10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2003

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission File No. 000-21001

NMT MEDICAL, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	95-4090463
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)
27 Wormwood Street, Boston, Massachusetts	02210-1625
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 737-0930

N/A

(Former name or former address, if changed since last report)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x    No  ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).  Yes  ¨    No  x

As of August 7, 2003 there were 11,800,837 shares of Common Stock, $.001 par value per share, outstanding.

INDEX

			Page Number
Part I. Financial Information
	Item 1. Financial Statements
		Consolidated Balance Sheets at June 30, 2003 and December 31, 2002	3
		Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2003 and 2002	4
		Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2003 and 2002	5
		Notes to Consolidated Financial Statements	6
	Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		10
	Item 3. Quantitative and Qualitative Disclosures About Market Risk		18
	Item 4. Controls and Procedures		18
Part II. Other Information
	Item 1. Legal Proceedings		19
	Item 4. Submission of Matters to a Vote of Security Holders		19
	Item 6. Exhibits and Reports on Form 8-K		20
Signatures			22

2

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

NMT Medical, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)

	At June 30, 2003			At December 31, 2002
Assets
Current assets:
Cash and cash equivalents	$	20,638,132		$	19,933,931
Marketable securities		16,156,610			16,310,152
Receivable from sale of product line		—			3,000,000
Accounts receivable, net of reserves of $265,000		2,922,312			2,457,322
Inventories		1,966,099			1,178,949
Prepaid expenses and other current assets		990,730			1,063,463
Total current assets		42,673,883			43,943,817
Property and equipment, at cost:
Laboratory and computer equipment		2,077,191			1,961,165
Leasehold improvements		1,136,859			1,134,545
Equipment under capital lease		1,188,902			1,188,902
Office furniture and equipment		480,042			475,648
		4,882,994			4,760,260
Less—Accumulated depreciation and amortization		3,960,930			3,779,300
		922,064			980,960
Other assets		73,204			167,850
	$	43,669,151		$	45,092,627
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	2,141,698		$	2,233,443
Accrued expenses		2,236,440			2,964,641
Current portion of debt obligations		7,667			27,865
Liabilities from discontinued operations		500,000			910,505
Total current liabilities		4,885,805			6,136,454
Commitments and Contingencies (Note 9)
Stockholders’ equity
Preferred stock, $.001 par value
Authorized—3,000,000 shares
Issued and outstanding—none		—			—
Common stock, $.001 par value
Authorized—30,000,000 shares
Issued and outstanding—11,838,837 and 11,712,877 shares in 2003 and 2002, respectively		11,839			11,713
Additional paid-in capital		45,100,023			44,728,424
Less: Treasury stock—40,000 shares at cost		(119,600	)		—
Unrealized gain on marketable securities		8,000			118,000
Accumulated deficit		(6,216,916	)		(5,901,964	)
Total stockholders’ equity		38,783,346			38,956,173
	$	43,669,151		$	45,092,627

See accompanying notes.

3

NMT Medical, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

	For The Three Months Ended June 30,						For The Six Months Ended June 30,
	2003			2002			2003			2002
Revenues:
Product sales	$	5,275,708		$	7,231,092		$	10,190,545		$	14,022,953
License fees and royalties		138,582			134,640			245,732			204,640
Total revenues		5,414,290			7,365,732			10,436,277			14,227,593
Costs and Expenses:
Cost of product sales		1,218,690			2,051,734			2,367,944			3,845,940
Research and development		1,791,311			1,533,912			2,967,784			2,755,343
General and administrative		1,649,316			1,638,899			2,928,429			3,293,546
Selling and marketing		1,725,830			1,199,695			2,877,567			2,424,076
Total costs and expenses		6,385,147			6,424,240			11,141,724			12,318,905
(Loss) income from operations		(970,857	)		941,492			(705,447	)		1,908,688
Other Income (Expense):
Foreign currency transaction (loss) gain		(1,341	)		60,406			7,474			47,301
Interest expense		(4,671	)		(3,270	)		(5,266	)		(5,653	)
Interest income		167,442			173,629			388,287			263,681
		161,430			230,765			390,495			305,329
(Loss) income before provision for income taxes		(809,427	)		1,172,257			(314,952	)		2,214,017
Provision for income taxes		—			466,000			—			706,000
Net (loss) income from continuing operations		(809,427	)		706,257			(314,952	)		1,508,017
Loss from discontinued operations		—			(131,000	)		—			(184,998	)
Net (loss) income	$	(809,427	)	$	575,257		$	(314,952	)	$	1,323,019
Basic net (loss) income per common share:
Continuing operations	$	(0.07	)	$	0.06		$	(0.03	)	$	0.13
Discontinued operations		—			(0.01	)		—			(0.02	)
Net (loss) income	$	(0.07	)	$	0.05		$	(0.03	)	$	0.12
Diluted net (loss) income per common and common equivalent share:
Continuing operations	$	(0.07	)	$	0.06		$	(0.03	)	$	0.12
Discontinued operations		—			(0.01	)		—			(0.02	)
Net (loss) income	$	(0.07	)	$	0.05		$	(0.03	)	$	0.11
Weighted average common shares outstanding:
Basic		11,794,340			11,545,331			11,777,679			11,424,555
Diluted		11,794,340			12,307,697			11,777,679			12,232,298

See accompanying notes.

4

NMT Medical, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	For The Six Months Ended June 30,
	2003			2002
Cash flows from operating activities:
Net (loss) income	$	(314,952	)	$	1,323,019
Loss from discontinued operations		—			184,998
Net (loss) income from continuing operations		(314,952	)		1,508,017
Adjustments to reconcile net (loss) income to net cash provided by operating activities—
Depreciation and amortization		239,818			303,171
Decrease in accounts receivable reserves		—			(20,000	)
Stock-based compensation		96,873			17,499
Tax benefit from exercise of stock options		—			636,000
Changes in assets and liabilities—
Accounts receivable		(464,990	)		(452,660	)
Receivable from sale of product line		3,000,000			18,500,000
Inventories		(787,150	)		311,698
Prepaid expenses and other current assets		(46,867	)		(150,339	)
Accounts payable		(91,745	)		66,703
Accrued expenses		(728,201	)		1,215,884
Deferred gain		—			(2,943,645	)
Net cash provided by continuing operations		902,786			18,992,328
Net cash (used in) provided by discontinued operations		(410,505	)		172,342
Cash flows from investing activities:
Purchases of property, plant and equipment		(122,734	)		(233,003	)
Decrease in other assets		80,000			50,674
Purchase of marketable securities		—			(16,192,152	)
Net cash used in investing activities		(42,734	)		(16,374,481	)
Cash flows from financing activities:
Proceeds from exercise of common stock options and warrants		197,979			817,655
Proceeds from issuance of common stock pursuant to employee stock purchase plan		76,873			107,353
Payments of capital lease obligations		(20,198	)		(67,677	)
Net cash provided by financing activities		254,654			857,331
Effect of exchange rate changes on cash		—			(56,635	)
Net increase in cash and cash equivalents		704,201			3,590,885
Cash and cash equivalents, beginning of period		19,933,931			7,837,496
Cash and cash equivalents, end of period	$	20,638,132		$	11,428,381
Supplemental disclosure of cash flow information:
Cash paid during the period for
Interest	$	4,671		$	6,653
Income taxes	$	101,386		$	150,000

See accompanying notes.

5

NMT Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

1. Operations

NMT Medical, Inc. (together with its subsidiaries, the “Company” or “NMT”), founded in July 1986, designs, develops and markets proprietary implant technologies that allow interventional cardiologists to treat cardiac sources of stroke through minimally invasive, catheter-based 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. These products also serve the pediatric interventional cardiologist with a broad range of cardiac septal repair implants delivered with nonsurgical catheter techniques.

On July 31, 2002, the Company sold its neurosciences business unit to a wholly owned subsidiary of Integra LifeSciences Holding Corporation (“Integra”) for $5.4 million in cash. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”, the accompanying 2002 consolidated financial statements of the Company have been restated to reflect the financial results of the neurosciences business unit as discontinued operations.

2. Interim Financial Statements

The accompanying consolidated financial statements at June 30, 2003 and for the three and six-month periods ended June 30, 2003 and 2002 are unaudited and include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. In management’s opinion, these unaudited consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2002, and include all adjustments, consisting of only normal recurring adjustments, necessary for a fair presentation of the results for such interim periods. These financial statements should be read in conjunction with the audited consolidated financial statements included in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2002. The results of operations for the three and six-month periods ended June 30, 2003 are not necessarily indicative of the results expected for the fiscal year ending December 31, 2003.

Certain footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures in these financial statements are adequate to make the information presented not misleading.

3. Stock-Based Compensation

In January 2003, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 148 “Accounting for Stock-Based Compensation—Transition and Disclosure, an amendment of FASB Statement No. 123”, which provides alternative methods of transition for a voluntary change to a fair value based method of accounting for stock-based employee compensation. In addition, SFAS No. 148 amends the disclosure requirements of SFAS No. 123, “Accounting for Stock Based Compensation”, to require prominent disclosures in annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The transition guidance and disclosure provisions of SFAS No. 148 are effective for financial reports containing financial statements for fiscal years ending, or interim periods beginning, after December 15, 2002. The Company has determined that it will continue to account for options granted under its stock-based compensation plans for employees under Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees”, and has elected the disclosure-only alternative under SFAS No. 123 and the enhanced disclosures as required by SFAS No. 148. Under APB No. 25, when the exercise price of options granted under these plans equals the market price of the underlying stock on the date of grant, no compensation expense is required.

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation. The Company has computed the pro forma disclosures required under SFAS No. 123 for all employee stock options granted using the Black-Scholes option pricing model prescribed by SFAS No. 123.

6

NMT Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

3. Stock-Based Compensation (continued)

	Three Months Ended June 30,						Six Months Ended June 30,
	2003			2002			2003			2002
Net (loss) income as reported	$	(809,427	)	$	575,257		$	(314,952	)	$	1,323,019
Add: Stock-based compensation included in net (loss) income as reported		70,150			(34,915	)		96,873			17,499
Less: Total stock-based employee compensation expense determined under fair value based methods for all awards		(280,505	)		(256,572	)		(563,075	)		(415,184	)
Pro forma net (loss) income	$	(1,019,782	)	$	283,770		$	(781,154	)	$	925,334
Basic net (loss) income per common share:
As reported	$	(0.07	)	$	0.05		$	(0.03	)	$	0.12
Pro forma	$	(0.09	)	$	0.02		$	(0.07	)	$	0.08
Diluted net (loss) income per common and common equivalent share:
As reported	$	(0.07	)	$	0.05		$	(0.03	)	$	0.11
Pro forma	$	(0.09	)	$	0.02		$	(0.07	)	$	0.08

The Company’s stock option grants vest over several years, and the Company intends to grant varying levels of stock options in future periods. Therefore, the effects on pro forma net income and net income per common share for the three and six-month periods ended June 30, 2003 and 2002 of expensing the estimated fair value of stock options and shares of common stock issued pursuant to the stock option and stock purchase plans are not necessarily indicative of the expected effects on reported results from operations for future years.

4. Cash, Cash Equivalents and Marketable Securities

Marketable securities at June 30, 2003 consisted of various U.S. Government agency debt instruments with maturities ranging from 1 to 10 months. There were $8,000 of unrealized gains recorded at June 30, 2003. Accrued interest receivable of approximately $167,000 and $169,000 were included in prepaid expenses and other current assets in the accompanying consolidated balance sheets at June 30, 2003 and December 31, 2002, respectively.

5. Inventories

Inventories are stated at the lower of cost (first-in, first-out) or market and consist of the following:

	At June 30, 2003		At December 31, 2002
Components	$	579,124	$	290,927
Finished goods		1,386,975		888,022
	$	1,966,099	$	1,178,949

Finished goods consist of materials, labor and manufacturing overhead.

7

NMT Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

6. Royalties from Sale of Vena Cava Filter Product Line

Commencing in the first quarter of 2003, in connection with the Company’s 2001 sale of its vena cava filter product line to C.R. Bard, Inc. (“Bard”), the Company earned royalties from Bard on its sales of the products. License fees and royalties in the accompanying consolidated statements of operations include these royalties, net of royalties due on such sales to the original inventor.

7. Net Income per Common and Common Equivalent Share

Basic and diluted net income per share are presented in conformity with SFAS No. 128, “Earnings per Share”, for all periods presented. In accordance with SFAS No. 128, basic net income per share was determined by dividing net income available for common shareholders by the weighted average common shares outstanding during the periods presented. Diluted net income per share was determined by dividing net income by the weighted average common shares outstanding, including potential common shares from exercise of stock options and warrants using the treasury stock method, if dilutive. Options and warrants to purchase a total of 2,096,328 common shares for the three and six-month periods ended June 30, 2003 and 287,624 and 146,624 common shares for the three and six-month periods ended June 30, 2002, respectively, have been excluded from the computation of diluted weighted average shares outstanding because they were not dilutive.

A reconciliation of the number of shares used in the calculation of basic and diluted net income per share is as follows:

	For The Three Months Ended June 30,					For The Six Months Ended June 30,
	2003			2002		2003			2002
Weighted average common shares outstanding		11,794,340			11,545,331		11,777,679			11,424,555
Dilutive effect of assumed exercise of stock options and warrants		—			762,366		—			807,743
Weighted average common shares outstanding assuming exercise of stock options and warrants		11,794,340			12,307,697		11,777,679			12,232,298
8. Comprehensive Income The only components of comprehensive income reported by the Company are net income, unrealized loss on marketable securities and foreign currency translation adjustments. Subsequent to the July 2002 sale of the Company’s neurosciences business unit, the functional currency of the Company’s remaining subsidiaries is the U.S. dollar and, accordingly, translation gains and losses are reflected in the consolidated statements of operations after that date.
	For The Three Months Ended June 30,					For The Six Months Ended June 30,
	2003			2002		2003			2002
Net (loss) income	$	(809,427	)	$	575,257	$	(314,952	)	$	1,323,019
Unrealized loss on marketable securities		(60,000	)		—		(110,000	)		—
Foreign currency translation adjustments		—			255,000		—			252,000
Comprehensive (loss) income	$	(869,427	)	$	830,257	$	(424,952	)	$	1,575,019

8

NMT Medical, Inc. and Subsidiaries

Notes to Consolidated Financial Statements—(Continued)

9. Commitments and Contingencies

The Company is a party to the following legal proceedings that could have a material adverse impact on the Company’s results of operations or liquidity if there were an adverse outcome. Although the Company intends to pursue its rights in each of these matters vigorously, it cannot predict the ultimate outcomes.

In December 1998, the Company filed a patent infringement suit in the United States District Court for the District of Massachusetts (the “Court”) against AGA Medical Corp. (“AGA”), claiming that AGA’s Amplatzer aperture occlusion devices infringe U.S. Patent No. 5,108,420, which is licensed exclusively to the Company. The Company is seeking an injunction to prevent further infringement as well as monetary damages. In April 1999, AGA served its Answer and Counterclaims denying liability and alleging that the Company has engaged in false or misleading advertising and in unfair or deceptive business practices. AGA’s counterclaims seek an injunction and an unspecified amount of damages. In May 1999, the Company answered AGA’s counterclaims denying liability. On April 25, 2001, the Court granted the Company’s motion to stay all proceedings in this matter pending reexamination of the patent by the United States Patent and Trademark Office, which is still ongoing.

On or about September 24, 2001, the three French subsidiaries of the Company’s former neurosciences business unit, NMT Neurosciences Instruments SARL, NMT Neurosciences Holdings SA and NMT Neurosciences Implants SA, each received a Notification of Reassessment Following Verification of the Accounts (Notification de redressements suite à une vérification de comptabilité) from the French Direction de Controle Fiscal Sud-est (Nice) (“Reassessment”). The French authorities are seeking from the above-named entities back taxes, interest and penalties in excess of FF 11 million, which is the currency in which the assessment was made (approximately $1.5 million, assuming an exchange rate of FF 7.21 = USD 1.00). The Company is appealing the Reassessment. In connection with the Company’s sale of the neurosciences business unit to Integra in July 2002, the Company agreed to specifically indemnify Integra against any liability in connection with these tax claims. Pursuant to the terms of a settlement agreement with Elekta AB (PUBL) (“Elekta”), completed in early 2002, a portion of any resulting tax claim may be recoverable from Elekta.

On June 1, 2002, the Company received a Demand for Arbitration from Bio-Tech Engineering, Inc., Kevin Maughan and Ferenc Schmidt. The Demand, in the amount of $10 million, plus legal fees and interest, claims that the Company is in breach of a contract dated July 1, 1998 due to a failure and refusal to perform its duties under the contract to manufacture and market surgical clips and mini-clips pursuant to a license and technology agreement dated May 10, 1994, which the Company assumed by agreement dated July 1, 1998 from Elekta Instruments, Inc. The American Arbitration Association has selected and confirmed an arbitrator. Hearings on the matter commenced on July 28, 2003. On or about August 7, 2003, the parties agreed to suspend the arbitration proceedings pending settlement discussions. At this stage in the case, the Company is unable to express an opinion as to the likely outcome of this matter.

Other than as described above, the Company has no material pending legal proceedings.

9

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

This Quarterly Report on Form 10-Q, other than the historical financial information, contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All such forward-looking statements involve known and unknown risks, uncertainties or other factors which may cause actual results, performance or achievement of the Company to be materially different from any future results, performance, or achievement expressed or implied by such forward-looking statements. Factors that might cause such a difference include, without limitation, the risks described below under the caption “Certain Factors That May Affect Future Results”.

CRITICAL ACCOUNTING POLICIES

Certain of our accounting policies are particularly important to the portrayal and understanding of our financial position and results of operations and require the application of significant judgment by our management. As a result, these policies are subject to an inherent degree of uncertainty. In applying these policies, our management uses its judgment in making certain assumptions and estimates. Our critical accounting policies include the following.

Revenue Recognition

We recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101, as amended by Staff Accounting Bulletins 101A and 101B. We record product revenue when the following four basic criteria are satisfied:

1. Persuasive evidence of an arrangement between NMT and a third party exists;

2. Title to the product has transferred to the customer and NMT has no significant post-delivery obligations;

3. The sales price for the product is fixed or determinable; and

4. Collection of the sales price is probable.

Our management uses its judgment concerning the satisfaction of these criteria, particularly No. 4 relating to the collectability of the receivables relating to such sales. In addition, products sold to our distributors are not subject to a right of return for unsold product. Should changes and conditions cause management to determine that these criteria are not met for certain future transactions, revenue recognized for any period could be adversely affected.

We recognize license fees and royalties as they are earned in accordance with relevant contractual provisions.

Accounts Receivable

We perform ongoing credit evaluations of our customers and adjust credit limits based upon payment history and our assessment of the customer’s current creditworthiness. We continuously monitor collections from our customers and maintain a provision for estimated credit losses based upon our experience and any specific customer collection issues that we have identified. While such credit losses have historically been within our expectations and the provisions that we have established, we cannot guarantee that we will continue to experience the same credit loss rates in the future. If the financial condition of certain customers were to deteriorate, resulting in an impairment of their ability to make payments, additional allowances may be required.

Inventories

As a manufacturer of leading edge medical devices, we may be exposed to a number of economic and industry factors that could result in portions of our inventory becoming either obsolete or in excess of anticipated usage. These factors include, but are not limited to, technological changes in our markets, our ability to meet changing customer requirements, competitive pressures in products and prices, reliability and replacement of and the availability of key components from our suppliers.

Our policy is to establish inventory reserves when conditions exist that suggest that our inventory may be in excess of anticipated demand or is obsolete based upon our assumptions about future demand for our products and market conditions. We regularly evaluate the ability to realize the value of our inventory based on a combination of factors, including historical usage rates, forecasted sales or usage, product end of life dates, estimated current and future market values and new product introductions. Assumptions used in determining management’s estimates of future product demand may prove to be incorrect, in which case the provision required for excess or obsolete inventory would have to be adjusted in the future. If inventory is determined to be overvalued, we would be required to recognize such costs as cost of goods sold at the time of such determination. Although every effort is made to ensure the accuracy of management’s forecasts of future product demand, any significant unanticipated changes

10

in demand could have significant impact on the value of our inventory and reported operating results. When recorded, our reserves are intended to reduce the carrying value of our inventory to its net realizable value.

Income Taxes

We account for income taxes under SFAS No. 109, “Accounting for Income Taxes”. As part of the process of preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions in which we operate. This process involves us estimating our actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as deferred revenue or installment sales, for tax and accounting purposes. These differences result in deferred tax assets and liabilities. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and, to the extent that we believe that recovery is not probable, we must establish a valuation allowance. To the extent that we establish a valuation allowance, or increase this allowance in a period, we must include an expense within the tax provision in the consolidated statement of operations.

Significant management judgment is required in determining our provision for income taxes, our deferred tax assets and liabilities and any valuation allowance recorded against our net deferred tax assets. We have recorded a valuation allowance due to uncertainties related to our ability to utilize some of our deferred tax assets, primarily consisting of certain net operating loss carryforwards and tax credits, before they expire. The valuation allowance is based on our estimates of taxable income by jurisdiction in which we operate and the period over which our deferred tax assets will be recoverable. In the event that actual results differ from these estimates, or if we adjust these estimates in future periods, we may need to establish an additional valuation allowance which could materially impact our financial position and results of operations.

The net deferred tax asset at June 30, 2003 was zero, net of the valuation allowance.

Legal Contingencies

We are currently involved in certain legal proceedings. In connection with these legal proceedings, which we discuss in Note 9 of Notes to Consolidated Financial Statements, management periodically reviews estimates of potential costs which we may incur in connection with the adjudication or settlement, if any, of these proceedings. These estimates are developed in consultation with outside counsel and are based on an analysis of potential litigation outcomes and settlement strategies. In accordance with FASB Statement No. 5, “Accounting for Contingencies”, loss contingencies are accrued if, in the opinion of management, an adverse outcome is probable and such outcome can be reasonably estimated. We do not believe that these proceedings will have a material adverse effect on our financial position; however, it is possible that future results for any particular quarter or annual period may be materially affected by changes in our assumptions or the effectiveness of our strategies relating to these proceedings.

Expenses Associated With Clinical Trial

During the second quarter ended June 30, 2003, we received full investigational device exemption (“IDE”) approval from the FDA for, and commenced, our Patent Foramen Ovale (“PFO”) clinical trial (“CLOSURE I”) comparing our STARFlex^® cardiac septal repair implant with current medical therapy in stroke prevention. We currently expect that costs for CLOSURE I will be approximately $17 million over three to four years, not including certain associated costs such as the reimbursement of expenses of third party service providers. Of this amount, we currently expect to incur costs of $5 million to $7 million during 2003, depending significantly upon the rate of patient enrollment. Our management exercises judgment concerning the accounting for various categories of these costs. Certain costs will be expensed as patients are enrolled or upon the occurrence of other specific events during the clinical trial. Certain other estimated costs, principally related to project management and data analysis, will be expensed ratably over the estimated period in which the related services will be provided. Additional STARFlex^® product manufactured to accommodate the expected requirements of CLOSURE I are included in inventory as they are saleable units with alternative use outside of the trial. These units will be expensed as they are utilized in CLOSURE I. All expenses related to CLOSURE I are included in research and development in our consolidated statements of operations.

RESULTS OF OPERATIONS

THREE MONTHS ENDED JUNE 30, 2003 COMPARED WITH THREE MONTHS ENDED JUNE 30, 2002

Revenues. CardioSEAL^® and STARFlex^® cardiac septal repair product sales for the three months ended June 30, 2003 increased by 15.5%, or approximately $706,000, to approximately $5.3 million from approximately $4.6 million for the three months ended June 30, 2002. Total revenues for the three months ended June 30, 2003 decreased by 26.5%, or approximately $2.0 million, to approximately $5.4 million from approximately $7.4 million for the three months ended June 30, 2002. Revenues for the three months ended June 30, 2002 included approximately $2.7 million of vena cava filter sales in connection with the Company’s transitional manufacturing agreement with C.R. Bard, Inc. (“Bard”), which was completed during 2002. The Company believes that the increase in CardioSEAL^® and STARFlex^® sales resulted from a variety of factors, including (i) the growing awareness within the medical community that closing a PFO in certain stroke patients offers an

11

alternative to ongoing drug therapy and (ii) an increase in its direct sales and marketing headcount from 11 to 17, primarily in Europe. CardioSEAL^® and STARFlex^® product sales accounted for 99.7% and 63.0% of total product sales for the three months ended June 30, 2003 and 2002, respectively. The Company currently anticipates an approximate 20% growth in CardioSEAL^® and STARFlex^® product sales for the full year 2003 compared to 2002. The Company currently expects that the absence of vena cava filter product sales in 2003 will result in an approximate 5% to 6% decrease in total product sales for the full year 2003 compared to 2002.

License fees and royalties for the three months ended June 30, 2003 increased approximately 2.9%, or $4,000, to approximately $139,000 from approximately $135,000 for the three months ended June 30, 2002. This increase is directly attributable to royalties earned from Bard, which commenced in 2003, net of ongoing royalty expense to the original inventor of the vena cava filter products.

Cost of Product Sales. Cost of product sales for CardioSEAL^® and STARFlex^® for the three months ended June 30, 2003 increased by 17.4%, or approximately $178,000, to approximately $1.2 million from approximately $1.0 million for the three months ended June 30, 2002. Total cost of product sales for the three months ended June 30, 2003 decreased by 40.6%, or approximately $833,000, to approximately $1.2 million from approximately $2.1 million for the three months ended June 30, 2002. Cost of sales for the three months ended June 30, 2002 included approximately $1.0 million related to vena cava filter product sales. Cost of product sales, as a percentage of product sales, for CardioSEAL^® and STARFlex^® products increased marginally to approximately 22.8% for the three months ended June 30, 2003 as compared to approximately 22.4% for the three months ended June 30, 2002. This increase was primarily attributable to an additional 1% increase in the CardioSEAL^® and STARFlex^® royalty rate during the quarter ended June 30, 2003. Total cost of sales as a percentage of product sales decreased to approximately 23.1% for the three months ended June 30, 2003 as compared to approximately 28.4% for the three months ended June 30, 2002. The decrease in total cost of product sales as a percentage of product sales is primarily attributable to the absence in 2003 of vena cava filter sales, which had a higher product cost as a percentage of sales than the Company’s CardioSEAL^® and STARFlex^® products. Included in cost of product sales were royalty expenses of approximately $556,000 and $491,000 for the three months ended June 30, 2003 and 2002, respectively. The Company currently expects that total cost of sales as a percentage of total product sales will increase to between 24.0% and 24.5% during the remainder of 2003, primarily as a result of the increase in the CardioSEAL^® and STARFlex^® royalty rate.

Research and Development. Research and development expense for the three months ended June 30, 2003 increased by 16.8%, or approximately $257,000, to approximately $1.8 million from approximately $1.5 million for the three months ended June 30, 2002. This increase was primarily attributable to approximately $600,000 of costs associated with the commencement of CLOSURE I, for which the Company received full IDE approval from the FDA during the second quarter of 2003, partially offset by reduced contract product development costs. The CLOSURE I costs consisted of outside data management and analysis providers and increases in clinical department headcount and related costs. The Company currently expects that costs for the CLOSURE I clinical trial will be approximately $17 million over three to four years, not including certain associated costs such as the reimbursement of expenses of third party service providers. Of this amount, the Company currently expects to incur costs of $5 million to $7 million during 2003, depending significantly upon the rate of patient enrollment. As a result, the Company currently expects research and development expense as a percentage of total revenues, which increased to approximately 33.1% for the three months ended June 30, 2003 compared to approximately 20.8% for the three months ended June 30, 2002, will be approximately 45% for the full year 2003.

General and Administrative. General and administrative expense was approximately $1.6 million for each of the three-month periods ended June 30, 2003 and 2002. General and administrative expense as a percentage of total revenues increased to approximately 30.5% for the three months ended June 30, 2003 compared to 22.2% for the three months ended June 30, 2002, primarily due to the absence of vena cava filter sales in 2003.

Selling and Marketing. Selling and marketing expense for the three months ended June 30, 2003 increased by 43.9%, or approximately $526,000, to approximately $1.7 million compared to approximately $1.2 million for the three months ended June 30, 2002. This increase was partially attributable to an increase in direct sales and marketing headcount from 11 to 17, primarily in Europe. In addition, the Company incurred substantial costs to coordinate and sponsor a joint meeting on treating cardiac sources of stroke using its innovative technology for PFO closure. NMT connected, via satellite, Euro-PCR in Paris, the largest interventional cardiology meeting in Europe, and Eurostroke, a major annual European conference attended by stroke neurologists in Valencia, Spain. Selling and marketing expense as a percentage of total revenues increased to approximately 31.9% for the three months ended June 30, 2003 compared to approximately 16.3% for the three months ended June 30, 2002, primarily due to the combination of increased expense levels and the absence of vena cava filter sales in 2003. The Company currently expects a modest reduction in selling and marketing expense as a percentage of total revenues for the remainder of 2003, primarily due to reduced levels of scheduled marketing event costs.

Foreign Currency Transaction (Loss) Gain. The Company incurred foreign currency transaction losses of approximately

12

$1,000 for the three months ended June 30, 2003 compared to foreign currency transaction gains of approximately $60,000 for the three months ended June 30, 2002. The Euro strengthened in comparison to the U.S. dollar by approximately 5% during the three months ended June 30, 2003 compared to approximately 13% during the three months ended June 30, 2002. For the three months ended June 30, 2003, significant increases in European selling and marketing investments, substantially denominated in Euros, contributed to foreign currency transaction losses. For the three months ended June 30, 2002, during which Euro denominated assets substantially exceeded Euro denominated liabilities, the strengthening of the euro generated net foreign currency transaction gains. Approximately 15% and 6% of revenues for the three months ended June 30, 2003 and 2002, respectively, were denominated in foreign currencies, primarily the Euro.

Interest Income. Interest income for the three months ended June 30, 2003 decreased by 3.6%, or approximately $7,000, to approximately $167,000 from approximately $174,000 for the three months ended June 30, 2002. This decrease was primarily attributable to reduced money market interest rates and amortization of bond premium of the Company’s marketable securities, substantially offset by an approximate $11.7 million increase in average interest-bearing cash balances primarily attributable to the milestone payments received from Bard and the net proceeds from the sale of the neurosciences business unit. Average interest bearing deposits increased approximately 49.6% to approximately $35.5 million for the three months ended June 30, 2003 compared to approximately $23.8 million for the three months ended June 30, 2002. The weighted average interest rate on these deposits was approximately 2.4% and 2.7% for the three months ended June 30, 2003 and 2002, respectively. The Company currently expects that the combination of planned investments in CLOSURE I, more comparable year over year weighted average interest rates during the balance of 2003 and additional bond premium amortization will result in a reduction in interest income of approximately $100,000 for the full year 2003 compared to 2002.

Income Tax Provision. In accordance with U.S. generally accepted accounting principles, the Company provides for income taxes on an interim basis using its estimated annual effective income tax rate. The Company had no income tax provision for the three months ended June 30, 2003 compared to an income tax provision of $466,000, or approximately 39.8% of income before income taxes, for the three months ended June 30, 2002. The Company currently expects that planned investments in the CLOSURE I clinical trial will result in a net operating loss for the year ending December 31, 2003, and therefore, the Company’s effective annual tax rate is currently projected to be zero.

SIX MONTHS ENDED JUNE 30, 2003 COMPARED WITH SIX MONTHS ENDED JUNE 30, 2002

Revenues. CardioSEAL^® and STARFlex^® cardiac septal repair product sales for the six months ended June 30, 2003 increased by 14.6%, or approximately $1.3 million, to approximately $10.2 million from approximately $8.9 million for the six months ended June 30, 2002. Total revenues for the six months ended June 30, 2003 decreased by 26.6%, or approximately $3.8 million, to approximately $10.4 million from approximately $14.2 million for the six months ended June 30, 2002. Revenues for the six months ended June 30, 2002 included approximately $5.2 million of vena cava filter sales in connection with the Company’s transitional manufacturing agreement with Bard, which was completed during 2002. The Company believes that the increase in CardioSEAL^® and STARFlex^® sales resulted from a variety of factors, including (i) the growing awareness within the medical community that closing a PFO in certain stroke patients offers an alternative to ongoing drug therapy and (ii) an increase in its direct sales and marketing headcount from 11 to 17, primarily in Europe. CardioSEAL^® and STARFlex^® product sales accounted for 99.7% and 63.2% of total product sales for the six months ended June 30, 2003 and 2002, respectively. The Company currently anticipates an approximate 20% growth in CardioSEAL^® and STARFlex^® product sales for the full year 2003 compared to 2002. The Company currently expects that the absence of vena cava filter product sales in 2003 will result in an approximate 5% to 6% decrease in total product sales for the full year 2003 compared to 2002.

License fees and royalties for the six months ended June 30, 2003 increased by approximately 20.1%, or $41,000, to $246,000 from $205,000 for the six months ended June 30, 2002. This increase was directly attributable to royalties earned from Bard, which commenced in 2003, net of ongoing royalty expense to the original inventor of the vena cava filter products.

Cost of Product Sales. Cost of product sales for CardioSEAL^® and STARFlex^® for the six months ended June 30, 2003 increased by 13.9%, or approximately $278,000, to approximately $2.3 million from approximately $2.0 million for the six months ended June 30, 2002. Total cost of product sales for the six months ended June 30, 2003 decreased by 38.4%, or approximately $1.4 million, to approximately $2.4 million from approximately $3.8 million for the six months ended June 30, 2002. Cost of sales for the six months ended June 30, 2002 included approximately $1.8 million related to vena cava filter product sales. Cost of product sales, as a percentage of product sales, for CardioSEAL^® and STARFlex^® products decreased marginally to approximately 22.9% for the six months ended June 30, 2003 as compared to approximately 23.0% for the six months ended June 30, 2002. Total cost of sales as a percentage of product sales decreased to approximately 23.2% for the six months ended June 30, 2003 as compared to approximately 27.4% for the six months ended June 30, 2002. The decrease in total cost of product sales as a percentage of product sales is primarily attributable to the absence in 2003 of vena cava filter sales, which had a higher product cost as a percentage of sales than the Company’s CardioSEAL^® and STARFlex^® products. Included in cost of product sales were royalty expenses of approximately $1.0 million and $932,000 for the six months ended June 30, 2003 and 2002,

13

respectively. The Company currently expects total cost of sales as a percentage of total product sales to increase to between 24.0% and 24.5% during the remainder of 2003, primarily as a result of the increased CardioSEAL^® and STARFlex^® royalty rate.

Research and Development. Research and development expense for the six months ended June 30, 2003 increased by 7.7%, or approximately $212,000, to approximately $3.0 million from approximately $2.8 million for the six months ended June 30, 2002. This increase was primarily attributable to approximately $600,000 of costs associated with the commencement of CLOSURE I, for which the Company received full IDE approval from the FDA during the second quarter of 2003, partially offset by reduced contract product development costs. The CLOSURE I costs consisted of outside data management and analysis providers and increases in clinical department headcount and related costs. The Company currently expects that costs for the CLOSURE I clinical trial will be approximately $17 million over three to four years, not including certain associated costs such as the reimbursement of expenses of third party service providers. Of this amount, the Company currently expects to incur costs of $5 million to $7 million during 2003, depending significantly upon the rate of patient enrollment. As a result, the Company currently expects that research and development expense as a percentage of total revenues, which increased to approximately 28.4% for the six months ended June 30, 2003 compared to approximately 19.4% for the six months ended June 30, 2002, will be approximately 45% for the full year 2003.

General and Administrative. General and administrative expense for the six months ended June 30, 2003 decreased by 11.1%, or approximately $365,000 to approximately $2.9 million from approximately $3.3 million for the six months ended June 30, 2002. The decrease was primarily attributable to a reduction in outside professional fees. General and administrative expense as a percentage of total revenues increased to approximately 28.1% for the six months ended June 30, 2003 compared to 23.1% for the six months ended June 30, 2002, primarily due to the absence of vena cava filter sales in 2003.

Selling and Marketing. Selling and marketing expense for the six months ended June 30, 2003 increased by 18.7%, or approximately $453,000, to approximately $2.9 million compared to approximately $2.4 million for the six months ended June 30, 2002. This increase was partially attributable to an increase in direct sales and marketing headcount from 11 to 17, primarily in Europe. In addition, the Company incurred substantial costs to coordinate and sponsor a joint meeting on treating cardiac sources of stroke using its innovative technology for PFO closure. NMT connected, via satellite, Euro-PCR in Paris, the largest interventional cardiology meeting in Europe, and Eurostroke, a major annual European conference attended by stroke neurologists in Valencia, Spain. Selling and marketing expense as a percentage of total revenues increased to approximately 27.6% for the six months ended June 30, 2003 compared to approximately 17.0% for the six months ended June 30, 2002, primarily due to the combination of increased expense levels and the absence of vena cava filter sales in 2003. The Company currently expects a modest reduction in selling and marketing expense as a percentage of total revenues for the remainder of 2003, primarily due to reduced levels of scheduled marketing event costs.

Foreign Currency Transaction (Loss) Gain . The Company had foreign currency transaction gains of approximately $7,000 for the six months ended June 30, 2003 compared to currency transaction gains of approximately $47,000 for the six months ended June 30, 2002. The net change of approximately $40,000 was primarily attributable to the strengthening of the Euro against the U.S. dollar in both years, reduced by the effect of significant increases in European sales and marketing costs, predominantly denominated in Euros. Approximately 14% and 6% of revenues for the six months ended June 30, 2003 and 2002, respectively, were denominated in foreign currencies, primarily the Euro.

Interest Income. Interest income for the six months ended June 30, 2003 increased by approximately 47.3%, or $125,000, to approximately $388,000 from approximately $264,000 for the six months ended June 30, 2002. This increase was primarily attributable to (i) an approximate $11.9 million increase in average interest-bearing cash balances primarily attributable to the milestone payments received from Bard and the net proceeds from the sale of the neurosciences business unit; and (ii) higher interest rates associated with the U.S. Government Agency debt securities purchased by the Company during the quarter ended June 30, 2002, partially offset by reduced money market interest rates and amortization of bond premiums. Average interest bearing deposits increased approximately 49.4% to approximately $36.0 million for the six months ended June 30, 2003 compared to approximately $24.1 million for the six months ended June 30, 2002. The weighted average interest rate on these deposits was approximately 2.4% and 2.1% for the six months ended June 30, 2003 and 2002, respectively. The Company currently expects that the combination of planned investments in CLOSURE I, more comparable year over year weighted average interest rates during the balance of 2003 and additional bond premium amortization will result in a reduction in interest income of approximately $100,000 for the full year 2003 compared to 2002.

Income Tax Provision. In accordance with U.S. generally accepted accounting principles, the Company provides for income taxes on an interim basis using its estimated annual effective income tax rate. The Company had no income tax provision for the six months ended June 30, 2003 compared to an income tax provision of $706,000, or approximately 38.4% of income before income taxes, for the six months ended June 30, 2002. The Company currently expects that planned investments in the Company’s CLOSURE I clinical trial will result in a net operating loss for the year ending December 31, 2003, and, therefore, the Company’s effective annual tax rate is currently projected to be zero.

14

LIQUIDITY AND CAPITAL RESOURCES

The Company had cash, cash equivalents and marketable securities of approximately $36.8 million at June 30, 2003, an increase of approximately $600,000 from approximately $36.2 million at December 31, 2002. During the six months ended June 30, 2003, the Company’s operations provided cash of approximately $903,000. This consisted of the final $3.0 million milestone payment received from Bard in connection with the 2001 sale of the vena cava filter product line and approximately $337,000 of net noncash charges, offset by a net loss of approximately $315,000 and an approximate $2.1 million net decrease in working capital items exclusive of the Bard milestone payment.

During the six months ended June 30, 2003, the Company has not engaged in:

• material off-balance sheet activities, including the use of structured finance or special purpose entities;

• trading activities in non-exchange traded contracts; or

• transactions with persons or entities that benefit from their non-independent relationship with the Company.

Purchases of property and equipment for use in the Company’s manufacturing, research and development and general and administrative activities amounted to approximately $123,000 for the six months ended June 30, 2003. At June 30, 2003, the Company had remaining capital lease obligations of approximately $8,000 due in monthly installments through September 2003.

The Company has operating lease commitments, primarily for its manufacturing, laboratory and administrative facility, of approximately $950,000 annually through September 2006.

The Company currently expects that the costs of the recently initiated CLOSURE I clinical trial will be approximately $17 million over a three to four year period, not including certain associated costs such as the reimbursement of expenses of third party service providers. Of this amount, the Company currently expects to incur costs of $5 million to $7 million during 2003, depending significantly upon the rate of patient enrollment. The Company expects that these ongoing investments will result in continued operating losses through 2004.

The Company believes that existing cash and cash expected to be generated from operations will be sufficient to meet its working capital, financing and capital expenditure requirements through at least the end of 2005.

CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS

The following important factors, among others, could cause actual results to differ materially from those contained in forward-looking statements made in this Quarterly Report on Form 10-Q and presented elsewhere by management from time to time.

SUBSTANTIALLY ALL OF OUR REVENUES ARE DERIVED FROM SALES OF ONE PRODUCT LINE

During 2001 and 2002, we completed the divestiture of non-strategic businesses through the sale of the vena cava filter product line to Bard and the sale of the remainder of the neurosciences business unit to Integra. The Company derives substantially all of its ongoing revenues from sales of our CardioSEAL^® and STARFlex^® products. In the United States, the FDA limits sales under a Humanitarian Device Exemption to 4,000 units per year. As demand for these products fluctuates, including the potential impact of the Company’s non-revenue producing clinical trial, our financial results on a quarterly or annual basis may be significantly impacted and we may incur quarterly or annual operating losses in the future. Accordingly, events or circumstances adversely affecting the sales of either of these products will directly and adversely impact our business. These events or circumstances may include reduced demand for our products, lack of regulatory approvals, product liability claims and/or increased competition.

WE MAY FACE UNCERTAINTIES WITH RESPECT TO COMMERCIALIZATION, PRODUCT DEVELOPMENT AND MARKET ACCEPTANCE OF OUR PRODUCTS.

Before certain of our products can be marketed and sold in the United States, including our CardioSEAL^® and STARFlex^® products, we may be required to conduct further research, product development, preclinical and clinical testing and obtain additional governmental regulatory approvals. Despite the Company’s perception that there is growing awareness within the medical community that closing a PFO in certain stroke patients offers an alternative to ongoing drug therapy, we need to further validate this to the FDA and the neurological community. We cannot be certain that the Company’s planned significant investment in a PFO IDE clinical trial (Closure I), which commenced during the second quarter of 2003 and for which the Company received full IDE approval from the FDA in the second quarter of 2003, will result in the receipt of a pre-market approval (“PMA”) from the FDA. We cannot be certain that our current products, or products currently under development, will achieve or continue to have market acceptance. Certain of the medical indications that can be treated by our devices can also be treated by surgery, drugs or other medical devices. Currently, the medical community widely accepts many alternative treatments, and these other treatments have a long history of use. We cannot be certain that our devices and procedures will be able to replace such established treatments or that either physicians or the medical community, in general, will accept and utilize our devices or any

15

other medical products that we may develop. In addition, our future success depends, in part, on our ability to develop additional products. Even if we determine that a product candidate has medical benefits, the cost of commercializing that product candidate may be too high to justify development. In addition, competitors may develop products that are more effective, cost less or are ready for commercial introduction before our products. If we are unable to develop additional, commercially viable products, our future prospects will be limited.

WE MAY FACE CHALLENGES IN EXECUTING OUR FOCUSED BUSINESS STRATEGY.

In connection with the commercialization of our CardioSEAL^® and STARFlex^® products, and the divestitures of our vena cava filter product line and our neurosciences business unit, we have focused our business growth strategy to concentrate on the manufacturing, marketing and selling of our cardiac septal repair devices. Our future sales growth and financial results depend almost exclusively upon the growth of sales of this product line. CardioSEAL^® and STARFlex^® product sales may not grow as quickly as we expect for various reasons, including, but not limited to, delays in receiving further FDA approvals, difficulties in recruiting additional experienced sales and marketing personnel and increased competition. This focus has placed significant demands on our senior management team and other resources. Our future success will depend on our ability to manage and implement our focused business strategy effectively, including by:

• achieving a successful STARFlex^® PFO IDE clinical trial;

• improving our sales and marketing capabilities;

• continuing to train, motivate and manage our employees; and

• developing and improving our operational, financial and other internal systems.

WE MAY BE UNABLE TO PROTECT OUR INTELLECTUAL PROPERTY RIGHTS AND MAY FACE INTELLECTUAL PROPERTY INFRINGEMENT CLAIMS.

Our success will depend, in part, on our ability to obtain patents, maintain trade secret protection and operate without infringing the proprietary rights of third parties. We cannot be certain that:

• any pending patent applications or any future patent application will result in issued patents;

• the scope of any patent protection will exclude competitors or provide competitive advantages to us;

• any of our patents will be held valid if subsequently challenged; or

• others will not claim rights in or ownership of the patents and other proprietary rights held by us.

Furthermore, we cannot be certain that others have not or will not develop similar products, duplicate any of our products or design around any patents issued, or that may be issued in the future, to us or to our licensors. Whether or not patents are issued to us or to our licensors, others may hold or receive patents which contain claims having a scope that covers products developed by us. We could incur substantial costs in defending any patent infringement suits or in asserting any patent rights, including those granted by third parties. In addition, we may be required to obtain licenses to patents or proprietary rights from third parties. There can be no assurance that such licenses will be available on acceptable terms, if at all.

Our issued U.S. patents, and corresponding foreign patents, expire at various dates ranging from 2011 to 2019. When each of our patents expires, competitors may develop and sell products based on the same or similar technologies as those covered by the expired patent. We have invested in significant new patent applications and we cannot be certain that any of these applications will result in an issued patent to enhance our intellectual property rights.

OUR LIMITED MANUFACTURING HISTORY AND THE POSSIBILITY OF NON-COMPLIANCE WITH MANUFACTURING REGULATIONS RAISE UNCERTAINTIES WITH RESPECT TO OUR ABILITY TO COMMERCIALIZE FUTURE PRODUCTS.

We have a limited history in manufacturing our products, including our CardioSEAL^® and STARFlex^® cardiac septal repair devices, and we may face difficulties as the commercialization of our products and the medical device industry changes. Increases in our manufacturing costs, or significant delays in our manufacturing process, could have a material adverse effect on our business, financial condition and results of operations.

The FDA and other regulatory authorities require that our products be manufactured according to rigorous standards including, but not limited to, Good Manufacturing Practices and ISO standards. These regulatory requirements may significantly increase our production or purchasing costs and may even prevent us from making or obtaining our products in amounts sufficient to meet market demand. If we or a third-party manufacturer change our approved manufacturing process, the FDA will require a new approval before that process could be used. Failure to develop our manufacturing capabilities may mean that even if we develop promising new products, we may not be able to produce them profitably, as a result of delays and additional capital investment costs.

16

WE MAY BE UNABLE TO SUCCESSFULLY MARKET OUR PRODUCTS DUE TO LIMITED MARKETING AND SALES EXPERIENCE.

Our cardiac septal repair implant devices are marketed primarily through our direct sales force. We have increased our combined U.S. and European sales and marketing organization headcount from 11 to 17 from the first quarter of 2002 through the second quarter of 2003. Due to our relatively new sales staff, and because we marketed our initial products (such as stents and vena cava filters) through third parties, we have limited experience marketing our products directly. In order to market directly the CardioSEAL^® and STARFlex^® implant devices and any related products, we will have to continue to develop a marketing and sales organization with technical expertise and distribution capabilities.

WE MAY BE UNABLE TO COMPETE SUCCESSFULLY BECAUSE OF INTENSE COMPETITION AND RAPID TECHNOLOGICAL CHANGE IN OUR INDUSTRY.

The medical device industry is characterized by rapidly evolving technology and intense competition. Existing and future products, therapies, technological approaches and delivery systems will continue to compete directly with our products. Many of our competitors have substantially greater capital resources, greater research and development, manufacturing and marketing resources and experience and greater name recognition than we do. In addition, new surgical procedures and medications could be developed that replace or reduce the importance of current or future procedures that utilize our products. As a result, any products that we develop may become obsolete before we recover any expenses incurred in connection with development of these products.

AN ADVERSE OUTCOME IN ANY LITIGATION WE ARE CURRENTLY INVOLVED IN COULD AFFECT OUR FINANCIAL CONDITION

We are currently involved in the litigation of disputes as described in Item 1 of Part II (Legal Proceedings). An adverse outcome in any one of these disputes could negatively impact our business or financial condition.

PRODUCT LIABILITY CLAIMS, PRODUCT RECALLS AND UNINSURED OR UNDERINSURED LIABILITIES COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS.

The testing, marketing and sale of implantable devices and materials carry an inherent risk that users will assert product liability claims against us or our third party distributors alleging that their use of our devices had adverse effects on their health. A product liability claim or a product recall could have a material adverse effect on our business. Certain of our devices are designed to be used in life-threatening situations where there is a high risk of serious injury or death. Although we currently maintain limited product liability insurance coverage, we cannot be certain that in the future we will be able to maintain such coverage on acceptable terms, or that current insurance or insurance subsequently obtained will provide adequate coverage against any or all potential claims. Furthermore, we cannot be certain that we will avoid significant product liability claims and the attendant adverse publicity. Any product liability claim, or other claim, with respect to uninsured or underinsured liabilities could have a material adverse effect on our business.

INTENSE INDUSTRY COMPETITION FOR QUALIFIED EMPLOYEES COULD AFFECT OUR ABILITY TO ATTRACT AND RETAIN NECESSARY, QUALIFIED PERSONNEL.

In the medical device field, there is intense competition for qualified personnel and we cannot be certain that we will be able to continue to attract and retain the qualified personnel necessary for the development of our business. Both the loss of the services of existing personnel, as well as the failure to recruit additional qualified scientific, technical and managerial personnel in a timely manner, would be detrimental to our anticipated growth and expansion into areas and activities requiring additional expertise. The failure to attract and retain such personnel could adversely affect our business.

AS A RESULT OF GOVERNMENT REGULATIONS, WE MAY EXPERIENCE LOWER SALES AND EARNINGS.

The manufacture and sale of medical devices intended for commercial distribution are subject to extensive governmental regulations in the United States and abroad. Medical devices generally require pre-market clearance or pre-market approval prior to commercial distribution. Certain material changes or modifications to medical devices are also subject to regulatory review and clearance or approval. The regulatory approval process is expensive, uncertain and lengthy. If granted, the approval may include significant limitations on the indicated uses for which a product may be marketed. In addition, any products that we manufacture or distribute are subject to continuing regulation by the FDA. We cannot be certain that we will be able to obtain necessary regulatory approvals or clearances for our products on a timely basis or at all. The occurrence of any of the following events could have a material adverse effect on our business, financial condition and results of operations:

• delays in receipt of, or failure to receive, regulatory approvals or clearances;

• the loss of previously received approvals or clearances;

17

• limitations on the intended use of a device imposed as a condition of regulatory approvals or clearances; or

• our failure to comply with existing or future regulatory requirements.

In addition, sales of medical device products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Failure to comply with foreign regulatory requirements also could have a material adverse effect on our business, financial condition and results of operations.

WE FACE UNCERTAINTIES WITH RESPECT TO THE AVAILABILITY OF THIRD PARTY REIMBURSEMENT.

In the United States, Medicare, Medicaid and other government insurance programs, as well as private insurance reimbursement programs, greatly affect revenues for suppliers of health care products and services. Such third party payors may affect the pricing or relative attractiveness of our products by regulating the maximum amount, if any, of reimbursement which they provide to the physicians and hospitals using our devices, or any other products that we may develop. If, for any reason, the third party payors decided not to provide reimbursement for our products, this would materially adversely affect our ability to sell our products. Moreover, mounting concerns about rising health care costs may cause the government or private insurers to implement more restrictive coverage and reimbursement policies in the future. In the international market, reimbursement by private third party medical insurance providers and by governmental insurers and providers varies from country to country. In certain countries, our ability to achieve significant market penetration may depend upon the availability of third party governmental reimbursement.

THE SIGNIFICANT CONCENTRATION OF OWNERSHIP OF OUR COMMON STOCK COULD LIMIT INVESTORS’ ABILITY TO INFLUENCE CORPORATE ACTIONS.

A few of our stockholders, including Whitney & Co. and related entities, own a significant percentage of our outstanding common stock. As a result, these stockholders may be able to influence the outcome of matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership of our common stock may have the effect of impacting the probability and timing of a change in control of the Company. This could deprive our stockholders of an opportunity to receive a premium for their common stock as part of a sale of the Company and might otherwise affect the market price of our common stock.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of June 30, 2003 and December 31, 2002, the Company did not participate in any derivative financial instruments or other financial and commodity instruments for which fair value disclosure would be required under SFAS No. 107, “Disclosures About Fair Value of Financial Instruments”. The Company’s investments are primarily short-term money market accounts that are carried on the Company’s books at cost, which approximates fair market value, and U.S. Government agency debt instruments that are carried on the Company’s books at cost, increased or decreased by unrealized gains or losses, net of tax, respectively, which amounts are recorded as a component of stockholders’ equity in the Company’s consolidated balance sheets. Accordingly, the Company has no quantitative information concerning the market risk of participating in such investments.

The Company is subject to market risk in the form of interest rate risk and foreign currency risk. Interest rate risk is immaterial to the Company. Although the Company has decreased its international operations following the sale of its neurosciences business unit in July 2002, the Company continues to denominate certain revenues and costs in non-U.S. currencies. Accordingly, the Company faces exposure to adverse movements in foreign currency exchange rates. These exposures may change over time and could have a material adverse impact on the Company’s financial condition.

The Company translates the accounts of its foreign subsidiaries in accordance with SFAS No. 52, “Foreign Currency Translation”. The assets and liabilities of these foreign subsidiaries are translated from their local currency into U.S. dollars at the rate of exchange in effect at the end of each reporting period, while stockholders’ equity is translated at historical rates. Prior to the July 2002 sale of the Company’s neurosciences business unit, the Company recorded the effects of changes in balance sheet items (i.e., cumulative foreign currency translation gains and losses) as a component of consolidated stockholders’ equity. The functional currency of the Company’s remaining foreign subsidiaries is the U.S. dollar and, accordingly, translation gains and losses are reflected in the consolidated statements of operations. Revenue and expense accounts are translated using the weighted average exchange rate in effect during the period.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s management, with the participation of the Company’s chief executive officer and chief financial officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of June 30, 2003. Based on this evaluation, the Company’s chief executive officer and chief financial officer concluded that, as of June 30, 2003, the Company’s disclosure controls and procedures were (1) designed to

18

ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to the Company’s chief executive officer and chief financial officer by others within those entities, particularly during the period in which this report was being prepared and (2) effective, in that they provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

No change in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended June 30, 2003 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company is a party to the following legal proceedings that could have a material adverse impact on the Company’s results of operations or liquidity if there were an adverse outcome. Although the Company intends to pursue its rights in each of these matters vigorously, it cannot predict the ultimate outcomes.

In December 1998, the Company filed a patent infringement suit in the United States District Court for the District of Massachusetts (the “Court”) against AGA Medical Corp. (“AGA”), claiming that AGA’s Amplatzer aperture occlusion devices infringe U.S. Patent No. 5,108,420, which is licensed exclusively to the Company. The Company is seeking an injunction to prevent further infringement as well as monetary damages. In April 1999, AGA served its Answer and Counterclaims denying liability and alleging that the Company has engaged in false or misleading advertising and in unfair or deceptive business practices. AGA’s counterclaims seek an injunction and an unspecified amount of damages. In May 1999, the Company answered AGA’s counterclaims denying liability. On April 25, 2001, the Court granted the Company’s motion to stay all proceedings in this matter pending reexamination of the patent by the United States Patent and Trademark Office, which is still ongoing.

On or about September 24, 2001, the three French subsidiaries of the Company’s former neurosciences business unit, NMT Neurosciences Instruments SARL, NMT Neurosciences Holdings SA and NMT Neurosciences Implants SA, each received a Notification of Reassessment Following Verification of the Accounts (Notification de redressements suite à une vérification de comptabilité) from the French Direction de Controle Fiscal, Sud-est (Nice) (“Reassessment”). The French authorities are seeking from the above-named entities back taxes, interest and penalties in excess of FF11 million, which is the currency in which the assessment was made (approximately $1.5 million, assuming an exchange rate of FF 7.21 = USD 1.00). The Company is appealing the Reassessement. In connection with the Company’s sale of the neurosciences business unit to Integra in July 2002, the Company agreed to specifically indemnify Integra against any liability in connection with these tax claims. Pursuant to the terms of a settlement agreement with Elekta AB (PUBL) (“Elekta”), completed in early 2002, a portion of any resulting tax claim may be recoverable from Elekta.

On June 1, 2002, the Company received a Demand for Arbitration from Bio-Tech Engineering, Inc., Kevin Maughan and Ferenc Schmidt. The Demand, in the amount of $10 million, plus legal fees and interest, claims that the Company is in breach of a contract dated July 1, 1998 due to a failure and refusal to perform its duties under the contract to manufacture and market surgical clips and mini-clips pursuant to a license and technology agreement dated May 10, 1994, which the Company assumed by agreement dated July 1, 1998 from Elekta Instruments, Inc. The American Arbitration Association has selected and confirmed an arbitrator. Hearings on the matter commenced on July 28, 2003. On or about August 7, 2003, the parties agreed to suspend the arbitration proceedings pending settlement discussions. At this stage in the case, the Company is unable to express an opinion as to the likely outcome of this matter.

Other than as described above, the Company has no material pending legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The 2003 Annual Meeting of Stockholders of the Company was held on June 18, 2003 (the “Meeting”). Present at the meeting in person or through representation by proxy were a total of 11,486,395 shares of Common Stock out of a total of 11,792,842 shares entitled to vote, thereby constituting a quorum. The actions taken at the Meeting consisted of:

(1) election of eight members of the Board of Directors of the Company, each to serve for a one-year term;

(2) approval of an amendment to the 2001 Stock Incentive Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder from 500,000 shares to 700,000 shares;

(3) approval of an amendment to the 2001 Employee Stock Purchase Plan to increase the number of shares of the Company’s common stock authorized for issuance thereunder from 125,000 shares to 275,000 shares;

(4) approval of an amendment to the 1996 Stock Option Plan for Non-Employee Directors to increase the number of shares of the

19

Company’s common stock authorized for issuance thereunder from 225,000 shares to 325,000 shares; and

(5) ratification of the appointment of Ernst & Young LLP as the Company’s independent public accountants.

The results of the voting on the matters presented to the stockholders at the Meeting are as set forth below; there were no broker non-votes for any of the matters.

DIRECTORS	VOTES FOR	VOTES WITHHELD
John E. Ahern	11,427,954	58,441
Robert G. Brown	10,239,132	1,247,263
Cheryl L. Clarkson	11,374,132	112,263
R. John Fletcher	10,125,354	1,361,041
Daniel F. Hanley, M.D.	11,428,505	57,890
James E. Lock, M.D.	10,293,505	1,192,890
Francis J. Martin	8,688,287	2,798,108
Harry A. Schult	8,685,722	2,800,673

	VOTES FOR	VOTES AGAINST	VOTES ABSTAINED
AMENDMENT TO 2001 STOCK INCENTIVE PLAN	6,051,621	5,156,974	277,800
AMENDMENT TO 2001 EMPLOYEE STOCK PURCHASE PLAN	7,292,202	3,909,493	284,700
AMENDMENT TO 1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS	8,675,598	2,526,032	284,765
RATIFICATION OF THE APPOINTMENT OF ERNST & YOUNG LLP	11,436,348	31,300	18,747

ITEM  6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits

Number	Description of Exhibit
10.1	2001 Stock Incentive Plan, as amended.
10.2	2001 Employee Stock Purchase Plan, as amended.
10.3	1996 Stock Option Plan for Non-Employee Directors, as amended.
31.1	Certification of John E. Ahern, President and Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Richard E. Davis, Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of John E. Ahern, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Richard E. Davis, Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

20

(b) Reports on Form 8-K

On May 7, 2003, the Company furnished a Current Report on Form 8-K containing a copy of its earnings release for the quarter ended March 31, 2003 (including financial statements) pursuant to Item 12 (Results of Operations and Financial Condition).

21

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	NMT MEDICAL, INC.
Date: August 11, 2003	By:	/s/    JOHN E. AHERN
		John E. Ahern President and Chief Executive Officer

Date: August 11, 2003	By:	/s/    RICHARD E. DAVIS
		Richard E. Davis Vice President and Chief Financial Officer

22

Exhibit Index

Number	Description of Exhibit
10.1	2001 Stock Incentive Plan, as amended.
10.2	2001 Employee Stock Purchase Plan, as amended.
10.3	1996 Stock Option Plan for Non-Employee Directors, as amended.
31.1	Certification of John E. Ahern, President and Chief Executive Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
31.2	Certification of Richard E. Davis, Vice President and Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
32.1	Certification of John E. Ahern, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Richard E. Davis, Vice President and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

EX-10.1

Exhibit 10.1

NMT Medical, Inc.

2001 STOCK INCENTIVE PLAN

1. Purpose

The purpose of this 2001 Stock Incentive Plan (the “Plan”) of NMT Medical, Inc., a Delaware corporation (the “Company”), is to advance the interests of the Company’s stockholders by enhancing the Company’s ability to attract, retain and motivate persons who make (or are expected to make) important contributions to the Company by providing such persons with equity ownership opportunities and performance-based incentives and thereby better aligning the interests of such persons with those of the Company’s stockholders. Except where the context otherwise requires, the term “Company” shall include any of the Company’s present or future parent or subsidiary corporations as defined in Sections 424(e) or (f) of the Internal Revenue Code of 1986, as amended, and any regulations promulgated thereunder (the “Code”) and any other business venture (including, without limitation, joint venture or limited liability company) in which the Company has a significant interest, as determined by the Board of Directors of the Company (the “Board”).

2. Eligibility

All of the Company’s employees, officers, directors, consultants and advisors (and any individuals who have accepted an offer for employment) are eligible to be granted options or restricted stock awards (each, an “Award”) under the Plan. Each person who has been granted an Award under the Plan shall be deemed a “Participant”.

3. Administration and Delegation

(a) Administration by Board of Directors. The Plan will be administered by the Board. The Board shall have authority to grant Awards and to adopt, amend and repeal such administrative rules, guidelines and practices relating to the Plan as it shall deem advisable. The Board may correct any defect, supply any omission or reconcile any inconsistency in the Plan or any Award in the manner and to the extent it shall deem expedient to carry the Plan into effect and it shall be the sole and final judge of such expediency. All decisions by the Board shall be made in the Board’s sole discretion and shall be final and binding on all persons having or claiming any interest in the Plan or in any Award. No director or person acting pursuant to the authority delegated by the Board shall be liable for any action or determination relating to or under the Plan made in good faith.

(b) Appointment of Committees. To the extent permitted by applicable law, the Board may delegate any or all of its powers under the Plan to one or more committees or subcommittees of the Board (a “Committee”). All references in the Plan to the “Board” shall mean the Board or a Committee of the Board to the extent that the Board’s powers or authority under the Plan have been delegated to such Committee.

4. Stock Available for Awards

(a) Number of Shares. Subject to adjustment under Section 7, Awards may be made under the Plan for up to 500,000 shares of common stock, $.001 par value per share, of the Company (the “Common Stock”). If any Award expires or is terminated, surrendered or canceled without having been fully exercised or is forfeited in whole or in part (including as the result of shares of Common Stock subject to such Award being repurchased by the Company at the original issuance price pursuant to a contractual repurchase right) or results in any Common Stock not being issued, the unused Common Stock covered by such Award shall again be available for the grant of Awards under the Plan, subject, however, in the case of Incentive Stock Options (as hereinafter defined), to any limitations under the Code. Shares issued under the Plan may consist in whole or in part of authorized but unissued shares or treasury shares.

(b) Per-Participant Limit. Subject to adjustment under Section 7, the maximum number of shares of Common Stock with respect to which Awards may be granted to any Participant under the Plan shall be 200,000 per calendar year. The per-Participant limit described in this Section 4(b) shall be construed and applied consistently with Section 162(m) of the Code (“Section 162(m)”).

5. Stock Options

(a) General. The Board may grant options to purchase Common Stock (each, an “Option”) and determine the number of shares of Common Stock to be covered by each Option, the exercise price of each Option and the conditions and limitations applicable to the exercise of each Option, including conditions relating to applicable federal or state securities laws, as it considers necessary or advisable. An Option which is not intended to be an Incentive Stock Option (as hereinafter defined) shall be designated a “Nonstatutory Stock Option”.

(b) Incentive Stock Options. An Option that the Board intends to be an “incentive stock option” as defined in Section 422 of the Code (an “Incentive Stock Option”) shall only be granted to employees of the Company and shall be subject to and shall be construed consistently with the requirements of Section 422 of the Code. The Company shall have no liability to a Participant, or any other party, if an Option (or any part thereof) which is intended to be an Incentive Stock Option is not an Incentive Stock Option.

(c) Exercise Price. The Board shall establish the exercise price at the time each Option is granted and specify it in the applicable option agreement.

-2-

(d) Duration of Options. Each Option shall be exercisable at such times and subject to such terms and conditions as the Board may specify in the applicable option agreement.

(e) Exercise of Option. Options may be exercised by delivery to the Company of a written notice of exercise signed by the proper person or by any other form of notice (including electronic notice) approved by the Board together with payment in full as specified in Section 5(f) for the number of shares for which the Option is exercised.

(f) Payment Upon Exercise. Common Stock purchased upon the exercise of an Option granted under the Plan shall be paid for as follows:

(1) in cash or by check, payable to the order of the Company;

(2) except as the Board may, in its sole discretion, otherwise provide in an option agreement, by (i) delivery of an irrevocable and unconditional undertaking by a creditworthy broker to deliver promptly to the Company sufficient funds to pay the exercise price and any required tax withholding or (ii) delivery by the Participant to the Company of a copy of irrevocable and unconditional instructions to a creditworthy broker to deliver promptly to the Company cash or a check sufficient to pay the exercise price and any required tax withholding;

(3) when the Common Stock is registered under the Securities Exchange Act of 1934 (the “Exchange Act”), by delivery of shares of Common Stock owned by the Participant valued at their fair market value as determined by (or in a manner approved by) the Board in good faith (“Fair Market Value”), provided (i) such method of payment is then permitted under applicable law and (ii) such Common Stock, if acquired directly from the Company was owned by the Participant at least six months prior to such delivery;

(4) to the extent permitted by the Board, in its sole discretion by (i) delivery of a promissory note of the Participant to the Company on terms determined by the Board, or (ii) payment of such other lawful consideration as the Board may determine; or

(5) by any combination of the above permitted forms of payment.

(g) Substitute Options. In connection with a merger or consolidation of an entity with the Company or the acquisition by the Company of property or stock of an entity, the Board may grant Options in substitution for any options or other stock or stock-based awards granted by such entity or an affiliate thereof. Substitute Options may be granted on such terms as the Board deems appropriate in the circumstances, notwithstanding any limitations on Options contained in the other sections of this Section 5 or in Section 2.

6. Restricted Stock.

(a) Grants. The Board may grant Awards entitling recipients to acquire shares of Common Stock, subject to the right of the Company to repurchase all or part of such shares at

-3-

their issue price or other stated or formula price (or to require forfeiture of such shares if issued at no cost) from the recipient in the event that conditions specified by the Board in the applicable Award are not satisfied prior to the end of the applicable restriction period or periods established by the Board for such Award (each, a “Restricted Stock Award”).

(b) Terms and Conditions. The Board shall determine the terms and conditions of any such Restricted Stock Award, including the conditions for repurchase (or forfeiture) and the issue price, if any.

(c) Stock Certificates. Any stock certificates issued in respect of a Restricted Stock Award shall be registered in the name of the Participant and, unless otherwise determined by the Board, deposited by the Participant, together with a stock power endorsed in blank, with the Company (or its designee). At the expiration of the applicable restriction periods, the Company (or such designee) shall deliver the certificates no longer subject to such restrictions to the Participant or if the Participant has died, to the beneficiary designated, in a manner determined by the Board, by a Participant to receive amounts due or exercise rights of the Participant in the event of the Participant’s death (the “Designated Beneficiary”). In the absence of an effective designation by a Participant, Designated Beneficiary shall mean the Participant’s estate.

7. Adjustments for Changes in Common Stock and Certain Other Events

(a) Changes in Capitalization. In the event of any stock split, reverse stock split, stock dividend, recapitalization, combination of shares, reclassification of shares, spin-off or other similar change in capitalization or event, or any distribution to holders of Common Stock other than a normal cash dividend, (i) the number and class of securities available under this Plan, (ii) the per-Participant limit set forth in Section 4(b), (iii) the number and class of securities and exercise price per share subject to each outstanding Option, and (iv) the repurchase price per share subject to each outstanding Restricted Stock Award shall be appropriately adjusted by the Company (or substituted Awards may be made, if applicable) to the extent the Board shall determine, in good faith, that such an adjustment (or substitution) is necessary and appropriate. If this Section 7(a) applies and Section 7(c) also applies to any event, Section 7(c) shall be applicable to such event, and this Section 7(a) shall not be applicable.

(b) Liquidation or Dissolution. In the event of a proposed liquidation or dissolution of the Company, the Board shall upon written notice to the Participants provide that all then unexercised Options will (i) become exercisable in full as of a specified time at least 10 business days prior to the effective date of such liquidation or dissolution and (ii) terminate effective upon such liquidation or dissolution, except to the extent exercised before such effective date. The Board may specify the effect of a liquidation or dissolution on any Restricted Stock Award granted under the Plan at the time of the grant.

(c) Reorganization Events

(1) Definition. A “Reorganization Event” shall mean: (a) any merger or consolidation of the Company with or into another entity as a result of which all of the Common

-4-

Stock of the Company is converted into or exchanged for the right to receive cash, securities or other property or (b) any exchange of all of the Common Stock of the Company for cash, securities or other property pursuant to a share exchange transaction.

(2)    Consequences of a Reorganization Event on Options.    Upon the occurrence of a Reorganization Event, or the execution by the Company of any agreement with respect to a Reorganization Event, the Board shall provide that all outstanding Options shall be assumed, or equivalent options shall be substituted, by the acquiring or succeeding corporation (or an affiliate thereof). For purposes hereof, an Option shall be considered to be assumed if, following consummation of the Reorganization Event, the Option confers the right to purchase, for each share of Common Stock subject to the Option immediately prior to the consummation of the Reorganization Event, the consideration (whether cash, securities or other property) received as a result of the Reorganization Event by holders of Common Stock for each share of Common Stock held immediately prior to the consummation of the Reorganization Event (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares of Common Stock); provided, however, that if the consideration received as a result of the Reorganization Event is not solely common stock of the acquiring or succeeding corporation (or an affiliate thereof), the Company may, with the consent of the acquiring or succeeding corporation, provide for the consideration to be received upon the exercise of Options to consist solely of common stock of the acquiring or succeeding corporation (or an affiliate thereof) equivalent in fair market value to the per share consideration received by holders of outstanding shares of Common Stock as a result of the Reorganization Event.

Notwithstanding the foregoing, if the acquiring or succeeding corporation (or an affiliate thereof) does not agree to assume, or substitute for, such Options, then the Board shall, upon written notice to the Participants, provide that all then unexercised Options will become exercisable in full as of a specified time prior to the Reorganization Event and will terminate immediately prior to the consummation of such Reorganization Event, except to the extent exercised by the Participants before the consummation of such Reorganization Event; provided, however, that in the event of a Reorganization Event under the terms of which holders of Common Stock will receive upon consummation thereof a cash payment for each share of Common Stock surrendered pursuant to such Reorganization Event (the “Acquisition Price”), then the Board may instead provide that all outstanding Options shall terminate upon consummation of such Reorganization Event and that each Participant shall receive, in exchange therefor, a cash payment equal to the amount (if any) by which (A) the Acquisition Price multiplied by the number of shares of Common Stock subject to such outstanding Options (whether or not then exercisable), exceeds (B) the aggregate exercise price of such Options. To the extent all or any portion of an Option becomes exercisable solely as a result of the first sentence of this paragraph, upon exercise of such Option the Participant shall receive shares subject to a right of repurchase by the Company or its successor at the Option exercise price. Such repurchase right (1) shall lapse at the same rate as the Option would have become exercisable under its terms and (2) shall not apply to any shares subject to the Option that were exercisable under its terms without regard to the first sentence of this paragraph.

-5-

(3) Consequences of a Reorganization Event on Restricted Stock Awards. Upon the occurrence of a Reorganization Event, the repurchase and other rights of the Company under each outstanding Restricted Stock Award shall inure to the benefit of the Company’s successor and shall apply to the cash, securities or other property which the Common Stock was converted into or exchanged for pursuant to such Reorganization Event in the same manner and to the same extent as they applied to the Common Stock subject to such Restricted Stock Award.

8. General Provisions Applicable to Awards

(a) Transferability of Awards. Except as the Board may otherwise determine or provide in an Award, Awards shall not be sold, assigned, transferred, pledged or otherwise encumbered by the person to whom they are granted, either voluntarily or by operation of law, except by will or the laws of descent and distribution, and, during the life of the Participant, shall be exercisable only by the Participant. References to a Participant, to the extent relevant in the context, shall include references to authorized transferees.

(b) Documentation. Each Award shall be evidenced in such form (written, electronic or otherwise) as the Board shall determine. Each Award may contain terms and conditions in addition to those set forth in the Plan.

(c) Board Discretion. Except as otherwise provided by the Plan, each Award may be made alone or in addition or in relation to any other Award. The terms of each Award need not be identical, and the Board need not treat Participants uniformly.

(d) Termination of Status. The Board shall determine the effect on an Award of the disability, death, retirement, authorized leave of absence or other change in the employment or other status of a Participant and the extent to which, and the period during which, the Participant, the Participant’s legal representative, conservator, guardian or Designated Beneficiary may exercise rights under the Award.

(e) Withholding. Each Participant shall pay to the Company, or make provision satisfactory to the Board for payment of, any taxes required by law to be withheld in connection with Awards to such Participant no later than the date of the event creating the tax liability. Except as the Board may otherwise provide in an Award, when the Common Stock is registered under the Exchange Act, Participants may satisfy such tax obligations in whole or in part by delivery of shares of Common Stock, including shares retained from the Award creating the tax obligation, valued at their Fair Market Value; provided, however, that the total tax withholding where stock is being used to satisfy such tax obligations cannot exceed the Company’s minimum statutory withholding obligations (based on minimum statutory withholding rates for federal and state tax purposes, including payroll taxes, that are applicable to such supplemental taxable income). The Company may, to the extent permitted by law, deduct any such tax obligations from any payment of any kind otherwise due to a Participant.

(f) Amendment of Award. The Board may amend, modify or terminate any outstanding Award, including but not limited to, substituting therefor another Award of the same

-6-

or a different type, changing the date of exercise or realization, and converting an Incentive Stock Option to a Nonstatutory Stock Option, provided that the Participant’s consent to such action shall be required unless the Board determines that the action, taking into account any related action, would not materially and adversely affect the Participant.

(g) Conditions on Delivery of Stock. The Company will not be obligated to deliver any shares of Common Stock pursuant to the Plan or to remove restrictions from shares previously delivered under the Plan until (i) all conditions of the Award have been met or removed to the satisfaction of the Company, (ii) in the opinion of the Company’s counsel, all other legal matters in connection with the issuance and delivery of such shares have been satisfied, including any applicable securities laws and any applicable stock exchange or stock market rules and regulations, and (iii) the Participant has executed and delivered to the Company such representations or agreements as the Company may consider appropriate to satisfy the requirements of any applicable laws, rules or regulations.

(h) Acceleration. The Board may at any time provide that any Award shall become immediately exercisable in full or in part, free of some or all restrictions or conditions, or otherwise realizable in full or in part, as the case may be.

9. Miscellaneous

(a) No Right To Employment or Other Status. No person shall have any claim or right to be granted an Award, and the grant of an Award shall not be construed as giving a Participant the right to continued employment or any other relationship with the Company. The Company expressly reserves the right at any time to dismiss or otherwise terminate its relationship with a Participant free from any liability or claim under the Plan, except as expressly provided in the applicable Award.

(b) No Rights As Stockholder. Subject to the provisions of the applicable Award, no Participant or Designated Beneficiary shall have any rights as a stockholder with respect to any shares of Common Stock to be distributed with respect to an Award until becoming the record holder of such shares. Notwithstanding the foregoing, in the event the Company effects a split of the Common Stock by means of a stock dividend and the exercise price of and the number of shares subject to such Option are adjusted as of the date of the distribution of the dividend (rather than as of the record date for such dividend), then an optionee who exercises an Option between the record date and the distribution date for such stock dividend shall be entitled to receive, on the distribution date, the stock dividend with respect to the shares of Common Stock acquired upon such Option exercise, notwithstanding the fact that such shares were not outstanding as of the close of business on the record date for such stock dividend.

(c) Effective Date and Term of Plan. The Plan shall become effective on the date on which it is adopted by the Board, but no Award granted to a Participant that is intended to comply with Section 162(m) shall become exercisable, vested or realizable, as applicable to such Award, unless and until the Plan has been approved by the Company’s stockholders to the extent stockholder approval is required by Section 162(m) in the manner required under Section 162(m)

-7-

(including the vote required under Section 162(m)). No Awards shall be granted under the Plan after the completion of ten years from the earlier of (i) the date on which the Plan was adopted by the Board or (ii) the date the Plan was approved by the Company’s stockholders, but Awards previously granted may extend beyond that date.

(d) Amendment of Plan. The Board may amend, suspend or terminate the Plan or any portion thereof at any time, provided that to the extent required by Section 162(m), no Award granted to a Participant that is intended to comply with Section 162(m) after the date of such amendment shall become exercisable, realizable or vested, as applicable to such Award, unless and until such amendment shall have been approved by the Company’s stockholders if required by Section 162(m) (including the vote required under Section 162(m)).

(e) Governing Law. The provisions of the Plan and all Awards made hereunder shall be governed by and interpreted in accordance with the laws of the State of Delaware, without regard to any applicable conflicts of law.

Adopted by the Board of Directors on April 26, 2001.

Approved by the Stockholders of June 7, 2001.

-8-

NMT MEDICAL, INC.

Amendment No. 1

to

2001 Stock Incentive Plan

The 2001 Stock Incentive Plan (the “Plan”) of NMT Medical, Inc. (the “Company”) is hereby amended as follows (capitalized terms used herein and not defined herein shall have the respective meaning ascribed to such terms in the Plan):

1.    The first sentence of Section 4(a) of the Plan shall be deleted in its entirety and replaced with the following:

“Subject to adjustment under Section 7, Awards may be made under the Plan for up to 700,000 shares of common stock, $.001 par value per share, of the Company (the “Common Stock”).”

Except as aforesaid, the Plan shall remain in full force and effect.

Adopted by the Board of Directors on February 20, 2003.

Approved by the Stockholders on June 18, 2003.

-9-

EX-10.2

Exhibit 10.2

NMT Medical, Inc.

2001 EMPLOYEE STOCK PURCHASE PLAN

April 26, 2001

The purpose of this Plan is to provide eligible employees of NMT Medical, Inc. (the “Company”) and certain of its subsidiaries with opportunities to purchase shares of the Company’s common stock, $.001 par value (the “Common Stock”), commencing on June 7, 2001. One hundred and twenty-five thousand (125,000) shares of Common Stock in the aggregate have been approved for this purpose. This Plan is intended to qualify as an “employee stock purchase plan” as defined in Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder, and shall be interpreted consistent therewith.

1. Administration. The Plan will be administered by the Company’s Board of Directors (the “Board”) or by a Committee appointed by the Board (the “Committee”). The Board or the Committee has authority to make rules and regulations for the administration of the Plan and its interpretation and decisions with regard thereto shall be final and conclusive.

2. Eligibility. All employees of the Company, including Directors who are employees, and all employees of any subsidiary of the Company (as defined in Section 424(f) of the Code) designated by the Board or the Committee from time to time (a “Designated Subsidiary”), are eligible to participate in any one or more of the offerings of Options (as defined in Section 9) to purchase Common Stock under the Plan provided that:

(a) they are customarily employed by the Company or a Designated Subsidiary for more than 20 hours a week and for more than five months in a calendar year; and

(b) they have been employed by the Company or a Designated Subsidiary for at least three months prior to enrolling in the Plan; and

(c) they are employees of the Company or a Designated Subsidiary on the first day of the applicable Plan Period (as defined below).

No employee may be granted an option hereunder if such employee, immediately after the option is granted, owns 5% or more of the total combined voting power or value of the stock of the Company or any subsidiary. For purposes of the preceding sentence, the attribution rules of Section 424(d) of the Code shall apply in determining the stock ownership of an employee, and all stock which the employee has a contractual right to purchase shall be treated as stock owned by the employee.

1

3. Offerings. The Company will make one or more offerings (“Offerings”) to employees to purchase stock under this Plan. Offerings will begin each April 1st and October 1st, or the first business day thereafter (the “Offering Commencement Dates”). Each Offering Commencement Date will begin a six month period (a “Plan Period”) during which payroll deductions will be made and held for the purchase of Common Stock at the end of the Plan Period. The Board or the Committee may, at its discretion, choose a different Plan Period of twelve (12) months or less for subsequent Offerings. Notwithstanding anything to the contrary, the first Plan Period shall begin on the first date following the approval of the Plan by the Company’s Stockholders and shall end on September 30, 2001.

4. Participation. An employee eligible on the Offering Commencement Date of any Offering may participate in such Offering by completing and forwarding a payroll deduction authorization form to the employee’s appropriate payroll office at least 10 days prior to the applicable Offering Commencement Date. The form will authorize a regular payroll deduction from the Compensation received by the employee during the Plan Period. Unless an employee files a new form or withdraws from the Plan, his deductions and purchases will continue at the same rate for future Offerings under the Plan as long as the Plan remains in effect. The term “Compensation” means the amount of money reportable on the employee’s Federal Income Tax Withholding Statement, excluding overtime, shift premium, incentive or bonus awards, allowances and reimbursements for expenses such as relocation allowances for travel expenses, income or gains on the exercise of Company stock options or stock appreciation rights, and similar items, whether or not shown on the employee’s Federal Income Tax Withholding Statement, but including, in the case of salespersons, sales commissions to the extent determined by the Board or the Committee.

5. Deductions. The Company will maintain payroll deduction accounts for all participating employees. With respect to any Offering made under this Plan, an employee may authorize a payroll deduction in any dollar amount up to a maximum of 12% of the Compensation he or she receives during the Plan Period or such shorter period during which deductions from payroll are made. The minimum payroll deduction is such percentage of compensation as may be established from time to time by the Board or the Committee.

No employee may be granted an Option (as defined in Section 9) which permits his rights to purchase Common Stock under this Plan and any other employee stock purchase plan (as defined in Section 423(b) of the Code) of the Company and its subsidiaries, to accrue at a rate which exceeds $25,000 of the fair market value of such Common Stock (determined at the Offering Commencement Date of the Plan Period) for each calendar year in which the Option is outstanding at any time.

6. Deduction Changes. An employee may decrease or discontinue his payroll deduction once during any Plan Period, by filing a new payroll deduction authorization form. However, an employee may not increase his payroll deduction during a Plan Period. If an employee elects to discontinue his payroll deductions during a Plan Period, but does not elect to withdraw his funds pursuant to Section 8 hereof, funds deducted prior to his election to discontinue will be applied to the purchase of Common Stock on the Exercise Date (as defined below).

2

7. Interest. Interest will not be paid on any employee accounts, except to the extent that the Board or the Committee, in its sole discretion, elects to credit employee accounts with interest at such per annum rate as it may from time to time determine.

8. Withdrawal of Funds. An employee may at any time prior to the close of business on the last business day in a Plan Period and for any reason permanently draw out the balance accumulated in the employee’s account and thereby withdraw from participation in an Offering. Partial withdrawals are not permitted. The employee may not begin participation again during the remainder of the Plan Period. The employee may participate in any subsequent Offering in accordance with terms and conditions established by the Board or the Committee.

9. Purchase of Shares. On the Offering Commencement Date of each Plan Period, the Company will grant to each eligible employee who is then a participant in the Plan an option (“Option”) to purchase on the last business day of such Plan Period (the “Exercise Date”), at the Option Price hereinafter provided for, the largest number of whole shares of Common Stock of the Company as does not exceed the number of shares determined by multiplying $2,083 by the number of full months in the Offering Period and dividing the result by the closing price (as defined below) on the Offering Commencement Date of such Plan Period.

The purchase price for each share purchased will be 85% of the closing price of the Common Stock on (i) the first business day of such Plan Period or (ii) the Exercise Date, whichever closing price shall be less. Such closing price shall be (a) the closing price on any national securities exchange on which the Common Stock is listed, (b) the closing price of the Common Stock on the Nasdaq National Market or (c) the average of the closing bid and asked prices in the over-the-counter-market, whichever is applicable, as published in The Wall Street Journal. If no sales of Common Stock were made on such a day, the price of the Common Stock for purposes of clauses (a) and (b) above shall be the reported price for the next preceding day on which sales were made.

Each employee who continues to be a participant in the Plan on the Exercise Date shall be deemed to have exercised his Option at the Option Price on such date and shall be deemed to have purchased from the Company the number of full shares of Common Stock reserved for the purpose of the Plan that his accumulated payroll deductions on such date will pay for, but not in excess of the maximum number determined in the manner set forth above.

Any balance remaining in an employee’s payroll deduction account at the end of a Plan Period will be automatically refunded to the employee, except that any balance which is less than the purchase price of one share of Common Stock will be carried forward into the employee’s payroll deduction account for the following Offering, unless the employee elects not to participate in the following Offering under the Plan, in which case the balance in the employee’s account shall be refunded.

10. Issuance of Certificates. Certificates representing shares of Common Stock purchased under the Plan may be issued only in the name of the employee, in the name of the employee and another person of legal age as joint tenants with rights of survivorship, or (in the Company’s sole discretion) in the name of a brokerage firm, bank or other nominee holder

3

designated by the employee. The Company may, in its sole discretion and in compliance with applicable laws, authorize the use of book entry registration of shares in lieu of issuing stock certificates.

11. Rights on Retirement, Death or Termination of Employment. In the event of a participating employee’s termination of employment prior to the last business day of a Plan Period, no payroll deduction shall be taken from any pay due and owing to an employee and the balance in the employee’s account shall be paid to the employee or, in the event of the employee’s death, (a) to a beneficiary previously designated in a revocable notice signed by the employee (with any spousal consent required under state law) or (b) in the absence of such a designated beneficiary, to the executor or administrator of the employee’s estate or (c) if no such executor or administrator has been appointed to the knowledge of the Company, to such other person(s) as the Company may, in its discretion, designate. If, prior to the last business day of the Plan Period, the Designated Subsidiary by which an employee is employed shall cease to be a subsidiary of the Company, or if the employee is transferred to a subsidiary of the Company that is not a Designated Subsidiary, the employee shall be deemed to have terminated employment for the purposes of this Plan.

12. Optionees Not Stockholders. Neither the granting of an Option to an employee nor the deductions from his pay shall constitute such employee a stockholder of the shares of Common Stock covered by an Option under this Plan until such shares have been purchased by and issued to him.

13. Rights Not Transferable. Rights under this Plan are not transferable by a participating employee other than by will or the laws of descent and distribution, and are exercisable during the employee’s lifetime only by the employee.

14. Application of Funds. All funds received or held by the Company under this Plan may be combined with other corporate funds and may be used for any corporate purpose.

15. Adjustment in Case of Changes Affecting Common Stock. In the event of a subdivision of outstanding shares of Common Stock, or the payment of a dividend in Common Stock, the number of shares approved for this Plan, and the share limitation set forth in Section 9, shall be increased proportionately, and such other adjustment shall be made as may be deemed equitable by the Board or the Committee. In the event of any other change affecting the Common Stock, such adjustment shall be made as may be deemed equitable by the Board or the Committee to give proper effect to such event.

16. Merger. If the Company shall at any time merge or consolidate with another corporation and the holders of the capital stock of the Company immediately prior to such merger or consolidation continue to hold at least 80% by voting power of the capital stock of the surviving corporation (“Continuity of Control”), the holder of each Option then outstanding will thereafter be entitled to receive at the next Exercise Date upon the exercise of such Option for each share as to which such Option shall be exercised the securities or property which a holder of one share of the Common Stock was entitled to upon and at the time of such merger or consolidation, and the Board or the Committee shall take such steps in connection with such merger or consolidation as the Board or the Committee shall deem necessary to assure that the

4

provisions of Section 15 shall thereafter be applicable, as nearly as reasonably may be, in relation to the said securities or property as to which such holder of such Option might thereafter be entitled to receive thereunder.

In the event of a merger or consolidation of the Company with or into another corporation which does not involve Continuity of Control, or of a sale of all or substantially all of the assets of the Company while unexercised Options remain outstanding under the Plan, (a) subject to the provisions of clauses (b) and (c), after the effective date of such transaction, each holder of an outstanding Option shall be entitled, upon exercise of such Option, to receive in lieu of shares of Common Stock, shares of such stock or other securities as the holders of shares of Common Stock received pursuant to the terms of such transaction; or (b) all outstanding Options may be cancelled by the Board or the Committee as of a date prior to the effective date of any such transaction and all payroll deductions shall be paid out to the participating employees; or (c) all outstanding Options may be cancelled by the Board or the Committee as of the effective date of any such transaction, provided that notice of such cancellation shall be given to each holder of an Option, and each holder of an Option shall have the right to exercise such Option in full based on payroll deductions then credited to his account as of a date determined by the Board or the Committee, which date shall not be less than ten (10) days preceding the effective date of such transaction.

17. Amendment of the Plan. The Board may at any time, and from time to time, amend this Plan in any respect, except that (a) if the approval of any such amendment by the shareholders of the Company is required by Section 423 of the Code, such amendment shall not be effected without such approval, and (b) in no event may any amendment be made which would cause the Plan to fail to comply with Section 423 of the Code.

18. Insufficient Shares. In the event that the total number of shares of Common Stock specified in elections to be purchased under any Offering plus the number of shares purchased under previous Offerings under this Plan exceeds the maximum number of shares issuable under this Plan, the Board or the Committee will allot the shares then available on a pro rata basis.

19. Termination of the Plan. This Plan may be terminated at any time by the Board. Upon termination of this Plan all amounts in the accounts of participating employees shall be promptly refunded.

20. Governmental Regulations. The Company’s obligation to sell and deliver Common Stock under this Plan is subject to listing on a national stock exchange or quotation on the Nasdaq National Market (to the extent the Common Stock is then so listed or quoted) and the approval of all governmental authorities required in connection with the authorization, issuance or sale of such stock.

21. Governing Law. The Plan shall be governed by Delaware law except to the extent that such law is preempted by federal law.

22. Issuance of Shares. Shares may be issued upon exercise of an Option from authorized but unissued Common Stock, from shares held in the treasury of the Company, or from any other proper source.

5

23. Notification upon Sale of Shares. Each employee agrees, by entering the Plan, to promptly give the Company notice of any disposition of shares purchased under the Plan where such disposition occurs within two years after the date of grant of the Option pursuant to which such shares were purchased.

24. Effective Date and Approval of Shareholders. The Plan shall take effect on June 7, 2001, subject to approval by the shareholders of the Company as required by Section 423 of the Code, which approval must occur within twelve months of the adoption of the Plan by the Board.

Adopted by the Board of Directors

on April 26, 2001

Approved by the stockholders on June 7, 2001

6

NMT MEDICAL, INC.

Amendment No. 1

to

2001 Employee Stock Purchase Plan

The 2001 Employee Stock Purchase Plan (the “Plan”) of NMT Medical, Inc. is hereby amended as follows (capitalized terms used herein and not defined herein shall have the respective meaning ascribed to such terms in the Plan):

1.    The first paragraph of the Plan shall be deleted in its entirety and replaced with the following:

“The purpose of this Plan is to provide eligible employees of NMT Medical, Inc. (the “Company”) and certain of its subsidiaries with opportunities to purchase shares of the Company’s common stock, $.001 par value (the “Common Stock”), commencing on June 7, 2001. Two hundred and seventy-five thousand (275,000) shares of Common Stock in the aggregate have been approved for this purpose. This Plan is intended to qualify as an “employee stock purchase plan” as defined in Section 423 of the Internal Revenue Code of 1986, as amended (the “Code”), and the regulations promulgated thereunder, and shall be interpreted consistent therewith.”

Except as aforesaid, the Plan shall remain in full force and effect.

Adopted by the Board of Directors on February 20, 2003.

Approved by the Stockholders on June 18, 2003.

7

EX-10.3

Exhibit 10.3

NITINOL MEDICAL TECHNOLOGIES, INC.

1996 STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS

1. PURPOSE

The purpose of the Nitinol Medical Technologies, Inc. 1996 Stock Option plan for Non-Employee Directors (the “Plan”) is to promote the interests of Nitinol Medical Technologies, Inc. (the “Company”) and its stockholders by increasing the proprietary and vested interest of non-employee directors in the growth and performance of the Company by granting such directors options to purchase shares of Common Stock, par value $.001 per share (the “Shares”), of the Company.

2. ADMINISTRATION

The Plan shall be administered by the Company’s Board of Directors (the “Board”). Subject to the provisions of the Plan, the Board shall be authorized to interpret the Plan, to establish, amend, and rescind any rules and regulations relating to the Plan and to make all other determinations necessary or advisable for the administration of the Plan; provided, however, that the Board shall have no discretion with respect to the selection of directors to receive options, the number of Shares subject to any such options, the purchase price thereunder or the timing of grants of options under the Plan. The determinations of the Board in the administration of the Plan, as described herein, shall be final and conclusive. The Secretary of the Company shall be authorized to implement the Plan in accordance with its terms and to take such actions of a ministerial nature as shall be necessary to effectuate the intent and purposes thereof. The validity, construction and effect of the Plan and any rules and regulations relating to the Plan shall be determined in accordance with the laws of the State of Delaware.

It is the intention of the Company that the Plan comply in all respects with Rule 16b-3 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), to the extent applicable, and in all events the Plan shall be construed in favor of its meeting the requirements of Rule 16b-3. If any Plan provision is later found not to be in compliance with such Rule, such provision shall be deemed null and void. From and after the date that the Company first registers a class of equity securities under Section 12 of the Exchange Act, no director may or sell shares received upon the exercise of an option during the six month period immediately following the grant of the option.

3. ELIGIBILITY

The class of individuals eligible to receive grants of options under the Plan shall be directors of the Company who are not employees of the Company or its affiliates, who do not otherwise receive compensation from the Company or its affiliates (other than compensation received solely for services rendered as a director of the Company) and who have not, within one year immediately preceding the determination of such director’s eligibility, received any award under any other plan of the Company or its affiliates that entitles the participants therein to

1

acquire stock, stock options or stock appreciation rights of the Company or its affiliates (other than any other plan under which participants’ entitlements are governed by provisions meeting the requirements of Rule 16b-3(c)(2)(ii) promulgated under the Securities Exchange Act of 1934) (“Eligible Directors”). Any holder of an option granted hereunder shall hereinafter be referred to as a “Participant.”

4. SHARES SUBJECT TO THE PLAN

Subject to adjustment as provided in Section 6, an aggregate of 150,000 Shares, as such Shares were constituted on the date of approval of the Plan by the Company’s Board of Directors, shall be available for issuance upon the exercise of options granted under the Plan. The Shares deliverable upon the exercise of options may be made available from authorized but unissued Shares or treasury Shares. If any option granted under the Plan shall terminate for any reason without having been exercised, the shares subject to, but not delivered under, such option shall be available for other options.

5. GRANT, TERMS AND CONDITIONS OF OPTIONS

(a) Subject to approval of the Plan by the stockholders of the Company as provided in Section 9 hereof, on the date that a registration statement (the “Registration Statement”) with respect to the Common Stock is declared effective by the Securities Exchange Commission (the “SEC”) each Eligible Director will be granted an option hereunder to purchase 10,000 Shares. The options granted to such Eligible Directors shall be subject to vesting in equal monthly installments over a period of three years commencing with the date of grant; provided, that only whole shares may be issued pursuant to the exercise of any option.

(b) Upon first election or appointment to the Board, each newly elected Eligible Director will be granted an option to purchase 10,000 Shares. Any such options granted to newly elected Eligible Directors shall be subject to vesting in equal monthly installments over a three year period commencing with the date of the election of such Eligible Director to the Board; provided, that only whole shares may be issued pursuant to the exercise of any option.

(c) Immediately following each Annual Stockholders Meeting, commencing with the meeting following the close of fiscal year 1996, each Eligible Director, other than an Eligible Director first elected to the Board within the 12 months immediately preceding and including such meeting, will be granted an option to purchase 2,500 Shares as of the date of such meeting. The options granted to such Eligible Directors shall be fully vested six months after the date of grant.

(d) The options granted will be nonstatutory stock options not intended to qualify under Section 422 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), and shall have the following terms and conditions:

(i) PRICE. The purchase price per Share deliverable upon the exercise of each option shall be 100% of the Fair Market Value per Share on the date the option is granted. For purposes of this Plan, Fair Market Value of the options granted pursuant to Section 5(a) hereof shall be deemed to be the initial public offering price per share of Common Stock as set forth in the final Prospectus filed with the SEC in connection with the Registration Statement, and Fair

2

Market Value of all other options shall be the closing sales price as reported on the NASDAQ National Market on the date in question, or, if the Shares shall not have traded on such date, the closing sales price on the first date prior thereto on which the Shares were so traded.

(ii) PAYMENT. Payment of the purchase price shall be made in full at the time the notice of exercise of the option is delivered to the Company and shall be in cash, bank certified or cashier’s check for the Shares being purchased.

(iii) EXERCISABILITY AND TERM OF OPTIONS. Subject to any vesting requirements, options shall be exercisable in whole or in part at all times during the period beginning on the date of grant until the earlier of ten years from the date of grant and the expiration of the one year period provided in paragraph (iv) below.

(iv) TERMINATION OF SERVICE AS ELIGIBLE DIRECTOR. Upon termination of a participant’s service as a Director for any reason, all outstanding options which have become vested as of the date of termination shall be exercisable in whole or in part for a period of one year from the date upon which the participant ceases to be a Director, provided that in no event shall the options be exercisable beyond the period provided for in paragraph (iii) above.

(v) NONTRANSFERABILITY OF OPTIONS. No option may be assigned, alienated, pledged, attached, sold or otherwise transferred or encumbered by a participant otherwise than by will or the laws of descent and distribution, and during the lifetime of the Participant to whom an option is granted it may be exercised only by the participant or by the Participant’s guardian or legal representative. Notwithstanding the foregoing, options may be transferred pursuant to a qualified domestic relations order.

(vi) LISTING AND REGISTRATION. Each option shall be subject to the requirement that if at any time the Board shall determine, in its discretion, that the listing, registration or qualification of the Shares subject to such option upon any securities exchange or under any state or federal law, or the consent or approval of any governmental regulatory body, is necessary or desirable as a condition of, or in connection with, the granting of such option or the issue or purchase of Shares thereunder, no such option may be exercised in whole or in part unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any condition not acceptable to the Board.

(vii) OPTION AGREEMENT. Each option granted hereunder shall be evidenced by an agreement with the Company which shall contain the terms and provisions set forth herein and shall otherwise be consistent with the provisions of the Plan.

6. ADJUSTMENT OF AND CHANGES IN SHARES

In the event of a stock split, stock dividend, subdivision or combination of the Shares or other change in corporate structure affecting the Shares, the number of Shares authorized by the Plan shall be increased or decreased proportionately, as the case may be, and the number of Shares subject to any outstanding option shall be increased or decreased proportionately, as the case may be, with appropriate corresponding adjustment in the purchase price per Share thereunder.

3

7. NO RIGHTS OF STOCKHOLDERS

Neither a Participant nor a Participant’s legal representative shall be, or have any of the rights and privileges of, a shareholder of the Company in respect of any Shares purchasable upon the exercise of any option, in whole or in part, unless and until certificates for such Shares shall have been issued.

8. PLAN AMENDMENTS

The Plan may be amended by the Board, as it shall deem advisable or to conform to any change in any law or regulation applicable thereto; provided, that the Board may not, without the authorization and approval of stockholders of the Company: (i) increase the number of Shares which may be purchased pursuant to options hereunder, either individually or in the aggregate, except as permitted by Section 6, (ii) change the requirement of Section 5(d) that option grants be priced at Fair Market Value, except as permitted by Section 6, (iii) modify in any respect the class of individuals who constitute Eligible Directors or (iv) materially increase the benefits accruing to Participants hereunder. The provisions of Sections 3 and/or 5 may not be amended more often than once every six months, other than to comport with changes in the Internal Revenue Code, the Employee Retirement Income Security Act, or the rules under either such statute.

9. EFFECTIVE DATE AND DURATION OF PLAN

The Plan shall become effective on the date that the Registration Statement is declared effective by the SEC so long as it is approved by the holders of a majority of the Company’s outstanding shares of voting capital stock at any time within 12 months before or after the adoption of the Plan by the Board. Unless sooner terminated by the Board, the Plan shall terminate ten years from the earlier of (a) the date on which the Plan is adopted by the Board or (b) the date on which the Plan is approved by the stockholders of the Company. No option may be granted after such termination or during any suspension of the Plan. The amendment or termination of the Plan shall not, without the consent of the option holder, alter or impair any rights or obligations under any option theretofore granted under the Plan.

4

NMT MEDICAL, INC.

Amendment No. 1

to

1996 Stock Option Plan for Non-Employee Directors

The 1996 Stock Option Plan for Non-Employee Directors (the “Plan”) of NMT Medical, Inc., is hereby amended as follows (capitalized terms used herein and not defined herein shall have the respective meaning ascribed to such terms in the Plan):

1. The first sentence of Section 4 of the Plan shall be deleted in its entirety and replaced with the following:

“Subject to adjustment as provided in Section 6, an aggregate of

225,000 Shares, as such Shares were constituted on the date of

approval of the Plan by the Company’s Board of Directors, shall be

available for issuance upon the exercise of options granted under

the Plan.”

2. The first sentence of Section 5(b) of the plan shall be deleted in its entirety and replaced with the following:

“Upon first election or appointment to the Board, each newly

elected Eligible Director will be granted an option to purchase

15,000 Shares.”

3. The first sentence of Section 5(c) of the Plan shall be deleted in its entirety and replaced with the following:

“Immediately following each Annual Stockholders Meeting,

commencing with the meeting following the close of fiscal year

1996, each Eligible Director, other than an Eligible Director first

elected to the Board within the 12 months immediately preceding

and including such meeting, will be granted an option to purchase

5,000 Shares as of the date of such meeting.”

Except as aforesaid, the Plan shall remain in full force and effect.

Adopted by the Board of Directors on April 26, 2001

Approved by the Stockholders on June 7, 2001.

5

NMT MEDICAL, INC.

Amendment No. 2

to

1996 Stock Option Plan for Non-Employee Directors, as Amended

WHEREAS, NMT Medical, Inc. (the “Company”) wishes to recognize the additional time commitments and responsibilities assumed by each member of the Board of Directors who serves on one or more committees of the Board of Directors of the Company, and

WHEREAS, the Board of Directors has adopted, and the Stockholders of the Company have approved, the following amendments:

NOW, THEREFORE, the 1996 Stock Option Plan for Non-Employee Directors, as amended (the “Plan”) of the Company, is hereby amended as follows (capitalized terms used herein and not defined herein shall have the respective meaning ascribed to such terms in the Plan):

1. The first sentence of Section 5(b) of the plan shall be deleted in its entirety and replaced with the following:

“Upon first election or appointment to the Board, each newly
elected Eligible Director will be granted an option to purchase
20,000 Shares.”

2. Section 5(c) of the Plan shall be deleted in its entirety and replaced with the following:

“Immediately following each Annual Stockholders Meeting, each
Eligible Director, other than an Eligible Director first elected to
the Board within the 12 months immediately preceding and
including such meeting, will be granted an option to purchase
5,000 Shares as of the date of such meeting. In addition, also
following each Annual Stockholders Meeting, each Eligible
Director who served as a member of a committee of the Board
during the preceding fiscal year will be granted an additional
option to purchase (i) 2,000 Shares if such Eligible Director
served as chairperson of such committee or (ii) 1,000 Shares if
such Eligible Director did not serve as a chairperson of such
committee. The options granted to such Eligible Director shall be
fully vested six months after the date of grant.”

Except as aforesaid, the Plan shall remain in full force and effect.

Adopted by the Board of Directors on March 7, 2002.

Approved by the Stockholders on June 28, 2002.

6

NMT MEDICAL, INC.

Amendment No. 3

to

1996 Stock Option Plan for Non-Employee Directors, as Amended

The 1996 Stock Option Plan for Non-Employee Directors, as amended (the “Plan”), of NMT Medical, Inc. (the “Company”) is hereby amended as follows (capitalized terms used herein and not defined herein shall have the respective meaning ascribed to such terms in the Plan):

1.     The first sentence of Section 4 of the Plan shall be deleted in its entirety and replaced with the following:

“Subject to adjustment as provided in Section 6, an aggregate of
325,000 Shares, as such Shares were constituted on the date of
approval of the Plan by the Company’s Board of Directors, shall
be available for issuance upon the exercise of options granted
under the Plan.”

Except as aforesaid, the Plan shall remain in full force and effect.

Adopted by the Board of Directors on February 20, 2003.

Approved by the Stockholders on June 18, 2003.

7

EX-31.1

Exhibit 31.1

CERTIFICATIONS

I, John E. Ahern, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NMT Medical, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986]

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2003	/s/    JOHN E. AHERN
	John E. Ahern President and Chief Executive Officer (principal executive officer)

EX-31.2

Exhibit 31.2

CERTIFICATIONS

I, Richard E. Davis, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of NMT Medical, Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) [Paragraph omitted in accordance with SEC transition instructions contained in SEC Release 34-47986]

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: August 11, 2003	/s/    RICHARD E. DAVIS
	Richard E. Davis Vice President and Chief Financial Officer (principal financial and accounting officer)

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of NMT Medical, Inc. (the “Company”) for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, John E. Ahern, Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 11, 2003	/s/    JOHN E. AHERN
	John E. Ahern President and Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of NMT Medical, Inc. (the “Company”) for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, Richard E. Davis, Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, that:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: August 11, 2003	/s/    RICHARD E. DAVIS
	Richard E. Davis Vice President and Chief Financial Officer