was employed during the month, shall become exercisable and all other unexercisable options shall expire. Mr. Chazanovitz will forfeit all unexercisable options if the Company terminates his employment with or without cause. If the Company terminates Mr. Chazanovitz' employment without cause, the Company will be obligated to continue to pay his annual salary for a period of six months from termination. Mr. Chazanovitz has agreed not to compete with the Company for a period of one year after he ceases to be employed by the Company. Effective May 1996, Theodore I. Pincus became Executive Vice President and Chief Financial Officer pursuant to a three-year employment agreement. Pursuant to his employment agreement, Mr. Pincus receives a salary of $160,000 the first year, $175,000 the second year and $185,000 the third year. In addition, Mr. Pincus receives living expenses of $35,000 the first year and $20,000 the second year, in lieu of receiving the Company's relocation benefits package. Mr. Pincus is also eligible to receive bonus payments upon the achievement by the Company of certain specified goals. In connection with his employment, Mr. Pincus received non-qualified stock options to purchase 39,473 shares of Common Stock of the Company at an exercise price of $2.15 per share. The options vest in equal monthly installments over three years. See "--Options Granted Outside of the Plans." The options are exercisable for a period of ten years after the vesting thereof and become immediately exercisable in the event of a change of control of the Company. If Mr. Pincus' employment is terminated due to his death or disability, the portion of the options due to become exercisable on the first day of the month coincident with or next following the date of termination, prorated for the number of days he was employed during that month, shall become exercisable and all other unexercisable options shall expire. Mr. Pincus will forfeit all unexercisable options if the Company terminates his employment either with or without cause. If the Company terminates Mr. Pincus' employment without cause, the Company will be 44 obligated to continue to pay his annual salary for a period of six months after termination. The Company loaned Mr. Pincus $65,000, which loan will be forgiven over the next three years; provided, however, that (i) if Mr. Pincus is terminated for cause (as defined in his employment agreement) the then- outstanding loan together with interest at prime plus one percent shall become immediately due and payable, or (ii) if Mr. Pincus is terminated for any other reason, the then-outstanding loan together with interest at prime plus one percent shall be payable monthly with a final payment due on April 30, 1999. Mr. Pincus has agreed not to compete with the Company for a period of one year after he ceases to be employed by the Company. The Company has entered into employment agreements with each of Stephen Kleshinski, Vice President of Research and Development and Jason Harry, Ph.D., Vice President of Research Engineering. The employment agreements provide for terms of five years commencing on June 1, 1993 and for three years commencing July 1, 1994, respectively. Mr. Kleshinski has agreed for a period of 18 months following termination of his employment, and Dr. Harry has agreed for a period of 12 months following termination of his employment, not to compete with the Company and they each have agreed to assign to the Company any inventions he may have. The Company is obligated, however, to pay certain royalties to Messrs. Kleshinski and Harry based on sales or licenses of products where either Mr. Kleshinski or Dr. Harry, as the case may be, was the sole or joint inventor. See "Business--Licensed Technology; Royalty Obligations." COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION During the fiscal year ended December 31, 1995, Mr. Gordon served as a member of the Board of Directors of the Company and participated in the deliberations of the Board of Directors regarding executive compensation during such period, including deliberations regarding the determination of his own compensation. With the exception of Mr. Gordon who is a member of the Compensation Committee of Biofield Corp., no executive officer of the Company serves or served on the Compensation Committee of another entity and no executive officer of the Company serves or served as a director of another entity who has or had an executive officer serving on the Board of Directors of the Company. STOCK OPTION PLANS The 1994 Plan The Nitinol Medical Technologies, Inc. 1994 Stock Option Plan (the "1994 Plan") provides for the granting of stock options to acquire a maximum of 315,789 shares of Common Stock. As of July 31, 1996, no shares had been issued upon the exercise of options granted under the 1994 Plan, 300,789 shares were subject to outstanding options and 15,000 shares remained available for future grant. The 1994 Plan is administered by the Board of Directors; and, unless previously terminated, shall terminate on May 31, 2004. Under the 1994 Plan, options may be granted to employees, directors and consultants, at the discretion of the Board of Directors. Incentive stock options ("ISOs") may only be granted to individuals who, at the time of the grant, are employees or directors of the Company. Non-qualified stock options ("NSOs") may be granted to employees, directors or consultants. The exercise price of ISOs and NSOs shall be established by the Board of Directors, provided that the exercise price must be at least equal to the fair market value per share at the date of the grant. However, if ISOs are granted to persons owning, directly or indirectly, at the time of the option grant, over 10% of the total combined voting power of all classes of stock of the Company, the 1994 Plan provides that the exercise price for such ISOs shall not be less than 110% of fair market value per share at the date of the grant. Each ISO or NSO must expire within ten years of the date of grant or at such earlier time as the Board of Directors shall determine. Options are nontransferable, except by will or the laws of descent and distribution. The amount and exercise price of options granted under the 1994 Plan may be adjusted, at the discretion of the Board of Directors, in the event of any change in the Company's capitalization or in the event of any merger, consolidation or corporate reorganization where the Company is the surviving corporation. Any unexercised options held by a grantee whose relationship with the Company ceases for any reason (other than retirement, death or disability) shall immediately terminate. Upon cessation of a grantee's relationship with the Company resulting from retirement, disability or death, the period during which the grantee may exercise options 45 shall not exceed (i) one year from the date of termination in the case of death, and (ii) three months from the date of termination in the case of retirement or disability. However, in no event shall the exercise period extend beyond the option term. Unexercised options shall terminate upon the dissolution or liquidation of the Company or in the event of a merger, consolidation or any corporate reorganization where the Company is not the surviving corporation. 1996 Plan The Nitinol Medical Technologies, Inc. 1996 Stock Option Plan (the "1996 Plan") was approved by the Company's stockholders in July 1996. The purpose of the 1996 Plan is to attract and retain key personnel. The 1996 Plan provides for the grant of options to acquire a maximum of 600,000 shares of the Common Stock. As of the date hereof, no shares are subject to outstanding options. The 1996 Plan permits the granting of ISOs or NSOs at the discretion of the administrator of the 1996 Plan (the "Plan Administrator"). The Board of Directors has appointed a Stock Option Committee of the Board as the Plan Administrator. Subject to the terms of the 1996 Plan, the Plan Administrator determines the terms and conditions of options granted under the 1996 Plan. Options granted under the 1996 Plan are evidenced by written agreements which contain such terms, conditions, limitations and restrictions as the Plan Administrator deems advisable and which are not inconsistent with the 1996 Plan. ISOs may be granted to individuals who, at the time of grant, are employees of the Company or its affiliates. NSOs may be granted to directors, employees, consultants and other agents of the Company or its affiliates. The 1996 Plan provides that the Plan Administrator must establish an exercise price for ISOs that is not less than the fair market value per share of the Common Stock at the date of grant and an exercise price for NSOs of not less than 85% of such fair market value. Each ISO must expire with ten years of the date of grant. However, if ISOs are granted to a person owning more than 10% of the voting stock of the Company, the 1996 Plan provides that the exercise price may not be less than 110% of the fair market value per share at the date of grant and that the term of such ISOs may not exceed five years. The Plan Administrator has the authority to establish vesting periods for options granted under the 1996 Plan, or to grant options which are fully vested at the time of grant. An optionee whose relationship with the Company or any related corporation ceases for any reason (other than termination for cause, death or total disability, as such terms are defined in the 1996 Plan) may exercise options in the three-month period following such cessation (unless such options terminate or expire sooner by their terms), or in such longer period determined by the Plan Administrator in the case of NSOs. Unexercised options granted under the 1996 Plan terminate upon a merger (other than a stock merger), reorganization or liquidation of the Company; however, immediately prior to such a transaction, optionees may exercise such options without regard to whether the vesting requirements have been satisfied. Options granted under the 1996 Plan convert into options to purchase shares of another corporation involved in a stock merger with the Company, unless the Company and such other corporation, in their sole discretion, determine that such options terminate. Such converted options become fully vested without regard to whether the vesting requirements in the option agreement for such options have been satisfied, unless the Board of Directors determines otherwise. The option exercise price may be paid in full at the time the notice of exercise of the option is delivered to the Company and must be paid in cash, by bank certified or cashier's check or by personal check. Options are nontransferable with certain exceptions. The Board has certain rights to suspend, amend or terminate the 1996 Plan provided stockholder approval is obtained. The 1996 Directors' Stock Plan The Nitinol Medical Technologies, Inc. 1996 Stock Option Plan for Non-Employee Directors (the "1996 Directors' Stock Plan") was approved by the Company's stockholders in July 1996. The 1996 Directors' Stock Plan is administered by the Company's Board of Directors. Subject to the provisions of the 1996 Directors' Stock Plan, the Board has the authority to interpret the plan and apply its provisions and to adopt, amend or rescind rules, procedures and forms relating to it. The 1996 Directors' Stock Plan provides for the automatic grant of nonstatutory stock options to purchase shares of Common Stock to directors of the Company who are not employees of the Company and do not otherwise receive compensation from the Company. 46 Under the 1996 Directors' Stock Plan, 150,000 shares of Common Stock have been reserved for issuance of options. If any options granted under the 1996 Directors' Stock Plan shall for any reason expire or be cancelled or otherwise terminated without having been exercised in full, the shares allocable to the unexercised portion of such options shall again become available. The 1996 Directors' Stock Plan provides for the automatic grant of options to eligible directors. Each eligible director who was serving on the Board on the effective date of the 1996 Directors' Stock Plan automatically will receive an option to purchase 10,000 shares of Common Stock at the current market price on the date of grant, subject to vesting in equal monthly installments over a period of three years. In the future, each nonemployee director who joins the Board will automatically receive an initial grant of options to purchase 10,000 shares of Common Stock at an exercise price equal to the fair market value per share at the date of grant, subject to vesting in equal monthly installments over a three year period. In each year other than the year in which a director receives an initial grant of options, such director will automatically receive options to purchase 2,500 shares of Common Stock which shall become fully- vested six months after the date of grant. The term of each option granted under the 1996 Directors' Stock Plan is 10 years. Options granted under the 1996 Directors' Stock Plan must be exercised prior to the earlier of the scheduled expiration date or the date one year following the date of termination of service. The exercise price of each option under the 1996 Directors' Stock Plan must be equal to the fair market value of the Common Stock subject to the option on the date of the grant. The exercise price of each option is payable upon exercise in cash. The 1996 Directors' Stock Plan also permits an optionee to pay the exercise price of an option by delivery of an irrevocable direction to pledge the optionee's shares to a securities broker or lender approved by the Company as security for a loan and to deliver all or part of the loan proceeds to the Company in payment of all or part of the exercise price and any withholding taxes. Unless sooner terminated by the Board, the 1996 Directors' Stock Plan will terminate in June 2006, and no further options may be granted pursuant to the plan following the termination date. OPTIONS GRANTED OUTSIDE OF THE PLANS In addition to the ISOs and NSOs which may be granted under the 1994 Plan, as at July 31, 1996 the Company has granted options to purchase an aggregate of 1,400,613 shares outside of the 1994 Plan, to certain of its employees, consultants, executive officers and directors, of which 547,083 are vested and the remainder of which vest upon the passage of time or the achievement of certain milestones by the Company. Additionally, the Company has granted certain "piggy-back" registration rights with respect to the shares underlying such options. See "Description of Capital Stock--Registration Rights." 401 (K) PROFIT SHARING PLAN & TRUST In October 1995, the Company adopted a 401 (k) Profit Sharing Plan & Trust (the "401 (k) Plan"), a tax-qualified plan covering all of its employees who are at least 21 years of age and have completed three months of service with the Company. Each employee may elect to reduce his or her current compensation by up to 15%, subject to the statutory limit (a maximum of $9,500 in 1996) and have the amount of the reduction contributed to the 401 (k) Plan. The 401 (k) Plan provides that the Company may, as determined from time to time by the Board of Directors, provide a matching contribution. In addition, the Company may contribute an additional amount to the 401 (k) Plan, as determined by the Board of Directors, which will be allocated based on the proportion of the employee's compensation for the plan year to the aggregate compensation for the plan year for all eligible employees. The Company has made no contributions to date. All employee contributions to the 401 (k) Plan are fully vested at all times. Upon termination of employment, a participant may elect a lump sum distribution or, if his or her total amount in the 401 (k) Plan is greater than $3,500, may elect to receive benefits as retirement income. 47 CERTAIN TRANSACTIONS In February 1996, the Company entered into an Agreement and Plan of Merger pursuant to which InnerVentions, Inc., a wholly-owned subsidiary of Fletcher Spaght, Inc. and the exclusive licensee of the technology relating to the CardioSeal Septal Occluder, was merged with and into NMT Heart, Inc., a wholly- owned subsidiary of the Company. Pursuant to the Agreement and Plan of Merger, the Company acquired all the existing development, manufacturing and testing equipment, patent licenses, know-how and documentation relating to the manufacture of the CardioSeal Septal Occluder, which had been originally developed by Bard, donated to Children's Hospital of Boston, then licensed to InnerVentions. In connection with the merger, Fletcher Spaght, Inc. received 514,651 shares of Common Stock of NMT and warrants to purchase 111,818 shares of Common Stock at an exercise price of $2.15 per share, which shares and warrants are accompanied by certain "piggy-back" registration rights. See "Description of Capital Stock--Registration Rights." NMT has also agreed to use its best efforts to nominate a designee of Fletcher Spaght, Inc. as a director of NMT. Certain of the Company's existing stockholders have agreed to vote their shares of Common Stock in favor of such a designee. In February 1996, the Company sold an aggregate of 3,787,104 shares of Convertible Preferred Stock for an aggregate purchase price of $8,500,000 pursuant to the Convertible Stock Offering. Upon the completion of the Offering, the outstanding shares of Convertible Preferred Stock will automatically be converted into units, consisting of an aggregate of 1,993,212 shares of Common Stock and 37,871 shares of the Company's Redeemable Preferred Stock. The Redeemable Preferred Stock will be redeemed by the Company upon completion of the Offering at a redemption price of $4,250,000 plus accrued dividends of approximately $150,000 thereon. See "Use of Proceeds." In connection with the Convertible Stock Offering, the Company entered into a Registration Rights Agreement with the purchasers of the Convertible Preferred Stock, granting to such purchasers certain demand and "piggy-back" registrations rights. See "Description of Capital Stock--Registration Rights." Whitney Equity Partners, L.P. and Boston Scientific purchased 1,829,065 and 117,247 shares (on a common equivalent basis), respectively, in the Convertible Stock Offering. Michael C. Brooks and Jeffrey R. Jay, M.D., each a Director of the Company, are each a General Partner of J.H. Whitney & Co., an affiliate of Whitney Equity Partners L.P. In connection with the foregoing transactions, in February 1996, the Company also entered into a Termination Agreement with its existing stockholders terminating a Stockholders Agreement dated as of April 30, 1987, as amended. Pursuant to the Termination Agreement, the Company granted certain "piggy-back" registration rights to existing stockholders. See "Description of Capital Stock--Registration Rights." In October 1995, C. Leonard Gordon, the Chairman of the Board of the Company, received a non-qualified option to purchase 184,210 shares of the Company's Common Stock at an exercise price of $2.15 per share. Of these options, (i) 105,263 vested immediately, (ii) 39,473 options will vest over three years commencing with the closing of the acquisition in February 1996 of InnerVentions; and (iii) 39,473 options will vest over three years commencing with the closing of the Convertible Stock Offering which occurred in February 1996. In May 1994, in connection with Mr. Gordon's efforts in negotiating the exclusive license agreement with Boston Scientific relating to the Company's stent technology, Mr. Gordon received (i) a non-qualified stock option to purchase 52,631 shares of the Company's Common Stock at an exercise price of $1.14 to vest one year from the date of issuance, and (ii) $100,000 paid from 5% of payments received by the Company under the exclusive license agreement with Boston Scientific. Mr. Gordon has entered into an oral arrangement with the Company whereby Mr. Gordon will provide certain executive services as are required by the Company and will be compensated for such services rendered in an amount not to exceed $135,000 per year. The services Mr. Gordon performs for the Company include serving as Chairman of the Board and consulting upon various aspects of the Company's business including certain contractual arrangements. The Company believes the terms of the arrangement are no less favorable to the Company than terms that it could have obtained from an unaffiliated third party. See Note 13 of Notes to the Consolidated Financial Statements. In April, 1987 the Company entered into a Technology Purchase Agreement with Morris Simon, M.D. pursuant to which the Company has agreed to pay to Dr. Simon certain royalty payments based on sales of products using the technology invented by Dr. Simon relating to the SNF. Dr. Simon assigned a percentage of his royalty payments to Beth Israel Hospital Association. See "Business-- Licensed Technology; Royalty Obligations." Dr. Simon has entered into an oral arrangement with the Company whereby Dr. Simon will provide consulting services as are required by the 48 Company and will be compensated for such services rendered in an amount not to exceed $100,000 per year. Pursuant to this arrangement, Dr. Simon serves as Scientific Director and provides related consulting services to the Company. The Company believes the terms of the arrangement are no less favorable to the Company than terms that it could have obtained from an unaffiliated third party. See Note 13 of Notes to the Consolidated Financial Statements. Pursuant to the Company's employment agreements with Messrs. Kleshinski and Harry, respectively, the Company has agreed to pay certain royalties to Messrs. Kleshinski and Harry based on sales or licenses of products where either Mr. Kleshinski or Dr. Harry, as the case may be, was the sole or joint inventor. See "Business--Licensed Technology; Royalty Obligations" and Note 8(d) of Notes to the Consolidated Financial Statements. 49 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of the Common Stock as of July 31, 1996 and as adjusted to reflect the sale by the Company of the Common Stock offered hereby, by (i) each executive officer and Director, (ii) all Directors and executive officers as a group and (iii) each person or group known to the Company to be the beneficial owner of more than 5% of the Common Stock. -------------------------
PERCENTAGE OF SHARES BENEFICIALLY OWNED(1)(2) SHARES BENEFICIALLY BEFORE AFTER NAME AND ADDRESS OF OWNED(1) OFFERING OFFERING BENEFICIAL OWNER (3) ------------ ------------ ------------ Whitney Equity Partners, L.P. 1,829,066 29.12% 20.36% c/o J.H. Whitney & Co. 177 Broad Street Stamford, CT 06901 C. Leonard Gordon (4) 689,062 10.60% 7.49% c/o Immunotherapy Inc. 360 Lexington Avenue New York, NY 10017 Fletcher Spaght, Inc. (5) 626,469 9.80% 6.89% 222 Berkeley Street Boston, MA 02116-3761 Jack Reinstein (6) 625,205 9.88% 6.92% 7779 Willow Glen Road Los Angeles, CA 90046 Morris Simon, M.D. (7) 91,006 1.43% 1.00% Michael C. Brooks (8) - - - c/o J.H. Whitney & Co. 177 Broad Street Stamford, CT 06901 Robert G. Brown (9) 96,826 1.53% 1.07% 217 Echo Drive Jupiter, FL 33458 R. John Fletcher (5) - - - c/o Fletcher Spaght, Inc. 222 Berkeley Street Boston, MA 02116-3761 Jeffrey R. Jay, M.D. (10) - - - c/o J.H. Whitney & Co. 177 Broad Street Stamford, CT 06901 David A. Chazanovitz (11) 17,908 * * Theodore I. Pincus (12) 20,100 * * Thomas M. Tully (13) 108,799 1.70% 1.20% All directors and executive 1,650,171 24.00% 17.23% officers of the Company as a group (9 persons) (14)
- ------- * Less than one percent. 50 (1) Except as indicated in the footnotes to this table, based on information provided by such persons, the persons named in the table above have sole voting and investment power with respect to all shares of Common Stock shown as beneficially owned by them. (2) Percentage of ownership before the Offering is based on 6,285,922 shares of Common Stock outstanding as of July 31, 1996 which includes the shares of Common Stock to be issued in the Conversion. For each person or group shares of Common Stock subject to stock options that are exercisable within 60 days of July 31, 1996 are deemed outstanding for computing the percentage of such person or group. (3) Except as otherwise indicated, the address of each beneficial owner is c/o Nitinol Medical Technologies, Inc., 263 Summer Street, Boston, MA 02210. (4) Mr. Gordon's shares are all owned jointly with his wife. Includes 128,655 options to purchase Common Stock at $2.15 per share; 65,788 options to purchase Common Stock at $1.14 per share, and 26,315 options to purchase Common Stock at $.76 per share. Mr. Gordon disclaims beneficial ownership in an aggregate of 237,870 shares owned by, or in trust for, his children and grandchildren. (5) An aggregate of 514,651 shares and 111,818 warrants to purchase Common Stock at $2.15 per share are held by Fletcher Spaght, Inc., of which Mr. Fletcher is the founder, Chief Executive Officer and a principal stockholder. Includes 28,489 warrants to purchase Common Stock at $2.15 per share which may be transferred to Mr. Chazanovitz under certain conditions pursuant to an agreement between Mr. Chazanovitz and Fletcher Spaght, Inc. Mr. Fletcher is a director of NMT. (6) Includes 8,041 options to purchase Common Stock at $2.15 per share; 13,157 options to purchase Common Stock at $1.14 per share, and 26,315 options to purchase Common Stock at $.76 per share and 104,008 shares owned by Synergistic Associates, Inc. Money Purchase Pension Plan of which Mr. Reinstein is sole trustee. Mr. Reinstein disclaims beneficial ownership of 190,316 shares owned by his children. (7) Includes 12,061 options to purchase Common Stock at $2.15 per share; 52,630 options to purchase Common Stock at $1.14 per share, and 26,315 options to purchase Common Stock at $.76 per share. Dr. Simon disclaims beneficial ownership of 655,327 shares owned by his wife and children. (8) Mr. Brooks is a General Partner of J.H. Whitney & Co., an affiliate of Whitney Equity Partners, L.P. Mr. Brooks disclaims beneficial ownership of the shares held by Whitney Equity Partners, L.P., except to the extent of his proportionate interest. (9) Includes 13,669 options to purchase Common Stock at $2.15 per share and 13,157 options at $1.14 per share. (10) Dr. Jay is a General Partner of J.H. Whitney & Co., an affiliate of Whitney Equity Partners, L.P. Dr. Jay disclaims beneficial ownership of the shares held by Whitney Equity Partners, L.P., except to the extent of his proportionate interest. (11) Represents 13,961 options to purchase Common Stock at $2.15 per share. Does not include 28,489 warrants to purchase Common Stock at $2.15 per share which may be transferred to Mr. Chazanovitz under certain conditions pursuant to an agreement between Mr. Chazanovitz and Fletcher Spaght, Inc. (12) Represents 20,100 options to purchase Common Stock at $2.15 per share. (13) Represents 95,862 options to purchase Common Stock at $2.15 per share and 12,937 options to purchase Common Stock at $6.95 per share. (14) Includes 12,937 options to purchase Common Stock at $6.95 per share; 396,126 options to purchase Common Stock at $2.15 per share; 131,575 options to purchase Common Stock at $1.14 per share and 52,630 options to purchase Common Stock at $.76 per share. 51 DESCRIPTION OF CAPITAL STOCK The authorized capital stock of the Company consists of 30,000,000 shares of Common Stock, $.001 par value, 3,800,000 shares of Convertible Preferred Stock, $.001 par value, 38,000 Redeemable Preferred Stock, $.001 par value and 3,000,000 shares of Preferred Stock, $.001 par value. COMMON STOCK As of July 31, 1996, there were 6,285,922 shares of Common Stock outstanding and held of record by approximately 74 stockholders. There will be 8,985,922 shares of Common Stock outstanding after giving effect to the sale of the shares of Common Stock offered hereby. Holders of Common Stock are entitled to one vote for each share held of record on all matters submitted to a vote of the stockholders, and stockholders have no right to cumulate their votes in the election of directors. Subject to preferences that may be applicable to any outstanding shares of preferred stock, holders of Common Stock are entitled to receive ratably such dividends as may be declared by the Board of Directors out of funds legally available therefor. In the event of a liquidation, dissolution or winding up of the Company, holders of Common Stock are entitled to share ratably in all assets remaining after payment of liabilities and liquidation preferences of any outstanding shares of preferred stock. Holders of Common Stock have no preemptive rights and no right to convert their Common Stock into any other securities. There are no redemption or sinking fund provisions applicable to the Common Stock. All outstanding shares of Common Stock are, and all shares of Common Stock to be outstanding upon completion of the Offering will be, fully paid and nonassessable. PREFERRED STOCK Upon the closing of the Offering, all outstanding shares of Convertible Preferred Stock of the Company will convert automatically into shares of Common Stock and Redeemable Preferred Stock, which shall be redeemed with a portion of the net proceeds of the Offering. See "Use of Proceeds." Accordingly, no shares of preferred stock will be outstanding immediately after the closing of the Offering. The Board of Directors has the authority, without further action by the stockholders, to issue shares 3,000,000 of preferred stock in one or more series and to fix the designations, powers (including voting powers, if any) preferences and relative participating, optional, conversion and other special rights, and the qualifications, limitations and restrictions to each series. This provision may be deemed to have a potential anti-takeover effect and the issuance of preferred stock in accordance with such provision may delay or prevent a change of control of the Company. In addition, although it presently has no intention to do so, the Board of Directors, without stockholder approval, could issue preferred stock with voting and conversion rights which could adversely affect the voting power of the holders of Common Stock. REGISTRATION RIGHTS In connection with the Convertible Stock Offering, the purchasers of the Convertible Preferred Stock were granted certain registration rights which pertain to the shares of Common Stock to be issued upon the Conversion. At any time after six months following the closing of the Offering, the Company is obligated to effect three demand registrations (subject to certain limitations) at the Company's expense upon the request of holders owning 25% or more of the aggregate number of shares of Common Stock into which shares of Convertible Preferred Stock have been converted. In addition, the Convertible Preferred Stock purchasers were granted "piggy-back" registration rights immediately (subject to certain limitations) at the Company's expense, as part of a registration of the Company's securities for its own account or the account of others. In addition, Junewicz & Co., Inc. and Furman Selz LLC, in connection with the Convertible Stock offering, were issued warrants as ("Private Placement Agent Warrants") to purchase 99,660 and 64,779 shares of Common Stock, respectively. The Private Placement Agent Warrants grant the holders thereof "piggy-back" registration rights as part of a registration of the Company's securities for its own account or the account of others which are exercisable at any time after the closing of the Offering. The holders of the Private Placement Agent Warrants have agreed not to dispose of such warrants for a period of 180 days after the date of this Prospectus. 52 Furthermore, whenever the Company proposes to register any of its securities under the Securities Act, either for its own account or the account of others, the Company is required each such time to notify Thomas M. Tully, the Company's President and Chief Executive Officer, Fletcher Spaght, Inc. and Lloyd A. Marks, M.D. and to include, at their request, therein their shares and shares transferred by them to and for the benefit of their family members or affiliates. The Company is required to bear the expenses of such "piggy-back" registration rights. Such rights are subject to the right of the underwriter(s) of the Offering to limit the number of shares being registered and other terms and conditions. The Company has also granted similar "piggy-back" registration rights to certain of its existing stockholders in consideration for their agreement to terminate their Shareholders Agreement with the Company. The existence of the registration rights described above may involve added costs and complexity in the event the Company desires to register shares of Common Stock in the future and could have an adverse effect on the market price of Common Stock. No shares of Common Stock are being registered on behalf of the Company's securityholders in connection with the Offering. LIMITATIONS ON LIABILITY OF OFFICERS AND DIRECTORS The Company's Amended and Restated Certificate of Incorporation and Amended and Restated Bylaws provide broadly for indemnification of the officers and directors of the Company. In addition, the Amended and Restated Certificate of Incorporation provides that, to the fullest extent permitted by Delaware law, no director shall be personally liable to the Company or its stockholders for monetary damages for any breach of fiduciary duty by such director in his capacity as a director. DELAWARE ANTI-TAKEOVER STATUTE The Company is subject to the provisions of Section 203 of the Delaware General Corporation Law. In general, the statute prohibits a publicly-held Delaware corporation from engaging in a "business combination" with an "interested stockholder" for a period of three years after the date that the person became an interested stockholder unless (with certain exceptions) the business combination or the transaction in which the person became an interested stockholder is approved in a prescribed manner. Generally, a "business combination" includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the stockholder. Generally, an "interested stockholder" is a person who, together with affiliates and associates, owns or (within three years prior, did own) 15% or more of the corporation's voting stock. TRANSFER AGENT AND REGISTRAR American Stock Transfer and Trust Company will act as transfer agent and registrar for the Common Stock. 53 SHARES ELIGIBLE FOR FUTURE SALE Upon completion of the Offering, the Company will have a total of 8,985,922 shares of Common Stock outstanding (9,390,922 shares if the Underwriters' over- allotment option is exercised in full). Of these shares, the 2,700,000 shares of Common Stock offered hereby (3,105,000 shares if the Underwriters' over- allotment option is exercised in full) will be freely tradable without restriction or registration under the Securities Act, by persons other than affiliates of the Company. The remaining 6,285,922 shares of Common Stock outstanding are "restricted shares" as that term is defined by Rule 144 promulgated under the Securities Act. Under Rule 144 (and subject to the conditions thereof) approximately 3,605,691 shares of the restricted shares will become eligible for sale upon completion of the Offering. The Company's officers and directors and certain other stockholders of the Company (who in the aggregate will hold 6,248,499 shares of the restricted securities upon completion of the Offering) have agreed to enter into lock-up agreements which provide that they will not directly or indirectly, offer, sell, offer to sell, grant any option to purchase or otherwise sell or dispose of any shares of Common Stock or other capital stock of the Company, or any securities convertible into, exercisable, or exchangeable for, any shares of Common Stock or other capital stock of the Company without the prior written consent of J.P. Morgan Securities, Inc. on behalf of the Underwriters, for a period of 180 days from the date of this Prospectus, subject to certain limited exceptions. See "Underwriting." As of July 31, 1996, options to purchase a total of 1,701,390 shares of Common Stock were outstanding with a weighted average exercise price of $2.50 per share, of which options to purchase 700,846 shares of Common Stock were exercisable. In addition, as of such date, an additional 15,000 shares of Common Stock were available for future option grants under the 1994 Plan. In June 1996, the Company adopted, subject to stockholder approval, the 1996 Plan and the 1996 Directors' Stock Plan, which include 600,000 and 150,000 shares available for future option grants, respectively. No options have been granted under the 1996 Plan. Upon adoption of the 1996 Directors' Stock Plan, options to purchase 10,000 shares of Common Stock at the initial public offering price per share will be granted to four nonemployee directors, subject to stockholder approval of the plan. As of July 31, 1996, Common Stock purchase warrants to purchase a total of 281,520 shares of Common Stock were outstanding with a weighted average price of $3.34 per share. The Company's officers, directors and certain other stockholders of the Company holding an aggregate of 1,350,587 shares issuable upon the exercise of options and warrants have agreed to enter into lock-up agreements. Rule 701 under the Securities Act provides that, beginning 90 days after the date of this Prospectus, shares of Common Stock acquired on the exercise of outstanding options may be resold subject to certain provisions of Rule 144. The Company intends to file registration statements under the Securities Act to register shares of Common Stock included in its option plans, shares of Common Stock subject to outstanding stock options granted outside of such plans and shares of Common Stock issuable upon the exercise of certain warrants. See "Description of Capital Stock-- Registration Rights." 54 UNDERWRITING The Underwriters named below (the "Underwriters"), for whom J.P. Morgan Securities Inc., CS First Boston Corporation and Jefferies & Company, Inc. are acting as representatives (the "Representatives"), have severally agreed, subject to the terms and conditions set forth in the underwriting agreement among the Company and the Representatives (the "Underwriting Agreement"), to purchase from the Company, and the Company has agreed to sell to the Underwriters, the respective number of shares of Common Stock set forth opposite their names below: ----------
NUMBER OF SHARES UNDERWRITERS ---------------- J.P. Morgan Securities Inc. ................................... CS First Boston Corporation.................................... Jefferies & Company, Inc. ..................................... --------- Total........................................................ 2,700,000 =========
The nature of the Underwriters' obligations under the Underwriting Agreement is such that all of the Common Stock being offered, excluding shares covered by the over-allotment option granted to the Underwriters, must be purchased if any are purchased. The Representatives have advised the Company that the several Underwriters propose to offer the Common Stock to the public initially at the public offering price set forth on the cover page of this Prospectus and may offer the Common Stock to selected dealers at such price less a concession not to exceed $ per share. The Underwriters may allow, and such dealers may reallow, a concession to other dealers not in excess of $ per share. After the public offering of the Common Stock, the public offering price and other selling terms may be changed by the Representatives. The Company has granted the Underwriters an option, exercisable within 30 days after the date of this Prospectus, to purchase up to an additional 405,000 shares of Common Stock from the Company at the same price per share to be paid by the Underwriters for the other shares offered hereby. If the Underwriters purchase such additional shares pursuant to the option, each of the Underwriters will be committed to purchase such additional shares in approximately the same proportion as set forth in the above table. The Underwriters may exercise the option only to cover over-allotments, if any, made in connection with the distribution of Common Stock offered hereby. Prior to the Offering, there has been no public market for the Common Stock. The initial public offering price has been determined by negotiations between the Company and the Representatives. Among the factors considered in determining the initial offering price include the prevailing market conditions, the market valuations of certain publicly traded companies, revenue and earnings of the Company and comparable companies in recent periods, estimates of the business potential and prospects of the Company, the experience of the Company's management and the position of the Company in its industry. The Representatives have advised the Company that they do not expect sales to accounts over which they exercise discretionary authority will exceed 5% of the shares of Common Stock offered hereby. The Company and its directors and executive officers and certain stockholders have agreed not to offer, sell or otherwise dispose of, any Common Stock or any securities convertible into Common Stock or register for sale under the Securities Act any Common Stock, for a period of 180 days after the date of this Prospectus without the prior written consent of J.P. Morgan Securities Inc., subject to certain limited exceptions. See "Shares Eligible for Future Sale." The Company has agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make in respect thereof. 55 LEGAL MATTERS The validity of the shares of Common Stock offered hereby will be passed upon for the Company by Squadron, Ellenoff, Plesent & Sheinfeld, LLP, New York, New York. The Underwriters have been represented by Cravath, Swaine & Moore, New York, New York. EXPERTS The Consolidated Financial Statements of the Company included in this Prospectus and elsewhere in the Registration Statement have been audited by Arthur Andersen LLP, independent public accountants, as stated in their report with respect thereto, and are included herein in reliance upon the authority of said firm as experts in giving said reports. The statements in the Prospectus under the captions "Risk Factors--Dependence on Patents and Proprietary Technology," "Business--Patents and Proprietary Technology," "Business--Licensed Technology; Royalty Obligations" and other references herein to intellectual property have been reviewed and approved by Sixbey, Friedman, Leedom & Ferguson, patent counsel for the Company, as experts on such matters and are included herein in reliance upon that review and approval. ADDITIONAL INFORMATION The Company has filed with the Securities and Exchange Commission (the "Commission"), a Registration Statement on Form S-1 (together with all amendments, exhibits, schedules and supplements thereto, the "Registration Statement") under the Securities Act with respect to the shares of Common Stock being offered hereby. This Prospectus, which forms a part of the Registration Statement, does not contain all of the information set forth in the Registration Statement. For further information with respect to the Company and the shares of Common Stock offered hereby, reference is made to the Registration Statement. Statements contained in this Prospectus as to the contents of any contract or other document are not necessarily complete and, where such contract or other document is an exhibit to the Registration Statement, each such statement is qualified in all respects by the provisions in such exhibit, to which reference is hereby made. Copies of the Registration Statement may be examined without charge at the Public Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549 and the Commission's Regional Offices located at Seven World Trade Center, New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of all or any portion of the Registration Statement can be obtained from the Public Reference Section of the Commission, 450 Fifth Street, N.W., Washington, D.C., 20549, upon payment of certain fees prescribed by the Commission. The Commission maintains a World Wide Web site on the Internet at http://www.sec.gov that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission. 56 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Report of Independent Public Accountants F-2 Consolidated Balance Sheets as of December 31, 1994 and 1995, June 30, 1996 (Unaudited) and Pro forma June 30, 1996 (Unaudited) F-3 Consolidated Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for the Six Months Ended June 30, 1995 and 1996 (Unaudited) F-4 Consolidated Statements of Stockholders' Equity (Deficit) for the Years Ended December 31, 1993, 1994 and 1995, and for the Six Months Ended June 30, 1996 (Unaudited) F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995 and for the Six Months Ended June 30, 1995 and 1996 (Unaudited) F-6 Notes to Consolidated Financial Statements F-7
F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Nitinol Medical Technologies, Inc.: We have audited the accompanying consolidated balance sheets of Nitinol Medical Technologies, Inc. (a Delaware corporation) and subsidiary as of December 31, 1994 and 1995, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Nitinol Medical Technologies, Inc. and subsidiary as of December 31, 1994 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Arthur Andersen LLP Boston, Massachusetts March 21, 1996 (except with respect to the matters dis- cussed in Note 9, as to which the date is July 9, 1996) F-2 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS -------------------------------------------------
PRO FORMA AT DECEMBER 31, AT JUNE 30, JUNE 30, 1994 1995 1996 1996 ----------- ---------- ----------- ----------- (UNAUDITED) (UNAUDITED) ASSETS Current assets: Cash and cash equivalents $ 715,400 $ 533,247 $ 5,717,968 $ 5,717,968 Accounts receivable 84,796 323,217 605,505 605,505 Inventories 151,114 208,061 349,150 349,150 Prepaid expenses 10,814 20,326 97,839 97,839 Deferred tax asset -- 143,000 143,000 143,000 ----------- ---------- ----------- ----------- Total current assets 962,124 1,227,851 6,913,462 6,913,462 ----------- ---------- ----------- ----------- Property and equipment, at cost: Laboratory and computer equipment 337,135 393,171 845,976 845,976 Leasehold improvements 12,987 124,461 279,030 279,030 Office furniture and equipment 42,419 76,030 81,438 81,438 ----------- ---------- ----------- ----------- 392,541 593,662 1,206,444 1,206,444 Less--Accumulated depreciation and amortization 128,388 208,777 354,005 354,005 ----------- ---------- ----------- ----------- 264,153 384,885 852,439 852,439 ----------- ---------- ----------- ----------- Other assets 27,008 48,014 221,965 221,965 ----------- ---------- ----------- ----------- $ 1,253,285 $1,660,750 $ 7,987,866 $ 7,987,866 =========== ========== =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities: Accounts payable $ 119,470 $ 498,816 $ 554,995 $ 554,995 Accrued expenses 295,506 215,983 131,447 131,447 Distribution payable to stockholders -- 100,000 -- -- Current portion of capital lease obligation -- -- 6,707 6,707 Current portion of subordinated debt 2,500 309,356 -- -- Current portion of loan from distributor 477,120 780,830 398,830 398,830 Current portion of deferred revenue -- 600,000 512,876 512,876 ----------- ---------- ----------- ----------- Total current liabilities 894,596 2,504,985 1,604,855 1,604,855 ----------- ---------- ----------- ----------- Preferred stock redemption liability -- -- -- 4,325,556 ----------- ---------- ----------- ----------- Capital lease obligation, net of current portion -- -- 28,899 28,899 ----------- ---------- ----------- ----------- Loan from distributor, net of current portion 780,830 -- -- -- ----------- ---------- ----------- ----------- Deferred revenue, net of current portion 600,000 -- -- -- ----------- ---------- ----------- ----------- Subordinated debt, net of current portion 309,356 -- -- -- ----------- ---------- ----------- ----------- Commitments and contingencies (Note 8) Redemption value of preferred stock -- -- 4,325,556 -- ----------- ---------- ----------- ----------- Stockholders' equity (deficit): Preferred stock, $.001 par value-- Authorized--3,000,000 shares Issued and outstanding-- none -- -- -- -- Convertible preferred stock, $.001 par value-- Authorized--3,800,000 shares Issued and outstanding-- 3,787,104 shares at June 30, 1996, actual, no shares pro forma (preference in liquidation of $8,500,000 at June 30, 1996) -- -- 3,787 -- Common stock, $.001 par value-- Authorized--30,000,000 shares Issued and outstanding-- 3,758,322, 3,774,112, 4,292,710 and 6,285,922 shares at December 31, 1994 and 1995, June 30, 1996 and June 30, 1996 pro forma, respectively 3,759 3,775 4,294 6,287 Paid-in capital 263,247 -- 4,305,768 4,307,562 Accumulated deficit (1,598,503) (848,010) (2,285,293) (2,285,293) ----------- ---------- ----------- ----------- Total stockholders' equity (deficit) (1,331,497) (844,235) 2,028,556 2,028,556 ----------- ---------- ----------- ----------- $ 1,253,285 $1,660,750 $ 7,987,866 $ 7,987,866 =========== ========== =========== ===========
The accompanying Notes are an integral part of these Consolidated Financial Statements. F-3 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF OPERATIONS ---------------------------------------------
FOR THE SIX MONTHS FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30, 1993 1994 1995 1995 1996 ---------- ---------- ---------- ---------- ----------- (UNAUDITED) Revenues: Product sales $2,003,313 $1,836,931 $2,716,022 $1,302,600 $ 1,998,777 License fees -- 772,500 625,000 -- 625,000 Product development -- 38,051 491,857 268,915 79,027 ---------- ---------- ---------- ---------- ----------- 2,003,313 2,647,482 3,832,879 1,571,515 2,702,804 ---------- ---------- ---------- ---------- ----------- Expenses: Cost of product sales 654,944 812,204 1,263,951 545,987 924,013 Research and develop- ment 272,248 554,530 870,588 365,910 1,163,037 General and adminis- trative 467,981 770,175 871,469 278,711 939,971 Selling and marketing 285,272 182,377 169,308 65,189 103,278 In-process research and development -- -- -- -- 1,111,134 ---------- ---------- ---------- ---------- ----------- 1,680,445 2,319,286 3,175,316 1,255,797 4,241,433 ---------- ---------- ---------- ---------- ----------- Income (loss) from operations 322,868 328,196 657,563 315,718 (1,538,629) ---------- ---------- ---------- ---------- ----------- Interest expense (74,339) (52,838) (37,629) (16,552) (25,720) Interest income 12,144 14,003 8,328 5,616 127,066 ---------- ---------- ---------- ---------- ----------- (62,195) (38,835) (29,301) (10,936) 101,346 ---------- ---------- ---------- ---------- ----------- Income (loss) before provision for income taxes 260,673 289,361 628,262 304,782 (1,437,283) Provision for income taxes -- -- 44,000 -- -- ---------- ---------- ---------- ---------- ----------- Net income (loss) $ 260,673 $ 289,361 $ 584,262 $ 304,782 $(1,437,283) ========== ========== ========== ========== =========== Net income (loss) per common and common equivalent share $ .04 $ .04 $ .08 $ .04 $ (.21) ========== ========== ========== ========== =========== Weighted average common and common equivalent shares outstanding 6,678,065 6,855,549 6,984,924 6,984,461 6,846,013 ========== ========== ========== ========== ===========
The accompanying Notes are an integral part of these Consolidated Financial Statements. F-4 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) --------------------------------------------------------
CONVERTIBLE TOTAL PREFERRED STOCK COMMON STOCK STOCKHOLDERS' NUMBER $.001 NUMBER $.001 PAID-IN ACCUMULATED EQUITY OF SHARES PAR VALUE OF SHARES PAR VALUE CAPITAL DEFICIT (DEFICIT) --------- --------- --------- --------- ---------- ----------- ------------- Balance, January 1, 1993 -- $ -- 3,562,006 $3,562 $ 188,434 $(1,648,537) $(1,456,541) Exercise of common stock options -- -- 43,685 44 5,966 -- 6,010 Net income -- -- -- -- -- 260,673 260,673 --------- ------ --------- ------ ---------- ----------- ----------- Balance, December 31, 1993 -- -- 3,605,691 3,606 194,400 (1,387,864) (1,189,858) Exercise of common stock options -- -- 152,631 153 68,847 -- 69,000 Distributions to stockholders ($.13 per share) -- -- -- -- -- (500,000) (500,000) Net income -- -- -- -- -- 289,361 289,361 --------- ------ --------- ------ ---------- ----------- ----------- Balance, December 31, 1994 -- -- 3,758,322 3,759 263,247 (1,598,503) (1,331,497) Exercise of common stock options -- -- 15,790 16 2,984 -- 3,000 Distributions to stockholders ($.03 per share) -- -- -- -- -- (100,000) (100,000) Reclassification of S Corporation losses to the extent of addi- tional paid-in capi- tal -- -- -- -- (266,231) 266,231 -- Net income -- -- -- -- -- 584,262 584,262 --------- ------ --------- ------ ---------- ----------- ----------- Balance, December 31, 1995 -- -- 3,774,112 3,775 -- (848,010) (844,235) Issuance of convertible preferred stock, net of issuance costs of approximately $989,000 (Unaudited) 3,787,104 3,787 -- -- 3,257,211 -- 3,260,998 Common stock issued in connection with the purchase of technology and other assets (Unaudited) -- -- 514,651 515 1,104,442 -- 1,104,957 Exercise of common stock options (Unaudited) -- -- 3,947 4 8,471 -- 8,475 Warrant grant in exchange for license (Unaudited) -- -- -- -- 11,200 -- 11,200 Accretion of convertible preferred stock dividends (Unaudited) -- -- -- -- (75,556) -- (75,556) Net loss (Unaudited) -- -- -- -- -- (1,437,283) (1,437,283) --------- ------ --------- ------ ---------- ----------- ----------- Balance, June 30, 1996 (Unaudited) 3,787,104 $3,787 4,292,710 $4,294 $4,305,768 $(2,285,293) $ 2,028,556 ========= ====== ========= ====== ========== =========== ===========
The accompanying Notes are an integral part of these Consolidated Financial Statements. F-5 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS -----------------------------------
FOR THE SIX MONTHS FOR THE YEARS ENDED DECEMBER 31, ENDED JUNE 30, 1993 1994 1995 1995 1996 ---------- ----------- ---------- --------- ----------- (UNAUDITED) Cash flows from operating activities: Net income (loss) $ 260,673 $ 289,361 $ 584,262 $ 304,782 $(1,437,283) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities-- Depreciation and amortization 45,413 55,825 88,895 39,443 143,812 Deferred tax asset -- -- (143,000) -- -- Common stock issued for in-process research and development -- -- -- -- 806,174 Warrant grant in exchange for license -- -- -- -- 11,200 Changes in assets and liabilities-- Accounts receivable 328,804 (8,308) (238,421) (166,547) (282,288) Inventories 154,519 12,386 (56,947) 15,168 (141,089) Prepaid expenses (4,019) 2,086 (9,512) (10,280) (77,513) Accounts payable (69,997) 24,171 379,347 23,151 56,179 Accrued expenses (67,895) 190,121 (79,523) (173,661) (84,536) Deferred revenue -- 600,000 -- -- (87,124) ---------- ----------- ---------- --------- ----------- Net cash provided by (used in) operating activities 647,498 1,165,642 525,101 32,056 (1,092,468) ---------- ----------- ---------- --------- ----------- Cash flows from investing activities: Purchases of property and equipment (30,564) (104,049) (201,121) (176,156) (275,394) (Increase) decrease in other assets -- 12,100 (29,513) (6,937) (175,534) ---------- ----------- ---------- --------- ----------- Net cash used in investing activities (30,564) (91,949) (230,634) (183,093) (450,928) ---------- ----------- ---------- --------- ----------- Cash flows from financing activities: Payments of subordinated debt (183,858) (329,161) (2,500) (2,500) (309,356) Payments of loan from distributor -- (242,050) (477,120) (284,820) (382,000) Proceeds from issuance of convertible preferred stock, net -- -- -- -- 7,510,998 Proceeds from issuance of common stock 6,010 69,000 3,000 -- 8,475 Distributions to stockholders -- (500,000) -- -- (100,000) ---------- ----------- ---------- --------- ----------- Net cash provided by (used in) financing activities (177,848) (1,002,211) (476,620) (287,320) 6,728,117 ---------- ----------- ---------- --------- ----------- Net increase (decrease) in cash and cash equivalents 439,086 71,482 (182,153) (438,357) 5,184,721 Cash and cash equivalents, beginning of period 204,832 643,918 715,400 715,400 533,247 ---------- ----------- ---------- --------- ----------- Cash and cash equivalents, end of period $ 643,918 $ 715,400 $ 533,247 $ 277,043 $ 5,717,968 ========== =========== ========== ========= =========== Supplemental disclosure of cash flow information: Cash paid during the period for-- Interest $ 78,885 $ 52,838 $ 39,814 $ 19,099 $ 11,840 ========== =========== ========== ========= =========== Taxes $ 3,157 $ 1,862 $ 2,135 $ -- $ -- ========== =========== ========== ========= =========== Supplemental disclosure of non-cash investing and financing transactions: Equipment acquired under capital lease obligation $ -- $ -- $ -- $ -- $ 35,606 ========== =========== ========== ========= =========== Accretion of dividends on convertible preferred stock $ -- $ -- $ -- $ -- $ 75,556 ========== =========== ========== ========= =========== Common stock issued for in-process research and development $ -- $ -- $ -- $ -- $ 806,174 ========== =========== ========== ========= =========== Common stock issued for property and equipment $ -- $ -- $ -- $ -- $ 298,783 ========== =========== ========== ========= ===========
The accompanying Notes are an integral part of these Consolidated Financial Statements. F-6 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (1) OPERATIONS Nitinol Medical Technologies, Inc. (NMT or the Company) designs, develops and markets innovative medical devices that utilize advanced materials 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. At this time, the Company's stents are in European clinical trials for certain indications, its vena cava filters are marketed in the United States and abroad, and the Company is completing the development of its septal repair device. The Company is subject to a number of risks similar to those of other companies in this stage of development, including uncertainties regarding the development of commercially viable products, competition from alternative procedures and larger companies, dependence on key personnel, government regulation and the ability to obtain adequate financing to fund product development. See "Risk Factors" on pages 6-12 of this Prospectus. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (a) Principles of Consolidation The accompanying Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiary. All intercompany transactions and balances have been eliminated in consolidation. (b) Management Estimates The preparation of accrual based financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. (c) Interim Financial Statements The accompanying Consolidated Financial Statements as of June 30, 1996 and for the six months ended June 30, 1995 and 1996 are unaudited. In management's opinion, these unaudited Consolidated Financial Statements have been prepared on the same basis as the audited Consolidated Financial Statements and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for such periods. The unaudited results for the six months ended June 30, 1996 are not necessarily indicative of the results expected for the fiscal year ending December 31, 1996. (d) Cash and Cash Equivalents The Company considers all investments with maturities of 90 days or less from the date of purchase to be cash equivalents. At June 30, 1996, cash equivalents consist of money market accounts, commercial paper and short- term mutual funds that invest in U.S. government obligations. In accordance with Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, the Company considers its cash equivalents, which are carried at market and approximate cost, as available-for-sale. (e) Inventories Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following: -----------------------
AT DECEMBER 31, JUNE 30, 1994 1995 1996 -------- -------- -------- Components $ 96,817 $178,366 $291,772 Finished goods 54,297 29,695 57,378 -------- -------- -------- $151,114 $208,061 $349,150 ======== ======== ========
Finished goods consist of materials, labor and manufacturing overhead. F-7 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (f) Financial Instruments The estimated fair value of the Company's financial instruments, which include cash and cash equivalents, accounts receivable and debt, approximates their reported amounts. (g) Concentration of Credit Risk SFAS No. 105, Disclosure of Information About Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments with Concentration of Credit Risk, requires disclosure of any significant off-balance-sheet and credit risk concentrations. Financial instruments that subject the Company to credit risk consist primarily of trade accounts receivable. The Company utilizes primarily one distributor for the sales of its filter products. This distributor had amounts due to the Company of approximately $162,000, $267,000 and $584,000 as of December 31, 1994 and 1995 and June 30, 1996, respectively. This distributor accounted for 83%, 93%, 95%, 94% and 96% of product revenues for fiscal 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996, respectively. (h) Depreciation and Amortization The Company provides for depreciation and amortization by charges to operations using the straight-line method, which allocates the cost of property and equipment over the following estimated useful lives: ---------
ESTIMATED USEFUL LIFE ASSET CLASSIFICATION ------------- Laboratory and computer equipment 5-7 Years Leasehold improvements Life of Lease Office furniture and equipment 3-10 Years
(i) Revenue Recognition The Company records product sales upon shipment as products sold to the Company's primary distributor are not subject to a right of return for unsold product. License fees and product development revenue are recognized as earned. The Company expects to recognize $500,000 of license fees, which are currently recorded as deferred revenue, when the 24-month refund period expires in November 1996 (see Note 6). (j) Net Income (Loss) per Common and Common Equivalent Share Net income (loss) per common and common equivalent share is based on the weighted-average number of shares of common stock and common stock equivalents outstanding during the respective periods. All shares of capital stock, options and warrants issued during the 12 months immediately preceding the anticipated initial public offering were treated as if they had been outstanding for all periods, in accordance with the Securities and Exchange Commission rules and regulations, calculated under the treasury-stock method and based on the estimated initial public offering share price appearing on the cover of this Prospectus. Pro forma net income (loss) per common and common equivalent share has not been presented as the results are not materially different from historical net income (loss) per common and common equivalent share. F-8 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (k) Postretirement Benefits The Company has no material obligations for postretirement benefits. (l) Unaudited Pro Forma Presentation The unaudited pro forma consolidated balance sheet as of June 30, 1996 re- flects the following events, which will occur upon the closing of the Company's proposed initial public offering: (i) the automatic conversion of all outstanding convertible preferred stock into 1,993,212 shares of common stock and 37,371 shares of redeemable preferred stock and (ii) the reclassification of the redemption value of preferred stock to redeemable preferred stock liquidation liability as the redeemable preferred stock will be redeemed utilizing proceeds of the Company's proposed initial pub- lic offering. (3) PURCHASE OF TECHNOLOGY AND OTHER ASSETS In February 1996, the Company issued 514,651 shares of its common stock and warrants to purchase 111,818 shares of common stock at $2.15 per share for the purchase of certain technology and related fixed assets. The Company has valued the common stock issued in this transaction at $2.15 per share, which represents the fair value as determined by its Board of Directors and supported by an appraisal. The Company is required to pay certain future royalties as defined in the agreement. The acquired technology relates to a septal repair device for which the Company expects to conduct human clinical trials. At the time of the acquisition, it was determined that the commercial feasibility of the purchased technology was uncertain, and accordingly, the Company charged the amount of the purchase price allocated to the technology to operations as in-process research and development. The amount allocated to laboratory and computer equipment represents the estimated fair value at the date of acquisition of the acquired laboratory and computer equipment which have alternative future uses. The aggregate purchase price and acquisition costs incurred of $1,409,917 were allocated as follows: ------- Laboratory and computer equipment $ 298,783 In-process research and development 1,111,134 ---------- $1,409,917 ==========
(4) INCOME TAXES The Company uses the liability method to account for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Prior to October 19, 1995, the Company elected to be taxed as an S corporation for federal and state income tax purposes. Accordingly, the accompanying Consolidated Financial Statements do not include a provision for income taxes for 1993, 1994 and the first 10 1/2 months of 1995. The provision for income taxes in the accompanying consolidated statement of operations for the period from October 19, 1995 to December 31, 1995 consists of the following: ----- Federal $ -- State (current) 44,000 ------- $44,000 =======
The accompanying consolidated statements of operations do not contain a pro forma income tax adjustment for periods prior to the termination of the S corporation election. If the election to be treated as an S corporation was not made, the Company would have been subject to federal and state corporate income taxes. However, the Company would have had sufficient net operating loss carryforwards to offset income in all periods presented. F-9 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) The approximate income tax effect of each temporary difference constituting the deferred tax asset in the accompanying consolidated balance sheets is as follows:
--------------------- DECEMBER 31, JUNE 30, 1995 1996 ------------ -------- Deferred tax assets: Deferred revenue $200,000 $200,000 Reserves and nondeductible accruals 17,000 17,000 -------- -------- 217,000 217,000 -------- -------- Deferred tax liabilities: Depreciation (74,000) (74,000) -------- -------- Net deferred tax asset $143,000 $143,000 ======== ========
(5) LOAN FROM DISTRIBUTOR The Company has an exclusive distribution agreement with an unrelated third party to provide for the sale and distribution of the Simon Nitinol Filter (SNF). In connection with this agreement, the Company received a loan of $1,500,000 from the distributor in 1992. The agreement calls for the repayment of this loan by the Company through certain minimum purchases of the SNF by the distributor, as defined in the agreement. In the event that the loan is not fully repaid upon expiration or termination of the agreement, the amount outstanding becomes due and payable in monthly installments. Based on projected sales levels for 1996, the Company expects that the amount outstanding under the loan agreement at December 31, 1995 and June 30, 1996 will be repaid in full in 1996. Accordingly, the total outstanding amount has been classified as current in the accompanying consolidated balance sheets as of December 31, 1995 and June 30, 1996. (6) DEFERRED REVENUE On November 22, 1994, the Company licensed exclusive, worldwide rights, including the right to sublicense to others, to develop, produce and market its stent technology to an unrelated third party (the Licensee). In connection with the signing of the license agreement, the Company received $500,000 in consideration for the license granted and an additional $500,000 upon issuance of the United States patent for a specific stent. The Company may be required to refund varying amounts of such payments based on the occurrence of certain events, as defined in the license agreement. To date, no such event has occurred. The Company deferred recognition as revenue of amounts that may be subject to refund until the expiration of the refund period. The final refund period expires in November 1996. The Company also received $272,500 from the Licensee in 1994 which is nonrefundable and is to be credited against future license fees payable to the Company, as defined. This amount is included in license fees in the accompanying consolidated statements of operations in 1994. During 1995 and the six months ended June 30, 1996, the Company received additional nonrefundable license fees upon the achievement of certain milestones, as defined in the license agreement. In 1994, the Company also received a $100,000 advance from the Licensee under a product development program for the reimbursement of costs the Company incurred related to the activities of product development, registration and transfer of technology to the Licensee. For the years ended December 31, 1994 and 1995 and for the six months ended June 30, 1995 and 1996, the Company received $38,051, $491,857, $268,915 and $79,027, respectively, of reimbursements for development program costs. These reimbursed amounts are included in revenues in the accompanying consolidated statements of operations. F-10 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (7) DEBT Subordinated debt consists of the following: ---------------
DECEMBER 31, 1994 1995 -------- -------- Subordinated unsecured debt to various stockholders, principal due in annual installments of $95,000 through July 1997, bearing interest at 10% $190,000 $190,000 Subordinated unsecured debt to various stockholders, principal due in annual installments of $25,000 through July 1997, bearing interest at 10% 50,000 50,000 Subordinated unsecured debt to various stockholders, principal due in annual installments of $18,750 through July 1998, bearing interest at 10% 56,250 56,250 Deferred interest due to various stockholders and a related party and associated pension plan, principal due in annual installments of $6,553 through July 1997, bearing interest at 10% 13,106 13,106 Other 2,500 -- -------- -------- 311,856 309,356 Less--Current portion 2,500 309,356 -------- -------- $309,356 $ -- ======== ========
The Company repaid all outstanding subordinated debt in April 1996. (8) COMMITMENTS AND CONTINGENCIES (a) Manufacturing Agreement The Company contracts with an unrelated third party for the manufacture of certain products. Under the amended agreement, the Company is required to purchase minimum unit quantities through June 2001. The aggregate minimum purchases under the agreement are approximately $2,600,000. In addition, in the event of an order cancellation or product conversion, the Company has agreed to purchase all in-process materials and all special materials purchased by the manufacturer for use in the production of these products, limited to purchase orders through 180 days after cancellation. (b) Operating Leases The Company has entered into operating leases for office and laboratory space. These leases expire through 2005. The leases for office space require payment for all related operating expenses of the building, including real estate taxes and utilities. F-11 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) Future minimum rental payments due under operating lease agreements as of March 31, 1996 are approximately as follows: --------
AMOUNT YEAR ENDED ---------- 1996 $ 318,000 1997 468,000 1998 468,000 1999 468,000 2000 468,000 Thereafter 2,981,000 ---------- $5,171,000 ==========
Rent expense for the years ended December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 amounted to approximately $87,000, $84,000, $103,000, $32,000 and $70,000, respectively. In connection with its facility lease, the Company entered into a construction agreement whereby the Company is required to provide approximately $900,000, beginning in June 1996, related to improvements of the facility. (c) Profit Sharing Prior to 1995, the Company had entered into a distribution agreement with a distributor which provided for an annual profit sharing payment (not to exceed a specified aggregate amount) based on income before provision for income taxes, as defined in the agreement. In 1995, the Company terminated this agreement through a payment of $100,000 to the distributor. This payment was charged to operations and is included in the accompanying consolidated statements of operations. (d) Royalties The Company has entered into various agreements that require payment of royalties to be paid based on specified percentages of future sales, as defined (see Notes 3 and 12). In addition, the Company has agreed to pay royalties to certain employees based on sales or licenses of products where they were the sole or joint inventor. Future minimum commitments under these agreements are approximately $15,000 per year. Royalty expense under royalty agreements was $56,000, $66,000, $64,000, $38,000 and $57,000 for the years December 31, 1993, 1994, 1995 and for the six months ended June 30, 1995 and 1996, respectively. (9) COMMON STOCK (a) Authorized Common Stock On July 9, 1996, the Company increased the number of authorized shares of common stock from 10,000,000 to 30,000,000. (b) Stock Split On July 9, 1996, the Company effected a 1-for-1.9 reverse stock split of its common stock. Accordingly, all share and per share amounts of common stock have been retroactively restated for all periods presented to reflect the reverse stock split. F-12 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (10) PREFERRED STOCK In February 1996, the Board of Directors authorized 3,800,000 shares of convertible preferred stock and 38,000 shares of redeemable preferred stock. The Company then sold 3,787,104 shares of preferred stock at $2.24 per share, resulting in net proceeds to the Company of approximately $7,500,000. The Company has recorded the redemption value of the convertible preferred stock outside of stockholder's equity (deficit) as of June 30, 1996. On July 9, 1996 the Company authorized 3,000,000 shares of undesignated preferred stock. (a) Convertible Preferred Stock The convertible preferred stockholders maintain the following rights and privileges. Voting. The convertible preferred stockholders are entitled to vote with the common stockholders based on the number of votes that they would receive upon conversion. Conversion. The convertible preferred stockholders may convert their preferred stock at any time. Each share of convertible preferred stock is convertible into one conversion unit. A conversion unit consists of (i) 1/1.9 share of common stock, subject to certain antidilution adjustments and (ii) one one-hundredth share of redeemable preferred stock. The convertible preferred stock automatically converts into an equal number of conversion units upon an initial public offering resulting in gross proceeds to the Company of at least $22,000,000 and a minimum price of $12.77 per share or a sale of the Company resulting in gross proceeds to the stockholders of at least $100,000,000. Liquidation. In the event of liquidation, dissolution or winding up of the Company, the holders of the convertible preferred stock are entitled to an amount equal to the greater of (i) the liquidation preference, $2.24 per share at March 31, 1996, plus any accrued and unpaid dividends or (ii) the amount the holders of convertible preferred stock would be entitled to receive if all shares of convertible preferred stock had been converted immediately prior to any liquidation, dissolution or winding up. Dividends. The holders of the convertible preferred stock shall be entitled to receive dividends if and when declared by the Board of Directors. Dividends payable on the convertible preferred stock shall begin to accrue in May 1996 at an annual rate equal to 8% based on the liquidation preference described above. (b) Redeemable Preferred Stock The redeemable preferred stockholders maintain the following rights and privileges. Voting. The holders of redeemable preferred stock shall not have any right to vote unless required by law. F-13 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) Redemption. On the closing of a qualified initial public offering or a qualified sale transaction, as defined above, each share of redeemable preferred stock shall automatically be redeemed at a price equal to $4,250,000 divided by the number of shares of redeemable preferred stock outstanding, plus (i) all accrued and unpaid dividends and (ii) any dividend amounts due to the redeemable preferred stockholders. Liquidation. In the event of liquidation, dissolution or winding up of the Company, the holders of the redeemable preferred stock shall be entitled to receive an amount equal to the redemption liquidation preference plus any accrued and unpaid dividends. Dividends. The holders of the redeemable preferred stock shall be entitled to receive dividends if and when declared by the Board of Directors. Dividends on the redeemable preferred stock shall begin to accrue from the issuance date of the redeemable preferred stock at an annual rate equal to 16% based on the redemption liquidation preference. (11) STOCK OPTIONS AND WARRANTS (a) Nonqualified Stock Options The Company granted nonqualified options to various officers/stockholders and members of the Board of Directors to purchase shares of common stock at a given exercise price per share. The options become exercisable in full or in part at issuance or within one to four years of the date of issuance. All unexercised grants expire on the earlier of approximately five to ten years from date of issuance or 90 days after termination of service as an officer, director, employee and/or consultant. (b) Stock Option Plans 1994 Stock Option Plan. In May 1994, the Board of Directors approved an incentive stock option plan (the 1994 Plan), which authorizes the Company to issue options to purchase up to 315,789 shares of the Company's common stock under the 1994 Plan. The Company may grant options to officers, key employees, directors and consultants of the Company at an exercise price not less than fair market value as determined by the Board of Directors. There were 15,000 shares available for grant under the 1994 Plan as of June 30, 1996. F-14 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) The following table summarizes all stock option activity including grants outside of the 1994 Plan: -------------------
NUMBER PRICE PER OF SHARES SHARE --------- ----------- Balance, December 31, 1992 212,105 $ .13-$.57 Granted 78,947 .57 Exercised (43,685) .13 --------- ----------- Balance, December 31, 1993 247,367 .19-.76 Granted 297,368 .76-1.14 Exercised (152,631) .19-.57 --------- ----------- Balance, December 31, 1994 392,104 .19-1.14 Granted 539,459 2.15 Exercised (15,790) .19 --------- ----------- Balance, December 31, 1995 915,773 .76-2.15 Granted 789,564 2.15-6.95 Exercised (3,947) 2.15 --------- ----------- Balance, June 30, 1996 1,701,390 $ .76-$6.95 ========= =========== Exercisable, June 30, 1996 658,734 $ .76-$6.95 ========= ===========
1996 Stock Option Plan. The Nitinol Medical Technologies, Inc. 1996 Stock Option Plan (the 1996 Plan) was approved by the Company's stockholders in July 1996. The 1996 Plan provides for the grant of options to acquire a maximum of 600,000 shares of the common stock. As of the date hereof, no shares are subject to outstanding options. The 1996 Plan permits the granting of incentive stock options or nonstatutory stock options at the discretion of the administrator of the 1996 Plan (the Plan Administrator). The Board of Directors has appointed a Stock Option Committee of the Board as the Plan Administrator. Subject to the terms of the 1996 Plan, the Plan Administrator determines the terms and conditions of options granted under the 1996 Plan. The 1996 Directors Stock Plan. The Nitinol Medical Technologies, Inc. 1996 stock option plan for non-employee directors (the 1996 Directors' Stock Plan) was approved by the Company's stockholders in July 1996. The 1996 Directors' Stock Plan provides for the automatic grant of nonstatutory stock options to purchase shares of common stock to directors of the Company who are not employees of the Company and do not otherwise receive compensation from the Company. Under the 1996 Directors' Stock Plan 150,000 shares of common stock have been reserved for issuance of options. The 1996 Directors' Stock Plan provides for the automatic grant of options to eligible directors. Each eligible director serving on the Board on the effective date of the 1996 Directors' Stock Plan automatically received an option to purchase 10,000 shares of common stock at a price equal to the initial public offering price of this offering, subject to vesting in three equal monthly installments over a period of three years. In the future, each nonemployee director who joins the Board will automatically receive an initial grant of options to purchase 10,000 shares of common stock at an exercise price equal to the fair market value per share at the date of grant, subject to vesting in equal monthly installments over a three year period. In each year other than the year in which a director receives an initial grant of options, such director will automatically receive options to purchase 2,500 shares of common stock which shall become fully-vested six months after the date of grant. F-15 NITINOL MEDICAL TECHNOLOGIES, INC. AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) (INCLUDING DATA APPLICABLE TO UNAUDITED PERIODS) (c) Warrants In connection with the technology purchase discussed in Note 3, the Company issued warrants to purchase 111,818 shares of common stock at $2.15 per share. The warrants are fully exercisable and expire ten years from the date of grant. In February 1996, the Company issued warrants to purchase 164,439 shares of common stock at $4.26 per share to placement agents in connection with a private placement of the Company's convertible preferred stock. In April 1996, the Company issued a warrant to purchase 5,263 shares of common stock at $.02 per share in connection with a patent license agreement. The warrants are fully exercisable and expire ten years from the date of grant. (12) TECHNOLOGY PURCHASE AGREEMENT Pursuant to a technology purchase agreement (TPA), the Company purchased from a stockholder/founder the proprietary rights to the primary patent for the SNF and related technology. Under the terms of the TPA, the Company made an initial payment of $15,000 and agreed to pay royalties based upon various rates of cumulative net sales, as defined, with minimum royalties payable of $15,000 per year. Royalties are payable over the life of the primary patent and commenced after FDA approval. The Company has granted the stockholder/founder a security interest in substantially all proprietary rights acquired by the Company. In the event of unsecured defaults, as set forth in the TPA, the Company has agreed to immediately pay the stockholder/founder damages of $100,000. (13) RELATED PARTY TRANSACTIONS Three stockholders of the Company and related entities provide management consulting services to the Company. Total payments made during the years ended December 31, 1993, 1994 and 1995 and for the six months ended June 30, 1995 and 1996 in connection with such services were approximately $180,000, $210,000, $242,000, $106,000 and $140,000, respectively. At December 31, 1994 and 1995, the Company had subordinated debt and deferred interest outstanding to various stockholders, a related party and an associated pension plan of $311,856, $309,356. No amounts were outstanding at June 30, 1996 (see Note 7). (14) ACCRUED EXPENSES: Accrued expenses consist of the following:
AT DECEMBER 31, JUNE 30, 1994 1995 1996 -------- -------- -------- Payroll and payroll related.................... $140,000 $ 50,000 $ -- Royalties...................................... 55,257 26,148 33,328 Other accrued expenses......................... 100,249 139,835 98,119 -------- -------- -------- Total accrued expenses....................... $295,506 $215,983 $131,447 ======== ======== ========
F-16 Nitinol Medical - -------------------------------------------------------------------------------- Technologies, Inc. PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION. The following is an itemization of all expenses (subject to future contingencies) incurred or expected to be incurred by the Company in connection with the issuance and distribution of the securities being offered hereby (items marked with an asterisk (*) represent estimated expenses): SEC Registration Fee ........................................... $ 14,990 Legal Fees and Expenses......................................... 200,000* Blue Sky Fees (including counsel fees).......................... 15,000* NASD Filing Fee................................................. 4,847 Nasdaq National Market Fee...................................... 25,000* Accounting Fees and Expenses.................................... 135,000* Transfer Agent and Registrar Fees............................... 5,000* Printing and Engraving Expenses................................. 125,000* Miscellaneous Expenses.......................................... 175,163* -------- Total......................................................... $700,000 ========
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS. Delaware General Corporation Law, Section 102(b)(7), enables a corporation in its original certificate of incorporation, or an amendment thereto validly approved by stockholders, to eliminate or limit personal liability of members of its Board of Directors for violations of a director's fiduciary duty of care. However, the elimination or limitation shall not apply where there has been a breach of the duty of loyalty, failure to act in good faith, intentional misconduct or a knowing violation of a law, the payment of a dividend or approval of a stock repurchase which is deemed illegal or an improper personal benefit is obtained. Articles Eighth, Ninth and Tenth of the Company's Amended and Restated Certificate of Incorporation includes the following language: "EIGHTH. A. Each person who was or is made a party or is threatened to be made a party to or is otherwise involved in any action, suit, or proceeding, whether civil, criminal, administrative, or investigative (hereinafter a "proceeding"), by reason of the fact that he or she is or was a director, officer, employee, or agent of the Corporation or any of its direct or indirect subsidiaries or is or was serving at the request of the Corporation as a director, officer, employee, or agent of any other corporation or of a partnership, joint venture, trust, or other enterprise, including service with respect to an employee benefit plan (hereinafter an "indemnitee"), whether the basis of such proceeding is alleged action in an official capacity as a director, officer, employee, or agent or in any other capacity while serving as a director, officer, employee, or agent, shall be indemnified and held harmless by the Corporation to the fullest extent authorized by the Delaware General Corporation Law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than permitted prior thereto), against all expense, liability, and loss (including attorneys' fees, judgments, fines, excise or other taxes assessed with respect to an employee benefit plan, penalties, and amounts paid in settlement) reasonably incurred or suffered by such indemnitee in connection therewith, and such indemnification shall continue as to an indemnitee who has ceased to be a director, officer, employee, or agent and shall inure to the benefit of the indemnitee's heirs, executors, and administrators; provided, however, that, except as provided in Paragraph C of this Article EIGHTH with respect to proceedings to enforce rights to indemnification, the Corporation shall indemnify any such indemnitee in connection with a proceeding (or part thereof) initiated by such indemnitee only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. II-1 B. The right to indemnification conferred in Paragraph A of this Article EIGHTH shall include the right to be paid by the Corporation the expenses incurred in defending any proceeding for which such right to indemnification is applicable in advance of its final disposition (hereinafter an "advancement of expenses"); provided, however, that, if the Delaware General Corporation Law requires, an advancement of expenses incurred by an indemnitee in his or her capacity as a director or officer (and not in any other capacity in which service was or is rendered by such indemnitee, including, without limitation, service to an employee benefit plan) shall be made only upon delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by or on behalf of such indemnitee, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal (hereinafter a "final adjudication") that such indemnitee is not entitled to be indemnified for such expenses under this Article EIGHTH or otherwise. C. The rights to indemnification and to the advancement of expenses conferred in Paragraphs A and B of this Article EIGHTH shall be contract rights. If a claim under Paragraph A or B of this Article EIGHTH is not paid in full by the Corporation within sixty days after a written claim has been received by the Corporation, except in the case of a claim for an advancement of expenses, in which case the applicable period shall be 20 days, the indemnitee may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. If successful in whole or in part in any such suit, or in a suit brought by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In (i) any suit brought by the indemnitee to enforce a right to indemnification hereunder (but not in a suit brought by an indemnitee to enforce a right to an advancement of expenses) it shall be a defense that the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law, and (ii) any suit by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the Corporation shall be entitled to recover such expenses upon a final adjudication that the indemnitee has not met any applicable standard for indemnification set forth in the Delaware General Corporation Law. Neither the failure of the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the Delaware General Corporation Law, nor an actual determination by the Corporation (including its Board of Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or, in the case of such a suit brought by the indemnitee, be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification or to an advancement of expenses hereunder, or by the Corporation to recover an advancement of expenses pursuant to the terms of an undertaking, the burden of proving that the indemnitee is not entitled to be indemnified, or to such advancement of expenses, under this Article EIGHTH or otherwise, shall be on the Corporation. D. The rights to indemnification and to the advancement of expenses conferred in this Article EIGHTH shall not be exclusive of any other right which any person may have or hereafter acquire under any statute, this certificate of incorporation, by-law, agreement, vote of stockholders or disinterested directors, or otherwise. E. The Corporation may maintain insurance, at its expense, to protect itself and any director, officer, employee, or agent of the Corporation or another corporation, partnership, joint venture, trust, or other enterprise against any expense, liability, or loss, whether or not the Corporation would have the power to indemnify such person against such expense, liability, or loss under the Delaware General Corporation Law. F. The Corporation's obligation, if any, to indemnify any person who was or is serving as a director, officer, employee, or agent of any direct or indirect subsidiary of the Corporation or, at the request of the Corporation, of any other corporation or of a partnership, joint venture, trust, or other enterprise shall be reduced by any amount such person may collect as indemnification from such other corporation, partnership, joint venture, trust, or other enterprise. G. Any repeal or modification of the foregoing provisions of this Article EIGHTH shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to the time of such repeal or modification. II-2 NINTH. No director of the Corporation shall be liable to the Corporation or any of its stockholders for monetary damages for breach of fiduciary duty as a director, provided that this provision does not eliminate the liability of the director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of Title 8 of the Delaware Code, or (iv) for any transaction from which the director derived an improper personal benefit. For purposes of the prior sentence, the term "damages" shall, to the extent permitted by law, include without limitation, any judgment, fine, amount paid in settlement, penalty, punitive damages, excise or other tax assessed with respect to an employee benefit plan, or expense of any nature (including, without limitation, counsel fees and disbursements). Each person who serves as a director of the Corporation while this Article NINTH is in effect shall be deemed to be doing so in reliance on the provisions of this Article NINTH, and neither the amendment or repeal of this Article NINTH, nor the adoption of any provision of this Certificate of Incorporation inconsistent with this Article NINTH, shall apply to or have any effect on the liability or alleged liability of any director of the Corporation for, arising out of, based upon, or in connection with any acts or omissions of such director occurring prior to such amendment, repeal, or adoption of an inconsistent provision. The provisions of this Article NINTH are cumulative and shall be in addition to and independent of any and all other limitations on or eliminations of the liabilities of directors of the Corporation, as such, whether such limitations or eliminations arise under or are created by any law, rule, regulation, by-law, agreement, vote of stockholders or disinterested directors, or otherwise. TENTH. Whenever a compromise or arrangement is proposed between the Corporation and its creditors or any class of them and/or between the Corporation and its stockholders or any class of them, any court of equitable jurisdiction within the State of Delaware may, on the application in a summary way of the Corporation or of any creditor or stockholder thereof or on the application of any receiver or receivers appointed for the Corporation under the provisions of Section 291 of Title 8 of the Delaware Code or on the application of trustees in dissolution or of any receiver or receivers appointed for the Corporation under the provisions of Section 279 of Title 8 of the Delaware Code order a meeting of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, to be summoned in such manner as the said court directs. If a majority in number representing three-fourths in value of the creditors or class of creditors, and/or of the stockholders or class of stockholders of the Corporation, as the case may be, agree to any compromise or arrangement and to any reorganization of the Corporation as consequence of such compromise or arrangement, the said compromise or arrangement and the said reorganization shall, if sanctioned by the court to which the said application has been made, be binding on all the creditors or class of creditors, and/or on all the stockholders or class of stockholders, of the Corporation, as the case may be, and also on the Corporation." ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES. In February 1996, the Company sold an aggregate of 3,787,104 shares of Convertible Preferred Stock for an aggregate purchase price of $8,500,000. The Company believes that each such issuance and sale was exempt from registration pursuant to Section 4(2) of the Securities Act and Regulation D promulgated thereunder. Warrants to purchase 164,440 shares of Common Stock at an exercise price of $4.26 were also issued for nominal consideration to certain brokers that assisted the Company in the Convertible Stock Offering. The Company believes that each such issuance and sale was exempt from registration pursuant to Section 4(2) of the Securities Act. In the last three years, the Company has issued options for the purchase of an aggregate of 300,789 shares of Common Stock under the 1994 Plan, none of which have been exercised. The Company believes that each of the foregoing transactions was exempt from registration pursuant to Section 4(2) of the Securities Act. Each purchaser of the securities described above has represented that he or she understands that the securities acquired may not be sold or otherwise transferred absent registration under the Act or the availability of an exemption from the registration requirements of the Act, and each certificate evidencing the securities owned by each purchaser bears or will bear upon issuance a legend to that effect. II-3 ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (A) EXHIBITS.
EXHIBIT NO. DESCRIPTION OF EXHIBIT ------- ---------------------- 1 -- Form of Underwriting Agreement. (1) 3.1 -- Amended and Restated Certificate of Incorporation. (1) 3.2 -- Amended and Restated By-laws. (1) 4.1 -- Form of Common Stock Certificate. (1) 5.1 -- Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP. 10.1 -- Stock Purchase Agreement by and among the Company, Whitney Equity Partners, L.P., Boston Scientific Corporation, David J. Morrison, Corporate Decisions, Inc., dated as of February 16, 1996. (1) 10.2 -- Registration Rights Agreement by and among the Company, Whitney Equity Partners, L.P., Boston Scientific Corporation, David J. Morrison, Corporate Decisions, Inc., dated as of February 16, 1996. (1) 10.3 -- Agreement and Plan of Merger by and among the Company, NMT Heart, Inc., InnerVentions, Inc. and Fletcher Spaght, Inc., dated as of January 25, 1996. (1) 10.4 -- Stock Purchase Warrant by and between the Company and Fletcher Spaght, Inc., dated February 14, 1996. (1) 10.5 -- Pledge Agreement by and between the Company and Fletcher Spaght, Inc., dated February 14, 1996. (1) 10.6 -- Registration Rights Agreement by and between the Company and Fletcher Spaght, Inc., dated as of February 14, 1996. (1) 10.7 -- Distribution Agreement by and between the Company and the Bard Radiology division of C.R. Bard, Inc., dated May 19, 1992, as amended on February 1, 1993 and October 1, 1995. (2) 10.8 -- International Distribution Agreement by and between the Company and Bard International, Inc., dated as of November 30, 1995. (2) 10.9 -- License and Development Agreement by and between the Company and Boston Scientific Corporation, dated as of November 22, 1994. (2) 10.10 -- Manufacturing Agreement by and between the Company and Lake Region Manufacturing Company, Inc., dated February 15, 1996. (2) 10.11 -- Technology Purchase Agreement by and between the Company and Morris Simon, M.D., dated as of April 14, 1987. (2) 10.12 -- Asset and Technology Donation and Transfer Agreement by and between C.R. Bard, Inc. and Children's Medical Center Corporation dated as of May 12, 1995. (1) 10.13 -- Stock Transfer Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated as of June 19, 1995. (1) 10.14 -- License Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated June 19, 1995. (2) 10.15 -- Sublicense Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated June 19, 1995. (1) 10.16 -- Assignment Agreement by and between the Company and The Beth Israel Hospital Association, dated June 30, 1994. (1) 10.17 -- License Agreement by and between the Company and Lloyd A. Marks, dated as of April 15, 1996. (2) 10.18 -- Share Purchase Warrant by and between the Company and Lloyd A. Marks, dated April 15, 1996. (1) 10.19 -- Registration Rights Agreement by and between the Company and Lloyd A. Marks, dated as of April 15, 1996. (1) 10.20 -- Employment Agreement by and between the Company and Thomas M. Tully, dated February 13, 1996. (1) 10.21 -- Registration Rights Agreement by and between the Company and Thomas M. Tully, dated as of February 13, 1996. (1) 10.22 -- Employment Agreement by and between the Company and David Chazanovitz, dated February 13, 1996, as amended as of June 15, 1996. (1)
II-4 10.22.1 -- Amendment to Employment Agreement by and between the Company and David Chazanovitz, dated July 9, 1996. 10.23 -- Employment Agreement by and between the Company and Jason Harry, dated as of July 1, 1994. (2) 10.24 -- Employment Agreement by and between the Company and Stephen J. Kleshinski, dated July 22, 1993, as supplemented by agreement dated as of June 1, 1994. (2) 10.25 -- Employment Agreement by and between the Company and Theodore I. Pincus, dated as of May 17, 1996. (1) 10.26 -- Form of Registration Rights Agreement between the Company and certain of its existing stockholders, dated as of February 14, 1996. (1) 10.27 -- Agreement of Lease by and between the Company and the Trustees of Wormwood Reality, dated as of May 8, 1996. (1) 10.28 -- Company 1994 Stock Option Plan. (1) 10.29 -- Company 1996 Stock Option Plan. (1) 10.30 -- Company 1996 Stock Option Plan for Non-Employee Directors. (1) 10.31 -- Registration Rights Agreement between the Company and Junewicz & Co., Inc. dated as of February 16, 1996. (1) 10.32 -- Registration Rights Agreement between the Company and Furman Selz, LLC, dated as of February 16, 1996. (1) 11.1 -- Statement re: Company's Earnings Per Share. 23.1 -- Consent of Arthur Andersen LLP. 23.2 -- Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (contained in the opinion filed as Exhibit 5.1). 23.3 -- Consent of Sixbey, Friedman, Leedom & Ferguson. 24.1 -- Power of Attorney (included on the signature page to the Registration Statement which has been previously filed). (1) 27.1 -- Financial Data Schedule. (1)
- -------- (1) Previously filed. (2) Confidential treatment requested. (B) FINANCIAL STATEMENT SCHEDULES. All schedules have been omitted because they are not required, are inappli- cable or the information required is included in the Consolidated Financial Statements or Notes thereto. ITEM 17. UNDERTAKINGS. The Company hereby undertakes to provide to the Underwriters at the closing specified in the Underwriting Agreement, certificates in such denominations and registered in such names as required by the Underwriters to permit prompt delivery to each purchaser. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Company pursuant to the foregoing provisions, or otherwise, the Company has been ad- vised that in the opinion of the Securities and Exchange Commission such in- demnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Company of expenses incurred or paid by a director, officer or controlling person of the Company in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Company will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appro- priate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The Company hereby undertakes that, for purposes of determining any liabil- ity under the Securities Act, the information omitted from the form of pro- spectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. II-5 The Company hereby undertakes that, for the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-6 SIGNATURES PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT HAS DULY CAUSED THIS AMENDMENT NO. 2 TO THE REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF BOSTON, COMMONWEALTH OF MASSACHUSETTS, ON AUGUST 13, 1996. NITINOL MEDICAL TECHNOLOGIES, INC. /s/ Thomas M. Tully By: _________________________________ Thomas M. Tully Chief Executive Officer, President and Director IN ACCORDANCE WITH THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES STATED. SIGNATURES TITLE DATE /s/ Thomas M. Tully Chief Executive - ------------------------------------- Officer, President August 13, 1996 THOMAS M. TULLY and Director (Principal Executive Officer) /s/ Theodore I. Pincus Executive Vice - ------------------------------------- President and Chief August 13, 1996 THEODORE I. PINCUS Financial Officer (Principal Financial and Accounting Officer) * Scientific Director - ------------------------------------- and Director August 13, 1996 MORRIS SIMON, M.D. * Chairman of the - ------------------------------------- Board and Director August 13, 1996 C. LEONARD GORDON * Director - ------------------------------------- August 13, 1996 MICHAEL C. BROOKS * Director - ------------------------------------- August 13, 1996 ROBERT G. BROWN II-7 SIGNATURES TITLE DATE * Director - ------------------------------------- August 13, 1996 R. JOHN FLETCHER * Director - ------------------------------------- August 13, 1996 JEFFREY R. JAY, M.D. Thomas M. Tully *By: ________________________________ AS ATTORNEY-IN-FACT II-8 EXHIBIT INDEX
EXHIBIT PAGE NO. DESCRIPTION OF EXHIBIT NUMBER ------- ---------------------- ------ 1 -- Form of Underwriting Agreement. (1) 3.1 -- Amended and Restated Certificate of Incorporation. (1) 3.2 -- Amended and Restated By-laws. (1) 4.1 -- Form of Common Stock Certificate. (1) 5.1 -- Opinion of Squadron, Ellenoff, Plesent & Sheinfeld, LLP. 10.1 -- Stock Purchase Agreement by and among the Company, Whitney Equity Partners, L.P., Boston Scientific Corporation, David J. Morrison, Corporate Decisions, Inc., dated as of February 16, 1996. (1) 10.2 -- Registration Rights Agreement by and among the Company, Whitney Equity Partners, L.P., Boston Scientific Corporation, David J. Morrison, Corporate Decisions, Inc., dated as of February 16, 1996. (1) 10.3 -- Agreement and Plan of Merger by and among the Company, NMT Heart, Inc., InnerVentions, Inc. and Fletcher Spaght, Inc., dated as of January 25, 1996. (1) 10.4 -- Stock Purchase Warrant by and between the Company and Fletcher Spaght, Inc., dated February 14, 1996. (1) 10.5 -- Pledge Agreement by and between the Company and Fletcher Spaght, Inc., dated February 14, 1996. (1) 10.6 -- Registration Rights Agreement by and between the Company and Fletcher Spaght, Inc., dated as of February 14, 1996. (1) 10.7 -- Distribution Agreement by and between the Company and the Bard Radiology division of C.R. Bard, Inc., dated May 19, 1992, as amended on February 1, 1993 and October 1, 1995. (2) 10.8 -- International Distribution Agreement by and between the Company and Bard International, Inc., dated as of November 30, 1995. (2) 10.9 -- License and Development Agreement by and between the Company and Boston Scientific Corporation, dated as of November 22, 1994. (2) 10.10 -- Manufacturing Agreement by and between the Company and Lake Region Manufacturing Company, Inc., dated February 15, 1996. (2) 10.11 -- Technology Purchase Agreement by and between the Company and Morris Simon, M.D., dated as of April 14, 1987. (2) 10.12 -- Asset and Technology Donation and Transfer Agreement by and between C.R. Bard, Inc. and Children's Medical Center Corporation dated as of May 12, 1995. (1) 10.13 -- Stock Transfer Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated as of June 19, 1995. (1) 10.14 -- License Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated June 19, 1995. (2) 10.15 -- Sublicense Agreement by and between Children's Medical Center Corporation and InnerVentions, Inc., dated June 19, 1995. (1) 10.16 -- Assignment Agreement by and between the Company and The Beth Israel Hospital Association, dated June 30, 1994. (1) 10.17 -- License Agreement by and between the Company and Lloyd A. Marks, dated as of April 15, 1996. (2)
EXHIBIT PAGE NO. DESCRIPTION OF EXHIBIT NUMBER ------- ---------------------- ------ 10.18 -- Share Purchase Warrant by and between the Company and Lloyd A. Marks, dated April 15, 1996. (1) 10.19 -- Registration Rights Agreement by and between the Company and Lloyd A. Marks, dated as of April 15, 1996. (1) 10.20 -- Employment Agreement by and between the Company and Thomas M. Tully, dated February 13, 1996. (1) 10.21 -- Registration Rights Agreement by and between the Company and Thomas M. Tully, dated as of February 13, 1996. (1) 10.22 -- Employment Agreement by and between the Company and David Chazanovitz, dated February 13, 1996, as amended as of June 15, 1996. (1) 10.22.1 -- Amendment to Employment Agreement by and between the Company and David Chazanovitz, dated July 9, 1996. 10.23 -- Employment Agreement by and between the Company and Jason Harry, dated as of July 1, 1994. (2) 10.24 -- Employment Agreement by and between the Company and Stephen J. Kleshinski, dated July 22, 1993, as supplemented by agreement dated as of June 1, 1994. (2) 10.25 -- Employment Agreement by and between the Company and Theodore I. Pincus, dated as of May 17, 1996. (1) 10.26 -- Form of Registration Rights Agreement between the Company and certain of its existing stockholders, dated as of February 14, 1996. (1) 10.27 -- Agreement of Lease by and between the Company and the Trustees of Wormwood Reality, dated as of May 8, 1996. (1) 10.28 -- Company 1994 Stock Option Plan. (1) 10.29 -- Company 1996 Stock Option Plan. (1) 10.30 -- Company 1996 Stock Option Plan for Non-Employee Directors. (1) 10.31 -- Registration Rights Agreement between the Company and Junewicz & Co., Inc. dated as of February 16, 1996. (1) 10.32 -- Registration Rights Agreement between the Company and Furman Selz, LLC, dated as of February 16, 1996. (1) 11.1 -- Statement re: Company's Earnings Per Share. 23.1 -- Consent of Arthur Andersen LLP. 23.2 -- Consent of Squadron, Ellenoff, Plesent & Sheinfeld, LLP (contained in the opinion filed as Exhibit 5.1). 23.3 -- Consent of Sixbey, Friedman, Leedom & Ferguson. 24.1 -- Power of Attorney (included on the signature page to the Registration Statement which has been previously filed). (1) 27.1 -- Financial Data Schedule. (1)
- -------- (1) Previously filed. (2) Confidential treatment requested. EX-5.1 2 OPINION OF SQUADRON, ELLENOFF Exhibit 5.1 [SQUADRON, ELLENOFF LETTERHEAD] August 6, 1996 Nitinol Medical Technologies, Inc. 263 Summer Street Boston, Massachusetts 02210 Re: Registration Statement on Form S-1 (Registration No. 333-06463) --------------------------------------------------------------- Ladies and Gentlemen: You have requested our opinion, as counsel for Nitinol Medical Technologies, Inc., a Delaware corporation (the "Company"), in connection with the registration statement on Form S-1 (No. 333-06463), as amended (the "Registration Statement"), filed with the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). The Registration Statement relates to the offering by the Company of 2,700,000 shares of common stock, par value $.001 per share, of the Company (the "Common Stock"), and up to 405,000 shares of Common Stock to be issued solely to cover over-allotments (collectively, the "Shares"). We have examined such records and documents and made such examinations of law as we have deemed relevant in connection with this opinion. Based upon such examinations, it is our opinion that when there has been compliance with the Act and the applicable state securities laws, the Shares to be sold by the Company, when issued, delivered, and paid for in the manner described in the form of Underwriting Agreement filed as Exhibit 1 to the Registration Statement, will be validly issued, and the Shares, when so issued, delivered and paid for will also be fully paid and nonassessable. We hereby consent to the filing of this opinion as an exhibit to the Registration Statement and to the reference to our firm under the caption "Legal Matters" in the Registration Statement. In so doing, we do not admit that we are in the category of persons whose consent is required under Section 7 of the Act or the rules and regulations of the Securities and Exchange Commission promulgated thereunder. Very truly yours, /s/ Squadron, Ellenoff, Plesent & Sheinfeld, LLP EX-10.7 3 BARD DISTRIBUTION AGREEMENT Exhibit 10.7 This agreement ("Agreement") is made this 19th day of May, 1992 by and between Nitinol Medical Technologies, Inc., a Delaware corporation ("NMT") having its principal place of business at 175-P New Boston Street, Woburn, MA 01801 and C.R. Bard Inc., a New Jersey corporation by its division, Bard Radiology ("Bard"), which division has its principal office at 10115 Highway 142, Covington, GA 30209. RECITALS WHEREAS, NMT has developed a vena cava filter made of nitinol and a delivery system, collectively called the Simon Nitinol Filter (the "SNF"), obtained a United States patent covering the SNF, regulatory permission to market the SNF, and commenced the manufacture and distribution of the SNF in the United States and other parts of the world; WHEREAS, NMT and Bard desire that Bard, which distributes devices to interventional radiologists and surgeons, be the distributor in the United States and certain other parts of the world of the SNF and such other NMT designed devices as the parties may hereafter mutually agree; AGREEMENT NOW THEREFORE, in consideration of the premises and the mutual covenants and benefits herein set forth, the parties agree as follows: 1. Product. "Product" shall include (a) the SNF and any changes, ------- improvements or modifications thereto; and (b) any other vena cava filter and delivery system for vena cava filters which NMT may develop. The SNF presently consists of two separate sterile kits packaged as one unit. One kit contains the nitinol wire vena cava filter device pre-loaded in its storage tube and packaged together with its preassembled delivery system. The other kit contains the introduction catheter, dilator catheter, guidewire, venepuncture needle and scalpel. The SNF comes in three different configurations, one for femoral delivery, one for jugular delivery and one for antecubital delivery. The SNF shall be designated in all labeling and advertising as the "Simon Nitinol Filter". 2. Territory. The "Territory" shall be the United States. In addition, the --------- Territory includes Canada, Mexico, Puerto Rico, Brazil, Denmark, Norway, Sweden and Australia, provided, however, that NMT may in the future, on sixty (60) days prior written notice, exclude from the Territory any such non U.S. countries in which Bard or its affiliates are not actively engaged in or actively taking steps to engage in distributing the Product. 3. Distributorship. NMT hereby appoints Bard as the exclusive distributor --------------- of the Product in the Territory. 4. Representations and Warranties. ------------------------------ (a) NMT represents and warrants that: (i) NMT is duly incorporated and validly existing under Delaware law and has full power and authority to enter into this Agreement; this Agreement has been duly authorized by all requisite corporate action and, when fully executed and delivered will constitute the valid and binding agreement of NMT, enforceable in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws -affecting the enforcement of creditors' rights generally and rules or laws concerning equitable remedies. (ii) NMT is and shall at all times during the term of this Agreement be the principle owner of U.S. Patent 4,425,908, (the "Simon Patent"). NMT is not aware of any references which appear to invalidate the Simon Patent or of any patent which would appear to present an infringement problem for the Simon Patent, nor is NMT a party to any lawsuit or have any claims of infringement been asserted against NMT alleging in whole or in part that the Simon Patent or any other Proprietary Rights (as hereinafter defined) infringe any other proprietary or intellectual property rights anywhere in the Territory. (iii) All Products marketed by NMT have been accepted by the United States Food and Drug Administration ("FDA") by the procedure known as 510(k). NMT, to the best of its knowledge, has filed with the FDA all "MDR's" required to be filed pursuant to the United States Food and Drug Act, as amended, and the rules and regulations thereunder ("Act"). Any change, improvement or modification of any Product which could affect the safety or efficacy of any Product has been submitted to the FDA in form of 510(k) notification, and all such filings have been accepted by the FDA. The Product is being lawfully marketed in compliance with the Act and the rules and regulations of the FDA. (iv) NMT has legal right to the Product and can validly request distribution of the Product by Bard. (v) No product liability claim has been made or threatened against NMT. (vi) NMT is not currently a party to any agreement or understanding, oral or written, which would conflict with the rights herein granted to Bard. (b) Bard represents and warrants that Bard Radiology is a division of C. R. Bard Inc., with full power and authority to enter into this Agreement, and that this Agreement when duly executed and delivered will be a valid and binding agreement of C. R. Bard Inc., enforceable -2- in accordance with its terms except as enforcement may be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditors' rights generally and rules or law" concerning equitable remedies. Bard is not currently a party to any agreement or understanding, oral or written which would conflict with its obligations to NMT pursuant to this Agreement. 5. Term. ---- (a) This Agreement shall commence on the date hereof and shall end five years from the date hereof, and shall be renewable by Bard at its option for an additional five-year term, and for additional five year terms thereafter. Reference in this Agreement to the "First Term" shall be to the first five year term; reference to the "Renewal Term" shall be to the second five year term; reference to the "Additional Renewal Terms" shall be to the five-year terms subsequent to the Renewal Term; and reference to the "Term" shall be to the First Term, the Renewal Term and to all Additional Renewal Terms. To exercise its options to renew Bard shall give written notice of renewal to NMT not later than six (6) months prior to the expiration of the First Term or the Renewal Term or any Additional Renewal Term. (b) If Bard determines not to renew, NMT will accept returns from Bard of Product XXXXXXXXXX, not to exceed the quantity purchased by Bard from NMT during the six (6) months prior to the date of termination; and Bard will agree to furnish NMT with customers list, list of sales to each customer, and other non- confidential sales materials and marketing information. 6. Price and Payment. NMT will sell Product to Bard at a price (the "Sales ----------------- Price") that is the XXXXXXXX of such XXXXXXXX to XXXXXXXX in effect in the United States on the date of sale (the "SLP") XXXXXXXX, provided, that the Sales -------- Price for the first 1,890 SNFs during the first 12 Month Period (as hereinafter defined) of this Agreement shall be the SLP XXXXXXXX, and provided further, that ---------------- after the first 12 month Period of this Agreement and at all times thereafter the Sales Price for those Products which in any 12 Month Period are purchased by Bard and are in excess of 35% of the published IMS America for vena cava filters for the immediately preceding 12 Month Period, shall be the SLP XXXXXXXX, and the resulting decrease in SLP shall be credited to Bard's subsequent purchases of the Product. The initial SLP of the SNF shall be XXXXXXXX. Payment will be net 30 days from date of shipment, with interest at XXXXXXXX per month for late payments. 7. Advance Payments; Minimum Payments. Bard shall make advance payments and ---------------------------------- minimum payments to NMT as follows: (a) Bard shall make three advance payments of XXXXXXXX each to NMT to be credited against purchases of the Product during the Term hereof for an aggregate amount of -3- XXXXXXXX (the "Advance Payment"). The three installments of the Advance Payment shall be made on the date of signing of this Agreement, upon receipt and acceptance by Bard of the first order of the Product and upon the receipt and acceptance by Bard of the second order of the Product, provided, however, that if not earlier paid pursuant hereto the full payment shall be made by Bard on the first day of the second month after the signing of this Agreement. As used herein the "12 Month Period" shall mean the twelve month period commencing on the first day of the month in which Bard makes its first commercial sale of Product anywhere in the Territory and ending on each twelve-month anniversary thereof. If Bard fails to notify NMT in writing of the date of such first commercial sale within ninety days of the date thereof, the date shall be deemed to be 30 days after the date of this Agreement. NMT shall, until the Advance Payment has been fully repaid, at Bard's option either credit Bard with XXXXXXXX or pay Bard XXXXXXXX in cash for each SNF purchased by Bard from NMT in excess of the following specified minimums: (i) XXXXXXXX during the second 12 Month Period; (ii) XXXXXXXX during the third 12 Month Period; (iii) XXXXXXXX during the fourth 12 Month Period; (iv) XXXXXXXX during the fifth 12 Month Period and each 12 Month Period thereafter. In the event that the Advance Payment is not fully repaid on expiration, nonrenewal or termination of this Agreement, NMT shall pay Bard XXXXXXXX per month thereafter until the Advance Payment is fully amortized and repaid in full. (b) During the Term of this Agreement if Bard's purchases of SNF's from NMT fall below the following specified minimum purchases of SNFs for sale in the United States, NMT as its sole and exclusive remedy shall be entitled to render Bard's appointment hereunder non-exclusive and Bard shall be relieved of any further Minimum Payments and the Sales Price shall be adjusted to be the greater of (i) the XXXXXXXX or (ii) the XXXXXXXX as that XXXXXXXX in the XXXXXXXX that XXXXXXXX and Bard shall not be liable to NMT or to any third party for any loss, damage or claim arising out of Bard's failure to purchase the specified minimum purchases. Any purchases above the specified minimum purchases in any 12 Month period shall be credited to the minimum purchases for any other 12 Month Period. Any such purchases applied to any other 12 Month Period for achieving Specified Minimums shall be eligible only one time (at the actual time of purchase) for computation of the amount of repayment of the Advance Payment due. -4- Specified Minimums ------------------ (i) XXXXXXXX during the first 12 Month Period; (ii) XXXXXXXX during the second 12 Month Period; (iii) XXXXXXXX during the third 12 Month Period; (iv) XXXXXXXX during the fourth 12 Month Period; (v) XXXXXXXX during the fifth 12 Month Period; (vi) XXXXXXXX during the sixth 12 Month Period; (vii) XXXXXXXX during the seventh 12 Month Period, and each 12 Month Period thereafter; provided, however, that before such right to render Bard's -------- ------- appointment non-exclusive shall become effective, NMT shall give written notice of failure to meet the specified minimum provided in this section 7(b) and Bard may, within 60 days thereafter, purchase enough SNF's to enable it to keep such right to distribute Products in the Territory. (c) Specified minimums for any 12 Month Period may be reduced as follows: (i) If there is a decline in any year in the IMS reported total Market for vena cava filters then the Specified Minimum for such following 12 Month Period shall be reduced by the same percentage as such decline; (ii) if sales by Bard are adversely affected by (A) failure of NMT to deliver product as required by this Agreement, (B) action of the FDA against NMT, (C) a competitive nitinol vena cave filter being successfully marketed in the Territory, (D) any action by a third party infringing the Proprietary Rights anywhere in the Territory or any action brought against Bard alleging infringement of a third party's proprietary or intellectual property rights by the Proprietary Rights or (E) any unusual and dramatic adverse incident involving SNF, then the specified minimum for the relevant 12 Month Period shall be reduced to the extent that such adverse events have affected sales. Bard shall, on or before the end of each 12 Month Period advise NMT in writing stating its intention to reduce the specified minimum for such 12 Month Period and specifying the cause of such reduction, the amount of such reduction and any other relevant facts with respect thereto. If NMT disagrees with the facts or the amount of such reduction, the parties shall negotiate with respect thereto, and if they are unable to resolve said dispute within thirty days, they shall submit the disagreement to arbitration in New York in accordance with Section 23(1) hereof, with the added requirements that the arbitration shall take place within 60 days after the end of the relevant 12 Month Period; that a single arbitrator shall be selected; that each party shall be limited to a single space six-page affidavit; a double spaced six-page written argument and a half-hour oral argument. -5- 8. Shipping, Packaging, Specifications, Labeling, and Shelf Life ------------------------------------------------------------- (a) Product shall be shipped FOB Covington Ga. Shipment will be made by regular ground transportation. At the request of Bard, NMT will ship second day, air, expedited air, etc., FOB point of shipment. (b) Packaging will be not less than the quality presently employed by NMT. Packaging shall at all times be able to pass the NSTA standard shipping test. Each shipment shall be accompanied by a certificate of sterilization and certificate of compliance stating that appropriate inspection and testing has confirmed compliance to all specifications prepared in connection with any filing with the FDA or submitted to the FDA or any regulatory authority (hereinafter, the "Specifications") for the Products in the shipment. c) The parties hereto agree to mark each SNF package in the United States with "U.S. Patent No. 4,425,908." The parties further agree to mark each SNF package and to require its distributors in foreign countries to mark each SNF package with the name "Simon Nitinol Filter, a registered trademark of Nitinol Medical Technologies, Inc." and further to mark each Product with appropriate patent and trademark notices as reasonably required by the other party and pursuant to the laws of the United States or any foreign country in which SNF packages or other Products are sold. Color of package and labeling may be designated by Bard. 9. Purchase Orders and Forecasts. Not less than forty-five days prior to ----------------------------- the last day of each calendar quarter during the Term, Bard shall provide to NMT a purchase Order in the form described in the next paragraph with respect to the purchase of all the Products to be delivered hereunder to Bard during the following quarter and a nonbinding rolling forecast of the number of Products to be delivered by NMT pursuant hereto during the four immediately following quarters. Bard's purchase orders shall be in the form attached hereto, provided, however, -------- ------- that this Agreement shall prevail if there is a conflict between it and said purchase order, it not being the intent of the parties hereto to enlarge, reduce or change any representation, warranty or covenant set forth in this Agreement and shall refer to this Agreement and shall contain the following information: (a) model number and a description of each Product ordered; (b) quantity of each Product ordered; (c) requested delivery dates for each Product; (d) per unit purchase price as determined in accordance with this Agreement; and -6- (e) shipping instructions. NMT shall be obligated to accept any Purchase Order for the Products submitted by Bard hereunder which conforms to the terms hereof, except that NMT may not be required to deliver in any quarter a number of any Product which exceeds 125% of the number of such Product which Bard forecast it would require in such quarter in the most recent previous forecast submitted by Bard pursuant hereto. 10. Insurance. At all times during the Term, NMT shall maintain product --------- liability insurance with a carrier reasonably approved of by Bard in the amount of not less than $2,000,000 per occurence and $2,000,000 in the aggregate. Bard shall be a named insured on such policy which policy shall provide that Bard shall receive thirty days' prior written notice from the carrier of any material change therein or cancellation, and shall receive a certificate of such insurance within (90) days of the date of this Agreement. At the present time the carrier for NMT's product liability insurance is National Union Fire Insurance Company of Pittsburgh, Policy No. GLA 460 690 5 RMA. 11. Warranty. NMT assumes liability for any Product not meeting the -------- Specifications, as follows. If any Product does not meet the Specifications or has been otherwise rendered worthless or useless of its value (a) through no fault or neglect of Bard or (b) through no cause which could be insured against or (c) not by reason of expiration of shelf life, then NMT shall at its cost furnish Bard with new Product as replacement within sixty days. All other warranties are hereby expressly disclaimed including, but not limited to, any implied warranties of merchantability, or fitness for a particular purpose. NMT shall not be liable for any incidental or consequential loss, damage or expense including loss of profit directly or indirectly arising from the sale or use of Product other than replacement of it. NMT neither assumes nor authorizes any other person to assume for it any other or additional liability or responsibility in connection with the Product. 12. Changes. NMT reserves the right, from time to time, to make such ------- changes in the type, model or design of Product as may be deemed necessary or desirable, provided, however, that any changes in Specifications of Product -------- ------- shall be made only upon consultation between and reasonable approval of the parties. 13. Covenants of NMT. In addition to the other duties obligations and ---------------- agreements provided for in this Agreement, NMT agrees that: (a) The Product shall be manufactured in conformity with the engineering plans and specifications currently in effect as such plans and specifications may be amended from time to time in accordance with Paragraph 12. NMT will make all filings with the FDA required by the Act by reason of any changes, improvements or modifications of Product which could affect -7- the safety or efficacy of any Product. NMT shall be responsible to ensure that all Products shipped to Bard shall be free from defects in material, workmanship and packaging, meet the Specifications and will be in accordance with "good manufacturing practices" as required by the Food and Drug Administration and other applicable rules and regulations. NMT shall, at its sole cost and expense, replace any products that are not in conformity with the plans and Specifications provided by NMT. (b) NMT shall be responsible for any resubmission that may be required by the FDA for NMT to obtain FDA Pre Market Approval in lieu of the 510(k) heretofore received, or for any other similar requirement of the FDA. (c) NMT shall be responsible for documenting and establishing shelf life of Product, currently three years. 14. Covenants of Bard. Bard agrees that during the Term of this ----------------- Agreement it will: (a) Provide support necessary to obtain sales of and services for Product throughout the Territory; (b) maintain an adequate inventory of Product in the Territory; (c) exert reasonable efforts to promote sales of Product to interventional radiologists, surgeons, and other potential users in a professional manner in compliance with all laws in the Territory, including, at its own expense, such advertising and promotional efforts as are necessary or appropriate to so promote such sales; (d) Bard will, at its own expense, use reasonable efforts to obtain approvals by any regulatory agencies that may be required to sell Product in each foreign country within the Territory. NMT at its own expense will provide Bard with such technical information, test data and other information and assistance which it has and sign all documents and otherwise cooperate with Bard as may be reasonably requested by Bard or otherwise required to obtain such approval; and (e) regularly inform NMT about its sales plans, sales results, market developments, user requirements, activities and prices of competitors, prices charged by it for Product and such other details of Bard's business as NMT may reasonably require but only to the extent that such information is not confidential or proprietary to Bard or to any third party. -8- 15. Competition. ------------ (a) During the Term of this Agreement, Bard shall not in the Territory make or sell nor assist in making or selling venus filters which are or may be competitive with any Products. For a period of two years after the Term of this Agreement Bard shall not in the Territory make or sell nor assist in making or selling any venus filters made of nitinol which are or may be competitive with any Products made of nitinol. (b) Subject to Section 7 hereof, during the Term of this Agreement, NMT shall not in the Territory make or sell nor assist in making or selling devices which are or may be competitive with any Products. 16. Indemnification. --------------- (a) NMT will protect, indemnify and hold Bard harmless against any and all claims, actions, disputes or threatened actions (including court costs and reasonable attorneys' fees) asserted by third parties because of any alleged patent infringement. In the event of any such claim or action, the parties shall promptly notify each other and NMT may control the defense of any such litigation, and NMT will promptly pay Bard's cost of defense, including reasonable attorneys' fees. In the event NMT fails to assume the control of the defense of such litigation, Bard may assume the control of the defense of such litigation, and NMT shall abide by the undertaking of indemnification set forth in this Section 16 (a). (b) Subject to the provisions of Section 11 hereof, each of the parties ---------- hereto shall indemnify and hold the other harmless from and against any and all claims, actions, disputes or threatened actions (including court costs and reasonable attorneys' fees) which arise or result from their breach of any representation, warranty or covenant contained in this Agreement. (c) NMT shall indemnify and hold Bard harmless from and against any and all claims, actions, disputes and threatened actions (including court costs and reasonable attorneys' fees) which arise under or relate to that certain Manufacturing Agreement dated June 30, 1988 by and between NMT and Lake Region Manufacturing Company, Inc., that certain Technology Purchase Agreement dated April 14, 1987 by and between NMT and Morris Simon, M.D. and/or that certain Assignment dated April 14, 1987 by and between The Beth Israel Hospital Association as assignor and Morris Simon, M.D. as assignee. 17. Patent Enforcement. NMT may take legal action and recover against ------------------ any and all infringers of patents owned by NMT for the Product. Bard shall not be entitled to any damages, recovery or royalties resulting from any such legal action conducted solely by NMT. However, Bard shall have the right to take legal action at its own expense regarding infringements of such patents if NMT takes no action to terminate such infringement within sixty days after notice -9- thereof is given to NMT by Bard. NMT shall cooperate with Bard in such action, at no expense to NMT, and not be entitled to any damages or recovery resulting from any such legal action conducted solely by Bard. Alternatively, the parties may agree to share the expenses of and recovery from any such legal action. 18. Inventions, Technical Information and Secrecy. --------------------------------------------- (a) NMT shall advise Bard to the extent NMT has the right to do so of technical information, inventions and improvements of NMT relating to Product and shall incorporate any inventions and/or improvement into the Product with the advice and consent of Bard; (b) Bard shall advise NMT to the extent Bard has the right to do so of technical information, inventions and/or suggested improvements of Bard relating to Product; (c) Any information furnished or disclosed by either party hereunder is for the sole use of the party receiving such disclosure. Any party receiving confidential information ("Confidential Information") will take such reasonable action to the end that it shall not be disclosed to third parties except insofar as such information: (i) was known to the receiving party prior to receipt from the disclosing party; (ii) is made public by the party providing the Confidential Information; (iii) is received in good faith by the receiving party from any third party; (iv) was or is or becomes part of the public domain or known to the trade otherwise than as a consequence of a breach of the obligation here undertaken not to disclose Confidential Information; (v) is disclosed as a matter of necessity by the sale of the Products. The obligation of confidentiality in this Section 18(c) shall continue after the termination of this Agreement for a period of three years. 19. First Refusal. Should NMT develop new devices that may be marketed ------------- to interventional radiologists and desire to enter into an exclusive distributorship in the United States, it shall disclose the relevant facts to Bard. If Bard wishes to become the exclusive distributor of any such new device, it shall so advise NMT in writing within ninety days after such disclosure. The parties shall then negotiate for one month or such longer period as they may agree, and, at the end of such period, Bard shall advise NMT in writing of its best offer to distribute such new device. Failure to deliver such a letter to NMT shall be deemed a -10- rejection by Bard. Thereafter, NMT may negotiate for an exclusive distributorship for such new device with any third party, but NMT may not enter into a transaction with any third party for the distribution of such new device on a basis less favorable to NMT than said best offer made by Bard. NMT has begun negotiations with another company for a stent for the aorta, accordingly, this section shall not apply to stents for the aorta. 20. Force Majeure. Subject to the provisions of Section 22 hereof, in ------------- the event that the delay or failure of a party to comply with any obligation created by this Agreement is caused by Force Majeure, that obligation shall be suspended during the continuance of the Force Majeure condition. The term "Force Majeure" shall mean any event beyond the reasonable control of the parties, including, without limitation, fire, flood, riots, strikes, epidemics, war (declared or undeclared) and embargoes. 21. Default and Termination. ----------------------- (a) If either party (the "defaulting party") shall refuse to comply with any material provisions hereof, and if such default shall continue unremedied for sixty days after written notice is given to the defaulting party by the other party (the "other party") of such default, then the other party, after the expiration of said sixty days and for so long as such default shall continue unremedied, may elect at its option to terminate this Agreement by providing a written termination notice to the defaulting party. (b) Voluntary or involuntary bankruptcy, receivership or insolvency proceedings filed against either party (the "insolvent party") which are not lifted within sixty days after filing will be valid ground for cancellation of this Agreement by the other party. Such election may be made by notice in writing to the insolvent party or its legal representatives. (c) Termination of this Agreement, however effected, shall not affect any rights or obligations of the parties prior to the effective date of such termination; provided, however, that after such expiration, termination or surrender, NMT shall have the right to purchase at cost all Products owned by Bard and, if NMT fails to do so, Bard and its Affiliates shall be entitled to sell such Products anywhere in the Territory. 22. License. ------- (a) Agreement to Grant. NMT hereby acknowledges that a reliable and ------------------ continuous source of supply of the Products is imperative to Bard's successful marketing efforts. Therefore, as a material inducement to the execution of this agreement by Bard, NMT hereby agrees to grant at Bard's sole and exclusive discretion to Bard an exclusive and irrevocable license, with the right to sublicense, under the Proprietary Rights to manufacture, have manufactured, use and sell the Products throughout the Territory. Said grant shall be made only as follows: -11- A. In the event that NMT shall: (i) admit in writing its inability to pay debts generally as they become due; (ii) file a petition in bankruptcy or a petition to take advantage of any insolvency act; (iii) make an assignment for the benefit of its creditors; (iv) consent to the appointment of a receiver for itself or for the whole or substantially all of its property; (v) on a petition in bankruptcy filed against it, be granted an order for relief; or (vi) file a petition or answer seeking reorganization or arrangement or other aid or relief under any bankruptcy or insolvency laws or any other law for the relief of debtors; or B. In the event that a court of competent jurisdiction shall enter an order, judgment or decree appointing, without the consent of NMT, a receiver for NMT or the whole or substantially all of its property, or approving a petition filed against it seeking reorganization or arrangement of payor under any bankruptcy or insolvency laws or any other law for the relief of debtors, and such order, judgment or decree shall not be vacated or set aside or stayed within such sixty (60) days from the date thereof; or C. In the event that NMT shall become subject to a "Force Majeure" to ------------- which Bard is not subject. Then, and upon the further condition that the event specified in A, B or C above, and provided further that Bard is not itself in default under this Agreement, renders NMT unable to supply Bard with Products and otherwise perform this Agreement, NMT shall in Bard's discretion and at Bard's request grant Bard a license as hereinafter set forth. (b) Grant of License. In the event Bard is entitled to a grant of ---------------- license granted under Section 22(a), it shall so notify NMT in writing within ------------- thirty (30) days after Bard's knowledge of an occurence referred to in Section ------- 22(a), and pay NMT all amounts outstanding as of the date of notice, and a - ----- royalty advance of XXXXXXXX reduced by the remaining balance, if any, owing to Bard on the Advance Payment set forth in 7(a). This royalty advance would be recoverable only from amounts due to NMT granted in this license. In the event Bard does so, notwithstanding anything to the contrary contained in this Agreement NMT shall grant Bard a license as provided in Section 22(a). Thereupon ------------- NMT's supply obligations shall be completed to the extent possible and then terminated. NMT covenants to furnish to Bard, at Bard's -12- expense, within thirty (30) days after said grant of license to Bard, all technical information, data and know-how in its possession as may be necessary in order for Bard to manufacture or have manufactured the Products. (c) Assignability. The right to license granted to Bard pursuant to ------------- Section 22(a) is freely assignable in whole or in part to any affiliate of Bard. - -------------- (d) Royalty. ------- (i) Rate. In the event Bard elects to utilize the right to license granted under Section 22(a) and in consideration of the rights granted ------------- hereunder by NMT, Bard covenants to pay to NMT during the remainder of the term of this Agreement a royalty at a rate of XXXXXXXX of Net Sales of any Product which is sold in the Territory. (ii) Reduction. Any royalties payable during the term of this Agreement shall be reduced dollar for dollar by: any and all royalties, license fees, or other monies payable to any nonaffiliated third party at any time which may be required under the terms of any license, settlement or judgment or any other agreement or order arising out of or relating to any proprietary rights or technology, the payment of which is otherwise necessary in order for Bard or its Affiliates to use the Proprietary Rights or to manufacture, have manufactured, use or sell the Products; and any and all reasonable costs and expenses (including reasonable attorneys' fees) incurred in defending against a third party's claim for infringement of the Proprietary Rights as provided herein and any and all reasonable costs and expenses (including reasonable attorneys' fees) incurred in taking action against a third party for infringement of the Proprietary Rights as provided herein. (e) Payment of Royalties. The royalties, if any payable under this -------------------- Agreement shall be payable in United States Dollars and shall be paid quarterly within sixty (60) days following the last day of each calendar quarter following the first commercial sale of any Product by Bard after a grant of license under Section 22(a). - ------------- (f) Royalty Reports. At the time of Bard's remittance of each royalty --------------- payment, Bard shall furnish to NMT a report showing the type and total number of the products sold and or licensed to others by Bard or any Affiliate of Bard utilizing in whole or in part the technology granted by this license during the quarter to which the royalty payment relates, the Net Sales during such quarter and sufficient information from which the royalties payable may be determined. Subject to the provisions here of relating to confidentiality, Bard grants to NMT the right during normal business hours and upon reasonable advance notice to Bard to have an accountant reasonably acceptable to Bard audit Bard's records relating to the Products on which royalties are payable hereunder no more often than once in each calendar year solely for the -13- purpose of ascertaining the truth and accuracy of information contained in royalty reports furnished to NMT by Bard; provided, however, that Bard or its Affiliates shall maintain any such records for a period of time of not less than seven (7) years but nothing herein shall require retention for a period of time longer than that required or suggested under the internal policies of Bard or its Affiliates. The cost of any such audit shall be borne by NMT unless such audit results in a change favorable to NMT, in which event the cost of such audit shall be borne by Bard. (g) Bankruptcy. Notwithstanding anything to the contrary contained ---------- herein, Bard shall retain all rights given to a licensee under Section 365(n) of the Bankruptcy Code (11 U.S.C. (S)365(n)). (h) Definitions. Capitalized terms used in this Section 22 shall have ----------- ----------- the meanings ascribed to them hereafter: (i) Net Sales - shall mean, with respect to the Product, the gross invoiced selling price by Bard or any affiliate of Bard to any non-affiliated third party, less the following offsets and deductions: (i) sales, use or value- added taxes, if included in the gross invoiced selling price; and (ii) freight and handling charges, if included in the gross invoiced selling price; and (iii) relevant customary cash, trade and quantity discounts and rebates actually granted and given by Bard or an affiliate of Bard to customers, including but not limited to administrative fees paid to any group purchasing organization of which the customer is a member; and (iv) allowances, credits and payments for returned Products; provided, however, that in the event the Product, other than SNFs, is sold in kit or in combination with any item which is not covered by the Proprietary Rights, the Net Sales of such Product shall be determined by multiplying the gross invoiced selling price of such kit or combination, less applicable deductions and offsets hereinabove referenced to, by a fraction, the numerator of which shall be Bard's or its affiliate's manufacturing cost or purchase price paid for the item(s) in such kit or combination which are covered by the Proprietary Rights and the denominator of which shall be Bard's or its Affiliate's manufacturing cost or purchase price paid for all items contained in such kit or combination. (ii) Proprietary Rights - shall mean and include: United States applications for letters patent covering the Product, any continuation, continuation-in-part or divisional application thereof, all know-how contained therein and all patents issuing thereon; and, a royalty free license to use the trademark, Simon Nitinol Filter in the United States (or in other parts of the Territory if NMT shall have good and proper title to such trademark in such other parts of the Territory). (iii) Valid Claim - Valid Claim shall mean a claim of an unexpired patent included in the Proprietary Rights so long as such claim has not been held invalid in an unappealable decision by a court of competent jurisdiction. -14- (iv) Term - Notwithstanding the provisions of Section 5 of this Agreement and in the event that Bard receives a license pursuant to this Section 22, this Agreement shall continue to run from the date of notice of exercise and remain in full force and effect for ten (10) years or until the date of expiration of any patent directed toward the SNF, whichever is later. 23. Miscellaneous. ------------- (a) Notices. All required or permitted notices shall be in writing and ------- may be personally served upon an officer of the served party or may be deposited in the United States mail, postage prepaid, registered or certified, and sent by facsimile (fax) to the other party at the address set forth above or at such other and additional address as may be given by notice. Any notice personally served or mailed as set forth above shall be deemed to have been given on the date of personal delivery or the date such notice was deposited in the United States mail as set forth above. (b) Governing Law. This Agreement shall be governed by, construed and ------------- interpreted in accordance with the laws of the state of Delaware. (c) Assignment. Neither party shall assign this Agreement or any of its ---------- respective duties and obligations hereunder without the prior express written consent of the other party, provided, however, that this Agreement may be -------- ------- assigned by Bard to any of its Affiliates or by,either party to any company that is the successor to all or substantially all of the business and property of such party relating to the Product. (d) Merger. This Agreement contains the entire understanding between the ------ parties hereto relating to the Product, and all prior or contemporaneous agreements, understandings, representations and statements, oral or written, are merged in this Agreement and shall be of no further force and effect. (e) Amendments and Waivers. Waiver at any time and by any party of ---------------------- strict performance of any provision of this Agreement shall not constitute, shall not be deemed to be a waiver of and shall not prejudice such party's right to require strict performance of the same provision or of any other provision of this Agreement and the terms of this Agreement may only be supplemented or modified by written amendment executed by all parties hereto. (f) Binding Effect. This Agreement shall be binding upon and shall inure -------------- to the benefit of the parties hereto and their respective successors and assigns. (g) Severability. In the event any provision of this Agreement shall be ------------ determined by a court of competent jurisdiction as unenforceable under applicable law, that provision shall, -15- at the election of the party for whom the benefit of the provision is intended, be deleted, but the remaining provisions of this Agreement shall remain in full force and effect. (h) Independent Contractors. The parties hereto are independent ----------------------- contractors and nothing contained in this agreement shall be deemed or construed to create the relationship of partnership or joint venture or any association or relationship between the parties other than that of buyer and seller. Neither party is authorized to enter into any commitment on behalf of the other. (i) Titles and Subtitles. All titles and subtitles used in this -------------------- Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. (j) Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (k) Survival of Warranties. The warranties, representations and ---------------------- covenants of the parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement. (l) Arbitration. Any controversy or claim arising out of or relating to ----------- this contract, or the breach thereof, shall be settled by arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association, and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. -16- IN WITNESS WHEREOF, the undersigned have hereunto set their hand and seal as of the date first above mentioned. NITINOL MEDICAL TECHNOLOGIES, INC. By:\s\ C. Leonard Gordon ------------------------------------- C. Leonard Gordon Chief Executive Officer C.R. BARD, INC. By:\s\ Benson F. Smith ------------------------------------- Benson F. Smith Vice-President -17- AMENDMENT --------- THIS AMENDMENT is made this 1st day of February 1993 by and between Nitinol Medical Technologies, Inc., a Delaware corporation ("NMT") having its principal place of business at 175-P New Boston Street, Woburn, Massachusetts 01801 and C. R. Bard, Inc., a New Jersey corporation, by its division Bard Radiology ("Bard") which division has its principal office at 10115 Highway 142, Covington, Georgia 30209. RECITALS -------- WHEREAS, the parties entered into an agreement dated May 19, 1992 for marketing of the Product by Bard (the "Agreement"); WHEREAS, the parties desire to clarify certain aspects of the Agreement; NOW, THEREFORE, in consideration of the premises and the mutual covenants and benefits herein set forth, the parties agree as follows: 1. DISTRIBUTORSHIP. The following is added as a second sentence to Section --------------- ------- 3, Distributorship: "NMT further appoints Bard as the exclusive sales - - representative for the sale of the Product in the Territory until such time as Bard is able to act as distributor, and it is intended by the parties that so long as Bard acts as a sales representative any reference herein to any sale(s) made by Bard, sale(s) to Bard or purchase(s) by Bard and any correlative forms shall be deemed for purposes of this Agreement to apply to sales to any customer of the Product made by NMT in the Territory while Bard acts as a sales representative. Bard shall use commercially reasonable efforts to make commercial sales in the Territory as a distributor on or before April 30, 1993." 2. PRICE AND PAYMENT. The first seven (7) lines of Section 6 of the ----------------- --------- Agreement and the words, "further, that...", in the eighth line are deleted in ------- their entirety and replaced with the following text: "6. PRICE AND PAYMENT. NMT will sell Product to Bard at a price (the ----------------- "Sales Price") that is the XXXXXXXX of such Product XXXXXXXX in effect in the United States on the date of sale (the "SLP") XXXXXXXX, provided -------- that the Sales Price for the XXXXXXXX after the date of this Agreement shall be the SLP XXXXXXXX and that the Sales Price for the XXXXXXXX, after the XXXXXXXX, shall be the SLP XXXXXXXX (provided, however, that -------- ------- if NMT ships the Product no later than ten (10) business days after receipt of the relevant purchase order from Bard and complies at all times with its obligations hereunder, then, for every day subsequent to April 30, 1993 that Bard fails to commence as the distributor for Products in the United States, XXXXXXXX shall be added to the XXXXXXXX during which time the Sales Price is SLP XXXXXXXX). Where Bard acts as a sales representative the percentage amount off the SLP shall constitute commission payable to Bard. After the first 12 Month Period of this Agreement and at all times...". 3. ADVANCE PAYMENTS; MINIMUM PAYMENTS. The following proviso shall be ---------------------------------- added to the end of the third sentence of Section 7(a): "; provided, however, ------------ that the 12-Month Period described in Section 7(a)(i) shall commence April 1, --------------- 1994 and the 12-Month Period described in Section 7(b)(i) shall commence April --------------- 1, 1992." 4. FURTHER AGREEMENTS. (a) The SNFs described in Section 6, as amended ------------------ hereby, will include six hundred seventy (670) SNFs for inventory, and Bard will use its reasonable efforts during the term of the Agreement to maintain a three- month inventory of SNFs. (b) Upon execution of this Amendment Bard will pay the following invoices:
August 26, 1992 71 Filters XXXXXXXX October 30, 1992 35 Filter Components XXXXXXXX 40 Catheter Sets XXXXXXXX November 2, 1992 12 Filters XXXXXXXX -------- XXXXXXXX
5. FULL FORCE. Except as expressly amended hereby, the terms and conditions ---------- of the Agreement remain in full force and effect. IN WITNESS WHEREOF the undersigned have hereunto set their hand and seal as of the date first above mentioned. NITINOL MEDICAL TECHNOLOGIES, INC. By:\s\ C. Leonard Gordon ------------------------------- C.E.O. C. R. BARD, INC. By:\s\ Burt Mirsky ------------------------------- -2- Amendment No. 2 This Amendment is made as of this 1st day of October 1995 to that certain Agreement dated May 19, 1992 and amended on February 1, 1993 by and between Nitinol Medical Technologies, Inc., a Delaware corporation ("NMT") having its principal place of business at 175-P New Boston Street, Woburn, MA 01801 and C. R. Bard, Inc., a New Jersey corporation by its division, Bard Radiology ("Bard"), which division has its principal office at 13183 Harland Drive North East, Covington GA 30209. 1. Advance Payments. Section 7(a) of the Agreement is amended to read in ------------ full as follows: (a) Pursuant to the Agreement Bard has made the Advance Payment in the amount of XXXXXXXX to NMT. As used herein, the "12-Month Period" shall mean the twelve-month period which commenced on April 1, 1994 and ending on each twelve- month period anniversary thereof. To the date of this Amendment, NMT has at Bard's option, either credited Bard with XXXXXXXX or paid Bard XXXXXXXX in cash for each SNF purchase by Bard in excess of specified minimums. The parties do hereby agree that from and after the date first above written NMT shall, at Bard's option, either credit Bard with XXXXXXXX or pay Bard XXXXXXXX in cash for each SNF purchased by Bard from NMT in excess of the purchase of Two Thousand Five Hundred Thirty-Three (2,533) SNFs in the second 12-Month Period and such credit or payment shall continue until the principal amount of the Advance Payment shall have been repaid in full. Bard shall not be obliged to meet any further minimum purchases to obtain the credit or payment described in this Amendment, and Subsections 7(a)(i) through (iv) of the Agreement are ------------------- ---- expressly deleted. Upon repayment of the principal amount of the Advance Payment, NMT shall pay to Bard interest calculated as follows: The amount of the Advance Payment outstanding that exists at that point in the time when then principal amount would have been repaid if done at XXXXXXXX multiplied by a fraction, the numerator of which is the difference between the number of months beyond the date the principal would have been repaid at XXXXXXXX and the actual number of months to final repayment of principal at XXXXXXXX and the denominator of which is 12 months; The product of this calculation shall be multiplied by XXXXXXXX and the resulting total shall be paid by NMT to Bard within 30 days of the final principal repayment. For example, if the Advance Payment would have been repaid by March 1996 at XXXXXXXX, but instead is repaid in January 1997 at XXXXXXXX, and the principal balance at March 1996 is XXXXXXXX, then NMT would pay Bard XXXXXXXX. In the event that the Advance Payment is not fully repaid on expiration, nonrenewal or termination of this Agreement, NMT shall pay Bard XXXXXXXX per month thereafter until the Advance Payment is fully amortized and repaid in full upon which date NMT shall pay the interest computed as above and each month in which XXXXXXXX is paid shall count as an additional month in the numerator. 2. Except as expressly amended hereby all other provisions of the Agreement remain in full force and effect in accordance with their terms. IN WITNESS WHEREOF, the undersigned have hereunto set their hand and seal as of the date first above mentioned. NITINOL MEDICAL TECHNOLOGIES, INC. By: \s\ C. Leonard Gordon ---------------------------------- C. Leonard Gordon Chief Executive Officer C. R. BARD, INC. By: \s\ Burt S. Mirsky ---------------------------------- Burt S. Mirsky Vice President and General Manager -2- EX-10.8 4 BARD INTERNATIONAL DISTRIBUTION AGREEMENT EXECUTION VERSION EXHIBIT 10.8 INTERNATIONAL DISTRIBUTION AGREEMENT This Agreement (hereinafter, "Agreement") is made and effective as of the 30th day of November 1995 by and between NITINOL MEDICAL TECHNOLOGIES, INC., a Delaware corporation, having its principal place of business at 263 Summer Street, Boston, MA 02210, U.S.A., (hereinafter, "NMT"), and BARD INTERNATIONAL, INC., a Delaware corporation which has its principal office at 111 Spring Street, Murray Hill, N.J. 07974 (hereinafter, "Distributor"). WHEREAS, NMT is a party to an Agreement with the Bard Radiology Division (hereinafter "Bard") of C.R. Bard Inc. dated May 19, 1992 and Amendment thereto made February 1, 1993 (hereinafter, collectively, the '92 Agreement"), pursuant to which Bard distributes in a defined territory vena cava filters sold to it by NMT. WHEREAS, Distributor is a subsidiary of the C.R. Bard Inc. and desires to distribute Product in territories other than those in which Bard distributes Product pursuant to the 92 Agreement, and NMT is willing to have Distributor so distribute Product. NOW, THEREFORE, in consideration of the mutual benefits to be derived hereunder and the mutal agreements hereinafter set forth, the parties hereto hereby agree as follows: ARTICLE I - DEFINITIONS 1.01 "Product" - shall mean the vena cava filter made of nitinoi and a delivery system, collectively called the Simon Nitinol Filter, described more fully in Annex A and any changes, improvements or modifications thereto; and any ------- other vena cava filter and delivery system for vena cava filters which NMT may develop or acquire. 1.02 "Specifications" - shall mean the written specifications for the Product set forth in Annex A and labeled "Specifications". ------- 1.03 "Territory" - shall mean the entire world excluding the U.S.A., Argentina, Brazil, Finland and Greece; provided, however, that NMT may on three (3) months notice exclude from the Territory and countries in which Distributor or its affiliates are not actively engaged in, or actively taking steps to engage in , significant commercial distribution of the Product unless Distributor shall cure such inactivity during said three-month period. 1.04 "Regulatory Approval" - shall mean "regulatory approval" shall be deemed to include without limitation the notification to or concurrence, acknowledgment or approval of any governmental or quasi-governmental agency or regulatory body, domestic or foreign, which notification, concurrence, acknowledgement or approval is necessary for or useful to the manufacturing, processing, testing, marketing or sale of the Products anywhere in the world. 1.05 "SLP" - shall mean the suggested list price of the Product in effect in the United States on any date of sale. 1.06 Proprietary Rights - shall mean and include: United States applications for letters patent covering the Product, any continuation, continuation-in-part or divisional application thereof, all know-how contained therein and all patents issuing thereon; and all foreign counterparts of the foregoing and a royalty free license to use the trademark, Simon Nitinol Filter in the Territory. ARTICLE II - DISTRIBUTORSHIP 2.01 NMT hereby appoints Distributor, subject to the terms and conditions of this Agreement as exclusive distributor for the sale of Product in the Territory. Supplier shall not appoint any other person or entity as a distributor, agent or sales representative for the marketing or sale of the Products in the Territory. Supplier shall not itself directly market or sell nor supply the Products for use or resale or to any other person or entity located in the Territory. Supplier and Distributor hereby expressly agree that the grant set forth in Section 2.01 shall be deemed to include a grant to ------------ Distributor of the right to sell directly or through any affiliate of Distributor and a grant to Distributor to appoint subdistributors or sales representatives in the Territory on terms and conditions consistent with those contained in this Agreement. ARTICLE III - REPRESENTATIONS AND WARRANTIES Except for the second sentence (MDRs) and the third sentence (510K) of Section ------- 4(a)(iii) of the '92 Agreement, the respective representations and warranties of - --------- NMT and Bard set forth in Article IV of the '92 Agreement are incorporated ---------- herein by reference and shall be binding upon the parties as if set forth herein in full. ARTICLE IV - TERM 4.01 - This Agreement shall commence on the date hereof and shall continue for a period of five years thereafter, subject however, to termination as provided in Article VI, Minimum Payments and Article XIX, Default and Terminations hereof. 4.02 - This Agreement shall be automatically renewed for successive period of one (1) year each unless terminated sooner in accordance with Article VI, Minimum Payments, or Article XIX, Default and Termination, hereof or unless either party shall give a termination notice to the other in the manner set forth in Article XX, Notices, not less than six (6) months prior to the end of the term of this Agreement or any renewal thereof. 4.03 - Upon termination of this Agreement, NMT will accept returns from Distributor of Product with a minimum shelf life of eighteen (18) months XXXXXXXX an XXXXXXXX, but the returns may not exceed the quantity purchased by Distributor during the six (6) months prior to the date of termination; and Distributor will agree to furnish NMT with customers list, list of sales to each customer, copies of documentation relevant to approvals by regulatory agencies of the sale of Product in each country within the Territory, and non- confidential sales materials and marketing information. -2- ARTICLE V - PRICE AND PAYMENT 5.01 - NMT will sell Product to Distributor at the XXXXXXXX. As of the date of this Agreement, the unit SLP for a Product is XXXXXXXX Dollars. 5.02 - Payment will be net 30 days from date of shipment, with interest at XXXXXXXX per month for late payments. 5.03 - Distributor will make a first payment of XXXXXXXX upon the signing of this Agreement to be applied against initial stocking inventory and to be refunded to the extent that Product is not delivered in accordance with the initial purchase order. ARTICLE VI - MINIMUM PAYMENTS 6.01 - If Distributor's purchases of Product from NMT fall below the following specified minimum purchases of Product in any year, NMT as its sole and exclusive remedy shall be entitled to terminate this Agreement upon ninety (90) days written notice of termination to Distributor. During said ninety (90) day period, Distributor may purchase Products to satisfy the minimum purchase of Products for such prior year, (which purchases shall not count towards a minimum in the subsequent year) whereupon the termination notice shall be void. 6.02 - Specified Minimum units of Product shall be as follows: (i) XXXXXXXX during the first year of this Agreement; (ii) XXXXXXXX during the second year of this Agreement; (iii) XXXXXXXX during the third year of this Agreement; (iv) XXXXXXXX during the fourth year of this Agreement; (v) XXXXXXXX during the fifth year of this Agreement; 6.03 - (a) Specified minimums for any year may be reduced as follows: If sales by Distributor are adversely affected by (A) failure of NMT to deliver Product as required by this Agreement; (B) action of any governmental agency against NMT; (C) a competitive nitinol vena cava filter substantially similar to the Product being successfully marketed in the Territory; (D) any action by a third party infringing the Proprietary Rights anywhere in the Territory or any action brought against Bard alleging infringement of a third party's proprietary or intellectual property rights by the Proprietary Rights or; (E) any unusual and dramatic adverse incident involving SNF, then the specified minimum for the relevant year shall be reduced to the extent that such adverse events have affected sales. Distributor shall, on or before the end of each year, advise NMT in writing stating its intention to reduce the specified minimum of such year and specifying the cause of such reduction, the amount of such reduction and any other relevant facts with respect thereto. If NMT disagrees with the facts or the amount of such reduction, the parties shall negotiate with respect thereto, and if they are unable to resolve said dispute within thirty days, they shall submit the disagreement to arbitration in New York in accordance with Article XXXI hereof, with the added requirements that the arbitration shall take place within 60 days after the end of the relevant year; that a single arbitrator shall be selected; that each party shall be limited to a single spaced six-page affidavit; a double six-page written argument and a half-hour oral argument; -3- (b) During the term of this Agreement, Distribution shall at its sole cost and expense, use its reasonable efforts to file for and obtain any and all regulatory approvals in the Territory of any Product, and Supplier shall cooperate with Distributor at Supplier's own expense as may be reasonably requested by Distributor (including but not limited to promptly supplying all regulatory dossiers) to effect the regulatory approvals and to make and document such changes to any such Products and the Specifications as are necessary or useful to obtain the regulatory approvals and otherwise to make any Product commercially viable in Distributor's opinion. Any regularly approvals shall be in the name of Distributor or its designee. (c) In the event that the regulatory approval of any Product shall not be obtained within six (6) months after the Date of this Agreement in any part of the Territory, such Product in such part of the Territory may, in Distributor's sole discretion, be deleted from this Agreement, and Distributor shall have no further obligations, including any minimum purchase obligations (determined and pro-rated in accordance with the Percentage Allocation set forth in Annex A), or other liability whatsoever to Supplier with respect to such ------- Product in such part of the Territory. (d) Supplier shall, at its sole cost and expense, comply with, and meet all obligations under, the requirements for a manufacturer as set out in the European Medical Devises Directive 93/42/EEC) on or before 14 June 1998 (the "Directive") and any legislation of a member state of the European Union intended to implement the Directive (the "Implementing Legislation"). Distributor shall use its reasonable efforts to fully comply with, and fulfill all obligations under the requirements for an authorized representative as set out in the Directive and Implementing Legislation and any other regulatory laws in force in any part or all of the Territory. Supplier and Distributor shall cooperate and assist one another in complying with the Directive and Implementing Legislation and any other regulatory laws in force in any part or all of the Territory. ARTICLE VII - SHIPPING, PACKAGING, SPECIFICATIONS, AND LABELING 7.01 - The Product shall be air shipped FOB point of manufacture. 7.02 - Package will be not less than the quality currently employed by NMT. Packaging shall at all times be able to pass the NSTA standard shipping test, each shipment shall be accompanied by a certificate of sterilization and certificate of compliance stating that appropriate inspection and testing has confirmed compliance to all specifications required for the Products by any applicable regulatory authority for the Products in the shipment. 7.03 - Each Product package shall be marked with the name "Simon Nitinol Filter, a registered trademark of Nitinol Medical Technologies, Inc." and shall be further marked with appropriate patent and trademark notices as reasonably required by the other party and pursuant to the laws of the country in which the Products are sold. ARTICLE VIII - PURCHASE ORDERS AND FORECASTS -4- 8.01 - Not less than forty-five days prior to the last day of each calendar quarter during the Term, Distributor shall provide to NMT a Purchase Order in the form described in the next paragraph with respect to the purchase of all the Products to be delivered hereunder to Distributor during the following quarter and a nonbinding rolling forecast of the number and kind of Products to be delivered by NMT pursuant hereto during the four immediately following quarters. 8.02 - Distributors Purchase Orders shall be in the form attached hereto as Annex B, provided, however, that this Agreement shall prevail if there ------- -------- ------- is a conflict between it and such purchase order, it not being the intent of the parties hereto to enlarge, reduce or change any representation, warranty or covenant set forth in this Agreement, and shall contain the following information: (a) model number and description of each Product ordered; (b) quantity of each Product ordered (c) requested delivery dates or each product; (d) per unit purchase price as determined in accordance with this Agreement; and (e) shipping instructions. NMT shall be obligated to accept any Purchase Order for the Products submitted by Distributor hereunder which conforms to the terms hereof, except that NMT may not be required to deliver in any quarter a number of any Product which exceeds 125% of the number of such Product which Distributor forecast it would require in such quarter in the most recent previous forecast submitted by Distributor pursuant hereto. ARTICLE IX - INSURANCE 9.01 - At all times during the Term, NMT shall maintain product liability insurance with a carrier reasonably approved of by Distributor in the amount of not less than $2,000,000 per occurrence and $2,000,000 in the aggregate. Distributor shall be a named insured on such policy which policy shall provide that Distributor shall receive thirty days' prior written notice from the carrier of any material change therein or cancellation, and shall receive a certificate of such insurance within (90) days of the date of this Agreement. At the present time the carrier for NMT'S product liability insurance is National Union Fire Insurance Company of Pittsburgh, Policy No. GLA 121 0482 RMA. ARTICLE X - WARRANTY 10.01 - NMT assumes liability for any Product not meeting the Specifications, as follows. If any Product does not meet the Specifications or has been otherwise rendered worthless or useless of its value (a) through no fault or neglect of Distributor or (b) through no cause which could be insured against or (c) not be reason of expiration of shelf life, then NMT shall at its cost furnish Distributor with new Product as replacement within sixty days. All other warranties are hereby expressly disclaimed including, but not limited to, any implied warranties of merchantability, or fitness of a particular purpose. NMT shall not be liable for -5- any incidental or consequential loss, damage or expense including loss or profit directly or indirectly arising from the sale or use of Product other than replacement of it. NMT neither assumes nor authorizes any other person to assume for it any other or additional liability or responsibility in connection with the Product. ARTICLE XI - CHANGES 11.01 - NMT reserves the right, from time to time, to make such changes in the type, model or design Product as may be deemed necessary or desirable, provided, however, that any changes in Specifications of Product shall be made - -------- ------- only upon consultation between and approval of the parties which may not be unreasonably withheld. ARTICLE XII - COVENANTS OF NMT 12.01 In addition to the other duties, obligations and agreements provided for in this Agreement, NMT agrees that: (a) The Product shall be manufactured in conformity with the engineering plans and specifications currently in effect as such plans and specifications may be amended from time to time in accordance with Section XI, ---------- Changes. (b) NMT shall be responsible to ensure that all Products shipped to Distributor shall be free from defects in material, workmanship and packaging, meet the Specifications and will be in accordance with good manufacturing practices as required by the applicable regulatory authorities and other applicable rules and regulations. (c) NMT shall, at its sole cost and expense, replace any Products that are not in conformity with the plans and Specifications provided by NMT. (d) NMT at its own expense will provide Distributor with such technical information, test data and other information and assistance which it has and sign all documents and otherwise cooperate with Distributor as may be reasonably requested by Distributor or otherwise required to obtain regulatory approvals. NMT will make all filings with the relevant governmental authority required by the Act by reason of any changes, improvements or modifications of Product which could affect the safety or efficiency of any Product. ARTICLE XIII - COVENANTS OF DISTRIBUTOR 13.01 (a) Distributor will provide support necessary to obtain sales of and service for Product throughout the Territory; provided, however, that Distributor shall reimburse reasonable expenses of travel and lodging, approved in advance, or any representatives of NMT whose services in product demonstration and training are requested by Distributor; (b) Distributor will maintain a three-month inventory of Product in the Territory. -6- (c) Distributor will exert reasonable efforts to promote sales of Product to interventional radiologists, surgeons, and other potential users in a professional manner in compliance with all laws in the Territory, including, at its own expense, such advertising and promotional efforts as are necessary or appropriate to so promote such sales. (d) Distributor will use reasonable efforts to obtain approvals by any regulatory agencies that may be required to sell Product in each foreign country within the Territory. NMT at its own expense will provide Distributor which such technical information, test data and other information and assistance which it has and sign all documents and otherwise cooperate with Distributor as may be reasonably requested by Distributor or otherwise required to obtain such approval; and (e) Distributor will regularly inform NMT about its sales plans, sales results, market developments, user requirements, activities and prices of competitors, prices charged by it for Product as NMT may reasonably require but only to the extent that it is not prevented from doing so because such information is confidential or proprietary to any unaffiliated third party. ARTICLE XIV - COMPETITION 14.01 During the Term of this Agreement, Distribution shall not in the Territory make or sell nor assist in making or selling vena cava filters which are or may be competitive with the Product other than those filters which are marketed by Distributor or its affiliates on the date of this Agreement. 14.02 During the Term of this Agreement, NMT shall not in the Territory make or sell nor assist in making or selling devices which are or may be competitive with the Products. ARTICLE XV - INDEMNIFICATION 15.01 - NMT will protect, indemnify and hold Distributor harmless against any and all claims, actions, disputes or threatened actions (including court costs and reasonable attorneys' fees) asserted by third parties because of any alleged patent infringement. In the event of any such claim or action, the parties shall promptly notify each other and NMT may control the defense of any such litigation, and NMT will promptly pay Distributor's cost of defense, including reasonable attorneys' fees. In the event NMT fails to assume the control of the defense of such litigation, Distributor may assume the control of the defense of such litigation, and NMT shall abide by the undertaking of indemnification set forth in this Section 15.01. 15.02 - Subject to the provisions of Section X hereof, each of the parties hereto shall indemnify and hold the other harmless from and against any and all claims, actions, disputes or threatened actions (including court costs and reasonable attorneys' fees) which arise or result from their breach of any representation, warranty or covenant contained in this Agreement. 15.03 - NMT shall indemnify and hold Distributor harmless from and against any and all claims, actions, disputes and threatened actions (including court costs and reasonable -7- attorneys' fees) which arise under or relate to that certain Manufacturing Agreement dated June 30, 1988 by and between NMT and Lake Region Manufacturing Company, Inc., as amended; that certain Technology Purchase Agreement dated April 14, 1987 by and between NMT and Morris Simon, M.D. and/or that certain Assignment dated April 14, 1987 by and between The Beth Israel Hospital Association as assignor and Morris Simon, M.D. as assignee. ARTICLE XVI - PATENT ENFORCEMENT 16.01 - NMT may take legal action and recover against any and all infringers of patents, if any, owned by NMT for the Product in the Territory. Distributor shall not be entitled to any damages, recovery or royalties resulting from any such legal action conducted solely by NMT. However, Distributor shall have the right to take legal action at its own expense regarding infringements of such patents if NMT takes no action to terminate such infringement within sixty days after notice thereof is given to NMT by Distributor. NMT shall cooperate with Distributor in such action, at no expense to NMT, from any such legal action conducted solely by Distributor. Alternatively, the parties may agree to share the expenses of any recovery from any such legal action. ARTICLE XVII - INVENTIONS, TECHNICAL INFORMATION AND SECRECY 17.01 - NMT shall advise Distributor to the extent NMT has the right to do so of technical information, inventions and improvements of NMT relating to Product and shall incorporate any inventions and/or improvement into the Product with the advice and consent of Distributor. 17.02 - Distributor shall advise NMT to the extent Distributor has the right to do so of technical information, inventions and/or suggested improvements of Distributor relating to Product. 17.03 - Any information furnished or disclosed by either party hereunder is for the sole use of the party receiving such disclosure. Any party receiving confidential information ("Confidential Information") will take such reasonable action to the end that it shall not be disclosed to third parties except insofar as such information: (i) was known to the receiving party prior to receipt from the disclosing party; (ii) is made public by the party providing the Confidential Information; (iii) is lawfully received in good faith by the receiving party from any third party; (iv) was or is or becomes part of the public domain or known to the trade otherwise than as a consequence of a breach of the obligation here undertaken not to disclose Confidential Information; (v) is disclosed as a matter of necessity by the sale of the Products. 17.04 - The obligation of confidentiality in this Article XVII shall continue after the termination of this Agreement for a period of three years. ARTICLE XVIII - FORCE MAJEURE -8- 18.01 - In the event that the delay or failure of a party to comply with any obligation created by this Agreement is caused by Force Majeure, that obligation shall be suspended during the continuance of the Force Majeure conditions. The term "Force Majeure" shall mean any event beyond the reasonable control of the parties, including, without limitation, fire, flood, riots, strikes, epidemics, war (declared or undeclared) and embargoes. ARTICLE XIX - DEFAULT AND TERMINATION 19.01 - If either party (the "defaulting party") shall refuse to comply with any material provisions hereof, and if such default shall continue unremedied for sixty days after written notice is given to the defaulting party by the other party (the "other party") of such default, then the other party, after the expiration of said sixty days and for so long as such default shall continue unremedied, may elect at its option to terminate this Agreement by providing a written termination notice to the defaulting party. 19.02 - Voluntary or involuntary bankruptcy, receivership or insolvency proceedings filed against either party (the "insolvent party") which are not lifted within sixty days after filing will be valid grounds for cancellation of this Agreement by the other party. Such election may be made by notice in writing to the insolvent party or its legal representatives. 19.03 - Termination of this Agreement, however effected, shall not affect any rights or obligations of the parties accrued prior to the effective date of such termination, provided, however, that after such expiration, termination or surrender, NMT shall have the right to purchase at cost all Products owned by Distributor and, If NMT fails to do so, Distributor and its affiliates shall be entitled to sell such Products anywhere in the Territory. ARTICLE XX - NOTICES 20.01 - All required or permitted notices shall be in writing and may personally served upon an officer of the served party or may be deposited in the United States mail, postage prepaid, registered or certified, and sent by facsimile (fax) to the other party at the address set forth above or at such other and additional address as may be given by notice. Any notice personally served or mailed as set forth above shall be deemed to have been given on the date of personal delivery or the date such notice was deposited in the United States mail as set forth above. 21.01 This Agreement shall be governed by construed and interpreted in accordance with the laws of the State of Delaware. ARTICLE XXII - ASSIGNMENT 22.01 - Neither party shall assign this Agreement or any of its respective duties and obligations hereunder without the prior express written consent of the other party, provided, however, that this Agreement may be assigned by -------- ------- either party to any of its affiliates or to any -9- company that is the successor to all or substantially all of the business and property of such party relating to the Product. ARTICLE XXII - MERGER 23.01 - This Agreement contains the entire understanding between the parties hereto relating to the Product, and all prior or contemporaneous agreements, understandings, representations and statements, oral or written, are merged in this Agreement and shall be of no further force and effect. ARTICLE XXIV - AMENDMENTS AND WAIVERS 24.01 - Waiver at any time and by any party of strict performance of any provision of this Agreement shall not constitute, shall not be deemed to be a waiver of and shall not prejudice such party's right to require strict performance of the same provision or of any other provision of this Agreement and the terms of this Agreement may only be supplemented or modified by written amendment executed. by all parties hereto. ARTICLE XXV - BINDING EFFECT 25.01 - This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns. ARTICLE XXVI - SEVERABILITY 26.01 - In the event any provision of this Agreement shall be determined by a court of competent jurisdiction as unenforceable under applicable law, that provision shall, at the election of the party for whom the benefit of the provision is intended, be deleted, but the remaining provisions of this Agreement shall remain in full force and effect. ARTICLE XXVII - INDEPENDENT CONTRACTORS 27.01 - The parties hereto are independent contractors and nothing contained in this Agreement shall be deemed or construed to create the relationship or partnership or joint venture or any association or relationship between the parties other than that of buyer and seller. Neither party is authorized to enter into any commitment on behalf of the other. ARTICLE XXVIII - TITLES AND SUBTITLES 28.01 - All titles and subtitles used in this agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement. ARTICLE XXIX - COUNTERPARTS -10- 29.01 - This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. ARTICLE XXX - SURVIVAL OF WARRANTIES 30.01 - The warranties, representations and covenants of the parties contained in or made pursuant to this Agreement shall survive the execution and delivery of this Agreement. ARTICLE XXXI - ARBITRATION 31.01 - Any controversy or claim arising out of or relating to this contract or the breach thereof, shall be settled by arbitration in The City New York in accordance with the Commercial Arbitration Rules of the American Arbitration Association and judgment upon the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. IN WITNESS WHEREOF, the undersigned have hereunto set their hand and seal as of the date first above mentioned. BARD INTERNATIONAL, INC. NITINOL MEDICAL TECHNICOLOGIES, INC. By: \s\ Timothy M. Ring By: \s\ C. Leonard Gordon --------------------------- --------------------- Name: Timothy M. Ring Name: C. Leonard Gordon Title: Vice President Title: Chief Executive Officer Annex A Product - -------- Annex B Distributor Purchase Order Form - ------- -11- EX-10.9 5 BOSTON SCIENTIFIC LICENSE AND DEVELOPMENT AGMT. EXHIBIT 10.9 LICENSE AND DEVELOPMENT AGREEMENT Agreement dated as of the 22nd day of November, 1994, by and between BOSTON SCIENTIFIC CORPORATION, a corporation organized under the laws of the State of Delaware and having its principal place of business at 480 Pleasant Street, Watertown, MA 02172 ("BSC"), and NITINOL MEDICAL TECHNOLOGIES, INC., a corporation organized under the laws of the State of Delaware and having its principal place of business at 374 Congress Street, Suite 605, Boston, MA 02210 ("NMT"). W I T N E S S E T H - - - - - - - - - - WHEREAS, NMT possesses proprietary technology with respect to nitinol Stents for vascular and non-vascular applications; WHEREAS, BSC possesses proprietary technology with respect to catheters and other products useful in the delivery and placement of Stents and related applications; WHEREAS, BSC possesses proprietary technology with respect to nitinol Stents for vascular and non-vascular applications; WHEREAS, BSC and NMT desire to enter into a development relationship to continue the development of NMT's proprietary nitinol Stent technology; and WHEREAS, BSC desires to obtain from NMT, and NMT desires to grant to BSC, an exclusive worldwide license to manufacture and market products incorporating NMT's nitinol Stent technology. NOW THEREFORE, IN CONSIDERATION of the mutual promises and covenants herein contained, the parties hereto hereby agree as follows: I. DEFINITIONS Certain capitalized terms used in this Agreement are defined as follows: 1.1 "Act" shall mean the United States Food, Drug and Cosmetic Act of --- 1976, as amended. 1.2 "Affiliate" shall mean any person or entity which, directly or --------- indirectly, controls or is controlled by or is under common control with any person or entity. 1.3 "Agreement" shall mean this License and Development Agreement. --------- 1.4 "Application Field" shall mean the entire field of Stents, whether ----------------- vascular or non-vascular, covered or uncovered, coated or uncoated, and applications therefor. 1.5 "Burdened Costs" shall mean the costs of goods manufactured of the -------------- Stents incorporating the License Rights, consisting of XXXXXXXXXX to the XXXXXXXXXX of the XXXXXXXXXX to the XXXXXXXXXX of the XXXXXXXXXX and XXXXXXXXXX to the XXXXXXXXXX of XXXXXXXXXX to the XXXXXXXXXX in accordance with XXXXXXXXXX then in effect on a XXXXXXXXXX. "Burdened Costs" shall not include XXXXXXXXXX or any other XXXXXXXXXX by XXXXXXXXXX to XXXXXXXXXX hereunder. 1.6 "Confidential Information" shall mean all written information and data ------------------------ provided by the parties to each other and marked as confidential. Confidential Information may also include oral information disclosed by one party to another party, provided that such information is designated as confidential at the time of disclosure and reduced to a written summary by the disclosing party, within ten (10) days after its oral disclosure, which is marked in a manner to indicate its confidential nature and delivered to the receiving party. Notwithstanding the above, no party shall have liability to the other with regard to any Confidential Information of another party which: (a) is known to the receiving party, as evidenced by the receiving party's written record, before receipt thereof from the disclosing party; (b) is disclosed to the receiving party by a third person who has a right to make such disclosure; or (c) is or becomes part of the public domain through no fault of the receiving party. 1.7 "Development Costs" shall mean documented costs incurred in the ----------------- Development Program, including the Technology Transfer, consisting of XXXXXXXXXX to the XXXXXXXXXX, including the XXXXXXXXXX and XXXXXXXXXX to the XXXXXXXXXX to the XXXXXXXXXX and the XXXXXXXXXX in accordance with XXXXXXXXXX. Development Costs shall be fully accounted for in the period in which they are incurred, regardless of whether GAAP requires capitalization thereof. 1.8 "Development Program" shall have the meaning set forth in Section 3.1. ------------------- 1.9 "Evaluation" shall mean the evaluation conducted by BSC of the License ---------- Rights and Products in accordance with the evaluation program set forth on Schedule A attached hereto. 1.10 "First Lot to Stock" shall mean the manufacture of two commercial ------------------ quantity lots (each of 250 units or more) of nitinol Stents meeting the specifications and protocols set forth in Schedule B, as the same may be modified by agreement between the parties, utilizing a reproducible validated manufacturing process and system developed in the Development Program as the same may be modified thereafter. For purposes hereof, "validated" shall mean -2- a process which produces Stents which consistently meet the specifications and protocols set forth in Schedule B, as the same may be modified by agreement between the parties, with yields in excess of 80%. For the avoidance of doubt, it is agreed that a process does not require inspection or certification by the FDA or any other regulatory authority in order to be "validated." 1.11 "FDA" shall mean the United States Food and Drug Administration. --- 1.12 "License Rights" shall mean all of NMT's rights to Product -------------- Developments, Patent Rights and Technical Information in the Application Field. 1.13 "Market Launch" shall mean the first date on which there is an ------------- unrestrained shipment of a Product to distributors or end-users in a geographic area by BSC or its Affiliates or sublicensees. 1.14 "Net Sales" shall mean the gross invoice amount of Products sold by --------- BSC and its Affiliates to third parties, less discounts from gross invoice amount actually allowed to purchasers, refunds, replacements or credits allowed to purchasers for return of Products or as reimbursement for damaged Products, and, to the extent itemized in the invoice and included in the "gross invoice amount", freight, postage, insurance, and other shipping charges, sales and use taxes, customs, and any other governmental tax or charge (except income taxes) imposed on or at the time of production, importation, use, or sale of Products, including end user VAT. BSC sales to Affiliates will not be included in Net Sales unless such Affiliate is an end user (for example, a hospital) of Products, in which case the Net Sales price shall be not less than the average Net Sales price of BSC sales of the Product involved to customers which are not Affiliates during that calendar quarter. For purposes of this subsection, reasonable quantities of Products used for promotion, research or clinical trials of Products shall not be included in Net Sales unless BSC receives compensation for Products so used. Net Sales shall include any insurance or other recovery received for Products stolen, destroyed or damaged as well as any removal from inventory, mysterious or otherwise, unless for verifiable destruction, unless such recovery is limited to the replacement cost of such Products. 1.15 "OUS" shall mean all countries other than the United States of --- America. 1.16 "Patent Rights" shall mean all rights to and in patents, patent ------------- applications, and rights to file patent applications licensed to, owned, or controlled solely or jointly by NMT as of the date of this Agreement or which are developed during the term -3- of this Agreement anywhere in the world relating to the Product Developments, the Technical Information or Products in the Application Field, including but not limited to their manufacture, sale, use, or design, and including reissues or extensions thereof and any division, continuation, or continuation-in-part of any applications or substitutes therefor. 1.17 "Product Developments" shall mean all inventions and developments, -------------------- whether patentable or not, the rights to which NMT owns, controls, or acquires by assignment or otherwise as of the date of this Agreement or which are developed during the term of this Agreement within the Application Field or which fall within the scope of any claim of any patent or patent application included within the Patent Rights. 1.18 "Products" shall mean (i) any product which includes a Stent that -------- incorporates, or the manufacture or use of which incorporates, the License Rights for use in the Application Field; (ii) any product which includes a Stent for use in the Application Field that falls within the scope of any claim of any unexpired patent included in the Patent Rights or within the scope of the broadest good faith claim (in light of the prior art) in any pending patent application included in the Patent Rights, or that otherwise employs an invention disclosed in a patent or patent application which is included in the Patent Rights; and (iii) any product which includes a Stent for use in the Application Field which is developed by or for BSC after the date hereof and which is reasonably determined to be directly derived from or based upon the License Rights. 1.19 "Product Combinations" shall mean a catalogue item consisting of a -------------------- system or combination of one or more Stents incorporating the License Rights together with other systems, components or products which have interdependent or independent value and function in patient treatment. 1.20 "Stent" shall mean a medical device designed to be inserted in or to ----- establish a natural, synthetic, autologous or allogenic lumen or passageway in the body of a patient, the function of which is to (a) support, expand, maintain, or establish such lumen or passageway or (b) serve as a scaffold or matrix to present a material on the inner or outer surface of such medical device to the wall of such lumen or passageway. 1.21 "Technical Information" means all know-how, data, technology and other --------------------- information in the possession of, developed or acquired by NMT as of the date of this Agreement or which are developed during the term hereof of this Agreement that is used or useful in the evaluation, development, testing, registration, manufacture, use, or sale of Products. 1.22 "Technology Transfer" shall mean the transfer of technology as ------------------- described in Section 5.2 of this Agreement. -4- 1.23 "Territory" shall mean all of the countries of the world. --------- II. EVALUATION 2.1 Evaluation. BSC and NMT have agreed that BSC will conduct the ---------- Evaluation to evaluate the License Rights and Products pursuant to a letter agreement dated June 15, 1994 during a five (5) month evaluation period commencing as of June 1, 1994. For purposes of this Evaluation, BSC shall conduct such due diligence and such bench, animal and OUS clinical testing as it deems reasonable in the circumstance. BSC shall also conduct such due diligence with respect to the validity and non-infringement of the License Rights as it deems reasonable in the circumstance, including without limitation obtaining appropriate opinions of counsel. 2.2 Responsibilities of NMT. During the evaluation period, NMT shall use ----------------------- commercially reasonable efforts to develop and deliver Stents to BSC without charge having the characteristics set forth on Schedule A hereto. NMT shall provide BSC technical support and assistance reasonably requested by BSC to perform satisfactorily the Evaluation and shall grant BSC access to its facilities and records relating to the License Rights and Products during normal business hours. In addition, NMT shall provide BSC copies of all relevant information and data in the possession of or available to NMT with respect to the License Rights and Stents necessary or appropriate for use in or in connection with the Evaluation. NMT shall also provide BSC with copies of all issued patents and pending patent applications with respect to the License Rights, and shall keep BSC reasonably informed of all patent prosecution activities regarding the License Rights. Information provided by either party to the other in the Evaluation shall be treated as Confidential Information pursuant to Section 11 hereof. 2.3 BSC Resoonsibilities. BSC shall commit sufficient personnel and -------------------- resources to complete the Evaluation during the evaluation period. When appropriate, BSC may direct BSC and NMT engineering efforts necessary to perform the Evaluation. During the evaluation period, BSC shall use commercially reasonable efforts to develop and manufacture delivery devices. BSC shall prepare appropriate labelling, subject to the approval of NMT which approval shall not be unreasonably withheld or delayed, for placement on Products to be used in the Evaluation. BSC and NMT shall each bear its own costs and expenses of the Evaluation, except that BSC shall bear all costs for third party clinical, preclinical or animal studies incurred in the Evaluation. 2.4 Joint Resoonsibilities. BSC and NMT shall prepare detailed due ---------------------- diligence plans and agendas, as appropriate to perform the Evaluation, with mutually agreed upon milestones. Technical personnel of BSC and NMT shall meet weekly to track the progress of the Evaluation and shall prepare monthly written -5- status reports for review by appropriate personnel at BSC and NMT. Although BSC shall be responsible for the organization and conduct of the Evaluation, BSC will share all technical data (but not marketing analysis) with respect to the Stents being evaluated which is generated during or from the Evaluation with NMT, subject to the confidentiality provisions of Article 11 hereof. NMT shall have the unrestricted right to use all such data for any purpose if BSC does not exercise its right to receive a license pursuant to Section 6.2 hereof. BSC shall notify NMT of the anticipated time and place of any animal and human trials performed during the Evaluation and NMT may have representatives present to observe such trials. 2.5 Due Diligence Payments. BSC shall pay to NMT the amount of XXXXXXXXXX ---------------------- per month or part thereof during the evaluation period, not to exceed in the aggregate XXXXXXXXXX, plus a final payment of XXXXXXXXXX for the period November 1 through November 22, 1994, as a non-refundable advance against license fees due and payable pursuant to Section 6.2 below. Such advance will be credited against license fees payable to NMT hereunder, commencing in the second year after the first Market Launch of a Product in the United States, but in no event will such credit reduce the minimum licensing fee payments in any year below those provided for in Section 6.5 hereof, nor reduce the amount payable in any calendar quarter to less than fifty percent (50%) of the amount otherwise due. III. PRODUCT DEVELOPMENTS 3.1 Research and Development. BSC and NMT shall establish a budgeted ------------------------ research and development program to continue development of the License Rights in the Application Field and to complete the Technology Transfer (the "Development Program"). BSC agrees to fund the capital and non-capital Development Costs of the Development Program, including the Technology Transfer, in accordance with the budget, subject to the allowance provided in the following sentence, through March 31, 1996, in an aggregate amount estimated for the non-capital budget to be XXXXXXXXXX. If NMT anticipates exceeding the non- capital budget for any quarter by more than 10%, it will so notify BSC as soon as practical and NMT will not exceed the non-capital budget for any quarter by more than 10% without BSC's consent. If NMT anticipates exceeding the total capital budget by more than 10% it will so notify BSC as soon as practical and NMT will not exceed the total capital budget by more than 10% without BSC's consent. BSC personnel will participate in the Development Program but the value of BSC personnel and other BSC resources contributed to the Development Program shall not be counted toward the Development Costs. The parties currently estimate in good faith that the non-capital Development Program, including the Technology Transfer, can be completed by March 31, 1996 at a cost of XXXXXXXXXX. BSC and NMT shall meet at least monthly during the period of the Development Program to jointly identify research and develop programs in the Application Field and to review the results of programs in -6- process. Minutes for such meetings shall be recorded and distributed promptly to the parties. NMT, after consultation with BSC, shall establish a non-binding development budget through March 31, 1996 with monthly estimates for such programs. BSC shall use commercially reasonable efforts to develop and manufacture delivery devices for use with the Products. 3.2 Product Developments. During the term of this Agreement, NMT agrees -------------------- to promptly report and disclose to the Chief Development Officer of BSC, or to such other person as may be designated by BSC, all Product Developments in the Application Field and to make all such Product Developments available for incorporation into the Products. Any other potential Products identified by BSC or NMT in the Application Field may be developed jointly by BSC and NMT in accordance with development schedules established by mutual agreement of the parties. NMT agrees that the license set forth in Section 6.1 shall include an exclusive license for Product Developments and new Products at the licensing fee rates set forth in Section 6.2 hereof. 3.3 Intellectual Property Rights. All technology and products related to ---------------------------- nitinol Stents or the use or delivery thereof developed during the term of this Agreement shall be owned by the party or parties inventing the same, subject to the terms and conditions of this Agreement (unless otherwise agreed in writing by the parties) and NMT's interest therein shall be deemed to constitute Product Developments, Technical Information or Patent Rights hereunder, as the case may be. License Rights developed, owned or licensed solely by NMT outside of the Development Program shall remain the property of NMT, subject to the license granted herein (unless otherwise agreed by the parties). Technology in the Application Field or in connection with Stent delivery devices developed, owned or licensed solely by BSC outside of the Development Program shall remain the property of BSC. 3.4 Expense Reimbursement. At the commencement of the Development --------------------- Program, including the Technology Transfer, BSC will advance XXXXXXXXXX to NMT. NMT will bill BSC monthly for its activities under Section 3.1, 4.1 and 5.2, based on pre-agreed rates for various classes of employees. These bills will be payable net 20 days. After four months of activity, and regularly thereafter, the advance payment may be reevaluated by BSC and NMT, and if BSC has been prompt in paying bills as submitted, the advance may be adjusted to approximate one month's billing. 3.5 Ownership of Capital Equipment. Capital equipment and related tooling ------------------------------ purchased by NMT with funds provided by BSC in the Development Program shall be the property of BSC and shall be delivered to BSC upon request. -7- IV. CLINICAL AND REGULATORY MATTERS 4.1 Registration of Products in the Territory. BSC shall apply ----------------------------------------- diligently and reasonably promptly for registrations and regulatory approvals deemed necessary by BSC to promote and sell the Products in the countries inside the Territory in which it intends to promote or sell Products. NMT shall assist BSC in the preparation of such submissions, provide BSC with copies of all relevant information in the possession of or available to NMT, and assist BSC in the preparation of any responses to regulatory requests for additional information in connection with such submissions. Costs incurred by NMT in connection with NMT's activities pursuant to this Section IV which are requested by BSC will be reimbursed pursuant to Section 3.4. V. PRODUCTS MANUFACTURING 5.1 Manufacturing. BSC will manufacture Products in accordance with ------------- (i) the applicable products specifications; (ii) Good Manufacturing Practices ("GMP") as required by the Act; and (iii) pertinent rules and regulations of the FDA or the appropriate regulatory authority outside of the United States. 5.2 Technology Transfer. Upon exercise of the license granted ------------------- herein, NMT shall take all steps reasonably necessary to transfer all Technical Information necessary for the manufacture of nitinol Stents incorporating the License Rights to BSC. In addition, NMT shall provide BSC all assistance reasonably necessary to establish a facility to manufacture nitinol Stents incorporating the License Rights both in the United States and OUS and to train personnel to manufacture nitinol Stents incorporating the License Rights. In addition, NMT shall provide BSC with technical consultation, advice and know-how relating to the design, development and manufacture of nitinol Stents incorporating the License Rights and relating to any equipment required for BSC to manufacture nitinol Stents incorporating the License Rights meeting product specifications and standard quality control requirements, including without limitation any documentation, drawings, specifications, protocols, metallurgical data and process information of NMT relating to nitinol Stents incorporating the License Rights and the License Rights. NMT shall train a reasonable number of responsible BSC engineers in the design, development and manufacture of nitinol Stents incorporating the License Rights and the use of the License Rights. 5.3 VIP Sharing. In addition to the licensing fees and payments ----------- payable to NMT by BSC pursuant to Articles 3 and 6 hereof, BSC shall pay NMT XXXXXXXXXX of the following amounts ("VIP Payments") sixty (60) days after the close of each calendar quarter: (a) During the period beginning with Market Launch of the first Product and ending five (5) years after the first -8- day of the first calendar quarter following such first Market Launch, the excess of (x) XXXXXXXXXX over (y) the weighted average Burdened Cost per Stent manufactured in the quarter, multiplied by the number of units of Stents manufactured by BSC and its Affiliates and sublicensees during the quarter; provided, however, that the first such payment shall also include VIP Payments calculated with respect to all Stents manufactured and placed in inventory for commercial sale during the period preceding Market Launch, and provided, further, that for this purpose, non-sterile Stents manufactured for demonstrations and Stents used for clinical trials and regulatory testing and evaluation and the Burdened Cost of these Stents shall be excluded from the calculation; (b) During the sixth through tenth years following the first day of the first calendar quarter following Market Launch of the first Product, the excess of (x) XXXXXXXXXX over (y) the weighted average Burdened Cost per Stent manufactured in the quarter, multiplied by the number of units of Stents manufactured by BSC and its Affiliates and sublicensees during the quarter (excluding, for this purpose, non-sterile Stents manufactured for demonstrations and Stents used for clinical trials and regulatory testing and evaluation); and (c) During the eleventh and each subsequent year following the first day of the first calendar quarter following Market Launch of the first Product, the excess of (x) the lesser of (i) XXXXXXXXXX times the XXXXXXXXXX, or (ii) XXXXXXXXXX over (y) the weighted average Burdened Cost per Stent manufactured in the quarter, multiplied by the number of units of Stents manufactured by BSC and its Affiliates and sublicensees during the quarter. The "Index" for eleventh and all subsequent years shall be defined by the following formula: XXXXXXXXXX Where: I is the Index; XXXXXXXXXX is the XXXXXXXXXX for all XXXXXXXXXX for the United States as reported by the XXXXXXXXXX for January of the year in question; XXXXXXXXXX is the XXXXXXXXXX for all XXXXXXXXXX for the United States as reported by the XXXXXXXXXX for January of the tenth year of this Agreement. -9- VI. EXCLUSIVE LICENSE 6.1 Grant of License. If BSC notifies NMT of its intent to proceed ---------------- to the license phase of this Agreement on or before October 31, 1994, NMT shall and hereby does grant to BSC the sole and exclusive right, license and privilege to use the License Rights in the Application Field, and to manufacture and sell, and to grant sublicenses to others to use, manufacture and sell, Products in the Territory. 6.2 Licensing Fees. -------------- (a) In consideration of the license granted above, for the longer of (x) twenty (20) years from Market Launch of the first Product or (y) until the expiration of the last patent which is part of the Patent Rights, BSC shall pay NMT with respect to Net Sales by BSC or its Affiliates to any third party (other than sales to Affiliates) of the Products, the following licensing fees: (i) Except as set forth in Clause (iii), XXXXXXXXXX of Net Sales of Products that occur during the period beginning with Market Launch of the first Product and ending five (5) years after the first day of the first calendar quarter following such first Market Launch; (ii) Except as set forth in clause (iii), XXXXXXXXXX of Net Sales of Products that occur during the term of this Agreement after the period set forth in clause (i); (iii) In the event that any third party in any country markets an expandable nitinol Stent with welded cell design that competes with one or more Products marketed by BSC but which does not infringe the Patent Rights (such non-infringing competing product being hereinafter referred to as an "NIC Product"), then the BSC license fee for such Products will be reduced as hereinafter set forth: In each market for expandable nitinol Stents (e.g. biliary Stents , iliac Stents, peripheral vascular Stents, coronary Stents, urethral Stents, etc.) in which BSC can show that an NIC Product or NIC Products hold in the aggregate at least 10% of that market for expandable nitinol Stents, then the licensing fee provided in Section 6.2(a) (i) and 6.2 (a) (ii) for such Product in such market in such country shall be reduced from XXXXXXXXXX and XXXXXXXXXX, respectively, and the parties shall negotiate in good faith an appropriate reduction (even to zero, if appropriate) in the minimum licensing fee amounts in Section 6.5. If BSC believes it is entitled to pay a reduced licensing fee pursuant to this subsection, it shall so notify N~T in writing and the parties shall meet to resolve the matter. If the parties do not agree, the -10- matter shall be resolved pursuant to Sections 17.2 and 17.3. BSC shall be entitled to pay the reduced licensing fee pending resolution of the dispute and shall pay the difference plus interest from the original due date at the rate set forth in Section 6.2(c) to NMT within thirty (30) days after resolution of the dispute if it is resolved in NMT's favor. (b) (i) Where the components of a Product or Product Combination are not each generally sold as separate units, the computation of Net Sales shall be based on the relative contribution of the components of the Product or Product Combination. Relative contribution shall reflect the relative complexity and importance to end-users of the various separate components of the Product or Product Combination, and shall be negotiated in good faith from time to time by the parties. NMT and BSC agree that the relative contribution of a Stent to a Product shall not, in any case, be less than XXXXXXXXXX of Net Sales (except in the case of Products for abdominal aortal aneurysms, for which the contribution of the Stent may be determined to be less than XXXXXXXXXX), and shall be XXXXXXXXXX of Net Sales when sold as a Product with a nitinol Stent substantially similar to the present design and a catheter-based delivery system incorporating art substantially similar to that which is presently generally known in the industry. Any dispute arising under this Section 6.2(b) will be resolved pursuant to Sections 17.2 and 17.3 hereof. (ii) Subject to the application of clause (i) to the Product components of a Product Combination, in order to determine the Net Sales of the Stent included therein, where the components of a Product Combination are each generally sold as separate units, the computation of Net Sales of the Product portion of the Product Combination shall be determined by multiplying the Net Sales of the Product Combination by the fraction A/(A + B), where A is the average selling price during the prior calendar year of the Product which is part of the Product Combination and B is the average selling price during the prior calendar year of the other components of the Product Combination. (iii) If NMT has developed any component of the Product or Product Combination other than the Stent component thereof (for example, a delivery system), the relative contribution of (and the corresponding percentage of Net Sales attributable to) NMT components, including the Stent, shall increase (e.g., from XXXXXXXXXX) in calculations under clause 6.2(b) (i) above and any NMT component which is not part of the Product portion of a Product Combination shall be included in the "A" portion of the formula in clause 6.2(b) (ii) above. -11- (iv) In determining the relative contribution of the components of a Product or Product Combination, consideration shall be given to any third party payments required. (c) Except as set forth in Section 6.5(a), the fees payable under paragraph (a) shall be paid within sixty (60) days after the close of each calendar quarter during the term of this Agreement, and simultaneously therewith BSC shall furnish to NMT a statement showing on a US/OUS basis and in the aggregate for those countries in which a different licensing fee is payable pursuant to Section 6.2(a)(iii), the Net Sales and unit sales of BSC and its Affiliates and sublicensees subject to licensing fees and the licensing fees due with respect to that calendar quarter, all calculated in reasonable detail. Late payments shall bear interest at a rate equal to XXXXXXXXXX the XXXXXXXXXX of the XXXXXXXXXX. BSC's obligations to NMT with respect to sales from a sublicensee or subdistributor shall arise in the calendar quarter in which such sales are recognized by BSC in its financial statements. (d) Except as otherwise provided herein, the payments to be made to NMT under this Agreement are the actual amounts to be received by NMT and shall not be reduced in any way, including but not limited to, by any liabilities incurred by BSC or its Affiliates or sublicensees upon remittance to NMT of the payments due hereunder. In the event BSC or its Affiliates or sublicensees are required to make a deduction or withholding of tax, in those situations in which it is possible for BSC to receive the benefit of the withholding or deduction in any way (by use to offset U.S. or foreign tax, by refund or otherwise) then the amount payable to NMT shall be increased to the extent necessary to ensure that after the making of such deduction or withholding, NMT receives and retains an amount equal to that which it would have received or retained had no such deduction or withholding been made by BSC or its Affiliates or sublicensees. In such case, NMT shall assign to BSC its right to recover such deduction or withholding from the relevant government authorities. Each party agrees to assist the other by submitting declarations to the relevant authorities as may be required with regard to each party's status in relation to a deduction or withholding of taxes. (e) To the extent licensing fees have been paid on non-patented Products or on Products for which all applicable patents have expired or held invalid, BSC shall have the perpetual royalty-free non-exclusive right to manufacture, use and sell such Products after the period set forth in Section 6.2(a) that shall survive termination of this Agreement at the end of the term set forth in Section 8.1. -12- (f) All payments required to be made under this Agreement shall be made in U.S. dollars. Monetary conversions from the currency of a foreign country into U.S. dollars shall be made in the manner that BSC generally applies for translation of fees payable to third parties, applied in a consistent manner, or on another basis mutually agreed upon by both parties in writing, provided that any conversion rate used does not distort the payments required under this Agreement and that the total licensing fees for each year shall agree with the amount reported in the financial statements of BSC for that year. 6.3 Additional Payments. ------------------- (a) Upon written notice to NMT on or before October 31, 1994, or such later date as the parties may agree, of its election to exercise its rights to take the license granted herein, BSC shall pay to NMT a non-refundable (except as provided in Section 6.3(c)) lump sum fee in the amount of XXXXXXXXXX in consideration of the grants and the exclusive nature thereof as set forth in this Agreement. (b) If BSC has properly elected to exercise its rights to take the License granted herein, upon the issuance of a valid United States patent with claims covering any of the Product Developments or Technical Information or the Products (or, if such patent is issued prior to such exercise, then on October 31, 1994, or such later date as the parties may agree), BSC shall pay to NMT a nonrefundable fee in the amount of XXXXXXXXXX. (c) In the event a third party United States patent, reissuance, extension, division, or continuation issues covering the Products within three (3) months of BSC's written exercise of its rights to take the license granted herein, BSC may terminate this Agreement. If BSC so terminates this Agreement, NMT shall refund XXXXXXXXXX of the additional payments set forth in this Section 6.3 upon written request of BSC. (d) In the event a third party patent, reissuance, extension, division, or continuation issues covering Products during the period of twenty-one (21) months following the period set forth in Section 6.3(c), which prevents BSC in the entire Territory from reasonably entering the market or, once entered, reasonably continuing in the market, with Stents made, used and sold pursuant to the Patent Rights included in the License Rights, and BSC as a result thereof terminates this Agreement, NMT shall refund XXXXXXXXXX of the payments made to NMT pursuant to this Section 6.3 and Section 6.4. If, during said twenty-one month period, BSC is prevented from making, using and selling Stents as aforesaid in a part, but not all of the Territory, the parties shall negotiate as to how much, if any, of such payments under Section 6.3 and -13- Section 6.4 shall be repaid by NMT to BSC, and, if the parties do not agree, the matter shall be resolved pursuant to Section 17.2 and Section 17.3. (e) In the event a third party patent, reissue, extension, division or continuation issues covering the Products, then (i) the parties shall negotiate in good faith an appropriate reduction in the minimum licensing fee amounts in Section 6.5 (which may reduce minimum licensing fee amounts to zero, if appropriate), and (ii) the deadlines for the milestone payments based on Market Launches for the affected Products in the regions (United States or major OUS markets in which BSC has a direct marketing presence) in which such third party patent issues shall be suspended, but such milestone payments, in the amounts set forth in Section 6.4 or such other amounts as the parties may agree upon in good faith, shall continue to be payable in the event of subsequent Market Launches. 6.4 Milestone Payments. In addition, BSC shall pay NMT the following non- ------------------ refundable amounts within sixty (60) business days following the successful completion of the following milestones: (i) The First Lot to Stock in any facility (the "First Facility"), whether located in the United States or outside the United States ("OUS"), XXXXXXXXXX; (ii) The earlier of the First Lot to Stock in a facility located in the territory (United States or OUS) in which the First Facility is not located, or twelve (12) months after the First Lot to Stock in the First Facility, XXXXXXXXXX; (iii) OUS Market Launch of a non-vascular Product, but in no event later than November 1, 1995, XXXXXXXXXX; (iv) OUS Market Launch of an un-coated vascular Product, but in no event later than August 1, 1996, XXXXXXXXXX; (v) United States Market Launch of a non-vascular Product, but in no event later than March 1, 1996, XXXXXXXXXX; (vi) OUS Market Launch of a coated vascular Product, but in no event later than September 1, 1996, XXXXXXXXXX; (vii) United States Market Launch of an un-coated vascular Product, but in no event later than October 1, 1997, XXXXXXXXXX; and -14- (viii) United States Market Launch of coated vascular Product, but in no event later than January 1, 1998, XXXXXXXXXX; provided, however, that if BSC is prevented from achieving any of the dates -------- set forth in clauses (iii) through (viii) by regulatory authorities despite BSC's diligent efforts to obtain necessary regulatory approvals, the time for the payments required by such clauses will be extended until necessary regulatory approvals are obtained; and provided, further, that if BSC -------- ------- supplies commercial quantities of Stents for US and OUS sale from a single facility for a period of twelve [12] months, then the payment required by the remaining of clauses (i) and (ii) shall be paid at the end of said twelve-month period. Payments under each of the subsections in this Section 6.4 shall be independent of payments due under the other subsections. 6.5 Minimum Net Sales. ----------------- (a) If licensing fees pursuant to Section 6.2 are less than the amounts set forth in the table below, BSC shall have the right to retain exclusivity by paying to NMT, with the licensing fee statement for the fourth quarter, an amount which would bring the licensing fees for the year up to the amount set forth in the table below. If BSC does not make such payment NMT shall have the right upon thirty (30) days prior written notice to BSC to make the exclusive license granted hereunder nonexclusive; provided, however, that BSC shall have the right to retain exclusivity by -------- paying to NMT during such thirty (30) day period an amount which would bring NMT's Licensing Fee up to the amount set forth in the table below. All amounts paid by BSC to retain exclusivity as set forth above may be applied against future Licensing Fees payable by BSC to NMT in years when licensing fees to NMT exceed the herein stated minimums. The amounts for years 1995 and thereafter are: Year Minimum Licensing Fee Amount ---- ---------------------------- 1995 XXXXXXXXXX 1996 XXXXXXXXXX 1997 XXXXXXXXXX 1998-2004 XXXXXXXXXX 2005-2009 XXXXXXXXXX 2010 and thereafter XXXXXXXXXX (b) For calendar year 1996, BSC shall pay to NMT the applicable minimum licensing fee in quarterly payments in the amount of XXXXXXXXXX per quarter. BSC shall submit such minimum licensing fee payments to NMT on or before January 1, April 1, July 1 and October 1 of such year. To the extent the licensing fee due and owing under Section 6.2(a) for a quarter during 1996 shall exceed the amount of such minimum licensing fee payment which has been paid for the quarter, -15- BSC shall pay such excess within sixty (60) days after the end of such quarter. To the extent that the amount of the licensing fee due and owing for a quarter during 1996 shall be less than the amount of such minimum licensing fee payment paid for the quarter, then the difference between these two amounts shall be credited against any additional licensing fee payments which may be owed with respect to any other quarter of the year or any subsequent years. 6.6 Diligence. BSC shall use diligent efforts in a commercially --------- reasonable manner to develop Products, obtain regulatory approval for the sale of Products, and market and sell Products. 6.7 Payments from Sublicensees. BSC shall pay to NMT XXXXXXXXXX of all -------------------------- royalties, license fees, milestone payments and other sums received from sublicensees of the License Rights within sixty (60) days after receipt thereof by BSC. VII. RECORDS 7.1 Records. ------- (a) BSC and its Affiliates shall keep, and BSC shall use its reasonable best efforts to cause its sublicensees to keep, accurate records of Net Sales in sufficient detail to support the license fees paid to NMT and of Burdened Costs in sufficient detail to support the VIP Sharing described in Section 5.3. For each year during the term of this Agreement and for three (3) years after such year, NMT and its authorized agents, representatives, counsel and accountants shall have the right from time to time (but not more than once annually) during regular business hours to audit licensing fees and VIP Payments paid for such year and to examine, abstract and copy such records, and all workpapers and background material from which such records have been derived, for the sole purpose of confirming and verifying such amounts. The cost of such audit shall be borne by NMT unless it shall be established by the audit that BSC has underpaid NMT by at least XXXXXXXXXX for the period audited, in which event the reasonable cost of such services will be borne by BSC. (b) If requested by NMT, BSC will provide NMT with a self conducted audit, in detail as requested by NMT, of all accountings for VIP and license fees and other related matters, at BSC's cost and expense. NMT may request this not more than once every three (3) years. (c) NMT shall keep accurate records of Development Cost in sufficient detail to support costs charged to BSC. BSC and its authorized agents, representatives, counsel and accountants shall have the right from time to time during regular business hours to audit Development Costs and to -16- examine, abstract and copy such records, and all workpapers and background material from which such records have been derived, for the sole purpose of confirming and verifying Development Costs. The cost of such audit shall be borne by BSC unless it shall be established by the audit that BSC has overpaid NMT by at least XXXXXXXXXX for the period audited, in which event the reasonable cost of such services will be borne by NMT. VIII. TERM AND TERMINATION 8.1 Effective Date and Term. This Agreement shall become effective as of ----------------------- the date first above written, and shall remain in full force and effect until the expiration date of the last remaining patent included in the Patent Rights, but not less than twenty (20) years after Market Launch of the first Product. 8.2 Termination. Notwithstanding Section 8.1 hereof, this Agreement may ----------- be terminated upon delivery of written notice in reasonable detail: (a) By either party, if the other shall fail in any respect to observe or perform any of the material provisions of this Agreement on its part to be observed or performed, and any such failure shall not be remedied within sixty (60) calendar days or, in the case of payments due, within thirty (30) calendar days after receipt of written or telecopied notice from the other party specifying such failure; (b) By either party, if the other shall become insolvent or a receiver shall be appointed for its business or properties, or if any petition shall be filed by or against it under any provisions of any bankruptcy, insolvency or similar laws, if such petition or proceeding is not dismissed with prejudice within sixty (60) days after filing; (c) By either party if BSC fails to deliver written notice of exercise of the license granted herein within five (5) months of the commencement of the Evaluation. 8.3 Effect of Termination. Any termination of this Agreement shall be --------------------- without prejudice as to any right of either party hereto with respect to any obligation of the other party accrued on or prior to the effective date of such termination. Upon termination, BSC shall have no further rights hereunder. If termination is effected by NMT pursuant to Section 8.2(a), then NMT and BSC shall negotiate in good faith a royalty to be paid by NMT to BSC in the event NMT shall thereafter sell any Stents incorporating the License Rights which incorporate technology of BSC, such royalty to fairly reflect the relative value of the BSC technology in such Stents. BSC may incorporate Stents held in inventory into Products and sell the same in the ordinary course of business, subject to licensing fee payments hereunder, during the six (6) months following termination. If termination takes -17- place during the conduct of the Development Program, BSC shall pay to NMT the costs incurred or committed by NMT in winding down the Development Program in an amount (which must be within the budget, subject to the XXXXXXXXXX allowance permitted by Section 3.1) not to exceed XXXXXXXXXX, including the salaries of personnel involved therein for the two (2) months following termination. IX. REPRESENTATIONS AND WARRANTIES 9.1 COVENANTS AND REPRESENTATIONS OF NMT. NMT covenants and represents: ------------------------------------ (a) That, to the best of its knowledge and belief, NMT is the sole and exclusive owner or licensee of all right, title, and interest in and to the License Rights, free of any liens or encumbrances; (b) That, to NMT's knowledge, there is no other person, firm, or corporation claiming to have any title or interest in or to any of the License Rights which is derived through NMT; (c) That there are currently no outstanding options, licenses, agreements, or outstanding claims of any kind granted by NMT relating to the License Rights in the Application Field,; and further, that NMT will not grant any such options, licenses, or agreement to any third party so long as this Agreement is in effect; (d) That NMT has full power to grant the rights, licenses and privileges herein given and to enter into this Agreement; (e) That NMT shall perform all legally proper acts and execute all documents as are reasonably needed for carrying out the intent of this Agreement; and (f) That, if and to the extent NMT licenses any technology included in the License Rights from third parties, such license or licenses are valid and in full force and effect, and NMT shall use diligent efforts to maintain such license or licenses in force for the full term of this Agreement, including without limitation the payment of any fees and royalties. (g) That if NMT fails to make any payment due to a licensor to NMT of any of the Licensed Rights or any maintenance fee for any of the Patent Rights, then BSC may make such payment on NMT's behalf and deduct such payment from licensing fees due to NMT hereunder. 9.2 Covenants and Representations of BSC. BSC covenants and represents: ------------------------------------ -18- (a) That BSC has full power to grant the rights, licenses and privileges herein given and to enter into this Agreement; and (b) That BSC shall perform all legally proper acts and execute all documents as are reasonably needed for carrying out the intent of this Agreement. X. NOTICES OF INJURIES, PRODUCT LIABILITY INDEMNIFICATION, INSURANCE PATENT INDEMNITY, PATENT ENFORCEMENT 10.1 Patent Applications and Foreign Filing. NMT shall have the right but -------------------------------------- not the duty to file, prosecute, and maintain in force, at NMT's expense, any and all patents and applications for patents covering inventions developed or acquired by or for NMT falling within the Patent Rights, using patent attorneys designated by NMT. NMT shall keep BSC reasonably informed of patent prosecution and maintenance activities involving the Patent Rights, but NMT shall have no liability to BSC with regard to NMT's activities under this paragraph. All such patent applications shall be filed, prosecuted and maintained in the name of NMT or such other applicant designated by NMT who agrees to become bound by this Agreement. In the event NMT at any time elects not to file, prosecute or maintain in force any patent or patent application falling within the Patent Rights, BSC shall have the right, at its sole expense, to do so. 10.2 Adverse Rights of Others. In the event that the manufacture, use, or ------------------------ sale by BSC of nitinol Stents included in any Products is objected to as infringing a patent held by another party, BSC shall so notify NMT and the parties shall discuss the appropriate response. From the earliest date on which (i) BSC reasonably believes, based on the advice of counsel, that a significant question of infringement of a patent owned by a third party exists, or (ii) BSC receives any notice deemed legitimate by BSC, with the advice of counsel, alleging such infringement, or (iii) any suit is filed against BSC by the party making such objection, until the objection is resolved in a manner which permits BSC to sell such Products without payment to the third party, (i) BSC shall have the right to retain as a reserve XXXXXXXXXX of any licensing fees coming due to NMT under Article 6, and to apply such reserve against half of: (a) of its legal expense in such suit, (b) any settlement cost or license fee, and (c) any court ordered recovery; and (ii) the deadlines for the milestone payments based upon Market Launches for the affected Products in the regions (United States or major OUS markets in which BSC has a direct marketing presence) in which such notice or suit is pending shall be suspended (but such milestone payments, in the amounts set forth in Section 6.4 or such other amounts as the parties may agree upon in good faith, shall continue to be payable in the event of subsequent Market Launches), and the parties shall negotiate in good faith an appropriate reduction in the minimum licensing fee amounts in Section 6.5. Upon final -19- resolution of all such matters, BSC will pay any balance of said reserve to NMT. BSC shall have the right to control the defense of any such claim and shall bear the costs thereof, and shall keep NMT fully informed at all times. NMT shall cooperate fully with BSC in the defense of any such claim and shall be reimbursed by BSC for its out-of-pocket expenditures incurred in such cooperation. BSC shall have the absolute right to resolve the matter in any way it deems commercially reasonable, including, without limitation, by granting a license to the third party of the License Rights or by cross licensing technology. In the event the resolution of the matter requires BSC to make royalty or other payments to the other party, then, (x) if the third party patent in question was issued prior to the date of this Agreement, BSC may retain up to XXXXXXXXXX of any future licensing fee due to NMT under this Agreement to meet up to XXXXXXXXXX of royalty or other payments payable by BSC to the third party, and (y) if the third party patent in question was issued after the date of this Agreement, BSC may subtract royalty or other payments from the amount of licensing fees due to NMT pursuant to the relevant provisions of Section 6.2 hereof, provided that the licensing fees payable by BSC to NMT pursuant to the relevant provisions of Section 6.2 shall not be reduced to less than XXXXXXXXXX of Net Sales of Products, Net Sales having been determined in accordance with the relative contribution rules in Section 6.2(b). Any royalty or other payment payable by BSC to the other party under any settlement shall be commercially reasonable to resolve the matter. If BSC shall enter into any settlement or agreement requiring any such royalties or other payments to the other party, and if NMT believes the royalties or other payments to the other party are not commercially reasonable, then NMT shall so notify BSC and the matter shall be resolved in accordance with Article XVII hereof, and only commercially reasonable royalties and other payments, as determined in accordance with Article XVII, shall be subject to being retained or subtracted pursuant to this Section and any excess previously retained or subtracted shall be paid to NMT. 10.3 Third Party Infringement. ------------------------ (a) In the event any of the Patent Rights shall be infringed by a third party in the Application Field and BSC notifies NMT of the facts concerning the infringement, NMT may, but shall not be obligated to, institute and prosecute, at its own expense, any action in the name of NMT necessary to protect the rights of BSC and NMT under this Agreement. In such event, NMT shall retain out of any monies collected through such action its expenses, shall reimburse BSC for its contribution to expenses under paragraph (b) below, and shall retain XXXXXXXXXX of the balance, the remainder to be paid to BSC. In any such action, BSC shall fully cooperate with NMT and, at its own expense, be entitled to non-controlling participation through counsel of its own selection. -20- (b) During the pendency of any prosecution of such action by NMT, BSC shall contribute to the expenses of such action, XXXXXXXXXX of the cost thereof. (c) In the event NMT elects not to institute and prosecute any such action, BSC may, but shall not be obligated to, prosecute any action, at BSC's own expense, in NMT's name for BSC's benefit. In such action, NMT shall fully cooperate with BSC and, at its own expense, be entitled to non- controlling participation through counsel of its own selection, but shall be entitled to reimbursement of such expense out of XXXXXXXXXX of any monies collected through such action. (d) For so long as (i) the alleged infringing product is marketed by the third party, and (ii) such alleged infringing product, together with all relevant NIC Products, hold in the aggregate at least 10% of the relevant market for expandable nitinol Stents (determined as set forth in Section 6.2(a)(iii), the deadlines for the milestone payments based on Market Launches of the affected Products in the regions (United States or major OUS markets in which BSC has a direct marketing presence) in which such alleged third party infringing product is sold shall be suspended, and such alleged third party infringing product shall be treated as an NIC Product for all purposes of Section 6.2(a)(iii). 10.4 Patent Legend. All Products sold hereunder, or Product labels or ------------- written documentation commonly distributed with Products sold, shall be marked in the reasonable discretion of BSC with words substantially similar to the following or other appropriate patent legend: "This product is protected by U.S. Patents Nos. [list of applicable patent numbers] and foreign counterparts, with others pending." 10.5 Trademarks. BSC shall have the right to market and advertise Products ---------- in the Application Field in the Territory exclusively (except as provided herein or as otherwise expressly agreed to in writing by the parties) under BSC's name, trademarks, tradenames, labels or other designations, and all of the same shall remain property of BSC and NMT shall have no rights thereto. BSC shall have no right, title or interest in NMT's trademarks. 10.6 Indemnification. BSC shall indemnify, defend and hold harmless NMT --------------- and its directors, officers, employees, and agents and their respective successors, heirs and assigns (the "Indemnities"), against any liability, damage, loss or expense (including reasonable attorneys' fees and expenses of litigation) incurred by or imposed upon the Indemnities, or any one of them, in connection with any claims, suits, actions, demands or judgments (a) arising out of the production, manufacture, sale, use in commerce, lease, or promotion by BSC or by an Affiliate, sublicensee, distributor or agent of BSC, of any Product; provided, however, that BSC's indemnification under this Section -21- 10.6 shall not apply to any liability, damage, loss or expense in the event that NMT withheld from BSC information which would have been relevant to the determination of the safety of the Product in question and such action was a proximate cause of the claim, suit, action, demand or judgment in question. 10.7 Insurance. At such time as any Product is being commercially --------- distributed or sold by BSC or by an Affiliate, sublicensee, distributor or agent of BSC, BSC shall, at its sole cost and expense, procure and maintain policies of comprehensive general liability insurance in amounts not less than $5,000,000 per incident and $5,000,000 annual aggregate and naming the Indemnities as additional insureds. Such comprehensive general liability insurance shall provide (a) product liability coverage and (b) broad form contractual liability coverage for BSC's indemnification under Section 10.6 of this Agreement. The minimum amounts of insurance coverage required under these provisions shall not be construed to create a limit of BSC's liability with respect to its indemnification obligation under Section 10.6 of this Agreement. BSC shall provide NMT with written evidence of such insurance upon request of NMT. BSC shall provide NMT with written notice at least fifteen (15) days prior to the cancellation, non-renewal or material change in such insurance; if BSC does not obtain replacement insurance providing comparable coverage within such fifteen (15) day period, NMT shall have the right to terminate this Agreement effective at the end of such fifteen (15) day period without any notice or additional waiting periods. BSC shall maintain such comprehensive general liability insurance beyond the expiration or termination of this Agreement during (a) the period that any Product is being commercially distributed or sold by BSC or by a sublicensee, Affiliate, distributor or agent of BSC and (b) a reasonable period after the period referred to in clause (a) above, which in no event shall be less than five (5) years. 10.8 Notice and Assumption of Defense. In the event any action is -------------------------------- commenced or claim made or threatened against NMT or other Indemnities as to which BSC is obligated to indemnify it (them) or hold it (them) harmless, NMT or the other Indemnities shall promptly notify BSC of such event. BSC agrees, at its own expense, to provide attorneys reasonably acceptable to NMT to defend against any actions brought or filed against any party indemnified hereunder with respect to the subject of indemnity contained herein, whether or not such actions are rightfully brought. BSC shall assume the defense of, and may settle, that part of any such claim or action commenced or made against NMT (or other Indemnities) which relates to BSC's indemnification and BSC may take such other steps as may be necessary to protect itself. NMT and the Indemnities shall cooperate fully in the defense of such claim or action, at BSC's expense, and may participate in the defense thereof through their own counsel, but at their own expense. BSC shall not be liable to NMT or other Indemnities on account of any settlement of any such claim or litigation affected without BSC's consent. The right to BSC to assume the defense of -22- any action shall be limited to that part of the action commenced against NMT and/or Indemnities which relates to BSC's obligation of indemnification. 10.9 Notice of Injuries. BSC shall give NMT notice of any claim of injury ------------------ or adverse effect related to any Stent incorporating License Rights reasonably promptly after BSC becomes aware thereof. 10.10 Survival. Sections 10.6 through 10.9 shall survive termination or -------- expiration of this Agreement. 10.11 Interferences. At any time BSC becomes aware of a potentially ------------- interfering patent or patent application held by a third party which in BSC's reasonable opinion may impact adversely its ability to sell Products in the United States, BSC may initiate in the name of NMT or BSC an interference proceeding, respond to a third party interference action on behalf of NMT or BSC, or compromise the potential interference. To the extent BSC becomes obligated by settlement or court order to pay royalties or other amounts to such third party, BSC may subtract such amounts from the amount of licensing fees BSC is required to pay NMT pursuant to the relevant provisions of Section 6.2 hereof, provided, however, the license fees payable by BSC to NMT pursuant to -------- the relevant provisions of Section 6.2 shall not be reduced to less than XXXXXXXXXX of Net Sales of Products in the United States, Net Sales having been determined in accordance with the relative contribution rules in Section 6.2(b); provided, further, that if BSC shall enter into any settlement or agreement requiring any such royalties or other payments to the other party without the consent of NMT, which consent shall not be unreasonably withheld, then BSC may not subtract such amounts from any such future licensing fees due to NMT. The parties shall bear the expense of any such interference proceeding equally. BSC shall be entitled to select patent counsel, reasonably acceptable to NMT, to represent NMT and BSC in any interference proceeding. Such counsel shall act at the direction of BSC, subject to the requirement that NMT participate in and consent in writing, which consent shall not be unreasonably withheld or delayed, to all significant decisions related to the proceeding. XI. CONFIDENTIAL INFORMATION 11.1 It is contemplated that in the course of the performance of this Agreement each party may, from time to time, disclose Confidential Information to the other. Each party agrees to make diligent efforts to prevent disclosure of Confidential Information. Efforts to prevent disclosure shall not be less than those taken by each party to protect their own proprietary information. Notwithstanding the foregoing, no provision of this Agreement shall be construed so as to preclude such disclosure of Confidential Information as may be inherent in or reasonably necessary for securing from any governmental agency any necessary -23- approval or license, or for obtaining patents by the parties relating to the subject or performance of this Agreement, provided that the receiving party uses --------- commercially reasonable efforts to obtain appropriate protective orders or other reasonable assurances of confidentiality. Each party agrees that Confidential Information shall be used solely for purposes of this Agreement and shall be disclosed or disseminated only to employees and agents who have a "need to know" to carry into effect the terms and purposes of this Agreement. XII. FORCE MAJEURE 12.1 Any delay in the performance of any of the duties or obligations of either party hereto shall not be considered a breach of this Agreement and the time required for performance shall be extended for a period equal to the period of such delay; provided that such delay has been caused by or is the result of -------- any acts of God, acts of the public enemy, insurrections, riots, embargoes, labor disputes, including strikes, lockouts, job actions, or boycotts, fires, explosions, floods, shortages of material or energy or other unforeseeable causes beyond the control and without the fault or negligence of the party so affected and provided further that payment obligations cannot be extended for -------- -------- more than thirty (30) days. The party so affected shall give prompt notice to the other party of such cause, and shall take whatever reasonable steps are necessary to relieve the effect of such cause as rapidly as possible. XIII. NOTICES AND PAYMENTS 13.1 All notices hereunder shall be in writing and shall be delivered personally or mailed, postage prepaid, to the following addresses of the respective parties: If to NMT: Nitinol Medical Technologies, Inc. 374 Congress Street, Suite 605 Boston, Massachusetts 02210 Attention: President with a copy to: Nitinol Medical Technologies, Inc. c/o Synergistic Associates, Inc. 7779 Willow Glen Road Los Angeles, CA 90046 Voice: 213-656-8888 Fax: 213-656-1823 -24- If to BSC: Boston Scientific Corporation 480 Pleasant Street Watertown, Massachusetts 02172 Attention: President with a copy to: General Counsel or to such other person or address as a party may specify by notice so given. Such notice shall be effective upon receipt if personally delivered, or on the third business day following the date of mailing. 13.2 Payments. All payments to be made to NMT hereunder shall be made by -------- wire of immediately available funds to the following account: Mercantile National Bank 1840 Century Park East Los Angeles, CA 90067 Routing Number 90-3905/1222 For the Account of Nitinol Medical Technologies, Inc. A/C # 001-148745 or by such other payment method and/or to such other account as NMT may supply by notice given in accordance with Section 14.1. XIV. WAIVER -- MODIFICATION OF AGREEMENT 14.1 This Agreement may not be modified except by an instrument or instruments in writing signed by an authorized representative of the party against whom enforcement of such modification is sought. Either party may, by an instrument in writing, waive compliance by the other party with any term or provision of this Agreement. The waiver by either party hereto of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach. XV. ENTIRE AGREEMENT 15.1 This Agreement and the Schedules attached hereto constitute the entire agreement and understanding between the parties and supersedes any and all prior agreements and understandings, whether written or oral, other than the letter agreement dated June 15, 1994, pertaining to the Evaluation. -25- XVI. ASSIGNMENT 16.1 Neither party shall assign this Agreement or any part thereof without the prior written consent of the other party; provided, however either party, without such consent, may assign or sell the same in connection with the transfer or sale of substantially its entire business to which this Agreement pertains or in the event of its merger or consolidation with another company. Any permitted assignee, transferee or successor in interest shall assume all obligations of its assignor, transferor or predecessor in interest under this Agreement. No assignment shall relieve any party of responsibility for the performance of any accrued obligation which such party then has hereunder. XVII. GOVERNING LAW AND DISPUTE RESOLUTION 17.1 The validity and interpretation of this Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. 17.2 Designated Representatives. The parties recognize that a bona fide -------------------------- dispute as to matters hereunder may from time to time arise during the term of this Agreement which relates to either party's rights and/or obligations hereunder. In the event of the occurrence of such a dispute, either party may, by notice to the other party, have such dispute referred to their respective designated representatives designated below or their successors, for attempted resolution by good faith negotiations within thirty (30) days after such notice is received. Said designated representatives are initially as follows, subject to changes by the respective parties: For BSC: Joseph A. Ciffolillo 480 Pleasant Street Watertown, MA 02172 (617) 923-1720 For NMT: C. Leonard Gordon 374 Congress Street, Suite 605 Boston, MA 02110 (617) 426-2808 In the event the designated representatives are not able to resolve such dispute within a thirty (30) day period, either party may invoke the provisions of Section 17.3. 17.3 Arbitration. Any dispute as is referred to in Section 17.2 hereof ----------- that shall not have been resolved pursuant to the foregoing provisions of this Article XVII within thirty (30) days -26- after reference to designated representatives of the respective parties, or otherwise by agreement between the parties, shall be referred to arbitration in Boston, Massachusetts in accordance with the Rules of the American Arbitration Association. The Arbitration Tribunal shall consist of three (3) arbitrators. The party initiating arbitration shall nominate one arbitrator (who shall be knowledgeable in the industry but not be affiliated with such party) in the request for arbitration and the other party shall nominate a second arbitrator (who shall be knowledgeable in the industry but not be affiliated with such party) in the answer thereto. The two arbitrators so named will then jointly appoint the third arbitrator (who shall be knowledgeable in the industry but shall not be affiliated with either party) as chairman of the Arbitration Tribunal. If either party fails to nominate its arbitrator, or if the arbitrators named by the parties fail to agree on the person to be named as chairman within sixty (60) days, the office of the American Arbitration Association in Boston, Massachusetts shall make the necessary appointments of an arbitrator or the chairman of the Arbitration Tribunal. The award of the Arbitration Tribunal shall be final and judgment upon such an award may be entered in any competent court or application may be made to any competent court for judicial acceptance of such an award and an order of enforcement. In the event of any procedural matter not covered by the aforesaid Rules, the procedural law of The Commonwealth of Massachusetts shall govern. XVIII. HEADINGS 18.1 The headings contained in this Agreement are for convenience and reference purposes only and shall not affect the meaning or interpretation of this Agreement. XIX. GENERAL 19.1 Agency. The relationship of BSC and NMT established by this Agreement ------ is that of independent contractors, and neither party is an employee, agent, partner or joint venturer of the other. 19.2 Severability. All of the provisions in this Agreement will be ------------ considered as separate terms and conditions, and in the event that any one will be held illegal, invalid, or unenforceable, all other provisions hereof will remain in full force and effect as if the illegal, invalid or unenforceable provision were not part thereof. The parties shall use reasonable efforts to negotiate a substitute, valid and enforceable provision that most nearly effects the parties' intent and purposes and to be bound by the mutually agreed substitute provision. 19.3 Counterparts. This Agreement may be executed in two or more ------------ counterparts, each of which will be deemed an original, but all of which together will constitute one and the same instrument. -27- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized officers the day and year first above written. NITINOL MEDICAL TECHNOLOGIES, INC. BOSTON SCIENTIFIC CORPORATION By: \s\ C. Leonard Gordon By:\s\ J.A. Ciffolillo --------------------------- ------------------ Name: C. Leonard Gordon Name: J.A. Ciffolillo ------------------------- ---------------- Title: Chief Executive Officer Title:C.O.O. ------------------------- ----------- -28- EX-10.10 6 MANUFACTURING AGREEMENT Exhibit 10.10 MANUFACTURING AGREEMENT This Manufacturing Agreement (this "Agreement") made this 15th day of February, 1996 (the "Effective Date"), by and between Lake Region Manufacturing, Inc. ("Lake Region") a Minnesota corporation with principal place of business at 340 Lake Hazeltine Drive, Chaska, Minnesota 55318, and Nitinol Medical Technologies, Inc. ("NMT") a Delaware corporation, with principal place of business at 263 Summer Street, 7th Floor, Boston, MA 02210-1503. R E C I T A L S - --------------- A. Lake Region has prepared for delivery to NMT all of Lake Region's documentation of the non-filter components of the Simon Nitinol Filter ("SNF") system: Original, Modified and Simplified (straight line), which have been, or are in the process of being, manufactured by Lake Region and sold to NMT pursuant to Manufacturing Agreement of June 30, 1988, as amended and extended, as set forth in Section 1 and in Exhibit A and will be manufactured pursuant to this Agreement. B. Lake Region has completed a so-called "Modified" SNF system to be manufactured by Lake Region for the prices and on the terms set forth in Section 2 and in Exhibit B. C. Lake Region has completed a so-called "Simplified" (straight line) SNF system to be manufactured by Lake Region for the prices and on the terms set forth in Section 3 and in Exhibit C. D. Lake Region and NMT wish Lake Region to manufacture the filter-only product (the "Product") for the prices and on the terms set forth in Section 4 and in Exhibit D starting no later than July 1, 1996. E. Lake Region possesses the financial resources, capacity and expertise necessary to manufacture the Product in accordance with the design and specifications that have been, and may in the future be, provided by NMT. F. NMT has expressed the possibility of assigning this Agreement to C.R. Bard, Inc. (together with license by NMT to C.R. Bard, Inc. of certain NMT patents). Lake Region has no objection to such an assignment so long as: (i) C.R. Bard, Inc. shall agree in writing to assume and be bound by this Agreement, and any amendments to this Agreement prior to such assignment, and all of the duties and obligations of NMT under this Agreement; and (ii) notice of such assignment and a conformed copy of such assignment and assumption is given to Lake Region at least thirty (30) days prior to the effective date of Bard's assumption of NMT's duties and obligations under this Agreement. NOW THEREFORE, in consideration of the premises and the mutual covenants and benefits herein contained, the parties agree as follows: 1. Documentation of SNF Non-filter Components. Lake Region has made a ------------------------------------------ complete itemized breakdown of the drawings, standard operation procedures (SOP's), routers, templates, and fixturing for all of the non-filter components of the SNF systems: Original, Modified and Simplified, which have been, or are in the process of being, manufactured by Lake Region and sold to NMT pursuant to that Manufacturing Agreement of June 30, 1988, as amended and extended (which Agreement expired June 30, 1995) or which will be manufactured pursuant to this Agreement. The parties have agreed that Lake Region would prepare such documentation to submit to NMT for reimbursement. NMT will pay to Lake Region XXXXXXXX for such documentation in three equal payments as follows: XXXXXXXX on the Effective Date; XXXXXXXX three (3) months after the Effective Date; and XXXXXXXX six (6) months after the Effective Date. Lake Region will deliver to NMT on the Effective Date the plans, drawings, specifications, SOP's, and everything else comprising the complete documentation developed by Lake Region for all non-filter components, as set forth in Exhibit A. 2. Modified SNF System. Lake Region has completed the "Modified" SNF ------------------- system and will discontinue the manufacture of such system for NMT by June 30, 1996, or sooner as agreed between the parties. The prices for the Modified System are set forth in Exhibit B. 3. Simplified SNF System. The "Simplified" system was completed and --------------------- implemented by Lake Region, and accepted by NMT, by November 1, 1995. Lake Region will discontinue the manufacture of the Simplified system and packaging of the non-filter components by June 30, 1996, or sooner as agreed between the parties. The prices for the Simplified System are set forth in Exhibit C. NMT will also pay, on net 30 terms, for all required Lake Region engineering support at a rate of XXXXXXXX per hour, to be verified by Lake Region as to individual engineer, the timing of the work and the subject matter of the project when billed to NMT. 4. Manufacturing Requirements/Pricing. Lake Region will manufacture for ---------------------------------- NMT, and NMT will purchase from Lake Region, a minimum of seventy-five (75%) percent of NMT's requirements for the Product for NMT sale and distribution both to U.S. and non-U.S. markets for a five (5) year term (the "Term") starting July 1, 1996 and ending June 30, 2001. Lake Region's price to NMT for the Product is set forth in Exhibit D. Such price is "firm" for the first year of the Term with any price increases or decreases thereafter to be determined by the increase or decrease in the XXXXXXXX published by the XXXXXXXX as set forth in Appendix 1. Lake Region will advise NMT, in writing, at least thirty (30) days in advance of any price increase or decrease and the basis for such change. NMT agrees to place blanket Purchase Orders and submit forecasts as follows: - 2 - (a) Not less than forty-five (45) days prior to the last day of each Quarter (as hereinafter defined) during the Term, NMT will provide to Lake Region a Purchase Order in the form described in Subsection (b) hereof with respect to the purchase of all the Products to be shipped to NMT during the following Quarter and a non-binding rolling forecast of the number of units of Product to be delivered to NMT pursuant hereto during the three (3) immediately following Quarters. NMT will, on or before June 1, 1996, submit a Purchase Order for the first Quarter of the Term and the forecast for the three (3) Quarters immediately following. (b) NMT's Purchase Orders will contain the following information: (1) reference to this Agreement; (2) a description of each Product ordered including the model number; (3) the quantity of each Product ordered; (4) the requested delivery dates for each Product; (5) the per unit purchase price as determined in accordance with this Agreement; and (6) shipping instructions. (c) Neither NMT's nor any Assignee's Purchase Orders will contain any terms or conditions which are inconsistent with or contradictory to the terms and conditions of this Agreement or which impose any materially different or additional duties and obligations upon Lake Region. (d) Lake Region will be obligated to accept any Purchase Order for the Products submitted by NMT hereunder and which conforms to the following terms and conditions: (1) Lake Region will maintain the production capacity required to fulfill NMT's unit requirements for quantity increases not to exceed 25% of one-fourth of the annual minimum purchase commitment (set forth in Section 6). (2) Unit requirements in excess of 25% of one-fourth of the annual minimum purchase commitment (set forth in Section 6) will require six (6) months written notice and purchase commitment and will necessitate Lake Region's analysis of capacity expansion opportunities available to meet such request. Lake Region will complete its analysis and notify NMT of the results and its decision within thirty (30) days of NMT's request. Agreement of the parties to proceed with the increased unit volume will result in an increase of NMT's annual minimum purchase commitment. - 3 - The adjusted annual minimum purchase commitment for the immediately following twenty-four (24) months of the Term will be ninety percent (90%) of the new annualized quantity. Despite any increase of NMT's annual minimum purchase commitment, as set forth above, the minimum unit quantities set forth in Section 6 on the Effective Date will continue to be the baseline for computation of any additional unit quantity increases pursuant to this Subsection 4.(d) during the Term.* *Example: Assume NMT elects to increase the third quarter of the first year purchases by orders of 25% (i.e., 437 units plus 1,750 units equals 2,187 units). If, for the second quarter of the second year, it wishes to increase its orders in excess of 25%, the baseline for such increase is 1,925 units. Despite these limitations on the contractual right of NMT to increase the minimum unit quantities, Lake Region will use its reasonable best efforts to satisfy NMT's requests for increased quantities. Notification periods are measured from the date of NMT written notice and purchase commitment to the agreed to date of shipment. Lake Region will not be required to ship any quantity in excess of these guidelines without such required written notice and purchase commitment from NMT. Lake Region and NMT may negotiate a shorter lead-time in the event of change in NMT's forecast. However, such negotiated shorter lead-time will only require Lake Region's reasonable best efforts to meet such requirements and will not be a breach of this Agreement if Lake Region fails to meet such shorter delivery schedules. Additionally, NMT will reimburse Lake Region for the reasonable incremental cost of delivery for any such additional Products due to overtime, expediting receipt of material and similar items, provided that the parties have previously agreed to the amount of such incremental cost. (e) NMT agrees to purchase all inventory and all work in process in the event of order cancellation or conversion by NMT to another Product item. In the event change orders are issued requesting delayed delivery, NMT agrees to purchase such inventory within six (6) months from the date of such change order. (f) Lake Region is to notify NMT, in writing, of any delay beyond five (5) working days in scheduled delivery, including in the notification a best estimate as to revised delivery date(s). 5. Manufacturing Schedule. Lake Region will manufacture and sell, and NMT ---------------------- will buy, the following SNF filter products in accordance with the following schedule and prices. - 4 -
Filter Products Dates Prices --------------- ----- ------ Modified SNF System Now until June 30, 1996 Exhibit B Simplified SNF System Now until June 30, 1996 Exhibit C SNF Filter Only July 1, 1996-June 30, 2001 Exhibit D
6. Minimum Purchases. In addition to the obligation that NMT purchase at ----------------- least Seventy-five (75%) percent of its Product requirement from Lake Region as set forth in Section 4, above, NMT also agrees to purchase from Lake Region minimum unit quantities of the Product in accordance with the following schedule for each year of the Term: XXXXXXXX units in first year (July 1, 1996 - June 30, 1997) XXXXXXXX units in second year (July 1, 1997 - June 30, 1998) XXXXXXXX units in third year (July 1, 1998 - June 30, 1999) XXXXXXXX units in fourth year (July 1, 1999 - June 30, 2000) XXXXXXXX units in fifth year (July 1, 2000 - June 30, 2001) Quarters of each year end on each September 30, December 31, March 31 and June 30. Payment by NMT to Lake Region for any shortfall of Product minimums in any year will be handled as follows: (a) If NMT has purchased 100% of its Product requirements from Lake Region in the shortfall year, this will cure any shortfall for that year. NMT will furnish to Lake Region its certification and that of C.R. Bard representing and warranting that NMT has purchased 100% of its Product that year from Lake Region and that C.R. Bard has distributed only Lake Region-manufactured Products that year. (b) If NMT has purchased in excess of the minimum in any year, that excess will be applied to satisfy, in whole or in part, any shortfall for the year immediately following the excess year. (c) If, despite (a) and (b) above, NMT must pay Lake Region for failure to meet its minimum in any year, NMT will pay Lake Region for the shortfall upon invoice from Lake Region within 30 days after the end of the shortfall year. (d) NMT will pay Lake Region XXXXXXXX of the XXXXXXXX of the Products multiplied by the number of units of shortfall for failure to meet minimum in any year, after any application of Subsections (a) and (b), above. 7. Customer Supplied Material. It will be NMT'S obligation, at its cost, -------------------------- to procure and provide to Lake Region, as customer-supplied material, the Nitinol wire and rod stock specified by NMT for the Simon Nitinol Filter. It will further be NMT's obligation to provide the customer-supplied material in sufficient quantities, allowing for anticipated yield, and adequate lead-time so as to support Lake Region's timely manufacture and shipment of NMT - 5 - product. As a minimum lead-time, Lake Region is to receive the customer-supplied material at time of NMT's purchase order placement with Lake Region. It will be Lake Region's obligation to provide NMT with a quarterly Inventory Analysis of the customer-supplied material. The Inventory Analysis will include, at a minimum, the following information: - Quantity of such material available for future purchase orders - Quantity of such material in Work-in-Process (WIP) - Per Filter unit material requirement based on the previous Quarter's average loss of material throughout the manufacturing process (yield) 8. Other Products/Product Revisions. Lake Region and NMT contemplate -------------------------------- that NMT may request Lake Region to manufacture additional NMT products or revised versions of the Product specified in Exhibit D. As agreements are made for any such revisions which are substantial or for additional products the parties will execute a supplement to this Agreement setting forth their mutual agreement on price, delivery terms and other necessary and particular details applicable to such additional products or substantial revisions. Less than substantial revisions to the Products specified in Exhibit D do not require a supplement to this Agreement and will be deemed to be within the definition of the "Product" as and when such Product is manufactured by Lake Region and delivered to NMT. ("Substantial" means: a) any re-engineering of the production tooling or of the manufacturing process, or b) any revision to the Product which requires FDA regulatory approval by a 510(k) or PMA submission.) 9. Shipping; Payment Terms. NMT acknowledges and agrees that specific ----------------------- confirmed shipping dates may vary in duration depending upon the availability of key materials, but Lake Region will use its reasonable best efforts to meet the shipping schedule set forth in NMT's Purchase Orders. All NMT Purchase Orders will bear shipping schedules for acceptance by Lake Region in writing. If Lake Region, after such acceptance, fails to ship at least eighty (80%) percent of the accepted Purchase Order units in any three (3) consecutive-month period for reasons other than events specified in Section 15 or because NMT has failed to supply in a timely manner sufficient parts which it may from time to time agree to supply for use in manufacturing or packaging the Products, then and in such event, NMT may, upon sixty (60) days written notice to Lake Region, manufacture the Products directly or engage a third party to manufacture the Products; provided that, Lake Region may cure such failure by meeting production requirements, including make up of the three (3) consecutive-month period shortfall, within such sixty (60) day period. Any additional costs to Lake Region to make up any such shortfall, including overtime, extra or expedited shipping costs and similar expenses, will be absorbed by Lake Region without any additional cost to NMT. Lake Region may cure any three (3) consecutive-month period shortfall only once during any twelve (12) consecutive-month period. In the event of any subsequent three (3) consecutivemonth period in which Lake Region fails to ship at least eighty (80%) percent of the accepted - 6 - Purchase Order units, this failure will reduce the NMT obligation set forth in Section 4 to purchase at least seventy-five (75%) percent of its Product requirements. Such NMT Product purchase requirements will, instead, for the immediately following twenty-four (24) months of the Term following such shortfall period, become the greater of: (a) 100% of NMT Product requirements reduced by the percentage of the Lake Region shortfall for such three (3) consecutive-month period; * or (b) Fifty (50%) of NMT Product purchase requirement. * Example: 1,000 units accepted with only 600 units shipped; reduces NMT's Product purchase requirement to 60%. The NMT minimum purchase requirements set forth in Section 6, above, will, for each of the two years immediately following a three (3) consecutive-month period uncured shortfall, be reduced by the amount of such uncured shortfall. 9.01 All sales are FOB point of shipment. Shipment will be made by the transportation method specified by NMT where practicable. If no instructions are provided, Lake Region will use its discretion in selecting the appropriate transportation method. Terms of payment are Net 30 days date of invoice. 9.02 Lake Region will send with each shipment made under this Agreement, a certificate of conformance stating that appropriate inspection and testing has confirmed compliance to all approved specifications for the Products in the shipment. 10. Cancellation Pricing. NMT acknowledges that the Product contains -------------------- "special materials" peculiar to the Product. NMT agrees that (a) in the event of purchase order cancellations, NMT will purchase all Products "in process" and all "special materials" purchased by Lake Region for use in Products specified by such purchase orders to be shipped up to ninety (90) days subsequent to the date Lake Region receives a written cancellation notice from NMT; and (b) when and if, NMT directs Lake Region to switch production from Modified to Simplified and from Simplified to SNF Filter only, NMT will purchase all obsolete parts and components from Lake Region at Lake Region's cost. 11. Confidential Information. In the performance of this Agreement, ------------------------ proprietary information may be disclosed by one party to the other party. NMT and Lake Region agree: 11.01 Non-disclosure. The receiving party will not disclose to any third -------------- party except legal or patent counsel with whom it has an attorney-client privilege, confidential information received from the disclosing party without written permission from the disclosing party. Confidential information includes, but is not limited to, engineering drawings, plans and specifications furnished by either party to the other. - 7 - Only those employees and independent contractors who need to receive confidential information in order to carry out the purposes of this Agreement will have access thereto, and such access will be limited only to so much of the confidential information as is necessary for the particular employee or independent contractor to perform his, her or its function. Notwithstanding anything in this Agreement to the contrary, NMT will treat all engineering drawings, plans and specifications which relate to the Products which are furnished to it by Lake Region as confidential information which may not be given to any other manufacturer or intended manufacturer of the Products during the term of this Agreement. Each party will require any other party who is given access to any part of the confidential information to execute a reasonable and customary form of confidentiality agreement. Any proprietary or confidential information disclosed as a result of this Agreement will be held in confidence for a period of three (3) years after termination of this Agreement. Specifically excluded from any requirements of confidentiality by NMT are: (a) Any party with whom NMT contracts to manufacture or assemble non- filter components, whether Original, Modified or Simplified, as such non-filter components are identified in Exhibits A, B and C; and (b) Any party with whom NMT, after expiration of this Agreement, contracts to manufacture the Products, with respect to such information as was given to NMT by Lake Region during the Term. 11.02 Designation. The obligations set forth in Subsection 11.01 above ----------- will apply only to information which is disclosed by the disclosing party in writing and marked confidential or which is disclosed by other means, the substance of which is promptly reduced to writing, marked confidential and the writing transmitted to the receiving party. 11.03 Exceptions. The obligations set forth in Subsection 11.01 above will ---------- have no application if the receiving party can establish by competent evidence that: (a) Such information was known to the receiving party prior to receipt from the disclosing party. (b) Such information was available to the trade prior to its receipt from the disclosing party. (c) Such information, through no act on the part of the receiving party, becomes information available to the trade or to the public. (d) Such information corresponds in substance to information received in good faith by the receiving party from any third party which was lawfully in possession of and had the right to divulge such. - 8 - (e) Such information was disclosed by the disclosing party without restriction as to confidentiality by issuance of a patent to it, or otherwise. (f) Such information was independently developed by an employee or agent of the receiving party subsequent to the receipt of such disclosure as can be established by reasonable proof. (g) Such information was disclosed as a matter of necessity by the sale of the Products and any materials involved in the sale, distribution or use of the Products. 12. Duties of Lake Region. In addition to the other duties, obligations --------------------- and agreements of Lake Region provided for herein, Lake Region agrees that: 12.01 Lake Region will manufacture the Products exclusively for NMT during this Agreement and will not manufacture the Products for its own distribution or for third parties for a period of two (2) years after the termination of this Agreement. 12.02 Lake Region agrees to manufacture the Products or revisions thereof in conformity with the engineering drawings, plans and specifications drawn by Lake Region or NMT and approved in writing by NMT as such engineering drawings, plans and specifications may be amended from time to time. Lake Region warrants that the Products will be free from defects in material and workmanship and that the Products will be manufactured in accordance with current "Good Manufacturing Practices" as required by the Food and Drug Administration ("FDA") and other applicable rules and regulations. Lake Region will, at its sole cost and expense, replace any Products that are not in conformity with the plans and specifications provided by NMT. Lake Region makes no warranty that the Products will be merchantable or fit for any particular purpose. If NMT requests Lake Region to provide engineering drawings, plans and specifications, including amendments to such, the parties agree that such will be approved in writing by NMT before manufacturing and that such approval by NMT will be deemed to constitute NMT the designer, relieving Lake Region from any liability with respect to the design of such drawings, plans, specifications and amendments, with NMT to defend, indemnify and save harmless Lake Region for any claims, liability or damage it may sustain due to design of the Product. 12.03 Lake Region agrees that in the event of an FDA product recall of the Product or a voluntary recall of the Product resulting from manufacturing/design defects, this Agreement will then require renegotiation between them to reflect the changed market circumstances developing from the adverse effects of such recall. 12.04 Lake Region agrees to maintain product liability insurance of at least $1,000,000 bodily injury and $300,000 property damage relating to the Products, such policy to provide for thirty (30) days prior written notice to NMT before any material change therein or cancellation. Lake Region further agrees to furnish NMT with a certificate of such insurance upon signing this Agreement. - 9 - 13. Duties of NMT. In addition to the other duties, obligations and ------------- agreements of NMT provided for herein: 13.01 NMT represents and warrants that it has the unencumbered legal right and title to the design of the Product and can validly request manufacturing of the Product by Lake Region. 13.02 NMT represents and warrants to Lake Region that the Products do not infringe on patents owned or controlled by third parties and agrees to defend, indemnify and hold Lake Region harmless against any and all claims, actions, disputes or threatened actions thereof asserted by third parties because of the alleged patent infringement. NMT will defend and promptly pay Lake Region's cost of defense, including attorneys fees and cost, in the event of such claim or actions. NMT may elect to control the defense of any such litigation. 13.03 NMT agrees that, in the event that claims arise against Lake Region for personal injuries, death, sickness, disease or property damage, and such claims result from Products purchased by NMT and which are manufactured under this Agreement and which conform to the Product specifications in effect at the time of shipment of said Products by Lake Region to NMT under this Agreement, NMT will defend, indemnify and hold Lake Region harmless from any and all liability arising from any such claims. Excluded from such claims for damages are those claims which are caused by negligence of Lake Region, its subcontractors, suppliers, agents or employees (except for those components which are supplied by NMT or its vendors which may be defective). 13.04 To protect Lake Region, in part, against any claims above, with respect to which NMT will defend, indemnify and hold Lake Region harmless, NMT will maintain product liability insurance of at least $1,000,000 bodily injury and $300,000 property damage. Such policy will provide for thirty (30) days prior written notice to Lake Region before any change therein or cancellation. NMT further agrees to furnish Lake Region with a certificate of such insurance upon signing of this Agreement. NMT must be notified promptly of any such claims and given an opportunity to control the defense thereof. 14. Events of Default; Termination. Either party will have the right to ------------------------------ terminate this Agreement upon the happening of one or more of the following events and pursuant to one or more of the following conditions or remedies: 14.01 If the other party, by virtue of court order, consent, decree, force majeure or for any other reason is incapable of fulfilling its obligations hereunder, or fails to cure any material breach in the provision of this Agreement within ninety (90) days after written notice of such material breach and such breach is not cured within that ninety (90) day period; or 14.02 If the other party pursuant to or within the meaning of any applicable bankruptcy law commences a voluntary case, consents to the entry of an order for relief against it in an - 10 - involuntary case, consents to the appointment of a custodian, trustee, liquidator or receiver for all or substantially all of its property, or makes a general assignment for the benefit of its creditors, or a court of competent jurisdiction enters an order or decree under any applicable bankruptcy law for relief against that party in an involuntary case, or the court appoints a receiver, trustee or similar official for the corporation for all or substantially all of its property or orders the liquidation of the corporation, which order, consent or decree is not removed within ninety (90) days from the date of entry. 14.03 In the event of breach of this Agreement by either party, such party will be liable to the other only for direct damages actually sustained by the other because of such breach or upon termination and will not be liable for any consequential damages or loss of prospective profits. 15. Force Majeure. In the event that the delay or failure of a party to ------------- comply with any obligation created by this Agreement is caused by Force Majeure, that obligation will be suspended during the continuance of the Force Majeure condition. For the purpose of this Agreement, the term "Force Majeure" will mean any event beyond the reasonable control of either or both parties, including, without limitation, fire, flood, riots, strikes, epidemics, destruction of or material damage to plant, war (declared or undeclared), embargoes, and governmental actions or decrees. Lake Region agrees to notify NMT of any impending labor negotiations which may lead to an interruption of supply and to make reasonable best efforts to provide inventory of Products to meet the needs of NMT during a possible work stoppage. 16. Miscellaneous. ------------- 16.01 Notices. All required or permitted notices are to be in writing and ------- may be personally served or may be deposited in the United States mail, postage prepaid, registered or certified airmail; or by overnight service; or by facsimile and addressed to the other party at the address set forth below or at such other address as may be given by notice. Any notice personally served or mailed as set forth above will be deemed to have been given on the date of personal delivery or the date such notice was given or deposited in the United States mail or with the overnight service, as set forth above. Any notices required to be given under this Agreement will be addressed as follows: If to Lake Region: Lake Region Manufacturing, Inc. 340 Lake Hazeltine Drive Chaska, MN 55318 Attn: Joseph F. Fleischhacker If to NMT: Nitinol Medical Technologies, Inc. 263 Summer Street - 11 - 7th Floor Boston, MA 02210-1503 Attn: Thomas Tully 16.02 Governing Law. This Agreement is to be governed by, construed and ------------- interpreted in accordance with the laws of the State of Minnesota. 16.03 Arbitration. The parties agree that any disputes between them which ----------- are not resolved by negotiation will be resolved by binding arbitration before the American Arbitration Association pursuant to its Commercial Arbitration Rules, in Minneapolis, Minnesota, before a single arbitrator, to which jurisdiction each agrees to submit. 16.04 Assignment. Neither party will assign this Agreement or any of its ---------- respective duties and obligations hereunder without the prior express written consent of the other party, provided, however, that: (a) this Agreement may be assigned by either party to any entity that is the successor to all or substantially all of the business and property of such party, and (b) NMT may assign this Agreement, together with license by NMT of certain of its patents, to C.R. Bard, Inc. on the condition that: (i) Neither such assignment by NMT of this Agreement, nor any document used by NMT or C.R. Bard, Inc. in affecting purchases of Products from Lake Region, contains any terms or conditions which are inconsistent or contradictory with the terms and conditions of this Agreement or which impose any materially different or additional duties or obligations upon Lake Region; and (ii) The requirements of Recital F, above, are complied with: 16.05 Amendments and Waivers. Waiver at any time and by any party of ---------------------- strict performance of any provision of this Agreement will not constitute nor be deemed to be a waiver of, and will not prejudice, such party's right to require strict performance of the same provision or of any other provision of this Agreement. The terms of this Agreement may only be supplemented, modified or canceled by written amendment executed by both parties. 16.06 Binding Effect. This Agreement will be binding upon and will inure -------------- to the benefit of the parties hereto and their respective successors and assigns. 16.07 Severability. In the event that any provision of this Agreement is ------------ determined by a court of competent jurisdiction to be unenforceable under applicable law, that provision will, at the election of the party for whom the benefit of the provision is intended, be deleted, but the remaining provisions of this Agreement will remain in full force and effect. 16.08 Merger. This Agreement contains the entire understanding between the ------ parties hereto relating to the Product, and all prior or contemporaneous agreements, understandings, representations and statements, oral or written, are merged into this Agreement and will be of no further force and effect. - 12 - 16.09 Independent Contractors. The parties hereto are independent ----------------------- contractors and nothing contained in this Agreement will be deemed or construed to create the relationship of partnership or joint venture or any association or relationship between the parties other than that of buyer and seller. 16.10 Exhibits Incorporated by Reference. All Exhibits and Appendix 1 are ---------------------------------- attached to this Agreement and are incorporated by reference into this Agreement. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written. LAKE REGION MANUFACTURING, INC. By:\s\ Joe Fleischhacker --------------------- Its Chief Executive Officer NITINOL MEDICAL TECHNOLOGIES, INC. By:\s\ Thomas M. Tully ------------------- Its Chief Executive Officer - 13 - EX-10.11 7 TECHNOLOGY PURCHASE AGREEMENT Exhibit 10.11 TECHNOLOGY PURCHASE AGREEMENT ----------------------------- This TECHNOLOGY PURCHASE AGREEMENT (this "Agreement") is made and entered into as of the 14th day of April 1987, by and between Morris Simon, M.D. (the "Inventor") and Nitinol Medical Technologies, Inc. ("NMT"), a Delaware corporation. RECITALS -------- A. Inventor has designed, invented and produced an experimental model of a nitinol blood clot filter and is the owner of the existing technology pertinent thereto (collectively, the "Existing Technology"); B. NMT desires to perfect the design of and secure FDA approval for a new nitinol blood clot filter product derived in part from the Existing Technology and in part from other inventions, processes, trade secrets, copyrights, patents or patent applications, or know-how created by or at the direction of NMT (the "New Technology"), and to engage in any and all activities incident thereto, including manufacturing and marketing. As used herein, "the Filter" shall refer to any filter product using the Existing Technology or the New Technology. C. Development and testing of the New Technology and the Filter will require utilization of the Existing Technology. NOW THEREFORE, in consideration of the covenants and agreements contained herein, NMT and the Inventor agree as follows: ARTICLE I DEFINITIONS ----------- 1.1 Glossary. Capitalized terms (other than those specially defined -------- herein) shall have the meanings set forth in the glossary attached hereto as Exhibit A. ARTICLE II PURCHASE AND SALE OF TECHNOLOGY ------------------------------- 2.1 The Inventor hereby sells, transfers, assigns, conveys, sets over, grants and delivers to NMT, free and clear of any and all liens, encumbrances, security interests or financing statements whatsoever, except as to those created or imposed under this Agreement, and NMT hereby purchases from the Inventor the Existing Technology and all of the Inventor's worldwide rights, title and interest in and to the Existing Technology for whatever purpose or purposes NMT shall, in its sole discretion, determine, including, without limitation, the exclusive right to make, use, or sell Technology Purchase Agreement - 1 - CONFIDENTIAL TREATMENT REQUESTED products utilizing the Existing Technology, and also including any and all prototypes, components, patents, patent infringement claims, trademarks and trade-names relating to the Existing Technology, all to the end that NMT, by virtue of such purchase, shall be the sole owner of the Existing Technology. 2.2 After this sale, unless and until ownership of the Existing Technology reverts to the Inventor pursuant to Section 8.4 of this Agreement, the Inventor (a) will not engage in any business activity, either directly or indirectly, through licensing or otherwise, which involves the manufacturing or marketing of any products utilizing the New Technology or Existing Technology, (b) will not assert that he has any right to prevent NMT or any assignee, transferee or licensee of NMT from making, using, or selling products utilizing the Existing Technology, (c) will not disclose the Existing Technology to any person or entity other than NMT, and (d) will not assert that he has the right to disclose, or the right to prevent NMT from disclosing, the Existing Technology to any person or entity other than NMT if made in accordance with Section 5.1. The Inventor shall execute any and all documents necessary.to transfer to NMT all of the right, title and interest of the Inventor in and to the Existing Technology, including, without limitation, the Patent. ARTICLE III PURCHASE PRICE -------------- 3.1 As complete and full consideration for the Inventor's sale of the Existing Technology to NMT under this Agreement, NMT shall make an initial payment and other payments as follows. (a) The initial payment shall be XXXXXXXX. (b) Royalties will be payable on items described in Section 3.4 sold in the United States by NMT, and paid for, in accordance with the following schedule: Cumulative Net Sales Price of Items Sold Royalty Rate ------------- ------------ -0- to $35,000,000 XXXX Thereafter XXXX (c) Royalties on net sales, as defined in Section 6.1, by NMT of items described in Section 3.4 outside of the United States, and paid for, shall be at XXXX of the rates specified in subparagraph (b). For purposes of determining the royalty rates specified in subparagraph (b), XXXX of such net sales Technology Purchase Agreement - 2 - CONFIDENTIAL TREATMENT REQUESTED outside of the United-States shall be included in the cumulative net sales price. (d) Royalties on net sales by licensees of the Existing or New Technology in the United States shall be at the same rates specified in subparagraph (b), based upon the net sales price of items sold by licensees and subject to collection by NMT of the amounts owed by the licensee. Net sales by licensees in the United States shall be included in the cumulative net sales price referred to in subparagraph (b). (e) Royalties on amounts, such as fees and royalties, earned and collected by NMT from licenses of the Existing or New Technology outside of the United States shall be at the rate of XXXX of the net amount earned and collected. (f) In the event royalties are due to the Inventor on fees earned or sales made outside the United States in a blocked currency country, payment of such royalties shall be deferred until such time as the amounts earned by NMT may be transferred to the United States. NMT may satisfy its obligation to the Inventor by segregating the Inventor's share of the blocked currency into the name of the Inventor within the blocked currency country, if such segregation is permitted by the country and NMT is requested to do so by the Inventor. (g) The minimum royalty for the twelve (12) month period commencing as of the first anniversary of the Approval Date, as hereinafter defined, and for each twelve (12) month period thereafter, shall be XXXXXXXX, subject to the conditions set forth in part (viii) of Section 8.2. 3.2 The initial payment shall be paid to the Inventor by NMT on the signing of this Agreement. Other payments made pursuant to Section 3.1 shall be made by NMT quarterly within 75 days after the end of each calendar quarter. 3.3 During the term of this Agreement, NMT may grant royaltyfree licenses of the New or Existing Technology for research and development purposes and transfer Filters for no consideration for promotional purposes in reasonable quantities without incurring any liability to the Inventor for royalties. 3.4 Royalties specified in Section 3.1 shall be payable only on net sales, as defined in Section 6.1, of any items using either Existing Technology, New Technology or both. Technology Purchase Agreement - 3 - ARTICLE IV REPRESENTATIONS, WARRANTIES AND ------------------------------- COVENANTS --------- 4.1 NMT represents, warrants and covenants as follows: (a) It is a duly organized and validly existing corporation under the laws of the state of Delaware and has taken all required corporate action to authorize the execution, delivery and performance of this Agreement. (b) This Agreement is binding upon it and it has the full right, power and authority to enter into this Agreement and perform all of its obligations hereunder and neither this Agreement nor the performance by it of its obligations hereunder are in violation of (i) its certificate of incorporation or bylaws or (ii) any other agreement or instrument to which it is a party or by which it may be bound. (c) Within three months after the date the Filter is given final approval by the FDA ("Approval Date"), NMT, or its licensees, using best efforts, shall commence production and active promotion of the Filter. (d) NMT shall use its best efforts to secure FDA approval of the Filter. NMT does not warrant, however, that final approval will be given by the FDA, or that the Filter will in fact be successfully developed. (e) NMT will not use the name of BIH without its prior written approval in connection with marketing or sale of Filters except that BIH may be named as the hospital at which the Filter was developed and may be named in a private placement memorandum to raise capital. Accidental or inadvertent use of BIH's name shall not constitute a breach of this Agreement or subject NMT to any liability. 4.2 The Inventor represents, warrants and covenants as follows: (a) The Inventor is the exclusive owner of the Existing Technology and NMT will take title to the Existing Technology free and clear of any and all licenses, license agreements, liens, encumbrances, security interests or financing statements whatsoever, except as to those created or imposed as a result of or under this Agreement. (b) This Agreement is binding upon Inventor and he has the full right, power and authority to enter into it and to perform all of his obligations under the Agreement. Neither the Agreement nor the performance by Inventor of his obligations hereunder is in violation of any other agreement Technology Purchase Agreement - 4 - or instrument to which he is a party or by which he may be bound. ARTICLE V CONFIDENTIALITY --------------- 5.1 NMT and the Inventor shall each use their best efforts to safeguard the secrecy and confidentiality of, and proprietary rights to, the Existing Technology, and the proprietary information of the other party as it exists on the date of this Agreement, and in the case of the Inventor only, the New Technology, and shall not disclose any of the foregoing to any third party except: (a) information which at the time of disclosure is part of the public knowledge or literature and readily accessible to such third party, provided that any combination of features shall not be deemed within this -------- exception merely because individual features are part of the public knowledge or literature and readily accessible to such third party, but only if the combination itself and its principle of operation are part of the public knowledge or literature and readily accessible to such third party; (b) information required by law to be disclosed, but only to the extent and to those parties as required by law; or (c) in the case of NMT, information required by any vendor, supplier, customer, contractor, consultant, or recognized financial institution necessary to carry out the development, testing, manufacture and marketing of the Filter units or components or of the equipment required in connection therewith; provided that the party making such disclosure in each case shall obtain in accordance with normal trade practice the written obligation of such third party in a form satisfactory to the other party hereto, prior to disclosing such information, that all such information disclosed shall be kept confidential by the third party; and further provided that the Inventor or the Contractor shall have the right to publish matters of scientific worth concerning the Existing Technology or the New Technology in scholarly publications if deemed appropriate by the Inventor and subject to reasonable pre-publication review by NMT. ARTICLE VI ACCOUNTING AND ALLOCATIONS -------------------------- 6.1 While this Agreement is in effect, on or prior to 75 days after the end of each calendar quarter, NMT shall deliver to the Technology Purchase Agreement - 5 - Inventor a statement, certified as accurate by a corporate officer, showing, for that quarter, (i) the net sales of all items sold in the United States by NMT; (ii) the net sales of all items sold outside the United States by NMT; (iii) net sales as accounted for to NMT by licensees in the United States for which NMT receives payment; (iv) net fees earned and collected by NMT from licenses outside the United States; (v) unrepatriated payments due from blocked currency countries; and (vi) such other information as may be reasonably requested by the Inventor. Such statement shall be accompanied by a check from NMT to the order of the Inventor for the amount determined to be due pursuant to such statement and pursuant to Section 3.1. For purposes of this Agreement, net sales shall mean all income from items described in Section 3.4 sold and paid for, less credits for returns, discounts, sales or similar taxes, shipping charges separately stated on the invoice, royalties NMT is required to pay on such net sales to a third party other than the Inventor, and similar charges that are generally deducted in the industry to arrive at net sales. 6.2 NMT shall keep full, true and accurate books of account of all transactions relating to the Existing Technology and New Technology, containing such information as may be necessary for the purpose of determining the amounts due to the Inventor hereunder. The Inventor will receive access to the records of NMT sufficient to enable the Inventor or a representative of the Inventor, including the Inventor's independent certified public accountants, to verify payments due to him. Inventor shall give notice of any objection to the royalty statement rendered within two years from receipt thereof. ARTICLE VII SECURITY AGREEMENT ------------------- 7.1 NMT hereby grants to the Inventor a continuing security interest in (a) the Existing Technology, (b) the New Technology, and (c) all collateral covered by the Patent Mortgage (as defined below) (sometimes collectively, the "Collateral"), which security interest is to secure the payment and performance of all debts and obligations of NMT to the Inventor of every kind (whether or not evidenced by a note or other instrument and whether or not for the payment of money), liquidated or unliquidated, due or to become due, now existing or hereafter arising, including, without limitation, all debts and obligations of NMT (1) under a Mortgage of, Assignment of, and Grant of a Security Interest in Patents of even date herewith from NMT to the Inventor (the "Patent Mortgage"); (2) under this Agreement; and (3) under all renewals, amendments and substitutions of, for and to the Patent Mortgage and this Agreement (collectively, the "Obligations"). Any sale or other disposition of the Collateral must occur as set forth in Article XII hereof and the Inventor shall have no right to proceeds if the Collateral is sold in accordance therewith and subject to the Technology Purchase Agreement - 6 - security interest granted herein; provided, however, that if the Collateral is sold or disposed of other than in accordance with Article XII hereof or other than subject to the security interest granted herein, the Collateral shall be deemed to include all proceeds thereof. 7.2 NMT represents, covenants and warrants that: (a) NMT has not and will not subject the Collateral to any lien, encumbrance, security interest or financing statement whatsoever which is superior to that in favor of Inventor and NMT agrees, subject to the provisions of Article IX hereof, to defend the Collateral against any person claiming a superior interest therein, provided that the costs of any such defense shall be borne by the Inventor if the claim is determined to be without merit. (b) The place where records (except for records of any medical institution engaged in the clinical trials) relating to the Collateral are kept is situated at NMT's principal office located at 7779 Willow Glen Road, Los Angeles, California and the other addresses set forth on Schedule I, annexed hereto. NMT shall immediately notify the Inventor if such records are removed from the State of California and/or Boston, Massachusetts. Accidental or inadvertent non-notification shall not be a breach of this Agreement. (c) All information from time to time furnished to the Inventor concerning any of the Collateral is or will be accurate and complete in all material respects. (d) NMT will not use the Collateral in violation of law. NMT will immediately notify the Inventor of any loss of, and any lien or encumbrance on the Collateral. (e) At its option, the Inventor may (but shall not be obligated to) discharge taxes, security interests or other encumbrances at any time placed on the Collateral and may pay for the preservation of the Collateral. NMT agrees to reimburse the Inventor, on demand, for any payment made, or any expense incurred by the Inventor pursuant to the foregoing authorization with interest at the Prime Rate (as defined below) from time to time in effect, and such obligation, including interest, shall constitute Obligations hereunder. As used herein, the term "Prime Rate" shall mean at any time the rate per annum most recently announced by Mitsui Manufacturers Bank (the "Bank"), at Los Angeles, California as its prime rate or, if no prime rate has been announced, as its base rate or, if no base rate has been announced, as its minimum rate or, if the Bank has not announced a rate bearing any of those designations, but has announced a rate similar in concept to such rates, then such similar rate as announced by Bank. Any Technology Purchase Agreement - 7 - change in the interest rate hereunder shall be effective on the date on which a change in the Prime Rate occurs, without notice to NMT. (f) Until default, NMT may use the Collateral in any lawful manner not inconsistent with this Agreement or the Patent Mortgage, but may not sell, license, or otherwise dispose of any of the Collateral or any interest therein, except as expressly permitted in Article XII hereinbelow. (g) NMT will, at its cost and expense, execute and deliver all such additional instruments as the Inventor may require to assure to the Inventor his rights hereunder. Without limiting the generality of the foregoing, NMT will, at its cost and expense, execute and deliver any and all specific assignments, financing statement or other paper that may be necessary to the Inventor, in order to preserve and perfect any security interest granted to the Inventor. The right is expressly granted to the Inventor, at his discretion and expense (i) to file one or more financing statements under the Uniform Commercial Code naming NMT as debtor and the Inventor as secured party and identifying therein the above described interests in the Collateral, assignments thereof, amendments thereto and continuation statements therefor, without the signature of NMT wherever such filing is permitted by law, and (ii) to cause any and all assignments to NMT, pursuant to the transfer of Existing Technology set forth herein, of patents or patent applications filed with the United States Commissioner of Patents and Trademarks to reflect the Inventor's interest therein and to execute and deliver patent mortgages therein, concurrent with such assignments. 7.3 Upon the occurrence of any one or more of the events of default set forth in Section 8.2 hereof, all of the Obligations shall at the option of the Inventor become immediately due and payable without notice or demand and the Inventor may (at such time or at any time thereafter), at his option (but subject to the provisions of Section 7.4 hereinbelow), exercise, in addition to all other rights and remedies granted in the Technology Agreements or applicable law, all rights and remedies of a secured party under the Uniform Commercial Code as in effect in the Commonwealth of Massachusetts or under the applicable law of any other applicable jurisdiction (the "UCC"). 7.4 Notwithstanding anything to the contrary set forth herein, upon the occurrence of any event of default hereunder, and after the Inventor elects to accelerate the Obligations pursuant to paragraph 7.3 hereof and elects to exercise its rights and remedies as a secured party, the Inventor agrees to exercise its remedies in the manner described in this paragraph 7.4 unless prevented from doing so by applicable law or existing court orders (in which case Inventor may exercise any rights or remedies available under all Technology Purchase Agreement - 8 - applicable laws and existing court orders). Subject to said conditions, the Inventor shall propose, before exercising his rights to sell the Collateral at a public or private sale pursuant to the UCC, by written notification to NMT and each other party entitled under the UCC to receive notice of such proposal, to retain the Collateral in full and complete satisfaction of the Obligations pursuant to Section 9-505(2) of the UCC. If prior to or during the time period for objection provided under Section 9-505(2) of the UCC (herein called the "Objection Period") immediately following the sending of such notification, (a) the Inventor shall not have received any objection from any party entitled under the UCC to object to such proposal, including, without limitation, (i) NMT or its successors or assigns, (ii) a junior secured party, or (iii) any lienors (including, without limitation, any governmental entity or agency claiming a tax lien against NMT or the Collateral), (b) NMT shall not have become insolvent, and (c) there shall not have been commenced by or against NMT a case under any federal or state bankruptcy, insolvency or other laws relating to relief for debtors or the readjustment, reorganization, composition or extension of debt; then the Inventor shall retain the Collateral in satisfaction of the Obligations. If, however, prior to or during said Objection Period, the Inventor receives an objection to his proposal to retain the Collateral in satisfaction of the Obligations from any party entitled under the UCC to object thereto, the Inventor may then exercise any and all of his rights and remedies under the UCC or other applicable law, including, without limitation, the right to sell or dispose of the Collateral at public or private sales, in addition to his rights and remedies provided herein. In such case, the Inventor will give NMT reasonable notice of the time and place of any public sale of the Collateral or of the time after which any private sale or other intended disposition thereof is to be made. The requirement of reasonable notice shall be met if such notice is mailed by certified mail, postage prepaid, to the address of NMT shown in Section 13.7 of this Agreement at least twenty days before the time of the sale or disposition. No purchaser at any sale (public or private) shall be responsible for the application of the proceeds of sale. Before applying to the Obligations any proceeds of the sale of Collateral, the Inventor is hereby authorized to apply said proceeds to all costs and expenses of collecting, holding, storing, insuring, advertising, appraising, delivering, selling, and discharging liens or security interests on the Collateral. Expenses of retaking, holding, selling and the like shall include reasonable attorneys' fees and expenses. The Inventor hereby agrees that if he sells or otherwise disposes of the Collateral by public or private sale pursuant to the (UCC, neither NMT nor any officer or stockholder of NMT shall be liable for any deficiency resulting from such sale; provided, however, that NMT shall be liable for such deficiency and all of the Inventor's expenses if NMT shall have (a) committed any illegal acts or acts in violation of this Agreement before, during or after the Objection Period, (b) failed to assemble and provide to the Technology Purchase Agreement - 9 - Inventor the documents relating to the Collateral, or (c) failed to comply with any post-default obligations; and further provided that NMT's liability shall be limited to costs or damages caused by its actions or failure to act. 7.5 Without limiting the generality of the foregoing, the Inventor shall have the right from time to time after the occurrence of an event of default, to enter, during reasonable business hours, with or without legal process and without being deemed guilty of any manner of trespass, any premises where the Collateral (and any books, records and documents related thereto) may be found, to take possession of the Collateral (and any books, records and documents related thereto) and to maintain such possession where the Collateral (and any books, records and documents related thereto) is located or to remove the Collateral (and any books, records and documents related thereto) or any part thereof to such other places as the Inventor may desire. NMT agrees not to resist or interfere with any such action by the Inventor. The Inventor may require NMT to assemble all books, records and documents related to the Collateral and make them available to the Inventor at a place to be designated by the Inventor. 7.6 NMT does hereby irrevocably constitute and appoint the Inventor or any agent designated by the Inventor, NMT's true and lawful attorney-in-fact, with power of substitution, after the occurrence of an event of default hereunder (a) to notify all parties having a relationship with NMT with respect to the Collateral, including, without limitation, licensees of NMT, of the Inventor's interest in the Collateral, and (b) to take any and all actions and execute any and all agreements deemed necessary by the Inventor in form satisfactory to the Inventor to effectuate the transfer of the Collateral (and all books, records and documents related thereto) to the Inventor or to any purchaser at any public or private sale of the Collateral pursuant to the UCC; with full authority in the name of the Inventor or in the name of NMT to take any and all steps, including the institution of proceedings at law or in equity that the Inventor may think proper to effect transfer of the Collateral or to otherwise enforce or effect the security interest granted in this Article; hereby granting unto NMT's said attorney full power to do any and all things necessary to be done in and about the premises as fully and effectually as NMT might or could do, and hereby ratifying all that said attorney shall do or cause to be done by virtue hereof. This power of attorney being coupled with an interest, shall be irrevocable until all of the Obligations are fully paid and performed. 7.7 NMT shall pay to the Inventor on demand any and all costs and expenses, including but not limited to, all attorneys' fees and expenses (whether or not any legal action or proceeding is commenced), and all other expenses of like or unlike nature which may be expended or incurred by the Inventor to obtain, maintain, protect, review, supervise, collect, realize or enforce any Technology Purchase Agreement - 10 - Obligations or any Collateral as against NMT, except if NMT shall prevail in any such legal action or proceeding, in which case the Inventor shall pay to NMT its costs and expenses, including attorney's fees and expenses. 7.8 Subject to the provisions of paragraph 8.2 hereinbelow, to the full extent permitted by law, NMT hereby waives presentment, demand, notice of default, notice of dishonor, protest and all other forms of demand and notice with respect to the Obligations and Collateral and all suretyship defenses. ARTICLE VIII TERM; TERMINATION ----------------- 8.1 This Agreement shall become valid, effective and binding on each of the parties upon delivery of the initial payment required by Section 3.1 hereof by NMT to the Inventor without the need for any further action on the part of the Inventor or NMT. Unless terminated earlier by mutual consent of the parties or pursuant to the other provisions of this Agreement, the Agreement shall continue in full force and effect perpetually. In the event that rights to the New or Existing Technology revert to the Inventor under this Agreement, the provisions of Article V as they relate to NMT shall survive the termination of this Agreement, and the provisions of Article VII shall survive. 8.2 The events set forth below shall constitute "defaults" under this Agreement: (i) failure of NMT to establish and implement expeditiously a reasonable research and development program to develop and secure FDA approval for the Filter, provided, however, that a failure to obtain FDA approval shall not constitute a default hereunder if and so long as the Filter is being profitably marketed outside the United States and it has been determined in good faith by the Inventor that FDA approval cannot be secured; (ii) failure of the research and development efforts of NMT or others working on its behalf to produce a marketable Filter within a reasonable time, as determined by the Inventor in good faith; (iii) failure by NMT to make any payment under the Technology Agreements when due; (iv) failure by NMT to render any report or statement due hereunder substantially in compliance with the terms of this Agreement within 15 days of such date the same is due; (v) failure by NMT to use its best efforts actively to produce, promote and market the Filter within three months of the Approval Date; (vi) failure of NMT, beginning with the twelve (12) month period commencing on the first anniversary of the Approval Date and continuing for each succeeding twelve (12) month period thereafter, to make minimum royalty payments of XXXXXXXX each such twelve (12) month period, provided that in the event the total royalties due pursuant to Section 3.1 hereof are less than XXXXXXXX for any such twelve (12) month period, NMT shall have the right to pay the difference in cash within seventy-five (75) days after the end of Technology Purchase Agreement - 11 - CONFIDENTIAL TREATMENT REQUESTED any such twelve (12) month period; (vii) the breach-of any representation, warranty or covenant in this Agreement or the Patent Mortgage; (viii) the making of any attachment on the Collateral; (ix) insolvency or termination of the active conduct of its normal business activities of or by NMT unless the business of NMT is continued in a successor entity; (x) the making by NMT of any general assignment for the benefit of creditors; (xi) the commencement by or against NMT of a case under any state or federal bankruptcy or insolvency laws; or (xii) the entry of a decree or order against, or consent by NMT to the appointment of a receiver, liquidator, assignee, or trustee of NMT or for any part of the property of NMT. 8.3 An "event of default" shall be deemed to have occurred hereunder upon the occurrence of any default described in Section 8.2 and (except for defaults listed in Section 8.2 (ix), (x), (xi) or (xii)) the failure by NMT to cure such default during the 30 day period after notice thereof is given in writing by the Inventor and received by NMT. Upon an event of default, the Inventor (i) may exercise its rights and remedies as set forth in Article VII hereof, and (ii) may, at his sole election, terminate this Agreement. However, if the alleged default of NMT is other than as described in Section 8.2 (iii), (vii), (ix), (x), (xi) or (xii) but is of such a nature that it cannot be cured within a 30 day period, then it shall be sufficient to avoid the above consequences of an event of default that the curative process be commenced at the earliest possible date, but in no event later than 15 days after receipt of notice, and be pursued by NMT with due diligence in the interim. 8.4 If this Agreement shall be terminated pursuant to Section 8.3, NMT (a) shall return to the Inventor all tangible manifestations of the Existing Technology and the New Technology; (b) will not make, use, sell or disclose any of the New or Existing Technology (or any other proprietary information of the Inventor); (c) will not make, use or sell any products derived from the New or Existing Technology (or any other proprietary information of the Inventor); (d) will not (except to the extent NMT independently acquires or acquired a right to do so) assert that it has any right to prevent the Inventor or any assignee or transferee of the Inventor from making, using, selling or disclosing or to prevent anyone else from making, using, selling or disclosing, any of the New or Existing Technology (or any other proprietary information of the Inventor) or any product derived from the New or Existing Technology (or any other proprietary information of the Inventor); and (e) will not, for a period of 5 years from and after such reversion, directly or indirectly manufacture or market any Filter units. The Inventor shall have the right to purchase all inventory of NMT in the event of a termination at a mutually agreeable price, Technology Purchase Agreement - 12 - provided that if such a price is not agreed upon within sixty (60) days after the date of termination, NMT shall have the right to dispose of such inventory for a period of one hundred eighty (180) days after the conclusion of such sixty (60) day period and such sales by NMT shall be subject to royalties under Section 3.1. 8.5 Payments due as of the date of termination of this Agreement shall remain due and payable notwithstanding termination. ARTICLE IX PROTECTION OF RIGHTS -------------------- 9.1 While this Agreement is in effect, NMT shall, unless it is advised by counsel in writing that its position is without merit, use all reasonable measures, whether by action, suit proceeding or otherwise, to prevent the infringement of any patent rights, or the unauthorized use or disclosure of any of the unpatented Existing Technology, purchased under this Agreement, and for that purpose, agrees diligently to maintain in its own name, and at its own cost and expense, and on its own behalf, or, with the written approval of the Inventor, at the joint expense of the Inventor and the Partnership, an.action, suit or proceeding against any person, firm or corporation so infringing such patent rights or improperly using or disclosing any of the unpatented Existing Technology, necessary to prevent such infringement or unauthorized use of disclosure and to recover damages resulting therefrom or, with the consent of the Inventor, which consent shall not be unreasonably withheld or delayed, to settle any claim or suit for infringement of such patent rights or for unauthorized use or disclosure of the unpatented Existing Technology. Any recovery of damages shall be deemed net sales for purposes of determining royalties under Section 3.1. 9.2 If the Inventor or NMT shall be charged with or sued for infringement of any patent of another as a result of the use of (or licensing others to use) any of the Existing Technology purchased under this Agreement, NMT agrees, unless it is advised by counsel in writing that its position is without merit, to defend at its own cost and expense or, with the approval of the Inventor, at the joint expense of the Inventor and NMT, any such charge or suit; provided, however, that if NMT defends such charge or suit and a final judgment is entered against it on the infringement claim, NMT may recover one-half of its costs and expenses of litigation and of any damages or royalties it is required to pay, limited to the amount of the total payments to the Inventor under Section 3.1 excluding the Initial Payment. NMT shall not, in such case, be required to undertake an appeal. NMT shall promptly notify the Inventor of any such charge or suit; provided, however, that at the sole cost and expense of the Inventor, NMT shall defend such litigation as the Inventor may deem necessary but with respect to which counsel has advised NMT in writing that its position is Technology Purchase Agreement - 13 - without merit. NMT and the Inventor shall keep each other advised of the progress of any litigation. ARTICLE X TECHNICAL ASSISTANCE IN CONNECTION WITH SALE -------------------------------------------- 10.1 In connection with the sale of the Existing Technology to NMT, the Inventor shall provide NMT with the originals or, if the originals are unavailable, copies of all tangible manifestations of the Existing Technology, including pictures, writings, drawings, models, patent documentation, experimental tools, tooling and equipment embodying in any way any of the Existing Technology, and, in addition, shall make available to NMT his services to confer with NMT or its designated representatives concerning the same. ARTICLE XI DISCLAIMERS ----------- 11.1 The Inventor makes no representation or warranty, express or implied, concerning, and it is expressly agreed that the Inventor shall not be liable nor in any way responsible for, the operation, performance, serviceability, quality of performance, material or commercial success of any product or process, or the use, sale or other disposition by NMT or its vendees, transferees or licensees of any product or process incorporating or employing the Existing Technology or New Technology, in whole or in part, or made by use of patents or patent applications sold under this Agreement. 11.2 EXCEPT AS OTHERWISE PROVIDED IN THIS AGREEMENT, THE INVENTOR MAKES NO WARRANTY OF ANY KIND, INCLUDING WITHOUT LIMITATION A WARRANTY OF MERCHANTABILITY WITH RESPECT TO THE EXISTING TECHNOLOGY OR NEW TECHNOLOGY NOR OF FITNESS FOR A PARTICULAR PURPOSE AND WILL NOT BE LIABLE FOR ANY CONSEQUENTIAL DAMAGES WITH RESPECT THERETO. 11.3 Except to the extent provided in Section 9.2, nothing in this Agreement shall be construed as: (i) a warranty or representation by the Inventor as to the validity or scope of any patent rights sold under this Agreement; or (ii) a warranty or representation that anything substantially derived from the Existing Technology made, used, sold, or Otherwise disposed of under this Agreement is or will be free from infringement of patents of third persons, except with respect to the Alfidi patent No. 3,868,956. Technology Purchase Agreement - 14 - ARTICLE XII SALE OR ASSIGNMENT ------------------ 12.1 Provided NMT is not then in default under this Agreement or the assignment, transfer or sale cures any default, NMT may assign, transfer or sell any or all of its rights under this Agreement to any entity who will fulfill the obligations of NMT, without the prior written consent of the Inventor. In the event that rights in this Agreement are assigned or sold by NMT to any entity, the transferee or purchaser shall provide to the Inventor an instrument in writing providing for the assumption by the transferee of all of NMT's obligations, covenants and liabilities as a result of any such assignment or sale. The Inventor may not, without prior written consent of NMT, delegate any of his duties but may, without such consent, assign any or all of his rights hereunder, provided that he may not assign his rights set forth in parts (i) and (ii) of Section 8.2 hereof. ARTICLE XIII MISCELLANEOUS PROVISIONS ------------------------ 13.1 Entire Agreement. This Agreement sets forth and constitutes ---------------- the entire agreement among the parties hereto with respect to the subject matter hereof, and shall supersede any and all prior agreements, understandings, promises, and representation made by either party to the other concerning the subject matter hereof and the terms applicable hereto. 13.2 Parties Independent. In making and performing this Agreement, ------------------- the parties act and shall act at all times as independent contractors and nothing contained in this Agreement shall be construed or implied to create an agency, partnership or employer and employee relationship between the Inventor and NMT. At no time shall any party make commitments or incur any charges or expenses for or in the name of the other party. 13.3 Severability. The invalidity or unenforceability of one or more ------------ provisions of this Agreement shall not affect the validity or enforceability of any of the other provisions hereof, and this Agreement shall be construed in all respects as if such invalid or unenforceable provisions were omitted. 13.4 Construction. This Agreement shall be deemed to have been ------------ entered into and shall be construed and enforced in accordance with the laws of the State of California. 13.5 Waivers; Amendments. The failure of either party to insist, in ------------------- any one or more instances, upon the performance of any of the terms, covenants or conditions of this Agreement and to exercise any right hereunder, shall not be construed as a waiver of or relinquishment of the future performance of any such term, Technology Purchase Agreement - 15 - covenant or condition or the future exercise of such right, but the obligations of the other party with respect to such future performance shall continue in full force and effect. This Agreement may be released, discharged, amended or modified and any of the provisions hereof may be waived by the parties hereto; provided, however, that any waiver shall be in writing, signed by the party to - -------- ------- be charged, and any release, discharge, amendment or modification shall be in writing, signed by the parties hereto. 13.6 Headings. The headings of the articles, sections and paragraphs -------- used in this Agreement are included for convenience only and are not to be used in construing or interpreting this Agreement. 13.7 Notices. Any notice or other communication required or ------- permitted to be made or given to either party hereto pursuant to this Agreement shall be sufficiently made or given on the date of receipt if sent to such party by certified or registered mail, return receipt requested, postage prepaid, addressed as follows: If to NMT: 7779 Willow Glen Road Los Angeles, California 90046 With a copy to: Robert Joe Hull, Esq. Sheppard, Mullin, Richter & Hampton 333 South Hope Street, 48th Floor Los Angeles, California 90071 If to the Inventor: Dr. Morris Simon 8 Otis Place Beacon Hill Boston, Massachusetts 02108 with a copy to: Dan Bakinowski, Esq. Broude & Hochberg 75 Federal Street Boston, Massachusetts 02110 A copy of any notice given hereunder shall also be sent in like manner as follows: Beth Israel Hospital 30 Brookline Avenue Boston, Massachusetts 02215 Attention: Joan B. Pinck Director, Office of Research Administration and Policy Technology Purchase Agreement - 16 - with a copy to: Richard M. Stein, Esq. Widett, Slater & Goldman, P.C. 60 State Street Boston, Massachusetts 02109 or to such other address as either party shall designate by written notice, similarly given, to the other party. 13.8 Successors and Assigns. Subject to the restrictions on transfer ---------------------- set forth herein, this Agreement, and each and every provision hereof, shall be binding upon and shall inure to the benefit of the parties, their respective successors, successors-in-title, heirs and assigns, and each and every successor-in-interest to any party, whether such successor acquires such interest by way of gift, purchase, foreclosure, or by any other method, shall hold such interest subject to all of the terms and provisions of this Agreement. 13.9 Counterparts. This Agreement may be executed in any number ------------ of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. 13.10 Other Instruments. Each of the parties will execute and ----------------- deliver, or cause to be executed and delivered to the other party, such further instruments, or take such other action as may reasonably be requested of it hereunder to consummate more effectively the transactions contemplated hereby. 13.11 Arbitration. All disputes arising under this Agreement ----------- shall be settled by arbitration in the City of Los Angeles (if instituted by the Inventor) or in the City of Boston (if instituted by NMT) and judgment upon the award rendered may be entered in any court having jurisdiction thereof. Except as provided herein, the arbitration shall proceed in accordance with the laws of the State of California. Either party requesting arbitration shall serve a written demand for arbitration on the other party by registered or certified mail. The demand shall set forth a statement of the nature of the dispute, the amount involved and the remedies sought. No later than 20 calendar days after a demand for arbitration is served, the parties shall jointly select and appoint a retired judge of the Superior Court of the state in which the arbitration is to be held to act as the arbitrator. In the event that the parties do not agree on the selection of an arbitrator, the party seeking arbitration shall apply to the Superior Court of the state in which the arbitration is to be held for appointment of an arbitrator. No later than 10 calendar days after appointment of an arbitrator, the parties shall jointly prepare and submit to the arbitrator a set of rules for the arbitration. In the event that the parties cannot agree on the rules for the arbitration, the arbitrator shall establish the rules. No later than 10 calendar days after the arbitrator is Technology Purchase Agreement - 17 - appointed, the arbitrator shall schedule the arbitration for a hearing to commence on a mutually convenient date. The hearing shall commence no later than 120 calendar days after the arbitrator is appointed and shall continue from day to day until completed. The arbitrator shall issue his award in writing no later than 10 calendar days after the conclusion of the hearing. The arbitration award shall be final and binding regardless whether one of the parties fails or refuses to participate in the arbitration. The arbitrator is empowered to hear and determine all disputes between the parties concerning the subject matter of this Agreement and the arbitrator may award injunctive relief, pre-award attachments, rescission, restitution, and monetary damages including interest, punitive damages, costs and attorneys' fees. In the event that either party serves a proper demand for arbitration under this Agreement, both parties may pursue discovery in accordance with California Code of Civil Procedure Section 1283.05, the provisions of which are incorporated herein by reference, with the following exceptions: (a) NMT and the Inventor may conduct all discovery including depositions for discovery purposes without leave of the arbitrator; and (b) All discovery shall be completed no later than the commencement of the arbitration hearing or 120 calendar days after the date that a proper demand for arbitration is served, whichever occurs earlier, unless upon a showing of good cause the arbitrator extends or shortens that period. The arbitrator shall not have the power to amend this Agreement in any respect. 13.12 Attorneys' Fees. In the event of any dispute with respect --------------- to this Agreement, the prevailing party shall be entitled to its reasonable attorneys' fees and other costs and expenses incurred in litigating, arbitrating or otherwise resolving or settling such dispute. ARTICLE XIV LIQUIDATED DAMAGES ------------------ 14.1 Liquidated Damages. NMT hereby agrees, recognizes and ------------------ acknowledges that in the event NMT commits any one or more of the events of default as set forth in Section 8.2 hereof that is not cured pursuant to Section 8.3 (a) the Inventor would incur substantial damages, (b) such damages would be difficult if not impossible to calculate with certainty, and (c) it would not be feasible for the Inventor to obtain an adequate remedy at law. Accordingly, in the event of any such default, NMT shall immediately pay to the Inventor the sum of XXXXXXXX, solely as liquidated damages and not as a penalty, which sum NMT hereby agrees is fair and reasonable in light of the anticipated harm to the Inventor which would be caused by any such default. The liquidated damages provided herein shall not be a personal obligation of NMT or any officer or stockholder of NMT and the Inventor agrees to look solely to its security interest in the Collateral to satisfy such liquidated damages except to the extent Technology Purchase Agreement - 18 - set forth in the proviso at the end of the last sentence of Section 7.4 hereof. IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the date first above written. INVENTOR /s/ Morris Simon --------------------------------------- Morris Simon, M.D. NITINOL MEDICAL TECHNOLOGIES, INC. By /s/ Jack Reinstein --------------------------------------- Its President Approved: BETH ISRAEL HOSPITAL ASSOCIATION By /s/ Mitchell Rabkin, M.D. ------------------------------ Its _____________________________ Technology Purchase Agreement - 19 - GLOSSARY -------- "BIH" or "Contractor" means The Beth Israel Hospital Association, a non- --- ---------- profit Massachusetts corporation. "Existing Technology" means the trade secrets, know-how, technology and ------------------- other proprietary information transferred pursuant to the Technology Purchase Agreement to MNT, which are useful in the development, making, use and sale of the Filter. Such Existing Technology includes the Patent (as hereinafter defined). "FDA" means the United States Food and Drug Administration. --- "Filter" means that nitinol blood clot filter, which is the subject of the ------ "Patent" as hereinafter defined and any peripheral items incidental thereto. "Inventor" means Morris Simon, M.D. -------- "New Technology" means any and all inventions (including any and all -------------- patents or patent applications resulting therefrom), processes, trade secrets, copyrights, and know-how created by or at the direction of NMT, or any person or entity engaged by NMT, relating to the Filter, and all incidents thereto discovered, devised, researched, developed or produced as a result of any research and development efforts in connection with the Filter performed by NMT or by a person or entity engaged by NMT. "NMT" means Nitinol Medical Technologies, Inc., a Delaware corporation. --- "Patent" means that U.S. patent #4,425,908 granted January 17, 1984 on a ------ nitinol blood clot filter (the "Filter"). "Patent Mortgage" means the Mortgage of, Assignment of, and Grant of a --------------- Security Interest in the Patent between NMT and the Inventor. "Technology Agreements" means the Patent Mortgage, the Technology Purchase --------------------- Agreement and all renewals, amendments and substitutions. "Technology Purchase Agreement" means the agreement between the Inventor ----------------------------- and NMT and which provides for the sale of the Existing Technology by Inventor to NMT. Glossary - 1 - EX-10.14 8 LICENSE AGREEMENT Exhibit 10.14 LICENSE AGREEMENT ----------------- TABLE OF CONTENTS ----------------- PREAMBLE ARTICLES: I DEFINITIONS II GRANT III DUE DILIGENCE IV ROYALTIES V REPORTS AND RECORDS VI PATENT PROSECUTION VII INFRINGEMENT VIII INDEMNIFICATION AND INSURANCE IX EXPORT CONTROLS X NON-USE OF NAMES XI ASSIGNMENTS XII DISPUTE RESOLUTION XIII TERMINATION XIV PAYMENTS, NOTICES AND OTHER COMMUNICATIONS XV THIRD PARTY BENEFICIARY XVI CONFIDENTIAL DATA XVII MISCELLANEOUS PROVISIONS This Agreement is made and entered into this 19th day of June, 1995 (the effective Date), by and between CHILDREN'S MEDICAL CENTER CORPORATION, a corporation duly organized and existing under the laws of the Commonwealth of Massachusetts and having its principal office at 300 Longwood Avenue, Boston, Massachusetts. 02115, U.S.A. (hereinafter referred to as CMCC), and INNERVENTIONS, INC., a corporation duly organized under the laws of the State of Delaware and having its principal office at 222 Berkeley Street, Boston, MA 02116-3761 (hereinafter referred to as LICENSEE). WITNESSETH ---------- WHEREAS, CMCC is the owner of certain Patent Rights and Know-How relating to the Clamshell II Septal Occluder (as such terms are later defined herein) and has the right to grant licenses under said Patent Rights and to said Know-How; WHEREAS, CMCC desires to have the Patent Rights and Know-How utilized in the public interest and is willing to grant an exclusive license thereunder and thereto; WHEREAS, LICENSEE has represented to CMCC, to induce CMCC to enter into this Agreement, that LICENSEE is capable of the development, production, manufacture, marketing and sale of products similar to the "Licensed Product(s)" (as later defined herein) and/or the use of the "Licensed Process(es)" (as later defined herein) and that it shall commit itself to a thorough, vigorous and diligent program of exploiting the Patent Rights and Know-How so that public utilization shall result therefrom; and WHEREAS, LICENSEE desires to obtain an exclusive license under the Patent Rights and To the Know-How upon the terms and conditions hereinafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual covenants herein, the parties hereto agree as follows: ARTICLE I -- DEFINITIONS ------------------------ For the purpose of this Agreement, the following words and phrases shall have the following meanings: 1.1 "Bard" shall mean C.R. Bard, Inc., a New Jersey corporation, and any subsidiaries or divisions thereof. 1.2 "Bard/CMCC License Agreement" shall mean that certain Patent and Know- How License Agreement, dated as of June 19, 1995 between Bard and CMCC. 1.3 "Bard/CMCC Transfer Agreement" shall mean that certain Asset and Technology Donation and Transfer Agreement, dated as of May 12, 1995 between Bard and CMCC. 1.4 "Bard/CMCC/Third Party Indemnification Agreement" shall mean that certain Indemnification Agreement dated as of May 12, 1995, among Bard, CMCC and LICENSEE. 1.5 "Clamshell II Septal Occluder" or "Occluder" shall mean that certain medical device which is described on Exhibit 1.5 ----------- -2- 1.6 "Confidential Data" shall have the meaning set forth in Section 16.1 of this Agreement. 1.7 "Delivery System" shall mean that certain device which is described in Exhibit 1.1(h) to the Bard/CMCC Transfer Agreement. -------------- 1.8 "Device" shall mean the Occluder together with the Delivery System. 1.9 "Device" Related Products shall mean each of the Device, any individual component or part of the Device, and any and all successor or derivative products to or of the Device or any such component or part. 1.10 "Field of Use" shall mean unrestricted use of the Licensed Products and Know How except for Patent Ductus Arteriosus (PDA) indications. 1.11 "Force Majeure" shall mean any act of God, any accident, explosion, fire, storm, earthquake, flood, drought, peril of the sea, riot, embargo, war or foreign, federal, state or municipal order of general application, seizure, requisition or allocation, any failure or delay of transportation, shortage of or inability to obtain supplies, equipment, fuel or labor or any other circumstances or event beyond the reasonable control of the Party relying upon such circumstance or event. 1.12 "Know-How" shall have the same meaning as "Transferred Know-How," as such term is defined in the Bard/CMCC Transfer Agreement. 1.13 A "Licensed Process" shall mean any process which is covered in whole or in part by an issued, unexpired claim or a pending claim contained in the Patent Rights. 1.14 A "Licensed Product" shall mean any product or part thereof which: a. Is covered in whole or in part by an issued, unexpired claim or a pending claim contained in the Patent Rights in the country in which any Licensed Product is made, used, or sold; or b. Is manufactured by using a process which is covered in whole or in part by an issued, unexpired claim or a pending claim contained in the Patent Rights in the country in which any Licensed Process is used or in which the Licensed Product is used or sold. 1.15 "LICENSEE"- shall mean INNERVENTIONS, INC. and any Subsidiary of INNERVENTIONS, INC. 1.16 "Net Sales Price" shall mean LICENSEE's aggregate billings for commercial sales of Licensed Products produced hereunder less the sum of the following: a. Discounts allowed in amounts customary in the trade; -3- b. Sales, tariff duties and/or use taxes directly imposed and with reference to particular sales; c. Outbound transportation prepaid or allowed; and d. Amounts allowed or credited on returns. No deductions shall be made for commissions paid to individuals whether they be with independent sales agencies or regularly employed by LICENSEE and on its payroll, or for cost of collections. Licensed Products shall be considered "sold" when billed out or invoiced. The term Net Sales Price shall not apply to any revenues derived by LICENSEE from the clinical trial use of the Licensed Products. 1.17 "Patent Rights" shall mean all of the following CMCC intellectual property: a. United States and foreign patent applications relating to the Clamshell II Septal Occluder and any modifications or improvements thereto, including without limitation such applications listed in Exhibit 1.17, and any divisionals, -------------- continuations, continuations-in-part, extensions or revivals of any of the aforementioned applications; b. United States and foreign patents issued from the applications referred to in (a) above; c. Any reissues and reexaminations of United States patents referred to in (b) above, and all corresponding patents in other countries. 1.18 "Stock Transfer Agreement" shall mean that certain Stock Transfer Agreement dated as of even date herewith between CMCC and LICENSEE. 1.19 "Subsidiary" shall mean any corporation, company or other entity more than fifty percent (50%) of whose voting stock is owned or controlled directly or indirectly by INNERVENTIONS, INC. 1.20 "Sublicense Agreement" shall mean that certain Sublicense Agreement, dated as of even date herewith, between CMCC and LICENSEE. ARTICLE II -- GRANTS -------------------- 2.1 CMCC hereby grants to LICENSEE an exclusive worldwide right and license to make, have made, use, lease and sell the Licensed Products, and to practice the Licensed Processes, for the Field of Use to the end of the term for which the Patent Rights are granted unless sooner terminated according to the terms hereof; provided however, CMCC shall ---------------- retain a royalty-free, nonexclusive, irrevocable license to practice, and to license Dr. James Lock to practice individually or in collaboration with other individual researchers, the Patent Rights for noncommercial, research purposes only. 2.2 CMCC hereby grants to LICENSEE an exclusive, worldwide right and license to the use of the Know-How, including all information and documents specific -4- to the Device which are described on Exhibit 2.1(c) of the Bard/CMCC -------------- Transfer Agreement for the Field of Use for the term of the license granted under Section 2.1 hereof. LICENSEE shall have the right to request Bard to crate and deliver to LICENSEE, at LICENSEE's sole expense, all of the documents and other tangible items set forth on such Exhibit 2.1(c) on or after the Closing Date, pursuant to the -------------- terms of Section 3.5 of the Bard/CMCC Transfer Agreement. Licensee shall bear all risk of loss with respect to such documents and tangible items from and after the Closing. 2.3 LICENSEE agrees that it will make reasonable attempts to the extent that is based on sound business practice, to have the Licensed Products that are leased or sold in the United States manufactured in the United States. 2.4 In order to establish exclusivity for LICENSEE, CMCC hereby agrees that it shall not, except as specifically set forth in Section 2.1, grant during the period of time in which this Agreement is in effect, any other license (i) to make, have made, use, lease and/or sell Licensed Products or to utilize Licensed Processes for the Field of Use or (ii) to use the Know-How. 2.5 LICENSEE shall have the right to enter into sublicensing agreements for the rights, privileges, and licenses granted hereunder upon the prior written consent of CMCC. CMCC agrees to consent to a proposed sublicense after LICENSEE has demonstrated that the preconditions set forth in Section 14(n)(i) through (ix) of the Stock Transfer Agreement have been satisfied. Such sublicenses will expire upon the expiration of LICENSEE's rights granted herein. 2.6 LICENSEE hereby agrees that every sublicensing agreement to which it shall be a party and which shall relate to the rights, privileges and license granted hereunder shall contain a statement setting forth the date upon which LICENSEE's exclusive rights, privileges and license hereunder shall terminate. 2.7 LICENSEE agrees that any sublicense granted by it shall provide that the obligations to CMCC of Articles II, V, VII, VIII, IX, X, XII, XIII, XVI and XVII of this Agreement shall be binding upon the sublicensee as if it were a party to this Agreement. LICENSEE further agrees to attach copies of these Articles to sublicense agreements. 2.8 LICENSEE agrees to forward to CMCC a copy of any and all fully executed sublicense agreements, and further agrees to forward to CMCC annually a copy of such reports received by LICENSEE from its sublicensees during the preceding twelve (12) month period under the sublicenses as shall be pertinent to a royalty accounting under said sublicense agreements. -5- 2.9 LICENSEE shall not receive from sublicensees anything of value in lieu of cash payments based upon payment obligations of any sublicense under this Agreement, without the express prior written permission of CMCC. 2.10 The license granted hereunder shall not be construed to confer any rights upon LICENSEE by implication, estoppel or otherwise as to any technology other than the Patent Rights and Know-How. ARTICLE III -- DUE DILIGENCE ---------------------------- 3.1 LICENSEE shall use its best efforts to bring one or more Licensed Products or Licensed Processes to market through a thorough, vigorous and diligent program for exploitation of the Patent Rights. 3.2 LICENSEE shall raise a cumulative total of investment capital of at least the following amounts: a. XXXXXXXX within twelve (12) months of the effective date of this Agreement; b. XXXXXXXX within twenty four (24) months of the effective date of this Agreement; c. XXXXXXXX within five (5) years of the effective date of this Agreement; provided, however, that after LICENSEE introduces the first Licensed -------- ------- Product or Licensed Process and the Net Sales Price to LICENSEE from such Licensed Product or Licensed Process exceeds an aggregate of XXXXXXXX, then the obligations of this Section 3.2 shall be deemed satisfied. 3.3 In addition, following the date on which LICENSEE shall have raised the sum identified in Section 3.2.a, LICENSEE shall accomplish the following performance milestones within the times following such specified financing:
Milestone Time Following Financing --------- ------------------------ a. XXXXXXXX Two months b. XXXXXXXX Six months c. XXXXXXXX Six months d. XXXXXXXX Six months e. XXXXXXXX Eight months f. XXXXXXXX Nine months g. XXXXXXXX Nine months
provided, however, that if no finished goods, work in process or raw -------- ------- materials for the manufacture of Devices are transferred from Bard to LICENSEE before -6- LICENSEE has raised the sum identified in Section 3.2.a, then the time periods by which LICENSEE shall (i) XXXXXXXX of the XXXXXXXX and the XXXXXXXX and (ii) XXXXXXXX, shall be extended by an additional four (4) months. With respect to Milestone 3.3.b, LICENSEE agrees that CMCC may XXXXXXXX, and that CMCC may XXXXXXXX under Section 3.3.b, in which case LICENSEE shaD be deemed to have performed its obligations under such Milestone; provided, however, that any disagreements between CMCC -------- ------- and LICENSEE regarding (i) the XXXXXXXX in such XXXXXXXX and (ii) XXXXXXXX shall be submitted for advice and counsel to the Scientific Advisory Board of LICENSEE. Each party to this Agreement agrees to cooperate fully with and provide assistance to the other party in the preparation and XXXXXXXX of a XXXXXXXX, regardless of which party submits the documents contemplated under Section 3.3.b. 3.4 With respect to LICENSEE's obligations under Sections 3.2 and 3.3.a, 3.3.d, 3.3.e and 3.3.g above, if LICENSEE fails to perform any of its obligations thereunder and has not remedied such failure within ninety (90) days following written demand by CMCC, CMCC may terminate this agreement. With respect To LICENSEE's obligations under Sections 3.3.b, 3.3.c and 3.3.f, if LICENSEE fails to perform any of its obligations thereunder, CMCC may terminate this Agreement without affording LICENSEE an opportunity to remedy. 3.5 In addition, LICENSEE shall XXXXXXXX the XXXXXXXX to XXXXXXXX by XXXXXXXX. Toward this end, until such time as LICENSEE has introduced the first Licensed Product to commercial sale, LICENSEE agrees to provide to CMCC a written report on an annual basis addressing LICENSEE's activities in the prior year and its goals for the following year relative to the accomplishment of such first commercial sale, and its resources allocated and to be allocated thereto, and to meet with CMCC to discuss the subject matter of such written report. 3.6 If at any time after LICENSEE has completed raising the XXXXXXXX described in Section 3.2.b, CMCC believes that LICENSEE is failing to proceed with due diligence within the meaning of 3.1 to accomplish the XXXXXXXX of a XXXXXXXX by the date set forth in Section 3.5, CMCC may so indicate to LICENSEE by written notice. LICENSEE shall thereafter respond to CMCC within 30 days by indicating the steps LICENSEE is taking to accomplish such commercial sale by such date. If CMCC reasonably concludes, based on such response, that LICENSEE is not in compliance with Section 3.1, and LICENSEE thereafter fails to comply with Section 3.1 to the reasonable satisfaction of CMCC within 90 days, CMCC may terminate this Agreement upon written notice to LICENSEE. -7- ARTICLE IV -- ROYALTIES ----------------------- 4.1 For the rights, privileges and license granted hereunder, LICENSEE shall pay to CMCC in the manner hereinafter provided to the end of the term of the Patent Rights or until this Agreement shall be terminated as hereinafter provided: a. A closing fee of XXXXXXXX, which said license closing fee shall be deferred until LICENSEE is able to raise at least XXXXXXXX of investment capital. At such time, LICENSEE shall pay a portion of said license closing fee in an amount equal to XXXXXXXX of the amount of investment capital so raised, and shall pay the balance of the license closing fee by executing a promissory note in such amount, which promissory note shall be in substantially the form attached hereto as Exhibit 4.1. Such note shall bear interest at ----------- a rate of XXXXXXXX per annum and shall be payable in equal installments on each of the three anniversary dates of its execution, provided that there shall be no penalty for pre- -------- payments on the note by LICENSEE. b. A royalty which shall be XXXXXXXX of the Net Sales Price, as defined herein, until such time as the aggregate Net Sales Price equals XXXXXXXX, after which the royalty shall be XXXXXXXX to XXXXXXXX of the Net Sales Price until such time as the aggregate Net Sales Price equals XXXXXXXX, after which the royalty shall be XXXXXXXX to XXXXXXXX of the Net Sales Price; provided, further, -------- ------- that LICENSEE shall pay CMCC (i) an additional XXXXXXXX in cash at such time as the aggregate Net Sales Price equals XXXXXXXX, (ii) an additional XXXXXXXX in cash at such time as the aggregate Net Sales Price equals XXXXXXXX, and (iii) an additional XXXXXXXX at such time as the aggregate Net Sales Price equals XXXXXXXX. c. Where sublicenses have been granted, LICENSEE shall pay to CMCC royalties based upon the Net Sales Price of Licensed Products at the same rate as if such Licensed Products had been sold by LICENSEE hereunder. 4.2 No multiple royalties shall be payable because any Licensed Product, its manufacture, use, lease or sale are or shall be covered by more than one Patent Rights patent application or Patent Rights patent licensed under this Agreement. 4.3 Royalty payments shall be paid in United States dollars in Boston, Massachusetts, or at such other place as CMCC may reasonably designate consistent with the laws and regulations controlling in any foreign country. If any currency conversion shall be required in connection with the payment of royalties hereunder, such conversion shall be made by using the exchange rate -8- prevailing at the Bank of Boston on the last business day of the calendar quarterly reporting period to which such royalty payments relate. ARTICLE V -- REPORTS AND RECORDS -------------------------------- 5.1 LICENSEE shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable to CMCC hereunder. Said books of account shall be kept at LICENSEE's principal place of business or the principal place of business of the appropriate Division of LICENSEE to which this Agreement relates. Said books and the supporting data shall be open at all reasonable times for five (5) years following the end of the calendar year to which they pertain, to the inspection of CMCC or its agents for the purpose of verifying LICENSEE's royalty statement or compliance in other respects with this Agreement. 5.2 LICENSEE, within forty-five (45) days after March 31, June 30, September 30 and December 31, of each year, shall deliver to CMCC true and accurate reports, giving such particulars of the business conducted by LICENSEE and its sublicensees during the preceding three- month period under this Agreement as shall be pertinent to a royalty accounting hereunder. These shall include at least the following: a. Number of Licensed Products sold. b. Total billings for Licensed Products sold. c. Accounting for all Licensed Products shipped. d. Deductions applicable as provided in Paragraph 1.15 e. Total royalties due. f. Names and addresses of all sublicensees of LICENSEE. 5.3 With each such report submitted, LICENSEE shall pay to CMCC the royalties due and payable under this Agreement. If no royalties shall be due, LICENSEE shall so report. 5.4 On or before the ninetieth (90th) day following the close of LICENSEE's fiscal year, LICENSEE shall provide CMCC with LICENSEE's certified financial statements for the preceding fiscal year including, at a minimum, a Balance Sheet and an Operating Statement. 5.5 The royalty payments set forth in this Agreement shall, if overdue, bear interest until payment at a per annum rate of XXXXXXXX the XXXXXXXX in effect at the XXXXXXXX on the due date. The payment of such interest shall not foreclose CMCC from exercising any other rights it may have as a consequence of the lateness of any payment. ARTICLE VI -- PATENT PROSECUTION -------------------------------- -9- 6.1 CMCC shall be responsible for the preparation, filing, prosecution and maintenance of all patent applications and patents included in the Patent Rights. LICENSEE shall reimburse CMCC for all reasonable attorneys' fees incurred by CMCC subsequent to the date of this Agreement in connection with the preparation, filing, prosecution and maintenance of all patent applications and patents included in the Patent Rights; provided that patent counsel selected by CMCC is reasonably acceptable to LICENSEE. Subsequent to the date of this Agreement, CMCC, LICENSEE and patent counsel shall meet to develop a patent strategy with respect to the Patent Rights and thereafter shall meet on a mutually agreeable schedule to review the status thereof. CMCC shall furnish to LICENSEE copies of documents relevant to the preparation, filing, prosection or maintenance of the patent applications and patents included in the Patent Rights, and shall, upon request, provide LICENSEE copies of invoices providing detailed descriptions of all costs and expenses incurred by CMCC's patent counsel in connection therewith. 6.2 If, at any time, CMCC shall elect not to prepare, file, prosecute or maintain any patent applications or patents included in the Patent Rights, then CMCC shall so notify LICENSEE within thirty (30) days of such election. Upon receipt of such notice, LICENSEE may assume full responsibility, at its expense, to prepare, file, prosecute and maintain any such patent applications or patents. ARTICLE VII--INFRINGEMENT ------------------------- 7.1 Each party shall inform the other promptly in writing of any alleged infringement of the Patent Rights by a third party, including all details then available. LICENSEE shall have the right, but shall not be obligated, to prosecute at its own expense any such infringements, and CMCC agrees that LICENSEE may join CMCC as a plaintiff at the expense of LICENSEE. No settlement, consent judgment or other voluntary final disposition of the suit may be entered into without CMCC's consent, which consent shall not be unreasonably withheld, delayed or conditioned. 7.2 If LICENSEE has not commenced legal action or been successful in obtaining cessation of the infringement within ninety (90) days of written notification from CMCC of such infringement, or if LICENSEE elects not to continue prosecuting any legal action against an infringer, CMCC shall have the right, but shall not be obligated, to prosecute at its own expense any such infringement. CMCC may join LICENSEE as a plaintiff in any such infringement suit at CMCC's expense. No settlement, consent judgment or other voluntary final disposition of the suit may be entered into without LICENSEE's consent, which consent shall not be unreasonably withheld, delayed or conditioned. 7.3 In the event that a declaratory judgment action alleging invalidity or noninfringement of any of the Patent Rights shall be brought against LICENSEE, -10- LICENSEE shall have the right, but shall not be obligated, to defend such action. If LICENSEE elects not to defend such action, it shall notify CMCC, and CMCC, at its option, shall have the right, within thirty (30) days after commencement of such action, to intervene and take over the sole defense of the action at its own expense. 7.4 In the event that LICENSEE shall undertake the enforcement and/or defense of the Patent Rights by litigation, LICENSEE may withhold up to XXXXXXXX of the royalties otherwise thereafter due CMCC hereunder and apply the same toward reimbursement of its expenses, including reasonable attorneys' fees, in connection therewith, but LICENSEE shall not withhold an amount greater than that necessary to cover the cost of such fees and expenses. Any recovery of damages by LICENSEE for any such suit shall be applied first in satisfaction of any unreimbursed expenses and legal fees of LICENSEE relating to the suit, next toward reimbursement of CMCC for any royalties past due or withheld and applied pursuant to this Article VII, and to royalties due to CMCC for infringing sales as if sales had been made by LICENSEE. The balance remaining from any such recovery shall belong to LICENSEE. 7.5 In any infringement suit as either party may institute to enforce the Trademarks or the Patent Rights pursuant to this Agreement, the other party hereto shall, at the request and the expense of the party initiating such suit, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens, and the like. 7.6 Subject to Section 2.5, LICENSEE, during the period of this Agreement, shall have the sole Aght in accordance with the terms and conditions herein to sublicense any alleged infringer for the Field of Use for future use of the Trademarks or the Patent Rights. ARTICLE VIII -- INDEMNIFICATION AND INSURANCE --------------------------------------------- LICENSEE covenants with CMCC as part of this Agreement that it will comply with the indemnification and insurance terms and obligations set forth in Sections 3.1 and 3.2 of the Bard/CMCC/Third Party Indemnification Agreement, as well as those set forth in Sections 8, 9 and 10 of the Stock Transfer Agreement. ARTICLE IX -- EXPORT CONTROLS ----------------------------- It is understood that CMCC is subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other commodities (including the Arms Export Control Act, as amended and the Export Administration Act of 1979), and that its obligations hereunder are contingent on compliance with applicable United States export laws and regulations. The transfer of certain technical data and commodities may -11- require a license from the cognizant agency of the United States Government and/or written assurances by LICENSEE that LICENSEE shall not export data or commodities to certain foreign countries without prior approval of such agency. CMCC neither represents that a license shall not be required nor that, if required, it shall be issued. ARTICLE X -- NON-USE OF NAMES ----------------------------- LICENSEE shall not use the names of CMCC nor of any of its employees, nor any adaptation thereof, in any advertising, promotional or sales literature without prior written consent obtained from CMCC in each case except that LICENSEE may state that it is licensed by CMCC to the Know-How and under one or more of the patents and/or applications comprising the Patent Rights, and LICENSEE may comply with disclosure requirements of all applicable laws relating to its business, including United States and state securities laws. ARTICLE XI--ASSIGNMENT ---------------------- 11.1 Except as otherwise provided herein, this Agreement is not assignable in whole or in part, and any attempt to do so shall be void. 11.2 CMCC may assign this Agreement at any time To any corporate affiliate of CMCC without the prior consent of LICENSEE. 11.3 LICENSEE may assign this agreement to another entity only with the prior written consent of CMCC. CMCC agrees to consent to a proposed assignment after LICENSEE has demonstrated that the preconditions set forth in Section 14(n)(i) through (ix) of the Stock Transfer Agreement have been satisfied. LICENSEE's merger with, or acquisition by, another entity or the sale of all or substantially all of the assets of LICENSEE shall be deemed an assignment for purposes of this Article XI. 11.4 Any assignment in violation of this section 11 shall be null and void and of no force or effect. ARTICLE XII -- DISPUTE RESOLUTION --------------------------------- 12.1 Either party may give the other written notice of any dispute arising out of or relating to the License Agreement which is not resolved in the ordinary course of business within a three (3) month period. Within fifteen (15) days of receipt of said notice, the parties shall meet at a mutually acceptable time and place, and thereafter as often as they reasonably deem necessary, to exchange relevant information and to attempt to settle the dispute. If the matter has not been resolved within thirty (30) days of receipt of the notice provided above, or in the event the parties fail to meet within twenty (20) days of the receipt of said -12- notice, either party may request in writing that the matter be submitted to mediation in accordance with section 12.2 below. 12.2 Within fifteen (15) days of receipt of a request of mediation as described above, the parties agree to commence mediation in the City of Boston, Commonwealth of Massachusetts in accordance with the policies and procedures of Endispute, Inc. ("Endispute"). The parties shall select a mediator acceptable to both the CMCC and LICENSEE from a list provided by Endispute. The parties agree to cooperate in good faith in said mediator's efforts to assist the parties to resolve the dispute. Each party agrees to pay fifty percent (50%) of the costs of said mediation. If the matter has not been resolved within thirty (30) days of the commencement of mediation, either party may request in writing that the matter be submitted to arbitration in accordance with Section 12.3 below. 12.3 Any dispute arising under this License Agreement which is not resolved in accordance with either section 12.1 or 12.2 above, shall be determined by arbitration in the City of Boston, Commonwealth of Massachusetts, in accordance with the rules and regulations of the American Arbitration Association ("AAA"). Any such arbitration shall be conducted before a single arbitrator agreed upon by the parties, or, if the parties are unable to agree upon a mutually acceptable arbitrator, an arbitrator shall be chosen in accordance with AAA rules and regulations. The arbitrator's determination may be filed with the clerk of a court of competent jurisdiction as a final adjudication of the matter at issue, or application may be made to such court for judicial acceptance of the ward and an order of enforcement, as the case may be. 12.4 Nothing herein shall restrict the right of either party to institute a legal proceeding to enable such party to obtain provisional injunctive relief during the pendency of any such arbitration. ARTICLE XIII -- TERMINATION --------------------------- 13.1 Except as otherwise provided herein and unless sooner terminated as set forth in this Article XIII, this Agreement and the licenses and rights granted hereunder shall remain in full force and effect until the expiration of the last to expire Patent Right, at which time LICENSEE shall have a fully paid-up, perpetual, noncancelable license. 13.2 This Agreement shall terminate upon notice by CMCC if: (i) LICENSEE shall cease to carry on its business, (ii) LICENSEE shall have breached its obligations under the Stock Transfer Agreement or the Bard/CMCC/Third Party Indemnification Agreement, which breach has not been remedied within 15 days following written notice thereof from CMCC, or (iii) upon termination of the Sublicense Agreement as provided therein. -13- 13.3 Should LICENSEE fail to pay CMCC any amounts due and payable hereunder, CMCC shall have the right to terminate this Agreement on thirty (30) days' notice, unless LICENSEE shall pay CMCC within the thirty (30) day period, all such amounts due and payable. Upon the expiration of the thirty (30) day period, if LICENSEE shall not have paid all such amounts due and payable, the rights, privileges and license granted hereunder shall terminate. 13.4 Upon any material breach or default of this Agreement by LICENSEE, other than those occurrences set out in Paragraphs 13.2 and 13.3 hereinabove and those due diligence requirements set forth in Article III hereto, which shall always take precedence in that order over any material breach or default referred to in this Paragraph 13.4, CMCC shall have the right to terminate this Agreement and the rights, privileges and license granted hereunder by one hundred twenty (120) days' notice to LICENSEE. Such termination shall become effective unless LICENSEE shall have cured any such breach or default prior to the expiration of the one hundred twenty (120) day period. 13.5 LICENSEE shall have the right to terminate this Agreement at any time on six (6) months' notice to CMCC, and upon payment of all amounts due CMCC, including all unpaid amounts of the license closing fee set forth in Section 4.1.a hereto, through the effective date of termination. 13.6 Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination. LICENSEE and any sublicensee thereof may, however, after the effective date of such termination, sell all Licensed Products, and complete Licensed Products in the process of manufacture at the time of such termination and sell the same, provided that LICENSEE shall pay to CMCC the royalties thereon as required by Article IV of this Agreement and shall submit the reports required by Article V hereof on the sales of Licensed Products. 13.7 Upon termination of this Agreement for any reason during the exclusive period, any sublicensee not then in default shall have the right to seek a license from CMCC. ARTICLE XIV -- PAYMENTS, NOTICES, AND OTHER COMMUNICATIONS ---------------------------------------------------------- 14.1 CMCC agrees to notify LICENSEE of any notification received by CMCC from Bard, or any affiliates thereof, in any way relating To the rights granted pursuant to this Agreement, within fifteen (15) days of receipt of such notification. 14.2 Any payment, notice or other communication pursuant to this Agreement shall be sufficiently made or given on the date of the mailing if sent to such party by -14- certified first class mail, postage prepaid, addressed to it at its address below or as it shall designate by written notice given to the other party: In the case of CMCC: In case of LICENSEE Technology Transfer Manager InnerVentions, Inc. Office of Research Administration c/o Fletcher Spaght, Inc. The Children's Hospital 222 Berkeley Street 300 Longwood Avenue Boston, MA 02116-3761 Boston, MA 02115 Attn: David A. Chazanovitz ARTICLE XV -- THIRD PARTY BENEFICIARY ------------------------------------- Pursuant to Section 10.17(b) of the Bard/CMCC Transfer Agreement, CMCC hereby provides that LICENSEE is a third party beneficiary of the rights of CMCC and obligations of Bard thereunder, with full rights of substitution to enforce such rights and obligations. ARTICLE XVI--CONFIDENTIAL DATA ------------------------------ 16.1 Confidential Data. As used in this Agreement the term "Confidential ----------------- Data" shall mean all data or information (whether in oral, written or physical form) which (a) relates to the Licensed Products or either party and was heretofore or is hereafter furnished by one party (the "Disclosing Party") to the other (the "Recipient"), and (b) is identified by the Disclosing Party as being proprietary or confidential. Confidential Data shall also include all analyses, compilations, studies or other documents, whether prepared by LICENSEE or others, which contain or reflect such information. The term "Confidential Data" shall not include information which (i) was or becomes generally available to the public other than as a result of a disclosure by the Recipient or its directors, officers, employees, agents, or advisors, or (ii) is established by the Recipient to have been known to the Recipient at the time of disclosure by the Disclosing Party, or (iii) was or becomes available to the Recipient on a non-confidential basis through a source other than the Disclosing Party or its advisors, provided that such disclosure was not in violation of a confidentiality agreement of which the Recipient has or had knowledge. The Sublicense Agreement shall govern the confidentiality obligations of the parties with respect to the Bard Licensed Technology. 16.2 Non-Disclosure. Each party agrees for a period of four years from the -------------- date of this Agreement to use such reasonable efforts to prevent disclosure or publication of the Confidential Data of the other party as it uses to protect its own proprietary data of similar type or value. For purposes of this Agreement, any and all data or information included in the Patent Rights and Know-How -15- relating to the Device, and which were treated by Bard as confidential prior to the effective date of this Agreement, shall be treated as Confidential Data by LICENSEE. 16.3 Legal Process. In the event a Recipient is required by legal process to disclose any of the Confidential Data, Recipient shall provide the Disclosing Party with prompt notice of such requirement so that the Disclosing Party may seek a protective order or other appropriate remedy or waive compliance with the provisions of this Agreement relating to the protection of Confidential Data. In the event that a protective order or other remedy is obtained, the Recipient shall use all reasonable efforts to assure that all Confidential Data will be covered by such order or other remedy. If such protective order or other remedy is not obtained or the Disclosing Party waives compliance with the provisions of this Agreement relating to the protection of Confidential Data, the Recipient may disclose that portion of the Confidential Data which the Recipient is legally required to disclose without liability hereunder. ARTICLE XVII -- MISCELLANEOUS PROVISIONS ---------------------------------------- 17.1 This Agreement shall be construed, governed, interpreted and applied in accordance with the laws of the Commonwealth of Massachusetts, U.S.A., except that questions affecting the construction and effect of any patent shall be determined by the law of the country in which the patent was granted. 17.2 CMCC and LICENSEE shall each be excused for any failure or delay in performing any of its respective obligations under this Agreement, if such failure or delay is caused by Force Majeure, for such period of time as the event of Force Majeure exists. 17.3 The parties hereto acknowledge that this Agreement sets forth the entire Agreement and understanding of the parties hereto as to the subject matter hereof, and shall not be subject to any change or modification except by the execution of a written instrument subscribed to by the parties hereto. 17.4 The provisions of this Agreement are severable, and in the event that any provisions of this Agreement shall be determined to be invalid or unenforceable under any controlling body of law, such invalidity or unenforceability shall not in any way affect the validity or enforceability of the remaining provisions hereof. 17.5 LICENSEE agrees to mark the Licensed Products sold in the United States with all applicable United States patent numbers. All Licensed Products shipped to or sold in other countries shall be marked in such a manner as to conform with the patent laws and practice of the country of manufacture or sale. -16- 17.6 This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original and all of which together shall be deemed to be one and the same instrument. 17.7 The failure of either party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent failure to perform any such term or condition by the other party. IN WITNESS WHEREOF, the parties have hereunto set their hands and seals and duly executed this License Agreement as of June 19, 1995. CHILDREN'S MEDICAL CENTER CORPORATION By:\s\ Stuart J. Novick -------------------------------------------- Name: Stuart J. Novick Title: Vice President and General Counsel INNERVENTIONS, INC. By: \s\ David A. Chazanovitz ------------------------------------------- Name: David A. Chazanovitz Title: President -17- EX-10.17 9 MARKS LICENSE AGREEMENT Exhibit 10.17 AGREEMENT --------- THIS AGREEMENT made and entered into as of this 15th day of April, 1996, by and between Nitinol Medical Technologies, Inc., a Delaware Corporation having a place of business at 263 Summer Street, 7th Floor, Boston, Massachusetts 02210 (hereinafter called NITINOL) and Lloyd A. Marks, residing at 301 Roanoke Road, Westfield, New Jersey 07090 (hereinafter called MARKS). WITNESSETH: ----------- WHEREAS, MARKS has made and is making certain inventions, modifications and improvements relating to an aperture occlusion device for occluding an aperture within a body surface, including the inventions defined by United States Patent No. 5,108,420 owned by MARKS (hereinafter COVERED INVENTIONS); WHEREAS, NITINOL desires to develop and commercially exploit such COVERED INVENTIONS in the United States and abroad. WHEREAS, NITINOL desires to acquire an exclusive right under the COVERED INVENTIONS, including the existing U.S. patent owned by MARKS and future patents for improvements to the method or apparatus defined by such existing U.S. patent to manufacture, use and sell devices embodying the COVERED INVENTIONS and the exclusive right to grant sublicenses to others to do so; NOW THEREFORE, in consideration of the mutual promises and conditions set forth herein, the parties agree as follows: ARTICLE I - DEFINITIONS ----------------------- 1. LICENSED PRODUCTS shall mean devices and method manufactured, used or sold by NITINOL and sublicenses of NITINOL which are covered by U.S. Patent No. 5,108,420 and/or the claims of any patent owned by MARKS for the COVERED INVENTIONS which is licensed by NITINOL hereunder. 2. LICENSED PATENTS shall mean any patent owned by MARKS covering LICENSED PRODUCTS and licensed hereunder by NITINOL. 3. TECHNICAL INFORMATION means advise and data, both oral and written, as to processes, formulae, designs and operation, including operating techniques, product specifications, plans, drawings and sketches, know how, trade secrets and proprietary data both patentable and unpatentable, computer programs, algorithms and other materials or information relating to aperture occlusion devices for occluding an aperture within a body surface and devices and methods for use thereof which is presently possessed by, or hereinafter developed or acquired by MARKS during the term of this Agreement, which MARKS is free to disclose to NITINOL, and which information is applicable and necessary to assist NITINOL in the commercial production, use and sale of LICENSED PRODUCTS. 4. NET SALES PRICE shall mean the total gross sales price charged and collected by NITINOL and sublicensees of NITINOL for LICENSED PRODUCTS less any transportation charges included in said gross sales price, any normal trade discounts allowed to customers at the time of sale, any sales, use or excise taxes imposed and actually paid which were included in said gross sales price, any credits or allowances given or made on account of rejection or return of LICENSED PRODUCTS previously delivered. ARTICLE II - GRANTS ------------------- 1. MARKS warrants that he is the owner of all right, title and interest in U.S. Patent No. 5,108,420 and hereby grants to NITINOL, subject to the provisions of this Agreement and on the royalty basis hereinafter stated, an exclusive worldwide license to make use and sell LICENSED PRODUCTS and the exclusive right to sublicense others to make use, and sell LICENSED PRODUCTS. 2. MARKS hereby grants to NITINOL the right of first refusal for an exclusive license under future patents owned by MARKS (LICENSED PATENTS) for COVERED INVENTIONS in accordance with the terms of this Agreement, to manufacture, use and sell devices and methods covered by such patents and the exclusive right to sublicense others to do so. ARTICLE III - PAYMENTS ---------------------- 1. NITINOL agrees to pay to MARKS for the licenses and other rights granted herein: a. A payment of XXXXXXXXXX upon execution by both parties of this Agreement. b. A payment, to be made promptly after the execution of this Agreement to Temple University of Philadelphia, Pennsylvania, in an amount sufficient to reimburse Temple University for costs which it incurred in obtaining U.S. Patent No. 5,108,420, or in the amount of eighteen thousand eighty eight ($18,088) dollars, whichever is less. c. Royalties for each calendar year of this Agreement based on the NET SALES PRICE of LICENSED PRODUCTS sold by NITINOL and its sublicensees in the United States during such calendar year in an amount equal to XXXXXXXXXX of the NET SALES -2- PRICE of all LICENSED PRODUCTS sold during each calendar year in the United States; d. NITINOL agrees to pay to MARKS as long as this Agreement is in effect a minimum annual royalty based upon the following schedule: (i) For the first one year period between the date of this Agreement and the one year anniversary date, a minimum royalty payment of XXXXXXXXXX is due and owed on the one year anniversary date; (ii) For the second one year period beginning on the one year anniversary date and ending on the second year anniversary date of this Agreement, a minimum royalty of XXXXXXXXXX is due and owed on the second year anniversary date; (iii) For the third one year period beginning on the second year anniversary date and ending on the third year anniversary date, a minimum royalty of XXXXXXXXXX is due and owed on the third year anniversary date; (iv) For the fourth one year period beginning on the third year anniversary date and ending on the fourth year anniversary date, a minimum royalty of XXXXXXXXXX is due and owed on the fourth year anniversary date; (v) For the fifth one year period beginning on the fourth year anniversary date and ending on the fifth year anniversary date, a minimum royalty of XXXXXXXXXX is due and owed on the fifth year anniversary date. (vi) For the sixth one year period beginning on the fifth year anniversary date and ending on the sixth year anniversary date, a minimum royalty of XXXXXXXXXX is due and owed on the sixth year anniversary date; (vii) For each one year period subsequent to and beginning with the sixth year anniversary date, a minimum annual royalty of XXXXXXXXXX is due and owed on each subsequent one year anniversary date. -3- e. NITINOL agrees to accomplish the following development activities funded by NITINOL relative to at least one LICENSED PRODUCT in accordance with the following timetable; (i) During the first one year period between the date of this Agreement and the first year anniversary date -- completion of a prototype; (ii) By the end of the two year period between the date of this Agreement and the second year anniversary date, initiate animal experiments, at least some such experiments will be performed by MARKS at a center selected by NITINOL in collaboration with MARKS. (iii) By the end of three year period between the date of this Agreement and the third year anniversary date -- complete the animal experiments; (iv) By the end of the four year period between the date of this Agreement and the fourth year anniversary date -- initiate human clinical trials. MARKS will participate in at least some of such clinical trials. f. If NITINOL fails to achieve by an anniversary date set forth in Article III, paragraph 1e, the development activity scheduled to be achieved by that anniversary date, NITINOL may retain the exclusive license granted hereunder by XXXXXXXXXX the minimum royalty payment due and owed on such anniversary date under Article III, paragraph 1d. If NITINOL fails to make this XXXXXXXXXX payment of the minimum royalty for the year in question, the exclusive license granted hereby is terminated. g. The minimum annual royalty set forth in Article III(d) and (f) shall be deductible from royalties payable under Article III(c) by NITINOL in the twelve (12) months after the anniversary date on which the minimum royalty is paid. h. Upon execution by both parties of this agreement, NITINOL grants to MARKS warrants to purchase up to ten thousand (10,000) shares of NITINOL common stock at a price of one cent (.01) per share. 2. Should NITINOL, due to its manufacture, use or sale of LICENSED PRODUCTS, be sued for infringement of a U.S. patent owned by a third party, NITINOL will escrow the minimum royalties due MARKS -4- under Article III, paragraph 1d, hereof pending a final decision in the infringement litigation, and, for the duration of the litigation, shall be relieved from meeting the development activity due dates of Article III, paragraph 1e, and the penalties of paragraph 1f. ARTICLE IV - RECORDS, REPORTS AND PAYMENTS ------------------------------------------ 1. NITINOL agrees to keep full, true and accurate records and books of account in sufficient detail to permit convenient calculations of the royalties payable hereunder by NITINOL and its sublicensees. NITINOL agrees to permit its books and records to be examined during normal business hours upon reasonable notice by MARKS by an auditor, accountant or other agent appointed or employed by MARKS to verify the accuracy of the reports provided for in Paragraph 2 of this Article. 2. NITINOL agrees to report to MARKS for each calendar quarter between the anniversary dates of this Agreement not later than thirty (30) days following the last day of each such calendar quarter during the term hereof the total number of LICENSED PRODUCTS that were sold by NITINOL and its sublicensees during the preceding calendar quarter. Each such report shall be accompanied by full payment of the total royalty due hereunder to MARKS from NITINOL for said preceding quarter. 3. In the event of termination of this Agreement, NITINOL, within sixty (60) days after the date of such termination, shall furnish to MARKS a written statement setting forth its total Net Sales of LICENSED PRODUCTS during the preceding calendar quarter to the date of termination and will concurrently with the submission of such report pay the royalties due to the date of termination. ARTICLE V - TECHNOLOGY TRANSFER ------------------------------- 1. After the execution of this Agreement, MARKS agrees to make available to NITINOL, so far as possible, TECHNICAL INFORMATION including product information, specifications and drawings in MARKS' possession which NITINOL deems necessary or useful for the manufacture, use, sale and installation of LICENSED PRODUCTS. MARKS shall respond as promptly as reasonably possible to all requests by NITINOL for TECHNICAL INFORMATION. 2. MARKS shall use reasonable care in communicating TECHNICAL INFORMATION including advise, drawings, opinions and the like as herein provided to NITINOL, but in no event shall MARKS incur any liability whatsoever for the accuracy thereof or in any way relating thereto so long as MARKS shall have made good faith efforts to provide accurate and complete TECHNICAL INFORMATION. -5- 3. MARKS shall maintain all patents on inventions covering LICENSED PRODUCTS. ARTICLE VI - PATENT ENFORCEMENT ------------------------------- 1. NITINOL retains the right to take legal action and recover against any and all infringers of LICENSED PATENTS. MARKS shall not be entitled to any damages, recovery or royalties resulting from any such legal action conducted solely by NITINOL, but MARKS agrees to cooperate with NITINOL in such action but at no expense to MARKS. However, MARKS shall have the right to take legal action at his own expense regarding infringements of patents licensed by MARKS to NITINOL hereunder if NITINOL takes no action to terminate such infringement within six months after notice thereof is given to NITINOL by MARKS, or if NITINOL provides notice to MARKS that no such action will be taken by NITINOL. NITINOL shall not be entitled to any damages, royalties or recovery resulting from any such legal action conducted solely by MARKS. NITINOL agrees to cooperate with MARKS in such action, but at no expense to NITINOL. ARTICLE VII - CANCELLATION, TERMINATION --------------------------------------- 1. If NITINOL shall fail to refuse to make any payments due to MARKS hereunder, or refuse to comply with any other material provision hereof, and if any such default in the making of such payment or in complying with such other provisions shall continue unremedied for sixty (60) days after a written default notice is given to NITINOL by MARKS of such default and the default is not contested in writing by NITINOL, then MARKS, after the expiration of said sixty (60) days and for so long as such default shall continue unremedied, may elect at his option to terminate this Agreement by providing a written termination notice to NITINOL. 2. If NITINOL, in good faith, contests any payments claimed by MARKS to be due or other alleged defaults by NITINOL outlined in a default notice given under Article VII, paragraph 1, NITINOL shall set forth the basis for contesting such payments or alleged defaults in writing within sixty (60) days from the receipt of the default notice from MARKS. In the event this occurs, MARKS will not terminate this Agreement and a good faith effort will be made by both parties to settle the dispute involving the contested payment or default, and should this effort fail, the arbitration procedure of Article XIV hereof will be instituted. 3. If MARKS shall fail or refuse to comply with any material provision hereof and if such default in compliance shall continue unremedied for sixty (60) days after a written default notice is given to MARKS by NITINOL of such default, and the default is not contested in writing by MARKS, then NITINOL, after the expiration of said sixty (60) days and for so long as such default shall continue unremedied, may elect at its option to terminate the minimum royalty provisions of this Agreement and to reduce the percentage royalty of Article III, paragraph 1c -6- to XXXXXXXXXX by providing written notice thereof to MARKS or alternatively to terminate this Agreement by providing a written termination notice to MARKS. 4. If MARKS, in good faith, contests the alleged defaults outlined in the default notice given under Article VII, paragraph 3, MARKS shall set forth the basis for contesting such alleged defaults in writing within sixty (60) days from the receipt of the default notice from NITINOL. In the event this occurs, NITINOL will not terminate this Agreement or reduce the royalty percentage and a good faith effort will be made by both parties to settle the dispute involving the contested defaults. Should this effort fail, the arbitration procedure of Article hereof will be instituted, and during such arbitration procedure, NITINOL will escrow any royalties due hereunder pending a final decision. 5. If U.S. Patent No. 5,108,420 and all LICENSED PATENTS by MARKS are declared invalid in a nonappealable judicial decision, NITINOL may terminate this Agreement. 6. Unless otherwise terminated as provided in this Article or elsewhere in this Agreement, this Agreement shall continue in force until the expiration of the first to expire of the U.S. patents licensed hereunder. If additional LICENSED PATENTS are still in effect covering LICENSED PRODUCTS, the parties hereby agree to negotiate a new license for these patents at a royalty not in excess of that set forth in Article III hereof. 7. Termination of this Agreement shall not affect any rights accrued or obligations incurred prior to the effective date of such termination. ARTICLE VIII - PROTECTION OF DATA AND INFORMATION ------------------------------------------------- 1. The TECHNICAL INFORMATION or other information identified as confidential which is furnished or disclosed by either party hereunder to the other, is for the sole use of the party receiving such disclosure. The party receiving confidential information will insure that information in written, printed, oral or other form, received from the other party hereunder, shall not be disclosed to third parties without the consent of the disclosing party except insofar as such information: a. Is necessarily disclosed solely by its use in LICENSED PRODUCTS or products manufactured and sold by the receiving party and its sublicensees; b. Is made public by the party providing the confidential information; -7- c. Is established to be in the public domain otherwise than as a consequence of a breach of the obligation here under taken not to disclose the information; d. Is in the possession of the receiving party prior to its receipt and the receiving party possesses documentary evidence to establish this fact; e. Must reasonably be disclosed by the receiving party to its sublicensees to enable them to manufacture, use of sell LICENSED PRODUCTS; and in all such cases, the receiving party shall require its sublicensees to maintain such information to confidence to the extent of the foregoing requirements of this Article; f. Must reasonably be disclosed by the receiving party to its suppliers as essential to their tender or performance of work for such party under this Agreement, and in all such cases the receiving party shall require its suppliers to use such information solely for the performance of work for the receiving party and to maintain such information in confidence to the extent of the foregoing requirements of this Article. 2. Upon the termination of this Agreement for any reason, all written confidential information within the possession of either party which was received from the other party will be returned within ninety (90) days of the termination date. ARTICLE IX - PRODUCT LIABILITY ------------------------------ 1. NITINOL assumes total product liability for the manufacture, use and sale of said LICENSED PRODUCTS by NITINOL. NITINOL agrees to indemnity and save harmless MARKS from every claim, demand, expense and cost, including attorneys' fees, which may arise by reason of the LICENSED PRODUCTS manufactured or sold by NITINOL and any injury or damage of any kind or nature to any person or property claimed to have been caused by or resulting from or arising out of a defect in design, workmanship or material of any LICENSED PRODUCT manufactured or supplied by NITINOL in accordance with this Agreement. 2. NITINOL, at its expense, shall obtain and maintain in effect during the term of this Agreement appropriate liability insurance covering LICENSED PRODUCTS in such amount and against such risks as are obtained and maintained by companies similarly situated, such insurance to specifically identify and cover MARKS, and to be in an amount no less than $4,000,000. ARTICLE X - REGULATORY CLEARANCES --------------------------------- -8- 1. NITINOL shall assume, within the limits of reasonable corporate prudence and at its expense, the primary responsibility for obtaining F.D.A. and other regulatory clearances as may be required for LICENSED PRODUCTS. 2. NITINOL, at its own expense, will seek term extensions of patents covering LICENSED PRODUCTS if such are available under laws allowing such extensions for medical products subjected to prolonged regulatory approval time which shorten the effective life of the patent. ARTICLE XI - ASSIGNMENT ----------------------- 1. This Agreement may be assigned by MARKS after notice of such assignment is given to NITINOL and approved by NITINOL, such approval not to be unreasonably withheld, and subject to the condition that such assignee shall have, by a writing delivered to NITINOL, expressly assumed all of the obligations and liabilities of MARKS under this Agreement and agreed to be bound by all of the terms and provisions hereof. 2. This Agreement may be assigned by NITINOL after notice of such assignment is given to MARKS and approval by MARKS, such approval not to be unreasonably withheld, subject to the condition that such assignee shall have, by a writing delivered to MARKS, expressly assumed all of the obligations and liabilities of NITINOL under this agreement and agreed to be bound by all of the terms and conditions hereof. 3. Any assignment not made and approved in accordance with Article XI, paragraphs 1 and 2, is null and void. ARTICLE XII - WARRANTY ---------------------- MARKS represents and warrants that U.S. Patent No. 5,108,420 has been assigned to him; that he has good and valid title to this patent, free and clear of any claims, liens, pledges, etc.; that he knows of no adverse claim made or threatened either to the effect that the patent is invalid or that the device disclosed therein infringes upon any other United States or foreign patent; and that MARKS has full power and authority to enter into this Agreement. ARTICLE XIV - ARBITRATION ------------------------- -9- 1. The parties shall arbitrate disputes in accordance with the Arbitration Rules of the American Arbitration Association (AAA) insofar as they are not modified by the following provisions. 2. Scope of Arbitration. All controversies or claims arising out of or relating to this agreement, or the breach thereof, shall be subject to arbitration pursuant to this section. 3. Initiating Arbitration. To initiate arbitration, the aggrieved party shall first provide written notice to the other party specifying the issues in dispute and its position on those issues. Such notice must be given while the Agreement is in effect or within three years after the termination of this Agreement, or the aggrieved party's right to redress is entirely waived. Within 14 days of receipt of the notice, the receiving party shall make written response specifying its position on the issues in dispute, and the parties shall in good faith attempt to negotiate a solution to the controversy for a further period of 14 days after the written response. If no written response is filed or the dispute is not resolved during the negotiation period, the aggrieved party shall file a demand for arbitration in writing with the other party and with the AAA. 4. Effect of Arbitration. The initiation of arbitration by written notice as specified above shall toll any statute of limitations applicable to the dispute. The parties will continue to comply with all provisions and requirements of this Agreement pending the outcome of arbitration. 5. Form of Arbitration. One neutral arbitrator shall be appointed by the AAA, and except as otherwise provided herein, all decisions and awards shall be made by the Arbitrator. 6. Arbitration Management. It shall be the Arbitrator's responsibility to exert management initiative and control over the arbitration, including discovery and scheduling, so that a just decision is reached as quickly as possible and at minimum expense to the parties. The Arbitrator will manage and schedule proceedings, make orders and issue subpoenas for discovery, establish protective orders to maintain confidentiality of proprietary information, decide discovery and evidentiary disputes, and shall enforce his orders by assessing costs and/or fines and/or directing findings on issues where appropriate. The decisions of the Arbitrator shall be final and binding. 7. Discovery. After the arbitration notice has been filed, the parties shall, before the hearing thereof, cooperate in discovery and mandatory disclosure of all matters relevant to such dispute, to the extent and in the manner provided by the Federal Rules of Civil Procedure, including making their employees, agents, and experts available for depositions. Discovery and disclosure shall be completed within two months after filing of the notice of arbitration. The Arbitrator may extend this deadline, but only upon a showing of exceptionally good cause, and in no event shall extensions in excess of an additional two months be granted. -10- 8. Hearings, Award, and Judgment. All hearings shall be held at a location designated by the Arbitrator and hearings shall be completed within two months of the completion of discovery. Evidence not admissible under traditional rules of evidence may be admitted at the sole discretion of the Arbitrator, but the weight given to evidence will be limited based on its apparent reliability under traditional evidence law concepts. The Arbitrator shall render a written award within one week after the last day of hearings. The written award shall specify the final judgment of the Arbitrator without any reasons in support of the award. The award shall be final and binding on the parties as to each other, but shall have no effect as to any other party. The Arbitrator shall have the power to award any remedy provided under the applicable laws. Judgment upon the award maybe entered and enforced in any court having jurisdiction thereof at the request of either party. The parties shall treat the written award as confidential and shall not reveal its specific contents publicly or privately except to the extent required by a court order or by securities laws. 9. Cost of Arbitration. The party demanding arbitration shall pay the arbitration management fees of the AAA. Initially, the parties shall each pay 50% of the fees of the Arbitrator, and shall each bear their own costs of arbitration. However, at the time of the award, the Arbitrator shall direct the losing party to pay the other party its reasonable legal fees and other costs of arbitration unless the circumstances call for a different result. ARTICLE XV - MISCELLANEOUS -------------------------- 1. Neither party shall be obligated to disclose any proprietary information of a third party without the consent of such third party, nor any information the furnishing of which would require the payment of consideration to a third party other than an employee of the party furnishing such information. 2. If any clause or part of this Agreement should be found to be invalid for any reason, this shall not affect the effectiveness of the other clauses or parts thereof. 3. Performance of the terms and conditions of this Agreement by either party is excused whenever such performance is prevented by strike, riot, fire, war, insurrection, the elements, acts of God or the public enemy, compliance with any laws, regulation or other governmental order or other causes beyond the contort of the parties. 4. This Agreement and all the provisions hereof shall inure to the benefit of, and be binding upon, the heirs, distributees, successors, assigns and legal representatives of the parties. 5. Each party shall notify the other party of any other patents or patent applications of which the notifying party becomes aware, covering any adaptions or improvements of the LICENSED PRODUCTS. -11- 6. Any notice required hereunder shall be in writing and shall be deemed to be properly given when sent registered mail. 7. The law of the State of New Jersey shall govern this Agreement as to all matters, including, specifically but not exclusively, matters of interpretation, performance and remedies, insofar as such law is existent or applicable and can or will be applied in the jurisdiction in which either party may seek in adjudication of any such matter. 8. This Agreement constitutes the entire understanding between the parties and conclusively supersedes all prior writings and negotiations between them. This Agreement shall not be modified unless modification is in writing and signed by both parties. IN WITNESS WHEREOF, the parties hereto have executed this Agreement. LLOYD A. MARKS /s/ Lloyd A. Marks -------------------------------------- NITINOL MEDICAL TECHNOLOGIES, INC. By: /s/ Thomas M. Tully --------------------------------- Title: President -12- EX-10.22.1 10 CHAZANOVITZ AMENDMENT TO EMPLOYMENT AGREEMENT Exhibit 10.22.1 Amendment to Employment Agreement Amendment dated as of July 9, 1996 to the Employment Agreement dated February 13, 1996 (the "Employment Agreement") by and between David Chazanovitz (the "Executive") and Nitinol Medical Technologies, Inc. (the "Company"). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Employment Agreement. The parties hereto hereby agree to amend the third sentence of Section 4 of the Employment Agreement to read in its entirety as follows: "So long as the Employment Term has not terminated prior to such date, Options to purchase 175,000 shares of Common Stock shall become exercisable at the rate of 2.77% per month commencing on the first day of the month following the Closing, Options to purchase 20,000 shares of Common Stock shall become exercisable upon the earlier of (x) completion of clinical trials and market launch in Europe of the Company's septal repair device or (y) December 31, 2000, and the remaining Options shall become exercisable on the earlier of (i) PMA approval by the United States Federal Food and Drug Administration of the Company's septal repair device or (ii) December 31, 2000." Except as expressly provided herein, this Amendment neither amends nor alters any other provision of the Employment Agreement and all other provisions contained therein remain in full force and effect and constitute binding and enforceable obligations of the Company and the Executive. This Amendment shall be governed by and construed and interpreted under the laws of the Commonwealth of Massachusetts without reference to the principles of conflicts of law. The undersigned have executed this Amendment on the date first written above. Nitinol Medical Technologies, Inc. By: /s/ Thomas M. Tully ------------------------------- Thomas M. Tully President /s/ David Chazanovitz --------------------------------- David Chazanovitz EX-10.23 11 HARRY EMPLOYMENT AGREEMENT EXHIBIT 10.23 AGREEMENT effective as of July 1, 1994 by and between NITINOL MEDICAL TECHNOLOGIES, INC. (hereinafter together with its affiliates, subsidiaries, successors, and assigns collectively called "NMT") and JASON HARRY (hereinafter called "Harry"). WITNESSETH ---------- WHEREAS, NMT, during the period extending from January 1, 1994, to the effective date of the Agreement (the "Consulting Term"), retained Harry as a consultant and desires to secure Harry's services after the Consulting Term upon the terms hereinafter set forth; and WHEREAS, Harry desires to render services to NMT upon the terms and conditions hereinafter set forth; WHEREAS, NMT has developed and is developing medical devices, including devices made of the shape memory metal alloy nitinol. NOW, THEREFORE, in consideration of the covenants hereinafter contained, the parties hereto agree as follows: 1. Employment. NMT hereby agrees to employ Harry, and Harry agrees ---------- to serve as an employee of NMT for the employment term set forth in this agreement, subject to the terms and conditions hereinafter set forth. 2. Employment Term. The term of employment ("Employment Term") --------------- shall be a period of three years commencing July 1, 1994. Thereafter, the Employment Term shall automatically be renewed for successive periods of two years unless one party gives notice to the other of its intention not to renew, such notice to be given not less than three months before the end of the then current Employment Term. Harry shall serve as Director of Engineering, and shall properly perform such duties as may be assigned to him from time to time by the executive officers and/or the Board of Directors of NMT. 3. Extent of Services; Duties. During the Employment Term, Harry -------------------------- will devote his full time and effort to the business and affairs of NMT and shall not be engaged in any other business activity. Harry will work in the areas of research and development, manufacturing, engineering, regulatory compliance, good manufacturing practices, quality assurance and control and related matters, will observe good laboratory practices, and will use his best efforts to promote the interests of NMT. 4. Compensation. During the Employment Term, NMT shall pay in ------------ semi-monthly installments to Harry a salary (the "Salary") of not less than $70,000 per year during the first year of the Employment Term, not less than $80,000 per year during the second year of the Employment Term, and not less than $90,000 per year during the third year of the Employment Term. For each year of each renewed period of the Employment Term, the salary paid to Harry will be not less than $10,000 more than that paid during the just prior year of the Employment Term. NMT will also include Harry in its group health plan and provide coverage thereunder, provided that Harry will pay 25% of the premium cost of such coverage or such other standard as established by NMT. 5. Career Incentive Bonus Plan. NMT agrees that not later than the --------------------------- date of execution of This Agreement it will grant to Harry an option to purchase 30,000 shares of NMT's common stock at an agreed-upon price per share under NMT's Qualified Stock Option Plan which shall vest in accordance with the Plan. 6. Expenses. NMT will reimburse Harry against appropriate vouchers -------- for authorized business expenses reasonably incurred by him in the performance of his duties pursuant to the terms of this Agreement. 7. Secrecy; Inventions. ------------------- (a) Harry agrees that he shall not, during or after the Employment Term, for any reasons whatsoever, divulge, furnish or make accessible to any person, firm, corporation or other business entity, any confidential information, including but not limited to, inventions, processes, trade secrets, practices, methods, products or any confidential or secret aspect of the business of NMT without the prior written consent of NMT. This provision shall not apply to any confidential information which, through no breach of this agreement by Harry, becomes generally known in the medical device industry. (b) Harry agrees to communicate and make known to NMT in a preservable manner all significant knowledge acquired by him during the Employment Term, including laboratory notes and logs relating to any methods, developments, and/or improvements, or know-how which concern, or reasonably should be expected to concern, the present or future business of NMT. (c) Harry agrees to assign to NMT any invention, idea, discovery or improvement conceived of, developed or perfected, solely or jointly, by Harry during the Employment Term relating to medical devices or to the making, fabrication, training or use of nitinol, and to execute all documents and do all further acts which may be necessary or appropriate to perfect such assignment -2- and at the request of NMT to cause a patent application to be made and a patent to issue and/or to defend a patent application or a patent on any such invention, in the United States and any other country, provided that all expenses in connection herewith shall be paid by NMT. 8. Royalty. ------- (a) NMT shall pay Harry a XXXXXX royalty on the Net Sales by NMT of any product in a jurisdiction where NMT has an issued patent or pending patent application, filed subsequent to the commencement of the Consulting Term, on an invention of Harry. To the extent NMT does not sell products under such patent but receives patent royalties from a third party, Harry shall receive XXXXXX of such Patent royalties actually collected by NMT. Notwithstanding the foregoing (a) no royalty shall be paid to Harry if his invention relates to a product which NMT was selling as of the commencement of the Consulting Term or as to which NMT was receiving royalty as of the commencement of the Consulting Term, unless Harry's invention results in an increased sale price or royalty paid to NMT, and (b) if Harry is not the sole inventor, such royalty shall be apportioned (e.g. if there are two inventors, Harry shall receive a royalty equal to one-half of his royalty as a sole inventor) or as unanimously directed by the inventors. Net Sales shall be the amount actually collected by NMT and shall not include transportation charges, freight and delivery charges, normal trade discounts allowed to customers at the time of sale, sales, use or excise taxes included in the gross sales price of the product, sales of samples and occasional sales of test or experimental devices, and credits or allowances given on account of rejection or return of products previously delivered and paid for. Royalties shall be paid to Harry quarterly within 75 days after the end of each calendar quarter and Harry shall have the right within one year after receipt of a royalty statement, to have a public accountant, during normal business hours, audit NMT's books to verify the accuracy of the royalty payments due pursuant to this Section 8. (b) Notwithstanding the foregoing, the royalty provided in paragraph (a) above shall be reduced by XXXXXX from and after the time when Harry's employment with NMT shall be terminated voluntarily by Harry (other than by reason of death or disability), and shall be eliminated entirely if Harry's employment with NMT shall be terminated voluntarily by Harry (other than by reason of death or disability) less than three years from the commencement of employment. 9. Restrictive Covenant. -------------------- (a) Harry agrees that during the Employment Term hereof and for a period of 12 months next succeeding the termination of -3- his employment with NMT for any reason whatsoever, he will not, directly or indirectly engage in any business activity in competition with the business then being conducted or actively contemplated by NMT, whether for Harry's own account or as executive, partner, officer, director, employee, consultant or holder of more than 5% equity interest in any other entity or person. Harry further agrees that during said 12 month period he will not hire, offer to hire, entice away or try to persuade any executive, employee, supplier or agent of NMT to discontinue the relationship with NMT, or assist any member of his immediate family, any business associate or other person, for consideration or otherwise, to do any of the aforesaid prohibited things. (b) If Harry shall breach any of this Section 9, Career Incentive Bonus Plan benefits (or any stock option or purchase rights which may be granted), whether vested or unvested, shall be paid or transferred to Harry until final resolution of any claims by NMT for money damages, and NMT, in addition to any money damages, shall be entitled to an injunction to be issued by a court of competent jurisdiction enjoining, restraining or restricting Harry from such breach or violation. 10. Relocation. It is required that Harry be available at NMT's ---------- offices and therefore shall be required to relocate his residence to the vicinity of NMT's offices. NMT shall reimburse Harry for the actual costs and expenses of such relocation, to a maximum of $10,000. 11. Miscellaneous. ------------- (a) Neither this Agreement nor its execution and delivery has been induced by any representation, stipulation, warranty, agreement or understanding of any kind other than those specifically set forth herein. This Agreement constitutes the whole agreement between the parties hereto and there are no terms other than those contained herein. No variation hereof shall be deemed valid unless in writing and signed by the parties hereto and no discharge of the terms hereof or by a writing signed by the parties hereto. No waiver by either party of any breach of any provision or condition of this Agreement shall be deemed a waiver of a breach of a similar or dissimilar provision or condition at the same time or any prior or subsequent time or of the provision or condition itself. (b) Each provision of this Agreement is intended to be severable and the invalidity or illegality of any portion of this Agreement shall not affect the validity or legality of the remainder hereof. If any of the provision of this Agreement should be determined to be unenforceable by reason of being unreasonable in duration or in area, then such provision is intended to and -4- shall extend only for such period of time and in such area as is determined to be reasonable and enforceable. (c) All notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be deemed to have been given at the time mailed enclosed in a certified postage-paid envelope, return receipt requested, addressed to the addresses of the respective parties stated below or to such changed addresses as such parties may have fixed by a notice, and simultaneously by facsimile telephone to the Fax phone number provided by the parties; provided, however, that any notice of any change of address or change of Fax number shall be effective only upon receipt. If to NMT: Thomas M. Tully Nitinol Medical Technologies, Inc. 263 Summer Street, 7th Floor Boston, MA 02210-1503 Fax: 617/737-0924 If to Harry: Jason D. Harry Nitinol Medical Technologies, Inc. 263 Summer Street, 7th Floor Boston, MA 02210-1503 Fax: 617/737-0924 (d) This agreement shall inure to the benefit of and be binding upon NMT and its successors and assigns, and upon Harry and his heirs, executors, administrators and legal representatives. (e) Captions contained in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision thereof. (f) The terms and provisions of this Agreement and any dispute or controversy arising hereunder shall be governed by the laws of the State of New York applicable to contracts made and to be performed therein, without giving effect to the principles of conflicts of laws thereof. Any dispute or controversy arising out of this Agreement shall be submitted to binding arbitration to be held in the City of New York in accordance with the rules of the American Arbitration Association then in effect. -5- (g) This Agreement may be executed in several counterparts and all so executed shall constitute one Agreement, binding on all parties hereto, notwithstanding that all the parties are not signatories to the original or the same counterpart. IN WITNESS WHEREOF, the parties hereto have hereunder set their hands and seals the day and year first above written. NITINOL MEDICAL TECHNOLOGIES, INC. By /s/ Thomas M. Tully -------------------------- Thomas M. Tully Chief Executive Officer /s/ Jason D. Harry ------------------------------ Jason D. Harry -6- EX-10.24 12 KLESHINSKI EMPLOYMENT AGREEMENT Exhibit 10.24 AGREEMENT dated as of the 22nd day of July, 1993 by and between NITINOL MEDICAL TECHNOLOGIES, INC., (hereinafter called "Employer") and STEPHEN J. KLESHINSKI (hereinafter called "Executive"). WITNESSETH ---------- WHEREAS, Employer has developed and is developing medical devices, including devices made of the shape memory metal alloy, nitinol, the first of which is a patented vena cave filter; WHEREAS, Executive has been employed by Employer as director of research and development and quality control and assurance, and Employer and Executive desire to enter into an agreement to continue such employment; NOW, THEREFORE, in consideration of the premises and the mutual agreements herein contained, the parties hereto hereby agree as follows: 1. Employment. Employer hereby agrees to employ Executive, and ---------- Executive agrees to serve for the term of this Agreement on the terms and conditions hereinafter set forth. 2. Term. This Agreement shall be for a term of five (5) years ---- commencing June 1, 1993 and ending May 31, 1998. At the end of such term, or any additional term, this Agreement shall automatically renew for an additional term of one year on the same basis as that in effect at the end of any such term, unless one party shall notify the other in writing, not later than three months prior to the end of any term, that such party wishes to terminate employment at the end of the then current term. 3. Extent of Services; Duties. Executive will devote his full time -------------------------- and efforts to the business and affairs of the Employer and shall not, during the term of this Agreement, be engaged in any other business activity. Executive will work in the areas of research and development and quality control and assurance, and will use his best efforts to promote the interests of Employer. Executive will hold the office of Vice President, reporting to the Director of Science and the President and such other person as directed by the President and the Board of Directors of the Employer. Notwithstanding the foregoing, the Executive shall not be precluded from devoting such time to his personal financial affairs as shall not interfere with his duties hereunder, and shall be entitled to holidays in accordance with the practice of Employer. 4. Compensation. Employer will compensate Executive for all services ------------ rendered hereunder at a salary of $80,000 per annum from June 1, 1993 through May 31, 1994; $87,000 per annum from June 1, 1994 through May 31, 1995; $94,000 per annum from June 1, 1995 through May 31, 1996; $100,000 per annum from June 1, 1996 through May 31, 1997 and $105,000 per annum from June 1, 1997 through May 31, 1998. 5. Career Incentive Bonus Plan. Executive was previously granted --------------------------- 30,000 Units under the Career Incentive Bonus Plan. Employer agrees to grant an additional 120,000 Units under the Plan to Executive, effective as of July 1, 1993 in accordance with the terms of the plan. All Units shall convert to common stock of the Company as provided in the Plan, and when as and if the Company ceases to be an S corporation. 6. Expenses. Employer shall reimburse Executive against appropriate -------- vouchers for authorized business expenses reasonably incurred by him in the performance of his duties pursuant to the terms of this Agreement. 7. Secrecy Inventions. ------------------ (a) Executive agrees that he shall not, during or after the termination of this Agreement, for any reason whatsoever, divulge, furnish or make accessible to any person, firm, corporation or other business entity, any confidential information, including but not limited to, inventions, processes, trade secrets, practices, methods, products or any confidential or secret aspect of the business of the Employer without the prior written consent of the Employer. This provision shall not apply to any confidential information which, through no breach of this agreement by Executive, becomes generally known in the medical device industry. (b) Executive agrees to communicate and make known to the Employer in a preservable manner all significant knowledge acquired by him during the term of this Agreement, including laboratory notes and logs relating to any methods, developments, and/or improvements, or know-how which concern, or could concern the present or future business of the Employer. (c) Executive agrees to assign to Employer any invention, idea, discovery or improvement conceived of, developed or perfected, solely or jointly, by Executive during the term of this Agreement or Executive's prior Agreement with Employer relating to medical devices or to the making, fabrication, training or use of nitinol, and to execute all documents and do all further acts which may be necessary or appropriate to perfect such assignment and at the request of Employer to cause a patent application to be made and a patent to issue and/or to defend a patent - 2 - application or a patent on any such invention, in the United States and any other country, provided that all expenses in connection herewith shall be paid by Employer. 8. During the term of this Agreement and any renewal thereof, Employer shall pay Executive a XXXXX royalty on the gross revenues resulting from the sale of any product made and or sold in a jurisdiction where the Employer has a patent, filed subsequent to the date of this agreement, on an invention of Executive. Net Sales shall be the amount actually collected and shall not include transportation charges. Royalties shall be paid to Executive quarterly within 75 days after the end of each calendar quarter and Executive shall have the right within one year after receipt of statement to have a public accountant, during normal business hours, audit Employer's books to verify the accuracy of the royalty payments due pursuant to this Section 8. 9. Restrictive Covenant. -------------------- (a) Executive agrees that during the term hereof and for a period of 18 months next succeeding the termination of his employment with Employer for any reason whatsoever, he will not directly or indirectly engage in any business activity in competition with the business then being conducted or actively contemplated by Employer, whether for Executive's own account or as executive, partner, officer, director, consultant or holder of more than 5% equity interest in any other entity or person. Executive further agrees that during said 18 month period he will not hire, offer to hire, entice away or try to persuade any executive, employee, supplier or agent of Employer to discontinue the relationship with the Employer, or assist any member of his immediate family, any business associate or other person, for consideration or otherwise, to do any of the aforesaid prohibited things. During the course of said 18 month period, Executive shall advise Employer, in writing, if he has received and wishes to accept any offer of employment from such a competitor. Such writing shall be sufficiently detailed regarding the nature and scope of the position and compensation offered. The Employer shall then have thirty (30) days following the receipt of said written notification to advise Executive of its election: (i) To waive the provision of this Section 8, only in which case Executive shall be free to accept such employment subject to all the other terms and conditions set forth herein; or (ii) To insist upon full compliance with the provisions of this Paragraph 9, in which case Employer shall compensate Executive at the base salary rate actually offered by its competitor for the duration of - 3 - the aforesaid 18 month period or until Executive shall be employed elsewhere. (b) If Executive shall breach any of this Section 9, all Career Incentive Bonus Plan benefits, whether vested or unvested, shall lapse until final resolution of any claims by Employer for money damages, and Employer, in addition to any money damages, shall be entitled to an injunction to be issued by a court of competent jurisdiction enjoining, restraining or restricting Executive from such breach or violation. 10. Miscellaneous. ------------- (a) Neither this Agreement nor its execution and delivery has been induced by any representation, stipulation, warranty, agreement or understanding of any kind other than those specifically set forth herein. This Agreement constitutes the whole agreement between the parties hereto and there are no terms other than those contained herein. No variation hereof shall be deemed valid unless in writing and signed by the parties hereto and no discharge of the terms hereof shall be deemed valid unless by full performance by the parties hereto or by a writing signed by the parties hereto. No waiver by either party of any breach of any provision or condition of this Agreement shall be deemed a waiver of a breach of a similar or dissimilar provision or condition at the same time or any prior or subsequent time or of the provision or condition itself. (b) Each provision of this Agreement is intended to be severable and the invalidity or illegality of any portion of this Agreement shall not affect the validity or legality of the remainder hereof. If any of the provisions of this Agreement should be determined to be unenforceable by reason of being unreasonable in duration or in area, then such provision is intended to and shall extend only for such period of time and in such area as is determined to be reasonable and enforceable. (c) This Agreement supersedes and replaces the Agreement between the parties dated June 1, 1991. (d) All notices, requests, demands and other communications provided for by this Agreement shall be in writing and shall be deemed to have been given at the time mailed enclosed in a certified postage-paid envelope, return receipt requested, addressed to the addresses of the respective parties stated below or to such changed addresses as such parties may have fixed by a notice, and simultaneously by facsimile telephone to the Fax phone number provided by the parties; provided, however, that any notice - 4 - of any change of address or change of Fax number shall be effective only upon receipt. If to the Employer: c/o C. Leonard Gordon 461 Fifth Ave. 23rd Floor New York, NY 10017-6234 Fax (212) 684-3043 cc: Jack Reinstein 7779 Willow Glen Road Los Angeles, CA 90046-1610 If to the Executive: 599 Country Way Scituate, MA 02066 (e) This agreement shall inure to the benefit of and be binding upon the Employer, its successors and assigns, and upon the Executive, his heirs, executors, administrators and legal representatives. (f) Captions contained in this Agreement are inserted only as a matter of convenience and for reference and in no way define, limit, extend or describe the scope of this Agreement or the intent of any provision hereof. (g) The terms and provisions of this Agreement and any dispute or controversy arising hereunder shall be governed by the laws of the State of New York applicable to contracts made and to be performed therein, without giving effect to the principles of conflicts of laws thereof. Any dispute or controversy arising out of this Agreement shall be submitted to binding arbitration to be held in the City of New York in accordance with the rules of the American Arbitration Association then in effect. (h) This Agreement may be executed in several counterparts and all so executed shall constitute one Agreement, binding on all parties hereto, notwithstanding that all the parties are not signatories to the original or the same counterpart. - 5 - IN WITNESS WHEREOF, the parties hereto have hereunder set their hands and seals the day and year first above written. NITINOL MEDICAL TECHNOLOGIES, INC. By /s/ C. Leonard Gordon -------------------------------- C. Leonard Gordon Chief Executive Officer /s/ Stephen Kleshinski ---------------------------------- Stephen J. Kleshinski - 6 - SUPPLEMENTAL AGREEMENT This Supplemental Agreement by and between NITINOL MEDICAL TECHNOLOGIES, INC., (hereinafter referred to as "EMPLOYER") and STEPHEN J. KLESHINSKI (hereinafter referred to as "EXECUTIVE") is effective as of the First day of June, 1994. WHEREAS, EMPLOYER has entered into a License Development Agreement by and between Boston Scientific Corporation and EMPLOYER dated as of the 1st day of November, 1994 (The "License Agreement"). 1. EMPLOYER and EXECUTIVE are parties to a prior Agreement dated as of the 22nd day of July, 1993 (the "Prior Agreement"), a copy of which is attached hereto. The purpose of this Supplemental agreement is to amend the provisions of paragraph 8 of the Prior Agreement; but the Prior Agreement shall otherwise remain in full force and effect. 2. Paragraph 8 of the Prior Agreement is hereby amended to read as follows: 8. (a) During the term of this Agreement and any renewal thereof, EMPLOYER shall pay EXECUTIVE a royalty with respect to any product (other than a product including a Stent, as that term is defined in Section 1.20 of the License Agreement, or a Vena Cava filter product) made, used or sold by EMPLOYER or any licensee of EMPLOYER in any jurisdiction EMPLOYER has an Executive Patent (as defined below) the claims of which cover such manufacture, use or sale. With respect to any such product sold by EMPLOYER, the royalty shall be XXXXX of EMPLOYER's Net Sales (defined substantially as EMPLOYER'S gross sales adjusted as provided in the definition of Net Sales in Section 1.14 of the License Agreement, with such modifications as are appropriate to the circumstances) of such products; with respect to any such products sold (or to be sold) by a third party from which EMPLOYER directly or indirectly receives any payment with respect to any Executive Patent, the royalty shall be XXXXX of such payments. In the case of an Executive Patent in which EXECUTIVE is not the sole inventor, the royalty shall be apportioned (e.g., if the product is covered by only one Executive Patent as to which there are two inventors, EXECUTIVE shall receive a royalty equal to one-half the royalty which he would have received if he had been the sole inventor). Notwithstanding the foregoing no royalty shall be paid to EXECUTIVE with respect to any such product if EMPLOYER establishes that no invention which is the subject of any Executive Patent contributed to the value of such product. (b) EMPLOYER shall pay EXECUTIVE an amount equal to XXXXX of all licensing fees actually collected by EMPLOYER in conjunction with the sale or licensing of Stents or Products (as such terms are defined in Section 1.18 and 1.20 of the License Agreement). With respect to each Stent Product, such amount shall be due and payable for a period of ten (10) years following the first commercial sale of such product in any jurisdiction. In the event that EMPLOYER collects any monies from a third party as designated as an advance against future license fees, such monies shall be considered to have been collected when fully vested in EMPLOYER. (c) The payments to EXECUTIVE provided in subparagraphs (a) and (b) above shall if such be reduced by XXXXX from and after the time when EXECUTIVE's employment with EMPLOYER is terminated by EXECUTIVE voluntarily (but not by reason of death, sickness or other disability) or by EMPLOYER with due cause, but otherwise shall not be reduced, provided, however, that ----------------- if termination under such circumstances shall occur within three years of the date of this Agreement said payment shall terminate. (d) The payments to EXECUTIVE provided in subparagraphs (a) and (b) above shall be made as promptly as practicable, but in any event within 75 days at the end of each calendar quarter with respect to payments received by the EMPLOYER during such calendar quarter; if no payments are due with respect to any calendar quarter, EMPLOYER shall provide EXECUTIVE a statement to such effect within the 75 day period. EMPLOYER shall keep complete and accurate books and records from which the amounts of such payments may be ascertained, and within one year after receipt of any payment or statement. EXECUTIVE, or a representative of EXECUTIVE, shall have the right to examine such books and records during business hours once in each calendar year to verify the accuracy of such payment or statement. (e) EMPLOYER's obligations under this Paragraph 8 may be assigned only in connection with the sale or other transfer of all or substantially all of EMPLOYER's business to which the subject matter of this paragraph relates, and then only if the assignee agrees to be bound thereby in a writing delivered to EXECUTIVE in advance of such transfer. (f) As used in this Paragraph 8, "Executive Patent" means any patent issued, and any patent application filed, after the effective date of the Prior Agreement in which EXECUTIVE is a sole or joint inventor. "Stent" shall have the same meaning as nitinol Stent in the Agreement with Boston Scientific Corporation. NITINOL MEDICAL TECHNOLOGIES, INC. STEPHEN J. KLESHINSKI By: /s/ C. Leonard Gordon By: /s/ Stephen J. Kleshinski -------------------------------- -------------------------------- C. Leonard Gordon Chief Executive Officer Date: January 12, 1995 Date: January 22, 1995 ------------------------------ ------------------------------ - 2 - EX-11.1 13 STATEMENT RE: COMPANY'S EARNING PER SHARE EXHIBIT 11.1 NITINOL MEDICAL TECHNOLOGIES, INC. STATEMENT RE: EARNINGS PER SHARE
SIX MONTHS ENDED YEAR ENDED YEAR ENDED YEAR ENDED ---------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30, 1993 1994 1995 1995 1996 ------------ ------------ ------------ -------- ----------- (UNAUDITED) Net income (loss)....... $ 260,673 $ 289,361 $ 584,622 $ 304,782 $(1,437,283) ========== ========== ========== ========== =========== Weighted average common shares outstanding..... 3,588,485 3,622,447 3,763,587 3,758,353 4,161,591 Stock issued within twelve months of initial public offering(1)............ 3,001,677 3,001,677 3,001,677 3,001,677 2,684,422 Common stock equiva- lents.................. 87,903 231,426 219,660 224,431 -- ---------- ---------- ---------- ---------- ----------- Weighted average number of common and common equivalent shares outstanding............ 6,678,065 6,855,549 6,984,924 6,984,461 6,846,013 ---------- ---------- ---------- ---------- ----------- Net income (loss) per share amount........... $ 0.04 $ 0.04 $ 0.08 $ 0.04 $ (0.21) ========== ========== ========== ========== ===========
- -------- (1) Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, stock, stock options and stock warrants issued at prices below the initial public offering price during the 12-month period immediately pre- ceding the initial filing date of the Company's Registration Statement of its initial public offering have been included as outstanding for all peri- ods presented. The dilutive effect of the common stock equivalents was com- puted in accordance with the treasury stock method. EX-23.1 14 CONSENT OF ARTHUR ANDERSEN EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report dated March 21, 1996 (except with respect to the matters discussed in Note 9, as to which the date is July 9, 1996) and to all references to our firm included in or made part of this Registration Statement. Boston, Massachusetts August , 1996 EX-23.3 15 CONSENT OF SIXBY, FRIEDMAN, LEEDOM EXHIBIT 23.3 We consent to the reference to our firm under the caption "Experts" in Amendment No. 2 to the Registration Statement (Form S-1) and related Prospectus of Nitinol Medical Technologies, Inc. for the registration of shares of its Common Stock. Sixbey, Friedman, Leedman & Ferguson McLean, Virginia August , 1996 -----END PRIVACY-ENHANCED MESSAGE-----